Card Factory plc

Welcome to our presentation of the interim results for the half year to the 31st of July. In the presentation, Chris and I will briefly comment on the detailed announcement made earlier today. Whilst the presentation is pre-recorded, there will be a live Q&A session at the end. The results are in line with our COVID-influenced expectations. Stores like for like at down 4.4% and online at 64% growth are both encouraging. Costs and cash have been tightly managed. Funding headroom has been secured. The CEO search is progressing satisfactorily. Turning now to performance since reopening, the most recent trading weeks have been very encouraging at stores down just 6.9% with improving trend on transactions and a very solid average basket value. Online also continues to perform strongly even now that all stores are open. The new platform is performing well, offering much improved shopper experience, and there is an ever increasing breadth and depth of curated range. Our partnership ambition is progressing with several active discussions with potential partners. Clearly, in the last six months, we've all been focused on COVID-19. In our case, our response has been centered on three elements. An RFCF renewal predicated on three new covenant tests that will apply through to June 2021. There remains an opportunity to access CCFF. During the period we have taken advantage of all government financial support and as would be expected there's been aggressive management of cash and costs.

Okay, just in terms of the financial performance and summary for the half year FY21. Overall revenue was £100.5 million. That was £95 million down on the prior year due to the impact of COVID. While stores like for like, revenue performance was minus £4.4 million. Online was plus 64.4, making the overall group like-for-like revenue of plus 1.6. Underlying loss before tax was 22.3 million, while net debt was 143.9 million, 26 million lower than the same time last year. And overall net debt, including lease liabilities, was 290 million, with an average lease length now down to 2.3 years. Turning to the like-for-like sales performance, as I mentioned, 64.4% was the combined online performance in terms of sales growth for Card Factory Online and Getting Personal, and minus 4.4% was the high street performance of our stores, given the net positive 1.6% over the period. Focusing purely on the store's performance, there's 102 million drop in sales again because of the Covid impact and certainly seasonal performance was affected by store closures in particular the seasons of Mother's Day, Father's Day, Easter and Thank You Teacher. Other direct costs were slightly up largely because of some of the additional measures that we've taken in relation to Covid and also the fact that it was as a proportion of sales because of the sales drop the percentage increased. leading to a underlying profit for tax loss of 23 million. Turning to the online and multi-channel performance, as we said, 64.2% was the growth for online. That breaks down over the period of a plus 155% for Card Factory Online and a plus 32% for the getting personal business. During the closure period, we did see Card Factory Online perform at over 200% LFL. year-on-year and in terms of getting personal over 60%. The other steps we've taken in terms of getting personal is to focus more on the return on investment in terms of pay-per-click and returns and in the online space for Car Factory Online we're more than doubling the amount of SKUs for that business. Overall the profit for the period before tax was 0.5 million into profit compared to a loss in the previous year. Now turning to partnerships, overall revenues were in line with where we'd forecast them to be, expectations for this year. We did see a dip in terms of the reject shock because of the impact of COVID. But overall, like I say, we are in line with where we expected to be. Margins are slightly lower in the period because of some of the one-off upfront marketing costs related to some of the partnerships. And this does include an allocation of central overheads. But overall, profit and revenue was in line with expectations for the half year. In terms of the profitability of the group, this was impacted by COVID-19 during the period. and I'll now run down in terms of the margin and cost impacts. Turning to the costs of goods, overall there was a 340 basis points impact, largely due to the stronger performance of online compared to the stores around product margin. In addition, there were further COVID related measures that were taken in terms of the supply chain, and some additional stock provisions because of the interruption to some of our spring seasons. Store wages overall reduced by £16.2 million down to £23.7 million. This was largely driven by the job retention scheme receipts of £15.6 million in the period. Store property costs were also £6.3 million lower, down at £6.9 million, which was largely due to the business rates holiday. And other direct expenses were down £1.9 million to £8.5 million due to additional cost control measures that we've taken as a business. Likewise, operating expenses also reduced by £0.2 million. Overall, this means that as a business, cost savings were in excess of £24 million during this period. but overall because of the covid closures the loss before tax was 22.3 million turning to the positive free cash flow in the period even though we've had the impact of covid and closure for several months the business did generate positive operating cash flow of 8.4 million and a positive free cash flow of 1.1 million within these numbers it should be noted that there are deferrals of rent vat And better creditor terms that amount to £26 million in terms of timing. And there has been further payment holidays of permanent benefits of the rates and furlough in the period of £23 million. However, to deliver a positive cash flow with the period and level of closure we had, we believe is a good result. Turning to CapEx now, it's been tightly controlled in the period while still having the view in terms of supporting the five-year strategy. The overall CapEx spend in the period was 3.5 million. The big areas of spend really, it was 0.6 million around the completion of the new platform that launched at the beginning of July for Card Factory Online. Supply chain of 0.7 million which is to improve the efficiency through voice picking and also the ongoing operating expenses reduction by the consolidation of our distribution centres. And then other recurring costs around Covid, there was about 900,000 around extra equipment in store to make sure we had good social distancing measures. In terms of the guidance for FY21, we're guiding to circa 10 million in terms of capex for the year, which is lower than previous years but does include the key support for some strategic initiatives around a new ERP system, increased online capacity and other developments within the vertical integration supply chain. The dividends and capital policy largely has not changed from what we said at the capital markets day. There was no FY20 final dividend. and there's no dividends currently expected in FY21 as we look to protect the balance sheet in these uncertain times. The overall capital policy in the medium term will not change from the one to two times pre IFRS 16 EBITDA, just that we're moving now to the more sensible PBT leverage of 1.2 to 2.6 on an equivalent basis. The liquidity of the business as Paul mentioned earlier is in a good place in terms of we've got the £200 million revolving credit facility and we year on year lower in terms of the overall leverage of the net debt level that we've got in the business. We also have access to the CCFF of the Bank of England if required. And just to reiterate, we do have replacement covenants on a monthly basis until June before returning to normal covenants on total net debt, monthly cash burn and last 12 months underlying EBITDA, which is tested from September. As we currently stand today in forecasts, we have plenty of headroom within these covenants. So the board overall is confident that the group has access to sufficient liquidity for navigating the times ahead. But in the short term, given the current level of uncertainty in relation to COVID-19, it is not possible to give guidance as to the expected out-term for the year at this point.

So moving to a brief update on the progress we've made against the strategy that we shared at the end of July. I have on the chart the three chevrons that reflect the core of our strategy and just want to briefly touch on progress in each area. With regard to leadership in card choice, we have, as you would expect, been optimising ranges and space to ensure that density is maximised and we continue to be very focused on newness, both in terms of category new occasions, but also within existing category design and verse. We have been very focused on a new price architecture and strategy that will allow us to take advantage of price elasticity and increase prices as and when we think appropriate. As we've mentioned before, test, trial and result is an integral part of that pricing strategy and we will continue to run those tests throughout the coming year to year and a half. Innovation remains at the very heart of our complementary category development. We're reducing the breadth of the category components and therefore focusing on fewer and better categories that complement our core drive against leadership in car choice. Those decisions, both in terms of card but also complimentary, are informed increasingly by our shopper profiles and we're using the data and the analytics across all aspects of our customer proposition to ensure that we prepare and provide the best solution that our customers are pursuing. With regard to our store estate, as Chris has already mentioned, we've effectively paused the rollout due to current conditions, but our pursuit of additional distribution points by partnering with both national and international partners continues to be a key focus and we're actively pursuing a number of opportunities at the moment. With regard to e-commerce and multi-channel, we've referred already to the successful launch of our new platform that significantly enhances our customer experience and the mobile app and click and collect are to come imminently. With regard to our vertically integrated manufacturing and supply chain, We continue to build capability and capacity. We've already mentioned the investment we're making in fulfillment for online, and that will continue through the coming year to two years. Leadership engagement and capability within the business continues to be a clear focus, as does performance management, where KPIs will be anchored to strategic objectives and reward programs will also be linked to those. Additionally, we continue to have a very clear view about our positive impact programme where our ESG programme is consolidating and building on existing initiatives throughout the business. Clearly Christmas is a critically important season for the business and I'd like just to give a brief overview of the preparation. We've seen already initial evidence of Christmas starting early, not necessarily completely nationally but in large geographies. and as a consequence we are managing phasing with great agility. We have a significant proportion of Christmas stock already in card factory distribution centres and the recruitment of a large number of temporary colleagues is well underway. We remain very confident that our preparation is sound, focused and will meet the customer expectation. Moving now to a summary of the announcement we made this morning. The results are in line with our expectations, but do reflect the impact of store estate closure during the COVID lockdown. We're pleased that there's a net debt reduction due to the successful management of our cost base, working capital and investment. The new cardfactory.co.uk platform has been successfully launched at the beginning of July. The refresh strategy that we have developed and presented at the end of July is progressing very well. And the planned investment to leverage and enhance our vertically integrated business continues with great focus. As we think about the outlook, as you will have already heard, the stores are trading well since reopening and more recent like-for-like trends continue to improve. That's equally the case with our online business where Card Factory is showing a almost 72% like for like growth in the last four weeks. Christmas preparation is focused and very strong. Our partnership channel continues to trade in line with our expectations. Although we have to recognise both nationally and internationally the short-term uncertainty from the pandemic impact, consequent local restrictions, and how that affects customer behaviour. We are very confident that the new strategy will deliver sustainable growth and shareholder value and we have both at the end of July and today demonstrated the clarity of our strategy and how we believe it will enable us to drive our position in the market. As Chris has mentioned, FY20Y1 guidance has been suspended But our next scheduled trading update will be on the 14th of January next year. So at that point, I'd like to close the formal presentation and Chris and I will now be available for any questions that you may have. Thank you.