Card Factory plc

Good morning, everybody, and welcome to our full year results presentation for FY24. So thank you for joining us today, whether you're here in person at UBS or whether you're joining us online. I'm Darcy Wilson-Reimer, CEO of Card Factory, and joining me today is Matthias Seeger, our CFO. Following an overview of highlights from the past year, Matthias will provide the financial performance update for FY24. I'll then provide an update on the progress we have made on our opening our new future growth strategy and the outlook for the remainder of the year. Matthias and I look forward to answering any questions that you may have at the end. So when I joined the business three years ago, we began a transformation journey that would fundamentally change the approach at Card Factory. We're seeing the positive impact of the changes that we've made across the business and our FY24 results are testament to the successful delivery of our change program and the hard work of colleagues throughout Card Factory. By putting the customer first in our decision making, we've continued to innovate and expand our offer whilst remaining true to our value for money credentials. And as we continue to invest in our opening our new future strategy, we are delivering on key initiatives at pace and ensuring that we're maximizing the growth opportunities in store, across our digital channels and through our expanding partnership program. Progress on our strategy delivery is ensuring that we're on track to meet our growth targets over the five year plan. And as I know, we have a large number of colleagues on the call today. I just want to take the opportunity to personally thank each and every one of you for the positive contributions that you have all made throughout the last financial year. So thank you, colleagues. I'm also pleased to report that we've continued positive momentum across the business, which delivered double digit revenue growth in FY24. Our stores remain at the heart of our growth story with a strong performance in the last financial year, underlying the strategic role of our store estate and the competitive advantage that our stores provide when it comes to our omnichannel ambition. And at the same time, our strategy is delivering positive outcomes with progress and delivery across all building blocks of growth. Partnerships online and across both cards where we retain our leadership position and gifts and celebration essentials where we continue to grow market share. A particular highlight of FY24 was the acquisition of SA Greetings in South Africa, which has provided us with a leading presence in a key international market while also providing us with wholesale growth opportunities. And key to our business transformation is the cultural progress that we have made as a business and the growth we are seeing can be linked to our ability to better understand the needs of our customers and execute at pace while supporting our colleagues to connect to our purpose. In addition, we've launched our new sustainability strategy, which will provide a positive impact across the communities we work within. And our disciplined financial management and performance is contributing to the improved financial strength of the business with a further strengthening of the balance sheet and a reduction in net debt. And finally, following the repayment of CL bills and term loan A, we are no longer restricted from paying dividends. And therefore, the board has approved an updated capital allocation policy with a resumption of dividend, which reflects our positive commitment to balancing investment in driving growth of the business and delivering progressive cash returns to shareholders, which together are designed to drive significant shareholder value. For more detail on this and our financial performance of FY24, let me hand over to Matthias to take you through that. So Matthias.

Thanks, Darcy, and thank you all for joining us on this bright and sunny day, either in person here today or online. Over the next 20 minutes, I'm going to take you through the results, provide perspective on CardFactory's capital allocation policy and dividend for this period. It was a year of continued positive momentum. We saw progress balance across all key financial metrics driven by top and bottom line growth. Results are the top range of market expectations. We have delivered double digit revenue growth. Profit before tax increased significantly driven by revenue growth and strong margin rate enhancement while investing into future growth. Our cash generation was strong, enabling us to strengthen our balance sheet by reducing net debt and to restart dividend payments. But more about that a little bit later. First, let me talk about the progress against the key financial metrics. As you all know, the economic backdrop was challenging for businesses and consumers. Nevertheless, we achieved significant improvements across all key financial metrics compared to the same period last year on the back of a strong, resilient business performance, particularly in stores. Total group revenue increased by 10.3% to 510.9 million. This includes 10 million of sales from the acquisition of SA Greetings. Adjusted PBT of 62.1 million increased by 27% as PBT margin expanded from 10.5% last year to 12.2% this year. Cash conversion was 96.8%. Cash generated by the business increased by 10.1% in line with trading. This enabled us to invest in infrastructure, growth projects, and to reduce net debt by $23 million to $34.4 million. And we will restart dividend payments. Again, a little bit more about that later. We have a track record of delivering year-on-year growth. Even if you allow for the pandemic over the past five years, we have grown sales on average by 3.9%. For each of the past two years, we have grown sales on average by 18.4%. Last year at our Capital Market Day, we set out our strategic building blocks of growth. Today, I am pleased to say we are delivering against these plans are on track to deliver our FY27 CMD target. This will deliver additional values for our shareholders going forward. Let me now turn to our sales performance for the fiscal year. Total group revenue increased by 10.3% from $463.4 million to $510.9 million. Our core business, the stores in the UK and the Republic of Ireland that account for 94% of sales, delivered total store-based growth of 8.7% with strong like-for-like growth of 7.7%. At the core of the like-for-like growth was the strength of our range, our relentless focus on value for money and on in-store experience. This resulted in improved sales of 9.8% in the strategic growth categories across gift and celebration essentials. It also delivered robust greeting card sales growth of 4.8%. One-third of the like-for-like growth can be attributed to targeted price increases. As we continued to increase our footprint and our market penetration, we grew our store network by 26 stores to 1,058. Over the period, net new store openings contributed 1 percentage point to our growth. Online sales reduced overall. However, we have seen encouraging performance at Cardfactory.co.uk with a positive like-for-like for the year of plus 0.4% behind a half-to-like-for-like growth of 11.4%. As our investments in the platform to improve the customer experience and to develop the online range are beginning to drive results. Partnership sales, excluding SA Greetings, increased by 1.6 million, which includes the effect of the Matalan contract and the first four Levi franchise stores in the Middle East. The acquisition of SA Greetings contributed 10.4 million of revenue, which accounted for 2.2 percentage points of the growth. Moving on to margin. Now, our revenue grew double-digit. At the same time, we improved margin rates while navigating wage inflation and investing in future growth. Adjusted PBT margin rate of 12.2% was 1.7 percentage points ahead of last year. This excludes the 2.6 million acquisition gain in relation to SA Greetings, 2 million from the release of COVID provisions and a 1.1 million impairment charge in respect of getting personal. Product margin on a constant currency basis improved by 1.2 percentage points. The impact of pricing and normalized freight costs more than offset the margin rate and mix impact driven by the high growth in the gifting and celebration essentials categories. Direct store-based costs reduced as a percentage of revenue by 0.7 points. Improvements we have made in labor productivity, operational efficiencies and the continued benefit of our energy hedge all more than mitigated the impact of national living wage increases. Higher sales per store drove productivity and efficiencies below the line contributing to a 2.2 percentage points margin rate improvement. This came from right-to-use rent lease depreciation and finance costs. We have also seen average store rents reduce on renewals. Increases in interest rates were offset by reductions in the gross level of debt. During the period, our effective currency rate was lower than for the equivalent period last year. However, our established currency hedging approach protected us against the full extent of market fluctuations in the period. At our strategy update last May, we set out our plans to invest for future growth. In the period, we reinvested the equivalent of 2.2 margin points in operating costs. We are pleased to invest in our colleagues and infrastructure to make sure we could deliver on our future growth plans. In summary, our margin enhancement was driven by a combination of increased sales, normalized costs, improved productivity, and cost efficiency across our unique end-to-end value chain. Now let me summarize the consolidated P&L. Double-digit sales growth added 47.5 million of revenue. Product margin of 69.6% improved by 1 percentage points, reflecting the annualization of price increases and normalized freight costs. This was partially offset by currency and sales mix impact, as we sold a higher percentage of non-card products. Gross margins increased by 1.5 percentage points to 36.2% due to efficiencies that offset living wage increases. Our adjusted PBT increased by 13.2 million to 62.1 million year-on-year. This is a 27% increase to the strong top-line and margin rate growth despite headwinds and reinvestments. Adjusted EPS of 13.5 p increased by 11.6%. Cash performance was strong in the period. Cash from operations increased to 118.7 million, reflecting operating cash conversion for the full year of 96.8%. Working capital trends have now normalized post-pandemic. Corporation tax payments, which are made quarterly in advance, of course increase with improved profitability. capital expenditure of $27.8 million was $9.6 million higher than the prior year. Key investments included Phase 2 of our ERP implementation, the upgrade of our network infrastructure, new store openings, upgrading stores, and investing in improving the online experience. Lease payments reduced by 13 million as the last of the rent deferrals associated with the pandemic was cleared in the prior year. In addition, we continued to see reduced rents on renewal due to our dynamic and flexible approach to store portfolio. Total finance costs reduced as increases in interest rates were offset by reductions in debt. As a result, free cash of $27 million was $10 million higher than last year. This funded the acquisition of SA Greetings, the continued reduction in net debt, and the resumption of ordinary dividends, which I will come to in more detail shortly. Moving on to net debt. Over the 12-month period, net debt at the end of January reduced by $23 million to $34.4 million, as we have continued to strengthen the balance sheet. Strong operating cash flow and lower lease rentals have enabled us to invest in our growth strategy and to reduce net debt whilst absorbing increased corporation tax payments. Debt service costs remained broadly consistent with prior periods. Increases in interest rates were largely offset by a combination of our hedging program and a reduction in the level of cross-debt. At the end of the period, the group had headroom of 75 million in its debt facilities. During FY24, we made repayments in respect of our term debts and CL builds facilities totaling 25.1 million. These facilities are now fully repaid and with that the restrictions to dividend payments have been removed. Now that the business has overcome the challenges of the pandemic, delivered strong financial results, and is on track to deliver its growth ambition, it is the right time to put normalized facilities in place to support our strategic plans. We are pleased that we are partnering with a strong syndicate of four banks that have the capability and breadth of operation to support our business today and in the future. The new financing structure is based on a 125 million revolving credit facility with an accordion option of 75 million. It replaces the previous revolving facility and term loan B, which have been fully repaid. The facility has an initial four-year term until April 28, with the option to extend to November 29. As we grow our business, this facility is a long-term platform ensuring access to funding at competitive margins. With the business having turned to growth and strong cash generation, with the right financing foundation in place, and with the restrictions to return cash to shareholders having been removed, the Board has reviewed and updated our capital allocation policy. We are committed to creating value for our shareholders by delivering on our business growth strategy and plans as outlined at the Capital Markets Day last May. We aim to deliver our plans and financial targets in a disciplined and sustainable way. We will deliver long-term shareholder value while providing progressive returns to our shareholders in the short term. We have four guiding principles to our capital allocation policy. First, we will maintain a strong balance sheet within well-defined debt leverage range. Two, we will invest in an appropriate, disciplined, and financially sound way to deliver our growth strategy. Three, we will provide regular, progressive returns to our shareholders through interim and final dividends. Fourth, and finally, those dividends payments will be funded through free cash flow. Additional surplus cash will be managed in a principled and transparent manner. What does this mean now? We generated free cash flow of 27 million after investments into our future plans. The Board will recommend paying a dividend of 4.5p with respect to the fiscal year ending January 24. I want to point out that this is a full-year dividend which is equivalent to an interim and final dividend. Total dividends paid to shareholders are 15.5 million. We restart dividend payments at a coverage ratio of 3 and anticipate a progressive dividend within our guidance range of 2 to 3. Considering the options for the use of excess cash available under the company's capital allocation policy, the Board has decided to strengthen our balance sheet by using excess cash to reduce net debt levels. In summary, CardFractor has delivered a strong financial performance in the year. Progress was balanced across all key metrics. double-digit revenue growth, enhanced PPT margin rate, PPT increased by 27%, investments in the future, strong cash generation, net debt reduction, and, of course, recommencement of dividends. We delivered the proof points that we are on track to increase revenues to 650 million and PBT margin to 14% by end FY27. We will continue to deliver balanced and sustainable progress against these targets, mitigating headwinds and investing in growth. And with that, I will hand back to Darcy for the strategy update. Thank you.

Thank you. So I'd like to provide an update now on the significant progress we have made on delivering our opening our new future strategy in FY24, but also the areas of focus for this financial year. By delivering on our strategy, Card Factory is well positioned to become the UK's number one destination for all customers seeking quality, value, choice, convenience and experience. And to achieve this ambition, we're focused on the building blocks of growth that we outlined in detail at our capital markets update last May. Stores, where we will continue to leverage and grow our profitable store estate in the UK and the Republic of Ireland. Cards, gifts and celebration essentials, where we're making good progress in expanding across the 13.4 billion UK celebration occasions market. Online and omnichannel, where we are seeking to deliver a seamless celebration experience for our customers. and partnerships where we will continue to build on the positive progress we have made in the UK and international. And at the end of our financial year, we had a store estate in the UK and Ireland of 1,058 stores. And thanks to our agile store optimization program, we continue to maintain an exceptional store, a record on store profitability. And growth within our core business continued with 26 net new stores in FY24, ensuring that we remain on track to deliver 90 new stores over the course of the five-year plan to FY27. Between May and December, we delivered the first most significant phase of our store evolution program with the completion of our space realignment project in 729 stores. This was a capital light initiative and is expected to pay back within a year. The program involved reducing average card space within store by 7% while supporting the growth of both card and gift sales by reallocating that space and that led to a 16% more space for our gift and celebration essentials ranges. This work completed in time for the key Christmas trading season, contributing to our highest ever Christmas sales. We saw strong growth in key expanded categories such as gifting, soft toys and stationery. The successful rollout of the Card Factory Way customer service excellence program for all colleagues led to an increased customer interaction on the shop floor, enabling tailored customer service, product recommendations and improved basket value. Our priorities for FY25 include continuing with the new store openings program, using an updated store format and design following successful trials within the store evolution program. We are also delivering further expansion within the underpenetrated markets, including central London and the Republic of Ireland. This includes a new store in central London which opened at the end of March in Cheapside, literally around the corner, where we're implementing the learnings on range, layout and location from all the other trial stores. Range improvements and expansion continued for cards, gift and celebration essentials with new ranges for both own label and stationery and the introduction of key licensed products. Innovation in range development to broaden customer appeal and price points contributed to a 4.8% like-for-like growth in card. And we're continuing to tailor our offering for different regions and demographics to grow card market authority. Expanded ranges drove strong like-for-like sales in gifts at plus 15.8% and celebration essentials at plus 6.7%. We also successfully implemented a new card price architecture which maintained our long-standing value for money credentials with low entry price points by ensuring the right balance of targeted price increases and rotating promotional offers. FY25 will see us continue to grow card market authority through range development and curation, including tailored ranges by region and by demographics. We're also continuing to expand our gift and celebration essential ranges, including baby gifting and stationery, alongside further space optimization for growth ranges such as pet gifting. Our omnichannel program saw the successful nationwide rollout of our new click and collect service. And by the end of FY24, 7.8% of customers were opting to collect their orders in store. And encouragingly, 50% of those were new customers to cardfactory.co.uk. We have already reduced customer order to collection times from three to five days at rollout to one to two days on average by September. And wider digital investment saw the completion of the replatforming for cardfactory.co.uk and getting personal.co.uk, enabling the benefits of using consistent systems, tools and processes across both platforms. We'll continue to invest in technology infrastructure to further develop our omnichannel capabilities alongside continued range expansion with a focus on personalized card and personalized gift ranges. Internationally, the first four franchise stores were opened in the Middle East, with up to 36 stores expected over the next four years. And the response from customers from the Middle East has been really positive. And as expected, gifts, celebration essential ranges have performed well, given the strong gifting culture in the market, with stationery, soft toys, balloons and gift bags contributing to almost 50% of total sales. Our partnership program in the UK continued to expand with a rollout of all 223 Matalan stores by December 2023. And the acquisition of SA Greetings has provided a leading presence in the South African market through 25 Cardi stores, an online store, and 6,500 partnership distribution points, which are operated by wholesale partners, but also opening up strategic wholesale growth opportunities for us. We continue to progress positive discussions with new prospective partners in the UK and across our identified international markets of interest. And additionally, we're optimizing our partnership in the Middle East, where we look to expand the number of stores. In FY24, we launched our Delivering a Sustainable Future plan, outlining an updated, expanded sustainability plan to the end of 2028 with clear and transparent commitments and goals. We've established a net zero by 2050 goal with near-term science-based targets to help deliver this. The strategy is built around five important areas for our business, both now and in the future, those being climate, waste and circularity, protecting nature, people in equity and governance, each aligned with the relevant UN Sustainable Development Goals. We've made good progress across all areas of focus within the strategy, and we are now engaging colleagues and suppliers under this new This Moment banner, which captures the spirit of personal accountability and commitment that we've nurtured within Card Factory. One highlight from FY24 was seeing the results of our waste reduction efforts coming through with the elimination of non-essential single-use plastics in our own label products and packaging, and increasing recyclability, as well as engaging with suppliers to reduce waste in products and packaging. We're now embedding sustainability into business planning and decision-making to ensure our commitments are at the forefront of how we work and the decisions that we make every day. Looking ahead, let me start by summarizing the highlights of our performance over the past year. The strong performance we saw in the year demonstrates the strength of our customer proposition and the benefits of the opening our new future strategy, where we saw progress and delivery across all building blocks of growth. Our store estate remains our greatest asset with positive contribution that we saw from the store evolution program and arranged development work driving revenue performance. The celebration occasions market we operate remains resilient and our value and quality proposition is resonating with customers seeking value for money to celebrate all of their life special moments. And as a result, there's continued positive momentum within the business, which is driving top line growth and bottom line growth. This is underpinned by disciplined financial management, which is contributing to improve financial strength of the business. With strong operating cash generation and ongoing reductions in net debt, our balance sheet continues to strengthen. And following the cessation of restrictions around the payment of dividends, we've updated our capital allocation policy to reflect our commitment to balancing delivery of sustainable long-term growth in shareholder value against progressive cash returns to shareholders while continuing to drive business growth. As we look ahead, the board remains confident in the compelling growth opportunity for Card Factory and in our ability to deliver on the FY27 targets that we outlined in the CMD updates last May. Those being 650 million of sales and profit before tax margin of 14%. We expect to continue to make strategic progress towards these ambitions in FY25 Trading since the start of the financial year has been in line with the board's expectations, and we have seen good momentum continue across our FY25 spring seasons. As anticipated, PBT growth in FY25 is expected to be weighted towards the second half of the year due to the phasing of planned investments and inflationary recovery actions. through the course of the year, we expect to manage overall inflationary environment through ongoing improvements in efficiencies and productivity and by leveraging the benefits of our vertically integrated model. Consequently, the board's expectations for FY25 remain unchanged. So thank you once again for attending our results presentation. Matthias and I will now be happy to take any questions that you may have. So just a reminder for those in the room or if you're here for the first time, there is a microphone at the side of your seat. So if you could, when asking a question, if you could pick that up and press the red button, that's to enable people online and for the recording for people to hear those questions. And for those joining online, please put your name and organisation in the QA box and we'll read out your question on your behalf. But we'll start with questions in the room first. Very good.