Card Factory plc

Good morning and welcome to the Interims Results Update for FY25. 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 first six months, Matthias will provide the financial performance update for the first half of FY25. 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 then look forward to answering any questions that you may have at the end. The first half of this financial year has seen continued momentum across the key building blocks of growth. The progress we are making is allowing us to deliver on our strategic objectives as we develop Card Factory to a celebrations destination for customers in the UK and the Republic of Ireland, as well as internationally. The strength and ongoing development of our value and quality proposition across cards, gift and celebration essentials continues to resonate with our customers, especially at a time when financial pressure on households remains ever present. And as we look forward to the intensity of the Christmas trading period, I'd like to thank colleagues across the business for their unwavering commitment to delivery and the energy, pace, and enthusiasm that they show day in and day out. I'm pleased to report that we have continued positive momentum against the top line, which delivered a good performance in the first half of FY25 of plus 5.9% group revenue growth. Our stores continue to outperform in the market with like-for-like revenue growth of 3.7% driven by our focus on developing our store estates and our quality and value offer. This growth is ahead of the broader celebration occasions market and non-food retail sector. A particular highlight for the business this year has been the notable progress we have made within partnerships, including entry into the US market through a new retail partnership. In addition, we have secured a multi-year renewal of our existing contract with Aldi and are in advanced discussions to renew our partnership with the Reject shop in Australia. Momentum within our online business has also been maintained as we continue to invest in the customer experience. We've continued to strengthen the balance sheet as a result of positive operating cash generation and a disciplined approach to the management of working capital. As previously guided, the benefit of efficiency and productivity measures are weight to the second half of the year, and as a result, our full year expectations remain unchanged. We have recommenced the interim dividend at 1.2p per share, demonstrating our commitment to delivering progressive returns to shareholders and maintaining a dividend cover of three times over the course of the full year. So for more detail on this and our financial performance for the six-month period, I will now hand over to Matthias.

Thanks, Darcy, and thank you all for joining us today. Over the next 20 minutes, I'm going to take you through the results of the first six months and the outlook for the fiscal year. First and most importantly, we are on track to deliver full year expectations. Our business proved yet again to be resilient against the backdrop of challenging economic conditions as we saw continued positive momentum in sales. As expected and discussed at the prelims, profitability is weighted towards the second half of the year. Our approach to investments was disciplined, helping to maintain a strong balance sheet. In anticipation of the expected full fiscal year results, we are declaring an interim dividend of 1.2p per share. This is the first interim dividend in five years. Let me talk about the progress against the key financial metrics. As you know, the recent inflation continued to be challenging for businesses by adding additional costs into operations and for consumers by constraining their disposable income. We have a track record of resilience, having proven that we can grow our business under challenging conditions. Total group revenue increased by 5.9% to 233.8 million. Adjusted PBT of 14.5 million is down by about a third versus the same period last year. Let me assure you, this is in line with our expectations as we annualized the cost of last year's investments into our future growth and anticipated that a national living wage increase in April would impact the first six months disproportionately. The underlying cash generation of the business remained strong. To note that we have built inventory for the main trading season earlier than last year to secure stock as shipping lanes from the Far East have remained unpredictable. This timing effect resulted in net cash from operations being down at the end of July. However, our disciplined, phased approach to managing investment into capital expenditure was the main factor behind the reduction of our net debt before reinstated dividend. Finally, we are paying an interim dividend of 1.2p as discussed. Total group revenue increased by 5.9% from 220.8 million to 233.8 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 plus 6.1% with strong like-for-like sales growth of plus 3.7%. We have outperformed the wider retail sector in the period. At the core of our like-for-like growth was the strength of our range, our relentless focus on value for money and on in-store experience. As we continued to increase our footprint and our market penetration, we grew the store network by 15 stores. Over the period, net new store openings contributed 2.4 percentage points to total store-based growth. We continue to see encouraging performance at cardfactory.co.uk with high single digit growth of 8.8%. We are progressing with our investments into our platform to unlock our future digital and omnichannel proposition. Overall, online sales remained flat. The growth of CardFactory.co.uk was offset by a decline in getting personal as we are streamlining GP's range and offer. Our existing partnerships, including South Africa, performed in line with expectations with sales increasing 3.1%. Given the importance of our store-based business, allow me to provide some further perspective. Total and like-for-like non-food sector sales declined during the first six months of our fiscal year due to a combination of consumers' constraints on disposable income, their priority of areas of spending, and the far from ideal weather. Our value proposition has continued to resonate with consumers, especially under these circumstances, as it has allowed them to celebrate life's moments in an affordable way. Our store-based sales significantly outperformed the sector with a total store-based sales growth of 6.1% and like-for-like sales growth of 3.7% despite overall lower high street footfall in half one. Our strategic growth categories Gifts and celebration essentials led the growth with 6%. Our greeting card sales remained robust with a sales growth of about 1%. We also continue to make progress bringing our value proposition to more customers in more locations by adding 15 net new stores in half one to bring the total of stores to 1,073 at the end of July. To note, we continue to have less than 1% of our stores operating on a negative contribution. We have a strong pipeline of store openings in half two that will continue to expand our footprint in the UK and Ireland. Moving on to margin. So our revenue grew by 5.9%. However, this did not yet translate into improved margin rates in half one, as we have seen the impact of wage inflation and investing in our future growth. Plans are in place to offset this impact in half two. In line with expectations for half one, adjusted PPT margin rate of plus 6.2% was 3.8 percentage points below last year. Product margin on a constant currency basis was slightly down due to the temporary surge in container rates in half one. Direct store-based costs increased as a percentage of revenue by 4.3 points. as the national living wage increase impacted directly or indirectly more than 90% of our colleagues. At our strategy update last May, we set out our plans to invest for future growth. In the period, we annualized fiscal year 24 half-to-investments in operating costs, impacting our margin rate negatively with one percentage point. We continue to diligently execute our proven program to offset inflation through a combination of productivity, efficiency, and range development, including pricing. Half one saw moderate benefits from business efficiency of 1.6 points with the major benefits from store and operational efficiencies, as well as range development being phased towards half two. This will offset the inflationary headwinds in half one and half two. In summary, half one's lower margin was largely in line with expectations driven by wage inflation and annualization of investments during the period. Let me please add some further perspective on our approach to ensuring lowest cost delivery and its impact on half two. We anticipate half-to sales to grow in the mid-single digits, underpinned by continuous like-for-like growth and new store openings. We also expect further pressure on margin rate, mainly due to this April's increase in national living wage. However, our proven continuous program to deliver the lowest cost will offset the negative impact of inflation in half-two, ensuring that full fiscal year margin rate remains broadly in line with last year. So what do we expect for our half-two margin rate? First, Historically, we have seen that our half-two margin rate is four to six percentage points higher than our half-one margin rate, as the operational scale benefit of higher sales in half-two delivers higher margin rates. Second, the systemic elimination of non-value-added activities across our value chain, in our stores, in our central operations, is executed in a planned and thoughtful way to enable business growth. By way of example, we have rolled out an industry-recognized system to schedule store hours, which has been fully implemented in August and allows us to reduce store hours without negative impact on service. Third, we will always ensure that our products provide the best value to consumers. This year, the benefits of our plans to margin-enhancing range development are skewed towards the second half of the year. As stated at the CMD last May, it is our objective to increase revenue to 650 million and PBT margin to 14%. We have made good progress last year and will continue to make further progress this year. Darcy will talk you through the progress on strategic priorities in a few moments. I want to spend a couple of minutes outlining our plans to deliver the margin improvement over that period. We obviously anticipate continuous inflationary headwinds on cost prices and wages. The adverse impact will be mitigated with further net margin improvements through two continuous streams of work. We will continue to eliminate non-value-added activities and drive productivity throughout our operations and our unique end-to-end value chain. Examples include automation of processes such as pallet wrapping, optimization of order picking, and delivery schedule in the supply chain. Implementation of a P2P system and a next-generation merchandising system in our support center operations. streamlining of back office operations, elimination of administrative work in stores. Second, we will drive scale benefits and productivity of existing assets and operations by growing same-store sales and sales in our strategic growth areas. We will disproportionately grow gifting and celebration essentials in combination with the margin-enhancing evolution of range, and optimization the use of existing in-store space. Let me now summarize the consolidated P&L. Revenue increased by 5.9% to 233.8 million in the period. Product margins of 70.1% were largely flat, only negatively impacted versus expectations by the temporary increase in freight rates. As anticipated, gross margins decreased temporarily by 4.2 percentage points to 32.6%, predominantly to the impact of the almost 10% increase in living wages. As expected, our adjusted PBT decreased with the phasing of the benefits from our mitigating productivity and efficiency program weighted towards half, too. Adjusted EPS of 3.1p per share was down by 1.9p versus last year. Cash performance was resilient and strong in the period. Net cash flow increased by 3.7 million to 15 million. The decrease of cash from operations was significantly impacted by the additional seasonal build-up of stock. As indicated earlier, we chose to build inventory for the main trading season earlier than last year due to the unpredictability of the shipping lanes from the Far East. Corporate tax payments, which are made quarterly in advance, increased due to higher corporate tax rates that came into effect in March last year. Capital expenditure of 6.8 million was down by 8.5 million versus prior year. Key investments in the period included new store openings, refitting and upgrading store layouts, as well as investments in improving the online experience. Our disciplined approach to phasing of capex spending in half one was pivotal to deliver positive net cash flow in the context of our anticipated phasing of PPD towards half two. Moving on to net debt. Over the 12-month period, net debt at the end of July is up slightly by 3 million versus a year ago. This included the FY24 dividends payment in June. Excluding this dividend payment of 15.5 million, net debt reduced by 12.5 million versus prior year. Net debt of 59.4 million before dividend payment at half one is down by 40.2 million compared with net debt of 96.6 million two years ago. Net debt leverage was 0.9 versus a maximum leverage target of 1.5. To reiterate, our disciplined approach to investment offset the negative inflationary impact on gross profit and PBT. Debt service costs remained broadly consistent with prior periods. At the end of the period, the Group had headroom of 50 million in its debt facilities. Let me please emphasize that 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 deliver our plans and financial targets in a disciplined and sustainable way year in, year out, and return cash to shareholders while investing to deliver the strategy and maintain a strong balance sheet. Let me please briefly summarize again the four guiding principles for our capital allocation policy. First, we maintain a strong balance sheet with a well-defined debt leverage range. Second, we invest in an appropriate, disciplined and financially sound way to deliver our growth strategy. Third, we provide regular, progressive returns to our shareholders through interim and final dividend payments. Fourth and finally, those dividend payments will be funded from free cash flow. Additional surplus cash will be managed in a principled and transparent manner. End June, we paid dividends of 4.5p per share with respect to the fiscal year ending in January. That was a full year dividend which comprised an interim and final dividend at a cover ratio of 3.0. Last year, we were not able to pay an interim dividend due to restrictions imposed on us by the COVID loans. This year, we are declaring an interim dividend. In line with our capital allocation policy, the interim dividend of 1.2p is paid based on the expected progressive full-year dividend maintaining a cover ratio of approximately 3.0. In summary, Card Factory's sales performance was resilient and strong against the backdrop of challenging market conditions. As anticipated, Half bond was negatively impacted by cost price increases and annualization of operational investments. Our disciplined approach and management of CapEx investments delivered positive net cash flows, offsetting inflation and operational investments. We have robust plans in place to deliver efficiencies and productivities in half-two, as well as to grow top-line through range development and new store openings. Albeit we are yet to trade through the key Christmas period, we remain confident to deliver year-on-year progress in line with our expectations. And with that, I will hand back to Darcy for the strategy update. Thank you.

Thank you, Matthias. Turning now to our opening our new future growth strategy, we have made notable progress across our building blocks of growth. Let me summarize the building blocks of growth that form our strategy. Firstly, we continue to develop and grow our estate of 1,073 stores in the UK and the Republic of Ireland. Secondly, to expand our penetration of cards, gifts and celebration essentials market, which has a $13.4 billion opportunity in the UK. For online and omnichannel, our goal is to deliver a seamless celebration experience for our customers. And finally, partnerships, where we continue to build on the positive progress we have made in the UK and internationally. To drive forward our growth transformation, we are evolving our talent strategy to support internal mobility for colleagues, ensuring that we have the right people with the right capability and experience to drive forward our growth agenda. By delivering on our strategy, Card Factory is well positioned to become the UK's number one destination for all customers seeking unrivaled quality, value, choice, convenience and experience. Importantly, this is being delivered with a firm focus on our ESG impact. We have made good progress on integrating sustainability considerations into our core strategy and operational decision-making. We've started work on our FY25 emissions inventory for Scope 1, 2 and 3, defining renewable energy transition plans and engaging with our top suppliers to align with Card Factory goals. In line with our strategy, we'll continue to grow our profitable store estate across the UK and Republic of Ireland. We remain on track to deliver around 90 net new stores over the five year opening our new future plan to FY27. We're maintaining our core principle of lower cost, flexible leases, as well as providing the agility we need to adapt to changing consumer footfall trends and targeting underpenetrated markets. In half one, we opened 15 net new stores, including a fourth central London store in Cheapside. We continue to make progress on store space optimisation to support gift and celebration essentials growth without compromising card growth. To deliver store efficiencies and improve productivity, we've introduced a new industry-recognised labour modelling system. We have also made substantial progress on updating our store design blueprints for new stores and future refurbishments. In half two, we'll progress a program of targeted investment to upgrade a number of legacy stores. Moving now to our category progress of card, cards, gift and celebration essentials, we're seeing our range development continue to perform strongly, supporting our strategy of transitioning Card Factory into a celebrations destination. Over the past two years, newness within our card range has been over 60%, with the impact seen in both our everyday and seasonal performance. We saw strong performance across our half-won spring seasons of Valentine's Day, Mother's Day and Father's Day, with card ranges performing particularly well. This reflects range development aligned to key trends, including the growth in family celebrations of occasions such as Valentine's Day. This is one of the evolving trends we are seeing, and I'll provide a little bit more detail as an example of how we identify and respond to change in consumer habits. Where once Valentine's Day was exclusively focused on romantic love, we have seen it now expand to encompass all forms of love, including family, friends, and yes, even pets. Valentine's Day has become a day to express gratitude and appreciation for all the people who make our lives better, not just our romantic partners. So this year, we saw a wider focus on gifts, especially personalized gifts, that expresses that trend. More generally, everyday gifting ranges performed well with growth of 10.5% like-for-like. This was driven by the introduction of newness, including a new baby gifting range, alongside the continued development of key categories, which included soft toys up 27% like-for-like, confectionery up 30%, and limited collections, which include Disney and licensed ranges, which were up 17% like-for-like. The strong growth we have seen across gift ranges and celebration essentials has also driven an increase in the average basket value of 7.5%, like for like, reflecting continuing mix shift as we increase our proportion of gifts and celebration sales, which now stands at over 52%. We continue to develop our gift and celebration essential ranges in a way that represents the progress we want to make on sustainability. This includes expanding the number of products that are fully recyclable and reducing tertiary packaging used to transport products. Turning to online, we continue to build on the encouraging traction seen in half to FY24 on cardfactory.co.uk. Through the first half of FY25, we saw revenue growth of plus 8.8%. This was supported by an increased traffic and transactions, as well as ongoing range development with a focus on higher margin products while maintaining our price leadership. We've also continued to focus on improving the experience online for our customers. In the first half of the year, we've completed work to redesign our event reminder tool to support customer retention, and we've introduced an AI-powered product recommendation tool to drive growth in basket volume. A further highlight to mention was the launch of a new exclusive partnership with Just Eat to trial an on-demand celebrations offer across card, balloons, gift and gift bags. This is a trial within 19 stores across the UK, with plans to expand the trial to a further 21 UK stores in the second half of the year. Through the second half, we will continue to make progress in our online capability and platform performance to further enhance customer experience and unlock future digital and omnichannel propositions. There's been encouraging progress within our partnership offering. Starting with the UK, today we are announcing an expansion of our partnership with Aldi in the UK and Republic of Ireland, with Card Factory now the exclusive everyday greeting card supplier through a new multi-year agreement. The rollout across the entire Aldi estate sees us expand from the current agreement of supply to 550 stores to a full service agreement across the Aldi store estate of approximately 1,200 stores from the end of September. Other UK partnerships continue with a focus on in-store location, range, and offer optimization across the UK Matalan stores. We also have two international partnership announcements. Firstly, we've signed our first agreement in the US. Entry into the US market is a key milestone for our partnership strategy, and therefore we are pleased to announce a wholesale agreement through a nationwide partnership in time for Christmas. We look forward to sharing more details in the run-up to Christmas. We are also pleased to report that we are in advanced discussions with a reject shop in Australia to, for a second time, extend its agreement with Car Factory. Our partnership will expand to a full-service model, which will now also include seasonal ranges. We continue to develop our partnership with Lewa in the Middle East, with a current focus on optimising existing store locations, as well as the range and offer. Lastly, we're pleased to announce that on September 4th, we completed the acquisition of Garlana in the Republic of Ireland. Garlana is a publisher and wholesaler of greeting cards, gift wrap, gift bags and accessories serving the Irish market. As such, it's a perfect fit for Card Factory as it is closely aligned with our successful vertically integrated models. Their range is tailored to the Irish market, helping customers celebrate life moments, including Irish cultural occasions and seasonal events. While Galana sells online direct to consumers, the largest part of the business is a wholesale operation, supplying convenience retailers such as Centra, Spar, Londis and others, as well as Anpost, the Republic of Ireland's national post office group. We continue to assess acquisition opportunities on a case-by-case basis. Looking ahead, I'd like to start by summarizing our preparations for the Christmas season. We are well prepared for our key Christmas trading period with our seasonal rollout well underway. Our marketing campaign activation will commence in the coming weeks with a new promotional activity this year to support the Christmas season. We are continuing with our successful approach to Christmas range development with 80% of the range being new for this season. This includes a premium card range trial and an expanded gift offer with new ranges including toys, babies first Christmas and an own label pet gifting range. Online customers are able to access an even wider range this Christmas than ever before. And for the peak Christmas season, we've introduced a refined allocations process, which will enable an agile approach to stock management. Thorough preparation and planning has meant that we've successfully managed all inbound logistics for stock manufactured overseas. And finally, recruitment of seasonal colleagues for the Christmas season has commenced through an optimized seasonal recruitment strategy designed to support our efficiencies and productivity drive. In summary, we're reporting a resilient top-line performance through the first half of FY25, which led to growth ahead of the celebration occasions market. We've continued to make very encouraging progress across our strategic growth pillars, growing our presence and reach through our expanding store estate and retail partnerships, and making progress on our ambition of Card Factory becoming a celebrations destination for consumers within the $13.4 billion celebrations occasion market in the UK. We've been effectively executing our robust plans to offset inflationary pressures experienced in the first half of the year, and there was continued positive cash generation. Looking ahead, we are confident in our outlook for the full year. Alongside the expected benefit from the seasonality of sales in half two, we have clear plans in place to drive efficiencies and productivity, which we are now implementing, meaning we are on track and have confidence in our ability to deliver our plans for the full year. We're encouraged by our strong track record in maintaining the discipline management of working capital and driving returns against a range of economic backdrops. Continued strategic progress is expected in half two, building on our half one performance against a challenging retail backdrop. Half two trading to date has been in line with the first half. And although we're yet to trade through the key Christmas season, our expectations for FY25 remain unchanged. Over the medium term, the board remains confident in seizing the compelling growth opportunity for the business, allowing us to deliver on our FY27 targets, which remain unchanged. Thank you for your time, and we will now answer any questions that you have. We will take questions from the conference call and then from those watching online. For those watching online, please submit your questions via the Q&A button at the bottom of your screen.

Our very first question today is coming from Jonathan Pritchard, calling from Peel Hunt. Please go ahead, sir.

Morning, all. Two or three, if I may. Firstly, what's the inflation number within the card part of the card light for light, please?

Morning, Jonathan. Yes, if you've got, do you want to answer that?

Can you be a bit more specific, Jonathan, what you're looking for?

The inflation constituents of the 1.1 card like for like.

If your question is with respect of the pricing that we have taken, we have taken only moderate pricing of the like for like growth of 3.7%. About one third is driven by pricing.

That's the whole range that I'm asking about cards.

We don't comment on card in specific in this context.

Okay, well, okay, I'll ask another question, a similar question. Were there any price increases, annualizing or otherwise, in the past?

Yeah, so, Jonathan, as just Matthias previously said, of the total like-for-like growth, one-third comes from pricing.

Yeah, I know, but you said that most of your gifting and celebrations was not inflationary growth, was not due to inflation. So I'm just trying to knuckle down on what the... card inflation number is. You must have it. I don't quite know why you're saying that.

Jonathan, let me maybe step back and answer your question in a broader context to make sure that we cover all the bases here. Like-for-like growth was 3.7%. That was driven by a non-card growth of 6% and, as we said, card growth of 1.1%. When we look at the average card price that was sold in the first half, it was sold at 121 retail price, which compares to 114 last year. As you know, this is not just driven by a simplistic price increase. This is the result of our range development to provide value cards at every single price point. And therefore, we were able to offer a wider range of cards to a wider range of consumers.

So about five to six percent. Cool. Okay. What's the attachment rate of I've got what I'm sort of getting at is the sort of non-attachment way, really. What percentage of gifting and celebration is bought without a card?

So roughly one out of two shoppers leaves our shop with a card and a non-card in his or her basket.

So... Right, OK. So how many... Of the gift shoppers, how many of them don't have a card with them when they leave?

How many gift shoppers have a card?

How many transactions don't have a card attached is the question?

So 50% of our shoppers buy a card and a gift.

I'm not sure we have, do we have the statistic that says how many shoppers don't buy a card but only buy a gift?

No, I don't have these data to hand.

Okay. And lastly, the Aldi range, I'm not a massive card factory shopper myself, but would your average card factory shopper identify the cards they see in Aldi as being card factory? Do they have the same sort of characteristics? Do they have the sort of bits and bobs on the back that you might see on a card factory card? Or are they completely discrete?

No, so you'll be able to identify, if you look on the back of the card, it'll say Studio 41 or some of the things that we have in it. The majority of the range is the cards that we sell and there's a small number of cards that are bespoke.

Okay. Historically, there's always been absolutely negligible cannibalization when all the stock is stocking near one of your stores. I assume that's your assumption when you widen the number of all the stores you're in?

Yeah, we can't see any discernible sales transfer. Okay. Thanks a lot. Thanks, Jonathan. Thank you.

Thank you for your question, sir. Ladies and gentlemen, once again, if you have any questions, please press star 1. We don't appear to have any further audio questions. I'll try to call over to Scott, who will take any questions submitted by webcast. Thank you.

Wonderful. Thanks very much for that, George. We've had a number of questions from the webcast. First question is from Kate Calvert from Investec. Could you give us an indication of the sales run benefit in H2 and going into FY26 from the three deals that you've announced in partnership this morning? And the second question, can you talk through the headwinds stroke tailwinds on H2 product, brackets buy-in, gross margin movement year on year, and can you hold it flat or should we expect it to be down as in H1?

We announced, indeed, several partnership deals earlier today, which will kick in in the second half. The Aldi estate will double that we will serve.

Clearly, this is an opportunity. will be an annualized benefit into the next year. we are still still We will provide further details on the

benefit of and the scope of our entry into the EU. Yes, you can expect to provide us with further updates in four to six weeks. And the the agreement with the Australian retailer are about to be closed. This is our ongoing business. Therefore, it's basically already in our base. I believe your second question was on gross margin and the impact of the program.

to continue to use proven programs on efficiency and production activities and activities clearly clearly the and program that we will start such as your automatization of or . system to offer. for picking now warehouse will have benefits not only this year, but will continue in the future. Therefore, we

You expect that gross margin for the first half of next year will recover from where it ended up this year.

Superb. Many thanks for that. A couple of further questions from Kate. What do you need to do to get getting personal into growth again? Is this likely to be in FY25? And what level of wage inflation are you assuming now to get to your FY27 targets?

Thanks again, Kate. So from an online perspective, all of our focus and the majority of our investments are going into carfactory.co.uk.

Okay. I think Getting personal is operating in a slightly different way. Part of the market is getting personalized. as you know, is sort of premium and gifting. I think the way premium gift marketing market has changed significantly both in terms of the number of players online the entry online but also how the marketing and paid search works. Hence, why by the focus on on car factory.

But getting personal will benefit from the investments that we've made in the platform as we're basically on one platform with two storefronts. We're continuing to put some new products on there, but the focus is on carfactory.co.uk. The second question.

I'm happy to take the second question on wage inflation. As you know, we've now experienced two consecutive years of close to 10% increases in national living wage. There is a consensus rate out there on the further increases of national living wage. Clearly, we have anticipated

in the perspective that we provide on the progress of ppt margin to our our 20s and target of 14 percent further is in line with with this range which we will continue continue to offset that on a with our proven success for mitigation. as well as range development including pricing As a last.

Let me maybe also take the opportunity to comment on another point. Clearly, it is the easy way out to simply increase prices to offset inflation. However, we have a vertically integrated supply chain, an end-to-end supply chain, which allows us to identify savings across the whole supply chain and eliminate non-value-added costs. Therefore, this is what we will be continually doing in the future.

Superb. Thank you. A further question from the phone line. Matthew Abram from Birmingham. Please go ahead. Good morning, all. Thanks for taking time to answer my questions. Apologies. If you imagine this. I was just wondering how we should be Margin expectations in FY20. given you've expressed confidence in delivering the cost initiatives that you've

Is there the expectation that some of this margin improvement carries forward into FY26? That's my first question. Thank you.

Thanks, Matt. We have outlined a target of a 14% PPT margin to be delivered in 2027. Last year, we had a PPT margin of 12.2%, which was a step up versus the prior year of 10.5%. We indicated earlier that this year we expect flat margins versus last year. We would expect to make further progress next fiscal year versus our 2027 target. And that will be

driven by a combination of and savings and efficiency productivity program. Are you able to quantify of the efficiency measures that you're looking to roll out. through the second half of this financial year? Yes. Of course, we are able to qualify.

But we don't comment on details at this moment.

I think, Matt, though, the way you should be thinking about it is that when we look at inflation, the objective over the long term is to cover inflation with the three levers of productivity, efficiency and range development, including price. Those are the key levers which we'll continue to utilise.

OK, that's helpful. Thank you. Cheers. Thanks, Pat.

Superb. Okay, we've got no further questions on the conference call just now. Just a reminder, if you would like to ask a question in the conference call, please press star 1.

Going back to the questions online, we've had a question from Adam. From . From . Respectively. Talking about. Where are you extending the The price. Architect. Encourage. Yes. Are you seeing. Good. uptake on higher price ranges in this environment. color and what the key drivers and differentials to other categories strokes Yes. Sure.

So effectively, on the card range, we're not stretching beyond where we went to last year. So starting the range at 29p, exiting 299 in every day, 399. In seasonal, with the exception of there might be one or two higher price cards that are differentiated and offering exceptional value. On the gifts and celebration essentials, it's about continually to develop the range and balance out the quality and value.

Of course, we've seen an increase in in our basket basket basket and off the back of that and just proportionate growth in and celebrations. basically off the back of of of of That range development. kind of reminded that when we do raise development and we put in higher prices. We are also putting in a better quality products. So the value

Value for money equation, and therefore, whatever the product is, we're aiming to be the best value in the market. Then in terms of the types of categories, so I think, again, as we redid the space allocation last year, and what we've seen is an expansion in stationery, confectionery, kids' toys, as well as in the party ranges. And you should expect to see continued development basically in each of those areas and us play the tunes on space in order to

To maximize a combination. Combination. Of. Customer. Offer. but also the sales. If we think about that we've got this this Christmas Christmas where we have more gifting than we did last year. We're launching a new label range of patches. Gifting products. If we look at the Christmas range in totality. About 80%. of that range is new. for this year.

So the team continue to really evolve the product, evolve the range in line with the strategy, and we've seen that disproportionate growth.

Thank you very much. Next question is from Marco Fassana from Prod Asset Management. Can you comment on your pricing power? Sorry. Do you think that it would be able to raise prices and pass on the cost increases to the end customer without losing volumes?

Thanks for that. So look, I think if I go back a couple of years, I think I've said historically that pricing was an underutilized lever at Card Factory. I think we've now caught up with that as we have really worked over the last two years on our

architecture. What we're really focus on is making sure that we're the best value. value market because that's what our Our brand is being built on and that's what our consumers come by. to us for but again it's been the focus this is moved away from price and and focus on value, which is why we've been able to The other key piece of activity that we do to .

Roughly about once a year is we always, through research, have a look at the pricing elasticity in the market to see where we have flexibility to edge pricing opportunities. up or where we're actually already at a level, or in fact, indeed, if there's areas of the business where we're priced too high compared to our competitors. And so it's a perpetual, it's literally an ongoing discipline of range development, getting the pricing. What I don't think we can do is just take a category. So let's say, take 99p cars and just move them all up to £1.10.

to make sure that when the customer picks up and what they get for 99 pence is the best value that but they can get it in the market. But it's something we actively work on. sort of pricing strategies that we pay close attention to. Thank you. Thank you for that. Next question is from Jacob. Thank you.

Webcast, three questions if you can. Do price increases come a consideration to neutralise wage increases? Exciting news in the UX expansion. Could you share if this is factored into full-year guidance at all and the store rollout process you are currently doing? And same question again, but with regards to the ALDI partnership.

Yeah, so just in terms of your first question on pricing and sort of offsetting inflation, I think it's back to the point that it says we want to offset inflation and we want to utilise the three levers that I've already talked about around productivity,

the efficiency and price. For us, we want to make price a last resort. value proposition that we have. as Mattia said earlier, here in this focus on vertically integrated model and how we can We can... Look at... I'm just going to use one example. Bring that to life. So, so we,

We did a piece of work a while ago where effectively what we did is the design team had a look at the design of cards that were going through the manufacturing process. We wanted to reduce the number of cards per pack that went out to the store, so reduce pack size. But in order to reduce pack sizes, we needed to make the production line more efficient. So we invested to make sure that would happen. We got smaller pack sizes. And what that led to was in-store sub-efficiency because we then didn't have to store cards in the drawer underneath. We could put them straight out basically on the shelf. And it also aided replenishment.

that were as efficient as possible. objective is always that we always will continue to strive to cost operator. In in our sector. Just in terms of... I'll just... Move to your store row. question so we could you Thank you.

the sort of disciplined approach that this business has historically taken to opening new stores. We continue to apply it and we will not kind of move off those key parameters that we have. But the intention is to infill in underpenetrated areas. So we continue to open new stores in Ireland, for example, where we still have more space to go. Central London, we continue to test and learn because, again, there's some white space there. But also the infill basically in the rest of the country. We continue to sign short leases. We continue to invest modest capex.

And we continue to see less than two years. On the news story. We are. So turning to your final question. Final question. Question on. On. On. Partners. Partners. shapes and the U.S. will We will be able to bring more detail about that. once the stock is in stores we'll be able to to come out with a little bit more detail detail.

But yes, the numbers are factored into this year. And I think that's the same for Aldi.

Superb. Next question is from Carl from Singer Capital Markets. What is your outlook for freight inflation going into H2 and beyond into FY26?

Yes, thank you for the question, Carl. We have seen quite a volatility in the container rates over the last 12 months with a spike in the spring. We have again observed an easing of that container rate and we are

of course have all the trees in that are required stock for the season. So that will make The lies. In a balance of the year, we... Don't have a crystal ball. We don't. don't expect a major decrease Trade rate in our Forecast And we are working diligently on.

on mitigating actions in case there will be a further increase in freight rates.

Thank you. Next question is from Vincent Siddons, who's a private investor. What's the rationale for continuing to invest, brackets for capital and resource allocation, in growth in lieu of margin improvement? Is this in the best interest of shareholders?

We are, as we commented earlier, we want to create and stand for creating shareholder value in the short and long term. We are committed to returning cash to the shareholders through a...

progressive dividend dividend dividend dividend stated last year. But we also believe that shareholder will benefit long term from our investment into growth which will not only result in short-term in reliable long-term long-term long-term returns of cash to the shareholder. Thank you. Next question is from Mark.

I suppose that part of the inflationary recovery actions involves price increases. Can you explain the rationale of waiting the second part of the year to start implementing price increases instead of spreading them between the first and the second half?

Thank you for the question, Marco. I would say, and I think I mentioned earlier, it's the easy way to simply increase pricing and let the consumer pay for any kind of cost price increases that we see. However, we are committed to providing value products for our consumers. Therefore, We are also willing to do the hard work of taking

Our business. And that. take this time if you want to deliver that sustainable sustainable sustainable sustainable way which is why Why we didn't just increase the prices in the first half. relying on our proven continuous this program of efficiencies

productivities, and range enhancements.

Thank you. Marcus Gold, when will the share buyback program start? When will the annual dilution for the employee share program stop?

The board is considering share buybacks as appropriate. We have committed to a cash return, as I mentioned, based on a progressive dividends. As a listed company, the dilution from share plans is anticipated, and we are actually issuing less share than we would be allowed under employee

the share plans. But again, Again, the board is reviewing on a uh, Any kind of options to return. for the use of surplus thank you um final question from Matthew McEachern from Singer Capital Markets. What is your working assumption for the living wage next April?

And is there any additional catch-up on differentials to think about too?

Look, I think we have built in into our models sort of inflations going forward. And look, I think the Chancellor is probably going to announce it, we'll know soon enough, But we believe that over the long term, the plans we have around productivity efficiency plus the price lever, there's ample gas in the tank for us to be able to basically mitigate that. But we await more details from the government, I think.

I'm super prepared.

We've got through a lot of questions today. We're We've gone slightly over time, but I will now pass back to you, Darcy, for final closing remarks. Wanted to say thank you everybody for attending today. Thank you for your time. questions after the event. as we the road shows come out and So thanks very much for attending today. Thank you.