Card Factory plc

Good morning and welcome to our full year results presentation for FY25. Thank you for joining us today, whether you're here in person at Citibank or joining us online. So I'm Darcy Wilson-Reimer, the CEO of Cardfactory, and joining me today is Matthias Seeger, our CFO. As we are now at the halfway mark for opening our new future growth strategy, we're going to start today by reviewing the progress to date before looking at an overview of highlights from the past year. Matthias will then provide a financial performance update for FY25 and an outlook for the remainder of the year. Following a review of strategic progress we've made in FY25, Matthias and I will then answer any questions that you may have at the end. So I'm pleased to report that progress on our growth journey has continued at pace and is delivering strong revenue growth. As the leading omnichannel retailer of cards, gifts and celebration essentials in the UK and a growing international presence, we are well positioned to capitalize upon the exciting opportunity by presented celebration occasions market across all the countries where we operate in. Our ambition is to become a leading global celebrations group. We are achieving this by reaching more customers in more locations through our channels and markets and increasing our share of wallet in the 13.4 billion UK celebrations occasions market. This is underpinned by a vertically integrated model that drives efficiency and allows us to target the lowest possible operating costs as a value business. By doing so, we continue to make good, profitable progress that is resonating with customers. colleagues across CardFactory continue to focus on our core values, ensuring we put the customer first in our decision-making. And I know we have a large number of colleagues on the call today, so I personally would like to thank each and every one of you for the positive contributions that you have made throughout the last financial year, and of course, over the strategy today. So thank you, colleagues. So having reached the halfway mark for our opening our new future growth strategy, let me summarize the progress to date. As an established brand, we are consistently rated the most trusted in our sector in the UK, and we are focused on delivering our purpose of making sharing in and celebrating life's moments special and accessible for everyone. Since FY23, we've grown our sales by 17%, adding 80 million pounds to our top line, with adjusted PBT increasing by 35% over that same period. This is despite a much higher level of inflation than originally anticipated. Our core stores business has performed strongly as we continue to open new stores in the UK and the Republic of Ireland. Since FY23, our profitable and expanding retail footprint combined with increasing penetration of our gift and celebrations essential offer has delivered a 7.3% store sales compound annual growth rate. We're encouraged by our progress securing new retail partnerships and expanding our relationship with existing partners in the UK and internationally. This is alongside an acceleration of our plans to grow our international footprint by acquiring well-established, accretive businesses, including in the important US market. Turning to digital, we've made progress building our online presence as part of our omnichannel strategy. We've stabilized and improved our online platform and have a fuller understanding of online growth and profit levers. With the foundations for growth now in place, we have confidence in the future growth opportunity for online. So in summary, by combining our market-leading greeting card offer with an expanding range of gift and celebration essentials, we are delivering on our building blocks of growth and achieving growth ahead of the wider celebrations market in the UK with our partnership strategy enabling our international expansion. Turning to FY25, I'm pleased to report that we've continued to effectively execute our strategy, driving revenue growth and profitability. Our highly profitable store estate remains central to our strategy with a strong performance in the last financial year, delivering revenue growth significantly ahead of the retail sector. We continue to grow our share of the celebration occasions market through the expansion of our gift and celebration essentials offer while leveraging our authority and strong customer appeal within the card market. This included further growth internationally through our partnership strategy, supported by targeted acquisitions in the US and the Republic of Ireland. We continue to develop our online offer and omnichannel propositions with cardfactory.co.uk. Like-for-like sales were in line with FY24 as we refined our ranges to support online margin growth. our proven productivity and efficiency program remains key to offsetting inflationary impacts and maintaining profit margins. In FY25, this was further developed into a multi-year simplify and scale program with several key initiatives helping to reduce the cost base to maintain adjusted PBT margins. With robust operating cash flow and the continued strength of our balance sheet, we are well positioned to confidently invest in our growth ambitions. Therefore, the board remains confident in the profitable growth opportunity for the business, which has a clear growth strategy to become a leading global celebrations group, and has recommended a final dividend of 3.6 pence per share, resulting in a total dividend of 4.8 pence per share. So for more details on this and our financial performance for FY25, let me now hand over to Matthias.

Thank you, Darcy. Over the next 20 minutes, I'm going to take you through the results for FY25, provide some additional perspective, what's driving that performance and what lies ahead as we look to FY26. We've got a strong story to tell, one of resilience, disciplined growth and confidence in our strategy. FY25 was another year of strong revenue and profit growth achieved despite a challenging economic environment. Total group revenue increased by 6.2% to 542.5 billion, marking our fourth consecutive year of growth. Profit grew in line with revenue. We successfully offset inflationary pressures through decisive management actions, enabling us to maintain margins and deliver strong performance. Adjusted profit before tax rose by 6.3% to 66 million, with adjusted EPS up 5.9%. This outcome was consistent with our guidance at the Interims in September. Cash generation was robust, and while net debt increased, this was due to one-off items and not underlying business performance. We also completed two targeted acquisitions to support our long-term strategy and continued to reward shareholders by growing progressive dividend, all while maintaining a strong balance sheet. Total group revenue increased by 6.2% from 510.9 million to 542.5 million. Our core business, stores in the UK and Republic of Ireland, which account for 94% of sales, delivered total store-based growth of 5.8%. Strong like-for-like growth was at 3.4%, well ahead of the wider retail market. This growth was underpinned by a compelling customer proposition, a powerful combination of product range, value for money, and consistently great in-store experience. Our strategic growth categories, gift and celebration essentials, led the way with 5.6% growth. Greeting card sales remained robust with 0.9% sales growth as we gained share in that segment. We added 32 net new stores to our network, offering more customers access to our stores and products in more locations. Over the period, new store openings contributed 2.4 percentage points to our total store-based growth. We are progressing with investments in our digital platform to unlock our future omnichannel proposition. Card factory online sales were flat year on year. Getting personal sales declined further and we made the difficult but necessary decision to close getting personal at the end of January, ensuring we stay focused on profitable growth. Our partnership business grew 30.6%, helped by both organic expansion and through acquisitions. PBT margins remained flat year on year at 12.2%. We absorbed cost increases through a combination of efficiencies, productivity gains, and range development, including targeted pricing actions. Product margin of 69.7% was maintained, even with freight costs increasing and a higher share of non-card sales, which were offset by lower costs and targeted pricing. Wage costs increased by 10 million year on year. We mainly mitigated this through streamlined labor management, reducing non-core store hours and limiting temporary labor without compromising service. In H1, we annualized prior year investments in operating costs, which negatively impacted the margin by 0.3 percentage points. PBT margin in half two was 17% compared to 6% in half one. As in previous years, our half two margin rate was four to six percentage points higher than in half one due to operational scale benefits from higher sales in the second half. In addition, our half-to-performance benefited from systemic efficiency gains, removing non-value-added activities across the value chain and enhancing our margin-aggregative product ranges. These changes are structural, not one-offs, and they support our sustainable growth. Turning to cash and debt. Underlying free cash generation of 29 million was strong. Capital expenditure of 18.4 million was down nearly 10 million versus the prior year. We invested in new store openings, store refits and upgrading store layouts, point of sales tilt system upgrades and enhancements to the online experience. Corporate tax payments increased to the higher corporate tax rate that came into effect in March last year. Debt service costs remained broadly consistent with prior periods. We paid $19.8 million in dividends, reflecting both FI24's final and full dividend and FI25's interim payout. Over the 12-month period to 31 January 2025, net debt increased, mostly due to one-offs unrelated to FY25 business performance. These one-off items of about $11 million included repayment of a $3.3 million COVID grant, $1.6 million in refinancing costs, and a $6 million adverse timing impact on payments. Our leverage remains low at 0.7 at the end of January, well below our target leverage range of 1.5. Seasonal peak net debt leverage reached 1.3 in October during the ramp up to Christmas. At period end, the group had 50 million of headroom in its debt facilities, with 75 million accordion option. We are committed to creating value for our shareholders in the long term by delivering on our business growth strategy and plans. Our capital allocation policy has four guiding principles. We maintain a strong balance sheet with clearly defined debt leverage range. We invest in disciplined, financially sound way to support our growth strategy. We provide regular, progressive returns through interim and final dividend payments. And finally, we fund dividends from free cash flow, managing surplus cash transparently and turning it to shareholders where appropriate. Over the past two years, we have generated $56 million in free cash flow. We've invested $25 million in acquisitions to accelerate our strategy. Anticipated returns from these investments are well above cost of capital. We returned $32 million to shareholders via progressive dividends, representing a 4-5% dividend yield. In December, we paid an interim dividend of 1.2p per share. We've recommended a final FY25 dividend of 3.6p per share. The FY25 full-year dividend of 4.8p per share is up 6.7% year-on-year, maintaining a coverage ratio of 3.0. There is no further surplus cash currently available for additional returns. In the future, the Board will consider all options for returning surplus cash, including a share buyback. Let's take a step back and look at the last two years. Macroeconomic conditions have been challenging. Consumer sentiment has been weak. Inflation has put pressure on both household wallets and business bottom lines. Despite this, we grew our business by 17%, adding $80 million in sales. Our core store business has been the engine with resilient annual same-store sales growth of 5.5%. Gift and celebration essential sales increased by 7.6% and cart sales by 3.3% over the two-year period. We opened 58 net new stores growing our footprint from 1,032 to 1,090 locations. Online and partnership sales increased 47% driven by both organic and inorganic growth. This growth is robust and sustainable underpinned by our strategy. The average annual inflation of 4.4 to 5% was nearly double historic levels and beyond what any company could have anticipated. PBT, however, increased by 35% over the two years, a reflection of our ability to grow while absorbing more than 35 million in inflationary cost pressure. Allow me to expand on two key success factors behind this performance. We have a unique retail business in the UK and Republic of Ireland. The heart of our success is a business model built for resilience and long-term profitability. We help people celebrate life's occasions at affordable prices, backed by a strong value proposition. Our strategy is working. We are strengthening our leadership in greeting cards while scaling up gifting and celebration essentials, delivering resilient growth. Like-for-like sales have outpaced the wider retail market. Our share of gift and celebration essentials has increased steadily to 51%, up from 47%. An average basket value rose from £4.37 to £5.06 over the period. Our store network continues to grow. Every new store extends our reach to more customers in more locations and delivers high returns. Our brand is not only loved and preferred, it is supported by an efficient high return business model. Our end-to-end value chain enables us to consistently offer quality products at low prices. We operate a highly profitable portfolio of stores with agility and discipline. We expand our footprint using a low capital model. Each store must pay back within two years. And they do. Return on investment is strong with stores typically operating successfully well beyond 10 years. We cannot control inflation. But we can control how we respond. As a low-cost operator, it is in our DNA to work in a disciplined, structured way to mitigate the impact of inflation. Inflation has added about 35 million to our cost base over the last two years. This annual cost increase of 4-5% is double historic levels. In FY26, we face further inflationary headwinds of 4-5%, equating to around 20 million additional costs. And we anticipate 3-4% beyond that. Now, over the past two years, we have proven we can mitigate inflation. We do this through a combination of efficiencies, productivity, and range development, including pricing. As Darcy mentioned, we have formalized this approach with our structured multi-year simplifying scale program. Simplify and scale focus on eliminating non-value-added and manual activities, reducing duplication, streamlining operations and delivering sustainable and profitable growth. For FY26, focus areas include further optimization of store hours, streamlining front and back office activities with our new point-of-sale system, insourcing of third-party manufacturing, optimization of procurement, and elimination of manual processes in the support center. All plans to offset FY26 inflation are in motion. As with last year, most benefits will materialize in the second half. In summary, card factory sales performance was strong and resilient despite challenging market conditions. Profit increased in line with sales as we mitigated inflation. We had an encouraging start to FY26 with strong momentum across Valentine's Day and Mother's Day. Trading is in line with expectations. We are well positioned to continue growing, underpinned by our strong value proposition and strategic focus areas. Our simplified scale program continues our proven structured approach to offsetting inflation. We expect profit margins to remain in line with FY25. PBT will be again weighted towards half 2, as in FY25. The Board reconfirms expectations of mid- to single-digit percentage adjusted PBT growth in FY26. And with that, I'll hand back to Darcy for the strategy update. Thank you.

Thank you, Matthias. I would now like to provide an update on the continued progress we've made delivering on our opening our new future strategy in FY25 and our priorities for this financial year. Our strategy is transforming Card Factory into a leading global celebrations group. We are achieving this by delivering on our key drivers of growth. Stores, where we will continue to leverage and grow our profitable store estate in the UK and Republic of Ireland. Cards, gifts and celebration essentials, where we are 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 continue to build on the positive progress we have made in the UK and internationally. Looking first at stores, at the end of our financial year, we had a store estate in the UK and Ireland of 1,090 stores. This was an increase of 32 net new stores in FY25. And as we look ahead to FY26, we will continue to grow our store network at similar rates achieved in FY24 and FY25. Previous work on our space optimization program allowed further in-store innovations in FY25, such as stationary and kid zones, which helped contribute to strong growth seen from expanded categories, including confectionery, which saw like-for-like growth of 25%, soft toys, which was up 22%, and stationary, which was up 18%. This approach is allowing us to further unlock gift celebration essentials range expansion whilst maintaining our authority and choice for card. The other driver of store revenue growth was the targeted pricing action we took through FY25, which drove around one third of the like for like improvement. Looking at categories, the like for like growth of 5.7% in FY25 across gift and celebration essentials reflects the success of our expanded proposition with 70% of the gift ranges being new in FY25. This included new baby, toy gifts, new baby toys, gift food, and confectionery ranges, as well as an updated and expanded party range and balloon offer where we remain the UK market leader. Card Factory continues to build upon its authority within the card market in the UK, with positive like-for-like growth of 0.7% across seasonal and everyday cards. And this reflects our trend-focused range development, as well as our strong value credentials, which continue to resonate with customers who remain price sensitive. Through FY25, we were able to increase the retail pricing on gifts through range development, which contributed to a 6.7% increase year on year in average basket value. Approximately half of all baskets at FY25 included gifts or celebration essential items. In FY26, we'll continue to leverage our leadership in CARD to underpin celebration and gift attachment rates as we make progress in our evolution to become a celebrations destination. Work is underway to deliver further card range curation in store, which will allow us to optimize choice and release space for new and expanded gift and celebration essential ranges, including new milestone age range and new party range by 26. Internationally, we accelerated our plans to create an international footprint through the acquisition of Garlana in the Republic of Ireland in September 2024 and Garvin in the US in December 2024. Progress with existing partners has been positive. Full service partnership model capability is now in place and delivery success with UK partners leading to international rollout for our partners in FY26. Full rollout to the Aldi UK and Republic of Ireland estate was completed in September 24. And we also secured an extension of our partnership with a reject shop in Australia, where we signed a new multi-year agreement, including seasonal rain supply for the first time. We were also pleased to sign our first wholesale supply agreement with a nationwide US retailer covering 1,100 stores. This was initially for a curated Christmas card range that was extended to Valentine's Day and Mother's Day in Q1 of this year. And we're building on the initial learnings from the Christmas and spring seasons card range with a rollout of a curated everyday card in celebration essential range launched in April 2025 to 93 stores. We're working at pace to complete the integration of our newly acquired businesses and identifying growth opportunities. A particular focus is expanding our card offer in North America through our existing Garvan customer base. At the same time, we'll continue to have positive discussions with new prospective partners in the UK, the Republic of Ireland and other international markets of interest. Building on our experience in the Middle East and wholesale success in other markets, we've taken the decision to refocus our partnership model in the Middle East in the near term. We've chosen to pause the low-cost franchise trial and focus on wholesale agreements. This has led to the decision to close the existing four franchise stores by the end of June this year. North America is the key target region for us, which is why we're working at pace to complete the integration of our newly acquired Garvin business and identifying growth opportunities. The acquisition of Garvin provides us with in-market experience and expertise in the largest celebration occasions market worth 65 billion pounds in targetable opportunity. In addition, we're leveraging learnings from the introduction of our proven wholesale model in the US market, while at the same time looking at how we can expand our card offer in North America through the existing Garvin customer base. Looking ahead, we will realize the annualized benefit from existing government revenue and profitability, and to support this, taking a proactive approach to navigating uncertain geopolitical backdrop, and we do not currently expect there to be material impact from tariffs in FY26. I'm also pleased to report that we're progressing positive discussions with potential new owners, albeit there are longer lead times in the North American market. Turning to online, this is an area of considerable focus for the business as we recognize the need to make further progress. In FY25, we continue to develop our online offer and we're clear now on the levers for profitable growth, allowing us to confidently invest in the future of this channel for CardFactory. This is why the decision was taken to close getting personal.co.uk as of the 31st of January, 2025, so that we can focus on driving efficient, profitable online growth at cardfactory.co.uk. Moving forward, our focus will be on a direct to recipient offer and experience, and this will drive card attached gifting, offering greater value for our customers compared to the competition. Range development is in progress to support this approach. Omnichannel remains a key differentiator for CardFactory and is central to our digital strategy as it will allow us to capture the online spend of our 24 million unique in-store customers. We've continued to develop our omnichannel propositions with improvements made to our nationwide click and collect service. And in FY26, a new balloon appointment omnichannel trial has recently gone live in a number of stores, enabling customers to pre-order inflated balloon arrangements online and collect them in store. In FY25, we continued the process of embedding sustainability considerations across the business, with key focus areas including waste reduction through product design and operational changes. We progressed our greenhouse gas emissions reduction initiatives, including a successful AI energy management system trial across approximately 200 stores, with a further rollout to 800 stores planned this year. This forms part of our Net Zero Pathway activity, which in FY26 will also include the transition of our diesel fleet to plug-in hybrid electrics. We evolved our Giving Something Back program, facilitating more opportunities for colleagues to support local charities and launching a new donation scheme for discontinued stock. For FY26, at the strategic level, we've begun a full supply chain climate risk review. Operationally, we'll continue our plastic reduction work, eliminating bubble wrap use at print craft and cellophane wrap from all own label roll wrap. So looking ahead, I'd like to start by summarizing our FY25 performance. In FY25, we achieved strong and top and bottom line growth that was driven by the effective execution of our strategy. Our revenue growth reflects the strength of our profitable store estate and our evolving celebrations offer. The targeted acquisitions we have made are accelerating international routes to market, and we continue to take a disciplined approach to our financial performance with our Simplify and Scale efficiency and productivity program, alongside strong sales growth successfully offsetting inflationary impacts. We have maintained the strength of our balance sheet and delivered a progressive approach to shareholder returns. As we look ahead, we expect to deliver mid to high single digit percentage increases in adjusted PBT in FY26. Our strategic progress to date, together with focused delivery through our drivers of growth, means the card factory investment case remains compelling. We are reaching more customers in more locations and will continue to do this by building our store estate footprint, opening new stores at a similar rate to the past two years across the UK and Ireland, and by targeting under-penetrated markets. In addition, we have significant opportunity through our retail partnership strategy to address an £80bn global celebrations market, the largest of which is in North America, where we now have an established presence and opportunity to create a credible card-led celebration offer. We are progressively increasing our share of the £13.4bn UK celebration occasions market, As a leading omnichannel retailer with nationwide presence of cards, gift and celebration essentials in the UK, we are building upon our strength and authority within the card market to grow our gift and celebration essential ranges. This is allowing us to progressively capture more of our 24 million unique customers' annual celebration spend, with share of wallet increasing one percentage point over the past two years, and we're targeting further growth at a similar rate. We continue to leverage our leadership in card to underpin celebration and gift attachment rates as we progress in our evolution to become a celebrations destination. Finally, we're leveraging our vertically integrated model of design, manufacturing, and retail to support our credentials as a value retailer with a quality offer. It allows us to respond rapidly to changes in customer tastes and needs while driving efficiency and lowest costs to operate. Our simplify and scale efficiency and productivity program will continue to deliver a structural reduction in our underlying cost base. By delivering on these growth drivers, we will deliver sustainable, progressive returns underpinned by profitable cash-generative growth, which beyond FY26 will target mid-single-digit percentage sales growth each year, adjusted profit before tax growing in the mid- to half-single-digit percentage range. free cash generation of 70 to 80% of earnings underpinned by disciplined investment and sustainable progressive dividend based on a two to three times dividend cover ratio on adjusted earnings. So thank you once again for attending our results presentation. And Matthias and I will now be happy to take any questions that you may have. But before we begin, our Zoom operator will give a quick reminder on the Q&A process. As usual, we'll take questions from the room first and then turn to the questions online.