Card Factory plc

Good morning and welcome to the Cardfactory FY26 interim results presentation. Please welcome to the stage CEO Darcy Wilson-Reimer.

Good morning, everybody, and welcome to our Interims presentation for FY26. Thank you for joining us today, especially those that are here in person with us at UBS, but also thank you for joining us online. So I'm Darcy Wilson-Reimer. I'm the CEO of Card Factory. Joining me today is Matthias Seeger, who's our Chief Financial Officer. So following an overview of highlights from the first six months, Matthias will then provide a financial performance update for the first half of FY26 and an outlook for the remainder of the year. I will then provide an update on the positive progress we continue to make delivering on our growth strategy. Matthias and I will be happy to answer your questions at the end. So the first half of this financial year has seen continued momentum across the key building blocks of growth. In particular, the acquisition of Funky Pigeon was a significant milestone for our business, and we're excited about the growth potential that this will unlock. We are now well positioned across our stores, online, and UK and international wholesale partnerships program to deliver on our growth strategy as we develop Card Factory into a leading global celebrations destination. As we enter our busiest period of the year, there is confidence across the business that our value and quality offer will continue to resonate with customers looking to celebrate Halloween and the festive Christmas season. Many colleagues are listening today and I'd like to personally thank each and every one of you for your unwavering commitment to the delivery and the energy, pace and dedication that you show day in and day out. Thank you. The first half of FY26 saw resilient revenue performance with our core stores business continuing to perform positively. This was underpinned in half one by new store openings and a robust seasonal trading, which offset the impact of a softer summer high street footfall as a result of the warmer weather. In addition, the businesses we acquired in the US and the Republic of Ireland last year are performing in line with expectations. As a result of this resilient performance, we are pleased to announce the interim dividend of 1.3 pence. As mentioned, a highlight of our growth strategy progress in the first half of FY26 was the acquisition of Funky Pigeon, which supports our vision to create an online celebration destination for customers. With the acquisition complete, we can now work to accelerate our digital strategy, particularly in the card attached gifting market, as Funky Pigeon provides us with increased operational capability, a quality technology platform, and a large established customer base. Work is underway to unlock annual synergy benefits of more than £5 million through the optimisation of manufacturing and fulfilment, the integration of technology platforms and strategic project ranging, all of which are expected to be achieved through the remainder of this year and the next financial year ending January 2027. Looking ahead to the peak second half of the year, our expectations for the full year remain unchanged and building on the success of our half one seasonal performance, our peak trading plans are in place to deliver our expanded celebrations offer and strong value proposition, particularly across Halloween and the important Christmas season. As stated in previous announcements, PBT will follow a similar second half weighting profile as was seen in FY25. And this reflects the seasonality of sales, timing of investments, and realization of inflation mitigation across through our simplify and scale program. So for more detail on this and our financial performance for this six month period, let me hand you over to Matthias.

Thank you, Darcy, and good morning. I'm going to take you through the results for the first six months and provide some additional perspective on the second half. We continue to write our own story. It's one of resilience, balanced growth, successful strategy delivery, and of value creation for our shareholders. Our business has delivered a resilient financial performance despite a challenging economic environment. Total group revenue increased by 5.9%, which is at the top end of our guidance of mid single digit percentage growth. Underlying cash generation of the business was strong with free cash flow productivity within our target range of 70-80%. As discussed in our recent trading update, a decision to bring forward efficiency-focused investments, including an upgrade to our point-of-sale till systems, contributed to adjusted PPT for the first half being down by 1.3 million. The benefits of our Simplify and Scale programme largely offset the impact of the significant increases in national living wage and national insurance contributions. The two acquisitions completed in the US and in the Republic of Ireland in the second half of last year contributed positively in line with our expectations and the acquisition economics. Continuing our journey of delivering predictable, sustainable and growing returns to our shareholders, we are declaring an interim dividend of 1.3 pence per share. As I mentioned, total group revenue increased by 5.9% from 233.8 million to 247.6 million. Our core business, stores in the UK and in the Republic of Ireland, which account for 92% of sales, delivered total store-based growth of 2.9%, with robust like-for-like sales growth of plus 1.5%. We added 30 net new stores to our estate in the last 12 months, accounting for 1.4% of the store-based growth. Total greeting card sales remained strong, growing in the low single-digit percentages. Our partnership business more than doubled, underpinned by double-digit organic growth and incremental contributions of the two acquired businesses in the US and in the Republic of Ireland. were very pleased with the performance of these additions to the card factory group. Online sales were negatively impacted by the closure of Getting Personal at the end of January this year, as anticipated. At the prelims, we talked in detail about our unique retail business in the UK and the Republic of Ireland. To reiterate, at the heart of our business 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. We have been extending our product offering to achieve non-card categories to grow average basket value and drive like-for-like sales even when footfall is softer. We are reaching more customers in more locations by opening new stores in underserved areas. And our strategy is working. We had robust store-based growth of plus 2.9% in the first six months, with like-for-like growth and new stores contributing in roughly equal parts. In the first half, our share of gift and celebration essentials increased to 53.4% and the average basket value rose to £4.95 this year from £4.75 for half one last year, reflecting our evolving range. Our store network grew by 30 net new stores in half-on, including our milestone 1,100th store. As of the end of July, we had 1,103 stores, with additional store openings leading to a total of 1,111 stores operating today. We are well on track to deliver our target of 25 to 30 net new stores this fiscal year. Every new store extends our reach to more consumers and more locations and delivers high returns using our low capital model. Adjusted profit before tax is down versus last year, as we indicated in our August trading update. excluding the net impact of the largely contained inflation and the accelerated investment in our point-of-sale upgrade, underlying performance showed strong progress driven by sales growth. We substantially mitigated the H1 inflationary headwinds of 4.4% on our total cost base through the benefits of our simplifying scale program. The recent acquisitions of Garvin and Galana contributed positively, as did the closure of Getting Personal. Half one ppt margin of 5.3% compares with last year's ppt margin of 6.2%. We expect PBT margin in half two to increase by more than 10 percentage points as it did last year. Half of this increase will be attributable to the half two operational leverage with the remainder delivered by a combination of the net benefits of simplifying scale and sales growth. I mentioned it before, we cannot control inflation, but we can control how we respond. Inflation will add again more than 20 million to our cost base this year. This is a cost increase of 4.4% on total cost. Over the past years, we have proven we can mitigate inflation through our structured multi-year Simplify and Scale program. Simplify and Scale focuses on efficiencies, productivity and range development, including pricing, by eliminating non-value-added and manual activities, reducing duplications, streamlining operations and optimizing ranges. All plans are in motion to fully offset the cost price inflation for FY26. As with last year, most benefits will materialize in the second half. In half one, we delivered total efficiencies of 9 million from streamlining our end-to-end operations and optimizing our range, including pricing. This included insourcing, printing and distribution of store merchandising materials, optimization of warehousing and agency labor and achieving a 9% efficiency improvement in our stores. Key plans for half two include automating support center back office tasks and processes, as well as further store labor efficiencies enabled by the new point of sale till system, including streamlining back of store activities and hybrid tills. Let me now provide some further perspective on half two. The profile of revenue and profit between half 2 and half 1 this year is largely in line with last year. As a reminder, the facing of the inflationary headwinds and investments has a disproportionate impact on the first half, while H2 benefits from the positive impact of the Simplify and Scale program, higher sales, operational leverage and stronger margins. We anticipate H2 sales at a similar rate as in H1, excluding the additional sales from Funky Pigeon. The growth in the second half will be underpinned by total store sales growth and continuous contributions from previous acquisitions. Store sales growth reflects the net new store openings and the like-for-like growth supported by a strong product offering and trading plans. turning to cash generation, use of cash and debt. Underlying free cash generation of 37.9 million was strong over the past 12 months, with a free cash flow conversion of 78% versus earnings. Capital expenditure of 19.3 million was materially in line with our guidance of 20 to 25 million. We invested in our new store openings, store refits and upgrading store layouts, POS-TIL system upgrades and enhancements to our online experience. That service remained broadly consistent with prior periods. We paid 16.9 million in dividends, reflecting FI25's interim and final dividend payment. Surplus cash after payment of dividends was reinvested in M&A, in the acquisition of Garvan and Galana, as well as the one-time transaction cost of Funky Pigeon. Over a 12-month period prior to the end of July this year, net debt increased by 4.3 million due to the one-off items unrelated to business performance. Half-won cash generation and use followed the typical seasonal profile as we built stock ahead of the main trading period. But performance improved substantially compared to last year due to improved working capital. For H1, capital expenditure of 7.6 million was slightly up by a million versus the prior year. Our leverage remains low at 1.0 times at the end of July, well below our maximum leverage target of 1.5 times, and broadly in line with last year. At period end, the Group had cash and headroom in its debt facilities of 46 million with a 75 million accordion option. After period end, we increased the Group's RCF facility from 125 million to 160 million using 35 million of the accordion option to part fund the acquisition of Funky Pigeon and provide further headroom for the growth of our business. We are committed to creating value for our shareholders by delivering on our business growth strategy and plans. We deliver our plans and financial targets in a disciplined, balanced and sustainable way, returning cash to shareholders while investing to deliver the strategy and maintaining a strong balance sheet. We will grow sales in the mid single digit percentages and profit before tax in the mid to high single digit percentages. We are a highly cash generative business with free cash conversion of 70-80%. The delivery of our target is underpinned by store like for like growth, new store openings, growth in online and partnerships, in combination with mitigation, the cost-price inflation through the Simplify and Scale programme and a disciplined approach to investments. Our capital allocation policy has four guiding principles. We maintain a strong balance sheet within a clearly defined debt leverage range. We invest in a disciplined, financially sound way to support our growth strategy. We provide regular progressive returns through interim and final dividends. And we fund dividends from free cash flow, managing surplus transparently and returning it to shareholders where appropriate. We are committed to providing attractive shareholder returns, as I mentioned, as the value of our business increases behind the disciplined execution of our robust strategy and plans and by returning cash to our shareholders. Predictable progressive dividends are a cornerstone of our capital allocation policy. Therefore, we are declaring an interim dividend of 1.3 pence per share. This is based on an expected progressive full-year dividend, maintaining a cover ratio of approximately 3. Furthermore, we are announcing the intention to start a share purchase program. The objective is to mitigate dilution to shareholdings. The annual scope will be 3 to 4 million shares. This will enhance EPS by about 1% every year. On the 14th of August, we completed the acquisition of Funky Pigeon. Darcy will provide you with a broader strategic perspective shortly. I will briefly summarize the key financials of the transaction and its impact on our guidance. The purchase price was 24.1 million, implying an EBITDA multiple below 5, based on annual EBITDA of 5 million. The acquisition was funded by extending our extended RCF debt facilities from 125 million to 160 million. Funky Pigeon adds 32 million sales and 5 million EBITDA to the group. Furthermore, we expect to generate more than 5 million synergies through optimizing manufacturing, fulfillment, technology, operations and product ranges. These synergies will be delivered over the next 12 to 18 months and will fully materialize from February 27, i.e. in our fiscal year FY28. For FY26 we expect that five and a half months of funky pigeon trading will increase sales by about 3% versus current guidance. Our guidance for FY26 profit before tax remains unchanged as additional profit offset by additional financing and transition and integration costs. In this context, our leverage at the end of this fiscal year, at January, is expected to increase by 0.3 times to about 1.0 times, still well below our target of 1.5 times. Our mid- to long-term guidance remains also unchanged, with mid- to high single-digit PVT percentage growth every year. In summary, CardFactory's sales performance was resilient against the backdrop of challenging market conditions and softer footfall. Our recent acquisitions are performing well and are creative to the bottom line. we are well positioned to continue our growth in the second half. Our simplifying scale program has been instrumental in containing cost price inflation in half one with all plans in motion for half two. We acknowledge that the second half is crucial. This weighing has been the new normal and we have proven last year that we deliver our plans in half too. We are excited about the high level of product newness and our strong commercial offering. And we are on track to deliver our plans for simplifying scale. Therefore, we remain confident to deliver on our full year expectations. And with that, I will hand back to Darcy for the strategy update. Thank you.