Forward-looking statements This presentation contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Card Factory plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this presentation. Nothing in this presentation should be construed as a profit forecast. Except as required by law, Card Factory plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein. The financial information in this presentation does not contain sufficient detail to allow a full understanding of the results of Card Factory plc. For more detailed information, please see the preliminary results announcement for the year ended 31 January 2018 which can be found at www.cardfactoryinvestors.com.
Agenda • Introduction Geoff Cooper (Chairman) • Key messages Karen Hubbard (CEO) • Financial review Kris Lee (CFO) • Strategic update Karen Hubbard (CEO) • Questions
Geoff Cooper - Chairman
Karen Hubbard - Chief Executive Officer
Key messages • Strong sales performance in a tough consumer environment • Sustained competitive position in a resilient market • FY18 profit impacted by cost headwinds • Strong cash generation and robust returns to shareholders 6
Kris Lee – Chief Financial Officer
Financial highlights Performed well in difficult conditions FY18 FY17 Year-on-year change 1. All figures shown on an underlying basis 2. Total FY18 ordinary dividend Revenue £422.1m £398.2m 6.0% includes recommended 6.4p final dividend, subject to AGM approval Card Factory LFLs +2.9% +0.6% 3. Net debt excludes debt issue costs Store LFLs +2.6% +0.4% EBITDA £94.0m £98.5m (4.6)% Margin 22.3% 24.7% (2.4)ppts Profit before tax £80.5m £85.1m (5.5)% Earnings per share 18.9p 19.8p (4.4)% T otal ordinary dividend 9.3p 9.1p 2.2% Dividend cover 2.03x 2.18x Special dividend 15.0p/£51.2m 15.0p/£51.1m Net debt £161.3m £135.8m Leverage 1.72x 1.38x 8
Divisional performance Strong growth in core business impacted by FX , NLW and Sales mix Year-on-year FY18 FY17 change Revenue £404.3m £380.5m 6.3% EBITDA £91.1m £95.7m (4.8)% Margin 22.5% 25.2% (2.7)ppts Revenue £17.8m £17.7m 0.5% EBITDA £2.9m £2.8m 2.8% Margin 16.4% 16.0% 0.4ppts 1. All figures shown on an underlying basis 2. Card Factory includes both stores and online 3. See Appendix for H1/H2 split by brand 9
Impact of FX & NLW headwinds EBITDA growth of 10.2% excluding headwinds EBITDA excluding FX & NLW headwinds - YoY Growth +10.2% (FY17: +3.8%) 10
Best-in-class margins Continued focus on low cost business model FY 18 % of revenue FY 17 % of revenue % of revenue Movement Cost of goods sold £138.0m 32.7% £119.7m 30.1% (2.6)ppts StoreWages £74.9m 17.7% £68.9m 17.3% (0.4)ppts Store Property Costs £65.5m 15.5% £64.8m 16.3% 0.8ppts Other Direct expenses £18.6m 4.4% £18.2m 4.5% 0.1ppts Cost of Sales £297.0m 70.3% £271.6m 68.2% (2.1)ppts Operating expenses £31.1m 7.4% £28.1m 7.1% (0.3)ppts EBITDA £94.0m 22.3% £98.5m 24.7% (2.4)ppts 11 All figures shown on an underlying basis
Sales mix Resilient card sales and success in growing complementary non-card product FY18 Sales Mix FY17 Sales Mix 2.3% 2.4% 44.0% 53.7% 55.3% 42.3% 12 Mix shown for Card Factory stores only
Capex FY18 FY17 Low, predictable and well controlled £’m £’m One-off strategic projects EPOS/BI 4.3 1.2 FY18 spend LED lighting 0.9 0.9 - Lower than the £15m guidance principally in respect of GP personalisation 0.3 - timing of investment in vertical supply chain integration Digital print 0.1 1.0 5.6 3.1 Capex remains low as a proportion of operating cashflow Recurring New Stores 3.6 3.4 Refurbs - 0.2 FY19 guidance Relocations 0.4 0.6 - circa £14m including further investment in vertical supply Other capex 3.5 3.1 chain integration and PCMS EPOS migration 7.5 7.3 Total CAPEX 13.1 10.4 13
Strong cash generation Track record of generating significant surplus cash FY18 FY17 £’m £’m Operating cash flow before working capital 82.8 97.7 Working capital 6.9 1.7 Corporation tax (17.0) (17.6) 72.7 Net cash inflow from operating activities 81.8 (13.1) Net capital expenditure (10.4) Net interest paid (2.6) (2.6) 57.0 Free cash flow * 68.8 * Free cash flow represents cash generation potentially available for distribution to shareholders. This excludes movements on borrowings and proceeds from new shares issued. 14
Capital policy Remains unchanged FY18 FY17 FY16 £’m £’m £’m Free cash flow 57.0 68.8 63.4 Dividends paid (82.9) (81.1) (82.8) Proceeds from new shares issued 0.3 0.3 - Net debt movement (25.6) (12.0) (19.4) EBITDA leverage (at year-end) 1.72 1.37 1.29 The Group’s Capital Policy continues to focus on maintaining a capital structure that is conservative yet efficient in terms of providing returns to shareholders: • Our policy is to maintain year-end net debt in the range of 1.0 to 2.0x EBITDA Over the short to medium term, we are targeting year end net debt of 1.7x EBITDA • • Special dividend for FY19 payable together with the interim dividend, expected to be in the range of 5-10p per ordinary share. 15
Dividends Significant returns of surplus cash We continue with our progressive dividend policy Dividend cover range moved from 2.0 – 3.0x to 1.5 – 2.5x 15.0 T otal cash returns since May 2014 IPO* 15.0 15.0 – £268.4m since IPO * Including recommended final dividend of 6.4 pence per share 6.4 6.3 6.0 2.9 2.8 2.5 FY18 FY17 FY16 16
FY19 guidance Headwinds easing Four pillars of growth LFL sales growth Targeting LFL growth within historic range New store openings Targeting 50 net new UK store openings Business efficiencies Industry-wide cost pressures, in particular FX and NLW – reduced from FY18 but not eliminated in FY19 (£7-8m) although with a large element of mitigation Online Significant LFL growth in CF Online with more modest growth in GP Other Operating margins Limited EBITDA growth, based on delivering management’s sales forecast, margin mix assumptions, identi fied business efficiencies and assuming limited adverse currency movement – the post mitigation impact estimated to be in the region of 120bps Capex FY19 capex of c£14m – including further investment in vertical supply chain integration Leverage FY19 targeted year-end leverage of c1.7x 17 Special dividend Special dividend for FY19 expected to be in the range of 5-10 pence per ordinary share.
Financial performance – summary Continuing to deliver despite ongoing headwinds Expectation of further returns of surplus cash over the medium term 18
Karen Hubbard – Chief Executive Officer
FY18 pillars Further improvements in Significant headwinds of 915 stores in the UK Cardfactory.co.uk grew by 67% quality & range £14.6m partially mitigated through various initiatives 6 trial stores in Republic of Getting Personal is a Significant increase in Ireland profitable part of the group complementary non-card sales Ongoing program of mitigation developed and in Strong pipeline for FY19 Competitive price and quality progress position maintained 20
Card market update 2017 • Future market projections suggest value growth of c1%-2% pa with slight decline in volumes as expected Card Factory (87.7) #1 Home Bargains (86.5) • #2 Levels of emotional attachment to card purchasing has remained relatively stable over the longer term Aldi (85.9) #3 • Lidl (85.4) Reported digital usage has evolved since 2015 but with no dilution of #4 card usage from digital alternatives 99p store (85.0) #5 • Card Factory consistently gained value share (16.1% to 18.2% from Primark (84.1) #6 2012-2016) and volume share (30.3% to 31.7% from 2012-2016) Farm Foods (83.6) #7 • Card Factory has high usage and awareness with 64% of card buyers Wilko (82.7) #8 having shopped at Card Factory in the last 12 months Poundworld (82.6) #9 • 50% of all visits to Card Factory were planned and the main reason for Poundstretcher (82.5) #10 the shopping trip 22
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