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Card Factory plc
Annual Report
& Accounts
2016
Company Overview
Welcome to
The UK’s leading specialist retailer of
greeting cards, dressings and gifts
Card Factory focuses on the value and mid-market segments of the UK’s large and resilient greeting
cards market, and also offers a wide range of other quality products, including small gifts and gift dressings,
at affordable prices.
The Group principally operates through its nationwide chain of over 800 Card Factory stores, as well as
through its online offerings: www.gettingpersonal.co.uk and www.cardfactory.co.uk.
Card Factory commenced operations in 1997 with just one store and has expanded its store estate primarily
through organic growth into a market-leading value retailer with a nationwide presence.
The Group’s stores are in a wide range of locations including on high streets in small towns through to major cities,
shopping centre developments, out-of-town retail parks and factory outlet centres.
Since 2005, Card Factory has developed a vertically integrated business model with an in-house design team,
an in-house printing facility and central warehousing capacity of over 360,000 sq. ft. This model differentiates
the Group from its competitors by significantly reducing costs and adding value to customers in terms
of both price and quality.
The Group’s clear strategy is focused on four pillars of growth:
Four pillars of growth
Like-for-like sales growth
New store roll out
Business efficiencies
Online development
Consistently strong cash generation and shareholder returns
Card Factory plc Annual Report and Accounts 2016
GROUP REVENUE
£381.6m Increase of +8.0%
NET NEW STORE OPENINGS
50
Total store estate 814
LIKE-FOR-LIKE STORE SALES
+2.8% Positive LFLs every year
since formation
ONLINE REVENUE
£19.2m
Increase of 22.8%
UNDERLYING EBITDA1
£95.0m Increase of +7.7%
UNDERLYING EBITDA MARGIN
24.9%
FY15: 25.0%
Contents
Strategic Report
Business Model
2 Market Overview
4
8 Our Four Pillar Strategy
10 Chairman’s Statement
12 Chief Executive Officer’s Review
16 Chief Financial Officer’s Review
21 Principal Risks and Uncertainties
24 Corporate Social Responsibility
Report
Governance
30 Directors and Officers
33 Chairman’s Letter – Corporate Governance
34 Corporate Governance Report
44 Chairman’s Letter – Audit and Risk Committee
45 Audit and Risk Committee Report
48 Chairman’s Letter – Remuneration Committee
50 Directors’ Remuneration Report
67 Chairman’s Letter – Nomination Committee
68 Nomination Committee Report
69 Directors’ Report
73 Statement of Directors’ Responsibilities
UNDERLYING PROFIT BEFORE TAX
Financials
£82.0m
FY15: £65.5m
STATUTORY PROFIT BEFORE TAX2
£83.7m
FY15: £42.7m
LEVERAGE
1.30x
Independent Auditor’s Report
74
78 Consolidated Income Statement
79 Consolidated Statement of
Comprehensive Income
80 Consolidated Statement of Financial Position
81 Consolidated Statement of Changes in Equity
82 Consolidated Cash Flow Statement
83 Notes to the Financial Statements
108 Parent Company Balance Sheet
109 Parent Company Statement of
Changes in Equity
110 Parent Company Cash Flow Statement
111 Notes to the Parent Company
FY15: 1.17x
Financial Statements
Company Information
119 Advisers and Contacts
120 Notes
TOTAL ORDINARY DIVIDEND3
8.5p
Increase of 25.0%
SPECIAL DIVIDEND
15.0p
FY15: Nil
Notes
1. As defined in note 5 to the financial statements on page 91.
2. Reflects pre-IPO financing charges and non-underlying
expenses principally relating to charges associated with the
IPO and senior debt refinancing.
3. Including recommended final dividend of 6.0p, subject to
AGM approval
11
Card Factory plc Annual Report and Accounts 2016Strategic ReportGovernanceFinancialsStrategic ReportGovernanceFinancials Market Overview
Introduction
The revenue generated from the physical store network represents c95% of Group revenue and can be analysed
into three principal areas:
Single cards
Non-card items
Christmas boxed cards
Christmas boxed cards are boxes
of multiple cards purchased at
Christmas, typically sent to a wider
group of relatives, friends and
colleagues and are often associated
with a charity.
Single cards comprise individual
cards for everyday occasions (eg
birthdays, anniversaries, weddings,
thank you, get well soon, good luck,
congratulations, sympathy and new
baby cards) and seasonal occasions
(eg Christmas, Mother’s Day,
Father’s Day, Valentine’s Day, Easter,
thank you teacher, graduation and
exam congratulations). Within the
singles segment, approximately
3.5% by volume relates to
personalised physical cards sold
online, with an element of
personalisation as part of the
purchase (eg to add the recipient’s
name or a photograph).
‘Non-card’ refers to a wide variety
of adjacent product categories that
customers have a high propensity to
purchase on the same occasions as
greeting cards, including:
• gift dressings (eg gift wrap, gift
bags, gift boxes, gift tags, bows
and ribbons);
• small gifts (eg soft toys, ceramics,
glassware, candles, picture
frames, homewares);
• party products (eg balloons,
banners, badges and candles);
and
• other non-card products (eg
calendars, diaries, stamps).
Share of FY16 revenue
Estimated Card Factory market share by value
Single cards
56.4%
Non-card
41.3%
Christmas
boxed cards
2.3%
22
Single cards
18.5%
Non-card items
less than 10%
Christmas
boxed cards
9.6%
£1.3 billion
UK market value
£2 billion
UK market value
£0.1 billion
UK market value
Note: Card Factory value share excludes online and is based on OC&C estimate of
market size in 2014.
Card Factory plc Annual Report and Accounts 2016 Market trends
Market growth rates
There is an ingrained culture of sending greeting cards
in the UK, with estimates suggesting an average of
approximately 30 cards sent per adult each year, of
which on average 20 are single greeting cards.
The overall card market has proved to be robust and
resilient throughout the past decade with steady
consistent annual growth in value.
Card purchasing is occasion-driven, focused around key
events (eg birthdays, anniversaries and seasons such as
Christmas). A person’s age, gender and stage of life are
major drivers of their propensity to purchase greeting
cards, with purchasing levels significantly higher in older
consumers and those with families. The evidence
suggests that card purchasing behaviour is broadly
stable within generations which, with both a growing
and ageing UK population, is expected to help support
future card purchasing levels in the UK.
Volumes in the larger, core singles market have been
broadly flat during this period, with only a very slight
shift to personalised single cards purchased online
notwithstanding very significant television advertising
spend by the major players in this established
market niche.
The small Christmas boxed cards segment of the market
has declined over recent years and this is thought to be
due, in part, to significant increases in stamp prices over
the period and lower levels of emotional attachment to
Christmas boxed cards than to other greeting cards.
Competitive environment
The greeting cards market is highly fragmented, with a wide range of retailers selling greeting cards, including:
• Specialist chains: Represent a destination location for greeting cards (eg Card Factory, Clintons, Hallmark,
Paperchase, Scribbler and Cards Galore);
• Grocers: Primarily capture convenience and distressed purchases (eg ASDA, Tesco and Sainsbury’s); and
• Others: Including generalists (eg WH Smith and M&S), stationers, discount chains (eg Poundland, Home Bargains
and Wilkinsons), the Post Office and hundreds of small independent retailers.
Consumer Perception
5.0
4.5
4.0
3.5
3.0
e
c
i
r
P
w
o
L
f
o
n
o
i
t
p
e
c
r
e
P
r
e
g
n
o
r
t
S
e
c
i
r
P
2.5
3.0
Home Bargains
Card Factory
Poundland
99p Stores
B&M Bargains
Wilkinson
Supermarkets
Moonpig.com
Funkypigeon.com
Post Office
Marks & Spencer
Clintons
Hallmark
WH Smith
Paperchase
3.5
4.0
Quality
Stronger Perception of Quality
4.5
5.0
Source: OC&C Online Consumer Survey (March 2016)
OC&C
Retail Proposition Index
December 2015
WINNER
VALUE FOR MONEY
1 Card Factory
Home Bargains
2
3
4
5
6
Amazon
Aldi
eBay
Farm Foods
7 Wilko
8
9
Lidl
Ikea
10 B&M Bargains
WINNER
LOW PRICES
1 Card Factory
Poundworld
2
3
4
5
6
7
8
9
Primark
99p Stores
Home Bargains
Poundland
Aldi
B&M Bargains
Farm Foods
10 Lidl
33
Card Factory plc Annual Report and Accounts 2016Strategic ReportGovernanceFinancialsStrategic ReportGovernanceFinancials
Business Model
Card Factory operates a unique vertically integrated
business model which comprises design, sourcing,
printing, warehousing, distribution, a large physical
store network and an online presence.
The Group has developed and strengthened this
model since it was first established in 2005, investing
over £50m in the process and building significant
management expertise in all of these specialist areas,
beyond the traditional retail operations.
This deep vertical integration enables the Group to
differentiate itself from its competitors by significantly
reducing costs and adding value to customers in terms
of both price and quality, underpinning the
Group’s motto:
“Compare the quality,
compare the price”
Key competitive strengths
The Directors believe that this unique model provides significant advantages to the Group, including:
• enabling Card Factory to offer its clearly
differentiated value proposition of quality products at
affordable prices while maintaining strong margins;
• enhanced financial flexibility through better working
capital management;
• providing Card Factory with control over the quality,
design and merchandising of its products, with the
ability to act directly on customer preferences;
• exclusivity of design – the vast majority of Card
Factory’s products are exclusive to Card Factory;
• economies of scale (eg with regard to the size of
card print runs) that have been built up over a
significant period of time;
• greater security of supply chain and enhanced
visibility of stock, allowing the Group to react more
dynamically to market trends;
• benefits from the significant investment in design
capabilities (including the artwork and verses
required to support the range of designs),
production and warehousing infrastructure, staff
and retail stores;
• a management team with the diverse experience
and expertise required to operate a deeply vertically
integrated retail business as opposed to a pure
retail model; and
• an integrated business model that would involve
significant execution risk to replicate.
1997
OPENED FIRST STORE
IN WAKEFIELD,
YORKSHIRE
2003
ACQUIRED
WAREHOUSE AND
DISTRIBUTION
FACILITY
2005
ACQUIRED DESIGN
STUDIO
2009
ACQUIRED PRINT
FACILITY ‘PRINTCRAFT’
44
Card Factory plc Annual Report and Accounts 2016
Card Factory has consistently and significantly grown its share of the UK greetings card market since formation
in 1997. As the charts below highlight, this is particularly apparent in the period from 2005, the year the Group
acquired a design studio and commenced the journey of vertical integration. Based on the latest available market
data from OC&C Strategy Consultants (‘OC&C') for the 2014 calendar year, Card Factory is the market leader in
terms of both value (17.9%) and volume (28.6%):
UK Card Market
Value Share (%)
17.9%
UK Card Market
Volume Share (%)
28.6%
17.9%
17.3%
15.9%
14.1%
13.0%
12.1%
28.2%
28.6%
26.6%
25.8%
23.6%
21.5%
18.6%
16.2%
11.9%
6.5%
10.1%
8.5%
6.0%
3.2%
2005
2006 2007 2008 2009 2010 2011
2012
2013 2014
2005 2006 2007 2008 2009 2010 2011
2012
2013 2014
Previously
stated:
Source: OC&C March 2016
3.2%
6.0% 8.5%
10.1%
12.1%
13.0%
14.1%
15.8%
17.1%
Source: OC&C March 2016
2011
ACQUIRED
GETTING PERSONAL;
RELOCATED AND
EXPANDED PRINTCRAFT
2013
OPENED NEW HEAD
OFFICE
2014
FLOTATION ON THE
LONDON
STOCK EXCHANGE
2015
RELAUNCHED NEW
CARD FACTORY WEBSITE
55
Card Factory plc Annual Report and Accounts 2016Strategic ReportGovernanceFinancialsStrategic ReportGovernanceFinancials Business Model continued
Design
• Strong team built gradually since 2005, now designing
almost all Card Factory store products
• Broad skill set including illustrators, verse writers, packaging
specialists, editorial, technical constructors and designers
• Typically redesign over 4,000 cards and hundreds
of non-card items each year
• Extensive database of thousands of creative designs,
captions and verses
Sourcing
• Dedicated in-house sourcing team covering wide
range of non-card products
• Close links with in-house design team to ensure
designing and sourcing to an acceptable margin
• Long-standing relationships with many third-party
manufacturers, particularly in the Far East
• Internal quality control function supported by third-party
supplier audits
Printing
• Existing supplier acquired in 2009 and relocated to larger
premises in 2011
• Well-invested, scalable facility based in Shipley, Yorkshire with
limited further expansion capex
• Currently producing over 200 million cards per annum for
Card Factory store network
• Strategically positioned to grow capacity to c400 million
cards in line with growth in anticipated store roll out and
further share gains
Warehousing
• National distribution centre based in Wakefield, Yorkshire
• Over 360,000 sq ft of storage space
• Supplemented by other local, third-party storage, principally
for seasonal peak requirements
• Supported by Microsoft AX ERP system implemented in 2009
66
Card Factory plc Annual Report and Accounts 2016 Distribution
• Outbound distribution performed by third-party
logistic partners
• Small fleet of own vehicles for specific deliveries
• Frequent store replenishment to support high store
sales densities
• Limited proportion of products shipped direct to
store (eg helium gas canisters, postage stamps)
Store network
• Nationwide network of over 800 stores, principally
built from individual openings rather than acquisition
• High quality estate – less than 1% of portfolio loss-making at
store contribution level
• Versatile, high returns model operating successfully
in a wide range of locations and demographic areas
• Detailed target location database supports
estimated total estate of up to 1,200 stores in the UK
and Republic of Ireland
Merchandising
• Extensive range of card and non-card products
• Highly differentiated retail proposition offering
quality products at a fraction of the price of the
Group’s principal competitors
• Transparent pricing builds trust with customers
• Consistently high net promoter scores
Online
• Complementary area of growth
• Relatively new entrant in a small but fast-growing market niche
• Market entry through acquisition of Getting Personal in 2011 –
predominantly personalised gifts
• Recent relaunch of Card Factory transactional website
77
Card Factory plc Annual Report and Accounts 2016Strategic ReportGovernanceFinancialsStrategic ReportGovernanceFinancials Our Four Pillar Strategy
Like-for-like sales growth
New store roll out
The Group has a strong track record of consistently
delivering like-for-like sales growth and growing
average basket value (‘ABV'). The Board’s strategy
is to continue this track record, whilst maintaining
the core value proposition, by:
• continuing to improve overall product quality
and range for both card and non-card products
developed by its established design team;
• further developing the Group’s in-store
merchandising and pricing architecture to
increase the number of items sold per basket
and/or to encourage customers to trade up to
higher priced items; and
• leveraging the recent investment in electronic
point of sale (‘EPOS') to provide more granular
sales data for analysis of customer purchasing
trends, thereby assisting in increasing items sold
per basket, for example through identifying and
stocking non-card products that are more likely
to be purchased alongside greeting cards.
The Group also expects to benefit from ongoing
revenue growth as recent store openings continue
to grow their share of the local market in line with
the typical maturity curve of four to six years. At
the point of maturity, annual sales in individual
stores are typically 30% to 40% higher than in the
first year post-opening.
The Group intends to expand its store portfolio
organically from its existing store estate to up to
1,200 stores in total (a figure supported by external
analysis undertaken by OC&C), including up to
approximately 100 potential new stores in the
Republic of Ireland. The Board intends to continue
this future roll out at a similar rate to the Group’s
historical rate of organic store openings of c50 net
new stores per annum.
Aberdeen
Aberdeen
Edi nburgh
Glasgow
Glasgow
Newcastle
Existing Card
Factory Sites – 814
Belfast
Belfast
Liverpool
Liverpool
Leeds
Leeds
Manch ester
Manch ester
Nottingham
Nottingham
124
Norwich
Norwich
Birmi ngham
Birmi ngham
Cardiff
Cardiff
Bristol
Bristol
London
London
Southa mpton
Southa mpton
124
Plymouth
Plymouth
Target locations for all of these new stores have
already been identified and these locations,
together with other potential locations, are kept
under regular review. Although these new
opportunities are expected to have, on average,
lower sales potential than the average of the
Group’s existing store locations, primarily due to
the new stores typically being in lower footfall
locations than the average of the Group’s existing
stores, the Directors believe these new stores will
nevertheless enhance EBITDA and will continue the
trend of delivering a strong return on capital.
Management undertakes a formalised appraisal
process for new location opportunities which
includes an assessment of potential store sales and
profitability, the results of which are stored in a
database of new store opportunities which is
continually updated and refreshed.
88
Card Factory plc Annual Report and Accounts 2016 Business efficiencies
Online development
Card Factory has a long-established culture of
strong cost control and a consistent track record
of delivering best-in-class margins. The Board
will continue to pursue business efficiency
initiatives to further improve the business and
its competitive position.
The Group aims to maintain and, where possible,
enhance its gross margins through continuous
improvement in the supply chain process. In
particular, the Group intends to continue to
diversify its range of suppliers (to reduce reliance
on key suppliers) and further develop direct
sourcing relationships with manufacturers.
Similarly, the Group aims to protect and, where
possible, enhance operating margins through the
continued strong control of operating costs,
including: the management of overall employee
costs; negotiation of improved rental terms upon
the expiry and renewal of existing leases; and tight
control over other costs and expenses.
As the Group continues to grow Iike-for-like sales
and proceed with its new store roll out, the
business will continue to leverage the growing
economies of scale when negotiating contracts
with suppliers and manufacturers.
Since 2010, in anticipation of planned long-term
growth, the Group has invested heavily in its
infrastructure, including:
• a new EPOS system to provide more granular
sales data;
• expansion of Printcraft as part of a 10 year capital
expenditure plan following its relocation to larger
premises in 2011;
• the relocation of Getting Personal’s personalised
gift production facility to Printcraft in 2013; and
• investment in the Central Distribution Centre and
Group head office completed in 2013.
The Group will continue to leverage the benefits
of these recent significant investments over the
medium term.
The Group’s online operations are currently
focused on Getting Personal, acquired in 2011.
Sales of personalised gifts represent the vast
majority of the revenue generated from its website
www.gettingpersonal.co.uk.
The Directors believe there are opportunities to
further grow the Group’s sales in this complementary
segment through further product development
(eg changes to existing product ranges and
new product ranges), enhancements to the
website (including the mobile offering) and
improved marketing.
While the personalised online segment of the
greeting cards market remains small, according
to OC&C representing just 6.6% of the total single
cards market, by value, and 3.5%, by volume,
in 2014, the Directors believe it provides an
opportunity for growth.
During the year the Card Factory transactional
website was relaunched on the responsive
technology platform developed by the team at
Getting Personal. We continue to enhance, test and
evolve our online proposition and product offering
on this second site and, in the second half of the
year, introduced a wider selection of personalised
cards and gifts, including a small range of photo
upload products.
The Directors believe that the Group is well
placed to capture a greater share of this growing
segment of the market.
99
Card Factory plc Annual Report and Accounts 2016Strategic ReportGovernanceFinancialsStrategic ReportGovernanceFinancials Chairman’s Statement
“… there remains a significant
opportunity to further grow our
market share”
Geoff Cooper
Chairman
I am delighted to report that Card Factory has had
another very strong year and continued to deliver on all
aspects of its successful four pillar strategy:
• growing like-for-like sales in existing stores;
• rolling out profitable new stores;
• focusing on delivering business efficiencies; and
• increasing penetration of the complementary
online market.
Card Factory continues to build on its position as the
UK’s market-leading specialist retailer of greeting cards,
dressings and gifts and there remains a significant
opportunity to further grow our market share.
The Group continues to generate best-in-class margins
and excellent free cash flow, benefiting significantly
from its unique vertically integrated business model.
This continuing strong performance has enabled the
Board to recommend an increase of 33.3% in the final
dividend to 6.0p per share (FY15: 4.5p per share).
Subject to approval by shareholders at our forthcoming
AGM, this would result in an increase of 25.0% in the
total ordinary dividend for the year to 8.5p per share
(FY15: 6.8p per share), giving a dividend cover of 2.25
times earnings. This is in addition to the 15.0p per share
special dividend paid in November 2015.
As a public company we have an opportunity to widen
share ownership across our employee base. This is an
important aspect of stakeholder engagement and we
were delighted that over 17% of all eligible employees
chose to join the SAYE share scheme which was
launched during the year.
In January we announced the appointment of Karen
Hubbard to the Board as CEO Designate, with effect
from 22 February 2016. Karen will succeed Richard
1010
Hayes as CEO of Card Factory in mid-April. Richard has
been with the Group since 2003, serving as Managing
Director and CEO since 2008. He had recently made
the Board aware of his wish to step down once a
suitable successor had been identified. He will retire
from the Board and leave the Group at the end of
June 2016, having ensured a smooth transition over
a four-month period.
Richard has led Card Factory with enormous success.
Since he joined the senior management team in 2003
the Group has grown from a 40 store discount chain to
a vertically integrated high margin value retailer with
over 800 stores and two transactional websites. Having
led the business through an MBO, the 2014 IPO and its
first two years as a listed company, it is fully
understandable that he now wants to retire. We are
extremely grateful for all he has done and, when he
steps down, it will be with our very best wishes.
Karen, who has previously held senior positions in B&M,
Asda and BP, has a huge amount of relevant experience
in value retailing, both through store estates and
multi-channel. She has a great deal of energy and
ambition for the business. The Board is confident that
Karen is the right person to take on the mantle from
Richard to deliver the significant growth potential of
the Group.
In summary, the Group has continued to deliver the
strategy which the Board set out at the time of IPO
almost two years ago. I am confident that this track
record of success will continue in the years ahead.
Geoff Cooper
Chairman
4 April 2016
Card Factory plc Annual Report and Accounts 2016 “… over 17% of all eligible
employees chose to join
the SAYE share scheme”
1111
Card Factory plc Annual Report and Accounts 2016Strategic ReportGovernanceFinancialsStrategic ReportGovernanceFinancials Chief Executive Officer’s Review
“… I believe that our retail offering
and market position will be further
strengthened in the years ahead”
Richard Hayes
Chief Executive Officer
Overview
Card Factory has had another record year, generating
strong growth in both revenues and profits, and
delivering in all areas of our proven four pillar strategy:
1. Continue to grow like-for-like sales in existing stores
The Group’s consistent like-for-like (‘LFL') sales
performance continued with annual LFL store growth
of +2.8% (FY15: +1.8%), towards the upper end of the
historic 5 year range of +1.4% to +3.2%. We continue to
target annual LFLs in line with this historic range.
This strong performance was driven by a number of
factors, including further improvements in the quality
and range of our card and non-card offerings, benefits
of our new EPOS system, new merchandising initiatives
and further market share gains as stores mature.
The performance of the diverse non-card category,
which typically has a lower gross margin than the card
category, continues to be particularly strong. Our
Design Studio has significantly improved the quality
of our non-card category over the past five years,
generating incremental sales and increasing non-card
sales mix from 35.3% in FY12 to 41.3% in FY16. We
expect this gradual trend to continue as we further
develop and enhance our non-card offering.
As referred to below, we have started to refine and
develop the multi-channel offering of the Card Factory
fascia from a very low base. Including sales from the
recently relaunched Card Factory transactional website,
the total LFL for the Card Factory fascia increased
by +3.0% (FY15: +1.8%). We believe that there is
considerable potential to leverage the existing loyal and
established store customer base.
2. Continue to roll out profitable new stores
The Group’s established new store roll out programme
continues to be an important driver of sales growth for
the business.
In the year under review, 50 net new stores were opened
(FY15: 51), bringing the total estate to 814 stores at the
year end. During the year 10 stores were closed (FY15: 5)
and 6 stores were relocated (FY15: 9).The overall quality
of our new store openings and their performance to date
continues to be in line with our expectations. The quality
of our retail estate remains high. Of our stores open for
over one year, only five (less than 1% of the estate) were
loss making, and their aggregate loss was only £0.1m at
store contribution level.
We have a strong pipeline of additional new store
opportunities and remain confident of opening a
total of approximately 50 net new stores in the new
financial year.
1212
Card Factory plc Annual Report and Accounts 2016 3. Continue to focus on delivering business efficiencies
The Group continues to consistently deliver one of the
best operating profit margins in the retail sector and
we remain focused on delivering further business
efficiencies and economies of scale.
4. Increase penetration of the complementary
online market
Our online operations have had another strong year
with total Group online revenues growing by 22.8% to
£19.2m (FY15: £15.7m).
A key aspect of our strategy has been to ensure that
this margin focus does not compromise our value
proposition, particularly when faced with cost
headwinds. We believe that this approach is in the best
long-term interests of the Company and shareholders.
As referred to in the Chief Financial Officer’s Review,
we anticipate that the current significant cost pressures
facing our sector, in particular foreign exchange rates
and the new National Living Wage, will slightly reduce
our operating margin percentage in FY17, post
mitigation. We have a number of business efficiency
projects underway and, given our market leading
position, unique vertically integrated model and
superior margin structure, we believe that we are better
placed than most to manage such costs pressures.
Indeed, our strategic response to such cost pressures
often, in our view, strengthens our competitive position
in the market.
We continue to leverage our investment in EPOS and
our increased ability to analyse more granular sales
data has contributed to the strong LFL performance in
FY16. The new system is now deployed in approximately
60% of stores and, given the characteristics of our retail
estate, we can use this data to improve the performance
of the whole estate. In order to optimise the benefits of
this system, we have recently commissioned an
independent detailed review of a potential software
upgrade to enable further system improvements and
efficiencies. We expect the conclusions to be available
later this year. In the meantime, we continue to deploy
the current version in all new stores.
Getting Personal, which currently represents the
majority of the Group’s online operations, grew revenue
by 17.5%, having delivered 23.1% growth in FY15.
EBITDA increased by 46.7% to £4.1m (FY15: £2.8m).
Over the last two years, Getting Personal has therefore
grown revenue by 44.6% and EBITDA by 145.8% – an
excellent performance. We continue to target double
digit revenue growth at Getting Personal albeit we
expect this to be at a lower level than that achieved in
the past two years given these much tougher
comparatives.
The new Card Factory transactional website continues
to progress well, having been relaunched during the
year on the responsive technology platform developed
by the team at Getting Personal. We continue to
enhance, test and evolve our online proposition and
product offering and, in the second half of the year,
introduced a wider selection of personalised cards and
gifts, including a small range of photo upload products.
Whilst this initial trial range is much smaller than that of
more established online competitors, our new offering
of personalised cards and gifts has been well received
by customers. Taken together with a more user-friendly
website, this contributed to annual revenue growth of
approximately 500% to £1.0m (FY15: £0.17m), despite
very limited marketing support. We have now started to
increase the promotion of this new online offering in
Card Factory stores and whilst annual revenue remains
small relative to the size of the Group, with over 100
million in-store customer transactions each year and a
loyal customer base, we are optimistic that this channel
has significant growth potential over the medium term.
1313
Card Factory plc Annual Report and Accounts 2016Strategic ReportGovernanceFinancialsStrategic ReportGovernanceFinancials Chief Executive Officer’s Review continued
Management and employees
As announced in January, Karen Hubbard has been
appointed as my successor and we welcome her to the
Group. Karen and I have worked closely together over
recent weeks as part of a managed transition plan. I am
confident that I leave the Group in good hands.
We have also continued to invest in the wider team with
some newly created roles at more senior levels in
existing functions (for example, Head of Loss Prevention
and a Marketing Director at Getting Personal).
We will continue to strengthen all aspects of the
business and invest in the wider team in support of our
medium-term growth plans.
Summary and outlook
As I enter the final few weeks of my tenure as CEO, it is
pleasing to be able to announce another set of record
results. We remain confident in the Group’s future
prospects, and in its ability to continue to grow sales
profitably over the medium term. Our clear value
proposition, underpinned by our unique vertically
integrated model, remains highly differentiated and I
believe that our retail offering and market position will
be further strengthened in the years ahead.
I am fortunate to have had the opportunity to lead Card
Factory through an exciting period of growth and
change. It is a very strong business, with a great team of
experienced people at Executive level and right across
the business, and I know they will give Karen every
support as she takes the business further forward. I
wish them all the very best for the future.
Finally, I would again like to thank my Board colleagues,
management team and all our employees for their
support and commitment over many years and also
Dean and Janet Hoyle, the founders of the business,
who entrusted me with the leadership of their then
family business in 2008. Together we have all
contributed to growing Card Factory from a small chain
of discount stores to a vertically integrated high margin
value retailer with over 800 stores nationwide and two
transactional websites.
We should all be proud of what we have achieved
together over a number of years in building Card
Factory to the position of clear market leader – proud
but not complacent.
Richard Hayes
Chief Executive Officer
4 April 2016
1414
Card Factory plc Annual Report and Accounts 2016 “Our clear value proposition,
underpinned by our unique
vertically integrated model,
remains highly differentiated”
1515
Card Factory plc Annual Report and Accounts 2016Strategic ReportGovernanceFinancialsStrategic ReportGovernanceFinancials Chief Financial Officer’s Review
“We believe that there is significant
potential for further returns of surplus
cash to shareholders”
Darren Bryant
Chief Financial Officer
The ‘FY16' accounting period refers to the year ended 31 January 2016 and the comparative period ‘FY15' refers to
the year ended 31 January 2015.
Revenue
Total Group revenue during the year grew by 8.0% to £381.6m (FY15: £353.3m), a similar growth rate to the prior
year, with both of the Group’s businesses contributing to this increase:
Card Factory
Getting Personal
Group
Strong growth in like-for-like (‘LFL') sales was delivered across all retail channels:
Card Factory stores
Card Factory online
Card Factory combined
Getting Personal
Total online combined
FY16
£’m
363.4
18.2
381.6
FY15
£’m
337.8
15.5
353.3
Increase
7.6%
17.5%
8.0%
FY16
FY15
+2.8%
+497.7%
+3.0%
+17.5%
+22.8%
+1.8%
+84.0%
+1.8%
+23.1%
+23.5%
Single cards, Christmas boxed cards and non-card products all contributed to the LFL sales growth in Card Factory
stores, with a particularly strong performance in non-card as a number of new ranges were introduced into store.
As a consequence, there was a continuation of the marginal mix shift to non-card, the full year mix being 56.4%
single cards (FY15: 57.9%), 41.3% non-card (FY15: 39.9%) and 2.3% Christmas boxed cards (FY15: 2.2%). We expect
this trend to continue as we further improve our non-card offering.
Revenue from the new, reinvigorated Card Factory transactional website grew by approximately 500% from less
than £0.2m in FY15 to £1m in FY16.
Getting Personal revenue growth was particularly strong in the first half, as a number of prior year strategic
initiatives continued to bear fruit. As expected, revenue growth in the second half, whilst still strong and double
digit, was lower than the first half given the much tougher comparatives in that period.
A total of 50 net new stores were added during the year (FY15: 51).
1616
Card Factory plc Annual Report and Accounts 2016 Operating costs
Cost of sales and operating expenses continued to be well controlled and can be analysed as follows:
Cost of goods sold
Store wages
Store property costs
Other direct expenses
Cost of sales
Operating expenses*
* excluding depreciation and amortisation
FY16
FY15
£’m
% of revenue
£’m
% of revenue
Increase
120.1
62.2
60.3
16.6
259.2
31.5%
16.3%
15.8%
4.3%
67.9%
110.3
57.3
56.7
15.7
240.0
31.2%
16.2%
16.1%
4.4%
67.9%
8.9%
8.6%
6.2%
6.4%
8.0%
27.4
7.2%
25.1
7.1%
9.1%
The overall ratio of cost of sales to revenue remained flat at 67.9% on an underlying basis (FY15: 67.9%) with the
following movements in sub-categories:
• Cost of goods sold: principally comprises cost of raw materials, production costs, finished goods purchased from
third-party suppliers, import duty, freight costs, carriage costs and warehouse wages. The small increase in this
cost ratio, as also seen in the first half of the year, principally reflects foreign exchange movements, the ongoing
shift in sales mix to lower margin Card Factory non-card product and the strong LFL performance at Getting
Personal, offset in part by improvements in underlying product margins. As highlighted previously and discussed
in more detail below, foreign exchange margin pressure remains an area of concern for FY17 given the recent
significant depreciation of Sterling versus the US Dollar.
• Store wages: includes wages and salaries (including bonuses) for store based staff, together with national
insurance, pension contributions, overtime, holiday and sick pay. This cost increased as new stores opened but
remained broadly flat as a ratio of revenue. As highlighted in the interim results, the new National Living Wage
(‘NLW') will place pressure on this cost ratio in FY17 and beyond. We estimate that, in each year over the next
five years, the implementation of NLW will increase store wages by approximately £2.5m per annum (based on
the current store estate), over and above the cost increase we were anticipating from the National Minimum
Wage. We have identified initiatives to mitigate approximately £1m of the FY17 increase and we are targeting a
similar level of mitigation in future years. Subject to LFL sales growth, we therefore anticipate a small annual
increase in this cost ratio over the medium term.
• Store property costs: consists principally of store rents (net of rental incentives), business rates and service
charges. This cost has also increased in absolute terms as new stores have been opened but has reduced slightly
as a ratio of revenue. A number of the Group’s existing stores remain on leases taken out before the recession
when the property market was stronger and the Company’s covenant was weaker. The improvement in this cost
ratio reflects changes to these factors for both new stores and breaks and expiries on existing leases as well as
the impact of positive LFL sales. We believe that there remains an opportunity for further savings as these older
leases come up for renewal over the coming years.
• Other direct expenses: includes store opening costs, store utility costs, waste disposal, store maintenance, point
of sale costs and marketing costs. This cost category is largely variable in respect of existing stores and
increases with new store openings. The ratio of other direct expenses to revenue has improved marginally to
4.3% from 4.4% as a result of economies of scale and various business efficiency initiatives.
Operating expenses (excluding depreciation and amortisation) include items such as head office remuneration,
costs relating to regional and area managers, design studio costs and insurance together with other central
overheads and administration costs. The Group has continued to invest in central infrastructure and people, in
recent years, to support the ongoing planned growth; we expect this trend to continue.
1717
Card Factory plc Annual Report and Accounts 2016Strategic ReportGovernanceFinancialsStrategic ReportGovernanceFinancials Chief Financial Officer’s Review continued
Total operating expenses (excluding depreciation
and amortisation) increased by 9.1% to £27.4m
(FY15: £25.1m). Following our IPO in May 2014, this cost
category has included the incremental operating costs
incurred as a result of being a public company, including
the non-cash share based payment charge in relation to
LTIPs (introduced on IPO) and the new SAYE scheme
(introduced during FY16). The total share based
payment charge for the year, including NI, was £1.6m
(FY15: £0.6m). Given the 3 year vesting period of such
schemes, this non-cash share based payment charge is
expected to increase in FY17, the third year to which
these charges have applied following our IPO in
May 2014.
Depreciation and amortisation increased from £8.8m to
£9.7m reflecting the continuing capital investment in
the Group.
Foreign exchange
With slightly over half of the Group’s annual cost of
goods sold expense relating to products sourced in US
Dollars, the Group takes a prudent but flexible approach
to hedging the risk of exchange rate fluctuations.
The Group’s Treasury Policy is formally approved by the
Board and reviewed regularly. The current policy
requires forward cover to be in place for at least 50% of
the next 12 months US Dollar requirement, calculated on
a rolling basis. The policy permits a maximum of 40% of
each financial year’s anticipated total requirement to be
hedged via structured options, with the balance
typically being hedged via vanilla forwards. The Group
has used structured options and similar instruments to
good effect for a number of years. The Board views
such instruments, structured appropriately, to be
commercially attractive as part of a balanced portfolio
approach to exchange rate management, even if from a
technical accounting perspective, they may not be
deemed to meet the IFRS hedge effectiveness test.
At the date of this announcement, cover is in place for
68% of the anticipated FY17 US Dollar cash requirement
(assuming all structured options are exercisable, which
would be the case with Sterling above $1.3425) at an
average rate in line with our standard budget rate of
$1.60 but marginally below that achieved in FY16. As
Sterling currently remains significantly below levels
achieved historically, we expect foreign exchange
margin pressure to remain an area of concern for FY17
and possibly beyond, with particular uncertainty arising
from the debate around and potential outcome of the
EU referendum.
Underlying EBITDA and operating profit
The underlying EBITDA margin of the Group remained
broadly flat at 24.9% (FY15: 25.0%), reflecting
incremental operating costs incurred following the May
2014 flotation, principally share based payment charges,
offset by the benefits of business efficiencies. Excluding
share based payment charges, underlying EBITDA
margins improved slightly.
Both of the Group’s retail brands, Card Factory and
Getting Personal, performed well, with the EBITDA
margin of Getting Personal improving considerably with
increasing economies of scale:
Underlying EBITDA
Card Factory
Getting Personal
Group
FY16
£’m
90.9
4.1
95.0
Underlying EBITDA margin
Card Factory
Getting Personal
Group
25.0%
22.4%
24.9%
FY15
£’m
Increase/
(Decrease)
85.4
2.8
88.2
+6.4%
+46.7%
+7.7%
25.3%
18.0%
25.0%
-0.3ppts
+4.4ppts
-0.1ppts
The Group’s underlying operating margin was also
broadly flat at 22.4% (FY15: 22.5%), despite the higher
depreciation charge referred to above. Excluding share
based payment charges, underlying operating margins
improved slightly.
Looking forward to FY17, we anticipate that our margins
will be adversely impacted by the aforementioned cost
headwinds, together with the anticipated increase in
share based payment charges relating to subsequent
LTIP awards and the proposed 2016 SAYE scheme. A
number of business efficiency initiatives are underway
and we will continue to pursue other business efficiency
projects and cost mitigation initiatives where
appropriate. Given the best-in-class margins generated
by our unique vertically integrated model, compared to
our principal competitors we believe that the impact on
our overall margins will be relatively low.
Debt refinancing
As announced in our interim results in September, in
anticipation of the special dividend paid to shareholders
in November, we amended and extended our existing
£200m debt facility. This facility, put in place prior to
IPO last year, consisted of a 5 year, £180m senior debt
facility and a £20m revolving credit facility (‘RCF'). The
new 5 year facility agreement consists of a £200m RCF,
thereby providing greater flexibility and balance sheet
efficiency. The new facility also includes an additional
£100m accordion. As part of this refinancing process,
the margin payable under the new facility has reduced
by between 0.25% and 0.75%, depending on the
leverage within the Group.
1818
Card Factory plc Annual Report and Accounts 2016
The fees and expenses of this debt refinancing, which
totalled £1.0m, have been capitalised and will be
amortised to the Income Statement over the five year
term of the new RCF in accordance with accounting
standards. Debt costs capitalised in relation to the
previous senior debt facility of £1.8m have been written-
off as a non-underlying item.
The new RCF is subject to a margin ratchet dependent
upon leverage levels, with margins ranging between
1.00% (up to 1.25 times historic EBITDA) and 2.00% (at
2.0 times historic EBITDA and above), with additional
intermediate steps in margin within this leverage range.
Net financing expense
Net financing expense, excluding non-underlying items
relating to the aforementioned debt refinancing,
decreased by 76.1% to £3.3m (FY15: £13.9m). The prior
year included approximately four months with the
pre-IPO capital structure with higher levels of leverage,
a significant proportion of accrued loan note interest
and a higher weighted average interest cost. The FY16
expense also benefited from the debt refinancing
completed in June.
Profit before tax
Underlying profit before tax for the financial year
amounted to £82.0m (FY15: £65.5m), an increase
of 25.2%.
As reported previously, as a consequence of the IPO
and refinancing completed during FY15, statutory profit
before tax for that year differed materially from the
underlying results. The table below reconciles
underlying profit before tax to the statutory profit
before tax for both financial years:
Underlying profit before tax
Gains/(losses) on derivatives
not designated as a hedge
IPO costs
Residual management equity
share based payment
Refinanced debt issue cost
amortisation
Other
Statutory profit before tax
FY16
£’m
82.0
3.8
–
–
(1.8)
(0.3)
83.7
FY15
£’m
65.5
(0.1)
(3.8)
(11.2)
(7.7)
–
42.7
Further detail on the non-underlying reconciling items is
set out in note 3 of the financial statements on page 90.
Tax
The tax charge for the year was 20.7% of profit before
tax, compared with 22.3% in the prior year. This reflects
the reduction in the headline rate of corporation tax
from 21.3% to 20.2% and the treatment of certain
non-recurring IPO costs in FY15.
Earnings per share
Basic and diluted underlying earnings per share for the
year was 19.1p (FY15: 16.3p), an increase of 17.2%. After
the non-underlying items described above, basic and
diluted underlying earnings per share for the year was
19.5p (FY15: 10.6p), an increase of 84.0%.
Capital expenditure
Capital expenditure in the year amounted to £11.6m
(FY15: £10.1m) of which £2.4m (FY15: £2.6m) related to
the EPOS conversion project.
The Board anticipates that, in the coming year, total
capital expenditure will amount to approximately £12m
in line with previous guidance.
Strong financial position
The Group remains highly cash generative, driven by its
strong operating margins, limited working capital
absorption and the relatively low capital expenditure
requirements of its expansion programme.
Cash conversion, calculated as operating cash flow
(being underlying EBITDA less capex and underlying
working capital movements) divided by underlying
EBITDA remained strong at 81.2% (FY15: 89.8%). The
slight decrease from prior year reflects marginally
higher capex and inventory increases from a
combination of new store openings, higher Christmas
carry over and the timing of purchases given the earlier
Mother’s Day in 2016.
As at 31 January 2016, net debt (excluding debt issue
costs of £0.9m) amounted to £123.8m, analysed
as follows:
Borrowings
Current liabilities
Non-current liabilities
Total borrowings
Add: debt costs capitalised
Gross debt
Less cash
Net debt
FY16
£’m
FY15
£’m
0.1
134.1
134.2
0.9
135.1
(11.3)
123.8
14.5
155.9
170.4
2.2
172.6
(69.0)
103.6
Net debt at the year end represented 1.30 times
underlying EBITDA (FY15: 1.17x), the increase in part
reflecting the payment of ordinary and special
dividends totalling £82.8m, as detailed below.
1919
Card Factory plc Annual Report and Accounts 2016Strategic ReportGovernanceFinancialsStrategic ReportGovernanceFinancials Chief Financial Officer’s Review continued
Turnover
400
400
400
EBITDA
100
100
100
381.6
353.3
353.3
326.9
326.9
381.6
353.3
353.3
326.9
326.9
326.9
299.9
299.9
265.5
326.9
299.9
299.9
265.5
400
300
299.9
265.5
300
200
299.9
265.5
200
100
381.6
381.6
353.3
80
100
381.6
381.6
353.3
m
£
’
m
£
’
60
80
40
60
20
40
88.2
80.4
73.6
88.2
80.4
73.6
80.4
73.6
63.3
80.4
73.6
63.3
80
100
80
100
73.6
60
63.3
80
60
80
m
63.3
£
’
m
£
’
m
63.3
£
’
40
60
20
40
m
£
’
40
73.6
60
63.3
20
40
400
300
400
300
265.5
m
300
200
£
’
m
£
’
265.5
m
m
200
100
£
£
’
’
m
£
’
300
200
m
£
’
200
100
100
0
100
0
FY12
Net Debt
160
160
120
160
160
160
160
160
160
120
160
120
160
160
160
123.8
123.8
123.8
103.6
103.6
103.6
123.8
123.8
123.8
103.6
103.6
95.0
88.2
95.0
88.2
95.0
80.4
95.0
88.2
95.0
88.2
95.0
80.4
m
£
’
120
80
m
£
’
120
80
m
£
’
120
80
m
£
’
80
40
m
£
’
80
40
m
£
’
80
40
103.6
100
0
FY12
FY13
FY12
FY13
FY14
FY13
FY14
FY15
FY14
FY15
FY16
FY15
FY16
FY16
0
20
0
20
FY12
0
20
FY12
FY13
FY12
FY13
FY14
FY13
FY14
FY15
FY14
FY15
FY16
FY15
FY16
FY16
40
0
40
0
At IPO
40
0
At IPO
0
0
FY12
0
FY12
FY13
FY12
FY13
FY14
FY13
FY14
FY15
FY14
FY15
FY16
FY15
FY16
FY16
0
0
FY12
0
FY12
FY13
FY12
FY13
FY14
FY13
FY14
FY15
FY14
FY15
FY16
FY15
FY16
FY16
0
0
At IPO
4
Store Like-for-Likes
4
4
4
3
4
3
4
3
3.2
3
2
%
3
2
3
2
3.2
%
%
1.4
%
2
1
1.4
2
1
%
2
1
%
1
0
0
1.4
1
0
FY12
0
FY12
1.4
1
0
FY12
FY13
0
FY12
FY13
3.2
3.1
3.2
3.1
3.2
3.1
3.1
3.2
3.1
3.1
1.4
1.4
1.8
1.8
2.8
2.8
1.8
2.8
1.8
2.8
1.8
1.8
FY12
FY13
FY14
FY13
FY14
FY15
FY14
FY15
FY16
FY15
FY16
100
80
100
2.8
’
m
£
2.8
m
£
’
60
80
40
60
20
40
100
Operating Profit
100
80
100
80
100
60
80
m
58.1
£
’
40
60
m
58.1
£
’
20
40
72.9
67.2
58.1
72.9
67.2
58.1
m
£
’
m
£
’
60
67.2
80
58.1
40
60
67.2
58.1
20
40
79.4
72.9
85.3
79.4
72.9
67.2
79.4
72.9
85.3
79.4
72.9
67.2
85.3
79.4
85.3
85.3
79.4
85.3
0
20
FY16
0
20
FY12
0
20
FY12
FY13
FY12
FY13
FY14
FY13
FY14
FY15
FY14
FY15
FY16
FY15
FY16
FY16
FY12
FY13
FY14
FY13
FY14
FY15
FY14
FY15
FY16
FY15
FY16
FY16
0
0
FY12
0
FY12
FY13
FY12
FY13
FY14
FY13
FY14
FY15
FY14
FY15
FY16
FY15
FY16
FY16
0
At IPO
At 31
January
2015
At 31
January
2015
At IPO
At 31
January
2015
At IPO
At 31
January
2015
At 31
At 31
January
January
2015
2016
At 31
At 31
January
January
2015
2016
Leverage Ratio
2
2.0
2.0
At 31
January
2016
At 31
January
2016
At 31
January
2016
At 31
January
2016
2
2.0
2
2.0
1
1
0
At IPO
0
At IPO
2
1
1
2.0
2.0
1.2
1.3
1.2
1.3
1.3
1.2
1.3
1.2
1.3
1.3
1.2
1.2
0
At IPO
0
At IPO
At IPO
At 31
January
2015
At IPO
At 31
January
2015
At 31
January
2015
At 31
January
2015
At 31
At 31
January
January
2015
2016
At 31
At 31
January
January
2015
2016
At 31
January
2016
At 31
January
2016
At 31
January
2016
At 31
January
2016
2
2
1
1
0
0
Dividends and capital structure
As stated at the time of the IPO, we expect to maintain a progressive dividend policy which reflects the Company’s
strong earnings potential and cash generative characteristics, while allowing us to retain sufficient capital to fund
ongoing operating requirements and invest in the Company’s long-term growth plans.
For the year ended 31 January 2016, the Board is recommending an increase in the final ordinary dividend of 33.3%
to 6.0p per share (FY15: 4.5p), giving a total ordinary dividend for the year of 8.5p per share, an increase of 25.0%
(FY15: 6.8p) and dividend cover of 2.25 times underlying earnings per share.
The final dividend will, subject to shareholders’ approval at the Company’s Annual General Meeting on 24 May 2016,
be paid on 10 June to shareholders on the register on 6 May.
As previously announced, over the medium term the Board expects to maintain leverage broadly in the range of 1.0
to 2.0 times net debt to underlying historic LTM EBITDA. Whilst this leverage ratio will typically vary during the
financial year, the Board’s current intention is to maintain average leverage around the mid point of this range.
To the extent there is surplus cash within the business, the Board expects to return this to shareholders. The Board
will consider the most appropriate method of returning such surplus cash from time to time, taking into account,
amongst other things, views of shareholders and the liquidity of the shares.
In line with this strategy, a special dividend of 15.0 pence per share, equating to a return of £51.1m, was paid to
shareholders in November. We believe that there is significant potential for further returns of surplus cash to
shareholders in line with our stated policy.
Darren Bryant
Chief Financial Officer
4 April 2016
2020
Card Factory plc Annual Report and Accounts 2016 Principal Risks and Uncertainties
Good risk management is an integral and fundamental part of planning and achieving the Group’s strategic
objectives. The Board and the senior management team are collectively responsible for managing risks and
uncertainties across the Group. In determining the Group’s risk appetite and how risks are managed, the Board,
Audit and Risk Committee and the senior management team look to ensure an appropriate balance is achieved
which enables the Group to achieve its strategic and operational objectives and facilitates the long-term success of
the Group.
The Group’s Audit and Risk Committee is responsible for reviewing the Group’s risk management framework and
ensuring that it enables the Committee and the Board to carry out a robust assessment of the principal risks facing
the Group, including those that would threaten its business model, future performance, solvency or liquidity.
The Board reviews the Group’s most significant risks at least twice a year, in addition to periodically challenging the
Executive Directors in relation to any specific concerns and as to what they consider to be the risks which would
‘keep them awake at night’. Further details of our risk management framework are set out in the Corporate
Governance Report on page 41.
The principal risks and uncertainties facing the Group are set out below, together with details of how these are
currently mitigated:
Risk Type
Description
Mitigation
Market
Competition
The Group generates almost all of
its revenue from the sale of greeting
cards, dressings and gifts, which may
be subject to changing customer
tastes and trends. Additionally,
there is a risk that the Group may
not be able to effectively predict
and respond to changing consumer
demands and market trends.
Our sector is highly competitive, with
competition on product choice and
quality, store location and design,
inventory, price and customer service.
We compete with a wide range of
retailers (including new entrants) and
some of our competitors, particularly
supermarkets, general merchandise
discounters and stationery retailers,
may have greater market presence,
name recognition, financial resources
and purchasing economies of scale,
any of which could give them a
competitive advantage.
• Regular consumer surveys and market research.
• Continuous investment in our in-house design and buying teams.
• Designs continuously refreshed through key trading seasons.
• Detailed sales analysis guides design and purchasing decisions.
• Vertically integrated model helps the Group position itself
to respond to changes in its markets.
•
In-house design and print operations help maintain and improve the
quality and value of our offering.
• Strong focus on innovation and product development helps refresh
and strengthen our proposition each year.
• All key elements of competitor activity, including new store
openings and market entrants, closely monitored with selective
localised pricing strategies used to protect the Group’s
competitive position.
• Continuous review of individual store performance and
customer trends.
• Regular consumer surveys and market research.
• Sustained investment in the assets, systems and people
supporting our vertically integrated model which underpins our
competitive position.
Our Brands
Business
Strategy
The ‘Card Factory’ and ‘Getting
Personal’ brands are important
assets. If we are unable to protect our
brands, our reputation is damaged
or we fail to sustain our appeal to
our customers, our sales and future
prospects could be affected.
• Regular reviews of customer trends and competitor activity.
• Consumer surveys address brand perception.
• Development of our dedicated quality control function that works
with our design, purchasing and print teams and third-party
suppliers to ensure product quality and safety.
• Rigorous protection of our intellectual property.
Our strategy has been developed
with the aim of achieving long-term
value for our shareholders. The
Board recognises that if the strategy
and vision for the business are not
properly developed, communicated or
delivered there could be an adverse
impact on the Group.
•
Implementation of and performance against strategy are regularly
reviewed at Board and senior management team level.
• Business objectives set in the context of our four pillar strategy in
communications with key personnel.
• Competitor analysis, consumer research and sales data used to bring
focus to the development of our retail proposition.
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Risk Type
Description
Mitigation
Sales and profits growth depend on
our ability to find good locations for
new stores. Competition for store sites
and acquiring them on acceptable
terms are key to us achieving our
strategy. Supporting this growing
portfolio through our operational
infrastructure, financial systems and
managerial controls and procedures
is critical to the Group’s success.
• Established database of new store opportunities updated regularly.
• Formalised appraisal process for new location opportunities.
• Commercial analysis conducted on new stores to assess potential
sales and profitability taking into account the number of other Card
Factory and competitor stores in close proximity.
• Commercial developments monitored in the real estate market and
our strategy is adjusted where a change may adversely affect a
store’s potential profitability.
• Group’s operational capabilities support the current portfolio
expansion strategy in the UK.
Third-parties, including many in the
Far East, supply nearly all of our
non-card products, our handcrafted
greeting cards and certain raw
materials. If they fail to satisfy orders
it may affect the business or result
in us having to seek alternative
suppliers, who may not be able to
fulfil our needs. We are also exposed
to changes in supplier dynamics and
increases in raw material prices. Our
supplier profile means we are subject
to the risks of manufacturing and
importing of goods from overseas
including freight costs and duty
as well as supply interruption and
reputational risk arising from supplier
labour practices.
The Group’s strategy and long-term
success depend on our ability to:
manage the succession of our CEO
and support the CEO Designate,
sustain and develop our senior
management team and employees;
to build our teams where this supports
our growth; and to plan for, support
and manage senior management
succession.
Our funding arrangements and the
fact that we source the majority of
our non-card merchandise, as well
as handmade cards and certain raw
materials, from suppliers in the Far
East mean that a lack of appropriate
levels of covenant headroom and/
or cash resources in the Group, or
significant variations in interest or
exchange rates, could have an impact
on our operations and performance.
The CFO’s Review on page 18 sets out
in further detail the risk to the Group
of recent exchange rate fluctuations.
• Strong relationships with key suppliers.
• Continuously developing and broadening supplier base providing
greater flexibility and reducing reliance on particular suppliers.
• Periodic inspections and third-party facilitated technical audits of
factories operated by major suppliers with clear actions where
weaknesses are identified.
• Sedex membership (‘the Supplier Ethics Data Exchange’) combined
with a programme of standalone ethical audits of key suppliers
initiated during the year.
• Dedicated product quality control function.
• During 2015, both Sportswift Limited (which trades as ‘Card
Factory’) and Printcraft Limited, obtained Forest Stewardship
Council (‘FSC’) certification.
• Remuneration policy (set out in the Directors’ Remuneration Report
on pages 51 to 59) designed to incentivise senior management and
promote the long-term success of the Group.
• Delivery of the Group’s strategic objectives and business
performance are central to the policy with remuneration structured
to align the interests of the senior management team and
shareholders.
• CEO succession plan implemented with senior management
succession plans to be developed.
• Comprehensive tailored induction and handover programme in place
for CEO Designate with support from the CEO, CFO and the rest of
the Board and senior management team.
• Current financing arrangements and Group cash generation continue
to provide the Group with appropriate financial support and cash
resources for the delivery of its strategy.
• Treasury management processes and policy in place to govern cash
management and manage exposure to foreign exchange and interest
rate fluctuations.
• Foreign exchange and interest rate hedging contracts pre-approved
directly by the CFO and communicated to the Board monthly.
• Further details of the Group’s financial position are described in
the CFO’s Review on pages 19 and 20 and the Group’s viability
statement is on page 71 of the Directors’ Report.
Store
Portfolio
Expansion
Sourcing/
Supply
Chain
Key
Personnel
Finance and
Treasury
2222
Card Factory plc Annual Report and Accounts 2016 Risk Type
Description
Mitigation
Business
Continuity
Compliance
Information
Technology
Online
Any major disruption to any of the
parts of our vertically integrated
business model, in particular to our
printing facility, Printcraft, and our
design studio, could severely affect
our ability to supply our stores.
Disruption to any of these functions
could also force us to use third-party
providers which could be expensive
and on onerous terms.
• Business Continuity Plan (‘BCP’) continues to be developed.
• BCP development to be supplemented by periodic review and
scenario testing which will allow the plan to evolve ensuring it meets
the continuing needs of the business.
• Stock held across multiple locations to mitigate the risk of a
catastrophic event at any one of our storage facilities.
• The Group also maintains appropriate business interruption
insurance cover.
The Group is subject to legislation and
regulations in areas including
corporate governance, the listing and
trading of our shares, employment
(including that relating to the
introduction of the new National
Living Wage), product quality, trading,
the environment, health and safety,
bribery and data protection.
Any failure to comply with these could
lead to penalties, fines, damages,
claims or reputational damage
which could impact the financial
performance of the business.
• Policies and procedures are in place governing behaviours in all key
areas, some which address mandatory requirements and others
adopted voluntarily.
• Senior management team members manage compliance of the
Group’s key operational teams with escalation and disciplinary
action where needed.
• Group’s General Counsel and Company Secretary oversees and
co-ordinates compliance in the Group with the support of external
advisers. Senior management team members liaise with him to
ensure issues are identified and managed.
Impact of new legislation on the Group is monitored with changes
implemented where required, eg Consumer Rights 2015.
•
• Further details of the estimated impact of the new National Living
Wage on the Group and the proposed mitigation of this are set out in
the CFO’s Review on page 17.
Reliable and efficient IT systems,
including those supporting our retail
operations (both physical and online),
our head office function and our in-
house design and printing operations,
are important to the Group. Failure
to adequately develop and maintain
these or any prolonged system
performance problems could seriously
affect our ability to implement the
Group’s strategy and to carry on the
business.
• Continuing investment in people and systems.
• Deloitte LLP have been appointed to provide internal audit services
with their main focus during the first two years of their appointment
being on the Group’s use of technology and the structure and
capability of its IT team.
• Deloitte’s consultancy division supporting the Group with the
•
implementation of specific technology projects.
IT strategy and governance form part of the Audit and Risk
Committee’s remit for review.
• Principal IT risks are documented and agreed service levels for
recovery of key business systems are in place.
• Continued investment in offering via in-house web development team.
• Card Factory transactional website (www.cardfactory.co.uk) was
relaunched in April 2015 on a new platform.
• A Marketing Director has joined the Group and will focus on the
development and promotion of our online proposition.
The Group’s online presence, via our
Getting Personal and Card Factory
transactional websites, remains
relatively new to the business. Our
websites operate in a very competitive
market with relatively low barriers to
entry. If they do not evolve to account
for changing customer tastes and
the different devices being used by
customers to make online purchases,
they may not deliver the anticipated
revenue growth. This may also
affect our reputation and customer
perception of our brands.
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Report
OUR AIMS
At Card Factory we are committed to delivering
excellent value and quality products to our customers
– the lifeblood of our business. We understand the
importance of showing our customers that we take our
corporate and social responsibility (‘CSR') seriously.
Our aim is to embed CSR within our culture, to use it
to guide management and employee behaviour and to
have clear responsibility and accountability for our
CSR strategy.
We do not have a separate CSR function as it is
intrinsically important in every role. The Board has
overall responsibility for our CSR policies and how we
manage and monitor performance.
Our CSR activity focuses on the following key topics:
• Customers
• Manufacturing and Sourcing
• Environment
• Health and Safety
• Employees
• Community
CUSTOMERS
Our business is built on providing great products,
service and value to our customers.
Key achievements during the year were:
• Card Factory’s transactional website
(www.cardfactory.co.uk) was relaunched with a more
responsive platform and now offers a wide selection
of products including personalised cards and gifts,
giving customers more choice and an enhanced
browsing experience across all devices;
• a continued redesign of existing card ranges and
launch of new ranges, both everyday and seasonal,
supported by further investment in our design team.
This ensures our customers continue to have a great
choice of products;
• introduction of new non-card product ranges across
our store network, increasing customer choice and
refreshing and diversifying our range;
• continued investment in new fixtures and fittings
across our store network enabling us to better
showcase some of our new and existing products to
customers;
• roll out of our investment in LED lighting across the
store network, enhancing customer experience
in store;
• implementation of responses to the ‘Tell Card
Factory’ surveys we encourage our customers
to complete;
2424
• development of people and systems in our customer
services team. All members of the customer services
team are working to achieve NVQs in customer
service and new software is being used for tracking
all customer queries, making sure we address them
and learn from customer feedback; and
• finishing first for both ‘value for money’ and ‘low
prices’ in the OC&C Retail Proposition Index 2015.
Development of our customer proposition continues
to underpin our position as the UK’s leading specialist
greeting card retailer – a position we intend to keep.
MANUFACTURING AND SOURCING
We are proud that the majority of cards sold in our
stores are designed and manufactured by us in
Yorkshire in the UK. The balance of cards and other
products are sourced from a broad and growing
supplier base throughout the UK, Europe and the
Far East, principally China.
Our supplier factory auditing programme gives us
reasonable assurance that we are trading with suppliers
that operate in a manner that conforms to applicable
laws and that systems and controls are in place to
mitigate risk. These audits are undertaken using third-
party specialists with a consistent audit programme
in place to allow us to ensure suppliers are
correctly assessed.
All suppliers outside the EU where purchases exceed
£50,000 per annum have combined technical and
ethical audits in place, commissioned by the Group
and undertaken by recognised third parties. Retained
suppliers have either an assessed rating in excess of
85%, or where below this a detailed corrective action
plan is in place for non-material issues to allow trade
to continue. When issues are either material or not
resolved within 3 months we cease trading with
a supplier.
As part of the Group’s commitment to developing its
supplier audit programme, more detailed dedicated
ethical audits of suppliers have begun taking place and
are being prioritised by the value of annual purchases
by the Group.
We have been a member of Sedex, a large and
recognised membership organisation which shares
ethical trade data with members, since 2013 and we
actively encourage our current or prospective suppliers
to join this organisation, if not already members.
The audits we commission and the information provided
through our Sedex membership helps us to monitor
human rights issues through our supply chain and is
further supported with periodic factory visits by our
sourcing team. Our dedicated ethical audit programme
will further supplement this work.
Card Factory plc Annual Report and Accounts 2016 We work with our suppliers to ensure that our products
are produced to all applicable standards, appropriate
product safety testing takes place, and associated
labelling is undertaken. We ask all our suppliers to sign
our supplier compliance manual before trading
commences, and we have continued to strengthen our
quality assurance and inspection operations, utilising
third-party partners in the Far East to complement our
own team.
In our UK manufacturing operations, appropriate due
diligence is undertaken to ensure, so far as practicable,
that we comply with the EU Timber Regulations (‘EUTR').
We have also continued to develop the level of controls
over paper-based materials within our products, sourced
from the Far East, to replicate the level of due diligence
we undertake within our own manufacturing facilities
with those of third-party suppliers.
During 2015, both our main trading subsidiary,
Sportswift Limited (which trades as ‘Card Factory’),
and our UK manufacturing operation, Printcraft
Limited, obtained FSC certification. This will assist in
providing a more robust and simplified supply chain
over which to comply, so far as practicable, with the
EUTR and demonstrating the transparency we have
over our sourcing of paper-based materials from
sustainable sources.
We are committed to working with our key third-party
suppliers to ensure that products on sale in our stores
are manufactured using FSC certified material. Our
long-term goal is that, so far as possible, all paper-
based products sold in our stores are produced using
FSC certified material by 2020, actively developing and
promoting a policy to maximise the use of wood fibres
from forestry operations certified by the FSC within our
supply chain.
In our day-to-day operations we also seek to ensure
that all paper and paper board materials classified as
waste are separated and recycled.
ENVIRONMENT
We recognise our operations impact the environment
and the policies we adopt are important to our business
and its stakeholders. Our objective is to reduce our
impact on the environment, from material sourcing to
customer use and disposal, across the following
key topics:
Waste recycling
We recognise the impact waste generated from our
activities has on the communities we operate in. We
proactively look to reduce the level of waste generated
and maximise the proportion of waste that is recycled.
We continue to educate our staff to maximise the level
of waste that can be recycled and minimise the number
of collections required to reduce the associated carbon
footprint of waste collection and movement and to
minimise store waste sent to landfill.
Our distribution centres in Wakefield operate a
recycling programme to ensure all plastic and
cardboard materials are bailed on site and removed
for recycling.
Packaging
We use a third-party consultancy to ensure we meet the
requirements of the UK Packaging Waste Regulations
and purchase the appropriate level of packaging
recovery notes (‘PRNs').
The majority of our products offered for sale are
designed in-house which affords us the opportunity
to reduce packaging waste for both products and
transit packaging. We continually seek to improve this,
and this also helps us to reduce container and road
transport costs.
Energy
We analyse electricity usage across our store portfolio
to better understand how we can reduce the
consumption of electricity, supplemented by an energy
audit carried out under ESOS (see below). We continue
to focus on:
Installation of smart meters
This year we have continued to install smart meters into
our existing and new stores to allow us to measure
electricity usage on a half-hourly basis. This enables us
to reduce electricity usage by:
• tackling behaviour in stores, for example, monitoring
unnecessary use of air conditioning and heating or
when lights are left on in stores after they have closed;
• identifying areas which use electricity within stores
and producing plans to target areas of excess usage.
For example, there may be legacy equipment we
inherit when we open a store that is not fit for our
purposes or which is located in parts of a store that
no longer need it; and
• performing electrical audits to assess heavy
consumption stores and consider where savings can
be made, with close attention to lighting and heating
installations in the back-of-house areas.
Installation of LED lighting
During the year, we have retro-fitted energy-efficient
LED lighting in 70 of our pre-existing stores and
installed LED lighting in all of the 64 stores we have
fitted out (FY15: 70 stores in total). In the 70 existing
stores, for which we have comparative data, we have
reduced electricity usage by an average of 43%.
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Report continued
In addition to the cost efficiency of LED lighting, the
customer experience in store is enhanced given the
nature of the lighting and the reduction in heat emitted.
Fuel efficiency
We invest to improve fuel efficiency and reduce the
number of miles travelled as part of our commitment to
reducing energy consumption.
We operate a fleet of company cars and vans in
which we aim to include, as far as practicable, more
fuel-efficient vehicles and for which we monitor
fuel consumption.
With our third-party distribution partners, we have
actively taken steps to reduce miles travelled for store
deliveries from our national distribution centre in
Wakefield. By working in partnership with our carriers
and making changes to our business processes, we are
now sorting a large proportion of our deliveries
destined for the northern parts of the United Kingdom
and Scotland so that they are processed through
northern distribution hubs.
ESOS
The Energy Savings Opportunity Scheme or ESOS is
new EU legislation that has introduced a mandatory
programme of energy audits for some businesses.
With the support of external consultants, we carried
out the initial audit within the required time frame.
The audit and accompanying reports assessed the
energy performance of our operations and made
recommendations for cost efficient energy efficiency
savings. The recommendations will supplement the
measures we already take to assess and reduce
energy consumption.
Greenhouse Gas (‘GHG’) emissions
gas reporting guidance, Environmental Reporting
Guidelines (ref. PB 13944), issued by the Department
for Environment Food and Rural Affairs in June 2013.
Further details of the methodology applied in
calculating these emissions can be found on
Card Factory’s investor website
(www.cardfactoryinvestors.com).
HEALTH AND SAFETY
The health and safety of all our employees, customers,
contractors, visitors and members of the public is of
paramount importance to the Group.
All employees are responsible for ensuring that stores
and other working environments are safe and operated
without significant risk. Health and safety is
incorporated into our day-to-day practices and we
support this through training programmes.
Whilst the Board has ultimate responsibility for health
and safety, it is managed on a day-to-day basis by
our Compliance and Safety team, who liaise with line
managers in all parts of the business to ensure
compliance with our policies and that all staff
receive appropriate training, tailored to support
their specific roles.
The Compliance and Safety team also analyses trends
and takes a pro-active approach to managing health
and safety practices.
Compliance and Safety meetings are held regularly
throughout the year and are attended by members
of the senior management team, as well as by
representatives from key operational teams. The
overriding objective of the decisions taken at these
meetings is to make our stores and workplaces safe
places for customers, employees and visitors alike.
Greenhouse Gas Statement for the Group
GHG emissions for the Group for the year ended
31 January 2016, in tonnes of carbon dioxide equivalent
(‘tCO2e’), were:
Additional training has been a focus during the year,
aimed at reinforcing basic health and safety practices
which, in turn, has improved our visibility of near misses
and enabled us to take further mitigation measures.
Source
Fuel combustion (stationary)
Fuel combustion (mobile)
Fugitive emissions (F-gas)
Purchased electricity
TOTAL
tCO2e
%
95 0.4%
1,230 5.3%
157 0.7%
21,515 93.6%
22,997
Annual comparison and emissions intensity
tCO2e
Total emissions
Emissions intensity*
2014-15
2015-16
change
23,970 22,997
60.3
67.8
-4%
-11%
*expressed in tCO2e per £m turnover
Methodology and emission factors
These emissions were calculated using the
methodology set out in the updated greenhouse
2626
This year the Group has invested further in:
• transport management – training has been
delivered to drivers to improve driver safety and
legal compliance, and members of the Compliance
and Safety team have received formal transport
management qualifications from the Road Haulage
Association, acquiring the Certificate of Professional
Competence for Transport Managers (Road
Haulage); and
• mechanical aids – software has been installed to
support the operation of forklift trucks in our
distribution centre and provide management
information to enable better planning of safety
improvements.
The Board receives regular reports and updates on
health and safety matters throughout the Group
including details of any incidents and remedial actions.
Card Factory plc Annual Report and Accounts 2016 EMPLOYEES
Card Factory’s employees are critical to its success. We
employ more than 7,000 (FY15: 6,500) permanent staff.
During the important Christmas trading period this
number increased to more than 13,000 (FY15: 12,000)
when taking into account temporary seasonal workers.
The commitment of our employees is fundamental to our
growth and enables us to consistently deliver great value
and service to our customers. We want our employees
to feel valued and to see themselves as part of the
Card Factory family. Highly engaged and well trained
employees contribute significantly more to the Group.
In supporting this the Group has, during the last year:
• introduced an all employee ‘save as you earn’
(‘SAYE') share scheme enabling eligible employees
to save to buy shares in the Company at a
discounted rate;
• launched a pilot of a new learning management
system (‘SPARK') that can deliver e-learning modules
directly to all our stores and across the Group,
supporting employee development and allowing us
to track completion rates for specific modules;
• invested in additional training for head office and
distribution centre employees; and
• hosted Summer and Christmas social events for
its employees.
We fully support the development and progression of
our employees throughout the business. There are
many examples of employees who, initially joining us as
retail assistants in stores, have now progressed to store
manager or roles at head office which benefit from their
shop floor and customer facing know-how.
We are an equal opportunities employer; our policy is to
recruit, develop, promote, support and retain skilled and
motivated people regardless of disability, race, religion
or belief, sex, sexual orientation, gender identification,
marital status or age.
At the end of the financial period the percentage
breakdown of male and female employees across the
Group was as follows:
Board
Senior management team
All employees
% Male
% Female
FY16
FY15
FY16
FY15
83
89
20
83
89
18
17
11
80
17
11
82
We regularly communicate with our employees in a
variety of ways including:
• weekly retail news bulletins, providing operational
instructions to all of our stores on matters including
products, layouts and displays; online message
boards communicating key operational messages to
all stores via our intranet;
• regional and area managers’ regular planning and
review meetings for all of the key trading periods
with subsequent cascading of key messages to
store employees;
• store manager visits to head office to discuss and
review Card Factory’s retail proposition;
• Card FACTually, a periodic newsletter which contains
a message from the CEO and takes a more light-
hearted look at the business. It includes details of the
community and charity events we are involved in and
aims to celebrate and share achievements and
successes by employees;
• Board and senior management team members
regularly visit stores to assess the retail proposition
and get feedback from employees and customers,
particularly during key trading periods; and
• visits to our Mock Shop, a representative Card
Factory store at our head office which reflects the
layout of a typical Card Factory store as it progresses
through each trading season. This provides a visual
representation of what we aim to achieve in our
stores and also gives employees the opportunity to
provide feedback on our retail proposition.
COMMUNITY
We recognise the importance of being responsible
members of the communities in which we work. We
look to support charitable causes that can benefit from
our growth.
Card Factory is proud to have been supporting
Macmillan Cancer Support since 2006. Employees
and customers at Card Factory take part in multiple
fundraising events, ranging from loose change
donations to the annual National Bear Raffle in our
stores, as well as the sale of Macmillan Christmas cards.
For a number of years, a group of employees from
across our business have also competed in the Great
North Run attracting sponsorship from colleagues,
friends and relatives.
To date we have raised nearly £4 million and we intend
to continue this successful partnership with Macmillan,
whose valuable work helps to ensure that no one faces
cancer alone.
In addition to the money we raise for Macmillan, we
are currently considering which charitable causes
will benefit from the profits we generate from the sale
of plastic carrier bags in England, following the
introduction of the 5p carrier bag charge in October
2015. We will provide an update on this in next year’s
Annual Report.
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Card Factory plc Annual Report and Accounts 2016Strategic ReportGovernanceFinancialsStrategic ReportGovernanceFinancials 2828
Card Factory plc Annual Report and Accounts 2016 S
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Card Factory is
proud to have been
supporting
Macmillan Cancer
Support since 2006
TOTAL RAISED TO DATE:
£3,985,683
An incredible partnership!
“Macmillan Cancer Support thanks the staff and customers of
Card Factory for their incredible fundraising activities which continue
to help us ensure that no one faces cancer alone.”
Sharon Cottam – Partnership Manager, Macmillan Cancer Support
Card Factory plc Annual Report and Accounts 2016
29
29
Directors and Officers
Geoff Cooper
Non-Executive Chairman
Geoff joined the Board and became Chairman of the Group in April 2014. Geoff has
over 20 years’ experience of serving on boards of UK public companies, in particular
as Chief Executive of Travis Perkins plc from March 2005 until December 2013 and
as a Director and Non-Executive Chairman of Dunelm Group plc between 2004 and
2015. Geoff is also a Director and Non-Executive Chairman of Bourne Leisure and an
adviser to Charterhouse Capital Partners LLP. He is a chartered management
accountant and had a career in management consultancy before joining Gateway
(subsequently Somerfield plc) as Finance Director in 1990. In 1994, he became
Finance Director of UniChem plc, subsequently Alliance UniChem plc (which later
became part of Alliance Boots plc), where he was appointed Deputy Chief
Executive in 2001.
Other current commitments: Non-Executive Chairman of Bourne Leisure Holdings
Ltd. Adviser to Charterhouse Capital Partners LLP.
Richard Hayes
Chief Executive Officer
Richard was appointed Managing Director in 2008 (subsequently renamed Chief
Executive Officer in 2010), prior to which he held the positions of Finance Director
and Commercial Director of the Group. He was appointed to the Board of Card
Factory plc on 30 April 2014. During his time at the Company, Richard has been
actively involved in, and since 2008 has overseen, the Group growing from a
40-store discount chain to a vertically integrated value retailer with over 800
stores and two transactional websites. Richard led the 2010 MBO and oversaw
the continued growth under Charterhouse’s ownership leading ultimately to the
Group’s successful IPO in 2014. Before he joined the Group in 2003, Richard
spent 19 years at RBS working mainly in the Corporate Division. As previously
announced, Richard will step down from his position in mid-April 2016 and retire
from the Group at the end of June 2016.
Other current commitments: None.
Karen Hubbard
Chief Executive Officer Designate
Karen was appointed to the Board of Card Factory plc with effect from 22
February 2016 and will formally succeed Richard Hayes as Chief Executive Officer
of the Group in mid-April. Before joining the Group, Karen served as Chief
Operating Officer of B&M European Value Retail S.A., the fast growing multi-price
value retailer, where she was responsible for retail operations, distribution and
logistics, supply chain, IT, HR, marketing and store development. From 2009 to
2014, she held a number of senior roles at ASDA, latterly Executive Director
Property, Format Development and Multi-Channel. Karen previously spent 14 years
in BP’s retail operations, initially in Australia before moving to the UK in 2004
where she became UK Convenience Retail Director, responsible for BP’s own retail
estate across all formats including Connect/Simply Food, Motorway, Express and
the franchise channel.
Other current commitments: None.
30
Card Factory plc Annual Report and Accounts 2016 Darren Bryant
Chief Financial Officer
Darren was appointed Group Finance Director in June 2009 (subsequently
renamed Chief Financial Officer in 2010) having previously been a Partner at PwC
LLP. He was appointed to the Board of Card Factory plc on 30 April 2014. Darren
spent over 17 years at PwC, principally in the London Corporate Finance division,
where he advised on a wide range of private company, private equity and public
company transactions. He also spent two years on secondment at The Panel on
Takeovers & Mergers in the late 1990s where he regulated a large number of
public company transactions. Darren is a Fellow of the Institute of Chartered
Accountants in England and Wales and holds a First Class MEng degree in
Electrical & Electronic Engineering with Business Studies from Imperial
College London.
Other current commitments: None.
Octavia Morley
Senior Independent Non-Executive Director
Octavia joined the Board as Senior Independent Non-Executive Director in April
2014. Octavia has nine years’ experience of serving on boards of UK public
companies. She served on the board of John Menzies plc as a Non-Executive
Director between 2006 and 2015. Octavia was previously the Chief Executive of
Oka Direct Limited and the Managing Director of Crew Clothing Co. Limited. She
also served as Chief Executive Officer, and latterly as Chairman of LighterLife UK
Limited until December 2009, has held positions as Commercial Director of
Woolworths plc between 2003 and 2005 and as Managing Director of
e-commerce at Asda Stores Limited and Buying and Merchandising Director at
Laura Ashley plc.
Other current commitments: Non-Executive Director of Ascensos Limited.
David Stead
Independent Non-Executive Director
David Stead joined the Board as an Independent Non-Executive Director in April
2014. He has over 15 years’ experience as a Director of companies in the UK retail
sector. David was most recently Chief Financial Officer of Dunelm Group plc
from September 2003 until his retirement from that role at the end of 2015. Prior
to that, David served as Finance Director for Boots The Chemists and Boots
Healthcare International between 1991 and 2003. David is a chartered accountant,
having spent the early part of his career with KPMG.
Other current commitments: Honorary Member of Council, University of Birmingham.
31
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Directors and Officers continued
Paul McCrudden
Independent Non-Executive Director
Paul joined the Board as an Independent Non-Executive Director in December 2014.
Paul is currently EMEA Head of Content Marketing at Twitter and prior to that was
Head of Social Media at advertising agency AMV BBDO. In his earlier career Paul
was Account Director at Imagination (a creative brand agency) and a Consultant in
New Technologies at Accenture. Paul also served as Chairman of the board of
trustees at Hoipolloi, a film and theatre production company funded by the Arts
Council England.
Other current commitments: EMEA Head of Content Marketing at Twitter.
Shiv Sibal
Company Secretary and General Counsel
Shiv joined the Company as General Counsel and Company Secretary in May 2014.
Shiv is an experienced corporate finance lawyer with more than 14 years’
experience in the legal sector. Prior to joining the Company, Shiv was a corporate
partner with Bond Dickinson focused on supporting public companies with IPOs,
equity fundraisings, mergers and acquisitions, governance and their continuing
regulatory obligations. Prior to joining, Shiv also spent more than eight years
working for Pinsent Masons having trained at Nabarro.
Other current commitments: None.
Graeme Coulthard was a Non-Executive Director of Card Factory plc during the financial period up until 3 February
2015.
Board committees
Audit and Risk
Committee*
Remuneration
Committee
Nomination
Committee
David Stead (Chairman)
Octavia Morley (Chairman)
Geoff Cooper (Chairman)
Octavia Morley
Paul McCrudden
Geoff Cooper
David Stead
Paul McCrudden
Octavia Morley
David Stead
Paul McCrudden
* Geoff Cooper was a member of the Audit & Risk Committee during the year until 24 February 2015.
32
Card Factory plc Annual Report and Accounts 2016 Chairman’s Letter – Corporate Governance
Dear Shareholder
The Board recognises, understands and is committed
to high standards of governance and ensuring that it
provides effective leadership and sets the tone for the
Group. We see good governance as an integral part of
the way the business is run and how we make decisions
that ensure the long-term progression and success of
the Group.
Our activities during the year have been focused on
enabling the Group, through its senior management
team, to continue to deliver on each element of its four
pillars growth strategy which has driven its success
in the period up to and since its IPO. We’ve ensured
that achieving these ambitions is managed within a
framework of controls and processes where appropriate
levels of risks can be taken to help the business succeed
and where the views of all relevant stakeholders are
taken into account. As part of this, the Board recognises
the importance of striking the right balance between
hearing the collective view of the Executive Directors
and allowing independent input from the rest of
the Board.
Although the recent changes to the UK Corporate
Governance Code have given the Board more to
consider during the year, we are confident that the
way in which the Group integrates governance into
its day-to-day management of the business, provides
a solid foundation for it to evolve its processes and
controls to address these changes.
Geoff Cooper
Chairman
Through the Nomination Committee (whose report
is set out on page 68) the Board has committed a
considerable amount of time during the year to
ensuring appropriate succession planning is either in
place or in development for the Executive Directors and
this has proved invaluable given the recently announced
appointment, following a comprehensive search and
selection process, of Karen Hubbard to succeed
Richard Hayes as the Group’s Chief Executive Officer.
The membership and roles of each of the Board
Committees are detailed in separate sections of this
report together with the individual reports on their
activities during the year.
At our Annual General Meeting (‘AGM') this year,
all of our Directors will be seeking reappointment.
As previously announced, Richard Hayes will be
stepping down from his role as the Group’s Chief
Executive Officer in mid-April 2016 and, following a
handover period, will retire from the Group at the end
of June 2016. I would like to take this opportunity to
thank Richard for being such an effective leader of
the Group during his time here and wish him well for
the future.
I look forward to welcoming shareholders at the
Company’s AGM in May.
Yours sincerely
Geoff Cooper
Chairman
4 April 2016
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Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancialsStrategic reportGovernanceFinancials Corporate Governance Report
LEADERSHIP AND APPROACH
The Board is committed to the highest standards of
corporate governance. The Board understands the
importance of its leadership on governance in setting
the culture and values that are instilled within the
business and which will allow it to achieve its long-term
strategic goals whilst successfully managing and
lowering risks for our shareholders.
We believe that good governance is demonstrated by
applying corporate governance principles and
guidelines in a way that reflects the nature of our
business. By doing this we believe we strengthen our
ability to develop a governance culture in the business
that sits alongside the entrepreneurial spirit that has
enabled it to develop into the business it is today.
KEY GOVERNANCE ACTIVITIES
Key activities during the year were:
• through the Nomination Committee, planning the
succession of our current Chief Executive Officer,
Richard Hayes, and appointing Karen Hubbard to
succeed him;
• carrying out a detailed review of the Group’s strategy
and putting in place clear actions for development
over the coming year;
• reviewing the performance and objectives of
the business in each of the four pillars of its
growth strategy;
• a detailed review of the Group’s capital structure and
dividend policy as reported on in more detail in the
Chief Financial Officer’s Review in the Strategy
Report on page 20;
• completing an internal performance evaluation of the
Board, its individual members and the Board
Committees and agreeing objectives and areas for
future development;
• an interim review of the matters being considered
by the Board during the year as well as planning the
Board’s agenda for the year ahead;
• a full review of the matters currently reserved for the
Board ensuring they reflect the nature of the business
and how it is managed on a day-to-day basis;
• inviting external speakers from a range of
backgrounds to Board meetings to share their
business insights, experience and also their views on
the prevailing macroeconomic environment and its
impact on retailers;
• as previously noted, Graeme Coulthard resigned as
a Non-Executive Director following the significant
reduction in the shareholding of the Charterhouse
Funds (which subsequently sold all of their remaining
shares in the Company); and
• following the appointment of Paul McCrudden,
Geoff Cooper stood down as a member of the
Audit and Risk Committee.
3434
Since the year end Karen Hubbard has joined the Board
and will formally become the Group’s Chief Executive
Officer in mid-April 2016.
CODE COMPLIANCE
Save as set out in the paragraphs below, the Board has
complied with and intends to continue to comply with
the requirements of the UK Corporate Governance
Code published in September 2014 by the Financial
Reporting Council (‘the UK Corporate Governance
Code’ or ‘the Code’) a copy of which can be obtained
from www.frc.org.uk. The Company will report to its
shareholders on its compliance with the UK Corporate
Governance Code in accordance with the Listing
Rules (‘LRs').
ROLE OF THE BOARD
The strategy for the growth of the business is
determined by the Board in a manner that both
facilitates the development and growth of the Group
over the long-term in the interests of its shareholders,
and recognises the importance of our duties to
colleagues, customers, the community in which we
operate and the interests of our other stakeholders all
of which have been central to the development of the
business and its culture to date.
In addition to setting strategy, the Board takes overall
responsibility for measuring the Group’s progress
towards this and ensures that the exercise of its control
and decision-making powers are aligned with its
strategic direction.
BOARD COMPOSITION, BALANCE
AND INDEPENDENCE
The Board currently comprises seven members.
The Code recommends that at least half the board
of directors of a UK listed company, excluding the
Chairman, should comprise Non-Executive Directors
determined by the Board to be independent in
character and judgement and free from relationships
or circumstances which may affect, or could appear
to affect, the director’s judgement.
Following the appointment of Karen Hubbard to
the Board as Chief Executive Officer Designate on
22 February 2016, the Company does not technically
comply with this recommendation as, at the date of this
report, the Board consists of the Non-Executive
Chairman, three Independent Non-Executive Directors
and three Executive Directors. This non-compliance is
only temporary and to allow for an orderly handover to
Karen following her appointment. As previously noted,
Richard Hayes will retire from the Board and the Group
at the end of June 2016 following which the constitution
of the Board will again comply with the Code.
Card Factory plc Annual Report and Accounts 2016 As previously announced, Graeme Coulthard, who was
considered by the Board to be non-independent under
the Code, resigned from the Board on 3 February 2015.
Graeme was appointed under the terms of the
Relationship Agreement between the Company and
the Charterhouse Funds (‘Charterhouse’) which
terminated following a sale by Charterhouse of some
of its shares in the Company. Further details of the
Relationship Agreement are set out in the Directors’
Report on page 70).
The Board considers all of the current Non-Executive
Directors as independent Non-Executive Directors
(within the meaning of the Code) and free from any
business or other relationships that are likely to interfere
with the exercise of their independent judgement.
Although the Board remains small relative to some
other similar premium listed companies, the preference
is for it to remain this way to ensure it continues to be
an effective and efficient decision-making body that
supports the Group’s growth. This will be kept under
review to ensure the Board has an appropriate balance
of skills and experience to support its exercise of
its duties.
Chairman – Geoff Cooper
The Code recommends that, on appointment, the
chairman of a company with a premium listing on the
Official List should meet the independence criteria set
out in the Code.
On appointment, the Board considered Geoff Cooper to
be independent but his appointment is subject to the
terms of a letter of appointment dated 30 April 2014
under which, as part of his remuneration, Geoff was
given the option to invest £330,000 in the Company
by means of an acquisition of ordinary shares as part
of, or alongside, the offer of shares conducted in
conjunction with the Company’s IPO at the offer price
of 225p per share (‘the Offer Price’). Geoff took up this
offer at the time of the IPO and agreed to acquire
146,666 ordinary shares and this has entitled him,
on each of the second and third anniversaries of the
date of the completion of the IPO, to make further
investments of £330,000 in the Company by
purchasing a further 146,666 ordinary shares at the
Offer Price. Geoff’s entitlement to make such purchases
is conditional upon and subject to his remaining as
Chairman of the Company on the relevant dates.
As Charterhouse (through the Charterhouse Funds)
have now sold all of their shares in the Company,
Geoff Cooper’s potential conflict of interest (that was
authorised by the Board) by virtue of his role as an
adviser to them has ceased.
Notwithstanding Geoff Cooper’s share options and his
prior role as an adviser to Charterhouse, the Board
considered Geoff to be independent on appointment.
Senior Independent Director – Octavia Morley
The Code recommends that the board of directors of
a company with a premium listing should appoint one
of the Non-Executive Directors as a Senior Independent
Director to provide a sounding board for the Chairman
and to serve as an intermediary for the other Directors
when necessary. The Senior Independent Director
should be available to shareholders if they have
concerns, when contact through the normal channels of
the Chief Executive Officer has failed to resolve, or for
which such contact is inappropriate. Octavia Morley has
been appointed as the Senior Independent Director of
the Company and has considerable experience of acting
as an Independent Non-Executive Director having been
an Independent Non-Executive Director of John
Menzies plc between 2006 and 2015.
BOARD RESPONSIBILITY
The Company has a clear division of responsibilities
between the Non-Executive Chairman and the Chief
Executive Officer. In general terms, the Non-Executive
Chairman is responsible for running the Board and the
Chief Executive is responsible for running the Group’s
business on a day-to-day basis.
This clear division of responsibilities, when taken
together with the schedule of matters which the Board
has reserved for its own consideration, ensures that no
one person has unlimited and unchecked power to
make decisions that may have a material impact on the
Group as a whole. During the year, the Board carried
out a review of the matters reserved for the Board
ensuring they best reflect the nature of the business
and how it is managed on a day-to-day basis. A copy
of these is available on Card Factory’s investor website
(www.cardfactoryinvestors.com) and, on request, from
the Company Secretary.
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BOARD ATTENDANCE
During the year, the Board held ten scheduled meetings and various Board Committee meetings were also held
with attendance as follows:
Director
Role
Geoff Cooper
Octavia Morley
David Stead
Non-Executive Chairman and Chair of
Nomination Committee
Senior Independent Director and Chair of
Remuneration Committee
Independent Non-Executive Director and
Chair of Audit and Risk Committee
Paul McCrudden
Independent Non-Executive Director
Graeme Coulthard* Non-Executive Director
Richard Hayes
Chief Executive Officer
Darren Bryant
Chief Financial Officer
Board Meetings
(10 meetings)
Remuneration
Committee
(2 meetings)
Audit and Risk
Committee
(4 meetings)
Nomination
Committee
(2 meetings)
10
10
10
10
–
10
10
2
2
2
2
–
–
–
–
4
4
4
–
–
–
2
2
2
2
–
–
–
* Graeme Coulthard resigned on 3 February 2015 and did not attend any Board meetings during the year.
BOARD ACTIVITIES AND EFFECTIVENESS
Board meetings are structured to ensure they focus on key strategic and operational matters that are affecting the
business and examples of those matters considered by the Board during the year are set out below. Additionally,
the Board considers any decisions that are within the matters reserved for the Board.
The Board had in place a schedule of matters that were discussed during the year and a similar schedule is in place
detailing matters for discussion at Board meetings in the current financial year.
As part of its normal planning, the Board puts these schedules in place in advance of each financial year and
they include regular reports from the Chief Executive Officer and the Chief Financial Officer on the operational
and financial performance of the Group together with regular feedback from the Non-Executive Chairman and
the Non-Executive Directors on their engagement with the business. They also include a rolling agenda of other
key strategic, operational, governance and risk topics, as well as presentations from senior management team
members which ensure that the Group’s Non-Executive Directors remain informed of key developments within the
Group. This is regularly updated to ensure the Board is responsive to the strategic and operational issues affecting
the business.
The key topics discussed by the Board during the year were:
Strategy
Performance
Governance
Review of Group’s EPOS system Annual results
Group IT structure and resource
Product and strategic initiatives
Foreign exchange strategy
Group’s capital structure
Online marketing strategy
Business efficiencies
Republic of Ireland
SAYE 2016 grant
National living wage
Sales analysis including key seasons
Competitor activity review
Review of store rollout programme
Group IT projects update
Card Factory website review
Group business continuity plan
Governance and legal updates
Principal risks review
Review of reserved matters
Investor relations updates
Board and Committee planner
Human Resources
Health and safety
Board evaluation
All Directors receive papers in advance of Board meetings including regular reports from the senior management
team covering the parts of the business they are responsible for and which monitor achievement against the
Group’s key performance indicators, both financial and strategic.
36
Card Factory plc Annual Report and Accounts 2016 To aid efficient decision-making, a standard summary
report has been developed for material matters
requiring Board approval that includes management’s
clear recommendation on the matters being addressed.
The Board measures the time spent on strategy,
governance and performance at each meeting. Over
the year, the majority of our time was spent on strategy,
followed by performance and governance, which the
Board considers to be appropriate.
Minutes of all Board and Committee meetings are taken
by the Company Secretary and circulated for approval.
The minutes record actions, decisions and deadlines
arising out of the topics discussed and a rolling list
of key actions accompanies the minutes for each Board
meeting. This enables the Board to monitor the
progress with each action by those responsible on
a regular basis.
External speakers
During the year, the Board also invited several external
speakers to attend our Board meetings as lunch guests.
These sessions, whilst relatively informal, allowed the
Board to benefit from the business insights and
experience of our guests as well as their views on the
prevailing macroeconomic environment and its impact
on retailers. The Board intends to continue with this
programme of speakers during the coming year.
Board strategy day
In addition to its scheduled Board meetings, the Board
held a separate strategy discussion in July 2015 at
which it considered each element of the Group’s four
growth pillars and agreed a schedule of actions that
should be addressed with clear accountability and
timetables in place for each. Where relevant, those
actions have been incorporated within the Board’s
rolling agenda for Board meetings during the current
year to ensure the Board has the opportunity to review
and provide comment on the senior management
team’s progress and to ensure appropriate steps are
being taken to mitigate against the risk of not
continuously developing our strategy.
INVESTOR RELATIONS
The Board recognises the importance of explaining
financial results and key strategic and operational
developments in the business to the Company’s
shareholders and understanding any shareholder
concerns. The Board regularly communicates and meets
with shareholders and analysts and the Board will
continue to adopt this approach.
The Chief Executive Officer and Chief Financial Officer
have overall responsibility for investor relations.
They are currently supported by the Company’s
retained financial PR advisers, MHP Communications,
and its corporate brokers, UBS, who help organise
presentations and visits to the Group’s operations and
stores for analysts and shareholders. Although the
Group has chosen not to appoint a dedicated investor
relations person, this is something the Board will keep
under review.
The formal reporting of the Group’s full and half-yearly
results has been and will continue to be a combination
of presentations, group calls and meetings and one-to-
one meetings in a variety of locations where we have
shareholders. The Chief Executive Officer and Chief
Financial Officer have and will continue to report back
to the Board after any investor related events and also
ensure that the Board is kept regularly informed of
feedback from analysts and shareholders. The Group’s
brokers also provide feedback after the full and half-
year results announcements and, as appropriate, other
investor related events to inform the Board about
investor views.
All the Non-Executive Directors and, in particular,
the Chairman and Senior Independent Director are
available to meet with major shareholders, if they wish
to raise issues separately from the arrangements
described above.
The Company will also communicate with shareholders
through the AGM, at which the Chairman will give an
account of the progress of the business over the last
year and a review of current issues, and will provide the
opportunity for shareholders to ask questions. All
Directors will be available at the AGM.
Card Factory’s investor website is also updated with
news and information including this Annual Report and
Accounts which sets out our strategy and performance
together with our plans for future growth
(www.cardfactoryinvestors.com).
SIGNIFICANT SHAREHOLDERS
Details of the Group’s significant shareholders and of
shareholder voting rights are set out in the Directors’
Report on page 70.
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NON-EXECUTIVE DIRECTOR MEETINGS
The Chairman and the other Non-Executive Directors
met three times in the year without Executive Directors
being present and they intend to continue to meet
regularly to ensure that any concerns can be raised and
discussed outside formal Board meetings. On two of
these occasion, the Senior Independent Director and the
other Non-Executive Directors continued the meeting
without the Chairman to review his performance.
The Code recommends that an Audit Committee
should comprise of at least three members who are
Independent Non-Executive Directors, and that at least
one member should have recent and relevant financial
experience. The Audit and Risk Committee is currently
chaired by David Stead, and its other members are
Octavia Morley and Paul McCrudden. The Directors
consider that David Stead has recent and relevant
financial experience.
The Chairman and the other Non-Executive Directors
regularly have informal meetings with the Executive
Directors and other members of the senior
management team in the business, often at a store
location or at the Group’s head office.
BOARD COMMITTEES
The Board has three committees: an Audit and Risk
Committee, a Nomination Committee and a
Remuneration Committee. If the need should arise,
the Board may set up additional committees.
Audit and Risk Committee
The Audit and Risk Committee assists the Board in
discharging its responsibilities with regard to:
• financial reporting;
• external and internal audits and controls, including
reviewing and monitoring the integrity of the Group’s
annual and interim financial statements;
• reviewing and monitoring the extent of the non-audit
work undertaken by external auditors;
• advising on the appointment of external auditors;
• overseeing the Group’s relationship with its external
auditors;
• reviewing the effectiveness of the external audit
process;
• reviewing the effectiveness of the Group’s internal
control review function and risk management
systems; and
• whistleblowing and fraud detection.
The Audit and Risk Committee met four times during
the year and, in future, will meet no fewer than three
times a year.
The Audit and Risk Committee has taken appropriate
steps to ensure that the Company’s Auditor is
independent of the Company and obtained written
confirmation from the Company’s Auditor that it
complies with guidelines on independence issued by
the relevant accountancy and auditing bodies.
The Audit and Risk Committee has access to sufficient
resources to carry out its duties, including the services
of the Group General Counsel and Company Secretary
and the Group’s loss prevention team. In addition,
Deloitte LLP, have been appointed to provide additional
internal audit services to the Group. Independent
external legal and professional advice can also be taken
by the Audit and Risk Committee if it believes it
necessary to do so.
The Audit and Risk Committee chair will be available at
Annual General Meetings of the Company to respond to
questions from shareholders on the activities of the
Audit and Risk Committee during the year; a report on
which is set out on page 45 of the Governance section
of this report.
The Audit and Risk Committee’s terms of reference,
which are available on request from the Company
Secretary and are published on Card Factory’s investor
website (www.cardfactoryinvestors.com), comply with
the Code.
The ultimate responsibility for reviewing and approving
the Annual Report and Accounts and the half-yearly
reports remains with the Board. The Audit and Risk
Committee will give due consideration to laws and
regulations, the provisions of the Code and the
requirements of the Listing Rules.
Remuneration Committee
The Remuneration Committee assists the Board in
determining its responsibilities in relation to
remuneration, including:
• making recommendations to the Board on the
Company’s policy on executive remuneration;
• setting the over-arching principles, parameters and
governance framework of the Group’s remuneration
policy; and
• determining the individual remuneration and benefits
package of each of the Company’s Executive
Directors, its Company Secretary and other members
of the Group’s senior management team.
3838
Card Factory plc Annual Report and Accounts 2016 The Remuneration Committee also ensures compliance
with the Code in relation to remuneration and is
responsible for preparing an annual remuneration report
for approval by the Company’s members at its AGM.
Non-Executive Directors’ and the Chairman’s fees are
determined by the full Board.
The Code provides that a Remuneration Committee
should comprise of at least three members who are
Independent Non-Executive Directors, free from any
relationship or circumstance which may, could or would
be likely to, or appear to, affect their judgement and
that a Chairman of the Board of Directors may also be
a member provided he is considered independent on
appointment. The Remuneration Committee is chaired
by Octavia Morley, and its other members are Geoff
Cooper, David Stead and Paul McCrudden.
The Remuneration Committee met twice during the
year and, in future, will meet not less than twice a year.
The Board and the Remuneration Committee have
employed Kepler (a brand of Mercer), a consulting
agency which specialises in executive remuneration,
to advise and assist in connection with the Group’s
executive remuneration arrangements and its reporting
obligations. Kepler do not provide any other services to
the Group.
A report on the Remuneration Committee’s activities
during the year is set out on page 48 of the Governance
section of this report.
The Remuneration Committee’s terms of reference,
which are available on request from the Company
Secretary and are published on Card Factory’s investor
website (www.cardfactoryinvestors.com), comply with
the Code.
Nomination Committee
The Nomination Committee assists the Board in
discharging its responsibilities relating to the
composition and make-up of the Board and any
committees of the Board. It is also responsible for
periodically reviewing the Board’s structure and
identifying potential candidates to be appointed as
Directors or committee members as the need may arise.
The Nomination Committee is responsible for evaluating
the balance of skills, knowledge and experience and the
size, structure and composition of the Board and
committees of the Board, retirements and appointments
of additional and replacement directors and committee
members and will make appropriate recommendations
to the Board on such matters.
The Code recommends that a majority of the members
of a Nomination Committee should be Independent
Non-Executive Directors. The Nomination Committee is
chaired by Geoff Cooper, and its other members are
Octavia Morley, David Stead and Paul McCrudden.
The Directors therefore believe that the Company is in
compliance with the Code. The Nomination Committee
met twice during the year and, in future, will meet not
less than once a year. A report on the activities of the
Nomination Committee during the year is set out on
page 68 of the Governance section of this report.
The Nomination Committee’s terms of reference,
which are available on request from the Company
Secretary and are published on Card Factory’s investor
website (www.cardfactoryinvestors.com), comply with
the Code.
TRAINING AND INDUCTION
It is important to the Board that all Directors have the
ability to influence and challenge appropriately so that
the Board and the Group, as a whole, can maximise the
benefit they derive from their business knowledge and
experience.
New Directors receive a full, formal and tailored
induction on joining the Board, including meeting other
members of the Board, the senior management team,
other key members of staff and the Group’s advisers.
The induction includes visits to the Group’s stores, head
office, its design studio, Printcraft (the Group’s print
facility) and the headquarters of its online subsidiary,
Getting Personal (www.gettingpersonal.co.uk).
Since joining in February 2016, Karen Hubbard has
been through an extensive tailored induction plan and
has taken the opportunity to work in store during a key
trading period.
Throughout the year, all of the Non-Executive Directors
have continued to visit stores both informally and
together with members of the senior management team
and feedback is given at the following Board meeting.
New Directors are also given the opportunity to review
information about the Group including Board and
Committee papers and strategy documentation which
they may find useful in preparing for their role.
The Group’s Company Secretary and General Counsel
periodically reports to the Board on any new legal,
regulatory and governance developments that affect
the Group and, where necessary, actions are agreed.
Please see the Directors’ biographies on pages 30 to 32
for details of the skills and experience of each Director.
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BOARD EVALUATION
As intended, the Board conducted its first full internal
evaluation during the year which was led by the
Chairman and facilitated by the Company Secretary.
Each Board member and the Company Secretary
was asked to complete a detailed questionnaire
that required them to give their assessment of the
effectiveness of the Chairman, individual Directors,
the standing committees of the Board, the Company
Secretary and the Board as a whole. The key
objectives the Board set itself for the coming year
are summarised below:
Subject
Objective
Succession
planning
Board
planning
Having successfully managed the
succession of our Chief Executive Officer,
to develop a wider succession plan for
the senior management team.
Develop the Board’s agenda to focus,
more directly, on the Group’s four
strategic growth pillars and to allow
more creative thinking time.
Values and
culture
Define, articulate and embed the values
and culture of the business.
Board
information
To set specific goals for delivery of
Board information in terms of
presentation, quantity and timing.
Board evaluation will continue to be conducted on an
annual basis and the Board will, every third year, as
required by the Code, engage with an external agency
to assist in the process.
CONFLICTS OF INTEREST
The Companies Act 2006 allows the Board of a public
company to authorise conflicts and potential conflicts of
interest of individual Directors where the Articles of
Association of the company contain an enabling
provision. The Company’s Articles of Association give the
Board this authority subject to the following safeguards:
• Directors who have an interest in matters under
discussion at a Board meeting must declare that
interest and abstain from voting; and
• only Directors who have no interest in the matter
being considered are able to approve a conflict of
interest and, in taking that decision, the Directors
must act in a way they consider, in good faith,
would be most likely to promote the success of
the Company.
The Directors are able to impose limits or conditions
when giving authorisation if they feel this is appropriate.
All Directors are required to disclose any actual or
potential conflicts to the Board and there are no current
matters disclosed that are considered by the Board to
give rise to a conflict of interest.
All conflicts are considered by the Board and any
authorisations given are recorded in the Board minutes
and reviewed annually by the Board. The Board
considers that its procedures to approve conflicts
of interest and potential conflicts of interest are
operating effectively.
APPOINTMENT AND REMOVAL OF DIRECTORS
All Directors have service agreements or letters of
appointment in place and the details of their terms
are set out in the Directors’ Remuneration Report
on pages 56 to 58. The service agreements and
letters of appointment are available for inspection
at the Company’s registered office during normal
business hours.
The Articles of Association of the Company provide that
a Director may be appointed by ordinary resolution of
the Company’s shareholders in general meeting, or by
the Board so long as the Director stands down and
offers him or herself for election at the next AGM of the
Company. The Articles also provide that each Director
must stand down and offer him or herself for re-election
by shareholders at the AGM at least every 3 years. The
Code recommends that directors of companies in the
FTSE 350 index should be subject to annual re-election.
The Company intends to comply with this
recommendation.
Directors may be removed by a special resolution of
shareholders, or by an ordinary resolution of which
special notice has been given in accordance with the
Companies Act 2006. The Articles of Association of
the Company also provide that the office of a Director
shall be vacated if he is prohibited by law from being
a Director, or is bankrupt; and that the Board may
resolve that his or her office be vacated if he or she is
of unsound mind or is absent from Board meetings
without consent for six months or more. A Director
may also resign from the Board. The Nomination
Committee makes recommendations to the Board on
the appointment and removal of Directors.
In accordance with the Code, all Directors will retire
from the Board and offer themselves for re-election
at the AGM.
POWERS OF DIRECTORS
The business of the Company is managed by the Board,
which may exercise all of the powers of the Company,
subject to the requirements of the Companies Act
2006, the Articles of Association of the Company and
any special resolution of the Company. As stated above,
the Board has adopted internal delegations of authority
in accordance with the Code and these set out matters
which are reserved to the Board or committees and the
powers and duties of the Chairman and the Chief
Executive Officer respectively.
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Card Factory plc Annual Report and Accounts 2016 At the Annual General Meetings of the Company, the
Board will seek authority to issue shares and to buy
back and reissue shares. Any shares bought back
would either be held in treasury, cancelled or sold in
accordance with the provisions of the Companies
Act 2006. For further details see the Notice of Annual
General Meeting which accompanies this report.
ADVICE, INDEMNITIES AND INSURANCE
All Directors have access to the advice and services of
the Company Secretary. In addition, Directors may seek
legal advice at the Group’s cost if they consider it
necessary in connection with their duties.
The Directors of the Company, and the Company’s
subsidiaries, have the benefit of a third-party indemnity
provision, as defined by section 236 of the Companies
Act 2006, in the Company’s Articles of Association.
In addition, Directors and Officers of the Company and
its subsidiaries are covered by Directors’ and Officers’
liability insurance as well as prospectus liability
insurance which provides cover for liabilities incurred
by Directors in the performance of their duties or
powers in connection with the issue of the Prospectus
in relation to the IPO. Until his resignation on 3 February
2015, Graeme Coulthard (Non-Executive Director) had
the benefit of these policies. No amount was paid under
any of these indemnities or insurances during the year
other than the applicable insurance premiums.
ARTICLES OF ASSOCIATION
The Company’s Articles of Association can only be
amended by a special resolution of its shareholders in
a general meeting, in accordance with the Companies
Act 2006.
GOVERNANCE AND RISK
The Board, as a whole, takes overall responsibility for
ensuring that the Company has a continuous process in
place to identify, evaluate and manage any significant
risks that may affect the achievement of the Group’s
strategic and operational objectives. Given the nature
of our business and our operating model, we do not
have a separate risk committee. Our Audit and Risk
Committee oversees our risk management framework
as part of its activities and ensures that it enables the
Committee and the Board to carry out a robust
assessment of the principal risks facing the Group,
including those that would threaten its business model,
future performance, solvency or liquidity.
The key elements of the process which have been
established by the Group to identify, evaluate and
manage any significant risks are as follows:
• the Board and the senior management team take a
leadership role in managing risk within the business
and look to embed the principles of sound risk
management in the teams they are responsible
for managing;
• responsibility for monitoring and managing specific
risks, which are assessed in terms of impact and
likelihood, identified in the Group’s risk register on a
day-to-day basis is given to the relevant members of
the Group’s senior management team who are then
responsible for ensuring we take appropriate actions
to mitigate against these risks and for providing
updates to the Group’s Executive Directors and the
rest of the senior management team;
• in the event there is a change in their assessment of
the impact the risk may have on the Group or they
identify a new risk which the Group may face, the
Group’s risk register is updated accordingly;
• the Audit and Risk Committee regularly reviews the
Group’s risk register and gives detailed consideration
to those risks which have been identified as principal
risks affecting the Group and the actions being taken
and processes in place to mitigate them as well as
providing regular and rigorous challenge to the
Executive Directors;
• the Board carries out a review of the principal risks
affecting the Group twice a year as well as assessing
whether the Group is striking an appropriate balance
between its appetite for risk and the achievement of
its strategic goals; and
• certain principal risks, for example, competitor
activity and business strategy are, as part of the
day-to-day management of the business, the
subject of separate and regular detailed discussions
at Board meetings and meetings of the senior
management team.
The Board collectively recognise that the continuous
robust assessment and control of risk are fundamental
to the Group achieving its strategic and operational
objectives and the Audit and Risk Committee seeks to
ensure that the risk management framework evolves
with the business and the trading environment in which
the Group operates.
The risk management framework is designed to
manage, rather than eliminate, the risk of failing to
achieve strategic objectives and can provide only
reasonable, and not absolute, assurance against
material misstatement or loss.
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The Board and the Audit and Risk Committee have
reviewed the effectiveness of the Group’s risk
management framework and the Company’s risk
register and their alignment with the Company’s
strategic objectives in accordance with the Code for the
period ended 31 January 2016 and up to the date of
approving the Annual Report and Accounts. The Board
considered the principal risks and relevant mitigating
actions and determined that they were acceptable for
a retail business of the size and complexity as that
operated by the Group.
INTERNAL CONTROL AND AUDIT
Overall responsibility for the system of internal control
and reviewing its effectiveness lies with the Board. In its
day-to-day operations, the Group continuously assesses
the performance of its internal controls and, where
necessary, looks to enhance its control environments.
As previously noted, the Group has also appointed
Deloitte LLP to provide internal audit services to the
Group and further detail of the scope of their work, the
internal audit plan that has been put in place and how
this will support our assessment of our controls and
processes is set out in the report of the Audit and Risk
Committee on page 46.
The Group’s system of internal control can be
summarised as follows:
Board
Take collective responsibility for internal controls
Reserves certain matters for the Board
Oversees the control framework and responsibility for it
Approves key policies and procedures
Monitors development of performance
Audit and Risk Committee
Oversees effectiveness of internal control framework
Receives reports from external auditor
Approves internal audit programme
Receives reports generated through the internal audit
programme
Senior management team
Responsible for operating within the control framework
Reviews and monitors compliance with policies and
procedures
Recommends changes to controls where needed
Monitors performance
Loss prevention team
Focus on cash losses and fraud in stores
Risk assessors/operational audit team
Reviews compliance with certain internal procedures in
stores and at other locations
Co-sourced internal audit function
Deloitte LLP
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Specific elements of the current internal control
framework include:
• a list of matters specifically reserved for Board
approval;
• clear structures and accountabilities for colleagues,
well understood policies and procedures, and
budgeting and review processes all of which the
Executive Directors are closely involved with;
• every member of the senior management team
having clear responsibilities and operating within
defined policies and procedures covering such areas
as capital expenditure, treasury operations, financial
targets, human resources management, customer
service and health and safety;
• the Executive Directors and the senior management
team monitoring compliance with these policies and
procedures and, in addition, regularly reviewing
performance against budget, analysis of variances,
major business issues, key performance indicators
and the accuracy of business forecasting; and
• a continuous review programme of store compliance
by the loss prevention team (as regards financial
procedures in stores), by risk assessors working in
the health and safety team and by other teams within
the Group.
During the year, certain other internal audit activities
were carried out by internal teams, reporting to the
Board and the Audit and Risk Committee. Topics
covered included business continuity planning and the
Group’s IT governance, controls and team structure and
some of these activities will also be the subject of
review by Deloitte LLP in accordance with their internal
audit plan.
The Audit and Risk Committee has responsibility for
overseeing the Group’s system of internal controls
and of the internal audit programme and receives the
report of the external auditor following the annual
statutory audit.
The Board and the Audit Committee have monitored
and reviewed the effectiveness of the Group’s internal
control systems in accordance with the Code for the
period ended 31 January 2016 and up to the date of
approving the Annual Report and Accounts and
confirmed that they are satisfactory.
Please note that internal control systems such as this
are designed to manage rather than eliminate the risk of
failure to achieve business objectives and can provide
only reasonable and not absolute, assurance against
material accounting misstatement or loss. Where any
significant failures or weaknesses are identified from
the systems of internal control, action is taken to
remedy these.
Card Factory plc Annual Report and Accounts 2016 DISCLOSURES UNDER DTR 7.2.6R
The disclosures the Company is required to make
pursuant to DTR 7.2.6R are contained in the Directors’
Report on pages 69 to 71.
SHARE DEALING CODE
The Company has a code of securities dealings in place
in relation to the ordinary shares which is based on, and
is at least as rigorous as, the Model Code as published
in the Listing Rules. The code adopted applies to the
Directors, members of the senior management team
and to other relevant employees of the Company.
We’re considering the implications of the new EU
Market Abuse Regulation (coming into force later this
year) on our share dealing code and will report next
year on any changes we have made to address these.
ANTI-BRIBERY
The Company has implemented internal procedures and
measures (including the provision of an Anti-Corruption
and Bribery Policy) designed to ensure compliance by it
and other members of the Group with the UK Bribery
Act 2010 (as amended).
WHISTLEBLOWING
The Group is committed to conducting its business with
honesty and integrity, with high standards of corporate
governance and in compliance with legislation and
appropriate codes of practice. We expect all staff to
maintain such high standards but recognise that all
organisations face the risk of things going wrong from
time to time, or of unknowingly harbouring illegal or
unethical conduct.
We recognise that a culture of openness and
accountability is essential in order to prevent such
situations occurring, or to address them when they do
occur. We maintain a whistleblowing policy that is
designed to encourage colleagues to report such
situations without fear of repercussions or
recriminations provided that they are acting in good
faith. By having early knowledge of any wrongdoing or
illegal or unethical behaviour, we improve our ability to
intervene and stop it. The policy sets out how any
concerns can be raised and the response that can be
expected from the Company and provides staff with the
assurance that they can do this in complete confidence.
We reinforced this message through a poster campaign
during the year and the Audit and Risk Committee is
notified of any whistleblowing reports.
This report was reviewed and approved by the Board
on 4 April 2016.
Geoff Cooper
Chairman
4 April 2016
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Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancialsStrategic reportGovernanceFinancials Chairman’s Letter – Audit and Risk
Committee
David Stead
Chairman of the Audit and Risk Committee
Dear Shareholder
The Audit and Risk Committee plays an important role in ensuring that the interests of shareholders are properly
protected by monitoring the activities and conduct of management and auditors.
Following the Group’s IPO and the Committee’s establishment in 2014, a clear agenda was put in place for the
Committee to ensure that appropriate assurance could be given to shareholders as to the continuing effectiveness
of the Group’s internal controls, it’s financial and business reporting, and its framework for identifying and
managing risk.
I am pleased to report that the Committee has made progress in a number of areas during the course of the year. In
particular we have:
• continued to monitor the control structure of the Group that supports the Board’s ability to make judgements
about the Group’s financial position and prospects;
• appointed Deloitte LLP to provide internal audit services to the Group, reviewed and agreed their detailed
internal audit plan and received reports from their initial work;
• further developed our approach to risk management, ensuring that effective and robust risk management is an
integral part of the Group’s business planning and decision making processes with the principal risks being
regularly reviewed by the senior management team and the Committee; and
• carried out a review of the Group’s business resilience arrangements identifying areas for development and
practical solutions that will support the continuing evolution of processes in this area.
More details are provided in the formal report of the Committee that follows, but the Directors recognise the
importance of continuing to develop the work of the Committee to ensure that it remains aligned with the strategic
goals of the Group whilst also continuing to satisfy the requirements of the Code.
I look forward to meeting shareholders at the AGM in May.
Yours sincerely
David Stead
Chairman of the Audit and Risk Committee
4 April 2016
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Card Factory plc Annual Report and Accounts 2016 Audit and Risk Committee Report
This report provides details of the role of the Audit and
Risk Committee and the work it has undertaken during
the year.
ROLE OF THE AUDIT AND RISK COMMITTEE
The principal responsibilities of the Committee, which
has received delegated authority from the Board, are to:
• oversee the integrity of the Group’s financial
statements and public announcements relating to
financial performance;
• oversee the Group’s external audit process including
its scope and the extent of the non-audit services
provided by our auditor;
• monitor the effectiveness of financial controls;
• evaluate the process for identifying and managing
risk throughout the Group; and
• ensure that the Annual Report and Accounts are fair,
balanced and understandable.
A more detailed explanation of the Audit and Risk
Committee’s role is set out in the Corporate Governance
Report on page 38. The Committee’s terms of
reference, which are published on Card Factory’s
investor website (www.cardfactoryinvestors.com),
comply with the UK Corporate Governance Code.
MEMBERSHIP
The Audit and Risk Committee is chaired by David
Stead, and its other members are Octavia Morley and
Paul McCrudden. Geoff Cooper was also a member of
the Committee until 24 February 2015.
As David Stead is a chartered accountant and was until
recently the Chief Financial Officer of Dunelm Group
plc, the Board considers that he has both recent and
relevant financial experience in accordance with the
requirements of the Code.
The Chief Executive Officer, the Chief Financial Officer, and
the Chairman of the Board usually attend meetings of the
Committee by invitation, along with a representative from
our auditor, KPMG LLP and a representative from our
internal audit services provider Deloitte LLP. The Company
Secretary acts as secretary to the Committee.
MEETINGS
The Committee met four times during the year with
details of attendance at these meetings set out in the
Corporate Governance Report on page 36.
ROUTINE ACTIVITIES DURING THE YEAR
During the year, the work of the Committee has
principally fallen under the following areas:
• a review of the integrity of the draft financial
statements for the year ended January 2015, the
appropriateness of accounting policies and going
concern assumptions and considering the auditor’s
report regarding its findings on the annual results;
• a review of whether the Annual Report and Accounts
for the year ended January 2015, taken as a whole,
were fair, balanced and understandable and provide
the information necessary for shareholders to assess
the Company’s strategy, business model and
performance;
• approval of the Group’s half-year results published in
September 2015;
• verifying the independence of the Group’s auditor,
approving their audit strategy and audit fee and
setting performance expectations;
• a review of the systems and controls which the Group
has in place to enable the Board to make proper
judgements on a continuing basis as to the financial
position and prospects of the Group;
• reviewing the Group’s risk register in March and
September with updates in the other Committee
meetings on progress with actions;
• reviewing the Group’s business resilience arrangements
and identifying areas for development and practical
solutions that will support the continuing evolution of
the Group’s processes in this area;
• monitoring the Group’s compliance with its policy for
use of our auditor for non-audit work;
• reviewing the Group’s tax strategy (which covers all
aspects of the Group’s tax obligations and objectives
and how it manages these and tax risk) and
interactions with HMRC;
• monitoring the implementation of a reorganisation
undertaken by the Group to simplify its corporate
structure;
• reviewing and approving the internal audit plan
prepared by Deloitte LLP following their appointment
to provide certain internal audit services to the Group
and the results of the initial projects undertaken by
them; and
• reviewing fraud detection controls managed by the
Group’s loss prevention team (including
developments in the Group’s approach to managing
compliance with these) and the reporting of incidents
in accordance with the Group’s whistleblowing policy.
ACTIVITIES AFTER THE YEAR END
In the period following the year end, the Committee met
once in March 2016 and reviewed the following:
• the Group’s risk management framework, ensuring it
enables the Directors to identify and carry out a
robust assessment of the principal risks facing the
Group including those that would threaten its business
model, future performance, solvency or liquidity;
• the process undertaken by management to support
the Group’s viability statement (which is set out on
page 71) including the choice of time period assessed
and the choice of principal risks and combinations of
risks modelled;
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• the integrity of the draft financial statements for
the year ended January 2016, including the
appropriateness of accounting policies and going
concern assumptions;
• the external auditor’s report;
• the systems and controls which the Group has in
place to enable the Board to make proper
judgements on a continuing basis as to the financial
position and prospects of the Group;
• whether this Annual Report and Accounts, taken as
a whole, is fair, balanced and understandable and
provides the information necessary for shareholders
to assess the Company’s position and performance,
business model and strategy;
• the Annual Report and Accounts for the year ended
January 2016 and recommended them for approval;
and
• the performance, effectiveness and qualifications of
the external auditor and recommendation for their
reappointment.
SIGNIFICANT AREAS OF JUDGEMENT
Within its terms of reference, the Committee monitors
the integrity of the Group’s annual and half-year results,
including a review of the significant financial reporting
issues and judgements contained in them.
At its meeting in March 2016, the Committee: reviewed
the Group’s results for the financial year; considered a
paper prepared by KPMG LLP, which included
comments on significant reporting and accounting
matters; and reviewed a paper from the Chief Financial
Officer to support the Directors’ going concern and
viability statements.
The major accounting issues discussed by the
Committee concerned:
• the existence and valuation of the Group’s inventory;
and
• the accounting relating to the Group’s foreign
exchange hedging instruments.
Inventory
The Group holds significant volumes, and a broad range,
of inventory. Certain of the Group’s inventory procedures
are manual in nature as are certain controls around
inventory once it has left the Group’s distribution centre
and has been delivered to stores. In light of these manual
procedures and controls, there is a heightened risk that a
material misstatement could arise due to the volume or
cost of inventory being incorrectly recorded.
The Group has a number of formal processes and
procedures to assess the reasonableness of the
inventory value presented in the Annual Report and
Accounts. These include:
• full inventory counts twice yearly both in-store and in
the Group’s distribution centre;
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• additional store counts of seasonal inventory at the
end of the key trading seasons for the business;
• reviews of inventory levels by store; and
• detailed analytical review to assess the
reasonableness of the inventory figure.
The Committee is satisfied that the judgements
made by management are reasonable and that
appropriate disclosures have been made in the
Annual Report and Accounts.
Accounting for foreign exchange hedging instruments
The business aims to hedge a significant proportion of
planned foreign currency stock purchases. A number of
forward hedges (including structured options) are in
place and, where appropriate, hedge accounting is
adopted by the Group.
Hedge accounting is by nature complex and is subject
to documentary requirements and periodic
effectiveness testing involving a degree of judgement.
In order to ensure compliance with the requirements for
hedge accounting the Group formally documents the
designation of foreign currency hedges at the outset of
each hedging relationship and hedge effectiveness is
tested on a monthly basis. Forecast foreign currency
requirements and the level of hedges in place are
monitored on an ongoing basis.
The Committee is satisfied that accounting policies
in respect of hedge accounting have been
appropriately applied.
The Committee also confirmed to the Board that it
considered the Annual Report and Accounts as a whole
to be ‘fair, balanced and understandable’.
INTERNAL AUDIT
Following a competitive tender process, Deloitte LLP
were appointed by the Committee in March 2015 to
provide internal audit services for the Group. Their work
will be focused on providing additional support to the
Group in evaluating the effectiveness and robustness of
its system of internal control and its approach to
identifying and mitigating risks. All of the Group’s other
internal controls are currently managed and monitored
by the Group’s senior management team (including the
Chief Executive Officer and the Chief Financial Officer).
At its meeting in June 2015, the Committee agreed an
internal audit plan put forward by Deloitte. The plan had
been prepared following interviews with members of
the Group’s senior management team and completion
of an assurance mapping exercise including a review of
the Group’s risk register. The major focus of internal
audit reviews for the years 2015/16 and 2016/17 is on
the Group’s use of technology.
LOSS PREVENTION
The Group’s loss prevention function that was
established a number of years ago is primarily focused
on cash fraud and loss prevention in Card Factory
stores. The Committee receives regular reports from
this function on investigations, outcomes and strategies
that the Group adopts to address issues that arise.
Card Factory plc Annual Report and Accounts 2016 EXTERNAL AUDITOR
KPMG LLP have conducted the statutory audit for the
financial year ended 31 January 2016 and they attended
all four of the Committee meetings held during that
year as well as the one held in March 2016. The
Committee had the opportunity to meet privately with
them during the period.
The fee paid to KPMG LLP for the statutory audit of
the Group and Company financial statements and the
audit of Group subsidiaries pursuant to legislation was
£100,000. A breakdown of fees paid to KPMG LLP
during the financial year is set out in note 4 to the
financial statements on page 90.
Resolutions to reappoint KPMG LLP as auditor and to
authorise the Directors to agree their remuneration will
be put to shareholders at the AGM.
The regulatory requirements on mandatory audit
tendering and rotation are continuing to evolve and
the Committee will monitor developments in this area.
Currently our policy is to tender the statutory audit at
least every ten years. As KPMG LLP have been our
auditor since 2011/12, this means that the next tender
will be for the 2021/22 audit at the latest. We intend to
invite at least one firm outside the ‘Big Four’ to
participate in the tender process.
Whilst we have not now conducted a competitive
tender for the audit for more than five years, the
Committee and the Board continue to believe this is in
the best interests of shareholders. KPMG LLP have,
during their time as the Group’s auditor, developed an
extensive knowledge of the Group and they successfully
supported the Group through its IPO in 2014. Given that
the Group remains relatively new to the listed company
environment, KPMG’s knowledge and experience and
the stability this provides is important to the Group as it
continues through its initial years as a listed Group. In
line with audit partner rotation requirements 2015/16
will be the last year for which the Independent Auditor’s
Report will be signed by the current KPMG LLP audit
partner. The Chairman of the Audit and Risk Committee
has met with the new audit partner.
We comply with the Competition and Markets
Authority’s Statutory Audit Services Order 2014.
The Group has no contractual arrangements (for
example, within borrowing arrangements) that restrict
its choice of auditor.
USE OF AUDITORS FOR NON-AUDIT WORK
The Committee recognises that the use of audit firms
for non-audit services can potentially give rise to
conflicts of interest and is therefore a sensitive issue.
The Group has a formal policy regarding its use of
audit firms for non-audit services, a copy of which
is available on Card Factory’s investor website
(www.cardfactoryinvestors.com). The Committee, in
addition to being responsible for the oversight of our
auditor on behalf of the Board, also has responsibility
for monitoring how this policy is implemented.
Under the policy, our auditor is eligible for selection to
provide non-audit services where it is in the Group’s
best interest for it to do this and it is best placed to
deliver the required service in terms of quality and cost,
taking into account their skills and experience. This is
subject to the overriding principle that the auditor may
not provide a service which:
• places them in a position to audit their own work;
• results in them making management decisions for
the Group;
• creates a mutuality of interest; or
• puts them in the role of advocate for the Company or
any member of the Group.
All work commissioned from our auditor is required
to be sanctioned by the Chief Financial Officer, who
consults with the Committee Chairman if the fee
involved is significant or if there are any issues
regarding independence, and the policy has built in
levels of authority to control the awarding of non-audit
work to the Company’s auditor.
The Chief Financial Officer also provides the Committee
with reports at each meeting on audit, audit related and
non-audit expenditure, together with details of any
material non-audit related assignments.
The aggregate fees paid to KPMG LLP for non-audit
work during the year were £36,000 (equivalent to 36%
of the audit fee). During the course of the year we have
engaged KPMG LLP to provide tax advice, to perform
an independent review of our half-year results, and for
sundry additional assignments including advice in
connection with the simplification of the Group’s
corporate structure. Full details are given in note 4 to
the financial statements on page 90.
The Committee is satisfied that the overall levels of
audit related and non-audit fees, and the nature of
services provided, are not such as to compromise the
objectivity and independence of our auditor.
The Committee acknowledges that the statutory regime
in respect of the provision of non-audit services will
change later this year and it will consider whether any
changes are required to the Group’s existing policy
and report on these in next year’s Annual Report
and Accounts.
This report was reviewed and approved by the
Committee on 4 April 2016.
David Stead
Chairman of the Audit and Risk Committee
4 April 2016
4747
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancialsStrategic reportGovernanceFinancials Chairman’s Letter – Remuneration
Committee
Octavia Morley
Chairman of the Remuneration Committee
Dear Shareholder
I am pleased to present our second Directors’ Remuneration Report as a listed company, for the financial year
ended 31 January 2016.
The Remuneration Committee continues to review all aspects of Executive Director remuneration at Card Factory
against market practice for UK-listed companies and other retailers, and against the requirements of the UK
Corporate Governance Code (or ‘the Code’). The Committee has developed a remuneration policy which it believes
is appropriate and balanced, supports the Company strategy to deliver shareholder value, and aligns executive and
shareholder interests. Whilst the latest Code has moved away from saying that remuneration should ‘attract, retain
and motivate’ the best executives, preferring to say that ‘executive directors’ remuneration should be designed to
promote the long-term success of the company’, this has always been the spirit of the Group’s remuneration policy,
and as such, no changes are being proposed to the policy this year.
I am pleased to welcome Karen Hubbard to the Board as CEO Designate, with effect from 22 February 2016. In the
recruitment process, we have been mindful of our policy to ensure the total remuneration of any new Director is in
the best interests of the Group and its shareholders, without overpaying. Karen’s remuneration arrangements are
therefore in line with the Group’s approved remuneration policy, comprising a salary of £445,000 pa with annual
bonus and LTIP opportunities in line with the current CEO’s levels. Until Karen meets the shareholding requirement
of 200% of salary, up to one third of any bonus earned will be mandatorily deferred in shares for three years. She
will receive an annual pension contribution of £15,000. As part of her recruitment package, and in order that Karen
was able to take up her position at a time to allow a suitable handover with the current CEO, the Committee
approved a like-for-like buyout of her forfeited bonus, which was assessed to have a fair value of £130,000, with the
time of payment matched to that of the forfeited award.
Richard Hayes will step down as CEO in mid-April and retire from the Board and leave the Group at the end of June,
and will not receive an LTIP grant in 2016, although he will, to the extent that they vest based on performance,
receive prorated LTIP awards at the normal vesting. He will be eligible to receive the bonus due for the financial
year 2015/6, but will not be eligible to receive any time prorated bonus for performance for the financial year
2016/17. The Committee has exercised an available discretion for good leavers to disapply any holding period on
vested LTIP awards, on the basis that his significant shareholding will continue to align his interests with that of
other shareholders after he leaves the Board.
48
Card Factory plc Annual Report and Accounts 2016 Other key remuneration decisions during the year have included:
• adjudicating salary increases for Executive Directors;
• awarding bonuses for the year ended 31 January 2016 at 79% of maximum, based on achievement of EBITDA
targets and taking into account personal performance (assessed based on balanced achievement against the
four pillars of the agreed growth strategy); and
• approving the terms of 2016 grant under our all-employee ‘Save as you earn’ (‘SAYE') share scheme, the
introduction of which was approved by our shareholders at last year’s AGM and is intended to promote share
ownership among our wider employee population.
At our next AGM, which will be held on 24 May 2016, the second section of this report, the Annual Report on
Remuneration, which outlines the implementation of our remuneration policy for the forthcoming financial year, will
be subject to an advisory vote. The first section, the Directors’ Remuneration Policy, is unchanged (other than for
minor changes to improve clarity), and will not be submitted for a vote, having been approved by shareholders at
the Company’s last AGM in 2015. This policy is proving an appropriate framework for motivating our Executive
Directors to achieve the business objectives of the Group and driving the creation of long-term shareholder value.
We will continue to review our remuneration arrangements to ensure they are in line with market best practice and
we value all feedback from shareholders and hope to receive your support at the forthcoming AGM.
Octavia Morley
Chairman of the Remuneration Committee
4 April 2016
49
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Directors’ Remuneration Report
INTRODUCTION
This Directors’ Remuneration Report is divided into
three sections: the Letter from the Chair of the
Remuneration Committee, set out on pages 48 to 49;
the Directors’ Remuneration Policy, set out on pages 51
to 58, and the Annual Report on Remuneration, set out
on pages 59 to 66.
The Directors’ Remuneration Policy sets out the policy
which was approved by shareholders at the AGM on 27
May 2015, and remains unchanged, other than minor
text changes to improve its clarity.
No payment may be paid to a Director or past Director
unless it is consistent with the approved policy unless
shareholder approval is sought. The exception to this
is if the payment is made pursuant to a contractual
obligation that was in force at 27 June 2012 (when the
new regulations came into force).
The Annual Report on Remuneration sets out how the
policy has been applied during the financial year being
reported on and how it will be applied in the coming
year. This report will be put to shareholders for approval
at the AGM on 24 May 2016, although the vote is
advisory.
This report complies with the provisions of the
Companies Act 2006 and Schedule 8 of the Large and
Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013, as well as the
UK Corporate Governance Code and the Financial
Conduct Authority’s Listing Rules.
5050
Card Factory plc Annual Report and Accounts 2016 DIRECTORS’ REMUNERATION POLICY
This section provides Card Factory’s Directors’ Remuneration Policy (‘the Policy’) which was approved and came
into effect at the 2015 AGM on 27 May 2015, and remains unchanged, other than minor text changes to improve
its clarity.
Card Factory’s policy for Executive Directors’ remuneration is to provide a competitive package of fixed and
variable pay. Fixed pay is set by reference to relevant companies to attract, motivate and retain the senior
management team and to ensure a fair reward for each role. Variable pay is set to provide a competitive level
of reward that aligns performance with the Group’s long-term goals and shareholder interests.
POLICY TABLE FOR EXECUTIVE DIRECTOR REMUNERATION
The key components of Executive Directors’ remuneration are as follows:
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Fixed pay
Base salary
To attract and retain
talent by ensuring
base salaries are
competitive in the
relevant talent market,
and to reflect an
executive’s skills and
experience
Base salaries are reviewed
annually, with reference to scope
of role, individual performance,
experience, market
competitiveness of total
remuneration with reference to
companies of a similar size and
other retail companies, inflation
and salary increases across the
Group
Increases will normally be
effective 1 May
Pension
To provide post
retirement benefits
Executive Directors are entitled
to receive the same auto
enrolment defined contribution
pension arrangements as
other employees
Business and individual
performance are
considerations in setting
base salary
None
Whilst no maximum level
of salary has been set by
the Remuneration
Committee, Executive
Directors’ salary increases
will normally be in line
with those for the wider
employee population at
Card Factory
In certain circumstances
(including, but not limited
to, a material increase in
job size or complexity,
promotion, recruitment or
development of the
individual in the role, or a
significant misalignment
with market) the
Committee has discretion
to make appropriate
adjustments to salary
levels to ensure they
remain fair and
competitive
The maximum permitted
by pensions auto
enrolment legislation
for the CEO and CFO
New appointees may
be offered pension
arrangements based
on market competitive
contribution rates
On appointment, the CEO
Designate will receive a
contribution to her
personal pension of
£15,000 pa
51
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Directors’ Remuneration Report continued
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Benefits
To provide Executive
Directors with a
reasonable level of
benefits and to ensure
overall remuneration is
market competitive
Variable pay
Annual bonus
To focus executives
on delivery of
year-on-year
financial performance
The ability to deliver a
portion of bonuses in
shares helps towards
achieving an
appropriate balance
between year-on-year
financial performance
and longer-term value
creation
52
Benefits currently include private
medical insurance, life insurance,
income protection, and the
provision of a car or car allowance
Benefits' values vary by
role and are reviewed
periodically relative to
market
It is not practical to provide
a maximum opportunity for
benefits, as there may be
factors outside of the
Company’s control which
change the cost to the
Company (eg increases in
insurance premiums)
The cost of providing
benefits for the year under
review are disclosed in the
Annual Report on
Remuneration
Up to 125% of salary
Where appropriate, other benefits
may be offered, for example
including, but not limited to,
relocation allowances
Performance measures and
targets are set at the start of the
financial year by the
Remuneration Committee
At the end of the financial year,
the Remuneration Committee
determines the extent to which
the targets have been achieved
Awards are normally delivered in
cash, but the Committee can
decide that some or all of it will
instead be paid in shares and
deferred for up to three years. If
participants have not met the
shareholding requirement, up to
one third of any bonus will be
mandatorily deferred in shares for
three years
An additional benefit is provided
in cash or shares equal to
dividends that would have been
paid over the vesting period on
awards that vest
The Committee has discretion to
reduce the amount of any deferred
bonus entitlement, or defer vesting
of awards or make them subject to
additional conditions, in the event
of, for example, material
misstatement, misconduct or
reputational damage. In extreme
cases, the Committee may further
determine to claw back previous
annual bonus payments for up to
two years post-vesting
Performance is determined
by the Committee on an
annual basis by reference
to financial measures (eg
EBITDA) and personal
performance
The annual bonus for
2016/17 will be based on
EBITDA performance with
a personal performance
underpin, as in 2015/16
(see further details in the
Annual Report on
Remuneration)
For achievement of
threshold performance, up
to 15% of maximum bonus
is earned
In determining the bonus
outcome the Committee
also takes into account
personal, business unit or
Company performance
and can reduce bonus
awards accordingly
The Committee retains
discretion to introduce
operational or strategic
measures at the start of
each year, to ensure
alignment with the
business priorities for the
year. The weighting on
financial measures will
remain at least 80%
Card Factory plc Annual Report and Accounts 2016 Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Long Term Incentive
Plan ('LTIP')
To align the interests
of executives with
shareholders in
growing the value of
the business over the
long term
The Committee has the ability to
grant annual awards of
performance shares or nil-cost
options
Up to 175% of salary face
value at grant
Performance is measured over a
three year period. Shares are then
subject to an additional two year
holding period (apart from any sold
to pay tax), before being released
to participants
An additional benefit is provided in
cash or shares equal to dividends
that would have been paid over the
vesting period on awards that vest
The Committee have discretion to
reduce unvested long-term
incentive awards, defer vesting of
awards or make them subject to
additional conditions (including
those awards in a holding period) in
the event of, for example, material
misstatement, misconduct or
reputational damage. In extreme
cases, the Committee may further
determine to claw back vested LTIP
awards for up to two years post-
vesting
Subject to continued
employment, awards will
vest on achievement of
financial performance
measures (eg EPS growth,
return measures),
measured over a three-
year performance period
Up to 25% of awards will
vest for achievement of
threshold performance,
then increase on a straight-
line basis to full vesting for
achieving stretch
performance
Measures used for LTIP
awards in 2016/17 will be
based on three year EPS
growth with a returns
underpin, as in 2015/16
(see further details in the
Annual Report on
Remuneration)
SAYE
To encourage share
ownership across the
workforce
Shareholding
guidelines
To encourage share
ownership and ensure
alignment of executive
interests with those of
shareholders
A UK tax-qualified scheme under
which eligible employees
(including Executive Directors)
may save up to the maximum
monthly savings limit (as
determined by prevailing
legislation) over a period of three
or five years. They are granted an
option to acquire shares at up to a
20% discount to the price on
grant. The number of shares under
option is that which can be
acquired at that price using the
proceeds of the savings
Requirement to build up and
maintain a beneficial holding of
shares in the Company defined as
a % of salary
None
Savings are capped at the
prevailing HMRC limit at
the time eligible
employees are invited to
participate, or such lower
limit as determined by the
Remuneration Committee
None
Details of the current
guidelines and Executive
Director shareholdings are
included in the Annual
Report on Remuneration
53
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Directors’ Remuneration Report continued
NOTES TO THE POLICY TABLE
This Policy is unchanged in substance since approval at the last AGM on 27 May 2015. Minor text changes have
been made to ensure this Policy report remains clear for the reader along with other minor changes to provide
additional clarity. These include:
• updates to the Policy table above to reflect 2016/17 incentive performance measures and pension arrangements
in 2016/17 for the CEO Designate;
• updated service contract details on page 56 to reflect changes in Board membership and notice periods;
• updated scenario charts on page 55 to reflect appointment of CEO Designate and latest salaries; and
• updated statement on differences in remuneration policy operated for other employees on page 54.
Equity plans shall be operated in accordance with the relevant rules as amended from time to time in accordance
with those rules, and within the limits of the Policy.
Performance measure selection and approach to target setting
The measures used in the annual bonus are selected annually to reflect the Company’s main strategic objectives for
the year. Performance targets are set to be stretching but achievable, taking into account the Company’s strategic
priorities and the economic environment in which the Company operates. Financial targets are set taking into
account a range of reference points including the Group’s strategic and operating plan. The Committee considers
carefully the appropriate financial conditions to attach to the annual bonus and the financial targets to attach to
long-term incentive awards to ensure they continue to be: (i) relevant to our strategic objectives; (ii) mindful of risk
management; and (iii) fair by being suitably stretching whilst realistic. The Remuneration Committee’s rationale for
the use of specific performance measures is included in the Annual Report on Remuneration.
Discretion
The Remuneration Committee reviews formulaic incentive outcomes and may adjust these within the limits of the
relevant plan to ensure alignment of pay with the underlying performance of the business. The Remuneration
Committee also has the discretion to make adjustments to the calculation of short- and long-term performance
measures in specific circumstances and within the limits of applicable plan rules. Such circumstances include:
changes in accounting standards, major corporate events such as rights issues, share buybacks, special dividends,
corporate restructurings, mergers, acquisitions and disposals.
Differences in remuneration policy operated for other employees
The policy and practice with regard to the remuneration of the senior management team below the Board is
consistent with that for the Executive Directors. The senior management team generally participate in the same
long-term incentives as the Executive Directors with similar performance measures applied.
The Policy for our Executive Directors is considered with the remuneration philosophy and principles that underpin
remuneration for the wider Group in mind. The remuneration arrangements for other employees reflect the
seniority of each role. As a result, the levels and structure of remuneration for different groups of employees will
differ from the Policy for executives as set out above, but with the common intention that remuneration
arrangements for all groups might reasonably be considered to be fair.
All employees, including the current Executive Directors (other than the CEO Designate, who on appointment,
will receive a contribution to her personal pension of £15,000 pa), are eligible to participate in the same pension
scheme (as the relevant legislation provides) with the same maximum contribution, and permanent employees
will be eligible to participate (subject to certain eligibility criteria) in the UK tax-qualified SAYE scheme on
identical terms.
Other
In addition to the above elements of remuneration, any commitment made prior to, but due to be fulfilled after,
the approval at the 27 May 2015 AGM and implementation of the Policy detailed in this report will be honoured,
including arrangements put in place prior to an individual becoming a Director. The Committee also retains
discretion to make non-significant changes to the policy without reverting to shareholders (for example,
for regulatory, tax, legislative or administrative purposes).
54
Card Factory plc Annual Report and Accounts 2016 PERFORMANCE SCENARIOS
The graphs below provide estimates of the potential future reward opportunities for Executive Directors, and the
potential split between the different elements of remuneration under three different performance scenarios;
‘Minimum’, ‘Mid’ and ‘Maximum’.
Maximum
Mid
Minimum
CEO1
100%
100%
100%
CFO
29%
28%
43%
£500k
Maximum
£1,250k
£500k
Mid
£675k
54%
26%
20%
£500k
Minimum
£366k
100%
£000s
0
100
200
300
400
500
600
£000s
0
200
400
600
800
1,000
1,200
1,400
CEO Designate2
27%
30%
43%
Maximum
£1,821k
51%
29%
20%
Mid
£959k
100%
Minimum
£486k
£000s
0
400
800
1,200
1,600
2,000
1) Richard Hayes will retire from the Board in mid-April,
and will not receive an LTIP grant in 2016 or be eligible
to receive a bonus for performance for the financial year 2016/17.
2) Karen Hubbard joined the Board as CEO Designate on 22 February 2016.
The opposite chart illustrates her potential future reward opportunities
assuming she was in the role for the full financial year.
Fixed Pay
Annual Bonus
LTIP
Potential reward opportunities illustrated above are in line with the existing Policy, applied to the base salaries that
will be in force on 1 May 2016. The projected value of LTIP amounts assumes LTIP grants at the maximum level and
excludes the impact of share price movement or dividend accrual.
In illustrating potential reward opportunities the following assumptions are made:
Fixed pay
Annual bonus
LTIP
Minimum
Salary as at 1 May 2016
No annual bonus payable
Threshold not achieved (0%)
Mid
Maximum
On-target annual bonus payable
(50% of maximum)
Maximum annual bonus payable
Pension contribution is
currently 1% of qualifying
band earnings for the CEO
(the CFO has opted out of the
pension scheme). CEO
Designate will receive a
contribution of £15,000 pa to
her personal pension
Benefits for the most recent
financial year
Performance warrants threshold
vesting (25% of maximum)
Performance warrants full vesting
55
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Directors’ Remuneration Report continued
APPROACH TO REMUNERATION FOR NEW DIRECTOR APPOINTMENTS
In determining appropriate remuneration for a new Director, the Committee will take into consideration all
relevant factors to ensure that arrangements are in the best interests of both Card Factory and its shareholders,
and will be mindful not to overpay on recruitment. In the cases of hiring or appointing a new Executive Director,
the Remuneration Committee may make use of all the existing components of remuneration, and remuneration
arrangements will normally be in line with those outlined in the future Policy table above, as follows:
Component
Approach
Maximum opportunity
Base salary
Pension
Benefits
The base salaries of new appointees will be determined based
on the experience and skills of the individual, internal relativities,
relevant market data and their current basic salary
n/a
New appointees may be offered pension arrangements based
on market competitive contribution rates
n/a
New appointees will be eligible to receive benefits in line
with the Policy which may include (but are not limited to)
the provision of a company car or car allowance, relocation
allowances
n/a
Annual bonus
The structure described in the Policy table will apply to new
appointees with the relevant maximum being prorated to
reflect the proportion of employment over the year
125% of salary
LTIP
SAYE
New appointees will be granted awards under the LTIP
on similar terms as other executives, as described in the
Policy table
New appointees will be invited to participate in the all-
employee SAYE scheme on identical terms as other
eligible employees
175% of salary
Savings are capped at the
prevailing HMRC limit at the time
employees are invited to
participate
The Committee may make an award in respect of a new appointment to ‘buy out’ incentive arrangements forfeited
on leaving a previous employer. In doing so, the Committee will take account of relevant factors including any
performance conditions attached to these awards, the likelihood of those conditions being met and the proportion
of the vesting period remaining. The total fair value of any such ‘buy out’ incentive arrangements will not exceed
that of awards forfeited on leaving the previous employer, and time to vesting will be matched.
In cases of appointing a new Executive Director by way of internal promotion, the approach will be consistent with
the policy for external appointees detailed above (save for ‘buy outs’). Where an individual has contractual
commitments made prior to their promotion to the Board, the Company will continue to honour these
arrangements. Measures used for below Board employees may be different from those used for Executive Directors
to tailor incentives to a particular division, role or individual.
In recruiting a new Non-Executive Director, the Remuneration Committee will use the Policy as set out in the table
on page 58.
SERVICE CONTRACTS AND EXIT PAYMENT POLICY
Executive Directors
The Committee sets notice periods for the Executive Directors of no more than 12 months. The Executive Directors
may be put on garden leave during their notice period (for up to six months), and the Company can elect to
terminate their employment by making a payment in lieu of notice equivalent to basic salary and benefits (including
pension contributions). Executive Directors’ service contracts are available to view at the Company’s registered
office and at the forthcoming AGM.
Executive Director
Richard Hayes
Darren Bryant
Karen Hubbard
Date of service contract
30 April 2014
30 April 2014
5 January 2016
Notice period
12 months
9 months*
9 months
* Darren Bryant’s notice period was changed in January 2016 to address the concern of certain shareholders regarding the length of notice periods for
Executive Directors and also to align it with the notice period for Karen Hubbard.
56
Card Factory plc Annual Report and Accounts 2016 If employment is terminated by the Company, the departing Executive Director may have a legal entitlement (under
statute or otherwise) to additional amounts, which would need to be met. In addition, the Committee may:
• settle any claims by or on behalf of the Executive Director in return for making an appropriate payment; and
• contribute to the legal fees incurred by the Executive Director in connection with the termination of employment,
where the Company wishes to enter into a settlement agreement (as provided for below) and the individual must
seek independent legal advice.
In certain circumstances, the Committee may approve new contractual arrangements with departing Executive
Directors including (but not limited to) settlement, confidentiality, outplacement services, restrictive covenants
and/or consultancy arrangements. These will be used sparingly and only entered into where the Committee
believes that it is in the best interests of the Company and its shareholders to do so.
The Company’s policy on termination payments is to consider the circumstances on a case-by-case basis, taking
into account the executive’s contractual terms, the circumstances of termination and any duty to mitigate. The
table below summarises how incentives are typically treated in different circumstances:
Plan
Scenario
Timing of vesting
Calculation of vesting/payment
Annual bonus
Default treatment
No bonus is paid
n/a
Death, injury, ill-health or
disability, retirement, or
any other reason the
Committee may determine
Normal payment date,
although the Committee has
discretion to accelerate
Change of control
Ordinarily accrued bonuses
will rollover into the new
entity, however, the
Committee has discretion to
allow a bonus to be paid
immediately on a change of
control
The Committee will determine
the bonus outcome based on
circumstances and the date of
leaving. Performance against
targets is typically assessed at
the end of the year in the
normal way and any resulting
bonus will be prorated for time
served during the year
Where the Committee
determines that a bonus is
payable, performance against
targets will be assessed at the
point of change of control and
any resulting bonus will be
prorated for time served up to
the point of change of control.
If bonus targets are not met,
no bonus will be payable
Shares deferred as
part of annual bonus
Default treatment
Awards lapse
n/a
Death, injury, ill-health or
disability, retirement, or
any other reason the
Committee may determine
Normal vesting date,
although the Committee has
discretion to accelerate
Awards are not prorated
Change control
Immediately
Awards are not prorated
LTIP
Default treatment
Awards lapse
n/a
Normal vesting date,
although the Committee has
discretion to accelerate
Death, injury or disability,
redundancy, retirement,
the sale of the employing
company or business out
of the Group or any other
reason as the Committee
may determine
Change of control
Immediately
SAYE
Treated in line with HMRC rules
Any outstanding awards will
normally be prorated for time
and performance conditions
will be measured over the
normal performance period
(unless awards are
accelerated)
Any outstanding awards will
be prorated for time and
performance up to the point of
the change of control
57
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Directors’ Remuneration Report continued
Non-Executive Directors
The Chairman and Non-Executive Directors were appointed on the dates set out in the table below. Their letters of
appointment set out the terms of their appointment and are available for inspection at the Group’s registered office
and at the AGM. Appointments are initially for three years (subject to annual re-election at the AGM) and unless
agreed by the Board, they may not remain in office for a period longer than six years, or two terms in office,
whichever is shorter. The Chairman and the Non-Executive Directors may resign from their positions but must serve
the Board six and one months’ written notice respectively.
Non-Executive Director1
Letter of appointment date
Expiry of current term
Geoff Cooper
Octavia Morley
David Stead
Paul McCrudden
30 April 2014
30 April 2014
30 April 2014
30 April 2017
30 April 2017
30 April 2017
1 December 2014
1 December 2017
1. Graeme Coulthard was a Non-Executive Director of the Card Factory plc up until 3 February 2015.
Other than the one-off option grant awarded to the Chairman pre-IPO in May 2014 in connection with his
appointment (as detailed on page 62 of the Annual Report on Remuneration), Non-Executive Directors are not
eligible to participate in the annual bonus or any equity schemes, do not receive any additional pension or benefits
on top of the fees disclosed on page 62, and are not entitled to a termination payment.
CONSIDERATION OF EMPLOYEE REMUNERATION AND EMPLOYMENT CONDITIONS IN GROUP
The Committee considers the remuneration and employment conditions elsewhere in the Group when determining
remuneration for Executive Directors. The Committee does not currently consult specifically with employees on the
executive remuneration Policy, but will keep this policy under review.
CONSIDERATION OF SHAREHOLDER VIEWS
When determining remuneration, the Committee takes into account the guidelines of shareholder bodies and
shareholders’ views. The Committee is open to feedback from shareholders on remuneration policy and
arrangements, and commits to undergoing consultation in advance of any significant changes to remuneration
policy. The Committee continues to monitor trends and developments in corporate governance and market
practice to ensure the structure of the executive remuneration remains appropriate.
EXTERNAL DIRECTORSHIPS
The Committee acknowledges that Executive Directors may be invited to become Independent Non-Executive
Directors of other quoted companies which have no business relationship with the Company and that these duties
can broaden their experience and knowledge to the benefit of the Company.
Executive Directors are permitted to accept such appointments with the prior approval of the Chairman. Approval
will only be given where the appointment does not present a conflict of interest with the Group’s activities and the
wider exposure gained will be beneficial to the development of the individual. Where fees are payable in respect of
such appointments, these would be retained by the Executive Director.
POLICY TABLE FOR NON-EXECUTIVE DIRECTOR REMUNERATION
The key components of Non-Executive Directors’ remuneration are as follows:
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Non-Executive
Directors’ fees
To attract Directors with
the appropriate skills and
experience, and to reflect
the time commitment in
preparing for and
attending meetings,
the duties and
responsibilities of the
role and the contribution
expected from the
Non-Executive Directors
Annual fee for Chairman and
Non-Executive Directors
Additional fees paid for
additional roles or time
commitment, eg chairing
Board Committees
Non-Executive Directors
do not participate in any
incentive schemes or
receive any other benefits
(other than nominal
travel expenses)
58
Any increases to NED fees will
be considered as a result of the
outcome of a review process
and taking into account wider
market factors, eg inflation
Performance of the
Board as a whole will
be reviewed regularly
as part of a Board
evaluation process
The maximum aggregate annual
fee for all directors provided in
the Company’s Articles of
Association is £1,000,000 pa
Further details of current fees
are included in the Annual
Report on Remuneration
Card Factory plc Annual Report and Accounts 2016 ANNUAL REPORT ON REMUNERATION
This is the Annual Report on Remuneration for the financial year ended 31 January 2016. This report sets out how
the Policy has been applied in the financial year being reported on, and how it will be applied in the coming year.
REMUNERATION COMMITTEE MEMBERSHIP AND ADVISERS
The Remuneration Committee consists of three Independent Non-Executive Directors: Octavia Morley (Chairman),
David Stead and Paul McCrudden, and the Non-Executive Chairman, Geoff Cooper. A more detailed explanation of
the Remuneration Committee’s role is set out in the Corporate Governance Report on pages 38 and 39 and a copy
of its terms of reference, which comply with the UK Corporate Governance Code, are available on Card Factory’s
investor relations website (www.cardfactoryinvestors.com).
The Committee fulfils its duties with a combination of both formal meetings and informal consultation with relevant
parties internally. Its principal external advisers are Kepler, a brand of Mercer, who were appointed by the
Committee, and who also provide remuneration advice to the Company. Kepler, and its parent company Mercer, do
not provide any other services to the Company. Kepler is a signatory to the Code of Conduct for Remuneration
Consultants in the UK, details of which can be found on the Remuneration Consultants Group’s website at www.
remunerationconsultantsgroup.com. Accordingly, the Committee is satisfied that the advice received from Kepler is
objective and independent. Fees paid to Kepler for the financial year were £6,000 which were charged on the basis
of time and materials.
COMMITTEE ACTIVITIES
During 2015/16, the Committee met to consider the following remuneration matters:
• the remuneration package for the CEO Designate;
• 2015 grants of LTIP awards;
• to agree proposed salary reviews and bonuses for the Executive Directors and members of the senior
management team for 2015/16; and
• to formally approve the Directors’ Remuneration Report set out in this Annual Report.
SINGLE FIGURE OF TOTAL REMUNERATION FOR EXECUTIVE DIRECTORS – AUDITED
The table below sets out a single figure for the total remuneration received by each Executive Director employed
by the Company during the period for the year ended 31 January 2016 and the prior year:
Salary1
Pension benefit
Taxable benefits2
Non-taxable benefits3
Annual bonus4
Share award5
LTIP6
SAYE7
Total
Richard Hayes
Darren Bryant
2015/16
2014/15
2015/16
2014/15
£456,750
£365
£35,355
£5,526
£453,263
n/a
n/a
£459
£414,000
£360
£33,373
£3,130
£433,510
n/a
n/a
n/a
£345,100
–
£8,000
£3,847
£273,972
£323,850
–
£8,000
£1,829
£411,800
n/a £4,200,000
n/a
n/a
n/a
£1,148
£951,718
£884,373
£632,067 £4,945,479
1.
In addition to the remuneration received by the Executive Directors from the Company, the table above includes the remuneration the Executive Directors
received from CF Topco Limited, the Group’s holding company prior to the IPO, in the period from 1 February 2014 to 16 April 2014.
2. Taxable benefits include: car or car allowance (Richard Hayes 2015/16: £25,652, 2014/15: £24,498, Darren Bryant: £8,000 allowance); fuel allowance
(Richard Hayes 2015/16: £7,977, 2014/15: £7,558); and family private medical insurance.
3. Both Richard Hayes and Darren Bryant are members of the Group Life Assurance Scheme. The amounts stated relate to insurance premiums paid by the
Group.
4. Annual bonus paid for performance over the relevant financial year. Annual bonus was paid in cash only. Further details on performance criteria,
achievement and resulting awards for the financial year ended 31 January 2016 can be found on page 60.
In the financial year ended 31 January 2015, Darren Bryant received a bonus in connection with the completion of IPO.
5. As disclosed in the prospectus published by the Company in connection with the IPO, in 2014/15 a share based payment arose during the year in favour of
Darren Bryant relating to management entitlements under the investment agreement that was in place between the shareholders of the Company prior to
the IPO. Immediately after completion of the IPO, 1,875,000 ordinary shares were issued and allotted to Darren Bryant for the nominal value of 1p per
ordinary share. The IPO offer price was 225p per share.
6. No LTIP awards vested during the reported periods.
7. Embedded value of SAYE options at grant. There are no performance conditions.
59
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials
Directors’ Remuneration Report continued
SALARY
During the year the Remuneration Committee reviewed the salary of the Chief Financial Officer who was awarded
an increase of 2%. Given that Richard Hayes will retire from the Board and leave the Group in June 2016, his salary
has not been reviewed. The salaries of the Executive Directors are, with effect from 1 May 2016 (or from
appointment on 22 February 2016 for Karen Hubbard), as follows:
Executive Director
Richard Hayes
Darren Bryant
Karen Hubbard
1 May 2016
1 May 2015
£459,000 £459,000
£353,736 £346,800
n/a
£445,000
EXECUTIVE DIRECTORS’ PENSION ARRANGEMENTS
The CEO and CFO participate in the same defined contribution pension scheme as other employees in line with
auto enrolment legislation. Pension contributions for Richard Hayes in 2015/16 were 1% of qualifying band earnings.
Darren Bryant opted-out of the auto enrolment pension arrangements and no pension contributions were made for
him for the year under review. For 2016/17, the Executive Directors will continue to receive pension contributions in
line with the Policy, albeit the CEO Designate will receive a contribution to her personal pension of £15,000 pa.
ANNUAL BONUS
The Group operates an annual performance related bonus scheme for a number of the senior management team
including Executive Directors. Bonus opportunities for 2015/16 were 125% of salary for Richard Hayes and 100% of
salary for Darren Bryant. Annual bonus awards granted to Executive Directors’ in respect of 2015/16 were as
follows:
Executive Director
Richard Hayes
Darren Bryant
1. All bonuses will be paid in cash.
Bonus1
£453,263
£273,972
The awards in respect of 2015/16 were based on EBITDA and subject to a personal performance underpin. Personal
performance is assessed based on balanced achievement against the four pillars of the agreed growth strategy
(see pages 8 and 9 of the Strategic Report), to ensure the foundations for future growth are laid, as well as
delivering in the current year. The EBITDA performance targets for the year were:
Performance level
Threshold
Maximum
2015/16 EBITDA
target
Percentage of
maximum
bonus awarded
£92.7m
£95.7m
15%
100%
For levels of performance between the points set out in the tables, vesting would be determined on a straight-line,
pro rata basis. No bonus is awarded for performance below the threshold. The range between threshold and
maximum has been drawn relatively tightly in line with the relative consistency of business performance. In the
financial year ended 31 January 2016, Card Factory achieved EBITDA of £95.0m. The Committee assessed the
personal performance underpin to have been achieved based on balanced achievement against the four pillars of
the agreed growth strategy, and as such, annual bonuses were awarded at 79% of maximum.
60
Card Factory plc Annual Report and Accounts 2016 ANNUAL BONUS FOR 2016/17
For the financial year ending 31 January 2017, the Committee will operate the annual bonus using the same
measures as were used in 2015/16. The EBITDA targets have been set by the Committee and will require Executive
Directors to deliver significant stretch performance. Given the close link between these targets and Card Factory’s
competitive strategy, EBITDA targets are considered commercially sensitive but will be published in the following
year’s Annual Report on Remuneration, subject to them no longer being considered commercially sensitive.
Karen Hubbard will be eligible to participate in the annual bonus for 2016/17, with any bonus awarded at the end of
the year prorated to reflect the portion of the financial year served. Richard Hayes will not be eligible to participate
in this annual bonus.
The use of an EBITDA performance measure, in the opinion of the Committee, focuses management on strong
annual financial performance and is heavily dependent on the Company’s success in achieving its short and long-
term strategic goals. The overall assessment of personal performance, assessed based on balanced achievement
against the four pillars of the agreed growth strategy, helps ensure that the Executives’ behaviours support longer-
term value creation.
LONG TERM INCENTIVE PLAN (‘LTIP') – AUDITED
Grants of awards under the LTIP in 2015
Awards under the LTIP were granted to the Executive Directors on 1 April 2015. Awards were made over shares
worth 175% of basic salary for Richard Hayes and 150% of salary for Darren Bryant. Awards that vest (after any sales
required to pay tax and social security contributions) will be subject to a 2-year holding period.
Executive
Richard Hayes
Darren Bryant
Number of LTIP shares
awarded
Face/maximum value of
awards at grant date1
% of award vesting at
threshold and (Maximum)
283,579
183,651
£787,500
£510,000
25% (100%)
25% (100%)
Performance period
1.2.15–31.1.18
1.2.15–31.1.18
1. Based on the average middle market quotation of a share in the capital of the Company for the three months prior to the date of award, 1 April 2015,
of 277.7p.
2015 LTIP vesting schedule
100%
25%
g
n
i
t
s
e
v
s
d
r
a
w
a
P
T
L
f
o
%
I
9% pa
15% pa
3-year EPS CAGR
The primary performance targets attached to those awards, based on annual EPS growth over three financial years
starting with that in which the award is granted, are illustrated in the chart above. In addition, for awards to vest,
the Remuneration Committee needs to be satisfied that the Company’s return on capital has been broadly
consistent with historic levels.
The use of an EPS growth performance measure, in the opinion of the Committee, focuses management on
continued strong financial performance and is heavily dependent on the Company’s success in achieving its
strategic goals. The Committee believes that a returns underpin appropriately reinforces the need to focus on
returns for shareholders and encourages capital discipline.
61
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials
Directors’ Remuneration Report continued
LTIP awards in 2016
For 2016, the Committee intends to grant LTIP awards to Executive Directors in line with the Policy using the same
performance measures as were used in 2015 (see page 61). In accordance with the Policy, the Remuneration
Committee will review the corresponding targets ahead of the 2016 grant to ensure they are appropriately
stretching over the performance period and deliver strong earnings growth and capital returns, whilst being
mindful of the potential cost pressures facing the sector over the three year period. Awards will be made over
shares worth 175% of basic salary for Karen Hubbard and 150% of salary for Darren Bryant, and details of the
awards will be set out in next year’s report and at the time of their grant. Given his retirement in June, Richard
Hayes will not receive an LTIP award in 2016.
SAYE
Awards under the HMRC-approved SAYE were granted to all participating employees on 26 June 2015. Options were
granted at a discount of 20% to the share price on grant, and vest after 3 years subject to continued employment.
Executive
Richard Hayes
Darren Bryant
Number of SAYE
options
awarded
Face/maximum
value of
awards at grant
date1
% Of award
vesting at
threshold and
(Maximum)
1,241
3,103
£4,058
£10,147
n/a
n/a
Performance
period
n/a
n/a
1. Based on the share price on the date of award, 26 June 2015, of 327p.
NON-EXECUTIVE DIRECTOR FEES
The fees payable to the Chairman and Non-Executive Directors take into account general economic and market
conditions, time commitment and responsibility, and the remuneration of Non-Executive Directors in similar
positions in comparable UK-listed companies. Changes are generally effective from 1 May. No increases were made
in the year under review and none are proposed for the current year.
Base fees
Chairman
Senior Independent Director
Non-Executive Director
Additional fees
Chair of the Remuneration Committee
Chair of the Audit and Risk Committee
2016/17
2015/16
£125,000
£49,000
£45,000
£125,000
£49,000
£45,000
£8,000
£8,000
£8,000
£8,000
SINGLE FIGURE OF TOTAL REMUNERATION FOR NON-EXECUTIVE DIRECTORS – AUDITED
The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the
year ended 31 January 2016.
Base fee
Additional fees
Other
Total
Non-Executive Director
2015/16
2014/153
2015/16
2014/15
2015/16
2014/15
2015/16
2014/15
Geoff Cooper1
Graeme Coulthard2
Octavia Morley
David Stead
Paul McCrudden
£0
£125,000 £125,000
£43,739
£49,000 £40,833
£37,500
£45,000
£7,500
£45,000
£0
£0
£8,000
£8,000
£0
£0
£0
£6,667
£6,667
£0
£0 £219,999 £125,000 £344,999
£43,739
£0
£47,500
£0
£44,167
£0
£7,500
£0
£0
£0
£0 £57,000
£0 £53,000
£0 £45,000
1. As disclosed in last year’s report, in connection with his appointment, Geoff Cooper was given the option to invest £330,000 in the Company by means of
an acquisition of ordinary shares as part of, or alongside, the offer of shares conducted in conjunction with the IPO at the offer price of 225p per share.
Geoff took up this offer at the time of the IPO in May 2014 and agreed to acquire 146,666 ordinary shares and this has entitled him, on each of the second
and third anniversaries of the date of the completion of the IPO, to make further investments of £330,000 in the Company by purchasing a further
146,666 ordinary shares at the offer price. Geoff’s entitlement to make such purchases is conditional upon and subject to his remaining as Chairman of the
Company on the relevant dates. It is not intended to offer the Chairman or Non-Executive Directors participation in similar arrangements in the future.
These options are valued in the table above based on the embedded value at the year end.
2. Graeme Coulthard’s fees were paid directly to Charterhouse and Graeme resigned from his position as a Non-Executive Director with effect from 3
February 2015. The table above includes fees for 2014/15 paid to Graeme Coulthard by CF Topco Limited, the Group’s holding company prior to the IPO,
in the period from 1 February 2014 to 16 April 2014.
3. Payments made to Geoff Cooper, Octavia Morley and David Stead in 2014/15 include payments made for work undertaken in the period preceding the
completion of the IPO.
62
Card Factory plc Annual Report and Accounts 2016 PAYMENTS FOR LOSS OF OFFICE
No exit payments were made during the year.
PAYMENTS TO PREVIOUS DIRECTORS
No payments were made to past Directors in the year.
HISTORICAL PERFORMANCE GRAPH AND CEO SINGLE FIGURE OF REMUNERATION
The graph below illustrates the total shareholder return performance of Card Factory against the FTSE 250 over
the period since the Group listed on 20 May 2014. The FTSE 250 has been chosen as it is a recognised broad equity
market index of which the Group is a member.
£100 invested TSR
)
£
(
O
P
I
t
a
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
a
V
l
£180
£160
£140
£120
£100
£80
£60
£40
£20
£0
Card Factory
FTSE 250
14 May 2014
31 January 2015
31 January 2016
Source: Datastream
Richard Hayes
Single figure of remuneration (£’000)
Annual bonus outcome (% of max)
LTIP vesting (% of max)
INCREASE IN CEO CASH REMUNERATION, 2014/15 TO 2015/16
Salary
Taxable benefits
Annual variable
1. Permanent store employees (representing c.90% of all permanent employees).
2015/16
2014/15
951
79%
n/a
884
77%
n/a
Increase in CEO
pay over the
year
Average
increase across
all employees1
10.3%
5.9%
4.6%
2.5%
–%
6.0%
63
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials
Directors’ Remuneration Report continued
DISTRIBUTION STATEMENT
The charts below illustrate the year-on-year change in total remuneration for all employees and total shareholder
distributions.
£m
100
90
80
70
60
50
40
30
20
10
0
Total remuneration
for all employees
-4.1%
95.0
91.1
2014/15
2015/16
Special dividend
Total shareholder
distributions
+244.8% (including special dividend)
+24.6% (excluding special dividend)
80.0
23.2
28.9
£m
80
70
60
50
40
30
20
10
0
STATEMENT OF SHAREHOLDER VOTING
The following table shows the results of the shareholder votes on the 2015 Directors’ Remuneration Policy and
Annual Report on Remuneration at the 2015 Annual General Meeting on 27 May 2015:
Remuneration Policy
Remuneration Report
Total number of
votes
% of votes cast
Total number of
votes
% of votes cast
For (including discretionary)
284,523,755
98.32% 286,235,489
Against
4,872,781
1.68%
1,821,367
Total votes cast (excluding withheld votes)
289,396,536
100% 288,056,856
Total votes withheld1
Total votes cast (including withheld votes)
102,680
289,499,216
–
–
1,442,360
289,499,216
99.37%
0.63%
100%
–
–
1. A withheld vote is not a vote in law and is not counted in the calculation of the proportion of votes cast for and against a resolution.
64
Card Factory plc Annual Report and Accounts 2016 DIRECTORS’ SHAREHOLDINGS AND INTEREST IN SHARES
Card Factory’s Chief Executive Officer and Chief Financial Officer each own significant shareholdings in the
Company. The Committee sets shareholding guidelines for Executive Directors. The current guideline is to build
and maintain, over time, a personal (and/or spousal) holding of shares in the Company equivalent in value to at
least 150% of the Executive Director’s annual base salary (200% for the CEO). Both the Chief Executive Officer and
the Chief Financial Officer currently significantly exceed this requirement. The Chief Executive Officer Designate
joined the Company on 22 February 2016 and does not currently hold any shares. The guidelines also state that an
Executive Director is expected to (i) retain at least half of vested LTIP shares, after the sale of sufficient shares to
cover tax and national insurance contributions triggered by the exercise (and associated dealing costs); and (ii)
defer one third of any earned net bonus into shares for three years, until the guideline level is achieved.
Director
Executive Directors
Richard Hayes
Darren Bryant
Karen Hubbard
Non-Executive Directors
Geoff Cooper
Graeme Coulthard2
Octavia Morley
David Stead
Paul McCrudden
Shares held
Options held
Unvested
and not
subject to
performance
Owned
outright1
Unvested and
subject to
performance
Vested but
not exercised
Unvested and
subject to
continued
employment
Current
shareholding
(% of salary/
fee3)
Shareholding
requirement
(% of salary/
fee)
11,644,781
5,676,087
0
146,666
0
13,333
22,222
0
0 633,579
410,317
0
0
0
0
0
0
1,241
3,103
0
8,854%
5,712%
0
200%
150%
200%
0
0
0
0
0
0
0
0
0
0
0 293,332
0
0
0
0
0
0
0
0
323%
0%
82%
146%
0%
n/a
Guideline
met?
Yes
Yes
No
Including shares owned by connected persons.
1.
2. Graeme Coulthard resigned as a Director on 3 February 2015. Graeme is a partner at Charterhouse Capital Partners LLP (‘Charterhouse’) and, at the time
of his resignation, the various funds through which Charterhouse held its shares in the Company held, in aggregate, 60,609,953 ordinary shares.
3. Calculated using the closing share price of the Company on 29 January 2016 of 349p.
As previously announced, Richard Hayes and Darren Bryant (and their connected persons) together with certain
members of the Group’s senior management team each sold 20% of their holdings in the Company’s shares on
19 June 2015. The shares were sold to institutional shareholders by way of a placing at a price of 330 pence per share.
There have been no changes in the numbers of shares owned by the Directors and their connected persons
between the end of the year and the date of this report.
65
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials
Directors’ Remuneration Report continued
DETAILS OF DIRECTORS’ INTERESTS IN SHARES IN INCENTIVE PLANS
Richard Hayes
LTIP
SAYE
Darren Bryant
LTIP
SAYE
Geoff Cooper
Pre-IPO options2
Date of
grant
Share
price
at grant
Exercise
price
Number of
shares awarded
Face value at
grant
Performance period
Exercise period
20.5.14 225p
1.4.15 277.7p1
327p
26.6.15
20.5.14 225p
1.4.15 277.7p1
327p
26.6.15
n/a
n/a
290p
n/a
n/a
290p
350,000
283,579
1,241
£787,500
£787,500
£4,058
226,666
183,651
3,103
£510,000
£510,000
£10,147
1.2.14–31.1.17
1.2.15–31.1.18
n/a
1.2.14–31.1.17
1.2.15–31.1.18
n/a
n/a
n/a
1.8.18-31.1.19
n/a
n/a
1.8.18-31.1.19
20.5.14 225p
225p
293,332 £660,000
n/a
20.5.16 and 20.5.17
1. Based on the average middle market quotation of a share in the capital of the Company for the three months prior to the date of award, 1 April 2015,
of 277.7p.
2. In connection with his appointment, Geoff Cooper was given the option to invest £330,000 in the Company by means of an acquisition of ordinary shares
as part of, or alongside, the offer of shares conducted in conjunction with the IPO at the offer price of 225p per share. Geoff took up this offer at the time
of the IPO and agreed to acquire 146,666 ordinary shares and this has entitled him, on each of the second and third anniversaries of the date of the
completion of the IPO, to make further investments of £330,000 in the Company by purchasing a further 146,666 ordinary shares at the offer price.
Geoff’s entitlement to make such purchases is conditional upon and subject to his remaining as Chairman of the Company on the relevant dates. It is not
intended to offer the Chairman or Non-Executive Directors participation in similar arrangements in the future.
Approved by the Board of Card Factory plc on 4 April 2016 and signed on its behalf by
Octavia Morley
Chairman of the Remuneration Committee
4 April 2016
66
Card Factory plc Annual Report and Accounts 2016 Chairman’s Letter – Nomination Committee
Geoff Cooper
Chairman of the Nomination Committee
Dear Shareholder
The main focus of the Nomination Committee over the last year has been the initiation of a succession
planning process, and dealing with the highest impact outcome from that process – the succession of our
Chief Executive Officer.
Richard Hayes, who has been with the Company for 13 years including the last 7 as CEO, informed the Board during
2015 of his wish to retire at some point, once a suitable successor was identified.
Whilst the Company is fortunate in having a long serving, high quality executive team, the succession planning
process revealed there were no internal candidates for the CEO role. A professional search firm was consequently
appointed. Their brief was to identify and approach experienced retail candidates with the skills and experience to:
• continue to drive our existing four pillar strategy;
• help identify longer-term opportunities available; and
• lead our strong team and develop their capabilities and careers.
The search firm undertook a rigorous, balanced and thorough search process and the Committee was further
assisted in its work by Darren Bryant, our Chief Financial Officer, who was also fully involved in the selection and
interviewing process.
We also directed the search firm that at every stage, from desk research to final shortlist, without compromising
the quality of candidates, we wanted as far as possible to ensure men and women were equally represented. As
shareholders will now be aware, Karen Hubbard, formerly Chief Operating Officer of a value-orientated general
retailer, with experience in supermarkets and convenience stores, was appointed Chief Executive Officer Designate
in January 2016, and will take over from Richard in April 2016.
Looking forwards, the Nomination Committee’s priority will be to extend the succession planning process so that it
covers all key roles in our senior management team.
Yours sincerely
Geoff Cooper
Chairman of the Nomination Committee
4 April 2016
67
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Nomination Committee Report
GENDER AND ETHNIC DIVERSITY
Our policy is that the Board should always be of mixed
gender and ethnically diverse, but we feel that quotas
are not appropriate as they are likely to lead to
compromised decisions on Board membership, quality
and size.
We will, however, seek to ensure that specific effort is
made to bring forward female candidates and those
from a range of ethnic backgrounds for Board
appointments and we will monitor the Group’s approach
to people development to ensure that it continues to
enable talented individuals, from both genders and
from all ethnic groups, to enjoy career progression
activities within the Group.
Details of the gender balance within the Group are set
out in the Corporate Social Responsibility report on
page 27.
BOARD EVALUATION
As intended, the Board conducted its first full internal
evaluation during the year which was led by the
Chairman and facilitated by the Company Secretary.
Further details are set out in the Corporate Governance
Report on page 40. Board evaluation will continue to be
conducted on an annual basis and the Board will, every
third year, as required by the UK Corporate Governance
Code, engage with an external agency to assist in
the process.
TENURE AND RE-ELECTION OF DIRECTORS
In accordance with the UK Corporate Governance Code,
Karen Hubbard will seek election and all the other
Directors will seek re-election at the next AGM on
24 May 2016.
This report was reviewed and approved by the Board
on 4 April 2016.
Geoff Cooper
Chairman of the Nomination Committee
4 April 2016
This report provides details of the role of the
Nomination Committee, the work it has undertaken
during the year and details of how it intends to carry
out its responsibilities going forwards.
ROLE OF THE NOMINATION COMMITTEE
The purpose of the Committee is to assist the Board by
keeping the composition of the Board under review and
by conducting a rigorous and transparent process when
new appointments to the Board are made.
A more detailed explanation of the Nomination
Committee’s role is set out in the Corporate Governance
Report on page 39 and the Committee’s terms of
reference, which are published on Card Factory’s
investor website (www.cardfactoryinvestors.com),
comply with the UK Corporate Governance Code.
MEMBERSHIP
The Nomination Committee is chaired by Geoff Cooper,
and its other members are Octavia Morley, David Stead
and Paul McCrudden.
The Chief Executive Officer and the Chief Financial
Officer attended the two meetings held this year by
invitation as well as participating in the discussions held
by the Committee during the process leading up to
Karen Hubbard’s appointment. The Company Secretary
acts as secretary to the Committee.
MEETINGS
As currently constituted, the Committee met twice
during the year with details of attendance set out in the
Corporate Governance Report on page 36.
COMMITTEE ACTIVITY IN 2015/16
The Committee’s main activity during the year, as
described in more detail in the introductory letter to
this report, was to initiate a thorough process for the
recruitment of a new Chief Executive. The process was
brought to successful conclusion with the appointment
of Karen Hubbard in January.
COMMITTEE’S FOCUS FOR THE FUTURE
The Nomination Committee’s priority over the coming
year will be to continue to develop and extend the
succession planning process so that it covers all key
roles in our senior executive team.
In addressing this, the Board understands and
acknowledges that its succession planning policy will:
• focus on the needs of the business over the medium
to longer term and the importance of maintaining the
appropriate balance of skills and experience across
both the executive management team and among the
Non-Executive Directors; and
• recognise that the Group’s best interests are served
by ensuring that the individuals who lead the Group
represent a range of skills, experiences, backgrounds
and perspectives, including gender but who at all
times are most suitable people for their roles.
6868
Card Factory plc Annual Report and Accounts 2016 Directors’ Report
The Directors present their report together with
the audited financial statements for the year ended
31 January 2016.
INTRODUCTION
This section of the Annual Report and Accounts includes
additional information required to be disclosed under
the Companies Act 2006 (‘the Companies Act’), the UK
Corporate Governance Code 2014 (‘ the Code’ or ‘the
UK Corporate Governance Code’), the Disclosure and
Transparency Rules (‘the DTRs’) and the Listing Rules
(‘the Listing Rules’) of the Financial Conduct Authority.
Some of the information we are required to include in
the Directors’ Report is included in other sections of this
Annual Report and Accounts and is referred to below.
Where reference is made to these other sections, they
are incorporated into this report by reference.
INCORPORATION, LISTING AND STRUCTURE
The Company was incorporated and registered in
England and Wales on 17 April 2014 under the
Companies Act with registration number 9002747.
The entire issued ordinary share capital of the Company
is admitted to the premium listing segment of the
Official List of the Financial Conduct Authority and to
trading on the London Stock Exchange plc’s main
market for listed securities. The liability of the members
of the Company is limited.
The Company is domiciled in the United Kingdom and
its registered office is at Century House, Brunel Road,
Wakefield 41 Industrial Estate, Wakefield, West
Yorkshire WF2 0XG. The telephone number of the
Company’s registered office is +44 1924 839150.
STRATEGIC REPORT
The Strategic Report, which was approved by the Board
on 4 April 2016 and is set out on pages 2 to 29, contains
a fair review of the Group’s business, a description of
the principal risks and uncertainties facing the Group
and an indication of the likely future developments in
the business of the Group.
The review is intended to be a balanced and
comprehensive analysis of the development and
performance of the Group’s business during the financial
year and the position of the Group’s business at the end
of that year. The report includes, to the extent necessary
for an understanding of the development, performance
or position of the Group’s business, analysis using
financial key performance indicators.
The Strategic Report also includes the main trends
and factors likely to affect the future development
performance and position of the Group’s business. It also
includes information about environmental matters, the
Group’s employees and social and community issues.
This Directors’ Report should be read in conjunction
with the Strategic Report, which also contains details
of the principal activities of the Group during the year.
When taken together, the Strategic Report and this
Directors’ Report constitute the management report for
the purposes of DTR 4.1.8R.
RESULTS AND DIVIDENDS
The consolidated profit for the Group for the year after
taxation was £66.4m (FY15: £33.2m). The results are
discussed in greater detail in the Chief Financial
Officer’s Review on pages 16 to 20.
A final dividend of 6.0 pence per share (FY15: 4.5 pence)
is proposed in respect of the period ended 31 January
2016 to add to an interim dividend of 2.5 pence per
share (FY15: 2.3 pence) paid on 27 November 2015.
The final dividend will, subject to shareholders’ approval
at the AGM on 24 May 2016, be paid on 10 June 2016 to
shareholders on the register on 6 May 2016.
SPECIAL DIVIDEND
A special dividend of 15 pence per share was paid to
shareholders on 27 November 2015.
POST YEAR END EVENTS
As previously stated, our current CEO, Richard Hayes,
will step down from his role in mid-April 2016 and,
following a handover period, retire from the Group at the
end of June 2016. Karen Hubbard was appointed to the
Board as CEO Designate with effect from 22 February
2016 and will formally take over as CEO of the Group in
mid-April 2016.
There were no other significant post year end events.
SHARE CAPITAL, SHAREHOLDERS AND
RESTRICTIONS ON TRANSFERS OF SHARES
The Company has only one class of shares, ordinary
shares of 1p each.
Further details of the Company’s share capital, including
changes in the issued share capital in the year under
review are set out in note 19 to the financial statements
which form part of this report on page 99. There have
been no further changes in the Company’s share capital
between the end of the financial year under review and
the date of the approval of this report.
Details of awards outstanding under share based
incentive schemes are given in note 25 to the financial
statements which form part of this report on pages 104
and 105. Details of the share based incentive schemes in
place are provided in the Directors’ Remuneration
Report on pages 50 to 66.
The rights and obligations attaching to the ordinary
share capital of the Company are contained within the
Company’s Articles of Association (Articles) which were
adopted on 17 April 2014.
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The Articles do not contain any restrictions on the
transfer of ordinary shares in the Company other than
the usual restrictions applicable where any amount is
unpaid on a share. Certain restrictions are also imposed
by laws and regulations (such as insider trading and
marketing requirements relating to close periods) and
requirements of the Listing Rules whereby Directors and
certain employees of the Company require approval of
the Company in order to deal in the Company’s shares.
SHAREHOLDER AND VOTING RIGHTS
All members who hold ordinary shares are entitled to
attend and vote at the AGM. On a show of hands at a
general meeting every member present in person shall
have one vote and on a poll, every member present in
person or by proxy shall have one vote for every
ordinary share held. No shareholder holds ordinary
shares carrying special rights relating to the control of
the Company.
As previously noted, the relationship agreement
(‘Relationship Agreement’) that was entered into on
15 May 2014 between the Company and the
Charterhouse Funds (being CCP IX LP No.1, CCP IX LP
No.2 and CCP IX Co-investment LP) that governed and
regulated the relationship between the Charterhouse
Funds and the Company following the completion of
the IPO was terminated as a result of the Charterhouse
Funds (and any members of their group) ceasing to own
in aggregate an interest, direct or indirect, of at least
20% or more of the issued ordinary shares in the
Company. Until its termination, the Board believes that
the Company and, so far as the Company is aware, the
Charterhouse Funds complied with the Independence
provisions in the Relationship Agreement.
The only significant agreement to which the Company is
a party that takes effect, alters or terminates upon a
change of control of the Company following a takeover
bid, and the effect thereof, is the Company’s committed
bank facility dated 17 April 2014 (as amended and
restated on 24 June 2015) which contains a provision
such that, in the event of a change of control the facility
may be cancelled and all outstanding amounts, together
with accrued interest, will become repayable on the
date falling 30 days following written notice being given
by the lenders that the facility has been cancelled.
TRANSACTIONS WITH RELATED PARTIES
The only material transactions with related parties
during the year were those transactions detailed in note
28 on page 106 of the Annual Report and Accounts.
DIRECTORS
The Directors of the Company and their biographies are
set out on pages 30 to 32. Details of changes to the
Board during the period are set out in the Corporate
Governance Report on pages 34 and 35. Details of how
Directors are appointed and/or removed are set out in
the Corporate Governance Report on page 40.
POWERS OF DIRECTORS
Specific powers of the Directors in relation to shares
and the Company’s Articles of Association are referred
to in the Corporate Governance Report on pages 40
and 41.
DIRECTORS’ INDEMNITIES AND INSURANCE
Information relating to Directors’ indemnities and the
Directors and Officers liability insurance the Company
has purchased is set out in the Corporate Governance
Report on page 41.
SUBSTANTIAL SHAREHOLDERS
At 4 April 2016 the following had notified the Company
of a disclosable interest in 3% or more of the nominal
value of the Company’s ordinary shares:
EMPLOYEES
Information relating to employees of the Group is set
out in the Corporate Social Responsibility Report on
page 27.
Shareholder
Number of
ordinary shares
Percentage
of share
capital
Invesco Perpetual Asset Management Ltd
Artemis Investment Management LLP
Old Mutual Global Investors
Stuart Middleton
JP Morgan Asset Management
Majedie Asset Management
Kames Capital
Richard Hayes
91,934,374
37,908,425
34,228,157
18,035,477
14,513,414
13,686,200
11,652,913
11,644,781
27.0
11.1
10.0
5.3
4.3
4.0
3.4
3.4
CHANGE OF CONTROL
There are no agreements between the Company and its
Directors or employees providing for additional
compensation for loss of office or employment (whether
through resignation, redundancy or otherwise) that
occurs because of a takeover bid.
Share incentive schemes in which employees participate
are described in the Directors’ Remuneration Report on
page 53 and in note 25 to the financial statements on
pages 104 and 105.
HEALTH AND SAFETY
An overview of health and safety is provided in the
Corporate Social Responsibility Report on page 26.
GREENHOUSE GAS EMISSIONS
The Corporate Social Responsibility Report on page 26
sets out the greenhouse gas emissions disclosures
required by the Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013.
POLITICAL DONATIONS
The Group has not made any political donations in the
past and does not intend to make any in the future.
7070
Card Factory plc Annual Report and Accounts 2016 TREASURY AND RISK MANAGEMENT AND
FINANCIAL INSTRUMENTS
The Group’s approach to treasury and financial risk
management is explained in the Principal Risks and
Uncertainties section on page 22. In that section,
beginning on page 21, there is also a list of the principal
risks and uncertainties that affect or are likely to affect
the Group. The financial position of the Group, its cash
flow, liquidity position and borrowing facilities are
described in the Chief Financial Officer’s Review on
pages 16 to 20.
TAX
The Group pays corporation tax on its operations in the
United Kingdom and does not operate in any tax
havens, or use any tax avoidance schemes.
GOING CONCERN
Taking into account current and anticipated trading
performance, current and anticipated levels of
borrowings and the availability of borrowing facilities
and exposures to and management of the financial risks
detailed in the Strategic Report on pages 2 to 23, the
Board is of the opinion that, at the time of approval of
these financial statements, there is a reasonable
expectation that the Group has adequate resources to
continue in operational existence for the period outlined
in the viability statement below. Accordingly, the
financial statements continue to be prepared on a
going concern basis.
LONGER-TERM VIABILITY
In accordance with the UK Corporate Governance Code,
the Directors have assessed the viability of the Group
over the three years to 31 January 2019. This
assessment has been made taking into account the
Group’s current position, plans and principal risks and
uncertainties described in the Strategic Report on
pages 2 to 23.
The Directors have determined that a three year period
to 31 January 2019 is an appropriate period over which
to provide its viability statement. This is the period
reviewed by the Board in its strategic planning process.
In making this statement, the Board has carried out a
robust assessment of the principal risks facing the
Group, including those that would threaten its business
model, future performance, solvency or liquidity.
The Board has reviewed the Group’s detailed three year
strategic plan, a process it undertakes on an annual
basis, including an assessment of key operational and
financial assumptions. The output of this plan is also
used to analyse forecast debt and covenant headroom
and includes a review of sensitivities to business as
usual risks. These risks include the consideration of
factors which could impact forecast sales levels (for
example, like-for-like sales, new store openings and
online growth rates) and factors which could impact
profitability (for example, foreign exchange rates and
property costs). The results take into account the
availability and likely effectiveness of mitigating actions
that could be taken to avoid or reduce the impact or
occurrence of the underlying risks. The scenarios
modelled represent more extreme circumstances than
the Group has ever experienced.
Whilst this review does not consider all of the risks that
the Group might face, the Directors consider that this
stress-testing based assessment of the Group’s
prospects is reasonable in the circumstances of the
inherent uncertainty involved.
The Board also considers cash flow forecasts, the
availability of financing and the Group’s plans to return
surplus cash to shareholders. The Group remains highly
cash generative and has significant headroom on all of
the covenants in its committed banking facility which
expires in 2020. In assessing potential returns of surplus
cash to shareholders, the Board will take into account,
inter alia, expected cash generation, the actual and
projected leverage ratio and the ongoing capital
requirements of the business. Such returns of surplus
cash are therefore discretionary and within the control
of the Board.
Based on this assessment, the Directors confirm that
they have a reasonable expectation that the Company
and the Group will be able to continue in operation and
meet their liabilities as they fall due in the period to
31 January 2019.
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ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be
held at 11.00am on 24 May 2016 at the offices of
Linklaters LLP, One Silk Street, London EC2Y 8HQ.
A formal notice of meeting, explanatory circular and
a form of proxy will accompany this Annual Report
and Accounts.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN
RESPECT OF THE ANNUAL REPORT AND ACCOUNTS
This statement is set out on page 73.
APPROVAL OF THE ANNUAL REPORT
The Strategic Report and the Corporate Governance
Report were approved by the Board on 4 April 2016.
Approved by the Board and signed on its behalf by
Shiv Sibal
Company Secretary
4 April 2016
Directors’ Report continued
DISCLOSURE OF INFORMATION AND APPOINTMENT
OF AUDITORS
So far as each Director is aware, there is no relevant
audit information of which the Company’s Auditor is
unaware and the Directors have taken all the steps
which they ought to have taken as Directors to make
themselves aware of any relevant audit information
and to establish that the Company’s Auditor is aware
of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 418 of the
Companies Act. On behalf of the Board, the Audit and
Risk Committee has reviewed the effectiveness,
performance, independence and objectivity of the
existing external Auditor, KPMG LLP, for the year ended
31 January 2016 and concluded that the external
Auditor was in all respects effective. KPMG LLP has
expressed its willingness to continue in office as
Auditor. Accordingly, and in accordance with Section
489 of the Companies Act, resolutions to reappoint
KPMG LLP as Auditor and to authorise the Directors to
determine its remuneration will be proposed at the
forthcoming AGM of the Company.
INFORMATION REGARDING
FORWARD-LOOKING STATEMENTS
The reports and financial statements contained in this
Annual Report and Accounts contain 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 and forecasts. Nothing in
this Annual Report and Accounts should be construed
as a profit forecast.
7272
Card Factory plc Annual Report and Accounts 2016 Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial
year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as
adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements on
the same basis.
Under company law the Directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that
period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group
and the Parent Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006.
They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of
the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’
Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT AND ACCOUNTS
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true
and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
• the Strategic Report includes a fair review of the development and performance of the business and the position
of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face.
We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group’s position and performance, business model
and strategy.
Richard Hayes
Chief Executive Officer
4 April 2016
Darren Bryant
Chief Financial Officer
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Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials
Independent Auditor’s Report to the
Members of Card Factory plc
Opinions and conclusions arising from our audit.
1 OUR OPINION ON THE FINANCIAL STATEMENTS IS UNMODIFIED
We have audited the financial statements of Card Factory plc for the year ended 31 January 2016 set out on pages
78 to 118. In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs
as at 31 January 2016 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial
Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);
• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by
the EU and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the IAS Regulation.
2 OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the
greatest effect on our audit are listed below (in decreasing order of significance).
Inventory £50.4m (FY15: £41.5m), Risk vs FY15
Refer to page 46 (Audit and Risk Committee Report), page 89 (accounting policy) and page 96 (financial disclosures).
The risk:
Due to the nature of the business there is a high volume of items held in inventory. Elements of the costing
calculations for both store and warehouse stock are manual in nature as are certain controls around store inventory.
These controls include stock counts and review of stock levels by store. Due to the significant volume of stock
items and the broad product range there is a risk that a material misstatement could arise due to the volume of
store stock or cost of inventory being incorrectly recorded.
Our response:
In this area, our procedures included:
• attendance at a sample of store inventory counts to assess the design, implementation and homogeneity of the
store stock count procedures. A sample of stock quantities submitted by stores as part of the store inventory
counts were agreed to the Directors’ stock listing. We also attended the warehouse inventory count for a sample
of inventory lines to test the operating effectiveness of the warehouse stock count control and whether the
quantities were stated correctly;
• reconciliation of total stock by comparing the results of store and warehouse counts adjusted for provisioning
and other stock related adjustments to the accounting values booked for store and warehouse stock adjusted
for shrinkage. We recalculated and sought supporting documentation for each of these inputs and critically
assessed the Directors’ assumptions around shrinkage percentages to ensure that the basis of calculation
was appropriate;
• comparing the actual store stock levels, on a store by store basis, to our expectations, based on our
understanding of the business, taking into consideration store size and the nature of the inventory. Where we
found the level of stock was not in line with our expectations we evaluated the characteristics specific to the
store to assess whether this supported the stock level held;
• review of sales immediately pre and post year end to assess whether there had been significant fluctuations
which would indicate an issue over stores stock existence;
• testing over a sample of inventory lines to assess whether all elements of the costs attributed to them had been
accurately input into the costing calculations;
• testing the cost inputs by obtaining supporting documentation and re-performing standard cost
calculations; and
• assessing whether the disclosures in relation to inventory were appropriate.
74 Card Factory plc Annual Report and Accounts 2016
Foreign exchange hedging, Risk vs FY15
Refer to page 46 (Audit and Risk Committee Report), pages 86 to 88 (accounting policy) and page 103
(financial disclosures).
The risk:
The Group commercially hedges a high proportion of foreign currency stock purchases. A combination of
instruments are used, primarily foreign exchange forwards and forward contracts with embedded options. Where
appropriate, hedge accounting is adopted by the Group. Due to the degree of judgement and estimation in
determining forecast cash flows there is a risk that the assumptions made in the prospective effectiveness testing
are inappropriate, which would lead to the presentation of the fair value movement on the financial instruments in
equity being incorrect.
Our response:
In this area, our procedures included:
• assessing whether the controls in place around foreign exchange hedging are sufficient, appropriate and operate
effectively by assessing whether effectiveness testing has been carried out prospectively and retrospectively on
a monthly basis;
• agreeing all existing foreign exchange forward contracts at the year end to the hedge documentation prepared
at the inception of the contract and assessing whether the criteria for hedge accounting has been met;
• obtaining and considering the Directors’ assessment of prospective and retrospective hedge effectiveness for
the foreign exchange forward contracts outstanding at the year end and reperforming the calculation at the year
end to assess their accuracy;
• assessing the historical accuracy of forecast foreign currency purchases to assess the reliability of the
Group’s forecasting;
• evaluating whether the ineffective portion of the hedges have been charged to the income statement in line with
accounting policies;
• agreeing the mark to market value of the forward contract to third-party confirmation for all contracts
outstanding at the year end and recalculating a sample of mark to market valuations, assisted by our own
valuation specialist; and
• assessing the adequacy of the financial instrument disclosures in the financial statements.
In our audit report for the year ended 31 January 2015 we included IPO accounting and disclosures as one of the
risks of material misstatement that had the greatest effect on our audit. We considered this risk not to be
significant in the current year as this related to the 2014 listing of the Group on the London Stock Exchange and
was therefore a one-off occurrence.
3 OUR APPLICATION OF MATERIALITY AND AN OVERVIEW OF THE SCOPE OF OUR AUDIT
The materiality for the Group financial statements as a whole has been set at £4.0m determined by reference to a
benchmark of Group profit before taxation, normalised to exclude non-recurring items of £1.7m as disclosed in note
3 on page 90, of £82.0m of which it represents 5%.
We report to the Audit and Risk Committee any corrected and uncorrected identified misstatements exceeding
£50,000 in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s three reporting components we subjected one to an audit for Group reporting purposes. The other
two were not individually financially significant enough to require an audit for Group reporting purposes and
neither presented with specific individual risks that needed to be addressed. On those two components we
conducted reviews of financial information including enquiry which provided further coverage of the Group’s
results. These procedures covered 100% of total Group revenue; 100% of Group profit before taxation and 100% of
total Group assets.
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Members of Card Factory plc continued
4 OUR OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 IS UNMODIFIED
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006;
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
• the information given in the Corporate Governance Statement set out on pages 34 to 43 in the Corporate
Governance Report with respect to internal control and risk management systems in relation to financial
reporting processes and about share capital structures is consistent with the financial statements.
5 WE HAVE NOTHING TO REPORT ON THE DISCLOSURES OF PRINCIPAL RISKS
Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in
relation to:
• the Directors’ statement of longer-term viability on page 71, concerning the principal risks, their management,
and, based on that, the Directors’ assessment and expectations of the Group’s continuing in operation over the
three years to 31 January 2019; or
• the disclosures in note 1 of the financial statements concerning the use of the going concern basis of accounting.
6 WE HAVE NOTHING TO REPORT IN RESPECT OF THE MATTERS ON WHICH WE ARE REQUIRED TO REPORT
BY EXCEPTION
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our
audit, we have identified other information in the Annual Report that contains a material inconsistency with either
that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired during our audit and the
Directors’ statement that they consider that the Annual Report and financial statements taken as a whole is fair,
balanced and understandable and provides the information necessary for shareholders to assess the Group’s
position and performance, business model and strategy; or
• the Audit and Risk Committee Report does not appropriately address matters communicated by us to the Audit
and Risk Committee.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are
not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a Corporate Governance Statement has not been prepared by the Company.
Under the Listing Rules we are required to review:
• the Directors’ statements, set out on page 71, in relation to going concern and longer-term viability; and
• the part of the Corporate Governance Statement on page 34 relating to the Company’s compliance with the
eleven provisions of the 2014 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
76
Card Factory plc Annual Report and Accounts 2016 SCOPE AND RESPONSIBILITIES
As explained more fully in the Directors’ Responsibilities Statement set out on page 73, the Directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company’s members as a body
and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should
be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of
our opinions.
Chris Hearld (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
4 April 2016
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Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Consolidated Income Statement
FOR THE YEAR ENDED 31 JANUARY 2016
Note
Underlying
£’m
2016
Non-underlying
(note 3)
£’m
Total
£’m
Underlying
£’m
2015
Non-underlying
(note 3)
£’m
Total
£’m
353.3
(240.1)
113.2
(48.9)
64.3
0.3
(21.9)
(21.6)
Revenue
Cost of sales
Gross profit/(loss)
Operating expenses
Operating profit/(loss)
Financial income
Financial expense
Net financing expense
Profit/(loss) before tax
Taxation
4
7
7
8
381.6
(259.2)
122.4
(37.1)
85.3
0.3
(3.6)
(3.3)
–
3.9
3.9
(0.3)
3.6
–
(1.9)
(1.9)
381.6
(255.3)
126.3
353.3
(240.0)
113.3
(37.4)
88.9
0.3
(5.5)
(5.2)
(33.9)
79.4
0.3
(14.2)
(13.9)
–
(0.1)
(0.1)
(15.0)
(15.1)
–
(7.7)
(7.7)
82.0
1.7
83.7
65.5
(22.8)
42.7
(17.0)
(0.3)
(17.3)
(14.4)
4.9
(9.5)
Profit/(loss) for the year
65.0
1.4
66.4
51.1
(17.9)
33.2
Earnings per share
– Basic and diluted
10
pence
19.1
pence
19.5
pence
16.3
pence
10.6
All activities relate to continuing operations.
78
Card Factory plc Annual Report and Accounts 2016 Consolidated Statement
of Comprehensive Income
FOR THE YEAR ENDED 31 JANUARY 2016
Profit for the year
Items that are or may be recycled subsequently into profit or loss:
Effective portion of changes in fair value of cash flow hedges
Net change in fair value of cash flow hedges recycled to profit or loss
Tax relating to components of other comprehensive income (note 13)
Other comprehensive (expense)/income for the period, net of income tax
2016
£’m
2015
£’m
66.4
33.2
0.7
(3.1)
0.5
(1.9)
7.0
0.2
(1.4)
5.8
Total comprehensive income for the period attributable to equity shareholders of the parent
64.5
39.0
79
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Consolidated Statement
of Financial Position
AS AT 31 JANUARY 2016
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Other receivables
Derivative financial instruments
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Borrowings
Trade and other payables
Tax payable
Derivative financial instruments
Non-current liabilities
Borrowings
Trade and other payables
Total liabilities
Net assets
Equity
Share capital
Share premium
Hedging reserve
Reverse acquisition reserve
Merger reserve
Retained earnings
Equity attributable to equity holders of the parent
Note
2016
£’m
2015
£’m
11
12
13
15
24
14
15
24
16
17
18
24
17
18
19
19
331.0
39.9
0.2
1.0
1.8
373.9
50.4
17.0
3.5
11.3
82.2
331.0
38.2
0.2
1.2
–
370.6
41.5
17.7
5.8
69.0
134.0
456.1
504.6
(0.1)
(35.8)
(8.8)
(0.2)
(44.9)
(134.1)
(11.4)
(145.5)
(14.5)
(35.3)
(5.2)
(0.1)
(55.1)
(155.9)
(10.7)
(166.6)
(190.4)
(221.7)
265.7
282.9
3.4
201.6
3.1
(0.5)
2.7
55.4
265.7
3.4
201.6
5.0
(0.5)
2.7
70.7
282.9
The financial statements on pages 78 to 107 were approved by the Board of Directors on 4 April 2016 and were
signed on its behalf by:
Darren Bryant
Chief Financial Officer
80
Card Factory plc Annual Report and Accounts 2016 Consolidated Statement
of Changes in Equity
FOR THE YEAR ENDED 31 JANUARY 2016
At 1 February 2014
Total comprehensive income for the year
Profit or loss
Other comprehensive income
Transactions with owners, recorded directly in equity
Issue of shares - net of issue costs (note 19)
Share based payment charges (note 25)
Total contributions by and distributions to owners
Share
capital
£’m
Share
premium
£’m
Hedging
reserve
£’m
Reverse
acquisition
reserve
£’m
Merger
reserve
£’m
Retained
earnings
£’m
Total
equity
£’m
2.5
–
–
–
0.9
–
0.9
–
–
–
–
201.6
–
201.6
(0.8)
(0.5)
2.7
27.2
31.1
–
5.8
5.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
33.2
–
33.2
–
10.3
10.3
33.2
5.8
39.0
202.5
10.3
212.8
At 31 January 2015
3.4
201.6
5.0
(0.5)
2.7
70.7
282.9
Total comprehensive income for the year
Profit or loss
Other comprehensive income
Transactions with owners, recorded directly in equity
Share based payment charges (note 25)
Taxation on share based payments recognised in
equity (note 13)
Dividends (note 9)
Total contributions by and distributions to owners
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.9)
(1.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
66.4
–
66.4
66.4
(1.9)
64.5
1.3
1.3
0.1
(83.1)
(81.7)
0.1
(83.1)
(81.7)
At 31 January 2016
3.4
201.6
3.1
(0.5)
2.7
55.4
265.7
81
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Consolidated Cash Flow Statement
FOR THE YEAR ENDED 31 JANUARY 2016
Note
20
12
11
Cash inflow from operating activities
Corporation tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Payment of deferred consideration
Proceeds from sale of property, plant and equipment
Interest received
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from bank borrowings
Purchase of interest rate caps
Interest paid
Repayment of borrowings
Payment of finance lease liabilities
Proceeds from new shares issued
Dividends paid
Net cash outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Closing cash and cash equivalents
16
2016
£’m
92.2
(13.0)
79.2
(10.5)
(1.1)
(0.8)
0.1
0.3
(12.0)
144.2
(0.5)
(3.3)
(182.5)
–
–
(82.8)
(124.9)
(57.7)
69.0
11.3
2015
£’m
84.9
(9.6)
75.3
(9.2)
(0.9)
(0.8)
–
0.3
(10.6)
177.4
–
(8.6)
(293.6)
(0.1)
88.5
–
(36.4)
28.3
40.7
69.0
82
Card Factory plc Annual Report and Accounts 2016 Notes to the Financial Statements
1 ACCOUNTING POLICIES
General information
Card Factory plc (‘the Company’) is a public limited company incorporated in the United Kingdom. The Company
is domiciled in the United Kingdom and its registered office is Century House, Brunel Road, 41 Industrial Estate,
Wakefield WF2 0XG.
The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as
the ‘Group’).
Basis of preparation
The Group financial statements have been prepared in accordance with International Financial Reporting Standards
as adopted by the EU (‘EU IFRS’) and with those parts of the Companies Act 2006 applicable to companies
reporting under EU IFRS.
The financial statements have been prepared on a going concern basis under the historical cost convention, as
modified for the subsequent measurement of derivative financial instruments.
Impact of the Group restructure prior to the Initial Public Offering
On 20 May 2014, Card Factory plc was admitted to trading on the London Stock Exchange. In preparation for the
Initial Public Offering, the Group was restructured. On 30 April 2014 Card Factory plc (formerly CF Listco Limited,
incorporated on 17 April 2014 for the purpose of the restructure) acquired 100% of the share capital of CF Topco
Limited in a share for share exchange, thereby inserting Card Factory plc as the Parent Company of the Group.
The shareholders of CF Topco Limited became 100% owners of the enlarged share capital of Card Factory plc.
The principles of reverse acquisition accounting under IFRS 3 Business Combinations have been applied to the
comparative period ended 31 January 2015. By applying the principles of reverse acquisition accounting, the
comparative period is presented as if Card Factory plc had always owned CF Topco Limited.
Full details of the reverse acquisition accounting applied were described in the financial statements for the year
ended 31 January 2015.
Significant judgements and estimates
The preparation of financial statements in conformity with EU IFRS requires the use of judgements, estimates and
assumptions that affect the application of the Group’s accounting policies and reported amounts of assets and
liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
Areas subject to significant judgement, assumption or estimation are detailed below:
Inventory
The Group holds significant volumes, and a broad range of inventory. Certain of the Group’s inventory procedures
are manual in nature. The Group provides against the carrying value of inventories where it is anticipated the
amount realised may be below the cost recognised. The provision is calculated based on historical experience.
Foreign currency hedge accounting
Where appropriate, hedge accounting is adopted by the Group. Due to the degree of judgement and estimation
in determining forecast cash flows there is a risk that the assumptions made in the effectiveness testing
are inappropriate.
83
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Financial Statements continued
1 ACCOUNTING POLICIES CONTINUED
Going concern
Taking into account current and anticipated trading performance, current and anticipated levels of borrowings
and the availability of borrowing facilities and exposures to and management of the financial risks detailed in the
Strategic Report on pages 2 to 23, the Board is of the opinion that, at the time of approval of these financial
statements, there is a reasonable expectation that the Group has adequate resources to continue in operational
existence for the period outlined in the viability statement on page 71. Accordingly, the financial statements
continue to be prepared on a going concern basis.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the
Chief Financial Officer’s Review on pages 16 to 20. In addition, notes 23 and 24 to the financial statements include
the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
Principal accounting policies
The principal accounting policies set out below have, unless otherwise stated, been applied consistently to all
periods presented in these consolidated financial statements.
EU Endorsed International Financial Reporting Standards effective in the year
The following new and amended standards, adopted in the current financial year, had no significant impact on the
financial statements.
• Defined Benefit Plans: Employee Contributions (Amendments to IAS 19)
• Annual Improvements to IFRSs 2010–2012 cycle
• Annual Improvements to IFRSs 2011–2013 cycle
EU Endorsed International Financial Reporting Standards in issue but not yet effective
The Directors considered the impact on the Group of EU endorsed, new and revised accounting standards,
interpretations or amendments. The following revised accounting standards are currently endorsed but
effective for periods beginning on or after 1 January 2016. None are expected to have a significant impact on the
financial statements.
• Agriculture: Bearer plants (Amendments to IAS 16 and IAS 41)
• Clarification of acceptable methods of depreciation (Amendments to IAS 16 and IAS 38)
• Accounting for acquisitions of interest in joint operations (Amendments to IFRS 11)
• Annual Improvements to IFRSs 2012–2014 cycle
• Equity method in separate financial statements (Amendments to IAS 27)
• Investment entities: applying the consolidation exception (Amendments to IAS 28, IFRS 10 and IFRS 12)
The future impact on the financial statements of new standards and amendments awaiting EU endorsement is
currently being assessed. New standards awaiting EU endorsement include IFRS 9 ‘financial instruments’, IFRS 16
‘leases’ and IFRS 15 ‘revenue from contracts with customers’.
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights
to, variable returns from its involvement with the entity and has the ability to direct the activities that affect those
returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated
financial statements from the date on which control commences until the date on which control ceases.
Intercompany transactions and balances between Group companies are eliminated upon consolidation.
Business combinations
Subject to the transitional relief in IFRS 1, all business combinations are accounted for by applying the acquisition
method. Business combinations are accounted for using the acquisition method as at the acquisition date, which is
the date on which control is transferred to the Group.
The Group measures goodwill at the acquisition date as the fair value of the consideration transferred less the fair
value of identifiable assets acquired and liabilities assumed. Any contingent consideration payable is recognised at
fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration are
recognised in profit or loss. Costs related to the acquisition are expensed to the income statement as incurred.
84
Card Factory plc Annual Report and Accounts 2016 Acquisitions prior to 1 February 2011 (date of transition to IFRS)
IFRS 1 grants certain exemptions from the full requirements of IFRS in the transition period. The Group and
Company elected not to restate business combinations that took place prior to 1 February 2011. In respect of
acquisitions prior to the transition date, goodwill is included at 1 February 2011 on the basis of its deemed cost at
that date, which represents the amount recorded under UK GAAP.
Revenue
Revenue represents the fair value of amounts receivable for goods sold to customers and is stated net of value
added tax and returns. Revenue is recognised at the point goods are sold or delivered and the risks and rewards
are deemed to have been transferred to the customer. Revenue is attributable to the retail sale of cards, dressings
and gifts in the UK.
Financing income and expense
Finance expense comprises interest charges and losses on interest rate derivative financial instruments. Borrowing
costs that are directly attributable to the acquisition, construction or production of an asset that takes a substantial
time to be prepared for use, are capitalised as part of the cost of that asset.
Finance income comprises interest income and gains on interest rate derivative financial instruments.
Interest income and interest charges are recognised in profit or loss as it accrues, using the effective interest
method. The effective interest method takes into account fees, commissions or other incremental transaction costs
integral to the yield.
Foreign currencies
Functional and presentation currency
The consolidated financial statements are presented in pounds Sterling, which is the functional currency of the
Company and all subsidiary entities.
Transactions and balances
Transactions in foreign currencies are recorded at the exchange rate on the transaction date. All foreign currency
transactions relate to inventory purchases. Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation at year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement within cost of sales, except when
deferred in other comprehensive income as qualifying cash flow hedges. Foreign currency gains and losses are
reported on a net basis.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement
except to the extent that it relates to items recognised directly in equity or through other comprehensive income, in
which case it is recognised in equity or other comprehensive income respectively.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates
enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are
not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither
accounting nor taxable profit other than in a business combination; and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available
against which the temporary difference can be utilised.
85
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Financial Statements continued
1 ACCOUNTING POLICIES CONTINUED
Underlying profit and earnings
The Group has chosen to present an underlying profit and earnings measure. The Group believes that underlying
profit and earnings provides additional useful information for shareholders. Underlying earnings is not a recognised
profit measure under EU IFRS and may not be directly comparable with ‘adjusted’ profit measures reported by
other companies. The reported non-underlying adjustments are as follows:
Net fair value remeasurement gains and losses on derivative financial instruments
The Group utilises foreign currency derivative contracts to manage the foreign exchange risk on US Dollar
denominated purchases and interest rate derivative contracts to manage the risk on floating interest rate bank
borrowings. Fair value gains and losses on such instruments are recognised in the income statement to the extent
they are not hedge accounted under IAS 39. Such gains and losses relate to future cash flows. In accordance with
the commercial reasoning for entering into the agreements, these gains/losses are deemed not representative of
the underlying financial performance in the year and presented as non-underlying items. Any gains or losses on
maturity of such instruments are presented within underlying profit to the extent the gain or loss is not recognised
in the hedging reserve.
IPO costs
In May 2014, Card Factory plc floated on the London Stock Exchange. Non-recurring IPO related costs in the prior
year totalled £5.3 million of which £3.8 million was charged to the income statement and £1.5 million was
recognised within share premium as costs directly related to the issue of new shares.
Residual management equity share based payment
On admission to the London Stock Exchange, shares with a fair value of £9.8 million were issued at nominal value in
relation to residual management equity as detailed in the IPO prospectus. Employer national insurance of £1.4 million
was incurred on the issue of the shares. These non-recurring share based payments are presented as a non-
underlying item in the prior year income statement.
Other non-underlying operating expenses
In January 2016, Card Factory plc announced the retirement and succession of the Chief Executive Officer. Costs
attributable to the recruitment of the new CEO are presented as a non-underlying item.
Refinanced debt issue cost amortisation
Debt issue costs totalling £1.8 million were expensed to the income statement in the period on completion of an
amended and extended borrowing facility on 26 June 2015. This expense relates to costs that were not yet
amortised in relation to the 30 May 2014 refinancing and is presented as a non-underlying item.
Loan issue costs totalling £7.7 million were expensed to the income statement in the year ended 31 January 2015 on
the repayment and refinancing of previous borrowing facilities on 30 May 2014. This expense relates to costs that
were not yet amortised in relation to a previous borrowing facility and is presented as a non-underlying item in the
prior year. See note 21 for details of net debt movements.
Dividends
Dividends are recognised as a liability in the period in which they are approved such that the Company is obliged to
pay the dividend.
Financial instruments
Financial assets
The Group classifies all its non-derivative financial assets as loans and receivables. Loans and receivables are
non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
The Group has no intention of trading these loans and receivables. Subsequent to initial recognition at fair
value less transaction costs, these assets are carried at amortised cost using the effective interest method, subject
to impairment.
Derivative financial assets are categorised as fair value through profit or loss (‘FVTPL’) and classified as held for
trading, unless accounted for as an effective hedging instrument.
86
Card Factory plc Annual Report and Accounts 2016 Financial liabilities
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements. An equity instrument is any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities.
Non-derivative financial liabilities are initially recognised at fair value, less any transaction costs and subsequently
stated at amortised cost using the effective interest method except for derivatives and contingent consideration.
Derivatives are categorised as FVTPL and classified as held for trading, unless accounted for as an effective
hedging instrument. Contingent consideration on business combinations is designated as FVTPL.
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, borrowings
and trade and other payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are
measured at amortised cost using the effective interest method, less any impairment losses.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, at bank and on short-term deposit of less than three months.
Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are
included as a component of cash and cash equivalents for the purpose of the cash flow statement.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured
at amortised cost using the effective interest method.
Borrowings
Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition,
borrowings are stated at amortised cost using the effective interest method.
Impairment of financial assets
Financial assets are assessed for objective evidence of impairment at the balance sheet date. Where there is
objective evidence that an impairment loss exists, impairment provisions are made to reduce the carrying value of
financial assets to the present value of estimated future cash flows.
Derivative financial instruments
The Group utilises foreign currency derivative contracts and US Dollar denominated cash balances to manage the
foreign exchange risk on US Dollar denominated purchases and interest rate derivative contracts to manage the
risk on floating interest rate bank borrowings.
Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is
recognised immediately within profit or loss except to the extent the instrument has been designated an effective
hedging arrangement. Gains and losses in respect of foreign currency derivative contracts are recognised within cost of
sales. Gains and losses in respect of interest rate derivative contracts are recognised within finance income or expense.
Cash flow hedges
In accordance with IAS 39 Financial Instruments: Recognition and Measurement, derivative financial instruments
are eligible for cash flow hedge accounting where the following conditions are met:
• at the inception of the hedge there is formal designation and documentation of the hedging relationship and the
entity’s risk management objective and strategy for undertaking the hedge;
• the hedge is expected to be highly effective in achieving offsetting changes in cash flows attributable to the
hedged risk, consistent with the originally documented risk management strategy;
• the forecast transaction that is the subject of the hedge is highly probable and presents an exposure to
variations in cash flows that could ultimately affect profit or loss;
• the effectiveness of the hedge can be reliably measured; and
• the hedge is assessed on an ongoing basis and determined actually to have been highly effective throughout the
financial reporting periods for which the hedge was designated.
87
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Financial Statements continued
1 ACCOUNTING POLICIES CONTINUED
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a highly probable
forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised
directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in profit or loss.
Foreign currency cash held in the short period between derivative maturity and payment of the hedged cash flow
is designated as part of the hedging relationship whereby gains and losses on retranslation of the foreign currency
cash are recognised in the hedging reserve.
The cumulative gain or loss is removed from other comprehensive income (‘OCI’) and recognised in profit or loss in
the same period or periods during which the hedged forecast transaction, or a resulting asset or liability affects
profit or loss.
When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the
hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that
point remains in OCI and is recognised in accordance with the above policy when the transaction occurs. If the
hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in OCI is
recognised in profit or loss immediately.
Fair value estimation
The techniques applied in determining the fair values of financial assets and liabilities are disclosed in note 24.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated
impairment losses.
25–50 years
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives as follows:
• buildings
• leasehold improvements
• plant and equipment
• fixtures and fittings
• motor vehicles
shorter of 5 years and lease term
3–10 years
4 years
5 years
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
Intangible assets and goodwill
Goodwill
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units
and is not amortised but is tested annually for impairment.
Software
Computer software is carried at cost less accumulated amortisation and any provision for impairment. Costs
relating to development of computer software are capitalised if the recognition criteria of IAS38 ‘Intangible Assets’
are met or expensed as incurred otherwise.
Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and less
accumulated impairment losses. Expenditure on internally generated goodwill and brands is recognised in the
income statement as an expense as incurred.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of
intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are
systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the
date they are available for use. The estimated useful life of software is 3-5 years.
88
Card Factory plc Annual Report and Accounts 2016
Impairment of non-financial assets
The carrying values of non-financial assets are reviewed for impairment where there is an indication of impairment.
If an impairment loss arises, the asset value is adjusted to its estimated recoverable amount and the impairment
loss is recognised in the income statement. Goodwill is reviewed for impairment at the balance sheet date and
whenever an indication of impairment is identified.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is based on the first-in first-out principle
and includes expenditure incurred in acquiring the inventories, production costs and other costs in bringing them
to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes
an appropriate share of overheads based on normal operating capacity.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown
in equity as a deduction from the proceeds.
Merger reserve
On 30 April 2014 Card Factory plc acquired 100% of the share capital of CF Topco Limited in a share for share
exchange, thereby inserting Card Factory plc as the Parent Company of the Group. The shareholders of CF Topco
Limited became 100% owners of the enlarged share capital of Card Factory plc. The premium arising on the issue
of shares is recognised in the merger reserve.
Share based payments
The Company issues equity-settled share based payments to employees through the Card Factory Long Term
Incentive Plan (‘LTIP’) and the Card Factory SAYE Scheme (‘SAYE’), see note 25 for further details. The cost
of equity-settled share awards is measured as the fair value of the award at the grant date using the
Black-Scholes model.
The cost of the awards is expensed to the income statement, together with a corresponding adjustment to equity,
on a straight line basis over the vesting period of the award. The total income statement charge is based on the
Group’s estimate of the number of share awards that will eventually vest in accordance with the vesting conditions.
The awards do not include market-based vesting conditions. At each balance sheet date, the Group revises its
estimate of the number of awards that are expected to vest. Any revision to estimates is recognised in the income
statement, with a corresponding adjustment to equity.
Operating leases
Payments made under operating leases are recognised in the income statement on a straight-line basis over the
term of the lease. Lease incentives are recognised in the income statement over the term of the lease as an integral
part of the total lease expense.
2 SEGMENTAL REPORTING
The Group has two operating segments trading under the names Card Factory and Getting Personal. Card Factory
retails greeting cards, dressing and gifts in the UK through an extensive store network. Getting Personal is an online
retailer of personalised cards and gifts. Getting Personal does not meet the quantitative thresholds of a reportable
segment as defined in IFRS 8. Consequently the results of the Group are presented as a single reportable segment.
Revenues outside of the UK are not significant at less than £0.1million.
The Chief Operating Decision Maker is the Board of Directors. Internal management reports are reviewed by the
Board of Directors on a monthly basis. Performance of segments is assessed based on a number of financial and
non-financial KPIs including EBITDA as defined in note 5 of the financial statements and profit before tax.
Major customers
Group revenue is derived from high volume, low value retail sales and is therefore not dependent on any
major customer.
89
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials 2016
£’m
2015
£’m
3.9
(0.1)
–
–
(0.3)
(0.3)
(1.8)
(0.1)
(1.9)
(3.8)
(11.2)
–
(15.0)
(7.7)
–
(7.7)
2015
£’m
95.0
7.7
1.1
34.6
0.5
–
–
Notes to the Financial Statements continued
3 NON-UNDERLYING ITEMS
Cost of sales
Profit/(loss) on foreign currency derivative financial instruments not designated as a
hedge (note 24)
Operating expenses
IPO costs
Residual management equity share based payment (note 25)
Other non-underlying operating expenses
Net finance expense
Refinanced debt issue cost amortisation (note 7)
Loss on interest rate derivative financial instruments not designated as a hedge (note 24)
Further details of the non-underlying items are included in the principal accounting policies (note 1).
4 OPERATING PROFIT
Operating profit is stated after charging/(crediting) the following items:
Staff costs (note 6)
Depreciation expense (note 12)
– owned fixed assets
Amortisation expense (note 11)
Operating lease rentals:
– land and buildings
– plant, equipment and vehicles
Loss on disposal of fixed assets
Foreign exchange gain
2016
£’m
91.1
8.6
1.1
36.0
0.4
0.1
(4.0)
The total fees payable by the Group to KPMG LLP and their associates during the period was as follows:
Audit of the Company’s and the consolidated financial statements
Amounts receivable by the Company’s auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the Company
Half-year review
Audit related assurance services
Taxation compliance services
Other tax advisory services
Other assurance services
Total fees excluding IPO related fees
IPO related fees
Total fees
2016
£’000
2015
£’000
11
89
7
–
13
6
10
136
–
136
11
89
7
8
13
10
–
138
434
572
90
Card Factory plc Annual Report and Accounts 2016 5 UNDERLYING EBITDA
Underlying earnings before interest, tax, depreciation and amortisation (‘EBITDA’) represents underlying profit for
the period before net finance expense, taxation, depreciation and amortisation.
Underlying operating profit
Depreciation and amortisation
Underlying EBITDA
2016
£’m
85.3
9.7
95.0
2015
£’m
79.4
8.8
88.2
6 STAFF NUMBERS AND COSTS
The average number of people employed by the Group (including Directors) during the year, analysed by category,
was as follows:
Management and administration
Operations
The aggregate payroll costs of all employees including Directors were as follows:
2016
Number
2015
Number
321
9,220
9,541
289
8,908
9,197
Employee wages and salaries
Equity-settled share based payment expense
Social security costs
Defined contribution pension costs
Total employee costs
Agency labour costs
Total staff costs
2016
£’m
81.1
1.3
4.5
0.3
87.2
3.9
91.1
Key management personnel
The key management personnel of the Group comprise the Card Factory plc Board of Directors and the
Operational Board. Key management personnel compensation is as follows:
Salaries and short-term benefits
Equity-settled share based payment expense
Social security costs
Defined contribution pension costs
2016
£’m
3.4
0.9
0.6
–
4.9
2015
£’m
76.4
10.3
5.4
0.3
92.4
2.6
95.0
2015
£’m
3.4
8.8
1.7
–
13.9
Further details of Directors’ remuneration are disclosed in the Directors’ Remuneration Report on pages 50 to 66.
91
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Financial Statements continued
7 FINANCE INCOME AND EXPENSE
Finance income
Bank interest received
Finance expense
Interest on bank loans and overdrafts
Amortisation of loan issue costs
Interest on loan notes
Fair value loss on interest rate derivative contracts
Interest on deferred consideration
Net finance expense
2016
£’m
2015
£’m
(0.3)
(0.3)
3.3
2.1
–
0.1
–
5.5
5.2
8.5
9.0
4.3
–
0.1
21.9
21.6
Amortisation of loan issue costs include £1.8 million (2015: £7.7 million) in relation to previous loan facilities,
expensed to the income statement on replacement with a new facility and presented as non-underlying, see note 3.
8 TAXATION
Recognised in the income statement
Current tax expense
Current year
Adjustments in respect of prior periods
Deferred tax credit
Origination and reversal of temporary differences
Adjustments in respect of prior periods
Total income tax expense
2016
£’m
2015
£’m
16.8
(0.1)
16.7
0.5
0.1
0.6
17.3
10.6
(0.7)
9.9
(0.5)
0.1
(0.4)
9.5
The effective tax rate of 20.7% (2015: 22.3%) is higher than the standard rate of corporation tax in the UK. The tax
charge is reconciled to the standard rate of UK corporation tax as follows:
Profit before tax
Tax at the standard UK corporation tax rate of 20.16% (2015: 21.32%)
Tax effects of:
Expenses not deductible for tax purposes
Non-taxable income
Adjustments in respect of prior periods
Total income tax expense
2016
£’m
2015
£’m
83.7
42.7
16.9
0.4
–
–
17.3
9.1
1.1
(0.1)
(0.6)
9.5
92
Card Factory plc Annual Report and Accounts 2016
9 DIVIDENDS
The Board is recommending a final dividend in respect of the financial year ended 31 January 2016 of 6.0 pence
per share (2015: 4.5 pence per share), resulting in a total final dividend of £20.4 million (2015: £15.4 million).
The dividend will, subject to shareholders’ approval at the Annual General Meeting on 24 May 2016, be paid on
10 June 2016 to shareholders on the register at the close of business on 6 May 2015. No liability is recorded in the
financial statements in respect of this final dividend as it was not approved at the balance sheet date.
Dividends paid in the year:
Pence per share
Special dividend for the year ended 31 January 2016
Interim dividend for the year ended 31 January 2016
Final dividend for the year ended 31 January 2015
Interim dividend for the year ended 31 January 2015
15.0p
2.5p
4.5p
2.3p
2016
£’m
51.1
8.5
15.4
7.8
82.8
2015
£’m
–
–
–
–
–
Dividends totalling £82.8 million were paid in the year with a further £0.3 million accrued in relation to share based
long-term incentive schemes.
10 EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit for the period attributable to ordinary shareholders by
the weighted average number of ordinary shares in issue during the period.
Diluted earnings per share is based on the weighted average number of shares in issue for the period, adjusted for
the dilutive effect of potential ordinary shares. Potential ordinary shares represent employee share incentive awards
and save as you earn share options.
The Group has chosen to present an alternative earnings per share measure, with profit adjusted for non-underlying
items to reflect the Group’s underlying profit for the year. Underlying earnings is not a recognised profit measure
under IFRS and may not be directly comparable with ‘adjusted’ profit measures used by other companies.
Weighted average number of shares in issue
Weighted average number of dilutive share options
Weighted average number of shares for diluted earnings per share
Profit for the financial year
Non-underlying items
Total underlying profit for underlying earnings per share
Basic earnings per share
Diluted earnings per share
Underlying basic earnings per share
Underlying diluted earnings per share
2016
(Number)
2015
(Number)
340,696,235
478,006
312,568,527
15,919
341,174,241
312,584,446
£’m
66.4
(1.4)
65.0
£’m
33.2
17.9
51.1
pence
pence
19.5
19.5
19.1
19.1
10.6
10.6
16.3
16.3
93
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Financial Statements continued
11 INTANGIBLE ASSETS
Cost
At 1 February 2015
Additions
Disposals
At 31 January 2016
Amortisation
At 1 February 2015
Provided in the period
Disposals
At 31 January 2016
Net book value
At 31 January 2016
At 31 January 2015
Cost
At 1 February 2014
Additions
At 31 January 2015
Amortisation
At 1 February 2014
Provided in the period
At 31 January 2015
Net book value
At 31 January 2015
At 31 January 2014
Goodwill
£’m
Software
£’m
Total
£’m
328.2
–
–
328.2
–
–
–
–
328.2
328.2
328.2
–
328.2
–
–
–
328.2
328.2
6.3
1.1
(0.1)
7.3
3.5
1.1
(0.1)
4.5
2.8
2.8
5.4
0.9
6.3
2.4
1.1
3.5
2.8
3.0
334.5
1.1
(0.1)
335.5
3.5
1.1
(0.1)
4.5
331.0
331.0
333.6
0.9
334.5
2.4
1.1
3.5
331.0
331.2
Impairment testing
For the purposes of impairment testing, goodwill has been allocated to the Group’s cash generating units as
follows:
Card Factory
Getting Personal
2016
£’m
313.8
14.4
2015
£’m
313.8
14.4
The recoverable amount has been determined based on value-in-use calculations. Value-in-use calculations are
based on 5 year management forecasts and operating cash flows with a 2% (2015: 2%) terminal growth rate applied
thereafter, representing management’s estimate of the long term growth rate of the sector. The key assumptions on
which operating cash flows are based include sales growth and operating costs. The values assigned to each of
these assumptions were determined based on historical performance of the Group and expected future trends. The
forecast cash flows are discounted at a pre-tax discount rate of 10% (2015: 10%). No impairment loss was identified
in the current year (2015: £nil). The valuations indicate sufficient headroom such that a reasonably possible change
to key assumptions would not result in an impairment of the related goodwill.
94
Card Factory plc Annual Report and Accounts 2016 12 PROPERTY, PLANT AND EQUIPMENT
Freehold
property
£’m
Leasehold
improvements
£’m
Plant,
equipment,
fixtures &
vehicles
£’m
Cost
At 1 February 2015
Additions
Disposals
At 31 January 2016
Depreciation
At 1 February 2015
Provided in the period
Disposals
At 31 January 2016
Net book value
At 31 January 2016
At 31 January 2015
Cost
At 1 February 2014
Additions
Disposals
At 31 January 2015
Depreciation
At 1 February 2014
Provided in the period
Disposals
At 31 January 2015
Net book value
At 31 January 2015
At 31 January 2014
17.0
0.3
–
17.3
1.6
0.3
–
1.9
15.4
15.4
16.7
0.3
–
17.0
1.3
0.3
–
1.6
15.4
15.4
29.0
3.9
(4.1)
28.8
21.8
2.9
(4.0)
20.7
8.1
7.2
26.1
2.9
–
29.0
19.2
2.6
–
21.8
7.2
6.9
Total
£’m
87.4
10.5
(8.1)
89.8
49.2
8.6
(7.9)
49.9
41.4
6.3
(4.0)
43.7
25.8
5.4
(3.9)
27.3
16.4
39.9
15.6
38.2
35.6
6.0
(0.2)
41.4
21.2
4.8
(0.2)
25.8
78.4
9.2
(0.2)
87.4
41.7
7.7
(0.2)
49.2
15.6
38.2
14.4
36.7
Disposals in the year include £6.9m cost and accumulated depreciation relating to assets at £nil net book value
which have been previously disposed, identified following a review of the fixed asset register. There has been no
net financial impact of this review.
95
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Financial Statements continued
13 DEFERRED TAX ASSETS AND LIABILITIES
Movement in deferred tax during the year:
Fixed
assets
£’m
Share based
payments
£’m
Derivative
financial
instruments and
hedge
accounting
£’m
Leases
£’m
Other timing
differences
£’m
At 1 February 2014
Credit/charge to income statement
Charge to other comprehensive income
At 31 January 2015
(Charge)/credit to income statement
Credit to other comprehensive income
Credit to equity
At 31 January 2016
0.1
0.2
–
0.3
(0.3)
–
–
–
–
0.2
–
0.2
0.3
–
0.1
0.6
0.2
0.1
(1.4)
(1.1)
(0.1)
0.5
–
(0.7)
0.8
0.1
–
0.9
(0.9)
–
–
–
0.1
(0.2)
–
(0.1)
0.4
–
–
0.3
Total
£’m
1.2
0.4
(1.4)
0.2
(0.6)
0.5
0.1
0.2
Deferred tax assets and liabilities are offset to the extent they are levied by the same tax authority and the Group
has a legally enforceable right to make or receive a single payment. Deferred tax assets and liabilities are offset
as follows:
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset
2016
£’m
0.8
(0.6)
0.2
2015
£’m
2.9
(2.7)
0.2
Reductions in the corporation tax rate to 19% from 1 April 2017 and 18% from 1 April 2020 were substantively
enacted on 26 October 2015. Deferred tax assets in respect of timing differences are expected to be recoverable
against future taxable profits and are recognised according to the rate when the timing differences are expected
to reverse.
14 INVENTORIES
Finished goods
Work in progress
2016
£’m
50.0
0.4
50.4
2015
£’m
41.1
0.4
41.5
The cost of inventories recognised as an expense and charged to cost of sales in the year was £105.1 million
(2015: £96.4 million).
96
Card Factory plc Annual Report and Accounts 2016 15 TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Other receivables
Prepaid property costs
Other prepayments and accrued income
Non-current
Prepaid property costs
2016
£’m
0.3
0.9
13.0
2.8
17.0
2015
£’m
0.2
3.0
11.6
2.9
17.7
1.0
1.2
Non-current prepaid property costs relate to lease premiums and fees released to the income statement over the
period of the lease.
Other receivables include £0.5 million (2015: £2.7 million) US Dollar denominated deposits paid on
inventory purchases.
16 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
2016
£’m
11.3
Included in cash and cash equivalents are £nil (2015: £20.0 million) short-term deposits, accessible at notice
periods not exceeding three months.
The Group’s cash and cash equivalents are denominated in the following currencies:
Sterling
US Dollars
17 BORROWINGS
Current liabilities
Bank loans and accrued interest
Non-current liabilities
Bank loans
2015
£’m
69.0
2015
£’m
68.2
0.8
69.0
2016
£’m
2.8
8.5
11.3
2016
£’m
2015
£’m
0.1
14.5
134.1
155.9
97
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Financial Statements continued
17 BORROWINGS CONTINUED
Bank loans
Bank borrowings are summarised as follows:
31 January 2016
Unsecured bank loan
Accrued interest
Debt issue costs
31 January 2015
Unsecured bank loan
Accrued interest
Debt issue costs
Liability
£’m
135.0
0.1
(0.9)
134.2
172.5
0.1
(2.2)
170.4
Interest rate %
Interest margin
ratchet range %
Repayment terms
1.00 + 3M LIBOR 1.00–2.00 £200m RCF.
The facility terminates in June 2020
2.00 + 3M LIBOR
1.50–2.50 £7.5m bi-annual instalments.
The facility was due to terminate in
April 2019
In June 2015 the Group amended and extended the existing bank borrowing facility to a £200 million revolving
credit facility (‘RCF’) terminating 26 June 2020 with an additional £100 million accordion. Borrowings under the
revised facility attract interest at LIBOR plus a margin in the range 1.0% to 2.0%, subject to a leverage ratchet
(LIBOR plus 1.00% at 31 January 2016). The facilities are subject to financial covenants typical to an arrangement
of this nature.
At the balance sheet date the Group had utilised a further £0.3 million (2015: £0.8 million) of the RCF in relation to
letters of credit. The Group utilises letters of credit to facilitate contracts with certain third-party suppliers.
Contractual cash flows of financial liabilities are disclosed in note 23.
18 TRADE AND OTHER PAYABLES
Current
Trade payables
Other taxation and social security
Deferred consideration
Property accruals and deferred income
Other accruals and deferred income
Non-current
Property accruals and deferred income
2016
£’m
13.6
3.1
–
6.0
13.1
35.8
2015
£’m
13.4
4.3
0.8
5.5
11.3
35.3
11.4
10.7
Property deferred income relates to lease incentives recognised in the income statement over the period of
the lease.
The Group has net US Dollar denominated trade and other payables of £4.0 million (2015: £5.7 million).
98
Card Factory plc Annual Report and Accounts 2016 19 SHARE CAPITAL AND SHARE PREMIUM
Share capital
Allotted, called up and fully paid ordinary shares of one pence:
At the start of the period
Issued in settlement of shareholder loan notes
Issue of residual management equity
Issued on IPO
At the end of the period
Share capital
At the start of the period
Issued in settlement of shareholder loan notes
Issue of residual management equity
Issued on IPO
At the end of the period
Share premium
At the start of the period
Issued in settlement of shareholder loan notes
Issued on IPO
Share issue costs
At the end of the period
20 NOTES TO THE CASH FLOW STATEMENT
Reconciliation of operating profit to cash generated from operations:
Profit before tax
Net finance expense
Operating profit
Adjusted for:
Depreciation and amortisation
Loss on disposal of fixed assets
Cash flow hedging foreign currency gains
Share based payments charge
Operating cash flows before changes in working capital
(Increase)/decrease in receivables
Increase in inventories
Increase in payables
Cash inflow from operating activities
2016
(Number)
2015
(Number)
340,696,235
–
–
–
245,635,000
50,686,235
4,375,000
40,000,000
340,696,235
340,696,235
£’m
£’m
3.4
–
–
–
3.4
£’m
201.6
–
–
–
201.6
2016
£’m
83.7
5.2
88.9
9.7
0.1
2.4
1.3
102.4
(3.0)
(8.9)
1.7
92.2
2.5
0.5
–
0.4
3.4
£’m
–
113.5
89.6
(1.5)
201.6
2015
£’m
42.7
21.6
64.3
8.8
–
0.4
10.3
83.8
0.7
(2.2)
2.6
84.9
99
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Financial Statements continued
21 ANALYSIS OF NET DEBT
Unsecured bank loans
Cash and cash equivalents
Total net debt
Unsecured bank loans
Loan notes and accrued interest
Finance leases
Total borrowings
Cash and cash equivalents
Total net debt
At 1 February
2015
£’m
Cash flow
£’m
Non-cash
changes
£’m
At 31 January
2016
£’m
(170.4)
69.0
(101.4)
38.3
(57.7)
(19.4)
(2.1)
–
(2.1)
(134.2)
11.3
(122.9)
At 1 February
2014
£’m
Cash flow
£’m
Non-cash
changes
£’m
At 31 January
2015
£’m
(277.8)
(109.7)
(0.1)
(387.6)
40.7
116.2
–
0.1
116.3
28.3
(346.9)
144.6
(8.8)
109.7
–
100.9
–
100.9
(170.4)
–
–
(170.4)
69.0
(101.4)
In May 2014, prior to the IPO, the Group issued shares at market value in full settlement of £114.0 million loan notes
and accrued interest.
In May 2014 the Group re-financed secured bank borrowings, utilising retained cash and proceeds from the IPO to
reduce bank debt to £180 million with a £20 million RCF for working capital purposes.
In June 2015 the Group amended and extended the existing bank borrowing facility to a £200 million RCF
terminating 26 June 2020 with an additional £100 million accordion. Borrowings under the revised facility attract
interest at LIBOR plus a margin in the range 1.0% to 2.0%, subject to a leverage ratchet (LIBOR plus 1.00% at
31 January 2016). The facilities are subject to financial covenants typical to an arrangement of this nature.
22 OPERATING LEASE COMMITMENTS
Future minimum rentals payable under non-cancellable operating leases:
Aggregate future minimum lease payments:
Within one year
Within one to two years
Within two to three years
Within three to four year
Within four to five years
Within five to ten years
Within eleven to fifteen years
2016
£’m
2015
£’m
38.0
34.6
29.6
23.9
17.6
27.6
0.8
172.1
36.4
33.1
29.4
24.2
18.6
32.1
0.7
174.5
The Group enters into non-cancellable operating leases, primarily in respect of retail stores. The majority of the
Group’s operating leases provide for their renewal by mutual agreement at the expiry of the lease term. Certain
leases have a break clause, enforceable at the discretion of the Group. The Group also leases the majority of its
motor vehicle fleet, a small amount of equipment and an element of its warehousing requirements.
23 FINANCIAL RISK MANAGEMENT
The principal financial risks faced by the Group are liquidity, foreign currency, interest rate and counterparty credit risk.
The Board have overall responsibility for managing risks and uncertainties across the Group. The principal financial
risks and uncertainties and the actions taken to mitigate them are reviewed on an on-going basis. Further details of
100
Card Factory plc Annual Report and Accounts 2016 the Group’s approach to managing risk are included in the Principal Risks and Uncertainties section of the Strategic
Report on pages 21 to 23 and in the Corporate Governance Report on pages 34 to 43.
Liquidity risk
The Group generates significant operational cash inflows and can draw down on immediate request against a
£200 million revolving credit facility. At the balance sheet date the Group had undrawn RCF facilities of £70.2 million.
Cash flow forecasts are prepared to assist management in identifying future liquidity requirements.
Long term bank funding is subject to certain agreed financial covenants. The risk of a breach of these covenants
is mitigated by regular financial forecasting, detailed covenant modelling and monitoring of covenant compliance.
As at 31 January 2016, the Group had adequate headroom against all of its financial covenants. Further details on
Group borrowings are set out in note 17 of the financial statements.
The table below analyses the contractual cash flows of the Group’s non-derivative financial liabilities as at the
balance sheet date. The amounts disclosed in the tables are the contractual undiscounted cash flows, inclusive of
interest, stated at balance sheet date interest rates in respect of floating interest rate liabilities.
At 31 January 2016
Unsecured bank loans
Trade and other payables
At 31 January 2015
Unsecured bank loans
Trade and other payables
Deferred consideration
Less than one
year
£’m
One to two
years
£’m
Two to
five years
£’m
More than
five years
£’m
0.1
32.7
32.8
19.3
31.7
0.8
51.8
–
–
–
19.0
–
–
19.0
135.0
–
135.0
150.0
–
–
150.0
–
–
–
–
–
–
–
Total
£’m
135.1
32.7
167.8
188.3
31.7
0.8
220.8
The table below analyses the contractual cash flows of the Group’s derivative financial instruments as at the
balance sheet date. The amounts disclosed represent the total contractual undiscounted cash flows at the balance
sheet date exchange and interest rates.
Less than one
year
£’m
One to two
years
£’m
Two to
five years
£’m
More than
five years
£’m
Total
£’m
At 31 January 2016
Foreign exchange contracts
– Inflow
– Outflow
Interest rate contracts
– Outflow
At 31 January 2015
Foreign exchange contracts
– Inflow
– Outflow
Interest rate contracts
– Outflow
47.0
(41.8)
29.5
(25.9)
(0.2)
(0.1)
63.7
(58.2)
(0.2)
–
–
–
7.0
(6.1)
(0.1)
–
–
–
–
–
–
–
–
–
83.5
(73.8)
(0.4)
63.7
(58.2)
(0.2)
Foreign currency risk
A significant proportion of the Group’s retail products are procured from overseas suppliers denominated in
US Dollars. Current Group policy requires forward cover to be in place for at least 50% of the next 12 months’ rolling
US Dollar requirement using foreign exchange derivative contracts and US Dollar denominated cash balances.
The policy permits a maximum of 40% of each financial year’s US Dollar requirement to be covered by structured
options and similar instruments.
101
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Financial Statements continued
23 FINANCIAL RISK MANAGEMENT CONTINUED
The table below analyses the sensitivity of the Group’s US Dollar denominated financial instruments to a 10 cent
movement in the USD to GBP exchange rate at the balance sheet date, holding all other assumptions constant.
10 cent increase
10 cent decrease
2016
2015
Impact
on profit
after tax
£’m
Impact on cash
flow hedging
reserve
£’m
Impact
on profit
after tax
£’m
Impact on cash
flow hedging
reserve
£’m
(3.4)
3.7
(1.0)
1.2
–
–
(3.4)
3.8
Interest rate risk
The Group’s principal interest rate risk arises from long-term borrowings. Bank borrowings are denominated in
Sterling and are borrowed at floating interest rates. The Group utilises interest rate derivative financial instruments
to mitigate the interest rate risk on an element of these borrowing costs.
The table below shows the impact on the reported results of a 50 basis point increase or decrease in the interest
rate for the year.
2016
2015
Impact
on profit
after tax
£’m
Impact on cash
flow hedging
reserve
£’m
Impact
on profit
after tax
£’m
Impact on cash
flow hedging
reserve
£’m
50 basis point interest rate increase
50 basis point interest rate decrease
–
0.1
0.1
(0.1)
(0.2)
0.2
(0.3)
0.3
Counterparty credit risk
The Group is exposed to counterparty credit risk on its holdings of cash and cash equivalents and derivative financial
assets. To mitigate the risk, counterparties are limited to high credit-quality financial institutions and exposures are
monitored on a monthly basis. Under the revised borrowing facility, Sterling cash balances are maintained at near
zero to minimise interest expense on the RCF, thereby reducing counterparty credit risk on cash balances.
The Group is also exposed to counterparty credit risk in relation to payments in advance of goods to overseas
suppliers. At 31 January 2016 this exposure amounted to £0.5 million (2015: £2.7 million). The Group utilises letters
of credit for certain overseas suppliers, thereby reducing the total exposure to advance payments.
As a retail business the Group has minimal exposure to credit risk on trade receivables.
Capital management
The Group’s capital risk management policy is to maintain a capital structure that is conservative yet efficient in
terms of providing long-term returns to shareholders.
The Group defines capital as equity attributable to the equity holders of the parent plus net debt. Net debt is
shown in note 21.
The Group has a continued focus on free cash flow generation. The Board monitors a range of financial metrics
together with banking covenant ratios, maintaining suitable headroom to ensure that the Group’s financing
requirements continue to be serviceable.
24 FINANCIAL INSTRUMENTS
Fair value
Financial instruments carried at fair value are measured by reference to the following fair value hierarchy:
• Level 1: quoted prices in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
102
Card Factory plc Annual Report and Accounts 2016 Derivative financial instruments are carried at fair value and measured under a level 2 valuation method.
Derivative financial instruments
The balance sheet date fair value of derivative financial instruments is as follows:
Derivative assets
Non-current
Interest rate contracts
Foreign exchange contracts
Current
Foreign exchange contracts
Derivative liabilities
Current
Interest rate contracts
2016
£’m
2015
£’m
0.3
1.5
1.8
3.5
–
–
–
5.8
(0.2)
(0.1)
Interest rate swap
At 31 January 2016 the Group held fixed for floating interest rate swaps and interest rate caps with notional
principal amounts totalling £60.0 million for the period to October 2018, reducing to £20.0 million to October 2019
(2015: £100.0 million expiring October 2015), to hedge a portion of the variable interest rate risk on bank
borrowings. Fair value movements of £0.1 million (2015: £nil) were expensed to the income statement as a
non-underlying item within financial expense.
Foreign exchange contracts
At 31 January 2016 the Group held a portfolio of foreign currency derivative contracts with notional principal
amounts totalling £73.8 million at the contract rate (2015: £58.2 million) to mitigate the exchange risk on future
US Dollar denominated trade purchases. Foreign currency derivative contracts with a notional value of £61.8 million
(2015: £nil) were not designated as hedging relationships. Fair value movements in foreign currency derivatives are
recognised in other comprehensive income to the extent the contract is part of an effective hedging relationship.
Fair value movements of £3.9 million that do not form part of an effective hedging relationship have been credited
to the income statement (2015: £0.1 million expensed) as a non-underlying item within cost of sales (see note 3).
Classification of financial instruments
The table below shows the classification of financial assets and liabilities at the balance sheet date.
At 31 January 2016
Financial assets measured at fair value
Derivative financial instruments
Financial assets not measured at fair value
Trade and other receivables
Cash and cash equivalents
Financial liabilities measured at fair value
Derivative financial instruments
Financial liabilities not measured at fair value
Unsecured bank loans
Trade and other payables
Held for
trading
£’m
Cash flow
hedging
instruments
£’m
Loans and
receivables
£’m
Other financial
liabilities
£’m
3.7
1.6
–
–
–
–
–
3.7
–
–
(0.2)
–
–
1.4
–
1.2
11.3
–
–
–
12.5
–
–
–
–
(134.2)
(32.7)
(166.9)
103
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Financial Statements continued
24 FINANCIAL INSTRUMENTS CONTINUED
At 31 January 2015
Financial assets measured at fair value
Derivative financial instruments
Financial assets not measured at fair value
Trade and other receivables
Cash and cash equivalents
Financial liabilities measured at fair value
Derivative financial instruments
Financial liabilities not measured at fair value
Unsecured bank loans
Deferred consideration
Trade and other payables
Held for
trading
£’m
Cash flow
hedging
instruments
£’m
Loans and
receivables
£’m
Other financial
liabilities
£’m
–
–
–
–
–
–
–
–
5.8
–
–
–
3.2
69.0
(0.1)
–
–
–
5.7
–
–
–
–
–
–
–
–
(170.4)
(0.8)
(31.7)
72.2
(202.9)
The fair values of financial instruments have been assessed as approximating to their carrying values.
Derivative financial instruments are utilised to mitigate foreign exchange risk on the requisition of inventory and
interest rate risk on borrowings. The Group does not trade in derivative financial instruments. However, certain
derivatives not designated as a hedging relationship are classified as held for trading for accounting purposes.
25 EQUITY SETTLED SHARE BASED PAYMENT ARRANGEMENTS
Card Factory Long Term Incentive Plan (‘LTIP’)
The Company grants awards of shares to the Executive Directors, members of the senior management team and
senior employees under the terms of the LTIP. Grants are made annually under the scheme subject to approval by
the Board. The award comprises a right to receive free shares or nil cost options. The shares will be issued within
30 days, or as soon as practicable, after the vesting date. The grants awarded in favour of senior employees are
subject to a three year vesting period. The grants awarded in favour of the Executive Directors and members of the
senior management team are subject to a three year vesting period and include performance conditions. Further
details on Executive Director LTIP awards are provided in the Directors’ Remuneration Report on pages 50 to 66.
All shares received on vesting of Executive Director and senior management awards are subject to a two year
holding period (sale of shares is permitted to cover personal tax and social security contributions arising on the
awards).
Card Factory SAYE Scheme (‘SAYE’)
The SAYE scheme, established during the year, is open to all staff with eligible length of service. Grants are made
annually under the scheme subject to approval by the Board. Options may be exercised under the scheme within
six months of the completion of the three year savings contract. There is provision for early exercise in certain
circumstances such as death, disability, redundancy and retirement.
Other options awarded
Under his terms of appointment dated 30 April 2014, Geoff Cooper, the Company’s Non-Executive Chairman, was
granted the option to purchase £330,000 of ordinary shares as part of, or alongside, the IPO at the offer price
(£2.25), £330,000 of ordinary shares at the offer price (£2.25) on the date falling two years after the date of
admission to the London Stock Exchange and £330,000 at the offer price (£2.25) on the date falling three years
after the date of admission. The entitlement to make such purchases is conditional upon and subject to Mr Cooper
remaining as Chairman of the Company on such date.
104
Card Factory plc Annual Report and Accounts 2016 Reconciliation of outstanding awards
LTIP
SAYE
Other options awarded
Outstanding at 1 February 2014
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 January 2015
Granted during the year
Exercised during the year
Forfeited during the year
Number of
options
–
1,092,222
–
(66,667)
1,025,555
895,747
–
(54,015)
Weighted
average
exercise
price
–
£0.00
–
£0.00
£0.00
£0.00
–
£0.00
Number of
options
–
–
–
–
–
793,961
–
(47,697)
Weighted
average
exercise
price
–
–
–
–
–
£2.90
–
£2.90
Number of
options
–
439,998
(146,666)
–
293,332
–
–
–
Outstanding at 31 January 2016
1,867,287
£0.00
746,264
£2.90
293,332
Weighted
average
exercise
price
–
£2.25
£2.25
–
£2.25
–
–
–
£2.25
No options were exercisable at 31 January 2016.
Fair value of awards
The fair value of awards granted during the year has been measured using the Black-Scholes model assuming the
inputs below.
2016
2015
Other options awarded
LTIP
SAYE
LTIP
Award 1
Award 2
Award 3
Fair value at grant date
Share price at grant date
Exercise price
Expected volatility
Expected term
Expected dividend yield
Risk free interest rate
£3.08
£3.08
£0.00
30%
3 years
N/A**
0.67%
£0.53
£3.27
£2.90
30%
3 years
6.0%
0.92%
£2.25
£2.25
£0.00
30%
3 years
N/A**
1.18%
£0.00
£2.25
£2.25
Nil*
Nil*
Nil*
Nil*
£0.33
£2.25
£2.25
30%
2 years
2.7%
0.82%
£0.39
£2.25
£2.25
30%
3 years
2.7%
1.18%
* Award 1 was exercisable immediately on IPO.
** LTIP awards have a £nil exercise price and accrue dividend equivalents over the vesting period, consequently the fair value at grant date is equal to the
grant date share price.
The expected volatility is based on historical volatility of a peer group of companies over a relevant period prior to
the awards.
Impact on the income statement
The total expense recognised in the income statement arising from share based payments is as follows:
Residual management equity*
Card Factory LTIP
SAYE
2016
£’m
–
1.2
0.1
1.3
2015
£’m
9.8
0.5
–
10.3
* On admission to the London Stock Exchange, shares with a fair value of £9.8 million were issued at nominal value in relation to residual management
equity as detailed in the IPO prospectus. Employer national insurance of £1.4 million was incurred on the issue of the shares. These non-recurring share
based payments are presented as a non-underlying item in the prior year income statement (see note 3).
The amounts disclosed above do not include employer’s national insurance costs.
105
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Financial Statements continued
26 CAPITAL COMMITMENTS
There were capital commitments of £0.6 million at 31 January 2016 (2015: £0.1 million).
27 CONTINGENT LIABILITIES
There were no material contingent liabilities at 31 January 2016 (2015: £0.2 million in relation to deferred
contingent consideration).
28 RELATED PARTY TRANSACTIONS
The Group has taken advantage of the exemptions contained within IAS 24 ‘Related Party Disclosures’ from the
requirement to disclose transactions between Group companies as these have been eliminated on consolidation.
Transactions with key management personnel
The key management personnel of the Group comprise the Card Factory plc Board of Directors and the Operational
Board. Disclosures relating to remuneration of key management personnel are included in note 6 of the financial
statements. Further details of Directors’ remuneration are set out in the Directors’ Remuneration Report on pages 50
to 66. Directors of the Company and their immediate families control 5.1% of the ordinary shares of the Company.
There were no other related party transactions in the year.
Related party transaction in the prior year
Settlement of shareholder loan notes
In May 2014, as detailed in the IPO prospectus, the Company issued 50.7 million ordinary shares at market value in
full settlement of all outstanding 14% loan notes totalling £114.0 million. Included in the settlement of the loan notes
were amounts due to related parties as follows:
Charterhouse*
£’m
Richard Hayes
£’m
Darren Bryant
£’m
Other key
management
personnel
£’m
Non-related
parties
£’m
Balance at 31 January 2014
Interest accrued in the year
Settled by shares in May 2014
Balance at 31 January 2015
86.7
3.4
(90.1)
–
2.5
0.1
(2.6)
–
0.1
–**
(0.1)
–
18.9
0.7
(19.6)
–
1.5
0.1
(1.6)
–
Total
£’m
109.7
4.3
(114.0)
–
* Charterhouse General Partners (IX) Limited, as general partner of funds managed by it, has ceased to be a related party of the Group. Transactions with
Charterhouse in the prior year are disclosed by virtue of their controlling interest prior to the IPO and representation on the Board of Directors prior to
3 February 2015. The total aggregate fee for Director services payable to Charterhouse in the prior year was £45,000 per annum (pre IPO: £40,000
per annum).
** Actual figure £2,326.
Residual management equity
In May 2014, as detailed in the IPO prospectus, the Company issued 4.375 million ordinary shares at nominal value
in relation to residual management equity. Included in this amount were 1.875 million shares issued to Darren
Bryant, Chief Financial Officer and 1.875 million shares to other key management personnel who are not Directors
of Card Factory plc.
106
Card Factory plc Annual Report and Accounts 2016 29 SUBSIDIARY UNDERTAKINGS
At 31 January 2016 the Group controlled 100% of the issued ordinary share capital of the following subsidiaries, all
of which are registered in England and Wales, and all of which are included in the consolidated financial statements.
Subsidiary undertaking
CF Bidco Limited*
Sportswift Limited
Printcraft Limited
Getting Personal Limited
CF Topco Limited*
CF Interco Limited
Short Rhyme Limited
Heavy Distance Limited
Getting Personal Group Limited
Getting Personal (UK) Limited
Lupfaw 221 Limited
Sportswift Properties Limited
CF Midco Limited
Century Cards Limited
Rose Card Limited
Celebration Cards Limited
Sportswift Trading Limited
CF Newco Limited
321 Cards Limited
Card Concepts Limited
Excelsior Graphics Limited
Card Factory Stores Limited
Card Factory Retail Limited
Card Factory Online Limited
Card Factory Greetings Limited
Nature of business
Intermediate holding company
Sale of greeting cards and gifts
Printers
Sale of personalised products and gifts
Dormant**
Dormant**
Dormant**
Dormant**
Dormant**
Dormant**
Dormant***
Dormant***
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
* Shares held directly. All other subsidiaries shares are held indirectly through subsidiary undertakings.
** Formerly intermediate holding company prior to a Group re-organisation undertaken in the year to simplify the Group structure.
*** Formerly inter-company property letting prior to a Group re-organisation undertaken in the year to simplify the Group structure.
107
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Parent Company Balance Sheet
AS AT 31 JANUARY 2016
Note
2016
£’m
Non-current assets
Investments
Deferred tax
Current assets
Trade and other receivables
Total assets
Current liabilities
Trade and other payables
Net assets
Equity
Share capital
Share premium
Merger reserve
Retained earnings
Equity attributable to equity holders of the parent
4
5
6
7
8
8
2015
£’m
5.1
0.1
5.2
116.2
0.3
116.5
162.6
333.3
279.1
338.5
(1.5)
(15.9)
277.6
322.6
3.4
201.6
2.7
69.9
277.6
3.4
201.6
2.7
114.9
322.6
The financial statements on pages 108 to 118 were approved by the Board of Directors on 4 April 2016 and were
signed on its behalf by:
Darren Bryant
Chief Financial Officer
Company number 09002747
108
Card Factory plc Annual Report and Accounts 2016 Parent Company Statement of
Changes in Equity
FOR THE YEAR ENDED 31 JANUARY 2016
Share
capital
£’m
Share
premium
£’m
Merger
reserve
£’m
Retained
earnings
£’m
Total
equity
£’m
Total comprehensive income for the year
Profit or loss
–
–
–
104.6
104.6
Transactions with owners, recorded directly in equity
Issue of shares – net of issue costs (note 8)
Share based payments
3.4
–
3.4
201.6
–
201.6
2.7
–
2.7
–
10.3
10.3
207.7
10.3
218.0
At 31 January 2015
3.4
201.6
2.7
114.9
322.6
Total comprehensive income for the year
Profit or loss
Transactions with owners, recorded directly in equity
Share based payments
Taxation on share based payments recognised in equity
Dividends
–
–
–
–
–
–
–
–
–
–
–
–
36.7
36.7
1.3
0.1
(83.1)
(81.7)
1.3
0.1
(83.1)
(81.7)
At 31 January 2016
3.4
201.6
2.7
69.9
277.6
109
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Parent Company Cash Flow Statement
FOR THE YEAR ENDED 31 JANUARY 2016
Cash inflow from operating activities
Corporation tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Dividends received
Issue of loans to group undertakings
Repayment of loans by group undertakings
Interest received from group undertakings
Purchase of investments
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Proceeds from new shares issued
Dividends paid
Net cash inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents on incorporation
Closing cash and cash equivalents
Note
12
2016
£’m
0.4
–
0.4
32.8
–
156.4
4.3
(111.1)
82.4
–
(82.8)
(82.8)
–
–
–
2015
£’m
2.1
–
2.1
103.7
(198.7)
–
4.4
–
(90.6)
88.5
–
88.5
–
–
–
110
Card Factory plc Annual Report and Accounts 2016 Notes to the Parent Company
Financial Statements
1 ACCOUNTING POLICIES
Basis of preparation
The Company financial statements have been prepared and approved by the Directors in accordance with
International Financial Reporting Standards as adopted by the EU (‘EU IFRS’) and with those parts of the
Companies Act 2006 applicable to companies reporting under EU IFRS.
The financial statements have been prepared under the historical cost convention.
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational
existence for the foreseeable future. Accordingly, the financial statements have been prepared on a going
concern basis.
Principal accounting policies
The principal accounting policies set out below have, unless otherwise stated, been applied consistently to all
periods presented in these financial statements.
Income statement
The Company made a profit after tax of £36.7 million for the year ended 31 January 2016 (2015: £104.6 million),
including £32.8 million dividends received from subsidiary undertakings (2015: £103.7 million). As permitted by
section 408 of the Companies Act 2006, the income statement of the Company is not presented as part of the
financial statements.
Investments
Investments in subsidiary undertakings are held at cost less any provision for impairment.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are
measured at amortised cost using the effective interest method, less any impairment losses.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured
at amortised cost using the effective interest method.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown
in equity as a deduction from the proceeds.
Merger reserve
On 30 April 2014 Card Factory plc acquired 100% of the share capital of CF Topco Limited in a share for share
exchange, thereby inserting Card Factory plc as the Parent Company of the Group. The shareholders of CF Topco
Limited became 100% owners of the enlarged share capital of Card Factory plc. The premium arising on the issue
of shares is recognised in the merger reserve.
Share based payments
The Company issues equity-settled share based payments to employees through the Card Factory Long Term
Incentive Plan (‘LTIP’) and the Card Factory SAYE Scheme (‘SAYE’), see note 9 for further details. The cost of equity-
settled share awards is measured as the fair value of the award at the grant date using the Black-Scholes model.
The cost of awards to employees of the Company is expensed to the income statement, together with a
corresponding adjustment to equity, on a straight line basis over the vesting period of the award. The cost of
awards to employees of subsidiary undertakings is recognised as a capital contribution, immediately reimbursed by
the subsidiary. The total cost of the awards is based on the Group’s estimate of the number of share awards that
will eventually vest in accordance with the vesting conditions. The awards do not include market-based vesting
conditions. At each balance sheet date, the Group revises its estimate of the number of awards that are expected to
vest. Any revision to estimates is recognised in the income statement, with a corresponding adjustment to equity.
The expense recognised in the Company income statement is subsequently charged to subsidiary entities to the
extent that management services are provided to those subsidiary entities.
111
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Parent Company
Financial Statements continued
1 ACCOUNTING POLICIES CONTINUED
Dividends
Dividends are recognised as a liability in the period in which they are approved such that the Company is obliged to
pay the dividend.
Taxation
Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the income
statement except to the extent that it relates to items recognised directly in equity or through other comprehensive
income, in which case it is recognised in equity or other comprehensive income respectively.
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates
enacted or substantively enacted at the balance sheet date. Deferred tax is provided on temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the
initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business
combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse
in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the
balance sheet date.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available
against which the temporary difference can be utilised.
New standards and interpretations
EU Endorsed International Financial Reporting Standards effective in the year
The following new and amended standards, adopted in the current financial year, had no significant impact on the
financial statements.
• Defined Benefit Plans: Employee Contributions (Amendments to IAS 19)
• Annual Improvements to IFRSs 2010–2012 cycle
• Annual Improvements to IFRSs 2011–2013 cycle
EU Endorsed International Financial Reporting Standards in issue but not yet effective
The Directors considered the impact on the Company of EU endorsed, new and revised accounting standards,
interpretations or amendments. The following revised accounting standards are currently endorsed but effective for
periods beginning on or after 1 January 2016. None are expected to have a significant impact on the financial statements.
• Agriculture: Bearer plants (Amendments to IAS 16 and IAS 41)
• Clarification of acceptable methods of depreciation (Amendments to IAS 16 and IAS 38)
• Accounting for acquisitions of interest in joint operations (Amendments to IFRS 11)
• Annual Improvements to IFRSs 2012–2014 cycle
• Equity method in separate financial statements (Amendments to IAS 27)
• Investment entities: applying the consolidation exception (Amendments to IAS 28, IFRS 10 and IFRS 12)
The future impact on the financial statements of new standards and amendments awaiting EU endorsement is
currently being assessed. New standards awaiting EU endorsement include IFRS 9 ‘financial instruments’, IFRS 16
‘leases’ and IFRS 15 ‘revenue from contracts with customers’.
2 EMPLOYEE COSTS
The Company has no employees other than the Board of Directors. Full details of Directors’ remuneration are set
out in the Directors’ Remuneration Report on pages 50 to 66.
112
Card Factory plc Annual Report and Accounts 2016 3 DIVIDENDS
The Board is recommending a final dividend in respect of the financial year ended 31 January 2016 of 6.0 pence
per share (2015: 4.5 pence per share), resulting in a total final dividend of £20.4 million (2015: £15.4 million).
The dividend will, subject to shareholders’ approval at the Annual General Meeting on 24 May 2016, be paid on
10 June 2016 to shareholders on the register at the close of business on 6 May 2015. No liability is recorded in the
financial statements in respect of this final dividend as it was not approved at the balance sheet date.
Dividends paid in the year:
Special dividend for the year ended 31 January 2016
Interim dividend for the year ended 31 January 2016
Final dividend for the year ended 31 January 2015
Interim dividend for the year ended 31 January 2015
Pence
per share
15.0p
2.5p
4.5p
2.3p
2016
£’m
51.1
8.5
15.4
7.8
82.8
2015
£’m
–
–
–
–
–
Dividends totalling £82.8 million were paid in the year with a further £0.3 million accrued in relation to share based
long-term incentive schemes.
4 INVESTMENTS IN SUBSIDIARIES
At incorporation
Additions
At 31 January 2015
Additions
At 31 January 2016
£’m
–
5.1
5.1
111.1
116.2
Additions in the year comprise the acquisition of 100% of the issued ordinary share capital of CF Bidco Limited
from CF Interco Limited, both 100% owned subsidiary entities, as part of a simplification of the Group structure.
The Directors’ are satisfied that there is no indication of an impairment of the investment in subsidiaries.
113
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Parent Company
Financial Statements continued
4 INVESTMENTS IN SUBSIDIARIES CONTINUED
Subsidiary undertakings
At 31 January 2016 the Group controlled 100% of the issued ordinary share capital of the following subsidiaries, all
of which are registered in England and Wales, and all of which are included in the consolidated financial statements.
Subsidiary undertaking
CF Bidco Limited*
Sportswift Limited
Printcraft Limited
Getting Personal Limited
CF Topco Limited*
CF Interco Limited
Short Rhyme Limited
Heavy Distance Limited
Getting Personal Group Limited
Getting Personal (UK) Limited
Lupfaw 221 Limited
Sportswift Properties Limited
CF Midco Limited
Century Cards Limited
Rose Card Limited
Celebration Cards Limited
Sportswift Trading Limited
CF Newco Limited
321 Cards Limited
Card Concepts Limited
Excelsior Graphics Limited
Card Factory Stores Limited
Card Factory Retail Limited
Card Factory Online Limited
Card Factory Greetings Limited
Nature of business
Intermediate holding company
Sale of greeting cards and gifts
Printers
Sale of personalised products and gifts
Dormant**
Dormant**
Dormant**
Dormant**
Dormant**
Dormant**
Dormant***
Dormant***
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
* Shares held directly. All other subsidiaries shares are held indirectly through subsidiary undertakings.
** Formerly intermediate holding company prior to a Group re-organisation undertaken in the year to simplify the Group structure.
*** Formerly inter-company property letting prior to a Group re-organisation undertaken in the year to simplify the Group structure.
5 DEFERRED TAX ASSET
Deferred tax assets in relation to share based payments
6 TRADE AND OTHER RECEIVABLES
Amounts owed by Group undertakings
Prepayments and other debtors
2016
£’m
0.3
2016
£’m
162.5
0.1
162.6
2015
£’m
0.1
2015
£’m
333.3
–
333.3
Amounts owed by Group undertakings are unsecured, repayable on demand and subject to an interest charge of
2% per annum (2015: 3% per annum).
114
Card Factory plc Annual Report and Accounts 2016 7 TRADE AND OTHER PAYABLES
Amounts owed to Group undertakings
Accruals
2016
£’m
–
1.5
1.5
2015
£’m
14.9
1.0
15.9
Amounts owed to Group undertakings are unsecured, repayable on demand and subject to an interest charge of
2% per annum (2015: 3% per annum).
8 SHARE CAPITAL AND SHARE PREMIUM
Share capital
Allotted, called up and fully paid ordinary shares of one pence:
At the start of the period
Issued on incorporation
Issued to acquire CF Topco Limited
Issued in settlement of shareholder loan notes
Issue of residual management equity
Issued on IPO
At the end of the period
Share capital
At the start of the period
Issued on incorporation
Issued to acquire CF Topco Limited
Issued in settlement of shareholder loan notes
Issue of residual management equity
Issued on IPO
At the end of the period
Share premium
At the start of the period
Issued in settlement of shareholder loan notes
Issued on IPO
Share issue costs
At the end of the period
2016
(Number)
2015
(Number)
340,696,235
–
–
–
–
–
–
100
245,634,900
50,686,235
4,375,000
40,000,000
340,696,235
340,696,235
£’m
£’m
3.4
–
–
–
–
–
3.4
£’m
201.6
–
–
–
201.6
–
–
2.5
0.5
–
0.4
3.4
£’m
–
113.5
89.6
(1.5)
201.6
9 EQUITY SETTLED SHARE BASED PAYMENT ARRANGEMENTS
Card Factory Long Term Incentive Plan (‘LTIP’)
The Company grants awards of shares to the Executive Directors, members of the senior management team and
senior employees under the terms of the LTIP. Grants are made annually under the scheme subject to approval by the
Board. The award comprises a right to receive free shares or nil cost options. The shares will be issued within 30 days,
or as soon as practicable, after the vesting date. The grants awarded in favour of senior employees are subject to
a three year vesting period. The grants awarded in favour of the Executive Directors and members of the senior
management team are subject to a three year vesting period and include performance conditions. Further details on
Executive Director LTIP awards are provided in the Directors’ Remuneration Report on pages 50 to 66. All shares
received on vesting of Executive Director and senior management awards are subject to a two year holding period
(sale of shares is permitted to cover personal tax and social security contributions arising on the awards).
115
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Parent Company
Financial Statements continued
9 EQUITY SETTLED SHARE BASED PAYMENT ARRANGEMENTS CONTINUED
Card Factory SAYE Scheme (‘SAYE’)
The SAYE scheme, established during the year, is open to all staff with eligible length of service. Grants are made
annually under the scheme subject to approval by the Board. Options may be exercised under the scheme within
six months of the completion of the three year savings contract. There is provision for early exercise in certain
circumstances such as death, disability, redundancy and retirement.
Other options awarded
Under his terms of appointment dated 30 April 2014, Geoff Cooper, the Company’s Non-Executive Chairman, was
granted the option to purchase £330,000 of ordinary shares as part of, or alongside, the IPO at the offer price
(£2.25), £330,000 of ordinary shares at the offer price (£2.25) on the date falling two years after the date of
admission to the London Stock Exchange and £330,000 at the offer price (£2.25) on the date falling three years
after the date of admission. The entitlement to make such purchases is conditional upon and subject to Mr Cooper
remaining as Chairman of the Company on such date.
Reconciliation of outstanding awards
LTIP
SAYE
Other options awarded
Outstanding at 1 February 2014
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 January 2015
Granted during the year
Exercised during the year
Forfeited during the year
Number of
options
–
1,092,222
–
(66,667)
1,025,555
895,747
–
(54,015)
Weighted
average
exercise
price
–
£0.00
–
£0.00
£0.00
£0.00
–
£0.00
Number of
options
–
–
–
–
–
793,961
–
(47,697)
Weighted
average
exercise
price
–
–
–
–
–
£2.90
–
£2.90
Number of
options
–
439,998
(146,666)
–
293,332
–
–
–
Outstanding at 31 January 2016
1,867,287
£0.00
746,264
£2.90
293,332
Weighted
average
exercise
price
–
£2.25
£2.25
–
£2.25
–
–
–
£2.25
No options were exercisable at 31 January 2016.
Fair value of awards
The fair value of awards granted during the year has been measured using the Black-Scholes model assuming the
inputs below.
Fair value at grant date
Share price at grant date
Exercise price
Expected volatility
Expected term
Expected dividend yield
Risk free interest rate
2016
2015
Other options awarded
LTIP
SAYE
LTIP
Award 1
Award 2
Award 3
£3.08
£3.08
£0.00
30%
3 years
N/A**
0.67%
£0.53
£3.27
£2.90
30%
3 years
6.0%
0.92%
£2.25
£2.25
£0.00
30%
3 years
N/A**
1.18%
£0.00
£2.25
£2.25
Nil*
Nil*
Nil*
Nil*
£0.33
£2.25
£2.25
30%
2 years
2.7%
0.82%
£0.39
£2.25
£2.25
30%
3 years
2.7%
1.18%
* Award 1 was exercisable immediately on IPO.
** LTIP awards have a £nil exercise price and accrue dividend equivalents over the vesting period, consequently the fair value at grant date is equal to the
grant date share price.
The expected volatility is based on historical volatility of a peer group of companies over a relevant period prior to
the awards.
116
Card Factory plc Annual Report and Accounts 2016 Impact on the income statement
The total expense recognised in the income statement arising from share based payments is as follows:
Expense recognised in the Company income statement
Card Factory LTIP
Residual management equity*
Expense recognised in subsidiary income statements
Card Factory LTIP
Residual management equity*
SAYE
Total expense recognised in the Group income statement
2016
£’m
0.7
–
0.7
0.5
–
0.1
0.6
1.3
2015
£’m
0.3
4.2
4.5
0.2
5.6
–
5.8
10.3
* On admission to the London Stock Exchange, shares with a fair value of £9.8 million were issued at nominal value in relation to residual management
equity as detailed in the IPO prospectus. Employer national insurance of £1.4 million was incurred on the issue of the shares. These non-recurring share
based payments are presented as a non-underlying item in the prior year income statement (see note 3).
The amounts disclosed above do not include employer’s national insurance costs.
The expense recognised in the Company income statement was subsequently charged to subsidiary entities to the
extent that management services were provided to those subsidiary entities.
10 FINANCIAL RISK MANAGEMENT
The financial risk management strategy of the Company is consistent with the Group strategy detailed in note 23 of
the Group financial statements. The Company is not exposed to foreign currency risk other than to the extent it
impacts the trade of its subsidiary investments. Trade and other receivables principally comprise amounts due from
Group undertakings and consequently credit risk is limited. Interest income and expense relate solely to amounts
due to or from Group undertakings and interest rates are set by reference to Group borrowing costs.
11 FINANCIAL INSTRUMENTS
Classification of financial instruments
Financial assets have all been classified as loans and receivables. Financial liabilities have all been classified as other
financial liabilities.
Maturity analysis
All financial instrument assets and liabilities fall due in less than one year.
Fair values
The fair values of financial instruments have been assessed as approximating to their carrying values.
117
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes to the Parent Company
Financial Statements continued
12 NOTES TO THE CASH FLOW STATEMENT
Profit before tax
Dividends received
Net finance income
Operating loss
Adjusted for:
Share based payment charge
Operating cash flows before changes in working capital
Increase in receivables
Increase in payables
Cash inflow from operating activities
2016
£’m
2015
£’m
36.7
(32.8)
(4.3)
(0.4)
0.7
0.3
(0.1)
0.2
0.4
104.7
(103.7)
(4.4)
(3.4)
4.5
1.1
–
1.0
2.1
13 RELATED PARTY TRANSACTIONS
Amounts due to and from Group undertakings are set out in notes 6 and 7 of the financial statements. Transactions
between the Company and its subsidiaries were as follows:
Management services
Interest receivable
Dividends received from Group undertakings
Shares issued in settlement of shareholder loan notes issued by subsidiaries
Funding from/(to) subsidiaries
2016
£’m
3.2
4.3
32.8
–
156.4
2015
£’m
7.1
4.4
103.7
(114.0)
(198.7)
Transactions with key management personnel
The key management personnel of the Company comprise the Card Factory plc Board of Directors. Disclosures
relating to Directors’ remuneration are set out in the Directors’ Remuneration Report on pages 50 to 66. Directors
of the Company control 5.1% of the ordinary shares of the Company.
118
Card Factory plc Annual Report and Accounts 2016 Advisers and Contacts
CORPORATE BROKERS AND FINANCIAL ADVISERS
LEGAL ADVISERS
AUDITOR
PRINCIPAL BANKERS
REGISTRARS
FINANCIAL PUBLIC RELATIONS
REGISTERED OFFICE
INVESTOR RELATIONS
UBS Limited
1 Finsbury Avenue
London EC2M 2PP
Tel: 020 7567 8000
Linklaters LLP
One Silk Street
London EC2Y 8HQ
Tel: 020 7456 2000
KPMG LLP
1 Sovereign Square,
Sovereign St,
Leeds LS1 4DA
Tel: 0113 231 3000
Royal Bank of Scotland Group plc
Leeds Corporate Office
3rd Floor
2 Whitehall Quay
Leeds LS1 4HR
Tel: 0113 307 8564
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Tel: 0371 384 20301
MHP Communications
6 Agar Street
London WC2N 4HN
Tel: 020 3128 8100
Century House
Brunel Road
Wakefield 41 Industrial Estate
Wakefield
West Yorkshire WF2 0XG
Company Registration No: 9002747
Tel: 01924 839150
CardFactoryMHP@enginegroup.com
Tel: 020 3128 8100
1 Lines are open 8.30am to 5.30pm (UK time), Monday to Friday, excluding English public holidays
119
Card Factory plc Annual Report and Accounts 2016Strategic reportGovernanceFinancials Notes
120
Card Factory plc Annual Report and Accounts 2016 C
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Card Factory plc
Century House
Brunel Road
41 Industrial Estate
Wakefield
West Yorkshire
WF2 0XG
www.cardfactory.co.uk
www.cardfactoryinvestors.com