Annual Report and Accounts
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quality and value for all life’s moments
Company Overview
Welcome to
Card Factory is 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, in addition
to offering customers a range of complementary products
associated with card giving occasions.
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.
Card Factory’s mission is to help customers celebrate their life
moments by providing a range of quality cards, wrap, dressings,
party and gifting products at value prices. The Group principally
operates through its nationwide chain of over 900 Card Factory
stores, as well as through its transactional web sites:
www.gettingpersonal.co.uk and www.cardfactory.co.uk.
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.
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.
Four pillars of growth
Like-for-like
sales growth
New store
roll out
Business
efficiencies
Online
development
Consistently delivering strong cash generation and shareholder returns
Contents
Strategic Report
Financial Highlights
Market Overview
Business Model
1
2
4
12 Our Four Pillar Strategy
14 Chairman’s Statement
16 Chief Executive Officer’s Review
20 Chief Financial Officer’s Review
24 Principal Risks and Uncertainties
28 Corporate Social Responsibility Report
Governance
34 Directors and Officers
37 Chairman’s Letter – Corporate Governance
38 Corporate Governance Report
47 Chairman’s Letter –
Audit and Risk Committee
48 Audit and Risk Committee Report
51 Chairman’s Letter –
Remuneration Committee
54 Directors’ Remuneration Report
67 Chairman’s Letter –
Nomination Committee
68 Nomination Committee Report
69 Directors’ Report
72 Statement of Directors’ Responsibilities
Financials
Independent Auditor’s Report
73
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
105 Parent Company Statement of
Financial Position
106 Parent Company Statement of Changes
Financial Highlights
GROUP REVENUE
£422.1m
NET NEW STORE OPENINGS
50
LIKE-FOR-LIKE STORE SALES1
+2.6%
Increase of +6.0%
Total UK store estate 915
Positive LFLs every year
since formation
TOTAL CARD FACTORY LIKE-FOR-LIKE SALES1
+2.9%
Increase of +2.3%
FY17: £19.3m
Decrease of 4.6%
FY17: 24.7%
FY17: £85.1m
FY17: £82.8m
FY17: 1.38x
ONLINE REVENUE
£20.4m
UNDERLYING EBITDA2
£94.0m
UNDERLYING EBITDA MARGIN
22.3%
UNDERLYING PROFIT BEFORE TAX
£80.5m
STATUTORY PROFIT BEFORE TAX3
£72.6m
LEVERAGE4
1.72x
TOTAL ORDINARY DIVIDEND5
9.3p
SPECIAL DIVIDEND
15.0p
UNDERLYING BASIC EPS
18.9p
BASIC EPS
17.1p
Increase of 2.2%
in Equity
107 Parent Company Cash Flow Statement
108 Notes to the Parent Company Financial
Statements
Company Information
114 Advisers and Contacts
FY17: 15.0p
FY17: 19.8p
FY17: 19.3p
See page 12 for definition of like-for-like sales.
Notes
1.
2. As defined in note 5 to the financial statements on page 91.
3.
See note 3 to the financial statements on page 90 for details of
non-underlying items.
Leverage is calculated as the ratio of net debt to underlying EBITDA
for the previous 12 months.
Including recommended final dividend of 6.4p, subject to AGM approval.
4.
5.
Card Factory plc Annual Report and Accounts 2018 1
Strategic 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
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 2.8% 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).
Complementary non-card items
‘Complementary Non-card’ items 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 and homewares);
Party products (eg balloons and banners, badges and candles); and
Other complementary non-card products (eg calendars, diaries and stamps).
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.
Share of FY18 revenue
53.7%
Single cards
44.0%
Complementary
non-card
2.3%
Christmas
boxed cards
2 Card Factory plc Annual Report and Accounts 2018
Estimated Card Factory
market share by value
18.2%
Single cards
Less than 10%
Complementary
non-card items
13.6%
Christmas Boxed
cards
£1.3 billion
UK market value
£2-3 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 2017.
Market trends
Market growth rates
There is an ingrained culture of sending greeting cards in the
UK, with estimates suggesting an average of approximately
24 cards sent per person each year, of which on average
17 are single greeting cards.
Card purchasing is occasion-driven, focused around key
events (eg birthdays, anniversaries and seasons such as
Christmas). A person’s age 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 across generations
but with an increase in the number of cards purchased by
18 to 34 year olds. This, when combined with both a growing
and ageing UK population, is an encouraging indication of
the ongoing sustainability of the card market in the UK and
is something we will continue to monitor.
Competitive environment
The overall card market has proved to be robust and resilient
throughout the past decade with steady consistent annual
growth in value.
Volumes in the larger, core singles market have been in
slight decline during this period, with only a 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.
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);
Others: Including generalists (eg WH Smith and M&S), stationers, discount chains (eg B&M, Poundland, Home Bargains and
Wilkinsons), the Post Office and hundreds of small independent retailers.
Card Factory’s positioning within the market has been sustained with clear blue water between us and our competitors, in terms
of consumers’ perception of the price and quality of our cards. In addition, the independent OC&C Retail Proposition Index, which
evaluates value for money across retailers, has Card Factory positioned as number 1 for the third year running.
Consumer Perceptions of Greeting Cards
Value for Money - 2018
Average Rating On Scale 1-5
Average Rating On Scale 1-5
Consumer Perceptions of Greeting Cards Value for Money - 2018
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5.0
4.5
4.0
e
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P
3.5
3.0
2.5
2.0
3.0
Card Factory
99p Store
Home Bargains
Poundland
B&M Bargains
Wilko’s
Supermarkets
Post Office
M&S
Hallmark
Clintons
WH Smith
OC&C Retail Proposition
Index Results –
Value for Money
2017
Card Factory (87.7)
Home Bargains (86.5)
Aldi (85.9)
Lidl (85.4)
99p Store (85.0)
Primark (84.1)
Farm Foods (83.6)
Wilko (82.7)
Poundworld (82.6)
1
2
3
4
5
6
7
8
9
Paperchase
10
Poundstretcher (82.5)
3.5
4.0
Quality
4.5
5.0
Source: OC&C Consumer Survey (February 2018), OC&C analysis
Stronger Perception of Quality
Card Factory plc Annual Report and Accounts 2018 3
Strategic 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 over
the past decade 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 external
costs and adding value to customers in terms of both price and
quality, underpinning the Group’s Mission:
Quality and value for all life’s moments
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;
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;
enhanced financial flexibility through better working capital
management;
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.
Card Factory has significantly grown its share of the UK greetings card market since formation in 1997. Based on the latest
available market data from OC&C Strategy Consultants (‘OC&C’) for the 2016 calendar year, Card Factory is the market leader in
terms of both value (18.2%) and volume (31.7%) for single greeting cards.
UK card market
value share
18.2%
+0.3%
16.1%
16.9%
17.4%
17.9%
18.2%
UK card market
volume share
31.7%
-0.4%
30.3%
31.1%
31.5%
32.1%
31.7%
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Source: OC&C March 2018
Source: OC&C March 2018
4 Card Factory plc Annual Report and Accounts 2018
The customers’ choice for cards, gifts,
party and wrap, in-store and online
Card Factory plc Annual Report and Accounts 2018 5
Strategic ReportGovernanceFinancials Unwrapping our business
During the year, the Group’s mission, vision and values have been defined by and communicated to our colleagues. They
illustrate why the business has been so successful to date, the aspirations we have in terms of being the ‘customers’ choice’ and
the characteristics all our colleagues display in supporting our continued success.
Our Mission
Trusted for quality and
value to help celebrate
everyone’s life moments
Our Vision
The customers’ choice for
cards, gifts, party and wrap,
in-store and online
Our Values
We’re part of the story
We’re loyal
We’re grafters
We’re a little bit mad
We lead the way
6 Card Factory plc Annual Report and Accounts 2018
Card Factory plc Annual Report and Accounts 2018 7
Strategic ReportGovernanceFinancials 1992
1997
Business started
First store opens
2005
All creative design
brought in-house
2009
Acquired print
facility ‘Printcraft’
Over 200 Card Factory stores
are now open
We now operate from over
400 stores across the UK
2013
Moved into
Century House
2014
Company floated
on Stock Exchange
£3 million donated
to charity
Over 650 stores across
the UK
8 Card Factory plc Annual Report and Accounts 2018
2003
Ventured into
Scotland, Wales
and the South of
England
Acquired
warehouse facility
2010
Handed reins over
to management
team
2011
Purchased
gettingpersonal.co.uk
2017
Over 900 stores
across the UK
Over 550 stores
Story to be
continued...
Card Factory plc Annual Report and Accounts 2018 9
Strategic ReportGovernanceFinancials Business Model continued
Design
Strong team built gradually since 2005, now designing a large proportion
of 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 complementary
non-card items each year
Extensive database of thousands of creative designs, captions and verses
we design over 4000 cards!
Sourcing
Dedicated in-house sourcing team covering wide range of complementary
non-card products
Close links with in-house design team to optimise margins
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
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
360,000 sq ft
10 Card Factory plc Annual Report and Accounts 2018
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 900 stores, principally built from individual openings
rather than acquisition
High quality estate with only c1% 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
over 900 stores!
Merchandising
Extensive range of card and complementary 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
Relaunch of Card Factory transactional website in 2015
Card Factory plc Annual Report and Accounts 2018 11
Strategic ReportGovernanceFinancials Our Four Pillar Strategy
Like-for-like
sales growth
New store
roll out
The Group intends to expand its store portfolio organically
from its existing store estate to up to 1,200 stores in total,
including 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 c 50
net new stores per annum.
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 complementary 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 offer customers more choice,
particularly for those occasions when they wish to spend
more, whilst maintaining the quality and value of our
offering; and
leveraging our electronic point of sale (‘EPOS’) system 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 complementary 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 defines Card Factory store Iike-for-Iike (‘LFL’) sales as
the year-on-year growth in sales for Card Factory stores which
have been opened for a full year, calculated on a calendar week
basis. The reported LFL sales figure excludes sales:
made via the Card Factory website, www.cardfactory.co.uk;
made via the separately branded personalised card and
gift website, www.gettingpersonal.co.uk;
by Printcraft, the Group’s printing division, to external
third-party customers; and
from stores closed for all or part of the relevant period (or
the prior year comparable period).
Card Factory stores are included in the reported LFL figures
for each week of trading completed after having been open
for a full 52 weeks, as compared to the same relevant week in
the previous period.
Total Card Factory LFLs are reported including the impact of
the Card Factory website.
The Group defines Getting Personal LFL sales as the year-
on-year growth in sales for the Getting Personal website,
calculated on a calendar week basis.
12 Card Factory plc Annual Report and Accounts 2018
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.
Business
efficiencies
Online
development
Card Factory has consistently delivered best-in-class margins.
The Board will continue to pursue business efficiency initiatives
to further improve the business and its competitive position.
The Group’s online operations currently comprise
Card Factory’s transactional website and Getting Personal
(acquired in 2011).
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 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.
In anticipation of planned long-term growth, the Group has,
over a number of years, invested heavily in its infrastructure,
including:
an EPOS system and contactless payment across all of
our stores that will both improve the speed of service and
customer experience and provide more granular sales data
that will help us develop our proposition and grow sales;
expansion of Printcraft as part of a 10-year capital
expenditure plan following its relocation to larger
premises;
the relocation of Getting Personal’s personalised gift
production facility to Printcraft; and
investment in the central distribution centre and Group
support centre completed.
The Group will continue to leverage the benefits of these
significant investments over the medium-term as well as
continually evaluating the benefit of further investment to
support the long-term strategy of the business. The CEO’s
review on pages 18 and 19 outlines some of the additional
investments the Group is currently considering.
Significant investment was made during the year in creating
a dedicated Card Factory online team to support its future
development and growth. We continue to enhance, test,
evolve and evaluate our online platform, proposition and
product offering and have, during the year, introduced a
much wider selection of personalised cards and gifts as well
as enhancing the selection of non-personalised products
that customers would usually have to go to one of our stores
to purchase.
Sales of personalised gifts represent the vast majority of the
revenue generated from Getting Personal’s 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 5.9% of the total single cards market, by
value, and 2.2%, by volume, in 2016, the Directors believe it
provides an opportunity for growth.
The Directors believe that the Group is well placed to capture
a greater share of this growing segment of the market.
Card Factory plc Annual Report and Accounts 2018 13
Strategic ReportGovernanceFinancials
Chairman’s Statement
Card Factory performed well in
FY18 with strong like-for-like sales
growth, whilst profits were
impacted by the prevailing
headwinds from foreign exchange
and national living wage
Geoff Cooper
Chairman
Card Factory performed well in FY18 with strong like-for-like
sales growth, whilst profits were impacted by the prevailing
headwinds from foreign exchange and national living wage.
Whilst this year marks the fourth anniversary of our IPO, it is
also the 20th anniversary of the Company’s formation. Having
started life as a local family owned discounter, the Group has
developed into a market leading, high margin, national, value
retailer with over 900 stores and two transactional websites.
In the year we also opened our first stores in the Republic of
Ireland. During the last 20 years the Group has demonstrated
an ability to grow sales and profit, notwithstanding recent cost
headwinds, increase market share and generate significant
returns for shareholders. The Board’s objective is to continue
to build on this strong track record in the years ahead.
The Group remains focused on its successful four pillar growth
strategy, underpinned by its unique vertically integrated model
which provides significant competitive advantage, particularly in
challenging retail environments, as seen in 2017. In her report
that accompanies these results our Chief Executive Officer,
Karen Hubbard, provides an update on the Group’s current
strategic priorities. The Board is excited by the opportunities,
both strategic and operational, that Karen is exploring to further
improve an already very successful business.
In April 2017 we announced the appointment of our new Chief
Financial Officer, Kris Lee, following the retirement of Darren
Bryant. With Kris’ extensive experience in senior financial and
commercial roles in the retail sector, his energy, drive and
entrepreneurial mindset fits well with the Card Factory culture
and will be invaluable to the Group as we move forward with
our growth strategy.
The Board has increased the total ordinary dividend for the
year by 2.2% to 9.3p per share, reflecting our strong cash
generation and confidence in the future prospects of the
business. This is in addition to the 15.0p per share special
dividend paid in December 2017. In line with our stated capital
policy, we currently expect to make a further return of surplus
cash to shareholders towards the end of the current financial
year, and further information is included in our CFO’s review.
Geoff Cooper
Chairman
9 April 2018
14 Card Factory plc Annual Report and Accounts 2018
“something for everyone”
“Fantastic gifts”
During the last 20 years the
Group has demonstrated an
ability to grow sales and profit,
notwithstanding recent cost
headwinds, increase market
share and generate significant
returns for shareholders
“Fantastic new Ranges”
“destination for all cards”
“Online sales are
very promising”
Card Factory plc Annual Report and Accounts 2018 15
Strategic ReportGovernanceFinancials Chief Executive Officer’s Review
Card Factory performed well
in FY18 despite the difficult UK retail
backdrop, with strong like-for-like
sales growth and our highest
ever sales day in Card Factory’s
history during the Christmas
trading period
Karen Hubbard
Chief Executive Officer
OVERVIEW
I am pleased to report that Card Factory performed well in
FY18 despite the difficult UK retail backdrop, with strong
like-for-like sales growth and our highest ever sales day in
Card Factory’s history during the Christmas trading period.
This was delivered in part through recent operational
enhancements, particularly the introduction of EPOS and
contactless payment, which are now installed throughout all
stores in our estate, enabling us to serve a greater number of
customers during peak trading periods. It is notable that this
was the 20th consecutive year of like-for-like sales growth for
the business.
Our business model, with its integrated supply chain, allows
us to provide an unrivalled offer to our customers. In
particular, we have the widest range of high quality cards,
with innovative designs and styles, all available at compelling
prices. Together, it means that our customers can always find
good value quality cards to say exactly what they wish to say
at a price that is affordable for them.
Throughout the year we continued to provide a compelling
offer to our customers with extensive ranges and designs
across our cards, party products, dressings and gifts, both
in-store and online. Our ranges continue to resonate well with
our customers who recognise the quality and value that we
offer, seeing Card Factory as their retailer of choice for
celebrating their life moments. Once again our independent
research shows that, despite increased competition for card
sales, we are the UK’s preferred card retailer with 64% of the
nation’s card buyers having shopped at Card Factory in the
last 12 months; 50% of all visits to Card Factory were planned
and the main reason for the shopping trip.
Since the year-end, we have been recognised by our retail
industry peers for our specialist position in the market having
been awarded Retail Week’s ‘Best Specialty Retailer’ at their
2018 awards.
16 Card Factory plc Annual Report and Accounts 2018
We have also strengthened and further innovated our
offering, adding product line extensions in both card and
complementary non-card and new successful seasonal
ranges, as well as including the introduction of gift cards
which has been made possible by the roll out of EPOS across
our estate. Our product line extensions have also provided our
customers with further choice for those extra special
occasions such as engagements and weddings.
The completion of the EPOS rollout in October 2017 has
enabled us to analyse category performance more accurately
and to review the efficiency of our stock replenishment
processes. Whilst still in its infancy, we expect to deliver real
benefits from the improved information available to us to
ensure we can fulfil our customers’ needs more efficiently
than ever before, tailoring the ranges and space in stores to
maximise sales performance.
Whilst margins were impacted by the prevailing foreign
exchange and national living wage headwinds already
identified and by the margin mix impact as a result of the
strong performance of complementary non-card products,
we continue to deliver best in class EBITDA margins and have
developed a robust programme of business efficiencies to
ensure we maintain these.
I remain confident that our existing, proven four pillar strategy
is the right one to ensure future business growth.
MARKET UPDATE
The latest independent research, produced by OC&C in March
2018, has confirmed that a number of important and
established market trends that were highlighted at the time of
our IPO in 2014 remain as valid today:
•
the market for single greeting cards is well established,
robust and resilient; it continues to show modest growth in
value terms, despite a slight decline in volume as
expected, with initial indications showing an increase in
•
•
•
•
the number of cards purchased by 18–34 year olds. Whilst
this will need to be monitored over a longer time period, it
is an encouraging trend for the ongoing sustainability of
the market;
the sending of physical greeting cards is deeply ingrained
in UK culture with high levels of emotional attachment and
research shows that this remains stable;
there continues to be no meaningful shift to digital
greeting cards, with fewer customers than ever
suggesting that they are replacing a physical card with a
digital greeting;
there has been significant growth in other seasonal events
such as Valentine’s Day and Thank You Teacher;
the online personalised and non-personalised card
segment remains an attractive niche for Card Factory
where we have made good progress and delivered growth,
albeit this still represents a relatively small proportion of
the market; and
• Card Factory has maintained significant clear blue water
versus its competitors in terms of the consumer’s
perception of value (see chart on page 3 of the Strategic
Report); and consumer ratings demonstrate that our value
for money, low price, quality, design and style of cards all
exceed that of Supermarkets and Discounters.
Card Factory has, for the third year in a row, won the ‘Value
for Money’ OC&C retail award, with a further improved rating.
STRATEGIC PERFORMANCE
We continue to make good progress against our four
established strategic pillars:
1. Like-for-like (‘LFL’) sales growth
Card Factory stores delivered strong like-for-like growth in
the year of +2.6% (FY17: +0.4%) notwithstanding lower levels
of footfall experienced across the general retail market.
Including cardfactory.co.uk, LFL sales growth from the Card
Factory fascia was +2.9% (FY17: +0.6%).
Looking forward, we intend to maximise LFL growth through:
(i) ensuring we leverage our Design Studio to continue to
innovate across both our card ranges and complementary
non-card ranges; and (ii) focusing on retail disciplines, with
improved availability, better space and merchandising
planning and a greater focus on customer service, operational
standards and the removal of tasks from store colleagues to
enable them to focus on helping our customers.
In card, we continued to focus on introducing new styles and
designs, whilst preserving our value offer. Customers can still
buy high quality cards at prices that are up to two-thirds
lower than that charged for similar products by our principal
competitors. Our focus remains on maintaining the gaps in
both price and quality compared to the competition.
As we enter and celebrate our 21st year as a leading specialist
greeting card retailer, we maintain our long-standing 29p and
59p entry price points for cards, which enable us to help our
customers celebrate their life moments with a card that offers
both quality and value. In addition, we have increased the
range of cards for those occasions when customers choose to
spend more, offering choice, quality and value at significantly
lower prices than other card specialists, with further ranges
being launched in FY19.
In complementary non-card, our design and buying teams
developed a number of new ranges with a more premium
offering for customers who are looking for an extra special
card, a broader selection of wedding gifts, innovation in gift
bags and boxes and new candle designs. This design and
innovation has been recognised and well received by our
customers and is reflected in Card Factory’s transaction
volumes outperforming the footfall declines seen on the High
Street. For the year as a whole, the proportion of sales from
complementary non-card items increased to 44.0% (FY17:
42.3%). Our complementary non-card ranges continue to
perform strongly as incremental purchases to our card ranges,
seeing a further increase in our average basket value.
Complementary non-card performance has been driven by:
• continuous development of our non-card offering with
new ranges in dressings, wrap and gifting associated with
card giving;
•
•
improved sell through of aged stock to make way for new
lines; and
the introduction of new product lines including gift cards
and stamps, which have enabled us to provide additional
services to our customers in-store.
We continue to make good progress with our Card Factory
website, cardfactory.co.uk, having performed strongly during
the year with strong online key performance indicators. We
remain confident that further progress within the online
market is possible with selective further tactical investment.
2. New store roll out
Our internal property team has yet again enabled us to
achieve our target net new store openings for this year and
operate new stores efficiently and in a cost-effective manner.
We continue to be successful in identifying new locations,
whilst exploring opportunities for co-locations, relocations
and openings within new retail parks.
We opened 50 net new UK stores in FY18 across a variety of
retail locations including high streets, shopping centres and
retail parks, providing the opportunity for more customers to
experience the proposition in new locations. In total we had 915
UK stores at the end of the financial year (31 January 2017: 865),
with a further six trial stores opened in the Republic of Ireland.
The quality of our estate remains very strong: of our stores
open for over one year, only c1% were loss making.
Looking forward, we have a strong pipeline of potential new
stores, including a number of opportunities in retail parks, a
segment of the market where we are seeking to increase our
presence; however there will continue to be a blended mix of
different retail locations. We expect to add a further 50 net
new stores to our estate in the current financial year, with
good progress made to date.
We continue to monitor developments across our competitors
and the broader retail space to ensure that we are well
positioned to take advantage of property opportunities that
may materialise.
As at the year-end we had opened six trial stores in the
Republic of Ireland around the Dublin area. Whilst this is still
being trialled, we are looking to assess the store locations and
store types identified to provide an indication of the potential
size of the opportunity.
Across both geographies, we continue to target a cost-
effective estate of 1,200 stores, capable of driving strong
returns whilst maintaining the quality inherent in the Card
Factory brand.
Card Factory plc Annual Report and Accounts 2018 17
Strategic ReportGovernanceFinancials Chief Executive Officer’s Review continued
3. Business efficiencies
The Group has consistently delivered one of the best
operating profit margins in the retail sector. In order to
continue achieving this, whilst offering our customers value,
we have to maintain the most efficient and lowest cost base.
(previously 2pm) and the website experience, catering for the
various shipping methods and devices that our customers are
using. The improvement in experience, both in terms of
website usability and shipping, has been recognised by our
customers, with customer reviews again in excess of 4.5/5.
As identified in last year’s preliminary and at this year’s
interim results announcements, we anticipated some
significant cost pressures in the year, in particular foreign
exchange and national living wage costs. To mitigate these we
have introduced a range of cost efficiency programmes and
believe further opportunities to mitigate costs exist with
improved data intelligence from our recent implementation of
EPOS. There is also further potential to enhance our
competitive advantage by virtue of our vertically integrated
model and the resulting superior operating margins. We will
remain conscious of our customers’ trust in our value
proposition, ensuring that we are delivering the right offer to
retain and grow our market share.
Our business efficiency programmes also focus on more
efficient product sourcing, further vertical integration, more
efficient supply chain management and improved store
productivity through the removal of task. Furthermore, our
Loss Prevention team, who are now well established in the
business, have continued to reduce the level of loss, through
cash and stock theft, within the business.
Looking ahead, I see further business efficiency
opportunities including:
•
lowering the cost of sales through better buying;
• driving lean fulfilment in stores through supply chain
•
•
efficiencies;
improving operational productivity;
the removal of tasks from stores by simplifying how we
operate; and
• continuing to target net rent savings across the property
portfolio at the next available break clause or lease
renewal.
4. Online development
We have two transactional websites – cardfactory.co.uk and
gettingpersonal.co.uk.
The cardfactory.co.uk offer has continued to mature over
the last year. The new team delivered sales growth of 67%
(FY17: c50%), through four key areas – product design, range
growth, improving the customer experience and growing our
customer base.
Both new and existing customers have responded well to new
designs in personalised cards and an increased range of
products available during key seasonal events. We now offer a
larger and balanced range of cards, gifts, wrap and party
products across all seasonal and everyday occasions. We
were especially pleased with our launches of new propositions
and we see continued growth in product innovation. Our
recent customer review for product quality and value was
measured at 4.5/5.
We have been making it easier for our customers too,
improving our same day dispatch for all cards to 6pm
As outlined, we have strong growth aspirations for the Card
Factory online business and will continue to develop this to
offer a multi-channel offer for card and associated gifts
for customers.
We continue to target further growth for gettingpersonal.co.uk,
which is focused on personalised gifts. Whilst this remains a
relatively small part of the Group in terms of both sales and
profit contribution, its financial performance in the year was
disappointing with sales increasing by 0.5%. Given lower
conversion rates and a mixed third party marketing
performance, which is being addressed, the EBITDA
performance of £2.9m (FY17: £2.8m) was below our
expectations, having had a relatively poor year previously.
The market has seen some deep discounting this year and
especially over the Christmas trading period, when we
made the decision to only follow profitable sales to maintain
our margins.
Looking ahead, the key focus across both online channels will
be implementing a new and better digital marketing
approach; improving the experience on our websites; and
further innovating our personalised and non-personalised
product ranges.
OTHER STRATEGIC PRIORITIES
Alongside a continued focus on the four strategic pillars, my
strategic review identified opportunities to further strengthen
our business for all stakeholders, and to enhance future
shareholder returns, with a focus on three areas – further
targeted investment, greater engagement with colleagues,
and listening even more to our customers.
ONGOING INVESTMENT TO DRIVE SHAREHOLDER VALUE
We have continued to invest in our infrastructure to support
the long-term strategy of the business where we can see
opportunity for the business to grow sales further, improve
product margins or be more cost-efficient. We have
successfully rolled out EPOS and contactless payment across
all of our stores, improving the speed of service and customer
experience. EPOS has also supported the sale, since October
2017, of third party gift cards which have proved popular with
customers and are complementary to our other ranges.
By the end of FY19, all stores will be on the same EPOS
platform, PCMS, and we are now looking at how best to use
this data to make more informed commercial decisions.
Furthermore, in FY19 we are implementing a low cost data
warehouse to support more detailed analysis of product
performance and stock management.
We continue to evaluate investment which can improve store
productivity and generate supply chain efficiencies, including
an element of automation in stock replenishment. Further
development in our vertically integrated model remains an
important part of our investment strategy and will support
more in-house production, margin retention and greater
control over our supply chain.
18 Card Factory plc Annual Report and Accounts 2018
As identified in our last Annual Report, we have invested in
our online businesses, marketing team and various support
centre functions to ensure that we have the right
infrastructure, talent and capacity to drive strategic priorities
and growth and the initial benefits of this are being seen in
the online sales performance and the improved in-store
navigation which we have been able to deliver with the new
digital marketing team.
The Board will continue to assess further incremental
investment across the Group on a case by case basis, taking
into account the scale, likelihood and timing of anticipated
returns. This ongoing, controlled investment will ensure that
we continue to deliver on the four pillar strategy and provide
strong returns to our shareholders over the medium term.
RETAIL COLLEAGUES AND PERFORMANCE CULTURE
In the year we invested in developing our organisational
capability, with the introduction of leadership and
management development programmes and the nationwide
expansion of our ‘Retail ACardemy’. We have also reviewed
how best we can use the Apprenticeship Levy to support the
development of our support centre and retail colleagues. We
are also in the process of reviewing our current HR systems in
terms of how effectively they support our productivity and
efficiency initiatives.
Our aim is to create a performance culture with focussed
objectives that not only support the delivery of our strategy
but develop our colleagues and provide a pipeline of future
leaders from within the business. Greater employee
engagement will help us reduce our store colleague turnover
and vacancy rates, whilst growing our brand recognition and
making us an employer of choice with prospective colleagues.
Achieving these development ambitions will ensure that all of
our teams remain trained and motivated to continue to deliver
quality and value to our customers and the best possible
service and experience in-store.
CUSTOMER ENGAGEMENT AND EXPERIENCE
All of our executive management team and many of our
support centre colleagues worked within our stores serving
customers in the busiest week during the Christmas trading
period. This not only supported our store colleagues but also
helped us to develop our understanding of what our
customers want and where we have an opportunity to
improve our offer in a way that will resonate with our
customers and improve our average basket value. We remain
known for leading the way in providing great quality and
value for our customers and staying close to them in this way
ensures we listen and respond to their changing needs.
As part of this commitment, we have evolved our product
offering to provide a broader choice for extra special
occasions, such as engagements and weddings, by
introducing our ‘Exquisite’ card range. This is helping us to
capture new customers, whilst also appealing to existing ones
and all whilst maintaining our entry level prices. We are
already working hard on new ranges for the new financial year
where we now see further opportunity in enhancing the
perception of not just the value, but also the quality of our
offering in both card and complementary non-card products.
We are also taking further steps to tailor the product offering
for individual stores.
As well as range improvements, we have also improved
navigational signage, making our stores easier to shop. The
speed of service in-store has also improved with the roll out of
EPOS and contactless payment in all of our stores; however
we recognise that at key trading times there is more we can
do to improve the service we deliver to our customers. In
support of this, we are evaluating how we can make things
simpler for our store colleagues by removing tasks from
stores, giving them more time to provide great
customer service.
SUMMARY & OUTLOOK
The greetings card market remains resilient and robust and I
am confident in our ability to continue to grow our market
leading position. We continue to innovate and create new and
unique product ranges designed within Card Factory that
keep to our promise to provide quality and value for our
customers. We will continue to increase the proportion of
both our complementary non-card products and online sales
as we further improve our offering in these areas, whilst
maintaining focus on card redesigns within our Studio.
This year, our specific focus will be on improving our store
productivity and supply chain efficiency, whilst further
exploring vertical integration opportunities to continue
improving our competitive advantage. This focus will ensure
that we can mitigate a high proportion of the external
pressures faced across the UK retail sector to maintain our
margins, however, as previously stated, any underlying
EBITDA growth for the current year is likely to be limited.
We have a strong brand and recognition as a market leader.
Our talented teams across the business continue to deliver for
our customers in-store and online and we have invested in our
teams to ensure we have the capacity and capability to deliver
our strategy.
Whilst the new financial year is just two months old, we are
satisfied with the start we have made and particularly pleased
with the record seasonal performances from Valentine’s Day,
Mother’s Day and Easter, and being recognised by our peer
group as Specialist Retailer of the Year at the recent Retail
Week annual awards. I look forward to providing a further
trading update at our AGM in May.
The Board, having considered, inter alia, the current debt
position of the Company and trading and investment
expectations for the year ahead, currently expects to declare
a special dividend at the time of the Company’s interim results
in the range of 5 to 10p per ordinary share. Any such dividend
will be paid together with the interim dividend for the year
and will be dependent on trading and other developments in
the period from now until the time of the interim results.
Karen Hubbard
Chief Executive Officer
9 April 2018
Card Factory plc Annual Report and Accounts 2018 19
Strategic ReportGovernanceFinancials Chief Financial Officer’s Review
Subject to trading performance,
the Board currently expects to
declare a special dividend at the
time of the Company’s interim
results in the range of 5 to 10p per
ordinary share
Kris Lee
Chief Financial Officer
The ‘FY18' accounting period refers to the year ended 31 January 2018 and the comparative period ‘FY17' refers to the year
ended 31 January 2017.
REVENUE
Total Group revenue during the year grew by 6.0% to £422.1m (FY17: £398.2m), driven by growth in the Card Factory store network:
Card Factory
Getting Personal
Group
FY18
£’m
404.3
17.8
422.1
FY17
£’m
Increase/
(Decrease)
380.5
17.7
398.2
+6.3%
+0.5%
+6.0%
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 UK stores were opened (FY17: 51), bringing the total UK estate to 915 stores, with a further six
trial stores opened in the Republic of Ireland at the year-end.
Like-for-like (‘LFL') sales growth was broken down as follows by retail channels:
Card Factory stores
Card Factory online
Card Factory combined
Getting Personal
Total online combined
FY18
FY17
+2.6%
+67.5%
+0.4%
+49.4%
+2.9%
0.3%
+5.9%
+0.6%
-2.4%
+0.5%
As expected, the ongoing improvements to the depth, quality and merchandising of our complementary non-card product
offering led to a continuation of the mix shift to this category, a trend we have seen for a number of years. The full year mix for
FY18 was 53.7% single cards (FY17: 55.3%), 44.0% complementary non-card (FY17: 42.3%) and 2.3% Christmas Box Cards (FY17:
2.4%). We expect some continuation in this trend as we further improve our complementary non-card offering to drive
incremental sales.
Revenue from the Card Factory transactional website grew by 67% (FY17: 50%).
As previously announced, the FY18 performance at Getting Personal was disappointing, with the sector impacted by heavy
discounting and promotional activity. We continue to target revenue growth at Getting Personal in the year ahead, but recognise
the ongoing pressures in its market. Further details are included in the CEO report.
20 Card Factory plc Annual Report and Accounts 2018
COST OF SALES AND OPERATING EXPENSES
Cost of sales and operating expenses can be analysed as follows (excluding non-underlying items detailed below):
Cost of goods sold
Store wages
Store property costs
Other direct expenses
Cost of sales
Operating expenses*
* excluding depreciation and amortisation.
FY18
FY17
£’m
138.0
74.9
65.5
18.6
% of
revenue
32.7%
17.7%
15.5%
4.4%
£’m
119.7
68.9
64.8
18.2
% of
revenue
Increase/
(Decrease)
30.1%
17.3%
16.3%
4.5%
15.4%
8.7%
1.1%
2.1%
297.0
70.3%
271.6
68.2%
9.4%
31.1
7.4%
28.1
7.1%
10.8%
The overall ratio of cost of sales to revenue has increased to 70.3% on an underlying basis (FY17: 68.2%) 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 increase in this cost ratio, as also seen in the
first half of the year, principally reflects the impact of foreign exchange headwinds and an element of margin impact from the
strong performance of our complementary non-card range, partly offset by business efficiencies. The effective exchange
rate for FY18 was c$1.38 compared to c$1.64 for FY17. The rate for FY19 is anticipated to be c$1.34, though this remains
subject to any significant shift in Sterling impacting the structured trades that form part of the hedging portfolio. The
additional foreign exchange headwinds for FY19 are expected to be significantly mitigated by further business efficiency
initiatives. Foreign exchange headwinds are then expected to ease for FY20 with a substantial proportion of hedging in place
at slightly favourable rates compared to FY19.
• Store wages: includes wages and salaries (including bonuses) for store based staff, together with national insurance, pension
contributions, overtime, holiday and sick pay. As reported with the interim results, this cost has increased as expected as new
stores have been opened and pay increases have been awarded, including the impact of the national living wage.
• Store property costs: consists principally of store rents (net of rental incentives), business rates and service charges. As
reported at the interim stage, this cost has increased in absolute terms as new stores have been opened but as a ratio of
revenue has reduced due to rent reductions achieved on lease renewals and the benefit of rates reassessments following the
business rates review. We continue to target improvements in our overall rent roll as we reach break points or expiries on
existing leases and expect further rates savings of c£0.6m in FY19.
• 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 decreased slightly from 4.5% to 4.4% reflecting ongoing business
efficiency initiatives. The Board anticipate some additional cost pressures for FY19 arising from higher electricity prices and
transaction costs from an increasing proportion of debit/credit card payments.
• Operating expenses (excluding depreciation and amortisation) include items such as support centre 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
planned growth and operational improvements; whilst this investment in infrastructure is largely complete there will be an
element of cost annualisation in FY19. Total operating expenses (excluding depreciation and amortisation) increased by
10.8% to £31.1m (FY17: £28.1m) representing an increase from 7.1% to 7.4% as a percentage of revenue.
• Within the year we resolved a historic national minimum wage position with HMRC. A payment of c£1m was agreed, for which
provision had already been made, and therefore had no impact on the FY18 EBITDA result.
Depreciation and amortisation remained broadly in line with prior year at £10.6m (FY17: £10.7m).
FOREIGN EXCHANGE
With approximately 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 Board adopts the policy of using a
combination of vanilla forwards and structured options to hedge this exposure. The Group has used structured options and
similar instruments to good effect for a number of years. The Board continues to view 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 100% of the anticipated FY19 US Dollar cash requirement with
approximately two-thirds covered by vanilla forwards and the balance under structured options. The effective P&L rate for FY19
is anticipated to be c$1.34 (FY18: c$1.38), though this remains subject to any significant shift in Sterling impacting the structured
trades that form part of the hedging portfolio. Cover is in place for approximately two thirds of the anticipated FY20 US Dollar
requirement at an average rate of $1.37, predominantly through vanilla forwards with a lower proportion of structured options.
Card Factory plc Annual Report and Accounts 2018 21
Strategic ReportGovernanceFinancials Chief Financial Officer’s Review continued
UNDERLYING EBITDA
The underlying EBITDA margin of the Group decreased to
22.3% (FY17: 24.7%) reflecting the cost headwinds and strong
performance of complementary non-card ranges. We faced
£14.6m of cost headwinds, of which we were able to offset
£8.6m through various business efficiency initiatives:
Underlying EBITDA
Card Factory
Getting Personal
Group
Underlying EBITDA margin
Card Factory
Getting Personal
Group
FY18
£’m
91.1
2.9
94.0
FY17
£’m
Increase/
(Decrease)
95.7
2.8
98.5
-4.8%
+3.6%
-4.6%
22.5%
16.4%
22.3%
25.2% -2.7ppts
16.0% +0.4ppts
24.7% -2.4ppts
The table below reconciles underlying profit before tax to the
statutory profit before tax for both financial years:
Underlying profit before tax
Non-underlying items:
Cost of sales
Loss on foreign currency derivative financial
FY18
£’m
80.5
FY17
£’m
85.1
instruments not designated as a hedge
(7.6)
(0.6)
Operating expenses
Loss on disposal of redundant EPOS assets
Accelerated depreciation on EPOS assets
Other non-underlying operating expenses
Net finance expense
Loss on interest rate derivative financial
instruments not designated as a hedge
–
–
(0.3)
(0.3)
–
72.6
(0.9)
(0.2)
(0.4)
(1.5)
(0.2)
82.8
The Group’s underlying operating margin similarly decreased
to 19.7% (FY17: 22.1%).
Statutory profit before tax
Looking forward to FY19, our sector continues to face
well-publicised cost headwinds, in particular foreign exchange
and national living wage. Accordingly, a number of further
business efficiency initiatives are underway.
Given the best-in-class margins generated by our unique
vertically integrated model, compared to our principal
competitors we believe that we are strategically very well
placed to manage this cost pressure over the medium term
with the headwinds reducing in FY19 and reducing further in
FY20, assuming a steady state of currency. The Board is
prepared, if necessary, to invest a small element of our margins
over the short-term to ensure our longer-term competitive
positioning is further strengthened, particularly through the
vertically integrated supply chain. Alongside the operational
investment, which will annualise in FY19, we are also continuing
to invest across the Group, including further improvement of
our customer proposition and ongoing investment in our digital
and IT capabilities and infrastructure in order to enable the
delivery of long-term sustainable growth.
For FY19, based on our revenue targets and subject to any
significant product mix shift or significant exchange rate
fluctuations, we anticipate that post mitigation our margins will
be in the region of 120bps below the levels achieved in FY18.
NET FINANCING EXPENSE
Net financing expense, excluding non-underlying items,
increased by 6.9% to £2.9m (FY17: £2.7m).
PROFIT BEFORE TAX
Underlying profit before tax for the financial year amounted
to £80.5m (FY17: £85.1m), a decrease of 5.5%.
Further detail on the non-underlying reconciling items is set
out in note 3 of the financial statement on page 90.
TAX
The tax charge for the year was 19.7% of profit before tax
reflecting the reduction in the corporation tax rate to 19.0% in
April 2017 (FY17: 20.7%).
EARNINGS PER SHARE
Basic and diluted underlying earnings per share for the year
were 18.9p (FY17: 19.8p), a decrease of 4.4%. After the
non-underlying items described above, basic and diluted
underlying earnings per share for the year were 17.1p
(FY17: 19.3p), a decrease of 11.3%.
CAPITAL EXPENDITURE
Capital expenditure in the year amounted to £13.1m
(FY17: £10.4m), including strategic investments of £5.6m
principally in relation to EPOS and LED lighting conversions.
The FY18 total was lower than the c£15m guidance principally
due to the phasing of capex in relation to our vertically
integrated supply chain. The Board anticipates capital
expenditure for FY19 to be c£14m, including the migration of
the balance of the store estate onto the PCMS EPOS platform
and further investment in our vertically integrated supply chain.
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 underlying EBITDA less capex
and underlying working capital movements divided
by underlying EBITDA, decreased slightly to 85.3%
(FY17: 90.4%). This decrease reflects slightly higher capex
due to the investment in EPOS with a smaller element due to
favourable working capital movements last year.
22 Card Factory plc Annual Report and Accounts 2018
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 EBITDA (excluding the impact of IFRS 16). It
should be noted that net debt at the half and full year period
ends is lower than intra year peaks, reflecting usual trading
patterns and working capital movements.
In line with this, over the short to medium term the Board
currently expects to target year-end net debt/underlying
EBITDA of approximately 1.7 times (excluding the impact of
IFRS 16). Reflecting the highly cash generative nature of the
business, absent any material investments, the Board expects
to generate surplus cash which it will return to shareholders;
currently the Board expects to return surplus cash on an
annual basis.
SPECIAL DIVIDEND
In line with the above, the Board has considered, inter alia, the
current debt position of the Company and trading and
investment expectations for the year ahead. Taking these into
account, the Board currently expects to declare a special
dividend at the time of the Company’s interim results in the
range of 5 to 10p per ordinary share, with such dividend being
paid together with the interim dividend for the year. Any such
dividend will be dependent on trading and other
developments in the period from now until the time of the
interim results.
Including the impact of this special dividend, the Board
currently expects year-end net debt/underlying EBITDA in the
current financial year to be at around 1.7 times, in line with the
above stated target.
Kris Lee
Chief Financial Officer
9 April 2018
As at 31 January 2018, net debt (excluding debt issue costs of
£0.4m) amounted to £161.3m, analysed as follows:
Borrowings
Current liabilities
Non-current liabilities
Total borrowings
Add: debt costs capitalised
Gross debt
Less cash
Net debt
FY18
£’m
FY17
£’m
14.9
149.6
164.5
0.4
164.9
(3.6)
161.3
8.8
129.3
138.1
0.7
138.8
(3.0)
135.8
Net debt at the year-end represented 1.72 times underlying
EBITDA (FY17: 1.38 times), reflecting the impact of the cost
headwinds and payment of the special dividend.
DIVIDENDS AND CAPITAL STRUCTURE
Ordinary dividends
Since IPO, the Board has adopted a progressive ordinary
dividend policy for the Company, reflecting its strong
earnings potential and cash flow characteristics, while
allowing it to retain sufficient capital to fund ongoing
operating requirements and to invest in the Company’s
long-term growth.
It is the Board’s intention, subject to, inter alia, available
distributable profits, to pay annual ordinary dividends based
on a targeted ordinary dividend cover of between 1.5 and 2.5
times (previously 2.0–3.0x) the Company’s underlying
consolidated post-tax profit. Over the short to medium term
we expect to be at around the middle of the cover range.
Reflecting the Board’s ongoing confidence in the Company’s
prospects, the Board is recommending to shareholders a final
dividend of 6.4p per ordinary share, to give a total ordinary
dividend for the year of 9.3p per ordinary share. Total
dividends for FY17 and FY18 can be summarised as follows:
Interim dividend
Final dividend
Total ordinary dividend
Ordinary dividend cover
FY18
2.9p
6.4p
9.3p
2.0x
FY17
2.8p
6.3p
9.1p
2.2x
Special dividend
15.0p
15.0p
Total dividend
24.3p
24.1p
Capital structure and additional shareholder returns
As stated at the time of the IPO, the Board is focused on
maintaining a capital structure that is conservative yet
efficient in terms of providing long-term returns to
shareholders. The Board has considered further the capital
structure of the Group and continues to recognise the
benefits of financial leverage, whilst also wanting to ensure
that the Company has sufficient flexibility to invest in the
growth of the business. The Board also notes the underlying
leverage of the Group given its lease portfolio, although the
Board believes that the Company’s average break period for
its portfolio is shorter than its peers.
Card Factory plc Annual Report and Accounts 2018 23
Strategic ReportGovernanceFinancials
Principal Risks and Uncertainties
Good risk management is an integral part of business 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 45.
The principal risks and uncertainties facing the Group are set out below, together with details of how these are currently
mitigated and if they have changed since last year:
Risk Type
Description
Mitigation
Our market
Since 2017
The Group continues to generate
almost all of its revenue from the
sale of greeting cards, dressings
and gifts.
•
•
Regular customer and market research.
New experienced Commercial and Studio Directors will support product
strategy and innovation and collaboration between design and buying
teams.
Competition
Since 2017
Although the Group has a proven
track record of understanding our
customers, trends and tastes can
change quickly and we may not
be able to effectively predict and
respond to this which could
affect our sales, performance and
reputation.
Competition in our markets has
intensified during the year
particularly during key seasons
with supermarkets and national
value retailers at the forefront.
Product choice and quality, store
location and design, inventory,
price and customer service
remain key to differentiating our
offering. As the quality, value and
range we offer grows, our
competitor group widens. Many
of our significant competitors
enjoy strong brand presence
recognition, financial resources
and purchasing economies of
scale, any of which could give
them a competitive advantage.
• Dedicated card buyer recruited.
•
•
Significant additional investment in marketing team to drive awareness
and customer focus.
Investment in online teams supporting development of multiple sales
channels to respond to changing consumer demands.
• Strong focus on product innovation with designs regularly refreshed and
new ranges introduced.
•
•
EPOS sales data from all stores driving design and purchasing decisions.
Weekly trading meetings driving better ‘real-time’ decision-making.
• Vertically integrated model helps the Group position itself to quickly
respond to changes in its markets with further investment evaluated
continuously.
• All key elements of competitor activity are closely monitored with a
business programme now dedicated to our strategic approach to
competition.
•
•
In-house design and print operations help innovate, differentiate and
improve the quality and value of our offering.
Regular evaluation of further investment in our vertically integrated
model which underpins our competitive position.
• Significant additional investment in marketing team to drive awareness
and customer focus.
• Rigorous store selection process and performance reviews.
•
Continuous review of customer trends and behaviours supported by
more targeted externally facilitated customer research.
24 Card Factory plc Annual Report and Accounts 2018
Risk Type
Description
Mitigation
Our brands
Since 2017
‘Card Factory’ and ‘Getting
Personal’ are the Group’s key
brand assets. Protecting and
enhancing them underpins our
reputation. If we are unable to
protect them or if we fail to
sustain our appeal to our
customers, our reputation and
our sales and future prospects
could be jeopardised.
Our strategy
Since 2017
Our supply
chain
Since 2017
Culture and
leadership
Since 2017
NEW
The Group’s four pillar strategy
has been developed with the aim
of achieving long-term value for
our shareholders. If the strategy
and vision for the business are
not developed, communicated or
delivered, performance could
suffer. Strategy implementation
requires careful prioritisation of
resource to ensure a focus on
those initiatives that drive
long-term value.
Third-parties, including many in
the Far East, supply nearly all of
our complementary non-card
products, handcrafted greeting
cards and certain raw materials. If
they fail to satisfy orders it may
affect the business or result in us
having to find 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.
As the Group has grown and
transitioned from private equity
ownership to being publically
owned, it has experienced
significant leadership change
across its senior management
team and retaining and
developing the culture and
people which have been the
foundation of its success to date
is critical to the Group’s future
growth.
•
•
Rigorous protection of our intellectual property, and guidance and
education for our teams.
Investment in developing our retail colleagues through our new
ACardemy programme.
• Comprehensive review of our store estate and opportunities for
improvement.
• Annual market research confirming current perception of our brand and
development opportunities.
• All key elements of competitor activity are closely monitored with a
business programme now in place dedicated to our strategic approach
to competition.
•
•
•
In-house design and print operations help innovate, differentiate and
improve the quality and value of our offering.
Further development and investment in processes that ensure product
quality, safety and ethical production.
Implementation of, and performance against, strategy monitored both
at Board and senior management team level.
• Annual Board and senior management team strategy review days.
• Business objectives, and how we prioritise and communicate these are
set in the context of our four pillar strategy and aligned with our Mission,
Vision and Values.
• Further significant investment in senior management team to ensure we
have capacity and capability to deliver and develop our strategy.
• Competitor analysis, customer and market research and enhanced EPOS
sales data used to drive development of our offer.
•
Strong relationships with key suppliers.
• Continuously diversifying supplier base providing greater flexibility and
reducing reliance on individual suppliers.
•
Periodic inspections and third-party facilitated technical and ethical
audits of factories operated by major suppliers.
• Sedex membership (‘the Supplier Ethics Data Exchange’).
• Further development and investment in processes that ensure product
quality, safety and ethical production.
• The Group’s Mission, Vision and Values have been defined by and
communicated to our colleagues.
• The Group’s organisational structure has been reviewed and
restructured.
•
•
The Group’s leadership principles are being defined and will be
cascaded throughout the business.
Both talent and management development programmes are now in
place.
Card Factory plc Annual Report and Accounts 2018 25
Strategic ReportGovernanceFinancials Principal Risks and Uncertainties continued
Risk Type
Description
Mitigation
Key personnel
Since 2017
The Group’s strategy and
long-term success depend on our
ability to: implement succession
plans for the senior management
team; develop our colleagues;
and invest in our teams to ensure
we have the capacity and
capability to grow.
•
•
•
•
•
Kris Lee succeeded Darren Bryant as CFO and has been through an
extensive tailored induction.
Talent development programme instigated to support development of
future leaders overseen by Group HR Director.
Further development for senior management team.
Leadership principles being defined and will be cascaded.
Senior management team bolstered by recruitment of Commercial
Director, Supply Chain Director, Design Studio Director, Multi-Channel
and Customer Director and IT Director.
• The Group’s remuneration policy (set out in the Directors’ Remuneration
Report on pages 51 to 66) is designed to ensure management incentives
reflect the business, are aligned with its strategic objectives and support
the long-term success of the Group for the benefit of all stakeholders.
•
Organisational design reviewed and restructured by CEO.
• Alignment of key business programmes with strategic objectives within
our Four Pillars.
•
Board receives regular updates on key business programmes to support
challenge at the start of and during these programmes.
• Additional Non-Executive Director recruited with significant experience
of business change and transformation.
• Senior management team bolstered by recruitment of Commercial
Director, Supply Chain Director, Design Studio Director, Multi-Channel
and Customer Director and IT Director.
•
Talent development programme instigated to support development of
future leaders overseen by Group HR Director.
• Adequacy of current financing and cash generation and their ability to
support delivery of Group strategy are regularly monitored by the CFO.
•
Treasury management processes and policy in place to govern cash
management and manage exposure to foreign exchange and interest
rate fluctuations including those resulting from the Brexit decision.
• Treasury strategy reviewed and approved annually by the Board with
periodic consultation between the CFO and the Audit and Risk
Committee Chairman.
• Foreign exchange and interest rate hedging contracts pre-approved
directly by the CFO and communicated to the Board monthly.
•
CFO undertaking comprehensive review of cost base as part of our
Business Efficiencies strategic pillar.
• Further details of the Group’s financial position are described in the
CFO’s Review on pages 20 to 23 and the Group’s viability statement is
on pages 70 and 71 of the Directors’ Report.
•
•
•
The Group’s crisis management arrangements continue to be developed
with guidance from the Audit and Risk Committee.
Multiple scenario crisis management exercise held during the year.
Report and recommendations provided to the Audit and Risk
Committee.
Significant additional infrastructure investment in Printcraft mitigating
power surge and fire risk.
• Stock held across multiple locations to mitigate the risk of a catastrophic
event at any one of our storage facilities.
• Group IT systems are subject to specific disaster recovery
arrangements.
• The Group also maintains appropriate business interruption insurance
cover.
Managing
change
Since 2017
In the period since IPO, the Group
has experienced significant
change in its management team
and in some of the systems and
processes that will support its
future growth and improve
efficiency. The speed and
management of these changes
introduces a risk of management
overload and ‘business as usual’
activities could be compromised.
Finance and
treasury
Since 2017
Our financing arrangements and
the fact that we source a
significant proportion of our
products from 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 21 sets out in further
detail the risk to the Group of
exchange rate fluctuations.
Business
continuity
Since 2017
Significant disruption to any part
of our vertically integrated
business model, in particular to
our printing facility, Printcraft,
our distribution centre or our
design studio, could severely
affect our ability to supply our
stores and could force us to use
third-parties which could be
expensive and on onerous terms.
26 Card Factory plc Annual Report and Accounts 2018
Risk Type
Description
Mitigation
Compliance
Since 2017
Information
technology
Since 2017
Online
Since 2017
The number and complexity of
legal and regulatory compliance
requirements impacting the
business continues to grow
including: Modern Slavery Act,
GDPR, Gender Pay Gap
Reporting, Payment Practices
and National Living and Minimum
Wage. Compliance is time
intensive and costly and failure to
comply could lead to claims,
penalties, damages, fines or
reputational damage which, in
some cases, are very material and
could significantly impact the
financial performance of
the business.
Reliable, efficient and resilient IT
systems across the Group, and
particularly those supporting our
retail operations and our
vertically integrated model are
critical to our success.
Failure to adequately develop
and maintain these or any
prolonged system performance
problems or cyber-attack could
seriously affect our ability to
implement the Group’s strategy
and to carry on the business and
could render us liable to
significant fines and reputational
damage.
The Group’s transactional
websites, www.cardfactory.co.uk
and www.gettingpersonal.co.uk
remain relatively new and
developing parts of the business
but are critically one of our four
strategic pillars.
They operate in very competitive
markets with relatively low
barriers to entry. If they do not
evolve to meet customers’
expectations they may not deliver
the anticipated revenue growth.
This may also affect our
reputation and customer
perception of our brands.
•
Group’s General Counsel and Company Secretary oversees compliance
with the support of external advisers. Senior management team
members liaise with him to ensure issues are identified and managed.
• Key legislation trackers are in place with the Board receiving regular
updates.
• Additional investment in the Group’s legal team.
• Cross Group team supporting the Group’s preparation for GDPR.
• Senior management team members manage compliance of the
Group’s key operational teams with escalation and disciplinary action
where needed.
•
Policies and procedures governing behaviours in all key areas, some
addressing mandatory requirements and others adopted voluntarily.
•
EPOS and contactless payment now in place across all of our stores.
• New Group IT Director developing Group IT strategy.
• Formal IT governance process adopted managed by IT steering group
that has jurisdiction over all material IT projects.
•
•
Significant investment in IT infrastructure enhancing cyber security
measures following a review and recommendations from Deloitte LLP.
Key IT risks are documented and agreed service levels for recovery of
key business systems are in place.
•
Multi-Channel and Customer Director recruited to drive growth of
www.cardfactory.co.uk
• Significant investment in the Card Factory online team.
• SLAs in place and monitored for fulfilment of orders.
• Development in www.cardfactory.co.uk product ranges, choice and
service.
• Focus on leveraging Design Studio online team that will drive
differentiation and product innovation.
•
•
•
Improvement in operations with a focus on customer service.
Factoring in device shift by consumers in development of our websites.
Monitoring consumer online behaviours and sentiment.
Card Factory plc Annual Report and Accounts 2018 27
Strategic ReportGovernanceFinancials Corporate Social Responsibility Report
OUR AIMS
Card Factory is committed to providing products of excellent
quality and value to our customers – the lifeblood of our
business. In achieving this we recognise and understand the
importance of showing all of our stakeholders how we take our
corporate and social responsibility (‘CSR’) seriously.
MANUFACTURING AND SOURCING
We are proud that the majority of cards sold in our stores are
designed and manufactured by us in the UK. The balance of
cards and other products are sourced from a broad supplier
base throughout the UK, Europe and the Far East,
principally China.
Our aim is for CSR to be embedded within our culture; for it to
guide management and employee behaviour; and to have clear
responsibility and accountability both for our CSR strategy
and for the actions necessary to execute it.
We do not have a separate CSR function as it is intrinsically
important in every role. The Board has overall responsibility
for CSR and how we manage and monitor performance.
Our CSR activity is focused on the following key topics:
• Customers
• Manufacturing and Sourcing
• Environment
• Health and Safety
• Colleagues
• Community
CUSTOMERS
Our business is built on providing great quality products,
service and value to our customers.
Key achievements during the year were:
•
•
•
•
•
•
•
•
•
rolling out EPOS and contactless payment across all of our
stores helping us to serve customers faster and improve
customer experience;
increased focus and investment on customer insight
through increased customer research ensuring we continue
to listen to our customers and develop our service and
proposition;
investments in fixtures and fittings across our store estate
to improve merchandising and customer experience;
introducing LiveChat to enhance our customer’s ability to
interact with our Getting Personal customer service team
on a one-to-one basis;
focusing on our customer’s online journey making it easier
and quicker to shop, add to their basket and checkout;
introduction of a multi variant testing system whereby our
customer’s click choice shapes our future website
development;
launching over 2000 new designs across cards, gifting and
dressings online to give our customers greater choice;
continued investment in our social media presence and
direct dialogue with our customers online via Instagram
and Facebook, aided with the use of influencers enables
our customers to interact with us instantly on their channel
of choice; and
enabling customer reviews for our Card Factory online
businesses allowing our customers to tell us directly what
they think about the service they have received and the
quality and value of the products they purchase.
The continued development of our products and service, both
of which contribute to our retail proposition and customer
experience and continue to underpin our position as the UK’s
leading specialist greeting card retailer – a position we intend
to keep.
28 Card Factory plc Annual Report and Accounts 2018
Supplier auditing
We are continuing to develop our supplier factory auditing
programme to ensure it provides reasonable assurance that
we are trading with suppliers that operate ethically, and who
also produce good quality safe products that comply with all
relevant laws and standards. We carry out audits using
third-party specialists to ensure consistency in assessment.
We do not place purchase orders with any new suppliers until
they have satisfied our onboarding process and we have
received satisfactory audit results. Except in very exceptional
circumstances, where existing suppliers are outside of the EU
and our purchases from them in the last financial year
exceeded £50,000, we require separate ethical and technical
audits commissioned by us to have been completed before we
make any further order.
Ethical audits
The ethical audits we commission use criteria, SA8000, which
is an auditable certification standard developed by Social
Accountability International. It encourages organisations to
develop, maintain, and apply socially satisfactory practices in
the supply chain. The SA8000 standard is the most recognised
social certification standard for factories and organisations
worldwide. The audit scope includes: child labour, forced
labour and disciplinary practices, health and safety,
discrimination, freedom of association, collective bargaining,
working hours, remuneration and the environment.
Ethical audit results are categorised as either ‘Satisfactory’,
‘Needs Improvement’ or ‘Needs Major Improvement’. If an
audit indicates a supplier ‘Needs Major Improvement’ we will
seek to ensure that an appropriate corrective action plan is put
in place by the supplier and that the relevant member of the
buying team is informed so that no further orders are placed
with that supplier until a re-audit has been carried out and an
acceptable result has been achieved.
In exceptional circumstances, where an unsatisfactory audit
result occurs and the supplier concerned has an order in
progress, the matter is brought to the attention of a senior
member of the supply chain team so we can decide how to
proceed. In certain instances this has resulted in financial loss
where an order is cancelled or refused on the results of such
an audit to ensure we maintain integrity over our supply chain.
Technical audits
The technical audits we commission focus on a supplier’s
capacity to produce the number of goods we require safely, in
accordance with our specifications and all relevant standards
including those relating to labelling. Technical audit results are
expressed as a percentage and, if the result is 95% or lower, a
corrective action plan is sought for the non-compliances found
in the audit and a suitable timeframe is agreed with the
supplier and monitored. If the original audit result is less than
75%, a re-audit is arranged after evidence of corrective actions
has been received. If we are not satisfied with the results of the
re-audit we will not make any further orders with that supplier
until the issues are rectified.
Trading companies
We continue to use trading companies in the Far East who
source certain products on our behalf but retain the
commercial relationship with their manufacturers. We are
continuing to develop our audit programme to ensure we have
greater transparency over this part of our supply chain and
have begun to commission confidential audits of the
manufacturers our trading companies use. These audits
preserve the identity of the manufacturers but provide us with
assurance they operate ethically and are capable of producing
safe, high quality products in the quantities we require.
Through this process we aim to minimise the number of
relationships we have with trading companies, simplify our
supply chain and improve transparency.
We ask all of our suppliers to comply with our supplier
compliance manual 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
with the medium-term goal of having a colleague dedicated to
inspecting products at source prior to shipment.
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 help us to monitor human
rights issues through our supply chain and we support this
with periodic visits to the factories of key suppliers by our
sourcing team. The continued investment in our sourcing team
during the year gives us capacity to support greater scrutiny
of supplier practices.
In July 2017, we published our first annual compliance
statement in accordance with the Modern Slavery Act 2015. In
it we outlined the processes we currently have in place and the
steps we intended to take during the following twelve months
to develop our supply chain management procedures and to
give assurance to our stakeholders that we take our
commitment seriously. A copy of the statement is available on
our transactional website (www.cardfactory.co.uk) and on our
investor relations website (www.cardfactoryinvestors.com).
Paper-based products
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.
Our main trading subsidiary, Sportswift Limited (which trades
as ‘Card Factory’), and our UK manufacturing operation,
Printcraft Limited, are both FSC (Forest Stewardship Council)
certified. This has and will continue to assist in providing a
more robust and simplified supply chain over which to comply,
so far as practicable, with EUTR and in 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 and wood-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 and this is supported by our waste
management services provider who only use landfill as a final
resort once all other disposal methods have been exhausted.
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 teams 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.
All of our store locations have the facility to recycle paper,
cardboard and plastic-based materials (which constitute a
very large proportion of store waste) either through the use of
dry mixed recycling containers (in which 95% of waste
deposited must be recyclable) or waste containers which allow
more specific separation of materials (with the latter mainly
being in shopping centres with centrally managed facilities).
Our distribution centres in Wakefield also 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.
The majority of the products we sell 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
Electricity is the main form of energy we consume and we analyse
consumption across our entire estate, including our distribution
centres, our manufacturing facility and our stores. Where possible,
we look for opportunities to reduce our consumption and reduce
wastage by introducing new procedures or making use of
available technology. As we have previously reported, this work
was supplemented by an energy audit carried out under ESOS.
Operationally, we have continued to focus on:
Monitoring electricity usage
During the year we continued to invest in installing smart
meters into our existing and new stores to allow us to measure
electricity usage on a half-hourly basis. Although we’ve not
quite achieved our aim of having these in place across the whole
estate, we do hope to achieve this during the current year.
We will continue to use the energy usage data we receive to
support our store colleagues in reducing energy waste and
consumption. In addition, we’ll continue to review and perform
electrical audits to ensure the equipment we use or inherit is
energy efficient.
Card Factory plc Annual Report and Accounts 2018 29
Strategic ReportGovernanceFinancials
Corporate Social Responsibility Report continued
Completing the installation of LED lighting in our stores
During the year, we completed the installation of
energy-efficient LED lighting across our existing stores. All of
the new stores we open in the future will have LED lighting
installed. In the existing stores, for which we have comparative
data, we have reduced our daily electricity usage by an
average of 50%.
In addition to its cost efficiency, LED lighting enhances both
the customer experience and working conditions for store
colleagues given the nature of the lighting and the fact that it
emits less heat.
We are currently assessing whether LED lighting would
similarly benefit other areas of our business where it is not
currently installed.
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
In 2015/16, with the support of our energy consultants, we
carried out our first audit under The Energy Savings
Opportunity Scheme (ESOS). During the year, we
implemented some of the recommendations for energy
efficiency savings and continue to look for other opportunities
to make the Group more energy efficient.
Voltage Optimisation at Printcraft
At our print facility, Printcraft, we invested a significant sum in
a voltage optimisation unit and a new transformer for the
facility. As a manufacturing facility, Printcraft consumes a lot
of energy and requires high voltages to operate. The
optimisation unit regulates the voltages coming into the
facility and ensures that excess voltages, which occur naturally
in all supplies, are sent back to the supplier. This reduces
consumption, reduces the safety risks associated with excess
voltages and helps lengthen the life span of all electrical
powered equipment at Printcraft. Typically a voltage
optimisation unit in a facility like Printcraft will save 9.9% of
the annual electricity consumption which equates to an
estimated £40,000 per annum. For Printcraft, this saving has
been guaranteed by the installation company.
Annual comparison and emissions intensity
tCO2e
Total emissions
Emissions intensity*
2017-18
16,071
38.1
2016-17
Reduction
19,604
49.2
18%
23%
*
expressed in tCO2e per £m turnover.
Methodology and emission factors
These emissions were calculated using the methodology set
out in the updated greenhouse 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 colleagues 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, including colleague induction, and we
support and reinforce this through training programmes which
help to mitigate health and safety risks.
Whilst the Board has ultimate responsibility for health and
safety, it is managed on a day-to-day basis by our compliance
and safety teams. These have been restructured to better fit
the business. The Compliance and Safety (Retail) Team now
report to the Retail Director and the Compliance and Safety
(Warehouse and Support Centre) Team report to the Supply
Chain Director. These changes have allowed the opportunity
to build stronger relationships with the teams they support.
Both teams continue to liaise with line managers in all parts of
the business to ensure compliance with our policies and that
all colleagues receive appropriate training. The two teams
continue to work together using their collective knowledge
and expertise to ensure our operations remain safe.
Compliance and safety meetings are held throughout the year
and are attended by representatives from key operational
teams with appropriate escalation to the senior management
team where material issues or risks arise. The overriding
objective of the decisions taken at these meetings is to make
our stores and workplaces safe places for customers,
colleagues and visitors alike.
The compliance and safety team also analyses trends and takes
a proactive approach to managing health and safety practices.
Additionally, our activities during the year have sought to
develop how we collaborate and communicate across the
Group in addressing health and safety matters and to
streamline processes and procedures.
Key activities and developments during the year included:
Greenhouse Gas (‘GHG’) emissions
Greenhouse Gas Statement for the Group
GHG emissions for the Group for the year ended 31 January
2018, in tonnes of carbon dioxide equivalent (‘tCO2e’), were:
•
•
Source
Fuel combustion (stationary)
Fuel combustion (mobile)
Fugitive emissions (F-gas)
Purchased electricity
TOTAL
tCO2e
66.4
1,258.8
203.8
14,541.5
16,070.6
%
0.4%
7.8%
1.3%
90.5%
30 Card Factory plc Annual Report and Accounts 2018
teams restructured and now reporting into relevant
operational areas;
the creation of a role dedicated to dealing with health and
safety related transport claims, meaning that claims are
now given focused attention, reports produced and trends
highlighted;
• Health and Safety training – both the annual and new
starter Retail health and safety training has been updated
to make it more user friendly. The new format is a booklet
with positive feedback to date from our store colleagues;
•
Investigations – a change to the accident, incident and near
miss investigation process now enables consistent formatting
of investigations whilst ensuring all details are logged.
• Tell Karen’ gives colleagues the chance to share directly
with the CEO, their thoughts on how we can grow the
business and provide our customers great service;
The Board periodically receives reports on health and safety
matters throughout the Group including details of any material
incidents and remedial actions.
• a quarterly letter from our CEO to all colleagues;
•
regular retail news bulletins, providing operational
instructions to all of our stores;
COLLEAGUES
Our colleagues across the Group are critical to Card Factory’s
ability to deliver the great products and customer service
which underpin our success. We employ more than 7,000
permanent colleagues. During the Christmas trading period,
colleague numbers increased to more than 13,000 across the
Group, taking into account temporary seasonal workers.
The focus during the last year has been investment in
colleagues with the introduction of a talent mapping and
career development programme for our support centre
colleagues and our ACardemy programme for our store
colleagues. Our ACardemy programme allows the Group to
home grow our next Assistant Store Managers and Store
Managers by providing crucial learning and development to
shape their futures within our stores.
Following its launch, our candidate management system,
which was introduced to support recruitment of seasonal
colleagues, has simplified our recruitment process giving back
crucial time to our store and support centre colleagues. It has
also allowed us to onboard new colleagues to our teams in
stores more quickly.
Other key activities during the last year have been:
•
•
•
•
the launch of the Group’s Mission, Vision and Values;
the definition and launch of our apprenticeship strategy;
the introduction of a more structured definition of job
roles and levels across the Group that will provide greater
transparency over future development, progression
and reward;
the launch of ‘mycardfactory’ which offers discounts and
rewards to all of our colleagues in the Group across a
variety of retailers and leisure activities; and
• our Executive Board and senior business leaders working in
stores on our busiest trading day of the year to support our
colleagues over the Christmas season.
We are an equal opportunities employer with a diverse
workforce; 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.
• weekly internal communications providing colleagues with
news of events, new starters and celebrations across the
Group;
• an online message board communicating key operational
messages to all stores via our intranet;
•
regular meetings with regional and area managers ahead of
key trading periods who then share key messages with
store colleagues;
• store manager visits to our support centre to discuss and
review Card Factory’s retail proposition;
• Board and senior management team members regularly
visiting stores to assess the retail proposition and get
feedback from colleagues and customers, particularly
during key trading periods; and
• visits to our Mock Shop, a representative Card Factory
store at our support centre 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
colleagues 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 and honoured to receive The
Extraordinary Commitment Award.
Colleagues 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 colleagues from across our
business have also competed in the Great North Run attracting
sponsorship from colleagues, friends and relatives.
During the year we raised £589,564 for Macmillan which is an
incredible achievement and one of which all our colleagues
should be proud.
At the end of the financial period the percentage breakdown of
male and female colleagues across the Group was as follows:
We have raised over £5,000,000 for Macmillan and we intend to
continue this very successful partnership with Macmillan, whose
valuable work helps to ensure that no one faces cancer alone.
Board
Senior management team
All employees
% Male
% Female
FY18
FY17
FY18
FY17
71
62
21
67
78
21
29
38
79
33
22
79
We regularly communicate with our colleagues in a variety of
ways including:
•
our employee engagement survey and employee focus
groups (which include periodic listening groups with
our CEO);
In addition to the money we raise for Macmillan, we have also
donated £192,804 each to the British Heart Foundation,
Alzheimer’s Society, and the NSPCC. These three charities
were chosen by our colleagues to benefit from the sale of
plastic carrier bags in England, following the introduction of
the 5p carrier bag charge in October 2015. We intend to
continue donating these sums to charitable causes.
We also introduced ‘Make A Wish’ as our charity partner to our
Republic of Ireland stores.
Card Factory plc Annual Report and Accounts 2018 31
Strategic ReportGovernanceFinancials Card Factory is proud to have
been supporting Macmillan Cancer
Support since 2006.
32 Card Factory plc Annual Report and Accounts 2018
We have raised over
£5 million!
*
An incredible partnership!
On behalf of everyone at Macmillan Cancer Support, I
just wanted to say an enormous thank you to all of the
staff and customers of Card Factory for reaching an
incredible £5m milestone. We want to reach and improve
the lives of everyone living with cancer and we couldn’t
do this without your continued support. Thank you
Sharon Cottam – Partnership Manger, Macmillan Cancer Support
*Total raised to date: £5,243,162
Card Factory plc Annual Report and Accounts 2018 33
Strategic ReportGovernanceFinancials 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 AO World
plc, 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.
External appointments:
Non-Executive Chairman of
AO World plc and Bourne Leisure
Holdings Ltd. Adviser to Charterhouse
Capital Partners LLP.
Karen Hubbard
Chief Executive Officer
Karen was appointed to the Board
of Card Factory plc with effect from
22 February 2016. 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.
External appointments:
None.
Kris Lee
Chief Financial Officer
Kris was appointed to the Board of
Card Factory plc with effect from
3 July 2017. Kris has more than
20 years’ finance experience and,
immediately before joining the Group,
Kris served as Finance Director of the
Edinburgh Woollen Mill Group (EWM).
In addition to being responsible for
EWM’s finance team, Kris oversaw
EWM’s significant M&A programme
including the acquisitions of the
Edinburgh Woollen Mill, Peacocks,
Austin Reed, Country Casuals, Viyella
and Jaeger brands. Prior to EWM, Kris
held senior finance roles in a number
of businesses including Brighthouse,
Phones4U, JD Sports, all:sports, BMI
Healthcare, 20:20 Mobile Logistics,
Barclays and 3663 Distribution. Kris is
a Chartered Accountant and holds a
BA (Hons) in Accountancy Studies.
External appointments:
None.
34 Card Factory plc Annual Report and Accounts 2018
Octavia Morley
Senior Independent Non-Executive
Director
Octavia joined the Board as Senior
Independent Non-Executive Director
in April 2014. Octavia has extensive
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.
External appointments:
Independent Non-Executive Director of
Crest Nicholson Holdings plc, Chairman
of The Spicers-Officeteam Group
Limited and 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 is an experienced
Director of companies in the UK retail
sector. David was Chief Financial
Officer of Dunelm Group plc from
September 2003 until his retirement
from that role at the end of 2015.
David is also the Senior Independent
Non-Executive Director of Joules Group
plc and a Non-Executive Director of
Majestic Wine plc. Prior to his role
at Dunelm, 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.
External appointments:
Non-Executive Director of Majestic
Wine plc, Senior Independent Non-
Executive Director of Joules Group
plc and Honorary Member of Council,
University of Birmingham.
Paul McCrudden
Independent Non-Executive Director
Paul joined the Board as an
Independent Non-Executive Director
in December 2014. Paul is currently
Global Head of Live Marketing at
Twitter. Prior to this, Paul was a board
director at advertising agency AMV
BBDO, and spent his earlier career at
Imagination and Accenture specialising
in innovation and new technologies.
Paul also served as Chairman of the
board of trustees at Hoipolloi, an
arts organisation funded by the Arts
Council England.
External appointments:
Global Head of Live Marketing
at Twitter.
Card Factory plc Annual Report and Accounts 2018
35
Strategic ReportGovernanceFinancials Directors and Officers
Roger Whiteside
Independent Non-Executive Director
Roger joined the Board as an
Independent Non-Executive Director
in December 2017. Roger is currently
Chief Executive of Greggs plc, the UK’s
leading bakery food-on-the-go retailer.
Prior to this, Roger served as Chief
Executive of both the Thresher Group
off-licence chain and Punch Taverns as
well as having been a founding member
and Joint Managing Director of Ocado.
These roles followed a 20 year career
with Marks and Spencer where he
ultimately led its food business.
External appointments:
Chief Executive Officer of Greggs plc
and member of the Women’s Business
Council.
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 15 years’ experience in the legal
sector. Prior to joining the Company,
Shiv was a corporate partner with
international law firm Womble Bond
Dickinson LLP 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 international law firm
Pinsent Masons LLP in their
corporate team.
External appointments:
None.
Board committees
Audit and Risk Committee
David Stead (Chairman)
Octavia Morley
Paul McCrudden
Roger Whiteside
Remuneration Committee
Nomination Committee
Octavia Morley (Chairman)
Geoff Cooper
David Stead
Paul McCrudden
Roger Whiteside
Geoff Cooper (Chairman)
Octavia Morley
David Stead
Paul McCrudden
36 Card Factory plc Annual Report and Accounts 2018
Chairman’s Letter – Corporate Governance
Geoff Cooper
Chairman
Dear Shareholder
During the last year, the Board has continued to focus on
supporting the business through a period of management
change which has seen Kris Lee succeed Darren Bryant as
CFO, Roger Whiteside join the Board as an additional
Independent Non-Executive Director as well as various other
changes to the Group’s senior management team.
Our CEO, Karen Hubbard, working closely with the Board and
the senior management team has continued to seek out
opportunities to develop and build on the Group’s established
four pillar strategy to ensure each element takes into account
both current business performance and the current market
dynamics relevant to each pillar.
The retail environment remains challenging with pressure on
consumers’ disposal income given lower than inflation wage
growth. Maintaining our competitive position and retaining
the trust and confidence of our customers has been central to
the Board’s decisions. This has proved challenging in light of
the significant cost headwinds the business is facing and has
been set against a backdrop of continuing uncertainty driven
by a lack of clarity and progress on the Brexit process.
In what has been a challenging year, the Board remains
committed to high standards of governance and to
continuous reflection on its own performance. As part of this
commitment, we carried out our first externally facilitated
Board review in 2017. We asked Lorna Parker, an independent
and experienced Board evaluation specialist, to evaluate our
Board. The review concluded that we are a collegiate and
collaborative Board that engages in open and rigorous
debate. Importantly the review identified that the Board
should commit more time to the Group’s longer-term strategy
beyond the current four pillar strategy and this forms an
important part of the Board’s programme in the current year.
Further details of the review and the actions that were agreed
are set out in the report below.
From a legal and regulatory perspective, significant new
challenges have continued to present themselves throughout
the year with the FRC’s comprehensive review and now
consultation on a new Corporate Governance Code being the
most significant.
We will continue to look for opportunities to improve while
continuing to operate with our belief that pragmatic
application of corporate governance principles and guidelines
in a way that enhances or protects the value of the business
should be the core component of the Board’s decision making
processes.
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.
I look forward to welcoming shareholders at the Company’s
AGM in May.
Yours sincerely
Geoff Cooper
Chairman
9 April 2018
Card Factory plc Annual Report and Accounts 2018
37
Strategic 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
instilled in the business, and in achievement of long-term
strategic goals whilst successfully managing risks for
our shareholders.
We believe that good governance is demonstrated by
applying corporate governance principles and guidelines in a
way that enhances or protects the value of the business. This
ensures a pragmatic governance culture sits alongside the
entrepreneurial spirit which has enabled Card Factory to
develop into the business it is today.
KEY GOVERNANCE ACTIVITIES
Key activities during the year were:
• managing and supporting the induction of our Chief
Financial Officer, Kristian (Kris) Lee, who formally
succeeded Darren Bryant on 1 August 2017;
• appointing Roger Whiteside as an additional Independent
Non-Executive Director;
• continuing to support our Chief Executive Officer, Karen
Hubbard, in both her development of the Group’s longer-
term strategy and her reflection and refinement of the
Group’s current strategy taking into account the
opportunities, risks and challenges the Group faces over
the short to medium term. This included capturing Darren
Bryant’s reflections on his time with the business prior to
his retirement in July;
•
through the Nomination Committee, supporting Karen and
Kris with the changes in and the development of the wider
management team and the introduction of a new structure
for identifying and developing future leaders from within
the Group;
• supporting the management team with their roll out of the
Group’s mission, vision and values which underpin the
Group’s culture and strategy and will support its future
development and growth;
•
reviewing the Group’s people strategy for the next
three years;
• carrying out our first externally facilitated Board
evaluation;
•
•
•
•
reviewing the objectives and performance of the business
in each of the four pillars of its growth strategy and
monitoring progress with the key business projects
implemented during the year, including entry into the
Republic of Ireland and the introduction of new point of
sale software in all the Group’s stores;
reviewing the Group’s treasury policy in light of the
Group’s financial position and performance and the
continuing uncertainty over the UK’s future relationship
with the European Union;
regularly evaluating the Board’s current agenda during the
year as well as planning for the year ahead; and
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.
38 Card Factory plc Annual Report and Accounts 2018
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 2016 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 facilitates the development and
growth of the Group over the long-term in the interests of its
shareholders. We believe this requires the Company to
recognise the importance of our duties to colleagues,
customers, the community in which we operate and the
interests of our other stakeholders.
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.
In the period between Kris Lee’s appointment to the Board, as
Chief Financial Officer Designate, on 3 July 2017 and Darren
Bryant’s retirement from the Board and the Group at the end
of July 2017, the constitution of the Company’s Board did not
technically comply with this recommendation as the Board
consisted of the Non-Executive Chairman, three Independent
Non-Executive Directors and three Executive Directors. This
non-compliance was only temporary and to allow for an
orderly handover to Kris Lee following his appointment.
Roger Whiteside was appointed to the Board as an additional
Independent Non-Executive Director with effect from
4 December 2017. Roger’s appointment supports the Board’s
continuing commitment to ensure it has the appropriate
balance of skills and experience to support its exercise of its
duties and that succession planning extends to the Board
itself.
The Board remains relatively small but is confident that, as
currently constituted, it continues to be an effective and
efficient decision-making body that supports the Group’s
strategy and growth. This is kept under constant review
together with succession planning for the Board as a whole.
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.
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. This entitled him, on the second and third anniversaries of the
completion of the IPO, to make further investments on each occasion of £330,000 in the Company by purchasing a further
146,666 ordinary shares at the Offer Price. Geoff exercised these options in full in May 2016 and 2017.
Notwithstanding these options and his role as an adviser to Charterhouse Capital Partners LLP (who were the majority
shareholder in the Company immediately prior to the Company’s IPO in 2014), 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,
which 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. A copy of the matters reserved for the Board is available on Card Factory’s investor website
(www.cardfactoryinvestors.com) and, on request, from the Company Secretary.
BOARD ATTENDANCE
During the year, the Board held 11 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
Roger Whiteside
Independent Non-Executive Director
Karen Hubbard
Chief Executive Officer
Darren Bryant*
Chief Financial Officer
Kristian Lee
Chief Financial Officer
Board
Meetings
(11 meetings)
Remuneration
Committee
(7 meetings)
Audit and Risk
Committee
(4 meetings)
Nomination
Committee
(3 meetings)
11
11
11
11
2
11
5
6
7
7
7
7
2
–
–
–
–
4
4
4
1
–
–
–
3
3
3
3
–
–
–
–
*
Darren Bryant retired from the Board on 31 July 2017. Kris Lee joined the Board on 3 July 2017. Roger Whiteside joined the Board on 4 December 2017. Unless
otherwise noted, all Directors have attended all relevant Board and Committee meetings during their appointment.
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 topics reviewed 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 for the
current financial year. As part of 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 updates on key
business programmes and periodic presentations from senior management team members. These ensure that the Group’s
Non-Executive Directors remain informed of key developments within the Group. The Board regularly reflects on this rolling
agenda to ensure it is responding to the strategic and operational challenges faced by the business.
Card Factory plc Annual Report and Accounts 2018
39
Strategic ReportGovernanceFinancials Corporate Governance Report Continued
The key topics discussed by the Board during the year were:
Strategy
Strategic planning
Group Budget
Key investment plans
Pricing structure
Group people plan
Group talent review
Product initiatives
Vertical integration initiatives
Group treasury policy
Brand review
Online strategy
SAYE 2018 grant
Performance
Annual results
Interim results
Regular trading updates
Key project updates
Regularly tracking four pillars
EPOS implementation
ROI performance
Competitor updates
Property review
Governance
External Board evaluation
Treasury policy
Governance and legal updates
New and retiring CFO reflections
CFO handover plan
Senior management reflection
NED reports
Principal risks review
Investor relations updates
Board and Committee planner
Modern Slavery Act statement
Health and safety review
Tracking Board actions
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. As part of these papers, the Board also now receive progress updates on key business
programmes together with a document which tracks progress within each of the four pillars of our strategy.
To aid efficient decision-making, we use a standard form Board decision paper for material matters requiring Board approval
that includes management’s clear recommendation on the decisions being taken.
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 actions accompanies the minutes
for each Board meeting which enables the Board to regularly monitor the progress.
External speakers
During the year, the Board continued to invite external speakers to our Board meetings as lunch guests. These sessions, whilst
relatively informal, provided valuable business insights and experience from our guests together with 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 with a focus on insights that will support the Board’s strategic planning.
Board strategy day
The Board held its annual strategy day in July 2017, at which it reviewed each element of the Group’s four growth pillars together
with longer term strategic opportunities. Key actions from that day are reflected in management’s planning for the business with
the Board having the opportunity to review progress with key strategic projects throughout the year. This year, our newly
appointed CFO, Kris Lee, also shared his initial insights with the Board, supported by his considerable retail experience.
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 of 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 joint corporate brokers, UBS and
Investec, who help organise presentations and visits to the Group’s operations and stores for analysts and shareholders.
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 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. In addition, the Chairman and the Non-Executive Directors
regularly join the Executive Directors at these investor-related events and occasionally meet with shareholders separately to
discuss the Group’s approach to governance and other governance developments which affect the Group. 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. In addition, the Company
intends to periodically host corporate governance presentations for the Group’s major investors following positive feedback on
the inaugural presentation at the beginning of 2017.
40 Card Factory plc Annual Report and Accounts 2018
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.
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, Paul McCrudden
and Roger Whiteside. The Directors consider that David Stead
has recent and relevant financial experience.
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 69.
NON-EXECUTIVE DIRECTOR MEETINGS
The Chairman and the other Non-Executive Directors met
twice 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 one of these occasion, the Senior
Independent Director and the other Non-Executive Directors
continued the meeting without the Chairman to review his
performance.
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 support
centre.
BOARD COMMITTEES
The Board has three committees:
• an Audit and Risk Committee;
• a Nomination Committee; and
• a Remuneration Committee.
The Audit and Risk Committee met four times during the year
and, in future, will meet no fewer than three times per 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, provide 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 pages 47 to 50 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.
Remuneration Committee
The Remuneration Committee assists the Board in
determining its responsibilities in relation to remuneration,
including:
If the need should arise, the Board may set up additional
committees.
• making recommendations to the Board on the Company’s
policy on executive remuneration;
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 controls
and risk management systems; and
• whistleblowing and loss prevention.
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.
The Code recommends that an Audit Committee should
comprise of at least three members who are Independent
• 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.
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 or would be likely to, or appear to,
affect their judgement and that the 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, Paul McCrudden and Roger Whiteside.
Card Factory plc Annual Report and Accounts 2018
41
Strategic ReportGovernanceFinancials Corporate Governance Report Continued
Throughout the year, all of the Non-Executive Directors have
continued to visit all of the Group’s operations, both for
scheduled Board meetings and informally with members of
the senior management team. Feedback on visits is given at
subsequent Board meetings.
Additionally, the Non-Executive Directors have continued
their informal ‘buddying up’ visits with members of the senior
management team to build on their day-to-day knowledge of
specific areas of the business and support the team in
sustaining and developing our strategy.
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
regularly 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 34 to 36 for
details of the skills and experience of each Director.
Given the review of the Company’s Remuneration Policy
during the year, the Remuneration Committee met seven
times which is considerably more than in prior years. In future,
it will meet not less than twice a year.
The Board and the Remuneration Committee have employed
Korn Ferry Hay Group (Korn Ferry), a professional services
business which specialises in executive remuneration, to
advise and assist in connection with the Group’s executive
remuneration arrangements and its reporting obligations.
Korn Ferry do not provide any other services to the Group.
A report on the Remuneration Committee’s activities during
the year is set out on pages 51 to 53 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 three times 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 67 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 team
members and the Group’s advisers. The induction includes
visits to the Group’s stores, support centre, 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 July and December 2017 respectively, Kris Lee
and Roger Whiteside have been through tailored induction
plans. Details of Kris’ induction are set out in the Nomination
Committee Report on page 68.
42 Card Factory plc Annual Report and Accounts 2018
BOARD EVALUATION
As required by the Code, the Board conducted its first externally facilitated Board evaluation during the year. This was led by the
Chairman, facilitated by Lorna Parker and supported by the Company Secretary. Lorna is an independent consultant with
significant experience of conducting board effectiveness reviews for UK listed companies. Prior to her engagement to facilitate
this review Lorna had no other connection with the Company.
This detailed evaluation built upon the internal evaluations carried out during previous years and a summary is set out below.
External Board Evaluation 2017
How we did it – thoroughly, inclusively and conclusively
The Backdrop
Card Factory’s first externally facilitated Board review since its IPO in May 2014.
When?
Facilitator?
Groundwork?
A Board that, over time, has taken the business, through the transition from private equity
backed business to public company.
A Board, senior management team and business that have been through a period of
considerable change and increasingly challenging market conditions since the IPO in
May 2014.
A Board that now has no significant pre-IPO experience of the business.
August to November 2017
Lorna Parker, experienced board evaluator
Review explored a broad range of topics covering strategy, operational priorities, the
Board’s role, its structure and balance, succession, risk management and governance.
These themes were developed into a full written set of questions to ensure that the
objectives of the Board review were met. In addition to reviewing the responses by the
Board and Company Secretary to these questions, the following elements formed part of
the review:
• a review of the last 12 months’ Board and Committee papers;
• one-to-one Interviews with Board members, the Company Secretary and two members
of the senior management team;
• observing the October 2017 Board meeting; and
•
the preparation and presentation of a detailed evaluation report for the Board in
December 2017.
The Board’s strengths – collaborative, aligned and committed
Collaborative and challenging
A collegiate, supportive and collaborative Board that engages in open, rigorous,
straightforward debate with a high degree of mutual trust and respect and which would pull
together well in a crisis.
Strategically aligned
Clarity and alignment around strategic priorities, key challenges and risks.
Structured and efficient
Effective, efficient and thorough Board structures and processes. Chairman leads effective
pre Board meeting preparation work.
Recruitment
Committed NEDs
Good processes around the recruitment of Kris Lee and Roger Whiteside.
Committed, hard-working and involved NEDs who all spend considerable time with the
business, in addition to their Board responsibilities.
Effective Committees
Board Committees are well chaired, prepared and operate well.
Helping the Board evolve and become more effective – strategy, engagement and culture
Longer-term strategy
Greater strategic focus
Reporting
Whilst there is clarity and alignment on the immediate strategic priorities, the Board
should commit more time to the Group’s longer-term strategy beyond the current Four
Pillar strategy.
As part of the Group’s evolution from private equity ownership to FTSE 250 plc, the Board’s
agenda should evolve to become more strategic and less operational.
Refining financial reporting to focus in on key financials and KPIs with appropriate
commentary to support analysis and decision-making.
Shareholder communication
Build on the Board’s current engagement with shareholders to ensure communication is
constantly evolving and the Board builds on recent experience.
Culture and values
Greater understanding, discussion and support of the Group’s heritage, culture and values
and how these can support business performance and change.
Card Factory plc Annual Report and Accounts 2018
43
Strategic ReportGovernanceFinancials Corporate Governance Report Continued
External Board Evaluation 2017 continued
NED engagement
Location of meetings
NED succession
Current NED commitment is acknowledged and valued but there is a need to re-evaluate
the NEDs’ role between Board meetings to get the most benefit from their engagement
with the business and build greater rapport with the senior management team.
The Board has committed to holding more meetings at the Company’s key locations and to
plan additional engagement with the business around these.
The Board will consider Non-Executive Director succession well in advance of 2020 when
four NEDs (including the Chairman) reach the end of their second three-year term with the
business. Ensuring smooth succession and maintaining Board cohesion and collective
knowledge is critical to the Board’s ability to effectively govern.
Board decision-making review
Greater review and reflection on past Board decisions and how decision-making processes
could be refined.
What next?
Develop and report
The Board has committed to continuing to evolve and has carried out a review of the
actions arising out of this externally facilitated evaluation. As part of our internal evaluation
of the Board in the current financial year, we will review our progress with these actions and
provide an update in our next Annual Report and Accounts.
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 51 to 66. 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 complies 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 election or re-election (as
appropriate) 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.
44 Card Factory plc Annual Report and Accounts 2018
•
•
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 as a whole 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.
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 2018 and up to the date of
approving the Annual Report and Accounts. The Board as a
whole 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. Additionally,
Deloitte LLP provide internal audit services to the Group.
Further details of the scope of their work during the year is
set out in the report of the Audit and Risk Committee on
pages 49 and 50. The internal audit plan that has been agreed
with Deloitte supports the Group’s assessment of its controls
and processes.
At the AGM 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 retirement on 31
July 2017, Darren Bryant (former Chief Financial Officer) 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 and robust 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;
• specific risks are recorded in the Group’s risk register and
assessed in terms of impact and likelihood;
•
•
responsibility for monitoring and managing these risks on
a day-to-day basis is given to the relevant members of the
Group’s senior management team and they provide
regular 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 or likelihood of the risk or they identify a new risk
which the Group may face, the Group’s risk register is
updated to reflect this;
Card Factory plc Annual Report and Accounts 2018
45
Strategic ReportGovernanceFinancials Corporate Governance Report Continued
The Group’s system of internal control can be summarised
as follows:
Board
Takes 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 internal audit reports
Senior management team
Responsible for operating within the control framework
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
Compliance and safety risk assessors
Review compliance with internal procedures that ensure good
health and safety standards are observed
Co-sourced internal audit function
Deloitte LLP
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.
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 as part of the annual statutory audit.
The Board and the Audit and Risk 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 2018 and up to the date of approving the Annual
Report and Accounts and confirmed that they are satisfactory.
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.
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’s share dealing code was adopted in 2016 and
incorporates the requirements of the EU Market Abuse
Regulation which came into force in 2016. The code adopted
applies to the Directors, members of the senior management
team and to other relevant employees of the Group.
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 colleagues 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 colleagues with the assurance that
they can do this in complete confidence. Our loss prevention
team, in its day-to-day activities, seeks to reinforce this
message and, in addition, the Group periodically uses
communication campaigns to supplement this. The Audit and
Risk Committee is notified of any whistleblowing reports.
This report was reviewed and approved by the Board on
9 April 2018.
Geoff Cooper
Chairman
9 April 2018
46 Card Factory plc Annual Report and Accounts 2018
Chairman’s Letter – Audit and Risk Committee
David Stead
Chairman of the
Audit and Risk Committee
Dear Shareholder
The Committee’s activities during the year consolidated its work over previous years in developing and refining the structures
and processes which ensure there is confidence and trust in the Group’s internal controls, how it manages risk and in the
integrity of its financial statements.
The Committee has clear terms of reference and a programme of activities that set the agenda for Committee discussions.
Whilst these address the key topics the Committee should always be considering, the Committee retains sufficient flexibility to
consider other issues when they arise.
The report that follows provides further detail on the Committee’s activities during the year.
The Committee will continue to ensure that its activities are focused on business issues that add to, or preserve value and that they
remain aligned with the strategic goals of the Group whilst also continuing to satisfy the requirements of the Code. Roger
Whiteside joined the Committee in December and his knowledge and experience will greatly support the Committee’s future work.
I look forward to meeting shareholders at the AGM in May.
Yours sincerely
David Stead
Chairman of the Audit and Risk Committee
9 April 2018
Card Factory plc Annual Report and Accounts 2018
47
Strategic ReportGovernanceFinancials 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 41. 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, Paul McCrudden and
Roger Whiteside.
As David Stead is a chartered accountant and was the Chief
Financial Officer of Dunelm Group plc from 2003 to 2015, the
Board considers that he has both recent and relevant financial
experience in accordance with the requirements of the Code
and that within the Committee as a whole there is significant
experience of the retail sector in which the Group operates.
The Chief Executive Officer, the Chief Financial Officer and
the Chairman of the Board usually attend meetings of the
Committee by invitation, along with representatives from our
auditor, KPMG LLP, and 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 39.
ROUTINE ACTIVITIES DURING THE YEAR
During the year, the work of the Committee has principally
fallen under the following areas:
•
reviewing the integrity of the draft financial statements for
the year ended January 2017, the appropriateness of
accounting policies and going concern assumptions and
considering the auditor’s report regarding its findings on
the annual results;
• assessing whether the Annual Report and Accounts for
the year ended January 2017, 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 statements
published in September 2017;
• verifying the independence of the Group’s auditor,
approving their audit plan and audit fee and setting
performance expectations;
48 Card Factory plc Annual Report and Accounts 2018
•
•
reviewing the findings of and the implementation of
actions arising from, the internal audit projects undertaken
by Deloitte LLP during the year and agreeing the projects
they will undertake during the next year;
reviewing 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;
• monitoring the Group’s 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, the
Committee and the Board;
•
•
reviewing the Group’s risk register in March and
September;
reviewing the Group’s legal horizon scanner which sets out
key future legislative changes that will affect the Group
and how these are being addressed within the business;
• monitoring the implementation of the Group’s new point
of sale software solution across its retail stores;
•
reviewing the work carried out by the Group’s loss
prevention team in detecting and preventing fraud and
theft of cash and stock;
• monitoring the Group’s compliance with its policy for use
of our auditor for non-audit work;
•
reviewing the Group’s tax strategy; and
• with the support of both KPMG LLP and Deloitte LLP,
monitoring developments in legislation, reporting and
practice which affect matters for which the Committee
is responsible.
ACTIVITIES AFTER THE YEAR END
In the period following the year end, the Committee met once
in April 2018 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 pages
70 and 71 ) including the time period assessed and the
principal risks and combinations of risks modelled;
the integrity of the draft financial statements for the year
ended January 2018, including the appropriateness of
accounting policies and going concern assumption;
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 performance, effectiveness and qualifications of the
external auditor and recommendation for their
reappointment; and
the Company’s policy on the use of auditors for non-audit
services.
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.
ASSESSMENT OF ANNUAL REPORT AND ACCOUNTS
The Committee confirmed to the Board that it considered this
Annual Report and Accounts as a whole to be fair, balanced and
understandable, to the extent possible whilst complying with all
applicable legal, regulatory and reporting requirements.
At its meeting in April 2018, 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 in the year under review; 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 accuracy 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;
additional store counts of seasonal inventory at the end of
the key trading seasons for the business;
•
reviews of inventory levels by store;
• conducting a central reconciliation of store and warehouse
stock; 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.
INTERNAL AUDIT
Deloitte LLP provide internal audit services for the Group,
giving additional support in evaluating the effectiveness and
robustness of the Group’s system of internal control and its
approach to identifying and mitigating risks.
During the year, Deloitte’s work predominantly covered the
following areas:
• processes and controls over payroll, including right to
work checks – a comprehensive review of the design and
operating effectiveness of controls governing Card
Factory’s right to work and payroll processes taking into
account the Group’s growth and development and the
systems currently in place as well as current legal and
regulatory requirements;
• a follow up review from the 2016 Cyber Security review –
an update on the work undertaken by management in
response to the findings raised in the 2016 Cyber Security
review by Deloitte, which identified areas requiring
development and investment to achieve greater maturity
in the strength of cyber defences; and
• controls over the inbound supply chain – this review
considered the design and operating effectiveness of
controls governing Card Factory’s inbound supply chain
process, specifically in relation to supplier on-boarding
and contract management arrangements. The review
considered Card Factory’s supply chain governance, the
supplier due diligence it carries out and how it manages
supplier performance on a day-to-day basis.
LOSS PREVENTION
During the course of the last year, both the scope of the loss
prevention team’s activities and its influence across the
Group’s retail operations, have continued to develop and
grow. This growth, and the depth and variety of the team’s
work, are reflected in well-established measures and
performance indicators that are reported to the Committee,
the senior management team and other key stakeholders.
These focus on the type and number of investigations raised
by the team and the outcomes eg staff dismissals,
resignations, disciplinary action etc.
The loss prevention team has also continued to develop the
investigative methods it deploys including its analysis of store
transactions to identify anomalous behaviour and support
appropriate interventions. Whilst the team’s core activity
remains fraud and theft detection, these are supplemented by
a continuous programme of education, training and
development. These activities, which support a holistic
approach to loss prevention, are scheduled to grow over the
next 12 months and will continue to be refined and developed
to better meet Group needs, emerging crime risks and to
engender a proactive approach to Group crime risk.
The Committee receives regular reports on the activities of
the loss prevention team and the progress being made.
Card Factory plc Annual Report and Accounts 2018
49
Strategic ReportGovernanceFinancials Audit and Risk Committee Report Continued
EXTERNAL AUDITOR
KPMG LLP have conducted the statutory audit for the
financial year ended 31 January 2018 and they attended all
four of the Committee meetings held during that year as well
as the one held in April 2018. The Committee had the
opportunity to meet privately with them during the period.
Under the policy, our auditor is currently 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:
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 £107,500. 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.
• 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
Resolutions to reappoint KPMG LLP as auditor and to
authorise the Directors to agree their remuneration will be put
to shareholders at the AGM.
Our current 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 seven 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. 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, a new audit partner, Nicola
Quayle, was appointed by KPMG LLP to manage the Group’s
audit process from 2016/17. Nicola has attended all of the
Committee meetings during the year and has separately met
with the Committee Chairman.
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 and 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.
• 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 periodically provides the
Committee with reports 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 £11,000 (equivalent to 10% of the audit
fee). This comprised an independent review of our half-year
results. 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.
A copy of our current policy regarding the use of audit firms
for non-audit services, which was reviewed in light of the EU
Audit Directive, is available on Card Factory’s investor website
(www.cardfactoryinvestors.com).
This report was reviewed and approved by the Committee on
9 April 2018.
David Stead
Chairman of the Audit and Risk Committee
9 April 2018
50 Card Factory plc Annual Report and Accounts 2018
Chairman’s Letter – Remuneration Committee
Octavia Morley
Chairman of the
Remuneration Committee
Dear Shareholder
I am pleased to present our Directors’ Remuneration Report
for the financial year ended 31 January 2018.
During the year the Committee has conducted an extensive
review of our remuneration policy to assess whether it remains
appropriate in light of our business strategy and the retail
environment in which we operate. As a result, and following a
very productive shareholder consultation, the Committee
concluded that, with the exception of the move to ‘Restricted
Shares’ noted below, there should only be minor changes to
our policy in respect of salary, annual bonus and benefits,
which are summarised later.
The key change to our remuneration policy is to move away
from granting share awards based on the achievement of
specific three-year performance targets (‘LTIP awards’), to a
simpler approach where much lower awards of shares are
granted annually, which vest over a longer timeframe. These
provide a longer-term strategic focus and over time generate
significant employee shareholdings which creates a more
direct alignment of long-term interests between executives
and shareholders. This move to ‘Restricted Shares’ will also
lead to a reduction in maximum pay.
STRATEGIC CONTEXT AND RATIONALE FOR A MOVE FROM
LTIP TO RESTRICTED SHARES
As part of a strategic review, the Board has identified
opportunities to strengthen the business both strategically
and operationally. Our ‘four pillars’ strategy aims to deliver
sustained growth, strong cash generation and shareholder
returns through a focus on like-for-like sales growth, new store
roll out, business efficiencies and online development.
Additional strategic priorities of further targeted investment
and greater engagement with colleagues and our customers
have also been identified.
Our remuneration principles are to provide a simple and
straightforward policy, with fixed pay at the lower end of the
market and a higher weighting to variable performance pay.
We have a track record of setting stretching targets,
rigorously scrutinising variable pay outcomes and not
overpaying. The FY17 annual bonus and 2014 LTIP award
(which vested during the year) paid out at 20% and 47% of
maximum respectively and, most recently, there was a zero
bonus for FY18.
The Committee believes that Restricted Shares, rather than
LTIP awards with specific three-year performance targets, will
better support our business strategy for the foreseeable
future for the following reasons:
1. Employee share ownership
Management and wider employee share ownership is part of
our cultural DNA and has created a strong performance
culture up to and beyond IPO. The proposed policy for
Restricted Shares will ensure that more direct share ownership
will cascade through the senior management team and below,
ensuring higher employee share ownership. We believe that
this, more harmonised, approach will work well at Card
Factory and is in line with current investor and market thinking
in relation to executive pay.
2. Right for our business strategy
Our remuneration strategy needs to provide the management
team with flexibility to focus on longer-term strategic priorities
that may change over the course of a three-year policy period
and beyond. Restricted Shares will provide a longer-term
focus, while the shorter-term annual bonus will continue to
provide a more direct performance counterbalance, as it
focuses on stretching EBITDA targets and other strategic and
operational objectives.
3. Strong investor alignment
The level of Restricted Shares is 50% less compared to the
maximum LTIP award under our previous policy. Rather than
the usual three-year vesting, Restricted Shares will vest in
stages, over three, four and five years and vested shares may
not be sold (other than to pay any taxes due) until after a
five-year period.
Card Factory plc Annual Report and Accounts 2018
51
Strategic ReportGovernanceFinancials Chairman’s Letter – Remuneration Committee Continued
4. Meaningful performance underpin
There is a performance underpin, which provides a clear focus
on building long-term value and strengthening the business. If
this is not achieved in the view of the Committee, the level of
Restricted Shares vesting may be reduced, potentially to zero.
5. Simple and transparent
Restricted Shares are simple and easy to understand
internally. There is an ongoing focus on share price and the
drivers for long-term value rather than hitting specific targets
every three years. Shareholders will have a much clearer view
on remuneration, where the maximum level of pay will be
reduced significantly and will fluctuate less.
The Committee is aware that the Company’s updates during
the second half of the year, which outlined a strong sales
position but continuing cost and margin pressure, had an
impact on the share price. However, the review of the
Directors’ remuneration policy and the decision by the Board
to introduce Restricted Shares was made well before this time
and the Committee continues to believe that this is the right
policy for Card Factory over the long-term.
OTHER POLICY CHANGES
Aside from a move to Restricted Shares, there are no material
changes to the policy. However, having benefitted from the
experience gained from our four years as a listed company,
we have made the policy clearer and simpler to operate with
three minor changes as follows:
•
to provide a more conventionally expressed pension
maximum under the policy as a percentage of salary,
being 5% of salary, rather than a ‘£ value’ amount (but no
change to actual pension, which remains very low
compared to peers);
• under the current policy at least 80% of bonus must be
determined by financial metrics. In practice, currently
100% is determined by EBITDA. We propose to slightly
amend our policy to allow greater flexibility in the
selection of performance measures to support the
business strategy, while ensuring a majority is always
based on financial KPIs. Bonus payments will always be
subject to the Remuneration Committee ensuring
underlying performance of the business is acceptable; and
•
the level of shareholding required to be built and
maintained has increased from 200% and 150% of salary
to 250% and 200% of salary for the Chief Executive and
Chief Financial Officer, respectively.
HOW WE INTEND TO APPLY THE POLICY IN FY18/19
•
We are proposing a 5% increase in base salary for our CEO
with effect from 1 May 2018 to recognise the low starting
salary on her recruitment, her performance and increased
experience in role. Our Chief Executive’s current base
salary is £454,000 and would increase to £477,000. No
increase is proposed for our Chief Financial Officer who
has recently been appointed on a salary of £315,000. The
new salaries retain a lower quartile market positioning.
• Within the new policy limit of 5% of salary, the Chief
Executive’s and Chief Financial Officer’s pension
entitlement will remain at just over 3% of base salary.
• The annual bonus will remain capped at 125% and 100% of
base salary, respectively, for the Chief Executive and Chief
Financial Officer. 80% of the annual bonus will continue to
be based on stretching EBITDA targets. The remaining
20% will be determined by strategic objectives which will
be stretching, clearly defined, measurable and disclosed
retrospectively in our Annual Report on Remuneration.
The inclusion of a strategic element enables the
Committee to highlight the importance of the current
strategic focus and objectives of the business and to
reward steps in achieving this.
• Restricted Shares will be granted worth 87.5% of salary
and 75% of salary for the Chief Executive and Chief
Financial Officer respectively, based on the face value of
shares at the time of grant. In order for Restricted Shares
to be capable of vesting, the Committee must be satisfied
that business performance is robust and sustainable and
that management has strengthened the business. In
assessing performance, the Committee will consider
financial and non-financial KPIs of the business as well as
delivery against strategic priorities. To the extent it is not
satisfied with performance the Committee may scale back
the level of vested awards. There will be full Annual Report
disclosure of the Committee’s determination of the
performance underpin.
PAYMENTS FOR PERFORMANCE IN FY17/18
The EBITDA performance for the year fell short of the
stretching minimum performance hurdle so no annual bonus
is payable for performance for the year ended 31 January
2018. The Group has performed well since its IPO in 2014.
However, in spite of strong like-for-like sales growth, this has
been a tough year for the Group in terms of profitability with
the impact of significant cost headwinds. It is therefore right,
in line with our rigorous approach to pay for performance,
that there is no incentive payment for this year.
LTIP awards were made in 2015 to our former CEO, Richard
Hayes, and our former CFO, Darren Bryant. Both have
subsequently retired from the business but their outstanding
LTIP awards (having been scaled back pro rata for service)
were capable of vesting subject to the achievement of
performance conditions. However, based on EPS performance
over the relevant period, none of these awards will vest.
As both Executive Directors have recently joined the business
there are no outstanding LTIP awards that are capable of
vesting by reference to the performance period ending
31 January 2018.
FY18 LTIP AWARD
Our LTIP award for FY18 was made in the second half of our
financial year to align with the timing of last year’s grant,
which had been delayed to allow a proper assessment of
Brexit on the market and our business outlook. Our interim
results for FY18 showed strong sales performance on both a
total and a like-for-like basis, but also demonstrated the
significant impact of various cost headwinds (in particular
foreign exchange and wage rates). Against this outlook, the
Committee set an EPS growth range of 1% to 6% pa CAGR for
the three financial years to January 2020, which is viewed as
appropriately stretching in the circumstances. In addition, for
awards to vest, the Company’s return on capital must be
consistent with historic levels, reinforcing the focus on returns
for shareholders.
52 Card Factory plc Annual Report and Accounts 2018
CONCLUSION
We will carefully monitor the FRC’s proposed amendments to
the Code, which are likely to require a wider remit of the
Committee beyond the most senior executive population and
greater stakeholder engagement, including with employees.
As a Board we welcome these developments and will be
considering during 2018 how the changes can be
implemented.
I will attend the AGM to answer any questions shareholders
may have and I look forward to your support on both of the
resolutions relating to remuneration.
Octavia Morley
Chairman of the Remuneration Committee
9 April 2018
BOARD CHANGES
On 31 July 2017 Darren Bryant stepped down as CFO. There
have been no contractual payments relating to his notice
period and Darren was not eligible to receive a bonus or LTIP
award for FY18. His outstanding LTIP awards will be scaled
back pro rata for service and may vest subject to the
achievement of the performance conditions. Following an
extensive recruitment process, we were delighted to secure
the appointment of Kris Lee as Darren’s replacement. Kris has
started on a base salary of £315,000, was eligible for a pro
rata bonus for the period of the FY18 year worked and
received a pro rata LTIP award for FY18. As part of his
recruitment package, and in order that Kris was able to take
up his position quickly, the Committee approved a like-for-like
buyout of his forfeited bonus of £150,000.
With effect from 4 December 2017, Roger Whiteside joined
the Board as an Independent Non-Executive Director and as a
member of this Committee. Roger is Chief Executive of
Greggs plc and has been on the Boards of several other
companies. His wealth of corporate experience generally as
well as on remuneration matters will be an asset to the Board
and this Committee. Roger’s fees are in line with our policy.
SHAREHOLDER ENGAGEMENT
The proposed remuneration policy and its application for
FY18/19 has been subject to an extensive consultation with
our major shareholders, the majority of who indicated their
support for our proposals subject to them reviewing the final
policy ahead of the vote at our AGM in May. There has been a
genuine dialogue with our major shareholders on the
proposed changes, which has been incorporated into the final
proposals presented here. I would like to thank those investors
consulted for their time and the constructive feedback given.
More generally, the Remuneration Committee continues to
keep all aspects of senior executive remuneration under
review against market and best practice for UK-listed
companies and other retailers, investor guidelines and against
the requirements of the UK Corporate Governance Code (or
‘the Code’). Taking all these factors into account, the
Committee has developed the proposed remuneration policy,
which it believes is appropriate and balanced, supports the
Company’s objective to deliver shareholder value and aligns
executive and shareholder interests.
At the AGM, which will be held on 31 May 2018, our
remuneration policy contained within this report will be
subject to a binding shareholder vote which, if approved, will
mean that the new policy would take effect from that date.
The remainder of this report, containing this Statement and
the Annual Report on Remuneration, which outlines the
payments made in respect of the FY18 financial year and the
implementation of our remuneration policy for the
forthcoming financial year, will be subject to a separate
advisory vote.
Card Factory plc Annual Report and Accounts 2018
53
Strategic ReportGovernanceFinancials Directors’ Remuneration Report
INTRODUCTION
This Directors’ Remuneration Report is divided into three
sections, the Letter from the Chair of the Remuneration
Committee, the Directors’ Remuneration Policy and the
Annual Report on Remuneration.
The Directors’ Remuneration Policy section sets out the policy
which will be put forward for shareholder approval at the
AGM on 31 May 2018 and, if approved, the new policy will take
effect from that date.
The Letter from the Chair of the Committee and the Annual
Report on Remuneration will be put to shareholders for
approval at the AGM on 31 May 2018, although the vote is
advisory.
54 Card Factory plc Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION POLICY
This section on pages 55 to 60 inclusive describes Card Factory’s Directors’ Remuneration Policy (‘the Policy’) which will be put
forward for shareholder approval under Resolution 10 at the AGM to be held on 31 May 2018.
Card Factory’s policy for Executive Directors’ remuneration aims to provide a competitive package of fixed and performance
linked pay, which supports the long-term strategic objectives of the business.
Following a detailed review of the existing policy we propose to make the following changes:
•
•
to replace LTIP awards with specific three-year targets with awards of Restricted Shares with a face value which is 50% lower
than the LTIP awards with a longer vesting period and post vest holding period;
to provide a more conventionally expressed pension maximum under the policy as a percentage of salary, rather than a
‘£ value’ amount;
• under the current policy at least 80% of bonus must be determined by financial metrics. In practice, currently 100% is
determined by EBITDA. We propose to slightly amend our policy to allow greater flexibility in selection of performance
measures to support the business strategy, while ensuring a majority is always based on financial KPIs. Bonus payments will
always be subject to the Remuneration Committee ensuring underlying performance of the business is acceptable; and
•
the level of shareholding required to be built and maintained has increased from 200% and 150% to 250% and 200% of salary
for the Chief Executive and Chief Financial Officer, respectively.
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, inflation
and salary increases across
the Group
Increases will normally be
effective 1 May
Business and individual
performance are considerations
in setting base salary
Whilst there is no maximum
salary, Executive Directors’
salary increases will normally be
in line with the average
percentage increase for the
wider employee population
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
Pension
To provide post-retirement
benefits
Executive Directors may receive
a company contribution into a
pension plan or a cash allowance
in lieu of pension
The maximum company
contribution or cash allowance in
lieu of pension is 5% of salary for
current Directors
None
Benefits
To provide Executive Directors
with a reasonable level of
benefits
Benefits include private medical
insurance, life insurance, income
protection, and the provision of
a car or car allowance
Where appropriate, other
benefits may be offered, for
example including, but not
limited to, relocation allowances
There is no 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
Card Factory plc Annual Report and Accounts 2018
55
Strategic ReportGovernanceFinancials Directors’ Remuneration Report continued
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
VARIABLE PAY
Annual bonus
To focus executives on delivery
of year-on-year financial and
non-financial performance
The part of the bonus invested in
shares helps towards achieving
an appropriate balance between
year-on-year financial
performance and longer-term
value creation and contributes to
higher executive shareholdings
Restricted Shares
To align the interests of
executives with shareholders
in growing the value of the
business over the long term
125% of salary
87.5% of salary face value at
grant
Performance measures and
targets are set by the Committee
and the Committee determines
the extent to which the targets
have been achieved at the
year-end
A majority of bonus will be based
on financial measures
The Committee may scale back
the bonus if it considers the
outcome is not representative of
the underlying performance of
the Company
For achievement of threshold
performance, up to 15% of
maximum bonus is earned
In order for Restricted Shares to
be capable of vesting, the
Committee must be satisfied that
business performance is robust
and sustainable and that
management has strengthened
the business over three financial
years commencing with the year
in which the award is made. In
assessing performance, the
Committee will consider financial
and non-financial KPIs of the
business as well as delivery
against strategic priorities. To
the extent it is not satisfied with
performance the Committee may
scale back the level of vested
awards including to zero. Full
disclosure of the Committee’s
assessment will be made in the
Annual Report on Remuneration
for the year in which the
assessment is made
Bonus payments will be
determined based on
performance in a single financial
year and payment may be made
in cash or in shares
If participants have not met
the minimum shareholding
requirement, one third of any
bonus (after payment of tax)
must be used to acquire
shares in the Company which
must be held for three years
Robust clawback and malus
provisions apply. The Committee
has discretion to reduce the
amount of any bonus potential,
and require repayment of any
bonus paid within two years of
payment, in the event of material
misstatement, error, misconduct
or reputational damage
The Committee may grant annual
awards of Restricted Shares,
structured as conditional awards
or nil-cost options
50% of an award vests after
three years, 25% after four and
25% after five years, subject to
service
All shares will be held for at
least five years from grant
(except for sales to meet tax
on vesting). The holding
period and vesting period will
continue post cessation of
employment to the extent that
awards do not lapse on
cessation
An additional benefit is provided
in cash or shares equal to
dividends that would have been
paid over the vesting period or
holding period on awards
that vest
Robust clawback and malus
provisions apply. The Committee
has discretion to reduce the
amount of any unvested award,
and repayment of any vested
award within two years of
vesting, in the event of material
misstatement, error, misconduct
or reputational damage
56 Card Factory plc Annual Report and Accounts 2018
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
SAYE
To encourage share ownership
across the workforce
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
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
Participants 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
savings made.
Shareholding guidelines
To encourage share ownership
and ensure alignment of
executive interests with those of
shareholders
Requirement to build up and
maintain a beneficial holding of
shares in the Company defined
as a % of salary
Details of the current guidelines
and Executive Director
shareholdings are included in the
Annual Report on Remuneration
None
Performance measure selection and approach to target setting
The measures used in the annual bonus are selected to reflect the Company’s main financial KPIs and other strategic objectives
for the year. Performance targets are set to be stretching but achievable, considering 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.
Adjustments and use of Remuneration Committee discretion
The Remuneration Committee will review formulaic annual bonus outcomes and may adjust these to ensure alignment of pay
with the underlying performance of the business. The Remuneration Committee may also adjust the calculation of short- and
long-term performance measures for outstanding LTIP awards 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 will be consistent with
that for the Executive Directors. The senior management team will participate in the same annual bonus and will receive
Restricted Shares awards alongside the Executive Directors.
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 are fair.
Other
In addition to the above elements of remuneration, any commitment made prior to but due to be fulfilled after the approval at
the 2018 AGM, 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).
Card Factory plc Annual Report and Accounts 2018
57
Strategic ReportGovernanceFinancials Directors’ Remuneration Report continued
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’.
The projected value for Restricted Shares excludes the impact of share price movements or dividend accrual.
Chief Executive Officer
Chief Financial Officer
Maximum
Mid
34%
39%
27%
38%
35%
27%
£1,534k
Maximum
£888k
42%
24%
34%
46%
22%
32%
£1,236k
Mid
£731k
100%
100%
Minimum
£521k
Minimum
£337k
0
400
800
1200
1600
0
250
500
750
1000
Fixed Pay
Annual Bonus
Restricted Shares
In illustrating potential reward opportunities, the following assumptions are made:
Minimum
Mid
Maximum
Fixed pay
Salary as at 1 May 2018
The CEO and CFO each receive a
contribution of just over 3% of base
salary to their personal pensions
Benefits paid for the most recent
financial year
Annual bonus
No annual bonus payable
On-target annual bonus payable
(50% of maximum)
Maximum annual bonus payable of
125% and 100% of base salary for the
Chief Executive and Chief Financial
Officer, respectively
Restricted Shares
An award of Restricted Shares worth
87.5% and 75% of base salary for the
Chief Executive and Chief Financial
Officer, respectively
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. The Remuneration Committee will seek to ensure that the remuneration arrangements will be in line with those
outlined in the Policy table above, other than as follows:
Component
Approach
Maximum opportunity
Pension
New appointees may be offered pension arrangements based on market
competitive contribution rates
5% of base salary or higher in exceptional
circumstances
Annual bonus
In line with the policy, albeit with the relevant maximum normally being
prorated to reflect the proportion of employment over the year
125% of salary
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 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 this report.
58 Card Factory plc Annual Report and Accounts 2018
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). Any payment in lieu
will be made on a monthly basis and subject to mitigation. Executive Directors’ service contracts are available to view at the
Company’s registered office and at the forthcoming AGM.
Executive Director
Karen Hubbard
Kris Lee
Date of service contract
5 January 2016
19 April 2017
Notice period
9 months
9 months
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, considering 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
Annual bonus
Scenario
Default treatment
Timing of vesting
No bonus is paid
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
Shares acquired by Directors
with annual bonus
Calculation of vesting/payment
n/a
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 pro rated for time served
during the year
Not applicable as shares are
purchased and owned outright
by the executive.
Restricted Shares
Default treatment
Awards lapse
n/a
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
Normal vesting date and holding
period would normally continue
to apply, although the
Committee has discretion to
accelerate vesting and remove
the holding requirement in
exceptional circumstances.
Any outstanding awards will
normally be pro rated for service
over the three financial years
starting with the year in which
the award is made and over
which the underlying
performance of the Company
will be reviewed to determine
vesting. The Committee may
disapply time pro rating in
exceptional circumstances
SAYE
Treated in line with HMRC rules
Card Factory plc Annual Report and Accounts 2018
59
Strategic 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 Director
Geoff Cooper
Octavia Morley
David Stead
Paul McCrudden
Roger Whiteside
Letter of appointment date
30 April 2014
30 April 2014
30 April 2014
1 December 2014
27 November 2017
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 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 and will stay abreast of likely future guidance on this issue from the Financial
Reporting Council.
CONSIDERATION OF SHAREHOLDER VIEWS
The Company has engaged with significant investors on remuneration as part of its first corporate governance day and intends
to hold similar events in future based on investor demand. More generally, when determining remuneration policy and its
application, the Committee considers 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 travel
expenses, which may be grossed
up for tax)
Any increases to NED fees will be
considered following a thorough
review process and considering
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
60 Card Factory plc Annual Report and Accounts 2018
ANNUAL REPORT ON REMUNERATION
This is the Annual Report on Remuneration for the financial year ended 31 January 2018. 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.
TOTAL REMUNERATION PAID TO EXECUTIVE DIRECTORS – AUDITED
The table below sets out the total remuneration received by each Executive Director providing services to the Company during
the period for the year ended 31 January 2018 and the prior year:
Salary1
Pension benefit
Taxable benefits2
Non-taxable benefits3
Annual bonus4
LTIP5
SAYE6
Other7
Total
Karen Hubbard
Kris Lee
Darren Bryant
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
£451,675
£15,388
£24,871
£3,542
0
n/a
–
£418,186
£14,067
£23,003
£3,205
£104,849
n/a
–
£130,000
£183,748
£5,964
£4,882
£2,066
0
n/a
n/a
£150,000
£495,476
£693,310
£346,660
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£176,901
–
£3,967
£1,476
n/a
–
n/a
n/a
£352,002
–
£8,000
£3,389
£453,263
£348,143
£459
n/a
£182,344
£699,032
1. Kris Lee was appointed to the Board with effect from 3 July 2017. Darren Bryant retired from the Board on 31 July 2017.
2. Taxable benefits comprise car or car allowance, fuel allowance and family private medical insurance.
3.
Karen Hubbard and Kris Lee (and formerly Darren Bryant) are members of the Group Life Assurance Scheme. The amounts stated relate to insurance premiums paid
by the Group.
4. No annual bonus was payable for the year 2017/2018.
5.
The value of Darren Bryant’s LTIP awards that were included in 2016/17 in the table above was calculated using the three-month average share price to 31 January
2017 of 251p, as the awards had not vested at the date of signing last year’s report. The awards vested in 2017/2018. The actual value on vesting was £348,143 and so
the value has been restated from £264,894 to £348,143.
6. Embedded value of SAYE options at grant. There are no performance conditions.
7.
As previously disclosed, as part of her recruitment package, and in order that Karen Hubbard was able to take up her position at a time to allow a suitable handover
with the outgoing 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. As part of his recruitment package, and in order that Kris Lee was able to take up his position quickly, the Committee
approved a like-for-like buyout of his forfeited bonus of £150,000.
ANNUAL BONUS PAYMENTS AND LINK TO PERFORMANCE
Bonus opportunities for 2017/18 were 125% of salary for Karen Hubbard and 100% of salary for Kris Lee (pro rated for time in
role). Darren Bryant did not participate in the 2017/18 annual bonus.
The bonus was subject to achieving a range of EBITDA targets and subject to a personal performance underpin. Personal
performance is assessed on achievement against the four pillars of the agreed growth strategy, to ensure the foundations for
future growth. The EBITDA performance targets for the year, performance against them and bonus payments were:
Performance level
Threshold
Maximum
2017/18
EBITDA
target
Percentage of
maximum
bonus awarded
EBITDA
Performance
achieved
Bonus payable
(% of maximum)
£98.0m
£101.6m
15%
100%
£94.0m
£94.0m
0%
0%
GRANTS OF AWARDS UNDER THE LTIP IN 2017 – AUDITED
Awards under the LTIP were granted to the Executive Directors on 27 October 2017. Awards were made over shares worth 175%
of basic salary for Karen Hubbard and 150% of salary for Kris Lee (pro-rated for time in role).
Executive
Karen Hubbard
Kris Lee
Number of
LTIP shares
awarded
Face/maximum
value of awards
at grant date1
% of award
vesting at
threshold and
(Maximum)
Performance
period
245,921
85,366
£794,325
£275,733
25% (100%)
25% (100%)
1.2.17–31.1.20
1.2.17–31.1.20
1.
In line with the LTIP rules, 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, 27
October 2017, of 323.0p.
The primary performance targets for these awards, are EPS growth over three financial years starting with that in which the
award is granted. The award was made in the second half of our financial year to align with the timing of last year’s grant, which
had been delayed to allow a proper assessment of Brexit on the market and our business outlook.
Our interim results for FY17/18 showed strong sales performance on both a total and a like-for-like basis, but also demonstrated
the significant impact of various cost headwinds (in particular foreign exchange and wage rates). Against this outlook, the
Committee set an EPS growth range of 1% to 6% p.a. CAGR for the three financial years to January 2020, which is viewed as
appropriately stretching in the circumstances.
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.
Card Factory plc Annual Report and Accounts 2018
61
Strategic ReportGovernanceFinancials Directors’ Remuneration Report continued
Awards that vest (after any sales required to pay tax and social security contributions) will be subject to a two-year holding
period.
2015 LTIP AWARD VESTING
Awards granted in 2015 under the LTIP were subject to the three-year EPS compound annual growth target of 9% pa to 15% pa
with 25% vesting at threshold, and were subject to a return on capital underpin. EPS performance over the three-year period 1
February 2015 to 31 January 2018 was below 9% meaning none of these awards will vest.
SAYE
Awards under the HMRC-approved SAYE were granted to all participating employees on 27 June 2017. Options were granted at a
discount of 20% to the share price on grant, and vest after three years subject to continued employment.
Executive
Karen Hubbard
1. Based on the share price on the date of award, 27 June 2017, of £3.34
Number of SAYE
options awarded
Face/Maximum
Value of
Awards at Grant
Date1
% of Award
Vesting
at Threshold and
(Maximum)
Performance
Period
3,358
£11,222
n/a
n/a
REMUNERATION FOR RETIRING DIRECTORS
Darren Bryant stepped down as CFO and retired from the Board on 31 July 2017 and salary, benefits and pension ceased to be
paid at that date. As set out above, Darren did not receive an LTIP grant in 2017 nor was he eligible to receive any bonus for
performance for the financial year 2017/18.
As a good leaver he will, to the extent that they vest based on performance, receive his outstanding pro rated LTIP awards at the
normal vesting date. The Committee exercised its discretion to disapply any holding period on any vested LTIP awards on the
basis that Darren retains a significant holding in the Company which continues to align his interests with other shareholders.
TOTAL FEES PAID TO 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 2018 and the prior year.
Non-Executive Director
2017/18
2016/17
Geoff Cooper
Octavia Morley
David Stead
Paul McCrudden
Roger Whiteside
£125,000
£49,000
£45,000
£45,000
£7,327
£125,000
£49,000
£45,000
£45,000
n/a
2017/18
£0
£8,000
£8,000
£0
£0
2016/17
£0
£8,000
£8,000
£0
n/a
2017/18
2016/17
£125,000
£57,000
£53,000
£45,000
£7,327
£125,000
£57,000
£53,000
£45,000
n/a
Base fee
Additional fees
Total
PAYMENTS FOR LOSS OF OFFICE
No payments were made to Directors for loss of office. The remuneration arrangements on cessation for Darren Bryant are set
out above.
PAYMENTS TO PREVIOUS DIRECTORS
No such payments were made during the year (other than those disclosed in relation to Darren Bryant’ retirement).
62 Card Factory plc Annual Report and Accounts 2018
HISTORICAL TSR PERFORMANCE AND CEO REMUNERATION
The graph below illustrates the total shareholder return 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
FTSE 250
Card Factory
)
£
(
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
FTSE 250
Card Factory
14 May 2014
31 January 2015
31 January 2016
31 January 2017
31 January 2018
CEO
Single figure of remuneration (£’000)
Annual bonus outcome (% of max)
LTIP vesting (% of max)
2017/18
2016/171
2015/16
2014/15
496
0%
n/a
1,005
20.0%
46.6
951
79%
n/a
884
77%
n/a
1. For 2016/17 this represents the aggregate single figure for Karen Hubbard (from date of appointment as CEO) and Richard Hayes (to date of stepping down as CEO).
CHANGE IN CEO CASH REMUNERATION, 2016/17 TO 2017/18
Salary
Taxable benefits
Annual variable
Change in CEO
pay over the
year1
Average change
across all
employees2
0.8%
(18.6)%
(100)%
3.8%
–
(18.4)%
1.
2.
For 2016/17 this represents the aggregate single figure for Karen Hubbard (from date of appointment as CEO) and Richard Hayes (to date of stepping down as CEO).
Permanent store employees (representing c 90% of all permanent employees).
DISTRIBUTION STATEMENT
The charts below illustrate the year-on-year change in total remuneration for all employees and total shareholder distributions.
£m
120
100
80
60
40
20
0
Total remuneration
for all employees
+8.1%
94.6
102.3
2016/17
2016/17
2017/18
Special Dividend
2017/18
Total shareholder
distributions
+1.0% (including special dividend)
+2.3% (excluding special dividend)
82.2
83.0
31.1
2016/17
31.8
2017/18
£m
90
80
70
60
50
40
30
20
10
0
Card Factory plc Annual Report and Accounts 2018
63
Strategic ReportGovernanceFinancials
Directors’ Remuneration Report continued
STATEMENT OF SHAREHOLDER VOTING
The following table shows the results of the shareholder votes on the Annual Report on Remuneration at the 2017 Annual
General Meeting:
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Total votes withheld1
Total votes cast (including withheld votes)
Annual Report on Remuneration
(2017)
Total number of
votes
277,072,929
3,507,910
280,580,839
2,359
280,583,198
% of votes cast
98.75
1.25
0
–
–
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.
DIRECTORS’ SHAREHOLDINGS AND INTEREST IN SHARES – AUDITED
The Committee sets shareholding guidelines for Executive Directors. The current guideline is to build and maintain, over time, a
holding of shares in the Company equivalent in value to at least 200% and 150% of base salary for the Chief Executive and Chief
Financial Officer, respectively. This will be increased in FY2019 to 250% and 200% respectively. Both Executive Directors joined
the Board recently and so have not yet met the shareholding guideline. Karen Hubbard purchased all of the shares she (or her
connected persons) currently hold.
Shares held
Options held
Director
Executive Directors
Karen Hubbard
Kris Lee
Darren Bryant
Non-Executive Directors
Geoff Cooper
Octavia Morley
David Stead
Paul McCrudden
Roger Whiteside
Owned
outright1
110,619
–
618,036
318,828
13,333
22,222
–
22,520
Unvested
and not
subject to
performance
Unvested
and
subject to
performance
Vested but not
exercised
Unvested and
subject to
continued
employment
Current
shareholding
(% of salary/
fee2)
Shareholding
requirement
(% of salary/
fee)
–
–
–
–
–
–
–
–
481,406
85,366
232,795
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22%
–
–
200%
150%
n/a
Guideline
met?
No
No
n/a
Including shares owned by connected persons.
1.
2. Calculated using the closing share price of the Company on 31 January 2017 of 250p.
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.
DETAILS OF DIRECTORS’ INTERESTS IN SHARES IN INCENTIVE PLANS
Karen Hubbard
LTIP
LTIP
SAYE
Kris Lee
LTIP
Date of
grant
Share price
Exercise
at grant
price
Number
of shares
awarded
Face value at grant
Performance period
Exercise period
30.9.16
27.10.17
27.06.17
330.7p1
323.0p2
334.2
n/a
n/a
268p
235,485
245,921
3,358
£778,750
£794,325
£11,222
1.2.16 – 31.1.19
1.2.17 – 31.1.20
n/a
n/a
n/a
1.8.19 –31.1.20
27.10.17
323.0p2
n/a
85,366
£275,733
1.2.17 – 31.1.20
n/a
1.
Based on the average middle market quotation of a share in the capital of the Company for the six months prior to the date of award, 30 September 2016, of 330.7p.
2. 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, 27 October 2017, of 323.0.p.
64 Card Factory plc Annual Report and Accounts 2018
HOW THE POLICY WILL BE APPLIED IN FY18/19
SALARY
The salaries of the Executive Directors will, with effect from 1 May 2018, be as follows:
Executive Director
Karen Hubbard
Kris Lee
1 May 2018
1 May 2017
£477,000
£315,000
£453,900
n/a
ANNUAL BONUS FOR 2018/19
The annual bonus is capped at 125% and 100% of salary for the Chief Executive and Chief Financial Officer, respectively, based
80% on EBITDA and 20% on a number of strategic measures.
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 next year’s Annual Report on Remuneration.
The strategic objectives for the CEO and the CFO have been set to measure progress on the building blocks of the Group’s
established four pillar strategy. These will position us for growth in future years and mitigate business risk in achieving these
goals in addition to their focus on delivering annual business results. These objectives are set out below, together with details of
how they will be measured. The specific targets are commercially sensitive and will be disclosed retrospectively in next year’s
Directors’ Remuneration Report with performance against them.
The CEO’s strategic objectives are:
• strengthening our customer value proposition, measured by external research results compiled by OC&C and reported
annually;
•
improving our ongoing Business Efficiency by delivering a step change in store productivity, measured by store cost savings;
• delivering a future platform for Card Factory online, measured through EBITDA performance in this channel; and
• generating performance through our leadership team, managing succession planning and integrating the new senior hires
into the business to deliver positive results. This will be measured through externally facilitated leadership feedback.
The CFO’s strategic objectives are:
• delivery of the new store roll out programme, measured by average store profit contribution;
• within our business efficiencies pillar, improving our working capital management, measured by the year on year change;
• development and delivery of strategic trials and initiatives to drive future sales and profitability for the Group, measured by
the successful implementation of new projects; and
• generating performance through our leadership team, managing succession planning and integrating the new senior hires
into the business to deliver positive results. This will be measured through externally facilitated management feedback.
BENEFITS AND PENSION
These will be paid in line with the policy.
RESTRICTED SHARES
Restricted Shares will be granted over shares with a value at the time of grant of 87.5% of salary and 75% of salary for the Chief
Executive and Chief Financial Officer respectively.
In order for Restricted Shares to vest, the Committee must be satisfied that business performance is robust and sustainable and
that management has strengthened the business. In assessing performance, the Committee will consider financial and non-
financial KPIs of the business as well as delivery against strategic priorities. To the extent it is not satisfied with performance the
Committee may scale back the level of vested awards including to zero.
There will be full disclosure in the Annual Report and Accounts of the Committee’s determination of the performance underpin.
SHAREHOLDING REQUIREMENT
The level of shareholding required to be built and maintained is equivalent to 250% and 200% of salary for the Chief Executive
and Chief Financial Officer respectively.
Card Factory plc Annual Report and Accounts 2018
65
Strategic ReportGovernanceFinancials Directors’ Remuneration Report continued
NON-EXECUTIVE DIRECTOR FEES
No increases 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
2018/19
2017/18
£125,000
£49,000
£45,000
£125,000
£49,000
£45,000
£8,000
£8,000
£8,000
£8,000
REMUNERATION COMMITTEE MEMBERSHIP AND ADVISERS
The Remuneration Committee consists of four Independent Non-Executive Directors: Octavia Morley (Chairman), David Stead,
Paul McCrudden and Roger Whiteside, 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 41 and 42 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 and externally. Its principal external advisers are Korn Ferry Hay Group, who were appointed by the Committee
following a tender process during the year. Korn Ferry does not provide any other services to the Company. Korn Ferry 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 is objective and independent. There were no fees paid to Korn Ferry during the financial year.
COMMITTEE ACTIVITIES
During 2017/18, the Committee met to consider the following remuneration matters:
• a full review of the directors’ remuneration policy and cascade to senior executive levels and below, including extensive
investor consultation;
•
•
•
•
•
•
to consider performance against targets and resulting bonus payments and vesting of awards under the LTIP;
to determine 2017/18 grants of LTIP awards and associated targets;
to consider measures and targets for the 2018/19 annual bonus;
to determine the remuneration package for the incoming Chief Financial Officer and the departure arrangements for his
predecessor;
to review developing trends in remuneration governance; and
to formally approve the Directors’ Remuneration Report set out in this Annual Report.
Approved by the Board of Card Factory plc on 9 April 2018 and signed on its behalf by
Octavia Morley
Chairman of the Remuneration Committee
9 April 2018
66 Card Factory plc Annual Report and Accounts 2018
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 recruiting and supporting the handover to our
new CFO, Kris Lee, following Darren Bryant’s retirement at the
end of July 2017.
Kris, a very experienced retail CFO, underwent an extensive
induction programme giving him the opportunity to engage
with all parts of the business and assess the Group’s current
operations and strategy. Following this, he provided his initial
reflections to the Board.
Kris was recruited following a thorough search process
focused on identifying a candidate with the skills and relevant
retail experience to work closely with our CEO, Karen
Hubbard, the Board and the senior management team to drive
our existing four pillar strategy and, in time, assess longer-
term strategic options for the business.
A professional search firm carried out the search and all
members of the Committee, Karen and key members of the
senior management team were involved in the selection
process. The search firm were asked to review and, if possible,
revise their long and short lists to seek qualified candidates
that would increase the Board’s diversity.
As part of the Board’s commitment to managing Board
succession and ensuring it has the right balance of skills and
experience to support the Group’s strategic plans, Roger
Whiteside was appointed to the Board as an additional
Independent Non-Executive Director in December 2017. Roger
is currently CEO of multi-site food on-the-go retailer Greggs
plc and has a wealth of retail knowledge and senior leadership
experience that will complement the Board. As with Kris Lee,
Roger’s recruitment was facilitated by a specialist search firm
and all of the Board were fully involved in his recruitment.
The Committee, working closely with Karen and the Group HR
Director, Lucy Crowther, has supported development,
engagement and succession planning for the senior
management team in which there has been a number of
changes during the year. The Committee has also endorsed
the introduction of a more structured definition of job roles
and levels across the Group that will provide greater
transparency over future development, progression and
reward.
During the forthcoming year and beyond, the Committee will
conduct more formal and regular reviews of the Group’s new
wider template for talent development, which has been
introduced to ensure effective succession planning across all
levels in the Group.
Finally, the Non-Executive Directors and I have also committed
to spending additional time in the business to strengthen our
understanding of the Group’s culture and the Group’s
understanding and appreciation of our roles.
Looking forwards, the Committee will continue to reflect on
the developing corporate governance landscape. It will
introduce more structured planning and review of succession
for the Board and senior management team as well as regular
discussions on diversity.
Yours sincerely
Geoff Cooper
Chairman of the Nomination Committee
9 April 2018
Card Factory plc Annual Report and Accounts 2018
67
Strategic ReportGovernanceFinancials Nomination Committee Report
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 42
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 Company Secretary acts as secretary to the Committee.
MEETINGS
As currently constituted, the Committee met three times
during the year with details of attendance set out in the
Corporate Governance Report on page 39.
COMMITTEE ACTIVITY IN 2017/18
The Committee’s main activity during the year, as described in
more detail in the introductory letter to this report, was to
support the recruitment and induction of our new CFO Kris
Lee and the appointment of Roger Whiteside as an additional
Independent Non-Executive Director.
WELCOMING OUR NEW CFO
Kris Lee’s induction process took place over three months
with extensive input and involvement of the Group’s CEO
Karen Hubbard. His induction covered all parts of the Group,
and included:
• handover time with our former CFO, Darren Bryant,
including meetings with analysts and investors;
• one-to-one meetings with senior management team members;
• meetings with the Chairman and Non-Executive Directors;
• attending Board and divisional board meetings, including
the Board strategy day in July 2017;
•
immersion’ time at our online subsidiary, Getting Personal;
• a tour and meetings with senior management at our
in-house print facility, Printcraft;
• attending Card Factory’s 2017 Christmas launch event with
colleagues from throughout the business;
• an introduction to the design studio and how it operates;
• working in Card Factory stores and the warehouses at the
Group’s distribution centre in Wakefield;
• store visits; and
• meeting the Group’s key advisers.
COMMITTEE’S FOCUS FOR THE FUTURE
The Nomination Committee’s priority over the coming year
will be to:
•
focus on the further development and implementation of a
Board succession plan that addresses the current long
service of the Chairman and a number of our Independent
Non-Executive Directors; and
68 Card Factory plc Annual Report and Accounts 2018
• continue to develop the succession planning process for
all key roles in our senior management team and, in
particular, to monitor and support the Group’s new talent
development programme which is aiming to support
accession to senior roles from within the business and
reduce the Group’s reliance on external recruitment.
In addressing these, 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 the
executive management team and among the Non-Executive
Directors and of supporting the development of the next
generation of leaders from within the business; and
recognise that the Group’s best interests are served by
ensuring that the individuals who are in leadership roles in
the Group represent a range of skills, experiences,
backgrounds and perspectives, including gender, race,
religion or sexual orientation but who at all times are most
suitable people for their roles.
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. We will also
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.
We published our first Gender Pay Gap Report in March 2018
which, in addition to setting out the data required by the
Government, details the great strides taken by the business
towards ensuring there is equality of opportunity between the
genders throughout the Group. A copy of the report has been
published on Card Factory’s investor website
(www.cardfactoryinvestors.com)
Details of the gender balance within the Group are set out in
the Corporate Social Responsibility report on page 31.
BOARD EVALUATION
The Board conducted its first externally facilitated Board
evaluation during the year which was led by the Chairman and
facilitated by Lorna Parker. Further details are set out in the
Corporate Governance Report on pages 43 and 44. Board
evaluation will continue to be conducted on an annual basis
and the Board will, as required by the UK Corporate
Governance Code, engage an external facilitator once every
three years to assist in the process.
TENURE AND RE-ELECTION OF DIRECTORS
In accordance with the UK Corporate Governance Code, all
the Directors will seek election or re-election (as appropriate)
at the next AGM on 31 May 2018.
This report was reviewed and approved by the Board on
9 April 2018.
Geoff Cooper
Chairman of the Nomination Committee
9 April 2018
Directors’ Report
The Directors present their report together with the audited
financial statements for the year ended 31 January 2018.
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 2016 (‘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
9 April 2018 and is set out on pages 1 to 33, 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 ORDINARY DIVIDENDS
The consolidated profit for the Group for the year after taxation
was £58.3m (FY17: £65.7m). The results are discussed in greater
detail in the Chief Financial Officer’s Review on pages 20 to 23.
A final dividend of 6.4 pence per share (FY17: 6.3 pence) is
proposed in respect of the period ended 31 January 2018 to add
to an interim dividend of 2.9 pence per share (FY17: 2.8 pence)
paid on 15 December 2017. The final dividend will, subject to
shareholders’ approval at the AGM on 31 May 2018, be paid on
8 June 2018 to shareholders on the register on 4 May 2018.
SPECIAL DIVIDEND
A special dividend of 15 pence per share was paid to
shareholders on 15 December 2017.
POST YEAR END EVENTS
There have been no 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 97. 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 102 and 103. Details of
the share based incentive schemes in place are provided in
the Directors’ Remuneration Report on pages 56 and 57.
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.
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.
SUBSTANTIAL SHAREHOLDERS
At 9 April 2018 the following had notified the Company of a
disclosable interest in 3% or more of the nominal value of the
Company’s ordinary shares:
Shareholder
Number of
ordinary
shares
Percentage
of share
capital
Invesco Perpetual Asset Management Ltd
Artemis Investment Management LLP
Majedie Asset Management
Woodford Investment Management
Stuart Middleton
91,971,149
34,051,657
25,959,884
25,586,257
18,035,477
26.93%
9.97%
7.60%
7.49%
5.28%
Card Factory plc Annual Report and Accounts 2018
69
Strategic ReportGovernanceFinancials Directors’ Report continued
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.
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 103
of the Annual Report and Accounts.
DIRECTORS
The Directors of the Company and their biographies are set
out on pages 34 to 36. Details of changes to the Board during
the period are set out in the Corporate Governance Report on
pages 38 and 39. Details of how Directors are appointed and/
or removed are set out in the Corporate Governance Report
on page 44.
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 44 and 45.
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 45.
EMPLOYEES
Information relating to employees of the Group is set out
in the Corporate Social Responsibility Report on page 31.
Share incentive schemes in which employees participate
are described in the Directors’ Remuneration Report on
pages 56 and 57 and in note 25 to the financial statements
on pages 102 and 103.
HEALTH AND SAFETY
An overview of health and safety is provided in the Corporate
Social Responsibility Report on pages 30 and 31.
GREENHOUSE GAS EMISSIONS
The Corporate Social Responsibility Report on page 30 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.
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 26. In that section, beginning
on page 24, 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 20 to 23.
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. A copy of the Group’s tax
strategy is available on Card Factory’s investor website
(www.cardfactoryinvestors.com).
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 1 to 27, 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 2021. 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 1 to 27.
The Directors have determined that the three years to
31 January 2021 is an appropriate period over which to
provide its viability statement. Three years closely
corresponds to the average remaining lease term of the
Group’s store portfolio and is the timeframe used 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, wage costs,
property costs and the success of various business efficiency
initiatives). 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 Company has ever experienced.
70 Card Factory plc Annual Report and Accounts 2018
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 its
liabilities as they fall due in the period to 31 January 2021.
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 2018 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.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at
11.00am on 31 May 2018 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 72.
APPROVAL OF THE ANNUAL REPORT
The Strategic Report and the Corporate Governance Report
were approved by the Board on 9 April 2018.
Approved by the Board and signed on its behalf by
Shiv Sibal
Company Secretary
9 April 2018
Card Factory plc Annual Report and Accounts 2018
71
Strategic ReportGovernanceFinancials 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 International Financial Reporting
Standards as adopted by the European Union (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, relevant and reliable;
• state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
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 are responsible for such internal
control as they determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and 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.
Karen Hubbard
Chief Executive Officer
Kris Lee
Chief Financial Officer
9 April 2018
72 Card Factory plc Annual Report and Accounts 2018
Independent Auditor’s Report
to the Members of Card Factory plc
1. OUR OPINION IS UNMODIFIED
We have audited the financial statements of Card Factory plc (‘the Company’) for the year ended 31 January 2018 which
comprise the Consolidated income statement, Consolidated statement of comprehensive income, Consolidated statement of
financial position, Consolidated statement of changes in equity, Consolidated cash flow statement, Parent Company balance
sheet, Parent Company statement of changes in equity, Parent Company cash flow statement, and the related notes, including
the accounting policies in note 1.
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 2018 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis
for our opinion. Our audit opinion is consistent with our report to the audit committee.
We were appointed as auditor by the Company’s members on 25 May 2017. The period of total uninterrupted engagement is for
the 7 financial years ended 31 January 2018. We have fulfilled our ethical responsibilities under, and we remain independent of
the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest
entities. No non-audit services prohibited by that standard were provided.
Overview
Materiality:
Group financial statements as a whole
£4.0m (2017:£4.0m)
5.0% (2017: 5.0%) of Group profit before tax excluding non-underlying items.
Coverage
100% (2017:100%) of Group profit before tax
Risks of material misstatement
vs 2017
Recurring risks
Existence and accuracy of the stock counts for store inventory and
accuracy of the costing calculations for all inventory.
Foreign exchange hedge accounting.
Recoverability of parent Company
investments in subsidiaries.
tu
tu
tu
Card Factory plc Annual Report and Accounts 2018
73
GovernanceStrategic ReportFinancials Independent Auditor’s Report
to the Members of Card Factory plc continued
2. KEY AUDIT MATTERS: OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. We summarise below the key audit matters (unchanged from 2017), in decreasing
order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those
matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our
results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements
as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a
separate opinion on these matters.
The risk
Our response
Inventory costing and
store inventory
quantities
(£51.5 million; 2017: £51.4
million)
Refer to page 49 (Audit
and Risk Committee
Report), page 89
(accounting policy) and
page 95 (financial
disclosures).
Physical quantities of store
stock
Store inventory quantities
depend on year end physical
counts. Accordingly, given the
high volume and broad range of
inventory held there is a risk
that quantities of store
inventory could be incorrectly
recorded. Controls over the
year end counts of store
inventory are themselves
manual in nature.
Calculation error
Elements of the inventory
costing calculations across both
store and warehouse stock are
manual in nature. Given the high
volume and broad range on
inventory held there is a risk
that cost could be incorrectly
recorded.
Foreign exchange
hedge accounting
(£5 million deficit; 2017:
£2 million (surplus))
Refer to page 49 (Audit
and Risk Committee
Report), page 88
(accounting policy) and
pages 100 to 102
(financial disclosures).
Accounting treatment
The Group adopts hedge
accounting for a high
proportion of its foreign
currency inventory purchases.
The amount of fair value
movement recorded through
other comprehensive income
(OCI) rather than the income
statement is determined by
effectiveness testing.
Hedge accounting is inherently
complex and requires a degree
of judgement in determining
forecast cash flows.
If the assumptions made in the
effectiveness testing were
inappropriate, the presentation
of the fair value movement on
the financial instruments in OCI
could be incorrect.
74 Card Factory plc Annual Report and Accounts 2018
Our procedures included:
• Count design and attendance: Assessment of the design and
implementation of the store count procedures through
attendance at a sample of store inventory counts, including to
inform the extent of test of details;
• Control operation: Evaluated the operating effectiveness of
the controls over the process for reviewing store count
results, which compares the results of the store counts to the
expected stock levels for each store on a line by line basis.
This includes investigation of significant variances. The test
informs the extent of tests of details;
• Tests of details: Selected a sample of stock lines to assess
whether the counted quantities agree to expected quantities
according to the system and investigated how any variances
within our sample had been resolved. As an adjustment is
made to the gross stock figure to the extent variances exceed
management’s threshold, we considered the level of this
threshold in the context of our materiality;
• Tests of details: Identified store outliers based on a number
of factors such as stock levels per square foot of selling
space. For these we evaluated the characteristics specific to a
sample of stores such as their location in relation to other
stores, to assess whether this was consistent with the stock
levels reported. We considered the overall value of the stock
held in outlier stores in the context of materiality; and
• Re-performance: For a sample of inventory lines re-
performed the standard cost calculations and agreed each
input to invoice or other supporting documentation.
Our results: The results of our procedures were satisfactory.
Our procedures included:
• Control operation: Tested the operating effectiveness of the
processes and controls over foreign exchange hedging to
assess whether effectiveness testing had been performed on
a monthly basis;
• Tests of details: Assessed the accuracy of management’s
hedge effectiveness testing by agreeing the inputs to
contracts, budgets and valuations;
• Re-performance: Re-performed the calculation of hedge
effectiveness for all foreign exchange contracts outstanding
at the year end; and
• Historical comparisons: Considered the accuracy of historical
forecast foreign currency purchases to assess the Group’s
forecasting reliability. We also considered the accuracy of the
testing performed in the prior year.
Our results: The results of our procedures were satisfactory and
we found the fair value movement on derivatives recorded
through OCI to be acceptable.
The risk
Our response
Parent: Recoverability
of Parent Company’s
investments in
subsidiaries
(£316.2 million;
2017: £316.2 million)
Refer to page 108
(accounting policy)
and page 110 (financial
disclosures).
Low risk, high value
The carrying amount of the
Company’s investments, held at
cost, represents 99.8% of the
Company’s total assets.
We do not consider the
recoverable amount of these
investments to be at a high risk
of significant misstatement, or to
be subject to a significant level
of judgement. However, due to
their materiality in the context of
the financial statements as a
whole, this is considered to be
one of the areas which had the
greatest effect on our overall
audit strategy and allocation of
resources in planning and
completing our audit of the
Parent Company.
Our procedures included:
• Tests of details: Compared the carrying amount of all of the
investments with the respective subsidiaries’ net assets values
to identify whether the net assets values, being an
approximation of their minimum recoverable amount, were in
excess of the carrying amount.
• Tests of details: Compared the carrying amount of
investments in total against the market capitalisation of the
Group at the year end.
• Assessing subsidiary audits: Considering the results of the
work on those subsidiaries’ profits and net assets.
Our results: We found the Group’s assessment of the
recoverability of the investment in subsidiaries to be acceptable.
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 £4m determined by reference to a benchmark of
Group profit before tax, normalised to exclude non-underlying items of £7.9m as disclosed in note 3, of which it represents 5.0%
(2017: 5.0%).
The materiality for the Parent Company financial statements as a whole has been set at £3.9m determined by reference to a
benchmark of total assets, of which it represents 1% (2017: 1%).
We report to the Audit and Risk committee any corrected and uncorrected misstatements exceeding £50,000 in addition to
other identified misstatements that warrant reporting on qualitative grounds.
Of the Group’s 3 reporting components we subjected all 3 to audit for Group reporting purposes. These components covered
100% of the total Group revenue (2017: 100%), 100% of the Group profit before taxation (2017: 100%) and 100% of total Group
assets (2017: 100%). Our procedures were performed from the Group’s support centre in Wakefield and at the component offices
in Shipley and Wythenshawe.
Group profit before tax,
normalised to exclude
non-underlying items
£80.5m (2017: £85.1m)
Group Materiality
£4.0m (2017: £4.0m)
£4.0m
Whole financial
statements materiality
(2017: £4.0m)
Group revenue
Group profit before tax
100%
(2017: 100%)
100%
(2017: 100%)
£3.5m
Range of materiality at 3
components (£2.5m to £3.5m)
(2017: £2.5m to £3.5m)
100
100
Group profit before tax
normalised for non-underlying
items
Group materiality
£50k
Misstatements reported to
the audit committee
(2017: £50k)
Group total assets
Group profit before
non-underlying items and tax
100%
(2017: 100%)
100%
(2017: 100%)
100
100
100
100
Full scope for Group
audit purposes 2018
Full scope for Group
audit purposes 2017
Card Factory plc Annual Report and Accounts 2018
75
GovernanceStrategic ReportFinancials Independent Auditor’s Report
to the Members of Card Factory plc continued
Under the Listing Rules we are required to review the longer-
term viability statement. We have nothing to report in
this respect.
Corporate governance disclosures
We are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our financial statements
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 section of the annual report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the
eleven provisions of the UK Corporate Governance Code
specified by the Listing Rules for our review.
We have nothing to report in these respects.
6. WE HAVE NOTHING TO REPORT ON THE OTHER
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY
EXCEPTION
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.
We have nothing to report in these respects.
7. RESPECTIVE RESPONSIBILITIES
Directors’ responsibilities
As explained more fully in their statement set out on page 72,
the directors are responsible for: the preparation of the
financial statements including being satisfied that they give a
true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error; assessing the Group and parent Company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the
going concern basis of accounting unless they either intend to
liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
4. WE HAVE NOTHING TO REPORT ON GOING CONCERN
We are required to report to you if:
• we have anything material to add or draw attention to in
relation to the directors’ statement in note 1 to the
financial statements on the use of the going concern basis
of accounting with no material uncertainties that may cast
significant doubt over the Group and Company’s use of
that basis for a period of at least twelve months from the
date of approval of the financial statements; or
•
the related statement under the Listing Rules set out on
page 70 if the same statement is materially inconsistent
with our audit knowledge.
We have nothing to report in these respects.
5. WE HAVE NOTHING TO REPORT ON THE OTHER
INFORMATION IN THE ANNUAL REPORT
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not
cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements
audit work, the information therein is materially misstated or
inconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the
strategic report and the directors’ report;
•
•
in our opinion the information given in those reports for
the financial year is consistent with the financial
statements; and
in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:
•
•
•
the directors’ confirmation within the longer-term viability
statement on pages 70 and 71 that they have carried out a
robust assessment of the principal risks facing the Group,
including those that would threaten its business model,
future performance, solvency and liquidity;
the Principal Risks disclosures describing these risks
and explaining how they are being managed and
mitigated; and
the directors’ explanation in the longer-term viability
statement of how they have assessed the prospects of the
Group, over what period they have done so and why they
considered that period to be appropriate, and their
statement as to whether they have a reasonable
expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the
period of their assessment, including any related
disclosures drawing attention to any necessary
qualifications or assumptions.
76 Card Factory plc Annual Report and Accounts 2018
8. THE PURPOSE OF OUR AUDIT WORK AND TO WHOM WE
OWE OUR RESPONSIBILITIES
This report is made solely to the Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the Company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than
the Company and the Company’s members, as a body, for our
audit work, for this report, or for the opinions we have formed.
Nicola Quayle (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
9 April 2018
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or other
irregularities (see below), or error, and to issue our opinion in
an auditor’s report. Reasonable assurance is a high level of
assurance, but does not guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from
fraud, other irregularities or error and are considered material
if, individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of the financial statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our sector experience, through
discussion with the directors and other management (as
required by auditing standards), and from inspection of the
Group’s regulatory and legal correspondence.
We had regard to laws and regulations in areas that directly
affect the financial statements including financial reporting
(including related company legislation) and taxation
legislation. We considered the extent of compliance with
those laws and regulations as part of our procedures on the
related annual accounts items.
In addition we considered the impact of laws and regulations
in the specific areas of the national minimum wage legislation.
With the exception of any known or possible non-compliance,
and as required by auditing standards, our work in respect of
these was limited to enquiry of the directors and other
management and inspection of regulatory and legal
correspondence. We considered the effect of any known or
possible non-compliance in these areas as part of our
procedures on the related financial statements items.
We communicated identified laws and regulations throughout
our team and remained alert to any indications of non-
compliance throughout the audit.
As with any audit, there remained a higher risk of non-
detection of non-compliance with relevant laws and
regulations (irregularities), as these may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal controls.
Card Factory plc Annual Report and Accounts 2018
77
GovernanceStrategic ReportFinancials Consolidated Income Statement
For the year ended 31 January 2018
Revenue
Cost of sales
Gross profit/(loss)
Operating expenses
Operating profit/(loss)
Finance income
Finance expense
Net finance expense
Profit/(loss) before tax
Taxation
2018
Non-
underlying
(note 3)
£’m
Note
Underlying
£’m
422.1
(297.0)
125.1
(41.7)
83.4
0.1
(3.0)
(2.9)
4
7
7
–
(7.6)
(7.6)
(0.3)
(7.9)
–
–
–
Total
£’m
Underlying
£’m
422.1
(304.6)
398.2
(271.6)
117.5
126.6
(42.0)
(38.8)
75.5
87.8
0.1
(3.0)
(2.9)
0.1
(2.8)
(2.7)
2017
Non-
underlying
(note 3)
£’m
–
(0.6)
(0.6)
(1.5)
(2.1)
–
(0.2)
(0.2)
Total
£’m
398.2
(272.2)
126.0
(40.3)
85.7
0.1
(3.0)
(2.9)
80.5
(7.9)
72.6
85.1
(2.3)
82.8
8
(15.8)
1.5
(14.3)
(17.6)
0.5
(17.1)
Profit/(loss) for the year
64.7
(6.4)
58.3
67.5
(1.8)
65.7
Earnings per share
– Basic and diluted
10
pence
18.9
pence
17.1
pence
19.8
pence
19.3
All activities relate to continuing operations.
78 Card Factory plc Annual Report and Accounts 2018
Consolidated Statement of Comprehensive Income
For the year ended 31 January 2018
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 for the period, net of income tax
2018
£’m
2017
£’m
58.3
65.7
(7.2)
(1.5)
1.7
(7.0)
3.8
(5.1)
0.2
(1.1)
Total comprehensive income for the period attributable to equity shareholders of the parent
51.3
64.6
Card Factory plc Annual Report and Accounts 2018
79
GovernanceStrategic ReportFinancials
Consolidated Statement of Financial Position
As at 31 January 2018
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
Derivative financial instruments
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
2018
£’m
2017
£’m
11
12
13
15
24
14
15
24
16
17
18
24
17
18
24
19
19
331.6
40.0
1.9
0.8
0.2
374.5
51.5
16.6
0.3
3.6
72.0
330.2
39.1
0.6
0.8
0.6
371.3
51.4
16.6
3.5
3.0
74.5
446.5
445.8
(14.9)
(37.7)
(5.5)
(7.0)
(65.1)
(149.6)
(10.0)
(3.4)
(8.8)
(37.4)
(8.7)
(0.7)
(55.6)
(129.3)
(11.2)
(0.2)
(163.0)
(140.7)
(228.1)
(196.3)
218.4
249.5
3.4
202.2
(5.0)
(0.5)
2.7
15.6
3.4
201.9
2.0
(0.5)
2.7
40.0
218.4
249.5
The financial statements on pages 78 to 104 were approved by the Board of Directors on 9 April 2018 and were signed on its
behalf by:
Kris Lee
Chief Financial Officer
80 Card Factory plc Annual Report and Accounts 2018
Consolidated Statement of Changes in Equity
For the year ended 31 January 2018
Share
capital
£’m
Share
premium
£’m
Hedging
reserve
£’m
Reverse
acquisition
reserve
£’m
Merger
reserve
£’m
Retained
earnings
£’m
Total
equity
£’m
At 1 February 2016
3.4
201.6
3.1
(0.5)
2.7
55.4
265.7
Total comprehensive income for the period
Profit or loss
Other comprehensive expense
Transactions with owners, recorded directly in equity
Issue of shares (note 19)
Share-based payment charges (note 25)
Taxation on share based payments recognised in equity
Dividends (note 9)
Total contributions by and distributions to owners
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
–
0.3
–
(1.1)
(1.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
65.7
–
65.7
–
0.2
(0.1)
(81.2)
65.7
(1.1)
64.6
0.3
0.2
(0.1)
(81.2)
(81.1)
(80.8)
At 31 January 2017
3.4
201.9
2.0
(0.5)
2.7
40.0
249.5
Total comprehensive income for the period
Profit or loss
Other comprehensive expense
Transactions with owners, recorded directly in equity
Issue of shares (note 19)
Share-based payment charges (note 25)
Dividends (note 9)
Total contributions by and distributions to owners
–
–
–
–
–
–
–
–
–
–
0.3
–
–
0.3
–
(7.0)
(7.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
58.3
–
58.3
–
(0.1)
(82.6)
(82.7)
58.3
(7.0)
51.3
0.3
(0.1)
(82.6)
(82.4)
At 31 January 2018
3.4
202.2
(5.0)
(0.5)
2.7
15.6
218.4
Card Factory plc Annual Report and Accounts 2018
81
GovernanceStrategic ReportFinancials Consolidated Cash Flow Statement
For the year ended 31 January 2018
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
Interest received
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from bank borrowings
Purchase of interest rate derivatives
Interest paid
Repayment of bank borrowings
Proceeds from new shares issued
Dividends paid
Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Closing cash and cash equivalents
Note
20
12
11
9
16
2018
£’m
89.7
(17.0)
72.7
(10.6)
(2.5)
0.1
(13.0)
20.0
–
(2.7)
–
0.3
(82.9)
(65.3)
(5.6)
(5.7)
(11.3)
2017
£’m
99.4
(17.6)
81.8
(8.6)
(1.8)
0.1
(10.3)
–
(0.1)
(2.6)
(5.0)
0.3
(81.1)
(88.5)
(17.0)
11.3
(5.7)
82 Card Factory plc Annual Report and Accounts 2018
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.
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:
Inventories
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 estimate 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 in determining forecast cash
flows there is a risk that the assumptions made in the effectiveness testing are inappropriate.
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 33, 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 pages 70 to 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 20 to 23. 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. The Chief Financial Officer’s Review on pages 20 to 23
provides further detail on the Board’s current view on capital policy.
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.
• Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12);
• Annual Improvements to IFRS Standards 2014 – 2016 cycle; and
• Disclosure Initiative (Amendments to IAS 7).
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 new and revised accounting standards are currently endorsed but effective for periods beginning on
or after 1 January 2018 (unless otherwise stated).
•
•
•
•
IFRS 15 Revenue from Contracts with Customers;
IFRS 9 Financial instruments;
IFRS 16 Leases (effective 1 January 2019); and
IFRS 2 ‘Classification and Measurement of Share-Based Payment Transactions’.
Card Factory plc Annual Report and Accounts 2018
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1 ACCOUNTING POLICIES CONTINUED
IFRS 15
IFRS 15 ‘revenue from contracts with customers’ introduces principles to recognise revenue by allocation of the transaction price
to performance obligations and is effective for accounting periods commencing on or after 1 January 2018. Adoption of the
standard will not materially impact the measurement or recognition of items in the financial statements, however additional
disclosures will be required.
IFRS 9
IFRS 9 ‘financial instruments’ sets out requirements for recognising and measuring financial assets and financial liabilities and
replaces IAS 39 Financial Instruments: Recognition and Measurement.
Classification of financial assets
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which
assets are managed and the cash flow characteristics of the assets.
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other
comprehensive income and fair value through profit or loss. The standard eliminates the existing IAS 39 categories of held to
maturity, loans and receivables and available for sale.
Based on its assessment, the Group believes that the new classification requirements will not impact the accounting for its
financial assets.
Impairment of financial assets
IFRS 9 replaces the incurred loss model in IAS 39 with a forward-looking ‘expected credit loss’ model. The new impairment
model will apply to financial assets measured at amortised cost. Revenue from retail customers represents over 99% of Group
revenues and consequently trade and other receivables measured at amortised cost are not material to the financial statements.
Based on its assessment, the Group believes that there is no material impact on the financial statements from adopting IFRS 9 in
respect of expected credit losses.
Cash and cash equivalents
Cash and cash equivalents at 31 January 2018 were held with banks rated a3 to baa3 per Moody’s baseline credit assessment and
are not subject to any period of notice. The Group typically maintains a net overdrawn cash position as part of its RCF funding
arrangement. Cash and cash equivalents held outside the RCF are of low value and based on its assessment, the Group believes
that there is no material impact on the financial statements from adopting IFRS 9 in respect of expected credit losses.
Classification of financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. The Group believes that the
classification requirements of IFRS 9 will not impact the financial statements.
Hedge accounting
On initial adoption of IFRS9, the Group may choose as its accounting policy to continue to apply the hedge accounting
requirements of IAS 39 instead of the requirements in IFRS 9. The Group has chosen to apply the new requirements of IFRS 9.
IFRS 9 requires the Group to ensure that hedge accounting relationships are aligned with the Group’s risk management
objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. IFRS 9
also introduces new requirements on rebalancing hedge relationships and prohibiting voluntary discontinuation of hedge
accounting. Under the new model, it is possible that more risk management strategies may qualify for hedge accounting, though
eligibility for hedge accounting of the Group’s existing hedging activities have been assessed as unchanged.
Foreign exchange hedge accounting
The Group utilises foreign currency derivative contracts and US Dollar denominated cash balances to manage the foreign
exchange risk on US Dollar denominated inventory purchases. The Group designates only the change in the fair value of the spot
element of forward currency contracts as the hedging instrument in cash flow hedging relationships. Under IAS 39, the change
in fair value of the forward element of the forward currency contract (‘forward points’) is recognised immediately in profit or loss
(presented as a non-underlying item, see notes 1 and 3 to the financial statements).
On adoption of IFRS 9, the Group has elected to separately account for the forward points as a cost of hedging. Consequently,
the changes in forward points will be recognised in other comprehensive income and accumulated in a cost of hedging reserve
as a separate component within equity and subsequently recognised into the hedged inventory purchase value. The Group does
not intend to apply the transitional option to retrospectively apply this treatment.
The Group will also require an amendment to the accounting policy in respect of cash flow hedge accounting. Gains or losses
recognised in other comprehensive income in respect of a cash flow hedge of a forecast transaction that results in the
recognition of a non-financial asset or liability would be required to be included in the initial measurement of the asset or liability.
The current accounting policy recognises such gains or losses 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, but does not recognise the gain or loss in the
initial measurement of a resulting asset or liability.
84 Card Factory plc Annual Report and Accounts 2018
Interest rate hedge accounting
The Group utilises interest rate derivative contracts to manage the risk on floating rate bank borrowings. The Group designates
only the change in the fair value of the intrinsic element of interest rate caps as the hedging instrument in cash flow hedging
relationships. Under IAS 39, the change in fair value of the time value element of the interest rate cap is recognised immediately
in profit or loss (presented as a non-underlying item until the date of the hedged cash flow, see notes 1 and 3 to the
financial statements).
On adoption of IFRS 9, the Group has elected to separately account for the time value as a cost of hedging. Consequently, the
changes in time value will be recognised in other comprehensive income and accumulated in a cost of hedging reserve as a
separate component within equity and reclassified to profit or loss on the date of the hedged cash flow. IFRS 9 mandates
retrospective application of this treatment.
Transition
Changes in accounting policies resulting from adoption of IFRS 9 will generally be applied retrospectively, except as described
below:
The Group intends to take advantage of the exemption allowing it not to restate comparative information for prior periods with
respect to classification and measurement changes (including impairment). Differences in carrying amounts of financial assets
and financial liabilities resulting from the adoption of IFRS 9 would be recognised as an adjustment to opening reserves.
The new hedge accounting requirements are applied prospectively except for the retrospective application of the time value
element of interest rate caps. The comparative period will therefore be restated in respect of hedge accounting for the time
value element of interest rate caps.
Impact on the financial statements
The impact on the financial statements is shown below.
Net Assets
Inventories
Equity
Hedging reserve
Cost of hedging reserve
Retained earnings
2018
£’m
2017
£’m
0.4
–
0.4
(0.3)
0.3
0.4
–
(0.3)
0.3
–
The impact on finance expense in the FY18 income statement is less than £0.1m.
IFRS 16
IFRS 16 ‘leases’ will replace IAS 17 ‘leases’ and related interpretations and requires entities to apply a single lessee accounting
model, with lessees recognising right of use assets and lease liabilities on balance sheet for all applicable leases. Adoption of the
standard will have a material impact on the reported assets and liabilities in the financial statements.
The operating lease commitments disclosed in note 22 of the financial statements principally relate to property leases and some
vehicle leases, all of which will meet the definition of a lease under IFRS 16. The Group does not believe there are any contracts
not included in the operating lease note that would qualify as a lease under IFRS 16.
Under IAS 17 operating lease costs were expensed to the income statement. Under IFRS 16 a depreciation charge will be made
against the right of use assets and an interest charge incurred against the lease liability. Any timing differences between
operating lease costs previously expensed under IAS 17 and depreciation and interest charges under IFRS 16 will impact profit
reported in the income statement. The EBITDA profit measure defined in note 5 to the financial statements will increase by
approximately the operating lease costs identified in note 4 to the financial statements, subject to a non-material element
qualifying as low value or short-term leases under IFRS 16 and continuing to be expensed to the income statement as operating
lease costs.
The Group continues to assess the impact of adopting the standard under the different transitional options available. Full
retrospective application would provide both a restated comparative period and a more consistent year on year charge to the
income statement than the alternative modified transitional options. The assessment of a full retrospective application including
all leases and lease events back to the date of lease commencement is not yet complete.
Card Factory plc Annual Report and Accounts 2018
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1 ACCOUNTING POLICIES CONTINUED
IFRS 2
Amendments to IFRS 2 ‘Share-based payments’ have been issued in relation to the classification and measurement of particular
share-based payment transactions. The amendments relate to accounting for the effects of vesting conditions on the
measurement of a cash-settled share-based payment, classification of share-based payment transactions with a net settlement
feature for withholding tax obligations and accounting for a modification to the terms and conditions of a share-based payment
that changes the classification of the transaction from cash-settled to equity-settled.
Adoption of the standard will not have a material impact on the financial statements.
International Financial Reporting Standards in issue but not yet effective and not EU endorsed
The future impact on the financial statements of new standards and amendments awaiting EU endorsement is currently being
assessed but is not expected to have a material impact on the financial statements.
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.
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.
Finance 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 expense 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 pound Sterling, which is the functional currency of the Company.
Foreign operations
The Group has one foreign subsidiary with a Euro functional currency. The activities of foreign operations are not material to the
Group. On consolidation, assets and liabilities of foreign operations are translated into Sterling at year-end exchange rates. The
results of foreign operations are translated into Sterling at average rates of exchange for the year.
Transactions and balances
Transactions in foreign currencies are recorded at the exchange rate on the transaction date. All currency transactions that are
not in the functional currency of the trading entity 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.
86 Card Factory plc Annual Report and Accounts 2018
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.
Underlying profit and earnings
The Group has chosen to present an underlying profit and earnings measure. The Group believes that underlying profit and
earnings information enables shareholders to make more meaningful comparisons of performance year-on-year. 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.
EPOS asset disposals and accelerated depreciation
Electronic point of sale (‘EPOS’) software implemented over recent years was upgraded with a replacement system offering
enhanced capabilities. The resulting loss on disposal of redundant assets and accelerated depreciation arising on assets to be
replaced in advance of their original estimated useful economic life were considered a one-off event and not representative of
underlying performance for the prior year. As such they were presented as a non-underlying item in the prior period.
Other non-underlying operating expenses
In January 2016, Card Factory plc announced the retirement and succession of the CEO and in January 2017 announced the
retirement and succession of the CFO. Costs attributable to recruitment and dual remuneration costs during the handover
periods are presented as non-underlying items.
Dividends
Dividends are recognised as a liability in the period in which they are approved.
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.
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.
Card Factory plc Annual Report and Accounts 2018
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GovernanceStrategic ReportFinancials Notes to the Financial Statements continued
1 ACCOUNTING POLICIES CONTINUED
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 for less than three months. Bank
overdrafts, within borrowings, 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.
Derivative financial instruments not designated as effective hedging relationships principally relate to structured foreign
exchange options that form part of the foreign exchange risk management policy detailed in note 23 of the financial statements.
The Group designates only the intrinsic value of interest rate caps as a hedging relationship. 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.
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.
88 Card Factory plc Annual Report and Accounts 2018
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.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives as follows:
• buildings
25 – 50 years
•
leasehold improvements
shorter of 5 years and lease term
• plant and equipment
3 – 10 years
•
fixtures and fittings
• motor vehicles
5 years
4 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.
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.
Card Factory plc Annual Report and Accounts 2018
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Notes to the Financial Statements continued
1 ACCOUNTING POLICIES CONTINUED
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 principally through an extensive UK 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.
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.
3 NON-UNDERLYING ITEMS
Cost of sales
Loss on foreign currency derivative financial instruments not designated as a hedge (note 24)
Operating expenses
Loss on disposal of redundant EPOS assets
Accelerated depreciation on EPOS assets
Other non-underlying operating expenses
Net finance expense
Loss on interest rate derivative financial instruments not designated as a hedge
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 loss/(gain)
Non-underlying items included in the above are detailed in note 3.
The total fees payable by the Group to KPMG LLP and their associates during the period was as follows:
Audit of the consolidated and Company financial statements
Amounts receivable by the Company’s auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the Company
Audit-related assurance services
Other tax advisory services
Other assurance services
Total fees
90 Card Factory plc Annual Report and Accounts 2018
2018
£’m
2017
£’m
(7.6)
(0.6)
–
–
(0.3)
(0.3)
–
2018
£’m
106.2
9.5
1.1
40.4
0.6
0.2
3.3
2018
£’000
18
89
7
–
4
118
(0.9)
(0.2)
(0.4)
(1.5)
(0.2)
2017
£’m
98.5
9.2
1.7
38.9
0.5
1.1
(2.6)
2017
£’000
18
89
8
15
13
143
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
Underlying depreciation and amortisation*
Underlying EBITDA
2018
£’m
83.4
10.6
94.0
2017
£’m
87.8
10.7
98.5
* Underlying depreciation and amortisation in 2017 excludes £0.2m accelerated depreciation on EPOS assets (see note 3).
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:
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
2018
Number
2017
Number
393
9,543
9,936
357
9,571
9,928
2018
£’m
96.2
(0.1)
5.8
0.4
102.3
3.9
106.2
2017
£’m
89.4
0.2
4.6
0.4
94.6
3.9
98.5
Key management personnel
The key management personnel of the Group comprise the Card Factory plc Board of Directors and the Executive 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
2018
£’m
2.3
(0.4)
0.3
0.1
2.3
2017
£’m
2.8
(0.1)
0.3
0.1
3.1
Further details of Director’s remuneration are disclosed in the Directors’ Remuneration Report on pages 54 to 66.
7 FINANCE INCOME AND EXPENSE
Finance income
Bank interest received
Finance expense
Interest on bank loans and overdrafts
Amortisation of loan issue costs
Loss on interest rate derivative contracts
Net finance expense
2018
£’m
2017
£’m
(0.1)
(0.1)
2.6
0.2
0.2
3.0
2.9
Card Factory plc Annual Report and Accounts 2018
2.6
0.2
0.2
3.0
2.9
91
GovernanceStrategic ReportFinancials
Notes to the Financial Statements continued
8 TAXATION
Recognised in the income statement
Current tax expense
Current year
Deferred tax charge/(credit)
Origination and reversal of temporary differences
Adjustments in respect of prior periods
Effect of change in tax rate
Total income tax expense
2018
£’m
2017
£’m
13.9
17.4
0.5
(0.1)
–
0.4
14.3
(0.3)
(0.1)
0.1
(0.3)
17.1
The effective tax rate of 19.7% (2017: 20.7%) 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 19.2% (2017: 20.0%)
Tax effects of:
Expenses not deductible for tax purposes
Adjustments in respect of prior periods
Effect of change in tax rate
Total income tax expense
9 DIVIDENDS
2018
£’m
2017
£’m
72.6
82.8
13.9
16.6
0.5
(0.1)
–
14.3
0.5
(0.1)
0.1
17.1
The Board is recommending a final dividend in respect of the financial year ended 31 January 2018 of 6.4 pence per share (2017:
6.3 pence per share), resulting in a total final dividend of £21.9 million (2017: £21.5 million). The dividend will, subject to
shareholders’ approval at the Annual General Meeting on 31 May 2018, be paid on 8 June 2018 to shareholders on the register at
the close of business on 4 May 2018. 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 2018
Interim dividend for the year ended 31 January 2018
Final dividend for the year ended 31 January 2017
Special dividend for the year ended 31 January 2017
Interim dividend for the year ended 31 January 2017
Final dividend for the year ended 31 January 2016
Total dividends paid to shareholders in the year
Dividend equivalents paid under long-term incentive schemes
Total dividends per the cash flow statement
15.0p
2.9p
6.3p
15.0p
2.8p
6.0p
2018
£’m
51.2
9.9
21.5
82.6
0.3
82.9
2017
£’m
51.1
9.6
20.4
81.1
–
81.1
Dividend equivalents totalling £nil (2017: £0.1 million) were accrued in the year 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.
92 Card Factory plc Annual Report and Accounts 2018
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 period
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
11 INTANGIBLE ASSETS
Cost
At 1 February 2017
Additions
At 31 January 2018
Amortisation
At 1 February 2017
Provided in the period
At 31 January 2018
Net book value
At 31 January 2018
At 31 January 2017
Cost
At 1 February 2016
Additions
Disposals
At 31 January 2017
Amortisation
At 1 February 2016
Provided in the period
Disposals
At 31 January 2017
Net book value
At 31 January 2017
At 31 January 2016
2018
(Number)
2017
(Number)
341,260,105
37,572
340,798,812
171,016
341,297,677 340,969,828
£’m
58.3
6.4
64.7
£’m
65.7
1.8
67.5
pence
pence
17.1
17.1
18.9
18.9
Goodwill
£’m
Software
£’m
328.2
–
328.2
–
–
–
328.2
328.2
328.2
–
–
328.2
–
–
–
–
328.2
328.2
6.4
2.5
8.9
4.4
1.1
5.5
3.4
2.0
7.3
1.8
(2.7)
6.4
4.5
1.7
(1.8)
4.4
2.0
2.8
19.3
19.3
19.8
19.8
Total
£’m
334.6
2.5
337.1
4.4
1.1
5.5
331.6
330.2
335.5
1.8
(2.7)
334.6
4.5
1.7
(1.8)
4.4
330.2
331.0
Card Factory plc Annual Report and Accounts 2018
93
GovernanceStrategic ReportFinancials Notes to the Financial Statements continued
11 INTANGIBLE ASSETS CONTINUED
Impairment testing
For the purposes of impairment testing, goodwill has been allocated to the Group’s CGUs as follows:
Card Factory
Getting Personal
2018
£’m
313.8
14.4
2017
£’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% (2017: 2%) terminal growth rate applied thereafter, representing
management’s estimate of the long-term growth rate of the sector. The key assumptions used to forecast operating cash flows
include: sales growth, based on historic performance and latest forecasts; product mix; foreign exchange rates, based on hedges
in place and market forecasts for unhedged items; and the Group’s current expectations in relation to efficiency initiatives. 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% (2017: 10%). No impairment loss was
identified in the current year (2017: £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.
12 PROPERTY, PLANT AND EQUIPMENT
Freehold
property
£’m
Leasehold
improvements
£’m
Cost
At 1 February 2017
Additions
Disposals
At 31 January 2018
Depreciation
At 1 February 2017
Provided in the period
Disposals
At 31 January 2018
Net book value
At 31 January 2018
At 31 January 2017
Cost
At 1 February 2016
Additions
Disposals
At 31 January 2017
Depreciation
At 1 February 2016
Provided in the period
Disposals
At 31 January 2017
Net book value
At 31 January 2017
At 31 January 2016
94 Card Factory plc Annual Report and Accounts 2018
17.4
–
–
17.4
2.3
0.4
–
2.7
14.7
15.1
17.3
0.1
–
17.4
1.9
0.4
–
2.3
15.1
15.4
Plant,
equipment,
fixtures &
vehicles
£’m
47.1
6.6
(1.1)
Total
£’m
96.6
10.6
(1.4)
52.6
105.8
31.9
5.8
(1.0)
36.7
57.5
9.5
(1.2)
65.8
32.1
4.0
(0.3)
35.8
23.3
3.3
(0.2)
26.4
9.4
15.9
40.0
8.8
15.2
39.1
28.8
3.8
(0.5)
32.1
20.7
3.1
(0.5)
23.3
43.7
4.7
(1.3)
47.1
27.3
5.7
(1.1)
31.9
89.8
8.6
(1.8)
96.6
49.9
9.2
(1.6)
57.5
8.8
15.2
39.1
8.1
16.4
39.9
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
Other
timing
differences
£’m
Leases
£’m
Total
£’m
At 1 February 2016
–
0.6
(0.7)
–
0.3
0.2
Credit/(charge) to income statement
Credit to other comprehensive income
Charge to equity
At 31 January 2017
Charge to income statement
Credit to other comprehensive income
Charge to equity
At 31 January 2018
0.2
–
–
0.2
–
–
–
0.2
(0.1)
–
(0.1)
0.4
(0.3)
–
–
0.1
–
0.2
–
(0.5)
–
1.7
–
1.2
0.2
–
–
0.2
–
–
–
0.2
–
–
–
0.3
(0.1)
–
–
0.2
0.3
0.2
(0.1)
0.6
(0.4)
1.7
–
1.9
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
2018
£’m
1.9
–
1.9
2017
£’m
1.1
(0.5)
0.6
A reduction in the corporation tax rate to 17% from 1 April 2020 was substantively enacted on 6 September 2016. 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
2018
£’m
50.9
0.6
51.5
2017
£’m
50.9
0.5
51.4
The cost of inventories recognised as an expense and charged to cost of sales in the year was £126.1 million (2017: £108.0 million).
15 TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Other receivables
Prepaid property costs
Other prepayments and accrued income
Non-current
Prepaid property costs
2018
£’m
0.2
0.9
12.8
2.7
16.6
2017
£’m
0.2
1.2
12.6
2.6
16.6
0.8
0.8
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 £0.4 million (2017: £0.9 million) US Dollar denominated deposits paid on inventory purchases.
Card Factory plc Annual Report and Accounts 2018
95
GovernanceStrategic ReportFinancials
2018
£’m
3.6
(14.9)
(11.3)
2018
£’m
(18.2)
0.3
6.6
(11.3)
2017
£’m
3.0
(8.7)
(5.7)
2017
£’m
(6.6)
–
0.9
(5.7)
2018
£’m
2017
£’m
–
14.9
14.9
0.1
8.7
8.8
149.6
129.3
Notes to the Financial Statements continued
16 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Unsecured bank overdraft (note 17)
Net cash and cash equivalents
The Group’s cash and cash equivalents are denominated in the following currencies:
Sterling
Euro
US Dollar
17 BORROWINGS
Current liabilities
Unsecured bank loans and accrued interest
Unsecured bank overdraft
Non-current liabilities
Unsecured bank loans
Bank loans
Bank borrowings are summarised as follows:
31 January 2018
Unsecured bank loan
Accrued interest
Debt issue costs
31 January 2017
Unsecured bank loan
Accrued interest
Debt issue costs
Liability
£’m
Interest rate
%
Interest margin
ratchet range
%
Repayment terms
1.25 + LIBOR
1.00 – 2.00
£200m RCF
The facility terminates in June 2020
1.00 + LIBOR
1.00 – 2.00
£200m RCF
The facility terminates in June 2020
150.0
–
(0.4)
149.6
130.0
0.1
(0.7)
129.4
The Group borrowing facility consists of a £200 million revolving credit facility (‘RCF’) terminating 26 June 2020 with an
additional £100 million accordion. Borrowings under the facility attract interest at LIBOR plus a margin in the range 1.0% to 2.0%,
subject to a leverage ratchet (LIBOR plus 1.25% at 31 January 2018). 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 £0.1 million (2017: £0.5 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.
96 Card Factory plc Annual Report and Accounts 2018
18 TRADE AND OTHER PAYABLES
Current
Trade payables
Other taxation and social security
Property accruals and deferred income
Other accruals and deferred income
Non-current
Property accruals and deferred income
2018
£’m
2017
£’m
15.2
4.2
7.6
10.7
37.7
13.9
3.8
7.0
12.7
37.4
10.0
11.2
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 £5.4 million (2017: £5.8 million).
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 the period (note 25)
At the end of the period
Share capital
At the start of the period
Issued in the period (note 25)
At the end of the period
Share premium
At the start of the period
Issued in the period (note 25)
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 movements
Share-based payments charge
Operating cash flows before changes in working capital
(Increase)/decrease in receivables
(Increase)/decrease in inventories
Increase in payables
Cash inflow from operating activities
2018
(Number)
2017
(Number)
340,844,864 340,696,235
148,629
614,417
341,459,281 340,844,864
£’m
3.4
–
3.4
£’m
201.9
0.3
202.2
2018
£’m
72.6
2.9
75.5
10.6
0.2
(3.4)
(0.1)
82.8
3.0
(0.1)
4.0
89.7
£’m
3.4
–
3.4
£’m
201.6
0.3
201.9
2017
£’m
82.8
2.9
85.7
10.9
1.1
(0.2)
0.2
97.7
1.1
(1.0)
1.6
99.4
Card Factory plc Annual Report and Accounts 2018
97
GovernanceStrategic ReportFinancials Notes to the Financial Statements continued
21 ANALYSIS OF NET DEBT
Unsecured bank loans and accrued interest (note 17)
Cash and cash equivalents (note 16)
Total net debt
Unsecured bank loans and accrued interest (note 17)
Cash and cash equivalents (note 16)
Total net debt
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
At 1 February
2017
£’m
Cash flow
£’m
Non-cash
changes
£’m
At 31 January
2018
£’m
(129.4)
(5.7)
(20.0)
(5.6)
(135.1)
(25.6)
(0.2)
–
(0.2)
(149.6)
(11.3)
(160.9)
At 1 February
2016
£’m
Cash flow
£’m
Non-cash
changes
£’m
At 31 January
2017
£’m
(134.2)
11.3
(122.9)
5.0
(17.0)
(12.0)
(0.2)
–
(0.2)
(129.4)
(5.7)
(135.1)
2018
£’m
2017
£’m
41.9
36.6
29.9
22.2
14.0
20.1
0.6
40.0
35.5
30.0
23.6
16.3
23.7
0.5
165.3
169.6
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 the Group’s approach
to managing risk are included in the Principal Risks and Uncertainties section of the Strategic Report on pages 24 to 27 and in
the Corporate Governance Report on page 45.
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 £35.0 million (2017: £59.7 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 2018, 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.
98 Card Factory plc Annual Report and Accounts 2018
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, stated at balance sheet date interest
rates in respect of floating interest rate liabilities.
At 31 January 2018
Unsecured bank loans
Unsecured bank overdraft
Trade and other payables
At 31 January 2017
Unsecured bank loans
Unsecured bank overdraft
Trade and other payables
Less than
one year
£’m
One to
two years
£’m
Two to five
years
£’m
More than
five years
£’m
Total
£’m
–
14.9
34.3
49.2
0.1
8.7
34.2
43.0
–
–
–
–
–
–
–
–
150.0
–
–
150.0
130.0
–
–
130.0
–
–
–
–
–
–
–
–
150.0
14.9
34.3
199.2
130.1
8.7
34.2
173.0
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.
At 31 January 2018
Foreign exchange contracts
– Inflow
– Outflow
Interest rate contracts
– Inflow
At 31 January 2017
Foreign exchange contracts
– Inflow
– Outflow
Interest rate contracts
– Outflow
Less than
one year
£’m
One to
two years
£’m
Two to five
years
£’m
More than
five years
£’m
Total
£’m
75.4
(80.1)
52.9
(54.3)
–
–
–
0.1
0.2
78.8
(72.9)
23.9
(22.1)
–
(0.1)
–
–
–
–
–
–
–
–
–
128.3
(134.4)
0.3
102.7
(95.0)
(0.1)
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 of between 50% and 100% of the next 12 months rolling US Dollar requirement using foreign
exchange derivative contracts and US Dollar denominated cash balances, up to 75% forward cover for the period 12 to 24
months and up to 25% for the period 24 to 35 months. The policy permits a proportion of each year’s US Dollar requirement to
be covered by structured options and similar instruments.
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
2018
2017
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
(3.9)
3.9
(4.6)
5.3
(2.0)
(1.3)
(2.2)
2.6
Card Factory plc Annual Report and Accounts 2018
99
GovernanceStrategic ReportFinancials Notes to the Financial Statements continued
23 FINANCIAL RISK MANAGEMENT CONTINUED
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. Current Group policy requires between 25% and 75% of forecast floating interest
rate borrowings to be hedged for the next 24 months using interest rate derivative contracts and up to 50% for the period 24 to
36 months.
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.
2018
2017
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
(0.5)
0.5
0.5
(0.4)
(0.3)
0.4
0.1
(0.1)
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 2018 this exposure amounted to £0.4 million (2017: £0.9 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
(ie as prices) or indirectly (ie derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Derivative financial instruments are carried at fair value and measured under a level 2 valuation method.
100 Card Factory plc Annual Report and Accounts 2018
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
Foreign exchange contracts
Non-current
Foreign exchange contracts
Net derivative financial instruments
Interest rate contracts
Foreign exchange contracts
2018
£’m
2017
£’m
0.2
–
0.2
0.3
0.1
0.5
0.6
3.5
–
(7.0)
(7.0)
(0.1)
(0.6)
(0.7)
(3.4)
(0.2)
0.2
(10.1)
(9.9)
–
3.2
3.2
Interest rate contracts
At 31 January 2018 the Group held fixed for floating interest rate swaps and interest rate caps to hedge a portion of the variable
interest rate risk on bank borrowings. Notional principal amounts for interest hedges totalled £80.0 million for the period to
October 2018, reducing to £70.0 million for the period to October 2019 then reducing to £60.0 million for the period to October
2020 (2017: £80.0 million for the period to October 2018, reducing to £60.0 million to October 2019). Fair value movements of
£0.2 million (2017: £0.2 million) were expensed to the income statement within financial expense.
Foreign exchange contracts
At 31 January 2018 the Group held a portfolio of foreign currency derivative contracts with notional principal amounts totalling
£128.3 million (2017: £95.0 million) to mitigate the exchange risk on future US Dollar denominated trade purchases. Foreign
currency derivative contracts with a notional value of £42.3 million representing a fair value liability of £4.5 million (2017: £53.2
million representing a fair value asset of £3.1 million) 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. The fair value movements of £7.6 million that do not form part of an effective hedging relationship have
been charged to the income statement (2017: £0.6 million credited) 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 2018
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
Unsecured bank overdrafts
Trade and other payables
Held for
trading
£’m
Cash flow
hedging
instruments
£’m
Loans and
receivables
£’m
Other
financial
liabilities
£’m
0.3
0.2
–
–
–
–
–
1.1
3.6
(4.8)
(5.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(149.6)
(14.9)
(34.3)
(4.5)
(5.4)
4.7
(198.8)
Card Factory plc Annual Report and Accounts 2018
101
GovernanceStrategic ReportFinancials
Notes to the Financial Statements continued
24 FINANCIAL INSTRUMENTS CONTINUED
At 31 January 2017
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
Unsecured bank overdrafts
Trade and other payables
Held for
trading
£’m
Cash flow
hedging
instruments
£’m
Loans and
receivables
£’m
Other
financial
liabilities
£’m
3.3
0.8
–
–
–
–
–
1.4
3.0
(0.2)
(0.7)
–
–
–
3.1
–
–
–
0.1
–
–
–
–
–
–
–
–
(129.4)
(8.7)
(34.2)
4.4
(172.3)
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 are subject to a three year vesting period and include performance conditions. In
previous years grants to employees outside the senior management team were not subject to performance conditions. Further
details on Executive Director LTIP awards are provided in the Remuneration Report on pages 54 to 66. All shares received by
Executive Directors and senior management 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 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 was conditional upon and subject to Mr Cooper remaining as Chairman of the Company on such date. On 26 May 2017
Mr Cooper exercised the option to purchase £330,000 of ordinary shares at £2.25 resulting in a gain of £164,099 based on the
share price at that date.
102 Card Factory plc Annual Report and Accounts 2018
Reconciliation of outstanding awards
LTIP
SAYE
Other options/shares awarded
Number of
options
Weighted
average exercise
price
Number of
options
Weighted
average exercise
price
Number of
options
Weighted
average exercise
price
Outstanding at 1 February 2016
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 January 2017
Granted during the year
Exercised during the year
Forfeited during the year
1,867,287
723,998
–
(371,263)
2,220,022
759,978
(465,592)
(642,355)
£0.00
£0.00
–
£0.00
£0.00
£0.00
£0.00
£0.00
746,264
281,978
(1,963)
(190,525)
835,754
301,816
(2,155)
(273,183)
Outstanding at 31 January 2018
1,872,053
£0.00
862,232
3,103 options were exercisable under the SAYE scheme at 31 January 2018.
£2.90
£2.91
£2.90
£2.90
£2.90
£2.68
£2.90
£2.87
£2.84
293,332
12,582*
(146,666)
–
159,248
–
(146,666)
(12,582)*
–
£2.25
£2.50
£2.25
–
£2.27
–
£2.25
£2.50
–
* Estimated number of shares in respect of CEO bonus entitlement was to be deferred in shares for three years. Under the terms of the bonus scheme the award was
subsequently paid in cash with a requirement to purchase shares using one third of the total cash bonus awarded.
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
2018
2017
LTIP
SAYE
LTIP
SAYE
£3.19
£3.19
£0.00
30%
3 years
N/A*
0.55%
£0.37
£2.98
£2.68
30%
3 years
8.0%
0.28%
£3.07
£3.07
£0.00
30%
3 years
N/A*
0.11%
£0.53
£3.20
£2.91
30%
3 years
7.5%
0.21%
* 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 the Company over the expected term at the grant date.
Impact on the income statement
The total expense recognised in the income statement arising from share-based payments is as follows:
Card Factory LTIP
SAYE
The amounts disclosed above do not include employer’s national insurance costs.
26 CAPITAL COMMITMENTS
There were capital commitments of £0.6 million at 31 January 2018 (2017: £0.6 million).
27 CONTINGENT LIABILITIES
There were no material contingent liabilities at 31 January 2018 (2017: £nil).
28 RELATED PARTY TRANSACTIONS
2018
£’m
(0.2)
0.1
(0.1)
2017
£’m
0.1
0.1
0.2
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 Executive 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 54 to 66. Directors of the
Company and their immediate families control 0.014% of the ordinary shares of the Company.
There were no other related party transactions in the year.
Card Factory plc Annual Report and Accounts 2018
103
GovernanceStrategic ReportFinancials Notes to the Financial Statements continued
29 SUBSIDIARY UNDERTAKINGS
At 31 January 2018 the Group controlled 100% of the issued ordinary share capital of the following subsidiaries, all of which are
included in the consolidated financial statements. All subsidiaries are registered in England and Wales with the exception of Card
Factory Ireland Limited which is registered in the Republic of Ireland. The registered office of the Company is Century House,
Brunel Road, Wakefield 41 Industrial Estate, Wakefield, West Yorkshire, WF2 0XG.
Subsidiary undertaking
Nature of business
CF Bidco Limited*
Sportswift Limited
Printcraft Limited
Getting Personal Limited
Card Factory Ireland 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
Intermediate holding company
Sale of greeting cards and gifts
Printers
Online sale of personalised products and gifts
Sale of greeting cards 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.
** 1st Floor, Southmoor House Southmoor Industrial Estate, Southmoor Road, Manchester, M23 9XD.
*** 6th Floor, 2 Grand Canal Square, Dublin 2, Dublin, Republic of Ireland.
Registered office
Same as the Company
Same as the Company
Same as the Company
**
***
Same as the Company
Same as the Company
Same as the Company
Same as the Company
**
**
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
104 Card Factory plc Annual Report and Accounts 2018
Parent Company Statement of Financial Position
As at 31 January 2018
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
Note
2018
£’m
2017
£’m
4
5
6
316.2
–
316.2
316.2
0.2
316.4
0.5
0.4
316.7
316.8
7
(1.4)
(1.9)
315.3
314.9
8
8
14
3.4
202.2
2.7
107.0
315.3
3.4
201.9
2.7
106.9
314.9
The financial statements on pages 105 to 113 were approved by the Board of Directors on 9 April 2018 and were signed on its
behalf by:
Kris Lee
Chief Financial Officer
Company number 09002747
Card Factory plc Annual Report and Accounts 2018
105
GovernanceStrategic ReportFinancials Parent Company Statement of Changes in Equity
For the year ended 31 January 2018
At 1 February 2016
3.4
201.6
2.7
69.9
277.6
Share
capital
£’m
Share
premium
£’m
Merger
reserve
£’m
Retained
earnings
£’m
Total
equity
£’m
Total comprehensive income for the year
Profit or loss
Transactions with owners, recorded directly in equity
Issue of shares
Share-based payments
Taxation on share-based payments recognised in equity
Dividends
–
–
–
–
–
–
–
0.3
–
–
–
0.3
–
–
–
–
–
–
117.9
117.9
–
0.2
–
(81.1)
0.3
0.2
–
(81.1)
(80.9)
(80.9)
At 31 January 2017
3.4
201.9
2.7
106.9
314.9
Total comprehensive income for the year
Profit or loss
Transactions with owners, recorded directly in equity
Issue of shares (note 8)
Share-based payments
Taxation on share-based payments recognised in equity
Dividends
–
–
–
–
–
–
–
0.3
–
–
–
0.3
–
–
–
–
–
–
82.8
82.8
–
(0.1)
–
(82.6)
(82.7)
0.3
(0.1)
–
(82.6)
(82.4)
At 31 January 2018
3.4
202.2
2.7
107.0
315.3
106 Card Factory plc Annual Report and Accounts 2018
Parent Company Cash Flow Statement
For the year ended 31 January 2018
Cash outflow from operating activities
Corporation tax paid
Net cash outflow from operating activities
Cash flows from investing activities
Dividends received
Repayment of loans by Group undertakings
Interest received from Group undertakings
Investments in subsidiary undertakings
Net cash inflow from investing activities
Cash flows from financing activities
Proceeds from new shares issued
Dividends paid
Net cash outflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Closing cash and cash equivalents
Note
12
2018
£’m
(0.9)
–
(0.9)
83.0
0.5
–
–
83.5
2017
£’m
(0.8)
–
(0.8)
117.0
163.1
1.5
(200.0)
81.6
3
0.3
(82.9)
(82.6)
0.3
(81.1)
(80.8)
–
–
–
–
–
–
Card Factory plc Annual Report and Accounts 2018
107
GovernanceStrategic ReportFinancials 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 £82.8 million for the year ended 31 January 2018 (2017: £117.9 million), including £83.0
million dividends received from subsidiary undertakings (2017: £117.0 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.
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.
108 Card Factory plc Annual Report and Accounts 2018
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.
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.
• Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12);
• Annual Improvements to IFRS Standards 2014 – 2016 cycle; and
• Disclosure Initiative (Amendments to IAS 7).
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 new and revised accounting standards are currently endorsed but effective for periods beginning on
or after 1 January 2018 (unless otherwise stated).
•
•
•
IFRS 15 Revenue from Contracts with Customers;
IFRS 9 Financial instruments;
IFRS 16 Leases (effective 1 January 2019); and
IFRS 2 Classification and Measurement of Share-Based Payment Transactions.
•
Adoption of the standards is not expected to have a material impact on the financial statements of the Company.
International Financial Reporting Standards in issue but not yet effective and not EU endorsed
The future impact on the financial statements of new standards and amendments awaiting EU endorsement is currently being
assessed but is not expected to have a material impact on the financial statements.
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 54 to 66.
3 DIVIDENDS
The Board is recommending a final dividend in respect of the financial year ended 31 January 2018 of 6.4 pence per share (2017:
6.3 pence per share), resulting in a total final dividend of £21.9 million (2017: £21.5 million). The dividend will, subject to
shareholders’ approval at the Annual General Meeting on 31 May 2018, be paid on 8 June 2018 to shareholders on the register at
the close of business on 4 May 2018. 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 2018
Interim dividend for the year ended 31 January 2018
Final dividend for the year ended 31 January 2017
Special dividend for the year ended 31 January 2017
Interim dividend for the year ended 31 January 2016
Final dividend for the year ended 31 January 2016
Dividend equivalents paid under long-term incentive schemes
Total dividends per the cash flow statement
Pence per
share
15.0p
2.8p
6.3p
15.0p
2.8p
6.00p
2018
£’m
51.2
9.9
21.5
–
–
–
82.6
0.3
82.9
2017
£’m
–
–
–
51.1
9.6
20.4
81.1
–
81.1
Dividend equivalents totalling £nil (2017: £0.1 million) were accrued in the year in relation to share-based long-term
incentive schemes.
Card Factory plc Annual Report and Accounts 2018
109
GovernanceStrategic ReportFinancials Notes to the Parent Company Financial Statements continued
4 INVESTMENTS IN SUBSIDIARIES
At 31 January 2016
Additions
At 31 January 2017 and 31 January 2018
£’m
116.2
200.0
316.2
Additions in the prior year comprised an additional £200.0 million investment in CF Bidco Limited, a 100% owned subsidiary entity.
The Directors’ are satisfied that there is no indication of an impairment of the investment in subsidiaries.
Subsidiary undertakings
At 31 January 2018 the Company controlled 100% of the issued ordinary share capital of the following subsidiaries, all of which
are included in the consolidated financial statements. All subsidiaries are registered in England and Wales with the exception of
Card Factory Ireland Limited which is registered in the Republic of Ireland. The registered office of the Company is Century
House, Brunel Road, Wakefield 41 Industrial Estate, Wakefield, West Yorkshire, WF2 0XG.
Subsidiary undertaking
Nature of business
CF Bidco Limited *
Sportswift Limited
Printcraft Limited
Getting Personal Limited
Card Factory Ireland 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
Intermediate holding company
Sale of greeting cards and gifts
Printers
Online sale of personalised products and gifts
Sale of greeting cards 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.
** 1st Floor, Southmoor House Southmoor Industrial Estate, Southmoor Road, Manchester, M23 9XD.
*** 6th Floor, 2 Grand Canal Square, Dublin 2, Dublin, Republic of Ireland
5 DEFERRED TAX ASSET
Registered office
Same as the Company
Same as the Company
Same as the Company
**
***
Same as the Company
Same as the Company
Same as the Company
Same as the Company
**
**
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Same as the Company
Deferred tax assets in relation to share-based payments
6 TRADE AND OTHER RECEIVABLES
Amounts owed by Group undertakings
Prepayments and other debtors
110 Card Factory plc Annual Report and Accounts 2018
2018
£’m
–
2018
£’m
0.4
0.1
0.5
2017
£’m
0.2
2017
£’m
0.3
0.1
0.4
7 TRADE AND OTHER PAYABLES
Amounts owed to Group undertakings
Trade payables
Accruals
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
*Shares Issued in the year
At the end of the period
Share capital
At the start of the period
*Shares Issued in the year
At the end of the period
Share premium
At the start of the period
*Shares Issued in the year
At the end of the period
2018
£’m
1.1
–
0.3
1.4
2017
£’m
0.8
0.2
0.9
1.9
2018
(Number)
2017
(Number)
340,844,864 340,696,235
148,629
614,417
341,459,281 340,844,864
£’m
£’m
3.4
–
3.4
£’m
201.9
0.3
202.2
3.4
–
3.4
£’m
201.6
0.3
201.9
* Shares issued in the year relate to share incentive schemes. See note 9 for further details.
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 are subject to a three year vesting period and include performance conditions. In
previous years grants to employees outside the senior management team were not subject to performance conditions. Further
details on Executive Director LTIP awards are provided in the Remuneration Report on pages 54 to 66. All shares received by
Executive Directors and senior management 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. On 26 May 2017
Mr Cooper exercised the option to purchase £330,000 of ordinary shares at £2.25 resulting in a gain of £164,099 based on the
share price at that date.
Card Factory plc Annual Report and Accounts 2018
111
GovernanceStrategic ReportFinancials Notes to the Parent Company Financial Statements continued
9 EQUITY SETTLED SHARE-BASED PAYMENT ARRANGEMENTS CONTINUED
Reconciliation of outstanding awards
LTIP
SAYE
Other options/shares awarded
Number of
options
Weighted
average exercise
price
Number of
options
Weighted
average exercise
price
Number of
options
Weighted
average exercise
price
Outstanding at 1 February 2016
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 January 2017
Granted during the year
Exercised during the year
Forfeited during the year
1,867,287
723,998
–
(371,263)
2,220,022
759,978
(465,592)
(642,355)
£0.00
£0.00
–
£0.00
£0.00
£0.00
£0.00
£0.00
746,264
281,978
(1,963)
(190,525)
835,754
301,816
(2,155)
(273,183)
Outstanding at 31 January 2018
1,872,053
£0.00
862,232
3,103 options were exercisable under the SAYE scheme at 31 January 2018.
£2.90
£2.91
£2.90
£2.90
£2.90
£2.68
£2.90
£2.87
£2.84
293,332
12,582 *
(146,666)
–
159,248
–
(146,666)
(12,582)*
–
£2.25
£2.50
£2.25
–
£2.27
–
£2.25
£2.50
–
* Estimated number of shares in respect of CEO bonus entitlement was to be deferred in shares for three years. Under the terms of the bonus scheme the award was
subsequently paid in cash with a requirement to purchase shares using one third of the total cash bonus awarded.
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
2018
2017
LTIP
SAYE
LTIP
SAYE
£3.19
£3.19
£0.00
30%
3 years
N/A *
0.55%
£0.37
£2.98
£2.68
30%
3 years
8.0%
0.28%
£3.07
£3.07
£0.00
30%
3 years
N/A *
0.11%
£0.53
£3.20
£2.91
30%
3 years
7.5%
0.21%
* 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 the Company over the expected term at the grant date.
Impact on the income statement
The total expense recognised in the income statement arising from share-based payments is as follows:
(Credit)/expense recognised in the Company income statement
Card Factory LTIP
Expense recognised in subsidiary income statements
Card Factory LTIP
SAYE
Total (credit)/expense recognised in the Group income statement
The amounts disclosed above do not include employer’s national insurance costs.
2018
£’m
2017
£’m
(0.2)
–
–
0.1
0.1
(0.1)
0.1
0.1
0.2
0.2
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.
112 Card Factory plc Annual Report and Accounts 2018
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.
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
Decrease in payables
Cash outflow from operating activities
13 RELATED PARTY TRANSACTIONS
2018
£’m
2017
£’m
82.8
(83.0)
–
(0.2)
(0.2)
(0.4)
–
(0.5)
(0.9)
118.1
(117.0)
(1.5)
(0.4)
–
(0.4)
–
(0.4)
(0.8)
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
Repayment of loans due from Group undertakings
Investments in Group undertakings
2018
£’m
1.4
–
83.0
0.6
–
2017
£’m
1.6
1.5
117.0
163.1
(200.0)
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 Remuneration Report on pages 54 to 66. Directors of the Company control 0.014% of
the ordinary shares of the Company.
14 DISTRIBUTABLE RESERVES
The retained earnings of the Company are wholly distributable.
Card Factory plc Annual Report and Accounts 2018
113
GovernanceStrategic ReportFinancials CORPORATE BROKERS
LEGAL ADVISERS
AUDITOR
PRINCIPAL BANKERS
REGISTRARS
FINANCIAL PUBLIC RELATIONS
REGISTERED OFFICE
INVESTOR RELATIONS
Advisers and Contacts
UBS Limited
5 Broadgate
London EC2M 2QS
Tel: 020 7567 8000
Investec Bank plc
2 Gresham Street
London
EC2V 7QP
Tel: 020 7597 4000
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
114 Card Factory plc Annual Report and Accounts 2018
Card Factory plc
Century House
Brunel Road
41 Industrial Estate
Wakefield
West Yorkshire
WF2 0XG
cardfactory.co.uk
cardfactoryinvestors.com