Celebrate
life’s
moments
Annual Report and Accounts 2020
Card Factory is
the UK’s leading
specialist retailer
of greeting cards,
dressings and gifts.
Card Factory is a British business success story.
Founded in 1997, the company has grown rapidly by
disrupting the greeting card market, which was not
offering customers the choice and value they craved.
Today, Card Factory is the UK’s leading specialist
retailer of greeting cards, dressings and gifts, with an
estate of over 1,000 operated stores across the UK and
Ireland, supported by a growing online consumer
business, and supplemented by new partnerships in
the UK and beyond. Headquartered in Wakefield,
with its own design studio and print facility nearby,
Card Factory takes pride in presenting its shoppers
with the widest and freshest card ranges, at prices
that keep their hard-earned money in their pockets.
Although historically the business focused on growth in the value end of
the market, today Card Factory is the market leader in every customer
segment. No matter where they are in the country, regardless of their
income, irrespective of their living arrangements, everybody finds
something to celebrate at Card Factory. There is simply
no substitute for the widest possible range of
choices at the lowest sustainable prices.
Strategic Report
01 Our Highlights
02 Welcome to Card Factory
04 Chairman’s Statement
Investment Proposition
05
06 Market Review
10 Our Business Model
14 Four Pillar Strategy
16 Chief Executive Officer’s Review
24 Chief Financial Officer’s Review
30 Principal Risks and Uncertainties
36 Our Stakeholders
38 Corporate Social Responsibility Report
Governance
46 Board of Directors
48 Chairman’s Letter –
Corporate Governance
49 Corporate Governance Report
58 Chairman’s Letter –
Audit and Risk Committee
59 Audit and Risk Committee Report
63 Chairman’s Letter –
Remuneration Committee
66 Directors’ Remuneration Report
84 Chairman’s Letter –
Nomination Committee
85 Nomination Committee Report
87 Directors’ Report
93 Statement of Directors’ Responsibilities
Financial Statements
94
Independent Auditor’s Report
104 Consolidated income statement
105 Consolidated statement of
comprehensive income
106 Consolidated statement
of financial position
107 Consolidated statement
of changes in equity
108 Consolidated cash flow statement
109 Notes to the financial statement
141 Parent Company statement
of financial position
142 Parent Company statement
of changes in equity
143 Parent Company cash flow statement
144 Notes to the Parent Company
financial statements
Company Information
151 Glossary
152 Advisors and Contacts
Strategic Report
Our Highlights
Revenue £m
Adjusted Underlying profit
before tax £m
£451.5m
£65.8m
FY20
FY19
FY18
FY17
FY16
451.5
436.0
422.1
398.2
381.6
FY20
FY19
FY18
FY17
FY16
Like-for-like %
Adjusted leverage
-0.5 ppts
1.76x
Store like-for-like sales %
Underlying EBITDA leverage
FY20
FY19
FY18
FY17
FY16
(0.5)
(0.1)
2.9
0.6
2.8
FY20
FY19
FY18
FY17
FY16
65.8
74.6
80.5
85.1
82.2
1.76x
1.58x
1.72x
1.38x
1.30x
Adjusted Underlying basic EPS
Total dividend per share p
15.4p
7.9p
Total dividend per share p
FY20
FY19
FY18
FY17
FY16
15.4
17.6
18.9
19.8
19.1
FY20
FY19
FY18
FY17
FY16
7.9
14.3
24.3
24.1
23.5
Group Revenue
£451.5m
Increase of 3.6%
Net New Store Openings
50
Total UK and Ireland Stores 1,022
Like-for-like Store Sales
-0.7%
FY19: -0.5%
Total Card Factory Like-for-like Sales
-0.5%
FY19: -0.1%
Online Revenue
£19.4m
Underlying EBITDA
£125.9m
FY19: £20.4m
Decrease of 5.1%
Underlying EBITDA Margin
27.9%
FY19: 30.4%
Underlying Profit Before Tax
£67.2m
FY19: £76.2m
Statutory Profit Before Tax1
£65.2m
FY19: £68.2m
Adjusted Leverage
1.76x
FY19: 1.58x
Total Ordinary Dividend per share
2.9p
FY19: 9.3p
Special Dividend per share
5.0p
FY19: 5.0p
Underlying Basic EPS
15.7p
Basic EPS
15.1p
FY19: 18.0p
FY19: 15.4p
Notes
See the glossary on page 151 for alternative performance measures (‘APMs')
and other explanatory information. ’Adjusted’ APMs have been included to aid comparability with the prior
year released financial statements but the disclosure of adjusted APMs is not anticipated going forwards.
1. See note 3 to the financial statements on page 117 for details of non-underlying items.
01
Financial StatementsGovernance Card Factory plc
Annual Report and Accounts 2020
Welcome to
Card Factory
Card Factory is the first
choice for greeting cards.
We are the UK’s leading specialist retailer of greeting cards,
dressings and gifts, with an estate of over 1,000 stores
across UK and Ireland, and supply through a further 3
franchise stores and 866 partner stores mainly in the UK
and Australia.
Our products are always high-quality, yet through our
vertically integrated design, production and retail model, can
be offered at significantly lower prices than competitors.
There’s nothing quite like Card Factory.
Colleagues
9,400+
Total Revenue
£451.5m
1022 Card Factory
Operated stores
496 Aldi Locations
15 Matalan Locations
3 CF Franchise Locations
Our channels
Stores
Partner retail locations
(UK)
Online
1,022
511
Partner retail locations
(Australia)
Franchise stores
355
02
3
Visits in FY20
cardfactory.co.uk
8m
gettingpersonal.co.uk
13m
Strategic Report
Governance
Financial Statements
Our purpose
Our purpose
Helping people celebrate life
moments.
We strive to understand better than anyone else
how people celebrate. We design, manufacture and
source the products that help to commemorate
every occasion, from the everyday to the once-in-a
lifetime; yet at prices that help people keep their
money in their pockets.
We retail principally through our chain of over 1,000
Card Factory stores in the UK and Ireland, as well
as through our websites, Card Factory online and
Getting Personal.
Using our unique insight from being the largest
greeting card retailer by volume of cards in the UK,
we help our partners’ to retail cards in a way that is
right for their locations and customers. Our partners
include franchisees and Aldi, in the UK, and The
Reject Shop, in Australia.
FY20 store sales by category1
2%
Boxed cards
46%
Complementary
ranges
52%
Single greeting
cards
Design studio
Studio 41, Wakefield
Manufacturing
facility
Printcraft, Baildon
Distribution
centre
UK Greeting card market share by volume 2017-19:
Wakefield
2019
2018
2017
33%
32%
31%
1. Excludes online sales and sales to Retail Partners.
03
Card Factory plc
Annual Report and Accounts 2020
Chairman’s Statement
Clear growth
strategy
“During the second half
of the year, the executive
and senior leadership
team worked towards a
refreshed strategic
framework that will
enable the company to
better address, and
exploit, the rapidly
changing consumer
environment.
Paul Moody
Chairman
guidelines in relation to social
distancing and meetings of no more
than two people, has meant that we
have decided to defer the Capital
Markets Day to 28 July 2020.
As the potential consequences of
Covid-19 became clearer, the
management team and Board
collectively prioritised actions to
protect our colleagues and customers,
preserve cash, by taking advantage of
government backed financial support,
and ensure that we dynamically plan
for the anticipated relaxation of
government guidelines. These remain
our priorities.
Group revenue
£451.5m
+3.6%
FY19: £436.0m
Underlying profit before tax
£67.2m
(11.8%)
FY19: £76.2m
Whilst sales overall were relatively
resilient in FY20, underlying
like-for-like revenue showed a modest
decline against last year. Profit was
impacted by non-recurring operational
costs and, as expected, the cost of the
increase in the National Living Wage.
Although the management team took
a number of bold mitigating actions,
they were insufficient to entirely off set
the incremental costs.
During the year, the Group remained
focused on executing plans that
support the current four pillar strategy,
underpinned by Card Factory’s unique
vertically integrated model. An
important competitive advantage, the
model is particularly key in the current
environment, and will remain so in the
future. During the second half of the
year, the executive and senior
leadership team worked towards a
refreshed strategic framework that will
enable the company to better address,
and exploit, the rapidly-changing
consumer environment. In our view, the
emergence of the Covid-19 global
pandemic will only accelerate changes
in customer behaviour and present
opportunity and challenge in equal
measure. In the Chief Executive
Officer’s Review from page 16, Karen
provides a brief, high-level update on
these emerging strategic priorities.
The Board had intended to present the
revised strategy to coincide with the
announcement of the preliminary
results. However, the government
04
Strategic Report
Investment Proposition
Leader in a large
and resilient market
UK greeting card market value of
£1.3bn
Read more
on pages
6 to 9
Track record of
sales growth
+4.3% CAGR
sales growth since FY16
£344m
dividends paid since IPO in 2014
Clear growth
strategy
Roadmap for growth and efficiency in
existing stores as well as new stores,
formats, channels and markets
Invested in vertical
integration
Investment in the Group’s design studio
and print production facilities, in the UK,
supports our competitive strengths
Experienced and
committed
leadership team
Read more
on pages
14, 15 and 24
Read more
on pages
14, 15, 20 and 21
Read more
on pages
10 and 11
Read more
on pages
46 and 47
05
In order to help protect our balance
sheet at this challenging time, as
previously announced, the Board
decided that a final dividend would
not be paid. Our dividend policy
remains unchanged over the medium
term, and we will regularly review the
most appropriate actions to take in
the shorter term, however, currently we
do not expect to pay any dividends in
relation to FY21.
The business performance in the last
year was significantly impacted by a
very challenging market. As we look to
the short and, most likely, medium
term, the consumer market landscape
will remain challenging. The time and
effort focused on the development of
a refreshed strategy, that means we
will be better able to address that
changing market with more agility and
innovation, gives the Board greater
confidence in the longer term
prospects of the Card Factory
business.
Paul Moody
Chairman
2 June 2020
Group revenue
£451.5m
+3.6%
FY19: £436.0m
Underlying profit before tax
£67.2m
(11.8%)
FY19: £76.2m
Financial StatementsGovernance
UK card
market value
Single cards (from stores)
£1.1bn
Single cards (online)
£0.2bn
Australian
card market
All greeting cards
£300-350m
Card Factory plc
Annual Report and Accounts 2020
Market Review
The UK greeting card market
remains robust, with c.76% of UK
adults having purchased greeting
cards in 2019, according to
management’s analysis.
It is estimated that c.875m single cards were
sold in 2019 (-1.5% down from 2018), at a total
value of c.£1,335m (+0.1%). Growth in value
was driven by a higher average price per unit,
offsetting mild volume decline. This market
size excludes boxed cards, a minor and
declining category typically purchased for
Christmas, valued by the Greetings Card
Association to be c.£200m in 2018; and other
products that are bought alongside cards.
Prior to the Covid-19 pandemic, management
projected that over the next five years single
card volume would continue to decline, at
-1.3% CAGR through to 2024. This was
expected to be offset by continued year-on-
year value growth, which was to come from a
combination of a higher average price per
card in retail stores, and channel shift to online
(which has c.2x the average price).
Management expected, prior to the Covid-19
pandemic, total retail value of c.£1,370m in
2024 (+0.5% CAGR from 2019).
In 2019, c.8% of card volume was purchased
online, equating to c.70m cards. The online
channel is not representative of the total card
market; for example, c.65% of cards sold
online are personalised, compared with less
than 10% of those sold in retail stores. As the
average online card price is c.2x that of cards
sold offline, it is estimated that the channel
was worth c.£180m in 2019. The online greeting
card market in 2020 is significantly larger as a
result of the disruptions caused by Covid-19;
the lasting impacts are not known.
Beyond the UK, management has completed
detailed market research and analysis of all
sizeable English-speaking card markets. The
research shows that the UK has the highest
proportion of adults who purchase greeting
cards, and is the second-largest market after
the US. Card Factory is now, through its
partner, The Reject Shop, present in Australia,
where greeting card penetration is c.50% and
the market value is estimated to be £300-
350m in 2019.
06
Strategic Report
Governance
Financial Statements
Competitive Environment
Card Factory is the leading UK retailer of greeting
cards, accounting for c.33% of market volume in
2019, by management’s estimate. The competitive
environment can be grouped as follows:
Supermarkets & convenience
Discounters
30-35%
typically serving impulse or planned
missions where the card is bought
alongside other, often unrelated,
items. Offer increasingly wide ranges
due to increased space, but overall
less well-rated by shoppers.
5-10%
typically offer narrow ranges
(sometimes not all year round)
focusing mainly or exclusively on
lower price points. As with the
broader discount proposition,
shoppers must trade off breadth of
choice (and often card quality) for
low price point.
Other card specialists
Online-only retailers
20-25%
excluding Card Factory
typically serving destination shops
where the card or a related item is
the reason for the shopping trip.
Well-rated for card ranges, but not
considered to offer value for money
due to high price points.
<5%
trade only online, with a limited
selection typically focused on
either single, personalised cards
or multi-packs of standard cards.
Not shown in chart below.
Management uses an independent
shopper panel to monitor shoppers’
satisfaction ratings for all significant
greeting card retailers. Card Factory’s
continuing differentiation from its
competitors is illustrated by the analysis.
The chart below shows each retailer’s
average ratings out of 5 for two metrics:
wide range of cards (which, analysis
indicates, is the single most important
criterion to shoppers) and value for
money. Card Factory is the only scale
retailer with a market-leading position
against both.
These high ratings are corroborated by
the independent Retail Proposition Index
produced annually by OC&C Strategy
Consultants and published on its website.
For each of the last five years, Card
Factory has been ranked #1 of all UK retail
brands for ‘value for money’.
Due to Card Factory’s differentiated
positioning, it has been able to maintain
its volume share (c.33%) and value share
(c.20%) of single greeting cards, despite
the aggressive space roll-outs pursued by
competitors. Almost 60% of UK card
buyers have purchased from Card Factory
at least once in the last 12 months, and
more than 40% name it as their main
card retailer. It is well positioned to
capitalise on its leadership in card choice
and value for money to grow share in
underpenetrated customer segments and
missions moving forwards.
UK market share, Single greeting cards
by volume
2019
2018
2017
by value
2019
2018
2017
33%
32%
31%
20%
20%
19%
07
Card Factory plc
Annual Report and Accounts 2020
Market Review continued
Card Factory
has an
attractive,
defensible
leadership
position in
UK greeting
cards
Resonant brand
meaning
Most popular UK retailer for
‘value for money’ for five
years in a row1. Card
Factory consistently helps
people keep money in
their pockets, without
compromising on the most
meaningful moments in
their lives.
Better at what
matters
Card shoppers have clear
and distinct preferences.
Card Factory is ranked #1
by shoppers on five of the
most important measures,
including ‘wide range of
cards’, which is the single
most important2.
Strong market
leadership position
Distinct brand and strong
customer ratings translate
into selling one in every
three greeting cards in
the UK2.
1 As rated in independent survey by OC&C Strategy Consultants, published
January 2020 as the Retail Proposition Index.
2 Data from Card Factory Market Tracker 2020, which is based on a nationally
representative survey of over 2,750 card shoppers in the UK.
08
Customers
Selling one in every three greeting cards in the
UK market, Card Factory benefits from robust
customer insight. This can be used to tailor
range development, commercial plans and
expansion opportunities.
Through its depth of knowledge, Card Factory
has developed a proprietary segmentation of
UK card shoppers that management believes
provides significant and growing competitive
advantage. Everybody who buys a greeting
card can be placed into one of the ten
segments that share common behaviours and
purchasing requirements, but are notably
distinct from each other. This segmentation
powerfully explains the different relative
performance for each of the major retailers in
the card market.
The segmentation also illuminates Card
Factory’s market opportunities. For example,
outcomes for Card Factory’s heartland
shopper, ‘Angie’, can be distinguished from
those in a segment in which the brand has
a lower share, ‘Frank’:
Angie
Female
Kids
Bargain Hunter
Bio
Angie is a busy mum with a keen eye for a bargain! Angie
is very family-focused, buying birthday cards for all her
relatives, loving cute styles – and the kids’ birthday parties
come thick and fast too. This is why her average spend per
card is the lowest out of all segments. Angie loves Card
Factory – she is our ‘heartland’ customer. She also believes
more strongly than any other segment in the importance of
sustainability.
17% over 65 years old
24% under 35 years old
17% over £50k (household)
44% under £25k (household)
72% have kids at home
30% are employed (full-time)
Buying Criteria
12
visits per
year
26
cards per
year
£1.16
av. price
per card
17%
of card volume
12%
of card value
Shopping Basket
2. Value for Money
3. Wide Range of
Cards
Sustainability
1. Low Prices
Online
Personalisation
5%
of cards are bought online
26%
think reducing environmental
impact of cards is important
40%
have bought a personalised
product in the last 12 months
Cute Card
Balloons
Kids Party
Card Factory Success
81%
98%
63%
have heard of Card
Factory
have shopped at Card
Factory in the last 12
months
use Card Factory as
their main card shop
Card Factory
sells
5
out of 10 cards
bought
Card Factory
is the
#1
card shop Angie
uses
Card Factory
scores
4.5
out of 5 as
rated by Angie
Home Bargains Wilko b&m Asda
23/04/2020 09:20
Competitors
ANGIE_PROFILE.indd 1
Strategic Report
Governance
Financial Statements
Illustrative comparison of customer segments
% of market volume
% of market value
Occasions per year
Cards per year
Price per card
% awareness of Card Factory
% used Card Factory
in last 12 months
Angie
Frank
16%
12%
12
26
11%
13%
9
20
£1.16
£1.86
98%
81%
82%
33%
% using Card Factory
63%
19%
as main shop
The greater amount of headroom illustrated within
‘Frank’ can then be accessed by leveraging the more
detailed comparative data available at lower levels.
For example, we know that ‘Frank’:
• Prioritises range, quality and availability of cards
over any kind of measure of value;
• Buys more Christmas cards than Angie, but roughly
•
half as many birthday cards;
Is roughly half as likely as Angie to have bought any
kind of personalised product.
The quality of insight that Card Factory benefits from
can increasingly be extended to partners both within
the UK and abroad, contributing to the material
volume uplifts that Card Factory category solutions
are expected to deliver to partner retailers.
Value for money
OC&C retail proposition index results
(2019)
1
2
3
4
5
6
7
Card Factory
Aldi
Poundland
Home Bargains
Farmfoods
Lidl
Primark
8 Wilko
9
10
B&M
Amazon
(87.9)
(87.4)
(85.8)
(84.8)
(84.5)
(84.3)
(83.6)
(82.7)
(82.5)
(81.5)
Card Factory share
of UK single greeting
cards:
Overall – 33%
In stores – 35%
Online – 2%
09
Card Factory plc
Annual Report and Accounts 2020
Our Business Model
Virtuous
circle
Our vertically integrated business
model helps us fulfil our purpose and
create value for stakeholders.
Our model covers:
Design
Sourcing
Printing
Warehousing
Distribution
A large physical store network
An online presence
The Group has developed and strengthened this model
over the past decade investing over £50m in the process,
building significant management expertise in all of these
specialist areas. 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 the price and quality that underpin the
Group’s mission.
10
Key competitive
strengths
The Directors believe that the Group’s
unique model provides significant
advantages, including:
Value proposition
enabling Card Factory to offer its clearly
differentiated value proposition of quality
products at affordable prices while
maintaining strong margins;
Quality control
providing Card Factory with control over
the quality, design and merchandising of
its products, with the ability to act directly
on customer preferences;
Exclusive design
the vast majority of Card Factory’s
products are exclusive to Card Factory;
Dynamic sourcing
greater security of supply chain and
enhanced visibility of stock, allowing the
Group to react more dynamically to
market trends, with further ambitions to
bring increased product sourcing back to
the UK with investment in technology;
Strategic Report
Governance
Financial Statements
Our vision
The customers’ choice for cards,
gifts, party and wrap, instore
and online
Our values
We lead the way
Our people are proud and
passionate about being first
and leading the way – we
improve things every day.
We’re part of the story
Our people are here because
they’re excited by what the
business has done so far – and
want to play a part in taking it to
the next level.
We’re loyal
Our people are fiercely loyal to
the colleagues they work with
every day – and that builds
customer loyalty too.
We’re grafters
Our people are grafters that
get things done – we pull
together as a team to make it
happen for our customers.
We’re a little bit mad
Card Factory isn’t for everyone –
we move at a fast pace that
some can’t handle – you need to
be a little bit mad to work here!
11
Economies of scale
cost benefits that derive from scale
(eg with regard to the size of card print
runs) that have been built up over a
significant period of time;
Investment in infrastructure
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;
Management expertise
a management team with the diverse
experience and expertise required to
operate a vertically integrated retail
business as opposed to a pure retail model;
and
Integrated business model
an integrated business model that would
involve significant cost and execution risk
to replicate.
Card Factory plc
Annual Report and Accounts 2020
Our Business Model continued
Extending competitive advantage
Design
Production
• Versatile design team built over the past
13 years, creating over 85% of the Card
Factory product portfolio
• Skills include specialists in 3D design &
packaging, an editorial and creative writing
team, illustrators, designers and digital
constructors
• Over 4,500 new card and 1,500
complementary product designs last year
across all retail channels
• Extensive database of thousands of ‘home-
grown’ creative designs, captions and verses
• Trend-led to ensure ranges meet evolving
•
customer needs
Insights from customer research factored into
proposition development
• Well-invested, scalable production facility
based in Baildon, Yorkshire
• Currently producing over 210 million cards
per annum for Card Factory and partners
• Strategically positioned to grow capacity
to c.400 million cards per annum in line with
growth in anticipated store roll-out and to
support additional partnerships and new
strategic initiatives
Warehousing
• National distribution centre based in
Wakefield, Yorkshire
• Additional warehousing capacity acquired
to support growth ambitions and reduce
dependence on third-party storage
• Nearly 500,000 sq ft of storage space
• Voice picking technology improves efficiency,
accuracy of picking and optimises resource
allocation
Sourcing
• Dedicated in-house sourcing team covering
a wide range of products, led by newly-
appointed Chief Commercial Officer
• Technology and automation investment
aimed at bringing card manufacturing back
to the UK
• Sourcing and design teams work as one to
optimise margins
• Well-established relationships with third-party
•
manufacturers, particularly in the Far East
Internal quality control function supported
by third-party supplier technical and ethical
audits with a ‘no audit, no order’ policy
12
Strategic Report
Governance
Financial Statements
Distribution¬
Store Network
• Outbound distribution performed by third-
party logistics partners
• Small, newly-leased, more fuel efficient fleet
of commercial vehicles delivering to radial
stores to meet customer demand
• Frequent store replenishment to support
high store-sales densities
• Limited proportion of products shipped direct
to store (eg helium gas canisters and postage
stamps)
Merchandising
• Highly differentiated retail proposition with
quality products at a fraction of the price
of the Group’s principal competitors
• Transparent pricing builds trust with customers
• Extensive depth of range for both card
and complementary products
• Space planning software implemented to
maximise use of space and profit per linear foot
• Auto-replenishment of Everyday card ranges
across the estate
• Established online personal gifting business,
gettingpersonal.co.uk, to be integrated as a
separate brand on the new Card Factory
platform
• Network of over 1,000 of our own stores
in the UK and Republic of Ireland, the majority
from organic growth and a small proportion
through acquisition
• High quality, flexible estate
• Ongoing 6-monthly review of all stores in the
estate to maximise their profitability
• Versatile, high returns model operating
successfully in a wide range of locations and
demographic areas
• Target location database supports further
increase to store numbers in the UK and
Republic of Ireland
Online
• cardfactory.co.uk growing strongly and to
be relaunched on a new platform improving
choice and customer experience
• established online personal gifting business,
gettingpersonal.co.uk, to be integrated as a
separate brand on the new Card Factory
platform
• Focus on multi-channel proposition
13
Card Factory plc
Annual Report and Accounts 2020
Four Pillar Strategy
Strategy update
We have for some time run our
business in accordance with the four
pillar strategy. We have spent a
significant amount of time this year
reviewing our approach in detail and
looking at all elements of our
customer and operating models.
This has resulted in the evolution of
our existing strategy to drive long-
term sustainable and profitable growth.
The objective of this new long-term
growth strategy is ensuring Card
Factory establishes itself as a robust,
scalable and sustainable international
greeting card retailer with diversified
routes to market. This strategy will
deliver a superior proposition for
customers; meaningful career
opportunities for our people; positive
impacts on the world around us; and
attractive returns for shareholders.
The successful delivery of this strategy
will be structured around enhancing
our strong card-led retail proposition
and making our products available
everywhere, however our customers
wish to shop.
Once finalised, we will be updating
shareholders on our new strategy
during FY21.
Like-for-like sales
growth
The Group has a strong track record of
consistently delivering sales growth
and growing average basket value
(‘ABV’). This has been achieved
through:
•
improving and evolving existing
card ranges and designs to support
the continued growth of market
share. In developing everyday
ranges the customer always has a
wide choice of cards from entry
price point to everyday premium
ranges for all occasions;
• developing complementary non-
card ranges to grow ABV and create
more reasons to visit, with
customers able to find not only the
card, but associated wrap, party
products and gifts for every
occasion;
• extending card and gift ranges
across more occasions ensuring
that customers can always find an
appropriate greeting card or gift to
celebrate their life moments; and
• building on the progress made
during the year with retailing
disciplines, especially around store
standards and improving in-store
navigation.
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 open
for a full year, calculated on a
calendar-week basis. The reported LFL
sales figure excludes sales:
• made via the Card Factory website,
cardfactory.co.uk;
• made via the separately-branded
personalised card and gift website,
gettingpersonal.co.uk;
• made through supply arrangements
to concessions, wholesale and
international supply arrangements;
• by Printcraft, the Group’s printing
division, to third-party customers;
and
• from stores closed for all or part
of the relevant period (or the
comparable period in the prior
year).
New store roll-out
Prior to the Covid-19 pandemic, the
Group intended to expand its store
portfolio organically from its existing
store estate, including further stores in
the Republic of Ireland. Save for the
seven new stores that were committed
before 23 March 2020, new store
opening has been suspended. The
overall scale of the store roll-out
programme will be considered as we
assess the implications of Covid-19 on
store trading. Management will
consider opening new stores in the
current year, as long as the new stores
are expected to deliver the
appropriate return.
Target locations for stores have been
identified and these, 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, these new stores
will nevertheless enhance profitability
and will continue the trend of delivering
a strong return on capital. Management
believes the Republic of Ireland also
represents a good opportunity for
further store expansion.
The Group has a structured appraisal
process in place for new location
opportunities, including an assessment
of potential store sales and profitability.
In addition, we review the performance
of the whole estate twice per annum
with every store in the Group having a
plan in terms of whether we intend to
renew, downsize, upsize or relocate, on
the expiry of the lease.
14
Strategic Report
Governance
Financial Statements
Business efficiencies
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 aims to maintain and
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 and our ability to
source additional product through our
vertically integrated model in the UK.
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, we
will continue to leverage the growing
economies of scale when negotiating
contracts with suppliers and
manufacturers.
Online
The Group’s online operations
currently comprise Card Factory’s
transactional website and Getting
Personal. In 2019, management
estimates that c.8% of card volume
was purchased online, equating to
c.70m cards marketwide.
In 2019, 4% of Group sales were from
the online channel.
cardfactory.co.uk
Card Factory online now has an
established dedicated team
supporting its future growth and
significantly enhanced product ranges
which are proving popular with
customers. We continue to evaluate,
enhance, test and evolve our online
platform, to ensure we move towards
a market-leading mobile optimised
solution.
During the year, we introduced a much
wider selection of personalised cards
and gifts, and also enhanced the
selection of non-personalised products
that customers would usually have to
go to one of our stores to purchase. In
addition, we have been working to
implement a new online platform
which will be deployed in the first half
of FY21.
gettingpersonal.co.uk
Sales of personalised gifts represent
the vast majority of Getting Personal
sales.
Leveraging infrastructure
In anticipation of planned long-term
growth, the Group has, over a number
of years, invested heavily in its
infrastructure, including:
(1) Deepening the vertical supply
model. Products have continued to be
of the highest quality and unit cost of
production has decreased through
better and more efficient production
techniques.
(2) Continuous review of supply chain
and relationships with UK and
overseas manufacturers to ensure the
most effective sourcing, in what is a
tough commodity market.
(3) Significant improvements in
efficiency and effectiveness in the
distribution centre, with the
introduction of voice picking,
warehouse consolidation and
improved warehouse productivity
measures such as the development of
pre-pack operations.
(4) Improved operational productivity
in stores through the removal of
non-customer facing tasks via
automation and simplified store
operations.
(5) Reduced other store operating
costs by achieving targeted rent
savings at lease renewal, and by
reducing stock held in store, stock
loss and cash loss.
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. This includes the
planned implementation of a
new enterprise resource planning
(ERP) solution to drive business
transformation and efficiency.
15
Card Factory plc
Annual Report and Accounts 2020
Chief Executive
Officer’s Review
Designing a
sustainable
future “Our business model remains
unique, with continual
investment in our vertically
integrated supply chain to
improve our competitive
advantage in the market.
Karen Hubbard
Chief Executive Officer
UK retailer ‘value
for money’ ranking
# 1
16
Overview
During FY20, Card Factory produced a
resilient sales performance despite
poor consumer confidence and lower
high-street footfall, particularly in the
second half. Like-for-like sales were
broadly flat for the year, with record
volume and like-for-like sales
performances for Valentine’s Day and
Mother’s Day. Sales over the Christmas
season were more subdued, reflecting
the market backdrop, a decline in
demand, together with some execution
issues.
Our business model remains unique,
with continual investment in our
vertically integrated supply chain to
improve our competitive advantage in
the market. This improves our ability to
bring to market new ranges with
shorter lead times, allowing us to
provide an unrivalled offer of quality
and value to our customers, whilst
generating attractive gross margins.
This investment will allow Card Factory
to take advantage of growth
opportunities both in the UK and
overseas.
We are utilising EPOS information to
inform future designs and ranges, and to
automate replenishment in store driving
sales growth, deliver cost efficiencies
and improve our market share.
Despite tough market conditions and
cost headwinds, our model and focus
on the customer and business
efficiencies enabled us to deliver good
EDITDA margins and we continue to
generate strong cash returns.
In the year, the management team
focused on three key aspects of the
business:
• Maximising our financial
performance, while investing in key
parts of the business which will
support longer term future growth;
• Developing the five year growth
strategy; and
• Testing elements of this growth
strategy to ensure it will deliver
tangible and sustainable results,
thereby providing assurance to all
stakeholders over Card Factory’s
long-term prospects.
Strategic Report
Governance
Financial Statements
Market update
The fundamentals of the card market
remain intact – it is a large, and
broadly stable market. Our updated
analysis shows that the increasing
average prices of cards fully offset
the very modest year-on-year volume
decline. We see interesting areas of
growth that are consistent with wider
consumer trends, such as the growth
of new and non-standard occasions,
offsetting a long-term decline in
Christmas card giving, and a growing
minority of shoppers now buying cards
on impulse rather than in planned
shopping missions. These present new
opportunities to our business, which
has increased its volume share once
more to 33% of single greeting cards,
despite increasingly aggressive
competition.
Our proposition continues to resonate
with customers. OC&C Strategy
Consultants have found us once more
to be the #1 ranked UK retailer for
‘value for money’, whilst our own
research shows that:
• Card Factory is the top-rated
retailer by greeting card shoppers,
both overall, and for their most
important “choice” factor, having a
wide range of cards available;
• More than 40% of card shoppers
consider Card Factory to be their
main shop for greeting cards, which
is up 4 ppts on last year; and
• When we look at the nine different
shopper segments that make up
all out-of-home card buying,
despite their considerable
differences in terms of social and
economic indicators, we find that
Card Factory is the market leader
by volume in every single segment.
These figures give me enormous
confidence that this business benefits
greatly from its 21-year history of
delivering a unique blend of the
broadest choice of high-quality cards,
the majority of which are
manufactured in Yorkshire, at very
attractive price points.
FY20 strategic performance
In FY20, we continued to make good
progress against our established four
strategic pillars.
1. Like-for-like (‘LFL’) sales growth
Card Factory LFL sales were -0.5%
(FY19: -0.1%) reflecting lower consumer
confidence and footfall, particularly in
the second half.
Although we did not see growth in our
overall like-for-like sales, we offset the
footfall decline with a number of
successes in range and product
development, resulting in a higher
average basket value. In the year, the
volume of Everyday cards sold
increased, both in total and on a
like-for-like basis; in addition we grew
the average selling price of both
Everyday and Seasonal cards. We saw
substantial growth in Open cards;
suitable for all occasions, with the
introduction of higher price points and
new modern styles, and within our
Everyday Milestone-Age card range,
whilst Baby, Gift and Sentiment all saw
significant like-for-like sales increases.
Our seasonal ranges also performed
well for Valentine’s Day and Mother’s
Day, achieving record sales volumes
and value on a like-for-like basis.
Christmas was a disappointing season,
driven by; the macro backdrop; a
reduction in demand for single and
boxed cards; and some execution
issues which left us with unsatisfied
demand for some key captions. Our
detailed review of our seasonal
performance, using data from all our
stores, has resulted in better planning
for Christmas in 2020.
We continue to learn from and
leverage our EPOS data – to guide our
design studio, to ensure that our
top-selling card ranges are available
in every store, and to drive auto-
replenishment, which was
implemented for Everyday cards in
most stores in Q4. We also used our
vertically integrated supply chain to
quickly produce new concepts and
ranges, in response to changing
customer trends.
cardfactory.co.uk sales
+15%
Net store openings
50
Total UK and Ireland
store estate
1,022
17
Card Factory plc
Annual Report and Accounts 2020
Chief Executive
Officer’s Review continued
For the year as a whole, the proportion
of sales from non-card items increased
to 45.8% (FY19: 44.6%).
The Card Factory website,
cardfactory.co.uk, performed well
during the year with an increase in
both visitors and average order value,
providing further evidence of the
potential of this channel, as detailed
further below.
2. New store roll-out
We achieved our target net new store
openings for this year, opening 50 net
new stores across the UK and Republic
of Ireland, including a variety of retail
locations - high streets, shopping
centres and retail parks. We ended the
year with 1,009 UK stores (31 January
2019: 965), with a further 13 stores in
the Republic of Ireland (31 January
2019: 7), bringing our total estate of
Card Factory operated stores to 1,022.
The quality of our estate remains very
strong with the average time to lease
break of 2.5 years.
We remain mindful of the ongoing
high street challenges, and we
continue our twice-yearly review of all
stores, assessing potential
opportunities to upsize, downsize,
co-locate or relocate. This helps to
ensure the whole of the estate is well-
positioned to best meet customer
demand and benefit from shifting
footfall.
Whilst our store roll-out programme
remains an important part of the
growth strategy, Covid-19 has
impacted the pace at which we will
open stores in the coming year. We
now expect to open seven new stores
in 2021, being those which we are
already legally committed to and will
revise our plans as appropriate. The
overall scale of the store roll-out
programme will be considered as we
assess the implications of Covid-19 on
store trading.
18
3. Business efficiencies
The Group has consistently delivered
best-in-class operating profit margins,
although these have slightly declined
in recent years, mainly due to National
Living Wage and foreign exchange
headwinds. This year cost pressures
continued, with National Living Wage
increases, higher card payment fees
and storage for increased stock levels.
We sought to mitigate these through
our established multi-year programme
of cost efficiencies.
The key business initiatives in the year
included:
(1) We invested in our vertical supply
model, continuing to improve the quality
of our products through better and
more efficient production techniques.
This reduced our unit cost of production
while also ensuring our cards remain of
the highest quality. Investments included
a replacement press, which resulted in
a reduction of head count, and a foiling
machine that produces cards at three
times the rate of the old machine. We
have a clear plan in place for future
investments in the latest technologies in
dye, cutting, printing, foiling and
packing efficiency. We have also been
focusing on how we can move even
more production in-house and away
from overseas suppliers, improving
margins, and providing greater control
over our supply chain.
(2) We continually review our supply
chain and relationships with our UK
and overseas manufacturers to ensure
we have the most effective sourcing in
what is a tough commodity market. We
successfully negotiated new supplier
terms which resulted in better margins
for Card Factory. Alongside those
efforts, we also introduced a new
freelance designer base that delivered
new, fresher designs to our online
business, with strong sales growth
within an effective pricing model.
(3) We have delivered significant
improvements in efficiency and
effectiveness in our distribution centre,
with the introduction of voice picking,
warehouse consolidation and improved
warehouse productivity measures such
as the development of pre-pack
operations. All of these actions
facilitate a more cost-effective and
efficient operation, in particular for key
seasons.
(4) Improved operational productivity
in stores through the removal of
non-customer facing tasks, via
automation and simplified store
operations. We also introduced
electronic rotas and new
communication tools, enabling the
removal of over 300,000 non-
customer facing store hours. In
addition, we laid the groundwork for
further store operation efficiencies in
FY21.
(5) We continued to reduce other store
operating costs by achieving our
targeted rent savings, and by reducing
cash loss and store stock holding. In
FY20, we introduced auto-
replenishment of Everyday card in
almost all of our stores, and reduced
overall stock holding levels.
4. Online development
We have two transactional websites:
cardfactory.co.uk and
gettingpersonal.co.uk.
We were encouraged by the growth in
the online business.
The cardfactory.co.uk team delivered
sales growth of 15% in FY20 against a
strong comparator (FY19: 56%). The
development of the existing website
and investment in marketing was
limited, to allow the team to focus on:
the development of the new digital
platform, which we expect to launch
shortly; test and learn from channel-
specific marketing campaigns; and
trial product/design ranges from
independent designers. In the year we
added 3,835 new product lines and
83% of the range are online exclusive
products not available in store. This
product offering resonates well with
existing customers, with strong sales in
cards and party ranges driving
frequency of shop and basket size.
New customer acquisition was focused
on our existing store customers, a
large proportion of whom we know
shop online and yet were unaware of
the Card Factory website. New point
of sale, promoting cardfactory.co.uk,
was launched across the store estate
in July 2019 and we saw a 7% increase
in traffic to the website.
Retail aCardemy
Management
Development Programme:
96
graduated
68
promoted
127
in current intake
Strategic Report
Governance
Financial Statements
The gettingpersonal.co.uk business
continued to face challenges and whilst
it remains a small part of the Group, its
financial performance in the year was
disappointing, with sales decreasing by
9.8% and EBITDA falling to breakeven
(FY19: £1.2m). During the year, we
reviewed the business in detail and
recently concluded that while there
remain significant sales opportunities in
the personalised gifting market, which
is serviced through our manufacturing
model, we would integrate the Getting
Personal business into the new Card
Factory platform. This will enable us to
retain the Getting Personal brand and
its unique customers, but leverage the
investment made in the Card Factory
business. This integration of the
business will occur in H2 of FY21.
action plan for this year; we are
focussed on getting the basics right to
drive engagement and motivation for
colleagues and delivering the best-
possible customer service in stores.
During the Covid-19 lock down period
we have communicated fully with our
colleagues, provided digital training for
their personal development and
provided support for their wellbeing.
In addition, through our Charitable
Foundation, we created a Covid
hardship fund, available to all of our
colleagues who are experiencing
financial hardship during this time. This
hardship fund is financed in part by the
Directors and Non-Executive Directors
who are voluntarily donating 20% of
salaries for the period of furloughing.
5. Retail colleagues and performance
culture
We continue to develop our colleagues
and their capabilities. Our Retail
aCardemy, now in its third year, has
successfully offered many development
opportunities. This year we had 96
colleagues graduate from the twelve-
month Management Development
Programme, with 48 promotions into
management roles. In September 2019,
we launched our third year of Retail
aCardemy, accommodating a further
127 Retail colleagues and, just a third of
the way through the programme, we
have already seen 20 promotions into
management roles.
Throughout the year, we have continued
to present development opportunities
through the Retail Apprenticeship
offering; Retailer Level 2, Team Leader
Level 3, and Retail Manager Level 4.
Our clear aim is to develop our
colleagues by creating a strong
performance culture, with focused
objectives that support the delivery of
our strategy. We recently rolled out
performance reviews for all Store
Managers and have completed a
training needs analysis for the same
population, giving us a clear view of
those with potential to develop further.
We are working hard to ensure that
our colleagues are engaged and feel
respected for the job that they do. The
Retail Forum helped us build our
6. Customer engagement and experience
We continue to shape our offer to
meet the changing needs of our
customers to help them celebrate their
life moments. In FY20, we sought to
focus all colleagues on a customer-first
approach, whether product design,
stores or evolving multi-channel
propositions. Spending time in our
stores, understanding website
browsing behaviour and what
customers are sharing and talking
about through social media
engagement continues to educate and
inspire our thinking and plans. We
have laid the foundation of our
customer segmentation, which brings
to life those we serve and, over the
next twelve months, we will accelerate
our plans to further understand our
customers and trial new customer
propositions.
Because our customers shop on the
high street and online, we continue to
test our multi-channel propositions,
including in-store ordering and
printing, extended ranges, design
newness and product bundles. Our
customers are reacting positively to
these trials. We have brought the
online and retail customer service
teams together to ensure customers
are treated as individuals rather than
according to the channel they
shopped. This also provides us with the
opportunity to offer a consistent
experience as we support customers
across our channels.
19
(1) Build a winning card-led retail
proposition
For our business to succeed, we are
clear that our offering must be based
around having a winning card-led
retail proposition. To deliver this, we
will continue to focus on:
• Ensuring that we have a distinctive
and defensive pricing strategy, with
a continual assessment of our
pricing to ensure we continue to
offer market-leading value for
shoppers at attractive margins for
Card Factory.
Card Factory plc
Annual Report and Accounts 2020
Chief Executive
Officer’s Review continued
7. Development of the next Card Factory
five-year growth strategy
Through the year, the Board and
management team have devised a
long-term strategy, the objective of
which is delivering sustainable and
attractive returns for our shareholders.
This strategy leverages Card Factory’s
unique, vertically integrated business
model and is based on robust,
independent market data and
research.
The vision which shaped the strategy
is for Card Factory to be recognised as
‘the world’s best greeting card retailer’;
helping people celebrate their life
moments by offering products that are
affordable and available for everyone.
Critically, while this strategy focuses
on delivering growth predominately in
the UK market, it also allows us to
leverage our assets internationally,
taking the Card Factory brand into
new geographies.
Three key work streams have been
identified for Card Factory to deliver
on both the strategy and vision,
outlined below.
• Being customer-led and leveraging
the substantial data collected
through c.2.5 million transactions
per week to ensure the optimal and
most efficient range of cards and
gifts across the estate on a store-
by-store basis, throughout the year;
• Leadership in Card Choice: offering
the widest range of cards with
ongoing improvement and
refreshment of our card ranges. Our
vertically integrated model means
we can trial and bring to market
new ranges more quickly and
efficiently than our competitors;
• Creating complementary and
popular non-card products, such as
wrapping paper, gifting ranges and
accessories, so Card Factory can
fully capitalise on each visit a
shopper makes to a store,
concession or website for both
seasonal events and in everyday
ranges;
• Targeted marketing and loyalty
programmes to address certain
brand perceptions, broadening the
potential number of Card Factory
customers; and
“The vision is for
Card Factory to
be recognised as
‘the world’s best
greeting card
retailer’
20
(2) Making our products available
everywhere and however the customer
wishes to shop
One of the key drivers behind Card
Factory’s market leadership to date
has been its substantial, and growing,
1,000+ store estate. Market research
has shown that there is an opportunity
to increase market share further by
increasing the availability of Card
Factory products through
complementary alternative formats
and initiatives. There are five different
aspects to increasing coverage:
• Continuing to review in detail both
the current UK store estate and
where we are planning to open new
stores to ensure they are all in the
best possible locations – be it on
the high street or, increasingly, on
retail parks. Whilst our store roll-out
programme remains an important
part of the growth strategy, the
pace and scale will be considered
as we assess the implications of
Covid-19 on store trading;
• Trialling new formats where localised
demand exists, which might either
be smaller in scale or of a different
character, where the main Card
Factory fascia isn’t appropriate,
enabling us to take a local market
approach to ensure that all
customers can access our products;
• Capitalising on the growing trend of
‘impulse purchasing’ through
partnerships with retailers in
suitable locations and with
complementary brand propositions.
We are encouraged by the progress
we have seen with this model
through the current Aldi relationship
and the ongoing trial with Matalan;
• Offering our ranges, retailing
expertise and the Card Factory
brand internationally, leveraging the
infrastructure that we have. We
have opened in Australia with The
Reject Shop following an initial trial,
and are now trading from 355
stores, (with 170 opened at end of
FY20); and
•
Increasing market share of online
transactions. While the number of
online transactions is forecast to
grow, it is still relatively modest at
8% of UK card volume. We will
launch a new web platform in 1H
FY21 allowing us to significantly
grow our online presence and
leverage our store estate – thereby
significantly strengthening our
ability to trade as an omni-channel
retailer.
(3) Sustain & extend our competitive
advantages
Card Factory’s vertically integrated
business model is a key competitive
advantage, allowing us to deliver both
quality and value to our customers at
attractive margins for the business. We
will continue to invest in the business
model to sustain this important
differentiator. The focus will be:
• Retail operating model
transformation: we have identified a
number of additional opportunities
across the entire business, from the
design of a card or gift, through to
manufacturing and supply chain,
and on to the store itself, where we
can deliver more efficiently for our
customers. This will enable us to
achieve the lowest cost to operate,
especially in relation to the store
operating model. Technology will
play an important part in the
ongoing improvement of this and
allow us to leverage infrastructure
to support all channels; and
• Manufacturing and supply chain
investments: we have already
started building the infrastructure
required to support new sales
channels with retail partners both in
the UK and internationally. We will
invest in our vertical supply chain
and manufacturing technology to
improve product margins and lower
our operational cost base. In
addition, we will be assessing the
opportunity to bring the
manufacture of more hand-made
card ranges back to the UK,
increasing the flexibility with which
we can respond to customer
demand.
Strategic Report
Governance
Financial Statements
Delivery of the strategy will require
investment in a new warehouse (which
will be fully operational by July 2020) a
new ERP system and new printing
machinery. Investments have been
considered in line with the associated
business benefits and timing amended
given the current implications of
Covid-19.
We have prepared extensively for the
re-opening of our stores, and are
currently working on changes to our
store operations that will help ensure
colleague and customer safety.
We expect to be able to facilitate
appropriate social distancing in the
majority of our stores.
Covid-19 and liquidity update
The priority for Card Factory
throughout Covid-19 has been the
health and safety of both our
colleagues and customers. As
announced on 6 May 2020, we have
continued to trade both of our online
businesses. While still a small part of
the overall group, we saw significant
growth in visitors, conversion and
sales. In response to this increased
demand and to support social
distancing we have established a
second fulfilment unit in Wakefield.
Alongside the online activity, we have
continued to supply both Aldi and our
Australian partner, The Reject Shop,
with card ranges. Following
Government guidance to close all
stores, over 90% of our colleagues
have been furloughed under the
Government’s Job Retention Scheme.
Where required, our Support Centre
colleagues are working effectively
from home.
Whilst the audit report contains an
emphasis of matter in respect of
Covid-19, the Board is confident that
the Group has access to sufficient
liquidity for navigating the times
ahead. This has been driven both by
management focusing on cash
conservation, its current banking
facilities and the additional support
from the Bank of England. The cash
conservation measures have included
utilising relevant government schemes
where applicable, managing stock
intake and supplier terms and
controlling the cost base. Capital
investment has been focused on a
small number of key projects that
remain important to the Group’s
long-term strategic objectives. In
addition, the business has in place an
existing £200m Revolving Credit Facility
(‘RCF') maturing in October 2023 with
our commercial banks, who have
remained supportive of the business
during this period. Alongside the current
bank facilities, the Bank of England have
confirmed access to additional funding
under the Covid Corporate Financing
21
Card Factory plc
Annual Report and Accounts 2020
Chief Executive
Officer’s Review continued
leading position and vertically
integrated business model. We will
continue to look at new, similar
opportunities. In addition we have
tested price positioning and new
ranges and are well progressed on the
implementation of a new multi-
channel enabling online platform.
The combination of the new growth
strategy with Card Factory’s market
position, vertically integrated business
model and management team
provides confidence we will continue
to grow our market-leading position.
We have clear investment plans to
support the delivery of our strategy,
and remain focused on delivering
strong returns for our shareholders.
We are looking forward to sharing this
new strategy with you on 28 July 2020.
Karen Hubbard
Chief Executive Officer
2 June 2020
Facility (‘CCFF'). We will provide further
updates on Card Factory’s response to
Covid-19 as appropriate.
Given the recent announcements by
the Government we are preparing for
the re-opening of our stores, ensuring
that we are compliant with the
requirements to ensure we are “Covid-
Secure”. Over the past number of
weeks the team have worked through
the detail of social distancing in our
stores, received appropriate PPE and
other equipment and have a plan for a
phased re-opening of our shops. Our
priority in doing so is to ensure the
ongoing safety of our colleagues and
customers. It is clear that in some
shops, social distancing will impact our
ability to trade, however our teams are
working through a plan for sales
optimisation and trialling that will
inform us more fully of the implications
and any additional changes that we
may have to make. As the impact on
the operating performance becomes
clearer we will amend our business
plans accordingly.
Outlook
Before the impact of Covid-19, we had
made a satisfactory start to the year.
In the first major season of the year,
Valentine’s Day, we achieved our
fourth consecutive year of record sales
growth in both volume and value.
However, the Covid-19 pandemic has
impacted trading and, given the
uncertain economic backdrop, we are
unable to provide financial guidance
for FY21.
Our four pillar strategy has been a
simple and effective part of delivering
the growth of the business to date.
However, as customer buying habits
evolve and the consumer landscape
changes, we are planning for a new
stage of growth. We have already
established some key retail
partnerships within the UK and
overseas, leveraging our industry-
22
Strategic Report
Governance
Financial Statements
23
Card Factory plc
Annual Report and Accounts 2020
Chief Financial
Officer’s Review
Selective
investment for
growth “In the year, the Group
The ‘FY20' accounting period refers to the
year ended 31 January 2020 and the
comparative period ‘FY19' refers to the year
ended 31 January 2019.
remained highly cash
generative, driven by its
strong operating margins,
limited working capital
absorption and relatively low
ongoing capital expenditure
requirements.
Kris Lee
Chief Financial Officer
Unless otherwise stated, the following FY20 and
FY19 information is presented as including the
new accounting entries required by IFRS 16
Leases; references to ‘Adjusted’ financials exclude
such entries. In addition, the Group has chosen to
present underlying profit and earnings measures.
Transactions are categorised as non-underlying
if the resulting underlying profit and earnings
information is believed to assist comparison of
year-on-year performance.
Revenue
Total Group revenue during the year grew by
3.6% to £451.5m (FY19: £436.0m), driven by
growth in the Card Factory store network:
Card Factory stores
Online
Retail partnerships
FY20
£’m
429.0
19.4
3.1
Group
451.5
436.0
3.6%
To reflect the change of emphasis in our
business, we have adjusted our divisional
reporting to report in respect of the above three
divisions (Card Factory stores; Online and Retail
Partnerships). The Group’s established new store
roll-out programme continued to be an
important driver of sales growth for the business.
In the year under review, 53 new stores were
opened, giving a net addition of 50 new stores.
This brought the total UK estate to 1,022 stores at
the year-end, including 13 stores in the Republic
of Ireland.
24
FY19
£’m
Increase/
(Decrease)
Like-for-like ('LFL') sales growth was broken down
as follows:
415.5
20.4
0.1
3.3%
(4.9%)
Card Factory stores
Card Factory online
Card Factory LFL
Getting Personal
FY20
FY19
(0.7%)
(0.5%)
14.8% 56.3%
(0.5%)
(0.1%)
(9.8%)
(8.1%)
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. The full-year mix for
FY20 was 52.2% single cards (FY19: 53.1%),
45.8% non-card (FY19: 44.6%) and 2.0% boxed
cards (FY19: 2.3%). We expect some continuation
in this trend as we further improve our non-card
offering and drive incremental sales and average
basket value.
Strategic Report
Governance
Financial Statements
Revenue from the Card Factory transactional website grew
by 15% (FY19: 56%).
Performance at Getting Personal was disappointing, with
rising cost of customer acquisition in an increasingly
competitive, discounting-led market continuing to present a
challenge to the business model. We are currently reviewing
the structure of the business and its strategy for targeting
customers and as a result the Board has since concluded
that an impairment to the remaining goodwill balance
related to this business should be made. Further details are
provided below.
Underlying operating costs
Underlying cost of sales and operating expenses can be analysed as follows:
FY20 Underlying
Cost of goods sold
Store wages
Store property costs
Other direct expenses
Underlying cost of sales
Operating expenses*
Depreciation & amortisation
Total operating expenses
FY19 Underlying
Cost of goods sold
Store wages
Store property costs
Other direct expenses
Underlying cost of sales
Operating expenses*
Depreciation & amortisation
Total operating expenses
* excluding depreciation and amortisation
FY20
Adjusted
£’m
152.7
87.7
70.3
22.9
FY20
IFRS16
£’m
–
–
(43.8)
–
FY20
£’m
152.7
87.7
26.5
22.9
FY20
% of
revenue
%
(Increase)
/ Decrease
£
(Increase)
/ Decrease
33.8% (1.2 ppts)
19.4% (0.9 ppts)
5.9% 0.1 ppts
5.1% (0.2 ppts)
(7.5%)
(8.5%)
(1.1%)
(7.5%)
333.6
(43.8)
289.8
64.2% (2.2 ppts)
(7.2%)
36.7
11.0
47.7
FY19
Adjusted
£’m
142.1
80.8
68.3
21.3
312.5
34.1
10.9
45.0
(0.9)
39.3
38.4
FY19
IFRS16
£’m
-
–
(42.1)
–
(42.1)
(1.2)
37.2
36.0
35.8
50.3
86.1
FY19
£’m
142.1
80.8
26.2
21.3
7.9% (0.3 ppts)
11.1% (0.1 ppts)
(8.8%)
(4.6%)
19.0%
22.9
(6.3%)
FY19
% of
revenue
32.6%
18.5%
6.0%
4.9%
270.4
62.0%
32.9
48.1
81.0
7.6%
11.0%
18.6%
The overall ratio of cost of sales to revenue increased to
64.2% on an underlying basis (FY19: 62.0%). This increase
was driven by the following movements in sub-categories
and by the decline in LFL performance:
• Underlying cost of goods sold (‘COGS'): principally
comprises cost of raw materials, production costs,
finished goods purchased from third party suppliers,
import duty, freight costs, carriage costs and warehouse
wages. Product sourcing and manufacturing
improvements (both annualised from FY19 and new in
FY20) helped improve both card and non-card constant
currency product COGS by 0.3ppts. However, the shift in
product mix from card to non-card, an increase in the
core retail stock provision and, to a lesser extent, the
effect of our lower product margin retail partnerships,
resulted in an increase in overall constant currency
product COGS by 1.2 ppts. The effective sterling-US
dollar exchange rate for FY20 was c.$1.35 which is
comparable both with FY19 and the anticipated effective
P&L rate for FY21; however, the latter remains subject to
any significant shift in the value of sterling and the
impact of Covid-19 on hedged cash flows.
• Store wages: includes wages and salaries (including
bonuses) for store-based staff, together with national
insurance contributions, apprenticeship levy, pension
contributions, and overtime, holiday and sick pay. As
reported in the interim results, this cost increased, as
expected, as new stores were opened in the UK and
Republic of Ireland, pension costs grew and pay increases
were awarded, including those influenced by National
Living Wage. However, this headwind was mitigated, in
part, by improved management of store hours and the
successful delivery of planned in-store task reduction
initiatives in H2.
25
Card Factory plc
Annual Report and Accounts 2020
Chief Financial
Officer’s Review continued
• Store property costs: Under IFRS 16 Leases, store rents are
no longer included within cost of sales, leaving only
business rates and service charges. The pre-IFRS 16
Leases total increased in absolute terms as new stores
were opened, but the ratio to revenue was maintained at
FY19 levels. We continue to target improvements in our
overall rent roll as we reach break points or expiries on
existing leases but, given Covid-19, we are not able to
guide on the likely change in FY21. However, we can
confirm that Card Factory will benefit from the UK
Government’s decision to provide business rates relief to
retailers for the 2020-21 tax year.
• Other direct expenses: includes store opening costs, store
utility costs, waste disposal, store maintenance, point of
sale costs, bank charges and pay per click expenditure.
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 increased
slightly by 0.2 ppts – as it had at the half year – largely
due to the additional cost of holding increased stock
levels (for Brexit contingency planning, investment in new
lines and the acceleration of seasonal buying) for a
prolonged period, with smaller increases linked to
increasing debit/credit card payment mix and increased
merchant fees thereon, and online marketing costs in
Getting Personal. The overall increase in costs described
above was mitigated in part by c.£1.3m of business
efficiencies covering a range of cost categories, including
waste disposal, cash collection and a reduction in new
store opening costs.
• Underlying operating expenses: includes items such as
support centre remuneration, the cost of store estate
Regional and Area Managers, design studio costs and
business insurance, together with other central
overheads and administration costs. The Group invested
further in its IT infrastructure in FY20 and in training and
the other enabling costs associated with delivering the
business efficiency savings outlined above. In addition,
infrastructure costs, necessary to support growth, were
added to both the Online and Retail Partnerships
divisions. Total operating expenses (excluding
depreciation and amortisation) increased by 8.8% (FY19:
9.6%) to £35.8m, representing an increase from 7.6% to
7.9% as a percentage of revenue.
Depreciation and amortisation, which now includes
depreciation and impairment of right-of-use property lease
assets under IFRS 16 Leases, grew by 4.6% - broadly in line
with net new store openings – to £50.3m (FY19: £48.1m).
Underlying EBITDA
Underlying EBITDA
Underlying EBITDA margin
FY20
Adjusted
£’m
81.2
18.0%
FY20
IFRS16
£’m
44.7
FY20
£’m
FY19
Adjusted
£’m
89.4
125.9
27.9% 20.5%
FY19
IFRS16
£’m
43.3
FY19
£’m
132.7
30.4%
(Increase)
/ Decrease
(5.1%)
(2.5 ppts)
The reduction in Underlying EBITDA reflects, in particular,
Card Factory store like-for-like sales performance, the
impact of one-off costs of £4.4m, from higher storage costs
and stock provision increases due to increased stock
holding in preparation for Brexit. Stockholdings returned to
normal levels by the end of the period. Other ongoing
increased costs relate to National Living Wage cost
increases, investment in IT support (of EPOS in the main),
increasing debit/credit card usage costs, investment in
strengthening our competitive position in the online
channel, growing our retail partnerships channel and
maintaining our low price points. As described above, the
business was able to mitigate in part a significant
proportion of these cost increases through the removal of
unnecessary, non-customer facing store wage costs and the
delivery of various other operating cost savings.
The business is likely to continue to face increasing National
Living Wage costs amongst other cost pressures. In
addition, the full impact of Covid-19 on the short to medium
term performance of the business is unclear. However, the
business is operating close controls over its cost base and
liquidity in order that it emerges from this crisis on a strong
footing.
Underlying net financing expense
Excluding interest charges pertaining to IFRS 16 Leases,
net financing expense, excluding non-underlying items,
increased to £4.4m (FY19: £3.9m), due to the average
effective interest rate being 0.23 ppts higher than in FY19.
Including IFRS 16 Leases interest charges, the underlying
net financing expense remained at £8.4m (FY19: £8.4m).
26
Strategic Report
Governance
Financial Statements
All Underlying
Finance expense
Interest on loans
Loan issue cost amortisation
Loss on interest rate derivatives
IFRS 16 Leases interest
Total finance
Expense
FY20
Adjusted
£’m
FY20
IFRS16
£’m
4.0
0.3
0.1
–
4.4
–
–
–
4.0
4.0
FY20
£’m
4.0
0.3
0.1
4.0
8.4
FY19
Adjusted
£’m
FY19
IFRS16
£’m
3.5
0.2
0.2
–
3.9
–
–
–
4.5
4.5
FY19
£’m
3.5
0.2
0.2
4.5
8.4
Net finance expense
4.4
4.0
8.4
3.9
4.5
8.4
(Increase)
/ Decrease
(14.3%)
(50.0%)
50.0%
11.1%
–
–
Profit before tax and non-underlying items
Underlying profit before tax for the financial year amounted to £67.2m (FY19: £76.2m), a decrease of 11.8%, whilst, overall
profit before tax for the financial year amounted to £65.2m (FY19: £68.2m).
The table below reconciles underlying profit before tax to the statutory profit before tax for both financial years:
All Underlying
Underlying profit before tax
Non-underlying items:
Cost of sales
Loss on foreign currency derivative financial
instruments not designated as a hedge
Operating expenses
Impairment of goodwill (note 11)
Net finance expense
Refinanced debt issue cost amortisation
Profit before tax
FY20
Adjusted
£’m
65.8
FY20
IFRS16
£’m
1.4
FY20
£’m
67.2
FY19
Adjusted
£’m
74.6
FY19
IFRS16
£’m
1.6
FY19
£’m
76.2
(Increase)
/ Decrease
(11.8%)
0.5
(2.5)
–
63.8
–
–
–
1.4
0.5
4.2
(2.5)
(11.9)
–
65.2
(0.3)
66.6
–
–
–
1.6
4.2
(88.1%)
(11.9)
(79.0%)
(0.3)
68.2
(100.0%)
(4.4%)
Further detail on the other non-underlying reconciling items is set out in notes 1 and 3.
Tax
The tax charge for the year fell to 20.8% of profit before tax (FY19: 22.8%). The underlying tax charge fell slightly to 19.2%
of profit before tax (FY19: 19.4%).
Earnings per share
Basic and diluted underlying earnings per share for the year were 15.7p (FY19: 18.0p), a decrease of 12.8%. After the non-
underlying items described above, basic and diluted earnings per share for the year were 15.1p (FY19: 15.4p), a decrease of 1.9%.
All Underlying
Underlying Basic EPS
Basic EPS
FY20
Adjusted
£’m
15.4p
14.8p
FY20
IFRS16
£’m
0.3p
0.3p
FY20
£’m
15.7p
15.1p
FY19
Adjusted
£’m
17.6p
15.0p
FY19
IFRS16
£’m
0.4p
0.4p
FY19
£’m
18.0p
15.4p
(Increase)
/ Decrease
(12.8%)
(1.9%)
Capital expenditure
Capital expenditure excluding IFRS 16 Leases right of use assets, amounted to £14.5m (FY19: £12.3m), comprising: strategic
investments of £7.7m, principally in relation to the new cardfactory.co.uk platform and the business’s vertically integrated
supply chain, including manufacturing capability and warehouse voice picking technology. Total capital expenditure,
including right of use assets, amounted to £50.9m (FY19: £54.3m).
The Board anticipates capital expenditure in FY21 to be significantly lower than recent years as it places stringent controls
upon cash out flows in response to Covid-19 and postpones a large proportion of its FY21 new store roll-out and relocation
programme. However, the business still plans to invest in certain key strategic projects, including: further investment in
voice picking in the new consolidated warehouse facility, completion of the cardfactory.co.uk platform roll-out, and
various process improvement investments that benefit from relatively short pay back periods.
27
Card Factory plc
Annual Report and Accounts 2020
Chief Financial
Officer’s Review continued
Foreign exchange
With approximately half of its annual cost of goods sold expense relating to products paid for 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 and the Board continues to view such instruments to
be commercially attractive as part of a balanced portfolio approach to exchange-rate risk management, even if cash flow
hedge accounting may not be permitted in some instances.
As at the year-end, we had cover in place for approximately two years' full trading. The anticipated effective P&L rates for
both FY21 and FY22 are c.$1.35 (FY20: c.$1.35), although this remains subject to any significant shift in the value of Sterling,
which could impact the structured trades that form part of the hedging portfolio, and the impact of Covid-19 on hedged
cash flows. Structured trades represent approximately 40% of hedges that are yet to mature.
In response to the Covid-19 pandemic the Group has greatly reduced inventory purchases and will swap forward, or
consider other amendments to trades, in order to defer currency contract maturities.
Cash generation
In the year, the Group remained highly cash generative, driven by its strong operating margins, limited working capital
absorption and relatively low ongoing capital expenditure requirements.
Cash conversion, calculated as Underlying adjusted EBITDA less capex and underlying working capital movements divided
by Underlying EBITDA, fell to 80.0% (FY19: 96.5%). This decline reflects a short-term favourable working capital timing
difference as at 31 January 2019 that reversed in the reporting period.
Net debt & covenants
As at 31 January 2020, net debt (including debt issue costs of £1.0m) amounted to £289.0m, analysed as follows:
Borrowings
Current liabilities
Non-current liabilities
Total borrowings
Lease liabilities
Capitalised debt costs
Gross debt
Less cash
Net Debt
Leverage
Remove lease liabilities
Adjusted net debt
Adjusted Leverage
FY20
Net Debt
£’m
FY20
Leverage
Multiple
FY19
Net Debt
£’m
FY19
Leverage
Multiple
3.6
144.0
147.6
145.9
1.0
294.5
(5.5)
289.0
(145.9)
143.1
0.1
143.7
143.8
151.2
1.3
296.3
(3.8)
292.5
2.30x
2.20x
(151.2)
141.3
1.76x
1.58x
Net debt at the year-end represented 2.30 times Underlying EBITDA (FY19: 2.20 times), with Adjusted net debt representing
1.76x Underlying EBITDA (FY19: 1.58x).
The Group has entered into a revised agreement with its banking partners. This will enable it to utilise not only the full Revolving
Credit Facility of £200m but also to utilise secured funding from the Bank of England Covid Corporate Financing Facility
('CCFF'), up to a combined net debt limit of £275m at its peak. As part of this agreement, the Group’s existing covenant
requirements will lapse and be replaced by three new covenant tests relating to total net debt; cash burn; and last twelve
months EBITDA. These tests will be applied monthly until June 2021, after which it is envisaged that the business will have a
phased return back to existing six-monthly covenant tests of EBITDA to net debt and EBITDA to interest cover.
28
Strategic Report
Governance
Financial Statements
Until the business returns to existing covenant tests - which is currently envisaged as commencing July 2021 - Adjusted
Leverage is less than 2.0x (i.e. pre-IFRS 16) and it has no outstanding commercial papers issued under the CCFF, there will
be a prohibition of any payment to shareholders by way of dividend or share buy-back, with the same tests applying to
acquisitions. Furthermore, the Group must use best efforts to raise equity if leverage is above 3.0x before the later of
January 2021 or 3 months before the redemption of the final commercial paper issuance.
Dividends and capital structure
Dividends
Historically, 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 and profitability. Following the outbreak of the Covid-19
pandemic, the Board decided not to declare a final ordinary dividend for the year ended 31 January 2020. Our dividend
policy remains unchanged over the medium term, and we will regularly review the most appropriate actions to take in the
shorter term; however, currently we do not expect to pay any dividends in relation to FY21.
Total dividends for FY19 and FY20 can be summarised as follows:
Interim dividend paid
Final dividend
Total ordinary dividend
Ordinary dividend cover
Special dividend paid
Total dividend
FY20
2.9p
–
2.9p
5.11x
5.0p
7.9p
FY19
Restated
2.9p
6.4p
9.3p
1.89x
5.0p
14.3p
Capital structure
The Board is focused on maintaining a capital structure that is conservative yet efficient in terms of providing long-term
returns to shareholders. Over the medium term, the Board expects to maintain leverage broadly in the range of 1.0 to 2.0
times Adjusted net debt to Adjusted Underlying EBITDA, excluding the impact of IFRS 16. However, due to the impact of
Covid-19, the Board expects that leverage will peak above this range in FY21, which will impact the distribution of cash to
shareholders, as reflected above. 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.
On 1 May 2020, Card Factory received confirmation that it can access funding under the Covid Corporate Financing
Facility. HM Treasury and the Bank of England have confirmed that the CCFF will be operated “for at least 12 months and
for as long as steps are needed to relieve cash flow pressures on firms that make a material contribution to the UK
economy”. The Board will consider various options to ensure the key stakeholders of the business are protected as much as
possible in these uncertain times and will look to provide a further update as the longer term impact of Covid-19 becomes
clearer.
Kristian Lee
Chief Financial Officer
2 June 2020
29
Card Factory plc
Annual Report and Accounts 2020
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 identifying emerging risks and
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 enabling the Group to achieve its
strategic and operational objectives and facilitating the
long-term sustainable 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
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 pages 55 and 56.
The emerging and principal risks and uncertainties facing
the Group are set out below, together with details of how
these are currently mitigated and whether they have
changed since last year.
Risk
Description
Mitigation
Covid-19
Since 2019
Risk NEW
Link
01
02
03
04
The Covid-19 pandemic has resulted in the
prolonged closure of our entire store estate with
impact on our stakeholders and on sales. It may
result, at least in the short term, in fundamental
changes in the way we operate, to prevent
further spread or a second wave of the disease.
• Our Covid-19 Emergency Response Team has managed
the impact of the pandemic across the Group with
input from all business functions with detailed plans to
reopen stores whilst prioritising safety of colleagues
and customers.
• The Board have received regular updates from the
At the time of writing this report, the timing of
reopening stores and the trading performance
following reopening is uncertain, as customer
behaviours change and social distancing could
reduce footfall. It is possible that a second peak
of infections could result in a further period of
store closures, extending the period of
significantly reduced turnover. In the longer-term
consumer confidence and shopping habits may
be affected which may significantly impact our
business if this results in lower high-street footfall.
Chief Executive Officer (CEO) and CFO and provided
support in managing the crisis.
• Secured access all relevant Government support
schemes including access to Covid Corporate Financing
Facility.
• Furloughed over 90% of our colleagues from across the
Group (including all retail colleagues).
• Expanded the scope of our online offering in
anticipation of launching our new platform.
• Review of 5 year strategic plan being undertaken to
account for Covid-19 impacts.
Finance and
treasury
Since 2019
Risk
Link
01
02
04
Cash management has become critical for the
Group since trading from retail stores ceased in
March 2020 due to the Covid-19 pandemic.
• Agreement secured with a large proportion of suppliers
and landlords to revised terms (including order and
payment deferral to preserve liquidity).
Group finance arrangements and a reliance on
overseas suppliers mean that: a lack of
appropriate levels of covenant headroom and/
or cash resources; interest or exchange rate
fluctuation, or inadequate cost control could
impact operations and performance. The Chief
Finance Officer’s (CFO) Review from page 24
reports on action taken to address liquidity
issues arising from Covid-19 and details the
Group exposure to exchange rate fluctuation.
• Access to Covid Corporate Finance Facility and revised
terms agreed with banking syndicate to provide access
to additional debt funding, if required.
• Cost accountability and tracking in place.
• Adequacy of current financing, hedging and cash flow
for operations monitored by CFO including ongoing
impact of Brexit-related volatility.
• Treasury strategy effectiveness monitored by CFO and
Board.
• Comprehensive review of financial controls manual in
progress.
• Further details of the Group’s financial position are in
CFO’s Review on pages 24 to 29 and the Group’s
viability statement from page 90 of the Directors’
Report.
30
Strategic Report
Governance
Financial Statements
Risk
Description
Mitigation
Group generates most revenue from cards,
dressings, balloons and gifts.
• Strategy underpinned by customer and market analysis.
• Data-led commercial and studio teams drive quality,
Customers, trends and tastes can change
quickly. It’s essential predict and respond to
these challenges and to declining high-street
footfall.
value and innovation.
• New platform for cardfactory.co.uk to drive more sales
online and capture channel shift.
• Restructured commercial team.
• Well-invested manufacturing facility driving flexibility
to react to market and underpinning strategic
partnerships with Aldi and The Reject Store.
Competition remains fierce, particularly during
key seasonal card-buying occasions. Range
depth, quality and value remain key
differentiators.
Competitor groups, including supermarkets,
enjoy strong brand recognition, flexible retail
space, purchasing power, more mature
multi-channel capability and pricing flexibility.
Protecting and enhancing the ‘Card Factory’
brand underpins our reputation. Sustaining and
growing our appeal is critical to our long-term
sustainability.
• Comprehensive strategic review, led by Strategy and
Insight Director, including current competitive
landscape.
• Vertical integration and brand strength have driven
•
strategic partnerships with Aldi and The Reject Store in
Australia.
Innovation, in both design and manufacturing, driving
differentiation in our offer and underpinning
competitiveness.
• Partnerships and concessions established to increase
share from the convenience consumer by making our
cards available in more locations.
Investment in new platform for cardfactory.co.uk to
drive online channel.
•
• Strategic trials conducted to address competitive
challenges.
Invested in marketing and PR to drive brand awareness.
•
• Strategic review covered brand perception.
• Rigorous protection of intellectual property and
guidance provided to our teams.
• Continued investment in colleague development
underpinning ‘customer first’ approach.
• Comprehensive store review process to identify
improvement opportunities.
• Operating ‘no audit no order’ policy for all suppliers.
Our market
Since 2019
Risk
Link
03
Increasing
competition
Since 2019
Risk
Link
01
02
04
Protecting and
promoting our
brands
Since 2019
Risk
Link
01
02
04
Evolving our
strategy
Since 2019
Evolving our strategy to reflect current market
dynamics and customer shopping habits,
including widespread high-street footfall
decline, is critical to the long-term performance
and sustainability of the business for the benefit
of all key stakeholders.
Risk
Link
01
02
03
04
• Comprehensive strategic review undertaken establishing
the Group’s objectives over the short, medium and longer
term, facilitated by new Strategy and Insight Director.
• Board and senior management engaged throughout
the process and engaged on actions to implement the
strategy.
• Review considered all key stakeholder interests.
• Key commercial elements successfully contracted with
retail partners; The Reject Store in Australia and Aldi.
• Focus on customer segmentation, addressing competitive
challenges and growing our market share in cards.
• Financial and personal bonus objectives aligned with
strategic goals.
Risk trend:
Increasing
Stable
Decreasing
Link to strategy: 01 LFL sales growth
02 New store roll-out
03
Business
efficiencies
04 Online
31
Card Factory plc
Annual Report and Accounts 2020
Principal Risks and Uncertainties
continued
Risk
Description
Mitigation
Developing our
culture and
leadership
Since 2019
Risk
Link
03
Developing a culture, management cohesion
and leadership behaviours that support the
Group’s strategic vision is critical to long-term
sustainable success. The Group’s most recent
colleague engagement survey has highlighted
clear development opportunities.
• Corporate purpose refined, sitting alongside
established values.
• Organisational and leadership review alongside
strategy development.
• Targeted functional plans addressing engagement
survey feedback.
• Designated Non-Executive Director appointed to
attend newly created Combined Colleague Advisory
Group (CCAG), created to provide Group-wide voice on
culture and leadership.
Loss of key
personnel
Since 2019
Retaining key colleagues remains challenging.
Effective succession planning and ensuring we
have the capacity, capability and
organisational structure to implement our
strategy are critical to the Group’s long-term
success.
• Organisational and leadership review alongside
strategy development.
• Nomination Committee now overseeing succession
planning across senior management.
• New Chief Commercial Officer, Chief Information
Officer (CIO), People Director and General Counsel
recruited. Strategy and Insight Director role created.
• Group’s remuneration policy aligns incentives with
strategic goals.
Risk
Link
03
Managing
change
Since 2019
Risk
Link
01
02
03
04
Group continues to pursue significant
technology-focused change programmes
underpinning our strategic ambitions, enabling
greater efficiency and growth.
‘Business as usual’ activities could be
compromised if ambition outweighs current
capacity to manage change.
• New Programme Management Office established and
accountable for change-management governance.
• Significant additional investment in, and restructuring
of, the leadership team with wider and clearer
accountabilities.
• Board and senior management committed significant
time to strategic development.
• Board receive programme updates to enable, support
and challenge.
• Organisational and leadership review alongside
strategy development.
Information
technology
Since 2019
Our IT infrastructure needs further investment
and development to ensure it is resilient, secure
and supports the strategic ambitions and
business transformation agenda of the Group,
in addition to maintaining our day-to-day
operations. This is critical to our future success.
Risk
Link
01
02
03
04
• New Group Chief Information Officer appointed.
Accountable for IT and transformation.
• Chief Information Officer undertaking a comprehensive
•
review of infrastructure and team.
IT strategy development to ensure infrastructure
supports both strategic objectives and core operations.
• Group programme management office to support
project governance, delivery and benefits realisation.
IT governance process embedded.
•
• Continuing infrastructure investment supporting
resilience and security.
• ERP tender commenced and new platform for
cardfactory.co.uk going live in 2020.
Risk trend:
Increasing
Stable
Decreasing
Link to strategy: 01 LFL sales growth
02 New store roll-out
03
Business
efficiencies
04 Online
32
Strategic Report
Governance
Financial Statements
Risk
Description
Mitigation
ERP
implementation
Since 2019
Risk NEW
Link
01
02
03
04
Managing our
supply chain
Since 2019
Risk
Link
03
Brexit
Since 2019
Risk NEW
Link
01
04
The Group is due to implement a new ERP
(Enterprise Resource Planning) solution. This
significant project involves changing the core IT
infrastructure on which the Group operates, to
facilitate efficiencies, and provide a platform
future growth. However, ensuring appropriate
design of any ERP system, and implementation
of business change to realise the benefits of it
require proper execution. There are inherent
risks of business disruption, data loss or delays
in any ERP implementation.
Heavily reliant on overseas suppliers, for
complementary categories, products and
handcrafted greeting cards. There is a risk they
may not be able to satisfy orders and we are
exposed to increases in raw material prices,
freight costs and duty, as well as supply
interruption and reputational risk arising from
supplier labour practices.
The Covid-19 outbreak initially caused delay to
manufacturing output in China and to the
delivery of finished products but its
development into a global pandemic and the
lockdown measures in the UK could result in us
carrying excess stock as a result of committed
orders and a lack of store-generated sales.
The terms of trade deals that the UK
Government may secure on expiry of the
transitional period for the UK’s exit from the
European Union remain uncertain and the
economic consequences from Brexit remain
unclear.
The business uncertainty arising from Brexit may
impact on foreign exchange rates, potentially
increasing the cost of supplies or reducing the
sterling value of sales denominated in other
currencies. Imported supplies and shipments to
overseas partners and stores may be subject to
tariffs and delays at port.
• Established, proven suppliers are being assessed in
response to the request for proposal.
• Detailed assessment and planning is being undertaken
•
to ensure suitability of the ERP solution.
Implementation on a module-by-module basis, only
following appropriate testing, is expected to reduce
extent of business disruption should material challenge
arise.
• Area of focus for our new Chief Commercial Officer,
with further investment in strategic supply chain resource.
• Maintain strong, category-led relationships with key
suppliers.
• Focus on diversifying supplier base, reducing risk and
•
increasing flexibility.
Investment in manufacturing technology and R&D to
‘on shore’ greeting cards.
• Compulsory for supplier to agree to our standard terms
•
before any orders are placed.
‘No audit no order’ policy implemented. Mandatory
ethical and technical audits.
• Formally assessed impact of changes in tariffs and
stock requirements in light of Brexit.
• Our Covid-19 Emergency Response Team has led an
impact assessment for Covid-19 across the Group with
input from all business functions.
• We are working closely with our product suppliers to
manage both our purchasing requirements and our
payment terms.
• Foreign exchange hedging adopted by the Group
mitigates foreign exchange variance that may arise
from Brexit in the short term.
• A large proportion of the Group’s product is produced
by the Group in the UK.
• The Group’s business model and market position
support its ability to withstand reductions in disposable
income of consumers arising from economic impact
from Brexit.
Sustainability
Since 2019
Risk NEW
Link
01
The future success of Card Factory relies on
progressive adoption of sustainable solutions to
support the environment and long-term growth.
Procuring sustainably sourced materials, and
development of recyclable products, whilst
reducing our carbon footprint are business
priorities, recognising that failure to do so is
likely to create adverse publicity and could limit
growth.
• Demonstrable progress in reduction of carbon footprint.
• Compliance with EU Timber Regulations and adoption
of equivalent due diligence for card product sold by the
business.
• Production uses FSC certified materials with active
engagement with suppliers to meet these standards.
• Simple supply chain model adopted which facilitates
due diligence on compliance purposes.
33
Card Factory plc
Annual Report and Accounts 2020
Principal Risks and Uncertainties
continued
Risk
Description
Mitigation
Business
continuity
Since 2019
Risk
Link
01
02
03
04
Compliance
Since 2019
Risk
Link
01
02
03
04
E-commerce
development
Since 2019
Risk
Link
04
Major disruption to our business, but
particularly our manufacturing and online
fulfilment facility, Printcraft, our distribution
centre or our design studio, could severely
affect our performance and profitability.
• Group crisis management plan in place and used to
manage response to the Covid-19 outbreak.
• New warehousing capacity acquired providing
additional resilience.
• Online fulfilment model under review.
• Consistent infrastructure for Group-wide IT back-ups.
Enhancements planned for FY21.
• Printcraft disaster recovery being further developed in
FY21.
Compliance requirements continue to grow
with the new UK Corporate Governance Code,
Modern Slavery, GDPR, National Living and
Minimum Wage all requiring operational focus
and action. Compliance is time-intensive and
costly with sanctions becoming more punitive.
• General Counsel and Company Secretary oversee
compliance, with support from external advisers and
collaboration from senior management.
• Key legislation trackers in place, with Audit and Risk
Committee regularly updated.
• GDPR compliance programme in place and monitored.
• Ethical trading and anti-slavery policy adopted by the
Board and rolled-out.
• Policies and procedures governing behaviours in all key
areas.
The Group’s websites are important sales
channels supporting our strategic ambitions.
Developing our e-commerce model, including
the introduction of ‘click and collect’ and a
mobile app, is critical to meeting evolving
customer expectations and shopping
preferences and to taking market share in these
channels.
•
Investment in new platform for cardfactory.co.uk to go
live this year.
• Dedicated online team within our design studio.
• Expanded and refreshed product ranges with third-
•
•
party card designs.
Invested in PR and marketing initiatives to drive traffic
and sales.
In-store ‘on-demand’ and ‘click and collect’ to be
piloted in 2020.
Risk trend:
Increasing
Stable
Decreasing
Link to strategy: 01 LFL sales growth
02 New store roll-out
03
Business
efficiencies
04 Online
34
Strategic Report
Governance
Financial Statements
35
Card Factory plc
Annual Report and Accounts 2020
Our Stakeholders
Proactive
and effective
engagement
Section 172(1) Statement -
Engaging with our stakeholders
Engaging with our stakeholders is of
vital importance to the Group and
ensures that our stakeholders’ interests
are taken into account during the
Board’s decision-making process. This
engagement is also supportive of a
Director’s duty under Section 172 of the
Companies Act 2006.
During the year, the Board, both
generally and as part of the Board
evaluation exercise, reviewed its
current approach to corporate
governance, particularly in light of
changes to the UK Corporate
Governance Code published in
September 2018 by the
Financial Reporting Council (‘the UK
Corporate Governance
Code’ or ‘the Code’). This included
consideration of how we currently
engage with our key stakeholders and
ensure their interests are represented
when making key decisions affecting
the long term success of the Group.
Through the Board evaluation exercise,
the Board identified this as an area of
focus for the current year and
committed to regularly reviewing the
Group’s stakeholder groups, ensuring
our decision making and performance
measurement processes take their
interests into consideration in a
balanced way.
The table opposite details the interests
of our key stakeholders and our
engagement during the year.
36
Shareholders
We engage with our shareholders on a regular basis, welcoming feedback to ensure that
our long-term strategy is aligned with their interests. We aim to articulate our messages
clearly in a way that is easy for all our shareholders to access and understand.
We provide updates on financial performance through our regular reporting, the annual
general meeting (AGM), the investor pages on cardfactoryinvestors.com and our
investor roadshows, where our Chief Executive and Chief Financial Officer meet with
our shareholders and attend ad hoc investor calls and meetings.
We have regard for our shareholders’ feedback during our regular Board meetings and
calls, ensuring their voice is considered during the Board’s decision-making processes.
Members of the Board, and particularly our Chairman, have also made themselves
available to meet with shareholders during the year.
Our next AGM will take place on 30 July 2020 at the Company’s registered office,
Century House, Brunel Road, Wakefield 41 Industrial Estate, Wakefield, WF2 0XG
at 11.00am. Ordinarily the Board would welcome the attendance and questions of our
Shareholders at the AGM, however under recent government guidelines concerning
Covid-19 and in order to protect the safety and wellbeing of our shareholders and the
Board, there are likely to be restrictions on attendance at our AGM. We therefore
encourage all our shareholders to vote by proxy on all of the resolutions proposed. We
intend to provide a mechanism for shareholders to submit questions ahead of the AGM
and will provide shareholders the opportunity to engage with the Board in person later
in the year, when current restrictions will have hopefully been lifted.
Customers
We actively listen to our customers, and to card shoppers who do not yet choose
to buy from Card Factory, through our market research programme. This allows us
to understand and quantify shoppers’ opinions and values, to actively improve the
proposition to meet their needs, and to rigorously measure our performance in
delivering the leading customer experience. Our Strategy and Insight Director regularly
communicates with the Board, enabling the Board to ensure our brand is accessible and
our product offering meets our customer expectations and our Group’s mission.
The development of a bespoke customer segmentation, which management believes to
be market-leading, has been central to the evolution of the Group’s strategy during the
current year. This allows us to understand and address the interests of different groups
of customers, increasing the likelihood that we can satisfy as many customers as
possible. The Board has been fully engaged in this project.
Regular engagement with our customers through our social media platforms, such as
Instagram and Facebook, enables the business to gather regular opinions and feedback
from our customers, share real-time information and create targeted marketing campaigns.
Customer service performance is regularly reported to the Board by our Customer
and Multi-Channel Director ensuring that the Board can have regard to our customers’
interests and align these with our strategy.
More detail about how we manage our relationship with our Customers
can be found on page 38
Colleagues
Our annual, Group-wide, engagement survey and our well-established colleague
communication channels mean we can engage with our colleagues to shape and influence our
strategic considerations surrounding our culture, our working environment, our infrastructure
and our commitment to our colleagues’ career development.
The results of our engagement survey, in particular, help the Board understand the Group’s
culture. Targeted action plans have been created for each business function, ensuring there is a
continuing commitment to improving colleague engagement and fulfilment in their career as
central strands of our people strategy.
In addition, we appointed Paul McCrudden, as our designated Non-Executive Director, to
engage with the our colleagues through our recently formed Combined Colleague Advisory
Group (CCAG) ensuring that our colleagues’ voices are heard by our Board and enabling the
Board to have regard for our colleagues’ interests during their decision-making. Paul will attend
CCAG meetings held throughout the year and report back to the Board.
More generally, the Board regularly engages with members of the Group’s senior management,
very often on store visits, which also provide the opportunity to speak directly with frontline
retail colleagues.
Suppliers
We understand the importance of fostering our relationships with our suppliers and engage
constructively to set fair and clear expectations, which strengthens the transparency of our
supply chain and actively promotes our environmental objectives.
We listen to our suppliers through our dedicated relationship managers, welcoming an open
dialogue to challenge and raise any concerns.
We regularly visit our suppliers in the Far East and, during the last year, undertook our first
Supplier Viewpoint survey with our top 20 suppliers, using their feedback to improve our supplier
relationship management. As part of our commitment to continuously evolve how we engage
with our suppliers, we will conduct this survey annually.
Our Chief Commercial Officer is responsible for ensuring we develop mutually beneficial long-
term relationships with our key product suppliers and monitors and responds to our suppliers’
concerns to balance the commercial position, taking full account of our community and the
environment within which we operate.
Strategic Report
Governance
Financial Statements
Shareholders
We engage with our shareholders on a regular basis, welcoming feedback to ensure that
our long-term strategy is aligned with their interests. We aim to articulate our messages
clearly in a way that is easy for all our shareholders to access and understand.
We provide updates on financial performance through our regular reporting, the annual
general meeting (AGM), the investor pages on cardfactoryinvestors.com and our
investor roadshows, where our Chief Executive and Chief Financial Officer meet with
our shareholders and attend ad hoc investor calls and meetings.
We have regard for our shareholders’ feedback during our regular Board meetings and
calls, ensuring their voice is considered during the Board’s decision-making processes.
Members of the Board, and particularly our Chairman, have also made themselves
available to meet with shareholders during the year.
Our next AGM will take place on 30 July 2020 at the Company’s registered office,
Century House, Brunel Road, Wakefield 41 Industrial Estate, Wakefield, WF2 0XG
at 11.00am. Ordinarily the Board would welcome the attendance and questions of our
Shareholders at the AGM, however under recent government guidelines concerning
Covid-19 and in order to protect the safety and wellbeing of our shareholders and the
Board, there are likely to be restrictions on attendance at our AGM. We therefore
encourage all our shareholders to vote by proxy on all of the resolutions proposed. We
intend to provide a mechanism for shareholders to submit questions ahead of the AGM
and will provide shareholders the opportunity to engage with the Board in person later
in the year, when current restrictions will have hopefully been lifted.
Customers
We actively listen to our customers, and to card shoppers who do not yet choose
to buy from Card Factory, through our market research programme. This allows us
to understand and quantify shoppers’ opinions and values, to actively improve the
proposition to meet their needs, and to rigorously measure our performance in
delivering the leading customer experience. Our Strategy and Insight Director regularly
communicates with the Board, enabling the Board to ensure our brand is accessible and
our product offering meets our customer expectations and our Group’s mission.
The development of a bespoke customer segmentation, which management believes to
be market-leading, has been central to the evolution of the Group’s strategy during the
current year. This allows us to understand and address the interests of different groups
of customers, increasing the likelihood that we can satisfy as many customers as
possible. The Board has been fully engaged in this project.
Regular engagement with our customers through our social media platforms, such as
Instagram and Facebook, enables the business to gather regular opinions and feedback
from our customers, share real-time information and create targeted marketing campaigns.
Customer service performance is regularly reported to the Board by our Customer
and Multi-Channel Director ensuring that the Board can have regard to our customers’
interests and align these with our strategy.
Colleagues
Our annual, Group-wide, engagement survey and our well-established colleague
communication channels mean we can engage with our colleagues to shape and influence our
strategic considerations surrounding our culture, our working environment, our infrastructure
and our commitment to our colleagues’ career development.
The results of our engagement survey, in particular, help the Board understand the Group’s
culture. Targeted action plans have been created for each business function, ensuring there is a
continuing commitment to improving colleague engagement and fulfilment in their career as
central strands of our people strategy.
In addition, we appointed Paul McCrudden, as our designated Non-Executive Director, to
engage with the our colleagues through our recently formed Combined Colleague Advisory
Group (CCAG) ensuring that our colleagues’ voices are heard by our Board and enabling the
Board to have regard for our colleagues’ interests during their decision-making. Paul will attend
CCAG meetings held throughout the year and report back to the Board.
More generally, the Board regularly engages with members of the Group’s senior management,
very often on store visits, which also provide the opportunity to speak directly with frontline
retail colleagues.
More detail about how we engage with our Colleagues
can be found on page 39
Suppliers
We understand the importance of fostering our relationships with our suppliers and engage
constructively to set fair and clear expectations, which strengthens the transparency of our
supply chain and actively promotes our environmental objectives.
We listen to our suppliers through our dedicated relationship managers, welcoming an open
dialogue to challenge and raise any concerns.
We regularly visit our suppliers in the Far East and, during the last year, undertook our first
Supplier Viewpoint survey with our top 20 suppliers, using their feedback to improve our supplier
relationship management. As part of our commitment to continuously evolve how we engage
with our suppliers, we will conduct this survey annually.
Our Chief Commercial Officer is responsible for ensuring we develop mutually beneficial long-
term relationships with our key product suppliers and monitors and responds to our suppliers’
concerns to balance the commercial position, taking full account of our community and the
environment within which we operate.
More detail about our supplier programme
can be found on pages 40 and 41
37
Card Factory plc
Annual Report and Accounts 2020
Corporate Social
Responsibility Report
Our
Responsible
Business
As the UK’s leading specialist greeting
card retailer we continue to maintain our
Feefo Gold Service award for our online
service. We continue to be ranked as the
#1 brand in retail for ‘value for money’
by shoppers, as published by OC&C
Strategy Consultants; maintaining this
position for the fifth consecutive year.
We continue to make our brand more
accessible to customers; our products
are now available in 496 Aldi stores
and 15 Matalan stores throughout the
United Kingdom and 355 branded
concessions within The Reject Shop in
Australia. We continue to showcase
our brand and products through our
digital channels and social media
platforms, sharing our customers’
celebrations of their life occasions.
During the year we installed helium
points at our tills and consolidated our
party offering with our balloon kiosks
to improve the customer experience in
our stores.
We continue to listen to our customers
to advance our product, service and
brand proposition and we remain
committed to deliver our multi-channel
offering. Looking ahead, we plan to
roll-out our refreshed online platform
making it easier for our customers to
shop when they want, where they
want.
We are committed to
providing quality and
value to our customers.
In achieving this we recognise and
understand the importance of
engaging with all of our stakeholders
and actively demonstrating that we
take our corporate responsibility
seriously.
Operating responsibly is embedded
within our culture and our
stakeholders’ interests are at the
forefront of the decisions we make;
focusing on the following key areas:
• Our Customers
• Our Colleagues
• Our Suppliers
• Our Environment
• Our Charities
Customers
Operating through our network of
1009 stores in the United Kingdom
and 13 in the Republic of Ireland we
continue to focus on how we can
provide our great quality products
and services whilst maintaining the
value to our customers.
38
Strategic Report
Governance
Financial Statements
Think Big, Work Together,
Make a Real Difference
Colleagues
Employing more than 9,400 colleagues
across the Group, we understand the
importance of recruiting and retaining
the best people with a wide range of
talents, skills and experience.
We continue to increase the
retention rate among store
managers following our
commitment to developing a
strong talent pipeline of store
managers. We remain committed
to investing in our colleagues’
development through our retail
store aCardemy programme,
apprenticeships and our high
potential management and
leadership programmes.
During the year we:
• transformed our careers website and
onboarding process in both our retail
sector and support centre, to ensure
our colleagues are given the best
start when they join the business;
• simplified our internal processes for
colleagues by automating their pay
slips and enabling them to manage
their holidays electronically via our
new HR platform;
• continued the roll out of benefits
and savings through our
MyCardFactory savings platform;
and
instigated recruitment drives via
social media platforms to attract
new talent from a broader spectrum.
•
We acknowledge the mental health
and wellbeing challenges our
colleagues face and in response
have trained 15 mental health first
aiders across the business to
proactively help our colleagues.
We maintained our engagement and
feedback channels with our colleagues
through our annual ‘Be Heard’ survey
which all colleagues across the Group
are encouraged to participate in. Our
‘Weekly Roundup’ bulletin informs our
colleagues of everything from new
starters, ‘Green Team’ updates, social
news, charity events and operational
information. Our colleagues also
continue to communicate directly with
our CEO, Karen Hubbard, through our
‘Tell Karen’ initiative.
We understand the importance of
communicating our plan with our
colleagues and significantly increased
the number of them who attended our
‘Engage’ conference, where we
cascaded the plan and performance
measures for the year to over 1,150
colleagues, with everyone receiving a
digest of the cascaded messages.
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,
belief, sex, sexual orientation, gender
identification, marital status or age.
At the end of the financial year, the percentage breakdown of male and female
colleagues across the Group was as follows:
Board
Senior management team
All employees
% Male
% Female
FY20
FY19
FY20
FY19
71
82
19
71
71
19
29
18
81
29
29
81
Looking ahead, our People Strategy focuses on strengthening organisational
capability, building a strong people infrastructure and supporting a
performance culture.
39
Card Factory plc
Annual Report and Accounts 2020
Corporate Social
Responsibility Report continued
Health & safety is of
paramount importance
Suppliers and manufacturing
The majority of cards sold in our stores
are designed in our design studio and
manufactured at our print facility, both
in Yorkshire. The balance of cards and
other products are sourced from a
broad supplier base throughout the
UK, Europe and the Far East,
principally China.
The appointment of our Chief
Commercial Officer has reinforced the
scrutiny of our supplier practices and
encouraged greater transparency over
how our suppliers operate. All of our
suppliers are required to comply with
our compliance manual and we
continue to strengthen our quality
assurance and inspection operations,
utilising third-party partners in the Far
East to complement our own team.
Our supplier factory auditing
programme reassures us that we are
trading with suppliers that not only
operate ethically, but produce good
quality products that comply with all
relevant laws and standards. We carry
out audits using third-party specialists
to ensure consistency in assessment.
We have a ‘No Audit, No Order’ policy
and do not place orders with suppliers
until they have successfully satisfied
our onboarding process and we have
received satisfactory technical and
ethical audit results.
Health and Safety
The health and safety of all our
colleagues, 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 are
operated without significant risk.
Health and safety is incorporated into
our day-to-day practices, including
colleague induction, and supported
and reinforced through our training
programmes which help to mitigate
health and safety risks.
Whilst the Board has ultimate
responsibility for health and safety, the
Central Operations Director is
accountable for health and safety on a
day-to-day basis supported by the
compliance and safety team. The
team liaise with line managers across
the business to ensure compliance with
our policies and procedures and
ensure that all colleagues receive
appropriate training, using their
collective knowledge and expertise to
ensure our operations remain safe.
Compliance and safety meetings are
held regularly 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.
Throughout the year accident and
incident reporting has moved online,
enabling the compliance and safety
team to react quickly and take
proactive steps to managing health
and safety practices.
The Board receives reports on health
and safety matters across the Group
including details of any material
incidents and remedial actions.
The business continues to support
colleagues through NEBOSH (National
Examination Board in Occupational
Safety and Health) and has a 100%
success rate.
40
Strategic Report
Governance
Financial Statements
We remain committed to
simplifying our supply chain
The ethical audits we commission use
criteria SA8000, an auditable
certification standard developed by
Social Accountability International.
The SA8000 standard is the most
recognised social certification
standard for factories and
organisations worldwide and it
encourages organisations to develop,
maintain, and apply socially
satisfactory practices in the supply
chain. 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.
The technical audits we commission
focus on a supplier’s capacity to
produce the number of goods we
require safely and to all relevant
standards.
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 remain committed
to simplifying our supply chain,
improving transparency and
continuing to focus on reducing the
number of trading companies we
partner with. Our commitment has
reduced the number of Far East
trading companies from in excess of
100 partners to fewer than 12 partners
and we remain committed to reduce
these further.
We are continuing to develop our audit
programme to ensure we have greater
transparency over the overseas part of
our supply chain, and commission
confidential audits of the
manufacturers our trading companies
use. These audits preserve the identity
of the manufacturers but provide us
with assurance that they operate
ethically and are capable of producing
safe, high quality products in the
quantities we require.
We have been an established member
of Sedex (Supplier ethical data
exchange) since 2013. 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.
We publish our annual compliance
statement in accordance with the
Modern Slavery Act 2015. Copies of
the statement are available on our
transactional website (cardfactory.co.
uk) and on our investor relations
website (cardfactoryinvestors.com).
Within our statement we outline the
processes we currently have in place
and the steps we intend to take to
develop our supply chain management
procedures, and to give assurance to
our stakeholders that we take our
commitment seriously.
Within 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
controls over the paper-based
materials in our products sourced from
the Far East, to ensure we replicate the
level of due diligence undertaken in
our own manufacturing facilities.
Our main trading subsidiary,
Sportswift Limited (which trades as
‘Card Factory’), and our UK
manufacturing operation, Printcraft
Limited, are both Forest Stewardship
Council (‘FSC’) certified. This has
assisted in providing a more robust
and simplified supply chain, ensuring
compliance as far as practicable, with
EUTR. It also provides transparency of
sourcing of paper-based materials
with the aim of ensuring they are from
sustainable sources. We are actively
seeking to promote the use of the FSC
certification mark on the products we
manufacture, and continue to work
with our key third-party suppliers to
ensure that products on sale in our
stores are manufactured using
FSC-certified material.
41
Card Factory plc
Annual Report and Accounts 2020
Corporate Social
Responsibility Report continued
We continue to focus on
reducing our impact
on the environment
Environment
We recognise our operations impact
the environment, and will continue to
focus on reducing our impact through
the policies we adopt.
We have taken steps to reduce the
level of single-use plastic bags used
and continue to target a year-on-year
reduction in the use of such bags
through supporting the sale of
reusable bags. We continue to focus
on our ultimate goal of removing
single-use plastic bags from our estate
entirely.
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 emissions and costs. We are
proud that the majority of our cards
are not wrapped in packaging. Our
individual handmade cards are
wrapped, primarily to protect the
product, and we continue to review
how we can further reduce the overall
level of plastic waste created by our
products.
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.
We recognise the impact that waste
generated from our activities has on
the communities we operate in and
proactively look to reduce the level of
waste generated and maximise the
proportion of waste that is recycled.
In our day-to-day operations we 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 which only uses
landfill as a final resort once all other
disposal methods have been
exhausted. To further support
recycling we have started to retail
cards with specific finishes that allow
them to be 100% recycled.
Following education and training given
to our colleagues, we have successfully
reduced the number of waste
collections from our stores. This has
reduced our carbon footprint and
positively impacted on our waste
management cost.
Our support centre, store network,
design studio and distribution centre
have the facility to recycle paper,
cardboard and plastic-based
materials 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. Our distribution centre in
Wakefield bails all plastic and
cardboard materials on site, in
readiness for recycling.
We recognise the need to become
more sustainable and in August 2019
‘The Green Team’ initiative was
established within our support centre
and design studio, to explore ways of
improving the business’s impact on the
environment and enable our
colleagues to become ‘greener’ in their
day-to-day activities. The Green Team
have removed individual desk waste
bins and replaced them with food and
recycling stations, and removed single-
use plastic from our vending machines.
By raising awareness we have
significantly reduced the amount of
paper used (and consequently the
number of trees felled) in the support
centre each week and aim to reduce
this further.
Looking ahead, we plan to roll
out ‘The Green Team’ initiative
throughout our distribution centre and
our store network.
42
Strategic Report
Governance
Financial Statements
We have continued to
focus on monitoring
electricity usage
Our entire store estate, distribution
centre, support centre and design
studio have LED lighting which saves
energy and improves the lighting levels
within the working environment. Our
support centre and all of our new
stores have energy-efficient
equipment installed and we continue
to explore new technology to further
reduce our in-store energy
consumption.
Fuel efficiency
We continue to invest to improve fuel
efficiency and reduce the number of
miles travelled in the operation of our
business, as part of our commitment to
reducing energy consumption.
During the year we replaced our
commercial fleet, creating savings of
up to 20% of current fuel consumption
and reducing our carbon footprint by
22 tonnes of carbon dioxide equivalent
each year.
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, a large proportion
of our deliveries destined for the
northern parts of the United Kingdom
and Scotland are now processed
through northern distribution hubs.
Greenhouse gas (‘GHG’) emissions
Greenhouse gas statement for the Group
GHG emissions for the Group for the year ended 31 January 2020, in tonnes of
carbon dioxide equivalent (‘tCO2e’), were:
Source
Fuel combustion (stationary)
Fuel combustion (mobile)
Fugitive emissions (F-gas)
Purchased electricity
TOTAL
Annual comparison and emissions intensity
Total emissions
Emissions intensity*
* Expressed in tCO2e per £m turnover.
tCO2e
41.2
995.9
152.8
8,311.6
9,501.5
%
0.4
10.5
1.6
87.5
100
tCO2e 2019-20
9,501.5
21.0
2018-19
11,861
27.2
Reduction
19.9%
22.6%
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.
43
Energy
Electricity is the main form of energy
we consume and we analyse
consumption across our entire estate,
including our distribution centre, 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 (Energy
Savings Opportunity Scheme) and we
concluded the second round of ESOS
in December 2019.
Operationally, we have continued to
focus on monitoring electricity usage.
We continue to utilise the energy
usage data we receive to support our
store colleagues in reducing energy
waste and consumption. During the
year, we rolled out an e-learning
module to all stores demonstrating the
importance of energy conservation
and the impact this has on the Group
and the wider environment.
Looking ahead, we will continue to
review our energy usage and perform
energy audits to ensure the equipment
we use or inherit is energy efficient.
Card Factory plc
Annual Report and Accounts 2020
Corporate Social
Responsibility Report continued
We recognise the importance of
being responsible members of the
communities in which we operate and
work hard to support charitable causes
that can benefit from our growth.
“We continue to support our corporate
charity partners but have been
delighted to further extend our reach to
regional charities close to the hearts of
our colleagues in the communities they
live and work. Local to the support
centre and distribution centre, our
relationship with Wakefield Hospice
has been an important and rewarding
relationship to both the trustees and
our colleagues alike. We are proud to
support our colleagues who have
suffered live changing events where
we can make a difference.
Chris Beck
Chairman, Card Factory Foundation
Helping hand
Community fund
The Card Factory Foundation:
Match fund
through which the Foundation
provides match funding of the
money raised by our colleagues
for charitable causes.
through which the Foundation
provides help in a time of need
when colleagues are facing
hardship following a life-
changing event.
Founded in February 2018, the Card
Factory Foundation are custodians of
the money raised from the sale of the
plastic carrier bags sold in our stores.
Since February 2018 the Foundation has
donated £250,296 to charitable causes.
We believe that the structure of the
Foundation will enable the Group to
continue donating to good causes that
would otherwise miss out, as well as
helping large established charities.
through which the Foundation
provides grant funding to local
projects, charitable causes and
other beneficiaries to benefit the
communities in which we operate.
Covid-19 fund
During the Covid-19 pandemic, the
Foundation established a relief
fund, in the form of grant payments
of up to £250, for colleagues who
were experiencing financial
hardship during this time.
“A massive thank you from
Macmillan to everyone at
Card Factory for the incredible
fundraising you continue to
do. Since our partnership
began in 2006, you have
raised c.£6.5 million for people
living with cancer! Your
support is so invaluable.
Sharon Cottam
Partnership Manager, Macmillan
Cancer Support
Card Factory is proud to have been
supporting Macmillan Cancer Support
since 2006. Colleagues and Card
Factory customers take part in
multiple fundraising events throughout
the year, ranging from loose change
donations to the annual National Bear
Raffle in our stores, as well as the sale
of Macmillan Father’s Day cards and
Christmas cards.
During the year we raised £604,784.32
for Macmillan, an incredible
achievement, and we intend to
continue this very successful
partnership with Macmillan.
44
£6,484,618
Raised to date in support of Macmillan
Cancer Support since 2006.
Strategic Report
Governance
Financial Statements
The Group also continued to support the British Heart Foundation, Alzheimer’s Society, the NSPCC
and Make-A-Wish Ireland through the sale of our charity Christmas Cards.
“Alzheimer’s Society would like to thank Card Factory and its customers
on behalf of people affected by dementia. Dementia is the UK’s biggest
killer. Someone develops it every three minutes and there’s currently no
cure. Thanks to your support, Alzheimer’s Society is facing dementia
head on. Companies like yours help us find a cure, improve care and
offer help and understanding to those who need it. Without your
support none of this would be possible. Working together we know we
will achieve our vision - a world without dementia.
Louise Ford
Commercial Trading Executive, Alzheimer’s Society
“This year Card Factory have donated £31,250 to the British Heart
Foundation (BHF). With Card Factory’s support the BHF can fund
research into all heart and circulatory diseases so that one day
we can beat the world’s biggest killers.
Sarah Webb
Corporate Partnership Manager, British Heart Foundation
“Thanks to the ongoing support from Card Factory we can be there for
even more children when they need us the most, whether it be through
Childline, our schools service or through our therapeutic services for
children and their families struggling with abuse and neglect.
Tim Bradshaw
Regional Corporate Fundraising Manager, NSPCC
“Make-A-Wish Ireland is delighted to work with Card Factory. Thank you
so much to Card Factory and all their customers who support Make-A-
Wish and help us grant approximately 200 wishes each year to seriously-
ill children across Ireland, bringing hope, strength and happiness.
Marjut Ellis
Corporate Fundraising Officer, Make-A-Wish Ireland
45
Card Factory plc
Annual Report and Accounts 2020
Board of Directors
Paul Moody
Non-Executive Chairman
R
N
Date of appointment:
19 October 2018
Octavia Morley
Senior Independent
Non-Executive Director
AR
R
N
Date of appointment:
30 April 2014
Current role:
Paul was appointed to the Board of Directors as our
Non-Executive Chairman on 19 November 2018. Paul
is Chair of the Nomination Committee and also a
member of the Remuneration Committee.
Experience:
Paul has extensive retail experience having served 20 years
at Britvic plc, including eight years as Chief Executive Officer.
Paul is currently Chairman of 4imprint Group plc, having
been appointed in February 2016. Paul has also been a
Non-Executive Director of Pets at Home plc since March 2014
and is Chair of their Remuneration Committee. Prior to this,
Paul was Chairman of Johnson Service Group plc between
May 2014 and August 2018.
Current role:
Octavia was appointed to the Board of Directors on 30 April 2014
as our Senior Independent Non-Executive Director.
Experience:
Octavia has extensive retail experience and significant experience
of serving on boards of UK public companies. Prior to serving as a
Non-Executive Director of John Menzies plc, Octavia was the Chief
Executive of Oka Direct Limited and the Managing Director of
Crew Clothing Co. Limited. Octavia also served as Chief Executive
Officer and latterly as Chairman of LighterLife UK Limited.
Octavia was the Commercial Director of Woolworths plc, the
Managing Director of E-Commerce at Asda Stores Limited and
the Buying and Merchandising Director at Laura Ashley plc.
Current external appointments:
Independent Non-Executive Director of
Crest Nicholson Holdings plc, Chairman of
The Spicers-Officeteam Group Limited,
Non-Executive Director of Ascensos Limited
and Non-Executive Director of Marston’s plc.
Karen Hubbard
Chief Executive Officer
Kris Lee
Chief Financial Officer
Date of appointment:
22 February 2016
Date of appointment:
3 July 2017
Current role:
Karen was appointed to the Board of Directors on
22 February 2016 as our Chief Executive Officer.
Experience:
Prior to joining the Company, Karen served as Chief Operating
Officer of the fast-growing multi-price value retailer B&M
European Value Retail S.A.. Karen also held a number of
senior roles at ASDA, latterly Executive Director of Property,
Format Development and Multi-Channel and spent 14 years
in BP’s retail operations, initially in Australia
before moving to the UK in 2004.
Current role:
Kris was appointed to the Board of Directors on 3 July 2017
as our Chief Financial Officer.
Experience:
Before joining the Company Kris served as Finance Director
of the Edinburgh Woollen Mill Group and prior to this held
finance director or other senior finance positions at
Brighthouse, Phones4U, JD Sports, all:sports, BMI Healthcare,
20:20 Mobile Logistics, Barclays and 3663 Distribution.
He is a Chartered Accountant and has
a Bachelor of Arts in Accountancy Studies.
46
Strategic Report
Governance
Financial Statements
Committee membership
Audit & Risk
AR Remuneration R Nomination N Chair
David Stead
Independent
Non-Executive Director
AR
R
N
Date of appointment:
30 April 2014
Nathan Lane
(Tripp)
Non-Independent
Non-Executive Director
Date of appointment:
9 April 2020
Current role:
David was appointed to the Board of Directors on 30 April
2014 as an Independent Non-Executive Director.
Current role
Tripp was appointed to the Board of Directors on
9 April 2020 as a Non-Independent Non-Executive Director.
Experience:
David is a chartered accountant and has significant retail
experience having served 13 years at Dunelm Group plc as
their Chief Financial Officer. Prior to this role David was the
Finance Director for Boots The Chemist and Boots
Healthcare International for 12 years. David also spent
the early part of his career with KPMG.
Current external appointments:
Independent Non-Executive Director of Naked Wines plc,
and Senior Independent Non-Executive
Director of Joules Group plc.
Experience
Tripp is the founder of Resegon Capital Partners, where he
focuses on investing in and managing investments in private
and public markets. Tripp has significant retail and consumer
sector experience having invested extensively in the sector
via private equity, public equity and distressed debt. In
addition, Tripp served on the board of New Look for five
years and is currently serving on the board of Vivarte. Prior
to founding Resegon, Tripp was an investment professional
for BlueMountain Capital and Apax Partners.
Current external appointments
Member of Resegon Capital Partners
and Director of Vivarte
Paul McCrudden
Independent
Non-Executive Director
AR
R
N
Date of appointment:
1 December 2014
Roger Whiteside
OBE
Independent
Non-Executive Director
AR
R
N
Date of appointment:
4 December 2017
Current role:
Paul was appointed to the Board of Directors on 1 December
2014 as an Independent Non-Executive Director.
Current role:
Roger was appointed to the Board of Directors on
4 December 2017 as an Independent Non-Executive Director.
Experience:
Paul is a technology industry Marketing Director, serving as
Senior Director of Marketing, Europe at Eventbrite. Prior to
this, Paul was Global Head of Live Marketing at Twitter, a
board director at AMV BBDO and spent the early part of his
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.
Current external appointments:
Advisor at National Trust, and Advisor at
The Youth Group.
Experience:
Roger has extensive retail experience and is currently the
Chief Executive Officer of Greggs plc. Prior to this role, Roger
served as Chief Executive of both Thresher Group and Punch
Taverns. Roger was also a founding member and the Joint
Managing Director of Ocado. Roger spent the early
part of his career at Marks and Spencer where
he led the food division for the business.
Current external appointments:
Chief Executive Officer of Greggs plc and
a Member of the Women’s Business Council.
47
Card Factory plc
Annual Report and Accounts 2020
Chairman’s Letter –
Corporate Governance
One of Card Factory’s
great strengths is
its ability to support
and enrich the
celebrations of our
customers in all
circumstances.
Paul Moody
Chairman
Dear Shareholder
It has been a challenging year but one in which the Group
has consolidated its position as the UK’s leading greeting
card retailer and made great strides in beginning to grow
its presence across different channels and geographies,
particularly through partnerships with other retailers.
The evolution in our strategy, to be shared with our
shareholders later in the year when it is finalised, will reflect
the collaborative approach of both the senior management
team and the Board who have rigorously challenged all
aspects of the Group’s current strategy in determining how
best to tackle its future.
In order to achieve our strategic goals we rely on our
people, who are incredibly passionate about our business.
As a Board, we have spent a great deal of time considering
the Group’s current culture and engagement, particularly
as highlighted in the results of our latest employee
engagement survey. We are committed to ensuring that the
Group-wide plans the senior management team have put in
place, to ensure our culture drives the achievement of our
strategic ambitions, are implemented fully.
Additional engagement mechanisms have been introduced,
alongside our well-established communication channels,
that will ensure the interests of all our key stakeholders are
taken into account in how the business is operated and
governed.
Most recently, the Board have supported the Group’s
response to the Covid-19 pandemic which has significantly
impacted the Group’s performance during the current
financial year.
Against this backdrop, the Board have considered the
requirements of the significantly updated 2018 UK
Corporate Governance Code, both to ensure we are
meeting the new reporting requirements and, most
importantly, that we are effectively applying its principles in
a way that enhances or protects the long-term value of the
business.
As a Board, we are committed to continually evaluating our
performance, not only through the formal evaluations
required by the Code, but by maintaining a governance
framework in which supportive challenge and collective
responsibility underpin our support of the execution of the
Group’s strategy. Details of the key objectives we agreed as
part of our internal evaluation are set out in the report
below.
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 this year, all of our Directors
will be seeking reappointment.
The Board’s focus during the last year has been supporting
the development of the Group’s strategy, ensuring it
strengthens the foundations for long-term sustainable
success. Whilst the business has traded robustly through
the challenging consumer environment, the retail landscape
against which this has been achieved necessitated a
detailed and thorough review of the Group’s strategic
priorities in the medium term.
Yours sincerely
Paul Moody
Chairman
2 June 2020
48
Strategic Report
Governance
Financial Statements
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 the
achievement of long-term sustainable success, whilst
successfully managing risks for all of our stakeholders.
We believe that good governance is demonstrated by
applying corporate governance principles and following the
more detailed provisions and guidance in a way that
enhances or protects the long-term value of the business.
This ensures a pragmatic governance culture sits alongside
the entrepreneurial and community-minded spirit which
has enabled Card Factory to develop into the business it is
today.
Key governance activities
Key activities during the year were:
• giving detailed consideration to the development of the
Group’s strategy for the next five years ensuring it has
the customer at its heart and measures success in a
balanced way that reflects our business culture, the
interests of our key stakeholders and the importance of
the long-term sustainability of the business;
• giving consideration to the requirements of the new UK
Corporate Governance Code and how the current and
future agendas of the Board and its Committees should
evolve to ensure the spirit of the Code’s principles and its
provisions, are being applied optimally for the Group;
• reflecting in detail on the Group’s culture, in particular by
reference to the results of the most recent Group-wide
employee engagement survey and management’s
response to these, including the need to build greater
cohesion within the senior management team, many of
whom have recently joined the business;
• to appoint Paul McCrudden as our designated Non-
Executive Director to engage with the workforce,
primarily through the Combined Colleague Advisory
Group, which has been formed so the Board can engage
with the workforce and assess and monitor the Group’s
culture, ensuring that its policies, practices and
behaviours are aligned with its purpose, values and
strategy;
• reviewing the performance of the business against its
strategic objectives and monitoring progress with key
business projects implemented during the year, including
a number of strategic trials and our burgeoning
partnerships with Aldi and the Australian retailer, The
Reject Shop;
• reviewing the Group’s key risks and uncertainties and
supporting Karen and Kris with appropriate mitigation
strategies; and
• reviewing and approving the updated terms of reference
for each of the Board’s Committees and the matters
reserved for the Board to ensure they reflect the
principles and provisions of the new Code.
Code compliance
The Board has complied with and intends to continue to
comply with the requirements of the UK Corporate
Governance Code published in September 2018 by the
Financial Reporting Council a copy of which can be
obtained from frc.org.uk. The Company will report to its
shareholders on its application of and compliance with the
UK Corporate Governance Code in accordance with the
Listing Rules.
Role of the board
The strategy for the growth of the business is determined by
the Board in a manner that facilitates the development,
growth and sustainability of the Group over the long term in
the interests of all its key stakeholders.
Board composition, balance and independence
The Board currently comprises eight 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.
The constitution of the Company’s Board complies with the
Code’s recommendation.
The Board 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, with the exception of Tripp Lane, 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.
Tripp Lane was appointed to the Board on 9 April 2020
following constructive discussions between the Company,
Teleios Capital Partners LLC (Teleios), a long-term
shareholder with a c.13% interest in the Company, and
another major shareholder. Given the circumstances
surrounding his appointment, including the Board’s
understanding that Teleios agreed to supplement Tripp’s
remuneration with a one-off payment to secure his
candidacy, the Board decided that it would not be
appropriate to view Tripp as an independent Non-Executive
Director for the purposes of the Code, notwithstanding that
Tripp is not a nominated director of Teleios, or acting on
their behalf. Tripp’s appointment was recommended to the
Board by the Nomination Committee following a number of
meetings between Tripp and members of the Board, who
were confident he had relevant skills and experience that
could add value to the Company.
49
Card Factory plc
Annual Report and Accounts 2020
Corporate Governance Report continued
Chairman – Paul Moody
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 Paul Moody to be independent and his appointment is subject to the terms of a
letter of appointment dated 15 October 2018.
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 have 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.
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 (cardfactoryinvestors.com) and, on request, from the Company Secretary.
Board attendance
During the year, the Board held 9 scheduled meetings and various Board Committee meetings were also held, with
attendance as follows:
Director
Role
Paul Moody
Octavia Morley
Non-Executive Chairman and Chair of Nomination Committee
Senior Independent Director and Chair of Remuneration
David Stead
Independent Non-Executive Director and Chair of Audit and
Committee
Risk Committee
Paul McCrudden Independent Non-Executive Director
Roger Whiteside Independent Non-Executive Director
Karen Hubbard
Kristian Lee
Chief Executive Officer
Chief Financial Officer
Board
meetings
(9 meetings)
Remuneration
Committee
(2 meetings)
Audit
and Risk
Committee
(3 meetings)
Nomination
Committee
(2 meetings)
9
9
9
9
9
9
9
2
2
2
2
2
–
–
–
3
3
3
3
–
–
2
2
2
2
2
–
–
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 as 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.
50
Strategic Report
Governance
Financial Statements
The key topics discussed by the Board during the year were:
Strategy
Performance
Governance
Group strategy
Group budget
Commercial strategy
Business development strategy
Property strategy
HR strategy and engagement
Online strategy
Vertical integration investment
SAYE 2020 grant
Annual results
Interim results
Seasonal trading updates
Key project updates
Four pillars performance
Retail operations review
Board evaluation
Treasury policy
Health and Safety
Governance and legal updates
Board decisions’ review
Non-Executive Director reports
Principal risks review
Investor relations updates
Board and Committee planner
Modern Slavery Act statement
Audit review
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
receives progress updates on key business programmes. As
previously, the Board will continue to receive performance
updates against our agreed strategic key performance
indicators.
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.
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 progress.
Board strategy day
In addition to the considerable time the Board has
committed throughout the year to the Group’s strategic
development, the Board held its annual strategy day in July
2019, at which it reviewed and debated in detail the core
elements of the Group’s strategy and the customer
segmentation analysis that underpinned its development.
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 financial PR advisers
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. In addition, a capital markets’ update will be
held for investors later this year to present details of the
Group’s new strategy.
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 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, after other investor-
related events to inform the Board about investor views.
All the Non-Executive Directors and, in particular, the
Chairman and Senior Independent Director are available to
meet with major shareholders if they wish, to raise issues
separately from the arrangements described above.
The Company also communicates with shareholders
through the AGM, at which the Chairman provides a brief
account of the progress of the business over the last year
and a review of current issues. The AGM also provides an
opportunity for shareholders to ask questions as all
Directors are usually present.
Card Factory’s investor website is also updated with news
and information including this Annual Report and Accounts,
setting out our strategy and performance together with our
plans for future growth (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 88.
51
Card Factory plc
Annual Report and Accounts 2020
Corporate Governance Report continued
Non-Executive Director meetings
The Chairman and the other Non-Executive Directors met
on three separate occasions 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
occasions, the Senior Independent Director and the other
Non-Executive Directors continued the meeting without the
Chairman to discuss his performance and succession
planning.
The Audit and Risk Committee met three 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. Independent external
legal and professional advice can also be taken by the
Audit and Risk Committee if it believes it is necessary to do
so.
The Audit and Risk Committee Chair usually attends the
Annual General Meetings of the Company and is available
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 58 to 62 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
(cardfactoryinvestors.com), comply with the Code.
Remuneration Committee
The Remuneration Committee assists the Board in
determining its responsibilities in relation to remuneration,
including:
• making recommendations to the Board on the
Company’s policy on executive remuneration;
• setting the over-arching principles, parameters and
governance framework of the Group’s remuneration
policy and ensuring incentives and rewards are aligned
with the Group’s culture;
• 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; and
• ensuring appropriate engagement with shareholders and
the workforce takes place on executive remuneration
policy and its alignment with wider company pay policy.
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.
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.
If the need should arise, the Board may set up additional
Committees.
Audit and Risk Committee
The Audit and Risk Committee assists the Board in
discharging its responsibilities with regard to:
• financial reporting;
• external and internal audits and controls, including
reviewing and monitoring the integrity of the Group’s
annual and interim financial statements;
• reviewing and monitoring the extent of the non-audit
work undertaken by external auditors;
• advising on the appointment of external auditors;
• overseeing the Group’s relationship with its external
auditors;
• reviewing the effectiveness of the external audit process;
• reviewing the effectiveness of the Group’s internal
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-year results
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 at least three members who are
Independent Non-Executive Directors, and that at least
one member should have recent and relevant financial
experience. The Audit and Risk Committee is currently
chaired by David Stead, and its other members are
Octavia Morley, Paul McCrudden and Roger Whiteside. The
Directors consider that David Stead has recent and relevant
financial experience.
52
Strategic Report
Governance
Financial Statements
Non-Executive Directors’ and the Chairman’s fees are
determined by the full Board.
The Code provides that a Remuneration Committee should
comprise 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,
who had served more than 12 months on a remuneration
committee prior to her appointment. The Committee’s
other members are Paul Moody, David Stead, Paul
McCrudden and Roger Whiteside.
The Remuneration Committee met twice during the year.
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, together with the Directors’ Remuneration Report
is set out on pages 63 to 83 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
(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 Paul Moody and its other members are Octavia Morley,
David Stead, Paul McCrudden and Roger Whiteside. The
Directors therefore believe that the Company is in
compliance with the Code. The Remuneration Committee
met twice during the year. In future, the Committee will
meet not less than once a year. A report on the activities
of the Nomination Committee during the year is set out on
pages 84 to 86 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
(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 (gettingpersonal.co.uk).
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 General Counsel and Company Secretary
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 46 and 47
for details of the skills and experience of each Director.
53
Card Factory plc
Annual Report and Accounts 2020
Corporate Governance Report continued
• only Directors who have no interest in the matter being
considered are able to authorise 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 authorise 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 63 to
83. 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.
Board evaluation
As required by the Code, the Board conducted an internal
evaluation during the year which was led by the Chairman
and the Company Secretary. Each member of the Board
responded to a detailed questionnaire addressing how the
Board and its Committees operate and their effectiveness.
This questionnaire invited each Director to provide specific
feedback and examples in support of their answers. The
responses were then summarised and shared with the Board.
The evaluation identified the following areas of strength:
• the Board is skilled, experienced, well balanced and
committed. It operates collaboratively and is collectively
responsible; and
• the Board Committees are effective and operate within
well-defined terms of reference and with the necessary
skills and experience.
Areas for additional focus during the current year include:
• the Board ensuring that the Group’s leadership, culture
and values effectively support the delivery of the Group’s
strategy;
• regularly reviewing the Company’s stakeholder groups
and ensuring our decision-making and performance
measurement processes take their interests into
consideration in a balanced way;
• enhancing our succession planning for the Group’s wider
management team, documenting our plans and ensuring
diversity and equality continue to be at the forefront of
our thinking; and
• considering appropriate, more formal, measures of
performance for the Board collectively and for individual
Directors.
In addition to the evaluation we conducted, the Board also
reflected on the achievement of the high-priority objectives
adopted as a result of the previous year’s internal
evaluation, the critical one being the development and
articulation of the Group’s longer-term growth strategy.
This will be achieved, albeit with a slight delay as a result of
the Covid-19 crisis. Following the evaluation, the non-
executive’s performance continues to be effective and
demonstrates commitment to the role.
Board evaluation will continue to be conducted on an
annual basis and the Board will, every third year, as
required by the Code, conduct an externally facilitated
evaluation, with the next one of these to take place in the
financial year ending 31 January 2021.
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
54
Strategic Report
Governance
Financial Statements
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.
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
18 October 2018, Geoff Cooper (former Chairman) 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 identifying, reporting and 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;
•
• 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 recognises 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, 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 2020 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.
55
Card Factory plc
Annual Report and Accounts 2020
Corporate Governance Report continued
• 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 2020 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 87 to 92.
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,
annual colleague training and measures (including the
provision of an Anti-Corruption and Bribery Policy) with the
aim of ensuring compliance with with UK Bribery Act 2010
(as amended) by the company and other members of 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. Since 1 January
2019, the Group’s Head of Loss Prevention has overseen the
Group’s programme of internal audit reviews with the
support of relevant experts in each area of investigation.
Details of the investigations carried out during the last year
and the Group’s proposed approach to conducting internal
audit reviews during the current year are set out in the
report of the Audit and Risk Committee on page 61.
The Group’s system of internal control can be summarised
as follows:
Board
Takes collective responsibility for internal control
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
Focuses on cash losses, theft and fraud in stores
Compliance and safety risk assessors
Reviews compliance with internal procedures that ensure
good health and safety standards are observed
Internal audit function
The internal audit function is overseen by Head of Loss
Prevention
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;
56
Strategic Report
Governance
Financial Statements
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 provide a
whistleblowing line and 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
1 June 2020.
Paul Moody
Chairman
2 June 2020
57
Card Factory plc
Annual Report and Accounts 2020
Chairman’s Letter –
Audit and Risk Committee
The Audit and Risk
Committee’s activities
during the year have
focused on ensuring
the Group’s controls
underpin its resilience
in challenging
and evolving
macroeconomic
and regulatory
environments.
David Stead
Chairman of the Audit and Risk Committee
Committee members
David Stead (Chair)
Octavia Morley
Paul McCrudden
Roger Whiteside
58
Dear Shareholder
The Committee’s activities during the year have
focused on ensuring the Group’s controls underpin its
resilience in challenging and evolving macroeconomic
and regulatory environments. The Committee is
mindful of the numerous, high-profile corporate
failures in recent years.
The Committee has allocated a significant proportion of
its time to areas of serious risk, such as inventory
management. It has confidence in the Group’s overall
control environment and in management’s commitment
to identifying and improving areas where the Group’s
systems and processes are in need of modernisation.
The Committee remains satisfied with the performance
of KPMG LLP as our external auditor. We will review
whether to defer the formal audit tender process (which
was scheduled to be undertaken before the AGM in
2021) following the FRC and FCA’s advice in their
Covid-19 joint statement, to defer planned tenders for
new auditors.
The Committee is carefully monitoring anticipated
audit reforms and reform of the audit market itself
(taking account of the findings of the Competition
and Markets Authority, the Kingman review and the
Brydon review). Most significant of all is the expected
replacement of the Financial Reporting Council (FRC)
by a statutory body: the Audit, Reporting and
Governance Authority.
The Committee has considered the impact of the new
Corporate Governance Code and the new IFRS 16
Leases that have come into effect for the period
being reported on, including the FRC’s guidance on
disclosure. Whilst the new Code has not significantly
altered the responsibilities of the Committee, we will
continue to monitor the Group’s approach to
implementing the Code’s requirements to ensure we
are operating within best practice guidelines.
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 new Corporate Governance Code.
The report that follows provides further detail on the
Committee’s activities during the year.
I look forward to addressing any questions in respect
of the audit in advance of the AGM and to engaging
with shareholders at our strategy update in July.
Yours sincerely
David Stead
Chairman of the Audit and Risk Committee
2 June 2020
Strategic Report
Governance
Financial Statements
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, the extent of the non-audit
services provided by our auditor and our auditor’s
independence and effectiveness;
• monitor the effectiveness of financial controls;
• evaluate the process for identifying and managing
risk throughout the Group;
• ensure the effectiveness and independence of the
Group’s internal audit programme; 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 52. The Committee’s terms of reference, which
are published on Card Factory’s investor website
(cardfactoryinvestors.com), have been updated in light of
and 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, and Interim Chief Financial Officer in 2018, the Board
considers that he has both recent and relevant financial
experience in accordance with the requirements of the
Code. 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. In addition, subject matter experts
engaged to support internal audit reviews also attend
meetings of the Committee by invitation. The Company
Secretary acts as secretary to the Committee.
Meetings
The Committee met three times during the year with details
of attendance at these meetings set out in the Corporate
Governance Report on page 50.
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 2019, 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 2019, 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 2019;
• verifying the independence of the Group’s auditor,
approving their audit plan and audit fee and setting
performance expectations;
• providing appropriate challenge to KPMG LLP on their
actions in response to their association with several,
high-profile accounting failures and on their response
to challenge from the regulators;
• approving the process and timetable for the proposed
tender of the Group’s external audit that was to
culminate in the appointment of an auditor for the
financial year ending 31 January 2022. The timing of this
tender is now under review;
• reviewing the findings of, and the implementation of
actions arising from, the internal audit projects
undertaken during the year and reviewing the Group’s
current approach to internal audit work;
• reviewing the Group’s adoption of new accounting
standards, with a focus on IFRS16 Leases (given the
Group’s entire store portfolio is leasehold);
• 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 April and January;
• 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;
• reviewing the work carried out by the Group’s
loss-prevention team, with a particular emphasis on
the team’s work analysing and mitigating stock loss, in
addition to its work detecting and preventing fraud and
theft of cash;
• reviewing the actions taken by the Group to address the
issues raised by HM Revenue and Customs in their review
of our compliance with national minimum wage
legislation;
• monitoring the Group’s compliance with its policy for use
of our auditor for non-audit work;
• reviewing the Group’s tax strategy and tax risk register; and
• with the support of KPMG LLP, monitoring developments
in legislation, reporting and practice which affect
matters for which the Committee is responsible.
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Card Factory plc
Annual Report and Accounts 2020
Audit and Risk Committee Report continued
Activities after the year-end
in the period following the year-end, the Committee met
once in May 2020 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 90
to 92) 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 2020, including the appropriateness of
accounting policies (including the adoption of IFRS 16)
and going-concern assumptions;
• the external auditor’s report;
• the systems and controls which the Group has in place to
enable the Board to make proper judgements on a
continuing basis as to the financial position and
prospects of the Group;
• whether this Annual Report and Accounts, taken as a
whole, are fair, balanced and understandable and
provide the information necessary for shareholders to
assess the Company’s position and performance,
business model and strategy;
• the performance, effectiveness, independence 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.
At its meetings in May and June 2020, 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 papers from the
Chief Financial Officer to support the Directors’ going-
concern and viability statements. The major accounting
issues discussed by the Committee concerned:
• detailed review of the impact of store closures from
Covid-19 on viability and going concern;
• the accounting treatment of the Group’s relevant lease
contracts under the IFRS 16 Leases;
• the existence and valuation of the Group’s inventory;
• goodwill impairment review;
• the accounting treatment of the Group’s foreign
exchange hedging instruments; and
• Brexit and its impact on the Group.
60
Covid-19 impact
The Committee has applied extensive scrutiny to the
projections and sensitivities made in assessing the financial
modelling for the Group arising from the closure of stores
and significant loss of revenues, taking account of the
proactive steps taken to conserve cash, reduce costs,
secure access to additional funding (if required) and agree
revised terms to current debt facilities. The Committee is
satisfied that reasonable assumptions have been made and
sensitivities assessed for the viability statement and the
going concern opinion, subject to the material uncertainty
arising from a second forced closure of the Group’s retail
stores in the event of a second peak of infections. See Note
32 for further information.
Leases (IFRS 16)
The Group has applied IFRS 16 “Leases” on a retrospective
basis for the first time for FY20. The work to collect the
relevant data and agree the appropriate accounting policies
and disclosures has been significant. The Committee
reviewed IFRS 16 adoption and is satisfied that the
methodology used and the judgements and assumptions
applied are reasonable. See Note 30 for further information.
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, which are scheduled to be automated, there is a
heightened risk for the period to 31 January 2020 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.
Goodwill impairment review
The Committee considered the goodwill impairment
testing. It concluded that no impairment in respect of Card
Factory goodwill was required, reflecting on the market
capitalisation of the Company as at the accounts date and
alternative valuation models. It reviewed the impairment of
the Getting Personal goodwill and discussed the associated
accounting policies and judgements, underlying valuation
used in the impairment assessment. The Committee also
reviewed recommendations from the FRC Thematic Review
on impairment reporting to improve disclosure. See Note 11
for further information.
Strategic Report
Governance
Financial Statements
Foreign exchange
The Group 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. 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 and the judgement applied in
respect of hedge accounting have been appropriately
applied.
Brexit
The Group’s potential exposure to Brexit were reviewed by
the Committee to reflect the current status regarding
expected trade deals that may be secured on expiry of the
transitional period for the UK’s exit from the European
Union in December 2020.
In respect of all of the above matters, and reflecting on the
findings of the external auditors from their review, 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.
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.
Internal audit
As previously reported, the programme of internal audit
reviews for the financial year ended 31 January 2020 was
overseen by the Group’s Head of Loss Prevention, with the
support of relevant experts in each area of investigation. At
the direction of the Committee, the main areas covered by
the internal audit programme during the last year were:
• health and safety – a comprehensive review of the
effectiveness of the Group’s health and safety function
including: the structure and management of the team;
current systems and processes underpinning the Group’s
health and safety arrangements, including induction and
ongoing training provision, and the adequacy of
performance monitoring arrangements, both proactive
and reactive.
The review was conducted by Gallagher Risk Management
Solutions (Gallaghers) and arranged by our insurance
brokers, Arthur J Gallagher Insurance Brokers Limited.
Gallaghers made a number of detailed recommendations
that would improve the effectiveness of the Group’s health
and safety arrangements and the implementation of
these is being monitored by the Committee;
• payroll – a review of the design and operational
effectiveness of controls over the Group’s payroll,
including the processes which support these and the
efficacy of the data within the payroll system. The
review, conducted by PricewaterhouseCoopers LLP,
found current process and controls to be satisfactory but
highlighted a number of manual and resource-intensive
payroll processes and activities, many of which are the
result of the transition of the Group’s payroll software
system. Management are implementing the findings of
the review with a view to minimising manual processes
and ensuring the current systems provide adequate controls;
• national minimum wage – in light of certain historic
issues raised by HM Revenue and Customs in their review
of our compliance with national minimum wage
legislation, the Committee has regularly received reports
on and is closely monitoring the effectiveness of the
actions taken by the Group to mitigate the risk of these
issues reoccurring; and
• actions from previous audits – monitoring progress with
the outstanding actions from audits conducted in
previous years including those relating to payroll, cyber
security and IT resilience.
In line with good practice, the Committee continuously
assesses whether the approach to internal audit adopted
by the Group remains optimal and will make any
adjustments it feels necessary to ensure it supports a
rigorous control framework across the Group.
Loss prevention
The loss prevention team, and its programme of activities,
are embedded in the business. Direct engagement and
regular communication with colleagues across the business
remain critical to the team’s effectiveness and the team’s
core fraud and theft-detection activities are supplemented
by a programme of store audits, colleague education,
training and development.
In addition, the team have been instrumental in ensuring
that we have the processes and tools in place to ensure
colleague safety in those stores which have adopted the
practice of lone working at certain times.
The Committee receives regular reports on the activities of
the loss prevention team and our head of loss prevention
attends the Committee meetings.
External auditor
KPMG LLP have conducted the statutory audit for the
financial year ended 31 January 2020 and they attended all
three of the Committee meetings held during that year, as
well as the one held in April 2020. The Committee had the
opportunity to meet privately with them during the period.
The fee paid to KPMG LLP for the statutory audit of the Group
and Company financial statements and the audit of Group
subsidiaries pursuant to legislation was £197,000. A
breakdown of fees paid to KPMG LLP during the financial year
is set out in note 4 to the financial statements on page 117.
61
Card Factory plc
Annual Report and Accounts 2020
Audit and Risk Committee Report continued
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, we had expected to commence a formal tender
process that would have culminated in the appointment of
an auditor for the 2021/22 financial year. We will review
whether to defer the audit tender following the FRC and
FCA’s advice in their Covid-19 joint statement, encouraging
companies to defer planned tenders for new auditors, even
when mandatory rotation is due. When the audit tender is
to be effected, we intend to invite at least one firm outside
the ‘big four’ to participate in the tender process.
Whilst we have not conducted a competitive tender for the
audit for over nine years, the Committee and the Board
continue to believe this is in the best interests of
shareholders as KPMG LLP have developed an extensive
knowledge of the Group. KPMG appointed a new audit
partner to manage the Group’s audit process for 2019/20 as
the previous partner was absent on maternity leave.
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. 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.
KPMG LLP no longer provide the Company any non-audit
services other than those closely related to the audit.
The aggregate fees paid to KPMG LLP for services closely
related to the audit during the year were £7,000 (equivalent
to 3.6% of the audit fee). This related to the half-year
review. Full details are given in note 4 to the financial
statements on page 117.
The Committee is satisfied that the overall levels of audit-
related and non-audit fees, and the nature of services
provided, are such that they will not compromise the
objectivity and independence of our auditor. A copy of our
current policy regarding the use of audit firms for non-audit
services is available on Card Factory’s investor website
(cardfactoryinvestors.com).
This report was reviewed and approved by the Committee
on 1 June 2020.
David Stead
Chairman of the Audit and Risk Committee
2 June 2020
62
Chairman’s Letter –
Remuneration Committee
Overall, in what has
been a challenging
year, the Committee
considers there has
been an appropriate
link between reward
and performance.
Octavia Morley
Chairman of the Remuneration Committee
Committee members
Octavia Morley (Chair)
Paul Moody
Paul McCrudden
David Stead
Roger Whiteside
Strategic Report
Governance
Financial Statements
Dear Shareholder
I am pleased to present our Directors’ Remuneration
Report for the financial year ended 31 January 2020
(FY20).
FY21 is the final year of the three-year Directors’
Remuneration Policy (Policy) that was approved by
shareholders at our 2018 AGM. On reviewing the
operation of the Policy and considering whether it
continued to support our business strategy, the
Committee concluded that the Policy had operated as
intended and no Policy changes are needed prior to the
triennial AGM vote in 2021.
The significant impact of the Covid-19 pandemic on the
Group will require the Committee to exercise its
discretion in adjudicating remuneration outcomes in
respect of variable pay for the current year. The
Committee will report on this in next year’s Annual
Report but will act reasonably and proportionately,
taking into account the interests and experiences of all
of the business’s key stakeholders and the mitigating
actions taken by the business throughout the pandemic.
The Committee has carefully reviewed the operation of
the Policy for FY21 and the individual objectives for the
strategic element of the annual bonus. These not only
support our current strategy but are aligned with
proposed developments in our strategy, which the Board
have considered during the year and which will be
presented to stakeholders later in the year, once
approved. The objectives set for both the CEO and CEO
for FY21, which are shared by all of the senior
management team, are:
• Leadership in card choice – the delivery of key
initiatives supporting profitable growth in overall card
volumes that will help us to build the winning card-led
retail proposition, measured by market-share gain
and maintaining our reputation for range and value;
• Multichannel – developing a compelling customer
proposition and experience that allows us to capture
the opportunity from this channel shift, supporting our
goal of making our products available everywhere,
however customers wish to shop, measured by the
successful launch of our new platform for Card
Factory online and online sales in excess of budget;
and
• ERP implementation – progressing the completion of
our ERP implementation plan, delivering business
transformation in support of our strategy, measured
by the delivery of project milestones on time and to
budget and the identification of business process
improvements that deliver significant cost reductions.
63
Card Factory plc
Annual Report and Accounts 2020
Chairman’s Letter –
Remuneration Committee continued
• The Committee has deferred any decision to make
Restricted Share awards for the current financial year
until after the Group’s Interim Results for FY21 have been
announced. Any awards granted will retain the same
vesting profile and underpin as the awards granted
during the last financial year, meaning that, in order for
Restricted Shares awarded 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 disclosure in the Annual
Report and Accounts of the Committee’s determination
of the performance underpin.
• As outlined above, the Committee recognises the
importance of carefully exercising its discretion in
adjudicating remuneration outcomes in respect of
variable pay in light of the significant impact of the
Covid-19 pandemic on the Group and will report on this
in next year’s Annual Report.
Payments for performance in FY20
It has been another tough year for the high street and the
EBITDA performance fell short of the stretching minimum
performance hurdle, so no annual bonus is payable under
the EBITDA element of the bonus for performance for the
year ended 31 January 2020. In relation to the 20% based
on strategic objectives, the CEO and CFO each achieved
two of their four objectives resulting in an achievement of
50% of this element of their respective bonuses (i.e. 10% of
the overall bonus opportunity). The CEO and CFO have
proposed that payment of their bonus entitlement be
deferred until such time as the Group has greater visibility
of trading performance, and therefore its available cash
resources, coming out of the Covid-19 pandemic. The
Committee anticipates this to be no earlier than after the
Group’s Interim Results for the current financial year are
announced.
Full details of the performance conditions are set out on
pages 73 to 75 in the Directors’ Remuneration Report.
Performance in the relevant period for the long term
incentive plan (‘LTIP’) awards granted to the CEO and CFO
on 30 September 2017, which was based on achieving a
range of EPS targets measured over the three financial
years to 31 January 2020, also fell short of the minimum
performance threshold and the awards have lapsed.
The Committee will review the Policy during 2020 in light of
our evolving business strategy to ensure it continues to
drive, support and reward achievement of our strategy
while taking into account developments in market practice
and the requirements of the 2018 Corporate Governance
Code. As part of its review the Committee will engage with
its shareholders and seek feedback on any new Policy
proposals as well as seeking feedback from Paul McCrudden,
in his capacity as our Designated Non-Executive Director,
after his engagement with our new Combined Colleague
Advisory Group.
Summary of the Remuneration Policy
We designed the Remuneration Policy to be simple and
strongly aligned to shareholders’ interests. Salary and benefits
levels are relatively modest compared to other companies
and there is a higher weighting to variable performance pay,
with a significant share-based element. Current pension levels
are modest and broadly in line with the current workforce
contribution of 3%, and, notwithstanding our existing Policy
limits, we have further agreed that, in future, pension
contributions for Executive Directors will be in line with the
current workforce and this will be reflected in our next Policy
review. Our annual bonus plan is based on financial and
strategic objectives and, to the extent the CEO or CFO have
not reached their respective shareholding requirement, one
third of any bonus earned is required to be invested in shares
which must be held for at least three years. With this current
Policy we moved away from granting share awards based on
the achievement of specific three-year performance targets,
to a simpler approach where much lower awards of ‘Restricted
Shares’ are granted annually, which vest over a longer
timeframe. Restricted Shares 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. The
move to Restricted Shares also led to a reduction in maximum
potential pay for Executive Directors.
How we intend to apply the Policy in FY21
•
In light of the impact of the Covid-19 pandemic on the
Group, salary reviews for our CEO and CFO have been
deferred, with their salaries remaining at their current
levels, retaining a lower quartile market positioning.
• Pension entitlement will remain at a value equivalent to
just over 3% of base salary, broadly in line with the
current workforce entitlement of 3%.
• The annual bonus will remain capped at 125% and 100%
of base salary, respectively, for the CEO and CFO. We
have changed the balance of the measures, so that
instead of an 80/20 split, 70% of the annual bonus will
be based on stretching EBITDA targets. The remaining
30% will be determined by strategic objectives which will
be stretching, clearly defined, measurable and disclosed
retrospectively in our Annual Report on Remuneration.
The 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. These objectives are summarised above.
64
Strategic Report
Governance
Financial Statements
Our remuneration reporting has been updated to include
the new reporting requirements of the Code as well as the
Directors’ remuneration reporting regulations to include the
CEO pay ratio. There are further requirements following
transposition of the Shareholder Rights’ Directive into UK
law and these will be included as required next year.
At the AGM, which will be held on 30 July 2020, the Annual
Report on Remuneration, which outlines the payments
made in respect of the financial year ended 31 January
2020 and the implementation of our Remuneration Policy
for the forthcoming financial year, will be subject to an
advisory vote. Shareholders will be asked to approve the
revised Remuneration Policy at the 2021 AGM.
Conclusion
The Committee is comfortable that the Policy continues to
operate as intended and provides an appropriate link
between reward and performance. Future objectives and
outcomes will be closely aligned, ensuring they support the
delivery of the Group’s evolved strategy.
I look forward to addressing any questions from
shareholders in respect of this Report in advance of the
AGM and look forward to your support on the resolution to
approve the Annual Report on Remuneration.
Octavia Morley
Chairman of the Remuneration Committee
2 June 2020
Overall, in what has been a challenging year, the
Committee considers there has been an appropriate link
between reward and performance. As part of its review of
the remuneration outcomes, the Committee also
considered whether there were any relevant environmental,
social, and governance matters that it needed to take into
account and concluded that there were no such factors.
UK Corporate Governance Code
During the year the Committee gave further consideration
to how the requirements of the UK Corporate Governance
Code should be incorporated into our Policy and the
workings of the Committee. Most of the structural
requirements will be considered as part of the Policy review.
However, the Committee has already considered the
requirements of the Code as they relate to pension. Our
workforce currently receive a pension contribution of 3% of
salary and new appointments to the Board will be aligned
to this or the rate applicable to the workforce at that time.
Our incumbent Executive Directors currently receive a
pension contribution of just over 3% and this will be
considered as part of the overall Policy review.
The workings and remit of the Committee have been
updated to align with the Code and the Committee’s Terms
of Reference updated. The Committee now sets the
remuneration for the senior management team taking into
account the recommendations of the CEO and includes, as
part of its annual agenda, a review of wider workforce
policies and practices.
During the year, the Board has appointed one of our
Non-Executive Directors, Paul McCrudden, as the
designated Non-Executive Director responsible for
workforce engagement and our new Combined Colleague
Advisory Group has been established to broaden our
current engagement approach, with a schedule of meetings
and an agenda agreed by the Board, commencing early
2020. As part of this engagement, we will explain the
alignment of the current Executive Directors’ Remuneration
Policy to the wider workforce and take into account the
views of the Combined Colleague Advisory Group on the
policy review we will be carrying out over the next year.
65
Card Factory plc
Annual Report and Accounts 2020
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 was approved at the AGM on 31 May 2018 and took
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 30 July 2020, although the vote is advisory.
Directors’ Remuneration Policy
This section, on pages 66 to 72 inclusive, describes the Directors’ Remuneration Policy (‘the Policy’).
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.
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.
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.
Business and individual
performance are both
considerations in setting
base salary.
Increases will normally be
effective from 1 May.
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 the 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.
None
The maximum company
contribution or cash
allowance in lieu of pension
is 5% of salary for current
Directors.
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Strategic Report
Governance
Financial Statements
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
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 (e.g.
increases in insurance
premiums).
The cost of providing
benefits for the year under
review are disclosed in the
Annual Report on
Remuneration.
125% of salary.
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.
VARIABLE PAY
Annual bonus
To focus Executives on
delivery of year-on-year
financial and non-financial
performance.
Bonus payments will be
determined based on
performance in a single financial
year and payment may be made
in cash or in shares.
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.
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.
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
EBITDA element of the
bonus is earned.
67
Card Factory plc
Annual Report and Accounts 2020
Directors’ Remuneration Report continued
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
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 years
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.
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.
Requirement to build up and
maintain a beneficial holding of
shares in the Company defined
as a % of salary.
87.5% of salary face
value at 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
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.
None
Savings are capped at the
prevailing HMRC limit at
the time eligible employees
are invited to participate,
or such lower limit as
determined by the
Remuneration Committee.
None
Details of the current
guidelines and Executive
Director shareholdings are
included in the Annual
Report on Remuneration.
Restricted Shares
To align the interests of
Executives with shareholders
in growing the value of the
business over the long term.
SAYE
To encourage share
ownership across the
workforce.
Shareholding guidelines
To encourage share
ownership and ensure
alignment of Executive
interests with those of
shareholders.
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Strategic Report
Governance
Financial Statements
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 of the Executive Directors. The senior management team will participate in the same annual bonus
scheme and will receive Restricted Shares awards alongside the Executive Directors.
The Policy for our Executive Directors is considered alongside the remuneration philosophy and principles that underpin
remuneration for the wider Group. 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 its
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).
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 dividend accrual.
Chief Executive Officer
Chief Financial Officer
34%
39%
27%
Total
£1,568k
38%
35%
27%
Maximum
£1,781k
Maximum
Total
£924k
£1,047k
42%
24%
34%
46%
22%
32%
Mid
£1,264k
Mid
£760k
100%
100%
Minimum
£535k
Minimum
£350k
0
400
800
1200
1600
2000
0
240
480
720
960
1200
Fixed Pay
Annual Bonus
LTIP
LTIP with 50% share price growth
69
Card Factory plc
Annual Report and Accounts 2020
Directors’ Remuneration Report continued
In illustrating potential reward opportunities, the following assumptions are made:
Fixed pay
Annual bonus
Restricted Shares
Minimum
Mid
Maximum
Salary as at 1 May 2019.
No annual bonus payable.
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.
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.
Although the decision in relation to
the grant level has not yet been
made, an award of Restricted
Shares worth 87.5% and 75% of
base salary for the Chief Executive
and Chief Financial Officer,
respectively.
In the maximum scenario the chart
additionally shows the value of the
Restricted Shares and total
remuneration, if the share price
increases by 50%.
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
Annual bonus
New appointees may be offered pension arrangements based on
market competitive contribution rates.
percentage of base salary
applicable to wider workforce
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.
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 Date of service contract
Karen Hubbard
5 January 2016
Kris Lee
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.
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Strategic Report
Governance
Financial Statements
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
Scenario
Timing of vesting
Calculation of vesting/payment
Annual bonus
Default treatment
No bonus is paid
n/a
Death, injury, ill-health or
disability, retirement or any
other reason the Committee
may determine.
Normal payment date,
although the Committee
has discretion to accelerate.
The Committee will determine
the bonus outcome based on
circumstances and the date of
leaving. Performance against
targets is typically assessed at the
end of the year in the normal way and
any resulting bonus will be prorated
for time served during the year.
Not applicable as shares are
purchased and owned outright by
the executive.
Shares acquired
by Directors with
annual bonus
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 prorated 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 prorating in
exceptional circumstances.
SAYE
Treated in line with HMRC rules
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
Paul Moody
Octavia Morley
David Stead
Paul McCrudden
Roger Whiteside
Nathan (Tripp) Lane
Letter of appointment date
19 October 2018
30 April 2014
30 April 2014
1 December 2014
27 November 2017
9 April 2020
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.
71
Card Factory plc
Annual Report and Accounts 2020
Directors’ Remuneration Report continued
Consideration of employee remuneration and employment conditions in the 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 in light of the new UK Corporate Governance Code requirements for broader
stakeholder engagement, will take into account the views of our Combined Colleague Advisory Group on the policy review
we will be carrying out over the next year.
Consideration of shareholder views
The Company is committed to engaging with significant investors on remuneration matters. 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 consult in advance of any significant changes to remuneration policy or its operation. The Committee
continues to monitor trends and developments in corporate governance and market practice to ensure the structure of
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.
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Strategic Report
Governance
Financial Statements
Annual Report on Remuneration
This is the Annual Report on Remuneration for the financial year ended 31 January 2020. 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 for
the year ended 31 January 2020 and the prior year:
Salary1
Pension benefit2
Taxable benefits3
Non-taxable benefits4
Annual bonus5
LTIP
SAYE6
Total
Karen Hubbard
Kris Lee
2019/20
2018/19
2019/20
2018/19
£483,744
£16,231
£25,044
£7,356
£59,574
–
£1,303
–
£593,252
£470,921
£15,743
£24,963
£8,153
£89,362
–
£1,677
£610,819
£326,120
£11,231
£8,385
£1,764
£32,130
–
£1,303
–
£381,306
£318,675
£9,909
£8,370
£4,096
£32,130
–
£1,677
£374,857
1. Karen Hubbard and Kris Lee’s salaries were increased by 2% effective from 1 May 2019.
2. Karen Hubbard receives a cash payment in lieu of her pension entitlement.
3. Taxable benefits comprise car or car allowance and family private medical insurance.
4. Karen Hubbard and Kris Lee are members of the Group Life Assurance and Income Protection Schemes. The amounts stated relate to insurance premiums paid by
the Group.
5. See details of bonus payments below.
6. Embedded value of SAYE options at grant. There are no performance conditions.
Annual bonus payments and link to performance
EBITDA (80% of bonus opportunity)
Bonus opportunities for 2019/20 were 125% of salary for Karen Hubbard and 100% of salary for Kris Lee.
The bonus was subject to achieving a range of Adjusted Underlying EBITDA targets (80% of the opportunity) and Strategic
Objectives (20% of the opportunity). The Adjusted Underlying EBITDA performance targets for the year, performance
against them and bonus payments against the Adjusted Underlying EBITDA element were:
Performance level
Threshold
Maximum
2019/20
Adjusted
Underlying
EBITDA
target range
£85.0m
£93.0m
Percentage of
Adjusted
Underlying
EBITDA part of
bonus
available
Adjusted
Underlying
EBITDA
Performance
achieved
Bonus
payable for
EBITDA part
of bonus
(% of
maximum)
15% £81.2m
–
100%
–
–
Achievement against strategic objectives (20% of bonus opportunity)
The strategic objectives for the CEO and CFO were set at the start of the year and outlined in the last year’s report.
They have been reviewed in detail and both the CEO and CFO each achieved two of their objectives resulting in an
achievement of 50% of this element of their bonus. The CEO and CFO, have proposed that payment of their bonus
entitlement be deferred until such time as the Group has greater visibility of trading performance, and therefore its
available cash resources, coming out of the Covid-19 pandemic. The Committee anticipates this to be no earlier than
after the Group’s Interim Results for the current financial year are announced.
73
Card Factory plc
Annual Report and Accounts 2020
Directors’ Remuneration Report continued
The specific outcomes for each objective were as follows:
CEO
Strategic objective
Link to strategy
Metric by which
the objective
is evaluated
Basis for
determining
performance
Outcome
Strategy (as
a whole)
Completion
of strategy
development
and business
model targets.
Like-for-like
sales
External
research results
compiled by
Strategy and
Insight Director.
Board approval
of our evolved
strategy and
testing of new
elements.
Tested: Price
Positioning,
International &
UK
Concessions.
Improved
position.
Bonus
achieved
(% of
maximum)
100%
Developed a clear 5 year strategy
including trialling of key elements
to validate value and size of
opportunity. Backed up by key
market research and a clear work
plan to deliver financial targets.
Strong delivery of our customer
proposition, as evidenced through
market research, by way of
appropriately-priced and quality
customer offer.
100%
Business
efficiencies
By performance
in excess of
budgeted
savings.
Targeted
savings of
£8.5m –
not achieved.
Savings achieved in store-labour
costs, property and supply-chain
savings, offset by significant
demurrage and third-party storage
costs incurred due to Brexit stock
strategy.
Developing
our people
Company
employee
survey results.
Year-on-year
improvement in
employee
engagement
score.
Employee engagement score as
measured by ‘Be Heard’ declined in
year.
Total
0%
0%
50%
Development of the
four-pillar strategy to
a medium-term time
horizon, and execution
of key new initiatives
to drive future growth,
measured by traction
and financial
performance at
year-end.
Maintaining our
customer value
proposition, measured
by external research
results compiled by
OC&C and reported
annually.
Improving our ongoing
business efficiency to
optimise the operating
model for sustainable
future performance,
measured by
performance in excess
of budgeted savings.
Improving employee
engagement through
strategic leadership.
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Strategic Report
Governance
Financial Statements
Metric by which
the objective
is evaluated
Basis for
determining
performance
Implementation
in FY20.
Platform
operational
during FY20.
Outcome
Bonus
achieved
(% of
maximum)
Platform delivery delayed until FY21.
0%
Strategic
development
and business
efficiency
Pipeline of
opportunity
at year-end.
New strategy
delivered.
Property strategy developed and
included in the wider-evolved
strategic plan. Optimised property
plan in place with a strong pipeline
of new and proposed relocations.
100%
Business
efficiencies
Stock at
year-end
against target.
Reduce
stockholding
by £14.1m.
Reduced stockholding at end of the
financial year in line with target.
100%
Developing
our people
Company
employee
survey result.
Year-on-year
improvement in
employee
engagement
score.
Employee Engagement Score as
measured by ‘Be Heard’ declined in
year.
Total
0%
50%
CFO
Strategic objective
Link to strategy
Online
Delivering the new
platform for
cardfactory.co.uk,
measured by
implementation in
FY20.
Developing and refining
the company property
strategy for future years
and building the
appropriate execution
plan for FY21 and FY22
measured by the
pipeline of opportunity
at year-end.
Improving stock
management to drive
both availability and
reduce stockholding.
Improving employee
engagement through
strategic leadership.
The Committee considered the overall bonus payment in light of the broader performance of the business and the overall
shareholder experience over the year and concluded that there should be a payment of a relatively small part of the
bonus, in light of the achievement of these strategic steps that will lay the foundations of the future evolution of the
strategy. One third of the after-tax bonus payment must be used to purchase shares in the Company. The Committee also
recognised that certain other colleagues were also entitled to a bonus payment based on the achievement of their own
personal objectives but that these payments had all been deferred until later in the year.
75
Card Factory plc
Annual Report and Accounts 2020
Directors’ Remuneration Report continued
Grants of restricted shares 2019/20 – audited
Awards of Restricted Shares were granted to the Executive Directors on 14 May 2019. Awards were made of shares worth
87.5% of basic salary for Karen Hubbard and 75% of salary for Kris Lee. The Committee considered carefully the grant
level and, although there had been a c.12% fall in the share price since the prior year’s grant, the number of shares under
the award did not increase significantly compared to the prior year’s award.
Executive Director
Karen Hubbard
Kris Lee
Number of
Restricted
Shares
awarded
Face value of
award value
as a % of
salary
Face/maximum
value of Restricted
Shares
at grant date1
Measurement
period for
performance
underpin
225,368
130,229
87.5%
75.0%
£425,361 1.2.19–31.1.22
£245,795 1.2.19–31.1.22
1. Based on the average share price for the three months prior to the date of award on 14 May 2019 of 188.74p.
For Restricted Shares to vest, the Committee must be satisfied that business performance over the three years
commencing 1 February 2019 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 this ‘performance underpin’.
The vesting of these Restricted Shares is subject to the satisfaction of the performance underpin condition (as set out
above) measured over the three financial years commencing 1 February 2019. Upon determination by the Company’s
Remuneration Committee of the satisfaction of the performance underpin condition, the Restricted Shares will vest as
follows:
• 50% of the Restricted Shares on the third anniversary of the date of grant;
• 25% of the Restricted Shares on the fourth anniversary of the date of grant; and
• 25% of the Restricted Shares on the fifth anniversary of the date of grant.
100% of the vested Restricted Shares will be subject to a holding period which will normally end on the fifth anniversary of
the date of grant.
2017 LTIP award vesting – audited
Awards granted in 2017 under the LTIP were subject to the three-year Adjusted Underlying basic EPS compound annual
growth target of 1% pa to 6% pa with 25% vesting at threshold, and were subject to a return on capital underpin. Adjusted
Underlying basic EPS growth over the three-year period 1 February 2017 to 31 January 2020 was -8.0% which was below
the minimum vesting threshold, meaning none of these awards will vest.
SAYE – audited
Awards under the HMRC-approved SAYE were granted to all participating employees on 8 July 2019. Options were
granted at a discount of 20% to the share price on grant, and vest after three years subject to continued employment.
Executive Director
Karen Hubbard
Kris Lee
1. Based on the share price on the date of award, 8 July 2019, of 176.3p.
Number of SAYE
options awarded
5,844
5,844
Face/maximum
value of
awards at
grant date1
£10,303
£10,303
% of ward
vesting at
threshold and
(maximum)
n/a
n/a
Performance
period
n/a
n/a
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Strategic Report
Governance
Financial Statements
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 2020 and the prior year.
Non-Executive Director
Geoff Cooper
Paul Moody
Octavia Morley
David Stead
Paul McCrudden
Roger Whiteside
Base fee
Additional fees
Total
2019/20
2018/19
n/a
£144,000
£49,000
£45,000
£45,000
£45,000
£93,750
£40,000
£49,000
£45,000
£45,000
£45,000
2019/20
n/a
£0
£8,000
£8,000
£0
£0
2018/19
£0
£0
£8,000
£8,000
£0
£0
2019/20
2018/19
n/a
£144,000
£57,000
£53,000
£45,000
£45,000
£93,750
£40,000
£57,000
£53,000
£45,000
£45,000
Payments for loss of office – audited
No payments were made to Directors for loss of office.
Historical TSR performance and CEO remuneration
The graph below illustrates the total shareholder return (TSR) of Card Factory against the FTSE 250 Index and FTSE Small
Cap Index over the period since the Group listed on 20 May 2014. These indices have been chosen as they are recognised,
broad-equity market indices of which the Group has been a member for this period.
£100 Invested TSR
Card Factory
FTSE 250
FTSE SmallCap
14 May 2014
31 January 2015
31 January 2016
31 January 2017
31 January 2018
31 January 2019
31 January 2020
180
160
140
120
100
80
60
40
20
0
)
£
(
O
P
I
t
a
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
a
V
l
CEO
Single figure of remuneration (£’000)
Annual bonus outcome (% of max)
LTIP vesting (% of max)
2019/20
2018/19
2017/18
2016/171
2015/16
2014/15
593
10
–
611
15
–
496
–
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).
77
Card Factory plc
Annual Report and Accounts 2020
Directors’ Remuneration Report continued
Change in CEO cash remuneration, 2018/19 to 2019/20
Salary
Taxable benefits
Annual variable
1. Store employees representing c.90% of all employees.
CEO to employee pay ratio
2019/20
Ratio
Employee salary
Employee total remuneration
Change in CEO
pay over the
year
Average change
across all
employees1
2.7%
0.3%
(33)%
4.8%
–
10.5%
Method
Option A
25th percentile
pay ratio
Median
pay ratio
75th percentile
pay ratio
35.2 : 1
£17,017
£17,395
33.1 : 1
£18,144
£18,504
32.2 : 1
£18,564
£19,014
Card Factory has chosen Option A* (which provides a comparison of the Company’s full-time equivalent total
remuneration for all UK employees against the CEO for the 2019/20 financial year) as the most appropriate methodology
to report the ratio, in line with the recommendation from the UK Government Department for Business, Energy and
Industrial Strategy and shareholder and proxy-voting bodies.
The Committee considers pay ratios as one of many reference points when considering remuneration. Throughout the
Group, pay is aligned with our pay principles, is structured to be as consistent as possible and is market-competitive in the
context of the sector in which we operate. The Committee notes the limited comparability of pay ratios across companies
and sectors, given the diverse range of business models and employee population profiles which exist across the market. A
significant proportion of the CEO’s potential pay is delivered in variable remuneration which may therefore fluctuate
significantly on a year-to-year basis.
Distribution statement
The charts below illustrate the year-on-year change in total remuneration for all employees and total shareholder distributions
(TSD).
Total remuneration
(up 6.5%)
TSD (-45.1% inc Special / -69.1% exc Special)
£m
140
120
100
80
60
40
20
0
£117.7m
£110.5m
2019/20
2018/19
2019/20
2018/19
Special dividend
£m
60
50
40
30
20
10
0
£27.0m
£9.9m
2019/20
£49.2m
£32.1m
2018/19
* pursuant to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended)
78
Strategic Report
Governance
Financial Statements
Statement of shareholder voting
The following table shows the results of the shareholder votes on the Annual Report on Remuneration at the 2019 Annual
General Meeting and for the Directors’ Remuneration Policy at the 2018 Annual General Meeting:
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Total votes withheld1
Total votes cast (including withheld votes)
Remuneration policy
2018
Annual Report on Remuneration
2019
Total number
of votes
% of votes cast
Total number
of votes
% of votes cast
236,852,095
44,370,382
281,222,477
3,600,623
284,823,100
84.22
15.78
–
–
–
276,884,335
100
3,742
276,888,077
567,340
277,455,347
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 250% and 200% of base salary for the CEO and
CFO, respectively. Both Executive Directors have not yet met the shareholding guideline.
Director
Executive Directors
Karen Hubbard
Kris Lee
Non-Executive Directors
Paul Moody
Octavia Morley
David Stead
Paul McCrudden
Roger Whiteside
Tripp Lane
Owned
outright1
190,406
3,195
–
13,333
22,222
–
22,520
–
Shares held
Unvested
and not
subject to
performance
Options held
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)
Guideline
met?
35%
1%
250%
200%
No
No
–
–
–
–
–
–
–
–
420,146
240,575
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Including shares owned by connected persons.
1.
2. Calculated using the closing share price of the Company on 31 January 2020 of 88.6p.
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.
79
Card Factory plc
Annual Report and Accounts 2020
Directors’ Remuneration Report continued
Details of Directors’ interests in shares in incentive plans – audited
Date of
grant
Share price
at grant
Exercise
price
Number
of shares
awarded
Face value
at grant
Performance period
Exercise period
Karen Hubbard
Restricted shares
Restricted Shares
SAYE
SAYE
Kris Lee
Restricted shares
Restricted Shares
SAYE
SAYE
14.05.19
11.07.18
08.07.19
03.07.18
14.05.19
11.07.18
08.07.19
03.07.18
188.74p
214.1p2
176.3p
191.0p
188.74p
214.1p1
176.3p
191.0p
n/a
n/a
154p
161p
n/a
n/a
154p
161p
225,368 £425,361 01.02.19 – 31.01.22
194,778
01.02.18 – 31.01.21
5,844
5,590
£417,031
£10,303
£10,677
n/a
n/a
n/a 01.08.22 – 31.01.23
n/a 01.08.21 – 31.01.22
130,229 £245,795 01.02.19 – 31.01.22
110,346 £236,250
01.02.18 – 31.01.21
£10,303
£10,677
5,844
5,590
n/a
n/a
01.08.22 – 31.01.23
01.08.21 – 31.01.22
1. To determine the number of shares comprising the award, 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, 14 May 2019, of 188.74p.
2. To determine the number of shares comprising the award, 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, 11 July 2018, of 214.1p.
How the Policy will be applied in FY21
Covid-19 and exercise of discretion
The significant impact of the Covid-19 pandemic on the Group will require the Committee to carefully exercise its
discretion in adjudicating remuneration outcomes in respect of variable pay for the current year. The Committee will
report on this in next year’s Annual Report and Accounts but will act reasonably and proportionately, taking into account
the interests and experiences of all of the business’s key stakeholders and mitigating actions taken by the business
throughout the pandemic.
Salary
The salaries of the Executive Directors with effect from 1 May 2020 will be as follows:
Executive Director
Karen Hubbard
Kris Lee
Salary reviews for the Executive Directors have been deferred.
1 May 2020
1 May 2019
£486,127
£327,726
£486,127
£327,726
80
Strategic Report
Governance
Financial Statements
Annual bonus
The annual bonus for the current financial year is capped at 125% and 100% of salary for the CEO and CFO, respectively,
based 70% on Adjusted Underlying EBITDA and 30% on 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 next year’s Annual Report on Remuneration.
The Committee has carefully reviewed the operation of policy for 2020/21 and the individual objectives for the strategic
element of the annual bonus. These not only support our current strategy but are aligned with proposed developments in
our strategy, which the Board have considered during the year and which will be presented to our key stakeholders later in
the year, once approved. The objectives set for both the CEO and CFO for 2020/21, which are shared by all of the senior
management team, are:
• Leadership in card choice – the delivery of key initiatives supporting profitable growth in overall card volumes that will
help us to build the winning card-led retail proposition, measured by market-share gain and maintaining our reputation
for range and value;
• Multichannel – developing a compelling customer proposition and customer experience that allow us to capture the
opportunity from channel shift which supports our goal of making our products available everywhere, however
customers wish to shop, measured by the successful launch of our new platform for Card Factory online and online
sales in excess of budget; and
• ERP implementation – progressing the completion of our ERP implementation plan delivering business transformation
in support of our strategy measured by the delivery of project milestones on time and to budget and the identification
of business process improvements that deliver significant cost reductions.
The objectives have been set by the Committee and will require Executive Directors to deliver significant stretch performance.
Given the link between these targets and Card Factory’s competitive strategy, they are considered commercially sensitive but
will be published in next year’s Annual Report on Remuneration.
Benefits and pension
These will be paid in line with the Policy.
Restricted shares
The Committee has deferred any decision to make Restricted Share awards for the current financial year until after the
Group’s Interim Results for 20/21 have been announced. Any awards granted will retain the same vesting profile and
underpin as the awards granted during the last financial year, meaning that, in order for Restricted Shares awarded 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 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 CEO and
CFO, respectively.
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
2020/21
2019/20
£144,000
£49,000
£45,000
£144,000
£49,000
£45,000
£8,000
£8,000
£8,000
£8,000
81
Card Factory plc
Annual Report and Accounts 2020
Directors’ Remuneration Report continued
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, Paul Moody. A more detailed
explanation of the Remuneration Committee’s role is set out in the Corporate Governance Report on pages 52 and 53 and
a copy of its terms of reference, which comply with the UK Corporate Governance Code, is available on Card Factory’s
investor relations website (cardfactoryinvestors.com).
The Committee fulfils its duties with a combination of both formal meetings and informal consultation with relevant
parties, both internal and external. Its principal external advisers are Korn Ferry, who were appointed by the Committee
following a tender process during 2018. Korn Ferry does not provide any other services to the Company. Korn Ferry advises
Crest Nicholson plc’s Remuneration Committee, which is also chaired by Octavia Morley. 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 remunerationconsultantsgroup.com. Accordingly, the Committee is satisfied that the advice received is
objective and independent. Fees of £15,574.50 (inc. VAT) were paid to Korn Ferry during the financial year.
Committee activities
During 2019/20, the Committee met to consider the following remuneration matters:
• to review and update the Committee’s Terms of Reference;
• to review operation of policy in 2019/20 and consider if any changes to policy are required prior to the triennial policy
vote at the 2021 AGM;
• to consider performance against targets and resulting bonus payments for 2018/19 and vesting of the 2017 awards
under the LTIP;
• to consider 2019/20 grants of Restricted Shares;
• to consider measures and targets for the 2020/21 annual bonus taking into account the Group’s strategic review;
• to review the recruitment and remuneration for several senior management roles;
• to review developing trends in remuneration market practice, investor guidelines and governance including the new
2018 UK Corporate Governance Code;
• to review and consider wider group-remuneration policies and practices and the approach to employee engagement as
it relates to remuneration matters; and
• to formally approve the Directors’ Remuneration Report set out in this Annual Report.
The work of the Remuneration Committee
Set out below are those areas of the Committee’s work that it is required to report under the Code and reporting
regulation and which are not covered elsewhere in this Directors’ Remuneration Report.
Engagement with stakeholders
There were no remuneration matters which required specific engagement with shareholders during 2019/20. The
Committee will engage with its shareholders during 2020/21 as part of the Directors’ Remuneration Policy review and
feedback on any proposed policy changes will be sought. Support for the Directors’ Remuneration Policy at the 2018 AGM
was above 84% and for the 2018/19 Directors’ Remuneration Report at the 2019 AGM was above 99% and there were no
material concerns for the Committee to consider from the AGM voting outcomes.
Disappointingly, our employee engagement scores declined during the year, as assessed using our “Be Heard” survey.
During the year and as set out in more detail on page 37, Paul McCrudden was appointed as the designated Non-
Executive Director for employee engagement. The Company also established its Combined Colleague Advisory Group
which complements existing forms of employee engagement and will form the basis of engagement on those matters
specifically required under the Code, including to explain the alignment of the Executive Directors’ Remuneration Policy to
the wider group. A timetable and agenda for the meetings which will commence in early 2020/21 has been agreed by the
Board and will be attended by Paul McCrudden.
82
Strategic Report
Governance
Financial Statements
Policy and operation of Policy
In determining the operation of Policy for the year ahead the Committee has considered the six factors listed in the Code
as follows, these matters will be considered again as part of the Policy review during 2020/21:
• Clarity – our policy is well understood by our management team and has been clearly articulated to our shareholders
through direct engagement and our remuneration reporting. A key part of our Human Resources Director’s role is
engaging with our wider employee base and this is supported further by our new Combined Colleague Advisory Group
and the appointment of our designated Director for workforce engagement. The Board will be able to monitor the
effectiveness of this process through the feedback received by the Board to ensure that our remuneration policy and
practices are clearly understood by our employees.
• Simplicity – the Committee is mindful of the need to avoid overly complex remuneration structures. Our Restricted Share
plan is straightforward and cascaded below the Board to our senior management team. Our strategic objectives and
deliverables are clearly articulated through the financial and strategic measures on our annual bonus plan and
longer-term sustainable growth through our restricted share plan that provides longer-term share ownership and
alignment with our shareholders.
• Risk – our remuneration policy is designed to ensure that reputational, behavioural and other risks are managed and
will not be rewarded via (i) the balanced use fixed and variable pay, the use of our restricted share plan and the blend of
financial and strategic objectives in our annual bonus plan (ii) the significant role played by equity in our incentive plans
(together with shareholding guidelines in service and post service) and (iii) malus/clawback provisions.
• Predictability – our restricted share plan limits ensure significant predictability in the remuneration of our executives as
demonstrated in the scenario charts on page 69. The Remuneration Committee also has the discretion to adjust any
vesting outcomes if they are not considered appropriate.
• Proportionality – there is a clear link between individual awards, delivery of strategy and our long-term performance. In
addition, the significant role played by incentive/’at-risk’ pay, together with the structure of the Executive Directors’
service contracts, ensure that poor performance is not rewarded.
• Alignment to culture – Our incentive schemes drive behaviours consistent with Card Factory’s purpose, values and
strategy by using metrics in the annual bonus that underpin the delivery of our strategy. Our restricted share plan
supports and encourages our culture of wider employee-share ownership, alignment to shareholders and sharing in the
longer-term sustainable success of our business.
Determining Executive Director remuneration
The Committee considers the appropriateness of the Executive Directors’ remuneration, not only in the context of overall
business performance and environmental, governance and social matters, but also in the context of wider workforce pay
conditions (taking into account workforce policies and practices as well as the ratio of CEO pay to all-employee pay) and
external market data, to ensure that it is fair and appropriate for the role, experience of the individual, responsibilities and
performance delivered.
More specifically the Committee will continue to give specific consideration to the impact of Covid-19 on the operation of
the Directors’ Remuneration Policy given its significant impact on the Group’s performance during the current year.
Wider workforce matters
The Committee as part of its wider remit under the Code considers workforce remuneration policy and practices. This
includes our Gender Pay statistics, which are published on our investor relations website (cardfactoryinvestors.com) and
our Equality and Diversity policy which is set out on page 85 in the Nomination Committee Report. The Committee has
also considered the Group’s wider review of remuneration across the workforce and its current grading of roles and the
remuneration and benefits associated with each role.
Approved by the Board of Card Factory plc on 1 June 2020 and signed on its behalf by:
Octavia Morley
Chairman of the Remuneration Committee
2 June 2020
83
Card Factory plc
Annual Report and Accounts 2020
Chairman’s Letter –
Nomination Committee
The Committee
has considered and
acknowledges its
renewed obligations
under the new Code
and is committed to
overseeing the
Group’s succession
planning and
approach to diversity
and ensuring they are
key components of its
long-term success.
Paul Moody
Chairman of the Nomination
Committee
Committee members
Paul Moody (Chair)
Octavia Morley
Paul McCrudden
David Stead
Roger Whiteside
Dear Shareholder
In light of them both nearing six years of service, the initial focus
of the Nomination Committee’s activities during the year, was
on securing successors to Octavia Morley (Chair of the
Remuneration Committee and Senior Independent Director)
and David Stead (Chair of the Audit Committee).
A search firm (Spencer Stuart) had been appointed to undertake
the task and was progressing the search; however, the process
was suspended as, in light of the criticality of the Group’s
strategic review, both Octavia and David expressed their
willingness to continue in their roles beyond their current terms.
84
Their knowledge, skill and experience have been invaluable to
the of Board’s consideration and evolution of the Group’s
strategy and I thank them for their continued service.
During the year, the Committee’s terms of reference have also
been reviewed and updated to reflect the requirements of the
2018 UK Corporate Governance Code. The Committee has
considered and acknowledges its renewed obligations under
the new Code and is committed to overseeing the Group’s
succession planning and approach to diversity, and ensuring
they are key components of its long-term success.
As part of this, the Committee has considered in detail, and
given its approval for, the revised organisational structure
proposed by our CEO, Karen Hubbard. The refreshed structure
will support the delivery of the Group’s long-term strategic
ambitions, ensuring it has optimal capacity, capability and
leadership within its functional teams.
The Committee has also given its initial consideration to
succession plans for the senior management team that will
underpin the continued development of the capability and
capacity of the organisation. The Committee is also taking an
active role, working closely with the Executive Directors and
the Group People Director in setting diversity objectives for
the Group and understanding how best to measure the
impact of these.
Whilst the Committee has taken initial steps in meeting its
obligations under the new Code, the Group has already made
good progress in promoting diversity and ensuring there is
equality of opportunity across the business. There is also
greater transparency over future development and
progression across the workforce. The Committee is
committed to supporting these developments.
Most recently, the Committee considered, and recommended
to the Board, the appointment of Tripp Lane, as a Non-
Executive Director of the Company. This recommendation
followed a number of meetings between Tripp and members
of the Committee, who were confident he had relevant skills
and experience that could add value to the Company.
Tripp was appointed to the Board on 9 April 2020 following
constructive discussions between the Company and Teleios
Capital Partners LLC (Teleios), a long-term shareholder with a
c.13% interest in the Company, and another major
shareholder. Given the circumstances surrounding his
appointment, including the Committee’s understanding that
Teleios agreed to supplement Tripp’s remuneration with a
one-off payment to secure his candidacy, the Committee
recommended that it would not be appropriate to view Tripp
as an independent Non-Executive Director for the purposes of
the Code, notwithstanding that Tripp is not a nominated
director of Teleios, or acting on their behalf.
There remains much to be done throughout the organisation,
but, the Committee is pleased with progress to date and we
will further update shareholders in next year’s Annual Report.
Yours sincerely
Paul Moody
Chairman of the Nomination Committee
2 June 2020
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 forward.
Role of the Nomination Committee
The purpose of the Committee is to:
• assist the Board by keeping the composition and
performance of the Board and its Committees
under continuous review to ensure it has the
necessary balance of skills and experience to fulfil
its purpose;
• ensure a thorough and transparent process is
adopted for making new appointments to the
Board; and
• oversee diversity, inclusion and succession, not
only within the Board but across the Group’s
senior management team.
A more detailed explanation of the Nomination Committee’s
role is set out in the Corporate Governance Report on page 53
and the Committee’s terms of reference, which are published
on Card Factory’s investor website (cardfactoryinvestors.com),
comply with, and have been updated in light of the changes
to, the UK Corporate Governance Code.
Membership
The Nomination Committee is chaired by Paul Moody,
and its other members are Octavia Morley, David Stead,
Paul McCrudden and Roger Whiteside.
The Company Secretary acts as secretary to the
Committee.
Meetings
The Committee met twice during the year with details of
attendance set out in the Corporate Governance Report on
page 50. In addition to formal meetings, the Chairman has,
where necessary, consulted with Committee members on
an ad hoc basis during the year.
Committee activity in 2019/20
The Committee’s main activity during the year, as described
in more detail in the introductory letter to this report, was to
find successors for Octavia Morley and David Stead.
Strategic Report
Governance
Financial Statements
Committee’s focus for the future
The Nomination Committee’s priority over the coming year
will be to continue to embrace its increased responsibilities
under the 2018 Corporate Governance Code. In particular,
the Committee will:
• recommence its search for successors to Octavia Morley
and David Stead;
• support the Board in ensuring the Group has an
organisational structure that is fit for purpose. A key part
of this will be the Committee satisfying itself that the
Group has the leadership, capacity, capability and
organisational structure to support the delivery of the
Group’s long-term strategic vision and its long-term
sustainable success. Where any gaps are identified, the
Committee will support the Executive Directors in
recruiting suitable candidates to fill these roles;
• play an active role in succession beyond the Board. The
Committee will oversee the Group’s development of a
diverse pipeline for succession to the Group’s senior
management team having regard to diversity of gender,
social and ethnic backgrounds and personal strengths.
The Committee will ensure that formal plans are in place
and will actively monitor their execution. The focus will
be on the needs of the business over the medium to
longer term as well as ensuring the Group is supporting
the development of the next generation of leaders from
within the business; and
• give detailed consideration to the Group’s policies and
approach to diversity, including the establishment of
appropriate diversity and inclusion objectives and
measuring the impact of these. The Committee will
ensure there are clear guidelines for how the Group
recruits and retains talent that guarantees equality of
opportunity.
Gender and ethnic diversity
Our policy is that the Board and the Group’s senior
management team should always be diverse but we feel
that quotas are not appropriate as they are likely to lead to
compromised decisions on Board and senior management
team membership, quality and size.
We will, however, seek to ensure that specific effort is made,
both at Board and senior management team level, to bring
forward female candidates and those from a range of ethnic
and social backgrounds for appointments. We will also
monitor the wider Group’s approach to people development
to ensure that it continues to enable talented individuals, from
all genders and from all ethnic and social groups, to enjoy
career progression activities within the Group.
85
Card Factory plc
Annual Report and Accounts 2020
Nomination Committee Report continued
We published our third Gender Pay Gap Report in April
2020. In addition to setting out the data required by the
Government, the report evidences the outcomes of the
Group’s efforts in 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 (cardfactoryinvestors.com).
Details of the gender balance within the Group are set out
in the Corporate Social Responsibility report on page 39.
Board evaluation
The Chairman, with the support of the Company Secretary,
carried out an internal evaluation this year reflecting on the
Board’s performance against the objectives agreed as part
of the internal evaluation carried out last year. Further
details are set out in the Corporate Governance Report on
page 54. 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
during the financial year ending 31 January 2021, 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 30 July 2020.
This report was reviewed and approved by the Board on
1 June 2020.
Paul Moody
Chairman of the Nomination Committee
2 June 2020
86
Strategic Report
Governance
Financial Statements
Directors’ Report
The Directors present their report together
with the audited financial statements for
the year ended 31 January 2020.
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 2018 (‘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.
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, social and community issues and about how we
engage with our stakeholders.
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.
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.
Results and ordinary dividends
The consolidated profit for the Group for the year after
taxation was £51.6m (FY19 (restated): £52.7m). The results
are discussed in greater detail in the Chief Financial
Officer’s Review on pages 24 to 29.
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.
No final dividend is proposed in respect of the period
ended 31 January 2020 (FY19 final dividend: 6.4 pence). The
Company paid an interim dividend of 2.9 pence per share
(FY19: 2.9 pence) on 19 December 2019.
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,
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 1 June 2020 and is set out on pages 1 to 45 , 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 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.
Special dividend
A special dividend of 5 pence per share (FY19: 5 pence) was
paid to shareholders on 19 December 2019.
Post year-end events
Details of the impact of the Covid-19 pandemic on the
Group are set out in the Strategic Report on pages 21 to 22.
There have been no other significant post year-end events.
Share capital, shareholders and restrictions on transfers
of shares
The Company has only one class of shares, ordinary shares
of 1p each.
Further details of the Company’s share capital, including
changes in the issued share capital in the year under review,
are set out in note 20 to the financial statements which
form part of this report on page 127. 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.
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Card Factory plc
Annual Report and Accounts 2020
Directors’ Report continued
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 132 to 133. Details of
the share-based incentive schemes in place are provided in
the Directors’ Remuneration Report on page 80.
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 29 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 1 June 2020 the following had notified the Company of a
disclosable interest of 3% or more of the nominal value of
the Company’s ordinary shares:
Shareholder
Number of
ordinary
shares
Percentage
of share
capital
17.13%
Invesco Ltd
Teleios Capital Partners
13.42%
Artemis Investment Management LLP 34,325,625 10.05%
5.28%
Mr Stuart Middleton
4.89%
St James’ Place group of companies
4.76%
Majedie Asset Management
18,035,477
16,717,278
16,267,238
58,493,894
45,823,377
As at 31 January 2020, the disclosable interests notified to
the Company were as stated above, except for Invesco Ltd’s
notified interest in 70,856242 ordinary shares (20.74%) and
Teleios Capital Partners’ interest in 37,989,393 shares
(11.12%).
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.
88
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 and 24 September 2018) 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 134 of the Annual Report and Accounts.
Directors
The Directors of the Company and their biographies are set
out on pages 46 and 47. Details of changes to the Board
during the period are set out in the Corporate Governance
Report on page 49. Details of how Directors are appointed
and or removed are set out in the Corporate Governance
Report on page 54.
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 page 55.
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 55.
Employees
Information relating to employees of the Group is set out in
the Corporate Social Responsibility Report on page 39.
Share incentive schemes in which employees participate
are described in the Directors’ Remuneration Report on
pages 68 and 69 and in note 25 to the financial statements
on pages 132 and 133.
Health and safety
An overview of health and safety is provided in the
Corporate Social Responsibility Report on page 40.
Strategic Report
Governance
Financial Statements
Greenhouse gas emissions
The Corporate Social Responsibility Report on page 43 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 30. In that section, beginning
on page 30, 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 CFO’s
review on pages 24 to 29.
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
(cardfactoryinvestors.com).
Going concern
In assessing the appropriateness of the going concern
assumption, the Board has considered the availability of
funding alongside the possible cash requirements of the
Group and Company, taking into account the
unprecedented anticipated circumstances caused by
Covid-19.
Availability of funding
The Group has entered into revised covenant terms with its
banking partners. This will enable it to utilise not only the
full Revolving Credit Facility (‘RCF') of £200m but also the
secured funding from the Bank of England Covid Corporate
Financing Facility, to the extent that the combined draw
down on facilities, net of cash, do not exceed a monthly
cap, which varies from month-to-month as agreed with the
banking partners, of up to £275m at their peak. Under the
revised covenant terms, the Group’s existing covenant
requirements have lapsed immediately and have been
replaced by three new covenant tests relating to net debt;
cash burn; and last twelve months EBITDA. These tests will
be applied monthly until June 2021, after which it is
envisaged that the business will have a phased return back
to existing six-monthly covenant tests of net debt to EBITDA
and interest cover.
Cash flow forecasts
The Board has prepared cash flow forecasts for a period of
18 months from the date of approval of these financial
statements. This base case scenario includes the benefits of
actions already taken by management to mitigate the
trading downsides brought by Covid-19, e.g. cancellation of
dividends, significant reduction in capital investment,
cancellation and rescheduling of stock orders,
renegotiating property rents, participating in the
government’s job retention scheme, and taking advantage
of other government support measures amongst other
actions within their control. This base case assumes that
the majority of stores are reopened for trading during June
2020, and gradually build back towards pre-Covid-19 levels
of trade (88% of the value of budgeted sales) by December
2020. Under this base case scenario, the Group is expected
to continue to have significant headroom relative to the
funding available to it and to comply with its revised
banking covenants.
The Board has also considered various other severe but
plausable downside scenarios, including the possibility that
the recovery of trade is much more sluggish than assumed
in the base case. It has determined that even if sales were
to remain significantly below budget for a longer period
(79% of budgeted sales in December 2020), the Group
would still expect to have sufficient headroom in its
financing facilities. The Board does not regard a slower
pace of recovery to be reasonably possible, but, in the
event that it is, notes that further mitigations are within
their control. However, in the event of another government
imposed store closure in the later part of 2020 or early 2021
due to a second peak of Covid-19 infection, there is a risk of
breaching the Group’s new financial covenants. In such
circumstances the Group would seek to agree a waiver or
further variation of terms with the banks, who have been
consistently supportive of the business but, the Board
cannot predicts with certainty how the banks would
respond.
Based on the above indications the directors believe that it
remains appropriate to prepare the financial statements on
a going concern basis. However, this material uncertainty,
may cast significant doubt on the Group and Company’s
ability to continue as a going concern and therefore to
realise its assets and discharge its liabilities in the normal
course of business. The Board emphasises that this arises
solely due to the global public health pandemic which is
entirely outside the Group’s influence or control. The
financial statements do not include any adjustments that
would result from the basis of preparation being
inappropriate.
89
Card Factory plc
Annual Report and Accounts 2020
Directors’ Report continued
Longer-term viability
In accordance with the UK Corporate Governance Code,
the Directors have assessed the viability of the Group over
the five years to 31 January 2025. 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 45.
The Directors have determined that the five years to
31 January 2025 is an appropriate period over which to
provide its viability statement being 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.
In particular, the Board has carried a detailed assessment of
the possible impacts on the business of Covid-19. In doing so
it has undertaken a rigorous assessment of the forecast
outturns and assessed the downside risks and other mitigating
actions that can be taken. The downside risks include
alternative models for recovery of sales on reopening stores
following three month closure scenarios and a number of
severe but possible scenarios incorporating the potential for
a second outbreak of Covid-19 and a prolonged period of
closure of six months. In addition a reverse stress test model
has been used to identify how sensitive the forecast is to both
store closure and post-reopening like-for-like performance.
These forecasts take into account the ongoing diligent
approach the business is taking in respect to liquidity
planning, cost control and capital investment and the
proactive actions it is taking to ensure that trading can
commence smoothly and safely once stores are able to
reopen.
Assumption
Assumption limitations
New funding
On 1 May 2020, Card Factory received confirmation that it
can access funding under the Covid Corporate Financing
Facility.
The Bank of England and HM Treasury have jointly
confirmed that they “will operate the facility for at least 12
months and for as long as steps are needed to relieve cash
flow pressures on firms that make a material contribution to
the UK economy.“
Store closure / opening
The three-month closure scenario assumes full estate closure
up to and including 30 June 2020. A gradual return to
normal levels of trading is assumed, plus only the opening of
only seven new stores in FY21.
Capital investment
The FY21 capital expenditure plan has been significantly
reduced. All non-essential spend has ceased, including
deferral of replacement manufacturing equipment and new
store fit outs reduced to only seven stores. Only a small
number of key projects, that support the Group’s long term
strategic objectives, will now be invested in.
The key limitation of this assumption relates to the extent
to which the Group is able to draw down on the facility, as
dictated by new covenants around; total net debt, cash
burn and last twelve months EBITDA until June 2021, after
which it is envisaged that the business will have a phased
return back to existing covenant tests of EBITDA to
Leverage and EBITDA to interest cover. However, covenant
testing has been carried out accordingly and sufficient
headroom was available under three-month closure
scenarios.
These assumptions are limited by the ongoing uncertainty
over the decision by governments as to when current
lock-down rules can be eased and to what extent they are
eased. However, it appears increasingly likely that a large
number of our UK stores will be able to trade in advance of
30 June 2020.
The Board is also mindful of the uncertainty over how
consumers will shop with social distancing measures
applied in store and, more generally, to what extent retail
consumers will return to the high street.
There are no limitations to these assumptions, which are
entirely within the control of the Board.
90
Strategic Report
Governance
Financial Statements
Assumption
Assumption limitations
Stock intake
Stock intake and payment terms are being managed with
suppliers.
Online performance
For prudence, and because Online has historically been a
relatively small part of the business, the closure scenarios
included no upside on the original FY21 budget.
Distributions to shareholders
In order to protect the business and its balance sheet at this
uncertain time, the Board is not proposing to pay a final
dividend in respect of FY20 and does not currently expect to
pay an FY21 dividend.
Brexit
The Board remains mindful of the continuing risk to the
business from the uncertainty surrounding the new rules for
trade, travel, and business for the UK and EU once the
transition period ends (currently 31 December 2020). The
remains a short-to-medium term risk of FX volatility, which
is mitigated via the Group’s existing currency hedging policy
and the business has alleviated its supply chain risk by
implementing new processes in order to proactively
manage threats to its inventory levels.
Board Assessment
The Board has reviewed the Group’s detailed five-year
strategic plan, including an assessment of key operational
and financial assumptions, the three-month closure
scenarios, extended closures (should relaxation of current
lock-down rules be delayed), and reverse stress-testing.
In assessing the viability assumptions, the Board has
undertaken a rigorous assessment of the forecast outturns
and assessed the downside risks and other mitigating
actions that can be taken. The downside risks include a
number of severe but possible scenarios incorporating the
potential for a second outbreak of Covid-19 and a
prolonged period of closure of six months. Under these
severe but possible scenarios, the Board consider that in the
event of a government imposed store closure due to a
second peak of Covid-19 infection, there is a risk of
breaching the Group’s financial covenants, unless a waiver
or further variation is agreed with the banks, however the
banks have been very supportive to date. Whilst these
reviews do not consider all of the risks that the Group might
face, the Directors consider that this assessment of the
Group’s prospects is reasonable in the circumstances of the
particular uncertainties presented at this time.
There are no limitations to these assumptions.
As with any forecast, there are limitations to the Online
budget assumptions. However, with appropriate safety
measures and controls in place, the Online businesses have
continued to trade. While remaining a small part of the
group, significant growth in visitors, conversion and sales
have been recorded since the lock-down.
There are no limitations to these assumptions.
Whilst the audit report contains an emphasis of matter in
respect of Covid-19, the Board is confident that the Group
has access to sufficient liquidity for navigating the times
ahead. This has been driven both by management focusing
on cash conservation, its current banking facilities and the
additional support from the Bank of England in responding
to the consequences of Covid-19. In the shorter term, the
cash conservation measures have included utilising relevant
government schemes where applicable, managing stock
intake and supplier terms and controlling the cost base.
Capital investment has been focused on a small number of
key projects that remain important to the Group’s long-term
strategic objectives. In addition, the business has in place
an existing £200m Revolving Credit Facility (‘RCF’) maturing
in October 2023 with our commercial banks, who have
remained supportive of the business during this period.
Alongside the current bank facilities, the Bank of England
have confirmed access to additional funding under the
Covid Corporate Financing Facility. As the impact of
Covid-19 on trading diminish, the Group expects to pursue
the 5-year plan.
In its latest assessment of potential returns of surplus cash
to shareholders – which are discretionary - the Board has
taken into account expected profitability, cash generation,
the ongoing capital requirements of the business, and
projected leverage ratios, all under the aforementioned
store closure and reverse stress test scenarios. Accordingly,
due to the uncertainty presented by Covid-19, the Board has
taken the decision not to pay a final dividend in respect of
FY20 and does not currently expect to pay a dividend in
relation to FY21. The Group’s dividend policy remains
unchanged over the medium term, and the Board will
regularly review the most appropriate actions to take in the
shorter term as more is known about the timing of store
re-openings and the impact Covid-19 has on consumer
sentiment and desire to visit retail locations.
91
AGM
The AGM of the Company will be held at 11.00am on
30 July 2020 at the Company’s registered office at Century
House, Brunel Road, 41 Industrial Estate, Wakefield, West
Yorkshire WF2 0XG, however, due to the impact of Covid-19
and in accordance with the current government guidance
against gatherings of more than two people, we do not
intend to admit any shareholders in person at the AGM and
have made arrangements for the quorum (which is any two
shareholders or their proxies/corporate representatives) to
be satisfied by the presence of two employee shareholders
present in person. A formal notice of meeting, explanatory
circular and a form of proxy will accompany this Annual
Report and Accounts. Shareholders are encouraged to
submit their votes by proxy in accordance with the
instructions the enclosed documents.
Responsibility statement of the Directors in respect of the
Annual Report and Accounts
This statement is set out on page 93.
Approval of the Annual Report
The Strategic Report and the Corporate Governance
Report were approved by the Board on 1 June 2020 and
signed on its behalf by
Ciaran Stone
Company Secretary
2 June 2020
Card Factory plc
Annual Report and Accounts 2020
Directors’ Report continued
The above situation gives rise to a material uncertainty, as
defined in auditing and accounting standards, related to
events or conditions that may cast significant doubt on the
entity’s ability to continue as a going concern, due to a
global public health pandemic that is entirely outside the
Company’s influence or control. In such circumstances, it
may therefore be unable to realise its assets and discharge
its liabilities in the normal course of business. Reflecting the
Board’s confidence that a second government imposed
closure can be avoided, but that if it is to arise, mitigation
can be taken, the Board confirm 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 2025.
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 2020 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.
92
Strategic Report
Governance
Financial Statements
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;
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.
• make judgements and estimates that are reasonable,
By order of the Board
Karen Hubbard
Chief Executive Officer
2 June 2020
Kristian Lee
Chief Financial Officer
2 June 2020
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.
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.
93
Card Factory plc
Annual Report and Accounts 2020
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 2020
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 statement of financial position,
Parent Company statement of changes inequity, Parent
Company cash flow statement and the related notes,
including the accounting policies in note 1.
We were first appointed as auditor by the Company’s
members on 30 April 2014. The period of total
uninterrupted engagement is for the 6 financial years
ended 31 January 2020. Prior to that we were also auditor
to the Group’s previous parent company, but which, being
unlisted, was not a public-interest entity. 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.
In our opinion:
• the financial statements give a true and fair view of the
Overview
state of the Group’s and of the parent Company’s affairs
as at 31 January 2020 and of the Group’s profit for the
year then ended;
Materiality:
group financial
statements as a whole
• 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.
Coverage
Key audit matters vs 2019
Recurring risks
New risks
£3.45m (2019:£3.70m)
5% (2019:5%) of group profit
before tax excluding non
underlying items)
100% (2019:100%) of group
profit before tax
The impact of
uncertainties due to the
UK exiting the European
Union on our audit
Going concern
Existence and accuracy of
the stock counts for store
inventory and accuracy of
the costing calculations
for all inventory
Recoverability of parent
company investments in
subsidiaries
IFRS 16 subjective
estimate
94
2 Material uncertainty related to going concern
The risk
Our response
Going concern
We draw attention to note 1 to
the financial statements which
indicates that the ability of the
Group and parent Company to
continue as a going concern is
dependent on the external lender
not calling in the debt owing to it in
the event of the Group and parent
Company, in a severe but plausible
downside scenario, breaching its
covenant.
Disclosure quality
There is little judgement involved in
the directors’ conclusion that risks
and circumstances described in
note 1 to the financial statements
represent a material uncertainty
over the ability of the Group and
parent Company to continue as a
going concern for a period of at
least a year from the date of
approval of the financial
statements.
These events and conditions, along
with the other matters explained in
note 1, constitute a material
uncertainty that may cast
significant doubt on the Group’s
and the parent Company’s ability
to continue as a going concern.
Our opinion is not modified in
respect of this matter.
However, clear and full disclosure
of the facts and the directors’
rationale for the use of the going
concern basis of preparation,
including that there is a related
material uncertainty, is a key
financial statement disclosure and
so was the focus of our audit in this
area. Auditing standards require
that to be reported as a key audit
matter.
Our procedures included:
Assessing transparency: We assessed the
completeness and accuracy of the matters
covered in the going concern disclosure by:
• Our sector experience: We assessed and
challenged the key assumptions in the
prospective financial information prepared
by the Group by benchmarking these
against external economic forecasts.
• Funding assessment: We obtained and
inspected the signed banking agreement,
bank approved revised covenant terms and
Corporate Finance Funding Scheme
(‘CCFF’) facility agreement, a commercial
paper issued to eligible larger businesses
who are experiencing disruption as a result
of the COVID-19 pandemic, to ascertain the
committed level of financing available to
the Group and parent Company, the
duration of the facilities and related
covenant requirements.
• Sensitivity analysis: We considered
sensitivities over the level of available
financial resources indicated by the Group’s
financial forecasts taking account of
reasonably possible (but not unrealistic)
adverse effects that could arise from these
risks individually and collectively and
considered the impact of these on the
available facility headroom and covenant
compliance. We challenged the Group and
performed stress testing over the key
assumptions of the extent of the lockdown
period in which stores will be closed, the
recovery period of the retail store business
and the potential impact of another
government imposed store closure in the
event of a second peak of the COVID 19
pandemic. This was done by benchmarking
these key assumptions against external
economic data.
• Our results: We found the disclosure of the
material uncertainty to be acceptable
(FY19:No material uncertainty).
We are required to report to you if the directors’ going concern statement under the Listing Rules set out on page 89 is
materially inconsistent with our audit knowledge. We have nothing to report in this respect.
95
Card Factory plc
Annual Report and Accounts 2020
Independent Auditor’s Report continued
3 Other key audit matters: including 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. Going concern is a significant key audit matter and is
described in section 2 of our report. We summarise below the other key audit matters, 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
The impact of uncertainties due to the
UK exiting the European Union on
our audit
Unprecedented levels of uncertainty:
All audits assess and challenge the
reasonableness of estimates, and the
appropriateness of the going concern
basis of preparation of the financial
statements (see below). All of these
depend on assessments of the future
economic environment and the
Group’s future prospects and
performance.In addition, we are
required to consider the other
information presented in the Annual
Report including the principal risks
disclosure and the viability statement
and to consider the directors’
statement 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.
Brexit is one of the most significant
economic events for the UK and its
effects are subject to unprecedented
levels of uncertainty of consequences,
with the full range of possible effects
unknown.
We developed a standardised firm-wide
approach to the consideration of the
uncertainties arising from Brexit in
planning and performing our audits.Our
procedures included:
Our Brexit knowledge: We considered the
directors’ assessment of Brexit-related
sources of risk for the Group’s business
and financial resources compared with
our own understanding of the risks. We
considered the directors’ plans to take
action to mitigate the risks.
Sensitivity analysis: When addressing
areas that depend on forecasts, we
compared the directors’ analysis to our
assessment of the full range of
reasonably possible scenarios resulting
from Brexit uncertainty and, where
forecast cash flows are required to be
discounted, considered adjustments to
discount rates for the level of remaining
uncertainty.
Assessing transparency: We considered
all of the Brexit related disclosures
together, including those in the strategic
report, comparing the overall picture
against our understanding of the risks.
Our results: We found the resulting
estimates and related disclosures of
going concern to be acceptable.
However, no audit should be expected to
predict the unknowable factors or all
possible future implications for a Group
and this is particularly the case in
relation to Brexit.
96
The risk
Our response
Existence and accuracy of store
inventory and accuracy of the costing
calculations for all inventory
(£54.4 million; 2019: £68.6m)
Refer to page 60 (Audit Committee
Report), page 115 (accounting policy)
and page 125 (financial disclosures).
Physical quantities of store stock:
Store inventory quantities held at the
year end are determined by 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:
The inventory costing calculations
across both store and warehouse
stock are manual in nature. Given the
high volume and broad range of
inventory held there is a risk that cost
could be incorrectly recorded.
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 and obtained
confirmation from external counters
where relevant. This informed the extent
of our tests of details.
Control operation: Evaluated the
operating effectiveness of the controls
over the Company’s process for
reviewing its 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 our tests
of details.
Tests of details: Selected a sample of
stock lines to assess whether the
counted quantities agree to the stock
system and followed up on how
variances within our sample had been
resolved.
Tests of details: Identified a selection of
outlier stores based on a number of
factors such as stock levels per square
foot of selling space. For each outlier
selected we evaluated the specific
characteristics of the store (such as
location) which led them to be outliers.
Then assessed the stock levels recorded
by comparison to other stores with
similar characteristics.
Re-performance: For a sample of
inventory lines held in stores and in
warehouses, 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
(2019 result: satisfactory).
97
Card Factory plc
Annual Report and Accounts 2020
Independent Auditor’s Report continued
3 Other key audit matters: including our assessment of risks of material misstatement continued
FRS16
Lease liability (£145.9m; 2019 (restated
under fully retrospective application
model): £151.2m)
Refer to page 60 (Audit Committee
Report), pages 116 and 117 (accounting
policy) and pages 123 and 124
(financial disclosures).
The risk
Subjective estimate
Our response
Our procedures included:
Judgement arises in determining the
lease term as this relies on assessing
the likelihood of continued use of the
leased asset after the contractually
committed period.
Test of design: Evaluating management’s
process for identifying lease contracts to
be assessed based on the fully
retrospective transition approach and
any practical expedients applied.
Estimation uncertainty arises in
respect of the discount rate where the
implicit rate in the lease is not
available, as is typical in the Group’s
store leases.
Small changes in either of these
assumptions across a number of
leases could lead to a material change
in the valuation of lease liabilities.
The effect of these matters is that, as
part of our risk assessment for audit
planning purposes, we determined
that the level of lease liabilities had a
high degree of estimation uncertainty,
with a potential range of reasonable
outcomes greater than our materiality
for the accounts as a whole. In
conducting our final audit work, we
reassessed the degree of estimation
uncertainty to be less than that
materiality.
Data capture
The Group has over 1,000 stores which
are all leased and is required to
recognise a lease liability under IFRS
16 for all of these leases.
The calculation of the lease liabilities
requires input of complete and
accurate lease population and
attributes, and the appropriate
application of transition options and
practical expedients.
Tests of detail: Evaluating the
completeness, accuracy and relevance
of data used in preparing the transition
adjustments and lease liabilities and
considered the appropriateness of the
transition approach and practical
expedients applied.
Tests of details: Evaluating assumed lease
terms with reference to contracts and
legal rights;
Historical comparisons: Comparing
assumed lease terms with actual terms
of leases which have expired or have
been renewed during the period;
Tests of detail: Corroborating the Group’s
credit risk assumption with reference to
correspondence with bankers;
Benchmarking assumptions: comparing
the discount rates to the credit premium
implicit with the Group’s banking
arrangements and our sector
experience.
Assessing transparency: Assessing the
adequacy of the group’s disclosures
about the sensitivity of the valuation of
lease liabilities to changes in key
assumptions.
Our results: We found the level of lease
liabilities to be acceptable.
98
The risk
Our response
Recoverability of parent company
investments in subsidiaries
(£316.2m; 2019: £316.2m)
Refer to page 60 (Audit Committee
Report), page 109 (accounting policy)
and pages 121 and 122 (financial
disclosures).
Low risk, high value:
The carrying amount of the Parent
Company’s investments, held at cost,
represents 99.65% (2018: 98.45%) 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
Parent Company 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:
Test of details: Compared the carrying
amount of all of the investments with the
respective subsidiaries’ draft balance
sheet to identify whether the net assets
values, being an approximation of their
minimum recoverable amount, were in
excess of the carrying amount;
Comparing valuations: For the
investments where the carrying amount
exceeded the net asset value, compared
the carrying amount of the investment
with the expected value of the business
based on the value in use calculation
prepared by the Group;
Test of details: Compared the carrying
amount of investments in total against
the market capitalisation of the Group
at the year end.We challenged the
Group on the items reconciling the
difference between the carrying value of
the investments and the market
capitalisation at year end.
Assessing subsidiary audits: Considering
the results of the work performed on
those subsidiaries’ profits and net assets;
and
Our results: We found the Group’s
assessment of the recoverability of the
investment in subsidiaries to be
acceptable (2019 result: acceptable).
99
Card Factory plc
Annual Report and Accounts 2020
Independent Auditor’s Report continued
4 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 3.45m (2019: 3.7m) determined by
reference to a benchmark of Group profit before tax,
normalised to exclude non underlying items (as described
in note 3), of 67.2m (2019: 74.6m as previously reported not
including the restatement under IFRS 16), of which it
represents 5% (2019: 5%).
The materiality for the Parent Company financial
statements as a whole has been set at 2.9m (2019: 3.5m)
determined by reference to a benchmark of total assets
of 317.3m (2019: 321.1m), of which it represents 0.9%
(2019: 1.1%).
The group team performed procedures on the items
excluded from normalised group profit before tax.
We report to the Audit and Risk committee any corrected
and uncorrected misstatements exceeding 50,000
(2019: 50,000) in addition to other identified misstatements
that warrant reporting on qualitative grounds.
Of the Group’s 6 (2019: 3) reporting components we
subjected all 6 (2019: 3) to audit for group reporting
purposes. These components covered 100% of the total
Group revenue (2019: 100%), 100% of the Group profit
before taxation (2019: 100%) and 100% of total Group
assets (2019: 100%). Our procedures were performed by
the Group audit team from the Group’s support centre in
Wakefield and at its offices in Shipley and Wythenshawe.
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,
indoing 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.
100
Group profit before tax,
normalised to exclude
non underlying items
£67.2m (2019: £74.6m)
Group Materiality
£3.45m (2019: £3.7m)
£3.45m
Whole financial
statements materiality
(2019: £3.7m)
£3.4m
Range of materiality
at 6 components
(£175k-£3.4m)
(2019: £2.5m to £3.5m)
Group profit before tax normalised
to exclude non underlying items
Group materiality
£50,000
Misstatements reported
to the audit committee
(2019: £50,000)
Group revenue
Group profit before tax
100%
(2019 100%)
100
100
100%
(2019 100%)
100
100
Group total assets
Group profit before tax,
normalised to exclude
non underlying items
100%
(2019 100%)
100
100
100%
(2019 100%)
100
100
Full scope for group audit purposes 2020
Full scope for group audit purposes 2019
Our work is limited to assessing these matters in the context
of only the knowledge acquired during our financial
statements audit. As we cannot predict all future events or
conditions and as subsequent events may result in
outcomes that are inconsistent with judgments that were
reasonable at the time they were made, the absence of
anything to report on these statements is not a guarantee
as to the Group’s and Company’s longer-term viability.
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.
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 emerging and principal risks and longer-term
viability
Based on the knowledge we acquired during our financial
statements audit, other than the material uncertainty
related to going concern referred to above, we have
nothing further material to add or draw attention to in
relation to:
• the directors’ confirmation within the viability statement
page 90 that they have carried out a robust assessment
of the emerging and 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 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.
Under the Listing Rules we are required to review the
viability statement. We have nothing to report in this
respect.
101
Card Factory plc
Annual Report and Accounts 2020
Independent Auditor’s Report continued
We are required to report to you if the Corporate
Governance Statement does not properly disclose a
departure from the 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
93, the directors are responsible for: the preparation of
thefinancial statements including being satisfied that they
givea true and fair view; such internal control as they
determineis necessary to enable the preparation of
financialstatements that are free from material
misstatement,whether due to fraud or error; assessing the
Group andparent 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
unlessthey either intend to liquidate the Group or the
parentCompany or to cease operations, or have no
realisticalternative but to do so.
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 general commercial and
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 and discussed with the directors and other
management the policies and procedures regarding
compliance with laws and regulations. We communicated
identified laws and regulations throughout our team and
remained alert to any indications of non-compliance
throughout the audit.
The potential effect of these laws and regulations on the
financial statements varies considerably.
Firstly, the group is subject to laws and regulations that
directly affect the financial statements including financial
reporting legislation (including related companies
legislation), distributable profits legislation and taxation
legislation and we assessed the extent of compliance with
these laws and regulations as part of our procedures on the
related financial statement items.
102
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.
Nick Plumb (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
2 June 2020
Secondly, the group is subject to many other laws and
regulations where the consequences of non-compliance
could have a material effect on amounts or disclosures in
the financial statements, for instance through the
imposition of fines or litigation or the loss of the group’s
licence to operate. We identified the following areas as
those most likely to have such an effect: health and safety,
anti-bribery, employment law, and certain aspects of
company legislation recognising the nature of the group’s
activities and its legal form. Auditing standards limit the
required audit procedures to identify non-compliance with
these laws and regulations to enquiry of the directors and
other management and inspection of regulatory and legal
correspondence, if any. Through these procedures, we
became aware of actual or suspected non-compliance and
considered the effect as part of our procedures on the
related financial statement items.The identified actual or
suspected non-compliance was not sufficiently significant
to our audit to result in our response being identified as a
key audit matter.
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some
material misstatements in the financial statements, even
though we have properly planned and performed our audit
in accordance with auditing standards. For example, the
further removed non-compliance with laws and regulations
(irregularities) is from the events and transactions reflected
in the financial statements, the less likely the inherently
limited procedures required by auditing standards would
identify it. In addition, as with any audit, there remained a
higher risk of non-detection of irregularities, as these may
involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls.
We are not responsible for preventing non-compliance
and cannot be expected to detect non-compliance with
all laws and regulations.
103
Card Factory plc
Annual Report and Accounts 2020
Consolidated income statement
For the year ended 31 January 2020
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit/(loss)
Finance expense
Profit/(loss) before tax
Taxation
Profit/(loss) for the year
Earnings per share
– Basic and diluted
2020
Non-
underlying
(note 3)
£'m
–
0.5
0.5
(2.5)
(2.0)
–
(2.0)
(0.1)
(2.1)
2019
restated (note 30)
Total
£'m
Underlying
£'m
451.5
(289.3)
162.2
436.0
(270.4)
165.6
(88.6)
73.6
(8.4)
65.2
(13.6)
51.6
(81.0)
84.6
(8.4)
76.2
(14.8)
61.4
Non-
underlying
(note 3)
£'m
–
4.2
4.2
(11.9)
(7.7)
(0.3)
(8.0)
(0.7)
(8.7)
Note
Underlying
£'m
451.5
(289.8)
161.7
(86.1)
75.6
(8.4)
67.2
(13.5)
53.7
3,4
7
8
10
pence
15.7
pence
15.1
pence
18.0
Total
£'m
436.0
(266.2)
169.8
(92.9)
76.9
(8.7)
68.2
(15.5)
52.7
pence
15.4
All activities relate to continuing operations.
The notes that accompany these financial statements are included on pages 109 to 140.
104
Strategic Report
Governance
Financial Statements
Consolidated statement of comprehensive income
For the year ended 31 January 2020
Profit for the year
Items that are or may be recycled subsequently into profit or loss:
Cash flow hedges – changes in fair value
Cost of hedging reserve – changes in fair value
Cost of hedging reserve – reclassified to profit or loss
Tax relating to components of other comprehensive income (note 14)
Other comprehensive expense for the period, net of income tax
2019
restated
(note 30)
£'m
52.7
6.5
–
–
(1.4)
5.1
2020
£'m
51.6
0.6
1.7
(0.1)
(0.4)
1.8
Total comprehensive income for the period attributable to equity shareholders of the parent
53.4
57.8
The notes that accompany these financial statements are included on pages 109 to 140.
105
Card Factory plc
Annual Report and Accounts 2020
Consolidated statement of financial position
As at 31 January 2020
Non-current assets
Intangible assets
Property, plant and equipment
Right of use assets
Deferred tax assets
Derivative financial instruments
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Borrowings
Lease liabilities
Trade and other payables
Tax payable
Derivative financial instruments
Non-current liabilities
Borrowings
Lease liabilities
Derivative financial instruments
Total liabilities
Net assets
Equity
Share capital
Share premium
Hedging reserve
Cost of hedging reserve
Reverse acquisition reserve
Merger reserve
Retained earnings
Equity attributable to equity holders of the parent
Note
11
12
13
14
24
15
16
24
17
18
13
19
24
18
13
24
20
20
2020
£'m
319.8
41.6
132.4
2.7
0.5
497.0
54.4
10.8
1.1
5.5
71.8
568.8
(3.6)
(40.7)
(45.0)
(6.5)
(1.0)
(96.8)
(144.0)
(105.2)
(1.3)
(250.5)
(347.3)
2019
restated
(note 30)
£'m
320.2
40.4
135.9
2.4
0.1
499.0
68.6
8.6
2.3
3.8
83.3
582.3
(0.1)
(38.9)
(58.2)
(7.7)
(0.2)
(105.1)
(143.7)
(112.3)
(1.1)
(257.1)
(362.2)
2018
restated
(note 30)
£'m
331.6
40.0
132.7
3.7
0.2
508.2
52.1
8.3
0.3
3.6
64.3
572.5
(14.9)
(37.1)
(32.6)
(5.5)
(7.0)
(97.1)
(149.6)
(112.5)
(3.4)
(265.5)
(362.6)
221.5
220.1
209.9
3.4
202.2
(1.6)
1.1
(0.5)
2.7
14.2
221.5
3.4
202.2
0.9
0.4
(0.5)
2.7
11.0
220.1
3.4
202.2
(4.4)
(0.1)
(0.5)
2.7
6.6
209.9
The financial statements on pages 104 to 140 were approved by the Board of Directors on 1 June 2020 and were signed on
its behalf by:
Kristian Lee
Chief Financial Officer
2 June 2020
The notes that accompany these financial statements are included on pages 109 to 140.
106
Strategic Report
Governance
Financial Statements
Consolidated statement of changes in equity
For the year ended 31 January 2020
At 31 January 2018 (as previously reported
– note 29)
Adjustment (note 30)
At 1 February 2018 (restated)
Total comprehensive income for the period
Profit or loss
Other comprehensive income
Hedging gains/(losses) and costs of
hedging transferred to the cost of
inventory
Transactions with owners, recorded directly
in equity
Share-based payment charges (note 25)
Dividends (note 9)
Total contributions by and distributions
to owners
Share
capital
£'m
Share
premium
£'m
Hedging
reserve
£'m
Cost of
hedging
reserve
£'m
Reverse
acquisition
reserve
£'m
Merger
reserve
£'m
Retained
earnings
£'m
Total
equity
£'m
3.4
–
3.4
202.2
–
202.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4.4)
–
(4.4)
–
5.3
5.3
–
–
–
–
(0.1)
–
(0.1)
–
1.0
1.0
(0.5)
–
–
–
(0.5)
–
(0.5)
2.7
–
2.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15.6
(9.0)
6.6
52.7
–
52.7
218.9
(9.0)
209.9
52.7
6.3
59.0
–
(0.5)
0.6
(48.9)
0.6
(48.9)
(48.3)
(48.3)
At 31 January 2019 (restated – note 30)
3.4
202.2
0.9
0.4
(0.5)
2.7
11.0
220.1
Total comprehensive income for the period
Profit or loss
Other comprehensive income
Hedging gains/(losses) and costs of
hedging transferred to the cost of
inventory
Deferred tax on transfers to inventory
Transactions with owners, recorded directly
in equity
Share-based payment charges (note 25)
Dividends (note 9)
Total contributions by and distributions
to owners
At 31 January 2020
–
–
-
–
–
–
–
–
–
–
-
–
–
–
–
–
–
0.5
0.5
–
1.3
1.3
(3.6)
0.6
(0.8)
0.2
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
-
–
–
–
–
–
51.6
–
51.6
51.6
1.8
53.4
–
–
(4.4)
0.8
0.5
(48.9)
0.5
(48.9)
(48.4)
(48.4)
3.4
202.2
(1.6)
1.1
(0.5)
2.7
14.2
221.5
The notes that accompany these financial statements are included on pages 109 to 140.
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Annual Report and Accounts 2020
Consolidated cash flow statement
For the year ended 31 January 2020
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
Proceeds from disposal of fixed assets
Net cash outflow from investing activities
Cash flows from financing activities
Interest paid
Repayment of bank borrowings
Payment of lease liabilities
Dividends paid
Net cash outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Closing cash and cash equivalents
The notes that accompany these financial statements are included on pages 109 to 140.
2019
restated
(note 30)
£'m
142.1
(13.4)
128.7
(10.4)
(1.7)
0.2
(11.9)
(7.9)
(6.4)
(38.5)
(48.9)
(101.7)
15.1
(11.3)
3.8
2020
£'m
124.8
(14.6)
110.2
(11.0)
(3.5)
0.4
(14.1)
(8.0)
–
(41.0)
(48.9)
(97.9)
(1.8)
3.8
2.0
Note
21
12
11
9
17
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Strategic Report
Governance
Financial Statements
Notes to the financial statement
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.
This is the first set of the Group’s annual financial statements in which IFRS 16 Leases has been applied. The significant
accounting policies described below reflect the policies in accordance with the new standard. See note 30 for details of
the transition to IFRS 16.
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. The Group has not identified any significant
judgements and estimates in the period however, has disclosed estimates and judgements identified below:
Judgements and estimates
Goodwill impairment testing
The annual impairment testing of goodwill requires judgement in determining the assumptions to be used to estimate the
recoverable amount. The recoverable amount of the cash generating units (‘CGUs’), which is based on the higher of the value
in use or fair value less costs to sell, has been derived from discounted forecast cash flow models. These models use several
key assumptions, including estimates of future revenues, operating costs, terminal value growth rates and the pre-tax
discount rate. During the period goodwill attributable to the Getting Personal CGU has been impaired to nil (see note 11).
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.
Leases
In assessing lease term the Group is required to exercise judgement, in particular whether it is reasonably likely to exercise
options to break leases.
Going concern
Covid-19 gave rise to judgements both in respect to being an adjusting event or not (see note 32) and in relation to the
basis of preparation for the financial statements (see below).
Going concern
In assessing the appropriateness of the going concern assumption, the Board has considered the availability of funding
alongside the possible cash requirements of the Group and Company, taking into account the unprecedented
circumstances caused by Covid-19.
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Annual Report and Accounts 2020
Notes to the financial statement continued
1 Accounting policies continued
Going concern continued
Availability of funding
The Group has entered into a revised agreement with its banking partners. This will enable it to utilise not only the full
Revolving Credit Facility (‘RCF’) of £200m but also to utilise secured funding from the Bank of England Covid Corporate
Financing Facility to the extent that the combined draw down on facilities net of cash do not exceed a monthly cap, which
varies from month-to-month as agreed with the banking partners, of up to £275m at their peak. Under the revised
covenant terms, the Group’s existing covenant requirements have lapsed immediately and have been replaced by three
new covenant tests relating to net debt; cash burn; and last twelve months EBITDA. These tests will be applied monthly
until June 2021, after which it is envisaged that the business will have a phased return to existing six-monthly covenant
tests of net debt to EBITDA and interest cover.
Cash flow forecasts
The Board has prepared cash flow forecasts for a period of 18 months from the date of approval of these financial
statements. This base case scenario includes the benefits of actions already taken by management to mitigate the trading
downsides brought by Covid-19, e.g. cancellation of dividends, significant reduction in capital investment, cancellation and
rescheduling of stock orders, renegotiating property rents, participating in the government’s job retention scheme, and
taking advantage of other government support measures amongst other actions within their control. This base case
assumes that the majority of stores are reopened for trading during June 2020, and gradually build back towards
pre-Covid-19 levels of trade (88% of the value of budgeted sales) by December 2020. Under this base case scenario, the
Group is expected to continue to have significant headroom relative to the funding available to it and expects to comply
with its revised banking covenants.
The Board has also considered various other severe but plausible downside scenarios, including the possibility that the
recovery of trade is much more sluggish than assumed in the base case. It has determined that even if sales were to
remain significantly below budget for a longer period (79% of budgeted sales in December 2020), the Group would still
expect to have sufficient headroom in its financing facilities. The Board does not regard a slower pace of recovery to be
reasonably possible but, in the event that it is, notes that further mitigations are within their control. However, in the event
of another government imposed store closure in the later part of 2020 or early 2021 due to a second peak of Covid-19
infection, there is a risk of breaching the Group’s new financial covenants. In such circumstances the Group would seek to
agree a waiver or further variation of terms with the banks, who have been consistently supportive of the business, but the
Board cannot predict with certainty how the banks would respond.
Based on the above indications the directors believe that it remains appropriate to prepare the financial statements on a
going concern basis. However, this material uncertainty, may cast significant doubt on the Group and Company’s ability to
continue as a going concern and therefore to realise its assets and discharge its liabilities in the normal course of business.
The Board emphasises that this arises solely due to the global public health pandemic which is entirely outside the Group’s
influence or control. The financial statements do not include any adjustments that would result from the basis of
preparation being inappropriate.
Principal accounting policies
The principal accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements.
Changes in significant accounting policies
The Group has adopted IFRS 16 Leases on a fully retrospective basis and has therefore restated the previously reported
consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial
position and consolidated cash flow statement for the year ended 31 January 2019 and the consolidated statement of
financial position as at 31 January 2018. The changes in accounting policies for IFRS 16 and the impact on the financial
statements are detailed in note 30.
Other new standards effective in the period do not have a material effect on the Group’s financial statements.
Standards issued but not yet effective
A number of new standards are effective for annual periods beginning after 1 January 2019 and earlier application is
permitted; however, the Group has not early-adopted the new or amended standards in preparing these consolidated
financial statements.
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Financial Statements
The following amended standards and interpretations are not expected to have a significant impact on the Group’s
consolidated financial statements:
• Amendments to References to Conceptual Framework in IFRS Standards.
• Definition of a Business (Amendments to IFRS 3).
• Definition of Material (Amendments to IAS 1 and IAS 8).
•
IFRS 17 Insurance Contracts.
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
Group revenue is principally attributable to the retail sale of cards, dressings and gifts subject to a single performance
obligation fulfilled by receipt of goods at the point of payment with minimal returns and refunds. Revenue is recognised at
the point the customer is deemed to have taken delivery of the goods.
Revenue attributable to retail partners and non-retail customers represents circa 1% of Group revenue and is typically
characterised by single performance obligations and standard Group products. Certain contracts with retail partners are
subject to a cost of entering into the contract along with a minimum order quantity and volume-related rebate for an
initial period of the contract. Revenue subject to potential rebate is deferred as a contract liability to the extent the rebate
remains a potential contractual liability. Costs of entering into a contract are treated as a contract asset and expensed to
the income statement, as performance obligations are fulfilled for goods subject to the minimum order quantity.
Finance expense
Finance expense comprises interest charges, including interest on leases under IFRS 16, 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.
Interest expense is 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. Accounting
policies for leases are detailed separately.
111
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
1 Accounting policies continued
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.
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. Transactions are categorised as non-
underlying if the resulting underlying profit and earnings information provides a more meaningful comparison 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 IFRS 9. 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 or cost of hedging reserve.
Impairment of goodwill
In both the current and prior period goodwill attributable to the Getting Personal cash generating unit (‘CGU’) has been
impaired (see note 11). The impairment is a non-cash charge to the income statement reflecting a reduction in future
performance expectations of Getting Personal and is presented as a non-underlying item in both years.
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Financial Statements
Refinanced debt issue cost amortisation – prior year
Debt issue costs totalling £0.3 million were expensed to the income statement in the prior year on completion of an
extended borrowing facility effective 31 October 2018. This expense relates to costs that were not yet amortised in relation
to the refinanced facility and was presented as a non-underlying item.
Dividends
Dividends are recognised as a liability in the period in which they are approved.
Financial instruments
Non-derivative financial assets
Non-derivative financial assets comprise trade and other receivables and cash and cash equivalents. The Group
classifies all its non-derivative financial assets as financial assets at amortised cost. Financial assets at amortised cost
are initially measured at fair value plus directly attributable transaction costs, except for trade and other receivables
without a significant financing component that are initially measured at transaction price. Subsequent to initial
recognition, non-derivative financial assets are carried at amortised cost using the effective interest method, subject to
impairment.
At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A
financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash
flows of the financial asset have occurred. The Group measures loss allowances at an amount equal to lifetime expected
credit loss.
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.
Non-derivative financial liabilities
Non-derivative financial liabilities comprise bank borrowings and trade and other payables. Non-derivative financial
liabilities are initially recognised at fair value, less any directly attributable transaction costs and subsequently stated at
amortised cost using the effective interest method. Accounting policies for lease liabilities are detailed separately.
Derivative financial instruments
Derivative financial instruments are mandatorily categorised as fair value through profit or loss (‘FVTPL’) except to the
extent they are part of a designated hedging relationship and classified as cash flow hedging 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 not designated as an effective hedging relationship 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. Gains and losses in respect of foreign exchange and interest rate derivative financial instruments that are not
part of an effective hedging relationship are recognised within cost of sales and net finance expense.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the
derivative is recognised in other comprehensive income (‘OCI') and accumulated in the hedging reserve. The effective
portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair
value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of
changes in the fair value of the derivative is recognised immediately in profit or loss.
The Group determines the existence of an economic relationship between the hedging instrument and hedged item based
on the currency, amount and timing of their respective cash flows, applying a hedge ratio of 1:1. The Group assesses
whether the derivative designated in each hedging relationship is expected to be and has been effective in offsetting
changes in cash flows of the hedged item using the hypothetical derivative method.
113
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
1 Accounting policies continued
Derivative financial instruments continued
Cash flow hedges continued
In these hedge relationships, the main sources of ineffectiveness are:
• changes in the timing of the hedged transactions,
• the effect of the counterparties’ and the Group’s own credit risk on the fair value of the forward foreign exchange
contracts, which is not reflected in the change in the fair value of the hedged cash flows attributable to the change in
exchange rates.
The Group designates only the change in fair value of the spot element of forward exchange contracts as the hedging
instrument in cash flow hedging relationships. The change in fair value of the forward element of forward exchange
contracts (‘forward points’) is separately accounted for as a cost of hedging and recognised in a costs of hedging reserve
within equity.
When foreign exchange hedged forecast transactions subsequently result in the recognition of inventory, the amount
accumulated in the hedging reserve and the cost of hedging reserve is included directly in the initial cost of the inventory.
For interest rate hedges, the Group designates only the change in the fair value of the intrinsic element of a derivative as
the hedging instrument in cash flow hedging relationships. The Group has elected to separately account for the time value
as a cost of hedging. Consequently, changes in time value are recognised in other comprehensive income and
accumulated in a cost of hedging reserve as a separate component within equity. Amounts accumulated in the hedging
reserve and the cost of hedging reserve are reclassified to profit or loss in the same period or periods during which the
hedged interest cash flows affect profit or loss.
For interest hedged forecast transactions, the amount accumulated in the hedging reserve and the cost of hedging reserve is
reclassified to profit or loss in the same period or periods during which the hedged interest cash flows affect profit or loss.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or
is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is
discontinued, the amount that has been accumulated in the hedging reserve remains in equity until it is included in the
cost of inventory on its initial recognition or, for interest cash flow hedges, it is reclassified to profit or loss in the same
period or periods as the hedged interest future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the
hedging reserve and the cost of hedging reserve are immediately reclassified to profit or loss.
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.
leasehold improvements
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives as follows:
• buildings
•
• plant and equipment
• fixtures and fittings
• motor vehicles
25 – 50 years
shorter of 5 years and lease term
3 – 10 years
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.
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Financial Statements
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 within the Group through the Card Factory
Restricted Share Awards Scheme (‘RSA’) (previously through the Long Term Incentive Plan) 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.
Leases
IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019) replaced IAS 17 and related
interpretations. The Group has adopted a fully-retrospective application of the standard.
Definition of a lease
Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for
a period of time in exchange for consideration. On transition to IFRS 16, the Group elected to apply the practical expedient
to grandfather the assessment of which transactions are leases. Contracts that were not identified as leases under IAS 17
and IFRC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts
entered into or changed on or after 1 February 2019.
The Group has recognised its entire store-lease portfolio, some warehousing locations, two office locations and motor
vehicles as lease contracts. Other contracts assessed, including distribution contracts and IT equipment, are deemed not to
be a lease within the definition of IFRS 16 or are subject to the election not to apply the requirements of IFRS 16 to short-term
or low-value leases. The Group recognises the lease payments associated with these leases as an expense on a straight-line
basis over the lease term.
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Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
1 Accounting policies continued
Leases continued
Definition of a lease continued
For property leases containing a non-lease component (for instance a lease inclusive of rates and service charge), the
Group has elected to apply the practical expedient not to separate the non-lease component from the lease component
and treat the whole contract as a lease. A small proportion of the store lease portfolio are subject to an element of
turnover-linked variable rents that are excluded from the definition of a lease under IFRS 16. The Group does not have
significant lessor contracts.
Accounting as a lessee
The Group recognises a right-of-use asset and a lease liability at the lease commencement date The right-of-use asset is
initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made
at or before the commencement date, plus any initial direct costs incurred, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the
end of the lease term. The right-of-use asset is periodically reduced by any impairment losses, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental
borrowing rate. Typically, the Group uses its incremental borrowing rate, at the date of lease commencement, as the discount rate.
The Group determines its incremental borrowing rate by reference to its own funding arrangements which are subject to
leverage margin ratchets, variable three month LIBOR interest rates and periodic refinancing, thereby ensuring they
remain a reasonable reflection of the Group’s current borrowing costs. The Group’s leases are predominantly in respect of
its store portfolio, which represent the majority of the Group’s revenue and therefore the Group’s borrowing costs, as at the
date of lease commencement, are deemed to be representative of the incremental borrowing costs for additions to
right-of-use assets. The Group does not believe there are significant differences between the risk margins that would apply
across its lease portfolio. The term and payment profile are reflected in the discount rate applied to each individual lease
by virtue of the variable interest-curve component of the incremental borrowing rate.
The assessment of lease term may include the application of judgement, particularly in respect of options to break often
included in the Group’s property leases. The Group assesses lease term as the non-cancellable period of the lease plus an
assessment of reasonably certain, continued tenancy in respect of tenant options to break. Where a lease expires without
the completion of a new lease, but the asset remains in use, the Group assumes (other than by exception) a new five-year
lease at expiring rates until a new lease is completed.
After initial recognition, the lease liability is measured at amortised cost using the effective interest method. It is
remeasured when there is a change in future lease payments arising from a change in an index, rate or contractual market
rent review or if the Group changes its assessment of whether it will exercise a break option. When the lease liability is
remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is
recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
2 Segmental reporting
The Group has two operating segments trading under the names Card Factory and Getting Personal. Card Factory retails
greeting cards, dressings and gifts, principally through an extensive UK store network, with a small number of stores in the
Republic of Ireland. 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
aggregated and presented as a single reportable segment.
Group revenue is almost entirely derived from retail customers. Average transaction value is low and products are
transferred at the point of sale. Group revenue is presented as a single category subject to substantially the same
economic factors that impact the nature, amount, timing and uncertainty of revenue and cash flows. Revenue from retail
partners and non-retail customers and revenue from outside the UK are circa 1% of Group revenue.
116
Strategic Report
Governance
Financial Statements
3 Non-underlying items
Cost of sales
Profit on foreign currency derivative financial instruments not designated as a hedge (note 24)
Operating expenses
Impairment of goodwill (note 11)
Net finance expense
Refinanced debt issue cost amortisation (note 7)
2020
£'m
0.5
2019
£'m
4.2
(2.5)
(11.9)
–
(0.3)
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
– owned fixed assets (note 12)
– right-of-use assets (note 13)
Amortisation expense (note 11)
Impairment of right-of-use assets (note 13)
Profit on disposal of fixed assets
Foreign exchange gain
Impairment of goodwill (note 11)
2020
£'m
121.8
9.6
38.9
1.4
0.4
(0.3)
(1.5)
2.5
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 were 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
Other services closely related to the audit
Total fees
2020
£'000
23
167
7
197
2019
restated
(note 30)
£'m
114.4
9.7
37.0
1.2
0.2
(0.4)
(5.7)
11.9
2019
£'000
23
104
7
134
117
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
5 Adjusted EBITDA
Adjusted earnings before interest, tax, depreciation and amortisation (‘Adjusted EBITDA') represents profit for the period
before net finance expense, taxation, depreciation and amortisation (‘EBITDA'), adjusted to remove the impact of adopting
IFRS16 Leases.
Note
Underlying
£'m
Operating profit
Depreciation, amortisation and impairment
4
EBITDA
IAS 17 income statement charges not recognised
under IFRS 16
Profit on lease disposal recognised under IFRS 16
Adjusted EBITDA
75.6
50.3
125.9
(44.6)
(0.1)
81.2
2020
Non-
underlying
(note 3)
£'m
(2.0)
2.5
0.5
–
–
0.5
2019
Non-
underlying
(note 3)
£'m
(7.7)
11.9
4.2
–
–
4.2
Total
£'m
76.9
60.0
136.9
(42.9)
(0.4)
93.6
Total
£'m
73.6
52.8
126.4
(44.6)
(0.1)
81.7
Underlying
£'m
84.6
48.1
132.7
(42.9)
(0.4)
89.4
6 Employee 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
2020
Number
429
9,213
9,642
2020
£'m
109.1
0.5
6.7
1.4
117.7
4.1
121.8
2019
Number
416
9,568
9,984
2019
£'m
103.1
0.6
6.3
0.8
110.8
3.6
114.4
Key management personnel
The key management personnel of the Group comprise the Card Factory plc Board of Directors, the Executive Board and
the Operating 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
2020
£'m
4.1
0.3
0.5
0.1
5.0
2019
£'m
3.4
0.4
0.4
0.1
4.3
Further details of Directors’ remuneration are disclosed in the Directors’ Remuneration Report on pages 66 to 83.
118
Strategic Report
Governance
Financial Statements
7 Finance expense
Finance expense
Interest on bank loans and overdrafts
Amortisation of loan issue costs
Lease interest
Loss on interest rate derivative contracts
2019
restated
(note 30)
£'m
3.5
0.5
4.5
0.2
8.7
2020
£'m
4.0
0.3
4.0
0.1
8.4
Amortisation of loan-issue costs include £nil (2019: £0.3 million) in relation to previous loan facilities, expensed to the
income statement on completion of an extended facility and presented as non-underlying, see note 3.
8 Taxation
Recognised in the income statement
Current tax expense
Current year
Adjustments in respect of prior periods
Deferred tax (credit)/charge
Origination and reversal of temporary differences
Effect of change in tax rate
Total income tax expense
2019
restated
(note 30)
£'m
15.7
(0.1)
15.6
(0.1)
–
(0.1)
15.5
2020
£'m
13.5
–
13.5
–
0.1
0.1
13.6
The effective tax rate of 20.8% (2019: 22.8%) is higher than the standard rate of corporation tax in the UK principally in
respect of non-deductible impairments in both years. 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 19.0% (2019: 19.0%)
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
2019
restated
(note 30)
£'m
68.2
13
2.6
(0.1)
–
15.5
2020
£'m
65.2
12.4
1.1
–
0.1
13.6
Total taxation recognised through the income statement, other comprehensive income and through equity are as follows:
Income statement
Other comprehensive income
Equity
Total tax
Current
£'m
13.5
–
–
13.5
2020
Deferred
£'m
0.1
0.4
(0.8)
(0.3)
Total
£'m
13.6
0.4
(0.8)
13.2
2019 restated (note 30)
Current
£'m
15.6
–
–
15.6
Deferred
£'m
(0.1)
1.4
–
1.3
Total
£'m
15.5
1.4
–
16.9
119
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
9 Dividends
The Board is not recommending a final dividend in respect of the financial year ended 31 January 2020 (2019: 6.4 pence
per share resulting in a total final dividend of £21.9 million).
Dividends paid in the year:
Pence per share
Special dividend for the year ended 31 January 2020
Interim dividend for the year ended 31 January 2020
Final dividend for the year ended 31 January 2019
Special dividend for the year ended 31 January 2019
Interim dividend for the year ended 31 January 2019
Final dividend for the year ended 31 January 2018
Total dividends paid to shareholders in the year
Dividend equivalents paid under long term incentive schemes
Total dividends per the cash flow statement
5.0p
2.9p
6.4p
5.0p
2.9p
6.4p
2020
£'m
17.1
9.9
21.9
–
–
–
48.9
–
48.9
2019
£'m
–
–
–
17.1
9.9
21.9
48.9
–
48.9
Dividend equivalents totalling £nil (2019: £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.
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
2020
(Number)
2019
restated
(note 30)
(Number)
341,575,284 341,527,355
–
–
341,575,284 341,527,355
£'m
51.6
2.1
53.7
pence
15.1
15.1
15.7
15.7
£'m
52.7
8.7
61.4
pence
15.4
15.4
18.0
18.0
120
11 Intangible assets
Cost
At 1 February 2019
Additions
At 31 January 2020
Amortisation/impairment
At 1 February 2019
Amortisation in the period
Impairment in the period
At 31 January 2020
Net book value
At 31 January 2020
At 31 January 2019
Cost
At 1 February 2018
Additions
At 31 January 2019
Amortisation/impairment
At 1 February 2018
Amortisation in the period
Impairment in the period
At 31 January 2019
Net book value
At 31 January 2019
At 31 January 2018
Strategic Report
Governance
Financial Statements
Goodwill
£'m
Software
£'m
Total
£'m
328.2
–
328.2
11.9
–
2.5
14.4
313.8
316.3
Goodwill
£'m
328.2
–
328.2
–
–
11.9
11.9
316.3
328.2
10.6
3.5
14.1
6.7
1.4
–
8.1
6.0
3.9
Software
£'m
8.9
1.7
10.6
5.5
1.2
–
6.7
3.9
3.4
2020
£’m
313.8
–
338.8
3.5
342.3
18.6
1.4
2.5
22.5
319.8
320.2
Total
£'m
337.1
1.7
338.8
5.5
1.2
11.9
18.6
320.2
331.6
2019
£’m
313.8
2.5
Impairment testing
For the purposes of impairment testing, goodwill has been allocated to the Group’s CGU’s as follows:
Card Factory
Getting Personal
The recoverable amounts has been determined based on value-in-use calculations. Value-in-use calculations are based
on five year management forecasts and operating cash flows with a 2% (2019: 2%) terminal growth rate applied
thereafter, representing management’s estimate of the long-term growth rate of the sector. Forecasts do not include new
or additional revenue streams such as new stores, to reflect the value-in-use of the existing business.
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 operational costs. The values assigned to each of these assumptions
were determined based on historical performance of the CGU and expected future trends.
The forecast cash flows are discounted at a pre-tax discount rate of 12.0% (2019: 10.5%) for Card Factory.
121
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
11 Intangible assets continued
Impairment testing continued
Card Factory
No impairment loss was identified in respect of the Card Factory CGU (2019: £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. The
Board view the Covid-19 pandemic as a non-adjusting post balance sheet event (see note 31). Whilst the impact of Covid-19
remains uncertain, the Board do not anticipate that Covid-19 would have resulted in an impairment of the Card Factory CGU.
Getting Personal
Following continued deterioration in performance, a reduction in management expectations of future performance for the
Getting Personal CGU gave rise to a £2.5 million impairment (2019: £11.9 million), representing a full impairment of the
CGU. Despite the improvement in trading of the Getting Personal online business during the current lock-down, a strategic
review has resulted in the decision to integrate the business as a separate brand on the new Card Factory platform.
Operating the business in this way allows both brands to be leveraged against a single, online cost base.
12 Property, plant and equipment
Cost
At 1 February 2019
Additions
Disposals
At 31 January 2020
Depreciation
At 1 February 2019
Depreciation in the period
Depreciation on disposals
At 31 January 2020
Net book value
At 31 January 2020
At 31 January 2019
Cost
At 1 February 2018
Additions
Disposals
At 31 January 2019
Depreciation
At 1 February 2018
Provided in the period
Depreciation on disposals
At 31 January 2019
Net book value
At 31 January 2019
At 31 January 2018
122
Freehold
property
£'m
Leasehold
improvements
£'m
Plant,
equipment,
fixtures &
vehicles
£'m
17.5
–
–
17.5
3.1
0.4
–
3.5
14.0
14.4
38.1
2.6
(0.4)
40.3
29.3
3.4
(0.3)
32.4
7.9
8.8
59.2
8.4
(1.2)
66.4
42.0
5.8
(1.1)
46.7
19.7
17.2
Freehold
property
£'m
Leasehold
improvements
£'m
Plant,
equipment,
fixtures &
vehicles
£'m
17.4
0.1
–
17.5
2.7
0.4
–
3.1
14.4
14.7
35.8
2.9
(0.6)
38.1
26.4
3.4
(0.5)
29.3
8.8
9.4
52.6
7.4
(0.8)
59.2
36.7
5.9
(0.6)
42.0
17.2
15.9
Total
£'m
114.8
11.0
(1.6)
124.2
74.4
9.6
(1.4)
82.6
41.6
40.4
Total
£'m
105.8
10.4
(1.4)
114.8
65.8
9.7
(1.1)
74.4
40.4
40.0
Strategic Report
Governance
Financial Statements
13 Leases
The Group has lease contracts, within the definition of IFRS 16 Leases, in relation to its entire store lease portfolio, some
warehousing locations, two office locations and motor vehicles. Other contracts, including distribution contracts and IT
equipment, are deemed not to be a lease within the definition of IFRS 16 or are subject to the election not to apply the
requirements of IFRS 16 to short-term or low-value leases. Accounting policies for leases are detailed in note 1. Assets,
liabilities and the income statement expense in relation to leases are detailed below. All amounts in relation to IFRS 16
Leases were recognised on transition to the new standard, therefore all comparative figures are restated. See note 30 for
details of the transition to IFRS 16 Leases.
Right-of-use assets
Cost
At 1 February 2019 (restated)
Additions
Disposals
At 31 January 2020
Depreciation and impairment
At 1 February 2019 (restated)
Depreciation in the period
Impairment in the period
Depreciation on disposals
Impairment on disposals
At 31 January 2020
Net book value
At 31 January 2020
At 31 January 2019 (restated)
Restated
Cost
At 1 February 2018
Additions
Disposals
At 31 January 2019
Depreciation and impairment
At 1 February 2018
Depreciation in the period
Impairment in the period
Depreciation on disposals
Impairment on disposals
At 31 January 2019
Net book value
At 31 January 2019
At 31 January 2018
Buildings
£'m
311.6
35.9
(23)
324.5
176.1
38.6
0.4
(22.3)
(0.1)
192.7
131.8
135.5
Buildings
£'m
291.5
41.9
(21.8)
311.6
159.2
36.7
0.2
(19.8)
(0.2)
176.1
135.5
132.3
Motor
vehicles
£'m
1.0
0.5
(0.2)
1.3
0.6
0.3
0.0
(0.2)
0.0
0.7
0.6
0.4
Motor
vehicles
£'m
0.9
0.3
(0.2)
1.0
0.5
0.3
0.0
(0.2)
0.0
0.6
0.4
0.4
Total
£'m
312.6
36.4
(23.2)
325.8
176.7
38.9
0.4
(22.5)
(0.1)
193.4
132.4
135.9
Total
£'m
292.4
42.2
(22.0)
312.6
159.7
37.0
0.2
(20.0)
(0.2)
176.7
135.9
132.7
Disposals and depreciation on disposals include fully depreciated right-of-use assets in respect of leases that expired but
the asset remained in use whilst a lease-renewal was negotiated.
123
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
13 Leases continued
Lease liabilities
Current lease liabilities
Non-current lease liabilities
Total lease liabilities (note 22)
Lease expense:
Total lease related expenses
Depreciation expense on right-of-use assets
Impairment of right-of-use assets (note 13)
Profit on disposal of fixed assets
Lease interest
Expense relating to short-term and low-value leases*
Expense relating to variable lease payments**
Total lease related income statement expense
2020
£'m
(40.7)
(105.2)
(145.9)
2020
£'m
38.9
0.4
(0.1)
4.0
0.5
(0.3)
43.4
2019
£'m
(38.9)
(112.3)
(151.2)
2019
£'m
37.0
0.2
(0.4)
4.5
0.7
0.4
42.4
* Contracts subject to the election not to apply the requirements of IFRS 16 to short-term or low-value leases.
** A small proportion of the store lease portfolio is subject to an element of turnover-linked variable rents that is excluded from the definition of a lease under IFRS 16.
14 Deferred tax assets and liabilities
Movement in deferred tax during the year:
At 31 January 18 (as previously reported – note 29)
Adjustment (note 30)
At 1 February 2018 (restated)
Credit/(charge) to income statement
Charge to other comprehensive income
At 31 January 2019 (restated)
(Charge)/credit to income statement
Charge to other comprehensive income
Credit to equity
At 31 January 2020
Derivative
financial
instruments
and hedge
accounting
£'m
IFRS 16
Leases
restated
(note 30)
£'m
Other
timing
differences
£'m
Fixed
assets
£'m
Share-based
payments
£'m
0.2
–
0.2
0.2
–
0.4
(0.2)
–
–
0.2
0.1
–
0.1
–
–
0.1
–
–
–
0.1
1.1
–
1.1
–
(1.4)
(0.3)
–
(0.4)
0.8
0.1
–
1.9
1.9
(0.3)
–
1.6
(0.2)
–
–
1.4
0.4
–
0.4
0.2
–
0.6
0.3
–
–
0.9
Total
£'m
1.8
1.9
3.7
0.1
(1.4)
2.4
(0.1)
(0.4)
0.8
2.7
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
124
2019
restated
(note 30)
£'m
2.4
–
2.4
2020
£'m
2.7
–
2.7
Strategic Report
Governance
Financial Statements
A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on
6 September 2016, and the UK deferred tax asset as at 31 January 2020 has been calculated based on this rate. In the
11 March 2020 Budget it was announced that the UK tax rate will remain at the current 19% and not reduce to 17% from
1 April 2020. This will have a consequential effect on the Group’s future tax charge. If this rate change had been
substantively enacted at 31 January 2020 the deferred tax asset would have increased by £0.3 million.
15 Inventories
Finished goods
Work in progress
2020
£'m
53.9
0.5
54.4
2019
£'m
67.9
0.7
68.6
The cost of inventories recognised as an expense and charged to cost of sales in the year was £137.3 million (2019: £127.8 million).
16 Trade and other receivables
Current
Trade receivables
Other receivables
Prepaid property costs
Other prepayments and accrued income
Contract assets
2019
restated
(note 30)
£'m
0.3
0.6
4.6
3.1
–
8.6
2020
£'m
1.6
1.0
4.4
3.5
0.3
10.8
Group revenue is principally attributable to the retail sale of cards, dressings and gifts. Revenue is subject to a single
performance obligation fulfilled by receipt of goods at the point of payment with minimal returns and refunds. Trade
receivables are attributable to retail partners and non-retail sales which currently represent circa 1% of Group revenue.
No significant impairment loss has been recorded against trade receivables.
17 Cash and cash equivalents
Cash at bank and in hand
Unsecured bank overdraft (note 18)
Net cash and cash equivalents
The Group’s cash and cash equivalents are denominated in the following currencies:
Sterling
Euro
US dollar
2020
£'m
5.5
(3.5)
2.0
2020
£'m
(9.3)
0.5
10.8
2.0
2019
£'m
3.8
–
3.8
2019
£'m
2.8
0.3
0.7
3.8
125
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
18 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 2020
Unsecured bank loan
Accrued interest
Debt-issue costs
31 January 2019
Unsecured bank loan
Accrued interest
Debt-issue costs
Liability
£’m
145.0
0.1
(1.0)
144.1
145.0
0.1
(1.3)
143.8
2020
£'m
0.1
3.5
3.6
2019
£'m
0.1
–
0.1
144.0
143.7
Interest rate
%
Interest margin
ratchet range
% Repayment terms
1.65 + LIBOR
1.00 – 2.50
£200m RCF
The facility terminates on 31 October 2023
1.40 + LIBOR
1.00 – 2.50
£200m RCF
The facility terminates on 31 October 2023
The Group borrowing facility at 31 January 2020 consisted of a £200 million revolving credit facility (‘RCF’) terminating
31 October 2023 with an additional £100 million accordion. Borrowings under the facility attract interest at LIBOR plus a
margin in the range 1.0% to 2.5%, subject to a leverage ratchet (LIBOR plus 1.65% at 31 January 2020). The facilities are
subject to financial covenants typical to an arrangement of this nature.
Covid-19
As announced on 6 May 2020, the Group has entered into an agreement with our banks to enable us to utilise the full
Revolving Credit Facility (‘RCF’) of £200m and utilise the secured funding from the Bank of England Covid Corporate
Financing Facility to ensure the business has sufficient liquidity in this uncertain period, if required. In order to do this, the
Group has agreed three main covenant tests around total net debt, cash burn and last twelve months’ EBITDA until June
2021, after which it is envisaged that the business will have a phased return to existing covenant tests of EBITDA to
Leverage and EBITDA to interest cover.
Contractual cash flows of financial liabilities are disclosed in note 23.
19 Trade and other payables
Current
Trade payables
Other taxation and social security
Contract liabilities
Property accruals
Other accruals and deferred income
The Group has net US Dollar denominated trade and other payables of £3.1 million (2019: £8.4 million).
126
2019
restated
(note 30)
£'m
19.4
19.9
–
3.5
15.4
58.2
2020
£'m
15.0
3.7
0.6
4.4
21.3
45.0
Strategic Report
Governance
Financial Statements
20 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
21 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
Impairment of right-of-use assets
Goodwill impairment
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 in receivables
Decrease/(increase) in inventories
(Decrease)/increase in payables
Cash inflow from operating activities
22 Analysis of net debt
Unsecured bank loans and accrued interest (note 18)
Lease liabilities
Total debt
Cash and cash equivalents (note 17)
Net debt
Debt costs capitalised
Lease liabilities
Adjusted net debt
2020
(Number)
2019
(Number)
341,549,306
77,090
341,459,281
90,025
341,626,396 341,549,306
£’m
3.4
–
3.4
£’m
202.2
–
202.2
2020
£'m
65.2
8.4
73.6
49.9
0.4
2.5
(0.3)
0.2
0.5
126.8
(2.9)
14.2
(13.3)
124.8
£’m
3.4
–
3.4
£’m
202.2
–
202.2
2019
restated
(note 30)
£'m
68.2
8.7
76.9
47.9
0.2
11.9
(0.3)
–
0.6
137.2
0.1
(16.5)
21.3
142.1
At
1 February 2019
£'m
(143.8)
(151.2)
(295.0)
3.8
(291.2)
(1.3)
151.2
(141.3)
Cash
flow
£'m
–
41.0
41.0
(1.8)
39.2
–
(41.0)
(1.8)
Non-cash
changes
£'m
At
31 January 2020
£'m
(0.3)
(35.7)
(36.0)
–
(36.0)
0.3
35.7
–
(144.1)
(145.9)
(290.0)
2.0
(288.0)
(1.0)
145.9
(143.1)
127
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
22 Analysis of net debt continued
Unsecured bank loans and accrued interest (note 18)
Lease liabilities
Total debt
Cash and cash equivalents (note 17)
Net debt
Add: debt costs capitalised
Lease liabilities
Adjusted net debt
At
1 February 2018
£'m
Cash flow
£'m
Non-cash
changes
£'m
At
31 January 2019
£'m
(149.6)
(149.6)
(299.2)
(11.3)
(310.5)
(0.4)
149.6
(161.3)
6.4
38.5
44.9
15.1
60.0
(1.4)
(38.5)
20.1
(0.6)
(40.1)
(40.7)
–
(40.7)
0.5
40.1
(0.1)
(143.8)
(151.2)
(295.0)
3.8
(291.2)
(1.3)
151.2
(141.3)
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
30 to 34 and in the Corporate Governance Report on pages 55 and 56.
Liquidity risk
With the exception of the current trading under Covid-19, the Group generates significant operational cash inflows and at
the balance sheet date could draw down on immediate request against a £200 million revolving credit facility. At the
balance sheet date, the Group had drawn down £145.0 million of this facility and had Adjusted net debt (note 22) of
£143.1 million (2019: £141.3 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 2020, the Group had adequate headroom against all of its financial covenants. Further details on Group
borrowings and additional funding arrangements in response to Covid-19 are set out in note 18 of the financial statements.
The table below analyses the contractual cash flows of the Group’s non-derivative financial liabilities as at the balance
sheet date. The amounts disclosed in the tables are the contractual undiscounted cash flows, including contractual
interest except in respect of bank borrowings that have no fixed repayment profile.
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
0.1
3.5
44.0
45.0
92.6
0.1
42.7
44.5
87.3
–
–
37.0
–
37.0
–
37.1
–
37.1
145.0
–
59.3
–
204.3
145.0
61.7
–
206.7
–
–
14.2
–
14.2
–
20.8
–
20.8
Total
£m
145.1
3.5
154.5
45.0
348.1
145.1
162.3
44.5
351.9
At 31 January 2020
Unsecured bank loans
Unsecured bank overdraft
Lease liabilities
Trade and other payables
At 31 January 2019 restated (note 30)
Unsecured bank loans
Lease liabilities
Trade and other payables
128
Strategic Report
Governance
Financial Statements
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 2020
Foreign exchange contracts
– Inflow
– Outflow
Interest rate contracts
– Inflow
– Outflow
At 31 January 2019
Foreign exchange contracts
– Inflow
– Outflow
Interest rate contracts
– Inflow
– Outflow
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
61.7
(60.8)
–
(0.2)
67.1
(63.9)
–
–
43.3
(42.8)
–
(0.5)
47.3
(46.4)
0.1
(0.1)
–
–
–
(0.2)
16.0
(15.3)
–
(0.1)
–
–
–
–
–
–
–
–
Total
£m
105.0
(103.6)
–
(0.9)
130.4
(125.6)
0.1
(0.2)
Foreign currency risk
A significant proportion of the Group’s retail products are procured from overseas suppliers denominated in US Dollars.
Current Group policy requires forward cover 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 80%
forward-cover for the period 12 to 24 months and up to 40% for the period 24 to 36 months. The policy permits a
proportion of each year’s US Dollar requirement to be covered by structured options and similar instruments. In response
to the Covid-19 pandemic the Group has greatly reduced inventory purchases and will swap forward, or consider other
amendments to trades, in order to defer currency contract maturities.
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
2020
Impact
on profit
after tax
£'m
(2.1)
2.2
Impact on cash
flow hedging
reserve
£'m
(5.5)
6.4
2019
Impact
on profit
after tax
£'m
Impact on cash
flow hedging
reserve
£'m
(2.1)
2.5
(5.0)
5.9
* Amounts presented as impacting the cash flow hedging reserve would impact profit after tax to the extent they relate to hedges of cashflows that subsequently do
not occur. Please see note 32 for details of the Covid-19 non-adjusting post-balance-sheet event.
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, up to 50%
for the period 24 to 36 months and up to 25% for periods greater than 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.
50 basis point interest rate increase
50 basis point interest rate decrease
2020
2019
Impact
on profit
after tax
£'m
(0.2)
0.2
Impact on cash
flow hedging
reserve
£'m
1.0
(1.0)
Impact
on profit
after tax
£'m
Impact on cash
flow hedging
reserve
£'m
(0.4)
0.4
0.8
(0.7)
129
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
23 Financial risk management continued
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. Sterling cash balances are maintained at near zero or overdrawn within the facility 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.
To limit this exposure, goods from overseas suppliers are not paid until after shipment, except for a limited number of
deposit payments.
Credit risk in respect of trade receivables on revenues from retail partners and non-retail customers is not significant to
the Group. Revenues from retail partners and non-retail customers represent circa 1% of Group revenue and trade
receivables at 31 January 2020 were £1.6m (2019: £0.3m). The Group considers expected credit losses as not material and
no impairment allowances have been recognised in respect of credit risk.
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 22. Details on Group borrowings and additional funding arrangements in response to Covid-19 are set out in note 18
of the financial statements.
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. As announced on 6 May 2020, Card Factory received confirmation that it can access funding under the
Covid Corporate Financing Facility (‘CCFF'). HM Treasury and the Bank of England have confirmed that the CCFF will be
operated “for at least 12 months and for as long as steps are needed to relieve cash flow pressures on firms that make a
material contribution to the UK economy.”
The Board will consider various options to ensure the key stakeholders of the business are protected as much as possible in
these uncertain times and will look to provide a further update as the longer-term impact of Covid-19 becomes clearer. In
order to help protect our balance sheet at this challenging time, the Board decided that a final dividend will not be paid in
respect of the year ended 31 January 2020. Our dividend policy remains unchanged over the medium term, and we will
regularly review the most appropriate actions to take in the shorter term; however, currently we do not expect to pay any
dividends in relation to FY21.
130
Strategic Report
Governance
Financial Statements
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.
Derivative financial instruments
The balance sheet date fair value of derivative financial instruments is as follows:
Derivative assets
Non-current
Foreign exchange contracts
Current
Foreign exchange contracts
Derivative liabilities
Current
Interest rate contracts
Foreign exchange contracts
Non-current
Interest rate contracts
Foreign exchange contracts
Net derivative financial instruments
Interest rate contracts
Foreign exchange contracts
2020
£'m
0.5
0.5
1.1
(0.4)
(0.6)
(1.0)
(0.5)
(0.8)
(1.3)
(0.9)
0.2
(0.7)
2019
£'m
0.1
0.1
2.3
(0.1)
(0.1)
(0.2)
(0.1)
(1.0)
(1.1)
(0.2)
1.3
1.1
Interest rate contracts
At 31 January 2020 the Group held fixed for floating interest rate swaps to hedge a portion of the variable interest rate risk
on bank borrowings. Notional principal amounts for interest hedges totalled £120.0 million for the period to October 2020,
reducing to £80.0 million for the period to October 2021, reducing to £60.0 million for the period to October 2022, then
reducing to £10 million for the period to October 2023 (2019: £90.0 million for the period to October 2019, reducing to
£70.0 million for the period to October 2020 then reducing to £50.0 million for the period to October 2021). Unhedged fair
value movements of £0.1 million (2019: £0.2 million) were expensed to the income statement within financial expense.
Foreign exchange contracts
At 31 January 2020 the Group held a portfolio of foreign currency derivative contracts with notional principal amounts
totalling £103.3 million (2019: £130.4 million) to mitigate the exchange risk on future US Dollar denominated trade
purchases and £1.7m to mitigate the exchange risk on Euro denominated income. Foreign currency derivative contracts
with a notional value of £23.0 million representing a fair value liability of near zero (2019: £37.4 million representing a fair
value asset of £0.5 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 £0.5 million that do not form part of an effective hedging relationship have been
credited to the income statement (2019: £4.2 million charge) as a non-underlying item within cost of sales (see note 3).
131
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
24 Financial instruments continued
Classification of financial instruments
The table below shows the classification of financial assets and liabilities at the balance sheet date. Fair value disclosures
in respect of lease liabilities are not required.
At 31 January 2020
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
At 31 January 2019 restated (note 30)
Financial assets measured at fair value
Derivative financial instruments
Financial assets not measured at fair value
Trade and other receivables
Cash and cash equivalents
Financial liabilities measured at fair value
Derivative financial instruments
Financial liabilities not measured at fair value
Unsecured bank loans
Trade and other payables
Mandatorily
at FVTPL
£'m
Cash flow
hedging
instruments
£'m
Financial
assets at
amortised
cost
£'m
Other
financial
liabilities
£'m
0.5
–
–
1.1
–
–
(0.5)
(1.8)
–
–
–
–
–
–
–
(0.7)
£'m
£'m
–
–
–
2.4
–
–
(0.6)
(0.7)
–
–
(0.6)
–
–
1.7
–
2.6
5.5
–
–
–
–
8.1
£'m
–
0.9
3.8
–
–
–
4.7
–
–
–
–
(144.1)
(3.5)
(45.0)
(192.6)
£'m
–
–
–
–
(143.8)
(44.5)
(188.3)
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. Derivatives not designated as a hedging relationship are mandatorily classified at FVTPL.
25 Equity settled share-based payment arrangements
Card Factory Restricted Share Awards and Long Term Incentive Plan
The Company grants restricted share awards (‘RSA’s) to the Executive Directors, members of the senior management team
and senior employees within the Group under the terms of the Group’s Long Term Incentive (‘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. Grants awarded in the
year to Executive Directors and senior management vest in stages over three, four and five years and vested shares may
not be sold (other than to pay taxes due on vesting) until the end of the five year period. Grants awarded in the year to
senior employees are subject to a three-year vesting period. All restricted share awards are subject to a performance
underpin through which the Remuneration Committee can exercise discretion to reduce the number of awards that will
vest based on certain defined criteria.
Grants awarded prior to 31 January 2018 under the LTIP were subject to a three-year vesting period with performance
conditions and a two-year holding period for awards in favour of senior management. Further details on Executive
Director share awards are provided in the Remuneration Report on pages 66 to 83.
132
Strategic Report
Governance
Financial Statements
Card Factory SAYE Scheme (‘SAYE’)
The SAYE scheme is open to all employees (in years prior to FY19 length of service eligibility applied). 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.
Reconciliation of outstanding awards
RSA/LTIP
SAYE
Outstanding at 1 February 2018
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 January 2019
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 January 2020
Number of
options
1,872,053
626,864
(90,025)
(672,688)
1,736,204
860,688
(77,090)
(598,546)
Weighted-
average
exercise
price
Weighted-
average
exercise
price
Number of
options
£0.00 862,232
779,332
£0.00
£0.00
–
£0.00 (413,812)
£0.00 1,227,752
518,324
£0.00
£0.00
–
£0.00 (708,810)
£2.84
£1.61
–
£2.57
£2.15
£1.54
–
£2.26
£1.80
1,921,256
£0.00 1,037,266
76,993 options exercisable at £2.68 under the SAYE scheme at 31 January 2020 lapsed on 1 February 2020.
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.
2020
RSA/LTIP
2019
SAYE
RSA/LTIP
SAYE
Fair value at grant date
Share price at grant date*
Exercise price*
Expected volatility
Expected term (years)
Expected dividend yield
Risk free interest rate
£0.31
£2.01
£1.61
30%
3
8.5%
0.73%-0.80% 0.35% 0.79%-1% 0.76%
£1.99
£1.99
£0.00
30%
3 to 5
N/A**
£1.88
£1.88
£0.00
30%
3 to 5
N/A*
£0.23
£1.75
£1.54
30%
3
8.2%
* The exercise price is set at a 20% discount to an average market price determined in accordance with scheme rules. The grant date share price represents the
closing price on the grant date.
** RSA/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:
All amounts exclude national insurance costs
RSA or LTIP
SAYE
Total share based payment expense
26 Capital commitments
There were capital commitments of £0.6 million at 31 January 2020 (2019: £1.2 million).
27 Contingent liabilities
There were no material contingent liabilities at 31 January 2020 (2019: £nil).
2020
£'m
0.4
0.1
0.5
2019
£'m
0.5
0.1
0.6
133
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
28 Related party transactions
The Group has taken advantage of the exemptions contained within IAS 24 ‘Related Party Disclosures’ from the
requirement to disclose transactions between Group companies as these have been eliminated on consolidation.
Transactions with key management personnel
The key management personnel of the Group comprise the Card Factory plc Board of Directors, the Executive Board and
the Operating 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
66 to 83. Directors of the Company and their immediate families control 0.074% of the ordinary shares of the Company.
There were no other related party transactions in the year.
29 Transition to IFRS 9 in the prior period
IFRS 9 Financial Instruments became effective for periods beginning on or after 1 January 2018 and was previously adopted
by the Group in the financial statements for the year ended 31 January 2019 within the 2019 Annual Report.
The opening values as at 31 January 2018 that are presented in the statement of changes in equity and in note 30 to these
financial statements are the values previously reported after transition to IFRS 9, including the related opening balance
adjustments (see note 30), and not those originally presented in the 2018 Annual Report under IAS 39.
Full details of the transition to IFRS 9 were disclosed in note 29 to the financial statements for the year ended 31 January
2019 within the 2019 Annual Report.
30 Transition to IFRS 16
IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019) replaces IAS 17 and related
interpretations and requires entities to apply a single lessee accounting model, with lessees recognising right-of-use-assets
and lease liabilities for all applicable leases. Previously the Group classified leases as operating or finance leases based on
an assessment of whether the lease transferred substantially all of the risk and rewards of ownership. Under IFRS 16, the
Group recognises right-of-use assets and lease liabilities for almost all leases previously recognised as an operating lease.
In addition, the nature of expenses related to those leases has changed as IFRS 16 replaces the straight-line operating
lease expense with a depreciation charge for the right-of-use assets and an interest expense relating to lease liabilities.
The Group has adopted IFRS 16 Leases on a fully retrospective basis and has therefore restated the previously reported
consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial
position and consolidated cash flow statement for the year ended 31 January 2019 and the consolidated statement of
financial position as at 31 January 2018.
Definition of a lease
Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for
a period of time in exchange for consideration. On transition to IFRS 16, the Group elected to apply the practical expedient
to grandfather the assessment of which transactions are leases. Contracts that were not identified as leases under IAS 17
and IFRC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts
entered into or changed on or after 1 February 2019.
The Group has assessed its entire store lease portfolio, some warehousing locations, two office locations and motor vehicles
as lease contracts. Other contracts assessed, including distribution contracts and IT equipment, are deemed not to be a
lease within the definition of IFRS 16 or are subject to the election not to apply the requirements of IFRS 16 to short-term or
low-value leases. The Group recognises the lease payments associated with these leases as an expense on a straight-line
basis over the lease term.
For property leases containing a non-lease component (for instance a lease inclusive of rates and service charge), the
Group has elected to apply the practical expedient not to separate the non-lease component from the lease component
and treat the whole contract as a lease. A small proportion of the store lease portfolio are subject to an element of
turnover linked variable rents that are excluded from the definition of a lease under IFRS 16. The Group does not have
significant lessor contracts.
134
Strategic Report
Governance
Financial Statements
Accounting as a lessee
The Group recognises a right-of-use asset and a lease liability at the lease commencement date The right-of-use asset is
initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made
at or before the commencement date, plus any initial direct costs incurred, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the
end of the lease term. The right-of-use asset is periodically reduced by any impairment losses, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s
incremental borrowing rate. Typically, the Group uses its incremental borrowing rate, at the date of lease commencement,
as the discount rate.
The Group determines its incremental borrowing rate by reference to its own funding arrangements which are subject to
leverage margin ratchets, variable three month LIBOR interest rates and periodic refinancing, thereby ensuring they
remain a reasonable reflection of the Group’s current borrowing costs. The Group’s leases are predominantly in respect of
its store portfolio, which represent the majority of the Group’s revenue and therefore the Group’s borrowing costs, as at the
date of lease commencement, are deemed to be representative of the incremental borrowing costs for additions to
right-of-use assets. The Group does not believe there are significant differences between the risk margins that would apply
across its lease portfolio. The term and payment profile are reflected in the discount rate applied to each individual lease
by virtue of the variable interest-curve component of the incremental borrowing rate.
The assessment of lease term may include the application of judgement, particularly in respect of options to break often
included in the Group’s property leases. The Group assesses lease term as the non-cancellable period of the lease plus an
assessment of reasonably-certain continued tenancy in respect of tenant options to break. Where a lease expires without
the completion of a new lease, but the asset remains in use, the Group assumes (other than by exception) a new five year
lease at expiring rates until a new lease is completed.
After initial recognition, the lease liability is measured at amortised cost using the effective interest method. It is
remeasured when there is a change in future lease payments arising from a change in an index, rate or contractual
market-rent review or if the Group changes its assessment of whether it will exercise a break option. When the lease
liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or
is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
135
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
30 Transition to IFRS 16 continued
Accounting as a lessee continued
The impact on the financial statements of adopting IFRS 16 is shown in the tables below.
(i) The impact on previously reported consolidated statements of financial position is shown below.
31 January 2019
31 January 2018
Previously
reported
£'m
IFRS 16
£'m
Restated
£'m
Previously
reported
(note 29)
£'m
IFRS 9
opening
balance
adjustments
£’m
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Other receivables
Derivative financial instruments
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
320.2
40.4
–
0.8
0.7
0.1
362.2
68.6
17.8
2.3
3.8
92.5
–
–
135.9
1.6
(0.7)
–
136.8
–
(9.2)
–
–
(9.2)
320.2
40.4
135.9
2.4
–
0.1
499.0
68.6
8.6
2.3
3.8
83.3
331.6
40.0
–
1.9
0.8
0.2
374.5
51.5
16.6
0.3
3.6
72.0
Total assets
454.7
127.6
582.3
446.5
Current liabilities
Borrowings
Lease liabilities
Trade and other payables
Tax payable
Derivative financial instruments
Non-current liabilities
Borrowings
Lease liabilities
Trade and other payables
Derivative financial instruments
Total liabilities
Net assets
Equity
Share capital
Share premium
Hedging reserve
Cost of hedging reserve
Reverse acquisition reserve
Merger reserve
Retained earnings
Equity attributable to equity holders of the parent
136
(0.1)
–
(64.3)
(7.7)
(0.2)
(72.3)
(143.7)
–
(9.8)
(1.1)
–
(38.9)
6.1
–
–
(32.8)
–
(112.3)
9.8
–
(154.6)
(102.5)
(0.1)
(38.9)
(58.2)
(7.7)
(0.2)
(105.1)
(143.7)
(112.3)
–
(1.1)
(257.1)
(226.9)
(135.3)
(362.2)
227.8
(7.7)
220.1
3.4
202.2
0.9
0.4
(0.5)
2.7
18.7
227.8
–
–
–
–
–
–
(7.7)
(7.7)
3.4
202.2
0.9
0.4
(0.5)
2.7
11.0
220.1
(14.9)
–
(37.7)
(5.5)
(7.0)
(65.1)
(149.6)
–
(10.0)
(3.4)
(163.0)
(228.1)
218.4
3.4
202.2
(5.0)
(0.3)
(0.5)
2.7
15.9
218.4
IFRS 16
£'m
Restated
£'m
–
–
132.7
1.9
(0.8)
–
331.6
40.0
132.7
3.7
–
0.2
133.8
508.2
–
(8.3)
–
–
(8.3)
52.1
8.3
0.3
3.6
64.3
125.5
572.5
–
(37.1)
5.1
–
–
(32.0)
–
(112.5)
10.0
–
(14.9)
(37.1)
(32.6)
(5.5)
(7.0)
(97.1)
(149.6)
(112.5)
–
(3.4)
(102.5)
(265.5)
(134.5)
(362.6)
–
–
–
(0.1)
–
–
(0.1)
0.6
–
–
–
0.6
0.5
–
–
–
–
–
–
–
–
–
–
–
–
0.5
(9.0)
209.9
–
–
0.6
0.2
–
–
(0.3)
0.5
–
–
–
–
–
–
(9.0)
(9.0)
3.4
202.2
(4.4)
(0.1)
(0.5)
2.7
6.6
209.9
Strategic Report
Governance
Financial Statements
(ii) The impact on previously reported and the current period consolidated income statement is shown below.
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Finance expense
Profit before tax
Taxation
Profit for the period
Non-underlying profit
Underlying profit
Profit for the period
Earnings per share
– Basic
– Diluted
Underlying earnings per share
– Basic
– Diluted
Year ended 31 January 2020
Year ended 31 January 2019
Excluding
IFRS 16
£'m
451.5
(333.2)
118.3
(50.1)
68.2
(4.4)
63.8
(13.3)
50.5
(2.1)
52.6
50.5
IFRS 16
£'m
–
43.9
43.9
(38.5)
5.4
(4.0)
1.4
(0.3)
1.1
–
1.1
1.1
Reported
£'m
451.5
(289.3)
162.2
(88.6)
73.6
(8.4)
65.2
(13.6)
51.6
(2.1)
53.7
51.6
Previously
stated
£'m
436.0
(308.3)
127.7
(56.9)
70.8
(4.2)
66.6
(15.2)
51.4
(8.7)
60.1
51.4
IFRS 16
£'m
–
42.1
42.1
(36.0)
6.1
(4.5)
1.6
(0.3)
1.3
–
1.3
1.3
Restated
£'m
436.0
(266.2)
169.8
(92.9)
76.9
(8.7)
68.2
(15.5)
52.7
(8.7)
61.4
52.7
pence
pence
pence
pence
pence
pence
14.8
14.8
15.4
15.4
0.3
0.3
0.3
0.3
15.1
15.1
15.7
15.7
15.0
15.0
17.6
17.6
0.4
0.4
0.4
0.4
15.4
15.4
18.0
18.0
(iii) The adjustments to profit before tax are shown below.
Profit before tax (reported)
Add back IFRS 16 adjustments:
Depreciation of right-of-use assets
Impairment of leased assets
Profit on disposal of leases
Lease interest
Less amounts no longer charged to the income statement under IFRS 16
Cost of sales
Operating expenses
Adjusted profit before tax for the period (excluding IFRS 16)
Year ended
31 January
2020
£'m
Year ended
31 January
2019
£'m
65.2
38.9
0.4
(0.1)
4.0
(43.9)
(0.7)
63.8
68.2
37.0
0.2
(0.4)
4.5
(42.1)
(0.8)
66.6
137
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
30 Transition to IFRS 16 continued
Accounting as a lessee continued
(iv) The impact on the previously reported consolidated cash flow statement for the year ended 31 January 2019 is
shown below.
Profit before tax
Net finance expense
Operating profit
Adjusted for:
Depreciation and amortisation
Impairment of right-of-use assets
Goodwill impairment
Loss on disposal of fixed assets
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
Corporation tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of fixed assets
Net cash outflow from investing activities
Cash flows from financing activities
Interest paid
Repayment of bank borrowings
Payment of lease liabilities
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
Previously
stated
£'m
IFRS 16
£'m
Restated
£'m
66.6
4.2
70.8
10.9
–
11.9
0.1
0.6
94.3
(0.8)
(16.5)
22.1
99.1
(13.4)
85.7
(10.4)
(1.7)
0.2
(11.9)
(3.4)
(6.4)
–
(48.9)
(58.7)
15.1
(11.3)
3.8
1.6
4.5
6.1
37.0
0.2
–
(0.4)
–
42.9
0.9
–
(0.8)
43.0
–
43.0
–
–
–
–
(4.5)
–
(38.5)
–
(43.0)
–
–
–
68.2
8.7
76.9
47.9
0.2
11.9
(0.3)
0.6
137.2
0.1
(16.5)
21.3
142.1
(13.4)
128.7
(10.4)
(1.7)
0.2
(11.9)
(7.9)
(6.4)
(38.5)
(48.9)
(101.7)
15.1
(11.3)
3.8
(v) A reconciliation of the operating lease disclosure in the Annual Report for the year ended 31 January 2019 to the IFRS 16
lease liability is shown below.
Operating lease commitments
Prepayments and invoice timing adjustments
Lease term assumptions
Lease liability future interest charges
Lease liability
138
31 January
2019
£'m
167.5
(8.6)
3.1
(10.8)
151.2
Strategic Report
Governance
Financial Statements
31 Subsidiary undertakings
At 31 January 2020 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, 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
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
* 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.
139
Card Factory plc
Annual Report and Accounts 2020
Notes to the financial statement continued
32 Subsequent events
Covid-19
The Board view the Covid-19 pandemic as a non-adjusting post-balance sheet event. Based on the conditions that existed
at the balance sheet date, only limited impacts on the trading operations of the business were anticipated. These impacts
were primarily related to possible disruption of supply from China and there were sufficient options available to mitigate
any such disruption.
As previously announced, on 23 March 2020 the Group temporarily closed all its retail stores in line with Government
requirements. The Group has implemented a number of measures to ensure the continued welfare of our colleagues and
customers, manage our cost base and conserve cash. To protect the short term liquidity of the business the Group has
furloughed over 90% of colleagues, deferred future store openings and other non-priority capital expenditure, worked with
landlords and key suppliers to agree deferred payment terms and minimised all other discretional expenditure throughout
the business. In addition, the Group will benefit from the 12 month business rates’ holiday announced by the
UK Government. In order to help protect our balance sheet at this challenging time, the Board decided that a final
dividend will not be paid in respect of the year ended 31 January 2020. Our dividend policy remains unchanged over the
medium term, and we will regularly review the most appropriate actions to take in the shorter term; however, currently we
do not expect to pay any dividends in relation to FY21.
As announced on 6 May 2020, Card Factory received confirmation that it can access funding, in addition to the existing
£200 million RCF, under the Covid Corporate Financing Facility (‘CCFF'). HM Treasury and the Bank of England have
confirmed that the CCFF will be operated “for at least 12 months and for as long as steps are needed to relieve cash flow
pressures on firms that make a material contribution to the UK economy.” In order to do this, the Group has agreed three
main covenant tests around; total net debt, cash burn and last twelve months’ EBITDA until June 2021, after which it is
envisaged that the business will have a phased return to existing covenant tests of EBITDA to Leverage and EBITDA to
interest cover.
Whilst the impact of Covid-19 remains uncertain, the Board do not anticipate that Covid-19 would have resulted in a
significant impairment of the assets reported in notes 11, 12 and 13 of these financial statements, if it were an adjusting
event. Goodwill impairment tests are sensitised on the basis of the Board’s current expectations of the severe, but
plausible, downside scenario in respect of Covid-19. Whilst assets relating to some specific stores may become impaired
under short-term adverse trading conditions it is not yet possible to reliably estimate the impact.
In response to Covid-19, many lease payment profiles are being renegotiated. It is not yet possible to assess the impact
this might have on amounts reported under IFRS 16 Leases, however to the extent total contractual lease payments are not
amended, any change in the profile of payments would have minimal impact on the amounts reported in the financial
statements. In addition, the International Accounting Standards Board (‘IASB’) plans to issue amendments to IFRS 16 by
the end of May 2020 to allow an optional exemption from assessing whether a Covid-19-related rent concession is a lease
modification. There may also be an impact on the assessment of lease term where a lease contains an option to break.
The Group utilises foreign currency derivative contracts and US Dollar denominated cash balances to manage the foreign
exchange risk on US Dollar denominated purchases. To the extent forecast foreign currency transactions would no longer
be expected to occur, amounts recognised in the hedging reserve and cost of hedging reserve relating to those cashflows
would be expensed to the income statement.
The Group does not have a material balance of trade receivables (note 16), therefore any reassessment of credit risk would
not have resulted in a significant adjustment to the financial statements.
Only a very small proportion of the Group’s Inventories are perishable and inventory specific to a season can be stored
until the following year. Therefore, the realisable value of inventories would not have been significantly impacted by the
subsequent event.
140
Strategic Report
Governance
Financial Statements
Parent Company statement of financial position
As at 31 January 2020
Non-current assets
Investments
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
2020
£’m
2019
£’m
4
5
6
7
7
13
316.2
316.2
1.1
317.3
4.9
321.1
(1.8)
315.5
(4.3)
316.8
3.4
202.2
2.7
107.2
315.5
3.4
202.2
2.7
108.5
316.8
The financial statements on pages 141 to 150 were approved by the Board of Directors on 1 June 2020 and were signed on
its behalf by:
Kristian Lee
Chief Financial Officer
2 June 2020
Company number 9002747
The notes that accompany these financial statements are included on pages 144 to 150.
141
Card Factory plc
Annual Report and Accounts 2020
Parent Company statement of changes in equity
For the year ended 31 January 2020
At 31 January 2018
Total comprehensive income for the year
Profit or loss
Transactions with owners, recorded directly in equity
Share-based payments (note 8)
Dividends (note 3)
At 31 January 2019
Total comprehensive income for the year
Profit or loss
Transactions with owners, recorded directly in equity
Share-based payments (note 8)
Dividends (note 3)
At 31 January 2020
Share
capital
£’m
Share
premium
£’m
Merger
reserve
£’m
Retained
earnings
£’m
Total
equity
£’m
3.4
202.2
2.7
107.0
315.3
–
–
–
–
–
–
–
–
–
–
–
–
49.8
49.8
0.6
(48.9)
(48.3)
0.6
(48.9)
(48.3)
3.4
202.2
2.7
108.5
316.8
–
–
–
–
–
–
–
–
–
–
–
–
3.4
202.2
2.7
47.1
47.1
0.5
(48.9)
(48.4)
107.2
0.5
(48.9)
(48.4)
315.5
The notes that accompany these financial statements are included on pages 144 to 150.
142
Strategic Report
Governance
Financial Statements
Parent Company cash flow statement
For the year ended 31 January 2020
Cash inflow from operating activities
Corporation tax paid
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Dividends received
Loans issued to group undertakings
Net cash inflow from investing activities
Cash flows from financing activities
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
The notes that accompany these financial statements are included on pages 144 to 150.
Note
11
2020
£’m
0.9
–
0.9
48.0
–
48.0
2019
£’m
0.2
–
0.2
50.0
(1.3)
48.7
3
(48.9)
(48.9)
(48.9)
(48.9)
–
–
–
–
–
–
143
Card Factory plc
Annual Report and Accounts 2020
Notes to the Parent Company financial statements
1 Accounting policies
Basis of preparation
The Company’s 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.
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 Company’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. The Company has not identified any
significant judgements and estimates in the period however, has disclosed estimates and judgements identified below:
Judgements and estimates
Investment in subsidiaries impairment testing
The impairment testing of investment in subsidiaries requires judgement in determining the assumptions to be used to
estimate the value-in-use, including estimates of future revenues, operating costs, terminal value growth rates and the
pre-tax discount rate.
Going concern
Covid-19 gave rise to judgements both in respect to being an adjusting event or not (see note 14) and in relation to the
basis of preparation for the financial statements (see below).
Going Concern
In assessing the appropriateness of the going concern assumption, the Board has considered the availability of funding
alongside the possible cash requirements of the Group and Company, taking into account the unprecedented anticipated
circumstances caused by Covid-19.
Availability of funding
The Group has entered into revised covenant terms with its banking partners. This will enable it to utilise not only the full RCF
of £200m but also the secured funding from the Bank of England Covid Corporate Financing Facility, to the extent that the
combined draw down on facilities net of cash do not exceed a monthly cap, which varies from month-to-month as agreed
with the banking partners, of up to £275m at their peak. Under the revised covenant terms, the Group’s existing covenant
requirements have lapsed immediately and have been replaced by three new covenant tests relating to net debt; cash burn;
and last twelve months EBITDA. These tests will be applied monthly until June 2021, after which it is envisaged that the
business will have a phased return back to existing six-monthly covenant tests of net debt to EBITDA and interest cover.
Cash flow forecasts
The Board has prepared cash flow forecasts for a period of 18 months from the date of approval of these financial
statements. This base case scenario includes the benefits of actions already taken by management to mitigate the trading
downsides brought by Covid-19, e.g. cancellation of dividends, significant reduction in capital investment, cancellation and
rescheduling of stock orders, renegotiating property rents, participating in the government’s job retention scheme, and
taking advantage of other government support measures amongst other actions within their control. This base case
assumes that the majority of stores are reopened for trading during June 2020, and gradually build back towards pre-
Covid-19 levels of trade (88% of the value of budgeted sales) by December 2020. Under this base case scenario, the Group
is expected to continue to have very significant headroom relative to the funding available to it and to comply with its
revised banking covenants.
The Board has also considered various other severe but plausible downside scenarios, including the possibility that the
recovery of trade is much more sluggish than assumed in the base case. It has determined that even if sales were to
remain significantly below budget for a longer period (78% of budgeted sales in December 2020), the Group would still
expect to have sufficient headroom in its financing facilities. The Board does not regard a slower pace of recovery to be
reasonably possible but, in the event that it is, notes that further mitigations are within their control. However, in the event
of another government imposed store closure in the later part of 2020 or early 2021 due to a second peak of Covid-19
infection, there is a risk of breaching the Group’s new financial covenants. In such circumstances the Group would seek to
agree a waiver or further variation of terms with the banks, who have been consistently supportive of the business but, the
Board cannot predict with certainty how the banks would respond.
144
Strategic Report
Governance
Financial Statements
Based on the above indications the directors believe that it remains appropriate to prepare the financial statements on a
going concern basis. However, this material uncertainty, may cast significant doubt on the Group and Company’s ability to
continue as a going concern and therefore to realise its assets and discharge its liabilities in the normal course of business.
The Board emphasises that this arises solely due to the global public health pandemic which is entirely outside the Group’s
influence or control. The financial statements do not include any adjustments that would result from the basis of
preparation being inappropriate.
Principal accounting policies
The principal accounting policies set out below have been applied consistently to all periods presented in these financial
statements. New standards effective in the period, including IFRS 16 Leases, do not have a material effect on the
Company’s financial statements.
Other new standards effective in the period do not have a material effect on the Company’s financial statements.
Standards issued but not yet effective
A number of new standards are effective for annual periods beginning after 1 January 2019 and earlier application is
permitted; however, the Company has not early-adopted the new or amended standards in preparing these consolidated
financial statements.
The following amended standards and interpretations are not expected to have a significant impact on the Group’s
consolidated financial statements:
• Amendments to References to Conceptual Framework in IFRS Standards.
• Definition of a Business (Amendments to IFRS 3).
• Definition of Material (Amendments to IAS 1 and IAS 8).
•
IFRS 17 Insurance Contracts.
Income statement
The Company made a profit after tax of £47.1 million for the year ended 31 January 2020 (2019: £49.8 million), including
£48.0 million dividends received from subsidiary undertakings (2019: £50.0 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.
Financial instruments
Non-derivative financial assets
Non-derivative financial assets comprise trade and other receivables classified as financial assets at amortised cost. The trade
and other receivables do not have a significant financing component and are initially measured at transaction price. At each
reporting date, the Company assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset
is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial
asset have occurred. The Company measures loss allowances at an amount equal to lifetime expected credit loss.
Non-derivative financial liabilities
Non-derivative financial liabilities comprise trade and other payables. Trade and other payables are initially recognised at
fair value, less any directly attributable transaction costs and subsequently stated 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.
145
Card Factory plc
Annual Report and Accounts 2020
Notes to the Parent Company financial statements continued
1 Accounting policies continued
Share-based payments
The Company issues equity-settled share-based payments to employees within the group through the Card Factory
Restricted Share Awards Scheme (‘RSA’) 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 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 Company’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 Company
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.
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.
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 66 to 83.
3 Dividends
The Board is not recommending a final dividend in respect of the financial year ended 31 January 2020 (2019: 6.4 pence
per share resulting in a total final dividend of £21.9 million).
Dividends paid in the year:
Special dividend for the year ended 31 January 2020
Interim dividend for the year ended 31 January 2020
Final dividend for the year ended 31 January 2019
Special dividend for the year ended 31 January 2019
Interim dividend for the year ended 31 January 2019
Final dividend for the year ended 31 January 2018
Total dividends paid to shareholders in the year
Dividend equivalents paid under long term incentive schemes
Total dividends per the cash flow statement
Pence per
share
5.0p
2.9p
6.4p
5.0p
2.9p
6.4p
2020
£’m
17.1
9.9
21.9
–
–
–
48.9
–
48.9
2019
£’m
–
–
–
17.1
9.9
21.9
48.9
–
48.9
Dividend equivalents totalling £nil (2019: £0.1 million) were accrued in the year in relation to share-based long-term
incentive schemes.
146
Strategic Report
Governance
Financial Statements
4 Investments in subsidiaries
At 31 January 2019 and 31 January 2020
£'m
316.2
The market capitalisation of the Group at 31 January 2020 was slightly below the Company’s investment in subsidiaries.
Under IAS 36 Impairment of Assets this would be considered a possible indication of impairment.
The recoverable amount of its investments have been determined based on value-in-use calculations which require the
use of estimates. Management has prepared discounted cash flows based on forecasts which were anticipated at the
year-end. The Directors are satisfied that there is no impairment of the investment in subsidiaries.
Investment impairment has also been considered in the context of alterations to the relevant company’s forecasts in the
subsequent events note 14.
Subsidiary undertakings
At 31 January 2020 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, 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
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
* 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 Trade and other receivables
Amounts owed by Group undertakings
Prepayments and other debtors
2020
£’m
1.0
0.1
1.1
2019
£’m
4.8
0.1
4.9
147
Card Factory plc
Annual Report and Accounts 2020
Notes to the Parent Company financial statements continued
5 Trade and other receivables continued
Trade and other receivables of the Company principally relate to balances due on demand from subsidiary undertakings.
The Company has assessed the expected credit loss as very low and has made no provision for impairment.
6 Trade and other payables
Amounts owed to Group undertakings
Trade payables
Accruals
7 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
2020
£’m
1.3
0.1
0.4
1.8
2019
£’m
3.8
–
0.5
4.3
2020
(Number)
2019
(Number)
341,549,306
77,090
341,459,281
90,025
341,626,396 341,549,306
£’m
3.4
–
3.4
£’m
202.2
–
202.2
£’m
3.4
–
3.4
£’m
202.2
–
202.2
* Shares issued relate to share incentive schemes. See note 8 for further details.
8 Equity settled share-based payment arrangements
Card Factory Restricted Share Awards (‘RSA’) and Long Term Incentive Plan (‘LTIP’)
The Company grants restricted share awards (‘RSA’s) to the Executive Directors, members of the senior management team and
senior employees within the Group under the terms of the Group’s Long Term Incentive (‘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. Grants awarded in the year to Executive Directors
and senior management vest in stages over three, four and five years and vested shares may not be sold (other than to pay
taxes due on vesting) until the end of the five year period. Grants awarded in the year to senior employees are subject to a
three-year vesting period. All restricted share awards are subject to a performance underpin through which the Remuneration
Committee can exercise discretion to reduce the number of awards that will vest based on certain defined criteria.
Grants awarded prior to 31 January 2018 under the LTIP were subject to a three-year vesting period with performance
conditions and a two-year holding period for awards in favour of senior management. Further details on Executive
Director share awards are provided in the Remuneration Report on pages 66 to 83.
Card Factory SAYE Scheme (‘SAYE’)
The SAYE scheme is open to all employees (prior to 31 January 2018 length of service eligibility applied). 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.
148
Reconciliation of outstanding awards
Outstanding at 1 February 2018
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 January 2019
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 January 2020
Strategic Report
Governance
Financial Statements
RSA/LTIP
SAYE
Weighted-
average exercise
price
Number of
options
1,872,053
626,864
(90,025)
(672,688)
1,736,204
860,688
(77,090)
(598,546)
1,921,256
Weighted-
average exercise
price
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
Number of
options
862,232
779,332
–
(413,812)
1,227,752
518,324
–
(708,810)
1,037,266
£2.84
£1.61
–
£2.57
£2.15
£1.54
–
£2.26
£1.80
SAYE
£0.31
£2.01
£1.61
30%
3
8.5%
0.76%
76,993 options exercisable at £2.68 under the SAYE scheme at 31 January 2020 lapsed on 1 February 2020.
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 (years)
Expected dividend yield
Risk free interest rate
2020
RSA/LTIP
£1.88
£1.88
£0.00
30%
3 to 5
N/A*
0.73% to 0.80%
SAYE
£0.23
£1.75
£1.54
30%
3
8.2%
0.35%
2019
RSA/LTIP
£1.99
£1.99
£0.00
30%
3 to 5
N/A**
0.79%-1%
* The exercise price is set at a 20% discount to an average market price determined in accordance with scheme rules. The grant date share price represents the
closing price on the grant date.
** RSA/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:
All amounts exclude national insurance costs
Expense recognised in the Company income statement
RSA or LTIP
Expense recognised in subsidiary income statements
RSA or LTIP
SAYE
Total expense recognised in the Group income statement
2020
£’m
0.2
0.2
0.1
0.3
0.5
2019
£’m
0.2
0.3
0.1
0.4
0.6
9 Financial risk management
The financial risk-management strategy of the Company is consistent with the Group strategy detailed in note 23 of the
Group’s financial statements. Company exposure to liquidity, interest rate, foreign exchange and credit risk are principally
to the extent they impact the trade of its subsidiary investments. Trade and other receivables of the Company principally
comprise amounts due from Group undertakings.
149
Card Factory plc
Annual Report and Accounts 2020
Notes to the Parent Company financial statements continued
10 Financial instruments
Classification of financial instruments.
Financial assets have all been classified as financial assets at amortised costs. 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.
11 Notes to the cash flow statement
Profit before tax
Dividends received
Operating loss
Adjusted for:
Share-based payment charge
Operating cash flows before changes in working capital
Decrease in receivables
(Decrease)/increase in payables
Cash inflow from operating activities
2020
£’m
46.9
(48.0)
(1.1)
0.2
(0.9)
4.3
(2.5)
0.9
12 Related party transactions
Amounts due to and from Group undertakings are set out in notes 5 and 6 of the financial statements. Transactions
between the Company and its subsidiaries were as follows:
Management services
Dividends received from Group undertakings
Loans repaid by/(issued to) group undertakings
2020
£’m
1.5
48.0
1.7
2019
£’m
49.8
(50.0)
(0.2)
0.2
–
–
0.2
0.2
2019
£’m
1.9
50.0
(1.3)
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 66 to 83. Directors of the Company control
0.074% of the ordinary shares of the Company.
13 Distributable reserves
The retained earnings of the Company are considered at each distribution to ensure that amounts paid are considered to
be distributable.
14 Subsequent events
Covid-19
The Board view the Covid-19 pandemic as a non-adjusting post-balance-sheet event. Based on the conditions that existed
at the balance sheet date, only limited impacts on the trading operations of the Group controlled by the Company were
anticipated. These impacts were primarily related to possible disruption of supply from China and there were sufficient
options available to mitigate any such disruption.
Whilst the impact of Covid-19 remains uncertain, the Board do not anticipate that Covid-19 would have resulted in an
impairment of the Company’s investment in subsidiaries had it been an adjusting event. Investment in subsidiaries
impairment tests are sensitised and the Board believes the long term prospects of the business will not be significantly
impacted by Covid-19.
150
Strategic Report
Governance
Financial Statements
Glossary
Alternative Performance Measures (‘APMs') and other explanatory information
‘Adjusted’ APMs have been included to aid comparability with the prior year released financial statements but the
disclosure of adjusted APMs is not anticipated going forwards.
“Adjusted profit before tax / EBITDA / EPS” is defined as profit before tax / EBITDA / EPS excluding the impact of IFRS 16
Leases. For further information see note 30.
“Adjusted Leverage” is calculated as the ratio of Adjusted net debt to Adjusted Underlying EBITDA for the previous 12
months. This definition excludes the impact of IFRS 16 Leases but is consistent with the Group’s Capital Policy and with the
terms of its borrowing arrangements.
“Adjusted net debt” comprises total borrowings, overdrafts and the value of capitalised debt issues’ costs less cash. This
measure excludes lease liabilities reported under IFRS 16 Leases.
“EBITDA” is defined as earnings before interest, tax, depreciation and amortisation and represents profit for the period
before net finance expense, taxation, depreciation and amortisation.
“Card Factory Iike-for-Iike sales” is defined as like-for-like sales plus the year-on-year growth in sales from the Card Factory
website.
“Getting Personal Iike-for-Iike sales” is defined as the year-on-year growth in sales from the Getting Personal website,
calculated on a calendar-week basis.
“Leverage” is calculated as the ratio of Net Debt to Underlying EBITDA for the previous 12 months.
“Like-for-like” or “LFL” is defined as follows:
The Group defines Card Factory store Iike-for-Iike 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 and excluding third-party retail channels.
The reported Iike-for-Iike sales figure excludes sales:
• made via the Card Factory website, cardfactory.co.uk;
• made via the separately-branded personalised card and gift website, 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 Iike-for-Iike figures for each week of trading after having been open for
52 weeks.
“Net debt” comprises total borrowings, overdrafts, lease liabilities reported under IFRS 16 Leases and the value of
capitalised debt issues’ costs less cash.
“Percentage movements” have been calculated before figures were rounded to £0.1m.
“Underlying” The Group has chosen to present underlying profit and earnings measures. Transactions are categorised as
non-underlying if the resulting underlying profit and earnings information is believed to assist comparison of year-on-year
performance.
151
Card Factory plc
Annual Report and Accounts 2020
Advisors and Contacts
Corporate brokers
Legal advisers
Auditor
Principal bankers
Registrars
Investor relations
Registered office
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
Tulchan Group
85 Fleet Street
London EC4Y 1AE
Tel: +44 020 7353 4200
Century House
Brunel Road
Wakefield 41 Industrial Estate
Wakefield West Yorkshire WF2 0XG
Company Registration No: 9002747
1 Lines are open 8.30am to 5.30pm (UK time), Monday to Friday, excluding English public holidays
152
Card Factory plc
Century House
Brunel Road
41 Industrial Estate
Wakefield
West Yorkshire
WF2 0XG
cardfactory.co.uk
cardfactoryinvestors.com