## Opening our ## new future ## Annual Report and Accounts 2023 ## WELCOME ## Welcome to cardfactory – the first choice to celebrate all life’s moments. ### We are the UK’s leading specialist retailer of cards, gifts and celebration ### essentials, with an estate of over 1,000 stores across the UK & Ireland and ### supply through partner and franchise stores mainly in the UK and Australia. ### Our products are high-quality, yet through our vertically integrated design, ### production and omnichannel retail model, can be offered at significantly ### lower prices than our competitors. ## Contents | Strategic Report | Governance | | Financial Statements | | | --- | --- | --- | --- | --- | | 1 FY23 highlights | 64 Board of Directors | | 104 Independent auditor’s report | | | 3 Our purpose | 66 Chair’s Letter – Corporate Governance | | 114 Consolidated income statement | | | 4 Looking back and looking forward | 67 Corporate Governance Report | | 114 Consolidated statement of comprehensive income | | | 6 Our investment case | 74 Chair’s Letter – Audit & Risk | | 115 Consolidated statement of financial position | | | 8 Chair’s statement | | Committee | 116 Consolidated statement of changes in equity | The leading | | 10 Our market | 75 Audit & Risk Committee Report | | 117 Consolidated cash flow statement | | | | 78 Chair’s Letter – Remuneration | | | omnichannel | | 12 Our brand | | | 117 Notes to the financial statements | | Committee 14 Our business model 143 Parent Company statement of financial position ## retailer in our 80 Directors’ Remuneration Report | 16 CEO’s review | | 143 Parent Company statement of changes in equity | | | --- | --- | --- | --- | | | 86 Annual Report on Remuneration | | sector with an | | 20 Strategy delivery | | 144 Parent Company cash flow statement | | 96 Chair’s Letter – Nomination Committee 26 Our stakeholders 145 Notes to the Parent Company financial statements ## 97 Nomination Committee Report extensive UK & 36 ESG 98 Directors’ Report ## 44 Climate change and TCFD Ireland footprint ### 103 Statement of Directors’ Responsibilities Company Information 52 CFO’s review ## 149 Glossary and growing 58 Risk management 63 Non-financial information statement 150 Advisors and Contacts ## international ## presence.” ## Highlights ## Our brand CEO review Governance ## Pgs. 12-13 Pgs. 16-19 Pgs. 66-105 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ### 1 ## FY23 HIGHLIGHTS Strategic Report Governance Financial Statements ### Revenue (£m) cardfactory LFL² sales (%) Profit Before Tax (PBT) (£m) Summary of the financial period (excluding periods of store closure) – Strong financial performance with results ahead of expectations: PBT of £52.4 million is +£41.3 million compared to prior year. ## £463.4m +6.7ppts £52.4m – Revenue of £463.4 million is +27% year-on- year (YOY), reflecting first full year of trading 463.4 6.7 52.4 following the pandemic and good momentum in stores driving cardfactory 364.4 (3.9) 11.1 like-for-like (LFL) sales of +6.7%. 285.1 0.1 (16.4) – Successful mitigation of inflationary 451.5 (0.5) headwinds through targeted price increases, 65.2 hedging and actions to enhance productivity delivered improved margins: EBITDA of £112.0 million improved 0.8ppts 2 as a percentage of sales YOY. ### Leverage Cash from operations² (£m) Basic EPS (p) (excluding lease liabilities) – Robust cash generation performance with all Covid-related VAT and rent deferrals now cleared. – Successful delivery of refinancing ## 0.5x £107.8m 12.9p (to September 2025) to provide platform for strategic growth, reduction in net debt to | | 107.8 | £57.2 million and leverage to 0.5x. | | --- | --- | --- | | 0.9 | 113.6 | | | 2.4 | 79.9 | | FY23 FY23 FY23 FY23 FY23 12.9FY23 0.5 1. ‘FY23’ is the 12 months to 31 January 2023. | | | 1.1 | 124.8 | | | --- | --- | --- | --- | --- | | FY22 | | | | 2. See glossary on page 149. | | FY22 FY22 FY22 FY22 FY22 | 2.4 | | | | FY21 ### FY21 FY21 FY21 FY21 FY21 (4.0) 1 FY20 FY20 FY20 FY20 FY20 FY20 15.1 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## Celebrate ## all life’s moments ## 1,032 567 374 4 ### Partner retail locations (Australia) Franchise storesStores (UK & Ireland) Partner retail locations (UK) ### 2 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ## OUR PURPOSE Strategic Report 1,032 cardfactory locations ### We design, manufacture and source products to help customers 556 Aldi locations ### celebrate every occasion, from the everyday, to the once-in-a-lifetime, 11 Matalan locations 4 cardfactory ### at prices that help people keep their money in their pockets. This ethos Governance Financial Statements franchise locations ### is encapsulated in our new brand purpose: 374 The Reject Shop locations ## We make sharing in and ## celebrating life’s moments ## special and accessible ## for everyone. ### We retail principally through our store estate ### in the UK & Ireland, as well as through our ### websites, cardfactory.co.uk and ### gettingpersonal.co.uk. * All data correct as at 31 January 2023. ## £463.4m 1,977 9,400+ ### Total revenue Distribution points Colleagues ### 3 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## LOOKING BACK ## Celebrating the last ## 25 years ### Over the past 25 years, cardfactory has built a strong ### position in the £1.4 billion UK greeting cards market, ### which has also provided us with a platform for growth in ### the wider celebration occasions market. ## 1 1,032 ## 650+ ### store in stores in ### stores across ### the UK the UK & ### the UK ### Ireland | 1997 2003 20222013 | | | | 2014 | 2017 | | | --- | --- | --- | --- | --- | --- | --- | | First store opens on Teall | • Ventured into Scotland, | | Operations moved into | Card Factory plc floated via | We opened our 900th UK | In November 2022, we celebrated | | Street, Wakefield, on | | Wales & South of England. | Century House offices and | an initial public offering on the | store in 2017. | the 25th anniversary of the opening | | 1 November 1997. | | | gate 4 opened. | London Stock Exchange. | | of the first cardfactory store, | • Acquired warehouse and throwing a large celebration for manufacturing facility. colleagues. This celebration saw us launch our new values and new brand purpose. ### 4 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report | ‘Opening Our New Future’ strategy | Customer focused | Refreshed brand and values | | --- | --- | --- | | FY23 was the first year of business | We will continue to invest in the cardfactory | FY23 was the right time to update our brand | | transformation as we began delivery of our | brand, with emphasis on our quality and | and values to set ourselves on the right | | ‘Opening Our New Future’ strategy. | value to increase shopper awareness and | course for the next 25 years. | ### improve trust. Governance Financial Statements As part of our strategy, we are expanding our market focus With a new customer marketing function now in place, we cardfactory is recognised and loved by consumers across the to target the broader celebration occasions market, including will build on awareness of the brand to connect with more UK, both for the breadth and quality of our ranges and our celebration essentials and gifts. The cardfactory focus on this customers, both in-store and online, and our new brand purpose value for money. In FY23, we completed a review of our brand market opportunity has resulted in the brand achieving a no.1 affirms the importance of the steps we are taking to become purpose and values to position cardfactory for our next phase UK market position in the balloon category¹. As we progress a fully customer-centric organisation. Our ‘Opening Our New of growth, and it remains anchored in the core truth that life into the second year of the transformation programme, we Future’ strategy has the customer at its heart and therefore its needs celebration: We make sharing in and celebrating life’s have solid foundations in place to help cardfactory become success is reliant on colleague delivery and support. As such, we moments special and accessible for everyone. Our focus for the UK’s no.1 destination for all customers seeking unrivalled will continue developing our leadership talent while devolving FY24 is to bring the brand to life across all touchpoints, for our quality, value, choice and experience. decision-making so all colleagues feel empowered to make the colleagues, our customers and our investors. right decisions for their function. Read more about Our market on pages 10-11 Read more about Our strategy on pages 20-25 Read more about Our brand on pages 12-13 ### In the year to come we are looking forward to ### continue delivering on our ‘Opening Our New ### Future’ strategy, expanding our market focus ### to fulfil our strategic ambition of becoming the ## and looking leading omnichannel retailer in our sector. ## forward ## to the next 25 1. Kantar World Panel Plus (Physical Retail) data 53 w/e 22 January 2023. ### 5 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## OUR INVESTMENT CASE ## Transformation and ## growth ## 80% of cards and70% of gifts ## Expanding within £13.4 billion market are designed in-house No.1 for range, value and choice ### Opportunity for future growth Virtuous circle of design, manufacturing Established brand – making celebrating ### and retail provides barriers to entry life’s moments accessible for all 1 cardfactory is now growing within the celebration We design 80% of our store cards and 70% of our store gifts We are the most trusted brand in our sector in the UK with our occasions market, combining our greeting cards offer in-house through our team of 74 creative designers, verse brand anchored in the core truth that life needs celebration. with our growing gifts and celebration essentials ranges. writers and creative management. This allows us to rapidly However, our customers find bringing celebrations to life is not respond to changes in customer taste and needs, evidenced always easy; it can be both time consuming and costs can add We are now addressing a £13.4 billion market in the through our design of a new Pride range in FY23, two designs up. From this, we defined our brand purpose, which we launched UK with further growth opportunities internationally of which now remain on shelves year round. in November 2022: We make sharing in and celebrating life’s through our franchise and wholesale partners. moments special and accessible for everyone. Our focus for FY24 Last year we manufactured 164.5 million of our cards and is to bring the brand to life across all touchpoints. other products in our Printcraft facility in Baildon, Yorkshire. At the same time, we have made enormous headway on We have more than 1,900 distribution points for retail, including improving our gifts and celebration essentials offer, which is the 1 our online sales at cardfactory.co.uk and gettingpersonal.co.uk biggest growth area. We are ranked at no.1 for ‘good value’ and 2 and in cardfactory retail and partner stores. ranked the no.1 destination for balloons . 1. Savanta BrandVue February 2022 to January 2023. 2. Kantar World Panel Plus (Physical retails) data 52 w/e 22 January 2023. ### 6 Card Factory plc Annual Report and Accounts 2023 Energy Impact Governance Financial Statements ## £5.2 billion through 2024 ### Growing sales and profit In FY23, satisfactory LFL revenue growth of +6.7% was underpinned by a strong performance in the core business activity of store-based sales and Everyday card ranges, accompanied by strong trading through the Christmas season. Store revenue grew +7.6% on a LFL basis, reflecting a return of customers to the high-street, the success of our new ranges and our strong value for money proposition despite selective price increases. This led to a PBT of £52.4 million, up from £11.1 million in FY22. Return to shareholder distributions after January 2024 when prudent. ## 4.3/5 tax relief ### Proven sources of growth We delivered a successful Click & Collect trial with higher than online standard average order value (AOV) (+6%) and positive customer feedback (4.3/5 stars on Feeful). 87 stores went live with the trial and nationwide rollout to 930 stores live by mid-FY24. We continued with online and in-store range expansion with access to an enlarged range of products and categories. In addition, we broadened the gifting categories, including flowers, alcohol and perfumes. New store format trial rollout improves in the in-store experience through space realignment and product adjacency improvements. ## Partnership partnership ### Cash generative model with diversifying income sources Scope for generating growth from proven success of current relationship with A50 and an ongoing trial with Metallen Concessions in 374 The Reject Shop stores in Australia provides additional model for further growth. The appointment of a franchise partner in the Middle East and the post-year end acquisition of SA Greetings, adds to the diversification, with franchised presence to be established, initially in Abu Dhabi and Dubai, supplemented by expertise in wholesaling to a range of retail customers in South Africa. Read more on about our strategy delivery on pages 20-21 7 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## CHAIR'S STATEMENT ## Good ## momentum ### “There is clear, positive momentum within the business ### and early signs that the ‘Opening Our New Future’ ### strategy will deliver our growth ambition.” Paul Moody Chair ### 8 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report ### Dear Shareholder, Ahead of management expectations, the positive performance of FY23 reflects the good momentum we have within the ## business, the strong leadership we now have 12.9p ## in place and the unwavering commitment We have made positive progress on our from our colleagues. With revenue exceeding ## strategic priorities which are the building ### Basic earnings per share pre-pandemic levels and notable progress on ## our strategic initiatives, we are well placed to blocks of our future growth ambition.” deliver on our growth ambitions. Governance Financial Statements | Year in review | We will transform cardfactory into the | Board appointments | Summary | | --- | --- | --- | --- | | Through FY23 we saw store-based sales and | leading omnichannel brand in the category, | The Board looks forward to welcoming | There is clear, positive momentum within the | | Everyday card ranges underpin our strong | helping customers celebrate each and every | Matthias Seeger as Chief Financial Officer who | business and early signs that the ‘Opening Our | | performance. This was accompanied by | special occasion. We will emerge as a global | will join the business in May 2023. We extend | New Future’ strategy will deliver our growth | | very positive trading through the Christmas | competitor putting cards and gifts in the | our thanks to Kris Lee for the significant role he | ambition. While mindful of the ongoing impact | | season with new ranges and our compelling | hands of more customers. | played in helping guide cardfactory through | of the cost-of-living crisis, we remain confident | | value-for-money offer driving improvements | | the last few years, in particular during the | that our great value for money proposition | | in both store transactions and average basket | Delivery of the ‘Opening Our New Future’ | pandemic impacted period. | across a range of products and price points | | value. We are encouraged that this trend | strategy is firmly underway with core | | will resonate with customers who continue | | has continued in our FY24 Spring seasons | foundations now in place and encouraging | In FY23 we were also pleased to welcome Indira | prioritising celebrating life’s moments. | | of Valentine’s Day and Mother’s Day. This | progress being made that is delivering | Thambiah as Non-Executive Director. Indira is | | | reflects work undertaken throughout the year | tangible growth, especially in gifts and | an experienced multi-channel retail executive | Paul Moody | | on range curation and improved availability, | celebration essentials. As such, the Board | and consultant. | Chair | | as well as the successful implementation of | remains confident in the longer-term | | 3 May 2023 | | targeted price increases. | growth opportunity for the business and its | Following the decision by Octavia Morley | | | | expectations for revenues reaching around | to step down from the Board at the end of | | | As customers returned to the high street, | £650 million in FY27. | January 2023, Indira was appointed Chair | | | online sales were down year-on-year | | of the Remuneration Committee, with effect | | | but remained significantly ahead of pre- | Outlook and financial headwinds | from 1 February 2023. Roger Whiteside has | | | pandemic levels, reflecting the continued | The Board is encouraged by performance | assumed the role of Senior Independent Non- | | | expansion of product ranges online and | since the January 2023 trading update, with | Executive Director. | | | improvements to customer experience. | current trading slightly ahead of management | | | expectations. We expect our performance for ### Growth delivery the coming year to reflect continued progress We have made positive progress on our on our strategic growth initiatives. strategic priorities which are the building | blocks of our future growth ambition, | We have demonstrated our ability, in FY23, | | --- | --- | | transforming cardfactory into a market- | to mitigate a significant proportion of | | leading omnichannel retailer of cards | inflationary headwinds and, based on the | | and gifts. | current outlook, we are confident in our ability | to continue managing these pressures with a | Through this strategy, cardfactory will become | focus on productivity and efficiencies whilst | | --- | --- | | the UK’s no.1 destination for all customers | also benefitting from normalisation of freight | | seeking unrivalled quality, value, choice, | costs and annualisation of targeted price | | convenience and experience, however they | increases implemented in FY23. | wish to shop. ### 9 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## OUR MARKET 2 ### Key highlights ## 40.3m 80% of UK adults purchased greeting • the c.£2 billion celebration essentials cards vs 73% in FY22. ### The role of celebrations UK greeting cards market 3 | As the country finds its new normal post- | market | – this includes the party and | Over the past 25 years, cardfactory has | | --- | --- | --- | --- | | pandemic and the cost-of-living crisis | balloon categories alongside other card | | built a strong position in the £1.4 billion UK | | continues, consumers are rethinking their | adjacent categories including wrap, bags | | greeting cards market. This has provided | | priorities around where they spend their | and tape; and | | a platform for growth within the adjacent | ## 19.9 | money and how they spend their time. In this | • an identified c.£10 billion addressable | | | celebration essentials market, worth | | | --- | --- | --- | --- | --- | --- | | | | | 4 | | Number of cards bought per UK | | challenging context, consumer behaviour has | | market in gifts | – this includes categories | c.£2 billion per annum. The cardfactory | | | | | such as toys, stationery, books, candles | | | shopper, per annum. | | reaffirmed the central role of celebrations. In a | | | | focus on this market opportunity over recent | | | recent cardfactory survey, 73% of respondents | | and more. | | years, combined with innovation and range | | | stated that celebrations are important to | | | | development, has resulted in the brand | | 1 them , for spending time together, for feeling Celebration occasions include: achieving a no.1 UK market position in the 6 ## closer, for having something to look forward to balloon category . 827m and for providing a break from the everyday. ## birthdays, births, Overall UK card market size. Number The UK greeting cards market has shown of cards purchased, up from 811m in | As a nation, we participate in a vast number of | | ongoing resilience over recent years, continuing | | | --- | --- | --- | --- | | | engagements, weddings, | | FY22. | | celebrations and special occasions each year. | | its post-pandemic recovery, with a volume | | 2 Although everyone celebrates in their own way, growth of +2% YOY . The number of UK adults we are seeing a universal motivation to continue purchasing greeting cards rose to 40.3 million, ## new jobs, exam results, coming together, marking moments and a +7pp increase from last year, and 827 million ## toasting achievements, even during challenging cards were bought in total, up from 811 million +14% ## home moves, sport | times. The queues outside our cardfactory stores | the previous year. The average number of cards | | | --- | --- | --- | | as we reopened after periods of lockdown are | purchased per person was 19.9 per annum. | YOY volume growth in cards | | a testament to both the strength of our brand | | purchased per annum by younger UK | ## milestones... and the enduring role celebrations play when it There was positive growth in the younger audiences aged 16-24. comes to sharing love. audience categories, with the 16-24 age group ### International market opportunity rising to 24 cards per person, per annum, an Building on cardfactory success in the UK ### UK market focus increase of +14% on FY22. In terms of card greeting cards market, we have recently worked ## As part of our ‘Opening Our New Future’ categories, Mother’s/Father’s and Valentine’s +153% with GlobalData and completed comprehensive strategy, we are expanding our market focus categories saw a sizeable increase of +153% on analysis of the international landscape. The the previous year, as did Wedding, up +170%. YOY UK volume growth of Mother’s/ to target the broader celebration occasions research looked at a range of factors in key Father’s/Valentine’s Day cards. | market. This is in line with our strategic ambition | markets including demand context, cards | | | --- | --- | --- | | to be the leading omnichannel retailer in our | and gifts market size and forecasts, consumer | 1. cardfactory OnePulse survey July 2022. | | sector, selling a wide range of products to help | behaviour and expectations, and the state | 2. cardfactory bespoke annual UK Greeting Card Market | | customers celebrate all life’s moments. | | Survey FY23 (4,501 participants) commissioned with Dynata, | of the competitor landscape. This identified February 2023. 5 an £8 billion greeting cards addressable 3. Kantar Worldpanel Plus (Physical Retail) data to 52 w/e ## The celebration occasions market includes: opportunity, which grows to an addressable +170% 22 Jan 2023 & GlobalData Retail Occasions Series UK, 2 Partyware 2022. • the c.£1.4 billion UK greeting cards market market of over £80 billion (including gifting), YOY UK volume growth of Wedding | – this represents the current core of | in seven priority international markets, and | 4. Kantar Worldpanel Plus (Physical Retail) data to 52 w/e | | | --- | --- | --- | --- | | | | 22 Jan 2023 & Whitecap Consulting Ltd September 2021. | cards. | | our business; | provided quality insights to inform our strategic | | | 5. GlobalData Global Expansion Project (July 2022). planning and execution. 6. Kantar World Panel Plus (Physical Retail) data 52 w/e 22 January 2023. ### 10 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report | Overall, FY23 has seen a strong return to | The size of the online market has fallen back | ‘Opening Our New Future’ | | --- | --- | --- | | greeting card purchases from physical stores, | from the peaks seen during the years of | As part of our ‘Opening Our New Future’ | | particularly high street stores. Offline retail | the pandemic but remains at a higher level | strategy, cardfactory is well positioned | | value percentage of the total greeting card | than pre-2020, with the online cards market | to grow within the celebration occasions | | market has grown as follows: | representing 21% of the total cards market in | market, both in the UK & Ireland and in key | | | FY23 vs 13% in FY20. | international markets through a combination | of franchising and wholesale. Over 25 years, Online sales continue to present cardfactory through our high levels of brand awareness, with a significant growth opportunity. With consideration and trust, alongside our ## FY23: 79% | | comparatively low penetration of the online | leadership in value for money, cardfactory has | | | --- | --- | --- | --- | | | market, but high overall brand awareness, | built a strong position in greeting cards for all | Governance Financial Statements | | FY22: 72% | we will seek to build awareness of and | | | occasions. More recently, we have developed | | engagement in our digital proposition. | and built share of the celebration essentials | | --- | --- | --- | | FY21: 64% | Customer satisfaction for customers who have | market, including a UK no.1 position in | | | purchased from our online channels is strong | balloons and are now focusing on our creative | Source: cardfactory bespoke annual UK Greeting Card Market. and comparable with our store channel, and commercial capability to develop our Survey FY23 (4,501 participants) commissioned with Dynata, ## February 2023. demonstrating that the offer is well received c.£1.4bn share and subsequent success in the sizeable ### by those who do access it. gifts category. UK greeting Source: cardfactory bespoke ### annual UK Greeting Card Market cards market Survey FY23 (4,501 participants) commissioned with Dynata, February 2023. Bubble size = Overall value strength ### We hold a unique position in the UK market Value in brackets = Rank on overall value Higher quality perception retailers Lower price are generally seen as more retailers tend expensive to be delivering 80% below average on quality 75% Independent Moonpig (7) card shop (6) 70% cardfactory (1) ## 65% Clintons (9) c.£2.0bn ### UK celebration 60% Asda(4) ### essentials 55% Source: Kantar Worldpanel Plus (Physical Retail) data to 52 w/e 22 Jan 2023 ### market & GlobalData Retail Occasions Series UK, Partyware 2022. Tesco(8) B&M (5) 50% Some retailers are in the Home middle ground for both Bargains (2) Card Zone (3) 45% price and quality Quality % 40% 0% 10% 20% 30% 40% 50% 60% 70% Low price % ## c.£10bn cardfactory sales are anchored in a highly differentiated market position, with a better value ### UK gift market for money perception than other specialists, and a higher quality perception than other value brands and supermarkets. Source: Kantar Worldpanel Plus (Physical Retail) data to 52 w/e 22 Jan 2023 & Whitecap Consulting Ltd September 2021. Source: cardfactory price and value research commissioned with boxclever, November 2022. ### 11 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## OUR BRAND ## Creativity... ## values... ## culture ### 12 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report ### In FY23, we completed a review of our brand purpose, proposition ## 1. Brand awareness ### and values to position cardfactory for our next phase of growth, in ### line with our ambition to become the leading omnichannel retailer ## in the celebration occasions market. +19pp ### Driven by our ‘Opening Our New Future’ strategy, the outputs will difference in ### awareness vs ### provide the platform for building on our strong position in greeting ### key competitor ### cards and growing our share of the celebration essentials and 1 ### average ### gift markets. Governance Financial Statements | On 1 November 2022, the 25th anniversary | Our brand strategy unifies and galvanises the | 2. Brand consideration | | --- | --- | --- | | of the first cardfactory store opening in | business around the clear role that we have in | | | Wakefield, we launched our new brand | people’s lives, which is to help them celebrate | | | purpose and values across the business. | all of life’s moments. It is underpinned by the | | ## +21pp | Our brand is anchored in the core truth that | creative mindset and values-driven culture | | | --- | --- | --- | | life needs celebration. Conversations with | that shapes all we do. Our focus for FY24 is to | difference in | | consumers reaffirmed the powerful role that | bring the brand to life across all touchpoints, | | ### consideration vs celebrations play in our lives: they bring us from store experience, to communications, ### key competitor together, help us show love and help us feel to product range; for our colleagues, our 2 ### average loved. However, our exploration also revealed customers and our investors. 4 ## that for consumers, finding what they need 4. cardfactory no.1 metrics to bring their celebrations to life is not always ### Recognised and loved ### • Good value ## easy; it takes time and costs can add up. 3. NPS cardfactory has a differentiated and ### defensible market position and is recognised • Wide range of products From this truth, we defined our compelling and loved by consumers across the UK. Our ### • Ease of finding what you want ## brand purpose: +42.1 strong value-for-money proposition continues ### to resonate powerfully and has underpinned • For people like you ### NPS score the acquisition of new customers and the ## We make sharing in • Trusted ### +12 points vs return of lapsed customers to the brand in ### FY23. cardfactory is particularly well known key competitor • Convenient ## and celebrating life’s 3 ### for its unique and broad range of cards and average ## moments special and gifts, for every occasion and every budget. ## 5. Values ## accessible for everyone Recent research reaffirmed our no. 1 ranking ### • We lead the way by customers for key metrics including value ### for money and breadth of range and ease. • We celebrate our differences As the cost-of-living crisis continues to ### • We make it happen influence consumer attitudes and behaviours, 1. Source: Savanta BrandVue Feb 2022 to Jan 2023 ### cardfactory’s unique blend of quality and • We do the right thing (FY23 awareness figure is 90%). choice at accessible prices has proven more 2. Source: Savanta BrandVue Feb 2022 to Jan 2023 ### • We care relevant than ever. (FY23 consideration figure is 43%). 3. Source: Savanta BrandVue Feb 2022 to Jan 2023 (NB: restated to an FY23 12 month read). 4. Source: Savanta BrandVue Feb 2022 to Jan 2023. ## culture Key competitors are specialist UK card and gift retailers. ### 13 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## OUR BUSINESS MODEL ## Unique vertically ## integrated ## model ## Our business model not only continues Our design insight › ### to provide competitive advantage but Using insights, sales data and trend analysis, our design ### also provides: studio and commercial team continue to ensure our product offering meets the needs of loyal customers while drawing • The flexibility the business benefitted from in new demographics. during the FY22 supply chain challenges. • The ability to respond rapidly to changing consumer demands that has been crucial post-Covid-19 and as we deliver our strategy. • The platform for transitioning cardfactory into an omnichannel business. ### 14 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page | Data-led design ensures rapid | Large-scale print facility in | Own estate of over 1,000 retail stores across | | | --- | --- | --- | --- | | response to changing consumer trends | Baildon, Yorkshire, is a key USP for | UK & Ireland; online; and partnering with other | | | and preferences. | | | Strategic Report | | | cardfactory. | retailers to extend reach. | | | End-to-end control of product chain | • Produces 70% of all cards we retail | UK & Ireland store network is main route | | | • | | • | | | allows flexible and rapid adaptation e.g. | through our store network as well as our | to market. | | | to reprint an unexpectedly popular line. | online cards. | | | | | | • Together, our stores and online presence | | | | • Continued investment ensures lowest | is unlocking our omnichannel growth | | | • Card designs are planned in line with | | | | | | cost to operate print facilities and | opportunity. | | the forward price architecture (‘design maintains quality of product. to the budget’). | | 1. | | | | | 3. | | | --- | --- | --- | --- | --- | --- | --- | --- | | Design | | 74 | 127 | 8,576 | Retailing | | | | | | Design colleagues | Manufacturing colleagues | Retail colleagues | | | Governance Financial Statements | ## 421 245 1,032 ### Support colleagues Distribution colleagues Retail stores ## integrated ## 2. ## Manufacturing ## Our production advantage › Omnichannel › Gifts and celebration essentials › We benefit from our own large-scale Printcraft print facility Our 1,000+ stores across the UK & Ireland are our main route Transitioning cardfactory from being a store-led card retailer in Baildon, Yorkshire, which has the capacity to produce 270 to market, offering our full range and retail experience to our into a market leading, omnichannel retailer of cards and gifts million cards per annum, with new ranges produced in as little customers. Additional access to our range is available from the was a key priority for FY23. While cards remain the largest part as four weeks and quick selling lines can be remanufactured in online offer and via our UK and international retail partners. of our business, we began the process of increasing our focus just days. on complementary gifting and expanding our product offering. Through the introduction of new omnichannel propositions we will be able to leverage the scale of our store estate and online offer to provide a seamless, convenient shopping experience. ### 15 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## CEO'S REVIEW ## £463.4m ### Revenue ## +7.6% ### Store revenue growth LFL ## Delivering our ## strategy ### “Having made a strong start on our growth delivery in FY23, we ### have good momentum within the business which will enable us ### to reach our revenue target of around £650 million in FY27.” Darcy Willson-Rymer Chief Executive Officer ### 16 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report ### Dear Shareholder With sales in FY23 exceeding pre-pandemic levels and delivery of our ‘Opening Our New Future’ growth strategy showing early signs of success, it is clear there is good momentum ## within the business. Revenue of £463.4 million reflects the continued progress ## across the business alongside the shift of customer spend The return of footfall to the high street and ## the unwavering loyalty from our customers back towards the high street.” has made a significant contribution to this success. In addition, the cultural Governance Financial Statements transformation the business has undergone | and the dedication of colleagues across the | Strong performance in Everyday product | Customers returning to the high street | Store LFL sales is expected to continue | | --- | --- | --- | --- | | business and their willingness to embrace | across card, gifts and celebration essentials | and the impact of Royal Mail strikes | to grow through our store estate as we | | change over the past two years, has fuelled | supported increased sales across the year. | during the Christmas trading period saw | continue with our store location optimisation | | that return of sales and the growth that we | We also achieved double-digit, LFL growth | cardfactory.co.uk sales decline -18.8% YOY | programme and expand into under | | are now enjoying. | in specific card ranges including our fully | although this remained significantly up in | penetrated markets. | | | refreshed wedding range, as well as life | comparison to pre-pandemic (+86.4% 3Y | | | cardfactory needed to become customer- | moments and children’s. | LFL). At -34.7%, gettingpersonal.co.uk was | The building blocks of our additional revenue | | centric in its thinking and approach and to | | also impacted by postal strikes as well as a | growth will come from three areas. Already | | achieve that we have placed customer data | Christmas trading saw increased store | pause on new product development while | we are seeing positive growth from our | | at the heart of our decision-making. From | transactions and average basket values, | replatforming was undertaken. This is now | first area of focus: gifts and celebration | | product creative in our design studio to the | supported by new ranges, the strength of our | complete and will enable the opportunity for | essentials. We saw total sales of Everyday | | customer service experience training we are | expanding gifting offer, and our strong value | range development and further functionality. | gifts and celebration essentials through our | | giving our colleagues in-store, we are now | for money offer. These trends have continued | | stores, on a LFL basis, increase by 11.4% with | | applying customer data into our thinking and | through to Valentine’s Day and Mother’s Day | In FY23 we saw a continued robust | confectionery being the largest sales growth | | how we respond to market change. This is | in Q1 FY24. | performance of existing partnerships during | area at +111% and tableware achieving | | leading to positive, data-led outcomes around | | the year with an 10% increase in sales | the largest volume increase at +124%. Our | | the customer which is being seen across every | We successfully executed our pricing strategy in | compared to the prior year. Considerable | gifting offer will be further supported by our | | part of the business. | FY23 whilst choosing to protect our competitive | work was undertaken to lay the foundations | Store Evolution Programme which has been | | | entry price point and building greater value into | for future partnership growth. | developed from the learnings of our model | | FY23 performance | our pricing architecture. This resulted in minimal | | store trial. Our Store Evolution Programme is | | Revenue of £463.4 million reflects the | impact on customer switching. | | comprised of three key components: space | ### Strategy delivery continued progress across the business realignment that will be applied across 750 FY23 was the launch year of our business alongside the shift of customer spend back Following expansion of our gifts and stores in FY24; display reorganisation that transformation as we began delivery of our towards the high street. cardfactory LFL celebration essentials (previously together will be applied across 50 stores in FY24; and strategy and we have achieved significant revenue growth of +6.7% was driven by referred to under the single ‘complementary an updated store design to new stores and a milestones across all our areas of focus. By ## strategy strong performance of stores and Everyday categories’ heading we have now split this select number of existing stores in FY24. delivering on our strategy we are confident card ranges. out to conform to industry recognised market we will achieve our growth ambition of analysis and to enable clearer measurement) We also made significant progress in reaching £650 million in FY27. Store sales grew +7.6% on a LFL basis we have continued to grow share in line delivering on our omnichannel ambition, reflecting a return of customers to the high with our strategic priorities. By targeting rolling out a successful Click & Collect trial Within our core business, we will build upon our street, the success of our new ranges, our the gifts and celebration essentials market, across 87 stores. This was the first of our leadership in cards within the UK using insight- strong value for money proposition, and we have also been able to recalculate the omnichannel propositions and UK nationwide led innovation and range development. This selective price increases. It is through the total addressable UK market opportunity for rollout to over 1,000 stores was completed at work is well underway and is delivering sales strength of our store footprint that we will cardfactory at £13.4 billion. the end of April 2023. Further developments growth in both Everyday and Seasonal. be able to deliver on our omnichannel to the service are planned for FY24. proposition and ambitions. ### 17 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## CEO’S REVIEW CONTINUED ### Finally, for partnerships we are pleased to People & Culture Our ESG commitment have announced our first master franchise Creating the culture and behaviours that The delivery of our ambitious ‘Opening Our partnership in the Middle East. Our exclusive addresses barriers to transformation and New Future’ growth strategy and the business franchise partner in the UAE, Liwa Trading unlocks the potential of the business is transformation this requires are underpinned Enterprises, will open c.36 cardfactory | | fundamental for any business which is serious | by our commitment to operate sustainably | | | --- | --- | --- | --- | | branded stores over the next five years in the | | | FY23 was the launch | | | about a growth agenda. The fact that we | across all areas of our business. As such, | | Middle East. We also recently announced have been able to make such a strong start in work has begun to produce our five-year ## year of our business the acquisition of SA Greetings, meaning FY23 on the delivery of our strategy is down to ESG strategy and roadmap, starting with we now have our first presence within South ## the fact that we have made positive headway a refreshed materiality assessment and transformation as we Africa both as a retailer and wholesaler. in evolving our culture and behaviours. assessment of our Scope 3 greenhouse gas ## This supports our partnerships strategy by began delivery of our emissions which will ensure our priorities providing access to key wholesale accounts As we enter FY24, it is clear that the progress reflect the changing world around us and ## strategy and we have through the Group’s printing, merchandising we have made is already paying dividends. remain aligned with those of our stakeholders. and warehousing capacity. It also provides ## The business is delivering on the strategy from achieved significant us with the opportunity to learn how we can | | a position of strength with a powerful culture | At the same time, we continued to make | | | --- | --- | --- | --- | | deliver similar local capability in our other | | | milestones across all | | | and strong foundations in place. | positive progress through FY23. One highlight | | target international markets. In FY23 we ## was the business entering into partnership our areas of focus.” completed the research of the international This change has been recognised not just with The Woodland Trust to support their market opportunity for both card and gifting, in our delivery but also through external work to protect, restore and create native validating our seven international markets of recognition, with cardfactory named as the woodland in the UK. interest. The foundations for our partnership number one Best Big Retail Business to Work model have now been scoped and are in For, and the third Best Big Company to Work ### development to support both franchise and Summary For in the UK in Best Companies Q1 2023 wholesale partnership models. The business has a strengthened balance awards. We are delighted and very proud to sheet now in place and we are clear on our receive this in recognition of our commitment We also invested in our transformation core business priorities and building blocks to workplace engagement. capability with a new Transformation Office of growth. Having made a strong start on which is providing the planning, collaboration our growth delivery in FY23, we have good In FY23 we also refreshed our brand, placing and risk management diligence that will momentum within the business which will customers and their celebrations at its heart. ensure we deliver at pace, to plan, on time enable us to reach our revenue target of As part of this work, we have updated our and on budget. around £650 million in FY27. values to reflect both the natural evolution ofthe business and the values we need Darcy Willson-Rymer ### Responding to headwinds to liveand breathe if we are going to Chief Executive Officer The successful management of significant successfully deliver our growth strategy. 3 May 2023 inflationary cost pressures faced in FY23 was For the whole team at cardfactory, these achieved through a combination of proactive are values we are actively embracing in measures including efficient management everything we do, from the way we make of costs and working capital, improved store decisions, interact with our customers efficiencies and targeted price increases, and each other, through to how we are alongside benefits from hedging policies approaching the delivery of our strategy. across both energy and foreign exchange. ### 18 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report Governance Financial Statements ## The business has a ## strengthened balance sheet ## now in place and we are clear ## on our core business priorities ## and building blocks of growth.” ### 19 Contents Generation - Section Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page Contents Generation – Page Contents Generation – Sub Page ## STRATEGY DELIVERY ## Opening our ## new future ### ‘Opening Our New Future’ strategy By delivering on the strategy, cardfactory will ### become: In FY23 we began delivery of our ‘Opening Our New Future’ strategy. ### the first omnichannel brand helping We achieved significant milestones across our three primary ### customers every day to celebrate life’s areas of focus – online and omnichannel, gifting and ### partnerships. Our ability to execute on our strategy was special moments; achieved by focusing on the right capabilities, systems and structures across the business. ### the UK’s no. 1 destination for all customers ### seeking unrivalled quality, value, choice, As we progress into the second year of our transformation ### convenience and experience; and programme, we are continuing to progress across all growth opportunities. ### a global competitor putting cards and gifts ### in the hands of more customers. We are targeting revenue of £650 million in FY27. The revenue mix target remains unchanged with approximately 20% revenues to be generated from online, omnichannel and retail partnerships, while creating a business with a low-cost base and highly scalable business model. ### 20 20 Card Factory plc Annual Report and Accounts 2023 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Contents Generation – Page Contents Generation – Sub Page Strategic Report Strategic Report ## As we progress into the second year ## of our transformation programme, ## we are continuing to progress across ## all growth opportunities.” Governance Financial Statements Governance Financial Statements ## Delivery on the strategy ‘Opening Our New Future’ There are three guiding principles that drive our strategy ambition: ### Breadth of product offering ## 1 ### Transforming cardfactory to an omnichannel retailer of The leading omnichannel retailer in our sector with an extensive ### cards and gifts with a leadership in cards and increasing UK & Ireland footprint and growing international presence presence in gifts and celebration essentials. cardfactory ### A full omnichannel offer ## 2 Improving availability and access to our products, however customers choose to shop; enhancing Value & choice ExperienceConvenience convenience and experience for shoppers. | | | | | Authority in gifts | | Digital | Extensive | Growing | Customer & | Passionate | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | A robust and scalable central model | Leadership in | | | | | | | | | | | | | | & celebration | | experience | UK & Ireland | international | community | colleagues | | 3 | | | card | | | | | | | | | Our capacity to design, manufacture and sell our | | | | | essentials | innovation | footprint | presence | focus | | products continues to provide cardfactory with a distinct competitive advantage. To deliver on these principles, the ‘Opening Our New Future’ ManufacturingCreative Technology strategy is structured around providing improved value and Scalable central choice, more convenience and an exceptional experience for our Insight driven product, Ability to scale up Enabling greater efficiency, model, driving customers. All of this is built upon the foundation of our scalable design and creative production to meet more agile practices and organisational content publisher at the increased demand in line the ability to do business central model that drives efficiency across the business. efficiency heart of cardfactory IP with projections world-wide ### 21 21 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## STRATEGY DELIVERY CONTINUED FY23 delivered milestone: 87 stores went live | with Click & Collect trial. | 4 | Online and app experience | | --- | --- | --- | | FY24 planned milestone: Nationwide rollout | Improving the customer experience is critical | | | by May 2023. | for our long-term success and is a major focus | | going forward to ensure we build customers for life. | | 2 | New omnichannel services | | | --- | --- | --- | --- | | Convenience | | | FY23 delivered milestone: Conversion Rate | | | In addition to Click & Collect, a range of | | Optimisation (CRO) programme had a | | | additional omnichannel services are currently | | positive impact on sales; major app update | | | being developed with initial trials planned | | added a range of new features including | | With an extensive, UK-wide store estate, a growing footprint in | for FY24. These new services will help provide | | product reviews and recommendations, top | | | a seamless shopping experience for our | | selling product badges and ability for app- | ### the Republic of Ireland, and partnership relations that extend customers and allow cardfactory to start only promotions; new machine learnings cross the availability of our products, we are already able to deliver collecting, connecting and understanding sell tool successfully trialled, increasing AOV; customer behaviour. Multiship functionality introduced, providing ### convenience for shoppers in-store. Through our ‘Opening Our shoppers with the ability to buy multiple ### New Future’ strategy we will combine this market-leading products and have them delivered to multiple FY24 planned milestone: Balloon collection ### physical footprint with our online presence so that our customers addresses from a single order. trial, allowing customers to order balloons ### can enjoy a seamless shopping experience anywhere and at any online and collect in-store. Event reminders FY24 planned milestone: Improvements trial: to understand if event reminders can ### time they choose. to include event reminders, easier basket be captured in-store to support improved building to cross sell gifts with orders and retention. delivery improvements including nominated Digital experience innovation cardfactory app. We completed the transition day deliveries and Sunday deliveries for | In FY23 we began our first omnichannel trial | of both websites to a new eCommerce | | | | | --- | --- | --- | --- | --- | | | | 3 | Range expansion | key events. | | with the launch of a Click & Collect service | platform in March 2023. As well as saving | | | | | across 87 stores. These stores were selected | costs, this unlocks more efficient development | The phased expansion of our online range as | | | Technology infrastructure from across the UK to both gauge customer capability, in particular the massive expansion we create an extended range of products and FY23 saw the continued rollout of a major IT demand and to provide the test and learn of the gifting range on cardfactory.co.uk. categories. implementation programme to replace our platform we needed for systems, processes legacy ERP system which will underpin the and customer service. This is the first of a Our digital strategy focuses on the delivery FY23 delivered milestone: Five new categories growth strategy across the entire business, range of new omnichannel propositions that of four pillars: added (flowers, gift experiences, alcohol, allowing us to understand and respond are being developed for implementation in chocolate and books) generating an 11% uplift rapidly to changing shopper habits and the coming years. | | Click & Collect | in gifting sales in the second half of FY23. | | | --- | --- | --- | --- | | 1 | | | preferences. It unlocks the ability to view stock | | | | FY24 planned milestone: Additional new | in all areas of the business, which is essential | Following the success of the trial, we will now The ability for shoppers to Click & Collect categories to be added including (but not for omnichannel operations, and will allow us be moving to a nationwide rollout with over any product from our online or app platforms limited to) personalised party, clothing and to integrate with future partners both in the 1,000 stores going live by May 2023. for collection in store. Successful FY23 trial premium balloons. UK and internationally. achieved higher than online standard average In addition to delivering new omnichannel order value (AOV) (+16%) and saw over 7% of As an enabler for our omnichannel experiences that combine the strength of our customers purchasing an additional item with programme and to enhance customer physical store estate with a digital experience a 33% higher AOV than stores. experience and loyalty in store, we are also that meets customer expectations, we are embarking on a significant broadband Wi-Fi also focused on developing our online offer Positive customer feedback (4.3/5 stars on upgrade for the store estate. This improved through our two websites (cardfactory. Feefo) and no disruption to store processing connectivity will, among many benefits, co.uk and gettingpersonal.co.uk) and our of orders in peak time. enable mobile point of sale (PoS) in store. ### 22 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report FY23 delivered milestones: Built out enterprise Model store FY24 planned milestones: Model store In Australia, we have over 370 points of sale architecture capability as enabler of the programme learnings taken into two new with The Reject Shop, and also have an We trialled the new model store format in ten continued delivery of the second phase of our ongoing initiatives. existing franchise partnership with an operator stores through FY23 with a further five stores ERP implementation. of stores in the Channel Islands and Gibraltar. opened in January 2023 testing an additional capex-light version of the approach. The stores Relocation strategy FY24 planned milestone: Completion of FY23 delivered milestones: were selected so that the format could be The strategy behind our nationwide store second phase of ERP implementation; • 10% YOY revenue growth for partnerships tested in a wide variety of different locations, estate continues to be built upon the core initiation of final third phase of ERP delivered in tough trading conditions demographics and store sizes. principles of lower cost and flexible leases implementation delivering enterprise coming out of the pandemic. with a target three year break clause and warehouse management; selection of a • 14% YOY revenue growth delivered with Having now concluded the model store trial, never more than five years. This provides strategic technology partner to accelerate our franchise model in the Channel Islands Governance Financial Statements we are rolling out the learnings through three the agility we need to adapt to changing our delivery, enhance our capabilities, and and Gibraltar. programmes: our Store Evolution Programme consumer footfall trends and ensures that less achieve our strategic goals more efficiently; which consists of three key components: than 1% of our stores are loss making. Data analytics investment; broadband Wi-Fi FY24 planned milestone: upgrade across store estate enabling mobile • Secure further partnership appointments. 1. Space realignment. For the majority of As we continue to develop our store estate PoS rollout over FY24 and FY25 as well as our stores, we will be reallocating space so portfolio, we are focused on accessing other benefits. there is slightly more priority for gifts than underpenetrated markets, testing a central Growing international presence before. Having identified which stores will London format, and portfolio management. Building on initial successes in attracting Extensive UK & Ireland footprint benefit, we will be applying this change pilot international partners, and with full The strategy behind our nationwide store across 750 stores this year. This is a capex London & the Republic of Ireland international market analysis completed estate continues to be built upon the core | | | light initiative with payback within a year. | | identifying an addressable international | | --- | --- | --- | --- | --- | | principles of low cost and flexible leases | | | We are trialling our first stores in central | | | | 2. Display reorganisation. This modifies how | | | gifting and card market in excess of | | that provide the agility we need to adapt to | | | London with three stores in Fenchurch Street, | | | | | we present cards and gifts in our stores | | £80 billion, we have identified and are in | | changing consumer footfall trends. As we | | | Tottenham Court Road and Holborn. Having | | | | | with cards arranged around the perimeter | | active discussions with future partners in | | continue to develop our store estate portfolio, | | | enjoyed profitable success with our first | | | | | while gifts will be placed in the central | | seven priority international markets for | | we are focused on accessing underpenetrated | | | 14 stores in the Republic of Ireland we will | | | | | aisles. This layout not only improves | | franchise and wholesale partnerships. | | markets, testing a central London format, | | | continue to open further stores. | | customer navigation and makes it easier and portfolio management. This has included for them to locate cards but also ensures FY23 delivered milestones: Open first central FY23 delivered milestones: expansion in the Republic of Ireland and our proper product adjacencies. We plan to London stores; continued Republic of Ireland • Market opportunity research conducted first stores in central London. complete this adjustment in around 50 expansion to 27 stores. across both card and gifting validating our stores this year as we continue to fine-tune markets of interest. The trial of our model store format has costs and returns. FY24 planned milestones: Determine central • Foundations scoped and in development provided revenue-driving learnings that we are 3. Updated store design. This applies the new London store roadmap; open further Republic to support three partnership models. now starting to rollout across our wider estate format that we successfully trailed within of Ireland stores. • Brand assets created to support franchise through our new Store Evolution Programme, the model store trial to enhance a store’s growth and cardfactory branded while continuing to expand the format. The overall appearance by setting minimum Retail partners wholesale. nationwide store estate is the enabler for standards for our existing locations and The partnership model allows us to reach • 26% YOY revenue growth delivered with unlocking the omnichannel opportunity of incorporating this aspect into the other more UK & Ireland shoppers in additional The Reject Shop in Australia. providing customers with the convenience of two components of the programme for convenient locations that meet the growing shopping anywhere and any way they choose new stores or a select number of full demand for impulse buying. In the UK, we FY24 planned milestones: to meet their celebration needs. | | refurbishments. The costs are in line with | have two successful retail partnerships with | • Sign up low to mid complexity franchise | | | --- | --- | --- | --- | --- | | | existing refit costs and there is no impact | Aldi and Matalan, with over 560 points of sale. | | and wholesale partners. | | | on our store capex forecasts. | Internationally the partnership model allows | • Entry into South Africa, one of our seven | | | | | us to scale in selective markets primed | | new markets identified for expansion | | FY23 delivered milestones: Initial rollout of ten | | for disruption. | | through the acquisition of SA Greetings, | | trial model stores with five further capex light | | | | giving us access to retail stores and key | | stores opened in January 2023. | | | | wholesale accounts. | ### 23 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## STRATEGY DELIVERY CONTINUED Authority in gifts and celebration essentials Gifts and celebration essentials is a sizeable growth opportunity with a combined £12 billion addressable market in the UK. Significant progress has been made to expand the range of gifts both in-store and online. Offering both value for money own label ranges as well as ## Value and choice well-recognised footfall-driving third-party brands will enable us to capitalise on the 70% of all customers looking for gifts to accompany their card purchase. As we further expand the offer, we expect continued strong performance ### While we continue to develop our cards offer to ensure we retain our in confectionery, toys and party while exploring ### UK leadership position, we have made significant headway in building opportunities in other categories, although we will need to invest in building awareness of ### sales across our gifts and celebration essentials categories which are cardfactory as a gifting retailer both in-store ### now our fastest growing areas. and online. Leadership in card | The business remains focused on retaining our | FY23 delivered milestones: | | | --- | --- | --- | | position as the UK’s leading provider of cards | • Total Everyday gift growth of £15.4 million | | | in a stable, low growth market. This will be | | (+11.4%) with confectionery as the largest | | achieved through the three pillars of: | | sales growth area at £3.4 million (+111%) | and tableware achieving the largest volume • Maintaining our value for money +124% (+1.5 million units). proposition while stretching the average • Broadened categories by introducing third- selling price and delivering year-round party brands and licenced ranges. relevant customer promotions; • Strong soft toys offering has been • Developing the range to respond to ## broadened through the introduction of Gifts and celebration consumer trends (including diversity, boxed toys, pocket money and licenced toys. ## sustainability and a wider breadth of essentials is a sizeable • Convenient shopping experience was celebratory captions) while optimising ## created by zoning product categories. growth opportunity customer choice with easy-to-shop curated • 90% of confectionery ranges have been card ranges; and ## sourced and manufactured within the UK with a combined • Simplifying the in-store experience. and Europe. ## £12 billion addressable The pricing strategy ensured the entry points ## FY24 planned milestones: Gifting expansion market in the UK.” remained unchanged while moving the price continues across toys, stationery, confectionery, point of some cards to match the value branded gifts, pet gifts, etc, going to a wider customers apply to the occasion. proportion of the estate to give the customer greater choice; Seasonal gifting offer FY23 delivered milestones: Pricing strategy appealing to broader customer base with drove revenue growth with a permanent introduction of new designs and branded ‘3 for 2’ mechanic on our general card range; ranges to offer more choice; party expansion developed new ranges at new price points; entire with broader ranges to meet all celebration Everyday range reviewed and targeted newness needs across the estate and further enhanced introduced; expanded diversity and inclusion online; new sustainable party ranges for FY24 across card ranges to ensure all of our customers with 100% recyclable packaging of which 85% are included. is non-plastic, alongside replacing plastic products with paper-based alternatives. ### 24 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report To succeed we are placing emphasis on as a business towards delivering a pay and leadership development, upweighting the benefits model that we can be proud of. Our ## Experience leadership talent within the business through aim is to reward everyone fairly, inclusively and new hires and bringing in specific expertise to competitively. While it will take time to achieve deliver on the strategy. that ambition, we are aiming to reach a place Governance Financial Statements We are delivering on our ambition of creating an exceptional We are also developing our leadership as quickly as we can where everyone feels that capabilities, building upon the principle of the hard work and commitment they deliver is ### customer experience by using improved data capabilities to provide devolved decision-making so that the senior recognised in the financial reward and benefits ### the best possible service for our customers. We are developing a management team shapes the strategy they receive. ### culture of accountability with colleagues empowered to make the and the wider senior leadership team takes responsibility for its delivery, ensuring FY23 delivered milestones: ### right decisions for the business with a shared understanding of its decisions and actions are taken at the • As we have reviewed our approach to pay identity, strategy, vision and values within a diverse, inclusive and appropriate level to ensure success. and benefits for this financial year, we have recommended a balanced approach ### socially responsible business. In FY23 we created a Transformation Office to with something for every colleague, deliver on the five year transformation plan. while considering our internal principle of offering market pay but also thinking | Customer & community focus | colleagues and communities; something we | | | | | --- | --- | --- | --- | --- | | | | Through the Transformation Office we are: | | about the external economic environment. | | In FY23 we updated our brand to reflect | care passionately about. For more details, see | | | | | | | • placing the right talent in the right roles; | • An ongoing investment in pay ensures our | | | both the evolving cardfactory offer and | pages 36 to 43. | | | | | | | • ensuring plan alignment across the business; | | commitment to reward our colleagues in | the changing needs of our customers. | | | • fostering team collaboration to ensure every | | line with the market continues – with an | | --- | --- | --- | --- | --- | | Underpinning our brand we adopted a new | FY23 delivered milestones: Updated brand | | | | | | | | function is unified around plan delivery; | average pay increase of 8.9% and removal | | set of values which will guide the delivery | and values; customer data and insight | | | | | | | | and | of the lower band of National Minimum | | of our strategy over the next five years. We | investment; ongoing ESG progress (more | | | | | | | • combining project management and | | Wage for hourly paid retail colleagues and | | have also made a considerable step in our | details on pages 36 to 43). | | | | | | | | change management skillsets. | ‘market median’ pay for all colleagues now | customer first ambitions by embedding the achieved based on benchmarking data. | application of customer data and insight into | FY24 planned milestones: New five-year | | | | | --- | --- | --- | --- | --- | | | | With the Transformation Office in place, we | • Our continuing journey into improving our | | | decision making across the business. | ESG strategy and roadmap; refreshed | | | | | | | can constantly course correct as we respond | | benefits brings an introduction of a death in | materiality assessment; assessment of our | | | to circumstances while staying focused on the | service benefit to extend to every colleague | | --- | --- | --- | --- | | We continue to build upon our environmental | Scope 3 greenhouse gas emissions to provide | | | | | | end goal. It will help us ensure we have the | in the business as well as a holiday purchase | | social governance (ESG) credentials with our | foundations for science-based targets. | | | | | | right skills and capabilities in place and harness | scheme for those in support centre roles. We | aim of being recognised as a socially and existing expertise, provide governance across have aligned holiday entitlement across our environmentally responsible business. We are Passionate colleagues all aspects of delivery and address barriers to supply and support centre colleagues. working to reduce waste, reduce our carbon Delivering on the ‘Opening Our New Future’ change so we can deliver at pace. It will also | footprint, meet ever bolder recycling targets, | strategy involves a people-led business | | | | --- | --- | --- | --- | | | | mean we have the right behaviours to shift | FY24 planned milestones: Ongoing review | | and make our products as sustainable | transformation approach. This entails | | | | | | towards customer-centricity and being data-led. | of our colleague proposition to ensure an | | as possible. | developing our core behaviours around the | | | outstanding colleague experience. This | | primary business enablers of customer- | In FY23 we have focused on having the right | includes pay and benefits but also involves | | --- | --- | --- | --- | | We continue to invest in giving back and | centricity, data-led decision-making, creative | | | | | | pay and benefits to attract and retain talent, | reviewing our induction and onboarding as | | The Card Factory Foundation, combined | thinking, pace of change and agility of | | | | | | while recognising the challenges all colleagues | well as redefining our leadership development | | with our charity partnerships, makes a | thinking, and cross-functional alignment and | | | | | | face due to the cost-of-living crisis. In early | and talent offer, including a ‘Women in | | significant contribution to the wellbeing of our | collaboration. | | | | | | FY23 we have made the first significant step | Leadership’ programme and early careers. | ### 25 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## OUR STAKEHOLDERS ## OUR STAKEHOLDERS – ## SHAREHOLDERS | Engaging with our stakeholders | The impact of key decisions on stakeholder | Shareholders | | --- | --- | --- | | Engaging with our stakeholders is of vital | groups are identified to ensure they are | The Board takes account of shareholder | | importance to the Group. This ensures that | considered and understood. The Board | sentiment in its decision making, receiving | | our stakeholders’ interests are understood | takes an active role in engaging with some | updates from Directors on their shareholder | | and accounted for in the Board’s and the | stakeholders and receives regular reports from | base throughout the year, including from AGM | | management team’s decision-making | the management team to keep appraised of | meetings, investor presentations following release | | processes, to promote the success of the | stakeholder interests and issues. The Board | of financial results and other ad-hoc meetings or | | Company for the long-term success of | resolved that in respect of a number of | correspondence. As owners and investors in Card | | the Group. | stakeholders (particularly our Suppliers), it is | Factory plc, the shareholder and prospective | | | more appropriate for the senior management | shareholder views are accounted for in decision | | This engagement is also supportive of a | team or their direct reports to undertake | making, to seek to realise a long-term return for | | Director’s duty under Section 172 of the | part or most of the stakeholder engagement, | this key stakeholder group. | | Companies Act 2006. | provided insights and feedback are shared | | | | with the Board. | Improved communication with shareholders has | | The Board recognises Shareholders, | | been a focus of the Board over the last year, with | | Customers, Colleagues and Suppliers as | The Board receives monthly updates on | dedicated communication resource recruited | | cardfactory’s key stakeholders. The Board | key performance indicators (KPIs) that are | and a focus on improving transparency and | | concluded that these stakeholder groups | aligned to most stakeholder groups, including | sharing progress on setting and delivering the | | have a material impact to achieving our | Colleagues, Customers and Shareholders. | strategic plans, in announcements and investor | | Mission. The Board and the management | The nature and form of KPIs are reviewed | presentations. The Board will hold a capital | | team take full account of other stakeholders | at least annually to ensure the Board and | markets strategy update in May 2023 to further | | as part of decision-making, with other | senior management team receive the most | update shareholders on the strategic plans. This | | stakeholder groups including landlords of our | relevant data to support informed decision- | will include particular focus on the opportunities | | leased retail properties, regulators, HMRC, | making and to identify any matters requiring | for investment in cardfactory’s omnichannel | | our debt funders, our communities and our | improvement. Updated KPI reporting includes | and international ambition, where the Board | | environment. Stakeholder impact arising from | increased reliance on current, live data, | recognise shareholders require further insights to | | relevant decisions are included in papers | particularly in respect of our Customers, as | be fully confident in these key components of the | | submitted for Board decisions, with the Board | the business develops a more customer- | strategy. | | and management team debate considering | centric mindset. This includes monthly data | | | views of impacted stakeholders. | on customer research, including customer | The Board undertakes monthly reviews of 16 | | | optimism, switching data, net promoter score | financial and non-financial key performance | | | and customer awareness of cardfactory | indicators that are important to our stakeholders | | | compared to competitor brands (see page 13). | and/or provide early indicators of areas of focus, | as part of monthly review. ### 26 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report | Specific KPIs of importance to shareholders | We propose to continue to engage with | Governance Financial Statements | | --- | --- | --- | | include net sales growth, PBT, operating cash | our shareholders as we have over the last | | | flow conversion as a percentage of EBITDA | 12 months, with additional shareholder | | | and ROCE, with additional KPIs focused on | engagement being planned in advance of | | | operational efficiency. The Board also reviews | a proposal of a new Remuneration Policy at | | | the status of key strategic initiatives, many of | the 2024 AGM. Our next AGM will take place | | | which are enablers for sales growth and/or | on 22 June 2023 at the Company’s registered | | | operational efficiencies. | office at Century House, Brunel Road, | | Wakefield 41 Industrial Estate, Wakefield, West The experience of shareholders, including the Yorkshire WF2 0XG at 11.00am. current restrictions on payment of dividends | whilst CLBILS facilities and Term Loan A | The Board welcomes questions from | | --- | --- | | remain in place (to be repaid by 31 January | shareholders in advance of the AGM and | | 2024), the historic dividend yield and the | will endeavour to provide written responses | | share price movements over the last few | before the due date for submission of proxy | | years, is recognised by the Board as it seeks | votes, to facilitate shareholders making | | to reduce debt, recover from the Covid-19 | informed voting decisions in advance of the | | pandemic and address previous under- | meeting. Appropriate questions and answers | | investments to realise sustainable growth. The | shall be published on the Company’s investor | | capital structure and dividend policy adopted | website after the AGM. | in May 2022 takes into account the short term need to invest to ensure cardfactory has the infrastructure to enable sustainable Shareholder return versus colleague cost-of-living support Key decisions made during the year include: growth over the medium to longer term, while The cost-of-living crisis has put colleague reward under the • Hourly rates for store managers have been replaced by an ensuring profitable growth is maintained. microscope as the Board has sought to achieve a balance between enhanced salary structure, improving retention in this key role, Investments on key enabling projects and the shareholder experience and those of its colleagues, many of reducing recruitment costs and improving trading performance. those with the highest returns are prioritised, whom are on national living/minimum wage. • National living wage/National minimum wage increases, with with some investments deferred to subsequent This has been effected in parallel with a focus on business change equivalent increases to pay grades above these levels. Additional years to ensure successful implementation. and requiring additional expertise to enhance our IT infrastructure hours made available to existing colleagues to reduce seasonal and capability to realise our omnichannel and international staff requirements. The Board is pleased that it has, during the last year, secured a release from its banking ambitions. However, the cost of provision of enhanced remuneration • Selective recruitment for new roles and expertise required to syndicate from the obligation to raise equity, impacts shareholders directly by reducing profitability. support strategic requirements, subject to the business case which was opposed by the majority of the being fully assessed. The Board has not implemented more extensive changes to shareholder base. remuneration or benefits, which would be to the detriment of shareholders, with increases funded from efficiency savings. ### 27 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## OUR STAKEHOLDERS – CUSTOMER ## Customer ## centricity Card Factory plc Annual Report and Accounts 202328 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report | A foundational year | Brand | Bespoke insight studies | | | | --- | --- | --- | --- | --- | | Our newly defined cardfactory brand purpose | We create clarity on the role we are playing, | In FY23 we carried out multiple bespoke | | Insight in action | | is to make sharing in and celebrating life’s | inviting customers in by measuring our | studies exploring topics including: | | Insight is only as good as the action it | | moments special and accessible for everyone. | brand health alongside key competitors | • Customer segmentation: We developed | | generates, and that relies on how well | | This purpose affirms the importance of | with a rolling study that speaks to c.90,000 | | a behavioural and attitudinal ‘celebration | it’s shared. | | the steps we are taking to become a fully | consumers (Savanta BrandVue). | | occasions’ segmentation in order to better | | | customer centric organisation. | | | understand consumers in the market and | Over the last year, we have significantly | | | | | our customers within it; who they are, | improved the way in which we share | ### Experience Having further strengthened our customer how they shop our categories and the key data and insight. A detailed pack, which We focus on keeping customers coming marketing team with key appointments, growth opportunities that exist. recommends actions based on insight back through a multi-faceted approach including extending our insight capabilities, • Store format development: Insight has gleaned from the macro environment, Governance Financial Statements to monitoring customer experience and the focus in FY23 has been on building helped us to elevate the store proposition the market, and brand and customer satisfaction. Net Promoter Score (NPS – the foundational insights to direct and underpin following the opening of ten model experience metrics, is delivered monthly level of advocacy for cardfactory scored future growth. stores in FY23. A blend of qualitative to the Board, the senior management by those that have been a customer in the groups, exit interviews, observations and team, the senior leaders group and is past three months) is a key business KPI We continue to use a range of leading insight biometrics informed new iterations of the cascaded to other colleagues where which is continuously tracked along with tools to ensure we understand who our model store format, resulting in improved relevant. In addition, on an annual basis, overall satisfaction (those who have visited customers and potential customers are. With customer metrics. insight feeds a detailed strategic review cardfactory in the last three months rating this, we are listening and responding to their • Sizing international growth opportunities: as part of our strategy update. their overall satisfaction with their last needs and making high quality, informed Detailed research was undertaken with experience) across our channel touchpoints. decisions across the business. GlobalData to look at a comprehensive An example of the action our data range of factors in key international and insight has generated, comes Our ‘Tell cardfactory’ initiative enables us markets including demand context, from improved customer experience ### Macro environment to encourage and capture more detailed card and gift market size and forecasts, understanding. Data via new customer We maintain a detailed understanding of feedback at a store level, together with our consumer behaviour and expectations experience programmes identified consumer attitudes and behaviours with ongoing use of Feefo. We supplement this and the state of the respective competitor opportunities in the store experience, data taken from established sources such with frequent mystery shopping audits, a key landscape. This has provided quality specifically with colleague interactions, as GlobalData, exploring factors such as KPI for stores, to assess and improve levels insights to inform our strategic planning which led to the rollout of our Service consumer sentiment, along with spend and of service. Combined, they have collectively and execution. Excellence programme, training over discretionary income. served to push customer recommendation on, 6,500 colleagues. Over the subsequent with NPS improving +1 point YOY. ### Working smarter and looking ahead time period Kantar data revealed ### Market context improved customer frequency and Across cardfactory, we have refined our We continue to invest in our customer We leverage in-depth information on the Savanta reported improvements in cross-departmental ways of working to ensure services function and capability. In FY23 we greeting cards and gifting markets and our customer service perceptions; linked to customer insight sits front and centre, driving tested and rolled out our Service Excellence position within it, through a blend of external this we have also seen movement to top our strategic direction, our decision-making and programme to all stores. This is designed to data sources (Kantar, GlobalData) and our 20 position in Savanta BrandVue Most our culture. Our insight team create and deliver further enhance the experience we deliver for bespoke annual survey of 4,501 respondents, Loved UK Retail Brands 2023. monthly insight packs for the senior leadership customers, helping them find and choose all used to size the market and understand key teams. In addition, insights are shared at key they need to celebrate all life’s moments. drivers of behaviour. Our cadence of monthly New insights continue to shape and business updates and quarterly review sessions, and annual reporting enables us to remain evolve the Service Excellence programme in order to build deep customer understanding close to changing market and consumer with the latest iteration focusing on and enable high-quality decision-making dynamics and respond at pace. a brand-led experience as we look to across the organisation. At cardfactory, we go the extra mile to foster a culture of creativity meet, and indeed exceed, customer and curiosity and encourage all colleagues to expectations ongoing. ask questions and build their understanding of our market, our customer and the opportunities that lie ahead. ### 29 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## OUR STAKEHOLDERS – COLLEAGUES ## Passionate ## colleagues Card Factory plc Annual Report and Accounts 202330 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report | Our colleagues help customers celebrate | Our store colleagues lead the recruitment of up | As part of our broad suite of benefits, we | With our senior management team sponsor, | | --- | --- | --- | --- | | their life moments. We value their | to 5,000 seasonal colleagues to maintain high | offer financial, mental and physical wellbeing | each pillar is lead by a senior leader, | | contribution, provide them with development | levels of service over our Christmas period, and | support in a variety of ways. This includes our | and owned and driven by communities | | and career opportunities and strive to | we have focused on process improvements, | recognition and colleague discount platform | of colleagues across the business. The | | encourage exceptional leadership. The last | upskilling and support to ensure we can | ‘Reward Gateway’. Here, colleagues can | communities focus on specific objectives each | | 12 months saw us emerge from the pandemic: | respond well to this annual challenge. | access an online GP, mental wellbeing and | year, which drive the overall outcomes we aim | | our teams are fully back to work and our | | health support, hints and tips on managing | to accomplish: | | agenda has focused once more on attracting | | physical health and discounts to hundreds of | • The creation of a group of colleagues that | ### Our culture and retaining the best talent possible to retailers and providers. Following a recent pay is as diverse as the customers we aim to We’ve entered the second year of our support the delivery of our strategy by and benefits review, we introduced a ‘double serve at all levels and in all areas. DE&I strategy; launched our evolved transforming our business. discount’ weekend in the run up to Christmas, • Ensuring everybody is aware of their Governance Financial Statements cardfactory values; built career pathways; where all colleagues were able to shop in strengths, recognises their own value and is and continued to enhance our approach to In the post-pandemic environment we our stores at a reduced rate, helping them eager to develop. performance management and our leadership have shifted from scaled down operations continue to celebrate even in challenging • To increase colleague engagement and development offering; all of which articulate to investing in our people and creating times. This was followed up in January 2023 improve our scoring on our colleague our culture and colleague experience. Our the teams we need for growth. This means with all colleagues receiving a voucher via engagement survey. continual co-design and high-engagement putting our colleagues at the heart of the Reward Gateway to spend in any way they • Taking personal responsibility to learn approach to organisational development, journey and investing in them. We now have chose. and grow as a thinking and coaching means colleagues drive change and embody an improved articulation of our culture; who organisation. the culture they’ve created. we are as a company via our values and the FIKA launched in August. This is an innovative • Gaining external recognition as a great cardfactory brand, marking a journey towards product that allows users to develop seven place to work, because our colleagues We completed the review of our cardfactory self-ownership of experience. Our focus will mental fitness skills and has a suite of tools have said as such. values, following extensive consultation continue to bring our brand, values and available to everyone. This introduced a • Increasing colleague retention. with colleagues, through our brand strategy purpose to life through improving colleague new way of talking about mental fitness – • Gaining equal gender representation at project to determine that we’d got these right; experience at every part of the colleague a proactive, supportive and empowering senior leadership level. who we are and what we’re committed to is journey using data to help us make valuable, approach to mental wellbeing, helping articulated with accuracy. informed decisions. colleagues prepare for both big and small In our first year of strategy execution, we had challenges they may face. On top of this, our three topics of focus across all work streams. Smart working principles have supported our Employee Assistance Programme continues These were Mental Health, Women and Pride. ### Talent acquisition culture of agility and recognised the need for to run and our strong team of Mental Health Talent acquisition has been challenging over balance in colleagues’ lives – shifting to an First Aiders are a vital and visible support in ### the last 12 months fuelled by the uncertain outcome and output focused environment. Talent, career planning and the business. ### economic conditions and an unusual labour Colleagues are given the space to manage performance management market. In response we’ve focused on our their working days according to their own Performance management supports our Our wellbeing agenda and the support we proposition and our approach to attraction requirements via flexibility of shift patterns ambition for growth and ensures everyone offer will continue into the next financial year and retention. and hours. knows what is expected of them and and beyond. understands both how they fit into the We have created a model for talent organisation and the role they play in ### Colleague wellbeing ### acquisition for our salaried roles based on DE&I strategy delivering our strategy. Colleague wellbeing and support has been networking and direct sourcing – investing in Our five year DE&I strategy is made up of five high on the agenda for FY23. The economic the candidate experience to tell our unique pillars, which are: As this process is embedded into the environment has seen increased costs and story and ensure new hires are on-boarded • Leadership; business, we use the term ‘Talent Every Day’ inflation and we have listened to understand and inducted successfully. • Wellbeing; to recognise that performance conversations how we can best support our colleagues • Community and connection; are part of daily working life. Our leadership during this challenging time. This has been In stores our approach is about building a • Brand; and behaviour framework helps us align to culture through our survey, via our colleague forums scalable and efficient model to manage • Customer. and value the ‘how’ as much as the ‘what’. and through our leadership teams. volume recruitment well and equip our managers with the right skills and tools to find the right talent. ### 31 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## COLLEAGUES CONTINUED | Every colleague takes ownership of their | We provide coaching cards for all | In FY23 our pay review was in line with | They are in place to ensure we are compliant | | | --- | --- | --- | --- | --- | | individual contribution and development, | managers to support everyday performance | principles to be a mid-market payer. The | but also to support our aspiration to be | | | supported by their line manager with | conversations while encouraging feedback | first few months of 2023 brought with them | inclusive, consistent and fair. Changes this year: | | | access to a comprehensive learning toolkit. | and continual learning. | some challenging economic factors with high | • We’ve improved our family friendly policies | | | Calibration sessions mean that performance | | cost-of-living, and although our pay review | | to include enhanced maternity, paternity, | | management and assessment is fair and | We have a specific development programme | for 2023 will continue to follow the principle | | shared leave and adoption pay. | | consistent and that there is a cross functional | for our senior leadership team, which includes | of being a median market payer, it will also | • We’ve made positive changes to our | | | view when setting objectives. | the opportunity to undertake a level 5 | recognise the impact of the rising cost-of- | | Absence Policy to support colleagues and | | | coaching qualification. In the last 12 months, | living and we will make a pay award to reflect | | guide managers in taking a more proactive | | | ten senior leaders and six HR business | that. This means a significant investment in | | and supportive approach. | ### Career pathways partners completed this qualification having a our colleagues and a pay review of 8.6%. • Our DE&I agenda includes a ‘Brand’ pillar Being able to navigate your own career is a direct impact on how we lead at cardfactory. of work which includes our commitment critical way of maximising the talent we have In FY23 we also made significant investments to become a leading employer in relation in the business and encourages upwards Moving into FY24 and beyond, we are working in our store manager population. This to equal opportunities and diversity, and and lateral movement of colleagues. Career on embedding our new organisational values included a store manager talent review, removing bias in recruitment and selection. pathways is a framework of possible routes and are making both the ‘Leading Self’ and a significant increase to pay rates and • Our recruitment processes guide full and through our organisation which allows ‘Leading Others’ learning modules available introducing a new sales incentives aligned fair consideration of applications from colleagues to take ownership for their own to all colleagues to foster leadership at all to the step up in accountabilities of the disabled applicants, including making development, and continues to be supported levels, support self-directed development role. This led to a reduction in turnover of of adjustments for new or existing by our apprenticeship offer and our leadership and aid managers in developing their store managers from 9% to 3%, saw our colleagues who may become disabled, development proposition and framework. teams. We will also be running targeted and engagement survey ‘Fair Deal’ score rise to through individual needs assessments focused workshops to foster high performing 23% and led to a reduction of Store Manager and provision of support, training and ### Colleague KPIs leadership teams across all functions. vacancies by 50%. additional equipment or software Using data we measure key performance to support them in their role or their indicators which support the aspiration to Coming up, we intend to revise the leadership Our journey to become a median market payer development. Next year we will launch our recruit, retain and develop our colleagues behaviour framework to include ‘manager in retail has started with the eradication of ‘Fair Guide to Hiring’, including colleague and to drive career progression and career competencies’ and provide learning to support the age related pay for U18s in the National development, to incorporate our DE&I development in cardfactory. this, including a ‘new managers’ programme minimum wage structure. commitments and ensure our consistent and ‘inspiring managers’ focus to nurture our approach to talent acquisition. These include measurement of internally filled leaders of the future. We are also looking to The roadmap of benefit changes will continue, vacancies – where we achieved 19%, versus | | improve and increase the senior leadership | with access to a death in service benefit being | | | --- | --- | --- | --- | | a target of 21%. Other KPIs include colleague | | | Engagement | | | group development offer to include a focus on | extended from senior roles to all in FY24. | | | turnover rates where we were over our target | | | In Autumn 2022, Best Companies facilitated | talent pipeline development. of 27%, driven largely by high attrition in the our ‘b-Heard’ engagement survey to measure With the ambition to be consistent across sales assistant population and vacancy per colleague engagement across all areas of the the business where possible, we will align our headcount rate was positive against our target. Approach to compensation and benefits business. Following this survey we received holiday entitlement with our Printcraft and Our ambition: to have a reward offering that a two-star ‘Outstanding’ accreditation, property colleagues to further harmonise While we recognise that we need, at times, to is in line with market and a differentiator that improving on our one-star ‘Very good’ status terms and conditions for these colleagues, invest in bringing new skills and experience supports us in attracting and retaining the announced earlier in 2022. as well as introducing a holiday purchase into the business, our aspiration is to continue best talent in the industry. scheme for salaried colleagues. | to encourage career development from within. | | | We were also recognised as one of the | | --- | --- | --- | --- | | | In FY23 our pay principles were clearly | | Best Big Companies to Work For in the UK, | | | established and all our salaried roles | Colleague policy | placing 15th in the list of the UK’s 25 Best Big | ### Leadership development benchmarked against market data. This Our people policies lay out a framework of how Companies at the end of 2022, then placing Our leadership behaviour framework is now means we have a robust and transparent we work and are a key reference point for our third in the same list at the beginning of 2023 complete and forms the basis for development framework within which our roles sit and colleagues. Some of these are a mandatory moving up the leader board. content and focus. It is in use across talent where benefits are aligned. requirement and some are optional. mapping, career pathways and throughout our performance management system. ### 32 Card Factory plc Annual Report and Accounts 202332 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report Strategic Report Overall results and participation improved compared to the survey completed in January 2022, with store colleague participation being particularly strong. The final completion rate was a very high 81%. ## We lead The positive results achieved in our ‘b-Heard’ ## the way survey demonstrated improvements in the following key areas: • commitment to the organisation; • growth and development opportunities; Governance Financial Statements Governance Financial Statements • pay and benefits; and • social and environmental responsibility. Areas where our results exceeded other two- star companies were: ## We • manager support and care; • team relationships; and ## celebrate • wellbeing. ## We care ## our This suggests the work we’re doing in learning and development, leadership development ## differences and our compensation and benefits roadmap is taking us in the right direction, but there is ## OUR VALUES more work to do to continue on this journey and the action planning from the survey continues. Our Colleague Forum also provides an opportunity for us to listen to our colleagues and take on board feedback on how colleagues feel. Key themes that came out of this group were around fair deal, cost-of- living and the impact of that on daily lives as well, as career development. The feedback from colleagues has been applied to prioritise the areas of ‘fair deal’ that are important to ## the workforce as part of our ongoing reward We do the ## We make it enhancement. ## right thing ## happen As we head into FY24 we will continue to invest in our colleagues, to attract and develop our talent and to build a compelling colleague experience and journey across all of our business. ### 33 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## OUR STAKEHOLDERS – SUPPLIERS ## Quality ## suppliers Card Factory plc Annual Report and Accounts 202334 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report | Our Chief Commercial Officer is | • Requirements that card is Forest | | | | Overall, results remain consistent with | The first steps have been taken to complete | | --- | --- | --- | --- | --- | --- | --- | | | | | ® | ® | | | | responsible for ensuring we develop | | Stewardship Council | (FSC | , licence code | our previous survey with some noticeable | a risk based analysis of all products sold by | | | | FSC-C128081) certified and compliant with | | | acknowledgement from our supply base (33%) | Getting Personal, this is to allow us to target | mutually beneficial long-term UK and EU Timber Regulations. regarding cardfactory becoming a more the most critical products/suppliers first as relationships with our key product • Requirements in our Modern Slavery Act sustainable business as they work with us to we extend our supply chain standards to suppliers and for monitoring and compliance (details of steps taken are develop more eco friendly products. Getting Personal. With the ever changing responding to our suppliers’ concerns to available in the modern slavery statements requirements from both consumers and balance the commercial position, taking | | | available on the cardfactory and the | Within the results, 55.2% agree and 44.8% | authorities we have started reviewing our | | | --- | --- | --- | --- | --- | --- | | full account of our community and the | | cardfactory Investor websites). | strongly agree with the need to operate | policies and procedures to ensure they | | | environment within which we operate. | | | and develop products to help create a | are fit for purpose and where applicable | | | | Our ‘No Audit, No Order’ policy remains | | sustainable future. | incorporating the PAS standards being | Governance Financial Statements | | | a steadfast requirement, necessitating | | | developed by the Office of Product Safety | | ### Suppliers & social compliance | | suppliers to have satisfied our onboarding | | and Standards, even where these go above | | --- | --- | --- | --- | | We continue to ensure suppliers meet our | | Product sourcing | | | | processes and to have received satisfactory | | and beyond defined legislation. | | requirements before they complete our | | During the last quarter of 2022, cardfactory | | technical and ethical audit results before onboarding process. These are: underwent and passed its sixth FSC audit, any order will be placed with them. We have ### • Audit: ethical audit with requirements which continues to reflect our commitment to Future considerations continued engagement with our Far East relating to child labour, forced labour, the ethos of FSC. We are on target to ensure In the coming years there are going to be suppliers by video conference which facilitates disciplinary practices, health and safety, all our wood-based products are only sourced changes to legislation with more country- more regular contact and we look forward discrimination, freedom of association, from FSC certified suppliers, (currently card, specific legislation becoming common. This to resuming supplier visits once all travel collective bargaining, working hours, wrap and party are all from FSC (or PEFC)) includes: restrictions are lifted. | | remuneration and the environment (more | | certified sources by the end of FY25. | • Wales placing draft legislation with the | | | --- | --- | --- | --- | --- | --- | | | detail below). | | | | purpose of putting a total ban on single | | • Sedex Members Ethical Trade Audit | | Supply base | To continue building on the Group’s ESG | | use plastic carrier bags. | | | (SMETA) – a globally recognised ethical | We have increased the number of suppliers | commitment, the quality assurance team will | • The new Deposit Returns Schemes (DRS). | | | | audit that is conducted by an affiliate | in the past 12 months that are exclusively | be reviewing packaging to ensure sensible | | Scotland at present is the only country in | | | audit company. | UK-based (for card, gifts and celebration | balance between removing plastic (which has | | the UK with firm plans and a start date of | | • Business Social Compliance Initiative | | essentials). This supports our strategy of | high recycled content and is fully recyclable) | | August 2023 (now delayed to March 2024). | | | (BSCI) – a globally recognised ethical audit | expanding our ranges, while reducing our | and employing non-recyclable packaging | | It has been announced that England, | | | that is based on the International Labour | carbon footprint, where possible, and also | (which although is not plastic will end up | | Wales and Northern Ireland will implement | | | Organization (ILO) standards, conducted | allowing a faster turnaround time from product | in landfill). | | DRS schemes by October 2025. | | | by approved audit companies only. | selection to offers being available in store. | | • The Extended Producer Responsibilities for | | | • SA8000 – these widely recognised | | | | | Packaging Waste are due to start in 2023 | ### Quality assurance team | | standards on ethical audits are set by | | | and we have already made significant | | --- | --- | --- | --- | --- | | | | Supplier survey | During 2022, the decision was taken to recruit | | | | Social Accountability International and are | | | changes to the information gathered | | | | In December 2022, we completed our third | two additional junior members to our quality | | | | applicable to factories and organisations | | | from suppliers to ensure we comply. In | | | | annual Supplier Viewpoint survey, surveying | assurance team, who are in the process being | | | | worldwide. | | | 2024 modular fees are to be introduced, | | | | our top 30 product suppliers. This allows | fully trained using in-house and third-party | | | • Access to and sharing of information | | | | meaning packaging that is non-recyclable | | | | us to understand if actions we have taken | training. It was felt that in the long term this | | | | via the Supplier Ethical Data Exchange | | | will attract higher fees than packaging | | | | following previous feedback have improved | would allow cardfactory to build a team with | | | | (SEDEX), which assists monitoring human | | | that is readily recyclable; this also aligns | | | | our supplier relationship management. The | the specific skillsets and knowledge to best | | | | rights issues in our supply chain. | | | directly with the cardfactory ESG policies | | | | most common recurring theme was the need | support current and future business strategies. | | | • Technical audits (based on ISO 9001) on | | | | and goals. | | | | to increase environmentally friendly practices | The longer-term goal is to create a first-class | | products and product safety for initial and products. quality assurance department. factory set-up and higher risk areas. ### 35 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## ESG ## Driven by our ## purpose ### 36 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report ### “cardfactory is a purpose-driven organisation and the way we ### do business is fundamental to this. The delivery of our ambitious ### ‘Opening Our New Future’ growth strategy and the business ### transformation this requires are underpinned by our commitment to ### operate sustainably across all areas of our business.” Governance Financial Statements | We believe we should have a positive | We are aware these priorities may have | | --- | --- | | impact on our people, our customers, our | changed given the extraordinary context of | | communities and the environment and we | recent months, including a cost-of-living and | | value this alongside financial performance. | energy crisis, and increasing awareness of the | | We operate with integrity and transparency | impact of climate change and biodiversity | | and always strive to do the right thing. As | loss, and so we have engaged a specialist | | a result, we are pleased to report progress | ESG consultancy to refresh this materiality | | made in FY23, delivering on the ESG strategy | assessment in FY24. This will provide us with | | and commitments outlined in our FY22 annual | an updated view on the most significant | | report. These are detailed on pages 38 to 42, | impacts on our business and whether | | along with our plans for FY24. | the views of colleagues, customer and | stakeholders have changed. Looking ahead | FY24 will see cardfactory take significant | This work will inform the consultancy’s | | | --- | --- | --- | | strides forward in addressing the sustainability | development of an updated five-year ESG | | | challenge. Working with specialist energy | strategy, roadmap and measures, to be | | | and utility consultants, we will complete and | completed in FY24, and a review of our risk | | | report on a detailed review of Scope 1, 2 and | management framework, ensuring that our | Our five ESG strategic focus areas: | | 3 GHG emissions. This will be used to develop | priorities reflect the changing world around | | | pathways and publish a science-based Net | us and remain aligned with those of | | ### • Reduction in carbon footprint. Zero target, mitigating risk and improving our stakeholders. ### • Waste and sustainability. environmental performance across the business. In FY24, we will continue to embed sustainability ### • Diversity, equality and inclusion (DE&I). across the business. We will incorporate ### sustainability into our core ‘Opening Our • Colleague and social mobility. We continually review our sustainability strategy to ensure it delivers meaningful impact, aligning New Future’ growth strategy and related ### • Charity and community. | it both to the United Nations Sustainable | performance metrics with the goal of making | | --- | --- | | Development Goals (SDGs), and to the risks and | it a core part of day-to-day ways of working | | issues prioritised by our colleagues, customers, | and decision making for all colleagues at all | | suppliers and stakeholders in our 2021 | levels, and will also explore the opportunity for | | materiality assessment. | dedicated sustainability resource. | Read more on pages 38-42 ### 37 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## ESG CONTINUED ### Our progress and plans ### In FY23 we have made progress against the commitments set out in FY22 and remain ### on track to deliver against our FY24 goals. Highlight achievements and plans for the ### year ahead against each of our strategic focus areas are outlined over the next five pages. Strategic focus area: Reduction in carbon footprint How did we do? ● Achieved ● Partially achieved ● Still to be achieved UN SDG Commitments made for FY23 Progress in FY23 Plans for FY24 • Progress with assessment of realistic and achievable • Full review of Scope 1, 2 and 3 GHG emissions • Report on emissions assessment and use data to carbon neutrality targets. underway. ● set targets. • Obtain premier partnership with The Woodland Trust • Total Scope 1 and 2 GHG emissions have increased • Define and publish science-based Net Zero targets (including options to carbon-offset) and work towards compared to FY22 as a result of increased business and pathway. a continual reduction in emissions. activity and growth following periods of restricted • Explore opportunities to reduce UK & Ireland logistics trading due to the pandemic in FY22 (and FY21). • Conduct assessment to provide full clarity on Scope emissions, including electrifying HGVs and increasing However, when compared to FY20 emissions, there 1, 2 and 3 emissions, including recommendation for vehicle fuel efficiency. has been a reduction in overall emissions of 31%. ● greener energy infrastructure to drive a continual • Develop targets for moving additional product reduction. • The Woodland Trust partnership planting more manufacturing from Far East to UK. than 12,000 native trees in the UK, with potential to • 50% of company car fleet to be electric/hybrid within • Explore further opportunities to protect nature and mitigate 3,200 tonnes of CO during trees’ lifetime. ● 12 months, with the residual 50% converted within the 2 biodiversity across our value chain. following 12 months, reducing fleet carbon by 90%. • Printcraft manufacturing facility lighting switched • Entire company car fleet to be electric by the end to LED, reducing electricity consumption by 206,589 • Continuously improve our supply chain efficiencies of FY24, reducing fleet’s carbon footprint from 314.6 kilowatt hours per year (equivalent to 39.95t CO e or and increasingly move product manufacturing from 2 tonnes (FY22) to 43 tonnes (end of FY24). 145,612 miles driven by UK average petrol car). ● the Far East to the UK and Europe. • Incorporate sustainability considerations into • 18% of company car fleet now electric or hybrid, with international growth decision making and partnerships. 18 charging points installed to support rollout; lead times for electric vehicles slowed the rate of fleet transition in FY23. ● • Moved further product manufacturing, including money wallets, from Far East to UK. ● ### 38 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report Strategic focus area: Waste and sustainability How did we do? ● Achieved ● Partially achieved ● Still to be achieved UN SDG Commitments made for FY23 Progress in FY23 Plans for FY24 | Waste reduction | | Waste reduction | | • Remove single-use plastic packaging from 90% of our | | --- | --- | --- | --- | --- | | • We will remove single-use plastic from 90% of our | | • On track to remove single use plastic from 90% of | | products by year-end: | | | products sold to customers by end of FY24. | | products by end of FY24: ● | | – Plastic removed from all FY24 Seasonal gifting • All products will be 100% glitter free by end of FY24. – All remaining single-use plastic attachments ranges. • We will reduce in-store point-of-sale poster volume removed from Christmas boxed cards. – All plastic packaging removed from FY24 counter by 50% across our retail estate by late FY24. – Packaging moved to paper across bulk of party ranges. Governance Financial Statements cardfactory foiltastic and trend party products. Recycling • Remove glitter from all products. – Continued to remove single use plastic from gifting • Recycling will be increased in stores, support centre • Reduce in-store, point-of-sale poster volume products. and distribution centres. materials by 50% by year-end. • Continue to improve recyclability of our product and • Recycled 703.4kg of foil balloons and banners from • All new gift wrap sold to be 100% recyclable. packaging, while also offering our customers more stores through TerraCycle. ● • Conduct feasibility assessments on identified recycling opportunities in addition to our foil balloon • On track for all products to be glitter-free by end opportunities to further reduce environmental impact, and banner recycling service in 500 stores. of FY24: ● including introducing plastic-free card bonding and • All new cards sold from April 2022 are 100% moving all paper-based packaging to FSC-certified. – All new cards now 100% glitter-free. recyclable. • Initiate review of all primary and secondary – Glitter being phased out of non-card products. • All new wrap sold from the end of FY24 will be 100% packaging to identify reduction opportunities. recyclable. • On track to reduce point-of-sale poster volume by • All new bags and card boxes to be 100% recyclable 50% by late FY24. ● • All 10p plastic bags are 100% recyclable and by end of FY25. manufactured using a minimum of 30% consumer • In line with new Extended Producer Responsibility Recycling waste. of Packaging legislation, all primary and secondary • Working actively with waste management partner to packaging will be labelled to show components and understand proportion of waste going to recycling Sustainability recyclability of each component by mid-FY25. and recovery versus landfill. A large proportion of • All cards are FSC certified. current measurements are based on industry averages • Move all paper party products to be FSC-certified by • All wrap will be FSC certified by end of FY23 (98.5% rather than weighing of waste; as more suppliers end of FY25. FSC by April 2022). develop capacity to measure waste, the ability to track waste reduction will improve. ● • ‘Remove attachments first’ wording added onto all new cards to help facilitate recycling process. ● • On track for all new gift wrap sold to be 100% recyclable by end of FY24. ● Sustainability • All new gift wrap now FSC certified. ● ### 39 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## ESG CONTINUED Strategic focus area: DE&I How did we do? ● Achieved ● Partially achieved ● Still to be achieved UN SDG Commitments made for FY23 Progress in FY23 Plans for FY24 Colleagues • Relaunched our values to all colleagues. ● • Expand data and insights related to all DE&I streams • We will create the right culture within the business across the whole business. • Refreshed our DE&I strategy with an annual review to including the adoption of our five-year DE&I strategy. ensure it remains aligned to requirements. ● • Drive forward ongoing delivery of the DE&I strategy to We are a signatory to the BRC’s Diversity and ensure it becomes BAU throughout the business. • Review has created five strategy pillars, creating Inclusion Charter and have signed up to the DWP focused workstreams and ensuring DE&I is delivered • Build recognition programme linked to values. Disability Confident Employer Scheme. across all areas of the business: Leadership, Wellbeing, Brand, Customer, Community and Customers/Communities Connection. ● • We will demonstrate greater awareness of DE&I within local communities and customer bases. • Delivered three topics of focus for colleagues in FY23: ● Product – Mental Health; • Our products and store environments will be – Women; and developed to reflect society and our current and future customer base. – Pride. • Initiated work to build our system capability to be able to capture diversity data and truly understand our colleague base and take data led action. ● ### 40 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report How did we do? ● Achieved ● Partially achieved ● Still to be achievedStrategic focus area: Colleagues & social mobility UN SDG Commitments made for FY23 Progress in FY23 Plans for FY24 • We will provide all colleagues with a clear view of • Launched career pathways, providing a framework • Review of internal recruitment processes and their career progression within the business. for colleagues to navigate and understand their advertising of vacancies internally to drive interest. career options. ● • Clear KPIs set for internal promotions alongside the • Ongoing Talent Every Day conversations to encourage completion of business-wide role benchmarking for all • Set KPIs to fill 19% of roles with internal candidates; self-leadership and owning development plans. positions and relevant succession planning in place. achieved rate of 21%. ● • Enhancing the induction process to ensure our • A comprehensive suite of development opportunities • Benchmarked and levelled all our salaried roles in the purpose is understood across the business. Governance Financial Statements to be made available to all colleagues, including organisation, using external market data to progress • Recruit colleague experience manager. voluntary learning, in-house training and courses, as on being a median market payer. ● • Ongoing review of benefits and pay to ensure we well as the apprenticeship levy being utilised across • Made a comprehensive suite of development can attract and retain the right talent in all parts of select business areas. opportunities, including apprenticeships, available to the business. • We will embed our leadership behaviour framework all colleagues. ● • Partnership with Macmillan to support colleagues for all leaders and people managers. • 16 colleagues qualified as Level 5 coaches. ● with cancer. • We will continually improve our colleague • Leadership behaviour framework incorporated engagement survey scores, improve colleague into Talent Every Day performance management retention and reduce colleague turnover. programme. ● • We will continue to support colleagues’ wellbeing • Pulse survey and full survey conducted in October through initiatives such as mental health first aiders, 2022 rated cardfactory as a 2 star ‘Outstanding’ our employee assistance programme and online company to work for: ● wellbeing portal. – Pulse survey rated us 15th in the 25 Best Big • We will continue to invest in quality Health & Safety Companies to Work For. training to ensure that all colleagues are able to – Full survey ranked us: 3rd in the Best Big work safely. Companies to Work For; 1st in our market as Best Retailer; and several placings in regions including 1st in London, in Q1 2023 tables. • Retail manager colleague retention improved following the re-organisation of the retail part of our business through the retail people plan, which ensured we have the right skills in the right place and reviewed salary offering. ● • Developed interventions to support colleague financial, mental and physical wellbeing: Employee Assistance Programme accessible to all; Salary Finance, enabling colleagues to access their salary early and offering financial advice and a comprehensive discount platform; A portal with wellbeing tools covering a number of topics. ● • Developed team of Mental Health First Aiders throughout the business. ● ### 41 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## ESG CONTINUED Strategic focus area: Charity and community How did we do? ● Achieved ● Partially achieved ● Still to be achieved UN SDG Commitments made for FY23 Progress in FY23 Plans for FY24 • We are committed to continually funding and • £523,940 raised for Macmillan Cancer Support, taking • Review community strategy to ensure it remains supporting The Card Factory Foundation in all its total raised since 2006 to £7,808,483.69. ● aligned to overall sustainability priorities, and that we present endeavours including supporting colleagues are generating as much positive economic and social • Sale of boxed Christmas cards generated £125,000 in and communities by match funding, family funding value as possible. donations for four UK charities. ● and community grant funding. • Review charity partners for Christmas boxed • For every €1.00 raised in Republic of Ireland, • We will continue to identify and support charity card beneficiaries, to continue to align to cardfactory donated €0.10 to Make a Wish Ireland. ● and community partners that align with our values sustainability priorities. • cardfactory raised £1.44 million to The Card Factory and business, e.g. our ongoing charity partners for • Continue to support The Card Factory Foundation. Foundation through carrier bag sales contributing to Christmas boxed cards. the Foundation’s Match Fund, Community Fund and • We will continue to support colleagues who are Family Fund. ● engaged with local causes and charities. ### Governance structures Sustainability and ESG reporting is the ESG is incorporated into Group risk Underpinning our ESG strategy is good responsibility of the entire Board rather than management and when considering specific governance. We have always sought to act one Board member specifically. However, business plans, including examples such with integrity and to do the right things, in the CEO has ultimate accountability for the as supply routes and product design and the right way, and that continues. We comply Group’s ESG and climate-related priorities, development. The increased understanding with guidelines and best practices and with the Chief Commercial Officer holding of our emissions generated this year now actively manage ESG considerations and risks accountability within the senior management provides the Group with additional insight effectively with good governance informing team and leading sustainability work across to inform our overall strategy, plans and our decision making. the business. annual budgeting. The cardfactory Board reviews the Group’s The organisational structure of the governance Throughout the year, management approach to sustainability and climate- framework can be seen on the left. The Chief continually reviews progress and deliverables related risks twice per year; this includes Commercial Officer has responsibility to lead of each element within our sustainability an overview of the ESG framework and the overall ESG strategy, with those members strategy, ensuring all risks and opportunities sustainability strategy, and progress against of the senior management team responsible are captured, and appropriate action taken. goals and targets. for key elements. Following our materiality assessment refresh and sustainability strategy update, we will review our Governance structures to ensure they remain fit for purpose. ### 42 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report Governance Financial Statements ### 43 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## CLIMATE CHANGE AND TCFD ### Introduction This section details the Group’s climate-related disclosures, in alignment to the TCFD recommendations. Following a review of last year’s inaugural disclosure, the format has been updated to clearly demonstrate progress against the TCFD recommendations. The Group recognises this continues to be a work in progress and in order to achieve compliance across all TCFD recommendations remains actively engaged in initiatives that will enable it to further improve disclosures in subsequent years. TCFD requirements that we consider are met are indicated in green, with amber indicating the components that are not yet fully achieved, where the description summarises the status. ● TCFD requirements met ● TCFD requirements not yet fully achieved ### Governance: Disclose the organisation’s governance around climate-related risks and opportunities. TCFD recommendation Current status Updates and plans for FY24 Describe the Board’s oversight Climate-related risks and opportunities are assessed by the Board as part of Twice yearly ESG reviews will continue, with a refresh of the Group’s of climate-related risks and the general business risk management described on pages 58 and 59. The sustainability strategy planned for FY24. opportunities ● Board reviews the Group’s approach to ESG and climate-related risks twice per year, which includes an overview of the ESG framework, development of the Group’s ESG strategy and progression against goals and targets. Describe management’s role Sustainability and ESG reporting is the responsibility of the entire Board The ongoing consultancy work and materiality assessment refresh will provide in assessing and managing rather than one Board member specifically. However, the CEO has ultimate the Group with an even greater understanding of the Group’s environmental climate-related risks and accountability for the Group’s ESG and climate-related priorities, with impact, therefore providing greater consideration in guiding the overall opportunities ● the Chief Commercial Officer holding accountability within the senior strategy, major plans and annual budgeting. The first full GHG inventory management team, and leading sustainability work across the business. covering Scopes 1, 2 and 3 emissions will be finalised early in FY24. Further information regarding the Group’s approach to managing In addition to this, we also have processes in place to ensure developments climate-related priorities are detailed on pages 47 to 49. on climate-related issues are identified and accounted for, e.g. introduction of new packaging legislation via the quality assurance team. ### 44 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s business, strategy and financial planning where ### such information ismaterial. Risk timeline Short term (1–2 years) Medium term (3–9 years) Long term (10–15 years) TCFD recommendation Current status Describe the Risks Opportunities Risk timeline climate-related 1. cardfactory fails to engage on climate risks to identify and pursue 1. Presentation of our climate-related credentials is expected to improve brand risks and opportunities for competitive advantage. reputation which should contribute to sales. opportunities the organisation has 2. cardfactory’s supply chain relies extensively on imports from the Far 2. Our strategy of increasing the proportion of cards produced in the UK, by identified over the East. There are limited opportunities for local supply base for gifting ranges increasing card production capacity at Printcraft, will reduce emissions from Governance Financial Statements short, medium and which could reduce our carbon footprint, whilst maintaining our ‘value’ transportation for imports from the Far East. UK manufacturing of roll wrap long term ● proposition. Our strategy targets increasing volumes of complementary has created an opportunity to reduce overseas dependency. Growth in UK product sales, which, without mitigation, will increase our carbon footprint. manufactured gift products such as confectionery opens new supply routes. 3. cardfactory’s international strategy, aimed at growing the Groups 3. Learnings from the Group’s UK & Ireland energy reduction initiatives, full GHG international presence, will increase our carbon footprint within our own inventories and setting a Net Zero target could lead to an accelerated carbon operations and the associated supply chain. mitigation programme within the international strategy. 4. Managing legacy stock, where recycling may not be economically viable 4. Improved processes to minimise legacy stock risk, including improved stock and redundancy of stock results in increased waste. management and more local, smaller production runs from Printcraft reduces the risk of such legacy issues arising in the future. 5. Businesses seeking to use ‘green’ raw materials is expected to increase 5. At present, use of recycled card in product ranges is not considered viable, but demand for FSC certified raw materials (to replace plastics and other materials innovation in artificially grown pulp may address supply constraints in the future to e.g. in packaging). Long lead times will constrain supply, inflating cost prices. address demand and price inflation. 6. Changes to consumer behaviour leading to an increasing desire to 6. Changes to consumer behaviour leading to an increasing desire to purchase purchase sustainable products from sustainable businesses. A reduction sustainable products from sustainable businesses. An increase in revenue and in revenue and market share may occur if the Group fails to meet and market share may occur if the Group is to successfully meet and disclose its ESG disclose its ESG targets and strategy. targets and strategy. 7. Levies and surcharges are to be applied for packaging, Greenhouse 7. By reducing waste and GHG emissions in advance of such levies applying, cost Gas (GHG) emissions, which could increase operating costs and require increases can be minimised. Opportunity to remove single-use plastic from gifting investment in alternative solutions. range and handmade cards. 8. Energy costs expected to increase over time, particularly with limited 8. Potential opportunity for cardfactory to commit to a long-term power purchase energy security in the UK that could affect availability for cardfactory’s arrangement which can be used as a basis for investment in additional green future needs. energy capacity. 9. The Group’s business strategy includes sale of balloons, many of which 9. Opportunity for cardfactory to innovate on alternative product ranges to are helium-filled. Helium is a non-renewable natural element with limited anticipate availability falling and/or helium price increases. supply, which may be subject to increased cost as supply reduces. 10. Increased flooding risk from higher water levels from global warming 10. Although the support centre and distribution centres are not at any material could impact cardfactory’s key operational sites. risk from flooding, the Printcraft facility is next to a river which would be at risk of flooding, without appropriate flood defences being adopted. As many stores are subject to relatively short-term leases, stores can be relocated on lease events, if flooding is considered to be a material risk. ### 45 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## CLIMATE CHANGE AND TCFDCONTINUED Risk timeline Short term (1–2 years) Medium term (3–9 years) Long term (10–15 years) TCFD recommendation Current status Describe the Implications Risk timeline impact of climate- 1. Improving our credentials could enhance our profile and opportunity with new trade customers and shoppers. This may also attract new shareholders. related risks and opportunities on 2. Alternative ranges and sources will be constantly reviewed to balance climate risks while maintaining a value offer to our customers. the organisation’s business, strategy 3. Plans for the international strategy will need to consider country-specific climate-related legislation, property acquisitions, store fit out specifications and financial along with the impact and location of key suppliers within the international supply chain. planning ● 4. Improved stock management significantly reduces exposure to stock wastage. Any disposal of stock is managed through suppliers with green credentials for waste management avoiding the need for landfill. 5. Development of ‘recycled card’ products could be used as a USP, whilst managing costs and improving cardfactory’s credentials. 6. Increased levels of sustainability into product developments, and increased communication around ESG targets and strategy will broaden customer appeal. 7. Planned levies and surcharges to be monitored and action taken to minimise the implications for such charges on cardfactory. 8. In addition to supporting development of additional green energy generation, this may mitigate future cost increases, whilst reducing the Group’s GHG emissions. 9. Long-term strategy to be developed to recognise this risk and develop alternative ranges and products to meet customer appetite for party and celebration events. 10. Plans to increase capacity at Printcraft will require extending the property, which will require an assessment of any flood defence measures to protect this key production facility in the long term. Design and layout required to minimise risk of equipment damage if extreme flooding is realised. Describe the The initial climate-related risks were considered by the Board as part of the adoption of the ESG strategy and have been incorporated into the risk management framework, resilience of the however, the Group is not yet in a position to fully report on its resilience with respect to specific quantified climate scenarios. As part of our continued efforts to build organisation’s resilience into the Group’s overall strategy, the completion of the Scope 1, 2 and 3 emission assessment for FY22, due early in FY24, will provide the business with a very clear strategy, taking understanding of the current emissions status as well as solid recommendations to mitigate further risk. This will also improve the environmental credentials of the business and into consideration establish a pathway to Net Zero. different climate- This includes undertaking a more rigorous climate-related scenario planning assessment, tailored to cardfactory’s business and supply chain, assessment of the Group’s related scenarios, Scope 3 GHG emissions alongside Scope 1 and 2, development of a strategy to reduce our emissions to allow us to set an informed and realistic target for being a carbon including a 2°C or neutral business. This will assist in facilitating a quantitative approach to the scenario analysis in future years; the results of with will be assessed and considered for the Group’s lower scenario ● strategy developments in respect to resilience to climate change. The transition and physical scenarios that will be explored in further detail are outlined below. 1.5°C scenarios This is based on low-carbon transition scenario (transition risk) which includes regulatory, technology and policy changes that would be required to limit global warming to 1.5°C. At present it is anticipated that any scenario analysis is to focus on UK policies, UK property, our supply chain and potential changes in consumer behaviour. This will consider the possibility of new GHG/Carbon taxation measures, increased costs within the supply chain and general operations along with any other relevant factors. 4.0°C scenarios This is based on the assumption that there is limited regulatory support for global emissions reductions, therefore leading to increasing physical climate impacts (physical risk). This would include extreme weather events such as flooding and heatwaves. The focus will again be on the UK property portfolio and the oversees supply chain and the significant risks to retail operations and production. ### 46 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report ### Risk Management: Disclose how the organisation identifies, assesses and manages climate-related risks. TCFD recommendation Current status Describe the organisation’s Climate-related risk is managed in accordance with the overall risk management framework. process for identifying and This provides for members of the senior management team to be primarily responsible for identifying emerging risks and assessing, managing and mitigating assessing climate-related risks, with support from internal and external specialists, as appropriate. risks ● Describe the organisation’s These risks are reviewed twice per year as part of the risk review process, with an appropriate member of the senior management team nominated to manage processes for managing each risk and to lead development and implementation of mitigation including assessing the size and scope of the identified risk. Governance Financial Statements climate-related risks ● The Chief Commercial Officer is responsible for the overall management of ESG and climate-related risks. Describe how processes for The Chief Commercial Officer reviews all climate-related risks within the ESG plan ensuring all key points are identified, assessed and incorporated identifying, assessing, and into the overall risk management process. Updates are provided to the Board and its Audit & Risk Committee. managing climate-related The climate-related priorities take account of the risks identified and the priorities for our stakeholders, which have been identified from the risks are integrated into the materiality assessment. organisation’s overall risk management ● ### 47 # CLIMATE CHANGE AND TCFD CONTINUED Metrics and Targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material TCFD recommendations Current status Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process In the short term the Board has adopted the metrics and targets outlined in this section, to assess climate-related risks and expects to adopt new metrics and targets during FY24 following completion of current assessment of emissions and development of the new ESG strategy described on page 37. # Reduction in carbon footprint - The Group has measured and disclosed mandatory GHG emissions and in this report a four year trajectory can be seen; although to date there has been no formal reduction target, an absolute reduction of 31% in GHG emissions can be observed in FY23 when compared to FY20. - In relation to the mandatory GHG emissions the Group has also measured and disclosed an intensity metric of ICO₂e per £ million turnover. FY23 shows a reduction of 33% compared to FY20. - We are at the advanced stages of assessing realistic and achievable carbon neutrality targets in relation to the Group's Scope 1, 2 and 3 emissions. These are to be identified through careful exploration of the British Retail Consortium's Climate Action Roadmap, which provides a framework for the retail industry to realise Net Zero in 2040, ahead of the UK Government target of 2050. At present the Group intends to use the FY22 year as the baseline for comparison for all future targets. - Working with The Woodland Trust to support the creation of new native woodland across the UK through the Trust's Woodland Carbon scheme. Throughout our partnership, we will plant more than 12,000 native trees that have the potential to mitigate 3,200 tonnes of carbon dioxide. - Complete assessment (using third party experts) to provide full clarity on Scope 1, 2 and 3 emissions for the FY22 year (baseline assessment), including recommendation for greener energy infrastructure to drive a continual reduction. - Within 12 months 50% of company car fleet will be electric/hybrid with the residual 50% converted within the following 12 months. Once complete, our fleet carbon will be reduced by 90%. - We will continuously improve our supply chain efficiencies and increasingly move product manufacturing from the Far East to the UK and Europe whereby there is a clear benefit to the customer and organisation. # Waste and sustainability # Waste reduction - Target set to remove single-use plastic from 90% of our products sold to customers by end of FY24. - All products will be 100% glitter free by end of FY24. - Target set to reduce point of sale usage by 50% across our retail estate by late FY24. # Recycling - Recycling will be increased in stores, support centre and distribution centres and we will continue to improve recyclability of our product and packaging, whilst also offering our customers more recycling opportunities in addition to our foil balloon and banner recycling service in 500 stores. - All new cards sold from April 2022 are 100% recyclable. - All new wrap sold from the end of FY24 will be 100% recyclable. - All 10p plastic bags are 100% recyclable and manufactured using a minimum of 30% consumer waste. # Sustainability - All cards are FSC certified. - All wrap will be FSC certified by end of FY23 (98.5% FSC by April 2022). Updates and plans for FY24 - Completion of the Group's first full GHG inventory across Scopes 1, 2 and 3 covering the FY22 period. This will be completed in FY24 and will establish the baseline against which future targets will be set. - Assessment of 2040 Net Zero target aligned with the Science-Based Targets Initiative (SBTI) and further exploration of the BRC Climate Action Roadmap. - Maintain The Woodland Trust partnership and explore further opportunities to protect nature and biodiversity across our value chain. - Once the Group understands the extent of the Scope 3 GHG emissions, future strategies will evolve to introduce metrics and targets for key stakeholders within the supply chain with the aim of reducing climate impact. - Entire company car fleet to be electric/hybrid by end of FY24, reducing fleet's carbon footprint from 314.6 tonnes (FY22) to 43 tonnes (end of FY24). - Develop targets for moving additional product manufacturing from Far East to UK. - Remove single-use plastic packaging from 90% of our products by year-end. - Plastic removed from all FY24 Seasonal gifting ranges. - All plastic packaging removed from FY24 counter party ranges. - Remove glitter from all products by year-end. - All new gift wrap sold to be 100% recyclable by year-end. - All new bags and card boxes to be 100% recyclable by end of FY25. - All new orders of cardfactory gift wrap now FSC certified. - Following the completion of the full GHG assessment, setting of emissions reduction targets and climate-related scenario analysis, the Group will consider the relevance and possibility of appropriate climate-related metrics in relation to other categories as recommended within the TCFD guidance; transition risks, physical risks, climate-related opportunities, capital deployment and remuneration. 48 Carol Feckery plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report TCFD recommendation Current status Updates and plans for FY24 | Disclose Scope 1, | See Scope 1 and Scope 2 emissions on page 50. The full Scope 1, 2 and 3 assessment for FY22 will be | | | --- | --- | --- | | Scope 2 ● and, if | | completed in early FY24 with the aim of repeating | | appropriate, Scope 3 | | the exercise for FY23 during the coming year and the | | greenhouse gas (GHG) | | potential for disclosing all relevant emissions in the | | emissions and the | | FY24 Annual Report. | related risks ● Describe the The Group has measured and disclosed mandatory GHG emissions and in this report a four year The full Scope 1, 2 and 3 assessment for FY22 will be targets used by the trajectory can be seen. To date no formal targets have been set, however the Group has taken numerous completed in early FY24. This will facilitate the exploration Governance Financial Statements organisation to active steps to reduce emissions and will continue to do so. of science-based Net Zero pathways, with the aim of manage climate- setting a 2040 Net Zero target during FY24 aligned An absolute reduction of 31% in GHG emissions can be observed in FY23 when compared to FY20. related risks and with SBTi methodology against an FY22 baseline. The opportunities and Group has instructed a specialist consultant to assist and The Group has also measured and disclosed and intensity metric of TCO e per £ million turnover. 2 performance against ensure compliance with phase 3 of the Energy Savings FY23 shows a reduction of 33% compared to FY20. targets ● Opportunity Scheme (ESOS). This will require the physical Assessments are ongoing for with respect to Scope 3 emissions and appropriate Net Zero pathways. assessment of a cross section of properties within the Group, identifying areas for energy saving and carbon See targets and metrics described on page 48. reduction. This exercise will assist with informing potential Net Zero pathways and investment decisions that may assist with meeting future reduction targets. ### 49 # CLIMATE CHANGE AND TCFD CONTINUED ## Green House Gas emissions Total Scope 1 and 2 GHG emissions have increased compared to last year as a result of increased business activity and growth following periods of restricted trading due to the pandemic in FY22 (and FY25), this is reflected by the reduction in the intensity ratio (ICO₂e/Em turnover). However, when compared to the emissions from the FY20 year there has been a reduction in overall emissions of 31%. This is reflective of the Group's efforts to reduce energy consumption across the portfolio through efficiencies in the logistics operations and the installation of LED lighting. Further opportunities to reduce the energy consumption and associated GHG emissions will be explored as part of the pathways to achieve net zero targets. | Energy and Carbon | Country | FY22 | FY23 | FY22 | FY22 | FY21 | FY21 | FY20 | FY20 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | ICO₂e | % | ICO₂e | % | ICO₂e | % | ICO₂e | % | | Scope 1 emissions (combustion of fuel – direct emissions) tCO₂e | UK | 724 | 99% | 672 | 99.6% | 777 | 99.6% | 1,029 | 100.0% | | | RoW | 4 | 1% | 3 | 0.4% | 3 | 0.4% | 0 | 0.0% | | | Total | 728 | 100% | 675 | 100% | 780 | 100% | 1,029 | 100% | | Scope 2 emissions (purchased energy – indirect emission) tCO₂e | UK | 4,479 | 98% | 4,238 | 99% | 4,245 | 99% | 6,754 | 99% | | | RoW | 162 | 4% | 45 | 1% | 44 | 1% | 34 | 1% | | | Total | 4,642 | 100% | 4,283 | 100% | 4,289 | 100% | 6,788 | 100% | | Total energy use (kWh) | UK | 25,651,206 | 98% | 22,269,584 | 99% | 20,476,623 | 99% | 30,130,676 | 100% | | | RoW | 449,480 | 2% | 225,256 | 1% | 189,524 | 1% | 134,830 | 0% | | | Total | 26,100,686 | 100% | 22,494,840 | 100% | 20,666,147 | 100% | 30,265,506 | 100% | | Intensity Ratio | FY22 tCO₂e | FY22 tCO₂e | FY21 tCO₂e | FY20 tCO₂e | Variance(%) | | --- | --- | --- | --- | --- | --- | | Total emissions | 5,370 | 4,958 | 5,069 | 7,817 | -31.30% | | Emissions intensity (tCO₂e/Em turnover) | 11.59 | 13.61 | 17.78 | 17.31 | -33% | ## Methodology and emissions data The above emissions data has been produced in accordance with the Streamlined Energy and Carbon Reporting (SECR) framework, under The Company's (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. The footprint is calculated in accordance with the Greenhouse Gas (GHG) Protocol and Environmental Reporting Guidelines, including SECR guidance. DEFRA emission factors have been used for all emission sources to allow an activity to be converted into carbon dioxide equivalent (CO₂e). 50 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report Governance Financial Statements ### 51 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## CFO'S REVIEW ## £52.4m ### Profit before tax ## £107.8m ### Cash from operations ## Platform for ## growth ### “The Group has delivered a strong performance in the ### year ended 31 January 2023 (FY23), the first full year of ### trading post-pandemic with results ahead of management ### expectations set at the start of the year.” Simon Comer Interim CFO ### 52 52 Card Factory plc Annual Report and Accounts 2023 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page The Glossary can be found on page 149 Strategic Report Strategic Report Financial highlights Our stores remain the source of a significant majority of our revenues, and therefore a large The Group has delivered a strong performance in the year ended 31 January 2023 (FY23), the part of this increase in total sales reflects that stores were forced to close for approximately first full year of trading post-pandemic, with results ahead of management expectations set at ten weeks in the first quarter of FY22 due to Covid-19-related lockdowns. However, we are the start of the year as follows: encouraged by the positive stores LFL of +7.6% which reflects an increase in both transactions • Encouraging trading performance in stores, with stores like-for-like (LFL) sales +7.6% and average basket values compared to the prior year when considering just the period where compared to the prior year underpinned by growth in Everyday ranges. Sales are now slightly stores were open in both years. ahead of pre-pandemic levels. • Year-on-year improvement in EBITDA to £112.0 million reflects sales growth plus effective The increase in basket values was partly driven by targeted price increases; which have helped management of inflationary headwinds and targeted investment in people, systems and to offset the cost of inflationary headwinds, without any significant impact on sales volumes. infrastructure to support growth. • Profit before tax of £52.4 million includes £3.5 million of one-off benefits relating to CJRS We are pleased to see strong performance in our Everyday ranges, and our continued drive to Governance Financial Statements Governance Financial Statements settlement and refinancing. improve our offer to customers was reflected in double-digit LFL growth across a number of • Cash from operations of £107.8 million, with reduction in net debt to £57.2 million having celebration categories, including wedding, life moments and children’s. cleared £10.8 million of Covid-19 rent deferrals. • Successful refinancing of banking facilities to September 2025, providing liquidity headroom Online sales, across both our cardfactory.co.uk and gettingpersonal.co.uk, were down to support delivery of the strategy. compared to the prior year, falling 18.8% and 34.7% respectively compared to FY22, reflecting the investment phase of these businesses, as well as being impacted by Royal Mail strikes FY23 FY22 in the run up to Christmas and customers returning to the high street. However, online Revenue £463.4m £364.4m remains an important enabler of store sales and a key part of our omnichannel strategy and EBITDA £112.0m £85.6m cardfactory.co.uk sales remain significantly ahead of pre-pandemic levels. Profit before tax £52.4m £11.1m Partnership sales increased to £5.0 million (FY22: £4.6 million). FY23 saw a 3% increase in points Basic earnings per share 12.9 pence 2.4 pence of sale and we are now selling through 949 partner locations, and this remains an area where Net debt £57.2m £74.2m we expect to see growth in the future supported by the investment we have made in our team to Cash from operations £107.8m £113.6m add capability during this year. Leverage (excl. lease liabilities) 0.5x 0.9x Optimisation of our store portfolio continues to be an important source of sales growth. During For more information regarding the definition and calculation of LFL and other alternative performance measures, go to the glossary on page 149. FY23 we opened 33 new stores and closed 21 stores, including five relocations. This resulted in a net increase in the overall store portfolio of 12 stores. At the end of the financial year, our Financial performance store portfolio stood at 1,032 stores, including 27 stores in the Republic of Ireland and three trial Sales central London stores. Total Sales | | | FY23 | FY22 | Gross profit | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | £m | £m | | | | | | | | | | | | FY23 | FY23 | FY22 | FY22 | | | Stores 441.1 336.0 | | | | £m | % Sales | £m | % Sales | | growth | cardfactory Online 8.8 10.9 | | | Group Sales 463.4 364.4 | | | | | | | Getting Personal 8.5 12.9 | | | COGs (146.8) (31.7%) (124.1) (34.1%) | | | | | | | Partnerships 5.0 4.6 | | | Product Margin – Constant Currency¹ 316.6 68.3% 240.3 65.9% | | | | | | | Group 463.4 364.4 | | | FX gains/losses 1.5 0.3% 2.6 0.7% | | | | | Product Margin 318.1 68.6% 242.9 66.6% LFL Sales Store & Warehouse Wages (109.6) (23.7%) (91.4) (25.1%) FY23 FY22 Property Costs (26.3) (5.7%) (15.8) (4.3%) Stores +7.6% -5.7% Other Direct Costs (21.5) (4.7%) (19.2) (5.2%) cardfactory Online -18.8% -1.5% Gross Profit 160.7 34.7% 116.5 32.0% cardfactory LFL +6.7% -3.9% Getting Personal -34.7% -21.6% 1. Product margin calculated on a constant currency basis using a consistent GBPUSD exchange rate across both periods. FX gains and losses reflect conversion from the constant rate to prevailing market rates. Total Group sales for FY23 were £463.4 million, an increase of £99.0 million compared to the ### previous year. 53 53 # CFO'S REVIEW CONTINUED Overall gross profit for the Group increased by £44.2 million to £160.7 million, a 2.3ppb improvement in gross margin to 34.7%. The overall trend in the year reflects active management of inflationary pressures, in particular the benefit of our currency and energy hedging and through targeted price increases, plus efficiency benefits arising from a full-year of trade and deliberate actions taken to improve productivity and stabilise costs. Product margins, calculated on a constant currency basis, improved 2.4ppb from 65.9% in FY22 to 68.3% this year. This improvement largely reflects the impact of targeted price increases on sales, which offset the impact of wage inflation as well as material price inflation. Product margins include the purchase price of goods, along with inbound freight, carriage and packing. Product margin also benefitted from a reduction in stock provisions as supply chain and inventory management challenges that affected FY22 did not recur in FY23, and overall inventory levels normalised following the pandemic. Changes in the value of stock provisions and other stock losses had a small negative impact on margin of approximately 0.5ppb in the year. Within the cost of goods sold, we saw a 0.6ppb increase in the cost of inbound freight, as market prices for sea freight rose significantly towards the end of 2021 and remained high through much of the 2022 calendar year. This added over £5 million to the overall cost of goods sold in FY23. This impact was partially mitigated through optimisation of inbound shipments where possible. The Group purchases approximately 50% of its total goods for resale in US Dollars and has a well-established hedging policy to manage the risk of adverse fluctuations in market GBPUSD rates. In FY23 we achieved an average GBPUSD rate of approximately 1.32 on US Dollar purchases, slightly adverse to the rate achieved in FY22 reflecting the weakening of Sterling in the period, but still significantly ahead of the average market spot rate for the year. Store and warehouse wages reduced by 1.4ppb year-on-year as a percentage of sales, which includes a one-off £2.5 million benefit in respect of provisions released following the settlement of our CJRS position with MMRC. Excluding this credit and making an equivalent adjustment in the prior period, store wages as a percentage of sales are comparable in both years despite national living wage increases of 6.6% being applicable from April 2022, due to targeted price increases and more efficient deployment of labour resources, enabled by stores being open for the whole year. Employee costs for FY22 are stated net of CJRS support received in that period. Property costs increased by 1.4ppb as a percentage of sales, reflecting the cessation of extended business rates reliefs from April 2022. Property costs do not include rents as the accounting treatment for leases results in these costs being reflected as right-of-use depreciation and a finance charge on lease liabilities, both below gross profit, a combined charge of £39.4 million in FY23 (FY22: £40.7 million). Other direct expenses include warehouse costs, store opening costs, utilities, maintenance, point of sale and pay-per-click expenditure. A large proportion of costs in this category are variable in relation only to the size of the store portfolio and available trading days, meaning whilst overall costs increased, they fell as a percentage of sales given the improved trading performance in the year. The Group has benefitted from its long-term energy hedge, which fixed commodity costs at FY22 levels. All of the Group's UK energy costs will continue to benefit from this hedge until September 2024. EBITDA and operating profit | | FY23 £m | FY23 % Sales | FY23 £m | FY22 % Sales | | --- | --- | --- | --- | --- | | Group Sales | 463.4 | | 364.4 | | | Gross Profit | 160.7 | 34.7% | 116.5 | 32.0% | | Operating Expenses | (48.7) | (10.5%) | (38.9) | (10.7%) | | Other operating income | - | - | 8.0 | 2.2% | | EBITDA | 112.0 | 24.2% | 85.6 | 23.8% | | Depreciation & Amortisation | (10.3) | (2.2%) | (11.6) | (3.2%) | | Right-of-use asset depreciation | (35.1) | (7.5%) | (37.4) | (10.3%) | | Impairment Charges | (2.8) | (0.6%) | (5.0) | (1.4%) | | Operating Profit | 63.8 | 13.8% | 31.6 | 8.7% | Operating expenses (excluding depreciation and amortisation) include remuneration for central and regional management, business support functions, design studio costs and business insurance together with central overheads and administration costs. Total operating expenses increased by £9.7 million to £48.7 million in FY23, reflecting the cessation of furlough for central staff alongside investment in our people and strengthening our IT infrastructure and marketing approach to support our 'Opening Our New Future' strategy to provide a platform for future growth. As a result, driven by the improved trading performance, effective management of inflationary pressures and carefully targeted investment for growth, Group EBITDA increased to £112.0 million in FY23. Total depreciation and amortisation charges reduced by £3.6 million compared to the prior year. This largely reflects a reduction in depreciation charges on right-of-use assets in relation to our store portfolio. Store rents, and therefore the related right-of-use assets, have continued to fall since the pandemic and our dynamic, flexible approach to the store portfolio has enabled us to continue to capture these reductions as part of lease renewals or relocations. Impairment charges, net of reversals, in respect of store right-of-use assets reduced from £5.0 million in FY22 to £1.3 million in FY23, reflecting the improved trading performance and our future expectations regarding store performance and cost inflation. Impairment charges for FY23 also includes a one-off £1.5 million impairment charge in respect of online platform development for getting personal.co.uk. The impairment reflects development work that did not form part of the final solution, which was deployed shortly after the year end in March 2023. 54 Conf-Festery job Annual Report and Accounts 2023 # Profit before tax | | FY22 £m | FY23 % Sales | FY22 £m | FY22 % Sales | | --- | --- | --- | --- | --- | | Group Sales | 463.4 | | 364.4 | | | Operating Profit | 63.8 | 13.8% | 21.6 | 8.7% | | Finance Costs | (11.4) | (2.5%) | (20.5) | (5.7%) | | Profit Before Tax | 52.4 | 11.3% | 11.1 | 3.0% | Total finance costs reduced significantly compared to the previous year, from £20.5 million to £11.4 million. This largely reflects a reduction in loan issue costs charged to the income statement. | | FY23 £m | FY22 £m | | --- | --- | --- | | Interest on loans | 6.0 | 6.8 | | Loan issue cost amortisation | 0.9 | 10.4 | | IFRS 16 Leases interest | 4.5 | 3.3 | | Total Finance Expenses | 11.4 | 20.5 | FY22 included £10.4 million of costs associated with the May 2021 refinancing which included costs related to a potential equity raise, the requirement for which was removed by the subsequent refinancing in April 2022. Our updated facilities, described in further detail below and in note 17 to the financial statements, provide much greater flexibility to the Group, which in combination with continued delivery of operating cash flows has enabled us to reduce levels of gross debt. Taken in conjunction with our interest rate hedging programme, which has provided a degree of protection from increases in market rates during FY23, the interest payable on our debt facilities reduced compared to the previous year. As a result, profit before tax for the year was £52.4 million, up £41.3 million from £11.1 million for the previous year. # Taxation The Group is committed to being a responsible taxpayer, paying the right amount of tax at the right time is a fundamental principle of our operation. We aim to maintain an open and honest relationship with the tax authorities in the jurisdictions where we operate. During FY23, we underwent a routine review of our business risk rating with HMRC, which was confirmed in March 2023 as 'low'. Our improved trading performance and subsequent increase in profitability, as described above, means the Group made cash payments in respect of UK corporation tax for the first time since 2020. Our tax charge for the year was £8.2 million (FY22: £3.0 million). This represents an effective rate of corporation tax for the year of 15.6%, which is lower than the standard rate of UK Corporation tax applicable in the period of 19%. This principally reflects the impact of prior year adjustments, with no tax ultimately payable in respect of FY22 owing to the allocation of brought-forward tax losses and reliefs to the period, when the tax computations for that period were finalised, partly offset by the impact of deferred tax balances being accrued at the higher rate of 25% applicable from 1 April 2023. The Group paid cash taxes of £7.9 million in FY23, which all relate to the FY23 financial year. # Earnings per share The net result for the year was a profit after tax of £44.2 million, increased from £8.1 million in FY22. As a result, basic earnings per share (EPS) for the year was 12.9 pence, with diluted EPS of 12.8 pence. | | FY22 £m | FY22 £m | | --- | --- | --- | | Profit after tax (£m) | 44.2 | 8.1 | | Basic EPS (pence) | 12.9 pence | 2.4 pence | | Diluted EPS (pence) | 12.8 pence | 2.4 pence | # Cash flows | | FY22 £m | FY22 £m | | --- | --- | --- | | Net cash from Operating Activities | 99.9 | 113.7 | | Net cash used in Investing Activities | (16.2) | (6.9) | | Net cash used in Financing Activities | (110.1) | (81.0) | | Net Cash Flow for Year | (28.4) | 25.8 | | Operating cash flows less lease repayments¹ | 47.4 | 59.2 | | Operating cash conversion² | 96% | 132% | 1 Operating cash flows less lease repayments is net cash from operating activities of £99.9 million less lease payments of £52.5 million. 2 Operating cash conversion is Cash from operations (cash from operating activities before tax payments) of £107.8 million as a percentage of EBITDA. Alternative performance measures are described in further detail in the glossary on page 169. 55 Strategic Report Government Financial Statements Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## CFO'S REVIEW CONTINUED The Group continued to deliver positive cash performance in FY23, with cash from operations Net Debt (before lease repayments and tax) of £107.8 million (2022: £113.6 million) million contributing to | | | | FY23 | | | | FY22 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | an overall reduction in net debt (see below). | | Net Debt | | | FY23 | Net Debt | | | FY22 | | | | | £m | Leverage | | | £m | Leverage | | | Operating cash flows were slightly lower than in the previous year, which reflects the | Current borrowings 50.1 25.5 | | | | | | | | | normalisation of working capital profiles as we delivered a full year of trading – including an Non-current borrowings 17.4 85.5 £11 million increase in inventory levels to support higher sales – partly offset by a net one-time Total Borrowings 67.5 111.0 benefit arising from the realignment of VAT payment quarter ends with our fiscal year. The position at the end of FY22 was impacted by the protective actions taken to secure cash and Add back capitalised debt costs 1.4 1.5 liquidity during and immediately after the pandemic and the impact on inventory balances Gross Bank Debt 68.9 112.5 as a result of global supply chain issues during that year that did not recur in FY23. Operating Less cash (11.7) (38.3) cash conversion (calculated as EBITDA/cash from operations) was 96%, despite the working Net Debt (exc. Leases) 57.2 74.2 capital normalisation. Leverage (exc. Leases) 0.5x 0.9x Capital expenditure increased from £6.9 million to £18.2 million, as investment increased Lease Liabilities 105.4 119.8 following the cessation of all but essential spend during the pandemic-affected years and the Net Debt (inc. Leases) 162.6 194.0 commencement of projects to drive future growth. Leverage (inc. Leases) 1.4x 2.3x Cash used in financing activities includes £45.1 million of debt facility repayments (2022: £8.0 million of debt repayments) following the refinancing and subsequent management On 21 April 2022, the Group agreed an updated and amended financing package with its of the revolving facility position, and £52.5 million of payments in respect of lease liabilities for banking partners, which reduced the overall quantum and extended the term of the Group’s the store portfolio (2022: £54.5 million). facilities. The new package also provided greater flexibility, with a proportion of the previous term loans effectively repaid and replaced with a revolving facility. Lease payments were higher than normal, albeit broadly aligned with the prior year, reflecting the continued settlement of deferred payment plans agreed during the pandemic. The Group The revised facilities comprised term loans of £30 million, CLBILS of £20 million and an RCF of cleared approximately £11 million of deferred rents during FY23 and has no VAT or rent deferrals £100 million. The CLBILS are subject to an amortising repayment profile with final maturity in outstanding at 31 January 2023. September 2023. The Term Loans are set in two tranches, both with an amortising repayment profile. Tranche ‘A’ has a final maturity in January 2024 and Tranche ‘B’ is coterminous with the RCF in September 2025. The interest rates applicable to each facility are set out in note 17 to ### Balance Sheet the financial statements. Capital expenditure Total capital expenditure in FY23 was £18.2 million, increased from £6.9 million in FY22. The Group focuses on net debt excluding lease liabilities, this reflects the way the Group’s covenants are calculated in its financing facilities. The cash generation trend described above has Key projects included the continuing development of our Group-wide ERP implementation, with contributed to a reduction in both gross and net debt during FY23, with Leverage (calculated as the next significant functionality updates expected during FY24. We also invested in our new Net Debt/EBITDA) falling to the bottom end of our target 0.5-1.5x range as a result. model stores, in addition to ongoing spend in relation to the expansion and optimisation of the store portfolio. The Group made scheduled repayments in respect of the CLBILs and term loan tranche ‘A’ totalling £6.1 million in January 2023. At 31 January 2023, the Group had undrawn committed eCommerce initiatives to support our omnichannel strategy were another key focus, with the facilities of £75.2 million. new platform for our Getting Personal website going live in March 2023. The reduction in lease liabilities reflects the repayment of deferred rentals during FY23 that Looking forward, we expect capital investment to continue to increase to approximately remained outstanding at the end of the previous year. £24 million per annum, as we invest to deliver our strategy. The Group’s cash generation profile typically follows an annualised pattern, with higher cash outflows in the first half of the year associated with lower seasonal sales and investment in working capital ahead of the Christmas season. The inverse is then usually true in the second half, as Christmas sales lead to reduced stock levels and higher cash inflows. As a result, net debt at the end of the year is usually lower than the intra-year peak, which typically occurs during the third quarter. ### 56 Card Factory plc Annual Report and Accounts 2023 The Group continues to hold a provision of £7.4 million relating to the potential overpayment of government support during the pandemic, with reference to subsidy control limits. The Group is actively taking steps to resolve its position. #### **Capital structure and distributions** The Board remains committed to maintaining a capital structure that is conservative yet efficient in terms of providing long-term returns to shareholders after allowing for investment to fund ongoing operational requirements and strategic growth. The Group remains prohibited from making distributions under the terms of its financing facilities until such time as the CLBILS and Tranche W of the term loans are fully repaid. Accordingly, there were no dividend payments made in either the current or the preceding year. The final maturity date for tranche W of the term loans is 31 January 2024, and accordingly the earliest that dividend payments will be considered is during the FY25 financial year. Subject to continued financial performance in line with the strategic plan, the Board envisages recommencing dividend payments at a level of 2-3x dividend cover based on profit after tax, subject to a Leverage ratio assessed across the financial year of not more than 1.5x (excluding lease liabilities) being maintained after the distribution is made. #### **Acquisition of SA Greetings** Following the year end, on 25 April 2023, the Group acquired a 100% stake in SA Greetings Corporation (Pty) Ltd ('SA Greetings') for fixed cash consideration of £2.5 million, funded from existing cash reserves and working capital. SA Greetings is the leading wholesaler of greeting cards and gift packaging in South Africa. It also operates 24 'Cardies' retail stores, with four further stores operated by franchisees, and owns and operates a roll-wrap production facility. Its head office and main warehouse are located in Johannesburg, with sales offices in Durban and Cape Town. The acquisition gives the Group immediate access to the South African market via an established, successful business and expands satisfactory's global presence in line with our strategy. We expect the acquisition to make a small positive contribution to the Group's EBITDA and PBT in FY24 and look forward to exploring the opportunities to support the development of the SA Greetings business and enhance the Group's production, wholesale and retail offer in both South Africa and the UK. #### **Outlook** Trading in the first weeks of the new financial year is slightly ahead of the Board's expectations. Strong performance across both our Everyday ranges and Spring seasons of Valentine's Day and Mother's Day compared to FY23, has seen increased store transactions and average basket values, driven by effective range development, an expanding gifting offer and our compelling value for money offer across both cards and gifts. Based on the current inflationary outlook, we are confident in our ability to withstand these pressures with a continued focus on productivity and efficiencies whilst also benefitting from the normalisation of freight costs and annualisation of targeted price increases in FY23. We have full energy and currency hedging in place for FY24. Whilst mindful of the ongoing impact of the cost-of-living crisis, we remain confident that our compelling value for money proposition across a range of products and price points will resonate with customers. This approach, together with our clear growth strategy, gives us confidence the Group will continue to make strategic and financial progress in the year ahead. In addition, the Board remains confident in the compelling growth opportunity for the business. As part of our Capital Markets Strategy Update, we will outline a pathway for revenues of around £650 million and margins of around 14% in FY27, supported by a capital investment plan of £24 million per annum, over the next three years. **Simon Comer** **Interim CFO** 3 May 2023 Strategy Report Governance Financial Statements 57 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## RISK MANAGEMENT ### Risk management process ### Managing our risks Risks are discussed at the monthly meeting ### Identify Risk management is an inherent part of of the senior management team on a rolling doing business; it balances risk and reward, basis. determined through a careful assessment of both potential outcomes and impact and The Head of Internal Audit and Loss risk appetite. Below and on the following Prevention provides the Audit & Risk pages is an overview of our risk management Committee with a risk management update framework, principal risks, ongoing mitigations at each meeting, which includes an overview and how these align to our strategy. of changes to specific risks reviewed in the ### Risk period, along with a summary of the Group ### risk register. Management AssessMonitor ### Risk management approach ### cardfactory’s risk management framework Framework Under the oversight of the Board and detailed embeds the identification, assessment, scrutiny by the Audit & Risk Committee, mitigation and monitoring of risks that members of the senior management team threaten the achievement of our objectives. are responsible for identifying emerging risks The framework incorporates both a top-down and implementation of mitigation plans. A approach to identify the Group’s principal complete review of all the risks and review risks and a bottom-up approach to identify of the adequacy of the process to identify operational risks. emerging risks was undertaken at the end of ### the financial year. Mitigate A Group risk register is in place and is used to assess the gross level of risk to The Audit & Risk Committee supports the business (likelihood and impact), the the Board in maintaining a robust risk extent of any mitigating controls and the management framework by approving the resultant net level of risk. It also details any risk management process and reviewing the further plans to mitigate or reduce risks. Identify Group’s principal risks and risk appetite on ## In FY23 we carried out a review of the risk • Risk registers compiled by each business function. a regular basis. You can read more on risk ## management framework. On the back of this, • Risk mapping to identify emerging issues. governance in the Audit & Risk Committee a new risk 5*5 matrix model and the Group’s Report on pages 75 to 77. approach to risk appetite were approved and Assess ## implemented. The approach to setting ‘target • Determining the likelihood of risk occurrence. Internal Audit also provide independent ## risk’ is currently being developed and will be • Evaluating the potential impact. assurance to management and the Audit & rolled out in FY24. Risk Committee over specific risk areas as Mitigate part of their annual audit plan. ## Each risk is assigned to a member of the • Agreeing actions to manage the identified risks. ## senior management team. Critical rated • Ensuring control measures are in place. risks are reviewed and updated where appropriate twice a year, with all others Monitor ## being reviewed annually. • Reviewing the effectiveness of controls. ## • Maintaining continued oversight and tracking. ### 58 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report ### Principal risks and uncertainties Top down Maintains sound risk management and control systems, ### Card Factory The Audit & Risk Committee has performed a detailed review of the risk management assesses principal risks. ### plc Board framework throughout the year, which has resulted in an updated risk matrix. Our model has moved from a 3*3 to a 5*5 model and the impact and likelihood criteria has been updated in ### Audit & Risk Sets risk management framework, assesses effectiveness line with this, with all risks having been reviewed and updated accordingly. Additionally, risk of risk and control systems and maintains oversight of risk ### Committee appetite has been developed and each risk has its own assigned risk appetite. Target risk score monitoring. is currently being trialled and is to be rolled out in FY24. ### Senior Manages risks within their area of accountability, with The Audit & Risk Committee has performed a robust assessment of the emerging and principal responsibility to mitigate risks (where appropriate). The senior ### Management risks facing the Group and below is a summary of the principal risks and uncertainties the management team undertakes reviews of and makes updates ### Team Group faces. Governance Financial Statements to each risk on a rolling monthly basis. This group is also primarily responsible for monitoring, identifying and reporting As noted above, as part of the detailed review of the risk register, a number of changes have emerging risks as they arise. been made, most notably the removal of Covid-19. ### Internal Audit Coordinates risk management activity through review of risk registers, agreement of risk mitigation plans and preparation Please turn to pages 60 to 62 for more information on our principal risks and uncertainties. of risk reporting. ### Operational All colleagues are responsible for managing risk, overseen by each senior management team member, for their operational ### Management areas of responsibility. Bottom up 5 1 IT Infrastructure & security 2 Geopolitical instability 3 Brand customer experience 2 1 4 4 ERP implementation 5 ESG compliance & climate change risks 6 Business continuity 43 3 7 Supplier CSR breach 8 Retail partner Likelihood 9 Adapting to customer 7 8 5 preference 2 9 6 1 1 2 3 4 5 Impact ### 59 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## RISK MANAGEMENT CONTINUED | Risk trend: Increasing Stable Decreasing | Link to strategy: | 01 | Increasing breadth of product offering | | --- | --- | --- | --- | | | | 02 | Create a full omnichannel offer | | | | 03 | A robust and scalable central model | ### Strategic Risks Description Mitigation Failure to meet requirements of institutional An ESG strategy has been devised with five key work streams. Management will focus on these to achieve the ### ESG investors, customers and other stakeholders when ambition of growing the business in a socially and environmentally responsible way. ### compliance and it comes to ESG requirements, including provision climate change Various actions in environmental and social have been implement. Please refer to the ESG section of this report on of sustainable products and reducing waste and ### risks pages 36 to 43 for further actions being taken. plastics (includes climate change risks). Strategy 01 03 Failure to anticipate and adapt to changes in Broader delivery of the overarching commercial strategy must ensure continual adaptation to changing customer ### Adapting customer preferences and shopping habits, preferences; in-store online and through our business partners. Historically, the business has had limited access to ### to customer market dynamics and competitor activity- meaningful customer and marketing insight to drive improved decision making. The creation of a marketing and ### preferences channel shift. insight function has improved decision making. Strategy The commercial planning process continually reviews and responds to changing customer purchasing behaviour. 01 02 As the business becomes fully omnichannel, the customer demands for fulfilment and service will increase as a connected, seamless experience becomes an expectation rather than a desire. In response, Click & Collect and multi- ship have been rolled out. Future developments are being scoped. Failure to manage and promote the brand which Brand strategy is in place which fully articulates cardfactory brand proposition and strategic framework to elevate ### Brand customer could result in loss of market share. the brand’s key attributes and to create clarity around the omnichannel proposition with cross channel campaigns ### experience being developed to support awareness and growth including celebrate life’s moments. Strategy We have significantly improved customer insight and data which is shaping our thinking and decision making across 01 02 03 the business and we have invested in, trialled and launched a customer Service Excellence programme, which will continue to evolve. Market data shows that cardfactory has been successful in retaining and attracting customers through the strength and value for money we offer coupled with an increase in range and sales of gifts and celebration essentials. Additionally, the communication plan has a focus on investor relations with an increased focus on working with Corporate Affairs agency to proactively tell the cardfactory story. See the ‘Our brand’ section on pages 12 and 13 for further information on our activities. ### 60 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report ### Operational Risks Description Mitigation Undergoing a design and phased implementation To minimise these risks, we have successfully completed the initial implementation phase, which encompassed ### Enterprise of a new ERP systems to replace aging core IT finance and master data without any material disruption. Governance Financial Statements ### Resource infrastructure. This process carries inherent risks, Planning (ERP) We have also restructured the project to adopt a more incremental approach, which allows for smoother transitions including potential business disruption, data loss, implementation between phases, reduced reliance on vulnerable legacy systems during peak trading seasons, and enables the inability to achieve expected benefits, and failure achievement of critical strategic plan components. Furthermore, we have increased our focus on business process Strategy to provide the necessary foundation for executing engineering, dedicated resources and change management strategies to support a successful ERP implementation. our strategic plan. Key aspects of this plan 02 include developing an omnichannel customer experience, enhancing engagement with retail partners, and driving operational efficiencies in stores. Unsupported and legacy software, some of which The IT strategy implementation includes ongoing specialist support for legacy systems and migration to new ### IT infrastructure is subject to material tailoring, requires ongoing systems, including the ERP implementation with dedicated teams in place to manage the transition. ### and security support to maintain functionality and significant Cyber expertise is employed within the business and appropriate cyber controls are in place. Plans designed to Strategy transactional volumes. There is a reliance on IT continue to address multiple cyber risks, alongside further risk mitigations arising from replacement of legacy systems to support all operations, which could be 02 03 systems, are also in place. exposed to cyber risk. Prolonged loss or server disruption to Printcraft A business continuity and disaster recovery plan is in place, which includes the use of alternative suppliers for any ### Business print and production facilities, web fulfilment impacted production processes. ### continuity centre and supply chain. In relation to online fulfilment, any short-term outages can be mitigated by adjustment of delivery times for online Strategy orders. Business continuity plans are in place, which include the use of third parties. 02 03 Planning permission has been obtained and groundworks completed on an additional building to create capacity for online fulfilment, to relieve capacity constraints. ### 61 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## RISK MANAGEMENT CONTINUED | Risk trend: Increasing Stable Decreasing | Link to strategy: | 01 | Increasing breadth of product offering | | --- | --- | --- | --- | | | | 02 | Create a full omnichannel offer | | | | 03 | A robust and scalable central model | ### Operational Risks (cont.) Description Mitigation Supplier CSR breach resulting in a potential Processes for suppliers to agree to appropriate standards, which are subject to regular audit and inspection by ### Supplier breach of legislation (e.g. Modern Slavery, cardfactory teams (or receipt of alternative adequate independent report) to validate compliance, with a strict ‘no ### CSRbreach Anti Bribery & Corruption) and for products audit – no order’ policy adopted. Testing and pre-shipment sampling of production models is being undertaken. Strategy supplied (e.g. Safety and labelling standards), All product testing and quality control inspections are undertaken by authorised accredited providers. A dedicated which could damage cardfactory’s reputation 01 quality control team is in place to test pre-shipment sampling of production models. and reduce sales. The risk profile for most suppliers to Getting Personal is significantly lower, with limited supplies from the Far East. Plans are being developed to extend the quality control and technical teams’ scope to include these suppliers with adoption of appropriate requirements to mitigate risks. cardfactory may not realise the growth in A business development team has been formed to build relationships with existing partners and develop a pipeline ### Retail partner profitable revenue from retail partners, which is of future partners. ### exposure a significant component for future growth of the Brand standard requirements are in place to provide a clear framework for partners, with regular reviews adopted. Strategy business and the brand or reputation could be Enhanced requirements will be incorporated in any future retail partner requirements. damaged by the actions of retail partners. 02 ### Financial Risks Description Mitigation Geopolitical instability leading to restrictions on ### Geopolitical trade ### instability Suppliers: Suppliers: Strategy Operating with a supply base whereby we have – Diversifying the supply base by bringing more production back to the UK while also exploring other | 03 | the total business or specific categories solely | geographical territories. | | --- | --- | --- | | | dependent on one supplier, region or country | – Buyers have extensive industry knowledge, know of alternative suppliers if mitigation needs arise and manage | | | carries significant stock supply risk. China | any supply issues or problems. | remains our biggest supply route. Customers: Customers: Restrictions on supply from certain countries may – Moving supply to new territories and using UK-based suppliers (non-exclusive product) will mitigate the supply impact availability and retail selling prices. issue at the shelf edge, but could potentially drive increased cost, with price elasticity assessments to provide insights on consequences of future price increases. Geographies and governments: Geographies and governments: New legislation and import tariffs may force – Continual review of the import tariff duties and ‘live’ government legislative changes to ensure we are always resourcing decisions. sourcing from the best source to support the overall business. ### 62 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ## NON-FINANCIAL INFORMATION STATEMENT Strategic Report ### Non-financial information statement Reporting requirement Relevant information Policies and standards Information necessary to understand the Company’s development, performance and position and the impact of its activity relating to: 1. Environmental matters (including the impact of the Company’s business on Pages 36 to 50 Page 35 the environment). Governance Financial Statements 2. The Company’s employees. Pages 30 to 33, 40 & 41 Page 32 3. Social matters. Pages 35 & 42 Page 35 4. Respect for human rights. Pages 35 & 62 Page 35 5. Anti-corruption and anti-bribery matters. Pages 35, 62, 73 & 75 Pages 35 & 73 Required information 6. Description of the Company’s business model. Pages 14 & 15 7. Description of policies (and any due diligence processes implemented pursuant See the sections to those policies) pursued by the Company in respect of items 1 to 5 above and a referred to above description of the outcome of those policies. 8. A clear and reasoned explanation if the Company does not pursue any policies Not applicable in respect of the above matters. 9. Description of the principal risks relating to items 1 to 5 above and where relevant Pages 58 to 62 and proportionate, a description of the business relationships, products and services which are likely to cause adverse impacts in those areas of risk and a description of how it manages such risks. 10. Description of the non-financial key performance indicators relevant to the Pages 26 to 27, 29, 32 | | Company’s business. | & 33 | | --- | --- | --- | | 11. Where appropriate, references to and additional explanations of amounts | | The accounts | | | included in the accounts. | are produced in | accordance with UK- adopted international accounting standards and applicable law. See page 149 for alternative performance measures. The Strategic Report, which was approved by the Board on 2 May 2023 and is set out on pages 1 to 63. Darcy Willson-Rymer Chief Executive Officer 3 May 2023 ### 63 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## BOARD OF DIRECTORS ## Paul Moody Darcy Willson-Rymer Roger Whiteside OBE Non-Executive Chair Chief Executive Officer Senior Independent Non-Executive Director (SID since 1 February 2023) Committee membership Date of appointment: Date of appointment: Date of appointment: R N | | | | | | | | AR | R N | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 19 October 2018 | 8 March 2021 | 4 December 2017 | | | | Audit & Risk | AR | Remuneration | R | | | | | | | | | | | Paul has extensive retail experience having | Prior to joining the Company, Darcy served | Roger has extensive retail experience | | | | | | | | served 20 years at Britvic plc, including | as CEO of Costcutter Supermarkets Group | and recently retired from his role as Chief | | | | Nomination | N | Chair | | | | | | | | | | | | eight years as Chief Executive Officer. Paul | for eight years and was CEO of Clinton | Executive Officer of Greggs plc, in May | | | | | | | | is currently Chair of 4imprint Group plc, | Cards plc from 2011 to 2012. Before joining | 2022. Prior to this role, Roger served as Chief | | | | | | | | having been appointed in February 2016. | Clinton Cards, Darcy held a range of | Executive of both Thresher Group and Punch | | | | | | | | Paul was Chair of Johnson Service Group plc | roles in international branded businesses, | Taverns. Roger was also a founding member | | | | | | | | between May 2014 and August 2018 and was | including Managing Director (UK & Ireland) of | and the Joint Managing Director of Ocado. | | | | | | | | a Non-Executive Director and Chair of the | Starbucks Coffee Company, and senior roles | Roger spent the early part of his career at | | | | | | | | Remuneration Committee of Pets at Home | at Yum Restaurants International, including | Marks and Spencer where he led the food | | | | | | | | plc from March 2014 until July 2020. Paul | Operations Director of KFC Great Britain, and | division for the business. | | | | | | | | assumed the interim role as Executive Chair | Director of Operations and Franchise, Europe, | | | | | | | | | of Card Factory plc from 1 July 2020 to | KFC and Pizza Hut. | | | | 8 March 2021. Current external appointments: Non-Executive Chair of 4imprint Group plc. ### 64 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ## Nathan (Tripp) Lane Robert (Rob) McWilliam Indira Thambiah Non-Independent Independent Independent Non-Executive Director Non-Executive Director Non-Executive Director Financial StatementsGovernanceStrategic Report | Date of appointment: | Date of appointment: | | | Date of appointment: | | | --- | --- | --- | --- | --- | --- | | | | AR | R N | | AR R N | | 9 April 2020 | 1 November 2021 | | | 1 September 2022 | | | Tripp is the founder of Delancey Cove LLC, | Rob was Chief Financial Officer of Asda | | | Indira is an experienced multi-channel retail | | | where he focuses on management and | from 2018 to 2021; and between 1997 and | | | executive and consultant, with previous roles | | | corporate governance for turnarounds and | 2012 held a number of senior roles within | | | including Head of Multi-Channel for Home | | | special situations. Tripp has significant retail | the Asda group including Commercial | | | Retail Group (Argos & Homebase) and Vice | | | and consumer sector experience having | Finance & Strategy Director and Business | | | President, Europe at online sales marketplace, | | | invested extensively in the sector via private | Change Director. In between his two periods | | | Zulily. Indira has successfully managed a | | | equity, public equity and distressed debt. | with Asda, Rob was Vice President, UK, | | | number of private businesses, most recently | | | Tripp served on the board of New Look for | Finance Director and then Vice President | | | Roof-Maker (CEO, 2018 to 2022). Indira has also | | | five years and is currently a Non-Executive | of Consumables at Amazon UK. Rob was | | | been an Independent Non-Executive Director | | | Director of Slater & Gordon UK Holdings | Independent Director of YPO (from 2017 | | | and member of the Remuneration Committee | | | Limited, RetailNext Holdings, Inc. (USA), and | to September 2021) and was previously a | | | at each of Superdry plc (2010 to 2013) and | | | CellC Limited (South Africa), and was recently | Non-Executive Director of Ten Entertainment | | | Yorkshire Building Society (2007 to 2010). | | | appointed Chair of LBI ehf (Iceland). Prior | Group plc where he was also the Chair of the | | | Indira is a qualified Chartered Accountant. | | | to founding Delancey Cove, Tripp founded | Risk and Audit Committee. | | | | | Current external appointments: his own financial advisory business, Resegon Current external appointments: Indira is currently Non-Executive Director and Capital Partners, and was an investment Rob is currently Non-Executive Director Trustee of Vivibarefoot Limited. professional for BlueMountain Capital and and Trustee of Jisc, Non-Executive Director Apax Partners. of Venture Simulations Limited and Non- | Current external appointments | Executive Director of Fruugo plc (all of which | | --- | --- | | Member of Delancey Cove LLC, and Non- | are unlisted). Rob was appointed as a Non- | | Executive Director of Slater & Gordon UK | Executive Director of the Solicitors Regulation | | Holdings Limited, RetailNext Holdings Inc., | Authority on 1 March 2023. | LBI ehf., and CellC Limited. ### 65 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## CORPORATE GOVERNANCE ### Chair’s letter ### Dear Shareholder | The last financial year has proved to be | I am pleased to welcome Indira Thambiah | I am extremely pleased by the performance | | --- | --- | --- | | a period of recovery for cardfactory, as | to the Board. Indira brings much experience | of the management team, including two profit | | we celebrated our 25th anniversary of the | from other retail and online businesses and | upgrades during the year and the material | | opening of our first store, developed good | is making valuable contributions to the | reduction in debt requirements which have | | momentum post-pandemic and started to | Board Committees, including succeeding | been instrumental in securing a release of | | implement our ‘Opening Our New Future’ | Octavia Morley as Chair of the Remuneration | the undertakings to raise equity. With further | | strategy as we evolve into a customer-centric, | Committee. I look forward to Matthias Seeger | reduction of our debt we look forward to | | omnichannel retailer. | joining the Board in May 2023 as CFO, | being able to review payment of dividends | | | following a thorough market search. We are | from early 2024. | | The Board has revalidated the basis and | grateful to Simon Comer for assuming the | | | foundations for the strategic plan and focused | non-statutory appointment as interim CFO. | Yours sincerely | on reviewing the key priorities to maximise the | opportunities that will provide the best return | I also wish to recognise the Directors who have | Paul Moody | | --- | --- | --- | | for all stakeholders. This includes the enablers | stepped down from the Board in the last year, | Chair | | and key investments in technology and | including Octavia Morley, who retired at the | 3 May 2023 | ## Paul Moody capacity to improve efficiency and increase end of the financial year and Kris Lee, who Non-Executive Chair sales, development of the omnichannel stepped down as CFO on 31 January 2023. ambition and review of the approach to | | expand our domestic and international | Octavia has been Senior Independent | | --- | --- | --- | | | partnership strategy. | Director and Chair of the Remuneration | | “With further reduction of | | Committee since 2014 and has made a | | | In parallel, progress has been made to | significant contribution to cardfactory. Kris | ### our debt we look forward | | further improve our ESG strategy, including | has been Chief Financial Officer since 2017 | | --- | --- | --- | | to being able to review | progress to allow us to understand our Scope | and played a significant role in helping to | | | 3 greenhouse gas emissions to support | guide the Company through the last few | ### payment of dividends from setting appropriate objectives to reduce our years, particularly during the Covid impacted ### early 2024.” impact on the environment and a significant period and a series of refinancings. We wish improvement in our colleague engagement. Octavia and Kris all the best for the future. This saw us be awarded a ‘two star’ rating with Best Companies in 2022 and ranked third Best Big Company to Work For in Q1 of 2023, which demonstrates actions taken in previous years are supporting our objective of becoming a ‘three-star’ company. ### 66 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ## CORPORATE GOVERNANCE REPORT | Leadership and approach | • Assessment of acquisition opportunities | | The Board has focused on ensuring it | terms which had been awarded to the | | --- | --- | --- | --- | --- | | The Board is committed to the highest | | and alignment with strategic priorities. | provides strategic challenge and direction | former CFO, where the Board had resolved | | standards of corporate governance. The Board | • Material progress in further development | | to the management team and supports | to address this imbalance from the end | | understands the importance of its leadership | | of our ESG strategy, including assessment | the management team in the framing | of 2022. | | on governance in setting the culture and | | of our Scope 3 greenhouse gas emissions | of the strategic priorities, which include | | | values and in the achievement of long-term | | to support target setting to reduce our | reassessment of values, cultural development | | ### TCFD reporting sustainable success, while successfully impact on the environment. and addressing stakeholder feedback. For the purposes of LR 9.8.6(8) R, please managing risks for our stakeholders. • Refinement of our colleague engagement Specific examples include undertaking an see pages 44 to 50, which assesses forum to improve colleague representation annual review of the strategic plan and the consistency of our climate-related Financial StatementsGovernanceStrategic Report We believe that good governance is to ensure the Board hear the collective reviewing the specific priorities to support financial disclosures against the TCFD demonstrated by applying corporate colleague voice as part of its stakeholder delivery of the strategic plan, with a detailed Recommendations and Recommended governance principles and following the more engagement. operating plan to support achievement of an Disclosures and identifies the amber items detailed provisions and guidance in a way • Reassessment of updated succession ambitious change agenda to the business where reporting is not yet in full compliance that enhances or protects the long-term value planning for the senior management team to realise long term growth. The Board and with TCFD Recommendations. of the business. This ensures a pragmatic and their direct reports and identification its committees have also adopted detailed governance culture sits alongside the of input to be provided by the Board activity schedules to ensure that over the ### Board composition, balance and entrepreneurial and community-minded spirit members to support further development. course of a year, it undertakes the reviews and ### • The appointment of Indira Thambiah as assessments required by the Code. independence which has enabled cardfactory to develop a Non-Executive Director and selection of The Board currently comprises six members into the business it is today. Matthias Seeger as Chief Financial Officer. The Code and Listing Rules require the and will increase to seven on 22 May 2023 • The improvement of our colleague Company to provide explanation of any when Matthias Seeger joins cardfactory as ### Key governance activities engagement, support and development, provisions of the Code that are not complied CFO. During the FY23 financial year, eight Key activities during the year included: including action to support colleagues with during the year. The only exception was Directors served on the Board: Paul Moody, • Revalidation of the refreshed five-year in dealing with the increasing costs of as follows: Octavia Morley (until 31 January 2023), Roger strategy and the budget and annual living and progressive updates to reward • The employer pension contribution paid Whiteside, Tripp Lane, Rob McWilliam, Indira operating plan and investment priorities and benefits to support recruitment and to Kris Lee, the former CFO prior to 31 Thambiah (from 1 September 2022), Darcy for the current financial year. retention despite the challenging December 2022 (for 11 months of the Willson-Rymer and Kris Lee (until 31 January • Management and improvement of the job market. year) marginally exceeded the rates 2023). liquidity position of the Group, including applicable to the workforce, contrary to completion of a refinancing in April 2022, | | | | Provision 38 of the Code. As described | The Code recommends that at least half the | | --- | --- | --- | --- | --- | | | which included removal of the best efforts | Code compliance | | | | | | | in the Remuneration Report (page | board of directors of a UK-listed company, | | | to effect an equity raise. | By the end of the financial year, the Company | | | | | | | 79), full alignment was effective from 1 | excluding the chair, should comprise non- | | • Consideration of the refreshed Values | | is in full compliance with the UK Corporate | | | | | | | January 2023, consistent with Investment | executive directors, determined by the | | | following an extensive consultation with | Governance Code (2018) published by the | | | | | | | Association guidance. This provision of the | board to be independent in character and | | | colleagues. | Financial Reporting Council (Code). The | | | | | | | Code has not been complied with due to | judgement and free from relationships or | Company intends to continue to comply with historical enhanced pension contribution circumstances which may affect, or could the Code, a copy of which can be obtained appear to affect, the director’s judgement. from frc.org.uk. ### 67 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## CORPORATE GOVERNANCE REPORT CONTINUED | The Board considers all of the current Non- | This is kept under constant review, together | Board attendance | | --- | --- | --- | | Executive Directors, with the exception of | with succession planning for the Board as | During the year, the Board held 11 scheduled meetings and 12 other ad hoc Board or sub- | | Nathan (Tripp) Lane, as independent Non- | a whole. | committee meetings. The Committees of the Board also convened meetings during the year, | | Executive Directors (within the meaning of | | with attendance as follows: | | the Code). | During the year the Board considered and | | Scheduled | | approved external appointments with private | | | | Board | Other Board | | Remuneration | Audit & Risk | Nomination | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Tripp Lane was appointed to the Board | companies, including the appointment of | | | | meetings | or Committee | | Committee | Committee | Committee | | | | Director Role | | (11 meetings) | | | meetings | (9 meetings) | (7 meetings) | (7 meetings) | | on 9 April 2020 following constructive | Rob McWilliam as part time, interim CFO | | | | | | | | | | | discussions between the Company, Teleios | of Rohlik.cz and appointment of Rob as | Paul Moody Non-Executive | | | | | | | | | | Capital Partners LLC (‘Teleios’), a long-term | a Non-Executive Director of the Solicitors | | Chair and Chair | | | | | | | | | shareholder which held a c.13% interest | Regulation Authority; and Tripp Lane’s | | of Nomination | | | | | | | | | in the Company at the time (now 19.96%) | appointments to the boards of Slater & | | Committee 11 of 11 7 of 9 7 of 9 – 6 of 7 | | | | | | | | | and another major shareholder. Given the | Gordon UK Holdings Limited, CellC and | Octavia | Senior Independent | | | | | | | | | circumstances surrounding his appointment, | RetailNext. The Board considered that these | Morley | Director and Chair | | | | | | | | | including the Board’s understanding that | appointments gave rise to no conflict of | | of Remuneration | | | | | | | | | Teleios agreed to supplement Tripp’s | interest and did not interfere with the time | | Committee 11 of 11 6 of 8 8 of 9 7 of 7 6 of 7 | | | | | | | | | remuneration with a one-off payment to | commitments to the Company. | | | | | | | | | | | | | Roger | Independent | | | | | | | | secure his candidacy, and following an Whiteside Non-Executive agreement for a future payment to Tripp by ### Board responsibility Director 11 of 11 7 of 8 8 of 9 6 of 7 7 of 7 Teleios Capital Partners LLC, to be based The Company has a clear division of Nathan Non-Independent on the Card Factory plc share price and responsibilities between the Non-Executive (Tripp) Lane Non-Executive dividends (announced in June 2022) the Chair and the Chief Executive Officer. In Director 11 of 11 6 of 8 – – – Board continues to consider that it is not general terms, the Non-Executive Chair is appropriate to view Tripp as an independent Rob Independent responsible for running the Board and the Non-Executive Director for the purposes of McWilliam Non-Executive Chief Executive is responsible for running the the Code, notwithstanding that Tripp is not Director 11 of 11 8 of 8 9 of 9 7 of 7 7 of 7 Group’s business on a day-to-day basis. a nominated Director of Teleios or acting on Indira Independent their behalf. Thambiah¹ Non-Executive This clear division of responsibilities, when Director 5 of 5 2 of 3 4 of 4 4 of 4 2 of 2 taken together with the schedule of matters The constitution of the Company’s Board that the Board has reserved for its own Darcy Chief Executive complies with the Code’s recommendation, consideration, ensures that no one person Willson- Officer with three members of the Board being has unlimited and unchecked power to Rymer 11 of 11 12 of 12 – – – judged to be independent and (excluding make decisions that may have a material Kristian Lee Chief Financial the Chair) two (which will increase to three in impact on the Group as a whole. A copy Officer 11 of 11 9 of 11 – – – May 2022) being non-independent (i.e. two of the matters reserved for the Board is Executive Directors and Tripp Lane). available on cardfactory’s investor website 1 Indira Thambiah was appointed 1 September 2022. (cardfactoryinvestors.com). The Board considers the balance of skills and experience of the Board to be appropriate for its current requirements and is confident that it continues to be an effective and efficient decision-making body that supports the Group’s strategy and growth. ### 68 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ### Board activities and effectiveness All Directors receive papers in advance of cardfactory culture Board meetings are structured to ensure they focus on key strategic matters that affect the Board meetings including regular reports from The Board rely on various indicators to business and examples of topics reviewed during the year are set out below. Additionally, the the senior management team covering the assess the culture of cardfactory, including Board considers any decisions that are within the matters reserved for the Board. parts of the business they are responsible for. regular presentations from the management team, the results of colleague engagement The Board had in place a schedule of matters that were discussed during the year and a similar Minutes of all Board and Committee meetings surveys, feedback from the Combined | schedule is in place for the current financial year. As part of normal planning, the Board puts | are taken by the Company Secretary. | Colleague Advisory Group (CCAG), which | | --- | --- | --- | | these schedules in place in advance of each financial year. | The minutes record actions, decisions | the Chair attends as Designated Director, | | | and resolutions arising out of the topics | and also ad-hoc discussions with colleagues | | The Board meetings include a rolling agenda of key strategic, operational, governance and risk | discussed and summary resolutions of actions | as part of store visits and meetings with | | topics, as well as updates on financial and non-financial KPIs, key strategic programmes and | accompany the minutes which enables the | the senior management team. The Board | | operational and financial performance, which includes periodic presentations from the senior | Board to regularly monitor progress. | recognises the collegiate culture in the | | management team. These ensure that the Non-Executive Directors remain informed of key | | business, with colleagues commonly referring | | developments within the Group and the progress in achieving the strategic objectives. | Board strategy day | to the ‘cardfactory family’. Improvements | | | The Board held its annual strategy day, | have been realised over the last few years | | The key topics discussed by the Board during the year were: | jointly with the senior management team | (reflected in the improving colleague | | | in July 2022. This focused primarily on | engagement scores from Best Companies | | | further developing the opportunities for the | surveys), which evidences progress from | Strategy Performance Governance Omnichannel strategy. a focus on fair deal for colleagues and • Group strategy • Annual results • Internally conducted Board improving benefits and reward in a balanced Financial StatementsGovernanceStrategic Report evaluation • Group budget • Interim results way, improving colleague communications ### Non-Executive Director meetings • Regular reviews of and open engagement and action from • Debt funding and • Seasonal trading updates The Chair and the other Non-Executive performance against that engagement, including regular refinancing • Key project updates Directors met on three separate occasions Board objectives business briefings with open Q&As with the • Commercial strategy in the year without Executive Directors being • KPIs and Balanced • Director and senior management team, CCAG consultations and and delivery of strategic present. They intend to continue to meet Scorecard performance management specific consultations on DE&I and the projects regularly to ensure that any concerns can be • Capital investment review appointments Values review. raised and discussed outside formal Board • Review of competition; • Operational reviews • Colleague engagement, meetings. On a separate occasion, as part customer; marketing and ### culture and values of the annual Board effectiveness review, the Board committees pricing strategies • Trading reviews Senior Independent Director and the other The Board has three Committees: • Market performance • Shareholder engagement • Retail partner development Non-Executive Directors met without the • an Audit & Risk Committee; strategy including customer data • DE&I Chair to discuss his performance. • a Nomination Committee; and and insights • People strategy, colleague • Succession planning • a Remuneration Committee. engagement, recruitment The Chair and the other Non-Executive • Sustainability and ESG and retention policy Directors regularly have informal meetings If the need should arise, the Board may policy with the Executive Directors and other set up additional Committees. Terms of • Omnichannel strategy • Health and safety members of the senior management team reference (each of which comply with the • IT strategy, cyber security • Governance and legal Code) for each of these Committees is in the business, at a store location or at the and ERP investment review updates published on cardfactory’s investor website Group’s support centre. • Principal risks reviews (cardfactoryinvestors.com). • Investor relations updates • Audit reviews • Committee reviews as required by applicable terms of reference ### 69 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## CORPORATE GOVERNANCE REPORT CONTINUED | Audit & Risk Committee | | The Audit & Risk Committee has access to | The Remuneration Committee also ensures | A report on the Remuneration Committee’s | | --- | --- | --- | --- | --- | | The Audit & Risk Committee assists the Board | | sufficient resources to carry out its duties, | compliance with the Code in relation | activities during the year, together with the | | in discharging its responsibilities required by | | including the services of the Group General | to remuneration and is responsible for | Directors’ Remuneration Report is set out on | | DTR 7.1.3 R including responsibility for: | | Counsel and Company Secretary and | preparing an annual Remuneration Report | pages 78 to 79 and pages 86 to 95 of the | | • financial reporting; | | the Group’s Head of Internal Audit & Loss | for approval by the Company’s members | Governance section of this Annual Report. | | • external and internal audits, including | | Prevention. Independent external legal and | at its AGM. The Remuneration Committee | | | | reviewing and monitoring the integrity of | professional advice can also be taken by | undertook a triennial review of the Company’s | | ### Nomination Committee the Group’s annual and interim financial the Audit & Risk Committee if it believes it is Remuneration Policy which was approved The Nomination Committee assists the Board statements; necessary to do so. by shareholders at the 2021 AGM. The in discharging its responsibilities relating to • reviewing and monitoring the extent of the Remuneration Committee considers this the composition and make-up of the Board non-audit work undertaken by external The Audit & Risk Committee Chair usually Policy (on pages 80 to 85) is appropriate and and any Committees of the Board. It is also auditors; attends the Annual General Meetings of the does not propose any changes. responsible for periodically reviewing the • advising on the appointment of external Company and is available to respond to Board’s structure and identifying potential auditors; questions from shareholders on the activities The Code provides that a remuneration candidates to be appointed as Directors or • overseeing the Group’s relationship with its of the Audit & Risk Committee during the committee should comprise at least three Committee members as the need may arise. external auditors; year, a report on which is set out on pages 75 members who are independent non-executive The Nomination Committee is responsible for • reviewing the effectiveness of the external to 79 of the Governance section of this Annual directors, free from any relationship or evaluating the balance of skills, knowledge audit process; Report. circumstance which may or would be likely and experience and the size, structure and • reviewing the effectiveness of the Group’s to, or appear to, affect their judgement composition of the Board and Committees internal controls and systems; and and that the chair of the board of directors ### Remuneration Committee of the Board, retirements and appointments • whistleblowing and loss prevention. may also be a member provided he is The Remuneration Committee assists the of additional and replacement Directors considered independent on appointment. Board in determining its responsibilities in and Committee members and will make The ultimate responsibility for reviewing and The Remuneration Committee during the relation to remuneration, including: appropriate recommendations to the Board approving the Annual Report and Accounts period was chaired by Octavia Morley, who • making recommendations to the Board on such matters. and the half-year results remains with the stepped down from the Board at the end of on the Company’s policy on executive | Board. The Audit & Risk Committee will give | | | the financial year. The Committee’s other | | | --- | --- | --- | --- | --- | | | | remuneration; | | The Code recommends that a majority of the | | due consideration to laws and regulations, the | | | members during the period were Paul Moody, | | | | • setting the over-arching principles, | | | members of a nomination committee should | | provisions of the Code and the requirements | | | Roger Whiteside, Rob McWilliam and Indira | | | | | parameters and governance framework | | be independent non-executive directors. The | | of the Listing Rules. The Code recommends | | | Thambiah (from 1 September 2022). Indira | | | | | of the Group’s remuneration policy and | | Nomination Committee is chaired by Paul | | that an audit committee should comprise at | | | assumed the Chair of the Remuneration | | | | | ensuring incentives and rewards are | | Moody and its other members during the | | least three members who are independent | | | Committee from 1 February 2023. | | | | | aligned with the Group’s culture; | | year were Octavia Morley (until 31 January | | non-executive directors and that at least one | • determining the individual remuneration | | | 2023), Roger Whiteside, Rob McWilliam and | | member should have recent and relevant | | | The Remuneration Committee met nine times | | | | | and benefits package of each of the | | Indira Thambiah (from 1 September 2022). | | financial experience. The Audit & Risk | | | during the year. In future, it will meet not less | | | | | Company’s Executive Directors, its | | The Directors therefore consider that the | | Committee was chaired by Rob McWilliam, | | | than twice a year. | | | | | Company Secretary and other members of | | Company is in compliance with the Code. | | who the Directors consider has recent and | | the Group’s senior management team; and | | | | relevant financial experience. The Audit & Risk | | | The Board and the Remuneration Committee | | | | • ensuring appropriate engagement with | | | The Nomination Committee met seven times | | Committee’s other members during the period | | | have employed Korn Ferry (UK) Limited | | | | | shareholders and the workforce takes | | during the year. In future, the Committee will | | were Octavia Morley (until 31 January 2023), | | | (Korn Ferry), a professional services business | | | | | place on executive remuneration policy | | meet not less than once a year. A report on | | Roger Whiteside and Indira Thambiah (since 1 | | | which specialises in executive remuneration, | | | | | and its alignment with wider Company | | the activities of the Nomination Committee | | September 2022). | | | to advise and assist in connection with the | | | | | pay policy. | | during the year is set out on pages 97 and 98 | Group’s executive remuneration arrangements of the Governance section of this The Audit & Risk Committee met seven times and its reporting obligations. Korn Ferry does Annual Report. during the year and, in future, will meet no not provide any other services to the Group. fewer than three times per year. ### 70 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page | Board evaluation | The Board set the following collective | | Improvements in our investor communications | The Board considers that its procedures to | | --- | --- | --- | --- | --- | | The Chair and Company Secretary undertook | objectives in November 2022, which are | | are considered to have made, with further | authorise conflicts of interest and potential | | an internal Board evaluation during 2022. | subject to regular reviews: | | ongoing progression expected. Finally, the | conflicts of interest are operating effectively. | | Additional Committee effectiveness reviews | • Strategic Plans: | | Board recruited Indira Thambiah during the | | | of each of the Audit & Risk Committee and | | – Ensuring longer-term objectives are | year and is satisfied with the appropriate | | ### Appointment and removal of Directors the Remuneration Committee were also incorporated in Annual Bonus targets balance of skills and experience of the Board. All Directors have service agreements or undertaken. The reviews included surveys of for Executive Directors (beyond in-year letters of appointment in place and the the Directors, who scored various statements outcomes). Board evaluation will continue to be details of their terms are set out in the applicable to the Board and each Committee. – Identify key strategic milestones conducted on an annual basis. The Company Directors’ Remuneration Report on pages 84 Data and supporting comments were for each of the following significant will conduct an internally facilitated and 85. collated, anonymised and shared with the strategic priorities (Omnichannel, Retail evaluation in the financial year ending Directors, with comparisons to prior year Partnerships and IT enablement): 31 January 2024, with the next externally The Articles of Association of the Company scores (where available). The conclusions – ensuring there is clarity of the conducted review scheduled to be held during provide that a Director may be appointed and recommendations were presented to the business case for each and the year ending 31 January 2025. by ordinary resolution of the Company’s Board for discussion, which were then used to assessment of outcomes against shareholders in general meeting or by the set new Board objectives. that business case; ### Conflicts of interest Board so long as the Director stands down – ensuring the Board consultation for | | | The Companies Act 2006 allows the board of | and offers him or herself for election at the | | | --- | --- | --- | --- | --- | | In addition to reviews of the collective | input happens at appropriate stage | | | | | | | a public company to authorise conflicts and | next AGM of the Company. Consistent with | | | effectiveness of the Board, the Senior | on key decision points for these | | | | | | | potential conflicts of interest of individual | the Code, the Articles also provide that each | | | Independent Director collated views from the | strategic projects; and | | | Financial StatementsGovernanceStrategic Report | | | | directors where the articles of association of | Director must stand down and offer him or | | | other Directors, to provide similar feedback to | – ensuring priority projects continue | | | | | | | the company contain an enabling provision. | herself for re-election by shareholders at the | | | the Chair. | to align to delivery of five-year | | | | | | | The Company’s Articles of Association | AGM every year. | | strategic plan. give the Board this authority subject to the | The Board effectiveness review identified the | | • CFO: successful induction of new CFO. | | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | following safeguards: | | Directors may be removed by a special | | following strengths: | | • Succession Planning: development of | | | | | | | | | | • Directors who have an interest in matters | | resolution of shareholders or by an ordinary | | • The Board has continued to make progress | | | organisational talent to improve pipeline | | | | | | | | | | under discussion at a Board meeting must | resolution of which special notice has been | | | to improve effectiveness, increasing its | | for senior management team roles. | | | | | | | | | | declare that interest and abstain from | given in accordance with the Companies | | | strategic focus, although, on occasion, | | | | voting. | Act 2006. The Articles of Association of the | | | being drawn into operational detail. | In addition to the Board effectiveness review, | | | | | | | | | | • Only Directors who have no interest in | | Company also provide that the office of | | • Members of the Board share a range of | | the Board reflected on the achievement of | | | | | | | | | | | the matter being considered are able | a Director shall be vacated if he or she is | | | views to provide constructive debate and | the objectives adopted in January 2022. It | | | | | | | | | | | to authorise a conflict of interest and, in | prohibited by law from being a Director or | | | challenge. | was agreed that the objectives had been | | | | | | | | | | | taking that decision, the Directors must act | is bankrupt; and that the Board may resolve | | • Improved customer data and insight | | substantially achieved, which included | | | | | | | | | | | in a way they consider, in good faith, would | that his or her office be vacated if he or she | | | is supporting improved understanding | implementation of a Transformation Office | | | | | | | | | | | be most likely to promote the success of | is of unsound mind or is absent from Board | | | and decision making, with further | function to manage business change and | | | | | | | | | | | the Company. | meetings without consent for six months or | | | improvements to be made in ensure other | manage strategic projects, substantial range | | | | | more. A Director may also resign from the stakeholder groups are fully represented in developments in Gifts and Celebration The Directors are able to impose limits or Board. The Nomination Committee makes Board discussions and decision making. Essentials pricing architecture improvements conditions when giving authorisation if they recommendations to the Board on the • The Board and its Committees are well and recovery of price inflation through feel this is appropriate. All Directors are appointment and removal of Directors. chaired, constituted, with appropriate and targeted price increases, with ongoing required to disclose any actual or potential timely information. foundational development to facilitate further conflicts to the Board and there are no current ### Powers of Directors • The content, frequency and strategic development of the Omnichannel offer. matters disclosed that are considered by the The business of the Company is managed vs operational focus for the matters Progress has been made on increasing the Board to give rise to a conflict of interest. All by the Board, which may exercise all of considered by the Board have been strategic focus of the Board and on evolving conflicts are considered by the Board and the powers of the Company, subject to the reviewed to improve effectiveness. cardfactory into a customer centric business. any authorisations given are recorded in the requirements of the Companies Act 2006, the Board’s minutes and reviewed annually by Articles of Association of the Company and the Board. any special resolution of the Company. ### 71 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## CORPORATE GOVERNANCE REPORT CONTINUED ### The Board has adopted internal delegations Articles of Association Internal control and audit of authority in accordance with the Code The Company’s Articles of Association can Overall responsibility for the system of internal control and reviewing its effectiveness lies with which incorporate matters which are reserved only be amended by a special resolution the Board. In its day-to-day operations, the Group continuously assesses the performance of to the Board or Committees and the powers of its shareholders in a general meeting, in its internal controls and, where necessary, looks to enhance its control environments. A Head and duties of the Chair and the Chief accordance with the Companies Act 2006. of Internal Audit & Loss Prevention has been appointed to coordinate the Group’s programme Executive Officer, respectively. of internal audit, supported by an independent accounting firm and/or other advisors where appropriate. Details of the internal audit reviews carried out during the last year are set out in ### Governance and risk At the AGM of the Company, the Board will the report of the Audit & Risk Committee on page 76. The Board has adopted the risk management seek authority to issue shares and to buy back framework described on pages 58 and 59 of and reissue shares. Any shares bought back The Group’s system of internal control can be summarised as follows: this Annual Report. would either be held in treasury, cancelled or sold in accordance with the provisions of the The Board and the Audit & Risk Committee Board Audit & Risk Committee Senior Management Team Companies Act 2006. For further details see have reviewed the effectiveness of the Group’s the Notice of Annual General Meeting which • Takes collective • Oversees effectiveness of • Responsible for operating risk management framework, the Group’s risk accompanies this Annual Report. responsibility for internal internal control framework. within the control register and their alignment with the Group’s control. framework. • Receives reports from strategic objectives in accordance with the | | | • Reserves certain matters | external auditor. | • Monitors compliance with | | --- | --- | --- | --- | --- | | Advice, indemnities and insurance | Code for the period ended 31 January 2023 | | | | | | | for the Board. | | policies and procedures. | | All Directors have access to the advice | and up to the date of approving the Annual | | • Approves internal audit | | | and services of the Company Secretary. In | Report and Accounts. | • Oversees the control | programme. | • Recommends changes to | | addition, Directors may seek legal advice at | | framework and | | controls where needed. | • Receives internal audit the Group’s cost if they consider it necessary The Board as a whole considered the responsibility for it. reports. • Monitors performance. in connection with their duties. principal risks and relevant mitigating actions • Approves key policies and and determined that they were acceptable for procedures. Each Director of the Company (and of each a retail business of the size and complexity as • Monitors development other Group company) has the benefit of a that operated by the Group. of performance. 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 Internal Audit Compliance and safety risk assessors Loss Prevention Team its subsidiaries are covered by Directors’ • The internal audit function • Reviews compliance with • Focuses on cash losses, and Officers’ liability insurance. No amount during the period was internal procedures to theft and fraud in stores. was paid under any of these indemnities or overseen by the Head ensure that good health insurances during the year other than the of Internal Audit & and safety standards applicable insurance premiums. Loss Prevention. are observed. ### 72 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page | Specific elements of the current internal | | The Board and the Audit & Risk Committee | We recognise that a culture of openness | | --- | --- | --- | --- | | control framework include: | | have monitored and reviewed the | and accountability is essential in order | | • a list of matters specifically reserved for | | effectiveness of the Group’s internal control | to prevent such situations occurring or | | | Board approval; | systems in accordance with the Code for | to address them when they do occur. We | | • a clear framework for delegated | | the period ended 31 January 2023 and up | provide a whistleblowing line and maintain | | | responsibilities, mandating escalation of | to the date of approving the Annual Report | a whistleblowing policy that is designed | | | decisions to more senior colleagues within | and Accounts and confirmed that they are | to encourage colleagues to report such | | | the business, or ultimately the Board, | satisfactory. Internal control systems such | situations without fear of repercussions or | | | where appropriate; | as this are designed to manage rather than | recriminations provided that they are acting | | • clear structures and accountabilities for | | eliminate the risk of failure to achieve business | in good faith. By having early knowledge | | | colleagues, well understood policies and | objectives and can provide only reasonable | of any wrongdoing or illegal or unethical | | | procedures, all of which the Executive | and not absolute assurance against material | behaviour, we improve our ability to intervene | | | Directors are closely involved with; | accounting misstatement or loss. Where | and stop it. The policy sets out how any | | • every member of the senior management | | any significant failures or weaknesses are | concerns can be raised and the response | | | team having clear responsibilities and | identified from the systems of internal control, | that can be expected from the Company | | | operating within defined policies and | action is taken to remedy these. | and provides colleagues with the assurance | | | procedures covering such areas as capital | | that they can do this in complete confidence. | | | expenditure, treasury operations, financial | | Our loss prevention team, in its day-to-day | ### Disclosures under DTR 7.2.6 R targets, human resources management, activities, seeks to reinforce this message The disclosures the Company is required to customer service and health and safety; and, in addition, the Group periodically uses Financial StatementsGovernanceStrategic Report make pursuant to DTR 7.2.6 R are contained in • the Executive Directors and the senior communication campaigns to supplement the Directors’ Report on pages 98 to 102. management team monitoring compliance this. The Audit & Risk Committee is notified of with these policies and procedures and, in any whistleblowing reports. ### Anti-bribery addition, regularly reviewing performance The Group has implemented internal against budget, analysis of variances, This report was reviewed and approved by the procedures, colleague training and measures major business issues, key performance Board on 2 May 2023. (including the provision of an Anti-Corruption indicators and the accuracy of business and Bribery Policy) with the aim of ensuring forecasting; and Paul Moody compliance with UK Bribery Act 2010 (as • a continuous review programme of store Chair amended) by the Company and other compliance by the loss prevention team in 3 May 2023 members of the Group. relation to financial procedures in stores, and by risk assessors working in the health ### and safety team and by other teams within Whistleblowing the Group. The Group is committed to conducting its business with honesty and integrity, with high The Audit & Risk Committee has responsibility standards of corporate governance and in for overseeing the Group’s system of internal compliance with legislation and appropriate controls and the programme of activities codes of practice. We expect all colleagues to performed by internal audit and receives maintain such high standards but recognise the report of the external auditor as part that all organisations face the risk of of the annual statutory audit. Additional things going wrong from time to time or of information on the activities of the Audit & unknowingly harbouring illegal or unethical Risk Committee can be seen in the report of conduct. the Audit & Risk Committee seen on pages 74 to 77. ### 73 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## AUDIT & RISK COMMITTEE ### Chair’s letter ### Dear Shareholder | I am pleased to present this year’s Audit | The Committee has allocated a significant | The report that follows provides further detail | | --- | --- | --- | | & Risk Committee (Committee) Report. | proportion of its time during the year to | on the Committee’s activities during the year. | | The Report outlines how the Committee | the management of our principal risks, | | | discharged its responsibilities over the past | including business continuity, IT and cyber | I look forward to addressing any questions | | year and the key areas it considered in | risk and inventory management, as well as | in respect of the work of the Audit & Risk | | doing so. | the enhancement of the risk management | Committee in advance of the AGM in | | | framework including risk appetite. It has | June 2023. | | The Committee fulfils a vital role in the | confidence in the Group’s overall control | | | Company’s governance framework, providing | environment and in management’s | Yours sincerely | | valuable independent challenge and oversight | commitment to identifying and improving | | | across all financial reporting and internal | areas where the Group’s systems and | Rob McWilliam | | control procedures. Ultimately, it ensures | processes need modernisation. | Chair of the Audit & Risk Committee | | our shareholders’ interests are protected. | | 3 May 2023 | | The Committee has continued to assess | The Committee understands the proposals | | | and review existing and emerging issues to | for the reform of UK corporate reporting | | ## Rob McWilliam ensure cardfactory has appropriate controls and audit regime and the potential impact Chair of the Audit & Risk Committee in place to underpin its resilience, recognising this may have on the future work of the the challenging global macro-economic Committee. It supports management’s environment and its potential impact on our current review of the internal controls over the ### Committee members: supply chains, customers and colleagues. financial reporting environment to assess its readiness in advance of future requirements. ### Rob McWilliam (Chair) The Committee approved a retender of the The Committee will ensure compliance with audit this year. An extensive and detailed any new requirements. ### Roger Whiteside tender exercise has been performed, resulting | Indira Thambiah | in the appointment of Mazars LLP who will | Over the course of the next 12 months, the | | --- | --- | --- | | | be proposed for appointment at the AGM | Committee will continue to develop its work | | | to be held on 22 June 2023 in advance of | on the effectiveness of the risk management | | | the interim results review for the first half of | process. It will also continue to ensure that its | | | FY24 and the audit for the financial year to 31 | activities are focused on business issues that | | | January 2024 (see page 77). | add to or preserve value and that it remains | aligned with the strategic goals of the Group. ### 74 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ## AUDIT & RISK COMMITTEE REPORT | This report provides details of the role of the | | Activities during the year | | • Reviewing the outcome and actions taken | | • The performance, effectiveness, | | | --- | --- | --- | --- | --- | --- | --- | --- | | Audit & Risk Committee and the work it has | | During the year, the work of the Committee | | | relating to whistleblowing cases. | | independence and qualifications of the | | undertaken during the year. | | has principally fallen under the following areas: | | • Reviewing the activity of the Group’s loss | | | external auditor. | | | | • Reviewing the integrity of the draft | | | prevention team. | | | | | | | financial statements for the year ending | • Reviewing the Group’s tax strategy. | | | | | Role of the Audit & Risk Committee | | | | | | Significant areas of judgement | | | | | | January 2022, the appropriateness of | • Undertaking a formal audit tender, | | | | | The principal responsibilities of the | | | | | | Within its terms of reference, the Committee | | | | | | accounting policies with a particular | | culminating in the selection of Mazars LLP | | | | Committee, which has received delegated | | | | | | monitors the integrity of the Group’s annual | | | | | | focus on stock provisions, going concern | | as the auditor to undertake the audit of | | | | authority from the Board, are to: | | | | | | and half-year results, including a review of | | | | | | and viability statements and the auditor’s | | the Card Factory plc Group accounts for | | | | • oversee the integrity of the Group’s | | | | | | the significant financial reporting matters, | | | | | | report regarding its findings on the annual | | the financial year ended 31 January 2024 | | | | | financial statements and public | | | | | judgements and estimates contained in them. | | | | | | results. | | (see page 77 for further information). | | | announcements relating to financial | | | • Assessing whether the Annual Report and | | • Assessing its own performance against its | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | performance; | | | | | At its meetings in April and May 2023, the | | | | | | Accounts for the year ending January | | terms of reference. | | | | • oversee the Group’s external audit process | | | | | | Committee reviewed the FY23 financial | | | | including its scope, the extent of the non- | | 2022, taken as a whole, were fair, balanced | | | year and considered a paper prepared | | | | audit services provided by our auditor | | and understandable and provided the | Activities after the year-end | | by management regarding the significant | | | | and our auditor’s independence and | | information necessary for shareholders to | In the period following the year-end, the | | accounting policies, disclosures, estimates and | | | | effectiveness; | | assess the Company’s strategy, business | Committee met in March, April and May 2023 | | judgements affecting the financial statements | | | • monitor the effectiveness of financial | | | model and performance. | and reviewed the following: | | for the year. The Committee also reviewed the | | | | controls; | • Reviewing the systems and controls that | | • The Group’s risk register including an | | report of the external auditor, which included | | | | | | the Group has in place to enable the | | | | Financial StatementsGovernanceStrategic Report | | • evaluate the process for identifying and | | | | | assessment of how risks are assessed, how | comments on the matters prepared and | | | | managing risk throughout the Group; | | Board to make proper judgements on a | | risk appetite and target risk are assigned, | presented by management, plus other matters | | | • ensure the effectiveness and independence | | | continuing basis as to the financial position | | and a review of the emerging risks | insofar as relevant to the audit opinion. | | | | of the Group’s internal audit function; and | | and prospects of the Group. | | identified by the management team, as | | | | • ensure that the Annual Report and | | • Verifying the independence of the Group’s | | | supplemented by the Committee. | The significant accounting issues discussed in | | | | Accounts are fair, balanced and | | auditor, approving their audit plan | • The principal risks facing the Group | | respect of FY23 were: | | | | understandable. | | and audit fee and setting performance | | including those that would threaten its | • Inventory valuation and provisioning. | | | | | | expectations. | | business model, future performance, | • Impairment reviews (including goodwill). | | | A more detailed explanation of the Audit & | | • Approval of the Group’s half-year results | | | solvency or liquidity. | • Grant income provisions. | | | Risk Committee’s role, its meeting frequency, | | | statements published in September 2022. | • The process undertaken by management | | | | | attendance and membership (both during the | | • Overseeing the Group’s approach to risk | | | to support the Group’s going concern | | | ### Inventory period and as at the date of this report) are management including setting of risk statement (which is set out on pages The Group has significant volumes, and a set out in the Corporate Governance Report appetite and target risk as well as ensuring 119 and 120) including the time period broad range, of inventory. The Group makes on pages 68 and 70. that the principal risks are regularly assessed and the principal risks and use of technology, such as hand-held terminal reviewed by the senior management team. combinations of risks modelled. devices, to support stock control processes The Chief Executive Officer, the Chief • Reviewing the Group’s risk register in • The integrity of the draft financial and reduce the risk of manual error in stock Financial Officer, the Chair of the Board, March, September, November and January. statements for the year ended January counts, which are a key control in respect of the Head of Internal Audit & Loss Prevention • Monitoring developments in legislation, 2023, including the appropriateness of the inventory balance. A full inventory count is and the Financial Controller usually attend reporting and practice which affect accounting policies and going concern undertaken at both the half-year and the year meetings of the Committee by invitation, matters for which the Committee is assumptions. end. The Committee reviewed the process by along with representatives from our auditor, responsible. • The external auditor’s report. which the year-end inventory valuation had KPMG LLP. In addition, subject matter experts • Approval of the FY23 internal audit • Whether this Annual Report and Accounts, been prepared, and challenged management and external accounting firms engaged to plan, reviewing the findings of, and the taken as a whole, are fair, balanced to ensure key risk areas had been given due support internal audit reviews are also invited implementation of, actions arising from and understandable and provide the consideration. to attend meetings of the Committee where internal audit reviews undertaken. information necessary for shareholders required. The General Counsel & Company • Reviewing the Company’s procedures for to assess the Company’s position and The Group continues to hold material Secretary acts as secretary to the Committee. detecting fraud and systems and controls performance, business model and strategy. inventory provisions which, by their nature, for the prevention of bribery. involve a significant degree of estimation. ### 75 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## AUDIT & RISK COMMITTEE REPORT CONTINUED | The provision is calculated with reference | Grant income | Impairment reviews | Accordingly, the Committee considered that | | --- | --- | --- | --- | | to the Group’s merchandising plans and | In the prior year, the Group received | Impairment reviews are an area of | the disclosure of the estimation uncertainty as | | considers the age and turn of inventory | significant values of income from government | management and audit focus; however | not significant was appropriate and balanced | | on a line-by-line basis. Lines that are old, | schemes intended to support businesses | the Group’s assessment of whether or | the inherent complexity and due focus of the | | not on plan for future sales, or where the | affected by national and regional Covid-19 | not impairment is considered a source of | reviews against the lack of sensitivity of the | | Group holds large volumes of inventory | lockdown restrictions. | significant estimation uncertainty depends | estimates to changes. | | compared to recent sales data are provided | | upon the results of the reviews and the level | | | against either in part or in full. The partial- | Under IAS 20, the Group is only permitted | of headroom and associated sensitivity to | | ### Assessment of Annual Report provisioning percentages are set based on to recognise government grant income changes in key assumptions. Accordingly, ### and Accounts the Group’s expectations of likely sell-through when there is reasonable assurance that noting the material value of goodwill on the The Committee confirmed to the Board rates based on historical experience and any conditions attached to the grant will be balance sheet, existence of intangible assets that it considered this Annual Report and are adjusted where necessary to reflect complied with. The grant income received that are not yet available for use, and the Accounts as a whole to be fair, balanced and changes in sell-through levels. The nature by the Group is subject to UK subsidy control reduction in sales performance of certain of understandable, to the extent possible, while of this estimation is such that the range of conditions, as well as specific conditions the Group’s cash generating units (CGUs). complying with all applicable legal, regulatory reasonable outcomes is material and, as a attached to the grants themselves. The The Committee considered the impairment and reporting requirements. | result, inventory provisioning is considered a | unprecedented nature of Covid-19 support | reviews prepared by management. | | | --- | --- | --- | --- | | source of significant estimation uncertainty | funding means application of these conditions | | | | for the financial statements. | | | Internal audit | | | is open to a degree of interpretation. | The reviews concluded that no impairment | | A Head of Internal Audit & Loss Prevention charges were required in respect of the | As part of its review, the Committee | | | was appointed in March 2022 to further | | --- | --- | --- | --- | | | The Group recognised grant income of | group of CGUs that make up the cardfactory | | | considered the calculation of the provision | | | enhance the Group’s approach towards | | | £8.0 million in the prior year and recorded a | stores business, to which the Group’s | | | and challenged management’s assumptions. | | | internal audit. The Head of Internal Audit & | | | provision of £7.4 million in respect of amounts | goodwill balance is allocated, nor for the | | | As part of the review, it was noted that | | | Loss Prevention is responsible for devising | | | that may need to ultimately be repaid. In | cardfactory.co.uk CGU. However, impairment | | | supply chain challenges in the prior year | | | and coordinating the agreed programme of | | | FY23, the Group has sought professional | charges were recorded in respect of individual | | | had contributed to both an increase in the | | | internal audit reviews and is supported by an | | | advice regarding potential repayment, the | stores (£1.3 million net of reversals of | | | provision level at the FY22 year end and, | | | independent accounting firm in the delivery of | | | value and timing of which remains uncertain. | impairments recorded in prior periods) and | | | combined with the strong sales performance | | | the annual plan. The main areas covered by | | | The Group is not aware of any information or | the Getting Personal CGU (£1.5 million). | | | in FY23, a higher level of stock sell-through | | | the internal audit programme during the last | updates that would change its assessment | than had been expected. As a result, some | | | year were: | | | --- | --- | --- | --- | --- | | | of the amount of such income that can be | The Committee considered the key | | | | of the partial-provisioning percentages | | | • a review to assess the design and | | | | retained, and accordingly the value of the | assumptions used in preparing the | | | | were reduced for FY23. The Committee also | | | | operating effectiveness of processes and | | | provision remains unchanged. | impairment reviews and the sensitivity of the | | | | reviewed stock sell-through rates for the | | | | controls relating to the quality assurance | results to changes in those assumptions. The period after the balance sheet date prior to of products being sold in-store and online; The Committee reviewed management’s Committee also considered the recoverability the accounts being signed. • payroll, focusing on the processing and assessment of the provision value and of the Parent Company investments as payment of variable pay; and challenged the assumptions made around part of their review. Having challenged Having considered these matters, and the • the closure of internal audit actions from retention of both the amounts recognised management regarding the application of views of the external auditor, the Committee the previous year. and not recognised. Having considered the those assumptions, and considered the views concluded that the inventory valuation, view of the external auditor, and noting the of the auditor, the Committee concluded provision and associated disclosures Internal audit reports are shared with KPMG independent advice received, the Committee that the reviews had been prepared on a included in the financial statements were LLP, who are also invited to attend the Audit & concluded that the position adopted was reasonable and appropriate basis. Having materially appropriate. Risk Committee’s meetings, ensuring external based on a conservative interpretation of considered the level of headroom and the auditors have full disclosure to allow them available guidance but appropriate in light relative sensitivity to key assumptions, the to account for internal audit findings in their of the inherent uncertainty. In reaching its Committee concurred with management’s audit scope. conclusion, the Committee noted that the view that reasonably possible changes in estimation uncertainty had been disclosed in the key assumptions would not result in the notes to the accounts. an impairment charge where one had not been recorded, nor materially change the impairment charges that had been recorded. ### 76 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page | In line with good practice, the Committee, | Inspection Team on other KPMG clients. It | recognises has been adopted by KPMG LLP, | External audit tender | | --- | --- | --- | --- | | supported by the Head of Internal Audit | also surveyed colleagues who were engaged | which includes greater independence of audit | As reported in the FY22 Annual Report and | | and Loss Prevention will continue to assess | in the audit process to receive feedback on | practices within accounting practices. | accounts, cardfactory proposed to carry out | | its approach to internal audit to ensure it | how the audit was conducted, to allow it to | | the external audit tender one year earlier than | | supports a rigorous control framework across | make its own assessment of the effectiveness | The Group has no contractual arrangements | the mandatory requirement. | | the Group. | of the audit process with particular reference | (for example, within borrowing arrangements) | | | | to audit planning, design and execution of | that restrict its choice of auditor. | Following the FRC’s audit tenders notes on | | | the audit. | | best practice, in May 2023 a shortlist of eight | ### Loss prevention The loss prevention team and its programme Use of auditors for non-audit work external audit firms to invite to the tender The Committee also considered the process was discussed with the Chair of the of activities are embedded in the business. The Committee recognises that the use effectiveness of the audit through the Audit & Risk Committee. This longlist, which Direct engagement and regular communication of audit firms for non-audit services can reporting from and communications with the included the Big Four accountancy firms and with colleagues across the business remain potentially give rise to conflicts of interest. auditor and an assessment of the auditor’s four mid-tier firms was agreed and an invite to critical to the team’s effectiveness and the The Group has a formal policy regarding approach to key areas of judgement and tender was issued. team’s core fraud and theft detection its use of audit firms for non-audit services any errors identified during the course of the activities are supplemented by a programme and the Committee, in addition to being audit. The Committee concluded that the A request for proposal was issued to three of data reviews, store audits, colleague responsible for the oversight of our auditor on audit was effective. shortlisted firms which covered, but was not education, training and development. behalf of the Board, also has responsibility for monitoring how this policy is implemented. limited to, their ways of working, the firm’s The fee paid to KPMG LLP for the statutory quality assurance processes, any conflicts or The Committee receives regular reports on | | audit of the Group and Company financial | | potential conflicts of interest, the proposal | | | --- | --- | --- | --- | --- | | the activities of the loss prevention team | | During FY23, KPMG LLP did not provide any | | Financial StatementsGovernanceStrategic Report | | | statements and the audit of Group | | and presentation scoring criteria and the | | | and during the period the Head of Internal | | non-audit services to the Group, other than | | | | | subsidiaries pursuant to legislation was | | selection panel. | | | Audit & Loss Prevention attended the | | its review of the half-year interim report and | | | £650,000. A breakdown of fees paid to KPMG Committee meetings. financial statements, which is considered LLP during the financial year is set out in note On receipt of the three proposals these closely related to the audit. 3 of the financial statements on page 127. were assessed against pre-defined and ### External auditor The aggregate fees paid to KPMG LLP for communicated scoring criteria with the KPMG LLP have conducted the statutory The Committee considers that KPMG LLP is results being discussed with the Audit & Risk services closely related to the audit during the audit for the financial year ended 31 January sufficiently independent, as it is only engaged Committee. Two firms were invited to a year were £50,000 (equivalent to 7.7% of the 2023 and have attended six of the seven in audit and there are no conflicts of interest presentation with a pre-agreed interview audit fee). Committee meetings held during that effective in auditing the Group. panel and the result was that Mazars LLP financial year, as well as the Committee Further details are given in note 3 to the were appointed. meetings held in March and April 2023 The Committee has taken appropriate steps financial statements on page 127. (excluding the meetings (or parts of meetings) to ensure that KPMG LLP is independent Following the selection of Mazars LLP as that related to the audit tender, which of the Company and has obtained written proposed auditor, a resolution to appoint The Committee is satisfied that the overall KPMG participated in). The Committee had confirmation that it complies with guidelines Mazars LLP as auditor and to authorise the levels of audit-related and non-audit fees the opportunity to meet privately with the on independence issued by the relevant Directors to agree their remuneration will be and the nature of the services provided, auditors during the period. accountancy and auditing bodies. The put to shareholders at the 2023 AGM. are such that they will not compromise the Committee took account of the auditor objectivity and independence of our auditor. The Audit Committee discussed and agreed approach to the prior year and current year This report was reviewed and approved by the A copy of our current policy regarding the the scope of the audit with KPMG in January audit, the proposed audit strategy and the Audit & Risk Committee on 2 May 2023. use of audit firms for non-audit services is 2023 and have since agreed their audit fees. fact that the current audit is being led by the available on cardfactory’s investor website The Committee reviewed the audit quality Audit Partner for his fourth year, within the Rob McWilliam (cardfactoryinvestors.com). and the effectiveness of the external audit five years provided for in FRC guidance. The Chair of the Audit & Risk Committee in line with the Financial Reporting Council’s Committee recognises that audit regulation 3 May 2023 ‘Practice aid for audit committees’ (December has increased in recent years, to improve 2019). It considered the results of external audit process and independence, which it quality inspections by the Audit Quality ### 77 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## REMUNERATION COMMITTEE ### Chair’s letter ### Dear Shareholder | I am pleased to have taken over the Chair of | Remuneration Policy | HMRC and the stretch strategic objective of | | --- | --- | --- | | the Remuneration Committee since 1 February | Following adoption of the Remuneration | driving sales growth from strategic initiatives | | 2023 and am extremely grateful to Octavia | Policy at the 2021 AGM, with 94.98% of | being exceeded (10% of maximum bonus). | | Morley for her support and insight on the | shareholder votes supporting the revised | The other two strategic objectives of sales | | recent activities of the Committee. I welcome | Remuneration Policy, the Remuneration | growth for online and retail partnerships (each | | the opportunity to present our Directors’ | Committee considers that this policy | 10% of maximum bonus) were not achieved. | | Remuneration Report for the financial year | continues to support the business strategy | The Committee considered whether the | | ended 31 January 2023 (FY23). | and operates as intended, with no changes | outcome was appropriate, taking account | | | required prior to the next triennial vote | of the colleague, shareholder and other | | Introduction | scheduled to be proposed at the 2024 AGM. | stakeholder experience and resolved no | | This Directors’ Remuneration Report is divided | Within the current policy framework, the | exercise of discretion was required: a large | | into three sections: this Letter (pages 78 | Committee has included ESG criteria within | proportion of colleagues will receive bonus | | and 79; the Directors’ Remuneration Policy | the performance underpin condition to RSP | payments for the same period, including | | (pages 80 to 85); and the Annual Report on | awards granted in 2022. | some realising up to 100% of their maximum | | Remuneration for the year to 31 January 2023 | | bonus potential. The Committee recognise | ## Indira Thambiah (pages 86 to 95). Application of the Remuneration Policy the improvement in liquidity and material Chair of the Remuneration Committee reduction in net debt places the Company in during FY23 This Letter and the Annual Report on a position to continue to repay debt to remove The Committee recognises the progress made Remuneration will be put to shareholders restrictions on dividends in January 2024. in trading performance during the year, which ### Committee members: for approval at the AGM on 22 June 2023, resulted in two profit upgrades (November although the vote is advisory. Restricted Share awards granted in 2020 2022 and January 2023) as cardfactory ### Indira Thambiah (Chair) are scheduled to vest from October 2023, recovered to pre-pandemic level of sales, with The Remuneration Committee is pleased subject to the performance underpin and any ### Paul Moody positive momentum in foundations needed to with the performance of the Executive discretion the Committee may exercise. The support sales growth for the online business, ### Roger Whiteside Directors and the senior management team measurement period for the performance and to support retail partnership growth. during FY23. The Committee consider that underpin for these awards was February ### Rob McWilliam they have made good progress to grow 2020 to January 2023, which includes the The Committee agreed to payment of the sales to pre-pandemic levels in parallel with period which was severely impacted by annual bonus for FY23 that was earned, implementation of the early phases of the Covid-19 and mandatory store closures, which amounted to 80% of maximum for the strategic plan to support the development of followed by a period of recovery in sales to CEO and the former CFO (who worked for cardfactory into an omnichannel retailer, to exceed pre-pandemic levels. The Committee the entire financial year), as EBITDA stretch unlock future growth for all stakeholders. considered whether it is appropriate to targets were achieved (70% of maximum exercise discretion, including taking account bonus), after reduction of the actual EBITDA of the share price prior to the decision being by £2.5 million on account of one-off made to voluntarily close our stores, the improvements to EBITDA arising from a partial share price at the time awards were made release of a provision for CJRS repayments to and the recovery of the share price since and ### 78 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page | the performance underpin conditions which | The remuneration package approved for | | to increase the Chair’s fee from £146,880 | Conclusion | | | --- | --- | --- | --- | --- | --- | | include the progress made with the strategic | Matthias Seeger includes a basic annual | | to £175,000, which, although greater than | The Committee is comfortable that the | | | plan and the platform for sustainable growth. | salary of £345,000, pension scheme | | the percentage increase applied to the | Remuneration Policy continues to provide | | | The Committee recognised that Restricted | contributions aligned with the workforce, | | workforce, reflects the number of years | a strong link to the business strategy and | | | Share awards were scaled back at the time of | and participation in the annual bonus | | during which no increases have been | provides an appropriate link between reward | | | grant by 40% for Executive Directors. On this | plan and share awards consistent with | | applied and ensures the Chair receives | and performance. Future objectives and | | | basis the Committee was comfortable that | the Remuneration Policy. The Committee | | median market rate. The increased | outcomes will be closely aligned, ensuring | | | the award should vest in full and that there | approved, in accordance with the | | fee accounts for the increased time | they support the delivery of the Group’s | | | have not been any windfall gains due to the | Remuneration Policy, a buy-out of Matthias’ | | commitment and valuable contribution of | strategy. The Committee will continue to take | | | increase to the share price. The Committee | incentive arrangement with his current | | the Chair, and the increased duties with | account of investor guidelines and the wider | | | consider that through management action | employer, which provides for payment of up | | this role. The Board also reviewed NED | shareholder and other stakeholder experience | | | over the performance period, cardfactory is | to the amount of the annual bonus earned by | | fees, adopting the same principles, details | in determining the operation of the Policy and | | | now well positioned with a strong leadership | Matthias for their financial year to 31 March | | of which are set out on page 94. | remuneration outcomes each year. | | | team, to realise the strategic growth for the | 2023 which isn’t paid by that employer. | • Pension entitlements will be maintained | | | | | benefit of all stakeholders. Therefore the | The Company has capped its obligation | | at current levels, which align with the | I look forward to addressing any questions | | | Committee resolved to approve vesting of | under this arrangement to £200,000. This | | current 3% of salary rate applicable to the | from shareholders in respect of this Report at | | | the 2020 RSP awards and determined that | buy-out award is to be paid by the Company | | majority of colleagues. | or in advance of the AGM and look forward to | | | it was not necessary to exercise any discretion | in June 2023. In addition, all of this buy-out | • The maximum annual bonus entitlement | | your support on the resolution to approve the | | | in respect of the awards. Only Kris Lee | payment is subject to clawback if Matthias | | will be maintained at 125% and 100% | Annual Report on Remuneration. | | | held awards under the 2020 Restricted | is not employed or is working his notice on | | of basic salary for the CEO and CFO | | Financial StatementsGovernanceStrategic Report | | Share award. | the second anniversary of the start of his | | (respectively). The FY24 annual bonus | Yours sincerely | | | | employment with the Company. | | entitlement will be assessed based on | | | | Board changes | | | achievement of threshold, target and | Indira Thambiah | | | During the period, the Committee agreed | | | stretch targets for (a) PBT realised over the | Chair of the Remuneration Committee | | How we intend to apply the Remuneration the terms upon which Kris Lee, former CFO financial year (for 70% of the maximum 3 May 2023 Policy in FY24 would leave the business and approved the entitlement) and (b) the remaining 30% Executive Directors’ remuneration for FY24 will remuneration package for Matthias Seeger, of total bonus will be determined by the be as follows: who will be appointed as CFO on 22 May following strategic objectives, aligned to • The Committee reviewed the annual salary 2023. Kris Lee left on terms that are consistent the strategy: for the CEO, with any increase to take with the Remuneration Policy, which included – cardfactory.co.uk sales growth (12.5% effect on 1 April 2023. In determining the payment of salary, benefits and FY23 bonus of maximum bonus entitlement); salary increase for the CEO, the Committee up to 31 January 2023, the date he left the – retail partnership sales growth (12.5% took into market benchmarking data and Company; a one-off payment of £40,000 as of maximum bonus entitlement); and took account the average salary increase compensation for loss of office; payment in – improvement in NPS score over across the workforce of 8.6%, noting the lieu of unused annual leave; and treatment the year (5% of maximum bonus majority of colleagues had received an as a good leaver for RSP and SAYE awards, entitlement). increase of 5%, however some higher which results in pro-rating the number of • The Committee proposes to proceed to increases had been awarded to taking shares that vest to take account of the award Restricted Shares after publication account the increases in National Living proportion of the performance period that of the results for FY23. The awards will Wage and National Minimum Wage Kris was engaged in the business. It was be subject to the same performance for example. As a result, the Committee agreed that any discretion exercised by underpin adopted in previous years and determined the CEO would receive a salary the Committee in respect of Kris Lee’s RSP will include assessment of improvement to increase of 5% for FY24. awards vesting would be consistent with the business’s impact on society and the • The Committee undertook a review of the any discretion applied to the CEO. Kris Lee’s environment. We propose to retain Chair’s fees, taking into account market pension contributions were also reduced to the additional discretion to scale back data for companies in the retail sector, and align with contributions for the workforce awards on vesting, if necessary, to avoid companies of a similar size, and resolved from 1 January 2023. excessive returns. ### 79 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## DIRECTORS’ REMUNERATION REPORT ### Introduction The Directors’ Remuneration Policy section (pages 80 to 85) sets out the Remuneration Policy which was approved by shareholders at the 2021 AGM, which is intended to operate for the full three- year period as permitted under the regulations. A review is to be conducted during FY24 which will result in proposal of a new Remuneration Policy to shareholders at the 2024 AGM. ### Directors’ Remuneration Policy cardfactory’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. The policy has been tested against the six factors listed in Provision 40 of the UK Corporate Governance Code: • Clarity – the policy is as clear as possible and is described in straightforward concise terms to shareholders and the workforce in this report. • Simplicity – remuneration structures are as simple and Restricted Shares are significantly simpler than long-term incentive plans operated in most other UK-listed companies. • Risk – the remuneration policy has been shaped to discourage inappropriate risk taking through a weighting of incentive pay towards shares, an appropriate balance between financial and non-financial measures in the annual bonus, recovery provisions and in-employment and post-employment shareholding requirements. • Predictability – elements of the policy are subject to caps and the Restricted Shares are significantly more predictable than long-term incentive plans operated in most other UK-listed companies. The Committee may exercise its discretion to adjust Directors’ remuneration if a formula-driven incentive pay-out is inappropriate in the circumstances. • Proportionality – there is a sensible balance between fixed pay and variable pay and incentive pay is weighted to shares rather than cash. • Alignment to culture – there will be a strong emphasis on consistency of approach and fairness of remuneration outcomes across the workforce. ### 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 Base salaries are reviewed annually, with reference to While there is no maximum salary, Executive Business and individual performance are both To attract and retain scope of role, individual performance, experience, market Directors’ salary increases will normally be in line considerations in setting base salary. talent by ensuring base competitiveness of total remuneration, inflation and salary with the average percentage increase for the salaries are competitive increases across the Group. wider employee population. in the relevant talent Increases were normally effective from 1 May. In 2022, In certain circumstances (including, but not market and to reflect the Committee agreed to align annual pay reviews of the limited to, a material increase in job size an Executive’s skills and Executive Directors with the annual pay reviews for the or complexity, promotion, recruitment or experience. majority of colleagues with effect from 1 April 2022. 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 | Executive Directors may receive a Company contribution | The maximum Company contribution or cash | None | | --- | --- | --- | --- | | To provide post-retirement | into a pension plan or a cash allowance in lieu of pension. | allowance is the percentage rate available to the | | | benefits. | | majority of the workforce (currently 3% of salary). | | This will apply to current and new Executive Directors. Kris Lee, former CFO received a pension contribution of 3.37% of basic salary until 31 December 2022, following which it was reduced to 3% of salary to align with the percentage rate available to the majority of the workforce. ### 80 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Purpose and link to strategy Operation Maximum opportunity Performance metrics Benefits Benefits include private medical insurance, life There is no maximum opportunity for benefits, None To provide Executive insurance, income protection and the provision of as there may be factors outside of the Directors with a a car or car allowance. Company’s control which change the cost to the reasonable level of Company (e.g. increases in insurance premiums). Where appropriate, other benefits may be offered, benefits. for example including, but not limited to, relocation The cost of providing benefits for the year allowances. under review are disclosed in the Annual Report on Remuneration. VARIABLE PAY | Annual bonus | Bonus payments will be determined based on | 125% of salary. Performance measures and targets are set by | | | --- | --- | --- | --- | | To focus Executives on | performance in a single financial year and payment may | | the Committee and the Committee determines | | delivery of year-on-year | be made in cash or in shares. | | the extent to which the targets have been | | financial and non- | | | achieved at the year-end. | If participants have not met the minimum shareholding financial performance. requirement, one third of any bonus (after payment of tax) A majority of bonus will be based on financial The part of the bonus must be used to acquire shares in the Company, which measures. invested in shares helps must be held for three years. The Committee may scale back the bonus if it towards achieving an Robust clawback and malus provisions apply. The considers the outcome is not representative of appropriate balance Financial StatementsGovernanceStrategic Report Committee has discretion to reduce the amount of any the underlying performance of the Company or is between year-on-year bonus potential and require repayment of any bonus otherwise not appropriate in the circumstances. financial performance and paid within two years of payment, in the event of material longer-term value creation For achievement of threshold performance for misstatement, error, misconduct, company failure or and contributes to higher any financial measure, up to 15% of the maximum reputational damage. executive shareholdings. financial target element of the bonus is earned. Restricted Shares The Committee may grant annual awards of Restricted 87.5% of salary face value at grant. In order for Restricted Shares to be capable of To align the interests Shares, structured as conditional awards or nil-cost options. vesting, the Committee must be satisfied that of Executives with business performance is robust and sustainable 50% of an award vests after three years, 25% after four shareholders in growing and that management has strengthened the years and 25% after five years, subject to service. the value of the business business over three financial years commencing over the long term. with the year in which the award is made. In All shares will be held for at least five years from grant (except assessing performance, the Committee will for sales to meet tax on vesting). The holding period and consider financial and non-financial KPIs of the vesting period will continue post cessation of employment to business as well as delivery against strategic the extent that awards do not lapse on cessation. priorities. To the extent it is not satisfied with An additional benefit is provided in cash or shares equal performance or that the award would not to dividends that would have been paid over the vesting reflect the shareholder and other stakeholder period or holding period on awards that vest. experience, the Committee may scale back the level of vested awards including to zero. Full Robust clawback and malus provisions apply. The disclosure of the Committee’s assessment will be Committee has discretion to reduce the amount of any made in the Annual Report on Remuneration for unvested award and repayment of any vested award within the year in which the assessment is made. two years of vesting, in the event of material misstatement, error, misconduct, company failure or reputational damage. The Remuneration Committee may exercise its discretion to override a formula-driven incentive plan outturn if this is inappropriate in the circumstances. ### 81 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## DIRECTORS’ REMUNERATION REPORT CONTINUED Purpose and link to strategy Operation Maximum opportunity Performance metrics SAYE A UK tax-qualified scheme under which eligible Savings are capped at the prevailing HMRC None To encourage share employees (including Executive Directors) may save up limit at the time eligible employees are invited ownership across to the maximum monthly savings limit (as determined by to participate or such lower limit as determined the workforce. prevailing legislation) over a period of three or five years. by the Remuneration Committee. Participants are granted an option to acquire shares at up to a 20% discount to the price on grant. The number of shares under option is that which can be acquired at that price using savings made. Shareholding guidelines Requirement to build up and maintain a beneficial Details of the current guidelines and Executive None To encourage share holding of shares in the Company defined as a Director shareholdings are included in the ownership and ensure percentage of salary. Annual Report on Remuneration alignment of Executive Executive Directors will be required to retain shares that interests with those vest from future Bonus and Restricted Share awards. of shareholders, both while they are in service and after cessation of employment (see page 85). 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 both internal and external 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 (Restricted Share) 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 CEO. The senior management team will participate in the same annual bonus scheme and will receive Restricted Share 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. Reward scenarios The graphs opposite 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 any dividend accrual. The following reflects annual entitlements (in respect of the CFO, reflecting the terms of appointment agreed with Matthias Seeger, who is to be appointed on 22 May 2023, without adjustment to reflect he will be appointed for a proportion of the financial year) and assumes that future Restricted Share awards are not scaled back: ### 82 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Chief Executive Officer Chief Financial Officer | | | | | | | Total £1,514k | | | | | | | | Total £959k | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 29.6% 34.3% 24% 12% 11.9% | | | | | | | | | 32.6% 31.7% 23.8% | | | | | | Maximum | | | | | | | | £1,720k | Maximum | | | | | | | £1,088k | | | | | 41.8% | | 24.2% 33.9% | | | | | | | 45.2% | 21.9% 32.9% | | | | | | Mid | | | | | | £1,218k | | | Mid | | | | | £786k | | | | | | 100% | | | | | | | | | 100% | | | | | | | | | | | £509k | | | | | | | | £355k | | | | | Minimum | | | | | | | | | Minimum | | | | | | | | | | | 0 400 800 1200 1600 2000 | | | | | | | | | 0 200 400 600 800 1000 1200 | | | | | | | | | | Fixed Pay | Annual Bonus | | Restricted Shares Restricted Shares with 50% share price growth | | | | | | | | | | | Financial StatementsGovernanceStrategic Report In illustrating potential reward opportunities, the following assumptions are made: Approach to remuneration for new Director appointments In determining appropriate remuneration for a new Director, the Committee will take into Fixed pay Annual bonus Restricted shares consideration all relevant factors to ensure that arrangements are in the best interests of both cardfactory and its shareholders and will be mindful not to overpay on recruitment. The Minimum Salary as at 1 April 2023. No annual bonus Assumes no restricted shares Remuneration Committee will seek to ensure that the remuneration arrangements will be in line The CEO & CFO each receive payable. vest. with those outlined in the policy table above, other than as follows: a pension contribution of 3% On-target annual on income exceeding bonus payable. Component Approach Maximum opportunity £6,240 p.a. | Mid The Committee anticipates | (50% of maximum). | | Annual bonus In line with the policy, albeit | | 125% of salary. | | --- | --- | --- | --- | --- | --- | | | | granting awards of Restricted | | with the relevant maximum | | | | Maximum annual | Shares worth 87.5% and 75% | | normally being prorated | | | | bonus payable of | of base salary for the Chief | | to reflect the proportion of | | ### Chief Executive Officer 125% and 100% of Executive and Chief Financial employment over the year. base salary for the Officer, respectively. Chief Executive and Maximum Benefits paid for the most In the maximum scenario the The Committee may make an award in respect of a new appointment to ‘buy out’ incentive Chief Financial Officer, recent financial year and an chart additionally shows the arrangements forfeited on leaving a previous employer. In doing so, the Committee will take respectively. estimate of benefits for the value of the Restricted Shares account of relevant factors including any performance conditions attached to these awards, new CFO. and total remuneration, if the the likelihood of those conditions being met and the proportion of the vesting period remaining. share price increases by 50%. The total value of any such ‘buy out’ incentive arrangements will not exceed that of awards Annualised salary and forfeited on leaving the previous employer and time to vesting will be matched. benefits (assuming appointment on 1 February 2023) applied for the new CFO (actual start date 22 May 2023). ### 83 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## DIRECTORS’ REMUNERATION REPORT CONTINUED In cases of appointing a new Executive Director by way of internal promotion, the approach Calculation of vesting/ will be consistent with the policy for external appointees detailed above (save for ‘buy outs’). Plan Scenario Timing of vesting payment Where an individual has contractual commitments made prior to their promotion to the Board, Annual bonus Default treatment No bonus is paid n/a the Company will continue to honour these arrangements. Measures used for below Board Death, injury, ill- Normal payment The Committee will employees may be different from those used for Executive Directors to tailor incentives to a health or disability, date, although determine the bonus particular division, role or individual. retirement or any the Committee outcome based on other reason the has discretion to circumstances and ### Service contracts and exit payment policy Committee may accelerate. the date of leaving. Executive Directors determine. Performance against The Committee sets notice periods for the Executive Directors of no more than 12 months. The targets is typically Executive Directors may be put on garden leave during their notice period (for up to six months) assessed at the end and the Company can elect to terminate their employment by making a payment in lieu of of the year in the notice equivalent to basic salary and benefits (including pension contributions). Any payment normal way and any in lieu will be made on a monthly basis and subject to mitigation. Executive Directors’ service resulting bonus will contracts are available to view at the Company’s registered office and at the forthcoming AGM. be prorated for time served during the year. Executive Director Date of service contract Notice period Shares acquired by Not applicable as Darcy Willson-Rymer 18 December 2020 9 months Directors with annual shares are purchased Matthias Seeger 12 December 2022 9 months bonus. and owned outright by the Executive. If employment is terminated by the Company, the departing Executive Director may have a Restricted Shares Default treatment Awards lapse n/a legal entitlement (under statute or otherwise) to additional amounts, which would need to be Death, injury or Normal vesting Any outstanding met. In addition, the Committee may: disability, redundancy, date and holding awards will normally • settle any claims by or on behalf of the Executive Director in return for making an retirement, the sale period would be prorated for appropriate payment; and of the employing normally continue service over the • contribute to the legal fees incurred by the Executive Director in connection with the company or business to apply, although three financial years termination of employment, where the Company wishes to enter into a settlement out of the Group or the Committee starting with the year agreement (as provided for below) and the individual must seek independent legal advice. any other reason as has discretion to in which the award the Committee may accelerate vesting is made and over In certain circumstances, the Committee may approve new contractual arrangements determine. and remove the which the underlying with departing Executive Directors including (but not limited to) settlement, confidentiality, holding requirement performance of outplacement services, restrictive covenants and/or consultancy arrangements. These will be in exceptional the Company will used sparingly and only entered into where the Committee believes that it is in the best interests circumstances. be reviewed to of the Company and its shareholders to do so. determine vesting. The Committee may The Company’s policy on termination payments is to consider the circumstances on a case- disapply time prorating by-case basis, considering the Executive’s contractual terms, the circumstances of termination in exceptional and any duty to mitigate. The table opposite summarises how incentives are typically treated in circumstances. different circumstances: SAYE Treated in line with HMRC rules. Any payments to Directors in excess of payments permitted by the Remuneration Policy in force from time to time may only be made with prior shareholder approval. ### 84 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Post-employment shareholding their feedback and reflect their comments prior to proposal of this Remuneration Policy to Executive Directors are required to hold the lower of: shareholders at the 2021 AGM. The majority of those consulted were supportive of the proposals, • The number of shares held by the Director on the date their employment ends, where such as proposed. A small number of consultees suggested adjustments to the post-employment shares had been (or are subsequently) acquired from Company share plan awards and shareholding requirements which were considered by the Committee but were considered not investment of bonuses received before or after the termination of employment, other than to be incorporated in the current Remuneration Policy, taking account of guidance and other permitted sales to meet tax liabilities (but excluding shares otherwise purchased in the shareholder views. When determining remuneration policy and its application, the Committee market); and considers the guidelines of shareholder bodies and shareholders’ views. The Committee is open to • For each of the following periods following termination of the employment: feedback from shareholders on remuneration policy and arrangements and commits to consult – during the first 12-month period: such number of shares that had, on the date their in advance of any significant changes to remuneration policy or its operation. The Committee employment ends, the value required to be held in accordance with the shareholding continues to monitor trends and developments in corporate governance and market practice to guideline applicable to that former Executive Director; and ensure the structure of Executive remuneration remains appropriate. – for the subsequent 12-month period: 50% of the value of the number of shares that had, on the date their employment ends, the value required to be held in accordance with the External directorships shareholding guideline applicable to that former Executive Director; and The Committee acknowledges that Executive Directors may be invited to become Independent – after 24 months: no shareholding requirement shall apply. 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 Non-Executive Directors of the Company. The Chair 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 Executive Directors are permitted to accept such appointments with the prior approval of the inspection at the Group’s registered office and at the AGM. Appointments are initially for three Chair. Approval will only be given where the appointment does not present a conflict of interest Financial StatementsGovernanceStrategic Report years (subject to annual re-election at the AGM) and unless agreed by the Board, they may not with the Group’s activities and the wider exposure gained will be beneficial to the development remain in office for a period longer than six years or two terms in office, whichever is shorter. of the individual. Where fees are payable in respect of such appointments, these would be The Chair and the Non-Executive Directors may resign from their positions but must serve the retained by the Executive Director. Board six and one months’ written notice, respectively. Policy table for Non-Executive Director remuneration The key components of Non-Executive Directors’ remuneration are as follows: Non-Executive Director Letter of appointment date Paul Moody 19 October 2018 Purpose and link to strategy Operation Maximum opportunity Performance metrics Roger Whiteside 27 November 2017 Non-Executive Annual fee for Chair and Any increases Performance of Nathan (Tripp) Lane 9 April 2020 Directors’ fees Non-Executive Directors. to NED fees will the Board as a Rob McWilliam 11 October 2021 To attract Directors be considered whole will be Additional fees paid Indira Thambiah 22 August 2022 with the appropriate following a thorough reviewed regularly for additional roles skills and experience, review process and as part of a or time commitment, and to reflect the considering wider Board evaluation Non-Executive Directors are not eligible to participate in the annual bonus or any equity e.g. chairing Board time commitment market factors, e.g. process. schemes, do not receive any additional pension or benefits on top of their fees and are not Committees. in preparing for inflation. entitled to a termination payment. and attending Non-Executive Directors The maximum meetings, the duties Consideration of employee remuneration and employment conditions in the Group do not participate in any aggregate annual and responsibilities The Committee considers the remuneration and employment conditions elsewhere in the Group incentive schemes or fee for all Directors of the role and when determining remuneration for Executive Directors. The Combined Colleague Advisory receive any other benefits provided in the the contribution Committee was consulted on the draft of this Remuneration Policy in May 2021 and considered (other than travel Company’s Articles expected from the the changes to align Executive Directors with the workforce to be appropriate. expenses, which may be of Association is Non-Executive grossed up for tax). £1,000,000 pa. Directors. Consideration of shareholder views The Company is committed to engaging with significant investors on remuneration matters and consulted with 11 of its largest shareholders and three recognised investor bodies to receive ### 85 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## DIRECTORS’ REMUNERATION REPORT CONTINUED ### Annual Report on Remuneration This is the Annual Report on Remuneration for the financial year ended 31 January 2023. This report sets out how the Remuneration Policy has been applied in the financial year being reported on and how it will be applied in the coming year. Single figure 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 2023 (FY23) and the prior year: FY23 earned Restricted Total Total Fixed Total Variable FY23 (£) Salary Benefits 1 Pension 2 Other 3 Bonus 4 Sharevalue 5 SAYE Value 6 Remuneration Remuneration Remuneration 8 Darcy Willson-Rymer 450,000 26,996 13,313 – 450,000 – 2,250 942,559 490,309 452,250 7 Kris Lee 355,311 15,639 11,849 40,000 268,580 356,224 398 1,048,031 422,799 625,202 FY22 earned Restricted Total Total Fixed Total Variable FY22 (£) Salary Benefits 1 Pension 2 Other 3 Bonus 4 Sharevalue 5 SAYE Value 6 Remuneration Remuneration Remuneration 8 Darcy Willson-Rymer 406,154 27,276 12,016 – 334,634 – 961 781,041 445,446 335,595 9 Kris Lee 371,726 16,638 11,302 – 243,828 87,774 961 732,229 399,666 332,563 10 Paul Moody 22,020 – – – – – – 22,020 22,020 – 1 Benefits comprise car or car allowance and family private medical insurance (both of which are taxable) and also the value of insurance premiums paid (a non-taxable benefit) under the Group Life Assurance and Income Protection Schemes. 2 Pension benefit comprises payments to a stakeholder pension scheme (defined contribution) and/or a cash payment in lieu of pension contributions. 3 Compensation for loss of office of £40,000 was paid to Kris Lee in February 2023 following termination of his appointment on 31 January 2023. 4 See details of FY23 bonus payments in the Remuneration Committee Chair’s letter and below. 5 The value for FY23 is the value of all Restricted Share awards granted in 2020, with a performance period that ended on 31 January 2023, which vest from 12 October 2023, applying the closing share price on 31 January 2023 of 95.0 pence. The value includes a dividend equivalent of nil and a nominal bonus award of 1 pence per share to fund the Companies Act requirement for payment of nominal value on allotment of the shares. The value for FY22 is the value of all Restricted Share awards granted in 2019, with a performance period that ended on 31 January 2022, which commenced vesting from 14 May 2022, applying the closing share price on 31 January 2022 of 58.5 pence. The value includes the dividend equivalent entitlement of 7.9 pence per share and a nominal bonus award of 1 pence per share to fund the Companies Act 2006 requirement for payment of nominal value on allotment of the shares. 6 Embedded value of SAYE options at grant. There are no performance conditions. The value of Kris Lee’s SAYE award in FY23 reflects only those shares purchased in March 2023 following exercise of his option as a good leaver under the SAYE rules. 7 Payments to Kris Lee in January 2023 included £20,918.66 additional salary payment and £627.56 additional pension contribution as pay in lieu of accrued annual leave. 8 Darcy Willson-Rymer was appointed as an Executive Director (CEO) on 8 March 2021. Darcy Willson-Rymer did not have any Restricted Share awards eligible to vest for FY22 and FY23 due to his date of appointment in March 2021. 9 Kris Lee received a salary supplement of £4,000 per month until 31 December 2021 on account of additional responsibilities assumed in the absence of a permanent CEO and during Darcy Willson-Rymer’s induction period. 10 Paul Moody held the position as Interim Executive Chair between 1 February 2021 and 8 March 2021 (FY22). During this period he was entitled to his Non-Executive Chair fee of £144,000 pa plus £30,000 per month supplement for assuming the Interim Executive Chair role, however, he waived his entitlement to this additional fee (£30,000 per month) as Executive Chair for the period from 1 January 2021 to 28 February 2021. Details of fees paid after 8 March 2021 are set out in the table ‘Single figure total fees paid to Non-Executive Directors – audited’. The above table reports all fees paid to Paul Moody for the period of his interim appointment as Executive Chair, from 1 February 2021 to 8 March 2021. Annual bonus payments and link to performance Bonus opportunities for FY23 were 125% of salary for Darcy Willson-Rymer and 100% of purpose of determining the bonus payable) to remove the benefit from release of a provision in salary for Kris Lee. The bonus was subject to achieving a range of EBITDA targets (70% of the respect of a repayment of CJRS support received from HMRC. opportunity) and Strategic Objectives (30% of the opportunity). As a result of strong financial Percentage of performance and partial achievement of the strategic objectives, the total bonus payout for total EBITDA bonus pool Percentage of FY23 was 80% of maximum. This resulted in total bonus payments of £450,000 for the CEO and | | | | FY23 | available if | | EBITDA | total bonus pool | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | £268,580 for the CFO. In line with policy, one-third of the bonus (after payment of tax) must be | | | EBITDA | performance | realised (after | | payable (% of | | | used to acquire Card Factory plc shares which must be held for three years. | Performance level | target range | | level achieved | adjustments) | | | maximum) | Threshold £90.033m 15% EBITDA (70% of bonus opportunity) - audited Target £95.033m 50% £109.6m 70% of70% The EBITDA (post-IFRS 16 adjustment for Leases) performance targets for the year and final Maximum £100.033m 100% performance achieved against this element are as set out of the chart on the right. The Committee reduced the actual EBITDA realised during FY23 by a further £2.5 million (for the ### 86 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Achievement against strategic objectives (30% of bonus opportunity) – audited The strategic objectives for the CEO and CFO were set at the start of the year and outlined in last year’s report. The strategic objectives have been reviewed in detail with one objective being achieved and two objectives not being achieved, giving an achievement of 10% of the maximum 30% of the total bonus opportunity. The specific outcomes for each objective were as follows: Bonus achieved (% of Strategic objective Link to strategy Target and Stretch performance set Outcome maximum) | cardfactory.co.uk | Omnichannel is one | Threshold: cardfactory.co.uk sales of £13.33 million (i.e. +22.3% from FY22) (for 15% of maximum | £8.8 million. nil of 15% | | --- | --- | --- | --- | | growth. | of the key strategic | potential bonus opportunity). | | | | sales channels | Target: cardfactory.co.uk sales to achieve £14.42 million (i.e. +32.3% from FY22) (for 50% of | | | | targeting sales | maximum potential bonus opportunity). | | | | and market share | Stretch: cardfactory.co.uk sales to achieve £15.51 million (i.e. +42.3% from FY22) (for 100% of | | | | growth. | maximum potential bonus opportunity). | | Straight-line adjustment applies between Threshold, Target and Stretch. Retail partnership Development of Threshold: One partner launched (for 15% of maximum potential bonus opportunity). No new partners nil% of 5% growth. retail partnerships is Target: Two partners launched (for 50% of maximum potential bonus opportunity). were launched a key growth sales Stretch: Two partners launched plus one signed (for 100% of maximum potential bonus opportunity). during the period. channel. Launched requires opening of the first location; signed requires heads of terms, trial exceeding three months or full agreement to be signed. | Realisation of | Realisation of key | Threshold: £19.6 million sales from four strategic initiatives (for 15% of maximum potential bonus | The strategic | 10% of 10% | Financial StatementsGovernanceStrategic Report | | --- | --- | --- | --- | --- | --- | | sales growth from | strategic priorities: | opportunity). | projects generated | | | | strategic initiatives. | model store trials, | Target: £20.6 million sales from four strategic initiatives (for 50% of maximum potential bonus | incremental sales of | | | | | pricing changes and | opportunity). | £29.4 million. | | | | | gifts and celebration | Stretch: £21.6 million sales from four strategic initiatives (for 100% of maximum potential bonus | | | | | | essentials (both in | opportunity). Straight-line adjustment applies between Threshold, Target and Stretch. | | | | stores and online). Grants of Restricted Shares FY23 – audited For Restricted Shares to vest, the Committee must be satisfied that business performance Conditional awards of Restricted Shares were granted to the Executive Directors on 12 May over the three years commencing 1 February 2022 is robust and sustainable, that the business 2022. The Remuneration Policy provides for awards of shares worth 87.5% of basic salary for improved its impact on society and the environment and that management has strengthened a CEO and 75% of salary for the CFO. The Remuneration Committee included an additional the business. In assessing performance, the Committee will consider financial and non-financial criteria in the performance underpin relating to an improved impact on society and the KPIs of the business as well as delivery against strategic priorities. To the extent it is not satisfied environment over the measurement period for the performance underpin. with performance the Committee may scale back the level of vested awards including to zero. An additional discretion allows scale back on vesting to minimise excess gains from share price increases between grant and vesting. There will be full disclosure in the Annual Report and Face/maximum | | Number of | | | | value of | | Measurement | | Accounts of the Committee’s determination of this ‘performance underpin’. | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Restricted | | | Face value of | Restricted | | | period for | | | | | Shares | | award value as | Shares at | | performance | | | | Executive Director | awarded | | 1 | a % of salary | grantdate | 1 | | underpin | Upon determination by the Company’s Remuneration Committee of the full or partial | satisfaction of the performance underpin condition, any Restricted Shares will vest as follows: Darcy Willson-Rymer 780,197 87.5% £393,750 1.2.22–31.1.25 • 50% of the Restricted Shares on the third anniversary of the date of grant; 2 Kris Lee 498,919 75% £251,795 1.2.22–31.1.25 • 25% of the Restricted Shares on the fourth anniversary of the date of grant; and 1 Based on the average share price for the three months to and including 11 May 2022 of 50.468 pence. • 25% of the Restricted Shares on the fifth anniversary of the date of grant. 2 The number of shares capable of vesting was reduced to 166,306 shares following Kris Lee’s cessation of employment on 31 January 2023. 100% of the vested Restricted Shares will be subject to a holding period which (save for permitted sales to meet tax liabilities from vesting) will normally end on the fifth anniversary of the date of grant. ### 87 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## DIRECTORS’ REMUNERATION REPORT CONTINUED 2020 LTIP Restricted Share award vesting – audited Single figure total fees paid to Non-Executive Directors – audited Restricted Share awards granted in October 2020 under the LTIP were subject to substantially The table below sets out a single figure for the total remuneration received by each Non- the same performance underpin summarised above in respect of the FY23 Restricted Shares, for Executive Director for the year ended 31 January 2023 and the prior year. the three financial years to and including FY23, save that the performance underpin relating to society and the environment did not apply, and the further discretion on vesting to scale back Base fee paid Additional fees Total to avoid excessive returns did not apply. Under the terms of the awards, 50% of any award Non-Executive Director FY23 FY22 FY23 FY22 FY23 FY22 that vests will vest on the third anniversary of grant (i.e. on 12 October 2023), 25% on the fourth 1 anniversary and 25% on the fifth anniversary. Paul Moody (Chair) £146,400 £128,903 £0 £0 £146,400 £128,903 Octavia Morley (SID)² £49,817 £48,183 £8,133 £7,867 £57,950 £56,050 The Committee recognises the improvement in the business performance over the period, which Roger Whiteside £45,750 £44,250 £0 £0 £45,750 £44,250 has developed from extended periods of mandatory store closure in 2020 and 2021, which Nathan (Tripp) Lane £45,750 £45,000 £0 £0 £45,750 £45,000 required extensive management action to manage liquidity and protect the business and its 3 many stakeholders, including securing a series of refinancings with its banks, to substantially Rob McWilliam £45,750 £11,250 £8,133 £2,000 £53,883 £13,250 4 recover revenues to pre-pandemic levels by the end of the period to trading performance prior Indira Thambiah £19,125 – £0 – £19,125 – to the pandemic, with an improved net debt position and encouraging evidence that the revised 1 The figures report only the fees paid to Paul Moody in his capacity as a Non-Executive Director after 8 March 2021. Additional strategy that has been adopted is beginning to realise the stated objectives. The Committee fees paid in respect of his interim executive role are reported above on page 86 (Total remuneration paid to Executive Directors – recognises that sales growth from two strategic growth channels: retail partnerships and audited). online, are not yet realising the growth expected, but sees material progress in building 2 Octavia Morley stepped down from the Board on 31 January 2023. the infrastructure, expertise and relationships to realise the sales growth targeted in the 3 Rob McWilliam was appointed on 1 November 2021. outer years of the strategic plan. On this basis, the Committee approved the vesting of the 4 Indira Thambiah was appointed on 1 September 2022 and assumed the role as Chair of the Remuneration Committee from 1 February 2023. 2020 RSP awards. Payments to former Directors – audited Darcy Willson-Rymer did not receive a 2020 Restricted Share award due to his appointment in No payments were made to former Directors during the year. However, the Board and Kris Lee March 2021. Kris Lee did however receive a 2020 Restricted Share award grant and this award agreed to Kris’ leaving the Company following a transition period (announced in July 2022) will vest in full on the third, fourth and fifth anniversary of grant. The Chair’s statement sets following which Kris elected to terminate his employment on 31 January 2023. Since the year out further detail of the Committee’s assessment of the performance underpin and the overall end, in February 2023, Kris was paid £40,000 as compensation for loss of office. Kris will be vesting level. entitled to payment of the annual bonus for FY23 of £268,580 (details of which are set out on pages 86 and 87), one third of which (after tax) is required to be applied in purchasing SAYE – audited Card Factory plc shares. The Committee has also agreed to treat Kris as a good leaver in Awards under the HMRC-approved SAYE plan were granted to all participating employees on respect of Restricted Share awards granted under the Company’s Long Term Incentive Plan 8 June 2022. Options were granted at a discount of 20% to the share price on grant and vest and options under the SAYE plan. Kris shall be entitled to awards subject to the terms of the after three years subject to continued employment. schemes, which will include scale back to reflect the proportion of the measurement period for the performance underpin for restricted share awards during which Kris was employed by the | | Number of | Face/maximum | | % of award | | | Company. Details of the share awards that remain subject to vesting are set out on page 92. | | --- | --- | --- | --- | --- | --- | --- | --- | | | SAYE options | value of awards | | vesting at | Performance | | | | Executive Director | awarded | at grant date | 1 | threshold | | period | | No other payments for loss of office have been paid. Darcy Willson-Rymer 18,419 £2,250 n/a n/a 2 Kris Lee 14,662 £1,791 n/a n/a 1 Value stated is the value of the 20% discount to the exercise price based on the share value determined over the three days to and including 11 May 2022, of 61.07 pence. 2 Following Kris Lee’s resignation on 31 January 2023, the number of shares included in the 2022 SAYE award capable of being exercised (and exercised in March 2023) was reduced to 3,258 shares. ### 88 Card Factory plc Annual Report and Accounts 2023 # Historical TSR performance and CEO remuneration The graph below illustrates the total shareholder return (TSR) of Cord 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. ![img-0.jpeg](img-0.jpeg) | CEO | 2020/20 (FY20) | 2021/22 (FY22) | 2022/23* (FY23) | 2023/24* (FY24) | 2024/25 (FY25) | 2025/26 (FY26) | 2026/27* (FY27) | 2027/28 (FY28) | 2028/29 (FY29) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Single figure of remuneration (£'000) | 943 | 829 | 525 | 593 | 611 | 496 | 1,005 | 951 | 884 | | Annual bonus outcome (% of max) | 80% | 66% | - | 10% | 15% | - | 20% | 79% | 77% | | LTIP vesting (% of max) | n/a | n/a | 50% | - | - | n/a | 46.6% | n/a | n/a | 1 For FY22, the amounts set out in the single figure table on page 84 are grouped up, or in pro rata basis to show the position for comparison proceeds assuming Darcy William Rymer had been appointed from FTSEs any 2020 rather than 8 March 2021 (the date of his actual appointment). 2 For FY21 this represents all remuneration paid to Karen Hubbard in 18 June 2020 (the date of her resignation) and payments to Karen Hubbard during her period of garden leave to 31 December 2020 and the proportion of the pro rata Restricted Share award final vested in July 2021. 3 For FY19 this represents the aggregate single figure for Karen Hubbard (from date of appointment as CEO) and Richard Hayes (to date of stopping down as CEO). # Percentage change in remuneration of Directors and all employees The table below shows the change each year for each Director's salary/fees, benefits and bonus, for each of the last three financial periods, as compared to the salary change for all employees (excluding such Directors), based on a total full-time equivalent reward for the relevant financial year. Where a Director was appointed or resigned part way through the financial year, their salary/fees, benefits and bonus are grossed up to reflect as full-year equivalent to provide for meaningful reflection for the year-on-year change: | Year-on-Year change % | Executive Directors | | | | Non-Executive Directors | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Average employee^{1} | Darcy William Rymer^{2} | Ariston Lee | Paul Woody | Octavia Morley | Roger Whiteside | Neithin (Tripp) Lane | Rob McWilliam | Indra Thurston | | FY23 compared to FY22 | | | | | | | | | | | Salary/Fees | 13.25% | 0% | -4.41% | -3.0% | 3.4% | 3.4% | 1.7% | 1.7% | n/a | | Bonus | 46.57% | 34.5% | 10.15% | n/a | n/a | n/a | n/a | n/a | n/a | | Benefits^{3} | -15% | 5.7% | 263.5% | n/a | n/a | n/a | n/a | n/a | n/a | | FY22 compared to FY21 | | | | | | | | | | | Salary/Fees | 4.7% | 1.0% | 4.5% | -54.0% | 0% | 0% | 0% | n/a | - | | Bonus | 45.9% | 100% | 100% | n/a | n/a | n/a | n/a | n/a | - | | Benefits | -35% | -60.8% | 77% | n/a | n/a | n/a | n/a | n/a | - | | FY21 compared to FY20 | | | | | | | | | | | Salary/Fees | 5.3% | - | 9.07% | 127.88% | -1.67%^{4} | -1.67%^{4} | n/a | - | - | | Bonus | -64.3% | - | -100% | n/a | n/a | n/a | n/a | - | - | | Benefits | 12.8% | - | 91.83% | n/a | n/a | n/a | n/a | - | - | 1 The Average Employee is the FTSE for all UK Group employees. 2 Darcy William Rymer's remuneration information change for FY22 compared to FY21 reflects the annualised salary and benefit for Darcy who was appointed 8 March 2021 compared to the annualised date for the former CEO, Karen Hubbard, for FY21 on the basis stated in note 2 to the preceding table. 3 Reduction in fees received during FY21 (compared to FY20) is attributable to women of fees by Directors over the periods of lockdown due to the Covid-19 pandemic. 4 Benefits includes all income in the Single Figure tables excluding Salary/Fees and Bonus. 89 Strategic Report Government Financial Statements # DIRECTORS' REMUNERATION REPORT CONTINUED CEO to employee pay ratio | FY22 | Method | 25th percentile pay ratio | Median pay ratio | 75th percentile pay ratio | | --- | --- | --- | --- | --- | | Ratio | Option A | 44.7 : 1 | 43.6 : 1 | 42.1 : 1 | | Employee salary | | £30,288 | £30,995 | £31,724 | | Employee total remuneration | | £21,096 | £21,625 | £22,376 | | FY22 ratio (restated) | Option A | 51.9 : 1 | 60.3 : 1 | 38.2 : 1 | | FY21 ratio | Option A | 31.4 : 1 | 30.6 : 1 | 29.5 : 1 | confractory has chosen Option A (pursuant to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended)), which provides a comparison of the Company's full-time equivalent total remuneration for all UK employees against the CEO for the FY23 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 CEO pay ratio for FY22 has been restated this year to adopt the CEO remuneration from the single figure table on page 86. The CEO pay ratio reported in last year's report was calculated using the actual payments received by the CEO during FY22, which did not include the FY22 annual bonus payment which was paid after the end of FY22, but was included in the single figure table. We have therefore restated this figure and the ratios. Employee remuneration as at 31 January 2023 was used for determination of the FY23 pay ratio information reported above. 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. The ratios have moved slightly year-on-year, primarily due to changes in incentive plan pay-outs for the CEO. The Committee recognises the reduction in the CEO pay ratio from FY22 (restated) to FY23 for the lowest earners in the business (as represented by the lower quartile), which reflects the increase in National Minimum Wage and National Living Wages applicable from April 2022 and the further enhancements to pay and benefits that are part of an ongoing programme to provide a fair deal for colleagues on our journey to becoming a median market payer, which are being implemented alongside business efficiencies and take account of colleague priorities based on ongoing consultation. Although the FY23 ratios for median and upper percentile colleagues have increased, these ratios are impacted by a higher CEO bonus in FY23 and the Committee places emphasis on the increases to salary and remuneration for employees, where employee total remuneration is £6,051 higher at the 25th percentile; £2,261 higher at the median level; and £1,941 higher at the 75th percentile, than the equivalent total remuneration in the prior year. ## Distribution statement The charts below illustrate the year-on-year change in total remuneration for all employees and total shareholder distributions ('TSD'). ![img-1.jpeg](img-1.jpeg) ![img-2.jpeg](img-2.jpeg) ## Statement of shareholder voting The following table shows the results of the shareholder votes on the Annual Report on Remuneration at the 2022 AGM and for the Directors' Remuneration Policy at the 2021 AGM: | | Remuneration Policy 2022 | | Annual Report on Remuneration 2022 | | | --- | --- | --- | --- | --- | | | Total number of votes | % of votes cast | Total number of votes | % of votes cast | | For (including discretionary) | 189,960,737 | 94.98 | 169,968,698 | 83.3 | | Against | 10,033,932 | 5.02 | 34,070,430 | 16.7 | | Total votes cast (excluding withheld votes) | 199,994,669 | - | 204,039,128 | - | | Total votes withheld | 29,676 | - | 2,113,595 | - | | Total votes cast (including withheld votes) | 200,024,345 | - | 206,152,723 | - | 1. A withheld vote is not a vote in line and is not counted in the calculation of the proportion of votes cast by and against a resolution. 90 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page The Committee acknowledges the notable vote against the Remuneration Report in 2022 is primarily attributed to the decision to pay reduced annual bonus to the Executive Directors for the FY22 year. The Committee’s evaluation of the Director and business performance over this period, and balance of stakeholder interests in the long term, were considered at length by the Committee and are documented in detail in the 2022 Annual Report. The Committee will continue to exercise discretion, where appropriate, taking account of all stakeholder interests and guidance available. Directors’ shareholdings and interest in shares – audited The Committee sets shareholding guidelines for Executive Directors. Executive Directors are required to retain shares that vest from future Restricted Share awards and acquire shares with one- third of any bonus (after payment of tax) under the shareholding requirement is met. 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. The Executive Directors have not yet met the shareholding guideline. Shares held Options held Unvested | | | Unvested and | Unvested and | | | | and subject | | Current | | Shareholding | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | not subject to | | subject to | Vested but not | | to continued | shareholding (% | | | requirement (% | | Director Owned outright | 1 | performance | performance | | | exercised | employment | of salary/fee | | 2 ) | of salary/fee) Guideline met? | Executive Directors Darcy Willson-Rymer 178,188 – 514,436 – 31,945 35.8% 250% No 3 Kris Lee 174,439 371,067 380,394 – – 49.4% 200% No Non-Executive Directors Paul Moody 200,000 – – – – 3 Financial StatementsGovernanceStrategic Report Octavia Morley 13,333 – – – – Roger Whiteside 22,520 – – – – Nathan (Tripp) Lane 200,000 – – – – Rob McWilliam 32,578 – – – – Indira Thambiah – – – – – 1 Including shares owned by connected persons. 2 Calculated using the closing share price of the Company on Friday 31 January 2023 of 95.0 pence. 3 Kris Lee and Octavia Morley stepped down from the Board on 31 January 2023. During the year, no share options under the SAYE plan were exercised by the Directors. Since the end of the year, Kris Lee exercised options under the SAYE Plan pursuant to which he acquired 20,337 shares on 17 March 2023. Otherwise, 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. ### 91 # 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 | | --- | --- | --- | --- | --- | --- | --- | --- | | Darcy-Wilson-Rymer | | | | | | | | | Restricted shares^{1} | 12.05.22 | 50.468p | n/a | 780,197 | £393,750 | 01.02.22 – 31.01.25 | n/a | | Restricted shares^{1} | 14.06.21 | 76.54p | n/a | 514,436 | £393,750 | 01.02.21 – 31.01.24 | n/a | | SAYE | 08.06.22 | 61.07p | 48.86p | 18,419 | £2,249 | – | 01.07.25 – 31.12.25 | | SAYE | 08.07.21 | 66.87p | 53.496p | 13,526 | £1,814 | – | 01.08.24 – 31.01.25 | | Kris-Lee | | | | | | | | | Restricted shares^{1} | 12.05.22 | 50.468p | n/a | 498,919^{2} | £251,794.50 | 01.02.22 – 31.01.25 | n/a | | Restricted shares^{1} | 14.06.21 | 76.54p | n/a | 321,132^{3} | £245,794 | 01.02.21 – 31.01.24 | n/a | | Restricted shares^{1, 3} | 12.10.20 | 39.74p | n/a | 371,067 | £147,475^{4} | 01.02.20 – 31.01.23 | n/a | | Restricted shares^{1, 3} | 14.05.19 | 188.74p | n/a | 65,115 | £122,898 | 01.02.19 – 31.01.22 | n/a | | Restricted shares^{1, 4} | 11.07.18 | 214.1p | n/a | 13,794 | £29,533 | 01.02.18 – 31.01.21 | n/a | 1 The number of shares comprising each RSP award was calculated based on the average, middle-market quotation of a share in the capital of the Company over the three months prior to the date of grant. 2 Restricted Share award to Kris-Lee made in 2020 was added back to 40% of the policy level. Following exercise of discretion by the Remuneration Committee, having regard to the change in share price as a result of the then current market environment. 3 Kris-Lee's original award in 2019 was granted over 100,000 shares. 34% of this award vested on 14 May 2020 with the balance subject to future vesting. 4 Kris-Lee's original award in 2018 was granted over 100,000 shares. This award was reduced to $3,173 following the Remuneration Committee's decision to permit only 58% of the award to vest. 56% of the award vested 11 July 2021, and a further 35% vested on 11 July 2022 with the balance indicated subject to future vesting on 11 July 2022. 5 Following termination of Kris-Lee's employment with the Company, on 31 January 2023, as a result of Kris-Lee being deemed to be a "good leaver", the number of Restricted Shares capable of vesting has been reduced as a ratio based on the proportion of the performance period that it was employed for the business. Consequently, the maximum number of shares capable of vesting in respect of the grant in 2021 was reduced from 321.02 to 246,000 shares, and for the award granted in 2022 was reduced from 498,919 shares to 166,366 shares. 6 Following termination of Kris-Lee's employment on 31 January 2023, he has exercised his options to receive ordinary shares pursuant to the SAYE scheme, as a good leaver, by applying savings under the SAYE plan, at the option price. In aggregate, 35,397 shares were issued on 11 March 2022. No SAYE options remain exercisable by Kris-Lee as of the date of the report. 7 In respect of Restricted share awards, the employer (pray-in-naminal bonus of 1 pence per share at the time of vesting). This nominal bonus is applied to pay the subscription price to meet the Companies Act requirements for payment of nominal value on allotment. ## How the Policy will be applied in FY24 ### Salary The salaries of the Executive Directors with effect from 1 April 2023 are as follows: | Executive Director | 1 April 2023 | 1 April 2022 | | --- | --- | --- | | Darcy-Wilson-Rymer | £472,500 | £450,000^{1} | | Matthias Seeger | £345,000^{2} | n/a | 1 Darcy-Wilson-Rymer declined a 2% increase to basic salary which was approved by the Committee for the period commencing 1 April 2023. 2 Salary from 1 April 2023 to the annual salary that will be paid to Matthias Seeger who is to be appointed as CFO from 12 May 2023. For compulsory purposes, the annual salary payable to the former CFO from 1 April 2022 was £315,735. ### Benefits and pension These will be paid in line with the Policy. ### Annual bonus The annual bonus for FY24 is capped at 125% and 100% of salary for the CEO and CFO (respectively), up to 70% of which can be realised if financial target of Group PBT is achieved and the remaining 30% can be realised from achievement of strategic objectives. The financial targets have been set by the Committee and will require Executive Directors to deliver significant stretch performance compared to market expectations at the start of the financial year and the financial performance realised in FY23. Given the close link between these targets and cardfactory's competitive strategy, financial targets are considered commercially sensitive but will be published in next year's Annual Report on Remuneration. 92 Cardfestegypix Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page The objectives set for both the CEO and CFO for FY24, which are shared by all of the senior management team are as follows: Bonus potential (% of Objective Link to strategy Target and Stretch performance set¹ maximum bonus opportunity) Financial objectives 70% total PBT based target Group financial performance and improvement 15% of full opportunity if Threshold is achieved; 70% in profitability. 50% of opportunity if Target is achieved; and 100% of opportunity if Stretch is achieved. Straight-line adjustment for results between Threshold, Target and Stretch. Strategic objectives 30% total | cardfactory.co.uk | Online sales (including certain omnichannel | Net sales targets for cardfactory.co.uk: | 12.5% | | --- | --- | --- | --- | | sales growth | initiatives) is one of the key strategic sales | 15% of full opportunity if Threshold is achieved; | | | | channels targeting sales growth. | 50% of opportunity if Target is achieved; and | | 100% of opportunity if Stretch is achieved. Straight-line adjustment for sales between Threshold, Target and Stretch. Retail partnership Development of retail partnerships is a key Net sales targets for retail partnerships: 12.5% sales growth growth sales channel. 15% of full opportunity if Threshold is achieved; 50% of opportunity if Target is achieved; and 100% of opportunity if Stretch is achieved. Financial StatementsGovernanceStrategic Report Straight line adjustment for sales between Threshold, Target and Stretch. | Net Promoter Score | Realisation of key strategic priorities to make | Average monthly NPS score (as assessed by Savanta Brand Vue: | 5% | | --- | --- | --- | --- | | improvement in FY24 | the business customer centric. | 15% of opportunity if Threshold is achieved; | | | compared to FY23 | | 50% of opportunity if Target is achieved; and | | 100% of opportunity if Stretch is achieved. Straight line adjustment for sales between Threshold, Target and Stretch. 1 Quantums for Target and Stretch for each objective are commercially sensitive and will be published in the Annual Report on Remuneration for the year to 31 January 2024. ### 93 # DIRECTORS' REMUNERATION REPORT CONTINUED ## Restricted Shares The precise grant levels have not yet been finalised, but we anticipate that Restricted Shares will be granted over shares with a value at the time of grant of up to 87.5% of salary and 75% of salary for the Chief Executive and Chief Financial Officer, respectively, after Matthias Seeger joins the Board on 22 May 2023. In order for Restricted Shares to vest, the Committee must be satisfied that business performance is robust, sustainable, that the business has improved its impact on society and the environment 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 its strategic priorities. To the extent it is not satisfied with performance, or to address any excessive gains from share price increases, 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. ## Non-Executive Director fees As explained in the Remuneration Committee's letter, the Chair and NED fees have fallen behind market levels significantly and, having considered the increase to scope and complexity of the NED roles and the importance of being able to attract and retain NEDs of sufficient calibre, the fee levels have been reviewed for FY24 resulting in a correctional increase to fee levels. Going forwards, the Company proposes to review all fees on an annual basis to ensure market median rates are maintained, whilst taking account of colleague and other stakeholder experience. The agreed Chair and Non-Executive Director fees are set out below. | | From 1 April 2023 | Prior to 1 April 2022 | | --- | --- | --- | | **Base fees** | | | | Chair | £175,000 | £146,880 | | Senior Independent Director | £60,000 | £49,980 | | Non-Executive Director | £50,000 | £45,900 | | **Additional fees** | | | | Chair of the Remuneration Committee | £10,000 | £8,160 | | Chair of the Audit & Risk Committee | £10,000 | £8,160 | ## Remuneration Committee membership and advisors The Remuneration Committee membership during the period is set out in the Corporate Governance Report on page 70. 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 advisors 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 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 remunerationconsultantgroup.com. Accordingly, the Committee is satisfied that the advice received is objective and independent. Fees of £27,006 (inc. VAT) were paid to Korn Ferry during the financial year. ## Committee activities During FY23 and up to the approval of this Report, the Committee met to consider the following remuneration matters: - Review the operation of the Remuneration Policy in FY23 and assess appropriateness of the policy. - Consider performance against targets and resulting bonus payments for FY22 and vesting of the 2019 Restricted Share awards under the Long Term Incentive Plan. - Finalise the financial targets and (since the year-end) consider the performance against the targets and resulting bonus payments and consideration of the exercise of discretion for the FY23 annual executive bonus plan and to agree the measures and targets for the FY24 annual executive bonus. - Approve the terms of Kris Lee's departure from the Company. - Consider the remuneration package for the appointment of Matthias Seeger as the new CEO. - Consider and approve annual salary increases for the senior management team, the CEO and the Chair, and the wider workforce salary and benefit reviews. - Assess good leaver designations and approval of terms for certain leavers. - Review developing trends in remuneration market practice, investor guidelines and governance. - Review and consider wider Group remuneration policies and practices and the approach to employee engagement as it relates to remuneration matters. - Undertake various other reviews and approvals (as appropriate) in accordance with the terms of reference for the Committee adopted by the Company. - Formally approve the Directors' Remuneration Report as set out in this Annual Report. 94 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page The work of the Remuneration Committee Determining Executive Director remuneration Set out below are those areas of the Committee’s work that it is required to report under The Committee considers the appropriateness of the Executive Directors’ remuneration, not the Code and reporting regulations and which are not covered elsewhere in this Directors’ only in the context of overall business performance and environmental, governance and Remuneration Report. 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 Engagement with stakeholders external market data, to ensure that it is fair and appropriate for the role, experience of the The Committee completed its consultation with shareholders on the changes proposed to be individual, responsibilities and performance delivered. made to the Directors’ Remuneration Policy that was approved by shareholders at the 2021 AGM. Support for the Directors’ Remuneration Policy, that was adopted at the 2021 AGM, More specifically the Committee will continue to consider the application of discretion in was almost 95% and the FY22 Directors’ Remuneration Report at the 2022 AGM received application of the Directors’ Remuneration Policy to adjust for any excessive returns from support from shareholders holding 83.3% of the votes cast. There were no material concerns general market changes, and to account for wider stakeholder experience, in particular in for the Committee to consider from the AGM voting outcomes. Encouragingly our employee respect of the exercise of discretion in respect of bonus and share awards and in setting any engagement scores increased significantly during the year, as assessed using a ‘b-Heard’ survey, new targets for future annual bonus schemes. assessed by Best Companies Limited (see pages 32 and 33). cardfactory continues to work on some of the key themes and outputs from the survey and we continue with the Combined Wider workforce matters Colleague Advisory Group (CCAG) which complements existing forms of employee engagement. The Committee, as part of its wider remit under the Code, considers workforce remuneration It also forms the basis of engagement on those matters specifically required under the Code, policy and practices. This includes our Gender Pay statistics, which are published on our investor including to explain the alignment of the Executive Directors’ Remuneration Policy to the wider relations website (cardfactoryinvestors.com) and our DE&I strategy (see pages 31 to 33) and our Group. Paul Moody is the Designated Director to lead the Board’s consultation of colleagues via DE&I policy which is summarised on page 97. The Committee has also considered the Group’s Financial StatementsGovernanceStrategic Report the CCAG. Further details of stakeholder engagement are set out on pages 26 to 35. wider review of remuneration across the entire workforce following an extensive grading of roles and benchmarking of remuneration and benefits associated with each role. There were no matters arising during the year that required consultation by the Remuneration Committee with shareholders. This report was reviewed and approved by the Remuneration Committee on 2 May 2023. Indira Thambiah Chair of the Remuneration Committee 3 May 2023 ### 95 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## NOMINATION COMMITTEE ### Chair’s letter ### Dear Shareholder | The Nomination Committee’s activities during | | The Committee recognises the importance | interviews, presentations and psychometric | | --- | --- | --- | --- | | the year have focused on: | | of ensuring cardfactory is a truly diverse and | testing, the Committee unanimously agreed | | • appointment of Indira Thambiah | | inclusive employer and supports customers | the appointment of Matthias Seeger who | | | as a Non-Executive Director, with | of all backgrounds to celebrate all occasions | will join the Board on 22 May 2023. Neither | | | relevant remuneration experience to | that are important to them. The Board | Odgers Berndtson nor Teneo have any | | | succeed Octavia Morley as Chair of the | aspires to achieve the gender and ethnic | connection to the Company or any of the | | | Remuneration Committee; | minority diversity targets set by the FCA | Directors. | | • appointment of Matthias Seeger as Chief | | in April 2022, despite these rules not being | | | | Financial Officer of the Company, who will | directly applicable to the Company (as a | In addition to further progressing the Group’s | | | take up this post on 22 May 2023; | FTSE AllShare company). The Company has | DE&I strategy, the Committee will focus on | | • review of recent and proposed senior | | elected to voluntarily disclose in its report, | addressing further supporting development | | | appointments; | the Board and the senior management team | opportunities identified from the succession | | • review of succession planning for the | | diversity as at the year end, in addition to the | planning undertaken for the senior | | | Board, the senior management team | gender data at the year end. As two Directors | management team and their direct reports. | | | and their direct reports and approach | left the Board on this date, the data is also | An internally conducted Board effectiveness | ## Paul Moody to succession plans being undertaken disclosed as at the latest practicable date review will also be undertaken. Chair of the Nomination Committee throughout the business; prior to publication of this Report, to ensure • review of the size and skills of the Board, full transparency. There remains much to be done throughout resulting in the decision not to seek to the organisation, but the Committee is ### Committee members: appoint a Non-Executive Director following The Company retained Odgers Berndtson to pleased with progress to date and we will Paul Moody (Chair) the resignation of Octavia Morley; undertake a market search to recommend further update shareholders in next year’s • approval of appointments of Roger candidates for the role of Non-Executive Annual Report. ### Roger Whiteside Whiteside as Senior Independent Director Director and potential Chair of the and of Indira Thambiah as Chair of the Remuneration Committee. The Committee Yours sincerely ### Rob McWilliam | | | Remuneration Committee; and | reviewed a range of candidates and | | | --- | --- | --- | --- | --- | | Indira Thambiah | • effecting the internally moderated annual | | undertook multiple interviews of those | Paul Moody | | | | Board effectiveness review, setting | shortlisted which resulted in the unanimous | Chair | | | | new Board objectives and review of | resolution to appoint Indira Thambiah. | 3 May 2023 | | | | performance against prior year objectives. | Ridgeway Partners Limited, trading as | | Teneo, were appointed to undertake a The Committee has been active over the last comprehensive market search for a Chief year with a number of senior appointments, Financial Officer candidate. Following a succession planning and with an internal rigorous selection process, including multiple Board effectiveness review. ### 96 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Nomination Committee Report We are committed to providing equal opportunities for all our colleagues and to having a diverse workforce of gender, age, nationality, education This report provides details of the role of and background. We are a founding signatory, alongside 50 other leading retailers, to the British Retail Consortium’s Diversity and Inclusion the Nomination Committee, the work it has Charter. Details of some of our commitments and progress during the year can be found in the ESG Report from page 36. undertaken during the year and details of how it intends to carry out its responsibilities We published our Gender Pay Gap Report in April 2023, which reports on the gender pay gap as at 5 April 2022. A copy of the report has been going forward. published on cardfactory’s investor website (cardfactoryinvestors.com). Our latest data on gender and (for the Board and senior management team) ethnicity is as follows: ### Role of the Nomination Committee The purpose of the Committee is to: ### • Assist the Board by keeping the Gender composition: composition and performance of Number of senior positions Number in Percentage of on the Board (CEO, CFO, executive management executive management the Board and its Committees under Number of Board members Percentage of the Board SID, Chair) (excl. Board members) (excl. Board members) continuous review to ensure it has the 31 Jan 2023 2 May 2023 31 Jan 2023 2 May 2023 31 Jan 2023 2 May 2023 31 Jan 2023 2 May 2023 31 Jan 2023 2 May 2023 necessary balance of skills and experience Men 6 5 75% 83.3% 3 3 7 6 77.7% 75% to fulfil its purpose. • Ensure a thorough and transparent process Women 2 1 25% 16.7% 1 0 2 2 22.2% 25% is adopted for making new appointments to the Board. | | | Ethnic diversity: | | Number of senior positions | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | • Oversee diversity, inclusion and succession, | | | | on the Board (CEO, CFO, | | | Number in | | Percentage of | | | not only within the Board but across the | | Number of Board members Percentage of the Board | | SID, Chair) | executive management | | executive management | | | | Group’s senior management team. | | 31 Jan 2023 2 May 2023 31 Jan 2023 2 May 2023 31 Jan 2023 2May 2023 31 Jan 2023 2 May 2023 31 Jan 2023 2 May 2023 | | | | | | | White British or other White Financial StatementsGovernanceStrategic Report A more detailed explanation of the (including minority-white groups) 7 5 87.5% 83.3% 4 3 9 8 81.8% 80% Nomination Committee’s role, membership, Mixed/Multiple Ethnic Groups 0 0 0 0 0 0 0 0 0 0 meeting frequency and terms of reference are set out in the Corporate Governance Report Asian/Asian British 1 1 12.5% 16.7% 0 0 1 1 9.1% 10% on pages 68 and 70. Black/African/Caribbean/Black British 0 0 0 0 0 0 1 1 9.1% 10% ### Committee activity Other ethnic group, including Arab 0 0 0 0 0 0 0 0 0 0 The Committee’s main activity during the Not specified/prefer not to say 0 0 0 0 0 0 0 0 0 0 year, and its plans for the year ahead, are as described in more detail in the introductory letter to this report. For the 48 direct reports to the executive management team as at 31 January 2023, 50% (24 individuals) are women 50% (24 individuals) are male. Of the entire workforce of 9433 as at 31 January 2023, 82.5% (7,778 individuals) are women and 17.5% (1,655 individuals) are male. ### DE&I Policy ### Our policy is that the Board and the Group’s Board evaluation senior management team should always The Company undertook an internal Board effectiveness evaluation (having completed an external review in 2021). Further details are set out in be diverse, with selection being made the Corporate Governance Report on page 71. Board evaluation will continue to be conducted on an annual basis, with an internally facilitated irrespective of personal attributes, but we evaluation scheduled to be completed during the financial year to 31 January 2024. feel that quotas are not appropriate as they | are likely to lead to compromised decisions | Tenure and re-election of Directors | | --- | --- | | on Board and senior management team | In accordance with the UK Corporate Governance Code, all the Directors will seek election or re-election (as appropriate) at the next AGM on | | membership, quality and size. | 22 June 2023. | | We will, however, seek to ensure that specific | Paul Moody | | effort is made, both at Board and senior | Chair of the Nomination Committee | | management team level, to bring forward | 3 May 2023 | female candidates and those from a range of ethnic and social backgrounds for appointments. ### 97 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## DIRECTORS’ REPORT The Directors present their report together The Company is domiciled in the United This Directors’ Report should be read in Share capital, shareholders and with the audited financial statements for the Kingdom and its registered office is at Century conjunction with the Strategic Report, which ### restrictions on transfers of shares year ended 31 January 2023. House, Brunel Road, Wakefield 41 Industrial also contains details of the principal activities The Company has only one class of shares: Estate, Wakefield, West Yorkshire, WF2 0XG. of the Group during the year. When taken ordinary shares of 1 pence each. The telephone number of the Company’s together, the Strategic Report and this ### Introduction registered office is +44 1924 839150. Directors’ Report constitute the management This section of the Annual Report and Further details of the Company’s share report for the purposes of DTR 4.1.8 R. | Accounts includes additional information | | | capital, including changes in the issued share | | --- | --- | --- | --- | | required to be disclosed under the Companies | Strategic Report | | capital in the year under review, are set out in | | Act 2006 (‘the Companies Act’), the UK | The Strategic Report, which was approved | Results and dividends | note 19 to the financial statements which form | | Corporate Governance Code 2018 (the ‘Code’ | by the Board on 2 May 2023 and is set out | The consolidated profit/(loss) for the Group | part of this report on page 135. On 17 March | | or the ‘UK Corporate Governance Code’), the | on pages 1 to 63, contains a fair review of | for the year after taxation was £44.2 million | 2023 the Company issued 20.337 shares to | | Disclosure Guidance and Transparency Rules | the Group’s business, a description of the | (FY22: £8.1 million). The results are discussed in | satisfy entitlements under the Company’s | | (the ‘DTRs’) and the Listing Rules (the ‘Listing | emerging and principal risks and uncertainties | greater detail in the Chief Financial Officer’s | SAYE plan. Save for this issue, no additional | | Rules’) of the Financial Conduct Authority. | facing the Group and an indication of the | Review on pages 52 to 57. | shares have been issued between the end of | | | likely future developments of the Group. | | the financial year under review and the date | | Some of the information we are required to | | No final dividend is proposed in respect of | of approval of this Report. The total issued | | include in the Directors’ Report is included | The review is intended to be a balanced and | the period ended 31 January 2023 (FY22 | share capital of the Company as at 2 May | | in other sections of this Annual Report and | comprehensive analysis of the development | final dividend: nil). No interim dividend has | 2023 (being the latest practical date before | | Accounts and is referred to below. Where | and performance of the Group’s business | been paid in respect of the period ended 31 | publication of this report) is 342,656,427. No | | reference is made to these other sections, they | during the financial year and the position | January 2023 (FY22: nil). | shares are held in treasury. | | are incorporated into this report by reference. | of the Group’s business at the end of that | | | | | year. The report includes, to the extent | | Details of awards outstanding under share- | ### Post year-end events | | necessary for an understanding of the | | based incentive schemes are given in note | | --- | --- | --- | --- | | Incorporation, listing and structure | | Following the year end, on 25 April 2023, the | | | | development, performance or position of the | | 25 to the financial statements which form | | The Company was incorporated and | | Group acquired a 100% stake in SA Greetings | | | | Group’s business, analysis using financial key | | part of this report on page 141. Details of | | registered in England and Wales on 17 | | Corporation (Pty) Ltd (‘SA Greetings’) for fixed | | | | performance indicators. | | the share-based incentive schemes in place | | April 2014 under the Companies Act with | | cash consideration of £2.5 million, funded | | are provided in the Directors’ Remuneration registration number 9002747. from existing cash reserves and working The Strategic Report also includes the main Report on pages 81 and 82. capital. trends and factors likely to affect the future The entire issued ordinary share capital of the development, performance and position The rights and obligations attaching to the Company is admitted to the premium listing Otherwise, there have been no other of the Group’s business. It also includes ordinary share capital of the Company are segment of the Official List of the Financial significant post year-end events. information about environmental matters contained within the Company’s Articles of Conduct Authority and to trading on the (including reporting in accordance with the Association (‘Articles’) which were adopted on London Stock Exchange main market for Task Force on Climate-Related Financial 28 July 2021. listed securities. The liability of the members Disclosures (TCFD)), the Group’s employees, of the Company is limited. social and community issues and about how we engage with our stakeholders. ### 98 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page The Articles do not contain any restrictions on the transfer of ordinary shares in the Company Transactions with related parties Greenhouse gas emissions other than the usual restrictions applicable where any amount is unpaid on a share. Certain The only material transactions with The TCFD Report on page 50 sets out the restrictions are also imposed by laws and regulations (such as insider trading and marketing related parties during the year were those greenhouse gas emissions disclosures required requirements) and requirements of the Listing Rules whereby Directors and certain employees of transactions detailed in note 28 on page 142 by the Companies Act 2006 (Strategic Report the Company require approval of the Company in order to deal in the Company’s shares. of the Annual Report and Accounts. and Directors’ Report) Regulations 2013. ### Shareholder and voting rights Directors Political donations All members who hold ordinary shares are entitled to attend and vote at the AGM. On a show The Directors of the Company and their The Group has not made any political of hands at a general meeting every member present in person shall have one vote and on a biographies are set out on pages 64 and donations in the past and does not intend to poll every member present in person or by proxy shall have one vote for every ordinary share 65. Details of changes to the Board during make any in the future. held. No shareholder holds ordinary shares carrying special rights relating to the control of the the period are set out in the Corporate Company. Governance Report on page 67. Details of ### Treasury and risk management and how Directors are appointed and/or removed ### financial instruments ### Substantial shareholders are set out in the Corporate Governance The Group’s approach to treasury and At 2 May 2023 the following had notified the Company of a disclosable interest of 3% or more Report on page 71. financial risk management is explained in of the nominal value of the Company’s ordinary shares: note 23 to the accounts on page 137. These | | | | | Powers of Directors | risks are managed in accordance with the risk | | | --- | --- | --- | --- | --- | --- | --- | | | | | Percentage | Specific powers of the Directors in relation | management framework described on pages | | | | | No. of | of issued | to shares and the Company’s Articles of | | | | | | | | | 58 to 62, which includes a list of the principal | Financial StatementsGovernanceStrategic Report | | Shareholder | ordinary shares | | share capital | | | | | | | | | Association are referred to in the Corporate | risks and uncertainties that affect or are likely | | | Teleios Capital Partners LLC 68,397,212 19.96 | | | | Governance Report on pages 71 and 72. | | | to affect the Group. The financial position of Artemis Investment Management LLP 29,731,077 8.68 As at 31 January 2023, the Directors had the Group, its cash flow, liquidity position and shareholder authority, granted at the AGM in borrowing facilities are described in the CFO’s Aberforth Partners LLP 22,753,964 6.64 2022, to effect a purchase by the Company review on pages 52 to 57. Mr Stuart Middleton 18,035,477 5.26 of up to 34,187,834 of its own shares. None of Jupiter Asset Management 17,133,053 5.00 this authority had been used during FY23. This ### Tax Majedie Asset  Management Limited 16,819,832 4.91 authority is proposed to be renewed at the The Group pays corporation tax on its AGM to be held in 2023. The Wellcome Trust 10,733,554 3.13 operations in the United Kingdom and does not operate in any tax havens or use any tax ### Directors’ indemnities and insurance avoidance schemes. A copy of the Group’s tax The shareholdings noted above reflect the notifications received as at 31 January 2023. Information relating to Directors’ indemnities strategy is available on cardfactory’s investor and the Directors’ and Officers’ liability website (cardfactoryinvestors.com). ### Change of control insurance that the Company has purchased is There are no agreements between the Company and its Directors or employees providing set out in the Corporate Governance Report for additional compensation for loss of office or employment (whether through resignation, on page 72. redundancy or otherwise) that occurs because of a takeover bid. ### Employees The only significant agreement to which the Company is a party that takes effect, alters or Information relating to employees of the terminates upon a change of control of the Company following a takeover bid, and the effect Group is set out on pages 31 to 33. Share thereof, is the Company’s committed bank facilities dated 17 April 2014 (as amended and incentive schemes in which employees restated) and the Coronavirus Large Business Interruption Loans, which contain a provision such participate are described in the Directors’ that, in the event of a change of control, the facilities may be cancelled and all outstanding Remuneration Report on pages 81 and 82 amounts, together with accrued interest, will become repayable on the date falling 30 days and in note 25 to the financial statements on following written notice being given by the lenders that the facility has been cancelled. page 141. ### 99 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## DIRECTORS’ REPORT CONTINUED | Disclosures required under Listing Rule 9.8.4 R | Going concern | Board assessment | | --- | --- | --- | | In accordance with Listing Rule 9.8.4C, the information required to be disclosed in the Annual | The Board continues to have a reasonable | The Board has reviewed the Group’s detailed | | Report by Listing Rule 9.8.4 R is detailed in the following sections: | expectation that the Group has adequate | five-year strategic plan (the ‘Plan’), including | | | resources to continue in operation for at | an assessment of the key operational and | | | least the next 12 months and that the | financial assumptions, and considered | Disclosure Cross reference going concern basis of accounting downside scenarios and stress testing. Amount of interest capitalised by the Group Not Applicable remains appropriate. during FY23 and the amount and treatment The Plan was updated to reflect the positive of any related tax relief. trading performance in FY23 and assumes More information in respect of going concern, Any information required by Listing Rule Not Applicable a conservative model of sales growth across including the factors considered in reaching 9.2.18 R (publication of unaudited financial the five year horizon that reflects delivery of this conclusion, is provided in note 1 to the information). key strategic projects to support growth in consolidated financial statements in pages 119 online and partnerships. In addition, the Plan Details of any long-term incentive schemes. Page 81 and 120. includes expected cost headwinds arising, in Details of any arrangements under which Not Applicable particular, from material and wage inflation, ### any Director has waived or agreed to waive Longer-term viability lower GBPUSD exchange rates that may any emoluments for FY23 or any future In accordance with the UK Corporate be applicable from the end of the Group’s emoluments. Governance Code, the Directors have existing hedge, and the impact of rising prices Details of cash allotments of shares by See note 7 to the notes to the Parent assessed the viability of the Group over a on energy and utility costs from the end of Card Factory plc or any major subsidiary Company financial statements on page 148 period longer than that required in respect the Group’s exiting price fix in September undertaking, during FY23. of going concern. The assessment has been 2024. The plan indicates that the Group will made taking into account the Group’s current Details of any contract of significance Not Applicable remain profitable, cash generative, maintain position, business plan, and the principal risks subsisting during FY23. adequate liquidity headroom against its and uncertainties described in the Strategic Details of any contract for the provision Not Applicable available financing facilities, and, to the Report on pages 58 to 62. of services to the Group by a controlling extent applicable, be compliant with the shareholder subsisting during FY23. financial covenants set out in its facilities In making this statement, the Board has agreed in April 2022 across the five-year Details of any arrangement under which a Not Applicable carried out a robust assessment of the viability horizon. shareholder has waived or agreed to waive emerging and principal risks facing the any dividends. Group, including those that would threaten its In assessing viability, the Board has A statement by the Board in respect of any Not Applicable business model, future performance, solvency considered a variety of downside scenarios agreement with a controlling shareholder. or liquidity. arising from the Group’s principal risks and uncertainties (see pages 60 to 62). These ### Viability period downside risks included severe, but plausible, ### Disclosure required under Listing Rule 7 (Corporate Governance) The Directors have determined that the five scenarios with the ability to reduce the The Corporate Governance Report on pages 67 to 73 contains disclosures required under Listing years to 31 January 2028 is an appropriate Group’s sales, profitability and cash flow both Rules 7.2.2, 7.2.3, 7.2.5, 7.2.6 and 7.2.7, which form part of this Directors’ Report. period over which to provide its viability over sustained periods and, in particular, over statement, being the timeframe used by the the Christmas season which still delivers a Disclosure required under Listing Rule 9.8.6(8) R Board in its strategic planning process and higher proportion of the Group’s sales and The Company has included climate-related disclosures consistent with the TCFD consistent with the Group’s investment cycles. profits compared to other periods in the recommendations and recommended disclosures (dated June 2017) as updated by the Task Five years extends beyond the period covered year. Reverse stress test scenarios were also Force’s 2021 Annex, on pages 44 to 49 of this Annual Report. The Company’s compliance with by the Group’s existing financing facilities; considered that considered the extent to the TCFD reporting and identification of the matters which the Company is not yet compliant however at present the Board have no reason which such a scenario would need to persist with are set out on pages 44 to 49. The sections identified in green or amber in the table on to believe that the Group’s existing facilities or extend in order to result in a breach. In all pages 44 to 49 explain the status of the Company’s progress to be able to fully report against would not be renewed or replaced on broadly cases, the review concluded that the extent of the TCFD requirements in future years. similar terms at that time. scenario required to result in a breach was of such severity such that the scenario was not considered reasonable plausible. ### 100 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Whilst these reviews do not consider all the Assumption Assumption limitations possible scenarios that the Group might face, Available funding the Directors consider that this assessment of The Group renegotiated its financing facilities The key limitation in respect of financing the Group’s prospects is reasonable in light of with its banking syndicate in April 2022 (see relates to the ability of the Group to meet its the particular uncertainties facing the Group page 135), with the overall size of facilities covenant requirements in order to continue at this time. reduced to £150 million over an extended to access available facilities. The Board is term to September 2025. The strategic plan satisfied that, under the current facilities, In particular, the Directors noted that in all assumes that these facilities are maintained the Group should have sufficient headroom of the scenarios considered, a reasonable on similar terms throughout the five-year to meet covenant requirements across degree of further actions would be available horizon; however is not highly sensitive to the the viability period, including in downside to the Group to mitigate the effects of renewal terms from September 2025. There scenarios. Liquidity and covenant headroom downside risks. Such mitigating actions could are no new facilities assumed in the plan. is at its tightest during the first 12-18 months include further curtailing of discretionary of the plan, with cash inflows across the five- operating and capital expenditure. It was year term gradually increasing headroom noted that the Group has successfully taken over time. significant mitigating actions to preserve Capital investment liquidity during the Covid-19 pandemic. The Group’s capital investment plans Capital investment is entirely within the remain focused on supporting key strategic control of the Board. Reducing capital Whilst there continue to be inherent risks and | | initiatives to deliver the Plan. Capital | expenditure, if required, reflects a key | | | --- | --- | --- | --- | | uncertainties in the Group’s wider operating | | | Financial StatementsGovernanceStrategic Report | | | investment increases in FY24 and then | mitigation in severe downside scenarios. | | environment, the Board is confident that the remains at broadly similar levels across the Group continues to have access to sufficient plan duration. liquidity to meet its liabilities as they fall due and manage reasonably foreseeable Strategic initiatives downside scenarios if they should arise. This The Plan reflects the Group’s strategic The Board undertakes a full review of assessment is based upon the Group’s current initiatives and assumes gradual revenue principal risks, uncertainties and downside financial position and the headroom in the growth across the five-year term. scenarios taking into account the impact of Group’s financing facilities. the Group’s ability to deliver its strategy are reviewed. | Accordingly, the Board confirms that it has a | Distributions to shareholders | | | --- | --- | --- | | reasonable expectation that the Group will | The Group is currently prohibited from | Capital management is entirely within the | | be able to continue in operation and meet its | making distributions to shareholders until | control of the Board and accordingly there | | liabilities as they fall due in the period to 31 | such time as its CLBILS facilities are fully | are no limitations to these assumptions. | | January 2028. | repaid. The strategic plan was prepared on | | the basis that no dividends are paid, with a sensitivity considered to reflect possible distribution values in line with the Board’s current view on capital management policy should distributions be permitted in line with the expected timetable (See page 57 for more information regarding future distribution expectations). ### 101 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## DIRECTORS’ REPORT CONTINUED | Disclosure of information and | Information regarding forward-looking | Responsibility statement of the | | --- | --- | --- | | appointment of auditors | statements | Directors in respect of the Annual | | So far as each Director is aware, there is | The reports and financial statements | Report and Accounts | | no relevant audit information of which the | contained in this Annual Report and Accounts | This statement is set out on page 103. | | Company’s auditor is unaware and the | contain certain forward-looking statements | | | Directors have taken all the steps which | with respect to the financial condition, | | ### Approval of the Annual Report they ought to have taken as Directors to results of operations and businesses of Card The Strategic Report and the Corporate make themselves aware of any relevant Factory plc. These statements and forecasts Governance Report were approved by the audit information and to establish that involve risk, uncertainty and assumptions Board on 2 May 2023. the Company’s auditor is aware of that because they relate to events and depend information. upon circumstances that will occur in the Ciaran Stone future. There are a number of factors that Company Secretary This confirmation is given and should be could cause actual results or developments 3 May 2023 | interpreted in accordance with the provisions | to differ materially from those expressed or | | --- | --- | | of Section 418 of the Companies Act. | implied by these forward-looking statements | | On behalf of the Board, the Audit & Risk | and forecasts. Nothing in this Annual Report | | Committee has reviewed the effectiveness, | and Accounts should be construed as a | | performance, independence and objectivity | profit forecast. | of the existing external auditor, KPMG LLP, for the year ended 31 January 2023 and ### AGM concluded that the external auditor was in The AGM of the Company will be held at all respects effective, as explained on page 11.00am on 22 June 2023 at the Company’s 77. Following completion of an audit tender registered office at Century House, Brunel described on page 77, the Company has Road, Wakefield 41 Industrial Estate, Wakefield selected Mazars LLP as its proposed auditor. WF2 0XG. A formal notice of meeting, Mazars LLP has expressed its willingness explanatory circular and a form of proxy will to be appointed as auditor. Accordingly, accompany this Annual Report and Accounts. and in accordance with Section 489 of the Shareholders are encouraged to submit their Companies Act, resolutions to appoint Mazars questions in advance and to submit their votes LLP as auditor and to authorise the Directors by proxy in accordance with the instructions in to determine its remuneration will be proposed the enclosed documents. at the forthcoming AGM of the Company. ### 102 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ## STATEMENT OF DIRECTORS’ RESPONSIBILITIES | The Directors are responsible for preparing | • use the going concern basis of accounting | | The Directors are responsible for the | We consider the Annual Report and Accounts, | | --- | --- | --- | --- | --- | | the Annual Report and the Group and Parent | | unless they either intend to liquidate the | maintenance and integrity of the corporate | taken as a whole, is fair, balanced and | | Company financial statements in accordance | | Group or the Parent Company or to cease | and financial information included on the | understandable and provides the information | | with applicable law and regulations. | | operations or have no realistic alternative | Company’s website. Legislation in the UK | necessary for shareholders to assess the | | | | but to do so. | governing the preparation and dissemination | Group’s position and performance, business | | Company law requires the Directors to | | | of financial statements may differ from | model and strategy. | | prepare Group and Parent Company financial | The Directors are responsible for keeping | | legislation in other jurisdictions. | | | statements for each financial year. Under that | adequate accounting records that are | | | By order of the Board | | law they are required to prepare the Group | sufficient to show and explain the Parent | | In accordance with Disclosure Guidance | | | financial statements in accordance with UK- | Company’s transactions and disclose with | | and Transparency Rule 4.1.14 R, the financial | Darcy Willson-Rymer | | adopted international accounting standards | reasonable accuracy at any time the financial | | statements will form part of the annual | Chief Executive Officer | | and applicable law and have elected to | position of the Parent Company and enable | | financial report prepared using the single | 3 May 2023 | | prepare the Parent Company financial | them to ensure that its financial statements | | electronic reporting format under the TD ESEF | | | statements on the same basis. | comply with the Companies Act 2006. They | | Regulation. The auditor’s report on these | | | | are responsible for such internal control as | | financial statements provides no assurance | | | Under company law the Directors must not | they determine is necessary to enable the | | over the ESEF format. | | | approve the financial statements unless they | preparation of financial statements that are | | | | | are satisfied that they give a true and fair | free from material misstatement, whether | | | | ### Responsibility statement of the view of the state of affairs of the Group and due to fraud or error, and have general ### Directors in respect of the Annual Parent Company and of the Group’s profit responsibility for taking such steps as are Financial StatementsGovernanceStrategic Report ### Report and Accounts or loss for that period. In preparing each of reasonably open to them to safeguard the We confirm that to the best of our knowledge: the Group and Parent Company financial assets of the Group and to prevent and detect • the financial statements, prepared in statements, the Directors are required to: fraud and other irregularities. accordance with the applicable set of • select suitable accounting policies and accounting standards, give a true and then apply them consistently; Under applicable law and regulations, the fair view of the assets, liabilities, financial • make judgements and estimates that are Directors are also responsible for preparing a position and profit or loss of the Company reasonable, relevant and reliable; Strategic Report, Directors’ Report, Directors’ and the undertakings included in the • state whether they have been prepared in Remuneration Report and Corporate consolidation taken as a whole; and accordance with UK-adopted international Governance Statement that complies with • the Strategic Report includes a fair review accounting standards; that law and those regulations. of the development and performance of • assess the Group and Parent Company’s the business and the position of the issuer ability to continue as a going concern, and the undertakings included in the disclosing, as applicable, matters related consolidation taken as a whole, together to going concern; and with a description of the principal risks and uncertainties that they face. ### 103 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ### INDEPENDENT AUDITOR’S REPORT ### to the members of Card Factory plc ### 1. Our opinion is unmodified Overview We have audited the financial statements of Card Factory plc (“the Company”) for the year Materiality: group financial statements as a whole £2.4 million (2022:£2.3 million) ended 31 January 2023 which comprise the Consolidated income statement, Consolidated 5.0% of normalised PBTCO statement of comprehensive income, Consolidated statement of financial position, Consolidated (2022: 4.9% of averaged PBTCO) statement of changes in equity, Consolidated cash flow statement, Parent Company statement of financial position, Parent Company statement of changes in equity, Parent Company cash Coverage 96% (2022: 98%) flow statement and the related notes, including the accounting policies in note 1 to both the of total profits and losses that Group and Parent Company financial statements. made up Group profit before tax Key audit matters vs 2022 In our opinion: Recurring risks Inventory costing and store inventory quantities • the financial statements give a true and fair view of the state of the Group’s and of the Net realisable value of inventories parent Company’s affairs as at 31 January 2023 and of the Group’s profit for the year then | | ended; | Provision for repayment of government grant | | --- | --- | --- | | • the Group financial statements have been properly prepared in accordance with UK- | | support relating to Covid-19 | | | adopted international accounting standards; | Recoverability of Group goodwill | • the parent Company financial statements have been properly prepared in accordance with Recoverability of Parent’s investment in UK-adopted international accounting standards and as applied in accordance with the subsidiaries provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee. We were first appointed as auditor by the shareholders on 30 April 2014. The period of total uninterrupted engagement is for the 9 financial years ended 31 January 2023. 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. ### 104 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report ### 2. Key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters (unchanged from 2022), in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters. The risk Our response Inventory costing and store Physical quantities of store stock: Our procedures included: inventory quantities • Count design and attendance: Assessed the design and implementation of the store count Store inventory quantities held at the year end are procedures through attendance at a sample of store inventory counts. (Stock: £45.3 million; determined by year end physical counts. Controls over • Physical inspection: Physically inspected stock on a sample basis, through attendance at 2022: £33.1 million) the year end counts of store inventory are manual in all warehouse counts and a sample of store stock counts at year end. nature. Given the high volume and broad range of inventory • Test of details – Quantities: Selected a sample of stock lines to assess whether the counted Refer to page 75 (Audit Committee held, there is a risk that quantities of store inventory could quantities on the Hand Held Terminals (HHT’s) agreed to the stock system and followed up Report), page 118 (key sources of be incorrectly recorded. on how variances (if any) within our sample were resolved. estimation uncertainty, page 124 • Test of details – completeness: For a sample of counts that we did not attend, we assessed Financial StatementsGovernance (accounting policy) and page 133 Calculation error: whether the results of these counts have been appropriately captured within the year end (financial disclosures). The inventory costing calculations across both store and stock listing by agreeing the quantities back to submitted count results. warehouse stock are manual in nature. Given the high • Re-performance: For a sample of inventory lines held in stores and in warehouses, volume and broad range of inventory held there is a risk reperformed the standard cost calculations and agreed each input to invoice or other that cost could be incorrectly recorded. supporting documentation. We performed the detailed tests above rather than seeking to rely on operating effectiveness of any of the Group’s controls because our knowledge of these controls indicated that we would be unable to obtain the required evidence to support reliance on controls. Our results • The results of our procedures were satisfactory (2022: satisfactory). ### 105 # INDEPENDENT AUDITOR'S REPORT to the members of Card Factory plc | | The risk | Our response | | --- | --- | --- | | **Net realisable value of Inventories** (Stock: £45.3 million; 2022: £33.1 million, total provision £16.1 million; 2022: £20.7 million) Refer to page 75 (Audit Committee Report), page 118 (Key sources of estimation uncertainty), page 124 (accounting policy) and page 133 (financial disclosures). | **Subjective estimate** The Group has significant levels of inventory and estimates are made in the valuation of slow moving and discontinuing inventory. The Group applies judgement in determining classification of stock into various groups in order to apply a provision percentage estimate. The effect of these matters is that we determined that the net realisable value of inventory has a high degree of estimation uncertainty with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. The financial statements (page 118) disclose the sensitivity of the Group's estimate. | Our procedures included: - **Our sector experience:** Assessed the appropriateness of the Group's inventory provisioning policies based on our understanding of the business. - **Retrospective evaluation:** Critically assessed the in-year sell through of stock lines provided against to evaluate the historical accuracy of the inventory provision estimate. - **Re-performance:** Reperformed the provision calculations based on the Group's provisioning policy and for a sample of stock lines, agreed the categorisation of each line to underlying documentation. - **Expectation vs. outcome:** We formed our own expectation of the inventory provision using our own view of the key assumptions and compared our expectation to the actual provision amount. This included consideration of historical experience, past year end sales data and any changes in the Group's stock holding strategy. - **Test of detail:** Compared, by product, for a sample of inventory lines, inventory levels to sales data in the period leading up to the year end to assess whether slow moving and discontinued inventories, with a focus on those with a limited shelf life, had been appropriately identified and provided for by the Group based on the provisioning policy. - **Assessing transparency:** Assessed the adequacy of the Group's disclosures about the degree of estimation involved in arriving at the net realisable value of inventories. We performed an assessment of whether an overstatement of the provision identified through these procedures was material. We performed the tests above rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. **Our results** - We consider the inventory provision to be acceptable (2022: acceptable). | 106 Card Factory plc Annual Report and Accounts 2023 | | Due risk | Our response | | --- | --- | --- | | **Provision for repayment of government grant support related to Covid 19** (2022: £7.4 million; 2021: £12.2 million) Refer to page 76 (Audit Committee Report), page 118 (key sources of estimation uncertainty, page 121 (accounting policy) and page 136 (financial disclosures). | **Subjective estimate** The Group continues to hold a provision of £7.4 million in relation to COVID-19 related grant support, reflecting the Group's best estimate of support grants received in excess of relevant subsidy control thresholds. The reduction from £12.2 million in prior year reflects settlement of the element in relation to CJRS. The remaining £7.4 million relates to other covid related support received and the government eligibility guidance in this area remains complex. In response to the outperformance of the current year's profit target, and considering the complexity of government eligibility guidance, we identified a fraud risk related to overstatement of the provision for repayment of government grant support related to Covid-19. The effect of these matters is that we determined that the range of possible outcomes, with respect to the amounts the Group will be eligible to keep, exceeds our materiality for the financial statements as a whole. The financial statements (page 121) disclose the sensitivity of the Group's estimate. | Our procedures included: - **Our sector experience:** Assessed Group's position against our interpretation of the available external guidance, with the assistance of our internal subject matter experts. - **Methodology implementation:** Critically assessed the directors' calculation of possible outcomes and directors' point estimate to determine whether these aligned with the available external guidance. - **Re-performance:** Independently prepared our best estimate, through consultation with our internal subject matter experts, using our interpretation of the guidance in place and compared our expectation to the actual provision amount. - **Inquiry of lawyers:** Independently obtained a confirmation from the Group's external lawyers in relation to the legal advice provided to the Group. - **Assessment of Group's experts:** We assessed the competence, capabilities and objectivity of the external lawyers engaged by the Group. - **Assessing transparency:** Assessed the adequacy of the Group's disclosures about the degree of estimation involved in arriving at the provision for lockdown grants related to Covid 19 to be recognised in the financial statements.**Our results** - We performed the tests above rather than seeking to rely on any of the group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. - We found the amounts provided in respect of excess government grant support received to be acceptable (2022: acceptable). | | **Recoverability of group goodwill** (Group goodwill: £313.8 million; 2022: £313.8 million) Refer to page 76 (Audit Committee Report), page 118 (accounting policy) and page 129 (financial disclosures). | **Forecast-based assessment:** Goodwill in the group is significant. There is a risk that the business may not meet expected growth projections in order to support the carrying value of the goodwill. Forecasting future levels sales and costs is challenging in the current economic environment. The directors considered the recoverability of the goodwill balance through a value in use calculation that had underlying assumptions of varying sensitivity. The estimated recoverable amount is subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows. The effect of these matters is that, a part of our risk assessment, we determined that the value in use of goodwill has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statement as a whole. In conducting our final audit work, we reassessed the degree of estimation uncertainty to be less than materiality. | Our procedures included: - **Historical Comparisons:** We assessed the reasonableness of the forecast cash flows considering the historical accuracy of previous forecasts by comparing to actual financial information. - **Our sector experience:** Evaluating assumptions used, in particular those relating to the discount rate using our own valuation tool by comparing the Group's assumptions to externally derived data, including comparable companies' earnings multiples. - **Benchmarking assumptions:** Challenged and compared the Group's assumptions, an EBIT growth to, externally derived data such as projections of economic growth and inflation, sector analyses, and analysts' reports. For the terminal value assumption, we compared to external inflation projections. - **Sensitivity analysis:** Performed breakeven analysis on the key assumptions. - **Comparing valuations:** Compared the sum of the discounted cash flows to the Group's market capitalisation to assess the reasonableness of those cashflows. We performed the tests above rather than seeking to rely on any of the Group's controls because the nature of the balances are such that we would expect to obtain audit evidence primarily through the detailed procedures described. **Our results** - We found the Group's conclusion that there is no impairment of goodwill to be acceptable (2022: acceptable). | Strategic Report Governance Financial Disclosure 107 ## INDEPENDENT AUDITOR'S REPORT to the members of Card Factory plc | | The risk | Our response | | --- | --- | --- | | **Recoverability of Parent Company's investment in subsidiaries** (Parent Company investment in subsidiaries: £316.2 million; 2022: £316.2 million) Refer to page 78 (Audit Committee Report), page 143 (accounting policy) and page 146 (financial disclosures) | **Forecast-based assessment:** The carrying amount of the parent Company's investment in subsidiaries represents 98.7% (2022: 99.1%) of the Company's total assets. There is a risk that the business may not meet expected growth projections in order to support the carrying value of the investments. Forecasting future levels sales and costs is challenging in the current economic environment. The directors considered the recoverability of the investment balance through a value in use calculation that had underlying assumptions of varying sensitivity. The estimated recoverable amount is subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows. The effect of these matters is that, a part of our risk assessment, we determined that the value in use of the investments has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statement as a whole. In conducting our final audit work, we reassessed the degree of estimation uncertainty to be less than materiality. | **Our procedures included:** - **Tests of detail:** Comparing the carrying amount of the investments, with the relevant subsidiaries' draft balance sheet to identify whether their net assets, being an approximation of their minimum recoverable amount, were in excess of their carrying amount. - **Comparing valuations:** For the investments where the carrying amount exceeded the net asset value, comparing the carrying amount of the investment with the value in use prepared by the Group in relation to the goodwill impairment. We also assessed whether any adjustments were required to this value in use estimate to reflect the subsidiary' equity value. - **Sensitivity analysis:** Performed breakeven analysis on the key assumptions. We performed the tests above rather than seeking to rely on any of the Company's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. **Our results** - We found the Company's conclusion that there is no impairment of its investments in subsidiaries to be acceptable (2022: acceptable). | ### 3. Our application of materiality and an overview of the scope of our audit Materiality for the Group financial statements as a whole was set at £2.4 million (2022: £2.3 million), determined with reference to a benchmark of normalised Group profit before tax of £49.1 million (2022: £47.4 million), of which it represents 5.0% (2022: 4.9%). We normalised Group profit before tax in current year by adding back this year's CJRS release of £2.5 million and VAT settlement of £0.8 million. We adjusted for these items because they do not represent the normal, continuing operations of the Group. In 2022 we normalised Group profit before tax by averaging over the previous five years mainly due to volatility caused by the Covid-19 pandemic, which did not exist in the current year. Materiality for the Parent Company financial statements as a whole was set at £1.2 million (2022: £1.4 million), determined with reference to a benchmark of Parent Company total assets, of which it represents 0.38% (2022: 0.4%). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Performance materiality was set at 75% (2022: 75%) of materiality for the financial statements as a whole, which equates to £1.8 million (2022: £1.7 million) for the Group and £0.9 million (2022: £1.05 million) for the Parent Company. We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk. We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.12 million (2022: £0.115 million), in addition to other identified misstatements that warranted reporting on qualitative grounds. Of the Group's 6 (2022: 6) reporting components, we subjected 4 (2022: 4) to full scope audits for group purposes. 108 Card Factory plc Annual Report and Accounts 2023 ### 3. Our application of materiality and an overview of the scope of our audit continued The components within the scope of our work accounted for the percentages illustrated opposite. The remaining 6% (2022: 5%) of total Group revenue, 4% (2022: 2%) of total profits and losses that made up Group profit before tax and 2% (2022: 1%) of total Group assets is represented by 2 (2022: 2) reporting components, none of which individually represented more than 4% (2022: 5%) of any of total Group revenue, total profits and losses that made up Group profit before tax or total Group assets. For these components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement within these. The work on all components subject to full scope audits for Group purposes, including the audit of the parent Company, was performed by the Group team. The Group team set the component materialities, which ranged from £0.4 million to £1.9 million (2022: £0.4 million to £1.8 million), having regard to the mix of size and risk profile of the Group across the components. The scope of the audit work performed was predominately substantive as we placed limited reliance upon the Group's internal control over financial reporting. Normalised Group profit before tax: £49.1m (2022: £47.4m) Group materiality £2.4m (2022: £2.3m) ![img-3.jpeg](img-3.jpeg) Normalised PBT Group materiality £2.4m Whole financial statements materiality (2022: £2.3m) £1.8m Whole financial statements performance materiality (2022: £1.7m) £1.9m Range of materiality at 4 components (£0.4m - £1.9m) (2022: £0.4m to £1.8m) £0.12m Misstatements reported to the audit committee (2022: £0.115m) Group revenue ![img-4.jpeg](img-4.jpeg) Total profits and losses that made up group profit before tax ![img-5.jpeg](img-5.jpeg) Group total assets ![img-6.jpeg](img-6.jpeg) Full scope for group audit purposes 2023 Full scope for group audit purposes 2022 Residual components 109 Strategic Report Government Financial Statements Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ### INDEPENDENT AUDITOR’S REPORT ### to the members of Card Factory plc ### 4. Going concern We considered whether the going concern disclosure in note 1 to the financial statements gives The directors have prepared the financial statements on the going concern basis as they do not a full and accurate description of the directors’ assessment of going concern, including the intend to liquidate the Group or the Company or to cease their operations, and as they have identified risks and dependencies. concluded that the Group’s and the Parent Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have Our conclusions based on this work: cast significant doubt over their ability to continue as a going concern for at least a year from • we consider that the directors’ use of the going concern basis of accounting in the the date of approval of the financial statements (“the going concern period”). preparation of the financial statements is appropriate; • we have not identified, and concur with the directors’ assessment that there is not, a material We used our knowledge of the Group, its industry, and the general economic environment to uncertainty related to events or conditions that, individually or collectively, may cast identify the inherent risks to its business model and analysed how those risks might affect the significant doubt on the Group’s or Company’s ability to continue as a going concern for the Group’s and Parent Company’s financial resources or ability to continue operations over the going concern period; going concern period. The risks that we considered most likely to adversely affect the Group’s • we have nothing material to add or draw attention to in relation to the directors’ statement and Parent Company’s available financial resources and metrics relevant to debt covenants in note 1 to the financial statements on the use of the going concern basis of accounting with over this period were: no material uncertainties that may cast significant doubt over the Group and Company’s • The impact of continued uncertainty in economic conditions and consumer confidence. use of that basis for the going concern period, and we found the going concern disclosure in note 1 to be acceptable; and We considered whether this risk could plausibly affect the liquidity or covenant compliance • the related statement under the Listing Rules set out on pages 119 and 120 is materially in the going concern period by assessing the directors’ sensitivities over the level of available consistent with the financial statements and our audit knowledge. financial resources and covenant thresholds indicated by the Group’s financial forecasts taking account of severe, but plausible adverse effects that could arise from these risks individually However, as we cannot predict all future events or conditions and as subsequent events may and collectively. result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the Company will In particular, our procedures included: continue in operation. • Critically assessing the reasonableness of the Group’s budgets and forecasts, evaluating future trading assumptions by comparing to external projections of economic growth and inflation, sector analyses, and analysts’ reports, and assessing whether the downside scenarios reflect plausible impacts of the cost of living crisis and the inflationary environment on the business. We also compared past budgets to actual results to assess the directors’ track record of budgeting accurately. • Considering the availability and sufficiency of the financing arrangements in place at the Group, including the headroom on financial covenants in place on the Group’s financing facility. ### 110 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report 5. Fraud and breaches of laws and regulations – ability to detect As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory Identifying and responding to risks of material misstatement due to fraud requirements. To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an We communicated identified laws and regulations throughout our team and remained alert opportunity to commit fraud. Our risk assessment procedures included: to any indications of non-compliance throughout the audit. • Enquiring of directors, management and inspection of policy documentation as to the Group’s high-level policies and procedures to prevent and detect fraud, including the internal The potential effect of these laws and regulations on the financial statements varies audit function, and the Group’s channel for “whistleblowing”, as well as whether they have considerably. knowledge of any actual, suspected or alleged fraud. • Reading Board and audit committee meeting minutes. Firstly, the Group is subject to laws and regulations that directly affect the financial statements • Considering remuneration incentive schemes and performance targets for management including financial reporting legislation (including related companies legislation), distributable and directors. profits legislation and taxation legislation and we assessed the extent of compliance with these • Using analytical procedures to identify any unusual or unexpected relationships. laws and regulations as part of our procedures on the related financial statement items. We communicated identified fraud risks throughout the audit team and remained alert to any Secondly, the Group is subject to many other laws and regulations where the consequences indications of fraud throughout the audit. 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. As required by auditing standards, we perform procedures to address the risk of management Financial StatementsGovernance override of controls, in particular the risk that Group and component management may be in a We identified the following areas as those most likely to have such an effect: health and safety, position to make inappropriate accounting entries and the risk of bias in accounting estimates data protection laws, anti-bribery and employment law, recognising the nature of the Group’s such as the provision related to the repayment of government grants. activities. 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 Further detail in respect of the provision related to the repayment of government grants are inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational set out in the key audit matter disclosures in section 2 of the report. regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. On this audit we do not believe there is a fraud risk related to revenue recognition because revenue transactions have low individual value with high volume, are routine and process driven and do not involve significant judgement or estimation. This reduces the opportunities Context of the ability of the audit to detect fraud or breaches of law or regulation for fraudulent activity. 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 We performed procedures including: have properly planned and performed our audit in accordance with auditing standards. For • Identifying journal entries and other adjustments to test for all full scope components, based example, the further removed non-compliance with laws and regulations is from the events on risk criteria and comparing the identified entries to supporting documentation. These and transactions reflected in the financial statements, the less likely the inherently limited included those posted with unusual account combinations (for cash and loans), rounded procedures required by auditing standards would identify it. amounts to stock provision and rounded amounts to expenses close to year end. • Assessing whether the judgements made in making accounting estimates are indicative In addition, as with any audit, there remained a higher risk of non-detection of fraud, as fraud of a potential bias. may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect Identifying and responding to risks of material misstatement related to compliance non-compliance with all laws and regulations. with laws and regulations 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, and 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. ### 111 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ### INDEPENDENT AUDITOR’S REPORT ### to the members of Card Factory plc 6. We have nothing to report on the other information in the Annual Report are materially consistent with the financial statements and our audit knowledge. 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 Our work is limited to assessing these matters in the context of only the knowledge acquired information and, accordingly, we do not express an audit opinion or, except as explicitly stated during our financial statements audit. As we cannot predict all future events or conditions and below, any form of assurance conclusion thereon. as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements Our responsibility is to read the other information and, in doing so, consider whether, based is not a guarantee as to the Group’s and Company’s longer-term viability. 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 Corporate governance disclosures we have not identified material misstatements in the other information. We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate governance disclosures and the financial statements and our Strategic report and directors’ report audit knowledge. Based solely on our work on the other information: • we have not identified material misstatements in the strategic report and the directors’ Based on those procedures, we have concluded that each of the following is materially report; consistent with the financial statements and our audit knowledge: • in our opinion the information given in those reports for the financial year is consistent • the directors’ statement that they consider that the annual report and financial statements with the financial statements; and taken as a whole is fair, balanced and understandable, and provides the information • in our opinion those reports have been prepared in accordance with the Companies Act necessary for shareholders to assess the Group’s position and performance, business model 2006. and strategy; • the section of the annual report describing the work of the Audit Committee, including the significant issues that the audit committee considered in relation to the financial statements, Directors’ remuneration report and how these issues were addressed; and In our opinion the part of the Directors’ Remuneration Report to be audited has been properly • the section of the annual report that describes the review of the effectiveness of the Group’s prepared in accordance with the Companies Act 2006. risk management and internal control systems. Disclosures of emerging and principal risks and longer-term viability We are required to review the part of the Corporate Governance Statement relating to the We are required to perform procedures to identify whether there is a material inconsistency Group’s compliance with the provisions of the UK Corporate Governance Code specified by between the directors’ disclosures in respect of emerging and principal risks and the viability the Listing Rules for our review. We have nothing to report in this respect. statement, and the financial statements and our audit knowledge. Based on those procedures, we have nothing material to add or draw attention to in relation to: 7. We have nothing to report on the other matters on which we are required to ### • the directors’ confirmation within the viability statement on pages 110 and 111 that they report by exception have carried out a robust assessment of the emerging and principal risks facing the Group, Under the Companies Act 2006, we are required to report to you if, in our opinion: including those that would threaten its business model, future performance, solvency and • adequate accounting records have not been kept by the parent Company, or returns liquidity; adequate for our audit have not been received from branches not visited by us; or • the Principal Risks disclosures describing these risks and how emerging risks are identified, • the parent Company financial statements and the part of the Directors’ Remuneration and explaining how they are being managed and mitigated; and Report to be audited are not in agreement with the accounting records and returns; or • the directors’ explanation in the viability statement of how they have assessed the prospects • certain disclosures of directors’ remuneration specified by law are not made; or of the Group, over what period they have done so and why they considered that period to • we have not received all the information and explanations we require for our audit. 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 We have nothing to report in these respects. the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We are also required to review the viability statement, set out on pages 110 and 111 under the Listing Rules. Based on the above procedures, we have concluded that the above disclosures ### 112 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page Strategic Report ### 8. Respective responsibilities 9. The purpose of our audit work and to whom we owe our responsibilities Directors’ responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter As explained more fully in their statement set out on page 113, the directors are responsible 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might for: the preparation of the financial statements including being satisfied that they give a true state to the Company’s members those matters we are required to state to them in an auditor’s and fair view; such internal control as they determine is necessary to enable the preparation of report and for no other purpose. To the fullest extent permitted by law, we do not accept or financial statements that are free from material misstatement, whether due to fraud or error; assume responsibility to anyone other than the Company and the Company’s members, as a assessing the Group and parent Company’s ability to continue as a going concern, disclosing, as body, for our audit work, for this report, or for the opinions we have formed. applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, Nick Plumb (Senior Statutory Auditor) or have no realistic alternative but to do so. for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Auditor’s responsibilities 1 Sovereign Square Our objectives are to obtain reasonable assurance about whether the financial statements as Sovereign Street a whole are free from material misstatement, whether due to fraud or error, and to issue our Leeds opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not LS1 4DA guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material 2 May 2023 misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the Financial StatementsGovernance 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. The Company is required to include these financial statements in an annual financial report prepared using the single electronic reporting format specified in the TD ESEF Regulation. This auditor’s report provides no assurance over whether the annual financial report has been prepared in accordance with that format. ### 113 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page | CONSOLIDATED INCOME STATEMENT | | | | CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | | | | --- | --- | --- | --- | --- | --- | --- | | For the year ended 31 January 2023 | | | | For the year ended 31 January 2023 | | | | | | 2023 | 2022 | | 2023 | 2022 | | | Note | £m | £m | | £m | £m | | Revenue 463.4 364.4 | | | | Profit for the year 44.2 8 .1 | | | | Cost of sales (302 .7) (2 4 7. 9) | | | | Items that may be recycled subsequently into profit or loss: | | | | Gross profit 160.7 116. 5 | | | | Exchange differences on translation of foreign operations (0. 2) – | | | Cash flow hedges – changes in fair value 8.2 4 .1 Other operating income 3 – 8 .0 Cost of hedging reserve – changes in fair value (0. 2) – Operating expenses (9 6 .9) (9 2 .9) Tax relating to components of other comprehensive income (note 13) (1. 2) (0. 6) Operating profit 3 63.8 3 1.6 Other comprehensive income for the period, net of income tax 6.6 3.5 Finance expense 6 (11. 4) (20. 5) Profit before tax 52. 4 1 1 .1 Total comprehensive income for the period attributable to equity shareholders of the Parent 50.8 11.6 Taxation 7 (8. 2) (3 .0) Profit for the year 44.2 8 .1 Earnings per share pence pence – Basic 9 12 .9 2.4 – Diluted 9 12 . 8 2. 4 All activities relate to continuing operations. ### 114 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ### CONSOLIDATED STATEMENT OF FINANCIAL POSITION | As at 31 January 2023 | | | | | | | | Strategic Report | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2023 | 2022 | | | 2023 | 2022 | | | | Note | £m | £m | | Note | £m | £m | | | Non-current assets | | | | Equity | | | | | | Intangible assets 10 326 .3 320.7 | | | | Share capital 19 3. 4 3.4 | | | | | | Property, plant and equipment 11 32 . 2 31.6 | | | | Share premium 19 202 . 2 202 . 2 | | | | | | Right of use assets 12 100. 5 98.5 | | | | Hedging reserve 3.5 1.3 | | | | | | Deferred tax assets 13 2 .1 3.6 | | | | Cost of hedging reserve (0 .1) – | | | | | | Derivative financial instruments 24 0.5 1.3 | | | | Reverse acquisition reserve (0.5) (0. 5) | | | | | | | | 4 61 . 6 455 .7 | | Merger reserve 2.7 2.7 | | | | | | Current assets | | | | Retained earnings 5 7. 0 10.5 | | | | | | Inventories 14 45. 3 3 3 .1 | | | | Equity attributable to equity holders of the Parent 268. 2 2 1 9. 6 | | | | | Trade and other receivables 15 13. 3 8 .1 Derivative financial instruments 24 5.3 0.8 The financial statements on pages 114 to 142 were approved by the Board of Directors on 2 May 2023 and were signed on its behalf by Cash at bank and in hand 16 11.7 38. 3 75. 6 8 0. 3 Darcy Willson-Rymer Financial StatementsGovernance Total assets 5 3 7. 2 5 36 .0 Chief Executive Officer Current liabilities Borrowings 17 (5 0.1) (2 5. 5) Lease liabilities 12 (2 7. 3) (4 1 .1) Trade and other payables 18 (8 4 .7) (71.7) Provisions 22 (9. 5) (12 . 2) Tax payable – (1. 5) Derivative financial instruments 24 (1 .4) (0. 2) (173 .0) (152 . 2) Non-current liabilities Borrowings 17 (1 7. 4) (85 . 5) Lease liabilities 12 (7 8 .1) (78 .7) Derivative financial instruments 24 (0. 5) – (96 .0) (16 4 . 2) Total liabilities (2 69.0) (3 1 6. 4) Net assets 268. 2 2 1 9. 6 ### 115 # CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 January 2023 | | Share capital £m | Share premium £m | Hedging reserve £m | Cost of hedging reserve £m | Reverse acquisition reserve £m | Merger reserve £m | Returned earnings £m | Total equity £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At 31 January 2021 | 3.4 | 202.2 | (3.1) | 0.4 | (0.5) | 2.7 | 1.4 | 206.5 | | Total comprehensive income for the period | | | | | | | | | | Profit or loss | - | - | - | - | - | - | 8.1 | 8.1 | | Other comprehensive income | - | - | 3.3 | - | - | - | 0.2 | 3.5 | | | - | - | 3.3 | - | - | - | 8.3 | 11.6 | | Hedging gains/(losses) and costs of hedging transferred to the cost of inventory | - | - | 1.4 | (0.5) | - | - | - | 0.9 | | Deferred tax on transfers to inventory | - | - | (0.3) | 0.1 | - | - | - | (0.2) | | Transactions with owners, recorded directly in equity | | | | | | | | | | Share-based payment charges (note 25) | - | - | - | - | - | - | 0.8 | 0.8 | | Dividends (note 8) | - | - | - | - | - | - | - | - | | Total contributions by and distributions to owners | - | - | - | - | - | - | 0.8 | 0.8 | | At 31 January 2022 | 3.4 | 202.2 | 1.3 | - | (0.5) | 2.7 | 10.5 | 219.6 | | Total comprehensive income for the period | | | | | | | | | | Profit or loss | - | - | - | - | - | - | 44.2 | 44.2 | | Other comprehensive income | - | - | 6.1 | (0.1) | - | - | 0.6 | 6.6 | | | - | - | 6.1 | (0.1) | - | - | 44.8 | 50.8 | | Hedging gains/(losses) and costs of hedging transferred to the cost of inventory | - | - | (5.2) | - | - | - | - | (5.2) | | Deferred tax on transfers to inventory | - | - | 1.2 | - | - | - | - | 1.2 | | Transactions with owners, recorded directly in equity | | | | | | | | | | Share-based payment charges (note 25) | - | - | - | - | - | - | 1.7 | 1.7 | | Dividends (note 8) | - | - | - | - | - | - | - | - | | Total contributions by and distributions to owners | - | - | - | - | - | - | 1.7 | 1.7 | | At 31 January 2023 | 3.4 | 202.2 | 3.5 | (0.1) | (0.5) | 2.7 | 57.0 | 268.2 | 116 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page | CONSOLIDATED CASH FLOW STATEMENT | | | | NOTES TO THE FINANCIAL STATEMENTS | | | --- | --- | --- | --- | --- | --- | | For the year ended 31 January 2023 | | | | | Strategic Report | | | | 2023 | 2022 | 1 Accounting policies | | | | Note | £m | £m | | | General information Cash from operations 20 10 7. 8 113.6 Corporation tax paid (7. 9) 0 .1 Kingdom . The Company is domiciled in the United Kingdom and its registered office is Century House, Brunel Road, Wakefield 41 Industrial Estate, Wakefield WF2 0XG. Net cash inflow from operating activities 99.9 113.7 These consolidated financial statements consolidate the financial statements of the Company Cash flows from investing activities and its subsidiaries (together referred to as ‘the Group’). A full list of the Group’s subsidiaries is Purchase of property, plant and equipment 11 (8 .8) (3 . 6) provided in note 4 to the Parent Company accounts. Purchase of intangible assets 10 (9. 4) (3 . 3) Throughout these financial statements, references to ‘FY23’ refer to the financial year ending Net cash outflow from investing activities (18 . 2) (6 .9) 31 January 2023, and references to ‘FY22’ refer to the financial year ending 31 January 2022. Cash flows from financing activities Interest paid on bank borrowings (6. 2) (6 . 5) Proceeds from bank borrowings 2 7. 8 5 7. 0 Repayment of bank borrowings (7 2 .9) (65 .0) Financial StatementsGovernance Other financing costs paid (1. 8) (8 .7) Payment of lease liabilities (52 .5) (54 . 5) Interest in respect of lease liabilities (4 . 5) (3 . 3) Net cash outflow from financing activities (1 1 0 .1) (81.0) Net (decrease)/increase in cash and cash equivalents (28 . 4) 25.8 Cash and cash equivalents at the beginning of the year 38.3 12 .5 Closing cash and cash equivalents 16 9.9 38.3 ### 117 Card Factory plc (‘the Company’) is a public limited company incorporated in the United Basis of preparation These financial statements have been prepared in accordance with UK-adopted International Financial Reporting Standards (‘UK IFRS’) and applicable law. The financial statements have been prepared on a going concern basis under the historical cost convention, except for certain assets and liabilities that are measured at fair value (principally derivative financial instruments). Accounting judgements and estimates The preparation of financial statements in conformity with UK IFRS requires judgement to be applied in forming the Group’s accounting policies. It also requires the use of estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses. Actual results may subsequently differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively in the period in which the estimate is revised. The Group does not consider there to be any judgements made in the current period that have had a significant effect on the amounts recognised in the financial statements. Key sources of estimation uncertainty The key sources of estimation uncertainty, being those estimates and assumptions that carry the most significant risk of a material adjustment to the carrying amounts of assets and liabilities in the next financial year, are set out below. NOTES TO THE FINANCIAL STATEMENTS CONTINUED # 1 Accounting policies continued # Inventories The Group holds significant volumes, and a broad range of inventory. The inventory provision is calculated in accordance with a documented policy, that is based on historical experience and the Group's stock management strategy, which determines the range of product that will be available for sale in-store and online. The Group provides against the carrying value of inventories where it is anticipated the amount realized may be below the cost recognized. Provision is made in full where there are no current plans to trade prior season stock through stores, and partial provision is made against seasonal stock from prior seasons or where certain ranges do not perform as anticipated. The amounts provided for partial provisions are adjusted annually to reflect experience. The Group applied a consistent inventory provisioning policy with that applied in the prior year, making only small amendments to partial provisioning percentages based on the Group's experience of stock sell through rates for partially provided product lines. These changes are not considered to have had a material impact on the overall value of the provision, although reduced the value of the provision compared to the prior year. At the end of FY23, the total inventory provision was £16.1 million (FY22: £20.7 million), comprised of fully-provided stock lines of £4.3 million and partially provided lines of £11.8 million. The reduction in the value of the provision year-on-year generally reflects the normalisation of stock levels following the Covid-19 pandemic and supply chain challenges experienced in the prior year (which have resulted in a reduction in the value of stock lines provided for in full), as well as the reduction due to changes in provisioning percentages described above. As a result, the overall proportion of gross inventory provided for reduced compared to the prior year. The full range of reasonably possible outcomes in respect of the provision is difficult to calculate at the balance sheet date as it is dependent on the accuracy of forecasts for sales volumes and future decisions we may take on aged, discontinued and potentially excess stock in response to market and supply developments. The Group believes it has taken a cautious approach in determining the provision. It has considered the nature of the estimates involved and has concluded that it is possible, on the basis of existing knowledge, that outcomes within the next financial year may be different from the Group's assumptions applied as at 31 January 2023, and could require a material adjustment to the carrying amount of the provision in the next financial year. The two elements of the provision which are most sensitive to judgement are: - A £8.5 million provision for aged and discontinued stock, the gross value of which is £10.1 million, which assumes limited sell-through and is consistent with the current merchandising plan; and - A further £7.9 million provision, which represents 50% of a gross carrying amount of £15.7 million), reflecting our current estimates of future sell-through of stock lines with high forecast sales cover, or which are carried forward from prior seasons, and our expectations of product life. # Grant income During the previous financial year, the Group received financial assistance under various Government schemes intended to support businesses affected by local and national restrictions during the Covid-19 pandemic, including CJRS payments, business rates relief and lockdown grant payments. IAS 20 requires that the Group has reasonable assurance that the various conditions attached to Government grants will be complied with before recognising the income in its financial statements. Income received under the lockdown grant schemes is subject to conditions applied by the UK's subsidy control regime, in addition to the rules and conditions attached to each individual grant. The most material of these conditions relate to determining the eligible period for grant receipts and the calculation of the Group's 'uncovered fixed costs' in the eligible period, upon which the value of permitted relief is based. The nature of the grants received, and the unprecedented nature of the pandemic and the support mechanisms available, means the conditions and rules attached to each payment are complex and open to a degree of interpretation at the balance sheet date. Accordingly, the Group had to make certain assumptions regarding which of the payments received it is reasonably certain to have met all of the conditions, and thus that the grants are unlikely to be repaid in a future period. After making a provision for amounts the Group does not believe meet the above criteria (see note 22), the Group recognised £8.0 million of other operating income in relation to such grants received during FY22. During FY23, the Group formally settled its CJRS position with HMRC utilising £2.3 million and releasing £2.5 million from the provision. The Group has received no new substantive evidence regarding its position in respect of other support received and accordingly has not changed its position. A provision of £7.4 million continues to be held in respect of potential repayment of support received in excess of subsidy control thresholds, consistent with the provision held in the prior year for the same purpose. The minimum provision requirement is expected to be £4.5 million. Subject to interpretation of the guidance relating to individual support schemes and subsidy control thresholds, the Group believes a range of reasonably possible outcomes remains and that the Group's provision reflects a cautious assessment of the amount that may be repayable. # Other sources of estimation uncertainty # Impairment testing An impairment review is conducted annually in respect of goodwill, and as required for other assets and cash-generating units (CGUs) where an indicator of potential impairment exists. The carrying amounts of the assets involved and the level of estimation uncertainty inherent in determining appropriate assumptions for the calculation of the assets' recoverable amounts means impairment reviews are an area of significant management focus. However, whether that estimation uncertainty is significant to the financial statements is not known until the analysis is concluded. The Group generally considers the estimation uncertainty in impairment reviews to be significant if a reasonably possible change in the key assumptions would lead to a material change in the accounting outcome. In FY23, the Group conducted an impairment review in respect of goodwill. The carrying amount of goodwill in the consolidated balance sheet of £313.8 million is allocated in its entirety to the group of CGUs, shared assets and functions that comprise the Group's stores business. 118 Covid Factory plc Annual Report and Accounts 2023 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **1 Accounting policies** *continued* In addition, the Group conducted a store-level impairment review specifically covering right-of-use assets and property, plant and equipment insofar as directly allocable to stores. The Group assesses indicators of impairment for the store portfolio on the basis of whether a material impairment charge (or reversal) could arise in respect of the store portfolio as a whole in the period. Due to the challenging macro-economic environment, existence of a material carried forward impairment charge, and an ongoing expectation that up to 1-2% of the store portfolio can be loss-making at any time, the Group concluded this condition was met for FY23. Due to the existence of intangible assets that are not yet ready for use, the Group also conducted an impairment test of each of the Card Factory Online and Getting Personal CGUs. The Group assessed the recoverable amount of all CGUs on a value in use basis, using consistent assumptions across all reviews where applicable, with estimates of future cash flows derived from forecasts included within the Group's approved budget adjusted to exclude cash flows from new stores and initiatives so as to assess the assets in their current state and condition. Where impairment reviews are prepared in respect of assets not yet ready for use, future development costs and revenues are not excluded so as to fairly reflect the value of the assets being developed and costs to complete. The assessment of future cash flows that underpin such impairment reviews inherently require the use of estimates, notably in respect of future revenues, operating costs including material, freight, wage and energy inflation, terminal growth rates, foreign currency exchange rates and discount rates. The results of the impairment tests are set out in note 10 (goodwill and intangible assets) and note 12 (stores). The impairment tests in respect of the stores business and Card Factory Online had significant headroom and accordingly, having undertaken scenario analysis on the key assumptions, the Group does not believe there are any reasonably possible changes in those key assumptions that would lead to an impairment. The Group booked a net impairment charge in respect of stores of £1.3 million, which is comprised of £3.7 million of impairment charges and £2.6 million of impairment charge reversals. The reversals reflect those stores where an impairment charge made in a prior period has been reversed due to improved trading. Having considered scenarios consistent with those reviewed in respect of goodwill impairment testing, the Group is satisfied that reasonable changes in the key assumptions would not materially change the impairment charge for stores. The Group booked an impairment charge in respect of intangible assets in Getting Personal of £1.5 million, reflecting costs incurred in developing a new Online Platform that will not form part of the final solution once deployed and will thus not be supported by future cash flows. The remaining carrying amount of the Getting Personal CGU is not material, and therefore no change in assumptions would result in a material additional impairment charge. # **Climate change** The Group has reviewed the potential impact of climate change and ESG-related risks and uncertainties on the consolidated financial statements. Given the nature of the Group's business and operations, the exposure to both physical and transitional risks associated with climate change is considered to be low. In particular, the Group has considered climate change in respect of impairment testing (potential impact of climate and ESG risks on estimates of future cash flows, notes 10 and 11), going concern (note 1, below), and inventory provisions (impact of customer preferences and ESG considerations on potential stock obsolescence, note 14 and above) and concluded in each case that there is no material impact in each area at 31 January 2023. # **Going concern basis of accounting** The Board continues to have a reasonable expectation that both the Group and the Parent Company have adequate resources to continue in operation for at least the next 12 months and that the going concern basis of accounting remains appropriate. The Group has delivered a strong financial performance in the current financial year, with encouraging sales momentum in the first full year of trading after two consecutive years that were materially affected by the Covid-19 pandemic. LFL sales have been positive and broadly in line when compared to pre-pandemic, and as a result the Group has delivered robust operating cash flows, cleared deferred VAT and rent payments, and reduced net debt and leverage year-on-year. Trading since the balance sheet date has remained in line with expectations and there have been no material events that have affected the Group's liquidity headroom. The Group renewed its financing facilities with its banking partners in April 2022, reducing the quantum of the Group's term loan facilities to £150 million and extending the tenure of the Group's debt to September 2025 (see note 17). The first scheduled repayments under these facilities were made in January 2023, with full repayment of the Coronavirus Large Business Interruption Loan Scheme (CLBILS) facilities by September 2023. Following the final repayment of the CLBILS facilities, the Group does not expect to utilise further government backed support going forward, other than those schemes that are generally available in the ordinary course of business (such as rates reliefs). The Board believes the renewed facilities provide adequate liquidity and headroom for the Group to execute its strategic plan. At 31 January 2023, net debt excluding lease liabilities was £57.2 million. The UK Corporate Governance Code requires that an assessment is made of the Group's ability to continue as a going concern for a period of at least 12 months from the signing of these financial statements, however it is not specified how far beyond 12 months should be considered. Strategic Report Government Financial Statements 119 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ### NOTES TO THE FINANCIAL STATEMENTSCONTINUED ### 1 Accounting policies continued Principal accounting policies The principal accounting policies, set out below, have been applied consistently to all periods presented in these consolidated financial statements. ### 120 Card Factory plc Annual Report and Accounts 2023 For the purpose of assessing the going concern assumption, the Group has prepared cash flow forecasts for the 12 month period following the date of approval of these accounts, which incorporate the updated debt facilities and related covenant measures. These forecasts are extracted from the Group’s approved budget and strategic plan which covers a period of five years. Within the 12-month period, the Group has considered qualitative scenarios and the Group’s ability to operate within its existing banking facilities and meet covenant requirements. Beyond the 12-month period, the Group has qualitatively considered whether any factors (for example the timing of debt repayments, or longer-term trading assumptions) indicate a longer period warrants consideration. The results of this analysis were: • The Group’s base case forecasts indicate that the Group will continue to trade profitably, generate positive operating cash flows and make scheduled debt repayments whilst retaining substantial liquidity headroom against current facility limits and meet all covenant requirements on the relevant test dates (see note 17 for more information in respect of covenant requirements) in the 12 month period. • Whilst debt repayments continue in the period following the going concern assessment, they are much lower in the 12 months immediately following (c.£9 million) than those occurring in the going concern period itself (c.£27 million). • In the Board’s view, there are no other factors arising in the period immediately following 12 months from the date of these accounts that warrant further consideration. • Scenario analysis, which considered a reduction in sales, profitability and cash flows on both a permanent basis of circa 10%, or a significant one-off event affecting the Christmas period and reducing sales by 20%, indicated that the Group would maintain liquidity headroom and covenant compliance throughout the 12 month period. The analysis did not consider any potential upside from mitigating actions that could be taken to reduce discretionary costs and provide further headroom. In addition, the Group conducted a reverse stress test analysis which considered the extent of sales loss or cost increase that would be required to result in either a complete loss of liquidity headroom, or a covenant breach during the period. Seasonality of the Group’s cash flows, with higher purchases and cash outflows over the summer to build stock for Christmas, means liquidity headroom is at its lowest in September and October ahead of the Christmas season. Conversely, covenant compliance is most sensitive early in the year. The reverse stress test analysis demonstrated that the level of sales loss or cost increase required (either on a sustained basis or as a significant one-off downside event) to result in a breach would require circumstances akin to a pandemic lockdown for a period of several weeks, or other events with a similar quantum of effect that would be unprecedented in nature. Accordingly, such scenarios are not considered to be reasonably likely to occur. As with the scenario analysis above, the stress test was conducted before considering any potential benefit from available mitigating actions. Over the preceding two years, the business has demonstrated a significant degree of resilience and a proven ability to manage cash flows and liquidity during a period of unprecedented economic downturn. Accordingly the Board retains confidence that, were such a level of downturn to reoccur in the assessment period, the Group would be able to take action to mitigate its effects. Based on these factors, the Board has a reasonable expectation that the Group has adequate resources and sufficient loan facility headroom and accordingly the accounts are prepared on a going concern basis. Changes in significant accounting policies The following new standards and amendments to IFRS were effective for the first time in the current financial year: • Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 – Annual Improvements to IFRS 2018-2020 • Amendments to IAS 37 – Onerous contracts – cost of fulfilling a contract • Amendments to IAS 16 – Property, plant & equipment – proceeds before intended use • Amendments to IFRS 3 – Reference to the conceptual framework • Amendment to IFRS 16 – Covid-19-related rent concessions beyond 30 June 2021 New standards and amendments to existing standards effective in the period have not had a material effect on the Group’s financial statements. UK endorsed standards and amendments issued but not yet effective The following new standards and amendments to IFRS have been issued but are not yet effective. • IFRS 17 – Insurance Contracts 1 , • Amendments to IFRS 17 – Initial application of IFRS 17 and IFRS 9 – comparative information 1 , • Amendments to IFRS 4 – Extension to the temporary exemption from applying IFRS 9 1 • Amendments to IAS 1 – Disclosure of accounting policies 1 • Amendments to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction 1 , • Amendments to IAS 8 – Definition of accounting estimates 2 1 Effective for annual periods starting on or after 1 January 2023. 2 Effective for annual periods starting on or after 1 January 2024. The application of these standards and amendments in future periods is not currently expected to have a material impact on the Group’s financial statements . Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ### NOTES TO THE FINANCIAL STATEMENTSCONTINUED Strategic Report ### 1 Accounting policies continued Government grants Income associated with Government support initiatives is recognised where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Grants are recognised in the income statement over the period necessary to match them with the related costs for which they are to compensate. If costs have already been incurred, the grant income is recognised immediately at the point the above criteria are met. Government support received by the Group in the previous year principally reflect amounts received under Covid-19 support initiatives, including the CJRS, business rates relief, and various other grants available to non-essential retailers that were forced to close during periods of local and national lockdown (collectively referred to in these financial statements as ‘lockdown grants’). When considering its entitlement to grant income, the Group has considered the extent to which the amount received is within the limits imposed by relevant state aid and subsidy control rules. Employee costs and business rates charges in the income statement are presented net of CJRS support and rates relief received respectively. Grant income received in relation to Covid-19 lockdown grants is presented separately as other operating income. Financial StatementsGovernance Where the Group has received income in connection with government grants but does not believe it will comply with all of the attached conditions, a provision is made for the Group’s best estimate of amounts that will be repaid. In addition, Group has accessed, and continues to benefit from, financing facilities under the CLBILS. The CLBILS facilities are backed by a government guarantee. As this guarantee cannot reasonably have a value placed upon it, the Group considers the guarantee a form of government assistance under IAS 20. The Group has accounted for its CLBILS facilities in accordance with its usual policy for bank borrowings, described below under ‘non-derivative financial liabilities’. The key terms of the CLBILS facilities are described in note 17. ### 121 Basis of consolidation These consolidated financial statements incorporate the financial results of the Company and all of its subsidiaries made up to 31 January each year. 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 have historically been accounted for by applying the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group, as set out in IFRS 3. 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 currently represents a small percentage of Group Revenue and is typically characterised by single performance obligations and standard Group products. Certain contracts with retail partners may be subject to a cost of entering into the contract along with a minimum order quantity and/or 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 volume related terms are yet to be satisfied. 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. These amounts are not material in the current year reflecting the small proportion of revenue arising under such contracts. 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 the income statement 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. Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ### NOTES TO THE FINANCIAL STATEMENTSCONTINUED ### 1 Accounting policies continued ### 122 Card Factory plc Annual Report and Accounts 2023 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. On consolidation, assets and liabilities of foreign operations are translated into Sterling at the prevailing market exchange rate on the balance sheet date. The results of foreign operations are translated into Sterling at average rates of exchange for the year. Transactions and balances The Group has currency transactions in respect of inventory purchases and certain sales to retail partners that are denominated in US Dollars. Transactions in foreign currencies are recorded at the exchange rate on the transaction date. 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. 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 less allowances for expected credit losses. 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. Where bank borrowings are refinanced, the Group assesses whether the transaction results in new facilities or a modification of the previous facilities. Where the transaction results in a modification of the facilities, the Group assesses whether that modification is substantial by reference to whether the present value of the cash flows of the new facilities is more than 10% different to the present value of the cash flows of the previous facilities. Where a modification is substantial, the Group derecognises the original liability and recognises a new liability for the modified facilities with any transaction costs expensed to the income statement. Where the modification is non-substantial, the Group amends the carrying amount of the liability to reflect the updated cash flows and amends the effective interest rate from the modification date. The modification of the Group’s borrowings as a result of the refinancing in April 2022 was assessed to be non-substantial. 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. Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ### NOTES TO THE FINANCIAL STATEMENTSCONTINUED Strategic Report ### 1 Accounting policies continued Financial StatementsGovernance ### 123 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 The Group applies cash flow hedge accounting in respect of certain derivative financial instruments for the forward purchase of foreign currency, and interest rate swaps. The Group’s hedging activities are described in further detail in note 23. 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. In these hedge relationships, the main sources of ineffectiveness are: • changes in the timing of the hedged transactions; and • the effect of the counterparties’ and the Group’s own credit risk on the fair value of derivative contracts, which is not reflected in the change in the fair value of the hedged cash flows. 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. 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. Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives as follows: • buildings 25–50 years • leasehold improvements shorter of 5 years and lease term • plant and equipment 3–10 years • fixtures and fittings 5 years • motor vehicles 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 CGUs (as described in note 10) 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 IAS 38 ‘Intangible Assets’ are met or expensed as incurred otherwise. Other intangible assets Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and less accumulated impairment losses. 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 three to five years. Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ### NOTES TO THE FINANCIAL STATEMENTSCONTINUED ### 1 Accounting policies continued ### 124 Card Factory plc Annual Report and Accounts 2023 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 and intangible assets not yet ready for use or with an indefinite useful economic life are reviewed for impairment annually. Provisions A provision is recognised where the Group has a present legal or constructive obligation as a result of a past event, which will more likely than not result in the Group being required to make a payment (or other outflow of economic benefits) in order to settle the obligation. Provisions are valued at the Group’s best estimate of the amount that will be required to settle the obligation. Specific information in respect of the provisions recorded in each financial year covered by these accounts is provided in the provisions note. Inventories Inventories are stated at the lower of cost and net realisable value. For inventories manufactured by the Group, 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. For manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. Given the significant volumes involved, for inventories held in and for retail stores the Group applies a standard costing methodology. Standard costs are based on agreed costs with suppliers (or the Group’s internal cost of production) and are updated frequently. Where components of the standard are based on market prices, such as for freight, the Group reviews and updates the standard at least annually at the balance sheet date. Provisions are made for obsolete, slow-moving and discontinued inventories, based on experience and the Group’s merchandising plans for current and future seasons. 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 (‘LTIP’)) and the Card Factory SAYE Scheme (‘SAYE’), see note 25 for further details. The cost of equity-settled share awards is measured as the fair value of the award at the grant date using the Black-Scholes model. The cost of the awards is expensed to the income statement, together with a corresponding adjustment to equity, on a straight-line basis over the vesting period of the award. The total income statement charge is based on the Group’s estimate of the number of share awards that will eventually vest in accordance with the vesting conditions. The awards do not include market-based vesting conditions. At each balance sheet date, the Group revises its estimate of the number of awards that are expected to vest. Any revision to estimates is recognised in the income statement, with a corresponding adjustment to equity. Leases 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 that its entire store lease portfolio, some warehousing locations, an office location and motor vehicles are 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 any significant lessor contracts. Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ### NOTES TO THE FINANCIAL STATEMENTSCONTINUED Strategic Report Financial StatementsGovernance ### 125 1 Accounting policies continued 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 SONIA 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 or renew. This period usually equates to the full term of the lease. The Group considers that lease renewal is reasonably certain when it has determined whether the store meets its strategic requirements, and is confident the landlord is supportive of lease renewal and on terms acceptable to the Group. This typically occurs in the latter stages of an existing lease. 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 there is a significant event or change in circumstances as a result of which 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. From time to time, a lease may expire without a new lease being agreed. In such circumstances, if the Group has not served or received notice under the terms of the lease, it may continue to occupy the store whilst a new lease is agreed, referred to as a ‘holdover arrangement’. Most of the store portfolio is protected by the Landlord and Tenant Act (1954), under which as tenant the Group has an automatic right to a new lease subject to certain specific grounds under which the landlord can cancel. Under a holdover arrangement, the lease typically continues on a rolling basis on the same financial terms as the previous lease until new terms are formally agreed. The Group accounts for holdover arrangements by assuming a new five-year lease with payments equivalent to those previously agreed. Five years represents the average term of a lease across the Group’s store portfolio, inclusive of break periods considered reasonably likely not to be exercised. In rare circumstances, the holdover lease may be calculated using alternative assumptions that better reflect the Group’s expectations regarding the likely cost and term of the new lease being negotiated. When new terms are agreed, the holdover lease is modified according to the Group’s normal accounting policy for lease modifications, as described above. Where a lease expires at the end of its contractual term, including where the store in question enters a holdover arrangement, the right-of-use asset cost and accumulated depreciation associated with that lease is treated as a disposal. 2 Segmental reporting Following investment in the Group’s people, systems and infrastructure to support its strategy, the Group is organised into five main business areas which meet the definition of an Operating segment under IFRS, those being cardfactory stores, cardfactory Online, Getting Personal, Partnerships and Printcraft. Each of these business areas has a dedicated management team and reports discrete financial information to the Board for the purpose of decision making. • cardfactory stores retail greeting cards, celebration essentials, and gifts principally through an extensive UK store network, with a small number of stores in the Republic of Ireland. • cardfactory Online retails greeting cards, celebration essentials, and gifts via its online platform. • Getting Personal is an online retailer of personalised cards and gifts. • Partnerships sells greeting cards, celebration essentials, and gifts via a network of third party retail partners both in the UK and overseas. • Printcraft is a manufacturer of greeting cards and personalised gifts, and sells the majority of its output intra-group to the stores and online businesses. The accounting policies applied in preparing financial information for each of the Group’s segments are consistent with those applied in the preparation of the consolidated financial statements. The Group’s support centre and administrative functions are run by the cardfactory stores segment, with operating costs recharged to other segments where they are directly attributable to the operations of that segment. NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 2 Segmental reporting continued The Board reviews revenue and EBITDA by segment, with the exception of Printcraft by virtue of its operations being predominantly intra-group in nature. Whilst only cardfactory stores meets the quantitative thresholds in IFRS to require disclosure, the Group's other trading segments are reported below as the Group considers that this information is useful to stakeholders in the context of the Group's 'Opening Our New Future' strategy. Revenue and EBITDA for each segment, and a reconciliation to the consolidated operating profit per the financial statements, is provided in the table below: | 2021 - £m | cardfactory stores | cardfactory Online | Getting Personal | Partnerships | Other | Group | | --- | --- | --- | --- | --- | --- | --- | | Segment Revenue | 440.4 | 8.8 | 8.5 | 5.0 | 0.7 | 463.4 | | Segment EBITDA | 116.1 | (2.2) | (1.5) | 1.4 | (1.8) | 112.0 | | Depreciation, amortisation & impairment | | | | | | (48.2) | | Consolidated Operating Profit | | | | | | 65.9 | | 2022 - £m | cardfactory stores | cardfactory Online | Getting Personal | Partnerships | Other | Group | | --- | --- | --- | --- | --- | --- | --- | | Segment Revenue | 335.1 | 10.9 | 12.9 | 4.6 | 0.9 | 364.4 | | Segment EBITDA | 82.0 | 0.6 | 1.0 | 2.3 | (0.3) | 85.6 | | Depreciation, amortisation & impairment | | | | | | (54.0) | | Consolidated Operating Profit | | | | | | 31.6 | The 'Other' column principally reflects central overheads and Printcraft sales to third parties. In the prior year, the Group disclosed a 'Card Factory' segment which was effectively an aggregation of the cardfactory stores, cardfactory Online and Partnerships segments disclosed above. The disclosure has been updated this year to reflect changes in the Group's organisational structure and internal reporting. 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 as, by segment, revenues are subject to substantially the same economic factors that impact the nature, amount, timing and uncertainty of revenue and cash flows. The table below sets out a geographical analysis of revenues for the current and prior year: | | 2022 £m | 2021 £m | | --- | --- | --- | | Revenue derived from customers in the UK | 451.6 | 357.5 | | Revenue derived from customers overseas | 11.8 | 6.9 | | Consolidated revenue | 463.4 | 364.4 | Revenue from overseas reflects revenues earned from the Group's stores in the Republic of Ireland and from retail partners based outside of the UK. Of the Group's non-current assets, £5.0 million (2022: £2.1 million) relates to assets based outside of the UK, principally in relation to the Group's stores in the Republic of Ireland. The increase compared to the prior year reflects the impact of the increase in the store portfolio on the value of right-of-use assets. ### 3 Operating profit Operating profit is stated after charging/(crediting) the following items: | | 2021 £m | 2022 £m | | --- | --- | --- | | Staff costs (note 5) | 138.2 | 113.8 | | Government grant income | - | (8.0) | | Depreciation expense | | | | - owned fixed assets (note 11) | 8.0 | 8.8 | | - right of use assets (note 12) | 35.7 | 37.4 | | Amortisation expense (note 10) | 2.2 | 2.9 | | Impairment of right-of-use assets (note 12) | 1.3 | 5.0 | | Impairment of intangible assets (note 10) | 1.5 | - | | Profit on disposal of fixed assets | (0.6) | - | | Foreign exchange gain | 1.5 | 2.6 | 126 Card Factory plc Annual Report and Accounts 2023 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **3 Operating profit continued** The total fees payable by the Group to KPMG LLP and their associates during the period was as follows: | | 2022 £'000 | 2022 £'000 | | --- | --- | --- | | Audit of the consolidated and Company financial statements | 30 | 30 | | Amounts receivable by the Company's auditor and its associates in respect of: | | | | Audit of financial statements of subsidiaries of the Company | 620 | 340 | | Audit-related assurance services | 50 | 45 | | Other assurance services | – | 288 | | **Total fees** | **700** | **703** | Other assurance services provided in the prior year were in respect of assurance services in connection with the Group's financial statements for transactions that did not proceed. The appointment of KPMG LLP to provide such services was made in accordance with the Group's policy on external auditors supplying non-audit services. # **4 EBITDA** EBITDA represents profit for the period before net finance expense, taxation, gains or losses on disposal, depreciation, amortisation and impairment charges. | | 2022 £m | 2022 £m | | --- | --- | --- | | **Operating profit** | **63.8** | **31.6** | | Depreciation, amortisation and impairment | 48.2 | 54.0 | | **EBITDA** | **112.0** | **85.6** | # **5 Employee numbers and costs** The average number of people employed by the Group (including Directors) during the year, analysed by category, was as follows: | | 2022 Number | 2022 Number | | --- | --- | --- | | Management and administration | 482 | 434 | | Operations | 9,367 | 8,736 | | | **9,849** | **9,170** | The aggregate payroll costs of all employees including Directors were as follows: | | 2022 £m | 2022 £m | | --- | --- | --- | | Employee wages and salaries | 120.5 | 99.8 | | Equity-settled share-based payment expense | 1.7 | 0.8 | | Social security costs | 8.2 | 6.5 | | Defined contribution pension costs | 1.8 | 1.5 | | **Total employee costs** | **132.2** | **108.6** | | Agency labour costs | 6.0 | 5.2 | | **Total staff costs** | **138.2** | **113.8** | Total employee costs are presented net of *Enil* (2022: £9.4 million) recovered through the CJRS. # **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: | | 2022 £m | 2022 £m | | --- | --- | --- | | Salaries and short-term benefits | 6.1 | 4.4 | | Equity-settled share-based payment expense | 1.4 | 0.6 | | Social security costs | 0.8 | 0.6 | | Defined contribution pension costs | 0.2 | 0.1 | | | **8.5** | **5.7** | # **Remuneration of Directors** | | 2022 £m | 2022 £m | | --- | --- | --- | | Directors' remuneration | 1.9 | 1.8 | | Amounts receivable under long-term incentive schemes | 0.1 | 0.1 | | Company contributions to defined contribution pension plans | – | – | | | **2.0** | **1.9** | The table above includes the remuneration of Directors in each year. Director's remuneration for the period includes £40k in respect of compensation for loss of office for Kris Lee following his resignation on 31 January 2023. Amounts receivable under long-term incentive schemes reflects the value of options exercised during the year. Further details of the remuneration of the current Directors are disclosed in the Directors' Remuneration Report on pages 80 to 95. The basis of calculation for certain items described in the Directors' Remuneration Report may differ to that used in this note, reflecting differences in the relevant regulations. 127 Strategic Report Governance Financial Statements NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **6 Finance expense** | | 2022 £m | 2021 £m | | --- | --- | --- | | Finance expense | | | | Interest on bank loans and overdrafts | 6.0 | 6.8 | | Amortisation of loan issue costs | 0.9 | 10.4 | | Lease interest | 4.5 | 3.3 | | | **11.4** | **20.5** | # **7 Taxation** The tax charge includes both current and deferred tax. The tax charge reflects the estimated effective tax on the profit before tax for the Group for the year ending 31 January 2023 and the movement in the deferred tax balance in the year so far as it relates to items recognised in the income statement. Taxable profit or loss differs from profit or loss before tax as reported in the income statement, because it excludes items of income or expenditure that are either taxable or deductible in other years or never taxable or deductible. # **Recognised in the income statement** | | 2022 £m | 2021 £m | | --- | --- | --- | | **Current tax charge/(credit)** | | | | Current year | 8.3 | 1.2 | | Adjustments in respect of prior periods | (1.6) | 0.8 | | Total current tax charge | 6.7 | 2.0 | | **Deferred tax charge/(credit)** | | | | Origination and reversal of temporary differences | 2.5 | 1.2 | | Adjustments in respect of prior periods | (1.8) | (0.7) | | Effect of change in tax rate | 0.8 | 0.5 | | Total deferred tax charge | 1.5 | 1.0 | | **Total income tax charge** | **8.2** | **3.0** | The effective tax rate of 15.6% (2022: 27.0%) on the profit before taxation for the year is lower than (2022: higher than) the average rate of mainstream corporation tax in the UK of 19% (2022: 19%). The lower effective tax rate is principally due to adjustments in respect of prior periods following the allocation of brought-forward losses and reliefs when the tax computations for that period were finalised subsequent to the publication of the consolidated financial statements for the FY22 financial year, partially offset by the effect of higher rates applicable to deferred tax balances (see note 13). The tax charge is reconciled to the standard rate of UK corporation tax as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | **Profit before tax** | **52.4** | **10.1** | | Tax at the standard UK corporation tax rate of 19% (2022: 19.0%) | 10.0 | 2.1 | | Tax effects of: | | | | Expenses not deductible for tax purposes | 0.7 | 0.3 | | Adjustments in respect of prior periods | (3.3) | 0.1 | | Effect of change in tax rate | 0.8 | 0.5 | | **Total income tax charge** | **8.2** | **3.0** | Total taxation recognised through the income statement, other comprehensive income and through equity are as follows: | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Current £m | Deferred £m | Total £m | Current £m | Deferred £m | Total £m | | Income statement | 6.7 | 1.5 | 8.2 | 2.0 | 1.0 | 3.0 | | Other comprehensive income | - | 1.2 | 1.2 | - | 0.6 | 0.6 | | Equity | - | (1.3) | (1.3) | - | 0.2 | 0.2 | | **Total tax** | **6.7** | **1.4** | **8.1** | **2.0** | **1.0** | **3.0** | # **8 Dividends** There were no dividends paid in either the current or the previous year. The Board is not recommending a final dividend in respect of the financial year ended 31 January 2023 (2022: no final dividend). Whilst the Group's CLBILS and tranche A of the term loan facilities remain outstanding (see note 17), the Group is prohibited from making distributions under the terms of its financing arrangements. 128 Card Factory plc Annual Report and Accounts 2023 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **9 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. | | 2023 (Number) | 2022 (Number) | | --- | --- | --- | | Weighted average number of shares in issue | 342,328,622 | 341,770,579 | | Weighted average number of dilutive share options | 1,604,107 | 1,843,537 | | Weighted average number of shares for diluted earnings per share | 343,932,729 | 343,614,116 | | | £m | £m | | --- | --- | --- | | Profit for the financial period | 44.2 | 8.1 | | | period | period | | --- | --- | --- | | Basic earnings per share | 12.9 | 2.4 | | Diluted earnings per share | 12.8 | 2.4 | # **10 Intangible assets** | | Goodwill £m | Software £m | Total £m | | --- | --- | --- | --- | | **Cost** | | | | | At 1 February 2022 | 328.2 | 17.0 | 345.2 | | Additions | - | 9.4 | 9.4 | | Disposals | - | (0.4) | (0.4) | | **At 31 January 2023** | **328.2** | **26.0** | **354.2** | | **Amortisation/Impairment** | | | | | At 1 February 2022 | 14.4 | 10.1 | 24.5 | | Amortisation in the period | - | 2.3 | 2.3 | | Impairment in the period | - | 1.5 | 1.5 | | Amortisation on disposals | - | (0.4) | (0.4) | | **At 31 January 2023** | **14.4** | **13.5** | **27.9** | | **Net book value** | | | | | --- | --- | --- | --- | | **At 31 January 2023** | **313.8** | **12.8** | **326.2** | | At 31 January 2022 | 313.8 | 6.9 | 320.7 | During the year, the Group recognised an impairment charge of £1.5 million in respect of work performed in respect of a new online platform for Getting Personal. The charge reflects work on functionality which was ultimately not part of the platform when it went live in March 2023. | | Goodwill £m | Software £m | Total £m | | --- | --- | --- | --- | | **Cost** | | | | | At 1 February 2021 | 328.2 | 13.7 | 341.9 | | Additions | - | 3.3 | 3.3 | | Disposals | - | - | - | | **At 31 January 2022** | **328.2** | **17.0** | **345.2** | | **Amortisation/Impairment** | | | | | At 1 February 2021 | 14.4 | 7.2 | 21.6 | | Amortisation in the period | - | 2.9 | 2.9 | | Amortisation on disposals | - | - | - | | **At 31 January 2022** | **14.4** | **10.1** | **24.5** | | **Net book value** | | | | | --- | --- | --- | --- | | At 31 January 2022 | 313.8 | 6.9 | 320.7 | | At 31 January 2021 | 313.8 | 6.5 | 320.2 | # **Impairment Testing: Goodwill** Goodwill arising on the acquisition of Getting Personal in 2011 of £14.4 million was allocated to the Getting Personal CGU, which corresponds to the Getting Personal operating segment (see note 2). Goodwill in respect of the Getting Personal CGU was fully written down in 2020. All remaining goodwill is in respect of the cardfactory stores business, which is comprised of all of the cardfactory stores (each an individual CGU for impairment testing purposes), associated central functions and shared assets. cardfactory stores is the lowest level at which the Group's management monitors goodwill internally. As described in note 2, the Group updated its view of operating segments in the period. The cardfactory stores business previously formed part of the 'Card Factory' operating segment, which has been divided into 'cardfactory stores', 'cardfactory Online' and 'Partnerships' segments in FY23. The cardfactory stores business is comparable to the 'cardfactory stores' operating segment. Within the previous, aggregated segment, the assets attributable to each of these lines of business was clearly identifiable given the different nature of the sales platforms and customers to each. Goodwill of £313.8 million was previously allocated to the cardfactory business within the 'Card Factory' segment. Accordingly, upon amending the segmental analysis, the allocation of assets to each CGU has not changed as the assets attributable to the cardfactory stores business were identifiable within the previous Card Factory segment. 129 Strategic Report Governance Financial Statements NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **10 Intangible assets continued** The total carrying amount of the cardfactory stores group of CGUs for impairment testing purposes, inclusive of liabilities that are necessarily considered in determining the recoverable amount, at 31 January 2023 was £315.5 million (2022: £295.0 million). The recoverable amount has been determined based on a value-in-use calculation. This value-in-use calculation is based on the Group's most recent approved five-year strategic plan, to exclude any value from planned new stores or initiatives, so as to assess the valuation of the assets in their current state and condition. The key assumptions used in determining the recoverable amount are: - Future trading performance including sales growth, product mix, material and operating costs; - Foreign exchange rates applicable to the Group's purchases of goods for resale; - The terminal growth rate applied; and - The discount rate. The values assigned to the variables that underpin the Group's expectations of future trading performance were determined based on historical performance and the Group's expectations with regard to future trends. Where applicable, amounts take into account the Group's hedges and fixed contracts, changes in market prices and rates, and relevant industry and consumer data to inform expectations around future trends. The Group assumes a long-term GBPUSD exchange rate in line with published forward curves at the balance sheet date, adjusted to reflect the value of forward contracts in place. The fair value of these contracts is included in the carrying amount. A 0% (2022: 0%) terminal growth rate is applied beyond the five-year term of the plan, representing a sensitised view of the Group's estimate of the long-term growth rate of the sector. Whilst such long-term rates are inherently difficult to benchmark using independent data, the Group's reverse stress-testing of the goodwill impairment model indicated a significant negative terminal decline would be required in order to eliminate the headroom completely. The forecast cash flows are discounted at a pre-tax rate of 12.0% (2022: 12.0%). The discount rate is derived from a calculation using the capital asset pricing model to calculate cost of equity utilising available market data. The discount rate is compared to the published discount rates of comparable businesses and relevant industry data prior to being adopted. No impairment loss was identified. The valuation indicates sufficient headroom such that any reasonably possible change to the key assumptions would not result in an impairment of the related goodwill. # **Impairment Testing: Intangible assets not yet available for use** Both the Getting Personal and cardfactory Online CGUs include intangible assets that are not yet available for use. Accordingly, an impairment test in respect of these CGUs was carried out at 31 January 2023. The total carrying amount of the Getting Personal and cardfactory Online CGUs for impairment testing purposes, inclusive of liabilities that are necessarily considered in determining the recoverable amount, at 31 January 2023 was not material either individually or in aggregate. The value of intangible assets not yet available for use included in the carrying amount was £3.5 million. The key assumptions are consistent with those set out above in respect of the goodwill impairment review, with the exception of foreign exchange rates which are not significant to the analysis for these CGUs. To ensure the analysis fairly reflected the expected value in use of the assets within each CGU, the estimated future cash flows included all costs to complete the assets under development and sales associated with those assets once deployed into use. No impairment loss above that already recorded (above) in respect of either CGU was identified. The cardfactory Online valuation indicated sufficient headroom such that any reasonably possible change in assumptions would not result in an impairment charge. The Getting Personal valuation headroom was limited, reflecting the impairment charge recorded in respect of intangible assets; however given the immaterial remaining carrying amount, any change in assumptions would not materially change the impairment charge for the period. # **11 Property, plant and equipment** | | Freehold property £m | Leasehold improvements £m | Plant, equipment, fixtures & vehicles £m | Total £m | | --- | --- | --- | --- | --- | | **Cost** | | | | | | At 1 February 2022 | 17.9 | 40.8 | 70.3 | 129.0 | | Additions | 0.9 | - | 7.9 | 8.8 | | Disposals | (0.2) | - | - | (0.2) | | **At 31 January 2023** | **18.6** | **40.8** | **78.2** | **137.6** | | **Depreciation** | | | | | | At 1 February 2022 | 4.4 | 37.3 | 55.7 | 97.4 | | Depreciation in the period | 0.5 | 1.7 | 5.8 | 8.0 | | Depreciation on disposals | - | - | - | - | | **At 31 January 2023** | **4.9** | **39.0** | **61.5** | **105.4** | # **Net book value** | **At 31 January 2023** | **13.7** | **1.8** | **16.1** | **32.2** | | --- | --- | --- | --- | --- | | At 31 January 2022 | 13.5 | 3.5 | 14.6 | 31.6 | 130 CardFactory plc Annual Report and Accounts 2023 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **11 Property, plant and equipment** *continued* | | Freehold property £m | Leasehold improvements £m | Plant, equipment, fixtures & vehicles £m | Total £m | | --- | --- | --- | --- | --- | | **Cost** | | | | | | At 1 February 2021 | 17.8 | 40.2 | 67.6 | 125.6 | | Additions | 0.1 | 0.7 | 2.8 | 3.6 | | Disposals | - | (0.1) | (0.1) | (0.2) | | At 31 January 2022 | 17.9 | 40.8 | 70.3 | 129.0 | | **Depreciation** | | | | | | At 1 February 2021 | 3.9 | 34.8 | 50.1 | 88.8 | | Depreciation in the period | 0.5 | 2.6 | 5.7 | 8.8 | | Depreciation on disposals | - | (0.1) | (0.1) | (0.2) | | At 31 January 2022 | 4.4 | 37.3 | 55.7 | 97.4 | | **Net book value** | | | | | | At 31 January 2022 | 13.5 | 3.5 | 14.6 | 31.6 | | At 31 January 2021 | 13.9 | 5.4 | 17.5 | 36.8 | # **12 Leases** The Group has lease contracts, within the definition of IFRS 16 Leases, in relation to its entire state lease portfolio, some warehousing office locations, an office location 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. # **Right-of-use assets** | | Buildings £m | Motor vehicles £m | Total £m | | --- | --- | --- | --- | | **Cost** | | | | | At 1 February 2022 | 300.6 | 1.3 | 301.9 | | Additions | 39.4 | 0.2 | 39.6 | | Disposals | (60.7) | (0.7) | (61.4) | | Effect of foreign exchange rates | - | - | - | | **At 31 January 2023** | **279.3** | **0.8** | **280.1** | | **Depreciation and impairment** | | | | | At 1 February 2022 | 202.5 | 0.9 | 203.4 | | Depreciation in the period | 35.3 | 0.4 | 35.7 | | Impairment charges in the period | 3.7 | - | 3.7 | | Impairment reversed in the period | (2.4) | - | (2.4) | | Depreciation on disposals | (59.4) | (0.7) | (60.1) | | Impairment on disposals | (0.7) | - | (0.7) | | Effect of foreign exchange rates | - | - | - | | **At 31 January 2023** | **179.0** | **0.6** | **179.6** | | **Net book value** | | | | | **At 31 January 2023** | **100.3** | **0.2** | **100.5** | | At 31 January 2022 | 98.1 | 0.4 | 98.5 | Strategic Report Governance Financial Statements 131 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **12 Leases continued** | | Buildings £m | Motor vehicles £m | Total £m | | --- | --- | --- | --- | | **Cost** | | | | | At 1 February 2021 | 316.3 | 1.6 | 317.9 | | Additions | 29.7 | 0.1 | 29.8 | | Disposals | (45.2) | (0.4) | (45.6) | | Effect of foreign exchange rates | (0.3) | – | (0.2) | | At 31 January 2022 | 300.6 | 1.3 | 301.9 | | **Depreciation and impairment** | | | | | At 1 February 2021 | 205.7 | 0.8 | 206.5 | | Depreciation in the period | 37.0 | 0.4 | 37.4 | | Impairment in the period | 5.0 | – | 5.0 | | Depreciation on disposals | (44.3) | (0.3) | (44.6) | | Impairment on disposals | (0.8) | – | (0.8) | | Effect of foreign exchange rates | (0.1) | – | (0.1) | | At 31 January 2022 | 202.5 | 0.9 | 203.4 | | **Net book value** | | | | | At 31 January 2022 | 98.1 | 0.4 | 98.5 | | At 31 January 2021 | 110.6 | 0.8 | 111.4 | Disposals and depreciation/impairment on disposals includes fully depreciated right-of-use assets where the lease term has expired, including amounts in respect of leases that have expired but the asset remained in use whilst a new lease was negotiated. The Group's full accounting policy in respect of leases and right-of-use assets is set out in note 1. # **Impairment testing: Store assets** Reflecting continued macro-economic uncertainty, cost inflation and the existence of loss making stores within the portfolio, the Group considers that an indicator of potential impairment exists in respect of the store portfolio and, accordingly, an impairment review of the Group's store assets was undertaken in the 2023 financial year. For this purpose, each of the Group's stores is considered to be a CGU, with each store's carrying amount determined by assessing the value of right-of-use assets and property, plant and equipment insofar as they are directly allocable to an individual store. The assessment of whether an indicator of impairment may exist in respect of store assets is considered across the store portfolio and not on a store-by-store basis. Accordingly, the store impairment review considers all stores in the portfolio. The recoverable amount of each store was determined based on the expected future cash flows applicable to each store, assessed using a basis consistent with the future cash flows used in the goodwill impairment test described in note 10, but limited to the term of the current lease as assessed under IFRS 16. As a result, the key assumptions are also considered to be consistent with those described in note 10, in addition to the allocation of central and shared costs to individual stores insofar as such an allocation can be made on a reasonable and consistent basis. Most such costs are allocated on the basis of the relative sales of each individual store. Application of these assumptions resulted in a net impairment charge of £1.3 million (2022: £5.0 million), comprised of impairment charges of £3.7 million (2022: £5.0 million) and the reversal of previous impairment charges of £2.4 million (2022: £nil). Having conducted scenario analysis, the Group does not consider any reasonably possible change in the key assumptions would result in a material change to the impairment charge. # **Lease liabilities** | | 2022 £m | 2022 £m | | --- | --- | --- | | Current lease liabilities | (27.3) | (41.1) | | Non-current lease liabilities | (78.1) | (78.7) | | **Total lease liabilities (note 21)** | **(105.4)** | **(119.8)** | # **Lease expense:** | Total lease-related expenses | 2022 £m | 2022 £m | | --- | --- | --- | | Depreciation expense on right-of-use assets | 35.7 | 37.4 | | Impairment of right-of-use assets | 1.3 | 5.0 | | Profit on disposal of fixed assets | (0.5) | – | | Lease interest | 4.5 | 3.3 | | Expense relating to short-term and low value leases^{1} | – | – | | Expense relating to variable lease payments^{2} | 0.2 | 0.2 | | **Total lease-related income statement expense** | **41.2** | **45.9** | 1 Contracts subject to the election not to apply the requirements of IFRS 16 to short-term or low value leases. 2 A small proportion of the store-lease portfolio are subject to an element of turnover (rated variable costs) that are excluded from the definition of a lease under IFRS 16. 132 Card Factory plc Annual Report and Accounts 2023 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **13 Deferred tax assets and liabilities** Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of an asset or liability in the financial statements and the corresponding tax bases used in the computation of taxable profit/loss. Movement in deferred tax during the year: | | Fixed assets £m | Share-based payments £m | Deferred tax not measures and hedge accounting £m | IFRS 16 Losses £m | Tax losses £m | Other lending differences £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 February 2021 | 0.3 | 0.1 | 0.6 | 1.4 | 1.7 | 1.2 | 5.3 | | Credit/(charge) to income statement | 0.5 | 0.2 | – | (1.4) | 0.5 | (0.8) | (1.0) | | Credit/(charge) to other comprehensive income | – | 0.2 | (0.8) | – | – | – | (0.6) | | Charge to equity | – | – | (0.2) | – | – | – | (0.2) | | At 31 January 2022 | 0.8 | 0.5 | (0.3) | – | 2.2 | 0.4 | 3.6 | | Credit/(charge) to income statement | (0.2) | – | – | – | (2.2) | 0.8 | (1.6) | | Credit/(charge) to other comprehensive income | – | 0.9 | (2.1) | – | – | – | (1.2) | | Charge to equity | – | – | 1.3 | – | – | – | 1.3 | | At 31 January 2023 | 0.6 | 1.4 | (1.1) | – | – | 1.2 | 2.1 | 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 do so, otherwise they are shown separately in the balance sheet. Deferred tax assets and liabilities are offset as follows: | | 2021 £m | 2022 £m | | --- | --- | --- | | Deferred tax assets | 2.2 | 3.9 | | Deferred tax liabilities | (1.1) | (0.3) | | **Net deferred tax asset** | **2.1** | **3.6** | The Finance Act 2021 contained legislation to increase the mainstream corporation tax rate in the UK from 19% to 25%, which came into effect from 1 April 2023. The Group has therefore measured deferred tax assets and liabilities at this higher rate of tax. The impact of deferred tax items expected to unwind between the balance sheet date and 1 April 2023 at the lower rate of 19% is not material. # **14 Inventories** | | 2021 £m | 2022 £m | | --- | --- | --- | | Finished goods | 44.7 | 32.7 | | Work in progress | 0.6 | 0.4 | | | **45.3** | **33.1** | Inventories are stated net of provisions totalling £16.1 million (2022: £20.7 million). The value of inventories written down in the period was £14.0 million (2022: £11.6 million). The cost of inventories recognised as an expense and charged to cost of sales in the year, net of movements in provisions, was £145.3 million (2022: £121.6 million). # **15 Trade and other receivables** | | 2022 £m | 2022 £m | | --- | --- | --- | | **Current** | | | | Trade receivables | 2.0 | 3.0 | | Prepaid property costs | 2.9 | 2.3 | | Other prepayments | 6.4 | 2.8 | | | **13.3** | **8.1** | The Group has net US Dollar denominated trade and other receivables of £0.8 million (2022: £1.0 million). 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 partnerships and non-retail sales which generated revenue of £5.6 million (2022: £5.6 million) in the year. No significant impairment loss has been recorded against trade receivables. Strategic Report Governance Financial Statements 133 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **16 Cash and cash equivalents** | | 2022 £m | 2021 £m | | --- | --- | --- | | Cash at bank and in hand | 11.7 | 38.3 | | **Cash presented as current assets in the balance sheet** | **11.7** | **38.3** | | Unsecured bank overdraft | (1.8) | – | | **Overdraft presented as current liabilities in the balance sheet** | **(1.8)** | **–** | | **Net cash and cash equivalents** | **9.9** | **38.3** | The Group manages its liquidity requirements on a Group-wide basis and regularly sweeps and pools cash in order to optimise returns and/or ensure the most efficient deployment of borrowing facilities in order to minimise fees whilst maintaining sufficient short-term liquidity to meet its liabilities as they fall due. Cash in bank accounts and overdrafts are presented net where the Group has a legal right to offset amounts – such as those with the same banking provider or included in netting arrangements under its financing facilities. The Group's cash and cash equivalents are denominated in the following currencies: | | 2022 £m | 2021 £m | | --- | --- | --- | | Sterling | 0.2 | 21.5 | | Euro | 4.8 | 1.4 | | US Dollar | 4.9 | 15.4 | | | **9.9** | **38.3** | # **17 Borrowings** | | 2022 £m | 2021 £m | | --- | --- | --- | | **Current liabilities** | | | | Bank loans and accrued interest | 48.3 | 25.5 | | Bank overdraft | 1.8 | – | | **Total current liabilities** | **50.1** | **25.5** | | **Non-current liabilities** | | | | Bank loans | 17.4 | 85.5 | Current liabilities includes bank loans where the liability is due to be settled in the next 12 months (such as scheduled repayments in respect of secured term loans and CLBILs) or where the Group does not have an unconditional right to defer repayment beyond 12 months (such as revolving facilities subject to covenant requirements). # **Bank loans** Bank borrowings as at 31 January 2023 are summarised as follows: | | Liability £m | Interest rate % | Interest margin valued range % | | | --- | --- | --- | --- | --- | | **31 January 2022** | | | | | | Secured term loans – Tranche 'A' | 9.0 | 5.00 + SONIA | – | | | Secured term loans – Tranche 'B' | 18.8 | 5.50 + SONIA | – | | | Secured CLBILs | 16.1 | See note | – | | | Secured revolving credit facility | 23.0 | Margin + SONIA | 2.75–4.50 | Total facility size ≥ £100 million | | Accrued interest | 0.2 | | | | | Bank overdraft | 1.8 | | | | | Debt issue costs | (1.4) | | | | | | **67.5** | | | | | **31 January 2022** | | | | | | Secured term loans | 67.2 | 4.50 + SONIA | – | Interest rate increases 1.00% every six months | | Secured CLBILs | 44.8 | See note | – | | | Secured revolving credit facility | – | Margin + SONIA | 2.75–4.50 | Total facility size ≥ £100 million | | Accrued interest | 0.5 | | | | | Debt issue costs | (1.5) | | | | | | **111.0** | | | | On 21 April 2022, the Group agreed an updated and amended financing package with its banking partners, which reduced the overall quantum and extended the term of the Group's facilities. The revised facilities comprised term loans of £30 million, CLBILs of £20 million and an RCF of £100 million. The CLBILs are subject to an amortising repayment profile with final maturity in September 2023. The Term Loans are set in two tranches, both with an amortising repayment profile. Tranche 'A' has a final maturity in January 2024 and Tranche 'B' is coterminous with the RCF in September 2025. 134 Card Factory plc Annual Report and Accounts 2023 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **17 Borrowings continued** The Term Loan 'A' interest rate margin was 5.0% over SONIA, and the Term Loan 'B' interest rate margin was 5.5% over SONIA. The CLBILS facilities attract interest rates of between 3.1% and 3.75% over SONIA or the Bank of England Base Rate. The RCF, when drawn, is subject to an interest rate ratchet of between 2.75% and 4.5% over SONIA based upon the Group's leverage position. The revised Term Loan and CLBILS facilities were drawn in full from the refinancing date, with the RCF drawn to replace the existing term loans and CLBILs that were paid down. The RCF was subsequently drawn during the period to support liquidity when needed and includes up to £17.5 million that can be utilised as an overdraft facility on certain of the Group's bank accounts. The full RCF remains available to draw on if required, with £75.2 million of undrawn committed facilities available to the Group at the balance sheet date. Total repayments in respect of the revised Term Loan and CLBILS facilities during FY23 were £6.1 million. At the balance sheet date, the Group remained subject to two financial covenants, tested quarterly, in relation to leverage (ratio of net debt to EBITDA) and interest cover (ratio of interest and rent costs to EBITDA). Covenant thresholds are phased to return to 2.5x leverage and 1.75x interest cover by January 2024. In addition, the terms of the facilities prevent the Group from making any distributions to shareholders whilst the CLBILS and Term Loan 'A' remain outstanding and places a limit on the total value of capital expenditure the Group can make in each financial year to FY25. The Group expects to be able to operate and have sufficient headroom within these covenants to deliver its strategy. Debt issue costs in respect of the April 2022 refinancing totalled £1.8 million and are being amortised to the income statement over the duration of the revised facilities. # **18 Trade and other payables** | | 2022 £m | 2021 £m | | --- | --- | --- | | **Current** | | | | Trade payables | 29.2 | 31.1 | | Other taxation and social security | 20.6 | 4.6 | | Contract liabilities | - | 2.4 | | Property accruals | 7.8 | 4.9 | | Payroll accruals | 12.9 | 15.8 | | Other accruals | 12.2 | 12.9 | | | **84.7** | **71.7** | The Group has net US Dollar denominated trade and other payables of £10.1 million (2022: £8.5 million). During FY23, the Group aligned its UK VAT quarters with its financial year, resulting in the final payment in respect of each year moving from January to February. As a result, payables in respect of other taxation and social security significantly increased in FY23, owing to inclusion of the full quarterly payment made in February 2023. # **19 Share capital and share premium** | | 2022 (Number) | 2022 (Number) | | --- | --- | --- | | **Share capital** | | | | Allotted, called up and fully paid ordinary shares of one pence: | | | | At the start of the period | 341,878,341 | 341,626,396 | | Issued in the period (note 25) | 757,749 | 251,945 | | At the end of the period | **342,636,090** | **341,878,341** | | | £m | £m | | --- | --- | --- | | **Share capital** | | | | At the start of the period | 3.4 | 3.4 | | Issued in the period (note 25) | - | - | | At the end of the period | **3.4** | **3.4** | | | £m | £m | | --- | --- | --- | | **Share premium** | | | | At the start of the period | 202.2 | 202.2 | | Issued in the period (note 25) | - | - | | At the end of the period | **202.2** | **202.2** | Shares issued in the period relate entirely to those issued upon vesting of employee share schemes. See note 25. Strategic Report Governance Financial Statements 135 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # 20 Notes to the cash flow statement Reconciliation of operating profit to cash generated from operations: | | 2021 £m | 2020 £m | | --- | --- | --- | | Profit before tax | 52.4 | 11.1 | | Net finance expense | 11.4 | 20.5 | | Operating profit | 63.8 | 31.6 | | Adjusted for: | | | | Depreciation and amortisation | 46.0 | 49.1 | | Impairment of right-of-use assets | 1.3 | 5.0 | | Impairment of intangible assets | 1.5 | - | | Gain on disposal of fixed assets | (0.5) | - | | Cash flow hedging foreign currency movements | 0.8 | (1.4) | | Share-based payments change | 1.7 | 0.8 | | Operating cash flows before changes in working capital | 114.6 | 85.1 | | (Increase)/decrease in receivables | (5.2) | 1.1 | | (Increase)/decrease in inventories | (12.2) | 3.3 | | Increase/(decrease) in payables | 13.3 | 11.9 | | Movement in provisions | (2.7) | 12.2 | | Cash inflow from operating activities | 107.8 | 113.6 | # 21 Analysis of net debt | | At 1 February 2022 £m | Cash flow £m | Non-cash changes £m | At 31 January 2023 £m | | --- | --- | --- | --- | --- | | Secured bank loans and accrued interest (note 17) | (111.0) | 51.4 | (6.1) | (63.7) | | Lease liabilities | (119.8) | 57.0 | (42.6) | (105.4) | | Total debt | (230.8) | 108.4 | (48.7) | (171.1) | | Add: debt costs capitalised | (1.5) | (1.8) | 1.9 | (1.4) | | Add: bank overdraft | - | (1.8) | - | (1.8) | | Less: cash and cash equivalents (note 16) | 38.3 | (26.6) | - | 11.7 | | Net debt | (194.0) | 78.2 | (46.8) | (162.6) | | Lease liabilities | 119.8 | (57.0) | 42.6 | 105.4 | | Net debt excluding lease liabilities | (74.2) | 21.2 | (4.2) | (57.2) | | | At 1 February 2021 £m | Cash flow £m | Non-cash changes £m | At 31 January 2022 £m | | --- | --- | --- | --- | --- | | Secured bank loans and accrued interest (note 17) | (119.0) | 8.0 | - | (111.0) | | Lease liabilities | (144.9) | 57.8 | (32.7) | (119.8) | | Total debt | (263.9) | 65.8 | (32.7) | (230.8) | | Add: debt costs capitalised | (1.2) | (8.7) | 8.4 | (1.5) | | Less: cash and cash equivalents (note 16) | 12.5 | 25.8 | - | 38.3 | | Net debt | (252.6) | 82.9 | (24.3) | (194.0) | | Lease liabilities | 144.9 | (57.8) | 32.7 | 119.8 | | Net debt excluding lease liabilities | (107.7) | 25.1 | 8.4 | (74.2) | Non-cash changes in respect of lease liabilities reflect changes in the carrying amount of leases arising from additions, disposals and modifications. # 22 Provisions | | Covid-19 related support £m | Property provisions £m | Total £m | | --- | --- | --- | --- | | At 1 February 2021 | - | - | - | | Provisions made during the year | 12.2 | - | 12.2 | | At 31 January 2022 | 12.2 | - | 12.2 | | Transfer from contract liabilities | - | 2.5 | 2.5 | | Provisions utilised during the year | (2.3) | (0.9) | (3.2) | | Provisions released during the year | (2.5) | (0.9) | (3.4) | | Provisions provided during the year | - | 1.4 | 1.4 | | At 31 January 2023 | 7.4 | 2.1 | 9.5 | Covid-19-related support provisions reflect amounts received under one-off schemes designed to provide support to businesses affected by Covid-19 restrictions, including lockdown grants and CJRS, in excess of the value the Group reasonably believes it is entitled to retain under the terms and conditions of those schemes. The provisions have been estimated based on the Group's interpretation of the terms and conditions of the respective schemes and, where applicable, independent professional advice. However, the actual amount that will be repaid is not certain. In July 2022, following an unprompted disclosure to HMRC and resulting investigation, the Group made a payment of £2.3 million in final settlement of its CJRS position. As a result of this settlement, the Group released a further £2.5 million from the provision that is no longer expected to be required, as the matter is now closed. This release has been recognised as a one-off benefit in the income statement in the period. 136 Covid Factory plc Annual Report and Accounts 2023 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **22 Provisions continued** The remaining provision relates to covid-related lockdown grants and similar support schemes. The Group is taking steps to confirm amounts repayable and settle its positions. This exercise is expected to conclude within the next financial year. The Group maintains provisions in respect of its store portfolio to cover both the estimated cost of restoring properties to their original condition upon exit of the property and any non-lease components of lease contracts (such as service charges) that may be onerous. Despite the size of the Group's store portfolio, such provisions are generally small, which is consistent with the Group's experience of actual dilapidations and restoration costs. Such provisions are usually made where the Group has a reasonable expectation that the related property may be exited, or is at a higher risk of exiting, in the near future. Accordingly such provisions are generally expected to be utilised in the short-term. Amounts relating to property provisions, previously recognised and presented within contract liabilities, have been reclassified to provisions in the year. Comparative balances have not been reclassified as the amounts are not considered material. # **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 ongoing 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 58 to 62 and in the Corporate Governance Report on pages 67 to 73. # **Liquidity risk** The Group has continued to generate significant operating cash inflows. Cash flow forecasts are prepared to assist management in identifying future liquidity requirements. At the balance sheet date, the Group had net debt (note 21) of £57.2 million (2022: £74.2 million) and undrawn RCF facility of £75.2 million (see note 17). On 21 April 2022, the Group agreed an updated and amended financing package with its banking partners, which reduced the overall quantum and extended the term of the Group's facilities. The revised facilities comprised term loans of £30 million, CLBILS of £20 million and an RCF of £100 million. The CLBILS are subject to an amortising repayment profile with final maturity in September 2023. The Term Loans are set in two tranches, both with an amortising repayment profile. Tranche 'A' has a final maturity in January 2024 and Tranche 'B' is coterminous with the RCF in September 2025. Until the business has no outstanding CLBILS or Term Loan 'A', there will be a prohibition of any payment to shareholders by way of dividend or share buy-back. 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. Where amounts are not yet fixed, principally in respect of interest payments linked to SONIA in the Group's bank facilities, the values have been determined with reference to forward curves at the balance sheet date. | | Less than one year £m | One to two years £m | Two to five years £m | More than five years £m | Total £m | | --- | --- | --- | --- | --- | --- | | **At 31 January 2023** | | | | | | | Bank loans | 52.4 | 18.8 | – | – | 71.2 | | Lease liabilities | 32.7 | 31.3 | 47.9 | 7.8 | 119.7 | | Trade and other payables | 84.7 | – | – | – | 84.7 | | | **169.8** | **50.1** | **47.9** | **7.8** | **275.6** | | **At 31 January 2022** | | | | | | | Bank loans | 31.7 | 88.9 | – | – | 120.6 | | Lease liabilities | 46.8 | 32.0 | 44.7 | 6.7 | 130.2 | | Trade and other payables | 71.7 | – | – | – | 71.7 | | | **150.2** | **120.9** | **44.7** | **6.7** | **322.5** | The table below analyses the contractual cash flows of the Group's derivative financial instruments as at the balance sheet date. The amounts disclosed represent the total contractual undiscounted cash flows at the balance sheet date exchange and interest rates. | | Less than one year £m | One to two years £m | Two to five years £m | More than five years £m | Total £m | | --- | --- | --- | --- | --- | --- | | **At 31 January 2023** | | | | | | | Foreign exchange contracts | | | | | | | – Inflow | 76.4 | 21.9 | – | – | 98.3 | | – Outflow | (72.6) | (21.2) | – | – | (93.8) | | Interest rate contracts | | | | | | | – Inflow | 1.1 | – | – | – | 1.1 | | – Outflow | – | (0.2) | (0.2) | – | (0.4) | | **At 31 January 2022** | | | | | | | Foreign exchange contracts | | | | | | | – Inflow | 60.4 | 37.3 | – | – | 97.7 | | – Outflow | (59.7) | (36.4) | – | – | (96.1) | | Interest rate contracts | | | | | | | – Outflow | 0.4 | 0.6 | – | – | 1.0 | Strategic Report Government Financial Statements 137 NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 23 Financial risk management continued #### Foreign currency risk The Group has an exposure to foreign currency risk due to a significant proportion of the Group's retail products being procured from overseas suppliers with purchases denominated in US Dollars. The Group has an established currency hedging policy which aims to mitigate the risk of adverse currency movements whilst providing sufficient flexibility and available credit lines to act when markets are volatile. The Group's policy requires forward cover, using a combination of currency on hand, expected receipts and derivative contracts, of between 50% and 100% of the next 12 months' rolling forecast US Dollar requirements, between 20% and 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. 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. | | 2021 | | 2022 | | | --- | --- | --- | --- | --- | | | Impact on profit after tax £m | Impact on cash flow hedging reserve £m | Impact on profit after tax £m | Impact on cash flow hedging reserve £m | | 10 cent increase | (2.9) | (3.3) | (1.2) | (5.3) | | 10 cent decrease | 2.1 | 4.0 | 1.6 | 6.3 | The Group generates a small proportion of its total revenue in Euros as a result of its operations in the Republic of Ireland. Euro receipts are used to settle obligations denominated in Euros, or are converted to GBP, using either spot or forward contracts to manage liquidity. #### Interest rate risk The Group's principal interest rate risk arises from its long-term borrowings. Bank borrowings are denominated in Sterling and are borrowed at floating interest rates (see note 17). The Group has an established policy that permits the use of 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, 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. | | 2021 | | 2022 | | | --- | --- | --- | --- | --- | | | Impact on profit after tax £m | Impact on cash flow hedging reserve £m | Impact on profit after tax £m | Impact on cash flow hedging reserve £m | | 50 basis point interest rate increase | (0.2) | 0.3 | (0.3) | 0.3 | | 50 basis point interest rate decrease | 0.2 | (0.3) | 0.3 | (0.3) | #### Counterparty credit risk The Group is exposed to counterparty credit risk on its holdings of cash and cash equivalents and derivative financial assets. To mitigate the risk, counterparties are limited to high credit-quality financial institutions and exposures are monitored on a monthly basis. Sterling cash balances have historically been 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 certain 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 in prepayments. Credit risk in respect of trade receivables on revenues from retail partners and non-retail customers, and other receivables and prepayments, is not significant to the Group. Revenues from retail partners and non-retail customers represented £5.6 million in the year (2022: £4.6 million) and trade receivables at 31 January 2023 were £2.4 million (2022: £3.0 million). Total trade and other receivables at 31 January 2023 are £13.3 million (FY22: £8.1 million). 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 management policy is to maintain a capital structure that is conservative yet efficient in terms of providing long-term returns to shareholders. The Board monitors the Group's capital structure principally through reviewing leverage – the ratio of net debt (excluding lease liabilities) to EBITDA. The Group's long-term target is to maintain leverage between 0.5 to 1.5 times. The Group defines capital as equity attributable to the equity holders of the Parent plus net debt. Net debt is shown in note 21. The Group has prioritised de-levering the business during and since the Covid-19 pandemic, protecting liquidity to ensure it can continue to meet the needs of all stakeholders in the longer term. Alongside the restrictions imposed by the Group's financing facilities (see note 17), this has resulted in no distributions to shareholders being made during FY22 and FY23. 138 Card Factory plc Annual Report and Accounts 2023 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **23 Financial risk management continued** Whilst the CLBLs and term loan tranche X remain outstanding, the Group is prohibited from making distributions. Following the refinancing of the Group's facilities in April 2022, the remaining CLBLs facilities are due to be repaid over the period to September 2023 and term loan tranche X over the period to January 2024. Therefore, the Board envisages the earliest point for dividend payments to be considered will be the end of FY24. Providing leverage remains within the range above, it is the Board's intention to pay annual ordinary dividends based on a targeted dividend cover of between 2.0 and 3.0 times the Group's consolidated post-tax profit. Details on Group borrowings are set out in notes 17 and 29 of the consolidated 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. Further detail regarding covenant restrictions and liquidity forecasts are provided on pages 119 to 120 and pages 134 to 135. # **24 Financial instruments** # **Fair value** IFRS 13 requires categorisation of the Group's financial instruments, where measured at fair value, in accordance with the fair value hierarchy to illustrate the basis upon which the fair value has been determined: - Level 1: fair value measurements are derived from quoted prices in active markets for identical assets or liabilities; - Level 2: fair value measurements are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and - Level 3: fair value measurements derived from valuation techniques that use inputs that are not based on observable market data (unobservable inputs). The fair value of the Group's foreign currency and interest rate derivative financial instruments are largely determined by comparison between forward market prices and the contract price; therefore, these contracts are categorised as Level 2. # **Derivative financial instruments** The balance sheet date fair value of derivative financial instruments is as follows: | | 2022 £m | 2022 £m | | --- | --- | --- | | **Derivative assets** | | | | Non-current | | | | Interest rate contracts | 0.2 | 0.3 | | Foreign exchange contracts | 0.3 | 1.0 | | | 0.5 | 1.3 | | Current | | | | Interest rate contracts | 1.1 | 0.2 | | Foreign exchange contracts | 4.2 | 0.6 | | | 5.3 | 0.8 | | **Derivative liabilities** | | | | Current | | | | Interest rate contracts | - | - | | Foreign exchange contracts | (1.4) | (0.2) | | | (1.4) | (0.2) | | Non-current | | | | Interest rate contracts | (0.2) | - | | Foreign exchange contracts | (0.3) | - | | | (0.5) | - | | **Net derivative financial instruments** | | | | Interest rate contracts | 1.1 | 0.5 | | Foreign exchange contracts | 2.8 | 1.4 | | | 3.9 | 1.9 | Strategic Report Government Financial Statements 139 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **24 Financial instruments continued** # **Interest rate contracts** At 31 January 2023 the Group held fixed for floating SONIA interest rate swaps to hedge a portion of the variable interest rate risk on bank borrowings. National principal amounts for interest hedges totalled £50.0 million for the period to October 2023 at an average fixed rate of 0.9%, then reducing to £20.0 million for the period to October 2024 at an average fixed rate of 3.95%, then reducing to £10 million for the period to October 2025 at an average fixed rate of 5.1% (2022: £60.0 million for the period to October 2022, reducing to £40.0 million for the period to October 2023). Unhedged fair value movements of Enil (2022: Enil) were expensed to the income statement within financial expense. # **Foreign exchange contracts** At 31 January 2023 the Group held a portfolio of foreign currency derivative contracts with national principal amounts in GBP totalling £93.8 million (2022: £97.7 million) to mitigate the exchange risk on future US Dollar denominated trade purchases. Foreign currency derivatives with a national value of £67.0 million were designated in cash flow hedging relationships at 31 January 2023 (2022: £74.6 million). Of this amount, £37.2 million is expected to unwind in the next 12 months with an average strike price of 1.34 and £9.8 million is expected to unwind between 13 and 24 months at an average strike price of 1.23. The average strike prices reflect only those derivatives designated into hedging relationships, and not the Group's whole portfolio of currency purchase contracts. Foreign currency derivative contracts with a national value of £46.8 million representing a fair value liability of £0.4 million (2022: £23.1 million representing a fair value asset of £0.1 million) were not designated as hedging relationships. Fair value movements in foreign currency derivatives are recognised in other comprehensive income to the extent the contract is part of an effective hedging relationship. The fair value movements of £0.5 million that do not form part of an effective hedging relationship have been charged to the income statement (2022: £1.3 million) within cost of sales. # **Classification of financial instruments** The table below shows the classification of financial assets and liabilities at the balance sheet. For the following: | | Mandatorily at FVTPL £m | Cash flow hedging instruments £m | Financial assets at amortised cost £m | Other financial liabilities £m | | --- | --- | --- | --- | --- | | **At 31 January 2023** | | | | | | **Financial assets measured at fair value** | | | | | | Derivative financial instruments | 0.5 | 5.3 | – | – | | **Financial assets not measured at fair value** | | | | | | Trade and other receivables | – | – | 13.3 | – | | Cash and cash equivalents | – | – | 11.7 | – | | **Financial liabilities measured at fair value** | | | | | | Derivative financial instruments | (0.9) | (1.0) | – | – | | **Financial liabilities not measured at fair value** | | | | | | Secured bank loans | – | – | – | (65.7) | | Unsecured bank overdrafts | – | – | – | (1.8) | | Trade and other payables | – | – | – | (84.7) | | | (0.4) | 4.3 | 25.0 | (152.2) | | | Mandatorily at FVTPL £m | Cash flow hedging instruments £m | Financial assets at amortised costs £m | Other financial liabilities £m | | --- | --- | --- | --- | --- | | **At 31 January 2022** | | | | | | **Financial assets measured at fair value** | | | | | | Derivative financial instruments | 0.1 | 2.0 | – | – | | **Financial assets not measured at fair value** | | | | | | Trade and other receivables | – | – | 8.1 | – | | Cash and cash equivalents | – | – | 38.3 | – | | **Financial liabilities measured at fair value** | | | | | | Derivative financial instruments | – | (0.2) | – | – | | **Financial liabilities not measured at fair value** | | | | | | Unsecured bank loans | – | – | – | (111.0) | | Trade and other payables | – | – | – | (71.7) | | | 0.1 | 1.8 | 46.4 | (182.7) | 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. 140**Card Factory plc**^{}[] Annual Report and Accounts 2023 NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 25 Equity-settled share-based payment arrangements #### Card Factory Restricted Share Awards and Long Term Incentive Plan The Company grants restricted share awards (RSAe) to the Executive Directors, members of the senior management team and senior employees within the Group under the terms of the Group's 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 are to 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 86 to 95. #### 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 | | | --- | --- | --- | --- | --- | | | Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | | Outstanding at 1 February 2021 | 3,681,075 | £0.01 | 3,961,409 | £0.40 | | Granted during the year | 1,911,815 | £0.01 | 1,499,150 | £0.29 | | Exercised during the year | (239,943) | £0.01 | (12,002) | £0.27 | | Forfeited during the year | (903,945) | £0.01 | (1,324,356) | £0.48 | | Outstanding at 31 January 2022 | 4,449,002 | £0.01 | 4,124,201 | £0.37 | | Granted during the year | 3,799,835 | £0.01 | 2,267,990 | £0.49 | | Exercised during the year | (736,764) | £0.01 | (20,985) | £0.27 | | Forfeited during the year | (664,952) | £0.01 | (1,178,977) | £0.56 | | Outstanding at 31 January 2023 | 6,847,140 | £0.01 | 5,192,229 | £0.42 | #### 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: | | 2021 | | | 2022 | | | --- | --- | --- | --- | --- | --- | | | RSA/LTIP (1) | RSA/LTIP (2) | SAYE | RSA/LTIP (3) | SAYE | | Granted during the year | 3,417,583 | 382,272 | 2,267,990 | 1,911,815 | 1,499,150 | | Fair value at grant date | £0.62 | £0.64 | £0.34 | £0.68 | £0.29 | | Share price at grant date* | £0.62 | £0.64 | £0.63 | £0.68 | £0.61 | | Exercise price* | £0.01 | £0.01 | £0.49 | £0.01 | £0.54 | | Expected volatility | 72% | 72% | 72% | 66% | 67% | | Expected term (years) | 2.5 to 5 | 3 to 5 | 3 | 3 to 5 | 3 | | Expected dividend yield | N/A** | N/A** | 0% | N/A** | 0% | | Risk-free interest rate | 1.20% | 1.69% | 1.81% | 0.16% | 0.16% | * The exercise price for SAYE awards is set at a 20% discount for an average market price determined in accordance with scheme rules. The share price of the grant date is the closing price on the grant date. ** RSA/LTIP awards have a 2019 year-long price (increased tax or accrued bonus award from the Group) and service 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 include national insurance costs | 2021 £m | 2022 £m | | --- | --- | --- | | RSA or LTIP | 1.4 | 0.6 | | SAYE | 0.3 | 0.2 | | Total share-based payment expense | 1.7 | 0.8 | Strategic Report Governance Financial Statements 141 NOTES TO THE FINANCIAL STATEMENTS CONTINUED # **26 Capital commitments** The Group had capital commitments at 31 January 2023 of £2.3 million (2022: £nil). # **27 Contingent liabilities** There were no material contingent liabilities at 31 January 2023 (2022: £nil). # **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. A full listing of the Group's subsidiary undertakings is provided in the notes to the Company accounts on page 147. # **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 5 of the financial statements. Further details of Directors' remuneration are set out in the Directors' Remuneration Report on pages 78 to 95. Directors of the Company and their immediate families control 0.02% of the ordinary shares of the Company. There were no other related party transactions in the year. # **29 Subsequent events** # **Acquisition of SA Greetings Corporation (Pty) Limited** On 25 April 2023, the Group acquired 100% of the issued share capital of SA Greetings Corporation (Pty) Ltd ('SA Greetings') a wholesaler and retailer of greeting cards and gift packaging based in South Africa, for fixed cash consideration of £2.5 million. The acquisition enables the Group to access the South African card and gifts market and is aligned with the Group's strategy to expand internationally. In the future, we expect the acquisition to provide opportunities to develop the Group's retail partnerships business, alongside the Group's production capability and retail offer both in South Africa and the UK. Given the short time between the acquisition date and the approval of these financial statements, the initial acquisition accounting has not been completed and accordingly the full disclosures required by IFRS 3 are not provided in these financial statements. The Group expects to initially conclude the accounting in time to include these disclosures in its half year report for FY24. In its unaudited management accounts for the year ended 28 February 2023, SA Greetings reported revenue of £9.4 million, profit before tax of £0.2 million and net assets of £5.8 million (all figures converted using a GBPZAR rate of 20:1). Acquisition-related costs have been expensed to the income statement as incurred, the value of such costs recognised in the year-ended 31 January 2023 was immaterial. 142 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ### PARENT COMPANY STATEMENT OF FINANCIAL POSITION PARENT COMPANY STATEMENT OF CHANGES IN EQUITY ### As at 31 January 2023 For the year ended 31 January 2023 Strategic Report | | 2023 | 2022 | Share | Share | Merger | | Retained | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Note | £m | £m | capital | premium | reserve | | earnings | | equity | | | | | £m | £m | | £m | | £m | £m | Non-current assets At 31 January 2021 3.4 202.2 2.7 106.7 315.0 Investments 4 316.2 316.2 Total comprehensive Deferred tax assets 1.3 0.5 income for the year 317.5 316.7 Profit or loss – – – (0.8) (0.8) Current assets Transactions with owners, Trade and other receivables 5 2.9 2.5 recorded directly in equity Total assets 320.4 319.2 Share-based payments – – – 0.8 0.8 At 31 January 2022 3.4 202.2 2.7 106.7 315.0 | Current liabilities | Total comprehensive | | --- | --- | | Trade and other payables 6 (3.8) (4.2) | income for the year | | Net assets 316.6 315.0 | Profit or loss – – – (0.2) (0.2) | Transactions with owners, recorded directly in equity Equity Financial StatementsGovernance Share-based payments – – – 1.8 1.8 Share capital 7 3.4 3.4 At 31 January 2023 3.4 202.2 2.7 108.3 316.6 Share premium 7 202.2 202.2 Merger reserve 2.7 2.7 The notes that accompany these financial statements are included on pages 145 to 148. Retained earnings 108.3 106.7 Equity attributable to equity holders of the Parent 316.6 315.0 The financial statements on pages 143 to 148 were approved by the Board of Directors on 2 May 2023 and were signed on its behalf by Darcy Willson-Rymer Chief Executive Officer Company number 09002747 ### 143 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ### PARENT COMPANY CASH FLOW STATEMENT ### For the year ended 31 January 2023 2023 2022 Note £m £m Cash (outflow)/inflow from operating activities 10 – – Corporation tax paid – – Net cash (outflow)/inflow from operating activities – – Cash flows from investing activities – – Dividends received – – Net cash inflow from investing activities – – Cash flows from financing activities – – Dividends paid 3 – – 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 145 to 148. ### 144 Card Factory plc Annual Report and Accounts 2023 ## NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS ### 1 Accounting policies #### Basis of preparation These financial statements have been prepared in accordance with UK-adapted International Financial Reporting Standards ('UK IFRS') and applicable law. The financial statements have been prepared under the historical cost convention and on the going concern basis. The Directors' assessment of going concern is set out on pages 119 and 120 of the consolidated financial statements. #### Significant judgements and estimates The preparation of financial statements in conformity with UK 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 or areas of significant estimation uncertainty in the current year. However, reflecting the degree of management focus, notes the following in respect of impairment testing: #### 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 to be applied. Whether or not the estimation used in determining these assumptions is significant depends upon the outcome of the assessment and the level of headroom in the analysis and sensitivity to changes in those assumptions. Further detail is provided in note 4 to the Company financial statements. There were no reasonably possible changes in key assumptions in the impairment test performed that would result in an impairment change. #### Principal accounting policies The principal accounting policies set out below have been applied consistently to all periods presented in these financial statements. #### Changes in significant accounting policies New standards and amendments to existing standards effective in the period, which are set out in full on page 120 of the consolidated financial statements, have not had a material effect on the Company's financial statements. #### UK endorsed standards and amendments issued but not yet effective A full list of standards and amendments that are in issue but not yet effective is provided on page 120 of the consolidated financial statements. The adoption of these standards and amendments in future periods is not expected to have a material impact on the Company's financial statements. #### Income statement The Company made a loss after tax of £0.1 million for the year ended 31 January 2023 (2022: £0.8 million loss), including £nil dividends received from subsidiary undertakings (2022: £nil). 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. ##### 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 of the consolidated financial statements 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 Block-Scholes model. Strategic Report Government Financial Statements 145 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ### NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTSCONTINUED ### 1 Accounting policiescontinued 2 Employee costs The cost of awards to employees of the Company is expensed to the income statement, The Company has no employees other than the Board of Directors. Full details of Directors’ together with a corresponding adjustment to equity, on a straight-line basis over the vesting remuneration are set out in the Directors’ Remuneration Report on pages 78 to 95. 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 ### 3 Dividends awards is based on the Company’s estimate of the number of share awards that will eventually No dividends were paid during either the current or the previous financial year. The Board is not vest in accordance with the vesting conditions. The awards do not include market-based recommending a final dividend in respect of the financial year ended 31 January 2023 (2022: no vesting conditions. At each balance sheet date, the Company revises its estimate of the number final dividend). 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 ### 4 Investments in subsidiaries income statement is subsequently charged to subsidiary entities to the extent that management services are provided to those subsidiary entities. £m At 31 January 2022 and 31 January 2023 316.2 Dividends Dividends are recognised as a liability in the period in which they are approved such that the Therecoverable amount of the Company’s investments in its subsidiaries have been determined Company is obliged to pay the dividend. based on value-in-use calculations whichrequire the use of estimates. Management has prepared discounted cash flows based on the latest approved budget and five-year strategic Taxation plan. The Directors are satisfied that there is no impairment of the investment in subsidiaries. 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 The key assumptions and sensitivity to those assumptions are consistent with those described equity or through other comprehensive income, in which case it is recognised in equity or other in note 10 to the consolidated financial statements, adjusted as appropriate to determine an comprehensive income respectively. equity valuation of the Company’s investments. 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. ### 146 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ### NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTSCONTINUED Strategic Report | 4 Investments in subsidiaries continued | 5 Trade and other receivables | | | | --- | --- | --- | --- | | Subsidiary undertakings | | 2023 | 2022 | | At 31 January 2023 the Company controlled 100% of the issued ordinary share capital of the | | £m | £m | | following subsidiaries, all of which are included in the consolidated financial statements. All | Amounts owed by Group undertakings 2.7 1.9 | | | subsidiaries are registered in England and Wales with the exception of Card Factory Ireland VAT recoverable – 0.1 Limited which is registered in the Republic of Ireland. The registered office of the Company is Prepayments and other debtors 0.2 0.5 Century House, Brunel Road, Wakefield 41 Industrial Estate, Wakefield, West Yorkshire, WF2 0XG. 2.9 2.5 Subsidiary undertaking Nature of business Registered office Trade and other receivables of the Company principally relate to balances due on demand CF Bidco Limited* Intermediate holding company Same as the Company from subsidiary undertakings. The Company has assessed the expected credit loss as very low Sportswift Limited Sale of greeting cards and gifts Same as the Company and has made no provision for impairment. Printcraft Limited Printers Same as the Company Getting Personal Limited Online sale of personalised Same as the Company ### 6 Trade and other payables products and gifts | | | 2023 | 2022 | | --- | --- | --- | --- | | Card Factory Ireland Limited Sale of greeting cards and gifts ** | | £m | £m | | CF Topco Limited* Dormant Same as the Company | Amounts owed to Group undertakings 1.0 2.9 | | | Financial StatementsGovernance CF Interco Limited Dormant Same as the Company Trade payables 2.0 1.0 Short Rhyme Limited Dormant Same as the Company Accruals 0.8 0.3 Heavy Distance Limited Dormant Same as the Company 3.8 4.2 Getting Personal Group Limited Dormant Same as the Company Getting Personal (UK) Limited Dormant Same as the Company Lupfaw 221 Limited Dormant Same as the Company Sportswift Properties Limited Dormant Same as the Company CF Midco Limited Dormant Same as the Company Century Cards Limited Dormant Same as the Company Rose Card Limited Dormant Same as the Company Celebration Cards Limited Dormant Same as the Company Sportswift Trading Limited Dormant Same as the Company CF Newco Limited Dormant Same as the Company 321 Cards Limited Dormant Same as the Company Card Concepts Limited Dormant Same as the Company Excelsior Graphics Limited Dormant Same as the Company Card Factory stores Limited Dormant Same as the Company Card Factory Retail Limited Dormant Same as the Company Card Factory Online Limited Dormant Same as the Company Card Factory Greetings Dormant Same as the Company Limited * Shares held directly. All other subsidiaries shares are held indirectly through subsidiary undertakings. ** 6th Floor, 2 Grand Canal Square, Dublin 2, Dublin, Republic of Ireland. ### 147 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED # 7 Share capital and share premium | | 2022 (thousand) | 2021 (thousand) | | --- | --- | --- | | Share capital | | | | Allotted, called up and fully paid ordinary shares of one pence: | | | | At the start of the period | 341,878,341 | 341,626,396 | | Shares issued in the year | 757,749 | 251,945 | | At the end of the period | 342,636,090 | 341,878,341 | | | £m | £m | | --- | --- | --- | | Share capital | | | | At the start of the period | 3.4 | 3.4 | | Shares issued in the year | - | - | | At the end of the period | 2.4 | 3.4 | | | £m | £m | | --- | --- | --- | | Share premium | | | | At the start of the period | 202.2 | 202.2 | | Shares issued in the year | - | - | | At the end of the period | 202.2 | 202.2 | The company has only one class of shares, which are ordinary shares of 1 pence each, carrying no right to a fixed income. No shareholders have waived their rights to dividends. During the 2022 financial year, 757,749 shares (2022, 251,945 shares) were issued in satisfaction of options vesting in accordance with the rules of the Group's employee share schemes. Full details in respect of the Group's employee share schemes, including remaining options outstanding, are included in note 25 to the consolidated financial statements. # 8 Financial risk management The financial risk management strategy of the Company is consistent with the Group strategy detailed in note 23 of the consolidated 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. # 9 Financial instruments # Classification of financial instruments Financial assets have all been classified as financial assets at amortised cost. 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. # 10 Notes to the cash flow statement | | 2022 £m | 2021 £m | | --- | --- | --- | | Loss before tax | (0.6) | (1.2) | | Dividends received | - | - | | Operating loss | (0.6) | (1.2) | | Adjusted for: | | | | Share-based payment charge | 0.4 | 0.2 | | Operating cash flows before changes in working capital | (0.2) | (1.0) | | (Increase)/decrease in receivables | (0.4) | 0.3 | | Increase in payables | 0.6 | 0.7 | | Cash inflow/(outflow) from operating activities | - | - | The increase in payables stated above is adjusted to reflect amounts analysed elsewhere in the cash flow statement, which are included within amounts owed to Group undertakings in the statement of financial position. # 11 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: | | 2022 £m | 2021 £m | | --- | --- | --- | | Management services | 2.1 | 1.1 | | Dividends received from Group undertakings | - | - | | Inter-company working capital cash flows from Group undertakings | 2.1 | 1.1 | # 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 78 to 95. Directors of the Company control 0.02% of the ordinary shares of the Company. 148 Card Factory plc Annual Report and Accounts 2023 Contents Generation – Section Contents Generation – Page Contents Generation – Sub Page ### GLOSSARY Strategic Report Alternative Performance Measures (‘APMs’) and other explanatory information ‘like-for-like’ or ‘LFL’ calculates the growth or decline in gross sales in the current period versus a prior comparative period. For stores, LFL measures exclude any sales earned from new stores Introduction opened in the current period or closed since the comparative period and only consider the time In the reporting of the financial statements, the Directors have adopted various APMs of period where stores were open and trading in both the current and prior period (hence any financial performance, position or cash flows other than those defined or specified under periods of lockdown in either period are excluded from both periods). International Financial Reporting Standards (‘IFRS’). These measures are not defined by IFRS and therefore may not be directly comparable with other companies’ APMs, including those LFL measures for product lines or categories, where quoted, are calculated using the in the Group’s industry. APMs should be considered in addition to IFRS measures and are not same principles. intended to be a substitute for IFRS measurements. LFL measures for our online businesses (cardfactory.co.uk and gettingpersonal.co.uk) Purpose compare gross sales for the current and comparative period made through the respective The Directors believe that these APMs provide additional useful information on the performance online platform. and position of the Group and are intended to aid the user in understanding the Group’s results. All LFL measures in this report compare FY23 to FY22, unless otherwise stated. A ‘3Y LFL’ The APMs presented in the Annual Report and Accounts are consistent with measures used compares FY23 to FY20. internally by the Board and management for performance analysis, planning, reporting and incentive setting purposes. In addition, the Group reports combined like-for-Iike sales measures for certain components of the business as follows: Definitions of the APMs used in this report are as follows: Financial StatementsGovernance • ‘cardfactory LFL’ is defined as like-for-like sales in stores plus like-for-like sales from the cardfactory website www.cardfactory.co.uk; and ‘EBITDA’ is earnings before interest, tax, gains or losses on disposal, depreciation, amortisation • ‘Online’: like-for-like sales for cardfactory.co.uk and gettingpersonal.co.uk combined. and impairment charges. Earnings is equivalent to profit after tax calculated in accordance with IFRS and each adjusting item is calculated in accordance with the relevant IFRS. A Sales by Printcraft, the Group’s printing division, to external third-party customers are excluded reconciliation of EBITDA to operating profit is provided in note 3 to the consolidated financial from any LFL sales measure. statements. The Group uses EBITDA as a measure of trading performance, as it usually closely correlates to the Group’s operating cash generation. ‘Net Debt’ is calculated by subtracting the Group’s cash and cash equivalents from its borrowings. Net Debt is a key measure of the Group’s balance sheet strength, and is also a ‘Leverage’ is the ratio of Net Debt to EBITDA for the previous 12 months. The Group monitors covenant in the Group’s financing facilities. The Group presents Net Debt both inclusive and and reports leverage as a key measure of its financing position and performance. Leverage is exclusive of lease liabilities, but focuses upon the value exclusive of lease liabilities, which is also a key covenant defined within the Group’s financing facilities. A calculation of Leverage consistent with the calculation used for covenant purposes. (both inclusive and exclusive of lease liabilities) is provided in the financial review on page 56 of this report. ‘Operating cash conversion’ is cash from operations (calculated as cash from operating activities before corporation tax payments) per the cash flow statement prepared in accordance with IFRS divided by EBITDA and expressed as a percentage. Percentage movements have been calculated before figures were rounded to £0.1 million. ### 149 Contents Generation - Section Contents Generation – Page Contents Generation – Sub Page ## ADVISORS AND CONTACTS | Corporate brokers | Registrars | | --- | --- | | UBS Limited | Equiniti Limited | | 5 Broadgate | Aspect House | | London EC2M 2QS | Spencer Road | | Tel: 020 7567 8000 | Lancing | West Sussex BN99 6DA 1 Investec Bank plc Tel: 0371 384 2030 2 Gresham Street London ### Investor relations EC2V 7QP Tulchan Group Tel: 020 7597 4000 85 Fleet Street London EC4Y 1AE ### Auditor Tel: +44 020 7353 4200 KPMG LLP 1 Sovereign Square, ### Registered office Sovereign St, Century House Leeds LS1 4DA Brunel Road Tel: 0113 231 3000 Wakefield 41 Industrial Estate Wakefield West Yorkshire WF2 0XG ### Principal bankers Company Registration No: 9002747 Royal Bank of Scotland Group plc 1 Lines are open 8.30am to 5.30pm (UK time), Monday to Leeds Corporate Office Friday, excluding English public holidays. 3rd Floor 2 Whitehall Quay Leeds LS1 4HR Tel: 0113 307 8564 ### 150 Card Factory plc Annual Report and Accounts 2023 Printed by a carbon balanced, FSC®-recognised printer, certified to ISO 14001 environmental management system using 100% renewable energy. This product has been made of material from well-managed, FSC®- certified forests and other controlled sources. Both paper and production are measured and carbon balanced, based on a third party, audited, calculation. FSC LOGO TBC 100% of the inks used are HP Indigo ElectroInk which complies with RoHS legislation and meets the chemical requirements of the Nordic Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy. The printer contributes to the World Land Trust’s ‘Conservation Coast’ project in Guatemala. This scheme supports many landowners and local communities to register and obtain their own land and thereby protect thousands of acres of threatened coastal forest. The local organisation FUNDAECO works with over 3000 families to help transform local livelihoods through job creation and ecotourism. ### Card Factory plc Century House Brunel Road Wakefield 41 Industrial Estate Wakefield West Yorkshire WF2 0XG www.cardfactoryinvestors.com