Card Factory plc (CARD) Earnings Call Transcript & Summary

Good morning. Thank you for joining our FY '20 results presentation for the year ended 31st of January 2020, in what is the most extraordinary period and coming to all virtually. Kris and I are together in Wakefield, socially distanced, of course. And our intention is to take you through a very brief 30-minute update and then to open this meeting for Q&A. So as per the agenda on Slide 1, and then as is our normal approach, I will provide a quick update, and then Kris will present the financials. I will provide the business's strategy update, and we will then follow-up with any Q&A. I would like to remind you that we will have a second virtual presentation on our strategic plans on the 28th of July in the afternoon, where you will hear from other members of the Executive Board who will share the future plans. Clearly, at that point, we will also be able to provide you with an update on stores trading as our stores remain closed at this time, in line with government guidance, but we will commence a reopening plan if it is safe to do so from the 15th of June. To begin, let's turn to Slide 3, highlights. By way of introduction for the year, we saw a resilient growth in total sales in line with other retailers who were reporting challenging high street conditions. The growth in total sales in stores, including a net new 50 stores was also complemented by online sales growth for cardfactory.co.uk, 3 franchise stores experiencing good sales, further expansion of sales to Aldi and the addition of Matalan and as a concession format. We also saw the commencement of the rollout in Australia from the original 9 trial stores by 70 stores per week starting at the 13th of January. Despite ongoing headwinds and some one-off costs, which we spoke about at the half year, including storage and Brexit stock, we did make progress on our business efficiency and cost mitigation programs, but these did not fully mitigate the cost headwinds that we experienced. Across the year, we refreshed the Card Factory strategy and tested core elements, which are targeted on strengthening the U.K. proposition and finalizing the elements of our international push. In recent weeks, clearly, our focus has been on the business during COVID-19, but most importantly, on the health and safety of our colleagues and customers today and going forward. I'll hand over to Kris to discuss the financial elements of performance.

Thanks, Karen. On Slide 4, the FY '20 financial performance for Card Factory Group, the KPIs, headline KPIs and highlights on Page 5. Revenue grew to GBP 451.5 million with underlying profit before tax of $67.2 million. Like-for-likes were slightly down at 0.5% and the leverage ratio was roughly in line with the prior year. If we move to Slide 6, which effectively gives the financial summary. Overall revenue grew by 3.6%, driven by 50 net new stores online and retail partnerships, with the like-for-like, as I said, minus 0.5%. Retail partnerships are not fully annualized at GBP 3.1 million. Underlying EBITDA, which is post-IFRS 16, is GBP 125.9 million, with pre-IFRS 16 being GBP 81.2 million. Overall, in terms of dividends, ordinary dividend of 2.9p was paid, a further special dividend of 5p in the year. In terms of CapEx, this was lower than guided at the GBP 14.5 million, and net debt actually came down slightly to GBP 289 million. And the leverage ratio was in line with the guidance previously set at 1.76x. If we move to Slide 7, which is around the like-for-like assumptions, so overall, we've seen the Card Factory stores had a negative 0.7% LFL, while online moved forward 14.8%, resulting in the net minus 0.5%. However, we managed to offset the footfall decline because of the macroeconomic backdrop in terms of growing the average basket value. And if we contrast this with a number of different U.K. footfall truckers, which have shown that footfall was down minus 1.3% to minus 4.7%, we've largely offset that reduction in footfall. Moving to the divisional analysis on Page 8. As I say, the overall revenue grew by 3.3%. That was out of the net 50 new stores that we opened, that we still get a good return on capital from. And we've continued to see some impact in the year from -- on EBITDA, just in terms of the stock build that we're seeing in terms of Brexit plan, which I'll come on to later on the BEP slide. Moving to Slide 9 on the divisional analysis of online. Overall Card Factory online grew by 14.8%, while GettingPersonal was disappointing at minus 9.8%. However, the cost of customer acquisition and promotion-led competitor pricing has continued to be an issue. There will be a further update in terms of the longer-term plans with the business, which Karen will come on to. Moving to Slide 10. The divisional analysis of retail partnerships. Overall, in the period, GBP 3.1 million of additional revenue was given to these channels around Aldi; The Reject Shop; Matalan trail; and the 3 franchises in Jersey, Guernsey and Gibraltar. Overall, these are slightly dilutive at product margin level but are actually accretive at both the pound and percentage EBITDA level. And this number of GBP 3.1 million, obviously, is not fully annualized in the year. If we turn to Page 11, best-in-class margins. Overall, within the year, it was a 250 basis points impact. The main areas of that, 210 basis points were around the cost of goods and store wages. In terms of the cost of goods, there was some shift in product mix because of the strength of performance of noncard and also the impact of additional stock provision on the basis we were holding GBP 15 million more stock at the half year, which I'm pleased to say is now under the prior year at the year-end, so good work through there. And store wages, we did mitigate a large proportion of the National Living Wage, but not all of it is where that 90 basis points is coming from. Other direct expenses. Again, the increased holding costs of stock meant there was some impact on direct expenses. And furthermore, on operating expenses, we did put some investment into IT infrastructure, new ATR Systems, time and attendance and data warehouse, but all things that make up part of the strategy going forward. And overall, in the year, there's about GBP 4.4 million of costs in the P&L as one-off nonrecurring costs based on the stock build numbers. So overall, the EBITDA percentage was 27.9% EBITDA post-IFRS 16 and 18% pre-IFRS 16. Just turning to Page 12, in terms of the free cash flow of the business. Strong cash flow generation again. You can see now this is a post-IFRS 16 cash flow, where you can see the depreciation line, GBP 52.8 million and a negative on lease liabilities of GBP 41 million. So the net of the 2 is effectively the depreciation and amortization, which does include the write-off of the goodwill. And running further down from there, working capital was negative of GBP 2 million in the year. It should be beared in mind that we had GBP 16 million that landed into the year at the year-end of FY '19, which was just to do with the timing of working capital. Corporation tax, GBP 14.6 million was just the timing of the on-account payments, and CapEx, as stated before, GBP 14.5 million under the guidance that was given, delivering a free cash flow of GBP 47.1 million, leaving a net debt increase of GBP 1.8 million during the year. Moving on to CapEx on Slide 13. The key strategic investments within the year were on the vertical integration, where we invested in a new foiler, which effectively brings down the cost per item in terms of the foiling of cards. And also the new printing press, which has doubled our speed and capacity, which allows us to do shorter print runs and high volumes. We've looked at the replatform of Card Factory in the year of GBP 2 million and other commercial initiatives to improve sales densities and supply chain technologies around voice picking. In terms of recurring Capex, largely, that is in line with prior years in terms of the net 50 stores opening. And in terms of guidance for FY '21, at this current point, we're looking at still doing the key strategic investments, such as our consolidation of warehousing, which has OpEx improvements, e-com and things like data warehouse, which will add value to the business in the longer term. The new stores investment has been restricted to the legal exchanged properties of only 7, and we'll give further updates on the longer-term on stores later on. Turning to Slide 14 on dividends and capital policy. As I mentioned earlier, 2.9p was the ordinary interim that was paid and a special dividend of 5p. Due to the impact of COVID-19, no final dividend in FY '20. And no dividends are currently expected in FY '21, while we look to protect the balance sheet during these uncertain times. The overall capital policy will not change in terms of 1 to 2x in pre-IFRS 16 terms, and a circa 1.3x to 2.8x in a post-IFRS 16 world. However, in FY '21, due to the impact of COVID, we will see us peak above that 2x in the short-term. Moving to Slide 15, our liquidity update. I'm pleased to say in terms of the group, we've got an existing GBP 200 million revolving credit facility until October 23. We've also secured the option to have access to COVID Corporate Financing Facility through the Bank of England. And we -- during the period, though, between now and effectively to June '21, we have got replacement covenants and waiver of existing ones on total net debt, monthly cash burn in last 12 months from underlying EBITDA. The other agreed terms to point out is that equity distributions and acquisitions during this period and until June, effectively, will be restricted until the leverage is under 2x, and there is no outstanding commercial paper under the CCFF. These numbers are all on a pre-IFRS 16 basis. In terms of cash conservation, we've took all the measures you would expect in terms of the business in terms of managing stock intake. We've looked to take advantage of the options that government have given around PAYE, National Insurance and VAT deferrals, business rates, holidays, the option in terms of furlough of employees during this time and obviously entering the important rent negotiations with landlords and looking at the deferral or discounts to rents. However, the Board overall is confident the group has access to sufficient liquidity for navigating the times ahead. In terms of FY '21 guidance, at this point, we're not looking to give guidance until we got more certainty on the trading performance as and when the stores start to reopen post the 15th of June. So that's it on the financial update. I'll just pass back to Karen to give you the business update on Slide 16.

Thanks, Kris. So taking you through a business update, the intention here is to provide you some flavor of what has driven the financial performance across the year. So if I can turn your attention to Slide 17. There were 3 things that we focused on in the year. Firstly, maximizing the financial performance and delivering the operational plan in the year. Secondly, continuing to invest in key parts of the business to support longer-term growth. And whilst we were doing that, 3, we were developing and testing the 5-year strategy to ensure that it will deliver tangible and sustainable results. I'd like to take you through our end-year business performance in line with the current 4 pillar strategy. So firstly, on Slide 19, like-for-like sales. We delivered a reasonable sales performance in a challenging year for the high street, growing both our volume and value card market share in the mature and stable U.K. greeting card market, using our EPOS data enabled us to grow average basket value and mitigate partly the fall in high street footfall. In addition, we had our third year of successive volume and value growth for our key seasons of Valentine's and Mother's Day in both card and complementary products. Our Christmas performance was subdued as reported in our Christmas trading statement due to a combination of 3 things: a tough high street with political uncertainty; some decline in Christmas as a season; and we did get some things wrong in stores, in particular, some of the key captions and ranges for single cards. Turning to new store performance on Slide '20. For new stores in the year, we opened a net new 50 stores, and we also took the opportunity to close and/or relocate some underperforming stores as a part of our biannual store review process. We also opened 6 new stores in ROI, now bringing us to 13 stores. And in that market, our business is performing very well for us, and we see more opportunities going forward to access white space for greeting cards in the Republic of Ireland. We have a good opportunity on our stores, with the average lease time to lease break being 2.5 years, which provides us with significant flexibility to respond to the local changes in towns and shopping venues, and to take advantage of ensuring that we always have the most appropriate leases. Also in the year, we grew sales through our Aldi supply arrangements and commenced Matalan partnerships. And whilst these are in their infancy, we see them as good opportunities to extend our market share going forward, particularly in the area of impulse shopping for customers who just wish to pick up 1 or 2 cards and would not travel to a Card Factory location. We continue to see no cannibalization from these retail locations against our own stores. Turning to Slide 21 for business efficiencies. Our business efficiencies program in the main, we delivered the majority of programs that we had in what was a very ambitious year, including the introduction of new printing capability, which enabled fast production with less labor. We rolled out voice picking in the warehouses and progressed further on our efficiency program in terms of the way we pick and deliver stock to stores. We removed over 300,000 hours in stores through the introduction of efficiencies in noncustomer-facing tasks, such as auto-replenishment of cards, rather than colleagues having to manually order them. We also introduced electronic store rotors and reduced back-office processes. Our program of ongoing improvement in rent, stock and cash loss continued in the year with good results in all areas, reducing our costs in stores. Having delivered on our improvement program, the impact of these savings overall was then impacted by some one-off costs, which Kris has covered in relation to stock in particular. Our fourth pillar, online, is covered in Slide 22. Across the year, we continue to trade from our 2 websites, cardfactory.co.uk. and GettingPersonal. On Card Factory, we saw good growth in both traffic and conversion, the sales of which are for items predominantly sold online and not available in store, although we did change this offer with the advent of COVID-19 rather successfully. A good level of newness through redesign of products saw strong sales in the year. And our new platform that we'll launch in the first half of FY '21 will significantly improve our customer proposition and enable us to become a true multichannel retailer. GettingPersonal, on the other hand, delivered poor like-for-like sales and experienced further increases in the cost of customer acquisition. As a part of the strategic review of that business, we made the decision to integrate the brand and its operation under the new Card Factory platform. This will enable us to maintain sales, but remove a significant cost of operation. We have already commenced that integration, which will see us leverage the investments and structure supporting Card Factory online, and the transition will be completed in second half of this financial year. I'd like to turn quickly to the greeting card market. For those of you who have followed us for some time know that we always update the market information on an annual basis. So the summary is on Slide 24. This year, our research has shown that for the fifth year in a row, we are seen as the #1 retailer for value for money. We continue to deliver what matters to customers in this market through the delivery of the top 5 factors that influence card shopping choices, and we continue to sell 1 of every 3 greeting cards in the U.K. market. Slide 25 shows the market in terms of value and volume. The fundamentals of the card market remain intact. It is large and broadly stable. Our updated analysis shows that the increasing average price of cards fully offsets the very modest year-on-year volume decline. We see interesting areas of growth that are consistent with wider consumer trends, such as the growth of new and non-standard occasions, offsetting a long-term decline in Christmas card giving, and a growing minority of shoppers now buying cards on impulse rather than in planned shopping missions. These present new opportunities to our business, which has increased its volume share once more to 33% of single greeting cards despite increasingly aggressive competition. In terms of our positioning in the market, Slide 26 shows this. So in addition to the market itself, Card Factory has continued to build on its defensible position, representing the leading position for value for money, quality, price and its wide range of cards. This is what we have in the past called the clear blue water positioning, and we continue to lead in the market on those mentions of price and quality against discounters, grocers and specialists. As I've said across the year, the Board has been focused on reviewing and refreshing Card Factory's strategy. We have already advised a plan to share this extended strategy on the 28th of July. During this strategic review, we have undertaken a significant amount of customer research, analyze in detail our EPOS sales data and looked at the various markets using customer insights both in the U.K. and internationally. We have seen 3 shifts in data and insight that provide a significant opportunity. Firstly, changed occasions. So growth in every day and other seasons for card giving and a slight reduction in Christmas card giving. Secondly, mission changes. So that's a move of customers into impulse card buying from a planned visit. And thirdly, channel shifts, a faster growth of online shopping for cards. Our refresh strategy takes account of these changes and therefore, provides us with the new opportunities for the Card Factory business. We see the business growth opportunity around 3 key elements: a winning card-led proposition, making them available to customers in more markets however they wish to shop, and by sustaining and building on our existing model. If I turn your attention to Slide 28, which outlines building a winning card-led proposition. For our business to succeed, we're clear that our offering must be based around having a winning card-led retail proposition. To deliver this, we will be customer-led and leverage the substantial data that we have available of both existing and potential customers. We have used that data to develop clear customer profiles, as the one shown on the screen, enabling us to clearly target the opportunity. Leadership in card choice will mean that we are offering the widest range of cards with ongoing improvement and refreshment to the -- to those ranges. We'll create complementary categories to fully capitalize on every customer visit into our stores and using the factors of success that have driven our performance in the past. Marketing and loyalty programs will be introduced to address certain brand perceptions, broadening the potential number of Card Factory customers and maximizing their spend in stores. And finally, a distinctive and defensing price -- defensive price strategy with a continual assessment of our pricing to ensure that we offer a market-leading value for shoppers at attractive margins for Card Factory. We have a clear strategy, which we have tested certain elements of. On Slide 29, having developed the proposition, we plan to make this available in more places irrespective of how the customers wish to shop. One of the key drivers behind Card Factory's market leadership to date has been a substantial and growing 1,000-plus stores estate. Market research has shown that there is an opportunity to increase market share further by increasing the availability of Card Factory products through complementary alternative formats and initiatives. There are 5 different aspects to increasing coverage. Firstly, continuing to review in detail both the current U.K. store estate and where we are planning to open new stores to ensure that we're in the best possible locations, be it on the high street or, increasingly, on retail parks. Whilst our store rollout program remains an important part of the growth strategy, the pace and scale will be considered as we assess the implications of COVID-19 on store trading. We will begin trialing new formats where localized demand exists, which may either be smaller in scale or a different character to the main Card Factory facia. We'll also capitalize on the growing trend of impulse purchasing through partnerships with retailers in suitable locations and with complementary brand propositions. We are encouraged by the progress we've seen with this model through the current Aldi relationship and ongoing trial with Matalan. As a reminder, today, we have 493 Aldi stores retailing Card Factory products. We have different formats in Matalan stores and are looking for other ways to enable more customers to access our ranges. These are not cannibalizing our existing estate as it captures the customer who is just looking for an impulse card purchase. We'll also be offering our ranges, retail expertise and the Card Factory brand internationally, leveraging the infrastructure that we have. We've opened in Australia with The Reject Shop following the initial trial, and we're now trading for 355 stores, with 170 being opened at the end of FY '20. And finally, in order to enable all customers to have access to Card Factory products, we will be looking to increase market share through online transactions. Whilst the number of online transactions is forecast to grow, it is still relatively modest at 8% of U.K. card volume. We will launch the new web platform in half 1 FY '21, allowing us to significantly grow our online presence and leverage our store estate, thereby significantly strengthening our ability to trade as an omni-channel retailer. So on Slide 30, we outlined sustaining and extending our competitive advantage. Card Factory's vertically-integrated business model is a key competitive advantage and allows us to deliver both quality and value for our customers at attractive margins for the business. We are intending to continue to invest in this business model to sustain this important differentiator. The focus will be on, firstly, the retail operating model transformation. We've identified a number of additional opportunities across the entire estate from designing a card or gift through the manufacturing and then into the store itself, where we know we can deliver for our customers more efficiently. This will enable us to achieve the lowest cost to operate, especially in relation to the store operating model. Technology will play an important role in the ongoing improvement of this and allow us to leverage infrastructure to support all channels of trade. Secondly, we will be focused on manufacturing and supply chain investments. We have already started building the infrastructure required to support new sales channels with retail partners, both in the U.K. and internationally. We will invest in our vertical supply chain and manufacturing technology to improve product margins and lower our operational cost base. In addition, we are assessing the opportunity to bring back the manufacturer of more handmade card ranges into the U.K., increasing the flexibility to which we can respond to customer demand. So that's a summary of our refreshed strategy work. We will share more detail on the strategy with the wider Executive Board presenting to enable you to get a view of growth impacts from each of these strands. That will be delivered on the 28th of July, and we're planning to do this virtually at this stage, of course. I'd just like to give you an update on our position as a business post-COVID-19. So if I can draw your attention to Slide 32. Pre COVID, we had, had a satisfactory start to the year. In fact, we've seen our fourth successive year of growth for Valentine's Day in terms of both volume and value for cards. Since the closure of our stores, we have continued to trade both of our online businesses, and we've seen a significant growth in visitors, conversion and sales. Since the lockdown, Card Factory website has grown at 302%, which means they've got 153% of growth year-to-date. GettingPersonnel has seen a growth of 68%, representing a 27% growth rate year-to-date. In response to this increased demand and to ensure we had appropriate social distancing in our fulfillment center, we sprung up a second unit in Wakefield, using part of one of our existing warehouses. In addition, we've continued to supply both Aldi and our Australian partner, The Reject Shop, with card ranges. Whilst both these businesses having themselves been impacted by COVID-19, both are seeing strong sales of greeting cards during this period. Following government guidance to close all of our stores on the 23rd of March, over 90% of our colleagues have been furloughed under the government's Job Retention Scheme. Having said that, we do have parts of the operation continuing to work, but we have enabled the majority of our colleagues to either be socially distanced or be working from home. Given the recent announcements by the government, we are preparing for the phased reopening of our stores, ensuring that we are compliant with the requirements of Covid-Secure. We have prepared extensively for the reopening, and we're currently working on changes to our store operations that will ensure both our colleagues and customers are able to be so safe in our shops. We expect to be able to facilitate appropriate social distancing in the majority of stores. Over the past number of weeks, the team have worked through the detail of social distancing, actually working in shops to ensure that we've got the appropriate equipment, PPE and anything else we need to plan for the phased reopening of our stores in a safe manner. Our priority, all the way through this, has been to ensure the ongoing safety of our colleagues and our customers. It is clear that in some shops, social distancing could impact our ability to trade. However, the teams are working through a plan for sales optimization and are trying new methods of store trading, which will enable customers to have to visit less frequently, but be able to buy more in each visit. We are intending to conduct trials in the first weeks to inform us more fully of the implications and any additional changes that we may need to make. Our Board and management team have reacted rapidly to the very dynamic situation, and I am confident that we will exit this crisis with an operating model and customer proposition that will make Card Factory the customer's first choice for greeting cards everywhere and for all occasions however they wish to shop. Of course, given the uncertainty, we are unable to provide specific guidance on future performance, but we will monitor performance in early days of store trading. So in summary, on Slide 33, we delivered a reasonable sales performance in a challenging year for the high street. We've grown both our volume and value card market share in the mature and stable U.K. greeting card market. Our profitability was, however, impacted by a number of recurring cost pressures and other one-off operational costs which we were not able to fully mitigate. Across the year, we also developed a refreshed long-term strategy for future profitable growth. The strategy is focused on strengthening both our market position and the financial performance of the U.K. business. During the second half of the year, we tested our pricing positioning elasticity, we trialed new customer propositions, and developed partnerships to grow our U.K. market share through concessions and supply arrangements. These partnerships have enabled us to serve card shoppers when they are on an impulse-driven purchases away from our retail stores. We have developed further our online infrastructure and capability to ensure that we're set to deliver in what is increasingly becoming a multichannel environment. We agreed a 5-year contract with The Reject Shop in Australia, following a successful concession trial. We believe there is sufficient opportunity to leverage our current infrastructure and supply chain and to build market share in both the U.K. and other card markets across the world under the Card Factory brand. I look forward to sharing in detail exciting plans for growth on the 28th of July. And that brings to a close of the formal presentation. I will now open up for Q&A.

[Operator Instructions] We will now take the first question from Geoff Ruddell from Morgan Stanley.

Can you hear me?

Geoff, yes, we can.

Yes, great. Can I ask two very different questions. The first one is probably more admin one than anything else, which is, are you still planning to publish a separate Q1 trading update? And if not, could you please give us the like-for-like all for the group as a whole? And then the second question is, I'd like to understand in a bit more detail how you are going to manage with social distancing, please, when your stores open up on the 15th of June? And in particular, are customers going to be able to browse products and pick it up and put it down? And are you then going to have to quarantine that product? Are you just going to accept that people will just pick up products and just get on with it? And also a bit of a feel for, is that 10% of stores, the only stores you're likely to open for the first month or 2? Or are you planning to have more stores opening quite quickly thereafter?

Thanks, Geoff. So I'll just hand over to Kris to answer the question on Q1 trading, and then I'll take the question on the store opening plan.

Yes, Geoff, on Q1, I think as we said in the statement, we had a fairly satisfactory sort of Q1, fairly flat. Obviously, there's pre the impact at the end of March, but it did impact Mother's Day. So we're not planning Q1 update. We are -- we'll look to do a trading update, but only when we get the stores reopened. So we're obviously due, like everybody else, to open on 15th of June. And then basically, we'll assess how the sales start to build again. And at that point, once we've got confidence on the shape of that, that's when we'll give a new forecast to the market at this point.

Thanks. On the social distancing, as you would expect, we have done a lot of work on this. So we have set up model stores across a range of sizes. We've implemented perspex screens. We've taken the best practices actually from other retailers. So we've worked collaboratively with other retailers who have been fortunate enough to remain open at this time. We've changed our staffing model, so we will have a greeter on the shop door to direct the customers. What we have heard is that post, once stores reopen, customers are shopping with purpose, and our plan is to facilitate that as easily as possible, so removing excess spinners from our shop floors and so forth. So the pre-opening, we've got a fair bit of work to do just on reshuffling the stores to make sure that it's easy to navigate, easy to get around. And actually, we put as much space as possible to the customers to enable easily to maneuvering around the store. As you would expect, the standard things, PPE, hand sanitizers, all will be available for the customers. In terms of the browsing of cards and the like, again, we've followed government guidelines on that and also spoken to other retailers, such as supermarkets and the like who have been trading in this period. And so customers, we -- as I said, we will be helping guide them to find exactly what it is they're looking for. Of course, we do expect them to pick up some of the products and browse it. So we will be encouraging our to follow the government guidelines in terms of the hands sanitizing when they enter and then plenty of hand washing and so forth. So we will be working with our customers on that. We have got some initiatives in [ trail ], which I don't I want to share, fully, but we've got some technological solutions, which we're currently working through with store teams at the moment, which will enable customers to ensure that when they do come to the store, they have to -- they can reduce the amount of visits they make. So for example, in a balloon visit that can only -- they only have to come once, and yet they'll be able to fulfill all their purchase demand. So we have been working right across the business in terms of operations, technology teams working together, maintenance and so forth. So we're fairly confident of the way in which we're going to be able to open our stores. In terms of the second part of your question...

And in terms of sort of the profile reopening those stores.

Yes. Sorry, Geoff. Yes. So the plan currently is to open 10% in the first week, and we will test and learn and reevaluate. So we've got a number of different plans, some to accelerate, some to go slower if we had to. So if we have got an issue, we could go slower, but we've got a plan to get all of the stores open and operational as quickly as possible, but we want to take our time in some respect. So we've been using the phrase hurry slowly to make sure that we take the learnings that our customers and colleagues are really feeling safe that we've adjusted the plan as we go along, and then we look to reopen the stores. We do expect -- our prioritization has been based on what has happened pre-closure. So I think it's been quite well reported. Localized high street performed incredibly well pre-closure, and we're expecting that continue once we reopen. Retail parks also performed well, but large shopping centers, customers tended to drift away from them quite early. So we've sort of deprioritized some of those openings.

And so I mean, are you likely to have -- I mean, I understand you don't want to give us a precise timetable. But are you confident you're going to have the vast majority of real estate open by, I don't know, say, September time, something like that?

Oh gosh, yes, absolutely. Yes. I wish it's well before that. But yes, we will be guided by the customers and the colleagues.

We will now take the next question from Adam Tomlinson from Liberum.

Can you hear me?

Yes, Adam. Thank you.

Yes.

Great. Yes, a few questions, if I may, please. First of all, in terms of the store reopening, given where you are at the moment, can you just give an idea of under the current situation before those reopenings, just what cash burn on a sort of month-by-month basis looks like? And so that's the first question around the store reopenings. In terms of the growth strategy. I appreciate there's a lot more to come on the 28th of July. But you mentioned a couple of things. In terms of territories, you talked about the U.K. and international as well. Anything you can just give at this stage on the relative size of the opportunities there, which ones we should expect? Or are those to be followed in tandem? Also in terms of the next question, just in terms of the CapEx investment that has gone on this year and continues to be undertaken, any efficiencies, anything around gross margin improvement underlying that you can talk to there? And then just a final question in terms of online, some very strong growth, they're up 300%. Is that a trend that you expect to stick once we move into a more normal trading pattern? And just an idea of how much of a launchpad this can be for the online side of your business, when you look at the market overall, potentially where online penetration could get to and the opportunities there?

Great. Thanks, Adam. So the first couple of questions, I'll put to Kris. So the first one is on the cash burn, monthly cash burn.

Yes. The monthly cash burn have set out what the new covenants are. That's not something we've disclosed. All I can say is on the actual liquidity side, obviously, we've got GBP 200 million RCF facility to 2023. We still got considerable headroom in that current facility as at the end of May. And additionally, obviously, we've got access to the CCFF Bank of England, if we want to issue a commercial paper. So from a liquidity point of view, I'm comfortable where the business is and actually the 15th of June in the sort of financial planning, we assumed that reopenings would be later than that. So we're not issuing a normative cash burn number, but certainly from a liquidity point of view, I think we're as comfortable as we can be in these circumstances.

Yes. I think, Adam, and all I'd add to it is from a business perspective is we have been incredibly careful about managing our cash situation. So furloughing our colleagues, the team has done an amazing job in terms of dealing with landlords and the like, getting ahead of that and really managing our suppliers. So we've had really good discussions with our suppliers about pushing back payments and the like. So we have managed our cash incredibly well, as you would hope that we would as a management team. Your second question on growth strategies, all I would say -- I'll hand over to Kris to talk about the size of the opportunities or as much as you can at this stage, but what I would say is what people should leave this with is that absolutely, primarily the vast majority of our business will continue to be focused on the U.K. core estate, where we are market leaders, and we want to grow that market share even further. However, what we have learned with the first market that we went into internationally is that actually, without having to invest significantly because all of the investment that the business has been making for the last 20 years in terms of its knowledge, its expertise, its asset base, its production capabilities, its operational capabilities, et cetera, we can actually leverage them in other markets. And the Australian market, which is the third largest volume of greeting cards, we've entered that incredibly successfully, and we're looking forward to take quite a considerable market share in there by leveraging our current assets. However, the U.K. will always remain the vast majority of our income in the U.K. So Kris, I don't know if you want to give any guidance on size of opportunities at this stage.

Yes. No, that's difficult I suppose with this one. Obviously, we've disclosed what the actual revenue was at GBP 3.1 million across the Aldi, TRS, Matalan trials and the franchises. At this stage, the only bit I can say is, that's not an annualized number. So obviously, the annual run rate on that number is considerably higher, and is accretive to EBITDA at a percentage level. So it's positive contributions. We're not seeing any cannibalization out of that. But yes, it -- obviously, we're a little bit cautious about it given profitability and channels and other people reading into that or potentially challenging or trying to undercut us. So we are a bit cautionary about what we give away on the profitability and the at the moment.

Adam, you asked a question about the CapEx-efficient investment and what efficiences we've applied. And so again, I'll hand it over to Kris. On the second part of it quickly, though, on the GM improvement. So all of the improvements that we make in Printcraft, in particular, are primarily about margin improvement, so the foiling machine that Kris talked about and so forth. And the -- you'll see in the statement, our desire to bring more production back from China, back into the U.K. The investments we're making there, the sole reason for that is to make significant margin investments because we've got shorter lead runs in terms of print production, but also, we believe with the technology that we are about to introduce that it will make -- it will be a cheaper production of the card.

But I mean on the other areas of CapEx, we -- obviously, we are looking at the 5-year, the strategy of the business, which we'll present at the end of July. But one of the key bits we are doing, we are obviously restricting some CapEx at this point. But certain ones where we know we can consolidate the distribution centers and generate significant OpEx gains off that, things like e-commerce project, which is quite important, especially what we've seen off the back of COVID-19, those sort of CapEx investments are still continuing at this point.

Yes. The biggest change you see in stores -- in store numbers actually, probably that's the biggest one that Kris has talked about.

Yes. We'll -- obviously, what we've said is until things become clearer, I think we have 7 legally exchange properties, and that's what we'll restrict the openings to in FY '21.

Your question on online, do we expect the trend to stick? It's interesting, actually. So we've seen a slight increase in the past 12 months in people buying cards online. Nothing that -- the market tends to still be out-of-home, so people are shopping in stores. So we are already seeing that uptick. And clearly, the investment we're making in our platform, which will really enable us to be leading edge in terms of a multichannel retailer rather than just online or just in stores, we're quite excited there. I think card giving in the past has always been about customers wanting to browse, pick up the card, really value whether or not it's quality, whether it will stand up on the mantelpiece and so forth. So my expectation is that still a vast majority of card buying, card purchasing will happen in stores. But it will be interesting to see what happens once the stores start to reopen. And so at this point, we're not really willing to hazard a guess. But I would say, again, come July, again, it won't be the full answer, but we'll certainly be able to see what the trends are looking like at that point in time. What you've got to remember is pre-COVID, the vast majority of the products that we sold online actually were products that you could not buy in store. So some of the noncard products and digital printing products, but cards, in particular, the most popular card online is a photo upload card, which is to give people, either girlfriends, to give each other about a night out or whatever or grandchildren, cards to grandparents with a good photo of the grandchildren. So it's a product specifically that isn't -- hasn't been available in stores. So I think we'll all be watching that space as I think many other retailers have also commented that they'll be wanting to see what happens with the trend of online, post-stores opening.

Great. And can I just -- sorry, just one follow-up on CapEx, again, around the growth strategy. When you're thinking about the channels that are opening up for you guys, be that U.K., be that internationally, does that require -- you talked about leveraging your current infrastructure. I'm just wondering in terms of how much investment to capture those opportunities is required into the infrastructure? Does it take your, potentially your future run rate of CapEx a lot higher than what we've seen historically?

No, not at all. So the capacity of Printcraft, for example, we've been improving that anyway over the years. So in the future, there may be some, depending on how fast things come onstream, but we've certainly got headroom in Printcraft capacity to be able to produce cards internationally. And the partnerships that we're embarking on, both in the U.K. and international are CapEx light. So all of the capital investment has been made by the partners, not by us.

[Operator Instructions] We will now take the next question from Jonathan Pritchard from Peel Hunt.

Just a couple of quick factual ones, and then another one, if I may. Firstly, what's your average store size at the moment?

850? Yes.

Yes. Yes, it's just under 1,000.

Yes.

And how many square feet per customer are you going to kick off with on June 15?

Jon, that's a really good question. I know that a lot of large retailers have used the square footage number, and I actually listened to the presentation actually that you gave on Friday, that I found quite interesting. On that, we're not using a square footage per customer. We're using the 2-meter social distancing. So the way in which we are setting up our one-way systems in our stores and the way in which we're moving fixtures and is to enable space for customers to be currently as the guidelines, 2 meters socially distance. So we're not using the square footage rule, we're trying to set our stores up and allow customers to browse and have 2 meters of social distancing.

Okay. Interesting. And in the Going Concern section of the report today, you talked about getting to 88% of budgeted volumes at Christmas. I'd be very interested to know what assumptions underlie at 88% as your base case? What are you thinking in terms of high street traffic, conversion, average transaction value? And does that also assume that we stay at 2-meter social distancing or go back to 1?

The assumptions we've used in the modeling, Jonathan, have been around the 2 meters of distancing, but we have also modeled on a 1-meter distance. And the other bit we've done is obviously around stress testing all the covenants. So we are comfortable that we would -- even at a 20% fall in overall like-for-like that as a business, we will be fine. If we look at the way we've modeled demand side and supply side. So demand is where we think the high street footfall is going to be on supply side and what we can put through the store. I think we're fairly comfortable. There is a pinch point in December. And so up until that point, I think we're comfortable. And in December, we have got measures that we're taking, and Karen touched on how we can get the people through the stores and other technology options that we can use in queuing systems. So, yes, we're not going to give metrics away on it. But yes, I think we're pretty comfortable. We've got our solution.

We will now hand back to Karen, please go ahead.

There's a question from Kate Calvert from Investec. Kate has asked, what capacity was Printcraft running at last year? And did the new printer add materially to production capacity? Or was that traction flexibility? What else can you do in distribution beyond voice picking to improve efficiency? So on the first piece on Printcraft, I haven't actually got the number at hand, Kate, but we can follow that up. The new printers, so we used a couple of new printers last year actually. Both of them are significantly faster, some by doing a single run through, doing all of the same fixtures on it but -- on the card, but just a single run through. And the other machine actually enabled us to do some additional attachments that customers have been asking for that previously, we would have only been able to get by sending cards to China. So it improved our capacity in effect to be able to do more cards here in the U.K. Both of those machines are significantly faster, have less labor associated with them and a less cost of production. But it does give us further production capacity because one of the things we haven't done in Printcraft is gone 24/7 at the moment as well. So we could also dramatically increase capacity should we need to, with such things as additional partners and international. In regards to your second part of the question about the distribution center. There's actually quite a lot we can do. So one of the things we will talk about in July is the supply chain improvement program. You may have seen, it was in the press actually, that we have acquired an additional distribution center here in Wakefield, and the whole idea for there -- for that is that we have realigned our distribution centers. We've actually put a number of distribution centers into that one. So it's larger. It means that we can pick and pack 1 order for stores from 1 distribution center rather than having to move stock around. And we've also been able to bring stock that's been held in third-party storage into that unit as well, so -- as well as voice. The other thing that we're able to do actually is pre-pick orders, so we can do it in the downtime. So for Christmas, for example, this year, we will pre-pick orders for stores well before Christmas and enable them to be standing and be ready, so that we don't have to keep hiring resource at higher cost in order to do that fulfillment. So there's quite a long way to go, actually, on the supply chain supply as -- the supply chain side. As I said, we will share more on the 28th of July like there are whole raft of things such as retail-ready packaging for some of our products that will be coming in and so forth. So there is still quite a bit more to come in the distribution center.

One of the questions we've got there is on what current flexibility do you see near-term expiry rents following high street and retail parks, the big [ general ] stores to get better deals. Largely, what we've seen on the rents is we're looking at the deferrals. So certainly the March quarter, which was April, May and June that we're looking to defer that and pay that over a longer-term period, that could be up to 18 months. One of the things the landlords are pushing for is to try and say, well, actually, if you extend the leases, we'll give you a discount. But my thoughts and the Board's thoughts are that actually as the impact to COVID-19 will mean that rents are going to fall, and on the basis that we've got lease expiry on average or to next breakeven at 2.5 years, which has come down further over the last couple of years, we believe it will be a bigger opportunity to negotiate rents down a lot further on the next lease event. And some of the ones that we've been negotiating at the time of lease renewals now. We are seeing, though, again, extended rent-free periods, and we're seeing some quite substantial drops in rents. But the bit I wasn't willing to do was in fact to extend leases for another 3 to 5 years period for what I consider as a limited rent reduction. Obviously, things like turnover and some things will be considered, and we'll be pushing to see we deliver those without a base rent in some of these renewals. So we are a long way through the negotiations, but a lot of them at the moment are on deferral basis.

Just finally, with the last couple of minutes, there's a question from Olivia from UBS. So another one for you on rent, Kris. So Olivia has asked a question about how many stores have rents coming up for renewal in FY '21?

Yes. I mean they vary year-to-year. But based on the 2.5 years that we look into the next lease event, we're roughly 1/3 of the stores that we're renegotiating every year. So one of the things we're seeing is because we're constantly renegotiating the rents, some of the big ticket rent falls that people have been talking about in the market, we've already had 2 or 3 goals over the same periods in terms of rent reductions of these landlords, although I do think there's a lot more opportunity going forward on the lease renewals, which are coming up over the next 12 months.

And one other question from a private investor who's asked a question about with regards to the new growth strategy, to be the world's best greeting card retailer, is your preference to do branded concessions franchise fees or other routes? One of the things we will talk about on the 28 is we will demonstrate to you how we select which is the best route to market in a local market here in the U.K. And we're also looking at different opportunities internationally as well. So our preference is determined by how big the particular market is and how we would best make profitable sales from that. So in some cases, it could be in the U.K. market. This is -- it could be our own store. It could be taking a part of the town by having a unit in Aldi or going into a retail park, where actually, we don't see the need for a full burn Card Factory store that we can use a concession. So my answer is the preference is determined by the size of the market and the opportunity. But we will share more with you on that in the strategy that we present on the 28th of July. So I think we are out of time. I think we've answered most of the questions that forward. So thank you very much for tuning in and for some productive Q&A. Thank you very much.