Card Factory Regulatory News (CARD)

27 September 2016

Card Factory plc ("Card Factory" or the "Group")

Interim results for the six months ended 31 July 2016

Further revenue and profit growth, and progress in line with strategy

Special dividend of 15 pence per share, reflecting Group's strong cash generation

Card Factory, the UK's leading specialist retailer of greeting cards, dressings and gifts, announces its interim results for the six months ended 31 July 2016.

Financial highlights

· Revenues up 4.8% to £169.2m (H1 FY16: £161.4m)

o Card Factory like-for-like ("LFL") sales +0.2% (H1 FY16: +2.8%)

· On an underlying basis:

o EBITDA growth of 5.1% to £34.2m (H1 FY16: £32.5m)

o Operating profit growth of 4.1% to £29.0m (H1 FY16: £27.8m)

o Profit before tax growth of 7.3% to £27.6m (H1 FY16: £25.7m)

o Basic EPS increased by 7.1% to 6.45 pence (H1 FY16: 6.02 pence)

o Leverage of 1.26 times underlying EBITDA for the 12 months ended 31 July 2016

· Reported profit before tax growth of 12.5% to £27.0m (H1 FY16: £24.0m)

· Interim dividend increased by 12.0% to 2.8 pence per share (FY16: 2.5 pence)

· Special dividend of 15 pence per share (FY16: 15 pence), a return of £51.1m to shareholders

· A total of £163.8m returned to shareholders via dividends since IPO just over two years ago

Note

Underlying profit figures exclude costs principally relating to debt refinancing (FY16 only) and mark-to-market movements on derivatives not designated as a hedging relationship.

Business highlights

Further progress on all four pillars of the Group's growth strategy:

1. LFL sales growth

· Improvements in quality and range of both card and non-card products delivering good ongoing growth in average spend

· Softer footfall resulted in lower than normal sales growth from stores

· Strong growth in sales from new Card Factory website

· Overall Card Factory like-for-like ("LFL") sales +0.2% (H1 FY16: +2.8%)

2. Continuing new store roll out

· 34 net new stores opened in the period, bringing total estate to 848

· A further 6 net new stores opened since period end including at the Trafford Centre in Manchester, one of the UK's top retail locations

· Strong pipeline of further new store opportunities - on track to deliver approximately 50 net new openings by the year end and starting to build pipeline for FY18

3. Delivering business efficiencies

· Maintenance of industry-leading underlying EBITDA margins at 20.2% (H1 FY16: 20.1%)

· Good prospects for further savings from efficiency initiatives underway

· Additional initiatives being assessed aimed at offsetting FY18 margin headwinds, in particular foreign exchange

4. Development of complementary online sales channels

· Card Factory transactional website sales growth of c300%

· Flat sales performance from gettingpersonal.co.uk; investments being made to return to targeted levels of growth

· Investment of £1m in digital printing equipment to produce personalised paper products including cards

Karen Hubbard, Chief Executive Officer, commented:

"We have delivered a solid set of interim results with further growth in both revenue and profit, albeit with softer footfall resulting in slightly lower than normal sales growth from our stores.

"We remain highly cash generative and are pleased to be announcing another special dividend of 15 pence per share. Together with the interim dividend, this means we will have returned over £160m to shareholders since IPO just over two years ago.

"We remain the clear leaders in our market, with a strong value proposition, a unique vertically integrated operating model, significant scale advantages, and industry-leading margins. The potential for further growth - through like-for-like sales growth, further store roll-out and the full exploitation of our online channels - is exciting.

"Trading in recent weeks has been similar to the trends seen in the first half, with encouraging continued growth in average spend. We approach the important final quarter with confidence in the quality and value of our offer, including our new Christmas ranges, and remain confident of delivering full year underlying profit before tax within the range of expectations.

"We remain as convinced as ever of the strong growth prospects for the business, and of our ability to deliver further returns of surplus cash to shareholders over the medium term."

Interim results presentation

A presentation for analysts will be held today starting at 9.30am at UBS Limited, 1 Finsbury Avenue, London EC2M 2QS. If you would like to register for attendance then please contact Isabelle Grainger at MHP Communications on 02031288830 or isabelle.grainger@mhpc.com.

Enquiries

Card Factory plc Via MHP Communications on +44 (0) 203 128 8100

Karen Hubbard, Chief Executive Officer

Darren Bryant, Chief Financial Officer

MHP Communications +44 (0) 203 128 8100

John Olsen

Simon Hockridge

Card Factory plc ("Card Factory" or the "Group")

Interim results for the six months ended 31 July 2016

Chief Executive's Report

Overview

Following the record performance last year, Card Factory has had a solid first half to the financial year, generating further growth in revenues and profits, albeit we have not been immune to the effect of weaker footfall patterns on the high street. We remain, by some distance, the UK's leading specialist retailer of greeting cards, dressings and gifts.

Cash generation remains very strong, leading to a return of £51.1m of surplus cash to shareholders via a special dividend, the second such distribution we will have made since IPO just over two years ago.

Following an extensive induction programme, I have now been CEO for 5 months and have had the opportunity to confirm my initial view of the considerable strengths of the Group and the significant future opportunities open to it. I have inherited an excellent management team and a first class, high margin and strongly cash generative business with an incredibly successful and proven four pillar strategy. The underlying card market remains large and robust with Card Factory well established as the clear market leader. The very substantial barriers to entry built over the past decade, through significant investment, provide us with clear strategic advantage. As a consequence, we have seen no significant change in competition in the first half and we remain as convinced as ever of the strong growth prospects for the business, and of our ability to deliver further returns of surplus cash to shareholders over the medium term.

Strategically the four pillar approach has served the company well and will continue to do so in both the near and medium term. My focus will be on further enhancing and improving the key drivers that underpin those pillars, whilst delivering our vision for the business and ensuring that we are continually focussed on our customers and our people. Particular opportunities include extending the store roll-out programme into new types of location such as retail parks to ensure that the shape of our overall estate fully reflects the way in which our customers shop; making our first steps into the Republic of Ireland; accelerating the growth of our two online businesses, in part by more fully recognising the different segments of the markets that they each serve; and investing in system improvements to drive like-for-like sales growth and support business efficiency programmes.

In the meantime, the Group has continued to make progress in the first half, in each of its four strategic pillars:

1. Continue to grow like-for-like sales

As previously reported, sales growth in the first half was softer than levels recently achieved with variability in retail footfall impacting weekly sales patterns. Average spend has continued to grow consistently with new ranges of both card and non-card products resonating well with customers.

Like-for-like sales growth for Card Factory increased by +0.2% (H1 FY16: +2.8%) with strong growth from the new cardfactory.co.uk website. Excluding the website, like-for-like sales performance for our store network was broadly flat at -0.1% (H1 FY16: +2.7%) with consistently strong growth in average spend being offset by lower transaction numbers.

We believe that there is a significant opportunity to use the new cardfactory.co.uk website to leverage our existing in-store customer base to grow our share of the personalised card market considerably (see below). As expected, our online rate of sales growth slowed slightly in April as we reached the anniversary of the relaunch of the cardfactory.co.uk website.

2. Continue to roll out profitable new stores

In the first half we opened 34 net new stores (H1 FY16: 36) bringing the total estate to 848 stores as at 31 July 2016. The contribution of net new store openings to overall Group revenue growth was slightly lower than the first half last year, partly as a result of openings being on average slightly later than in the equivalent period last year.

We remain on track to deliver approximately 50 net new stores in the current financial year with all expected to be open in advance of the important Christmas season, having opened a further 6 net new stores since the half year point, including in the Trafford Centre in Manchester, one of the UK's premium retail locations.

In the first half we have also opened a small number of new stores in retail parks, a part of the market where we currently have limited exposure. Early signs are promising and we believe there is significant opportunity to expand our new store roll out into this type of location as smaller retail units, more appropriate for the Card Factory model, increasingly become available.

3. Continue to focus on delivering business efficiencies

It is pleasing to report that the Group's best-in-class margins have been maintained, notwithstanding the lower than anticipated like-for-like sales growth.

The Group has a long established track record of delivering a wide range of business efficiencies and consistently strong margins. This remains an important management focus with current initiatives including the negotiation of lower rental terms on existing leases, conversion to energy efficient LED lighting in stores, enhancement of our loss prevention function, investment in our supply chain and buying teams and further vertical integration of our online operations with a £1m investment in digital printing equipment.

Looking forward, the weakness of Sterling and anticipated increases in National Living Wage remain the most significant cost pressures on the business. A number of additional initiatives are underway, particularly on delivering further supply chain efficiencies, as the Group seeks to mitigate the resulting margin impact. A further update will be provided in due course.

4. Increase penetration of the complementary online market

We have been pleased with the performance of the new cardfactory.co.uk transactional website which has seen strong growth since its launch in April last year. The online personalised card market segment, estimated to be worth approximately £100m, remains an attractive market niche where we are currently under-represented with a share of less than 1% which we believe can be increased significantly. To that end we have recently accelerated the pace of development of the range of personalised cards and other personalised products available online as well as investing £1m in a new in-house digital print capability to produce a wide range of personalised paper products including greeting cards, diaries, notebooks and calendars.

Year-on-year sales performance at gettingpersonal.co.uk was flat, however, with improvements in average spend being offset by lower visitor numbers. Whilst gettingpersonal.co.uk faced very strong prior year comparatives in the first half (H1 FY16: +24.9%), the second quarter was particularly disappointing. We continue to target like-for-like sales growth of at least 10% at gettingpersonal.co.uk and, whilst current sales growth is below this level, we are investing in a number of business improvement initiatives in pursuit of this aim.

We remain optimistic that we will deliver substantial growth in revenue and profit from both of the Group's online channels over the medium term.

Revenue

Total revenues during the period grew by 4.8% to £169.2m (H1 FY16: £161.4m):

Growth in like-for-like ("LFL") sales by retail channel, calculated on a calendar week basis, can be broken down as follows:

Operating costs

Underlying cost of sales and operating expenses continue to be well controlled and are broken down as follows:

*excluding depreciation and amortisation

The overall ratio of cost of sales to revenue increased marginally to 71.7% on an underlying basis (H1 FY16: 71.6%) with the following movements in sub-categories:

- Cost of goods sold: principally comprises cost of raw materials, production costs, finished goods purchased from third party suppliers, import duty, freight/carriage costs and warehouse wages. The improvement in this cost ratio principally reflects improvements in underlying product margins and a better weighted average exchange rate relating to stock purchased in US Dollars. As noted in our H1 trading statement, for the full year we expect that US Dollar purchases in FY17 will be at a lower weighted average rate than that achieved in FY16.

- Store wages: includes wages and salaries for store based staff, together with bonuses, National Insurance, pension contributions, overtime, holiday and sick pay. This cost has increased as expected as new stores have been opened and pay increases have been awarded, including the impact of the new National Living Wage. The increase in the cost ratio reflects these factors together with the lower level of anticipated like-for-like sales.

- Store property costs: consists principally of store rents (net of rental incentives), business rates and service charges. This cost has increased in absolute terms as new stores have been opened but remained broadly constant as a ratio of revenue. We continue to target improvements in our overall rent roll as we reach break and expiry on existing leases.

- Other direct expenses: includes store opening costs, store utility costs, waste disposal, store maintenance, point of sale costs and pay per click ("PPC") expenditure. This cost category is largely variable in respect of existing stores and increases with new store openings. The ratio of other direct expenses remained constant at 4.9% with various business efficiency initiatives offsetting increases in PPC spend at Getting Personal.

Total underlying operating expenses (excluding depreciation and amortisation) in the first half increased to £13.6m (H1 FY16: £13.3m). This cost line includes items such as head office salaries and remuneration, costs relating to regional and area managers, design studio costs and insurance, together with other central overheads and administration costs. We continue to manage overheads tightly whilst continuing to invest for future growth.

Depreciation and amortisation increased from £4.7m to £5.2m reflecting ongoing investment in the business.

The underlying net financing expense reduced further by 34.7% to £1.4m (H1 FY16: £2.1m), principally reflecting improvements in margins payable under the Group's facility agreement following the debt refinancing completed in June last year.

As a consequence of the above factors, underlying profit before tax increased by 7.3% to £27.6m (H1 FY16: £25.7m), with the underlying effective tax rate of 20.4% (H1 FY16: 20.3%) remaining close to the statutory rate.

Underlying basic earnings per share increased by 7.1% to 6.45 pence (H1 FY16: 6.02 pence).

Capital expenditure of £5.6m (H1 FY16: £6.2m) included an investment of £1m in digital printing equipment to support planned growth in online revenues from personalised paper products. The Board continues to budget total annual capital expenditure of approximately £12m per annum.

Foreign exchange

With slightly over half of the Group's annual cost of goods sold expense relating to products sourced in US Dollars, the Group takes a prudent but flexible approach to hedging the risk of exchange rate fluctuations.

As disclosed in previous announcements, we have for some time been expecting foreign exchange gross margin pressure in FY17 and beyond due to the fall in the value of Sterling. This margin pressure and uncertainty has increased significantly following the result of the EU referendum.

At the date of this announcement, all of the anticipated FY17 US Dollar cash requirement is covered at an average rate of c$1.50. This average rate is significantly above the average spot rate for the period but approximately 8% below that achieved in FY16, with the weighted average rate delivered in H1 being greater than that expected in H2. Additional hedging is in place for approximately 50% of the anticipated FY18 US Dollar cash requirement at an average rate of c$1.45. The weighted average rates above assume all remaining structured options are exercisable, which would be the case with Sterling above $1.20.

Underlying EBITDA and Operating Profit

As expected, whilst there is some seasonality in our business, the Group delivered positive operating profit in each month of the first half.

The underlying EBITDA margin of the Group remained broadly flat at 20.2% (H1 FY16: 20.1%), notwithstanding like-for-like sales being slightly lower than anticipated, broken down as follows:

The lower underlying EBITDA margin at Getting Personal principally reflects investment in the business to support future revenue growth.

The underlying operating margin also remained broadly flat at 17.1% (H1 FY16: 17.3%).

Cash generation and returns

The Group remains highly cash generative, driven by its strong operating margins, limited working capital absorption and the relatively low capital expenditure requirements.

As at 31 July 2016, before deduction of capitalised debt costs, net debt totalled £121.7m (31 July 2015: £109.0m), reflecting strong cash generation during the period offset by the June payment of the FY16 final dividend (£20.4m) and the start of the normal working capital outflow relating to Christmas stock build:

Net debt at 31 July 2016 represented 1.26 times underlying EBITDA for the 12 months ended on that date, a similar level to the position reported at 31 July 2015 (1.20 times underlying EBITDA for the 12 months ended on that date).

As previously announced, over the medium term the Board expects to maintain leverage broadly in the range of 1.0 to 2.0 times net debt to underlying historic LTM EBITDA. Whilst this leverage ratio will typically vary during the financial year, the Board's current intention is to maintain average leverage around the mid point of this range. In assessing potential returns of surplus cash to shareholders, the Board will take into account, inter alia, the actual and projected leverage ratio (calculated on an LTM EBITDA basis) and the ongoing capital requirements of the business. This consideration will take into account expected cash generation and any resources required for strategic developments.

On a proforma basis, taking into account the interim and special dividends mentioned below as if they had been paid on 31 July 2016, leverage would have represented 1.89 times underlying EBITDA for the 12 months ended on that date. The Group typically delivers particularly strong cash generation in the second half of its financial year which contains the Christmas trading period. The Board therefore expects this ratio to reduce considerably by the year end.

Dividends

The Board has declared an interim ordinary dividend of 2.8 pence per share (FY16: 2.5 pence). The Board intends to continue with its progressive dividend policy, taking into account the Group's strong earnings potential and cash flow characteristics, while allowing it to retain sufficient capital to fund ongoing operating requirements and to invest in our long term growth plans. The Board continues to target dividend cover of between 2.0 and 3.0 times on an annual basis.

As previously stated, to the extent there is surplus capital within the business, the Board expects to return that capital to shareholders. The Board will consider the most appropriate method of returning such surplus cash from time to time, taking into account, amongst other things, views of shareholders and the liquidity of the shares. In line with this, the Board is pleased to announce the declaration of a special dividend of 15 pence per share, equating to a return of £51.1m.

Both the interim ordinary dividend and the special dividend will be paid on 25 November 2016 to those shareholders on the register at the close of business on 21 October 2016.

We will, at that point, have returned £163.8m to shareholders since IPO just over two years ago.

Outlook

Trading in recent weeks has been similar to the trends seen in the first half, with encouraging continued growth in average spend.

We approach the important Christmas quarter with confidence in the quality and value of our offer, including our new seasonal ranges, and we remain confident of delivering full year underlying profit before tax within the range of analysts' current expectations of £80.9m to £83.0m.

Card Factory is the clear leader in its market, with a strong value proposition, a unique vertically integrated operating model, significant scale advantages, and superior margins. The potential for further growth, through like-for-like sales growth, further store roll-out and the full exploitation of our online channels, is exciting. We remain as convinced as ever of the strong growth prospects for the business, and of our ability to deliver further returns of surplus cash to shareholders over the medium term.

Karen Hubbard

Chief Executive Officer

27 September 2016

Notes

1. Background information

Card Factory is the UK's leading specialist retailer of greeting cards, dressings and gifts. It focuses on the value and mid-market segments of the UK's large and resilient greeting cards market, and also offers a wide range of other quality products, including small gifts and gift dressings, at affordable prices. Card Factory principally operates through its nationwide chain of over 850 Card Factory stores, as well as through its online offerings: www.gettingpersonal.co.uk and www.cardfactory.co.uk.

The Group's clear strategy is focused on four pillars of growth:

- continuing to grow LFL sales;

- continuing to roll out profitable new stores;

- continuing to focus on delivering business efficiencies; and

- increasing penetration of the complementary online market.

Card Factory commenced operations in 1997 with just one store and has expanded its store estate primarily through organic growth into a market-leading value retailer with a nationwide presence. The Group's stores are in a wide range of locations including on high streets in small towns through to major cities, shopping centre developments, out-of-town retail parks and factory outlet centres.

Since 2005, Card Factory has developed a vertically integrated business model with an in-house design team, an in-house printing facility and central warehousing capacity of over 360,000 sqft. This model differentiates the Group from its competitors by significantly reducing costs and adding value to customers in terms of both price and quality, underpinning the Group's motto: "compare the quality, compare the price".

In the financial year ended 31 January 2016, the Group achieved revenue growth of 8.0% to £381.6m (FY15: £353.3m) and underlying EBITDA growth of +7.7% to £95.0m (FY15: £88.2m) at a margin of 24.9% (FY15: 25.0%).

2. Calculation of percentage movements

Percentage changes have been calculated before figures were rounded to £0.1m.

3. Cautionary Statement

This announcement is based on information from unaudited management accounts and contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Card Factory plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Card Factory plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein.

Condensed consolidated income statement

For the six months ended 31 July 2016

All activities relate to continuing operations.

Condensed consolidated statement of comprehensive income

For the six months ended 31 July 2016

Condensed consolidated statement of financial position

As at 31 July 2016

Condensed consolidated statement of changes in equity

For the six months ended 31 July 2016

Condensed consolidated cash flow statement

For the six months ended 31 July 2016

Notes to the interim financial statements

1 General information

Card Factory plc (the 'Company') is a public limited company incorporated in the United Kingdom. The Company is domiciled in the United Kingdom and its registered office is Century House, Brunel Road, 41 Industrial Estate, Wakefield WF2 0XG.

2 Basis of preparation

These unaudited condensed consolidated interim financial statements ('interim financial statements') for the six months ended 31 July 2016 comprise the Company and its subsidiaries (together referred to as the 'Group'). The interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and the requirements of IAS 34 Interim Financial Reporting as adopted by the European Union. The interim report was approved by the Board of Directors on 27 September 2016.

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 January 2016 ('Annual Report') which have been prepared in accordance with IFRSs as adopted by the European Union. The comparative figures for the financial year ended 31 January 2016 are an extract from the Annual Report and are not the Group's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report was (i) unqualified, (ii) did not contain an emphasis of matter paragraph and (iii) did not contain any statement under section 498 of the Companies Act 2006. The statutory accounts for the year ended 31 January 2016 were approved by the Board of Directors on 4 April 2016 and delivered to the Registrar of Companies. The auditor's review report for the six month period ended 31 July 2016 is attached.

Significant judgements and estimates

The preparation of the interim financial statements requires the use of judgements, estimates and assumptions that affect the application of the Group's accounting policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The significant judgements and key sources of estimation uncertainty were consistent with those applied to the consolidated financial statements for the year ended 31 January 2016.

Going concern

Taking into account current and anticipated trading performance, current and anticipated levels of borrowings and the availability of borrowing facilities and exposures to and management of the financial risks detailed in the Annual Report, the Board is of the opinion that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, the interim financial statements continue to be prepared on a going concern basis.

Cash flow presentation

The presentation of net repayments of bank borrowings for the six months ended 31 July 2015 has been adjusted to present both proceeds from and repayments of borrowing facilities amended and extended on 26 June 2015.

3 Principal accounting policies

The financial statements have been prepared under the historical cost convention except for derivative financial instruments which are stated at their fair value.

The accounting policies are consistent with those applied in the consolidated financial statements for the year ended 31 January 2016. New or amended international financial reporting standards that are effective in the current period do not have a significant impact on the interim financial statements.

EU Endorsed International Financial Reporting Standards effective in the current period

• Amendments to IAS 16 and IAS 38 - Clarification of acceptable methods of depreciation and amortisation

• Amendments to IAS 27 - Equity method in separate financial statements

• Annual Improvements to IFRSs 2012 - 2014 cycle

• Amendments to IAS 1 - Disclosure initiative

EU Endorsed International Financial Reporting Standards in issue but not yet effective

New and revised accounting standards, interpretations or amendments effective for future periods are currently awaiting EU endorsement.

4 Segmental reporting

The Group has two operating segments trading under the names Card Factory and Getting Personal. Card Factory retails cards and gifts in the UK principally through an extensive store network. Getting Personal is an online retailer of personalised cards and gifts. Getting Personal does not meet the quantitative thresholds of a reportable segment as defined in IFRS 8. Consequently the results of the Group are presented as a single reportable segment. Revenues outside of the UK are not significant at less than £0.1 million.

5 Underlying EBITDA

Underlying earnings before interest, tax, depreciation and amortisation ("EBITDA") represents underlying profit for the period before net finance expense, taxation, depreciation and amortisation.

6 Non-underlying items

Net fair value remeasurement gains and losses on derivative financial instruments

The Group utilises foreign currency contracts to manage the foreign exchange risk on U.S. Dollar denominated purchases and interest rate derivative contracts to manage the risk on floating interest rate bank borrowings. Fair value gains and losses on such instruments are recognised in the income statement to the extent they are not hedge accounted under IAS 39. Such gains and losses relate to future cash flows. In accordance with the commercial reasoning for entering into these agreements, these gains/losses are deemed not representative of the underlying financial performance in the year and presented as non-underlying items. Any gains or losses on maturity of such instruments are presented within underlying profit.

Refinanced debt issue cost amortisation

Debt issue costs totalling £1.8 million were expensed to the income statement in the prior period on completion of an amended and extended borrowing facility on 26 June 2015. This expense relates to costs that were not yet amortised in relation to the 30 May 2014 refinancing and is presented as a non-underlying item.

Non-underlying operating expenses

In January 2016, Card Factory plc announced the retirement and succession of the Chief Executive Officer. Costs attributable to the recruitment of the new CEO and dual remuneration costs during the handover period are presented as a non-underlying item.

7 Finance income and expense

Amortisation of loan issue costs in the prior period include £1.8 million expensed to the income statement in relation to loan issue costs not yet amortised on refinanced borrowing facilities. These costs are presented as a non-underlying item, see note 6.

Fair value losses on interest rate derivative contracts are presented as a non-underlying item, see note 6.

8 Taxation

The tax charge on underlying profit before tax for the interim period has been calculated on the basis of the estimated effective tax rate on underlying profit before tax for the full year to 31 January 2017 of 20.4% (six months ended 31 July 2015 20.3%, year ended 31 January 2016 20.7%).

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 share incentive awards granted to employees.

The Group has chosen to present an alternative earnings per share measure, with profit adjusted for non-underlying items to reflect the Group's underlying profit for the year. Underlying earnings is not a recognised profit measure under IFRS and may not be directly comparable with 'adjusted' profit measures used by other companies.

10 Dividends

The Directors have declared an interim dividend of 2.8 pence per share for the period ended 31 July 2016 which equates to £9.5 million and a special dividend of 15.0 pence per share which equates to £51.1 million. Both dividends will be paid on 25 November 2016 to shareholders on the register at the close of business on 21 October 2016. The interim and special dividend were approved by the Board on 27 September 2016 and, as such, have not been included as a liability as at 31 July 2016.

11 Intangible assets

12 Property, plant and equipment

13 Financial instruments

Financial instruments carried at fair value are measured by reference to the following fair value hierarchy:

• Level 1: quoted prices in active markets for identical assets or liabilities

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Derivative financial instruments are carried at fair value and measured under a level 2 valuation method. Valuations are provided by the instrument counterparty.