Good morning, and welcome to our full year results presentation for FY2025. Thank you for joining us today, whether you're here in person at Citibank or joining us online. I'm Darcy Wilson-Rymer, the CEO of Card Factory, and joining me today is Matthias Seeger, our CFO. As we are now at the halfway mark for opening our new future growth strategy, we're going to start today by reviewing the progress to date before looking at an overview of highlights from the past year. Matthias will then provide a financial performance update for FY2025 and an outlook for the remainder of the year. Following a review of strategic progress we've made in FY2025, Matthias and I will then answer any questions that you may have at the end. I'm pleased to report that progress on our growth journey has continued at pace and is delivering strong revenue growth.
As the leading omnichannel retailer of cards, gifts, and celebration essentials in the U.K. and a growing international presence, we are well-positioned to capitalize upon the exciting opportunity by presenting a celebration occasions market across all the countries where we operate in. Our ambition is to become a leading global celebrations group. We are achieving this by reaching more customers in more locations through our channels and markets and increasing our share of wallet in the GBP 13.4 billion U.K. celebration occasions market. This is underpinned by a vertically integrated model that drives efficiency and allows us to target the lowest possible operating costs as a value business. By doing so, we continue to make good, profitable progress that is resonating with customers. Colleagues across Card Factory continue to focus on our core values, ensuring we put the customer first in our decision-makin g.
I know we have a large number of colleagues on the call today, so I personally would like to thank each and every one of you for the positive contributions that you have made throughout the last financial year and, of course, over the strategy to date. Thank you, colleagues. Having reached the halfway mark for our opening our new future growth strategy, let me summarize the progress to date. As an established brand, we are consistently rated the most trusted in our sector in the U.K., and we are focused on delivering our purpose of making, sharing in, and celebrating life's moments special and accessible for everyone. Since FY2023, we've grown ourselves by 17%, adding GBP 80 million to our top line, with adjusted PBT increasing by 35% over that same period. This is despite a much higher level of inflation than originally anticipated.
Our core stores business has performed strongly as we continue to open new stores in the U.K. and the Republic of Ireland. Since FY2023, our profitable and expanding retail footprint, combined with increasing penetration of our gift and celebration essentials offer, has delivered a 7.3% store sales compound annual growth rate. We're encouraged by our progress, securing new retail partnerships and expanding our relationship with existing partners in the U.K. and internationally. This is alongside an acceleration of our plans to grow our international footprint by acquiring well-established creative businesses, including in the important U.S. market. Turning to digital, we've made progress building our online presence as part of our omnichannel strategy. We've stabilized and improved our online platform and have a fuller understanding of online growth and profit levers. With the foundations for growth now in place, we have confidence in the future growth opportunity for online.
In summary, by combining our market-leading greeting card offer with an expanding range of gift and celebration essentials, we are delivering on our building blocks of growth and achieving growth ahead of the wider celebrations market in the U.K., with our partnership strategy enabling our international expansion. Turning to FY2025, I'm pleased to report that we've continued to effectively execute our strategy, driving revenue growth and profitability. Our highly profitable store estate remains central to our strategy, with a strong performance in the last financial year, delivering revenue growth significantly ahead of the retail sector. We continue to grow our share of the celebration occasions market through the expansion of our gift and celebration essentials offer, while leveraging our authority and strong customer appeal within the card market. This included further growth internationally through our partnership strategy, supported by targeted acquisitions in the U.S. and the Republic of Ireland.
We continue to develop our online offer and omnichannel propositions with CardFactory.co.uk. Like-for-like sales were in line with FY2024 as we refined our ranges to support online margin growth. Our proven productivity and efficiency program remains key to offsetting inflationary impacts and maintaining profit margins. In FY2025, this was further developed into a multi-year simplify and scale program with several key initiatives helping to reduce the cost base to maintain adjusted PBT margins. With robust operating cash flow and the continued strength of our balance sheet, we are well positioned to confidently invest in our growth ambitions. Therefore, the board remains confident in the profitable growth opportunity for the business, which has a clear growth strategy to become a leading global celebrations group and has recommended a final dividend of GBP 0.036 per share, resulting in a total dividend of GBP 0.048 per share.
For more details on this and our financial performance for FY2025, let me now hand over to Matthias.
Thank you, Darcy. Over the next 20 minutes, I'm going to take you through the results for FY2025, provide some additional perspective, what's driving that performance, and what lies ahead as we look to FY2026. We've got a strong story to tell, one of resilience, disciplined growth, and confidence in our strategy. FY2025 was another year of strong revenue and profit growth, achieved despite a challenging economic environment. Total group revenue increased by 6.2% to GBP 542.5 million, marking our fourth consecutive year of growth. Profit grew in line with revenue. We successfully offset inflationary pressures through decisive management actions, enabling us to maintain margins and deliver strong performance. Adjusted profit before tax rose by 6.3% to GBP 66 million, with adjusted EPS up 5.9%. This outcome was consistent with our guidance at the interims in September.
Cash generation was robust, and while net debt increased, this was due to one-off items and not underlying business performance. We also completed two targeted acquisitions to support our long-term strategy and continued to reward shareholders with a growing progressive dividend, all while maintaining a strong balance sheet. Total group revenue increased by 6.2% from GBP 510.9 million to GBP 542.5 million. Our core business, stores in the U.K. and Republic of Ireland, which account for 94% of sales, delivered total store-based growth of 5.8%. Strong like-for-like growth was at 3.4%, well ahead of the wider retail market. This growth was underpinned by a compelling customer proposition, a powerful combination of product range, value for money, and consistently great in-store experience. Our strategic growth categories, gift and celebration essentials, led the way with 5.6% growth. Greeting card sales remained robust with 0.9% sales growth as we gained share in that segment.
We added 32 net new stores to our network, offering more customers access to our stores and products in more locations. Over the period, new store openings contributed 2.4 percentage points to our total store-based growth. We are progressing with investments in our digital platform to unlock our future omnichannel proposition. Card Factory online sales were flat year on year, Getting Personal sales declined further, and we made the difficult but necessary decision to close Getting Personal at the end of January, ensuring we stay focused on profitable growth. Our partnership business grew 30.6%, helped by both organic expansion and new acquisitions. PBT margins remained flat year on year at 12.2%. We absorbed cost increases through a combination of efficiencies, productivity gains, and range development, including targeted pricing actions.
Product margin of 69.7% was maintained, even with freight costs increasing and a higher share of non-card sales, which were offset by lower costs and targeted pricing. Wage costs increased by GBP 10 million year on year. We mainly mitigated this through streamlined labor management, reducing non-core store hours, and limiting temporary labor without compromising service. In H1, we annualized prior year investments in operating costs, which negatively impacted the margin by 0.3 percentage points. PBT margin in half two was 17% compared to 6% in half one. As in previous years, our half two margin rate was four to six percentage points higher than in half one due to operational scale benefits from higher sales in the second half. In addition, our half two performance benefited from systemic efficiency gains, removing non-value-added activities across the value chain and enhancing our margin accretive product ranges.
These changes are structural, not one-offs, and they support our sustainable growth. Turning to cash and debt, underlying free cash generation of GBP 29 million was strong. Capital expenditure of GBP 18.4 million was down nearly GBP 10 million versus the prior year. We invested in new store openings, store refits, and upgrading store layouts, point of sales till system upgrades, and enhancements to the online experience. Corporate tax payments increased to the higher corporate tax rate that came into effect in March last year. Debt service costs remained broadly consistent with prior periods. We paid GBP 19.8 million in dividends, reflecting both fiscal year 2024's final and full dividend and fiscal year 2025's interim payout. Over the 12-month period to the 31st of January 2025, net debt increased, mostly due to one-offs unrelated to fiscal year 2025 business performance.
These one-off items of about GBP 11 million included repayment of a GBP 3.3 million COVID grant, GBP 1.6 million in refinancing cost, and a GBP 6 million adverse timing impact on payments. Our leverage remains low at 0.7 at the end of January, well below our target leverage range of 1.5. Seasonal peak net debt leverage reached 1.3 in October during the ramp up to Christmas. At period end, the group had GBP 50 million of headroom in its debt facilities, with a GBP 75 million accordion option. We are committed to creating value for our shareholders in the long term by delivering on our business growth strategy and plans. Our capital allocation policy has four guiding principles. We maintain a strong balance sheet with clearly defined debt leverage range. We invest in disciplined financially sound ways to support our growth strategy. We provide regular progressive returns through interim and final dividend payments.
We fund dividends from free cash flow, managing surplus cash transparently and turning it to shareholders where appropriate. Over the past two years, we have generated GBP 56 million in free cash flow. We've invested GBP 25 million in acquisitions to accelerate our strategy. Anticipated returns from these investments are well above cost of capital. We returned GBP 32 million to shareholders via progressive dividends, representing a 4-5% dividend yield. In December, we paid an interim dividend of GBP 0.012 per share. We've recommended a final FY2025 dividend of GBP 0.036 per share. The FY2025 full year dividend of GBP 0.048 per share is up 6.7% year on year, maintaining a coverage ratio of 3.0. There is no further surplus cash currently available for additional returns. In the future, the board will consider all options for turning surplus cash, including a share buyback.
Let's take a step back and look at the last two years. Macroeconomic conditions have been challenging. Consumer sentiment has been weak. Inflation has put pressure on both household wallets and business bottom lines. Despite this, we grew our business by 17%, adding GBP 80 million in sales. Our core store business has been the engine with resilient annual same-store sales growth of 5.5%. Gift and celebration essential sales increased by 7.6% and card sales by 3.3% over the two-year period. We opened 58 net new stores, growing our footprint from 1,032 to 1,090 locations. Online and partnership sales increased 47%, driven by both organic and inorganic growth. This growth is robust and sustainable, underpinned by our strategy. The average annual inflation of 4.4-5% was nearly double historic levels and beyond what any company could have anticipated.
PBT, however, increased by 35% over the two years, a reflection of our ability to grow while absorbing more than GBP 35 million in inflationary cost pressure. Allow me to expand on two key success factors behind this performance. We have a unique retail business in the U.K. and Republic of Ireland. At the heart of our success is a business model built for resilience and long-term profitability. We help people celebrate life's occasions at affordable prices, backed by a strong value proposition. Our strategy is working. We are strengthening our leadership in greeting cards while scaling up gifting and celebration essentials, delivering resilient growth. Like-for-like sales have outpaced the wider retail market. Our share of gift and celebration essentials has increased steadily to 51%, up from 47%. An average basket value rose from GBP 4.37 to GBP 5.6 over the period. Our store network continues to grow.
Every new store extends our reach to more customers in more locations and delivers high returns. Our brand is not only loved and preferred; it is supported by an efficient, high-return business model. Our end-to-end value chain enables us to consistently offer quality products at low prices. We operate a highly profitable portfolio of stores with agility and discipline. We expand our footprint using a low-capital model. Each store must pay back within two years, and they do. Return on investment is strong, with stores typically operating successfully well beyond 10 years. We cannot control inflation, but we can control how we respond. As a low-cost operator, it is in our DNA to work in a disciplined, structured way to mitigate the impact of inflation. Inflation has added about GBP 35 million to our cost base over the last two years.
This annual cost increase of 4-5% is double historic levels. In FY2026, we face further inflationary headwinds of 4-5%, equating to around GBP 20 million in additional costs, and we anticipate 3-4% beyond that. Now, over the past two years, we have proven we can mitigate inflation. We do this through a combination of efficiencies, productivity, and range development, including pricing. As Darcy Willson-Rymer mentioned, we have formalized this approach with our structured multi-year Simplify and Scale Program. Simplify and Scale focuses on eliminating non-value-added and manual activities, reducing duplication, streamlining operations, and delivering sustainable and profitable growth. For FY2026, focus areas include further optimization of store hours, streamlining front and back office activities with our new point of sale system, insourcing of third-party manufacturing, optimization of procurement, and elimination of manual processes in the support center. All plans to offset FY2026 inflation are in motion.
As with last year, most benefits will materialize in the second half. In summary, Card Factory Darcy's sales performance was strong and resilient despite challenging market conditions. Profit increased in line with sales as we mitigated inflation. We had an encouraging start to FY2026 with strong momentum across Valentine's Day and Mother's Day, trading is in line with expectations. We're well positioned to continue growing, underpinned by our strong value proposition and strategic focus areas. Our simplify and scale program continues our proven structured approach to offsetting inflation. We expect profit margins to remain in line with FY2025. PBT will be again weighted towards half two, as in FY2025. The board reconfirms expectations of mid to single-digit % adjusted PBT growth in FY2026. With that, I'll hand back to Darcy for the strategy update. Thank you.
Thank you, Matthias.
I'd now like to provide an update on the continued progress we've made delivering on our opening our new future strategy in FY2025 and our priorities for this financial year. Our strategy is transforming Card Factory into a leading global celebrations group. We are achieving this by delivering on our key drivers of growth: stores where we will continue to leverage and grow our profitable store estate in the U.K. and Republic of Ireland; cards, gifts, and celebration essentials where we are making good progress in expanding across the GBP 13.4 billion U.K. celebration occasions market; online and omnichannel where we are seeking to deliver a seamless celebration experience for our customers; and partnerships where we continue to build on the positive progress we have made in the U.K. and internationally.
Looking first at stores, at the end of our financial year, we had a store estate in the U.K. and Ireland of 1,090 stores. This was an increase of 32 net new stores in FY2025. As we look ahead to FY2026, we will continue to grow our store network at similar rates achieved in FY2024 and FY2025. Previous work on our space optimization program allowed further in-store innovations in FY2025, such as stationery and kids' zones, which helped contribute to strong growth seen from expanded categories, including confectionery, which saw like-for-like growth of 25%, soft toys, which was up 22%, and stationery, which was up 18%. This approach is allowing us to further unlock gift and celebration essentials range expansion whilst maintaining our authority and choice for card.
The other driver of store revenue growth was the targeted pricing action we took through FY2025, which drove around one-third of the like-for-like improvement. Looking at categories, the like-for-like growth of 5.7% in FY2025 across gift and celebration essentials reflects the success of our expanded proposition, with 70% of the gift ranges being new in FY2025. This included new baby toys, gift food, and confectionery ranges, as well as an updated and expanded party range and balloon offer, where we remain the U.K. market leader. Card Factory continues to build upon its authority within the card market in the U.K., with positive like-for-like growth of 0.7% across seasonal and everyday cards. This reflects our trend-focused range development, as well as our strong value credentials, which continue to resonate with customers who remain price-sensitive.
Through FY2025, we were able to increase the retail pricing on gifts through range development, which contributed to a 6.7% increase year on year in average basket value. Approximately half of all baskets in FY2025 included gift or celebration essential items. In FY2026, we'll continue to leverage our leadership in card to underpin celebration and gift attachment rates as we make progress in our evolution to become a celebrations destination. Work is underway to deliver further card range curation in store, which will allow us to optimize choice and release space for new and expanded gift and celebration essential ranges, including new milestone age range and new party range in FY2026. Internationally, we accelerated our plans to create an international footprint through the acquisition of Garlana in the Republic of Ireland in September 2024 and Garvin in the US in December 2024. Progress with existing partners has been positive.
Full-service partnership model capability is now in place, and delivery success with U.K. partners leading to international rollout for our partners in FY2026. Full rollout to the U.K. and Republic of Ireland estate was completed in September 2024. We also secured an extension of our partnership with Reject Shop in Australia, where we signed a new multi-year agreement, including seasonal range supply for the first time. We were also pleased to sign our first wholesale supply agreement with a nationwide U.S. retailer covering 1,100 stores. This was initially for a curated Christmas card range that was extended to Valentine's Day and Mother's Day in Q1 of this year. We are building on the initial learnings from the Christmas and spring seasons card range with a rollout of a curated everyday card and celebration essential range launched in April 2025 to 93 stores.
We're working at pace to complete the integration of our newly acquired businesses and identifying growth opportunities. A particular focus is expanding our card offer in North America through our existing Garvin customer base. At the same time, we'll continue to have positive discussions with new prospective partners in the U.K., the Republic of Ireland, and other international markets of interest. Building on our experience in the Middle East and wholesale success in other markets, we've taken the decision to refocus our partnership model in the Middle East in the near term. We've chosen to pause the low-cost franchise trial and focus on wholesale agreements. This has led to the decision to close the existing four franchise stores by the end of June this year.
North America is a key target region for us, which is why we're working at pace to complete the integration of our newly acquired Garvin business and identifying growth opportunities. The acquisition of Garvin provides us with in-market experience and expertise in the largest celebration occasions market, worth GBP 65 billion in targetable opportunity. In addition, we're leveraging learnings from the introduction of our proven wholesale model in the U.S. market while at the same time looking at how we can expand our card offer in North America through the existing Garvin customer base. Looking ahead, we will realize the annualized benefit from existing Garvin revenue and profitability. To support this, we're taking a proactive approach to navigating the uncertain geopolitical backdrop, and we do not currently expect there to be material impact from tariffs in FY2026.
I'm also pleased to report that we're progressing positive discussions with potential new partners, albeit there are longer lead times in the North American market. Turning to online, this is an area of considerable focus for the business as we recognize the need to make further progress in FY2025. We continue to develop our online offer, and we're clear now on the levers for profitable growth, allowing us to confidently invest in the future of this channel for Card Factory. This is why the decision was taken to close GettingPersonal.co.uk as of the 31st of January 2025, so that we can focus on driving efficient, profitable online growth at CardFactory.co.uk. Moving forward, our focus will be on a direct-to-recipient offer and experience, and this will drive card-attached gifting, offering greater value for our customers compared to the competition. Range development is in progress to support this approach.
Omnichannel remains a key differentiator for Card Factory and is central to our digital strategy as it will allow us to capture the online spend of our 24 million unique in-store customers. We have continued to develop our omnichannel propositions with improvements made to our nationwide click-and-collect service. In FY2026, a new balloon appointment omnichannel trial has recently gone live in a number of stores, enabling customers to pre-order inflated balloon arrangements online and collect them in store. In FY220025, we continued the process of embedding sustainability considerations across the business with key focus areas including waste reduction through product design and operational changes. We progressed our greenhouse gas emissions reduction initiatives, including a successful AI energy management system trial across approximately 200 stores, with a further rollout to 800 stores planned this year.
This forms part of our net zero pathway activity, which in FY2026 will also include the transition of our diesel fleet to plug-in hybrid electric vehicles. We evolved our Giving Something Back program, facilitating more opportunities for colleagues to support local charities and launching a new donation scheme for discontinued stock. For FY2026, at the strategic level, we have begun a full supply chain climate risk review. Operationally, we will continue our plastic reduction work, eliminating bubble wrap use at Printcraft and CelebFane wrap from all own-label roll wrap. Looking ahead, I would like to start by summarizing our FY2025 performance. In FY2025, we achieved strong and top and bottom line growth that was driven by the effective execution of our strategy. Our revenue growth reflects the strength of our profitable store estate and our evolving celebrations offer. The targeted acquisitions we have made are accelerating international routes to market.
We continue to take a disciplined approach to our financial performance with our Simplify and Scale Program, efficiency and productivity program, alongside strong sales growth, successfully offsetting inflationary impacts. We have maintained the strength of our balance sheet and delivered a progressive approach to shareholder returns. As we look ahead, we expect to deliver mid to high single-digit % increases in Adjusted PBT in FY2026. Our strategic progress to date, together with focused delivery through our drivers of growth, means the Card Factory investment case remains compelling. We are reaching more customers in more locations and will continue to do this by building our store estate footprint, opening new stores at a similar rate to the past two years across the U.K. and Republic of Ireland, and by targeting under-penetrated markets.
In addition, we have significant opportunity through our retail partnership strategy to address an GBP 80 billion global celebrations market, the largest of which is in North America, where we now have an established presence and opportunity to create a credible card-led celebration offer. We are progressively increasing our share of the GBP 13.4 billion U.K. celebration occasions market. As a leading omnichannel retailer with nationwide presence of cards, gifts, and celebration essentials in the U.K., we are building upon our strength and authority within the card market to grow our gift and celebration essential ranges. This is allowing us to progressively capture more of our 24 million unique customers' annual celebration spend, with share of wallet increasing one percentage point over the past two years, and we're targeting further growth at a similar rate.
We continue to leverage our leadership in cards to underpin celebration and gift attachment rates as we progress in our evolution to become a celebration destination. Finally, we're leveraging our vertically integrated model of design, manufacturing, and retail to support our credentials as a value retailer. With a quality offer, it allows us to respond rapidly to changes in customer tastes and needs while driving efficiency and lowest cost to operate. Our Simplify and Scale efficiency and productivity program will continue to deliver a structural reduction in our underlying cost base.
By delivering on these growth drivers, we will deliver sustainable, progressive returns underpinned by profitable cash-generative growth, which beyond FY2026 will target mid-single-digit % sales growth each year, adjusted profit before tax growing in the mid to high single-digit % range, free cash generation of 70-80% of earnings underpinned by disciplined investment and sustainable progressive dividend based on a two to three times dividend cover ratio on adjusted earnings. Thank you once again for attending our results presentation, and Matthias and I will now be happy to take any questions that you may have. Before we begin, our Zoom operator will give a quick reminder on the Q&A process. As usual, we'll take questions from the room first and then turn to the questions online.
Thank you, Darcy.
As Darcy just said, if you do have a question in the room, then please raise your hand and wait for a microphone to come to you so everyone can hear your question. If you're joining us on Zoom, then please use the Q&A icon on your screen and type your question.
I'm now handing back to the Zoom operator who has made the announcement. Russell's got the mic, so I'll come to you next, Kate. Go on, Russell.
Morning, Darcy and Matthias. Three questions, if that's okay. First one, in terms of the online offer, you talk in the release about removal of, I think they're called stock cards. Could you just talk about what's driven that from a customer behavior and the relative economics of that? And then also perhaps move on to how you see the offer evolving online given the change in emphasis.
The second question is, sorry, Matthias referred to bringing third-party sourcing in-house. Could you just give some idea of what products that is and perhaps where that's coming from, whether it's related to tariffs, that kind of thing? Thirdly, is there much happening from an M&A perspective? Thanks.
Thanks for the question. If I start with online, effectively, historically, when CardFactory.co.uk was set up many years ago, they set it up like a big store where primarily it was selling store stock products as well as some personalization on the side. Going forward, as we focus on the two propositions of direct-to-recipient with attached gift and the omnichannel offer, we will over time discontinue any store stock range. We won't sell store stock online, and it will become for personalization and celebrations as its main drivers of growth. Do you want to take the—yes.
I mean, as you're aware, we produce the vast majority of our greeting cards up in Yorkshire. What we don't produce in Yorkshire, we always assess for bringing into our manufacturing facility. That's one continuous process, but we're looking at several other processes. In the last year, we have brought in-house the production and manufacturing of point-of-sales materials as another example. We continue to evaluate other options for bringing things in-house.
I think just on your third point on M&A, I mean, effectively, our approach has been when an opportunity comes that helps us accelerate our strategy and is accretive to shareholders, we will evaluate it and make a decision on a case-by-case basis, and that approach hasn't changed.
Kate, we've got the.
Kate Carver from Vestic. Three for me, please. First is a store question.
You mentioned that you're looking to release more space from cards in store. Can you give an idea of the scale of the opportunity there? Also, could you give an idea of the scale of the opportunity in terms of what you're doing, to be honest, in terms of innovation this year? Because last year, I think 70% of the ranges were new. Just wanted to get an idea there. Second question is, was CardFactory.co.uk profitable last year? The third question is, could you give an update on the performance of the London stores? Are you now happy with the format from the trials you've been doing? Thank you.
Thank you for the question. In terms of space optimization, we continue.
I think the work that we did over the last two years, there was quite a bit of catch-up work because the whole range space display had not been looked at for some time. I think we are much more now into a continuous improvement cycle. The next opportunity for us is really about segmentation and understanding certain stores perform in certain ways. Some stores sell more celebration essentials. Other stores are more card-led stores. The opportunity for us is to segment stores and start allocating space based on that differentiation as opposed to a one-size-fits-all. That is the next phase of things that we are working for. In terms of newness, I do not have an exact percentage, but it is going to be roughly about 50% of the product.
Yeah. We continue that.
That is the rate of innovation that we have had in the previous year, and we will continue to have that. The highest level of newness is on gifting, where indeed we will have another 70% of newness. Do you want to do dotco.uk in London? Sure. We are still in an investment phase with our online proposition. As we commented on previously, we closed Getting Personal because behind declining sales, as well as it becoming a distraction for our key focus area of becoming an omnichannel retailer for CardFactory.co.uk, it was the right decision to close it. That business was unprofitable, and as I said, CardFactory.co.uk is still in an investment phase. We continue to expect investment in CardFactory.co.uk, but we also expect an improvement of the overall profitability as we go into FY2026. With respect to London stores, we operate actually about 20 stores in Greater London.
We operate about four stores in central London. We started opening them two to three years ago, as most of us remember. The objective was to understand what would need to be true to operate these stores profitably as cost of occupancy are significantly higher and customer needs are somewhat different from other areas. We now understand what it takes to operate these stores profitably, and we will continue to assess opportunities in London to open stores as we see opportunities as part of our overall store portfolio expansion. Great.
Thanks so much.
Thanks. Adam Tomlinson from Berenberg. First question is just on pricing. You mentioned about a third of that like-for-like growth coming from pricing. Can you maybe just recap on your pricing architecture now, where you think you sit versus the competition, and perhaps any changes you've seen competitors put through in the marketplace?
Second question is, on the U.S., you talked about some learnings there. Any additional color you can give around that in terms of just what you've seen, either sort of customer preferences, how the customer likes to shop, anything interesting coming out of those trials? The third question, just on partnerships as well, the Middle East, just noting that switch from franchise to wholesale. As a general question, just around the franchise model, is there anything in there perhaps you've seen that's proving more difficult, or just something about that particular approach which perhaps does not make it as something you might use going forward?
Thanks for the questions, Adam. In terms of pricing architecture, there is actually very little change to the actual architecture itself of cards starting at GBP 0.29, going to GBP 0.49, and then going up in GBP 0.50 increments and largely exiting card at GBP 3.99.
That continues to be so. We have done quite a bit of design on some more sort of design-focused, more premium to the card. You will see, in not all stores, in some stores, a higher mix of those sort of higher-quality cards. That came out of the learning of the London trial where we put some premium cards to drive ASP. They did well. We then tested that in about 100 stores. That performed well. We then backed that type of card into the design studio, which we are now putting in more stores. We will also be, when we have historically done our promotion a number of times a year of 10 cards for GBP 1 or 15 pence each, going to run some tests to see if we can integrate that into the range as opposed to just being at a gondolin.
We'll just continue with some tests on that. If I may add, our average sales price last year for cards was 1.28. That compares with a market average, excluding Card Factory, of well above 1.80. That is the backbone of our strong value proposition. As you can appreciate, we have some room here. In terms of U.S. learnings, I would say, I mean, effectively, we dipped our toe in the water. What we did is we basically developed a range of about 50 Christmas cards that we put into a cardboard freestanding display unit, and we shipped that to the U.S. and then shipped that out to 1,100 stores.
We took a ton of learning in terms of producing in the U.K., shipping to the U.K., working with 3PLs, getting the distances of 1,100 stores, when you arrive at the back door of a big box retail, how that process sort of needs to work, in addition to which cards we are selling, which cards are not. It was extremely rich in learning. We continued that through Valentine's Day, Mother's Day. Actually, within what we have said in partnerships, the really exciting thing is the trial of every day, where this is now a much more expanded range and where it is every day. It is birthdays and kind of all of that. I was out in the U.S. once it had launched and went, and we have got some stores where it is only our range and other stores where we are side-by-side competitors. I was really pleased with the work.
The range looks really strong. The pricing is great. If you're interested at another time, I actually went and physically bought shop cards, ours and competitors. Happy to show you that. Some really good learnings. In terms of the Middle East, I think if I take a step back, not only from the Middle East, and say, when we wrote the strategy for partnerships, we did a lot of testing. We tested a wholesale model. We tested white label, franchise, etc. On the franchise trial, what we've learned is that in order to build a brand, to build your brand from scratch in a new market where it's gift-led as opposed to card-led, there's going to be quite a lot of work to be able to roll that and scale that and would frankly be pretty expensive.
We think that having done all of the learnings we do, the best way to scale our partnerships program is through the wholesale model. That is the one we think is the best. Very good. Shall we turn to some questions online?
Yep. One for you, Matthias. Can you discuss CapEx spend and what the continued investment will be?
We have spent last year GBP 18 million in CapEx in FY2024. The prior fiscal year, we spent GBP 28 million. As you might recall, we indicated that our CapEx spending is roughly GBP 25 million. We are in that range. Going forward, we believe that we will continue to be in that range. That CapEx spending covers everything from our new stores, store refits, change of store layouts, but also investment in our digital platform, as well as investment into efficiency and productivity savings.
Great. Thank you.
What percentage of space is devoted to store, to card, and non-card, respectively? I mean, clearly, that's going to differ store to store depending on the size, the shape, and the layout. But roughly across the estate, it's about 47% of the space is to card, and the rest is to gift. And then what was inflation in non-card in FY2025? Do you have that?
Inflation in non-card, that is the ASP? If that's meant the ASP, so what I can tell you is that in the total portfolio, the ASP increased from 1.36 to 1.46. But that is a mix between pure range development and some pricing. Yeah. So Jonathan, I think if it was a different question that we answered, just feel free to clarify. Please can you talk to me how lower transactions is impacting the business? We calculate around 3-4% lower.
Why so much lower than the decline in the card market? If I start with that first. Overall transactions were down last year by 3%. Our overall volume was flat, and that was offset by a 6.7% increase in basically ASP. The trend in the average basket value, thank you. The reason for transactions being slightly ahead of the card market is due to the dynamics on the high street and footfall on the high street. Just for the avoidance of doubt, we were actually building market share in the card market segment. Slide 13 gave some data for this first time. Where will we get the stats to hit your guidance ambitions? Why does the group not provide KPIs aligned with its ambition to target the GBP 13.4 billion gifting celebrations market?
I think when your question is about in terms of aligning to our KPI, aligning to our ambitions of the GBP 13.4 billion gifting market, we have never set market share targets because I think market share is an output. What we're focused on is delivering effectively the sales, the profit, and effectively the cash that comes from that. No data or info on the U.S. partner. Why nothing seems as a key plank to the strategy? I think this is about, if I understood the question, this is about we don't name the partner. It's a really simple answer. We're a supplier. They're the customer. They've asked us not to mention us publicly in our presentations, and we respect that. Just on tariffs on Garvin, just given it's a really small part of the business. The U.S. is going to be about 6%.
We think that it's not going to have a material impact on this year. Yep. Please discuss buybacks at this valuation level. How can dividends be justified? Sorry, the iPad's jumped. How can dividends be justified versus buybacks at a 6.5 PE? I think our capital allocation policy is very clear. One of the key fundamental principles of our capital allocation policy is that we provide predictable, progressive dividends to our shareholders. This is a commitment, and we stand for predictability. We have income investors, and that's part of our identity. If we have surplus cash, we do assess all options for returning cash to shareholder or further investment opportunities. As I mentioned earlier, over the last two years, we did not generate any surplus cash versus the free cash flow that we generated.
If I could just add, look, the capital allocation policy that we launched last year, that was after extensive consultation with shareholders. We totally understand that there are different schools of thought. We have some shareholders that say, "Don't do any buybacks." We have some shareholders that want us to do only buybacks and actually everything in between. We consulted on the policy. We sort of published that widely, and that is what we're doing. We are not against dividends, but at this moment of the cycle, we've concluded when we published the capital allocation policy that the priority for cash returns at the outset was reinstating the dividend. I completely appreciate, understand, and get that there are different points of view and different schools of thought. Yeah.
I think we have a question on working or a few questions on working capital and the dynamic around working capital. Yes, working capital is increasing as our business is growing. Our working capital is increasing behind our store sales growth. We have a higher level of inventory just because we have more stores. Also, our partnership business has a longer supply chain, and therefore, we will see an increase in working capital going forward. This is all factored into our guidance of cash flow productivity of 70-80%.
Great. There are a couple of questions just around ROI on recent acquisitions.
I think acquisitions is not something that we target as a course of regular business.
We look at opportunities when they come along, and we assess the opportunities in the spirit of how do they accelerate our strategies and what is the return for the shareholder on this acceleration of strategy. The recent acquisitions have an anticipated return on investment well above the cost of capital, significantly above the cost of capital. Therefore, the board decided that this was the right step forward for the business in the long term.
How much of a diversion is trying to grow markets so far away from home in Australia and the U.S.? I think just as we become a mature business in the U.S., and when we wrote the strategy a couple of years ago, it was the opportunity then is do we then sort of double down and run the business for cash, or actually do we continue to grow?
Do you look for adjacencies, or do you look for additional geography? Given the vertically integrated model that we have here in the U.K., what we're doing is we're leveraging that model. Frankly, whether we're shipping to Australia or shipping to the U.S., I don't actually think it matters that much. What we do have is a small dedicated team to building the partnership business that is not a distraction to the main business of running stores. I think that's evident from the results. There is a question about providing some more color about the weighing of profit towards the second half. I just want to reiterate what we mentioned earlier. Over the past three years, including this year, we have experienced a level of inflation that is above historic level, and I guess nobody could have anticipated.
In the last two years, that put GBP 35 million of additional costs in our business. This year, it's another GBP 20 million. We are committed to growing our business long term. We are committed to providing a great value proposition to our consumers at affordable prices. We are committing to increase our returns to shareholders through progressive dividends. That all is underpinned by our Simplify and Scale program, which is a multi-year program to deliver savings. Now, structure, systemic requires time. Therefore, we are not driven by fiscal year timings, but to do the right thing for the business. The second half has a higher share of our business. Therefore, it has higher costs and provides us with the opportunity to take more costs out of our business.
The second half is where we mostly bring the higher level of newness to our business, which enables us to evolve our range, including pricing. These are the fundamental reasons why at this moment, our profitability is skewed more towards the second half than it has been in the past. Given we're coming up to time, I'll just take the last couple of questions. If there's any questions we haven't got to, we're committed to coming back to people and making sure that we've answered your questions fully. Given that FY2025 Card Factory stores' EBITDA margin is lower for partnerships, is the plan to leverage the partnership to develop the distribution channels in these international markets and then capitalize by opening our own stores eventually, or to try to incrementally improve margin for partnerships?
I mean, fundamentally, the partnerships is a lower margin because effectively, we have to share that with the partner, but it also is significantly less capital intensive. From a return's perspective, it is accretive, and it is very interesting. At this point in the cycle, we do not have any plans to then say, "Okay, we have built wholesale in that country, and therefore, we will come and open stores." We want to make sure the international business that we develop, it is a capital-light model so that we manage our risk appropriately of doing business in other markets. I will just take this as the last question. The increase in energy hedge costs as a result of the expiry two-thirds throughout the year, is this a material additional cost expected in FY 2026? We annualize the cost increases in FY 2025.
Yes, there might be some inflation coming through energy prices, but we would consider that inflation as usual, which we will offset and mitigate through the tools and the program that I talked about earlier.
Very good. Thank you, everybody, for attending. Thanks for those that have attended online. Thank you all for your questions. Again, we'll just go through and make sure that we've answered anything. Anything that we haven't answered, we're happy to get back to everybody that asked. I wish everybody a pleasant onward journey. Thank you so much.
Thank you.