Thorntons PLC - Interim Results - Part 1
March 07 2000 - 2:05AM
UK Regulatory
RNS Number:7767G
Thorntons PLC
7 March 2000
PART I
THORNTONS PLC
Announcement of Interim Results
for the 28 weeks ended 8 January 2000
Thorntons plc, the speciality retailer and manufacturer of high
quality chocolate, toffee and other confectionery, today reports its
Interim Results for the 28 weeks ended 8 January 2000.
Key Points
* Sales up 7.5% at #94.3 million, Own Shop sales up 9.3%
* Underlying like-for-like sales up 0.6%, Christmas up 3.9%
* New and value product introduction doing well, but at a cost
to margins
* Over 100% growth in e-commerce
* Profit before tax fell to #10.1 million from #12.1 million
* EPS down 14.5% but dividend held at 1.95 pence
* Revised strategic emphasis:-
* more new products
* more joint shops
* slower own shop expansion
* e-commerce - expansion and separation
* exploring other commercial opportunities
Commenting John Thornton, Chairman, said:
"The market is changing and is increasingly demanding novelty,
value and creativity and we are responding to that challenge.
We are also exploring other avenues to maximise and benefit
from the increasing strength of the Thorntons brand name
and its reputation for quality, taste, specialness and
suitability for gifting. Our challenge is to extend further
our offer, product range and availability for every-day purchase,
whilst ensuring a strong focus on future profitability.
The Board is confident that the current issues are being
addressed and new products already in the shops appear to
support that confidence. This year profit will be adversely
affected but we believe the steps being taken, including the
change in strategic emphasis, will be to the medium term benefit
of shareholder value."
Contact:
John Thornton, Chairman 0171 466 5000 on 7 March
Martin Allen, Finance Director thereafter on 01773 540550
Charles Ryland/Kirsty Robeson
Buchanan Communications 0171 466 5000
CHAIRMAN'S AND FINANCE DIRECTOR'S STATEMENT
The 28 weeks to 8 January 2000 reflected clear benefits from New
Product Development evidenced through sales recovery at the key
Christmas season, but at the cost of increased promotion and
marketing expenses. This trend has continued into the second half
of the year.
It is also clear that, outside the key gifting seasons, we are
performing less well and need to attract more customers than
currently by offering new everyday products, particularly
family-share' or value offers, in addition to providing
more novelty and excitement in our shops.
Our revised view of this retailing pattern, and our second half
year reliance on absolute sales levels, caused us to
issue our Trading Statement on 25 February 2000, advising
the market that we would not expect to meet last year's
full year profit level of #10.5 million. As a result we
have also revised our future plans and are announcing
some refinements to our previous strategy.
RESULTS (before Exceptional Items)
Overall sales in the 28 weeks rose to #94.3 million, an
increase of 7.5% compared with the same period last year.
Operating profit from continuing operations fell
6.0% to #12.4 million over the same period, and profit
after exceptional items fell by 4.9% to #12.2 million.
As a result of the last 2 year's capital investments, interest
costs rose, though borrowings have significantly reduced
since June, from #50.7 million to #39.5m. Profit before
tax fell by 16.9% to #10.1 million.
The tax rate, including prior year credits, reduced to 21.5%
(1999: 24.1%) as a result of the continued benefit
from capital allowances on the infrastructure investments.
Profit after tax fell by 14.1% to #7.9m.
Sales Performance
Own shop sales rose by 9.3% in the 28 weeks. Underlying
like-for-like declines of +3.6% in the first 3 months,
as expected, recovered over the Christmas period to +0.6%
overall for the half year.
Without a significant new product stream, day-to-day
performance since December has continued to be driven by
promotional offers. Sales recovered however at Valentine's
Day, as a result of new product introductions, with underlying
like-for-likes of +3.9% and also in recent weeks with the
introduction of Toffi-Chocs, the first of a number of
new day-to-day product initiatives. Underlying like-
for-like sales in the second half, excluding the Valentine's
season, are now +2.9%.
The total number of shops trading at the end of January was
408, a net increase of 18 since June 1999. We now have
20 Cafi Thorntons including 7 new ones.
Whilst the number of Franchise locations has now increased
to 120 from 115 over the last 6 months, net sales fell by
22.3% compared to last year, in part mirroring the retail
issues above, but also the lower overall number since last
year when there were 138. Including mail order and e-commerce,
Commercial sales rose by 6.0% to #11.7m.
A combination of improved production efficiency but higher
promotional needs and change in mix has led to overall gross
profit margins being slightly ahead of the same 28 weeks
last year at 55.6% (1999: 55.2%).
Exceptional Items
In the period to January we disposed of 3 empty
properties, previously provided for as onerous leases
under FRS12 accounting convention. Their disposal has
enabled the release of #0.8 million of provisions shown
separately under exceptional items in the accounts.
The Belper site, now largely vacated, except for toffee,
fudge and hard-boiled production, has also been disposed of,
post 8 January 2000, for approximately #1.7 million.
The loss against book value is #1.1 million and has
been provided for in full. Thorntons will continue to
lease part of this facility until mid 2003 at the latest,
by which time remaining production will have transferred to
Thornton Park.
Balance Sheet and Cash Flow
Net assets at 8 January 2000 totalled #54.3 million, a rise of
8.3% over 9 January 1999 (restated).
Operating cash inflows were again very strong at #19.7
million before working capital movements. As a result
of capital expenditure falling from #26.7 million in the
same six months last year, to only #5.6 million this year,
there was a Net Cash Inflow, before financing, of
#11.4 million, against an outflow of #7.9 million last
year.
This has significantly improved net debt from #50.7 million
in June 1999 to #39.5 million in January. Gearing has
improved from 105.4% to 72.7% since June and compares
with 77.8% at January 1999.
Dividend
As a result of the reduced Profit Before Tax, your Board
has declared an Interim dividend of 1.95 pence per share,
unchanged from last year. This Interim dividend will
be paid on 28 April 2000 to shareholders on the register
at the close of business on 17 March 2000.
CHANGE IN STRATEGIC EMPHASIS
In order to focus on the restoration of strong profitable
growth in the shortest possible time, we are making the
following changes in strategic emphasis:
E-Commerce
Over the 28 weeks, compared to the same period last year,
we have seen growth of over 100% from the combined Mail Order,
Internet and, more recently launched, Open TV sales channels,
with total revenue of over #1 million in the period.
This has reinforced our view to accelerate the development
of these opportunities, which include non- confectionery sales.
Currently, whilst we grow the e-business, it adversely effects
the profitability of the core business, nor can we put the
resources necessary behind it.
For this reason we have appointed external advisors to
recommend the best way to develop and fund this operation,
to maximise its success and the generation of shareholder
value. The intention is to physically and functionally
separate this operation from the mainstream business
into a separate corporate entity. This will allow it to
be developed more aggressively, in keeping with the new
market dynamics and to operate under a reinforced,
dedicated, management team.
Day-to-Day Sales
The emphasis behind the existing New Product Development
initiatives to generate day-to-day sales will be increased
together with an additional strong focus on the family-share
market. This is an important and growing part of the
confectionery market in which currently we are very
under represented.
Small Catchments
Franchise has traditionally been a very profitable segment of our
business. However the number of franchise stores have declined
significantly over recent years. We have been experimenting
in small catchments with joint shops in conjunction with
the Birthdays Group (greetings cards). These shops, due
primarily to the lower rents normally available in these
catchments and the attractiveness of the joint offer,
have proved successful and profitable. We have therefore
agreed with the Birthdays Group to pursue a rapid roll-out
of these units.
Own Shops
In the light of our focus on the performance of existing
shops, our forward opening plan will be slower than previously
indicated. We will be concentrating openings on the most
profitable opportunities, resites will be minimised and
refits concentrated on units where a space advantage can
be achieved. Funds will be directed at in-store improvements
in existing stores to enhance the customer shopping
experience, including Cafi Thorntons.
Commercial
Sales via third parties remain a very important and
profitable part of our business. We are currently
exploring opportunities to grow this business more rapidly.
Capital Expenditure
Future capital expenditure will be focused
clearly on profit enhancement, whilst also aiming to
significantly reduce gearing levels, interest and the
rate of growth of depreciation.
BOARD
Roger Paffard, Chief Executive, left the Company by
mutual agreement on 29 February 2000. We would like to thank
him for his contribution to the Company and wish him well
for the future. A search for his successor is already
underway. In the interim John Thornton, Chairman,
will assume direct management responsibility.
We are delighted to welcome Helen Wilcox who joined
the main board as Marketing Director on 10 January 2000.
Helen joins us from Asda where she held various
senior positions, including Head of Advertising
and Stores Marketing; General Manager, Hypermarkets;
Sales Director, George Clothing and latterly
General Manager, Communications. She started her career
with J. Sainsbury and moved to Wm Morrisons in 1989
where she was Company Brands and Marketing Manager.
Michael Thornton, Deputy Chairman and Company Secretary, will
be retiring as an Executive Director on 18 March 2000,
after 42 years service. We are delighted he has agreed
to continue to contribute to the Company, as a
non-executive director.
We would particularly like to thank all our employees
for their hard work and dedication, especially during
such a difficult period.
OUTLOOK
Whilst the gradual recovery of sales growth, especially
at key seasons, and the success of new products are
both welcome, the profit performance is disappointing.
The market is changing and is increasingly demanding
novelty, value and creativity and we are responding to
that challenge. We are also exploring other avenues to
maximise and benefit from the increasing strength of the
Thorntons brand name and its reputation for quality,
taste, specialness and suitability for gifting. Our
challenge is to extend further our offer, product
range and availability for every-day purchase, whilst
ensuring a strong focus on future profitability.
Your Board is confident that the current issues are
being addressed and new products already in the
shops appear to support that confidence. This
year profit will be adversely affected but we
believe the steps being taken, including the change
in strategic emphasis, will be to the medium term
benefit of shareholder value.
John Thornton Martin Allen
Chairman Finance Director
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