TIDMTHT
RNS Number : 0453M
Thorntons PLC
12 September 2012
Thorntons Plc
Announcement of Preliminary Results
Thorntons Plc ("Thorntons" or "the Company") today announced its
preliminary results for the 53 weeks ended 30 June 2012.
Financial
-- Revenues of GBP217.1 million (2011: GBP218.3 million)
-- Profit before tax and exceptional items of GBP0.9 million (2011: GBP4.3 million)
-- Exceptional items total GBP3.1 million (2011: GBP5.4 million)
consisting of impairment and onerous lease provisions
-- Net debt at period end was GBP29.1 million (2011: GBP24.5 million)
-- Dividend waived (2011: 2.20p)
Operational
-- Market share increased from 7.7% to 7.8% in a weak market
-- Actions taken to improve first half margin decline have
started to flow through in the second half
-- Own Store like for like sales declined by 3.8%. Store closure
programme on track - 36 stores closed in the course of the
financial year
-- Sales growth of 7.9% in the Commercial channel
-- Franchise channel adversely affected by a weak economy and
the administration of a major franchise partner
-- Online consumer sales increased by 9.8%
-- Production responded positively to changing market demand and manufacturing volumes maintained
Jonathan Hart, Thorntons' Chief Executive, said:
"This last year was the first of our three-year plan to restore
the Company's fortunes. Despite the challenge to profitability over
the past year, in particular during a difficult first half, the
actions we have taken have started to deliver benefits during an
improved second half. The quality of our products, our brand and
customer loyalty remain our core strengths and we are pleased that
our products continue to be as popular as ever. We do not foresee
the economic landscape improving in the near future. We have made
our plans accordingly and believe that the actions we have taken
and continue to take will deliver improvements to profitability. We
therefore approach the coming year with cautious optimism."
For further information please contact:
Nadja Vetter / Emma Crawshaw / Georgina Hall, Cardew Group T:
020 7930 0777
Chairman's statement
During the past year Thorntons has continued to operate in a
difficult trading environment as the UK economy moved into a
double-dip recession. We maintained production volumes and grew our
market share in an overall weak marketplace. This was, however,
achieved at the expense of margin and as a result profitability was
affected in particular during the first half of the financial year.
We have taken actions to improve margins and the second half of the
financial year saw encouraging year on year improvements, reviewed
in the Finance Director's report.
Sales declined by 0.5% to GBP217.1 million (2011: GBP218.3
million) and profit before tax and exceptional items was GBP0.9
million (2011: GBP4.3 million). This performance was affected by
weak consumer demand caused by a decline in discretionary income,
combined with structural problems in many of the UK's High Streets,
which continued to suffer from high vacancy rates and weak
footfall. Promotional activity remained high as shoppers sought
value. This was most evident around our key Christmas season which
negatively impacted gross margins and consequently profitability as
stated in our trading statement in December. These events
reaffirmed our three-year strategic plan to rebalance the business,
create a smaller Retail estate, revitalise our brand and, most
importantly, restore profitability.
Our strategy to rebalance the business is progressing well and
has started to bear fruit: in the second half we delivered a strong
Easter across all our channels and ended the year with good growth
in our Commercial channel and a small like for like growth in our
Own Stores. Reducing exposure to underperforming stores in weaker
locations whilst growing our sales through other channels,
specifically through our Commercial channel with our grocery
partners, is proving the right way forward for our business.
The UK High Street
Following our strategy review last year we announced that we
would reshape our Own Store portfolio having concluded that we
could trade profitably from an estate of approximately 180 to 200
stores. These stores will be located in vibrant High Streets and
malls with sustainable footfall and rents that support our business
model. Our exit from the remaining stores is progressing well and
this will continue throughout the next two financial years. The
majority of these stores will close upon their lease expiry. During
the period, 36 stores were closed at a cost of GBP1.0 million
(2011: GBP0.6 million)
In May this year our largest franchisee went into
administration. This contributed to a significant decline in
Franchise store numbers and sales in the final quarter of the year.
Our remaining franchisees, whilst similarly challenged by the
overall environment did, however, respond positively to the new
ranges and initiatives for spring 2012.
Commercial customers
Despite the challenging economic environment our business with
third party retailers, particularly the major grocers, continued to
grow both in terms of sales and market share where our leadership
of the inlaid boxed chocolate market was maintained. As we
rebalance we anticipate that this growth will continue, offsetting
the reduction in sales due to the decline in our Own Store
numbers.
Pension scheme
Following the regular triennial review the pension scheme
actuarial deficit as at 31 May 2011 increased to GBP29.4 million.
Despite regular contributions to the scheme the deficit has grown
due in particular to the impact of the Bank of England's fiscal
policy on the discount rates being applied to future liabilities.
Since the year end an agreement with the Pension Trustees has been
concluded which secures an increase in regular funding and a cash
payment of GBP1.0 million into the scheme.
Dividends
The Board is not recommending a final dividend.
Employees and Directors
I would like to take this opportunity to acknowledge the
commitment, passion and hard work of the people at Thorntons. Along
with our franchisees and commercial and business partners, I would
like to thank them all for their continued support. I would
especially like to express my sincere thanks and best wishes to
those in our Own Store teams that have had to leave us during the
past year as we proceeded with store closures. I am delighted that
we have been able to retain so many but I have been overwhelmed by
the positive approach shown by those to whom we have regrettably
had to say good-bye.
In February Mike Killick joined Thorntons as Finance Director
succeeding Mark Robson, whom I would like to thank for his positive
contribution to the business.
In February Keith Edelman joined the Board as Non-Executive
Director, bringing considerable and valuable experience in retail
and general management. Since the year end we have further
strengthened the Board with the appointment of Martin George as
Non-Executive Director with effect from 1 November 2012. Martin has
extensive experience in the marketing and commercial development of
consumer brands and we look forward to his future contribution.
With regard to the role of Chairman, I announced my intention to
retire from the Board this time last year. The Board has now asked
me to remain in role until February 2013 after which Paul
Wilkinson, currently the Senior Non-Executive Director, will
succeed me as Chairman. Paul has significant knowledge and
understanding of Thorntons, gained not least through his six years
as Non-Executive Director, and considerable FMCG and Board
experience. I am confident that he will do an outstanding job as we
continue to implement our strategy. From February 2013 Keith
Edelman will become the Senior Non-Executive Director.
Outlook
Following a difficult first half and many quarters of continuing
tough trading conditions I have been heartened by the level of
sales in the final quarter of the year. Albeit a nine-week period
that accounts for less than 12% of our sales, our Own Store like
for like sales were positive and our sales to Commercial customers
particularly strong.
We do not expect the external economic environment to improve.
However, we enter the financial year with a strong order book from
our Commercial customers for the Christmas period, trading plans
for our Own Stores and Franchises supported by new year-round and
seasonal ranges as well as having secured some new international
business. Additionally we will continue to seek margin improvements
and cost savings. Whilst we have confidence in our plans we are
mindful of the challenges in these difficult and uncertain economic
times.
John von Spreckelsen
Chairman
11 September 2012
Chief Executive's report
The past year has seen some of the most challenging economic
conditions in Thorntons' history.
Sales in the year fell by 0.5% to GBP217.1 million, partly due
to the impact of our store closure programme. Our reported pre-tax
profit before exceptional items was GBP0.9 million (2011: GBP4.3
million). Net debt at 30 June 2012 was GBP29.1 million (2011:
GBP24.5 million), partially affected by the timing of balancing
quarterly VAT payments.
Although a multi-channel strategy helps to de-risk our business,
the impact of the weakness in the economy was felt across the
Company. Consumer spending continued to be squeezed and this was
most evident during our key Christmas selling season when customers
purchased selectively which resulted in a higher proportion of
sales coming from lower priced items and promotional lines. This
had an adverse effect on both revenues and margins as our sales mix
shifted into promoted lines and we lost sales of higher priced
items. Our overall production volumes were however maintained as a
result of the changing mix between Retail and Commercial sales as
we progress our strategy.
In recent years increasing business costs, in particular raw
material costs, have put pressure on our margins. Since we produce
most of our own products, we are afforded the opportunity to
influence product costs. During the course of the year we took a
number of actions to mitigate such pressures including product and
packaging engineering, ingredient optimisation and procurement
initiatives. Although the benefits of such actions take some time
to feed through into the business we did begin to see year on year
improvements in margin during the second half of the year. We
expect these benefits to continue into the current financial
year.
Despite these strong headwinds, we have made progress with the
implementation of our strategy and delivered an encouraging second
half performance. Our share of the UK chocolate market grew further
to circa 7.8% (2011: circa 7.7%), reflecting the continued strength
of the Thorntons brand with our customers.
Strategy
The 2012 financial year saw us begin the implementation of our
new strategy, announced in June last year, which set out our plan
for the future of Thorntons. Underpinning this plan are three main
objectives:
Rebalance our sales and resources to ensure we are where our
customers want to buy from us, be that on the High Street, in
supermarkets or online. We want to meet our customers' current and
future needs, trading from a reduced but sustainable and profitable
Own Stores estate whilst growing sales across our other channels,
specifically our Commercial channel, which will become our largest
channel over the next two years.
Revitalise the Thorntons brand, developing the year-round
chocolate gifting market, whilst retaining our special reputation
for the key seasons. Through the creation of clear and consistent
brand positioning supported by outstanding new products, we want to
encourage our customers to buy from us once more per year.
Restore our profitability to industry competitive returns over
the medium to long term.
We have made good progress in implementing this three-year plan.
The past year has presented many challenges but we have been
encouraged by the way in which the business has demonstrated its
ability to cope with these difficulties. I am confident that the
core direction of our strategy is right.
The year in review
Retail
Total Retail sales including Own Stores, Franchise and Thorntons
Direct declined by 5.2% to GBP132.1 million (2011: GBP139.5
million).
Own Stores
Good progress was made with the store closure programme. During
the period, 36 stores were closed at a cost of GBP1.0 million
(2011: GBP0.6 million) and three stores were refurbished, two of
which were successful resites, resulting in a total of 330 stores
at the year end (2011: 364). We remain on track to reach our target
of 120 closures over the three-year period.
Overall Own Store sales were down 5.8% to GBP111.4 million
(2011: GBP118.3 million), reflecting the reduced estate and
declines in like for like performance. Sales in Own Stores declined
on a like for like basis by 3.8% as a result of the further
weakening of consumer expenditure and footfall. As mentioned
earlier, this was particularly apparent during the key Christmas
period.
Improvements were made in merchandising, trading and new
products. We launched a number of initiatives to improve the
customer experience including "Smiles" sampling, new "Finishing
Touches" including improved gift-wrapping service and gift creation
and our customer experience measurement programme. We believe our
strong Easter performance and improved like for like sales in the
final quarter of the year reflect the impact of these
initiatives.
During the year we opened three stores trading in a new format
focusing on year-round gifting supported by an outstanding customer
experience. Whilst it is still early days, we have been encouraged
by their performance. We have taken learnings from these stores to
improve the wider estate as well as informing future
refurbishments.
Recognising the challenging conditions in many of the more
distressed locations where we trade and may have plans to close, we
adopted a tactical trading approach which presents a simpler offer
through a reduced range supplemented by residual, short-dated and
end-of-line products. Consumers in these locations have responded
positively to these "Outlet" stores which will decrease in number
as our closure programme continues.
Franchise
Franchise sales for the period declined 7.8% to GBP10.7 million
(2011: GBP11.6 million). Our franchisees were similarly affected by
the difficult trading conditions resulting in a dampening of
prospective franchisees' appetite for investment.
During the year we were affected by the challenges facing our
major franchise partner which culminated in their administration in
May 2012. We are encouraged that this business has subsequently
been purchased by new owners.
We opened 19 new franchise locations during the year and closed
69 (of which 46 were with our major franchise partner) resulting in
177 stores at the year end (2011: 227).
A combination of the above factors meant that we have been
unable to deliver on our plan to open a franchise in the majority
of locations where we closed an Own Store. In light of this, we
have adapted our franchise offer to include a new "mini-franchise"
format, which requires less space and lower investment. This new
format has been well received and the first opened in August
2012.
Thorntons Direct
Thorntons Direct sales over the period rose by 4.2% to GBP10.0
million (2011: GBP9.6 million). Our online consumer business grew
strongly by 9.8% with good performances at Christmas and Easter.
Visitors to our website grew by 13% and orders by 15% reflecting a
further improvement in conversion levels. During the year, we put
considerable effort behind the development of a new website, which
will launch later this month. The new website will offer greater
flexibility for both us and our customers, along with opportunities
to further enhance personalisation.
Our corporate sales declined slightly as customers continued to
be cautious about their level of spending in this area.
Sales & Operations
Commercial sales
Commercial sales grew by 7.9% to GBP85.0 million (2011: GBP78.8
million). Both sales and margins came under pressure during the
year which saw the total boxed chocolate market decline by 4%.
Nevertheless, our overall market share grew by 0.2% to 11.7%*.
Whilst we maintained our position as the leading brand in inlaid
boxed chocolate with 33.1%* we placed a great amount of effort in
growing our share in the key seasons.
Our share in Christmas and Easter specialities grew considerably
to 2.7% (2011: 0.9%) and 3.9% (2011: 3.0%) respectively as a result
of strong new products and promotions*. Whilst sales of Christmas
seasonal products were positive, the overall Christmas period
failed to deliver to our expectations and we subsequently made a
number of changes to both channel management and trading plans. The
effect of this was encouraging and resulted in a strong period of
trade through Easter and the year end.
* Source: AC Nielsen July 2012
Export sales
Within this Commercial Sales performance Export sales grew by
8.3% to GBP3.9 million (2011: GBP3.6 million). Our tax- and
duty-free sales continued to grow strongly and we saw good growth
in a number of territories including South Africa and Australia.
Sales to the Republic of Ireland weakened reflecting the poor local
economic conditions.
We have now completed our strategic review of international
opportunities, the conclusions of which are presented later in this
report.
Manufacturing operations
Maintaining or growing our production volumes is a key element
of our rebalancing strategy. We are pleased that despite the
challenges of the past year we have been able to maintain our
production volumes and kept production overheads broadly flat. This
is due to the continued benefits of investment and good
manufacturing disciplines. We were able to respond quickly to
changing demand levels during the year, evidence of the inherent
flexibility of our production capability and also the skill and
experience of our outstanding Derbyshire manufacturing team. Whilst
raw material prices have fluctuated we continue to ensure that we
buy in a timely and effective way.
The outsourcing of our Warehousing and Distribution to our new
partner, DHL, was completed during the financial year and had a
positive impact on service levels, where we saw further improvement
from 97.8% in 2011 to 98.1% this year.
Brand and product innovation
Following the presentation of our strategy and the restructuring
of our Marketing and New Product Development teams under our newly
appointed Director of Brand & Customer Marketing, we have
undertaken a thorough review of our brand in the context of our
strategy and vision "to be Britain's best-loved chocolate brand
making every customer smile". We now have clarity about who we are
and what makes us different. Our customers have so many things to
say to those they care about and we want to help them say it with
chocolate. Underpinning this are our values of Creativity,
Excellence and Bringing People Together which will help inform our
people, their actions and our communication with our customers.
In this context, we have also simplified our categories, ranges
and approach to our customers which will support our activity for
next year. A full review of our brand identity has been completed
and will start to become visible over the year ahead.
New products are always of critical importance to Thorntons and
never more so than now as we seek to gain reappraisal from our
customers, encouraging them to see us as relevant all year round,
as well as for the key gifting occasions. In addition to the
significant levels of product innovation at these key seasons, the
past year saw the successful introduction of our "Little Gifts"
range of affordable chocolate gifts ideal for those "just because"
moments.
We introduced Hampers and Alphabet Truffles into our Own Stores
and Franchise channels, both of which continued to be successful
online along with further growth in sales of Photo Boxes. Our
"Perfect Hearts" along with our "Perfect Eggs" allowed our
customers to create personalised, bespoke gifts which were very
well received and our "Best of British" range, introduced for the
summer of celebration, has also been particularly successful.
In the meantime our brand remains strong. Thorntons was ranked
eleventh on the list of the most highly rated brands by UK
consumers (YouGov BrandIndex 2011). We retain the highest brand
advocacy of any premium chocolate manufacturer and our spontaneous
brand awareness reached 50% at Christmas 2011, consistently the
highest in our category (HPI Brand Tracker). Over 95% of our
customers rate their overall store experience as four or five out
of five and 89% rate their likelihood to recommend similarly (ORC
Customer Experience Survey).
Our brand and chocolate-making skills continue to win awards.
Led by our Master Chocolatier, Keith Hurdman, who continues as the
Academy of Chocolate's Chocolatier of the Year, three of our
chocolatiers won gold and silver medals at Hotelympia in the Petit
Fours class. We were also proud that our Centenary marketing
campaign was recognised by the Marketing Society and won an Award
for Excellence.
The year ahead - the second year of our plan
Rebalancing
We will continue with our Own Store closure programme and expect
to close around 40 stores over the course of the current financial
year. When store leases expire we will take advantage of
opportunities to extend our period of trading on significantly
reduced rent. Most of the stores identified for closure continue to
make a positive cash contribution, albeit an unsatisfactory one, so
we are in control of this programme and will take advantage of
short-term opportunities should they arise. We routinely review our
long-term objective and remain confident that we can retain a
sustainable and profitable Own Store estate of between 180 to 200
stores.
Our plans for our Franchise channel are not based on improvement
in the underlying economy and prospective franchisee sentiment. We
now anticipate a low percentage of franchise openings in Own Store
closure locations but are more confident of the wider opportunity
that our new "Mini-Franchise" format presents. Whilst we have not
budgeted to recover any business with our major franchise partner,
we are currently working with the new owners and have recommenced
modest levels of trading.
Thorntons Direct will be boosted by the new website launching in
September 2012, with improved functionality and improved
personalisation. We are also working further on improving our
operations and delivery services ahead of our peak trading
period.
Our ambition for the Commercial business is that it should be
able to generate over half of our overall sales over the next two
years, making it the largest channel. With a strengthened team we
are focusing on building on our positive relationships with the
major grocers, achieving broader and deeper year-round listings
supported by further strong growth in share during the key
Christmas and Easter seasons.
During the year ahead we expect to rebuild our Retailer Brand
business, an area which we have previously moved away from due to
low margins. As a result of the quality, flexibility and efficiency
of our New Product Development and Manufacturing we have secured
profitable business from retailers at home and overseas. We do not
however currently supply private label to existing commercial
customers who sell the Thorntons brand.
We have now completed our review of the opportunities for
developing our business internationally. The coming year will see
us embark upon the first stage of a long-term development programme
that has the prospect of adding significantly to the overall
profitability of the business over a three- to five-year time
frame. We have a targeted approach to a few markets where we can
learn and develop our international capabilities. Alongside the
further development of our tax- and duty-free business, we will
start with a focus on English-speaking markets where the Thorntons
brand has an existing level of awareness as well as some modest
sales. We will not export our retail format nor pursue Franchise at
this time but will invest resources solely on developing commercial
relationships. We will not incur heavy investment or start-up
losses.
We expect that rebalancing during the year ahead will benefit
growth in production volumes with manufacturing overheads remaining
broadly flat.
Revitalising
We will continue to focus our energies on improving our Own
Stores, making them the place where the Thorntons brand is brought
to life. Ahead of Christmas we will refurbish three further stores
with a refined version of our new store format. Taking learnings
from our new store format and building on last year's activity, we
will embark on further improvements to merchandising in our core
estate in the coming year. This will be supported by enhancements
to our customer engagement focus including additional support to
our new "Finishing Touches" programme.
In the autumn we launch our new boxed chocolate brand, created
to appeal to the less formal, female customer, a range that will
signal our intent to encourage new year-round purchase occasions,
expanding the market and inviting reappraisal of our brand. This
supports a strong programme of new product development that
includes a re-launch of our models range, further new "Little
Gifts", a trio of limited edition "Wow" boxes in addition to a
Christmas seasonal line-up that includes two new iconic Continental
items: our first Continental advent calendar and a magnificent
Christmas table centrepiece.
With the work on the Thorntons brand now complete we are
embarking on an extensive programme to review almost all of our
products over the course of the next year. This will deliver a step
change in our ranging, packaging and merchandising by the autumn of
2013.
Restoring profitability
Restoring profitability is our top priority. We have taken a
number of actions to rebalance our business and revitalise our
brand which we believe will deliver improved profits. We have also
invested significant effort in product and packaging engineering,
ingredient optimisation and procurement. Combined with the
restructuring and outsourcing completed during the past financial
year, these actions should positively impact margins and
profitability.
In the meantime we have created and adopted new approaches to
manage costs and cash aggressively and will continue to do so.
Jonathan Hart
Chief Executive
11 September 2012
Finance Director's report
Key performance indicators
The Board uses five key performance indicators to measure
progress in building shareholder value. These are shown below for
the last two financial years:
2012 2011
----------------------------------------- -------- ---------
Net sales movement (0.5)% 1.7%
Own Stores like for like sales growth (3.8)% (7.9)%
Profit before tax and exceptional items GBP0.9m GBP4.3m
Gross margin return on sales 44.0% 46.2%
Cash generated from operations GBP1.5m GBP14.8m
Revenue
Thorntons' sales are made through a number of channels, whose
performance is summarised below:
2012 2011 % increase/
GBPm GBPm decrease
-------------------- ------ ------ ------------
Own Stores 111.4 118.3 (5.8)%
Franchise 10.7 11.6 (7.8)%
Thorntons Direct 10.0 9.6 4.2%
-------------------- ------ ------ ------------
Total Retail sales 132.1 139.5 (5.2)%
Sales & Operations 85.0 78.8 7.9%
-------------------- ------ ------ ------------
Total sales 217.1 218.3 (0.5)%
-------------------- ------ ------ ------------
Sales for FY12 are for a 53-week financial year compared with a
52-week financial year in FY11. The 53(rd) week contributed GBP3.5
million of sales equivalent to a 1.6% increase versus the previous
year.
A detailed review of the sales performance by channel is set out
in the Chief Executive's report.
Profit before taxation
Reported profit before taxation and exceptionals fell to GBP0.9
million (2011: GBP4.3 million). Group sales fell by 0.5% to
GBP217.1 million (2011: GBP218.3 million) primarily due to the very
challenging economic environment in the financial year under
review, which led to weak consumer demand caused by a decline in
discretionary income. Group gross margins came under pressure,
falling to 44.0% (2011: 46.2%) as customers continued to seek value
and focused their purchases on promotional lines.
Exceptional items
The exceptional charge for FY12 is made up of the following
items:
2012 2011
GBPm GBPm
------------------------------------------------- ------ ------
Onerous lease provisions 1.9 2.5
Asset impairment charge 1.2 1.8
One-off charge incurred with the outsourcing of
the warehousing and distribution facilities - 0.7
Bank re-financing fees - 0.4
------------------------------------------------- ------ ------
Total 3.1 5.4
------------------------------------------------- ------ ------
As a result of the performance of Retail Own Stores during the
last two financial years, significant impairment and onerous lease
charges have been incurred. Assets are reviewed for impairment on a
regular basis and a provision made where necessary. A discounted
cash flow is calculated for each Retail store, including
attributable overheads, using the Group's weighted average cost of
capital. The net book value of assets attributable to the Retail
store is impaired to the extent that the net present value of the
cash flows is lower than the net book value.
The provision for onerous leases is held in respect of leasehold
properties for which the Group is liable to fulfil rent and other
property commitments for stores from which either the Group no
longer trades or for which future trading cash flows are projected
to be insufficient to cover these costs. Amounts have been provided
for the shortfall between projected cash flows and the property
costs up to the lease expiry date on a discounted basis.
The onerous lease provision was increased during the financial
year by GBP1.9 million (2011: GBP2.5 million) and the impairment
charge by GBP1.2 million (2011: GBP1.8 million). The lowering of
the annual charge since last year reflects both the disposal of
some of the most affected outlets in 2011 and the improvement in
Own Stores LFL sales performance to (3.8%) (2011: (7.9%)).
Underlying profit
Underlying profits for the year under review fell from GBP5.5
million to GBP2.5 million. One-off costs increased year on year
primarily as a result of there being 36 store closures in the year
under review (2011: 16).
2012 2011
GBPm GBPm
---------------------------------------------- ------ ------
Profit before taxation and exceptional items 0.9 4.3
Redundancy and restructure charges 0.6 0.6
Store closure costs 1.0 0.6
---------------------------------------------- ------ ------
Total underlying profit 2.5 5.5
---------------------------------------------- ------ ------
Gross margin return on sales
Gross profit margin percentage reduced by 2.2 percentage points
for the year to 44.0% (2011: 46.2%), reflecting contrasting half
year performances, the first half declining 4.2% and the second
half improving year on year by 1.0%. Overall in the year the
following factors contributed to this 2.2% reduction:
-- Further success in growing the Commercial channel which now
represents 39.1% of total Company sales (2011: 36.1%). These sales,
being at wholesale prices, reduce Group gross profit percentages
but enhance Group profitability as we continue to rebalance the
business.
-- Continued weakness in the economy which has seen consumer
spending squeezed and the appeal of lower priced or promoted items
grow.
-- Raw material inflationary pressures which, while less acute
than 2011, have continued, particularly in the first half.
The second half of the financial year saw the benefits of a
number of management initiatives, identified earlier in the year,
start to flow through into margin, including:
-- Manufacturing efficiencies and improved overhead cost control.
-- Product & packaging engineering and ingredient optimisation.
-- Procurement initiatives.
-- Refinement of New Product Development processes.
As part of the continued rebalancing strategy, explained in the
Chief Executive's report, we will continue to focus on growing
sales to our commercial partners, reducing our Own Store estate and
retail sales volumes to levels that will produce sustainable
long-term profits. Whilst this will have a negative impact on
reported gross margins, the net operating margins in our Commercial
channel are materially higher than those through our Own Stores
channel, primarily because of the inherently higher structural
costs of operating a retail network.
We believe that our strategy to improve overall gross margins
will address the fall in gross margin percentages seen in the last
two financial years and will benefit all of our distribution
channels. We saw some modest early improvement in the second half
of the year under review and anticipate that this trend will
continue in the coming financial year.
Half-on-half improvements
As outlined in both the Chairman's and the Chief Executive's
reports, the second half of the year under review saw a significant
reduction in the loss before exceptional items and taxation, and an
improvement in all statutory profit measures, compared to the same
period in the previous financial year.
H1 2012 H2 2012 2012 H1 2011 H2 2011 2011
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- -------- ------ -------- -------- ------
Gross profit 55.3 40.3 95.6 62.3 38.4 100.7
Operating profit 4.1 (1.3) 2.8 9.3 (3.3) 6.0
Profit before taxation
and exceptional items 3.1 (2.2) 0.9 8.4 (4.1) 4.3
------------------------ -------- -------- ------ -------- -------- ------
At the end of the first half of the year the Company reported a
pre-exceptional profit before taxation of GBP3.1 million (2011:
GBP8.4 million), in a challenging economic environment which
affected our key Christmas trading period. However, a better Easter
2012 saw second half pre-exceptional losses improve to a loss of
GBP2.2 million (2011: GBP4.1 million loss). This was the strongest
second half performance recorded by the business for three
years.
Operating expenses
Operating expenses before exceptional items reduced by 2.1% to
GBP94.3 million (2011: GBP96.4 million). As a percentage of sales,
operating expenses reduced from 44.2% in 2011 to 43.4% in 2012.
The reduction in operating expenses has come primarily from the
closure of 36 (2011: 16) Own Stores in the financial year under
review, the full year benefits of the outsourcing of the Warehouse
and Distribution function to our strategic partner, DHL, and the
restructure of our central functions. In addition we continue to
exert very tight control over all areas of discretionary costs.
During the period GBP1.0 million (2011: GBP0.6 million) of costs
were incurred in respect of the closure of 36 stores (2011:
16).
Other operating income
Other operating income decreased to GBP1.5 million (2011: GBP1.7
million), due mainly to the fall in licensing income from GBP1.3
million in 2011 to GBP1.1 million in 2012. The levels of franchise
income and rent receivable remained relatively flat year on
year.
Taxation
The GBP1.3 million (2011: GBP0.8 million) tax credit for the
year represents 59.4% of the loss before taxation (2011: 76.4%).
The credit is higher than the effective statutory rate of 25.5% and
is due to the tax effect of permanently disallowable items and the
effect of the change in the corporation tax rate applicable during
the period.
Shareholders' returns and dividends
As a consequence of the continued challenging trading conditions
and the exceptional charges, the basic loss per share equates to
1.4p (2011: loss of 0.4p).
The Board is not recommending the payment of a final dividend
(2011: 0.25p). The Board similarly proposed not to pay an interim
dividend (2011: 1.95p), resulting in no dividend payments being
recommended for the full financial year under review (2011:
2.2p).
Cash and debt
Cash generated from operations was GBP1.5 million (2011: GBP14.8
million). The main reason for this reduction was an outflow of
working capital of GBP7.9 million (2011: inflow of GBP1.7 million)
combined with lower profitability.
The Company's on-going borrowing facilities of GBP57.5 million
are committed from June 2011 to October 2015. Peak borrowings in
the year under review were GBP49.3 million (2011: GBP41.4 million)
leaving comfortable headroom against the current facilities. At 30
June 2012 all of the lending covenants have been satisfied.
Capital expenditure
Investment in fixed assets totalled GBP4.6 million (2011: GBP5.9
million), none of which (2011: GBP1.9 million) was funded through
new finance leases.
During the year under review GBP0.4 million was spent on three
new format store refits, two of which were successful re-sites. The
balance of GBP4.2 million was spent on supply chain, IT projects
and brand developments.
Pensions
The IAS 19 pension scheme deficit increased from GBP25.3 million
in 2011 to GBP29.1 million at the 2012 year end. The deficit was
reduced by GBP1.8 million due to the investment return on plan
assets and a further GBP5.5 million of employer contributions.
However, these were more than offset by service costs of GBP0.8
million, interest costs of GBP4.2 million and changes in actuarial
assumptions totalling GBP6.1 million. The scheme's deficit
continues to be adversely affected by low Gilt yields resulting
directly from the Bank of England's recent fiscal policy of
Quantitative Easing. Lower Gilt yields lead to lower discount rates
applied to the schemes projected future liabilities which result in
higher present values for these costs.
As outlined in the Chairman's report we have agreed the latest
triennial funding agreement with the scheme's Trustees. The
schedule of annual contributions has increased from GBP2.2 million
to GBP2.75 million, effective from June 2012. We have also agreed a
one-off payment of GBP1.0 million to be made in December 2012.
Mike Killick
Finance Director
11 September 2012
Directors' responsibilities statement
The Directors are responsible for preparing the Annual Report,
the Report on the Directors' remuneration and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group and Parent Company financial statements in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union ("EU"). Under company law
the Directors must not approve the financial statements unless they
are satisfied that they give a true and fair view of the state of
affairs of the Group and the Company and of the profit or loss of
the Group for that financial year. In preparing these financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable IFRS as adopted by the EU have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements and the Report on the
Directors' remuneration comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the Company's web site. Legislation in the United Kingdom ("UK")
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
A list of current directors is maintained on the Thorntons PLC
web site: www.thorntons.co.uk.
Principal risks and uncertainties
Key risks are reviewed by the Executive Directors and senior
management. The assessment of risks on the basis of likelihood and
potential impact, together with the controls and actions to manage
or mitigate them, are reviewed by the Audit Committee and Board.
The key risks and uncertainties facing the business are considered
to be as follows:
-- Economic and industry risks;
-- Key input prices driven by commodity markets;
-- Operational risks; and
-- People risks.
Further detail on these risks and uncertainties are set out in
our 2012 Annual Report and Accounts.
Consolidated income statement
53 weeks ended 30 June 2012
53 weeks ended 30 June 2012 52 weeks ended 25 June
2011
---------------------------------------- ------------------------------------
Before Before
exceptionals Exceptionals Total exceptionals Exceptionals Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ----------------- ------------- ------------- ---------- --------------- ------------- ----------
Revenue 217,144 - 217,144 218,255 - 218,255
Cost of sales (121,507) - (121,507) (117,516) - (117,516)
---------------------------- ------------- ------------- ---------- --------------- ------------- ----------
Gross profit 95,637 - 95,637 100,739 - 100,739
Operating expenses (94,349) (3,065) (97,414) (96,403) (5,158) (101,561)
Other operating
income 1,474 - 1,474 1,674 - 1,674
---------------------------- ------------- ------------- ---------- --------------- ------------- ----------
Operating profit/(loss) 2,762 (3,065) (303) 6,010 (5,158) 852
Finance income 2 - 2 11 - 11
Finance costs (1,913) - (1,913) (1,685) (249) (1,934)
---------------------------- ------------- ------------- ---------- --------------- ------------- ----------
Profit/(loss) before
taxation 851 (3,065) (2,214) 4,336 (5,407) (1,071)
Taxation credit/(charge) 846 470 1,316 (174) 992 818
---------------------------- ------------- ------------- ---------- --------------- ------------- ----------
Profit/(loss) attributable
to owners of the
parent 1,697 (2,595) (898) 4,162 (4,415) (253)
---------------------------- ------------- ------------- ---------- --------------- ------------- ----------
Loss per share
Basic (1.4)p (0.4)p
Diluted (1.4)p (0.4)p
---------------------------- ------------- ------------- ---------- --------------- ------------- ----------
Dividend per share
Note 2012 2011
----------------------------------------- ----- ------ ------
Proposed Final dividend - 0.25p
Impact on shareholders' funds (GBP'000) 3 - 167
Total dividend in respect of the year - 2.20p
Impact on shareholders' funds (GBP'000) 3 - 1,473
Paid in the year 0.25p 6.05p
Impact on shareholders' funds (GBP'000) 3 167 4,054
----------------------------------------- ----- ------ ------
Statement of comprehensive income - Group
53 weeks ended 30 June 2012
53 weeks 52 weeks
ended ended
30 June 25 June
2012 2011
GBP'000 GBP'000
------------------------------------------------------ --------- ---------
Loss for the period (898) (253)
------------------------------------------------------ --------- ---------
Other comprehensive expense:
- actuarial loss recognised in the defined benefit
pension scheme (7,197) (2,375)
- movement of deferred tax on pension liability 1,359 133
------------------------------------------------------ --------- ---------
Total other comprehensive expense (5,838) (2,242)
------------------------------------------------------ --------- ---------
Total comprehensive expense for the financial period
attributable to owners of the parent (6,736) (2,495)
------------------------------------------------------ --------- ---------
Statement of changes in shareholders' equity - Group
53 weeks ended 30 June 2012
Share Share Retained
capital premium earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------- -------- --------- --------
At 26 June 2010 6,837 13,768 5,363 25,968
--------------------------------------- -------- -------- --------- --------
Loss for the period - - (253) (253)
Other comprehensive (expense)/income:
- actuarial loss recognised in the
defined benefit pension scheme - - (2,375) (2,375)
- movement of deferred tax on pension
liability - - 133 133
--------------------------------------- -------- -------- --------- --------
Total comprehensive expense for the
period ended 25 June 2011 - - (2,495) (2,495)
--------------------------------------- -------- -------- --------- --------
Transactions with owners:
- share-based payment credit - - (110) (110)
- dividends - - (4,054) (4,054)
--------------------------------------- -------- -------- --------- --------
At 25 June 2011 6,837 13,768 (1,296) 19,309
--------------------------------------- -------- -------- --------- --------
Loss for the period - - (898) (898)
Other comprehensive (expense)/income:
- actuarial loss recognised in the
defined benefit pension scheme - - (7,197) (7,197)
- movement of deferred tax on pension
liability - - 1,359 1,359
--------------------------------------- -------- -------- --------- --------
Total comprehensive expense for the
period ended 30 June 2012 - - (6,736) (6,736)
--------------------------------------- -------- -------- --------- --------
Transactions with owners:
- share-based payment credit - - (459) (459)
- dividends - - (167) (167)
--------------------------------------- -------- -------- --------- --------
At 30 June 2012 6,837 13,768 (8,658) 11,947
--------------------------------------- -------- -------- --------- --------
Consolidated balance sheet
as at 30 June 2012
2012 2011
GBP'000 GBP'000
--------------------------------------------- -------- --------
Assets
Non-current assets
Intangible assets 2,140 2,792
Property, plant and equipment 47,221 52,667
Deferred tax assets 2,346 -
--------------------------------------------- -------- --------
51,707 55,459
--------------------------------------------- -------- --------
Current assets
Inventories 38,070 37,018
Trade and other receivables 15,467 16,017
Cash and cash equivalents 2,918 1,752
--------------------------------------------- -------- --------
56,455 54,787
--------------------------------------------- -------- --------
Total assets 108,162 110,246
--------------------------------------------- -------- --------
Equity and liabilities
Shareholders' equity attributable to owners
of the parent
Ordinary shares 6,837 6,837
Share premium 13,768 13,768
(Deficit)/retained earnings (8,658) (1,296)
--------------------------------------------- -------- --------
Total equity 11,947 19,309
--------------------------------------------- -------- --------
Liabilities
Current liabilities
Trade and other payables 27,559 32,457
Borrowings 30,354 22,886
Current tax liabilities 370 -
Provisions for liabilities 1,410 967
--------------------------------------------- -------- --------
59,693 56,310
--------------------------------------------- -------- --------
Non-current liabilities
Borrowings 1,653 3,355
Deferred tax liabilities - 599
Retirement benefit obligations 29,080 25,264
Other non-current liabilities 2,490 2,699
Provisions for liabilities 3,299 2,710
--------------------------------------------- -------- --------
36,522 34,627
--------------------------------------------- -------- --------
Total liabilities 96,215 90,937
--------------------------------------------- -------- --------
Total equity and liabilities 108,162 110,246
--------------------------------------------- -------- --------
Consolidated cash flow statement
53 weeks ended 30 June 2012
53 weeks 52 weeks
ended ended
30 June 25 June
2012 2011
Note GBP'000 GBP'000
----------------------------------------------------- ----- --------- ---------
Cash flows from operating activities
Cash generated from operations 1,497 14,823
Corporate taxation paid 628 (1,392)
Interest received - 12
----------------------------------------------------- ----- --------- ---------
Cash flows generated from operating activities 2,125 13,443
----------------------------------------------------- ----- --------- ---------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 539 46
Purchase of property, plant and equipment (4,875) (4,208)
----------------------------------------------------- ----- --------- ---------
Net cash used in investing activities (4,336) (4,162)
----------------------------------------------------- ----- --------- ---------
Cash flows from financing activities
Interest paid (2,222) (1,802)
Capital element of finance lease rental payments (2,234) (2,499)
Borrowings advanced/(repaid) 8,000 (800)
Dividends paid 3 (167) (4,054)
----------------------------------------------------- ----- --------- ---------
Net cash received from/(used in) financing
activities 3,377 (9,155)
----------------------------------------------------- ----- --------- ---------
Net increase in cash and cash equivalents and
bank overdrafts 1,166 126
Cash and cash equivalents at beginning of period 1,752 1,626
----------------------------------------------------- ----- --------- ---------
Cash and cash equivalents at end of period 2,918 1,752
----------------------------------------------------- ----- --------- ---------
Notes to the preliminary announcement
1. Basis of preparation
This preliminary announcement does not constitute statutory
accounts within the meaning of section 434 of the Companies Act
2006. The financial information for the years ended 30 June 2012
and 25 June 2011 has been extracted from the consolidated financial
statements on which the auditors have given unqualified opinions
and which do not contain statements under Sections 498(2) or 498(3)
of the Companies Act 2006. This announcement has been agreed with
the Company's auditors for release.
The financial information included in this preliminary
announcement does not include all the disclosures required by
International Financial Reporting Standard ("IFRS") or the
Companies Act 2006 and accordingly it does not itself comply with
IFRS or the Companies Act 2006.
The Group's financial statements for the year ended 25 June 2011
have been delivered to the Registrar of Companies and 30 June 2012
will be delivered to the Registrar of Companies following the
Company's Annual General Meeting.
The Group prepares its annual consolidated financial statements
in accordance with International Financial Reporting Standards
("IFRS") and International Financial Reporting Interpretations
Committee ("IFRIC") interpretations as adopted by the European
Union ("EU") and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS. There are no material
differences between the accounting policies adopted for use in the
preparation of the consolidated financial statements for the year
ended 30 June 2012, the financial information included in this
preliminary announcement and the accounting policies disclosed in
the 2011 Annual Report and Financial Statements, copies of which
are available on Thorntons plc website, www.thorntons.co.uk.
These consolidated financial statements have been prepared under
the historical cost convention with the exception of derivative
financial instruments and share based payments which are recognised
at fair value.
This preliminary announcement will be published on the Company's
website, in addition to the paper version. The maintenance and
integrity of the website is the responsibility of the directors.
The work carried out by the auditors does not involve consideration
of these matters. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
2. Exceptional items
Exceptional items comprise:
53 weeks 52 weeks
ended ended
30 June 25 June
2012 2011
GBP'000 GBP'000
Impairment and onerous lease charges 3,060 4,334
Outsourcing costs 5 687
Refinancing costs - 386
---------------------------------------------- --------- ---------
Total exceptional items 3,065 5,407
---------------------------------------------- --------- ---------
Tax credit attributable to exceptional items (470) (992)
Total exceptional items after tax 2,595 4,415
---------------------------------------------- --------- ---------
Impairment and onerous lease charges
As a result of the performance of Retail Own Stores during the
financial year, significant impairment and onerous lease charges
have been required.
Outsourcing costs
On 27 June 2011 the Group announced the outsourcing of its
distribution and warehousing functions. As the decision to sign the
contract in an agreed form had been made and approved by the Board
prior to the year end date, exceptional transition costs relating
to this contract were included in the accounts for the financial
year ended 25 June 2011.
Refinancing costs
On 24 June 2011 the Group agreed and signed new committed
bilateral revolving credit facilities totalling GBP57.5 million
with a maturity date of October 2015 to replace the existing bank
facilities of GBP52.5 million. At 25 June 2011 loans against the
existing facilities were in place, expiring by 28 June 2011, at
which point the new facility commenced. These facilities continue
to be unsecured.
The associated exceptional costs relate to professional fees for
the arrangement of the new bank facility agreements and the
write-off of remaining unamortised arrangement fees of the previous
facilities which were due to expire in August 2012.
Tax credit attributable to exceptional items
This is the tax credit arising in relation to the exceptional
items which are an allowable deduction for tax and it has been
calculated at the UK standard corporation tax rate of 25.5%.
3. Ordinary dividends
2012 2011
Group and Company GBP'000 GBP'000
-------------------------------------------------- -------- --------
Final dividend paid in respect of the 52 weeks
ended 25 June 2011 of 0.25p
(52 weeks ended 26 June 2010: 4.10p) 167 2,748
Interim dividend paid in respect of the 53 weeks
ended 30 June 2012 of GBPnil
(52 weeks ended 25 June 2011: 1.95p) - 1,306
-------------------------------------------------- -------- --------
Amounts recognised as distributions to owners of
the parent 167 4,054
-------------------------------------------------- -------- --------
No final dividend will be paid in respect of the period ended 30
June 2012.
The trusts operating the long term incentive plan scheme ("LTIP
2007") have fully waived dividends on the 504,610 (2011: 504,610)
shares held at 30 June 2012 and all but 0.01p per share on the
905,070 (2011: 905,070) shares held in respect of the 2001
Executive Share Option Scheme.
4. Reconciliation of movement in net debt
2012 2011
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Increase in cash and cash equivalents 1,166 126
Cash flows from (increase)/decrease in debt (5,766) 3,300
--------------------------------------------- --------- ---------
Change in net debt resulting from cash flow (4,600) 3,426
Inception of new finance leases - (1,894)
--------------------------------------------- --------- ---------
Movement in net debt in the period (4,600) 1,532
Net debt at beginning of period (24,489) (26,021)
--------------------------------------------- --------- ---------
Net debt at end of period (29,089) (24,489)
--------------------------------------------- --------- ---------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DGGDCSGBBGDB
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