RNS Number:5224P
Thorntons PLC
09 September 2003
9 September 2003
Announcement of Preliminary Results for
52 weeks ended 28 June 2003 (audited)
Strategic changes well underway
Thorntons PLC, the manufacturer, retailer and distributor of high quality
confectionery and other sweet foods, today reports preliminary results for the
52 weeks ended 28 June 2003.
Financial Key Points
(#m) 2003 2002 Change
Turnover #167.1 #163.8 +2.0%
Operating profit #9.4 #10.4 -9.6%
Profit before tax #6.4 #7.1 -9.9%
Operating cash flows before working
capital movements
#21.3 #23.9 -10.9%
Earnings per share (@30% tax) 6.88p 7.58p -9.2%
Earnings per share 6.80p 11.19p -39.2%
Dividend per share 6.80p 6.80p -
Net debt (#28.9) (#37.2) Down 22.3%
Gearing 67.1% 86.5% Down 22.4%
* Own shop like-for-like sales up 0.9%, despite the hot summer, an
increase of 4.5% over 2 years
* Manufacturing margin up before short-term stock discounting due to hot
weather.
* Margin after Marketing and shop operating costs up from 14.0% to
14.5%.
* Profit before tax down by 9.9%.
* At standard tax rates, earnings per share down 9.2% to 6.88p. Previous
year there were substantial tax rebates.
* Gearing down 22.4%. Now only 67.1% compared to 130.4% in 2000.
* Interest cover maintained at 3.1 times. On EBITDA basis interest cover
7.1 times.
* Dividend maintained despite profit fall. At 6.80p represents yield of
ca. 5.8%.
Strategic Key Points:
* Licensing income up strongly from #0.2m to #0.5m.
* Over 30% of all company sales by volume now go through outlets other
than Thorntons own retail estate.
* Plans for further improvements within the own-store estate well
advanced.
* In the first 9 weeks of the new financial year, commercial sales are
+24.6%, Gift Delivery Service +6.9%. Hot weather still affecting
franchise at - 7.2% and own shop like for like -1.9%. (Note: +4.9%
over 2 years)
Commenting Peter Burdon, Chief Executive, said:
"I am pleased to report that we have made significant strides in the last 12
months to deliver our objective of developing and executing a profitable and
sustainable strategy. Whilst the hottest summer since 1976 has led to recent
trading being disappointing, the underlying sales trends are positive and we
have a much sounder base to exploit the opportunities for the Thorntons brand.
Our strategy is clear and we are now well on the way to becoming a branded
manufacturer with multiple channels to market. We have a superb collection of
advantages to work with, including our brand, colleagues, supply chain, retail
network and outstanding manufacturing facilities. We are confident that these
advantages combined with the strategy can deliver enhanced earnings and cashflow
in the short and long term."
For further information, please contact:
Peter Burdon - Chief Executive, Thorntons PLC 01773 540550
Martin Allen - Finance Director, Thorntons PLC 01773 540550
Charles Ryland / Catherine Miles - Buchanan Communications 020 7466 5000
Chairman's statement
We have made significant progress over the past 12 months but this is not fully
reflected in the financial results set out below.
When we reported to you in February we clearly demonstrated that the changes we
were making to your company were delivering higher sales and margins in addition
to continued strong cash flow. That progress continued well into the second half
year. However this position changed noticeably due to high temperatures during
the final week before Easter and the hottest June since 1976 which seriously
depressed sales over Easter and Fathers Day. It was very disappointing to have
to give this news to the market at the time.
The vulnerability of chocolate sales to hot weather, particularly near a key
season, is well known and we have widened the summer product range to include
more ice cream and drinks. This reduces the impact of hot weather in weeks out
of the key seasons when sales of these products can be up to 30% of turnover,
but it does not significantly benefit seasonal sales. However, we believe that
our strategy to continue to broaden the distribution of our all year round
products through other retailers will, over the long term, help to reduce this
seasonal vulnerability. We have made good progress in starting to deliver this
strategy.
Nothing we have seen this year has caused us to question our longer term plans
to grow Thorntons as a brand and as a company. I remain very confident that the
prospects for the company are good and that the profit reduction this year has
been purely a temporary setback.
Results
Sales in the year grew by 2.0%. A small decrease in own store sales, which was
caused by the planned closure of a small number of poor performing stores, was
more than offset by growth in other channels. Like for like own store sales were
up 0.9%, an increase of 4.5% over two years. However, as explained above, own
store sales fell well short of our expectations and therefore the cost increases
outlined last year were not fully recovered. This resulted in total profit
before tax being down almost 10% on last year at #6.4m. More details are set out
in the Finance Directors Review.
Our balance sheet continues to improve with year end net debt now down to
#28.9m, an improvement of #8.3m over the last 12 months and #23.4m below our
peak in 2000.
Despite an increase in the tax rate, as expected, and therefore a fall in
earnings per share to 6.80p, your Board is recommending an unchanged final
dividend of 4.85 pence per share, resulting in a full year dividend of 6.80p,
also unchanged, reflecting our longer-term confidence.
The Board
Over the past 12 months three non-Executive Directors have left our Board for
varying reasons.
Alice Avis, who only joined the Board last year, was appointed Marketing
Director of Marks & Spencer and therefore was presented with a clear conflict of
interests. We wish her success in her new role. Fiona Harrison unfortunately had
to step down from all of her commitments due to ill health and we wish her the
very best in her recovery.
Finally Michael Thornton retired in April. Michael had been with the company
since 1957, having joined the Board in 1963 and becoming non-executive in 2000.
We have much for which to thank Michael over the years and in particular, his
work on environmental issues and as the 'social conscience' of the business. We
wish Michael a long and happy retirement.
We have appointed an external search company to seek new non-Executive Directors
to fill these positions, and we hope to be able to announce appointments soon.
Corporate governance and risk management
Our policy continues to be open and informative to all shareholders and we
welcome comments which enable us to reflect shareholder thinking in both our
forward strategy and business operations. Our Investor Relations website
(www.thorntons.co.uk/investor) is continually being updated to assist in this
process.
We recognise that following the departure of three non-executive directors
during the year, we are currently not compliant in this respect with corporate
governance best practice but are taking action to rectify this.
We continue to monitor all areas of potential risk for the business and have
plans in place to deal with these risks; details of which are set out on page
14. All risks are monitored on a regular basis by the executive team and
reviewed in detail by the full board on a regular basis. One risk is the impact
on sales due to hot weather but we continue to develop our strategy to try and
mitigate as much of this risk as possible.
Environment and the community
Our policy is that Thornton's wishes to be a 'good citizen' and our policies
reflect this. We continue to look for ways to reduce fossil fuel usage, increase
recycling of packaging and to meet other sound ethical principles. We are open
to dialogue on these issues.
The total charitable donations made in the financial year were #20,000. We make
no political donations.
Outlook
I believe firmly that we are heading in the right strategic direction. I also
believe that not only were the problems we encountered in 2003 of a short term
nature but that they demonstrated the need to accelerate our plans. The widening
of product distribution, the improvement in our own store estate and the
increased use of the excellent factory facilities can, together, offer
significant profit improvement in the coming years. Our determination is to
ensure we deliver on these opportunities.
I would like to express my thanks to all my colleagues who have worked for
Thorntons at all of our locations during the last 12 months. They remain a
dedicated, hardworking and loyal team.
Chief Executive's Report
I am pleased to report that we have made significant strides in the last 12
months to deliver our objective of developing and executing a profitable and
sustainable strategy. Whilst the hottest summer since 1976 has led to recent
trading being disappointing, the underlying sales trends are positive and we
have a much sounder base to exploit the opportunities for the Thorntons brand.
Corporate strategy
Notwithstanding our vision to be 'The UK's Leading Retailer and Distributor of
Sweet Special Foods', the reorientation of the company has led many to ask: "
What is Thorntons - a retailer or a manufacturer?" For the last 90 years or so,
Thorntons' mindset has been that of purely a specialist confectionery retailer,
vertically integrated into manufacturing and using a small part of that capacity
to provide products for other retailers. This mindset has now changed. Given
the strategic issues we face and the nature of the UK confectionery market, we
fundamentally believe that our long-term success will best come from being a
branded manufacturer operating through multiple channels to the customer. Those
channels being our own stores, franchises, Gift Delivery Service and commercial,
which includes Marks & Spencer and a fast growing list of many other retailers.
The reality we face is that the market share of confectionery sales held by
supermarkets is now just over 50% and this will continue to grow. The pattern
seen is the same as for all food types in addition to an increasing number of
non-food categories and arises from three fundamental factors. First, is the
rapid expansion of edge of town retailing space over the last 20 years, led by
the supermarkets, which has given shoppers a wide-range of alternatives to the
high street. Second, the premium on convenience is increasing. Women are still
the primary shoppers in most households and their increasing participation in
paid work means their time is evermore scarce. This inevitably leads to an ever
growing share of the household budget being spent at edge of town retail parks,
where parking is easier and many goods can be bought under one roof. The final
factor is the improvement that the supermarkets have made in the range and
quality of their offers. This again has increased the attractiveness of
supermarkets and led to many 'impulse driven categories', such as confectionery,
being purchased during the weekly grocery shopping trip. Thorntons must respond
to this trend by seeing the supermarkets and other retailers as a valuable
channel to an even broader base of potential customers.
However, it is equally important to recognise that the high street is certainly
not dying, but it is changing. Therefore our own stores and franchises will
still continue to play an important role in our future. Over the last decade,
in particular, there has been a marked increase in the number of food service
outlets on the high street - restaurants, bars and cafes. This in itself
provides an opportunity for Thorntons in the development and rollout of our cafe
format, which is discussed further later in this review. We believe strongly
that specialist retailing will still thrive with the right offer. By
specialist, we mean retailers that offer an enhanced service and in-store
environment, in addition to special products and packaging. This gives us the
lead for how we must develop the format of our stores. By enhancing the
proposition, the stores will be able to generate solid profitable growth and
act, in effect, as nearly 600 profitable advertising sites for branded product
sold though other channels. This in turn will lead to new customers being
tempted to come back to those same stores.
As we have communicated the change in strategic mindset, the following questions
have often arisen: "Will the growth of the commercial channel have a detrimental
effect on our own store and franchise sales and will the broader distribution
dilute the brand's specialness?"
On the first point, we have not seen any evidence of this and do not expect it
even as distribution widens. We believe this is the case because the stores and
franchises will have a much broader range than will be found in any of our
commercial customers. Also, our stores and franchises offer value-added
services, such as gift wrapping and icing and provide advice, guidance and
knowledge to customers. Finally, we have a very small share of the #3.4 billion
confectionery market. Over 97% of confectionery and over 91% of boxed chocolates
are currently not bought in Thorntons stores - there is much to go for.
On the question of brand dilution, brands such as Lindt and Suchard have a very
high premium rating in market research, yet are widely distributed. The key to
brand strength is the value and quality of the product and packaging,
complimented by advertising and PR which reinforces that specialness.
Strategic agenda
Our corporate strategy outlined above is implemented through the day-to-day work
of each function and a series of cross-functional strategic initiatives. In the
interim report in February I outlined our six strategic initiatives. I would now
like to give you an update on progress and illustrate how this agenda will
evolve over the next financial year.
1. Brand development and communication
Every successful consumer company has a deep understanding of its brand values -
what the brand is famous for - and makes sure that every product and every
aspect of the organisation's operation reflect them. Extensive market research
has led us to conclude that there are four key brand values for Thorntons, which
are referenced below.
Brand Consumers tell us that Thorntons is unique, that it is a brand that they love, and a
brand that they trust. Why? - simple really, we constantly meet or exceed their very
high expectations with the chocolate and confectionary we make. It is the epitome of
the quality, craft and care they associate with a specialist food company, and the
fact that it is centred around such an evocative food as chocolate only serves to
deepen their affection for the brand.
More specifically, Thorntons stands for "the art of the Chocolatier". In a world of
mass-produced mediocrity, it provides them with moments to savour for themselves and
gifts for others that never fail to delight.
The artistry and craft of The artistry and craft that sets Thorntons apart from its rivals is clear to see
the Chocolatier through the exquisite look of our products, and is re-enforced by their wonderful
tastes and textures.
We passionately believe that to make the finest products you have to use the finest of
ingredients, and use the best of modern technology blended with the artisanship of a
skilled workforce.
Every recipe is developed by our Master Chocolatier and his skilled team, and is only
launched once it meets with his approval (and believe us, he is very hard to please!)
Personal Warmth Presenting our delicious products with charm and wit is a further characteristic of
the Thorntons brand. We try to think of little touches in all sorts of ways that will
enrich the pleasure of choosing, eating or giving Thorntons products; sometimes its in
the way we make things, sometimes its in the way we say things, and sometimes its in
the way we package things. As often as possible it's in all of those ways.
Imagination Everybody in Thorntons - not just the Master Chocolatier and his team - is encouraged
to come up with new product concepts. So we find that we are never short of
innovative new ideas for great new products. The pursuit of inspiring, intriguing,
and surprising new sweet special foods is part of the fun of working at Thorntons.
Trust & Credibility Consumers trust Thorntons, our unceasing and meticulous focus on quality over the
years has earned that trust, and also provided a platform of credibility from which we
inspire our customers to try innovative new products under the Thorntons brand name.
We know that these brand values are recognised by our customers but not in a
deep enough way and they are almost unknown amongst potential new customers.
Therefore, the latter part of this initiative has been to develop the tools, for
example packaging guidelines, and the training programmes to make sure that all
aspects of our product, packaging, selling skills and other elements of the
customer proposition are aligned with these brand values. This initiative is
largely complete and will be finalised by the end of 2003.
2. Outward growth
Extending the distribution of Thorntons branded products is one of the two major
thrusts of our corporate strategy. This initiative was to determine the
implementation strategy, particularly which products should be sold into which
type of retailer, and what changes in the organisation are required to deliver
profitable growth.
Our initial exclusive agreement with Tesco has developed very well, with much
still to come. Since this successful exclusivity expired at the end of March
2003 we have secured additional listings for a wider range of impulse products
with most of the main confectionery retailers. In addition, we are preparing to
launch in 2004 a limited number of more gift orientated products, for example a
boxed chocolate and Easter egg range. Whilst the major potential is for our
confectionery manufactured at Thornton Park, we continue to increase the
royalties from our licensed products, such as cakes and desserts. From #0.2m in
2001/2, the royalties more than doubled to #0.5m last year.
Our initial success has not only confirmed that there is a strong desire by
consumers to purchase our products in other outlets but there is also an
appetite amongst our trade customers to list them, as it helps them to enhance
the profile and profitability of their confectionery sales.
The necessary organisational changes are underway and has included an
enhancement of the structure and personnel in the commercial sales area. We
also anticipate a need to improve our IT systems, which will be covered in
Project Focus below.
3. Project Focus
In the Interim Report in February, this initiative was called 'Retail support
processes', as the main objective was to enhance operational and IT systems to
enable more effective use of time in our stores. The work to date has
identified that the initial opportunity is to focus on the supply chain and at a
later date address the store based systems. We believe that we can
significantly enhance the margin and sales, particularly for outward growth, by
investment in the supply chain.
4. Product and packaging innovation
This initiative was designed to improve not only what we develop and launch but
how we can do it more effectively and efficiently. We are now seeking to
increase the proportion of New Product Development (NPD) investment in
completely new products and reduce the number of 'minor tweaks' to the existing
range. EDEN, our new range of boxed chocolates launched in February has been a
good example of our new intent, with sales in the last financial year reaching
#1.5m, without cannibalising the sales of our other ranges. Plans are now in
place for 2004 to launch a number of exciting new gift and impulse products in
existing categories as well as for new segments of the sweet food market.
5. Cafe Thorntons
We have now opened five cafes with the new concept designed in particular to
appeal to women in their 30s and 40s. The enhanced food and drink offer has
enabled sales to achieve our expectations, although we are still working on the
cost and margin structure and the ingoing investment in order to produce a
payback of 2-3 years, which all our investments must meet. Until we have
achieved this target, our rollout programme will be modest and opportunistic.
6. New sources of growth
Our work on this initiative has indicated that most opportunities have an
unattractive risk-return profile in comparison to our existing growth
initiatives, the exception possibly being exports to North America and
Commonwealth countries. However, we do not intend to commence any new work on
this front, whilst we focus on developing our potential in the UK.
This concludes the review of the strategic agenda for 2002/3. Most of the
initiatives will cease as separate projects in the next few months as they
become part of everyday life within the company.
Project Focus and Cafe Thorntons will continue as part of the new agenda, which
now includes two new initiatives.
Delivering Chocolate Heaven
Notwithstanding the operational improvements we have made in our stores, we
realise that we need to redesign fundamentally our customer's experience. The
aim is to increase the frequency of visit and spend of existing customers and
appeal to a broader cross-section of confectionery purchasers.
Our research has shown us that a major refit programme is not required at this
point though there will be some expenditure required at some stage in the coming
years. The main conclusions of the early work on this initiative are that our
store colleagues' product knowledge should be used more proactively with
customers. In addition, this skill, which is being enhanced through more
training, should be combined with more visibility for the breadth and depth of
the product range though better merchandising and substantially more investment
in tastings. In effect, we need to make our brand values more evident to our
customers.
Product margin enhancement
Over the last two years, our gross margin has increased from 52.0% to 53.1%,
this despite the higher discounting due to the hot weather. This has been
achieved by a combination of improved range, sharper pricing and more efficient
utilisation of our manufacturing assets. The margin after deducting all
marketing, distribution and store operating costs, which therefore takes out the
effect of channel mix, has increased from 13.1% to 14.5%.
The increase in volume, driven by new distribution channels, has the potential
to further enhance the net, if not the gross margin. This can be accelerated by
even greater improvement in internal processes, such as forecasting,
procurement, stock management and factory scheduling, and through more
externally focused levers such as promotions and pricing.
Summary and outlook
Our strategy is very clear. We are now well on the way to becoming a branded
manufacturer with multiple channels to market. We have a superb collection of
advantages to work with, including our brand, colleagues, supply chain, retail
network and outstanding manufacturing facilities. We are confident that these
advantages combined with the strategy can deliver enhanced earnings and cashflow
both in the short and long term. As ever, our task over the next 12 months is to
ensure sound implementation of the initiatives and more invigorating management
of the day-to-day operation, to deliver financial results that will meet
expectations.
Finally, I would like to update you on trading in the first nine weeks of the
financial year compared to the same period last year. Sales in the commercial
channel are +24.6% and in Gift Delivery Service by +6.9%, providing further
evidence of the strategic change. However, our retail and franchise channels
have continued to be affected by the above average temperatures in July and
August, as a consequence, total sales in franchise are -7.2% and like-for-like
sales in retail are -1.9%.
The financial result for the year under review marks a company with a strong
strategy and a solid foundation from which to grow and I look forward to
updating you again in January.
Finance Director's Report
As set out in the Chief Executive's report, the final results we achieved are
disappointing given the underlying improvements in the company over the past few
years.
We delivered strong results in the first half-year which were not matched in the
second for the reasons already set out above. As a result, whilst turnover rose
by 2.0%, profit before tax fell by 9.9% from #7.1m to #6.4m. Gross profit
increased by #1.3m but this was more than offset by the expected cost increases
which we outlined to you last year.
Our strong operating cash inflow of #21.3m, whilst down 10.9% on last year, has
enabled a further reduction in gearing from 86.5% last year to 67.1%. This
compares with 130.4% at the end of 2000.
Headline earnings fell from 11.19p per share to 6.80p as tax rose. At a standard
30% tax rate the fall was -9.2%.
We maintained interest cover at 3.1 times. Using Earnings Before Interest Tax
Depreciation and Amortization (EBITDA) as a measure, interest cover was a
comfortable 7.1 times.
Sales
Total company sales rose by 2.0% to #167.1m.
Within own stores the underlying like for like improvement was +1.6% in the
first half year, including Christmas, and was running at +3.6% until the record
temperatures damaged sales from Easter onwards. The final full year result was
+0.9%, a +4.5% increase over two years after a number of years of decline.
In line with our strategy of focusing on our best performing stores we also
closed 12 stores and opened six in the year to reduce the estate from 395 to
389. Over the next few years, as we continue to close non-core stores, we expect
the total store numbers to fall slightly with some of these being transferred to
franchised outlets. This will result in a non-cash impacting asset write down
which we will seek to mitigate, in part, through the sale of other sites where
rent reviews may make certain sites uneconomic.
We continue to increase the Franchise estate and drive like for like sales
harder through more dedicated support to our partners. Total sales rose by 8.8%
and the estate increased from 181 to 198.
Private label sales increased by 3.3% to #12.6m after a number of years of
decline when lower margin products were being discontinued.
Sales of Thorntons branded products through other retailers increased by 93.8%
to #3.1m, driven largely by the sale of six bars sold on an exclusive basis
through Tesco stores.
Gift Delivery Service continues to grow rapidly by 26.2% to #5.3m.
Own store sales fell to 80.1% of total sales from 82.1% last year, reflecting
the shift in longer-term strategy towards multi-channel distribution. It should
be noted that we sell through our own stores (and Gift Delivery Service) at
retail prices but through other channels at wholesale levels. Therefore,
measured by volume, around 30% of total sales are currently delivered outside
our own store estate.
Royalty income, from licensed sweet special foods sold through other retailers,
increased strongly to #0.5m from #0.2m last year.
Margin
Gross profit was 53.1% of sales which compares with 53.4% last year.
The underlying product mix was stronger than last year and cost of production
per unit lower. Higher discounting and price lead promotions, to ensure stock
levels were kept in balance when sales failed to meet our expectations, offset
this benefit. Final stock levels, at #13.7m, were 2.9% below last year.
In contrast, the margin after deducting all marketing and store operating costs
continued to show improvements. This margin increased to 14.5% (2002:14.0%) as a
result of continued good cost control within our own store estate and higher
sales levels through other channels, which incur low overheads and investment
requirements. Despite a high number of rent reviews completed during the year
our total rents, rates and services charge bill increased by only 1.2% to
#27.0m. Depreciation costs also continue to fall given our relatively aggressive
policy on asset lives combined with low capital expenditure over the past few
years.
Other costs
We outlined last year that we were faced with a number of cost pressures outside
our control plus a series of strategic investments necessary for longer-term
growth.
In particular, the cost of insurance cover and pension contributions rose by
#0.9m. National Insurance contributions rose from April which adds #0.5m to our
wage bill in a full year.
Investment in IT systems has also increased in order to continue to replace
outdated technology and prepare the company to meet our forward plans. Working
with our outsource partner, EDS, we have identified through project FOCUS a
series of requirements over the coming years to ensure the consistent quality
and reliability of data at a cost which is affordable to Thorntons.
Profits and tax
Profit before tax fell by 9.9% to #6.4m. As outlined in the Trading updates
given to the market in May and July, our expectations were dampened late in the
year by the record temperatures prior to which we had fully expected to continue
the profit growth delivered last year and at the half year. There were a number
of one-off costs and benefits in both years but with little net impact on the
above result in either year.
As expected, the net tax rate in the financial year rose to 30.8%, which results
from a basic rate of 36.3%, a 7.8% credit in respect of prior years and a 2.3%
charge for deferred tax. In the previous year the net tax rate was positive
given high levels of capital allowances and prior year adjustments.
Dividends and shareholder returns
Earnings have fallen to 6.80 pence per share but in view of our confidence in
the strategic direction and also underlying cashflow, the Board is recommending
an unchanged full year dividend of the same amount. At the closing 28th June
share price of #1.17p, this translates to a gross yield of 5.8%
Cash
A fundamental part of the company strategy over the past few years has been cash
management to reduce borrowings, depreciation and interest costs.
Over the last year gearing has once again fallen from 86.5% to 67.1%. Gross
fixed asset additions were #6.8m, a similar level to the previous two years,
some of which were financed through leasing.
Capital additions were 56% of the depreciation charge. Working capital also fell
by #3.5m as at 28th June 2003 compared to 29th June 2002. It should be
recognised this is purely a snapshot at a point in time and the aim is to
continue to reduce borrowings throughout the year, despite the various seasonal
peaks and troughs. The interest cost reduction during the last financial year
was #0.3m despite lower returns on UK cash deposits. A further, scheduled, #7.9m
repayment of the US loan notes was completed in March 2003.
Outlook
We continue to drive down borrowings, improve margins and look for new channels
to market which do not demand high capital investment. Our balance sheet
continues to strengthen, our cashflow is strong and our underlying costs are
under control. We have also begun to deliver higher shareholder returns over the
last 2 years. We aim to maintain this momentum.
Consolidated profit and loss account
for 52 weeks ended 28 June 2003
For 52 weeks ended 28 June For 52 weeks ended 29 June
2003 2002
#'000 #'000
Turnover 167,095 163,800
Cost of sales (78,356) (76,327)
Gross profit 88,739 87,473
Other selling and distribution costs (64,575) (64,548)
Net (charge)/credit to onerous lease provisions (29) 443
Selling and distribution costs (64,604) (64,105)
Administrative expenses (15,507) (13,378)
Other operating income 816 420
Operating profit 9,444 10,410
Interest receivable and similar income 107 422
Interest payable and similar charges (3,156) (3,718)
Profit on ordinary activities before taxation 6,395 7,114
Taxation (1,972) 238
Profit on ordinary activities after taxation 4,423 7,352
Dividends (4,422) (4,435)
Retained profit for the period 1 2,917
Basic earnings per ordinary share (pence) 6.80 11.19
Fully diluted earnings per ordinary share (pence) 6.64 11.09
Dividend per ordinary share (pence) 6.80 6.80
Continuing operations
All amounts above relate solely to continuing operations.
Historical cost results
There was no material difference between the profit on ordinary activities
before taxation and the retained profit for the period disclosed above and the
equivalent results on an unmodified historical cost basis.
Total Recognised gains and losses
There were no material gains and losses incurred during the period other than
the retained profit for the period included in the consolidated profit and loss
account above.
Balance sheets
As at As at
28 June 2003 29 June 2002
#'000 #'000
Fixed assets
Tangible assets 81,890 87,444
Investments in own shares 1,348 1,452
Investments in subsidiaries - -
83,238 88,896
Current assets
Stocks 13,659 14,073
Debtors 12,659 10,743
Cash at bank and in hand 4,552 3,520
30,870 28,336
Creditors: amounts falling due within one (39,926) (35,409)
year
Net current liabilities (9,056) (7,073)
Total assets less current liabilities 74,182 81,823
Creditors: amounts falling due after one (22,400) (30,208)
year
Provisions for liabilities and charges (8,766) (8,600)
Net assets 43,016 43,015
Capital and reserves
Share capital 6,656 6,656
Share premium 12,400 12,400
Revaluation reserves 475 485
Profit and loss account 23,485 23,474
Equity shareholders' funds 43,016 43,015
These financial statements were approved by the Board of Directors on 8
September 2003 and were signed on its behalf by:
C J Thornton M C Allen
Chairman Finance Director
Movements in shareholders' funds
for 52 weeks ended 28 June 2003
2003 2002
#'000 #'000
Profit after tax attributable to shareholders 4,423 7,352
Dividends (4,422) (4,435)
Retained profit attributable to shareholders 1 2,917
New share capital issued - 1
Net increase in shareholders' funds 1 2,918
Opening shareholders' funds 43,015 40,097
Closing shareholders' funds 43,016 43,015
Consolidated cash flow statement
for 52 weeks ended 28 June 2003
2003 2002
#'000 #'000
Cash inflow from operating activities 24,860 21,160
Returns on investments and servicing of finance (3,225) (3,489)
Taxation (2,727) 507
Capital expenditure and financial investment (2,337) (2,754)
Equity dividends paid (4,422) (4,486)
Cash inflow before use of liquid resources and financing 12,149 10,938
Management of liquid resources 1,792 (2,292)
Financing - issue of shares - 1
- decrease in debt (11,132) (10,752)
Increase/(decrease) in cash in the period 2,809 (2,105)
Reconciliation of net cash flow to movement in net debt
for 52 weeks ended 28 June 2003
2003 2002
#'000 #'000
Increase/(decrease) in cash in the period 2,809 (2,105)
Cash outflow from decrease in debt 11,132 10,752
Cash (inflow)/outflow from (decrease)/increase in liquid (1,792) 2,292
resources
Change in net debt resulting from cash flows 12,149 10,939
Inception of new finance leases (3,835) (3,675)
Translation difference 15 58
Movement in net debt in the period 8,329 7,322
Net debt at beginning of period (37,193) (44,515)
Net debt at end of period (28,864) (37,193)
Notes to the financial statements
1 Turnover and segmental analysis
2003 2002
#'000 #'000
Turnover, originating in the UK, sold to:
United Kingdom 164,556 163,250
Europe and the rest of the world 2,539 550
Total Turnover 167,095 163,800
Profit before taxation and net assets relate solely to continuing operations in
the UK.
2 Other Operating Income
2003 2002
#'000 #'000
Rents receivable 114 109
Licensing royalties 540 189
Other amounts receivable 162 122
Other operating income 816 420
Additionally, #460,000 (2002: #294,000) of income, shown within Selling and
Distribution costs, has been received in the period for 3rd party haulage.
3 Operating profit
2003 2002
#'000 #'000
Operating profit is stated after charging:
Depreciation of owned tangible fixed assets 8,498 10,270
Depreciation of tangible fixed assets held under finance lease 3,472 3,103
Amortisation of investments in own shares 104 113
Operating lease rentals - land and buildings 18,196 18,035
- Other 825 758
Hire of Plant and Machinery 93 102
Rents payable in relation to store turnover 444 415
Auditors' remuneration- parent company 60 58
- other 2 2
Corporation tax fees paid to auditors 97 87
Other non audit remuneration paid to auditors 72 58
(Profit)/Loss on disposal of fixed assets (192) 405
Notes to the financial statements (continued)
4 Net (charge)/credit to onerous lease provisions
2003 2002
#'000 #'000
Asset created for new onerous lease sublet receivables - 6
Provision released on exit from onerous leases - 437
Provision created during period (29) -
Net (charge)/credit to onerous lease provisions (29) 443
There were no new onerous lease obligations incurred during the period (2002:
#nil)
5 Interest receivable and similar income
2003 2002
#'000 #'000
Interest on bank deposits 82 126
Interest on tax repayments 5 235
Exchange differences and other interest receivable 20 61
Interest receivable and similar income 107 422
6 Interest payable and similar charges
2003 2002
#'000 #'000
Bank loan and overdraft interest on amounts wholly repayable within one year 273 260
Unsecured loan note interest payable at fixed 7.35% 2,043 2,758
Unsecured loan note interest payable on additional premium (see below) 213 91
Exchange differences and other interest 17 30
Interest on finance lease repayments 610 579
Interest payable and similar charges 3,156 3,718
Following the grading of our loan note issue at a level below initial
expectations we have agreed with the subscribers an additional US dollar 0.25%
premium on the $65 million loan note issue, effective from 9 January 2000 until
31 March 2007, which is outside of our currency and interest rate swap
arrangements.
7 Taxation
2003 2002
#'000 #'000
UK corporation tax at 30% (2002: 30%) 2,324 2,605
Adjustments in respect of previous periods (500) (2,043)
Overseas taxation - 4
Current taxation 1,824 566
Deferred tax (see note 23) 148 (804)
Total Taxation 1,972 (238)
The tax assessed for the period is lower than the standard rate of corporation
tax in the UK (30%). The differences are explained below:
2003 2002
#'000 #'000
Profit on ordinary activities before tax 6,395 7,114
Multiplied by standard rate of corporation tax in the UK (30%) 1,919 2,134
Effects of:
Adjustments in respect of previous periods (500) (2,043)
Non-taxable income (14) (90)
Expenses not deductible for tax purposes 410 455
Depreciation in excess of capital allowances 180 347
Non-taxable profits on sale of fixed assets (189) (79)
Other timing differences 18 (158)
Current taxation 1,824 566
Future tax charges are expected to marginally increase due to lower levels of
eligible depreciation on fixed assets and increased levels of disallowable
items.
Notes to the financial statements (continued)
8 Dividends
2003 2002
Dividend per Dividend per 2003 2002
share share #'000 #'000
10 pence ordinary shares:
Interim Paid 1.95p 1.95p 1,268 1,282
Final Proposed 4.85p 4.85p 3,154 3,153
Total Dividends 6.80p 6.80p 4,422 4,435
The trusts operating the LTIP and 2001 Executive Share Option Scheme have waived
all but a nominal sum as dividends on the 1,541,808 (2002 :1,541,808) shares in
their possession at the year-end. As such no dividend has been accrued for these
shareholdings although additional amounts have been provided in anticipation of
the conversion of share options.
9 Earnings per share
The calculations of earnings per share are based on the
following profits after taxation:-
2003 2003 2002 2002 2002
2003 Basic Fully Basic Fully
Results earnings diluted Results earnings diluted
per share earnings earnings per
#'000 per share #'000 per share share
Profit before onerous leases credit 4,443 6.83p 6.67p 7,042 10.72p 10.62p
Onerous leases credit (20) (0.03p) (0.03p) 310 0.47p 0.47p
Profit on ordinary activities 4,423 6.80p 6.64p 7,352 11.19p 11.09p
Weighted average number of shares:
2003 2002
Number of Ordinary Number of Ordinary
Shares Shares
Basic weighted average number of ordinary shares 65,021,748 65,721,596
Dilutive effect from share options* 1,635,043 551,284
Fully diluted weighted average number of ordinary shares 66,656,791 66,272,880
* Average market price of the Group's shares during the #1.2310 #1.0130
period
10 Reconciliation of operating profit to net cash inflow from operating
activities
2003 2002
#'000 #'000
Operating profit 9,444 10,410
(Profit)/loss on disposal of fixed assets (192) 405
Depreciation charges 11,970 13,373
Amortisation charges 104 113
Non-cash movements in provisions - (443)
Operating cash flows before working capital movements 21,326 23,858
Cash flows relating to previous years provisions 18 (33)
Decrease/(increase) in stocks 414 (853)
Increase in debtors (1,916) (1,674)
Decrease/(increase) in creditors 5,018 (138)
Net cash inflow from operating activities 24,860 21,160
Notes to the financial statements (continued)
11 Analysis of net debt
At Other At
non-cash
29 June Cash changes Exchange 28 June
2002 flow movement 2003
#'000 #'000 #'000 #'000 #'000
Group : For the 52 weeks ended 28 June 2003
Cash at bank and in hand 1,228 2,809 - 15 4,052
Debt due within one year (7,915) 7,915 (7,915) - (7,915)
Debt due after one year (23,744) - 7,915 - (15,829)
Finance leases (9,054) 3,217 (3,835) - (9,672)
(40,713) 11,132 (3,835) - (33,416)
Cash on deposit 2,292 (1,792) - - 500
Total Net Debt (37,193) 12,149 (3,835) 15 (28,864)
At Other At
non-cash
30 June Cash changes Exchange 29 June
2001 flow movement 2002
#'000 #'000 #'000 #'000 #'000
Group : For the 52 weeks ended 29 June 2002
Cash at bank and in hand 3,275 (2,105) - 58 1,228
Debt due within one year (7,915) 7,915 (7,915) - (7,915)
Debt due after one year (31,659) - 7,915 - (23,744)
Finance leases (8,216) 2,837 (3,675) - (9,054)
(47,790) 10,752 (3,675) - (40,713)
Cash on deposit - 2,292 - - 2,292
Total Net Debt (44,515) 10,939 (3,675) 58 (37,193)
Major non-cash transactions
During the period the Group entered into finance lease agreements in respect of
various fittings, plant and equipment with capital values at the inception of
the leases of #3,835,000 (2002: #3,675,000).
12 Annual Report 2003
The financial information above does not constitute the Group's financial
statements. Financial statements for the 52 weeks ended 28th June 2003 and the
52 weeks ended 29th June 2002 have been reported on without qualification by
PricewaterhouseCoopers, the Group's independent auditors. Financial statements
for the 52 weeks ended 29th June 2002 have been delivered to the Registrar of
Companies and the financial statements for the 52 weeks ended 28th June 2003
will be delivered in due course.
The Annual Report 2003 will be posted to shareholders by the first week of
October 2003. Copies for general release will also be available from the Company
Secretary, Thorntons plc, Thornton Park, Somercotes, Alfreton, Derbyshire, DE55
4XJ, at that time.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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