Thorntons PLC
For immediate release
15 February 2012
Thorntons Plc (“Thorntons” or “the Company”) Announcement of Interim Results Thorntons today announced its interim results for the 28 weeks ended 7 January 2012. Financial Revenues of £130.0 million (2011: £133.5 million) Profit before tax and exceptional items of £3.1million (2011: £8.4 million) Exceptional items total £2.4 million (2011: £0.1 million) consisting of impairment and onerous lease provisions A higher proportion of sales came from lower priced items and promotional lines which had an adverse effect on both revenues and margins Cash flows from operating activities £11.6 million (2011: £20.8 million) Net debt at period end was £16.2 million (2011: £14.0 million) Interim dividend waived but firm commitment to return to progressive dividend in the future (2011: 1.95p) Trading since the period end has been in line with expectations
Operational Demonstrated strength and customer appeal through significant market share gain from 7.1% to 7.7% in Boxed and Seasonal chocolate through the peak sales season Significant success in our new seasonal ranges in Commercial channel particularly with Advent Calendars, Santa and Reindeer models Actions taken to improve margins which will flow through in 2012 Store closure programme on track – 20 stores closed in the period Successful launch of new products in Retail including Hampers and ‗Little Gifts‘ supporting all year round sales Improved the quality of store merchandising, including new ‗browsing tables‘, and introduced new customer engagement programme Positive customer response to new store prototype Developing a new Thorntons Direct website for launch in Spring and a more accessible franchise programme to further broaden appeal
Thorntons’ Chief Executive, Jonathan Hart, commented: ―Our vision for the Company is clear. We are pursuing our chosen strategy and have made good progress in implementing it while weathering a difficult market. These results and the economic climate only reaffirm the need for change. We have a well-managed balance sheet, quality assetbacking and good cash generation. The Board is confident that Thorntons has the expertise and the resources to successfully complete this transformation and restore profitability.
―Thorntons has strong brand equity with a widespread consumer appeal. While our sales emphasis will develop through our Commercial channel, our reduced retail estate will remain an important shop window for the brand. ―The economic and retail environment will remain challenging and uncertain for the foreseeable future, certainly through 2012, but we are encouraged by our strong range for the remaining key spring trading seasons of Mothers Day and Easter and have a strong order book to support this.‖
For further information please contact: Nadja Vetter / Emma Crawshaw, Cardew Group
T: 020 7930 0777
This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, the Company undertakes no obligation to update or revise these forwardlooking statements. Nothing in this document should be construed as a profit forecast. The Company and its directors accept no liability to third parties in respect of this document save as would arise under English law.
Interim Management Report Introduction In June last year we set out our vision for the future of Thorntons and we remain committed to rebalancing the Thorntons business, creating a smaller retail estate, revitalising the brand and restoring profitability. During the first half of our financial year we made good progress in implementing this strategy. Our closure programme is on track and we are encouraged by the positive customer response to our new store prototype, which traded strongly over the Christmas season. Thorntons has a well-managed balance sheet, quality asset backing and good cash generation. The Board is confident that Thorntons has the expertise and resources needed to complete this transformation successfully and restore profitability. During the period under review profit before tax and exceptional items was £3.1 million (2011: 1 £8.4 million ). The Christmas season remains the key trading period for our Company and, in common with many other retailers, the weak economy affected customer behaviour in each of our sales channels. This manifested itself by selective purchasing and trading down into the promotional lines which had an effect on both sales and margins. Having considered the current and future capital requirements of the business, the Board has decided not to recommend an interim dividend (2011: 1.95p). The Board will return to a progressive dividend policy as soon as the trading and prospects of the business allow. Thorntons retains a strong brand and a widespread consumer appeal. In a weak seasonal chocolate market we made and sold more chocolate than ever before and increased our market share in the Commercial channel from 7.1% to 7.7%. We will create the right balance for a sustainable and profitable business by leveraging the strength and flexibility of our multi-channel approach. Over the next three years the Commercial channel will become our main sales channel, with our Own Stores estate contracting by at least 120 stores, while we explore opportunities to close up to a further 60. The cost of closing 120 stores on lease expiry is forecast to be £4-£5 million; with the cost being recognised at the point of each closure, funded through the Company‘s cash flow. These closures will ultimately deliver an Own Store estate of between 180 and 200 stores in sustainable retail locations, which will continue to play a key role as shop windows for our brand with a contemporary focus on all year round gifting. The learning from our prototype store will inform a refurbishment programme that will progress during 2012 and beyond. Supporting our transformation with innovative and high quality chocolate products remains a top priority. Our Master Chocolatier is one of the best in the country and we have a strong pipeline of exciting new products for our customers in 2012. Retail Own Stores During the period, Own Store sales reduced by 7.9% to £68.3 million (2011: £74.1 million). Like for like sales decreased by 5.5% (2011: -5.2%). Sales and margins were below our expectations as cost-conscious consumers purchased selectively and traded down into the promotional lines. 1
For comparative purposes, profit before tax and exceptional items for 2011 has been reanalysed in 2012 in order to reflect the treatment of onerous lease and impairment charges as exceptional items and bank arrangement fees as finance costs. Throughout this report the reanalysed numbers are used to discuss performance.
Ahead of the peak selling season we invested in new ―browsing tables‖ and improved the quality of our store merchandising. This was supported by a renewed customer engagement programme which was well received. We saw some significant seasonal sales successes, in particular our advent calendars, hampers and our new range of ―Little Gifts‖. In October we opened our prototype store format in Birmingham. This store traded through Christmas with positive customer feedback and a significant improvement in sales. We will continue to refine this format through further store refurbishments during the second half. We closed 20 stores as planned at a cost of £0.7 million. We ended the period with 344 stores. Franchise Franchise sales declined by 13.4% to £6.7 million (2011: £7.8million), as they were similarly affected by the weak consumer economy. Additionally, as a consequence of the weather related issues of 2010, we saw a significant amount of destocking compared to the previous year. Prior year sales also include six significant Franchises held by Birthdays Ireland, which went into liquidation in March 2011. We expect our number of Franchises to grow strongly as we close our Own Stores and seek franchisees in the majority of locations where we are closing. Despite good interest from prospective franchisees our progress during the period has been slower than expected, due to increased caution in the current economic climate. In response to this, we are launching a more accessible franchise programme to further broaden the appeal of a Thorntons Franchise. As a result of the slower than expected growth (12 new Franchises) and slightly greater than expected closures (nine closed and three re-sited Franchise locations) we ended the period with 230 Franchises. Thorntons Direct Thorntons Direct grew solidly over the period with sales increasing by 4.6% to £6.7 million (2011: £6.4 million). After a weak first quarter, due to the loss of a significant corporate order, sales to our consumer and corporate customers improved in the second quarter with consumer online sales growing strongly by 13%. We are making good progress with the development of our new website which is planned to launch after Easter this year. Sales & Operations Commercial In an overall weak market we were pleased with a sales growth of 6.9% to £48.3 million (2011: £45.2 million) despite this being less than we had anticipated. As we experienced in our other channels, consumers were attracted to the many promotions across the market; this trading down affected margin mix. We nevertheless cemented our brand position and demonstrated its strength and customer appeal through a significant share gain in the combined Boxed Chocolate and Christmas Specialities market over the peak sales season. We were particularly encouraged with our sales of Christmas seasonal specialties such as our advent calendars and Santa and Ronnie Reindeer models where further growth opportunities remain. Our brand sold through well with minimal residual stock remaining. The period saw further distribution gains as this sales channel continued its progress towards being the main channel of distribution for the Thorntons brand over the next three years. We
expect sustained growth and are encouraged by the strong order book for Easter, where we anticipate increasing our market share. Driven by our market position, our relationship with key retailers remains positive and we continue to work with them to address the category sales and margin challenges of the year ahead. International sales grew strongly to £2.6 million from £2.2 million particularly in the tax and duty free sector at home and in the Middle East. This was partially offset by lower sales to Ireland where the economy is weak. We are making good progress with our review of future opportunities and will provide a further update later in the year. Operations Our strategy of rebalancing sales across all channels is intended to ensure that production is sustained or grown. During the course of the period we are pleased to report that we manufactured and sold more chocolate than ever before. The inherent flexibility of our manufacturing capability meant that we were able to respond quickly to the changing demand levels and our inventory in turn is well under control. The outsourcing of our warehousing and distribution to our partner DHL was completed during the period and service levels delivered across the peak season. Margin and operating expenses Gross margins declined 4.2% to 42.5% (2011: 46.7%). Factors that contributed to this decline were: 1. The continued successful growth of our Commercial channel: sales from this channel now represent 37.2% of total Company sales (2011: 33.9%). Commercial sales are made at wholesale prices and consequently reduce the overall margin percentage. 2. Consumers traded down from our traditional ranges into the promoted lines in both the Own Stores and Commercial channels. These promotional lines contributed to a higher sales mix than forecast which in turn resulted in higher levels of overall discount and promotional support costs. 3. Raw material costs have continued to increase over the period, which affected the gross margin percentage in all the channels. While our Commercial channel will become the dominant sales channel over the next three years, we envisage that our overall gross margin percentage will gradually improve over time. We have taken a number of actions to manage this, including continued improvement in manufacturing efficiencies together with product value engineering and ingredients optimisation. These will start to flow through into the business during the course of 2012. Additionally, margin pressure is expected to ease through the gradual reduction in certain raw material costs. Operating expenses before exceptional items reduced by 3.5% to £52.0 million (2011: £53.9 million). This year‘s expense also includes the following charges: 2012 £m Store closure costs Other redundancy and restructuring costs Total
0.7 0.6 1.3
2011 £m (restated) 0.4 0.7 1.1
The reduction in operating expenses is due to the effect of the store closure programme as well as the benefits of the procurement activities that have taken place over the course of the last 18 months.
Other operating income decreased by 2.9% to £0.8 million (2011: £0.9 million). This decline was through a reduction in volumes with our licensees for cakes and chilled desserts. Our other lines continued to trade to expectation. Financial position The Company‘s objective in managing its capital structure is to maintain a balance sheet structure that is both efficient in terms of providing long-term returns to shareholders as well as safeguarding the Group‘s ability to continue as a going concern. We continue to manage the Company‘s balance sheet and cash flow tightly. In the period the business generated sufficient EBITDA – £7.5 million (2011: £14.8 million) – and cash flow to fund the Retail closure programme and planned capital investment. Net debt at the period end was £16.2 million (2011: £14.0 million) including £3.9 million of finance leases (2011: £4.3 million). The Company has committed unsecured bank facilities of £57.5 million with an average interest rate of 2.53% above LIBOR which expire in October 2015. It also has an uncommitted bank overdraft facility of £5 million. During the 28 week period to 7 January, peak drawings for a short period of time totalled £49.3 million, leaving comfortable headroom against the current facilities. The committed borrowing facilities contain financial covenants. The covenants are tested halfyearly and are based upon interest cover, net debt to earnings and Earnings Before Interest, Depreciation, Amortisation and Rent (―EBITDAR‖) to fixed costs. For both interest cover and net debt to earnings, earnings are defined as Earnings Before Interest, Depreciation, Amortisation (―EBITDA‖). Costs incurred with the delivery of our strategic plan, including exceptional costs, store closures, redundancies and other one-off costs, are excluded from the calculation of EBITDA and EBITDAR. At the 7 January 2012 testing date all of the covenant tests were passed. We expect that the Company will operate within the terms of its borrowing facilities and covenants for the foreseeable future. Accordingly, after making appropriate enquiries, the Directors believe that the Company has adequate resources to continue as a going concern. Exceptional costs As a consequence of Own Store sales falling short of expectations in the 28 week period to 7 January 2012 and particularly during the December trading period, the Company has incurred gross impairment and onerous lease charges of £2.4 million (2011: £0.1 million). Further details of exceptional items are contained in note 6. Taxation The total tax charge after exceptional items for the period under review was £nil (2011: £2.3 million) with the underlying tax rate amounting to 29.1% (2011: 32.3%) of profit before tax. This is higher than the statutory rate of 25.75% (2011: 27.5%) mainly due to the effect of permanently disallowable items and depreciation on assets for which the Group receives no tax allowances. Pension scheme The valuation of the Thorntons‘ pension scheme as at 25 June 2011 has been updated on an actuarial basis, applying current discount and inflation rate assumptions and incorporating the valuation of the plan assets as at 7 January 2012. The deficit is now £29.1 million (2011: £22.3 million). Board changes In November 2011 Mark Robson, Finance Director informed us of his intention to leave Thorntons. He will leave the Company and resign from the Board on 17 February 2012. On behalf of the Board I would like to thank Mark for his significant contribution to Thorntons over the past two years and wish him every success in his new role.
Mike Killick joined Thorntons in January 2012 and will join the Board as Finance Director on Mark‘s departure. Mike brings a great deal of retail and commercial experience and we welcome him to the team. Today we announced the appointment of Keith Edelman as Non-Executive Director. Keith will join the Board on 21 February 2012. The search for a second new Non-Executive Director is continuing. Principal risks and uncertainties Key risks are regularly reviewed by the Executive Directors and senior management. The key risks and uncertainties facing the business are detailed in note 17. Outlook The economic and retail environment will remain challenging and uncertain for the foreseeable future, certainly through 2012. Since our statement on 12 January 2012 trading across our sales channels has been in line with our expectations. We have a strong range for our remaining key spring trading seasons of Mothers' Day and Easter. We have planned cautiously for our Retail channels but anticipate building on last year‘s Easter success in our Commercial channel and we have a strong order book to support this. We are also closely managing production and stock levels and retain an ongoing emphasis on improving margins through a mixture of cost control, procurement and manufacturing efficiencies, new product development and selected price increases. Our vision for the future of Thorntons is clear. During the rest of this year we will press ahead with our strategy delivering further growth in Commercial sales, continue to close stores in line with our lease expiry profile, start our store refurbishment programme, promote steady growth in the number of our Franchisees and drive profitable growth in Thorntons Direct. Our brand also remains strong and is a key asset. Our sales and market share demonstrate the mass-premium appeal of Thorntons and the high regard in which the brand is held in by our customers. The Board is grateful for the continued support from our customers and would like to express our sincere appreciation and thanks to our loyal staff and franchisees.
On behalf of the Board
Jonathan Hart Chief Executive 14 February 2012
CO NS O L I DAT E D INCO ME S T ATE MENT 28 W EEK S EN D ED 7 J AN U AR Y 2 0 1 2 Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011 *
2011
Note
£’000
£‘000
£‘000
5
129,979 (74,710)
133,491 (71,169)
218,255 (117,516)
55,269
62,322
100,739
(51,974) (2,448)
(53,882) (103)
(96,403) (5,158)
(54,422) 838
(53,985) 863
(101,561) 1,674
4,133 (2,448)
9,303 (103)
6,010 (5,158)
1,685 —
9,200 11
852 11
(1,067) —
(910) —
(1,685) (249)
Total finance costs Profit/(loss) before taxation
(1,067)
(910)
(1,934)
- profit before taxation and exceptional items - exceptional items
6
3,066 (2,448)
8,404 (103)
4,336 (5,407)
Total profit/(loss) before taxation
5
618
8,301
(1,071)
7 6
(399) 392
(2,348) 28
(174) 992
(7)
(2,320)
818
2,667 (2,056)
6,056 (75)
4,162 (4,415)
611
5,981
(253)
0.9p 0.9p
8.9p 8.8p
(0.4)p (0.4)p
Revenue Cost of sales Gross profit Operating expenses - operating expenses before exceptional items - exceptional items
6
Total operating expenses Other operating income Operating profit - operating profit before exceptional items - exceptional items Total operating profit Finance income Finance costs - finance costs before exceptional items - exceptional items
6 5
6
Taxation - taxation before exceptional items - exceptional items Total taxation Profit/(loss) attributable to owners of the parent - profit attributable to owners of the parent before exceptional items - exceptional items
6
Total profit/(loss) attributable to owners of the parent Earnings/(loss) per share Basic Diluted
8 8
* Exceptional items have been reanalysed for comparative purposes and further details are provided in note 6
All activities in both the current and previous year relate to continuing operations. The notes form an integral part of this condensed set of financial statements.
CONSOLIDATED STATEME NT OF COMPREHENSIVE INCOME 28 W EEK S EN D ED 7 J AN U AR Y 2 0 1 2 Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
611
5,981
(253)
– actuarial (loss)/gain recognised in the defined benefit pension scheme
(4,549)
1,357
(2,375)
– movement of deferred tax on pension liability
987
(537)
133
Profit/(loss) for the period Other comprehensive (expense)/income:
Total other comprehensive (expense)/income
(3,562)
820
(2,242)
Total comprehensive (expense)/income for the financial period attributable to owners of the parent
(2,951)
6,801
(2,495)
The notes form an integral part of this condensed set of financial statements.
CO NS O L I DAT E D S TA TE ME NT O F CHA NG E S I N EQ U IT Y 28 W EEK S EN D ED 7 J AN U AR Y 2 0 1 2
Note At 26 June 2010 Profit for the period Other comprehensive income Total comprehensive income for the period ended 8 January 2011 Transactions with owners: – share-based payment credit – dividends At 8 January 2011
9
At 25 June 2011 Profit for the period Other comprehensive expense Total comprehensive income for the period ended 7 January 2012 Transactions with owners: – share-based payment credit – dividends At 7 January 2012
9
Share capital £‘000
Share premium £‘000
Retained earnings £‘000
Total £‘000
6,837
13,768
5,363
25,968
— —
— —
5,981 820
5,981 820
—
—
6,801
6,801
— —
— —
157 (2,747)
157 (2,747)
6,837
13,768
9,574
30,179
6,837
13,768
(1,296)
19,309
—
—
611
611
—
—
(3,562)
(3,562)
—
—
(2,951)
(2,951)
— — 6,837
— — 13,768
(496) (168) (4,911)
(496) (168) 15,694
The notes form an integral part of this condensed set of financial statements.
CO NS O L I DAT E D B A L A NCE S HE ET A S AT 7 J A NU A R Y 20 1 2
Note Assets Non-current assets Intangible assets Property, plant and equipment Deferred tax assets Current assets Inventories Trade and other receivables Cash and cash equivalents
10 11
13b
Total assets Equity and liabilities Shareholders’ equity attributable to owners of the parent Ordinary shares Share premium Retained (deficit) / earnings Total equity Liabilities Current liabilities Trade and other payables Borrowings Current tax liabilities Provisions for liabilities Non-current liabilities Borrowings Deferred tax liabilities Retirement benefit obligations Other non-current liabilities Provisions for liabilities Total liabilities Total equity and liabilities
12
Unaudited 7 January 2012 £’000
Unaudited 8 January 2011 £‘000
Audited 25 June 2011 £‘000
2,316 49,351 596 52,263
3,228 56,979 — 60,207
2,792 52,667 — 55,459
31,147 27,553 1,919 60,919 112,882
28,939 24,283 511 53,733 113,940
37,018 16,017 1,752 54,787 110,246
6,837 13,768 (4,911) 15,694
6,837 13,768 9,574 30,179
6,837 13,768 (1,296) 19,309
42,213 15,898 316 1,470 59,897
37,766 12,081 2,854 512 53,213
32,457 22,886 — 967 56,310
2,261 — 29,118 2,481 3,431 37,291 97,188 112,882
2,383 1,914 22,306 2,885 1,060 30,548 83,761 113,940
3,355 599 25,264 2,699 2,710 34,627 90,937 110,246
The notes form an integral part of this condensed set of financial statements.
CO NS O L I DAT E D S TA TE ME NT O F CA S H FL OW S 28 W EEK S EN D ED 7 J AN U AR Y 2 0 1 2 Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
Note
£’000
£‘000
£‘000
13a
11,598
20,832
14,823
630
(503)
(1,392)
—
11
12
12,228
20,340
13,443
442
30
46
Purchase of property, plant and equipment
(2,948)
(4,535)
(4,208)
Net cash used in investing activities
(2,506)
(4,505)
(4,162)
Interest paid
(1,305)
(1,020)
(1,802)
Capital element of finance lease repayments
(1,482)
(1,683)
(2,499)
Borrowings repaid
(6,600)
(11,500)
(800)
(168)
(2,747)
(4,054)
(9,555)
(16,950)
(9,155)
167
(1,115)
126
1,752
1,626
1,626
1,919
511
1,752
Cash flows from operating activities Corporate taxation received/(paid) Interest received Net cash generated from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment
Cash flows from financing activities
Dividends paid Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period
13b
The notes form an integral part of this condensed set of financial statements.
NO T E S T O T HE I NT E RI M FI NA NCI AL S TAT E ME NT S 1 General information Thorntons PLC (―the Company‖) is a company incorporated and domiciled in the UK and is listed on the London Stock Exchange. The address of the Company‘s registered office is Thornton Park, Somercotes, Derbyshire DE55 4XJ. The principal activities of the Company and its subsidiaries during the period were the manufacturing, retailing and distribution of high quality confectionery and other sweet foods. The condensed set of financial statements (―financial statements‖) for the 28 weeks ended 7 January 2012 was approved by the Directors on 14 February 2012. These financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The financial information contained in this set of financial statements in respect of the 52 weeks ended 25 June 2011 has been extracted from the Annual Report and Accounts, which were approved by the Board of Directors on 6 September 2011 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006. The interim results for the current and comparative periods are unaudited. The auditors have carried out a review of this condensed set of financial statements for the 28 weeks ended 7 January 2012 and their report is set out below. 2 Basis of preparation This condensed set of financial statements for the 28 weeks ended 7 January 2012 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 ‗Interim financial reporting‘ as adopted by the European Union (―EU‖). This condensed set of financial statements should be read in conjunction with the annual financial statements for the 52 weeks ended 25 June 2011, which have been prepared in accordance with International Financial Reporting Standards (―IFRS‖) as adopted by the EU. The Income and Cash flow statements for the prior year have been reanalysed to show a consistent approach to that used in the current year. Bank arrangement fees previously included in Operating expenses are now shown in Finance costs and adjustments to the onerous lease and impairment provisions are shown as exceptional. Neither adjustment is material to the financial statements and both relate to re-presentation only. No further adjustment to the prior year is therefore considered necessary. 3 Accounting policies The accounting policies adopted are consistent with those of the annual financial statements for the year ended 25 June 2011, as described in those annual financial statements. The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year ending 30 June 2012 but are not considered to have a significant impact: • IAS 24 (revised), 'Related party disclosures'. This amends the definition of a related party and modifies certain related party disclosure requirements for government related entities; • Amendments to IFRS 1, 'First time adoption of IFRS', on IFRS 7 exemptions; • Amendment to IFRIC 14, 'IAS 19 – The limit on a defined benefit assets, minimum funding requirements and their interaction'; and • IFRIC 19, Extinguishing financial liabilities with equity instruments. 4 Estimates The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the group‘s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 25 June 2011, with the exception of changes in estimates that are required in determining the provision for income taxes and disclosure of exceptional items. 5 Segmental reporting The Executive reviews the Group‘s internal reporting in order to assess performance and allocate resources. The operating segments of the Group have been determined on this basis. All revenue arises from UK operations to external customers and therefore the Executive does not consider the business from a geographic perspective, only an operational one. Two reportable segments, ―Retail‖ which incorporates Own Stores, Franchise and Thorntons Direct; and ―Sales & Operations‖ (―S&O‖) encompassing the Commercial trading channel and manufacturing operations, have been identified. One Commercial customer now represents greater than 10% of Group revenue, with revenue in the period of £16.7 million (2011: £14.7 million). The Executive assesses the performance of the operating segments based on a measure of operating profit. Costs specific to Head Office and finance costs are not included in the result for each operating segment as these costs are not managed on a segmented basis.
Total segment assets exclude IT assets, non-trade receivables and cash and cash equivalents as these are managed centrally. Assets are located in the UK.
Unaudited
Unaudited
Audited
28 weeks ended
28 weeks ended
52 weeks ended
7 January 2012 Retail
S&O
Central
8 January 2011 Total
Retail
S&O
Central
25 June 2011 Total
Retail
S&O
Central
Total
£’000
£’000
£’000
£’000
£‘000
£‘000
£‘000
£‘000
£‘000
£‘000
£‘000
£‘000
81,653
48,326
—
129,979
88,283
45,208
—
133,491
139,448
78,807
—
218,255
Depreciation and amortisation
2,388
2,668
712
5,768
1,994
2,780
854
5,628
5,481
5,206
1,531
12,218
Segment operating profit
6,507
6,941
—
13,448
10,987
8,479
—
19,466
7,811
15,362
—
23,173
Total revenue
(9,315)
Head Office costs Exceptional items
(2,448)
—
—
Operating profit Net finance costs Profit/(loss) before taxation
—
—
(103)
(103)
(17,163) (4,334)
—
(824)
(5,158)
1,685
9,200
852
(1,067)
(899)
(1,923)
618
8,301
(1,071)
561
1,700
331
2,592
1,590
1,411
1,014
4,015
2,226
2,232
1,429
5,887
14,372
84,954
13,556
112,882
18,962
82,445
12,533
113,940
12,721
83,717
13,808
110,246
Additions to non-current assets (other than deferred tax assets) Total assets
(2,448)
(10,163)
6 Exceptional items Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
2,443
103
4,334
Outsourcing costs
5
—
687
Refinancing costs
—
—
386
2,448
103
5,407
Tax credit attributable to exceptional items
(392)
(28)
(992)
Total exceptional items after tax
2,056
75
4,415
Impairment and onerous lease charges
Total exceptional items
Impairment and onerous lease charges As a result of the performance of Retail Own Stores during the period, significant impairment and onerous lease charges have been required. These provisions are made in respect of stores for which projected discounted cash flows inclusive of attributable overheads are insufficient to cover property costs up to the lease expiry date, held at the level of the projected shortfall. Additionally where these discounted cash flows fall below the net book value of store assets, an impairment provision is made.
Outsourcing costs Transition costs incurred as a result of the Group‘s decision to outsource its warehousing and distribution functions. Refinancing costs Costs incurred in the Group securing new committed bilateral revolving credit facilities in June 2011. 7 Taxation During the period, as a result of the change in the UK main corporation tax rate from 26% to 25% that was substantively enacted on 5 July 2011 and effective from 1 April 2012, the relevant deferred tax balances have been re-measured. Further reductions to the UK corporation tax rate were announced in the March 2011 Budget. The changes, which are expected to be enacted separately each year, propose to reduce the rate by 1% per annum to 23% by 1 April 2014. The changes had not been substantively enacted at the balance sheet date and therefore are not recognised in these financial statements. The tax charge including deferred tax for the 28 weeks ended 7 January 2012 is based on a full year overall expected tax rate of 29.1% (full year 2011: 32.3%). The charge for the period is lower than this expected rate primarily due to the impact of the remeasurement mentioned above. The current year rate has been calculated by reference to the projected charge for the full year ending 30 June 2012 and reflects the mainstream corporation tax rate of 25.75%. The ordinary tax charge exceeds the charge based on these statutory rates, principally due to depreciation on owned assets not qualifying for capital allowances and other permanently disallowable items. 8 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held in the employee share trust which are treated as cancelled. For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Dilutive potential ordinary shares are those share options granted to employees where the exercise price is less than the average market price of the Company‘s ordinary shares during the period. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
Profit before exceptional items Effect of exceptional items Profit/(loss) attributable to owners of the parent
Unaudited
Unaudited
Audited
28 weeks ended
28 weeks ended
52 weeks ended
7 January 2012
8 January 2011
25 June 2011
Basic
Diluted
Earnings
earnings
earnings
£’000
per share
2,667
4.0p
(2,056)
(3.1)p
611
0.9p
Basic
Diluted
Earnings
earnings
earnings
per share
£‘000
per share
4.0p
6,056
9.0p
(3.1)p
(75)
0.9p
5,981
Weighted average number of ordinary shares Dilutive effect of shares from share options Fully diluted weighted average number of ordinary shares
Basic
Diluted
Earnings
earnings
earnings
per share
£‘000
per share
per share
8.9p
4,162
6.2p
6.2p
(0.1)p
(0.1)p
(4,415)
(6.6)p
(6.6)p
8.9p
8.8p
(253)
(0.4)p
(0.4)p
Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
66,955,838
66,955,838
66,955,838
210,800
1,124,218
536,726
67,166,638
68,080,056
67,492,564
9 Ordinary dividends Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
168
2,747
2,747
—
—
1,307
168
2,747
4,054
Final dividend paid for the 52 weeks ended 25 June 2011 of 0.25p (52 weeks ended 26 June 2010: 4.10p) Interim dividend paid in respect of the 52 weeks ended 25 June 2011 of 1.95p Amounts recognised as distributions to owners of the parent
The final dividend paid for the 52 weeks ended 25 June 2011 was paid from the distributable reserves of the ultimate parent company, Thorntons PLC.
10 Intangible assets Unaudited computer software £‘000 Cost At 25 June 2011
27,311
Additions at cost
307
At 7 January 2012
27,618
Accumulated amortisation At 25 June 2011 Charge for the period At 7 January 2012
24,519 783 25,302
Net book amount at 7 January 2012
2,316
Net book amount at 25 June 2011
2,792
11 Tangible assets Unaudited property, plant and equipment £‘000 Cost At 25 June 2011 Additions at cost Disposals
187,194 2,285 (4,112)
At 7 January 2012
185,367
Accumulated depreciation At 25 June 2011 Charge for the period Disposals At 7 January 2012
134,527 4,985 (3,496) 136,016
Net book amount at 7 January 2012
49,351
Net book amount at 25 June 2011
52,667
The impairment charge for the period of £881,000 (2011: £3,000) has been recognised within the depreciation charge for the year and has been classified as an exceptional item (see note 6). 12 Retirement benefit obligations The valuation of the Thorntons‘ Pension Scheme at 25 June 2011 has been updated on an actuarial basis applying current discount and inflation rate assumptions, and incorporating the valuation of the plan assets at 7 January 2012 and payments made into the scheme during the period. This has led to a net increase in the deficit of £3.9 million from 25 June 2011. In October 2009 and as part of the schedule of contributions agreed with the Trustees to Thorntons‘ Pension Scheme, it was further agreed that in addition to an annual contribution of £2.2 million, the Company would make an additional contribution over each of the next three financial years equivalent to the higher of either: a third of any reduction in the net debt reported in the statutory accounts for the years ending June 2010, 2011 and 2012; or the ongoing annual contribution of £2.2 million multiplied by the percentage increase in the annual dividend above a minimum of £4.0 million.
13 Cash flows from operating activities a) Cash generated from operations Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
1,685
9,200
852
5,768
5,628
12,218
– amortisation of Government grants received
(11)
(11)
(21)
– loss on disposal of property, plant and equipment
174
134
148
– share-based payment (credit)/charge
(496)
157
(110)
Operating cash flow before working capital movements
7,120
15,108
13,087
5,871
1,454
(6,625)
Continuing operations Operating profit Adjustments for: – depreciation and amortisation
Changes in working capital Decrease/(increase) in inventories
(12,055)
(8,285)
264
Increase in payables
10,133
13,054
7,265
Increase in provisions
1,224
57
2,162
Increase in post-employment benefit obligations
(695)
(556)
(1,330)
11,598
20,832
14,823
(Increase)/decrease in trade and other receivables
Cash flows from operating activities
b) Cash and cash equivalents for the statement of cash flows
Cash and cash equivalents at end of period
Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
1,919
511
1,752
14 Reconciliation of movement in net debt Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
167
(1,115)
126
Cash flows from decrease in debt
8,082
13,183
3,299
Change in net debt resulting from cash flow
8,249
12,068
3,425
—
—
(1,893)
Increase/(decrease) in cash and cash equivalents
Inception of new finance leases
8,249
12,068
1,532
Net debt at beginning of period
(24,489)
(26,021)
(26,021)
Net debt at end of period
(16,240)
(13,953)
(24,489)
Movement in net debt in the period
15 Related party transactions There are no related party transactions requiring disclosure in the condensed set of financial statements. 16 Seasonality Sales are subject to seasonal fluctuations, with peak Christmas demand in the second quarter of the year. In the year ended 25 June 2011, the 28 week period to 8 January 2011 represented 61% of annual sales. 17 Principal risks and uncertainties Key risks are regularly reviewed by the Executive Directors and senior management. The key risks and uncertainties facing the business are considered to be as follows: Economic and industry risks A competitive marketplace The UK confectionery market has many strong players and maintaining our competitive position depends on our continued ability to offer products that have a strong appeal to consumers and which are readily available in the places that they wish to purchase them. Any significant shift in consumer trends coupled with a failure to anticipate and react to such changes or a failure to invest adequately in our business could reduce demand for our products resulting in loss of market share, reduced sales, reduced attractiveness to potential franchisees or harm to the image of our brand. Product innovation is critical to maintaining consumer relevance and the Company has a rigorous process for identifying, researching and developing new product ideas, which is regularly reviewed. The Company‘s multi-channel strategy is also a means by which it can satisfy consumers‘ needs better than some of its competitors, whilst also mitigating the overall risk to the business from a downturn in any specific channel. Economic downturn or recession We believe that during times of economic uncertainty or hardship consumer demand for products may fall or consumers may choose to purchase lower value consumer goods as opposed to higher value consumer goods resulting in a fall in demand for our products. Thorntons consequently offers a range of products across various price points and has flexible trading and promotional plans that enable it to respond to consumer and market trends rapidly. The economic climate may also result in th e failure of Commercial or Franchise businesses and consequently customers and/or franchisees defaulting on supply payments. Reduced sales as a result of an economic downturn or recession in the UK may have an adverse effect on the profitability and cash flow of our business. Key input prices are driven by commodity markets Material adverse changes in certain commodity prices could affect the Company‘s profitability. The Company buys key inputs forward and works with suppliers to choose the optimal time and quantity for purchases. Whilst this policy may sometimes preclude the Company from taking advantage of short-term dips in prices, it provides a stable cost base for the Company to make its trading decisions. Operational risks A substantial decrease in our ability to supply our customers with our products A major interruption or substantial decrease in our ability to supply customers could damage our sales and image as well as our relationships with customers and consumers. The majority of the Company‘s products for sale are produced at Thornton Park in Alfreton, Derbyshire. Thornton Park has significant fire protection across the site, contingency and emergency recovery plans for IT, utilities and major incidents which are regularly reviewed and appropriate insurance cover is also in place.
Food products must have the highest integrity Product contamination, accidental or malicious, is a risk faced by all food producers. Thorntons has extremely rigorous policies and security systems for guarding against accidental or malicious contamination of ingredients or finished products. In the unlikely event that these policies and systems fail, a robust process for product recall and consumer communication, in addition to comprehensive insurance cover, is in place. People risks The business is dependent upon the skills, enthusiasm and wellbeing of its people Management evaluates the balance of skills, knowledge and experience within the team when considering the role and capabilities required for a particular senior appointment. The Company uses professional external recruitment specialists as and when appropriate, as well as contacts of its Directors and the Company‘s advisers. Management aspires to keep colleagues informed of internal and external developments and regularly reviews how staff are feeling through surveys and communication sessions. A channel outside the normal line structures for communication and resolution of issues exists through the Joint Industrial Council for Thornton Park and the Retail Council for store-based colleagues. Strong recruitment processes, formalised succession planning together with on-going individual training and development plans help mitigate the risk of the loss of key staff. In the current economic climate we continue to devote resources to our procurement activities to mitigate the effects of inflation on our raw material costs as well as managing the Company‘s credit risk whether from financial institutions, customers or suppliers.
S TA TE ME NT O F DI RE CT O RS ‘ RES PO NS I B I LIT Y The Directors confirm that, to the best of their knowledge, this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the EU, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8. The Directors of Thorntons PLC are listed in the Thorntons PLC Annual Report and Accounts 2011. Since the year end the only change in directors is the resignation of Peter Wright. A list of current directors is maintained on the Thorntons PLC web site: www.thorntons.co.uk.
On behalf of the Board
Jonathan Hart, Chief Executive Mark Robson, Finance Director 14 February 2012
A UDI T O RS ‘ REP ORT O N RE VI EW OF CO NS O L I DAT E D I NT E RI M FI NA NCI A L I NFO RMA T I O N Introduction We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the 28 weeks ended 7 January 2012, which comprises the Consolidated income statement, Consolidated statement of comprehensive income, Consolidated statement of changes in equity, Consolidated balance sheet and Consolidated statement of cash flows and related notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. Directors’ responsibilities The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom‘s Financial Services Authority. The annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34 ‗Interim financial reporting‘, as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‗Review of Interim Financial Information Performed by the Independent Auditor of the Entity‘ issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the 28 weeks ended 7 January 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom‘s Financial Services Authority.
PricewaterhouseCoopers LLP Chartered Accountants Leeds 14 February 2012
Notes: (a) The maintenance and integrity of the Thorntons PLC web site is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial report since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.
15 February 2012
Thorntons Plc (“Thorntons” or “the Company”) Announcement of Interim Results Thorntons today announced its interim results for the 28 weeks ended 7 January 2012. Financial Revenues of £130.0 million (2011: £133.5 million) Profit before tax and exceptional items of £3.1million (2011: £8.4 million) Exceptional items total £2.4 million (2011: £0.1 million) consisting of impairment and onerous lease provisions A higher proportion of sales came from lower priced items and promotional lines which had an adverse effect on both revenues and margins Cash flows from operating activities £11.6 million (2011: £20.8 million) Net debt at period end was £16.2 million (2011: £14.0 million) Interim dividend waived but firm commitment to return to progressive dividend in the future (2011: 1.95p) Trading since the period end has been in line with expectations
Operational Demonstrated strength and customer appeal through significant market share gain from 7.1% to 7.7% in Boxed and Seasonal chocolate through the peak sales season Significant success in our new seasonal ranges in Commercial channel particularly with Advent Calendars, Santa and Reindeer models Actions taken to improve margins which will flow through in 2012 Store closure programme on track – 20 stores closed in the period Successful launch of new products in Retail including Hampers and ‗Little Gifts‘ supporting all year round sales Improved the quality of store merchandising, including new ‗browsing tables‘, and introduced new customer engagement programme Positive customer response to new store prototype Developing a new Thorntons Direct website for launch in Spring and a more accessible franchise programme to further broaden appeal
Thorntons’ Chief Executive, Jonathan Hart, commented: ―Our vision for the Company is clear. We are pursuing our chosen strategy and have made good progress in implementing it while weathering a difficult market. These results and the economic climate only reaffirm the need for change. We have a well-managed balance sheet, quality assetbacking and good cash generation. The Board is confident that Thorntons has the expertise and the resources to successfully complete this transformation and restore profitability.
―Thorntons has strong brand equity with a widespread consumer appeal. While our sales emphasis will develop through our Commercial channel, our reduced retail estate will remain an important shop window for the brand. ―The economic and retail environment will remain challenging and uncertain for the foreseeable future, certainly through 2012, but we are encouraged by our strong range for the remaining key spring trading seasons of Mothers Day and Easter and have a strong order book to support this.‖
For further information please contact: Nadja Vetter / Emma Crawshaw, Cardew Group
T: 020 7930 0777
This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, the Company undertakes no obligation to update or revise these forwardlooking statements. Nothing in this document should be construed as a profit forecast. The Company and its directors accept no liability to third parties in respect of this document save as would arise under English law.
Interim Management Report Introduction In June last year we set out our vision for the future of Thorntons and we remain committed to rebalancing the Thorntons business, creating a smaller retail estate, revitalising the brand and restoring profitability. During the first half of our financial year we made good progress in implementing this strategy. Our closure programme is on track and we are encouraged by the positive customer response to our new store prototype, which traded strongly over the Christmas season. Thorntons has a well-managed balance sheet, quality asset backing and good cash generation. The Board is confident that Thorntons has the expertise and resources needed to complete this transformation successfully and restore profitability. During the period under review profit before tax and exceptional items was £3.1 million (2011: 1 £8.4 million ). The Christmas season remains the key trading period for our Company and, in common with many other retailers, the weak economy affected customer behaviour in each of our sales channels. This manifested itself by selective purchasing and trading down into the promotional lines which had an effect on both sales and margins. Having considered the current and future capital requirements of the business, the Board has decided not to recommend an interim dividend (2011: 1.95p). The Board will return to a progressive dividend policy as soon as the trading and prospects of the business allow. Thorntons retains a strong brand and a widespread consumer appeal. In a weak seasonal chocolate market we made and sold more chocolate than ever before and increased our market share in the Commercial channel from 7.1% to 7.7%. We will create the right balance for a sustainable and profitable business by leveraging the strength and flexibility of our multi-channel approach. Over the next three years the Commercial channel will become our main sales channel, with our Own Stores estate contracting by at least 120 stores, while we explore opportunities to close up to a further 60. The cost of closing 120 stores on lease expiry is forecast to be £4-£5 million; with the cost being recognised at the point of each closure, funded through the Company‘s cash flow. These closures will ultimately deliver an Own Store estate of between 180 and 200 stores in sustainable retail locations, which will continue to play a key role as shop windows for our brand with a contemporary focus on all year round gifting. The learning from our prototype store will inform a refurbishment programme that will progress during 2012 and beyond. Supporting our transformation with innovative and high quality chocolate products remains a top priority. Our Master Chocolatier is one of the best in the country and we have a strong pipeline of exciting new products for our customers in 2012. Retail Own Stores During the period, Own Store sales reduced by 7.9% to £68.3 million (2011: £74.1 million). Like for like sales decreased by 5.5% (2011: -5.2%). Sales and margins were below our expectations as cost-conscious consumers purchased selectively and traded down into the promotional lines. 1
For comparative purposes, profit before tax and exceptional items for 2011 has been reanalysed in 2012 in order to reflect the treatment of onerous lease and impairment charges as exceptional items and bank arrangement fees as finance costs. Throughout this report the reanalysed numbers are used to discuss performance.
Ahead of the peak selling season we invested in new ―browsing tables‖ and improved the quality of our store merchandising. This was supported by a renewed customer engagement programme which was well received. We saw some significant seasonal sales successes, in particular our advent calendars, hampers and our new range of ―Little Gifts‖. In October we opened our prototype store format in Birmingham. This store traded through Christmas with positive customer feedback and a significant improvement in sales. We will continue to refine this format through further store refurbishments during the second half. We closed 20 stores as planned at a cost of £0.7 million. We ended the period with 344 stores. Franchise Franchise sales declined by 13.4% to £6.7 million (2011: £7.8million), as they were similarly affected by the weak consumer economy. Additionally, as a consequence of the weather related issues of 2010, we saw a significant amount of destocking compared to the previous year. Prior year sales also include six significant Franchises held by Birthdays Ireland, which went into liquidation in March 2011. We expect our number of Franchises to grow strongly as we close our Own Stores and seek franchisees in the majority of locations where we are closing. Despite good interest from prospective franchisees our progress during the period has been slower than expected, due to increased caution in the current economic climate. In response to this, we are launching a more accessible franchise programme to further broaden the appeal of a Thorntons Franchise. As a result of the slower than expected growth (12 new Franchises) and slightly greater than expected closures (nine closed and three re-sited Franchise locations) we ended the period with 230 Franchises. Thorntons Direct Thorntons Direct grew solidly over the period with sales increasing by 4.6% to £6.7 million (2011: £6.4 million). After a weak first quarter, due to the loss of a significant corporate order, sales to our consumer and corporate customers improved in the second quarter with consumer online sales growing strongly by 13%. We are making good progress with the development of our new website which is planned to launch after Easter this year. Sales & Operations Commercial In an overall weak market we were pleased with a sales growth of 6.9% to £48.3 million (2011: £45.2 million) despite this being less than we had anticipated. As we experienced in our other channels, consumers were attracted to the many promotions across the market; this trading down affected margin mix. We nevertheless cemented our brand position and demonstrated its strength and customer appeal through a significant share gain in the combined Boxed Chocolate and Christmas Specialities market over the peak sales season. We were particularly encouraged with our sales of Christmas seasonal specialties such as our advent calendars and Santa and Ronnie Reindeer models where further growth opportunities remain. Our brand sold through well with minimal residual stock remaining. The period saw further distribution gains as this sales channel continued its progress towards being the main channel of distribution for the Thorntons brand over the next three years. We
expect sustained growth and are encouraged by the strong order book for Easter, where we anticipate increasing our market share. Driven by our market position, our relationship with key retailers remains positive and we continue to work with them to address the category sales and margin challenges of the year ahead. International sales grew strongly to £2.6 million from £2.2 million particularly in the tax and duty free sector at home and in the Middle East. This was partially offset by lower sales to Ireland where the economy is weak. We are making good progress with our review of future opportunities and will provide a further update later in the year. Operations Our strategy of rebalancing sales across all channels is intended to ensure that production is sustained or grown. During the course of the period we are pleased to report that we manufactured and sold more chocolate than ever before. The inherent flexibility of our manufacturing capability meant that we were able to respond quickly to the changing demand levels and our inventory in turn is well under control. The outsourcing of our warehousing and distribution to our partner DHL was completed during the period and service levels delivered across the peak season. Margin and operating expenses Gross margins declined 4.2% to 42.5% (2011: 46.7%). Factors that contributed to this decline were: 1. The continued successful growth of our Commercial channel: sales from this channel now represent 37.2% of total Company sales (2011: 33.9%). Commercial sales are made at wholesale prices and consequently reduce the overall margin percentage. 2. Consumers traded down from our traditional ranges into the promoted lines in both the Own Stores and Commercial channels. These promotional lines contributed to a higher sales mix than forecast which in turn resulted in higher levels of overall discount and promotional support costs. 3. Raw material costs have continued to increase over the period, which affected the gross margin percentage in all the channels. While our Commercial channel will become the dominant sales channel over the next three years, we envisage that our overall gross margin percentage will gradually improve over time. We have taken a number of actions to manage this, including continued improvement in manufacturing efficiencies together with product value engineering and ingredients optimisation. These will start to flow through into the business during the course of 2012. Additionally, margin pressure is expected to ease through the gradual reduction in certain raw material costs. Operating expenses before exceptional items reduced by 3.5% to £52.0 million (2011: £53.9 million). This year‘s expense also includes the following charges: 2012 £m Store closure costs Other redundancy and restructuring costs Total
0.7 0.6 1.3
2011 £m (restated) 0.4 0.7 1.1
The reduction in operating expenses is due to the effect of the store closure programme as well as the benefits of the procurement activities that have taken place over the course of the last 18 months.
Other operating income decreased by 2.9% to £0.8 million (2011: £0.9 million). This decline was through a reduction in volumes with our licensees for cakes and chilled desserts. Our other lines continued to trade to expectation. Financial position The Company‘s objective in managing its capital structure is to maintain a balance sheet structure that is both efficient in terms of providing long-term returns to shareholders as well as safeguarding the Group‘s ability to continue as a going concern. We continue to manage the Company‘s balance sheet and cash flow tightly. In the period the business generated sufficient EBITDA – £7.5 million (2011: £14.8 million) – and cash flow to fund the Retail closure programme and planned capital investment. Net debt at the period end was £16.2 million (2011: £14.0 million) including £3.9 million of finance leases (2011: £4.3 million). The Company has committed unsecured bank facilities of £57.5 million with an average interest rate of 2.53% above LIBOR which expire in October 2015. It also has an uncommitted bank overdraft facility of £5 million. During the 28 week period to 7 January, peak drawings for a short period of time totalled £49.3 million, leaving comfortable headroom against the current facilities. The committed borrowing facilities contain financial covenants. The covenants are tested halfyearly and are based upon interest cover, net debt to earnings and Earnings Before Interest, Depreciation, Amortisation and Rent (―EBITDAR‖) to fixed costs. For both interest cover and net debt to earnings, earnings are defined as Earnings Before Interest, Depreciation, Amortisation (―EBITDA‖). Costs incurred with the delivery of our strategic plan, including exceptional costs, store closures, redundancies and other one-off costs, are excluded from the calculation of EBITDA and EBITDAR. At the 7 January 2012 testing date all of the covenant tests were passed. We expect that the Company will operate within the terms of its borrowing facilities and covenants for the foreseeable future. Accordingly, after making appropriate enquiries, the Directors believe that the Company has adequate resources to continue as a going concern. Exceptional costs As a consequence of Own Store sales falling short of expectations in the 28 week period to 7 January 2012 and particularly during the December trading period, the Company has incurred gross impairment and onerous lease charges of £2.4 million (2011: £0.1 million). Further details of exceptional items are contained in note 6. Taxation The total tax charge after exceptional items for the period under review was £nil (2011: £2.3 million) with the underlying tax rate amounting to 29.1% (2011: 32.3%) of profit before tax. This is higher than the statutory rate of 25.75% (2011: 27.5%) mainly due to the effect of permanently disallowable items and depreciation on assets for which the Group receives no tax allowances. Pension scheme The valuation of the Thorntons‘ pension scheme as at 25 June 2011 has been updated on an actuarial basis, applying current discount and inflation rate assumptions and incorporating the valuation of the plan assets as at 7 January 2012. The deficit is now £29.1 million (2011: £22.3 million). Board changes In November 2011 Mark Robson, Finance Director informed us of his intention to leave Thorntons. He will leave the Company and resign from the Board on 17 February 2012. On behalf of the Board I would like to thank Mark for his significant contribution to Thorntons over the past two years and wish him every success in his new role.
Mike Killick joined Thorntons in January 2012 and will join the Board as Finance Director on Mark‘s departure. Mike brings a great deal of retail and commercial experience and we welcome him to the team. Today we announced the appointment of Keith Edelman as Non-Executive Director. Keith will join the Board on 21 February 2012. The search for a second new Non-Executive Director is continuing. Principal risks and uncertainties Key risks are regularly reviewed by the Executive Directors and senior management. The key risks and uncertainties facing the business are detailed in note 17. Outlook The economic and retail environment will remain challenging and uncertain for the foreseeable future, certainly through 2012. Since our statement on 12 January 2012 trading across our sales channels has been in line with our expectations. We have a strong range for our remaining key spring trading seasons of Mothers' Day and Easter. We have planned cautiously for our Retail channels but anticipate building on last year‘s Easter success in our Commercial channel and we have a strong order book to support this. We are also closely managing production and stock levels and retain an ongoing emphasis on improving margins through a mixture of cost control, procurement and manufacturing efficiencies, new product development and selected price increases. Our vision for the future of Thorntons is clear. During the rest of this year we will press ahead with our strategy delivering further growth in Commercial sales, continue to close stores in line with our lease expiry profile, start our store refurbishment programme, promote steady growth in the number of our Franchisees and drive profitable growth in Thorntons Direct. Our brand also remains strong and is a key asset. Our sales and market share demonstrate the mass-premium appeal of Thorntons and the high regard in which the brand is held in by our customers. The Board is grateful for the continued support from our customers and would like to express our sincere appreciation and thanks to our loyal staff and franchisees.
On behalf of the Board
Jonathan Hart Chief Executive 14 February 2012
CO NS O L I DAT E D INCO ME S T ATE MENT 28 W EEK S EN D ED 7 J AN U AR Y 2 0 1 2 Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011 *
2011
Note
£’000
£‘000
£‘000
5
129,979 (74,710)
133,491 (71,169)
218,255 (117,516)
55,269
62,322
100,739
(51,974) (2,448)
(53,882) (103)
(96,403) (5,158)
(54,422) 838
(53,985) 863
(101,561) 1,674
4,133 (2,448)
9,303 (103)
6,010 (5,158)
1,685 —
9,200 11
852 11
(1,067) —
(910) —
(1,685) (249)
Total finance costs Profit/(loss) before taxation
(1,067)
(910)
(1,934)
- profit before taxation and exceptional items - exceptional items
6
3,066 (2,448)
8,404 (103)
4,336 (5,407)
Total profit/(loss) before taxation
5
618
8,301
(1,071)
7 6
(399) 392
(2,348) 28
(174) 992
(7)
(2,320)
818
2,667 (2,056)
6,056 (75)
4,162 (4,415)
611
5,981
(253)
0.9p 0.9p
8.9p 8.8p
(0.4)p (0.4)p
Revenue Cost of sales Gross profit Operating expenses - operating expenses before exceptional items - exceptional items
6
Total operating expenses Other operating income Operating profit - operating profit before exceptional items - exceptional items Total operating profit Finance income Finance costs - finance costs before exceptional items - exceptional items
6 5
6
Taxation - taxation before exceptional items - exceptional items Total taxation Profit/(loss) attributable to owners of the parent - profit attributable to owners of the parent before exceptional items - exceptional items
6
Total profit/(loss) attributable to owners of the parent Earnings/(loss) per share Basic Diluted
8 8
* Exceptional items have been reanalysed for comparative purposes and further details are provided in note 6
All activities in both the current and previous year relate to continuing operations. The notes form an integral part of this condensed set of financial statements.
CONSOLIDATED STATEME NT OF COMPREHENSIVE INCOME 28 W EEK S EN D ED 7 J AN U AR Y 2 0 1 2 Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
611
5,981
(253)
– actuarial (loss)/gain recognised in the defined benefit pension scheme
(4,549)
1,357
(2,375)
– movement of deferred tax on pension liability
987
(537)
133
Profit/(loss) for the period Other comprehensive (expense)/income:
Total other comprehensive (expense)/income
(3,562)
820
(2,242)
Total comprehensive (expense)/income for the financial period attributable to owners of the parent
(2,951)
6,801
(2,495)
The notes form an integral part of this condensed set of financial statements.
CO NS O L I DAT E D S TA TE ME NT O F CHA NG E S I N EQ U IT Y 28 W EEK S EN D ED 7 J AN U AR Y 2 0 1 2
Note At 26 June 2010 Profit for the period Other comprehensive income Total comprehensive income for the period ended 8 January 2011 Transactions with owners: – share-based payment credit – dividends At 8 January 2011
9
At 25 June 2011 Profit for the period Other comprehensive expense Total comprehensive income for the period ended 7 January 2012 Transactions with owners: – share-based payment credit – dividends At 7 January 2012
9
Share capital £‘000
Share premium £‘000
Retained earnings £‘000
Total £‘000
6,837
13,768
5,363
25,968
— —
— —
5,981 820
5,981 820
—
—
6,801
6,801
— —
— —
157 (2,747)
157 (2,747)
6,837
13,768
9,574
30,179
6,837
13,768
(1,296)
19,309
—
—
611
611
—
—
(3,562)
(3,562)
—
—
(2,951)
(2,951)
— — 6,837
— — 13,768
(496) (168) (4,911)
(496) (168) 15,694
The notes form an integral part of this condensed set of financial statements.
CO NS O L I DAT E D B A L A NCE S HE ET A S AT 7 J A NU A R Y 20 1 2
Note Assets Non-current assets Intangible assets Property, plant and equipment Deferred tax assets Current assets Inventories Trade and other receivables Cash and cash equivalents
10 11
13b
Total assets Equity and liabilities Shareholders’ equity attributable to owners of the parent Ordinary shares Share premium Retained (deficit) / earnings Total equity Liabilities Current liabilities Trade and other payables Borrowings Current tax liabilities Provisions for liabilities Non-current liabilities Borrowings Deferred tax liabilities Retirement benefit obligations Other non-current liabilities Provisions for liabilities Total liabilities Total equity and liabilities
12
Unaudited 7 January 2012 £’000
Unaudited 8 January 2011 £‘000
Audited 25 June 2011 £‘000
2,316 49,351 596 52,263
3,228 56,979 — 60,207
2,792 52,667 — 55,459
31,147 27,553 1,919 60,919 112,882
28,939 24,283 511 53,733 113,940
37,018 16,017 1,752 54,787 110,246
6,837 13,768 (4,911) 15,694
6,837 13,768 9,574 30,179
6,837 13,768 (1,296) 19,309
42,213 15,898 316 1,470 59,897
37,766 12,081 2,854 512 53,213
32,457 22,886 — 967 56,310
2,261 — 29,118 2,481 3,431 37,291 97,188 112,882
2,383 1,914 22,306 2,885 1,060 30,548 83,761 113,940
3,355 599 25,264 2,699 2,710 34,627 90,937 110,246
The notes form an integral part of this condensed set of financial statements.
CO NS O L I DAT E D S TA TE ME NT O F CA S H FL OW S 28 W EEK S EN D ED 7 J AN U AR Y 2 0 1 2 Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
Note
£’000
£‘000
£‘000
13a
11,598
20,832
14,823
630
(503)
(1,392)
—
11
12
12,228
20,340
13,443
442
30
46
Purchase of property, plant and equipment
(2,948)
(4,535)
(4,208)
Net cash used in investing activities
(2,506)
(4,505)
(4,162)
Interest paid
(1,305)
(1,020)
(1,802)
Capital element of finance lease repayments
(1,482)
(1,683)
(2,499)
Borrowings repaid
(6,600)
(11,500)
(800)
(168)
(2,747)
(4,054)
(9,555)
(16,950)
(9,155)
167
(1,115)
126
1,752
1,626
1,626
1,919
511
1,752
Cash flows from operating activities Corporate taxation received/(paid) Interest received Net cash generated from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment
Cash flows from financing activities
Dividends paid Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period
13b
The notes form an integral part of this condensed set of financial statements.
NO T E S T O T HE I NT E RI M FI NA NCI AL S TAT E ME NT S 1 General information Thorntons PLC (―the Company‖) is a company incorporated and domiciled in the UK and is listed on the London Stock Exchange. The address of the Company‘s registered office is Thornton Park, Somercotes, Derbyshire DE55 4XJ. The principal activities of the Company and its subsidiaries during the period were the manufacturing, retailing and distribution of high quality confectionery and other sweet foods. The condensed set of financial statements (―financial statements‖) for the 28 weeks ended 7 January 2012 was approved by the Directors on 14 February 2012. These financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The financial information contained in this set of financial statements in respect of the 52 weeks ended 25 June 2011 has been extracted from the Annual Report and Accounts, which were approved by the Board of Directors on 6 September 2011 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006. The interim results for the current and comparative periods are unaudited. The auditors have carried out a review of this condensed set of financial statements for the 28 weeks ended 7 January 2012 and their report is set out below. 2 Basis of preparation This condensed set of financial statements for the 28 weeks ended 7 January 2012 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 ‗Interim financial reporting‘ as adopted by the European Union (―EU‖). This condensed set of financial statements should be read in conjunction with the annual financial statements for the 52 weeks ended 25 June 2011, which have been prepared in accordance with International Financial Reporting Standards (―IFRS‖) as adopted by the EU. The Income and Cash flow statements for the prior year have been reanalysed to show a consistent approach to that used in the current year. Bank arrangement fees previously included in Operating expenses are now shown in Finance costs and adjustments to the onerous lease and impairment provisions are shown as exceptional. Neither adjustment is material to the financial statements and both relate to re-presentation only. No further adjustment to the prior year is therefore considered necessary. 3 Accounting policies The accounting policies adopted are consistent with those of the annual financial statements for the year ended 25 June 2011, as described in those annual financial statements. The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year ending 30 June 2012 but are not considered to have a significant impact: • IAS 24 (revised), 'Related party disclosures'. This amends the definition of a related party and modifies certain related party disclosure requirements for government related entities; • Amendments to IFRS 1, 'First time adoption of IFRS', on IFRS 7 exemptions; • Amendment to IFRIC 14, 'IAS 19 – The limit on a defined benefit assets, minimum funding requirements and their interaction'; and • IFRIC 19, Extinguishing financial liabilities with equity instruments. 4 Estimates The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the group‘s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 25 June 2011, with the exception of changes in estimates that are required in determining the provision for income taxes and disclosure of exceptional items. 5 Segmental reporting The Executive reviews the Group‘s internal reporting in order to assess performance and allocate resources. The operating segments of the Group have been determined on this basis. All revenue arises from UK operations to external customers and therefore the Executive does not consider the business from a geographic perspective, only an operational one. Two reportable segments, ―Retail‖ which incorporates Own Stores, Franchise and Thorntons Direct; and ―Sales & Operations‖ (―S&O‖) encompassing the Commercial trading channel and manufacturing operations, have been identified. One Commercial customer now represents greater than 10% of Group revenue, with revenue in the period of £16.7 million (2011: £14.7 million). The Executive assesses the performance of the operating segments based on a measure of operating profit. Costs specific to Head Office and finance costs are not included in the result for each operating segment as these costs are not managed on a segmented basis.
Total segment assets exclude IT assets, non-trade receivables and cash and cash equivalents as these are managed centrally. Assets are located in the UK.
Unaudited
Unaudited
Audited
28 weeks ended
28 weeks ended
52 weeks ended
7 January 2012 Retail
S&O
Central
8 January 2011 Total
Retail
S&O
Central
25 June 2011 Total
Retail
S&O
Central
Total
£’000
£’000
£’000
£’000
£‘000
£‘000
£‘000
£‘000
£‘000
£‘000
£‘000
£‘000
81,653
48,326
—
129,979
88,283
45,208
—
133,491
139,448
78,807
—
218,255
Depreciation and amortisation
2,388
2,668
712
5,768
1,994
2,780
854
5,628
5,481
5,206
1,531
12,218
Segment operating profit
6,507
6,941
—
13,448
10,987
8,479
—
19,466
7,811
15,362
—
23,173
Total revenue
(9,315)
Head Office costs Exceptional items
(2,448)
—
—
Operating profit Net finance costs Profit/(loss) before taxation
—
—
(103)
(103)
(17,163) (4,334)
—
(824)
(5,158)
1,685
9,200
852
(1,067)
(899)
(1,923)
618
8,301
(1,071)
561
1,700
331
2,592
1,590
1,411
1,014
4,015
2,226
2,232
1,429
5,887
14,372
84,954
13,556
112,882
18,962
82,445
12,533
113,940
12,721
83,717
13,808
110,246
Additions to non-current assets (other than deferred tax assets) Total assets
(2,448)
(10,163)
6 Exceptional items Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
2,443
103
4,334
Outsourcing costs
5
—
687
Refinancing costs
—
—
386
2,448
103
5,407
Tax credit attributable to exceptional items
(392)
(28)
(992)
Total exceptional items after tax
2,056
75
4,415
Impairment and onerous lease charges
Total exceptional items
Impairment and onerous lease charges As a result of the performance of Retail Own Stores during the period, significant impairment and onerous lease charges have been required. These provisions are made in respect of stores for which projected discounted cash flows inclusive of attributable overheads are insufficient to cover property costs up to the lease expiry date, held at the level of the projected shortfall. Additionally where these discounted cash flows fall below the net book value of store assets, an impairment provision is made.
Outsourcing costs Transition costs incurred as a result of the Group‘s decision to outsource its warehousing and distribution functions. Refinancing costs Costs incurred in the Group securing new committed bilateral revolving credit facilities in June 2011. 7 Taxation During the period, as a result of the change in the UK main corporation tax rate from 26% to 25% that was substantively enacted on 5 July 2011 and effective from 1 April 2012, the relevant deferred tax balances have been re-measured. Further reductions to the UK corporation tax rate were announced in the March 2011 Budget. The changes, which are expected to be enacted separately each year, propose to reduce the rate by 1% per annum to 23% by 1 April 2014. The changes had not been substantively enacted at the balance sheet date and therefore are not recognised in these financial statements. The tax charge including deferred tax for the 28 weeks ended 7 January 2012 is based on a full year overall expected tax rate of 29.1% (full year 2011: 32.3%). The charge for the period is lower than this expected rate primarily due to the impact of the remeasurement mentioned above. The current year rate has been calculated by reference to the projected charge for the full year ending 30 June 2012 and reflects the mainstream corporation tax rate of 25.75%. The ordinary tax charge exceeds the charge based on these statutory rates, principally due to depreciation on owned assets not qualifying for capital allowances and other permanently disallowable items. 8 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held in the employee share trust which are treated as cancelled. For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Dilutive potential ordinary shares are those share options granted to employees where the exercise price is less than the average market price of the Company‘s ordinary shares during the period. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
Profit before exceptional items Effect of exceptional items Profit/(loss) attributable to owners of the parent
Unaudited
Unaudited
Audited
28 weeks ended
28 weeks ended
52 weeks ended
7 January 2012
8 January 2011
25 June 2011
Basic
Diluted
Earnings
earnings
earnings
£’000
per share
2,667
4.0p
(2,056)
(3.1)p
611
0.9p
Basic
Diluted
Earnings
earnings
earnings
per share
£‘000
per share
4.0p
6,056
9.0p
(3.1)p
(75)
0.9p
5,981
Weighted average number of ordinary shares Dilutive effect of shares from share options Fully diluted weighted average number of ordinary shares
Basic
Diluted
Earnings
earnings
earnings
per share
£‘000
per share
per share
8.9p
4,162
6.2p
6.2p
(0.1)p
(0.1)p
(4,415)
(6.6)p
(6.6)p
8.9p
8.8p
(253)
(0.4)p
(0.4)p
Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
66,955,838
66,955,838
66,955,838
210,800
1,124,218
536,726
67,166,638
68,080,056
67,492,564
9 Ordinary dividends Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
168
2,747
2,747
—
—
1,307
168
2,747
4,054
Final dividend paid for the 52 weeks ended 25 June 2011 of 0.25p (52 weeks ended 26 June 2010: 4.10p) Interim dividend paid in respect of the 52 weeks ended 25 June 2011 of 1.95p Amounts recognised as distributions to owners of the parent
The final dividend paid for the 52 weeks ended 25 June 2011 was paid from the distributable reserves of the ultimate parent company, Thorntons PLC.
10 Intangible assets Unaudited computer software £‘000 Cost At 25 June 2011
27,311
Additions at cost
307
At 7 January 2012
27,618
Accumulated amortisation At 25 June 2011 Charge for the period At 7 January 2012
24,519 783 25,302
Net book amount at 7 January 2012
2,316
Net book amount at 25 June 2011
2,792
11 Tangible assets Unaudited property, plant and equipment £‘000 Cost At 25 June 2011 Additions at cost Disposals
187,194 2,285 (4,112)
At 7 January 2012
185,367
Accumulated depreciation At 25 June 2011 Charge for the period Disposals At 7 January 2012
134,527 4,985 (3,496) 136,016
Net book amount at 7 January 2012
49,351
Net book amount at 25 June 2011
52,667
The impairment charge for the period of £881,000 (2011: £3,000) has been recognised within the depreciation charge for the year and has been classified as an exceptional item (see note 6). 12 Retirement benefit obligations The valuation of the Thorntons‘ Pension Scheme at 25 June 2011 has been updated on an actuarial basis applying current discount and inflation rate assumptions, and incorporating the valuation of the plan assets at 7 January 2012 and payments made into the scheme during the period. This has led to a net increase in the deficit of £3.9 million from 25 June 2011. In October 2009 and as part of the schedule of contributions agreed with the Trustees to Thorntons‘ Pension Scheme, it was further agreed that in addition to an annual contribution of £2.2 million, the Company would make an additional contribution over each of the next three financial years equivalent to the higher of either: a third of any reduction in the net debt reported in the statutory accounts for the years ending June 2010, 2011 and 2012; or the ongoing annual contribution of £2.2 million multiplied by the percentage increase in the annual dividend above a minimum of £4.0 million.
13 Cash flows from operating activities a) Cash generated from operations Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
1,685
9,200
852
5,768
5,628
12,218
– amortisation of Government grants received
(11)
(11)
(21)
– loss on disposal of property, plant and equipment
174
134
148
– share-based payment (credit)/charge
(496)
157
(110)
Operating cash flow before working capital movements
7,120
15,108
13,087
5,871
1,454
(6,625)
Continuing operations Operating profit Adjustments for: – depreciation and amortisation
Changes in working capital Decrease/(increase) in inventories
(12,055)
(8,285)
264
Increase in payables
10,133
13,054
7,265
Increase in provisions
1,224
57
2,162
Increase in post-employment benefit obligations
(695)
(556)
(1,330)
11,598
20,832
14,823
(Increase)/decrease in trade and other receivables
Cash flows from operating activities
b) Cash and cash equivalents for the statement of cash flows
Cash and cash equivalents at end of period
Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
1,919
511
1,752
14 Reconciliation of movement in net debt Unaudited
Unaudited
Audited
28 weeks
28 weeks
52 weeks
ended
ended
ended
7 January
8 January
25 June
2012
2011
2011
£’000
£‘000
£‘000
167
(1,115)
126
Cash flows from decrease in debt
8,082
13,183
3,299
Change in net debt resulting from cash flow
8,249
12,068
3,425
—
—
(1,893)
Increase/(decrease) in cash and cash equivalents
Inception of new finance leases
8,249
12,068
1,532
Net debt at beginning of period
(24,489)
(26,021)
(26,021)
Net debt at end of period
(16,240)
(13,953)
(24,489)
Movement in net debt in the period
15 Related party transactions There are no related party transactions requiring disclosure in the condensed set of financial statements. 16 Seasonality Sales are subject to seasonal fluctuations, with peak Christmas demand in the second quarter of the year. In the year ended 25 June 2011, the 28 week period to 8 January 2011 represented 61% of annual sales. 17 Principal risks and uncertainties Key risks are regularly reviewed by the Executive Directors and senior management. The key risks and uncertainties facing the business are considered to be as follows: Economic and industry risks A competitive marketplace The UK confectionery market has many strong players and maintaining our competitive position depends on our continued ability to offer products that have a strong appeal to consumers and which are readily available in the places that they wish to purchase them. Any significant shift in consumer trends coupled with a failure to anticipate and react to such changes or a failure to invest adequately in our business could reduce demand for our products resulting in loss of market share, reduced sales, reduced attractiveness to potential franchisees or harm to the image of our brand. Product innovation is critical to maintaining consumer relevance and the Company has a rigorous process for identifying, researching and developing new product ideas, which is regularly reviewed. The Company‘s multi-channel strategy is also a means by which it can satisfy consumers‘ needs better than some of its competitors, whilst also mitigating the overall risk to the business from a downturn in any specific channel. Economic downturn or recession We believe that during times of economic uncertainty or hardship consumer demand for products may fall or consumers may choose to purchase lower value consumer goods as opposed to higher value consumer goods resulting in a fall in demand for our products. Thorntons consequently offers a range of products across various price points and has flexible trading and promotional plans that enable it to respond to consumer and market trends rapidly. The economic climate may also result in th e failure of Commercial or Franchise businesses and consequently customers and/or franchisees defaulting on supply payments. Reduced sales as a result of an economic downturn or recession in the UK may have an adverse effect on the profitability and cash flow of our business. Key input prices are driven by commodity markets Material adverse changes in certain commodity prices could affect the Company‘s profitability. The Company buys key inputs forward and works with suppliers to choose the optimal time and quantity for purchases. Whilst this policy may sometimes preclude the Company from taking advantage of short-term dips in prices, it provides a stable cost base for the Company to make its trading decisions. Operational risks A substantial decrease in our ability to supply our customers with our products A major interruption or substantial decrease in our ability to supply customers could damage our sales and image as well as our relationships with customers and consumers. The majority of the Company‘s products for sale are produced at Thornton Park in Alfreton, Derbyshire. Thornton Park has significant fire protection across the site, contingency and emergency recovery plans for IT, utilities and major incidents which are regularly reviewed and appropriate insurance cover is also in place.
Food products must have the highest integrity Product contamination, accidental or malicious, is a risk faced by all food producers. Thorntons has extremely rigorous policies and security systems for guarding against accidental or malicious contamination of ingredients or finished products. In the unlikely event that these policies and systems fail, a robust process for product recall and consumer communication, in addition to comprehensive insurance cover, is in place. People risks The business is dependent upon the skills, enthusiasm and wellbeing of its people Management evaluates the balance of skills, knowledge and experience within the team when considering the role and capabilities required for a particular senior appointment. The Company uses professional external recruitment specialists as and when appropriate, as well as contacts of its Directors and the Company‘s advisers. Management aspires to keep colleagues informed of internal and external developments and regularly reviews how staff are feeling through surveys and communication sessions. A channel outside the normal line structures for communication and resolution of issues exists through the Joint Industrial Council for Thornton Park and the Retail Council for store-based colleagues. Strong recruitment processes, formalised succession planning together with on-going individual training and development plans help mitigate the risk of the loss of key staff. In the current economic climate we continue to devote resources to our procurement activities to mitigate the effects of inflation on our raw material costs as well as managing the Company‘s credit risk whether from financial institutions, customers or suppliers.
S TA TE ME NT O F DI RE CT O RS ‘ RES PO NS I B I LIT Y The Directors confirm that, to the best of their knowledge, this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the EU, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8. The Directors of Thorntons PLC are listed in the Thorntons PLC Annual Report and Accounts 2011. Since the year end the only change in directors is the resignation of Peter Wright. A list of current directors is maintained on the Thorntons PLC web site: www.thorntons.co.uk.
On behalf of the Board
Jonathan Hart, Chief Executive Mark Robson, Finance Director 14 February 2012
A UDI T O RS ‘ REP ORT O N RE VI EW OF CO NS O L I DAT E D I NT E RI M FI NA NCI A L I NFO RMA T I O N Introduction We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the 28 weeks ended 7 January 2012, which comprises the Consolidated income statement, Consolidated statement of comprehensive income, Consolidated statement of changes in equity, Consolidated balance sheet and Consolidated statement of cash flows and related notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. Directors’ responsibilities The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom‘s Financial Services Authority. The annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34 ‗Interim financial reporting‘, as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‗Review of Interim Financial Information Performed by the Independent Auditor of the Entity‘ issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the 28 weeks ended 7 January 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom‘s Financial Services Authority.
PricewaterhouseCoopers LLP Chartered Accountants Leeds 14 February 2012
Notes: (a) The maintenance and integrity of the Thorntons PLC web site is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial report since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.
