Full Year Results
12/10/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20231012:nRSL8540Pa&default-theme=true
RNS Number : 8540P Hotel Chocolat Group PLC 12 October 2023
12 October 2023
Hotel Chocolat Group plc
("Hotel Chocolat", the "Company" or the "Group")
Full Year Results
FY24 Q1 Trading Update
Strategic progress
Hotel Chocolat Group plc, a direct-to-consumer premium chocolate company,
today announces its audited full year results for the 53 weeks ended 2 July
2023 ("FY23") which are broadly in line with market consensus and in addition
provides a trading update for the 13 weeks ended 2 October 2023 ("FY24 Q1")
highlighting the significant progress made against its strategic priorities.
FY23 has been a critical year for the business in which we have seen a
rebalancing of pandemic driven ecommerce sales, a reset of our international
business and the initial benefits of the significant work to reshape our cost
base previously communicated on 8 March 2023 in our Interim Results as the
Group's operating efficiency initiatives or business shapers.
FY23 FINANCIAL HEADLINES
Lower sales driven by online and international sales reductions led to the
anticipated small underlying loss(1) in FY23, however, the business is
underpinned by a strong balance sheet and healthy cash position exiting FY23
with significant liquidity provided by the Group's RCF agreement.
· Revenue decline of 10% to £204.5m (FY22: £226.1m) in line with market
expectations;
o UK revenue decline of 8% yoy
o UK store sales +8% yoy
o UK Digital and Wholesale Partners decline of 24% yoy
· Underlying EBITDA(1) of £24.1m (FY22: £40.8m).
· Underlying EBITDA(1) margin of 11.8% (FY22: 18.0%).
· Underlying loss before tax and exceptional costs(1,2) of £0.8m (FY22: Profit
before tax and exceptional costs of £21.7m), in line with market
expectations.
· Statutory loss after tax of £6.2m (FY22: loss of £9.4m).
· Statutory loss in FY23 includes exceptional one-off costs of £6.1m(2).
· Exceptional costs include £3.5m impairment of the estate in St Lucia related
to the decline in the value of the Rabot Estate as tourism in St Lucia has not
fully recovered from the impacts of COVID-19 and £1.6m of restructuring
costs.
· The Group extended its RCF by a further 12 months to July 2025 on 29 September
2023 with the requirement that the Group's St Lucian entities accede to
obligors within 60 days of extension. The Group has substantial headroom
within the RCF facility, with £22m of unutilised facilities within its £50m
RCF and £8m cash on hand as of 10 October 2023.
53 weeks ended 52 weeks ended
3 July 2023 26 June 2022
£m £m
Revenue 204.5 226.1
Underlying EBITDA(1) 24.1 40.8
Underlying (Loss)/Profit before tax(1) (0.8) 21.7
Exceptional costs and adjusting items(2) 6.1 30.4
Statutory Loss after tax (6.2) (9.4)
Basic Earnings per share (4.5p) (6.9p)
(1) Underlying EBITDA and Underlying Profit before tax are Alternative
Performance Measures (APMs), as explained in the financial review.
(2) A breakdown of exceptional costs and adjusting items is included in the
financial review.
FY23 OPERATIONAL HIGHLIGHTS
Overall Group sales decline but with UK stores continuing to grow, significant
progress made against business shapers.
· Group sales decreased 10% YoY but are still ahead of pre pandemic (FY19)
levels at +54% vs FY19
· Continued strength in store performance supported by roll out of Velvetiser
cafés and consumers switching back from online to a more immersive brand
experience in-store.
· Significant progress made on Business Shapers in driving lower cost base and
reducing working capital. With FY23 expected to be a transition year, we are
pleased with the strong progress on our objectives to implement cost and
capital efficiencies leaving the Group well placed for the future.
· UK customer demand for our in-home drinking chocolate system was resilient
throughout FY23. We are close to achieving 1m UK households with a Velvetiser
and are confident we will surpass that number during FY24.
· Reduction of finished goods inventory levels and reduced aged inventory with
aged finished good inventory as a percentage of total finished goods inventory
falling from 13% at end of FY22 to 1% at end of FY23.
FY24 Q1 HIGHLIGHTS
Significant progress made against the Group's 'shape of the future' strategic
priorities primarily comprising the Group's business shapers.
· UK store revenues +14% YoY, +13% like for like.
· FY24 new store openings 4 of planned 12 now open and outperforming
expectations, this compares to 1 store opening in FY23.
· Relaunch of the Group's US operations through the digitally led drinkable
chocolate categories of Velvetiser and Velvetised Cream alcohol with
encouraging direct to consumer sales performance to date.
· Strong Group gross margin performance with gross margin +6ppt vs Q1 FY23 with
reduced discounting, headline price increases and reduced inventory writes
offs driving the year on year expansion.
· Significant cost reductions flowing into FY24 from restructuring activities
carried out in FY23.
· Cost of service costs reducing as a proportion of total sales driven by the
sub-let of part of the Northampton DC in Q4 FY23 and the renegotiation of
third party delivery contract rates driving an expected £0.8m savings per
year.
· Tight management of working capital, primarily inventory, has delivered a
significantly favourable cash position at end Q1 FY24 vs prior year at +£19m
year on year.
Commenting on the Group's Q1 progress, Angus Thirlwell, Co-Founder and Chief
Executive Officer, said:
"Hotel Chocolat is on the front foot again. The hard, foundational work we put
in last year is now starting to deliver the results for us.
"Our new store format is trading well above our expectations, with 12 new
locations planned to open in the next year. Four of them are open already and
they are located across the UK from Glasgow to Bournemouth.
"Our ongoing stores continue to perform strongly, benefitting from a raft of
exciting new products, the resumption of in-store tasting and our unique Love
March offer which reflects human individuality to closely match it across our
Hotel Chocolat range. Trading in our railway station stores has rebounded as
traveller numbers have increased.
"Now our Year 1 of our 3-year 'shape of the future' plan has been completed,
it has shown to be effective in creating operating efficiencies, with our
Cambridgeshire chocolate factory and distribution hubs generating pleasing
improvements in performance in overcoming the growing pains we experienced
last year.
"Our customers are clearly telling us to keep focusing on the important
things: never compromising on 'cacao-first' in our recipes, keeping a
plentiful flow of exciting new concepts and funding meaningful investments in
gentle farming to make it right for cacao growers and the nature around it.
"In the US, we relaunched our digital store in July and direct to consumer
orders in Q1 are well ahead of our expectations. I would like to thank our US
customers who have been extremely gracious in forgiving us for our 12-month
absence while we improved our US digital model.
"In Japan, the 21 Hotel Chocolat stores run by the brand licensee, Eat
Creator, made a small profit in their first 6 months of trading. Continuing to
profitably service demand in the Japanese market with reduced operating costs
and capital investment is a key outcome of our improved operating model. Hotel
Chocolat owns 20% of the Japanese business and receives a licensing fee on
sales, with Eat Creator owning the remaining 80% and providing the development
capital."
Outlook
The Board continues to believe that the Hotel Chocolat brand has an exciting
future both in the UK and internationally as evidenced by continuing growth of
UK stores and proven consumer demand in both the US and Japan. Despite the
existence of external macro-economic challenges including inflationary
pressures and the cost-of-living crisis, the Hotel Chocolat team has
continually proven the ability to adapt to changing circumstances as evidenced
by the significant progress achieved in FY23 and Q1 FY24 on the five business
shapers that support margin expansion and working capital reduction. FY24 and
FY25 will see an ambitious store opening programme to capture the increasing
demand for in-store experiences and further progress our business shapers
strategy as first announced on 8 March 2023. The Board therefore is confident
in the ability of the brand and the team to deliver future attractive sales
growth and returns.
The Board has made a clear strategic choice to maximise the prospects for the
Group through focus on the UK, whilst deploying lower risk operating models in
the Japanese and US markets with limited capital requirements. The business
entered FY24 in a strong position with a healthy cash balance. Since 3 July
2023, cash outflows have been significantly better than FY23 due to well
controlled working capital management. At the date of publication, the Group
is entering its key FY24 Christmas trading season in a strong position with
good liquidity due to improved cash balances and lower working capital. With
three quarters of the year still to trade, worth around 85% of annual sales
values and including the five largest gift events, the Board believes it is
too early to give clear guidance around FY24 prior to Christmas. As such the
Board is taking a prudent approach to managing current trading to ensure costs
and capital outlay are aligned to sales performance.
For further information:
Hotel Chocolat Group plc c/o Citigate + 44 (0) 20 7638 9571
Angus Thirlwell, Chief Executive Officer
Jon Akehurst, Chief Financial Officer
Liberum Capital Limited - Nominated Advisor and Broker + 44 (0) 20 3100 2222
Dru Danford
Ed Thomas
Miquela Bezuidenhoudt
Citigate Dewe Rogerson - Financial PR + 44 (0) 20 7638 9571
Angharad Couch
Ellen Wilton
Alex Winch
Notes to Editors
Hotel Chocolat is a premium British chocolate maker with a strong and
distinctive D2C brand. The business was founded by Angus Thirlwell and Peter
Harris, who are still executives within the business, and has traded under the
Hotel Chocolat brand since 2003. The Group is unusual in being a grower
(organic cacao farm in Saint Lucia), a manufacturer (Cambridgeshire) and
owning its extensive direct to consumer channels (branded stores, websites).
The Group was admitted to trading on AIM in 2016.
CHAIRPERSON'S STATEMENT
JOINING THE BOARD
I joined the Board as Chair in May 2023, taking over from Andrew Gerrie. I did
so knowing that I was joining a highly respected, founder-led, values driven
business known for its innovative, high quality products and strong premium
brand.
STRATEGY
Hotel Chocolat is first and foremost a strong brand in the eyes of our loyal
customers. The strong customer relationship through our multiple direct to
consumer channels is driven by our values of authenticity, originality and
ethics. Our vertical integration allows us to invest in sustainable farming
and supply chain initiatives, whilst our innovation and product range is
underpinned by our manufacturing skills, all in service of delighting our
customers.
In the short term, the business is focused on driving further growth through
innovation and store expansion in the UK and unlocking further efficiencies
from our unique vertically integrated model. Alongside this, the Group
continues to retain its long-term international growth ambitions but near
term, will adopt a more focused approach by backing capex-light and lower risk
approaches.
BUSINESS ACTIVITY IN THE YEAR
In FY23 we achieved sales of £205m, a decline of 10% on FY22; however, the
business continues to see significant growth on pre-pandemic levels with FY23
delivering an increase of 54% on FY19. FY23 was a transition year with changes
in the ecommerce and international channels impacting sales performance,
whilst strong progress has been made on reshaping our cost base from which the
business will benefit fully in future years. We have refined our operating
models for international expansion and have reentered both the Japanese and US
markets with lower risk, capital light operating models to address the
previous operating model challenges.
As a result of lower sales and the corresponding impact on operational
gearing, the business delivered an underlying loss(1) before tax and
exceptional items of £0.8m (FY22: profit £21.7m). As part of the cost base
reduction, restructuring activities resulted in exceptional costs of £6.1m
(FY22: £30.4m) and a statutory reported loss of £6.2m (FY22: £9.4m).
DIVIDEND
Given the opportunities to invest for further growth and returns, the Board
has determined that it would not be appropriate to declare a dividend for the
period. The Board will continue to review the financial position of the Group
in light of internal growth opportunities and the external environment and
intends to recommence progressive and sustainable dividend payments when
appropriate to do so.
BOARD OF DIRECTORS CHANGES
The Group continues to benefit from a strong founder-led management team and I
am delighted to have joined as Chair, replacing Andrew Gerrie, to support the
next phase of Hotel Chocolat's expansion.
In May the Group also welcomed our new CFO, Jon Akehurst, who replaces Matt
Pritchard. Jon brings strong commercial and operational experience to
support the Group's growth and margin expansion strategies.
On behalf of the Board and the wider Hotel Chocolat team, I would like to
thank Andrew Gerrie and Matt Pritchard for the leadership they brought to the
business and for their significant contribution.
OUTLOOK
The Board continues to believe that the Hotel Chocolat brand has an exciting
future both in the UK and internationally as evidenced by continuing growth of
UK stores and proven consumer demand in both the US and Japan. Despite the
existence of external macro- economic challenges including inflationary
pressures and the cost of living crisis, the Hotel Chocolat team has
continually proven the ability to adapt to changing circumstances which is
demonstrated through the good progress the business has made in FY23 and early
FY24 on the five Business Shapers that support margin expansion and working
capital reduction. FY24 and FY25 will see an ambitious store opening programme
to capture the increasing demand for in-store experiences, and further
progress on our five Business Shapers is expected to deliver pre-IFRS 16
EBITDA(2) margin of 20% by FY26. The Board, therefore, is confident in the
ability of the brand and the team to deliver attractive sales growth and
returns.
The Board has made a clear strategic choice to maximise the prospects for the
Group through focus on the UK, whilst deploying lower risk operating models in
the Japanese and US markets with limited capital requirements. The business
entered FY24 in a strong position with a healthy cash balance and significant
headroom. Since 3 July 23 cash outflows have been significantly better than
FY23 due to well controlled working capital management. At the date of
publication, the Group is entering its key FY24 Christmas trading season in a
strong position with good liquidity due to improved cash balances and lower
working capital. With three quarters of the year still to trade, including the
five largest gift events, the Board is taking a prudent approach to managing
current trading to ensure costs and capital outlay are aligned to sales
performance.
STEPHEN ALEXANDER
Non-executive Chair
(1)Underlying EBITDA and Underlying Profit before tax are Alternative
Performance Measures (APMs), as explained in the financial review.
( )
(2)Pre-IFRS 16 EBITDA margin is an internal measure that management use to
understand the cash health of the Group. The metric is calculated by removing
( )all IFRS 16 impacts thereby treating all leases as operating expenses.
CHIEF EXECUTIVE'S STATEMENT
THE YEAR IN SUMMARY
FY23 will go down in Hotel Chocolat history as the year we set ourselves up
for our next era of forward development. The previous three years, FY20 to
FY22, had delivered an impressive 54% revenue growth over FY19, alongside
agile COVID-19 adaptations, but had left us out of shape on several fronts,
compared to what we know Hotel Chocolat is capable of.
So we took a year, FY23, to put that right. We established the comprehensive
'shape of the future' strategy in H1 and deployed it during H2, with pleasing
results so far. Sticking to this strategy will guide us to achieve an
ever-stronger brand and 20%+ pre-IFRS 16 EBITDA returns from FY26.
UK CHANNELS
£197.4m (FY22:£214.5m)
· Stores £117.8m (FY22: £109.4m).
A strong performance from our stores, with +8% sales growth. Space growth was
deliberately curtailed with a year-long pause on our store opening programme
while we observed the performance of our latest store format trial sites. FY24
is now benefitting from this with 12 additional UK store openings planned,
based mostly on the new format, and new store openings at 50 locations planned
over the next 5 years.
The Hotel Chocolat multi-channel model is led by our compelling store format.
With 124 locations open at the period end, all format types delivered
excellent EBITDA returns. It was reassuring to see a return to form for our
railway stations thanks to resurgent passenger numbers.
Our multi-channel approach means that each store has on average c.25,000
VIP.ME members within close proximity, nourishing the high sales densities our
brand achieves.
Our multi-category approach means that each store has multiple points of
attraction for brand fans spanning gifting, self-gifting and the Velvetiser
in-home system.
Our product range architecture by category, genre and pricing means that we
genuinely offer accessible luxury. The warm welcome from our team underscores
this.
With significant investments made into products, formats and training
programmes during FY23, we expect to keep delivering more great things from
our physical store experiences.
· Digital £58.3m (FY22: £79.1m).
As a significant portion of our customer tilted back to shopping in stores
post pandemic, our digital sales declined by 26% in the year. Marketing spend
was deliberately curtailed in this channel due to significant online media
inflation in this period. Our online ratio of D2C revenues is still
comfortably ahead of pre-pandemic levels, 29% FY23 vs 19% FY19 - an increase
of +58%.
Digital will continue to be a very important element of our distribution
channels. Indeed, it is our ambition to be the online leader in chocolate
across major markets. Whilst sales through digital experienced a decline as a
proportion of Group sales during FY23, this was against the backdrop of FY22
being positively impacted by the pandemic.
The Hotel Chocolat multi-channel model means that any investment in a
particular channel creates a halo effect. We have developed expertise in
acquiring new customers across the full breadth of our channels and
activities.
We expect the strong new store opening programme (12 expected in FY24) and the
brand building media spend (+c.90% over FY23) to underpin performance in our
digital channel.
· Wholesale £21.3m (FY22: £26.0m).
Performance in this channel declined by 18% in the period. Wholesale was
adversely impacted by similar trends to that seen in our own digital channel
and several non-strategic accounts were closed, with a 'quality over quantity'
approach being taken.
Our strategy continues to restrict the product offer to a limited range for
reselling partners, with full range present only through Hotel Chocolat owned
channels.
Our Velvetised Cream alcohol category was presented at several international
trade shows during the year, in furtherance of our distribution plans outside
the UK market. Within the UK, the product is currently ranged within several
major grocers.
INTERNATIONAL CHANNELS
£7.2m (FY22: £11.6m)
US £0.2m (FY22: £2.9m)
A 100% subsidiary business
We are confident that our brand resonates in the US and, at the time of
writing, we are in the early stages of relaunching our offering - testing both
customer responses and distribution arrangements for our US Velvetiser-led
digital sales channel.
This is the result of applying all learnings acquired so far and adapting our
way to a better approach. It includes a new operating model, an adapted
customer offer and a more specialist small team. The first stage of our plan
is to be focused on our Velvetiser-led digital model with further stages
available to be layered in after solid success foundations have been achieved.
Initial performance and customer response is encouraging. Given that the US
business was closed for the majority of FY23, whilst an improved operating
model and approach was being put together, sales declines £2.7m YoY.
The Instagram feed HotelChocolatUS is a good way to view current brand
activity.
Japan £0.9m (FY22: £3.8m)
Equity Investment
A brand licence partnership in which Hotel Chocolat owns 20%
Eat Creator are the new partner for Japan since 29 December 2023, with 21
Hotel Chocolat locations across the country at the year end. Eat Creator
bring their skills to develop the model and offer local Japanese market
expertise, providing the growth capital and the resources to achieve this.
Hotel Chocolat brings a strong brand and supplies key products including some
for onward assembly and packing within Japan. This has been achieved through a
20% equity investment in HC St Lucia Inc, a company incorporated in Japan
(with Eat Creator owning the remaining 80%), and a royalty and distribution
agreement on all sales as the business develops.
A key early achievement has been c.10 new 'made in Japan' products designed
and introduced by the Eat Creator team in this period.
The Instagram feed Hotelchocolat_japan_official is a good way to view current
brand activity.
Saint Lucia £4.7m (FY22: £3.8m)
A 100% subsidiary business
Solid progress has been made at our Rabot model farm, Rabot Hotel and the new
Project Chocolat with the infrastructure now complete across all three areas
of the business. As a key unique immersive brand experience we are now well
set to benefit from the expected recovery of visitors to the island over the
coming years. The business currently uses the discounted cash flow method when
performing its annual valuation for impairment review. As a result of the
expected short term impact of slower than anticipated recovery of visitor
numbers to the island (which are still below pre-covid levels) we have
recorded an impairment to the carrying value of £3.5m in the year. The Group
remains fully committed to the exciting developments in St Lucia.
Our vision, conceived 20 years ago, is to connect the worlds of cacao
agriculture and chocolate luxury:
· Physically, from the experiences and unique propositions we have in St Lucia;
and
· Spiritually, through the positive impact our brand can bring everywhere, built
out from our knowledge and confidence of what we are learning by being a
gentle farmer of cacao.
The Hotel: award winning, with 25 rooms and an acclaimed restaurant serving
cacao-inspired cuisine.
The Farm: 140 acres with shade grown, organic cacao, fostering astonishing
biodiversity, soil quality and central fermentation activities for the
independent island grower within our ethical programme. The principles of
gentle farming were first tried and tested here before being adopted by our
Ghana programme.
The Visitor Experience: known as Project Chocolat, the 6 acre site offers
deeply authentic learning, dining and shopping within an expansive space that
is already hosting tens of thousands of visitors per annum. The majority are
US based and our aim is that, after an immersion in the Project Chocolat
experience, they will never look upon chocolate in the same way again.
The Instagram feed ProjectChocolatSaintLucia is a good way to view current
brand activity.
PROFIT SUMMARY
We entered the year over-leveraged on overheads and stock. The excess stock
position and corresponding price discounting put downward pressure on product
margins and higher absolute overheads led to lower Group operating margins.
These factors together with the Group revenue declines, led to a statutory
loss for the year.
After a year of wrestling the business back into a better shape, we exited the
year with reshaped overheads, improved organisational design, lean stock
levels and resurgent gross margins. Whilst the overall Group cash position has
deteriorated in FY23, cash from operations was strong, driven by the action
taken around our business shapers. These actions continue to impact cash from
operations since the end of FY23, with favourable working capital movements
compared to Q1 FY23.
We are determined that the focus on Business Shapers will deliver excellent
improvements in profit returns for years ahead.
OUR SHAPE OF THE FUTURE
The Brand Shapers
Our brand always takes top priority for our resources and long-term focus. I
am pleased with the energy we invested during FY23, with a number of
initiatives to surface during FY24 across channels, products, team knowledge
and ethics. Our everlasting brand values: to be original, authentic and
ethical will be progressively strengthened as we follow through our Brand
Shaper strategy.
Reinventing chocolate
- rolling out to an ever-larger audience for ever-greater impact
FY23 was dedicated to putting in the foundational design and test work on our
latest store format to enable a rollout of 50 new locations in the UK within
the next 5 years. The new format has approximately 100% more trading space
than the current estate, with more room for a Velvetiser café and an enhanced
layout for gifting and self-gifting ranges. We have used more reusable and
long-lasting natural materials and a sharper more distinctive, post-modern
look. This format works well out of town as it can draw its own footfall due
to the quality of the offer and the customer database depth. Most locations
offer parking and are near convenient major road networks, addressing clear
'white-space' store gaps we can see from our database analytics.
For FY24 we have 12 new locations targeted, four of them already opened. Each
one will draw a large number of new customers into Hotel Chocolat, with a halo
effect for all our channels.
Throughout FY23 we also invested in our customer relationship tools to
increase customer lifetime value across channels, as well as our customer
database analytical tools. We approach FY24 with a c.90% increase in our brand
building media spend value with these enhanced abilities.
Velvetising the world
- leading and scaling the in-home drinkable chocolate market
UK customer demand for our in-home drinking chocolate system was resilient
throughout FY23. We are close to achieving 1m UK households with a Velvetiser
and are confident we will surpass that number during FY24. The development of
limited edition seasonal recipes continues apace, with stunning results from
close matching lifestyle flavours with the weather. An iced drinking chocolate
for the Velvetiser with real banana, chocolate and butterscotch sold out
within 5 weeks around the time of writing this report. A pipeline of exciting
new flavour launches for all palates and lifestyles is planned every quarter
for the foreseeable future.
In Saint Lucia, we of course have Velvetisers installed in all our 25 bedrooms
and they are on sale from the shopping space at Project Chocolat in US and UK
voltage.
Our US Velvetiser website launched in July 2023 and we are pleased with
operating model performance as well as customer reactions so far.
In Japan, Velvetisers are on sale through all 21 locations and customers may
try the drinks in the cafés hot or iced.
Owning the chocolate alcohol category
- creating THE chocolate brand for the alcohol market
We are in the early stages of building this model relative to other categories
we play in. During FY23, the UK distribution
focus included activating the on-trade with several successful collaborations.
Significant distribution is in place with key major grocers, supported by
'always on' sampling though our UK store network. International solutions are
in the developmental phase, with strong trade demand in several key markets.
Driving the nature positive cacao revolution
- unlocking customer power to help us make it right for farmer families and
for nature
Having established some momentum behind gentle farming in Ghana, we will be
increasing the prominence of this dimension of our brand from FY24 and
throughout our multi- channel marketing. We know that we have a receptive and
large audience who can join with us to make good things happen in cacao
agriculture.
Building a super-brand
- earning pricing and loyalty power by investing behind our 3 brand values
To be Original, Authentic, Ethical are the 3 everlasting values. During FY23,
we invested strongly in all 3, with the benefits set to be visible over FY24.
Original: c.28 new products for FY24 Christmas and Easter.
Authentic: a revamp of our internal School of Chocolate launches this Autumn,
underpinning our team confidence and knowledge.
Ethical: our Gentle Farming Programme enters its third year in Ghana,
supported by a key new product launching in the Autumn which helps fund our
ambitious plans by contributing 100% of the sale proceeds.
The Business Shapers
We established the Business Shaper strategy during FY23 to drive the UK
business to a recurring 20%+ pre-IFRS 16 EBITDA margin. Since the deployment
of the new Business Shapers, we have seen significant progress and expect to
carry this momentum into FY24.
Trading margin(1)
Improved by 0.7 percentage points in H2 FY23 vs prior year, driven by improved
inventory control methods. Short shelf life product levels are now at
historical lows resulting in lower levels of discounting. Over the course of
FY23, aged finished goods as a proportion of finished good stock has reduced
from 13% in calendar year 2022 to 1% at FY23 year end. This means customers
are getting the freshest and tastiest stock and the business is reaping the
full-price rewards of higher margins and minimal discount from short shelf
life. Price increases on selected product ranges also contributed.
(1)Trading margin is defined as sales less standard costs less the following
price variances: - calculated standard cost of goods to purchase order -
purchase order to invoice.
Overheads
Organisational restructuring was completed in the closing months of FY23 with
the objective of supporting higher performance. A leaner approach for our
vertically integrated business structure and methods meant that £5m of
ongoing permanent costs (salary related) were removed vs FY22. Several high
level appointments were made during the year, with deliberate high investments
behind strategic decisions fully costed into this reduced overall overhead
base.
Inventory balances
Have been tightened significantly, with total inventories down 19% vs FY22
closing balances. Finished goods inventories are down over 23% YoY whilst
availability is still excellent, in the mid-high 90%.
Manufacturing cost of goods
Efficiency gains here have been deliberately delayed by 6-9 months as the
business re-prioritised the pull forward launch of new products to ensure it
can optimise FY24 Christmas and Easter trading seasons by addressing gaps in
the product range. However, the detailed workstreams to deliver these gains
are fully in place to deliver the goals we have set.
Cost of service
In FY24 and onwards, this will benefit from reduced distribution centre costs
with c.50% of the Northampton DC now generating income through a sub-let.
OPERATIONAL OUTLOOK
Our view ahead assumes a low-growth general consumer demand environment and
stubborn cost inflation in the UK.
Some of the key trends noted, and the steps taken to address them, are:
Demand: We anticipate that competition for household spending will increase in
the short-term due to macro factors. In order to help drive demand during our
peak period, we have included in the FY24 business plan an enhanced marketing
budget with c.£9m brand building media spend from October through to March
2024 - an increase of c90% on FY23. This type of activity has previously
proven, in FY22 in particular, to be successful in driving demand in all
channels (FY22: c£11m brand building media spend).
Channel mix: Partly due to macro-economic factors, we are seeing a shift in
consumer preference toward the store channel. Our response to this has been to
allocate substantially more capital expenditure to new store space and
anticipate a conservative level of digital growth over the next 3 years.
Customer behaviour: Whilst purchase frequency remains high, we have seen a
slight reduction in the average order value. To fill gaps in our price points
resulting from recent increases, we have accelerated the development of c.28
new products
to achieve an optimum price architecture for our customers in the upcoming
peak periods, commencing Christmas 2023.
We have further invested in CRM activities to ensure we maximise available
returns from our existing loyal customer base, including a successful trial of
AI software tools - which from FY24 onwards we will fully benefit from.
Additionally, in June '23, we launched 'Love Match', which is a strategic
initiative to drive enhanced conversion rates and loyalty by close matching
customers' individuality to the perfect match of chocolate from within the
extensive breadth of the Hotel Chocolat range. The full benefits of this will
be seen from FY24 onwards.
Current trading is encouraging, however with our key Christmas trading period
to come the majority of H1 sales will be delivered in Q2 consistent with prior
years.
ANGUS THIRLWELL
Chief Executive
FINANCIAL REVIEW
FY23 (53 weeks) FY22 (52 weeks)
Underlying before exceptional and adjusting items Exceptional items(1) FY23 Underlying Exceptional FY22 reported
reported before exceptional and adjusting items and adjusting items(1)
Revenue 204.5 - 204.5 226.1 - 226.1
Cost of sales (85.3) - (85.3) (93.8) (5.5) (99.3)
Gross profit 119.2 - 119.2 132.3 (5.5) 126.8
Operating Income 0.3 - 0.3
Operating expenses (95.4) (5.8) (101.2) (91.5) (24.9) (116.4)
Underlying EBITDA 24.1 - - 40.8 - -
Share-based payments (1.5) - (1.5) (0.5) - (0.5)
Depreciation & amortisation (20.5) (0.1) (20.6) (16.1) - (16.1)
Loss on disposal (0.2) - (0.2) (0.5) - (0.5)
Profit/(Loss) from operations 1.9 (5.9) (4.0) 23.8 (30.4) (6.6)
Finance income* 0.4 0.1 0.5 1.0 - 1.0
Finance expense (3.2) - (3.2) (1.9) - (1.9)
Share of joint venture loss* - (0.3) (0.3) (1.2) - (1.2)
(Loss)/profit before tax (0.8) (6.1) (6.9) 21.7 (30.4) (8.7)
Tax credit/(expense) - - 0.7 - - (0.7)
Loss after tax - - (6.2) - - (9.4)
EPS basic - - (4.5p) - - (6.9p)
*Interest receivable and share of joint venture loss have been classified as
exceptional items as the Japanese JV entered Civil Rehabilitation in July 22.
(1)Alternative performance measurements (APMs).
REVENUE
Revenue for the 53 weeks ended 2 July 2023 decreased by 10% to £205m (FY22:
£226m), driven by lower online and international revenues. UK sales declined
by 8% year-on-year, with online sales continuing to decline at 26% as the
channel mix rebalances after COVID-19, however, physical retail stores
delivered growth of 8% on FY22 as consumers returned to stores. Similarly,
performance in resale partners declined driven by the online channel and
strategic decisions to withdraw from lower margin resellers.
International revenue decline also weighed on Group performance as the
strategic decision to reset the operating model in both the Japanese and US
markets materialised.
Lower revenues led to reduction in marketing investments in the second half of
FY23 with specific focus on pulling back from the digital and ecommerce
channel where return on investment has dropped throughout FY23 due to
significant cost inflation.
Revenue £m FY23 FY22 FY21 FY19
UK channels 197.3m 214.5m 159.4m 127.7m
International 7.2m 11.6m 5.2m 4.7m
GROSS MARGIN
Statutory reported gross margin of 58.3% increased by 2.2% compared with FY22.
This was primarily driven by the release of prior year stock provisions which
were unwound during the year. The high stock levels carried into FY22 were
unwound in H1 FY23 through discounted pricing. This has resulted in a
substantial decrease in finished goods inventory which has released cash.
Gross margin in H2 FY23 has benefited from lower aged finished goods
inventories with less price discounting and reduced inventory provisions. This
has resulted in H2 FY23 gross margin increasing 10.6% year-on-year.
Excluding exceptional provisions, gross margin of 58.3% represents a decline
of 0.2%, with two main causes:
· In response to rapid sales growth forecasts in FY22, the Group produced
additional inventories which were then sold at reduced prices throughout H1
FY23 placing downward pressure on gross margin.
· This was offset by inventory provision releases in FY23 due to significant
progress that has been made on our Inventory Shaper where, at 2 July 23,
Finished Goods Inventories expiring within three months at the end of FY23
reduced to less than 1% of total Finished Goods Inventories, down from 13% at
26 June 2022.
With FY23 expected to be a transition year, we are pleased with the strong
progress on our objectives to implement cost and capital efficiencies, leaving
the Group well placed for the future. There is still significant opportunity
for revenue growth in our core UK market and this is supported by strong
in-store performance in FY23 despite the rebalancing of ecommerce revenues.
Our international operations have been reshaped with a relaunch of the brand
in both North America with a lower risk, capital light operating model and
Japan, with a new partner in which we have a 20% equity investment and
distribution and royalty arrangements in place. This allows us to take
advantage of the significant potential demand for the brand in these markets.
OPERATING EXPENSES
Before exceptional costs and adjusting items, operating expenses less
operating income of £95.4m increased +4.3% year-on-year (FY22: £91.5m). As a
transition year, operating expenses were the focus of structural cost
reductions to reduce operational gearing and reduce the Group's fixed cost
base to deliver more efficiencies. Significant reductions were made to
headcount costs across the year with specific focus on central and
administrative roles and has removed £5m from the Group's underlying cost
base moving forward compared against FY22. This restructure created an
exceptional cost as outlined below.
Utility prices were higher YoY with the forward contracts put in place during
FY23 rolling into new contracts at lower unit prices in FY24.
A foreign exchange loss of £0.8m was recognised in operating expenses (FY22:
£0.4m profit) in relation to stock purchases in EUR & USD.
OPERATING INCOME
During the year, the Group received operating income of £0.3m made up of:
· £0.2m rental income from the sub-lease of the Northampton Distribution Centre
(FY22: £nil); and
· £0.1m research and development credit for FY20 & FY21 HMRC R&D claim
(FY22: £nil).
UNDERLYING EBITDA
Underlying EBITDA of £24.1m or 11.8% of sales compares to £40.8m or 18.1% of
sales in FY22. Whilst the Group has seen the expected significant
deterioration in Underlying EBITDA in FY23, it is encouraging to see the
progress made on our Business Shapers in FY23 that will enable the Group to
more readily invest behind future growth opportunities.
Underlying EBITDA is a not a statutory GAAP measure, but is included as an
additional performance measure (APM).
EXCEPTIONAL ITEMS
The reported result for FY23 includes £5.9m of exceptional items within
operating expenses, plus a further £0.2m relating to non-operating expenses.
The exceptional costs relate predominantly to the impairment of the estate in
St Lucia of £3.5m and strategic choices to restructure the cost base in FY23
of £1.6m. The impairment of the estate in St Lucia is driven by continued
Covid-19 disruption where visitor numbers to the island have not recovered to
pre-pandemic levels. As a result the short term valuation using the discounted
cash flow method has decreased, as the key sensitivity of this valuation
method lies in the revenue assumption, which leads to swings in valuation both
ways as revenue assumptions change YoY. The Group remains fully committed to
its exciting development opportunities in St Lucia as a unique driver of brand
value.
Additionally, the remainder of the charge is made up of:
· £0.3m of the operating expenses relating to the Japan JV (Joint Venture)
which were written off in the year;
· Store impairment reversal of £0.1m;
· £0.1m loss on disposal of coffee hardware tooling;
· £0.5m FX on LT loan which reverses FX on US loan which was provided for in
FY22; and
· Non-operating exceptional expenses relating to the Japan JV of £0.3m for
share of JV losses offset by interest receivable of £0.1m.
JAPAN JOINT VENTURE - PROGRESS UPDATE ON WINDUP OF HCKK
Having previously provided financial support to the JV in the form of
investments, loans and guarantees, the Directors of the Group concluded that
it was inappropriate to continue to advance further working capital to the
venture. In July 2022, the JV entered Civil Rehabilitation "Minji Saisei"
under the supervision of the Tokyo court. The Group does not believe that
there will be any further exposure in relation to the Japan JV. At the date of
publication the process is ongoing.
FINANCE INCOME AND EXPENSE
Finance income of £0.5m is primarily interest received from the bank.
Finance expense of £3.2m comprises £1.1m of bank RCF interest and £1.9m of
interest on leases under IFRS 16, and £0.2m of interest on derivative
financial instruments.
DEPRECIATION
Depreciation and amortisation of £20.5m compares to £16.6m in FY22. Key
capital investments in the period included upgrades to the manufacturing
facility, internal fit-out of a newly leased second distribution centre, with
1 new store and 1 relocation to larger sites in existing locations.
LOSS/(PROFIT) BEFORE TAX
Underlying loss before tax of £0.8m (FY22: underlying profit of £21.7m) is
before exceptional costs and adjusting items totalling £6.1m which result in
a reported statutory loss before tax of £6.9m (FY22: £8.7m loss).
TAX
Tax for the period is a credit of £0.7m (FY22: £0.7m charge). In FY22 there
was a tax charge despite the statutory loss as the investment related to
exceptional items were disallowed for corporate taxes. The current year tax
credit is made up of £0.1m current tax credit and a £0.6m deferred tax
credit.
EPS AND DIVIDENDS
The reported loss results in a loss per share of 4.5p which compares to a FY22
loss per share of 6.9p.
CASH
In the period, the Group generated operating cashflows of £22.3m before
movements in working capital. After movement in working capital cash flows
are £17.1m which includes £6.4m paid to settle financial guarantee contracts
for the Japan JV.
Capital expenditures in the period totalled £10.3m, with £0.5m being a loan
to the Japan JV prior to Civil Rehabilitation. A £0.1m investment was made
to acquire 20% equity in HC St Lucia Inc in Japan, with the balance invested
in working capital.
At 2 July 2023 the Group had cash on hand of £11.2m with all of the £50m RCF
facility remaining undrawn. In H1 FY23 the Group utilised the RCF by drawing
down £34m; the drawdown was also repaid in this period.
As at 10 October 2023 the Group remains well capitalised with £30m headroom
comprising of £8m cash on hand and £22m of unutilised facilities within its
£50m RCF, immediately prior to the peak cash-generating trading period.
INVENTORY
Closing inventory of £35.0m represents a decrease of £8.0m YoY. The majority
of the decrease is due to the Group's intention to materially reduce inventory
to a level reflective of prudent sales forecasts with a modest buffer to allow
sales outperformance to forecast.
OTHER WORKING CAPITAL
Trade and other receivables decreased from £17.5m to £12.9m mainly due to
£4.6m of prepaid deposits for goods which transferred into inventory.
Current liabilities decreased from £57.4m to £39.5m primarily as a result
of:
· a reduction in capital, inventory and other expenditure reduction having a
positive impact on trade payables and accruals; and,
· settlement of £6.7m financial guarantee contracts on behalf of the Japan
joint venture.
GOING CONCERN
The Directors have undertaken a comprehensive assessment in order to conclude
that the Group has the ability to trade as a going concern based on forecasts
drawn up to 31 December 2024, considering the current macro-economic
environment and the potential impact of relevant uncertainties facing all
businesses, together with the Group's ability to influence its activities and
hence the financial position, cash flows and profitability.
In reaching their conclusion, the Directors' considerations have included the
following factors:
· That the Group continues to operate within its facilities, which are used to
fund day-to-day working capital requirements.
· The availability of funding in the form of a £50m RCF. This was extended by
12 months on 29 September 2023 through the exercise of an extension option
which takes the agreement out to July 2025.
· The headline covenants remain unchanged: of achieving positive cash in January
2024, of net debt to EBITDA (pre-IFRS 16) of less than 2.5 times, and EBITDA
to interest greater than 4 times. These covenants are tested at the end of
each financial quarter on a twelve month rolling basis.
· In order to support additional inter-company lending to the Group's St Lucian
business to fund further infrastructure investment there is a condition to add
the Group's two St Lucian legal entities to the agreement as obligors. To
secure this inter-company lending, a share pledge is required to be completed
within 60 days of execution of the amended and restated RCF agreement. It is
the opinion of the Board, acting upon external legal advice, that this is a
straight forward legal process, fully achievable in the required time frame.
This opinion underpins the Board's going concern assessment.
· The Groups' current cash position as at 10 October 2023 is £8m, giving £22m
headroom within the facility as the business approaches the peak trading
period, with around 85% of annual revenues still to achieve with the five
largest seasonal gifting seasons still to come.
· The ability to progressively reduce working capital levels by leveraging the
vertical integration from manufacture to end-consumer, including the ability
to use prices to influence demand.
· The ability to communicate with a database of two million active customers at
modest cost in order to stimulate sales demand.
· Multiple levers of mitigation in the form of discretionary spend-reduction
opportunities.
· Having made significant capital investments to increase capacity in recent
years, the Group has sufficient operational headroom to support several years
of volume growth and can therefore exercise discretion over the timing of
further capex.
· Consideration of specific factors impacting current and estimated future
consumer demand, including channel and category sales performance.
· Current elevated levels of consumer price inflation, which may create pressure
on consumer discretionary spend, leading the Group to prepare a number of
possible scenarios for sales demand during the going concern period review.
The Directors have modelled a number of scenarios, including a reverse stress
test. In the scenarios sales are flexed, along with the impact on related
expenses, working capital changes and other mitigations such as cost reduction
and timing of capital expenditures. These scenarios are used to evaluate the
implications for gross margins, operating expenses, profitability, working
capital, capital expenditure and the consequent financial position, including
operating within financial covenants attaching to the RCF. For each scenario,
the Directors have identified relevant actionable mitigating measures that the
Group could undertake at its own discretion to adjust future cash flows and
continue to operate within their facilities.
In making their assessment, the Directors have reviewed management forecasts
based on scenarios reflecting full-year sales in line with FY24 Budget along
with scenarios showing declines vs budget of -10% (-2% YoY) and -20% (-13%
YoY) which reflect the Directors' view on most probable worst case scenario
and a reverse stress test respectively.
The Directors have considered the impact of mitigations and the Group's
ability to implement these changes at its own discretion. The Directors have
also considered the probability of each sales scenario, concluding that the
most extreme sales decline scenario reflected in the reverse stress test is of
remote probability. As a result, the Directors have concluded that the use of
the going concern basis of accounting is appropriate for the period to 31
December 2024.
ALTERNATIVE PERFORMANCE MEASURES (APMs)
Management believes that Underlying EBITDA, Underlying Operating Profit and
Underlying (Loss)/Profit before tax are useful measures for investors because
these are measures closely tracked by management to evaluate the Group's
operating performance and to make financial, strategic and operating
decisions. These may help investors to understand and evaluate, in the same
manner as management, the underlying trends in operational performance on a
comparable basis, period on period.
Alternative performance measure Closest equivalent IFRS measure Definition/reconciling items
Underling EBITDA Profit/(Loss) from operations Underlying EBITDA is defined as earnings before net finance costs,
depreciation and amortisation, profit/loss on disposal of assets, share-based
payment charges (and related taxes), share of profit/loss of JV, tax and
exceptional and adjusting items.
Underlying Operating Profit/(Loss) from operations Underlying Operating profit is defined as profit/loss from operations before
net finance costs, share of profit/loss of JV and exceptional and adjusting
Profit items.
Underlying (Loss)/Profit before tax (Loss)/Profit before tax Underlying (Loss)/Profit before tax is defined as (loss)/profit before tax
excluding exceptional and adjusting items.
RECONCILIATION OF ADDITIONAL PERFORMANCE AND STATUTORY MEASURES
Underlying EBITDA
53 weeks ended 52 weeks ended
02 July 2023 26 June 2022
£000 £000
(Loss) from operations (4,013) (6,596)
Less:
Exceptional items 5,948 28,779
Adjusting items - 1,621
Share-based payments 1,525 453
Depreciation & amortisation 20,423 16,059
Loss on disposal of non-current assets 193 516
Underlying EBITDA 24,076 40,832
Underlying operating profit
53 weeks ended 52 weeks ended
02 July 2023 26 June 2022
£000 £000
(Loss) from operations (4,013) (6,596)
Add:
Exceptional items 5,948 28,779
Adjusting items - 1,621
Underlying operating profit 1,935 23,804
Underlying (loss)/profit before tax
53 weeks ended 52 weeks ended
02 July 2023 26 June 2022
£000 £000
(Loss) before tax (6,933) (8,719)
Add:
Exceptional items - operating 5,948 28,779
Exceptional items - non-operating 211 -
Adjusting items - 1,621
Underlying (loss)/profit before tax (774) 21,681
JON AKEHURST
Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period ended 02 July 2023
53 weeks ended 52 weeks ended
02 July 2023 26 June 2022
Notes £000 £000
Revenue 204,500 226,133
Cost of sales (85,298) (93,810)
Cost of sales - exceptional 1 - (5,501)
Gross profit 119,202 126,822
Other income 319 -
Operating expenses (117,586) (110,140)
Operating expenses - exceptional 1 (5,948) (11,849)
Impairment of financial assets - exceptional 1 - (11,429)
Operating loss 2 (4,013) (6,596)
Finance income 3 494 1,035
Finance costs 3 (3,153) (1,910)
Share of joint venture post-tax results (261) (1,248)
Loss before tax (6,933) (8,719)
Tax credit/(expense) 702 (720)
Loss for the period (6,231) (9,439)
Other comprehensive (expense)/income:
Items that may be reclassified to the income statement in subsequent years
Fair value movement on cashflow hedges 481 1,451
Ineffectiveness in cashflow hedges transferred to the income statement (355) -
Deferred tax credit/(charge) on derivative financial instruments 197 (385)
Currency translation differences arising from consolidation (9) (355)
Currency movement on net investment 237 1,297
Deferred tax charge on net investment currency movement (59) (324)
Forex reclassified to inventory/cost of sales (815) 96
Other comprehensive (expense)/income, net of tax (323) 1,780
Total comprehensive expense for the period (6,554) (7,659)
Earnings per share - Basic and diluted 4 (4.5p) (6.9p)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 02 July 2023
As at 02 July 2023 As at 26 June 2022
£000 £000
Notes
ASSETS
Non-current assets
Intangible assets 1,292 1,818
Property, plant and equipment 5 65,612 68,579
Right of use assets 6 45,066 51,560
Equity investments 125 -
Investments in Joint Venture - -
112,095 121,957
Current assets
Derivative financial assets - 668
Inventories 35,040 43,062
Trade and other receivables 12,945 17,541
Corporation tax receivable 2,354 3,264
Cash and cash equivalents 11,196 17,569
61,535 82,104
Total assets 173,630 204,061
LIABILITIES
Current liabilities
Trade and other payables (28,787) (39,441)
Lease liabilities 6 (10,622) (10,390)
Other financial liabilities - (6,660)
Derivative financial liabilities (115) (48)
Provisions (23) (907)
(39,547) (57,446)
Non-current liabilities
Lease liabilities 6 (37,339) (44,145)
Deferred tax liability (408) (1,130)
Derivative financial liabilities (17) (38)
Provisions (2,840) (2,919)
(40,604) (48,232)
Total liabilities (80,151) (105,678)
NET ASSETS 93,479 98,383
EQUITY
Share capital 138 137
Share premium 78,193 78,014
Retained earnings 10,566 13,499
Translation reserve 390 399
Merger reserve 223 223
Capital redemption reserve 6 6
Other reserves 3,963 6,105
Total equity attributable to shareholders 93,479 98,383
The financial statements of Hotel Chocolat Group plc, registered number
08612206 were approved by the Board of Directors and authorised for issue on
11 October 2023. They were signed on its behalf by:
Jon Akehurst
Chief Financial Officer
11 October 2023
CONSOLIDATED STATEMENT OF CASH FLOW
For the period ended 02 July 2023
53 weeks ended 52 weeks ended
02 July 2023 26 June 2022
Notes £000 £000
Loss before tax for the period (6,933) (8,719)
Adjusted by:
Exceptional items 1 4,315 28,779
Share of JV loss 261 1,248
Other income from JV (109) -
Depreciation of property, plant and equipment and impairment 2 8,776 6,506
Depreciation of right of use assets 2 11,040 9,545
Amortisation of intangible assets and impairment 597 565
Reversal of amortisation (SaaS) - (557)
Gain on lease modification (4) 162
Net interest expense 3 2,659 875
Share-based payments 1,525 621
Loss on disposal of non-current assets 2 193 516
Operating cash flows before movements in working capital 22,320 39,541
Decrease/(Increase) in trade and other receivables 5,096 (3,286)
Decrease/(Increase) in inventories 7,678 (20,267)
(Decrease)/ increase in trade and other payables and provisions (18,003) (4,217)
Cash inflows generated from operations 17,091 11,771
Interest received 444 28
Corporation tax received/(paid) 1,003 (533)
Income received from JV 109 -
Interest paid (3,320) (1,988)
Cash flows from operating activities 15,327 9,278
Purchase of property, plant and equipment (9,754) (24,212)
Purchase of intangible assets (497) (1,504)
Proceeds from sale of fixed assets 132 -
Loan to joint venture (500) (6,300)
Acquisition of equity investment (125) -
Cash flows used in investing activities (10,744) (32,016)
Issue of ordinary shares 180 40,343
Costs associated to issue of ordinary shares - (1,002)
Utilisation of revolving credit facility 34,000 -
Repayment of revolving credit facility (34,000) -
Lease payments (11,073) (9,650)
Cash flows (used in)/from financing activities (10,893) 29,691
Net change in cash and cash equivalents (6,310) 6,953
Cash and cash equivalents at beginning of period 17,569 10,046
Foreign currency movements (63) 570
Cash and cash equivalents at end of period 11,196 17,569
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 02 July 2023
Share capital Share Premium Retained earnings Translation Merger reserve Capital redemption Other reserves
reserve reserve Total
£000 £000 £000 £000 £000 £000 £000 £000
Equity as at 27 June 2021 126 38,684 22,938 754 223 6 3,102 65,833
Loss for the period - - (9,439) - - - - (9,439)
Gain on cash flow hedges - - - - - - 1,451 1,451
Deferred tax charge on derivative financial instruments - - - - - - (385) (385)
Currency translation differences arising from
consolidation - - - (355) - - - (355)
Currency movement on net investment - - - - - - 1,297 1,297
Deferred tax on net investment currency movement - - - - - - (324) (324)
Cash flow hedge transferred to inventory/cost of sales - - - - - - 96 96
Total comprehensive (expense)/income for the period: - - (9,439) (355) - - 2,135 (7,659)
Transactions with owners:
Issues of share capital 11 39,330 - - - - - 39,341
Share-based payments - - - - - - 629 629
Deferred tax credit on share-based payments - - - - - - 239 239
Equity as at 26 June 2022 137 78,014 13,499 399 223 6 6,105 98,383
Loss for the period - - (6,231) - - - - (6,231)
Fair value movement on cash flow hedges - - - - - - 481 481
Ineffectiveness in cashflow hedges transferred to (355) (355)
income statement
Deferred tax credit on derivative financial instruments - - - - - - 197 197
Currency translation differences arising from - - - (9) - - - (9)
consolidation
Currency movement on net investment - - - - - - 237 237
Deferred tax on net investment currency movement - - - - - - (59) (59)
Cash flow hedge transferred to inventory/cost of sales - - - - - - (815) (815)
Total comprehensive (expense)/income for the period: - - (6,231) (9) - - (314) (6,554)
Transactions with owners:
Issues of share capital 1 179 - - - - - 180
Share-based payments - - - - - - 1,525 1,525
Deferred tax charge on share-based payments - - - - - - (55) (55)
Transfer un-utilised share-based payments - - 3,298 - - - (3,298) -
Equity as at 02 July 2023 138 78,193 10,566 390 223 6 3,963 93,479
Notes
Hotel Chocolat Group Plc (Company number: 08612206) is a company incorporated
and domiciled in the United Kingdom, its shares are listed on the AIM Market
of The London Stock Exchange. The registered office is Mint House, Newark
Close, Royston, Hertfordshire, SG8 5HL. The nature of the group's operations
and its principal activities are set out in the strategic report.
Basis of preparation
Whilst the financial information included in this announcement has been
prepared on the basis of UK-adopted International Accounting standards, this
announcement does not itself contain sufficient information to comply with
UK-adopted International Accounting Standards.
The financial information set out in this Preliminary Announcement does not
constitute the Group's Consolidated Financial Statements for the period ended
2 July 2023 but is derived from those Financial Statements which were approved
by the Board of Directors on 11 October 2023. The auditor, RSM UK Audit LLP,
has reported on the Group's Consolidated Financial Statements and the report
was unqualified and did not contain a statement under section 498 (2) or 498
(3) of the Companies Act 2006.
The statutory financial statements for the period ended 2 July 2023 have not
yet been delivered to the Registrar of Companies and will be delivered
following the Company's Annual General Meeting.
The consolidated financial information has been prepared in accordance with
UK-adopted International Accounting Standards in conformity with the
requirements of the Companies Act 2006 ("IFRS"). The financial statements have
been prepared on the historical cost basis, except for the revaluation of
derivative financial instruments and the equity investment that are measured
at fair values at the end of each reporting period, as explained in the
accounting policies below.
New standards, amendments and interpretations, that were effective in FY23,
impacting the Group that have been adopted in the annual financial statements
for the year ended 02 July 2023, and which have given rise to changes in the
Group's accounting policies are set out below. None of these changes had a
material impact upon the financial statements.
· Annual Improvements 2018-2020 Cycle - Amendments to IFRS 1, IFRS 9, IFRS 16
and IAS41
· Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS
16)
· Onerous Contracts - cost of fulfilling a contract (Amendments to IAS 37)
· Reference to the Conceptual Framework (Amendments to IFRS 3)
· Initial Application of IFRS 17 and IFRS 9 - Comparative Information
(Amendments to IFRS 17) (issued on 9 December 2021)
New standards, amendments and interpretations which are not yet effective at
the reporting date but will be adopted in future reporting are set out below:
· Classification of liabilities as current or non-current (Amendments to IAS 1)
· Lack of exchangeability (Amendments to IAS 21)
· Definition of Accounting Estimate (Amendments to IAS 8)
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2)
· Non-current liabilities with covenants (Amendments to IAS 1)
· Deferred Tax Related to Assets and Liabilities Arising from a Single
Transaction - Amendments to IAS 12 Income Taxes
Going concern
The Board has concluded that it is appropriate to adopt the Going Concern
basis.
The Directors have undertaken a comprehensive assessment in order to conclude
that the Group has the ability to trade as a going concern using forecasts
drawn up to 31 December 2024, considering the current macro-economic
environment and the potential impact of relevant uncertainties facing all
businesses, together with the Group's ability to influence its activities and
hence the financial position, cashflows and profitability.
In reaching their conclusion the Directors' considerations have included the
following factors:
· That the Group continues to operate within its facilities, which are used to
fund day to day working capital requirements.
· The availability of funding in the form of a £50m RCF committed until July
2025 through an amended and restated RCF agreement that was entered into on 29
September 2023, where the option to extend the existing agreement by 12 months
until July 2025 was exercised.
· The headline covenants remain unchanged: of achieving positive cash in January
2024, of net debt to EBITDA (pre IFRS16) of less than 2.5x, and EBITDA to
interest greater than 4x.
· In order to support additional inter-company lending to the Group's St Lucian
business to fund further infrastructure investment there is a condition to add
the Group's two St Lucian legal entities to the agreement as obligors. To
secure this inter-company lending, a share pledge is required to be completed
within 60 days of execution of the amended and restated RCF agreement. It is
the opinion of the Board, acting upon external legal advice, that this is a
straightforward legal process fully achievable in the required time frame.
This opinion underpins the Board's going concern assessment.
· The Groups' current cash position as at 10 October 2023 is £8m, giving £22m
headroom within the facility as the business approaches the peak trading
period, with around 85% of annual revenues still to achieve with the five
largest seasonal gifting seasons still to come.
The ability to progressively reduce working capital levels by leveraging the
vertical integration from manufacture to end-consumer, including the ability
to use prices to influence demand.
· The ability to communicate with a database of c.two million active customers
at modest cost in order to stimulate sales demand.
· Multiple levers of mitigation in the form of discretionary spend-reduction
opportunities.
· Having made significant capital investments to increase capacity in recent
years, the Group has sufficient operational headroom to support several years
of volume growth and can therefore exercise discretion over the timing of
further capex.
· Consideration of specific factors impacting current and estimated future
consumer demand, including channel and category sales performance.
· Current elevated levels of consumer price inflation, which may create pressure
on consumer discretionary spend, leading the Group to prepare a number of
possible scenarios for sales demand during the going concern period.
The Directors have modelled a number of scenarios, including a reverse stress
test. In the scenarios sales are flexed, along with the impact on related
expenses, working capital changes and other mitigations such as cost reduction
and timing of capital expenditures. These scenarios are used to evaluate the
implications for gross margins, operating expenses, profitability, working
capital, capital expenditure and the consequent financial position, including
operating within financial covenants attaching to the RCF. For each scenario
the Directors have identified relevant actionable mitigating measures that the
Group could undertake at its own discretion to adjust future cashflows and
continue to operate within their facilities.
In making their assessment the Directors have reviewed management forecasts
based on scenarios reflecting full-year sales in line with FY24 Budget along
with scenarios showing declines vs budget of -10% (-2% YoY) and -20% (-13%
YoY) which reflect the Directors' view on most probable worst case scenario
and a reverse stress test respectively.
The Directors have considered the impact of mitigations and the Group's
ability to implement these changes at its own discretion. The Directors have
also considered the probability of each sales scenario, concluding that the
more extreme sales decline scenarios are of remote probability. As a result,
the Directors have concluded that the use of the going concern basis of
accounting is appropriate because there are no material uncertainties related
to events or conditions that may cast significant doubt about the ability of
the company to continue as a going concern in the period to 31 December 2024.
1. Exceptional items
53 weeks ended 52 weeks ended
02 July 2023 26 June 2022
£000 £000
Impairment and write off related to Joint Venture investment, net of 258 21,836
exceptional credits Saint Lucia impairment
3,498 1,200
Goodwill impairment
- (70) 425
Store impairment release
2,262 (5,225)
Material non-recurring events: operating costs
5,042
Total operating expenses - exceptional 5,948 23,278
Material non-recurring costs: margin - 5,501
Total exceptional items 5,948 28,779
Impairment and write off related to Joint Venture investment
During the year ended 02 July 2023, £nil impairment was provided (26 June
2022: £21,836k) related to the Joint Venture investment.
Exposure of £592k was written off during the year ended 02 July 2023 relating
to loans provided to the Japan Joint Venture before the Joint Venture obtained
Court approval for Civil Rehabilitation restructuring proceedings (Minji
Saisei).
Offsetting these costs is £109k received from the Japan Joint Venture as
repatriation of funds as the restructuring proceedings progress to their
conclusion. During the year ended 02 July 2023, an FX gain of £225k was
realised when financial guarantee contract liabilities supporting the joint
venture were settled.
Saint Lucia impairment
There is an impairment of £3,498k during the year ended 02 July 2023 (26 June
2022: £1,200k) relating to the assets of the Saint Lucia business. The charge
in 2023 related to the decline in the value of the Rabot Estate as tourism in
Saint Lucia has not fully recovered from the impacts of COVID-19.
Goodwill impairment
£nil impairment was provided during the year ended 02 July 2023 (26 June
2022: £425k). The goodwill arose from the acquisition of Rabot 1745 Limited
which is no longer supportable as Rabot 1745 Limited is no longer trading.
Store impairments
US gain on remeasurement of lease liabilities
There was no further release or charge during the year ended 02 July 2023 (26
June 2022: £3,491k release) relating to the release of lease liabilities of
the US stores.
UK store impairments
There is an impairment release of £70k during the year ended 02 July 2023 (26
June 2022: £1,734k release) relating to fixed assets of stores. The release
is primarily due to the improved trading conditions during the period as well
as management's assessment of future cash flows over the remaining lease
period for each store. The key assumptions used in the future cash flows were
sales and EBITDA (based on board approved plans), assumed nil growth rate for
5 years and a discount rate of 10.790% (26 June 2022: 9.670%).
Material non-recurring events - operating costs
Restructuring costs
An expense of £2,110k was incurred during the year ended 02 July 2023 (26
June 2022: £181k) relating to staff redundancy costs.
This expense is partially offset by a release of the share-based payment
forfeited in relation to the restructure of £477k (26 June 2022: £nil).
Capital cash deposit impairment
In the prior year, there was a provision of £2,477k for doubtful recovery of
a cash deposit made to a manufacturer of capital equipment that went into
administration. No provisions have been recognised in the year ended 02 July
2023.
Sale and operation planning process
In the prior year, non-recurring professional fees totalled £809k in relation
to the implementation of a new sales and operating planning process. No fees
have been incurred in the year ended 02 July 2023.
US exit costs
In the prior year, there was a provision of £611k incurred in relation to
recovery of rent deposits and staff redundancy. No provisions have been
recognised in the year ended 02 July 2023.
Onerous contracts
In the prior year, forward contracts for items of stock had been entered into
to support activities in the US and Japan markets. Following management's
decision to exit these markets, £964k had been provided for. No additional
provisions have been recognised in the year ended 02 July 2023 for US and
Japan markets.
Coffee machine tooling
During the year ended 02 July 2023 coffee machine tooling was written off
totalling £126k (26 June 2022: £nil) following the exit from this product
category.
FX on long-term loan
During the year ended 02 July 2023, an FX expense of £503k (26 June 2022:
£nil) was recognised in relation to the US intercompany loan that was
provided for in the period ended 26 June 2022. £392k relates to the reversal
of a FX gain realised during year ended 26 June 2022, and £111k FX loss
during the year ended 02 July 2023.
Material non-recurring events - margin
During the year ended 02 July 2023, there were no material non-recurring
events that impacted margin.
Discontinued UK stock lines
No additional provision was made during the year ended 02 July 2023 (26 June
2022: £2,959k) relating to the exit certain UK product categories.
US stock provision
£nil provision made during the year ended 02 July 2023 (26 June 2022:
£2,542k) relating to US stock following the decision to exit the US market in
FY22.
2. Loss from operations
Loss from operations is arrived at after charging/(crediting):
53 weeks ended 52 weeks ended
02 July 2023 26 June 2022
Notes £000 £000
Staff costs 67,019 60,146
Government grants received1 - (94)
Depreciation of property, plant and equipment 5 8,776 6,506
Depreciation of right of use asset 6 11,040 9,545
Amortisation of intangible assets and impairment 597 565
Reversal of amortisation (SaaS) - (557)
Loss on disposal of non-current assets 193 516
Exceptional items 1 5,948 28,779
Loss/(profit) on exchange differences 849 (346)
(Release of provision)/write down of inventory recognised as a (5,927) 9,797
(credit)/expense
Impairment of trade receivables 22 (2)
1 Government grants received include the Retail Hospitality Leisure Grant Fund
and the Closed Business Lockdown Payment.
3. Finance income and expenses
53 weeks ended 52 weeks ended
02 July 2023 26 June 2022
£000 £000
Interest from related party - 967
Interest from related party - exceptional* 50 -
Interest on bank deposits 444 68
Finance income 494 1,035
Interest on bank borrowings 1,071 552
Unrealised interest on derivative financial instruments 4 12
Realised interest on derivative financial liabilities 207 165
Interest on lease liabilities 1,871 1,181
Finance expenses 3,153 1,910
*Interest of £50k was calculated in relation to loan made to the Japan Joint
Venture during the year ended 02 July 2023 before the Joint Venture obtained
Court approval for Civil Rehabilitation restructuring proceedings (Minji
Saisei) in July 2022. As the entity has ceased trading the finance income has
been categorised as an exceptional item.
4. Earnings per share
Loss for the period is used in the calculation of the basic and diluted
earnings per share. Diluted loss per share is capped at the basic earnings per
share as the impact of dilution cannot result in a reduction in the loss per
share.
The weighted average number of shares for the purposes of diluted earnings per
share reconciles to the weighted average number of shares used in the
calculation of basic earnings per share as follows:
53 weeks ended 52 weeks ended
02 July 2023 26 June 2022
Weighted average number of share in issue for the period - basic 137,428,284 136,313,568
Effect of dilutive potential share:
Save as You Earn Plan - 172,020
Long-Term Incentive Plan 7,423 125,380
Founder Shares - 113,536
Weighted average number of shares in issue used in the calculation of earnings 137,435,707 136,724,504
per share (number) - Diluted
Earnings per share - Basic and diluted (4.5p) (6.9p)
As at 02 July 2023, the total number of potentially dilutive shares issued
under the Hotel Chocolat Group plc 2021 Long-Term Incentive Plan was 2,507,592
(26 June 2022: 3,649,911). Due to the nature of the options granted under this
scheme, they are considered contingently issuable shares and therefore have no
dilutive effect.
5. Property, plant and equipment
Freehold Leasehold Furniture & fittings, equipment & hardware Plant & machinery Total
property improvements
£000 £000 £000 £000 £000
52 weeks ended 26 June 2022
Cost:
As at 27 June 2021 19,947 1,884 41,281 38,834 101,946
Additions 2,715 93 4,481 16,923 24,212
Disposals (3) - (1,154) (126) (1,283)
Reclassification(2) - - (1,453) - (1,453)
Translation differences 1,588 - 402 3 1,993
As at 26 June 2022 24,247 1,977 43,557 55,634 125,415
Accumulated depreciation & impairments:
As at 27 June 2021 (3,426) (842) (29,858) (14,324) (48,450)
Depreciation charge (253) (192) (3,852) (2,209) (6,506)
Disposal - - 1,082 - 1,082
Reclassification(2) - - 610 - 610
Impairment (charge)/release(1) (1,200) - 1,130 (2,477) (2,547)
Translation differences (371) - (654) - (1,025)
As at 26 June 2022 (5,250) (1,034) (31,542) (19,010) (56,836)
Net book value:
As at 26 June 2022 18,997 943 12,015 36,624 68,579
53 weeks ended 02 July 2023
Cost:
As at 26 June 2022 24,247 1,977 43,557 55,634 125,415
Additions 1,065 2 5,559 3,128 9,754
Disposals - - (3,448) (2,627) (6,075)
Reclassification(3) (2,492) (95) 156 2,670 239
Translation differences (617) - (17) (1) (635)
As at 02 July 2023 22,203 1,884 45,807 58,804 128,698
Accumulated depreciation & impairments:
As at 26 June 2022 (5,250) (1,034) (31,542) (19,010) (56,836)
Depreciation charge (305) (192) (4,332) (3,947) (8,776)
Disposal - - 3,312 2,501 5,813
Reclassification(3) - - - - -
Impairment (charge)/release(1) (3,498) - 70 - (3,428)
Translation differences 135 - 6 - 141
As at 02 July 2023 (8,918) (1,226) (32,486) (20,456) (63,086)
Net book value:
As at 02 July 2023 13,285 658 13,321 38,348 65,612
(1) The following impairments were made in the period ended 02 July 2023:
Saint Lucia estate impairment charge £3,498k (26 June 2022: £1,200k), Store
impairment release £70k (26 June
2022: £1,130k release) and capital cash deposit impairment charge £nil (26
June 2022: £2,477k). The capital cash deposit has been disposed during the
period ended 02 July 2023.
(2) Reclassifications during year ended 26 June 2022 represent right of use
assets previously categorised within furniture & fittings, equipment &
hardware.
(3) Reclassifications during the year ended 02 July 2023 represent asset under
construction brought forward balances from freehold property and intangible
assets to categories across PPE.
As at 02 July 2023, the net book value of freehold property includes land of
£2,521k (26 June 2022: £4,509k), which is not depreciated. Included in
freehold property is £585k of assets under construction (26 June 2022:
£2,438k). Included in Furniture & fittings, equipment & hardware is
£388k of assets under construction (26 June 2022: £2,005k). Included in
Plant & machinery is £198k of assets under construction (26 June 2022:
£7,475k).
6. Leases
The lease liability is initially measured at the present value of the
remaining lease payments, discounted using the Group's incremental borrowing
rate (IBR). The determination of the discount rate is considered to be a
significant judgement. The discount rate applied ranged between 0.93% and 8.9%
(26 June 2022: 2.0% and 4.8%).
All leases where the Group is a lessee are accounted for by recognising a
right of use asset and a lease liability except for:
· Leases of low value assets, and
· Leases with a term of 12 months or less.
Amounts recognised in the consolidated statement of financial position
Land & buildings Equipment Total
Right of Use Assets £000 £000 £000
As at 27 June 2021 30,351 6 30,357
Additions to right of use assets 31,159 - 31,159
Amortisation (9,539) (6) (9,545)
Reclassification 843 - 843
Effect of modification of lease (1,281) - (1,281)
Derecognition (597) - (597)
Impairment release1 604 - 604
Foreign exchange 20 - 20
As at 26 June 2022 51,560 - 51,560
Additions to right of use assets 4,060 356 4,416
Amortisation (11,001) (39) (11,040)
Effect of modification of lease 550 - 550
Derecognition (412) - (412)
Foreign exchange (8) - (8)
As at 02 July 2023 44,749 317 45,066
Land & buildings Equipment Total
Lease liabilities £000 £000 £000
As at 27 June 2021 39,497 67 39,564
Additions to lease liabilities 29,604 - 29,604
Interest expense 1,181 - 1,181
Effect of modification of lease (4,331) - (4,331)
Derecognition (989) - (989)
Lease payments (10,764) (67) (10,831)
Foreign exchange 337 - 337
As at 26 June 2022 54,535 - 54,535
Additions to lease liabilities 4,015 356 4,371
Interest expense 1,862 9 1,871
Effect of modification of lease 546 - 546
Derecognition (417) - (417)
Lease payments (12,895) (49) (12,944)
Foreign exchange (1) - (1)
As at 02 July 2023 47,645 316 47,961
During the period ended 02 July 2023, all leases entered into are on normal
terms. During the period ended 26 June 2022, a new lease for a distribution
centre in Northampton was entered into and £24,703k was included in the
additions of the right of use assets and lease liabilities. The lease term is
10 years, the Group has no right to extend or terminate the lease and there
are no variable lease payments associated with the lease arrangement.
1 Land and building impairment was £nil in the period ended 02 July 2023 (26
June 2022: £604k).
02 July 2023 26 June 2022
£000 £000
Non-current 37,339 44,145
Current 10,622 10,390
Total lease liabilities 47,961 54,535
Leases - cash outflow
02 July 2023 26 June 2022
£000 £000
Capital element of lease cash outflows 11,073 9,650
Interest element of lease cash outflows 1,871 1,181
Low value lease cash outflows 5 4
Short term lease cash outflows 1,959 892
Variable lease cash outflows 4,204 3,661
Total contractual cashflows 19,112 15,388
Amounts recognised in the consolidated statement of comprehensive income
Land & buildings Equipment Total
£000 £000 £000
52 weeks ended 26 June 2022
Depreciation charge on right of use assets 9,539 6 9,545
Impairment release (604) - (604)
Interest on lease liabilities 1,181 - 1,181
Expenses related to low value leases - 4 4
Expenses related to short term leases 116 776 892
Expenses related to variable lease payments1 3,612 49 3,661
As at 26 June 2022 13,844 835 14,679
53 weeks ended 02 July 2023
Depreciation charge on right of use assets 11,001 39 11,040
Interest on lease liabilities 1,862 9 1,871
Expenses related to low value leases - 5 5
Expenses related to short term leases 201 1,757 1,958
Expenses related to variable lease payments1 4,148 56 4,204
As at 02 July 2023 17,212 1,866 19,078
1 The amount recognised in the income statement that arises from rent
concessions to which the Group has applied the practical expedient under IFRS
16 for the period ended 02 July 2023 is £134k (26 June 2022: £407k).
Maturity analysis of Lease Liabilities
02 July 2023 26 June 2022
Lease liabilities £000 £000
Maturity analysis - contractual undiscounted cashflows
Less than one year 12,461 10,610
Between one and two years 10,295 11,023
Between two and five years 18,896 21,993
After five years 13,305 18,062
Total contractual cashflows 54,957 61,688
The Annual Report & Accounts for the 53 weeks ended 2 July 2023 will be
posted to shareholders during the week commencing 23 October 2023. The
document will also be available on the Group's website at
www.hotelchocolat.com (http://www.hotelchocolat.com) and in hard copy at Mint
House, Newark Close, Royston, Hertfordshire, SG8 5HL.
ENDS
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR MZMMGMMFGFZZ