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HOTC - Hotel Chocolat News Story

295p 10.0  3.5%

Last Trade - 03/04/20

Sector
Consumer Defensives
Size
Mid Cap
Market Cap £357.6m
Enterprise Value £333.3m
Revenue £143.5m
Position in Universe 543rd / 1834

Hotel Chocolat Group - Interim Results

Tue 25th February, 2020 7:00am
RNS Number : 9727D
Hotel Chocolat Group PLC
25 February 2020
 

25th February 2020

 

Hotel Chocolat Group plc

("Hotel Chocolat", the "Company" or the "Group")

Interim Results

 

Hotel Chocolat Group plc, a premium British chocolatier and omni-channel retailer, today announces its interim results for the 26 weeks ended 29 December 2019. All numbers shown are after adopting IFRS 16 unless otherwise stated.

 

Financial highlights:

·

Revenue up 14% to £91.7m (H1 FY19: £80.7m)

·

Underlying EBITDA pre IFRS 16 up 7% to £18.5m (H1 FY19: £17.3m)1

·

Profit before tax pre IFRS 16 up 7% to £14.9m (H1 FY19: £13.8m)

·

Strong balance sheet with net cash at period end of £24.3m (H1 FY19: £21.8m)

·

Earnings per share up 20% to 11.5p (H1 FY19: 9.6p)

·

Interim dividend of 0.6p per share (H1 FY19: 0.6p)

 

 

 

 


Period ended

29 December 2019

£000


Period ended

30 December 2018

£000

Revenue


91,716


80,719






Underlying EBITDA1 (pre IFRS 16)


18,521


17,330

Profit before tax (pre IFRS 16)


14,870


13,847

Basic Earnings per share (pre IFRS 16)


11.3p


9.6p






IFRS 16: benefit to reported Profit before tax


114



IFRS 16: reduction in Tax expense


25








Profit before tax


14,984


13,847

Profit after tax

Basic Earnings per share


13,076

11.5p


10,802

9.6p

1 Underlying EBITDA in H1 FY20 excludes £0.5m of share-based charges (H1 FY19: £0.4m).

 

Operational highlights:

·

Strong sales growth reflecting continued brand appeal and ongoing product innovation

·

9 new UK locations, ending the period with 125 UK locations

·

International rollout in line with strategy, 2 new locations in the USA and 3 in Japan

·

New UK and International locations contributed 3 percentage points to Group sales growth

·

VIP membership grew by +120% to 1.1m active members

·

Velvetiser hot chocolate system; sales increased by over 200% year-on-year; refill subscription now launched

 

Angus Thirlwell, Co-founder and Chief Executive Officer of Hotel Chocolat, said:

 

"This was another strong period for Hotel Chocolat. Our new store openings contributed three percentage points of the growth in the period, with the remaining balance coming from existing locations, digital and wholesale channels. While our new markets in the US and Japan are still in the early stages of development, consumer response to the brand is encouraging, sales are growing, and we believe we have a deliverable plan to achieve attractive returns.

"The Velvetiser in-home hot chocolate system achieved strong growth, with our installed Velvetiser owner base showing great loyalty and enthusiasm for our widening library of flavours, with Tasmanian Mint, Habanero Chilli, and Maple & Pecan hot chocolates becoming instant hits. Our VIP loyalty scheme continued to grow strongly and contributed to double digit EBITDA growth from our physical UK locations.

 

"Our strong growth came from a wider variety of sales channels than in previous years, which led to some initial challenges in our supply chain. We are now making good progress with investments and upgrades in our supply chain which will fully address these inefficiencies and increase our international and multi-channel supply capability, ensuring we continue to deliver profitable growth."

 

 

 

For further information:

 

Hotel Chocolat Group plc

c/o Citigate

+ 44 (0) 20 7638 9571

Angus Thirlwell, Co-founder and Chief Executive Officer



Peter Harris, Co-founder and Development Director



Matt Pritchard, Chief Financial Officer



 

 

Citigate Dewe Rogerson - Financial PR

+ 44 (0) 20 7638 9571

Angharad Couch


Ellen Wilton


Kieran Farthing


 

Liberum Capital Limited - Nominated Advisor and Broker

+ 44 (0) 20 3100 2222

Clayton Bush


James Greenwood


 

 

 

Notes to Editors:

Hotel Chocolat is a premium British chocolatier with a strong and distinctive brand. The business was founded in 1993 by Angus Thirlwell and Peter Harris and has traded under the Hotel Chocolat brand since 2003. The Group sells its products online and through a network of locations in the UK and abroad. The Group has a cacao plantation and eco-hotel in Saint Lucia, offering complete cacao immersion through tree-to-bar experiences and wellness treatments. The Group also has a flagship restaurant and cacao roastery in London's Borough Market: Rabot 1745. The Group was admitted to trading on AIM in 2016.  

 

 

Chief Executive's statement (inclusive of financial review)

 

RESULTS

 

 

 


Period ended

29 December 2019

(Pre IFRS16)*

£000

Period ended

29 December 2019

IFRS 16 Adj*

£000

Period ended

29 December 2019

 

£000


Period ended

30 December 2018

 

£000








Revenue


91,716


91,716


80,719

Gross profit


59,633


59,633


53,097

Operating expenses


(41,112)

6,048

(35,064)


(35,767)

Underlying EBITDA


18,521

6,048

24,569


17,330

Share-based payments


(527)


(527)


(408)

EBITDA


17,994

6,048

24,042


16,922

Depreciation & amortisation


(2,982)

(5,212)

(8,194)


(2,793)

Loss on disposal of property, plant & equipment


 

(12)


 

(12)


 

(24)

Operating profit


15,000

836

15,836


14,105

Finance income


62


62


5

Finance expense


(183)

(722)

(905)


(179)

Share of joint venture results


(9)


(9)


(84)

Profit before tax


14,870

114

14,984


13,847

Tax expense


(1,933)

25

(1,908)


(3,045)

Profit for the period


12,937

139

13,076


10,802

Earnings per share - Basic


11.3p

0.2p

11.5p


9.6p

Earnings per share - Diluted


11.2p

0.2p

11.4p


9.5p

Dividend per share


0.6p


0.6p


0.6p

 

*The Group has initially applied IFRS 16 at 1st July 2019 using the modified retrospective approach. Under this approach comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application. (See Note 2)

 

CHIEF EXECUTIVE'S STATEMENT

 

I am pleased to report continued progress for the Hotel Chocolat brand during the 26 weeks to 29 December 2019. Revenue for the period increased by 14% and underlying EBITDA (pre IFRS 16) increased by 7%. Our growth strategy continues to focus on four key themes:

 

1) UK Physical locations

We opened nine new Hotel Chocolat locations in the UK during the period and generated double-digit increase in EBITDA profitability from our UK estate. Further attractive opportunities remain, which we will continue to evaluate on a site-by-site basis. We are also investing in our existing estate; we re-located in Cardiff and Brighton to larger prime sites with our full offer, and have begun to refit locations, adding our leisure experience with drinks, ices and seating to London Moorgate and Gateshead Metro Centre. Initial results suggest that 'upgrade investment' in existing strong catchments will offer attractive returns as well as nourishing the brand and continuing to add to its appeal.

 

2) Cautious 'test, learn, grow' approach to new international markets

In the USA, we opened two more locations in the period, bringing the total to four. Consumer reaction is encouraging, and our first location in the USA has now passed its one-year anniversary, generating a modest EBITDA profit in the period. We have a clear and deliverable plan to further improve profitability in the coming years to the point where a rollout model would generate attractive returns.

 

In Japan, our joint venture partner opened three more locations bringing the total to five. Consumer reaction is similarly encouraging, and our first opening has also now passed its one-year anniversary, generating a modest EBITDA profit in the period. Unlike the UK and the USA, the larger gift-giving seasons are in the second half of our financial year, therefore we anticipate a further improvement in site-level economics in the second half of this coming financial year. Again, we have a clear and deliverable plan to improve profitability in the coming years to the point where a rollout model would generate attractive returns.

 

3) UK digital proposition

Despite being an early online pioneer, we believe we have under-invested in this part of our model over the last few years. The first half of the financial year saw us make investments to address this, with several new hires and a new suite of tools to make fuller use of the opportunities of our strong brand and burgeoning customer base.

 

Our new in-sourced CRM system is driving improved customer communication. We launched a new subscription service for Velvetiser refills, and we grew our VIP scheme by over 100 per cent, for which we will shortly be introducing an App.

 

4) Increase capacity and capture efficiencies from the vertically integrated supply chain

Our gross margin rate declined by 80 basis points due to the increased sales mix of the Velvetiser in-home hot chocolate maker. The initial sale has a lower than average gross margin, but this is offset by the lifetime value of the chocolate refills. We continue to innovate the library of flavours on offer and have now launched a free-delivery subscription service.

 

In supplying more growth channels, we encountered some inefficiency in our internal supply chain which resulted in overheads increasing by 50 basis points. Having identified the root causes, an investment programme is already underway to prepare our supply chain in advance of the 2020 winter peak.

 

FINANCIAL REVIEW

Revenue

Group revenue increased by 14% to £91.7m. Nine new locations were opened in the UK during the period contributing three percentage points of the Group's year-on-year growth. Retail, digital and wholesale all delivered sales growth.

 

Profit Before Tax

Profit before tax (pre IFRS 16) increased by 7% to £14.9m. IFRS 16 has been applied at 1st July using the modified retrospective approach under which comparative information is not restated. Reported Profit before tax increased by 8% to £15.0m.

 

Gross margin

Gross margin declined by 80 basis points from 65.8% to 65.0% driven by the mix impact of Velvetiser sales. Whilst the initial sale of Velvetisers are at a lower gross margin, the recurring chocolate refills have a higher purchase frequency than our other products.

 

Operating expense

Operating expenses (pre IFRS 16) grew by 15%, ahead of the rate of sales growth, with additional costs of fulfilment during the winter peak. As a result, operating expenses as a percent of sales increased from 44.3% to 44.8%. The transition to IFRS16 resulted in reported Operating expenses of 38.2% of sales.

 

Underlying EBITDA

Underlying EBITDA (pre IFRS 16) increased 7% to £18.5m.

 

Share based payments

Share-based payment expense of £0.5m (H1 FY19: £0.4m) related to the share-based Long-Term Incentive Plan and an all-employee Save As You Earn plan.

 

Foreign currency

The business manufactures the majority of its products in the UK; however, it does purchase some premium ingredients in foreign currencies, predominantly Euros. The Group hedges its forecast Euro purchases up to 18 months ahead. 

 

Finance income and expense

Finance expense (pre IFRS 16) of £0.2m reflects £0.1m of interest on a working capital overdraft, and £0.1m of realised interest on foreign exchange hedges. Post IFRS 16 Finance Expense is £0.9m.  Finance income of £0.1m is driven primarily by unrealised interest on foreign exchange hedges.

 

Earnings per share

Basic earnings per share in the period (pre IFRS 16) increased 18% to 11.3p (H1 FY19: 9.6p). Post IFRS 16 Earnings per share were 11.5p. The exercise of the 2016 Long Term Incentive Plan and Save-As -You-Earn schemes in the period resulted in corporation tax deductions, giving an effective tax rate of 13.0% (pre IFRS-16) (H1 FY19 22.0%).

 

Dividend

At the time of the IPO, the Directors stated an intention to implement a progressive dividend policy to reflect the expectation of future cash flow. The Board proposes an interim dividend of 0.6p per share which will be paid on 15th April 2020 to shareholders on the register on 6th March 2020. Mindful of the potential growth opportunities in the USA and Japan, the Board will continue to review the rate of growth in any dividend relative to the potential opportunities for re-investment in service of profitability and growth.

 

Cash flow and closing cash position

Net cash inflow from operating activities was £30.2m (H1 FY19: £29.5m) an increase of 2 percent.

 

Net cash (being cash minus borrowings) at the end of the period was £24.3m (H1 FY19: £21.8m). The Group has access to an overdraft facility with Lloyds Bank plc to fund seasonal working capital requirements if required.

 

Major capital projects in the period included new Hotel Chocolat locations, refits of existing locations, upgrades to the manufacturing facility and Distribution Centre.

 

OUTLOOK

Since the end of the financial reporting period, trading has continued to be in line with the Board's expectations. The performance of the new locations is encouraging and there is a future pipeline of similar potential locations. The Velvetiser and the VIP Me loyalty card scheme both performed well during their second year and both offer significant future growth potential.

 

In delivering these results in a context of continued macro-economic uncertainty, the business has demonstrated creativity, resilience and adaptability.  Delivery against the four-point strategy will result in top-line growth and improve profitability in the UK, enabling the Group to invest in the growing new markets of USA and Japan. A strongly differentiated brand which offers great products and customer service and that is priced as an affordable luxury, gives the Board confidence in the Group's continued progress.

 

Adoption of IFRS 16 "Leases"

The Group has initially applied IFRS 16 "Leases" as at 1st July 2019. A right of use asset and a lease liability is included on the balance sheet, and depreciation and interest have been charged to the income statement, replacing rental charges through operating expenses. The change has no impact to cash flow and therefore has no impact to the Board's decision-making.

 

Discount rates ranging between 2% and 3.5% have been applied using a portfolio approach. The discount rate is based on the Bank of England Base rate, modified to account for credit premium and the remaining lease term. Store leases have been stratified using a number of factors including:

-

the remaining lease term at date of adoption

-

store contribution and payback

 

The weighted average incremental borrowing rate applied at the date of transition was 2.5%.

The Group has adopted the modified retrospective approach, under which comparative information is not restated. The cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application.

 

A summary of the impact on the Group income statement and balance sheet is as follows:

 

 

Impact on the Group income statement

 


H1 FY20

£000


H1 FY19

£000

Operating expenses:





Rent


6,048


-

Depreciation


(5,212)


-

Net reduction in Operating expenses


836


-






Finance expenses


(722)


-






Net increase to Profit before tax


114


-

Tax


25


-

Net increase to profit after tax


139


-

 

Impact on the Group balance sheet

 


H1 FY20

£000


H1 FY19

£000

Right of use asset


50,728


-

Lease liability


(54,926)


-

Retained earnings


1,289


-

 

 

Angus Thirlwell

Co-founder and Chief Executive Officer

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 29 December 2019

 


 

 

 

Notes

Unaudited*

26 weeks ended

29 December 2019

£'000


Unaudited

26 weeks ended

30 December 2018

£'000






Revenue


91,716


80,719

Cost of sales


(32,083)


(27,622)



59,633


53,097






Operating expenses


(43,797)


(38,993)


3

15,836


14,104






Finance income

4

62


5

Finance expenses

4

(905)


(179)

Share of joint venture results


(9)


(84)

Profit before tax


14,984


13,846






Profit before tax and IFRS 16


14,870


13,846

IFRS 16 Operating expenses


836


-

IFRS 16 Finance expenses

4

(722)


-






Tax expense


(1,908)


(3,045)

Profit for the period


13,076


10,801






Other comprehensive income:





Derivative financial instruments


(518)


282

Deferred tax charge on derivative financial instruments


42


(26)

Currency translation differences arising from consolidation


 

(227)


 

384

Total comprehensive income for the period


12,373


11,441






Basic Earnings per share pre/post IFRS 16

5

11.3p/11.5p


9.6p

Diluted Earnings per share pre/post IFRS 16

5

11.2p/11.4p


9.5p

 

 

*  The Group has initially applied IFRS 16 at 1 July 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application. (See note 2)

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 29 December 2019

 


 

 

 

 

Notes

Unaudited

As at

29 December 2019

£'000


Unaudited

As at

30 December 2018

£'000


Audited

As at

30 June

2019

£'000

ASSETS







Non-current assets







Intangible assets


3,244


2,729


2,912

Property, plant and equipment

6

45,009


39,082


40,115

Right of use asset

2

50,728


-


-

Investment in joint ventures


-


32


9

Loan to joint venture


3,970


706


2,488

Derivative financial assets


12


109


-

Other receivables and prepayments


-


9


18

Deferred tax asset


278


319


623



103,241


42,986


46,165

Current assets







Derivative financial assets


-


206


81

Inventories


16,222


9,436


12,810

Trade and other receivables


10,230


9,549


9,360

Cash and cash equivalents


24,299


21,879


5,778



50,751


41,070


28,029

Total assets


153,992


84,056


74,194








LIABILITIES







Current liabilities







Trade and other payables

7

34,758


27,146


19,528

Corporation tax payable


712


3,016


1,607

Derivative financial liabilities


404


-


2

Lease liabilities

2

11,705


-


-

Borrowings


-


118


17



47,579


30,280


21,154

Non-current liabilities







Other payables and accruals

7

-


2,861


2,757

Derivative financial liabilities


-


-


9

Lease liabilities

2

43,221


-


-

Provisions


-


936


944



43,221


3,797


3,710

Total liabilities


90,800


34,077


24,864








NET ASSETS


63,192


49,979


49,330








EQUITY







Share capital


116


113


113

Share premium


15,825


11,750


11,750

Retained earnings


43,760


33,909


33,359

Translation reserve


1,026


1,264


1,253

Merger reserve


223


223


223

Capital redemption reserve


6


6


6

Other reserves


2,236


2,713


2,626

Total equity attributable to shareholders


 

63,192


 

49,979


 

49,330

 

*  The Group has initially applied IFRS 16 at 1 July 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application. (See note 2)

CONSOLIDATED STATEMENT OF CASH FLOW 

For the period ended 29 December 2019

 


 

 

 

Notes

Unaudited

26 weeks ended

29 December 2019

£'000


Unaudited

26 weeks ended

30 December 2018

£'000






Profit before tax for the period


14,984


13,847

Adjusted by:





Depreciation of property, plant and equipment

Depreciation of Right of use asset

6

2,727

5,212


2,482

-

Amortisation of intangible assets


255


311

Loss of joint ventures


9


84

Net interest expense


845


173

Share-based payments


527


408

Loss on disposal of property, plant and equipment and intangible assets


 

12


 

24

Operating cash flows before movements in working capital


 

24,571


 

17,329

 

Decrease/(increase) in inventories


(3,412)


3,120

Decrease/(Increase) in trade and other receivables


(3,111)


(2,071)

Increase in trade and other payables and provisions


15,590


12,645

Cash inflow generated from operations


33,638


31,023

Interest received


6


1

Income tax paid


(2,541)


(1,320)

Interest paid on:





-       interest paid - IFRS leases


(722)


-

-       derivative financial instruments


(104)


(100)

-       bank loans and overdraft


(45)


(61)

Cash flows from operating activities


30,232


29,543






Purchase of property, plant and equipment


(7,362)


(5,632)

Proceeds from disposal of property, plant and equipment


79


10

 

Investment in joint venture




(7)

Loan to joint venture


(1,482)


(779)

Purchase of intangible assets


(480)


(242)

Cash flows used in investing activities


(9,245)


(6,650)






Proceeds on issue of shares


4,078


1

Capital element of hire purchase and finance leases repaid


 

(17)


 

(101)

Payment of IFRS16 lease liabilities


(5,065)


-

Dividends paid


(1,386)


(1,241)

Cash flows used in financing activities


(2,390)


(1,341)






Net change in cash and cash equivalents


18,597


21,552

Cash and cash equivalents at beginning of period


5,778


236

Foreign currency movements


(76)


91

Cash and cash equivalents at end of period


24,299


21,879

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

For the period ended 29 December 2019


Share capital

£000s

 

Share Premium

£000s

 

Retained earnings

£000s

 

Translation reserve

£000s

 

Merger reserve

£000s

Capital redemption reserve

£000s

 

Other reserves

£000s

 

 

Total

£000s










As at 1 July 2018

113

11,749

24,348

881

223

6

2,291

39,611

Issue of share capital

-

1

-

-

-

-

-

1

Share-based payments

 

-

 

-

 

-

 

-

 

-

 

-

 

408

 

408

Deferred tax charge on share-based payments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(241)

 

 

(241)

Profit for the period

 

-

 

-

 

10,802

 

-

 

-

 

-

 

-

 

10,802

Dividends paid

-

-

(1,241)

-

-

-

-

(1,241)

Other comprehensive income:









Derivative financial instruments

 

-

 

-

 

-

 

-

 

-

 

-

 

281

 

281

Deferred tax charge on derivative financial instruments

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(26)

 

 

 

(26)

Currency translation differences arising from consolidation

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

384

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

384

Equity as at 30 December 2018

113

11,750

33,909

1,265

223

6

2,713

49,979










Share-based payments

 

-

 

-

 

-

 

-

 

-

 

-

 

(162)

 

(162)

Deferred tax charge on share-based payments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

242

 

 

242

Profit for the period

 

-

 

-

 

127

 

-

 

-

 

-

 

-

 

127

Dividends paid

-

-

(677)

-

-

-

-

(677)

Other comprehensive income:









Derivative financial instruments

 

-

 

-

 

-

 

-

 

-

 

-

 

(210)

 

(210)

Deferred tax credit on derivative financial instruments

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

43

 

 

 

43

Currency translation differences arising from consolidation

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12)

 

 

 

-

 

 

 

-


 

 

 

(12)

Equity as at 30 June 2019

113

11,750

33,359

1,253

223

6

2,626

49,330






































Share capital

£000s

 

Share Premium

£000s

 

Retained earnings

£000s

 

Translation reserve

£000s

 

Merger reserve

£000s

Capital redemption reserve

£000s

 

Other reserves

£000s

 

 

Total

£000s










Equity as at 30 June 2019

113

11,750

33,359

1,253

223

6

2,626

49,330

Adjustment on initial application of IFRS 16

-

-

(1,289)

-

-

-

-

(1,289)

Opening Equity as at 1 July 2019

113

11,750

32,070

1,253

223

6

2,626

48,041

Issue of share capital

 

3

 

4,075

 

-

 

-

 

-

 

-

 

-

 

4,078

Share-based payments

 

-

 

-

 

-

 

-

 

-

 

-

 

466

 

466

Deferred tax charge on share-based payments

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(380)

 

 

(380)

Profit for the period

 

-

 

-

 

13,076

 

-

 

-

 

-

 

-

 

13,076

Dividends paid

-

-

(1,386)

-

-

-

-

(1,386)

Other comprehensive income:









Derivative financial instruments

 

-

 

-

 

-

 

-

 

-

 

-

 

(518)

 

(518)

Deferred tax charge on derivative financial instruments

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

42

 

 

 

42

Currency translation differences arising from consolidation

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(227)

 

 

 

-

 

 

 

-


 

 

 

(227)

Equity as at 29 December 2019

116

15,825

43,760

1,026

223

6

2,236

63,192

 

NOTES TO THE INTERIM FINANCIAL INFORMATION

 

1.

Basis of preparation

The consolidated interim financial information has been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs), as adopted by the European Union.

 

The accounts have been prepared in accordance with accounting policies that are consistent with the Group's Annual Report and Accounts for the period ended 30 June 2019 and that are expected to be applied in the Group's Annual Report and Accounts for the period ended 28 June 2020. There are new or revised standards that apply to the period beginning 1 July 2019 but they do not have a material effect on the financial information for the period ended 29 December 2019, with the exception of IFRS 16 detailed below.

 

The comparative financial information for the period ended 30 June 2019 in this interim report does not constitute statutory accounts for that period under 435 of the Companies Act 2006.

 

Statutory accounts for the period ended 30 June 2019 have been delivered to the Registrar of Companies.

The auditors' report on the accounts for 30 June 2019 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

2.

Significant accounting policies

Directors have taken into account the historic positive cash flows, growth in business and the inherent risks and uncertainties facing the business, and have derived forecast assumptions that are the Directors' best estimate of the future development of the business. The forecasts and projections, which take into account the projected trading performance of companies within the Group's combined bank facilities, show that the Group will be able to operate within the level of its current facilities. On this basis, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the consolidated financial information.

Except for the first time adoption of IFRS 16 detailed below, the interim financial results have been prepared by applying the accounting policies that were applied in the preparation of the 2019 Annual Report and Accounts which are published on the Hotel Chocolat website, www.hotelchocolat.com. The changes to accounting policies outlined below are also expected to be reflected in the Group's consolidated financial statements as at the year ending 28 June 2020.

Other than IFRS 16 there are no new or amended standards effective in the period which has had a material impact on the interim consolidated financial information.

IFRS 16 "Leases"

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and the lessor. It eliminates the lease classification of leases as either operating leases or financial leases and introduces a single lease accounting model requiring lessees to recognise a lease liability reflecting the future lease payments and a right-of-use asset for lease contracts.

a.

Transition method and practical expedients applied

The Group has applied the modified retrospective transition approach, with recognition of transitional adjustments on the date of initial application (1 July 2019), without restatement of comparative figures.

On transition to IFRS 16 the group elected to apply the following practical expedients on a lease by lease basis as allowed by the standard:

·

apply a single discount rate to a portfolio of leases with reasonably similar characteristics

·

to rely upon previous assessments of onerous leases

·

apply the short term and low value exemptions

Lease payments for low value or short term leases where the Group has elected not to recognise a right-of-use asset and lease liability are charged as an expense on a straight line basis. 

At the date of commencement of property leases the Group determines the lease term to be the full term of the lease, assuming that any option to break or extend is not likely to be exercised. Leases are regularly reviewed and will be revalued if it becomes likely that a break clause or option to extend will be exercised.  The weighted average incremental borrowing rate applied at the date of transition was 2.5%.

b.

Right of use assets

The Group recognises a right-of-use asset at the lease commencement date. The right-of-use asset is measured as their carrying amount as if IFRS 16 has been applied since the commencement date, discounted using the lessees incremental rate at the date of initial application. Subsequent to measurement, right-of-use assets are amortised on a straight line basis over the remaining term of the lease or over the remaining economic life of the asset if assessed to be shorter.

c.

Lease liabilities

The lease liabilities are measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate as at 1 July 2019. The Group's incremental borrowing rate is the rate at which a similar borrowing could be obtained over a similar term in a similar economic environment. Judgement is required to determine an approximation with consideration given to the Groups borrowing facilities and Bank of England Base rates adjusted by an indicative credit premium and a lease specific adjustment.

Subsequently, the lease liability is increased by the interest cost on the lease liability and decreased by the lease payments made. It is re-measured if there is a modification, a change in lease term or a change in the fixed lease payment.

d.

Impacts on the financial statements

(i)

Balance sheet

The impact on the balance sheet on transition is summarised below:


1 July 2019

£000

Right of use assets

50,603

Lease liabilities

(54,249)

Deferred tax asset

255

Prepayments

(2,258)

Accruals

2,492

Retained Earnings

1,289

 

d.

Impacts on the financial statements (continued)

The table below shows a reconciliation from the total operating lease commitment as disclosed at 30 June 2019 to the total lease liabilities recognised in the accounts immediately after transition:

 


1 July 2019

£000

Operating lease commitment at 30 June 2019 per the Groups consolidated financial statements

59,859

Discounted using the incremental borrowing rate at 1 July 2019

(6,510)

Recognition exemption for lease of low values assets / short term leases

(1,413)

Finance lease liabilities recognised at 30 June under IAS 17

2,313

Total lease liabilities recognised at 1 July 2019

54,249

 

The Group presents right-of-use assets separately in the consolidated balance sheet. The carrying amounts of right-of-use assets are as below:


Property, Plant and Equipment

£000

Balance at 1 July 2019

50,603

Balance at 29 December 2019

50,728

 

The Group presents lease liabilities separately in the consolidated balance sheet.

(ii)

Income statement

The Group has recognised amortisation and interest costs in respect of leases that were previously classified as operating leases in the income statement, rather than rental charges. During the period ended 29 December 2019, the Group recognised £5.2m of additional amortisation charges and £0.7m of additional interest costs in respect of these leases.

(iii)

Reserves

The Group has applied IFRS 16 using the modified retrospective approach, whereby the initial right-of-use asset was measured at carrying amount as if the standard had always been applied, but discounted using the incremental borrowing rate at the date of initial application. The lease liability was measured at the present value of the remaining lease payments. The mismatch between the liability and asset value at transition is taken to reserves. The Group has taken £1.3m to reserves at the start of the period.

3.

Profit from operations

Profit from operations is arrived at after charging:


 

 

Unaudited

26 weeks ended

29 December 2019

£000


Unaudited

26 weeks ended

31 December 2018

£000

Staff cost


23,924


17,630

Depreciation of property, plant and equipment


2,727


2,482

Amortisation of intangible assets


255


311

Depreciation of Right of Use asset


5,212


-

Operating leases:





-       Property


-


5,832

-       Plant and equipment


-


129

Loss on disposal of property, plant and equipment and intangible assets


12


24

Exchange differences


(88)


35

Bad debt expense


18


20

 

4.

Finance income and expenses


 

 

Unaudited

26 weeks ended

29 December 2019

£000


Unaudited

26 weeks ended

30 December 2018

£000






Interest on bank deposits


6


1

Unrealised interest on derivative financial instruments


 

56


 

4

Finance income


62


5






Interest on bank borrowings


79


78

Realised interest on derivative financial liabilities


104


100

Finance leases and hire purchase contracts


-


1

IFRS 16 Interest charge


722


-

Finance expenses


905


179






 

5.

Earnings per share

 

 

Profit for the period used in the calculation of the basic and diluted earnings per share:


 

 

Unaudited

26 weeks ended

29 December 2019

£000


Unaudited

26 weeks ended

30 December 2018

£000






Profit after tax for the period pre IFRS 16


12,937


10,801

IFRS 16 adjustment to profit before tax


114



IFRS 16 adjustment to tax


25



Profit after tax for the period


13,076


10,801






 

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:


 

 

Unaudited

26 weeks ended

29 December 2019

 


Unaudited

26 weeks ended

30 December 2018

 






Weighted average number of shares in issue used in the calculation of earnings per share (number) - Basic


114,197,428


112,838,213

Share-based payments - Hotel Chocolat Group plc Save As You Earn Plan


566,898


340,202

LTIP 2016 unexercised options


418,810



Weighted average number of shares in issue used in the calculation of earnings per share (number) - Diluted


115,183,136


113,178,415






Basic Earnings per share (pence) - pre/post IFRS 16


11.3/11.5


9.6

Diluted Earnings per share (pence) - pre/post IFRS 16


11.2/11.4


9.5

 

As at 29 December 2019, the total number of potentially dilutive shares issued under the Hotel Chocolat Group plc Long-Term Incentive Plan was 301,073 (30 December 2018: 3,657,000). Due to the nature of the options granted under this scheme, they are considered contingently issuable shares and therefore have no dilutive effect.  

*The Group has initially applied IFRS 16 at 1st July 2019 using the modified retrospective approach. Under this approach comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application. (See Note 2)

 

6.

Property, plant and equipment

 


 

 

 

 

Freehold property

£000

 

 

 

 

Leasehold property

£000

Furniture & fittings, Equipment, Computer software & hardware

£000

 

 

 

 

Plant & machinery

£000

 

 

 

 

Right of use asset

£000

 

 

 

 

 

Total

£000

26 weeks ended 30 December 2018






Cost:







As at 1 July 2018

12,837

735

34,890

18,896

-

67,358

Additions

388

-

3,762

607

-

4,757

Disposals

-

-

(2,701)

(15)

-

(2,716)

Translation differences

411

-

42

-

-

453

As at 30 December 2018

13,636

735

35,993

19,488

-

69,852








Accumulated depreciation:







As at 1 July 2018

725

734

18,752

10,739

-

30,950

Depreciation charge

98

1

1,714

670

-

2,483

Disposal

-

-

(2,682)

(2)

-

(2,684)

Translation differences

 

9

 

-

 

14

 

-

-

 

23

As at 30 December 2018

832

735

 

17,798

11,407

-

30,772








Net book value







As at 30 December 2018

12,804

-

18,195

8,081

-

39,080








26 weeks ended 29 December 2019






Cost:







As at 30 June 2019

14,775

735

36,184

21,544

-

73,238

IFRS 16 opening adjustment

-

-

(695)

-

50,603

49,907

As at 1 July 2019

14,775

735

35,489

21,544

50,603

123,145

Additions

586

18

3,647

4,178

5,507

13,936

Disposals

-

-

(401)

-

-

(401)

Translation differences

(339)

-

(67)

-

(179)

(585)

As at 29 December 2019

15,022

753

38,668

25,722

55,931

136,095








 

 

6.

Property, plant and equipment (continued)

 


 

 

 

 

Freehold property

£000

 

 

 

 

Leasehold property

£000

Furniture & fittings, Equipment, Computer software & hardware

£000

 

 

 

 

Plant & machinery

£000

 

 

 

 

Right of use asset

£000

 

 

 

 

 

Total

£000

 

Accumulated depreciation:






As at 30 June 2019

816

735

19,845

11,727

-

33,123

IFRS 16 opening adjustment

-

-

(353)

-

-

353

As at 1 July 2019

816

735

19,492

11,727

-

32,770

Depreciation charge

80

-

2,059

588

5,212

7,939

Disposal


-

(309)

-

-

(309)

Translation differences

(11)

-

(21)

-

(9)

(41)

As at 29 December 2019

885

735

21,221

12,315

5,203

40,359








Net book value







As at 29 December 2019

14,137

18

17,447

13,407

50,728

95,737

 

 

As at 29 December 2019, the net book value of freehold property includes land of £2,853,955 (31 December 2018: £2,941,238), which is not depreciated.

 

 

7.

Trade and other payables

 


 

 

Unaudited

26 weeks ended

29 December 2019

£000


Unaudited

26 weeks ended

30 December 2018

£000

Current





Trade payables


10,504


4,091

Other payables


4,376


3,934

Other taxes payable


9,566


8,317

Accruals


10,312


10,804



34,758


27,146

Non-current





Other payables


-


2,861



-


2,861






 

 


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