REG - Hotel Chocolat Group - Interim Results
08/03/2023 07:15
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RNS Number : 2212S Hotel Chocolat Group PLC 08 March 2023
8 March 2023
Hotel Chocolat Group plc
("Hotel Chocolat", the "Company" or the "Group")
Interim Results
Hotel Chocolat Group plc, a direct-to-consumer premium chocolate brand, today
announces its unaudited interim results for the 26 weeks ended 25 December
2022.
Financial overview:
● Group revenue including international of £129.8m (H1 FY22: £142.9 m)
○ Strong UK retail like-for-like +7% YoY
○ International -69% reflecting adapted approach
● Underlying H1 EBITDA of £22.0m (H1 FY22: £33.8m)
● Underlying H1 PBT £10.2m* (FY22 H1 £25.4m**)
● Strong balance sheet with net cash at period end of £28.2m, with £50m
unutilised within its RCF facility
● Earnings per share 4.5p (H1 FY22: 12.0p**)
● Interim dividend nil per share (H1 FY22: Nil)
*Underlying PBT excludes share-based payment charges of £1m (H1 FY22 £1.5m)
and exceptional items of £0.9m (H1 FY22 £3.6m)
**Restated 26 weeks ended 26 December 2021 - see note 6 for more information
Operational highlights:
● New record for Christmas campaign sales across the UK store estate with
strongest ever sell through of full price seasonal products
● VIP database now 2.75m, + 30% YoY
● Online revenues lower YoY due to customer preference to return to stores and
strategically lower marketing spend
● Wholesale revenue lower than planned at beginning of year due to cautious
inventory management by online partners and Q1 UK summer heatwave impact on
ordering
● Commencement of our 'shape of the future' plan with benefits flowing into
product margins, operating overheads and inventory
● Year 2 of Gentle Farming nature positive cacao programme in Ghana. 458k trees
planted, bonus payments direct to farmers
Angus Thirlwell, Co-founder and Chief Executive Officer of Hotel Chocolat,
said:
"This strong sales performance from Hotel Chocolat stores, underpinned by our
scaled database, is a result of hefty investments we continue to make into our
brand. Investing in more cacao and less sugar in our recipes, funding nature
positive cacao farming and championing British-made quality and design flair.
"Over the last three years, we have increased retail like for-likes by 25%
through product innovation and improving the quality of our database
marketing.
"We have announced the opening of a further 50 UK locations over the next 3-5
years, with the first wave planned this Autumn. Our new 'store of the future'
design has succeeded against its objectives in test locations and so will be
rolled out in these new locations: more space, Velvetiser cafes and
constructed from reusable and sustainable materials.
"The Velvetiser in-home drinking chocolate system continued its positive
momentum with 888k (1 in 17 ABC1) UK households now able to prepare
barista-grade drinking chocolate, hot or cold, in just 2.5 minutes. This has
been built up in only four years and we now see premium, drinkable chocolate
as a major long term winner for Hotel Chocolat, with our direct-to-consumer
capability a key element in its success.
"Having grown sales by 66% since the start of the last pre-pandemic year, as
previously announced, we are taking this year, over FY23, to sharpen-up our
operating model before we embark on the next stage of growth. I am really
pleased with the determination I have seen across our teams to get back to
running a tight ship again.
"Our adapted plan for international growth - to pursue the proven brand appeal
with low risk-low capex operating models - is making sound progress. In Japan,
a new strategic partnership was signed and in the US our planning is looking
encouraging. Our Saint Lucian cacao agro-tourism business drove revenues up
46%, with our 6-acre Project Chocolat visitor attraction the star performer.
"The Group continues to trade in line with market expectations for sales
though as previously guided, we remain cautious about consumer sentiment over
the upcoming seasonal events of Mother's Day, Easter, Eid and Father's Day.
Depending on the Easter performance, there is a range of PBT outcomes between
£4m and £7m* for the full year."
"Following this transitional year in 2023, in FY24 and FY25 we expect to see a
return to sales and EBITDA growth with a continued target of 20% EBITDA margin
by FY25 (pre IFRS 16 basis)."
* post share based payments of £2.5m for full year 2023
The information contained within this announcement is deemed by the Group to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014 as it forms part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018.
The person responsible for arranging for the release of this announcement on
behalf of the Company is Angus Thirlwell, Chief Executive Officer.
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, Development Director and Interim CFO
Liberum Capital Limited - Nominated Advisor and Broker + 44 (0) 20 3100 2222
Clayton Bush
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.
Chief Executive's statement (inclusive of financial review)
RESULTS
Restated*
Period ended 25 December 2022 Period ended 26 December 2021
£000 £000
Revenue 129,790 142,934
Gross profit 75,129 85,535
Operating expenses (53,115) (51,776)
Underlying EBITDA 22,014 33,759
Depreciation & amortisation (9,947) (7,656)
Loss on disposal of property, plant & equipment - (14)
Underlying operating profit 12,067 26,089
Finance income* 138 658
Finance expense (1,737) (774)
Share of joint venture results* (261) (520)
Underlying profit/(Loss) before tax 10,207 25,453
Share-based payments (1,022) (1,465)
Exceptional items* (900) (3,602)
Profit/(Loss) before tax 8,285 20,386
Tax expense* (2,028) (4,145)
Profit for the period 6,257 16,241
Earnings per share - Basic* 4.6 12.0
Earnings per share - Diluted* 4.6 12.0
Dividend per share Nil Nil
*Restated 26 weeks ended 26 December 2021 - see note 6 for more information.
CHIEF EXECUTIVE'S STATEMENT
The real growth drivers of Hotel Chocolat's future are in fine form. Our brand
consideration now stands at a record level in the UK and our three growth
pillars of originality, authenticity and ethics have more strength than ever,
see below. Our principal sales channel is our stores model which accounts for
c.70% of UK sales and the channel has improved materially in all performance
metrics since pre covid. Our VIP customer base has increased to 2.75m.
During FY23, we are reining in our operating costs, which have grown away from
our preferred shape during the fast expansion of the pandemic years FY21 and
FY22 which delivered +66% growth.
Getting back to running a tight ship again' means a year where these cost
adjustments gradually show through but are set against a year of slightly
dipping revenues after a year of posting +40% revenues.
This approach has been reflected in our views for FY24 and FY25, where we plan
to return back into further profitable growth, with the previously set target
of 20% EBITDA margin by FY25 (pre IFRS 16 basis) still very much the
intention.
BRAND
Our brand purpose is to make people happy through chocolate and we continue to
focus on this to achieve our business goal of becoming the world's leading
global direct-to-consumer premium chocolate brand. In the current climate it
feels that bringing happiness through chocolate is more relevant than ever, so
in the first six months of this year, we have spent time researching with our
customers, growers and team-members to really understand what matters to them
and what drives advocacy and engagement with the brand. In the period, we have
continued to see growing brand consideration which is now at the highest point
we have seen since we have started tracking, a significant increase in VIP.ME
membership and customer purchase frequency.
Brand consideration has grown by 7ppt (13%) since Oct 20 (when tracking began)
and 4ppt (7%) year on year.
Activity supporting our three brand pillars include:
1/Originality - nurturing creativity to bring real innovation
The Velvetiser in-home drinks concept has continued to innovate through new
limited edition colours such as Satin Black which has been an instant hit.
Seasonal limited edition flavours, such as Pumpkin Spice, also sold out very
quickly. The launch of an additional VIP.ME members benefit - being able to
purchase a Velvetiser at an exclusive price - demonstrated our commitment to
reward our most loyal customers.
We launched a wider range of vegan options as part of our Christmas range
building on the success of our unique Nutmilk recipe and growing customer
demand. Within our Velvetised Cream alcohol range, we launched Mince Pie
flavour as limited edition.
2/Authenticity - being the real deal in people and products
Our customers told us that they really value the quality of the products that
we provide and that our focus on more cacao and not sugar is what sets our
product apart from the rest and why they return. We continue to see this with
a 25% increase in active customer purchase frequency year-on-year, showing
that we are delivering not only for gifting but also for self-treat.
With our physical retail stores fully re-opened, we saw a shift in purchase
behaviour back to the high street, re-emphasising our locations as a leisure
experience for our customers. In particular, our customers sought out our
physical stores in the purchase of Christmas gifts for loved ones with record
sales of Christmas products.
3/Ethics - using what we have to bring happiness to all stakeholders - our
Hotel Chocolat family, our customers, our growers, our partners, our
communities and our planet
Since launching our Gentle Farming programme in September 2021, we now have
2,500 growers in the enhanced programme. We are paying above the published
price for cacao beans and making additional payments directly to farmers to
support greater productivity on-farm, including employing over 300 on-farm
skilled workers to prune cacao trees to maximise yield. In addition to the
payments to support pre harvest activities and improve productivity, we invest
in reforestation activity - last year distributing over 500,000 cacao and
shade tree seedlings - to promote biodiversity and carbon sequestration.
Through the work on our own farm in Saint Lucia, we have learnt how important
the cacao crop is in the ecosystem. It is a wonder crop that thrives in
biodiversity and loves shade. By planting these shade trees and growing cacao
in biodiverse environments, we can achieve more fertile farmlands with greater
climate resilience.
In addition to our continued support to our growers in Ghana, we have also
invested in supporting our Saint Lucia community, launching an apprenticeship
and farming programme with Helen's Daughters at Project Chocolat in Saint
Lucia. This is an annual programme, where two Helen's Daughters' apprentices
manage a hybrid aquaponics farm on land at Project Chocolat and sell their
organic produce directly to the Rabot Estate. All proceeds made are reinvested
into the farm to support the apprentices who receive training and mentorship
throughout the year. As well as the apprentices who work on the farm at
Project Chocolat, Helen's Daughters bring rural women and young people to
visit the model farm to learn technical farming skills that they can take back
to their communities.
CUSTOMERS
VIPme base 2.75m +152% since FY19
Active customer frequency +25% YOY
Customers are at the heart of our growth plan, and we have had a continued
focus on our channel experiences and CRM programme to deliver customer
database size and value growth.
VIP.ME has gone from strength to strength with over 2.75m customers now part
of the programme, + 152% since FY19. In the period, we not only launched a
more bespoke VIP.ME customer experience across touchpoints, but we also
launched a new benefit with preferential pricing for members purchasing a
Velvetiser. This has accelerated sign up both in retail and digital channels.
VIP.ME is also continuing to prove effective at driving greater customer
engagement and value with double the customer frequency than non-VIP.ME
members at the end of the period.
Our understanding of our customers also means that we are improving our
capability to deliver more tailored messages through the most appropriate
channels for our customers which has grown active customer frequency by 25%
year on year, capturing a greater proportion of their gifting and self-treat
expenditure. Average frequency has also grown since FY19 (pre-Covid) by 14%. A
key factor in this increase has been our ability to cross-sell compelling
continuity models such as Velvetiser as well as sign up to VIP.ME.
The return to retail and our new concept format success with increased café
presence underlines the opportunity to create compelling experiences that
customer's want to revisit. We have identified that our cafes drive
incremental repeat customer visits and purchases and as we look to open a
further 50 locations over the next 3-5 years, Velvetiser Cafes will be a key
part of the leisure experience that we offer our customers.
MARKETS
During the half we re-engineered our approach to international growth, signing
a new deal for the development of Japan, and saw strong performance from the
UK store direct-to-consumer model.
Group H1 Sales by location YoY(1) 25/12/2022 (£m) 26/12/2021 (£m) YOY %
UK & Ireland 127.4 134.7 -5%
Japan 0.5 5.0 -90%
USA 0.1 2.0 -94%
St Lucia 1.8 1.2 48%
Group Total(1) 129.8 142.9 -9%
1) Growth reported at constant exchange rate
UK & Ireland
It is telling that there are progressively fewer successful chocolate store
models in the UK and elsewhere. It is a difficult model to develop, with
extensive protective attributes acquired in the process. Hotel Chocolat has a
unique, digitally- underpinned, model that saw strong performance of +7% on a
strict like-for-like measure YoY and +25% over the pre-covid FY19 year. The
average UK store now has revenues of more than £1m net per annum through the
till.
Two 'store of the future' new format stores opened in the half, in Norwich and
Northampton.
As previously guided, we now see scope for a further 50 Hotel Chocolat stores
over the next 3-5 years with the first tranche planned this Autumn. The new
'store of the future' design succeeded against its objectives in test
locations and so will be rolled out in these new locations: more space,
Velvetiser cafes and constructed from reusable and sustainable materials.
Online revenues during the first half were lower YoY due to a customer
preference for a return to stores, together with a deliberately lower
marketing spend YoY
Wholesale revenues were lower than planned at the beginning of the year due to
cautious inventory management by online partners, a deliberate focus on
'quality over quantity' with fewer new partners being targeted and the Q1
heatwave reducing forward orders.
Japan
Activity during the half was focused on adapting our model to apply what we
have learned. We highlighted new external capital and new local supply chain
knowledge as being key and were delighted to launch a strategic partnership
with Eat Creator Corp. on 3 January 2023.
● The agreement supports Hotel Chocolat's global strategic ambitions, applying
the key business learnings from the first four years of trading in Japan
● Eat Creator will be providing growth capital, new supply side know-how and
proven expertise in food brand development for the Japanese consumer
● Hotel Chocolat holds 20% equity in the newly established vehicle, with brand
royalty revenues going to Hotel Chocolat Group 21 branded Hotel Chocolat
stores will initially be within the newly established vehicle, supported by a
customer database of more than 200,000 registered Japanese consumers.
Saint Lucia
The benefits of our newly opened 6-acre visitor attraction, Project Chocolat,
increased customer numbers and revenues. Visitors came primarily from US and
UK and were able to experience the benefits of our Gentle Farming approach to
sustainable agriculture and brand approach to cacao recipes.
USA
Activity during the half was focused on a careful assessment of the
opportunities within online direct-to-consumer and wholesale within specific
product categories. It is clear the brand and product ranges appeal to the US
consumer and that our focus is now on adapting to a more efficient operating
cost model.
OPERATING EFFICIENCY INITIATIVES
1/ Trading margin
As a direct, multi-channel brand, we see material enhancements ahead for our
trading margin by reducing erosion from:
- better forecasting and shelf life control
- lower post-season inventory
The combination of fast growth (+66% FY20 to FY22) and channel shifts have
impeded our ability to access these benefits earlier.
We will continue to invest in offers to reward the loyalty of our VIP
membership base.
2/ Manufacturing COGS
As a British manufacturer, we have invested into our IP protected product
making capability, developing know-how in to manufacture the unique Hotel
Chocolat range. The key focus over the last 5 years has been on scale - to
ramp up production to cope with the 93% demand increase for Hotel Chocolat
products over this period.
During FY23 a Smart Design programme has been launched in order to drive
material benefits in COGS whilst maintaining the quality that has made our
brand.
During FY24 and FY25 the benefits of this programme will underpin the EBITDA
improvement to 20%+ by FY25.
3/ Overheads
The successful adoption of a Sales and Operating Process (S&OP) has
delivered streamlining opportunities, which means that overheads are designed
to grow slower than sales within FY24 and onwards.
4/ Cost of service
Our channels of online, stores and wholesale are fulfilled directly by our own
DCs. During the half, a second DC at Northampton was commissioned to
accommodate a +66% larger business than FY20. This will temporarily increase
proportional costs during FY23 but will normalise in FY24 onwards.
5/ Inventory
Our target is to halve the value of inventory by 2025 over 2022 levels.
The benefits of the Sales & Operating Process together with tighter stock
management is intended to deliver this.
FINANCIAL REVIEW
Revenue
Group revenue was -9% year-on-year, at £129.8m. UK & Ireland store
like-for-like performed strongly, +7% YoY and +25% vs FY19 pre-covid. This was
offset by the impact of lower Wholesale and Digital sales; however, total UK
& Ireland sales were +65% vs FY19 pre-covid levels. Group sales were
lowered by -4.5% following the Group's decision to adapt Japan and US
international models.
Gross margin
Currently reported gross margin combines the manufacturing and retail business
models together.
Reported gross margin declined by 200 basis points from 59.8% to 57.9%.
Higher input costs including production related energy costs reduced gross
margin, but were largely recovered through retail price increases.
The reduction in gross margin was driven by the unwinding of stock imbalances
from the changes made during FY22, showing through in erosion of full price
sell through of core products, associated stock provisions and non-optimal
direct manufacturing labour scheduling as inventory reductions flowed through.
A further factor was the deliberate investment in VIP loyalty product offers.
Encouraging performance was achieved in seasonal stock forecasting and high
full price sell through.
Operating expenses
Overall operating expenses grew by 5% YoY resulting in Operating expenses as a
percentage of sales increasing by 550 basis points.
The majority of this is temporary:
- our channels of online, stores and wholesale are fulfilled directly by our own
DCs. During the half, a second DC at Northampton was commissioned to
accommodate a +66% larger business than FY20. This will temporarily increase
proportional costs during FY23 but will normalise in FY24 onwards.
- there is a time lag for overhead streamlining to flow through, leading to a
temporarily elevated ratio during FY23 combining with a year of slightly
reduced revenues.
The full re-instatement of business rates across the retail portfolio
contributed 150 basis points and increased energy costs a further 50 basis
points.
Underlying EBITDA
Underlying EBITDA is a non-GAAP measure and was £22.0m.
Underlying Profit before tax
Underlying Profit before tax was £10.2m.
Profit before tax excluding exceptional items
Profit before tax of £9.2m.
Share based payments
Share-based payment charge of £1.0m (H1 FY22: £1.5m) a reduction of £0.5m
driven by SBP bonus charges in FY22 not repeated in FY23.
Foreign currency
The business manufactures the majority of its products in the UK; however, it
does purchase some premium ingredients and materials in foreign currencies,
predominantly Euros and Dollars. The Group hedges its forecast foreign
currency purchases up to 18 months ahead. The movement in exchange rates have
favorably impacted margin by 30 basis points.
Finance income and expense
Finance expense of £1.7m reflects £1.0m of interest charged in relation to
Right of use Assets, £0.7m of interest for the RCF that the Group has in
place, and £0.1m of realised derivative interest. Finance income of £0.1m is
driven primarily by interest from a related party and bank deposits.
Earnings per share
Basic earnings per share in the period fell to 4.8p (H1 FY21: 12.0p*). The
effective tax rate increased to 24.3% compared to the prior year effective tax
rate of 20.3%.
Dividend
In order to continue to support and fund medium term growth, an interim
dividend has not been declared. The Board will continue to review potential
reinstatement of 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 £30m (H1 FY22: £29m), and
working capital improved by £11.1m in the period primarily as a result of
reducing inventory levels by £8.2m. Net cash (being cash minus borrowings) at
the end of the period was £28.2m (H1 FY22: £53.8m including capital raise
proceeds).
The Group has access to a £50m Revolving credit facility (RCF) with Lloyds
Bank and Bank of Ireland, with £50m of this unutilised.
Prior to the date of publication, as at 5 March 2023 the Group has net cash of
£15.4m.
OUTLOOK
The Group continues to trade in line with market expectations for sales though
as previously guided, we remain cautious about consumer sentiment over the
upcoming seasonal events of Mother's Day, Easter, Eid and Father's Day.
Depending on the Easter performance, there is a range of PBT outcomes between
£4m and £7m* for the full year.
Following this transitional year in 2023, in FY24 and FY25 we expect to see a
return to sales and EBITDA growth with a continued target of 20% EBITDA margin
in FY25 (pre IFRS 16 basis).
* post share based payments of £2.5m for full year 2023
Angus Thirlwell
Co-founder and Chief Executive Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period ended 25 December 2022
Restated*
Unaudited Unaudited
26 weeks ended 26 weeks ended
Notes 25 December 2022 26 December 2021
£'000 £'000
Revenue 129,790 142,934
Cost of sales (54,661) (57,399)
75,129 85,535
Operating expenses (64,084) (60,911)
Exceptional items* 3 (900) (3,602)
4 10,145 21,022
Finance income* 5 138 658
Finance expenses 5 (1,737) (774)
Share of joint venture results* (261) (520)
Profit before tax 8,285 20,386
Tax expense* (2,028) (4,145)
Profit for the period 6,257 16,241
Other comprehensive income:
Gains/(losses) on cashflow hedges (430) 583
Deferred tax (credit) on derivative financial instruments - (93)
Currency translation differences arising from consolidation
253 107
Currency movement on net investment 208 428
Deferred tax charge on net investment currency movement* 298 107
Forex reclassified to inventory (62) (65)
Total comprehensive income for the period 6,524 17,308
Basic Earnings per share* 7 4.6p 12.0p
Diluted Earnings per share* 7 4.6p 12.0p
*Restated 26 weeks ended 26 December 2021 - see note 6 for more information.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 25 December 2022
Restated*
Unaudited Unaudited Audited
As at As at As at
25 December 2022 26 December 2021 26 June
Notes £'000 £'000 2022
£'000
ASSETS
Non-current assets
Intangible assets 1,921 5,161 1,818
Property, plant and equipment 8 72,412 65,005 68,579
Right of use asset 8 47,792 27,565 51,560
Deferred tax asset - - -
Investment in joint ventures* - 4,140 -
Loan to joint venture* - 5,225 -
122,125 107,096 121,957
Current assets
Derivative financial assets 169 - 668
Inventories 34,486 41,637 43,062
Trade and other receivables 9 24,756 25,628 17,541
Corporation tax receivable* 3,264 753 3,624
Cash and cash equivalents 28,164 53,788 17,569
90,839 121,806 82,104
Total assets 212,964 228,902 204,061
LIABILITIES
Current liabilities
Trade and other payables 10 49,239 64,373 39,441
Corporation tax payable - - -
Other financial liabilities* - 668 6,660
Derivative financial liabilities - 293 48
Lease liabilities 10,910 9,008 10,390
Provisions 686 - 907
60,835 74,342 57,446
Non-current liabilities
Other payables and accruals 10 - - -
Derivative financial liabilities - 99 38
Deferred tax liabilities* 2,863 1,332 1,130
Lease liabilities 40,435 27,568 44,145
Provisions 2,907 1,598 2.919
46,205 30,597 48,232
Total liabilities 107,040 104,939 105,678
NET ASSETS 105,924 123,963 98,383
EQUITY
Share capital 137 137 137
Share premium 78,014 77,800 78,014
Retained earnings* 19,756 39,179 13,499
Translation reserve 652 861 399
Merger reserve 223 223 223
Capital redemption reserve 6 6 6
Other reserves* 7,136 5,757 6,105
Total equity attributable to shareholders 105,924 126,963 98,383
*Restated 26 weeks ended 26 December 2021 - see note 6 for more information.
CONSOLIDATED STATEMENT OF CASH FLOW
For the period ended 25 December 2022
Restated*
Unaudited Unaudited
26 weeks ended 26 weeks ended
Notes 25 December 2022 26 December 2021
£'000 £'000
Profit before tax for the period 8,285 20,386
Adjusted by:
Exceptional items* 3 900 3,602
Depreciation of property, plant and equipment 8 4,522 2,702
Depreciation of Right of use asset 8 5,218 4,273
Amortisation of intangible assets 208 681
Share of joint venture results* 261 520
Net interest expense* 1,599 116
Share-based payments 1,022 1,465
Loss on disposal of property, plant and equipment and intangible assets
- 14
Operating cash flows before movements in working capital 22,015 33,759
Decrease /(Increase) in inventories 8,232 (12,222)
Increase in trade and other receivables (7,173) (13,589)
Increase in trade and other payables and provisions 9,066 22,232
Cash inflow generated from operations 32,140 30,180
Interest received 64 3
Income tax received/(paid) - (534)
Interest paid on:
- interest paid - IFRS leases (950) (466)
- derivative financial instruments (85) (48)
- bank loans and overdraft (737) (218)
Cash flows from operating activities 30,432 28,917
Purchase of property, plant and equipment (7,980) (13,629)
Proceeds from disposal of property, plant and equipment 110 -
Loan to joint venture (500) (4,200)
Financial Guarantee Contracts (6,436) -
Purchase of intangible assets (311) (1,876)
Cash flows used in investing activities (15,117) (19,705)
Proceeds on issue of shares(1) - 40,250
Costs associated to issue of ordinary shares - (998)
Payment of IFRS16 lease liabilities (4,943) (4,738)
Cash flows used in financing activities (4,943) 34,514
Net change in cash and cash equivalents 10,372 43,726
Cash and cash equivalents at beginning of period 17,569 10,046
Foreign currency movements 223 16
Cash and cash equivalents at end of period 28,164 53,788
(1) Proceeds of equity raised in Jul-2021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 25 December 2022
Capital redemption reserve
Share capital Share Premium Retained earnings Translation reserve Merger reserve £000s Other reserves
£000s £000s £000s(1) £000s £000s £000s(*) Total
£000s
Restated Equity as 27 June 2021(*) 126 38,684 22,938 754 223 6 3,102 65,833
Profit for the period - - 16,241 - - - - 16,241
Gain on cash flow hedges - - - - - - 583 583
Deferred tax charge on derivative financial instruments - - - - - - (93) (93)
Currency translation differences arising from consolidation
- - - 107 - - - 107
Currency movement on net investment - - - - - - 428 428
Deferred tax on net investment currency movement - - - - - - 107 107
Cash flow hedge transferred to inventory - - - - - - (65) (65)
Total comprehensive income for the period - - 16,241 107 - - 960 17,308
Issue of share capital 11 39,116 - - - - - 39,127
Share-based payments - - - - - - 1,465 1,465
Deferred tax charge on share-based payments
- - - - - - 230 230
Current tax of share-based payments
- - - - - - - -
Restated Equity as at 26 December 2021(1) 137 77,800 39,179 861 223 6 5,757 123,963
Loss for the period - - (25,680) - - - - (25,680)
Gain on cash flow hedges - - - - - - 868 868
Deferred tax charge on derivative financial instruments - - - - - - (292) (292)
Currency translation differences arising from consolidation
- - - (462) - - - (462)
Currency movement on net investment - - - - - - 869 869
Deferred tax on net investment currency movement - - - - - - (431) (431)
Cash flow hedge transferred to inventory - - - - - - 161 161
Total comprehensive income for the period - - (25,680) (462) - - 1,175 (24,967)
Issue of share capital - 214 - - - - - 214
Share-based payments - - - - - - (836) (836)
Deferred tax charge on share-based payments
- - - - - - 9 9
Current tax of share-based payments
- - - - - - - -
Equity as at 26 June 2022 137 78,014 13,499 399 223 6 6,105 98,383
*Restated 52 weeks ended 27 June 2021 - see Hotel Chocolat Group Annual
Report, Note 13, for more information.
(1) Restated 26 weeks ended 26 December 2021 - see note 6 for more
information.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)
For the period ended 26 December 2021
Share capital Capital redemption reserve
£000s Share Premium Retained earnings Translation reserve Merger reserve £000s Other reserves
£000s £000s £000s £000s £000s Total
£000s
Equity as at 26 June 2022 137 78,014 13,499 399 223 6 6,105 98,383
Profit for the period - - 6,257 - - - - 6,167
Gain on cash flow hedges - - - - - - (430) (430)
Deferred tax charge on derivative financial instruments - - - - - - - -
Currency translation differences arising from consolidation - - - 253 - - - 253
Currency movement on net investment - - - - - - 208 208
Deferred tax on net investment currency movement - - - - - - 298 298
Cash flow hedge transferred to inventory - - - - - - (62) (62)
Total comprehensive income for the period - - 6,257 253 - - 14 6,434
Issue of share capital - - - - - - - -
Share-based payments - - - - - - 1,022 1,022
Deferred tax charge on share-based payments - - - - - - (5) (274)
Current tax of share-based payments - - - - - - - -
Equity as at 25 December 2022 137 78,014 19,756 652 223 6 7,136 105,924
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 UK
international accounting standards.
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 26 June 2022.
The Group's Annual Report and Accounts for the period ended 2 July 2023 are
expected to be prepared under UK IFRS.
The comparative financial information for the period ended 26 June 2022 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 26 June 2022 have been delivered to
the Registrar of Companies.
The auditors' report on the accounts for 26 June 2022 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
At the year ended 26 June 2022 the Directors undertook a rigorous review of
financial forecasts and available resources in order to consider the Group's
ability to trade as a going concern.
The assessment included a review of a number of scenarios, reflecting full
year sales growth / (decline) of +5%, (-9%), (-15%), (-20%) and (-30%). Group
sales to December 2022 have declined by (-9%), however, the cash position is
ahead of the Going Concern scenario following Managements focus on reducing
inventory and overhead expenditure.
Since 26 June 2022 the Group has consistently performed ahead of a base case
scenario of (-9%). To assess the Group's position as at 25 December 2022 the
Directors have reviewed an updated base case reflecting current performance.
The Directors have also considered the probability of sales scenarios and
concluded that extreme sales scenarios are of remote probability. As a result,
the Directors have concluded that the use of the going concern basis of
accounting is appropriate.
The interim financial results have been prepared by applying the accounting
policies that were applied in the preparation of the 2021 Annual Report and
Accounts which are published on the Hotel Chocolat website,
www.hotelchocolat.com (http://www.hotelchocolat.com) . There are no new or
amended standards effective in the period which has had a material impact on
the interim consolidated financial information.
3. Exceptional Items
Restated*
Unaudited Unaudited
26 weeks ended 26 weeks ended
25 December 2022 26 December 2021
£000 £000
Restructuring costs 526 -
Impairment related to joint venture investment* 374 3,602
900 3,602
Restructuring costs:
There is an expense of £526k during the period ended 25 December 2022 (26
December 2021: £nil) related to staff redundancy costs.
3. Exceptional Items (continued)
Impairment related to joint venture investment:
There is an impairment charge of £591k during the period ended 25 December
2022 (26 December 2021: £3,818k)* related to the assessment of probability of
recovery of loans made to the Japan joint venture for FY23. For period ended
26 December 2021, a credit of £216k was recorded in relation to Financial
Guarantee Contracts transaction fees received.
The Financial Guarantees Contracts denominated in Japanese Yen totalling JPY
1,038m were provided for as at 26 June 2022 and translated to £6,660k. The
contracts were settled 2 September 2022 for £6,436k resulting in an FX gain
of £224k.
There is an additional interest expense of £7k (26 December 2021: £nil) due
to recognising the effective interest due on the remainder of the loan to
period end.
*Restated 26 weeks ended 26 December 2021 - see note 6 for more information.
4. Profit from operations
Profit from operations is arrived at after charging/(crediting):
Unaudited Unaudited
26 weeks ended 26 weeks ended
25 December 2022 26 December 2021
£000 £000
Staff cost 24,782 25,092
Depreciation of property, plant and equipment 4,522 2,702
Amortisation of intangible assets 208 681
Depreciation of Right of Use asset 5,218 4,273
Loss on disposal of property, plant and equipment and intangible assets - 14
Exchange differences 331 (131)
Government grants received - (41)
Bad debt expense 31 43
Write off of inventory recognised as an expense (839) 1,357
5. Finance income and expenses
Restated*
Unaudited Unaudited
26 weeks ended 26 weeks ended
25 December 2022 26 December 2021
£000 £000
Interest from related party* 57 613
Interest on bank deposits 64 3
Unrealised interest on derivative financial instruments 17 42
Finance income 138 658
Interest on bank borrowings 702 218
Realised interest on derivative financial liabilities 85 90
IFRS 16 Interest charge 950 466
Finance expenses 1,737 774
*Restated 26 weeks ended 26 December 2021 - see note 6 for more information.
6. Prior year restatement
Following a helpful and constructive review of the FY21 Annual Report and
Accounts conducted by the Financial Reporting Council's Corporate Reporting
Review team, the Directors have revisited a number of items in the FY21 Annual
Report and Accounts in relation to IAS21 ("The Effects of Changes in Foreign
Exchange Rates") and IFRS9 ("Financial Instruments"), resulting in
restatements of the comparative amounts in the FY21 balance sheet and
statement of comprehensive income and position at 28 June 202. These
adjustments have been reflected in the 26 December 2021 comparatives and
therefore several figures are restated. The below table sets out these
adjustments. For further information, please refer to Note 13 on page 110 in
the Hotel Chocolat Group Annual Report for 26 June 2022.
Consolidated Statement of Financial Position
As at 26 December 2021 (as previously reported) Adjustments to 26 December 2021
£000 Adjustments to 27 June 2021 £000 As at 26 December 2021 (restated)
£000
£000
Investment in joint ventures - 2,409 1,731 4,140
Loan to joint venture 19,482 (8,884) (5,373) 5,225
Corporation tax receivable - 114 639 753
Other assets 218,784 - - 218,784
Total assets 238,266 (6,361) (3,003) 228,902
Corporation tax payable 965 (965) - -
Deferred tax liabilities 1,622 (183) (107) 1,332
Other financial liabilities - 642 26 668
Other liabilities 102,939 - - 102,939
Total labilities 105,526 (506) (81) 104,939
Net assets 132,740 (2,922) 123,963
(5,855)
Retained earnings 48,426 (6,038) (3,029) 39,179
Other equity 84,494 183 107 84,784
Total equity 132,740 (5,855) (2,922) 123,963
6. Prior year restatement (continued)
Consolidated Statement of Comprehensive Income Total adjustments
£000
As at 26 December 2021 (as previously reported) As at 26 December 2021 (restated)
£000
£000
Gross Profit 85,535 - 85,535
Operating expenses (60,911) - (60,911)
Exceptional items - (3,602) (3,602)
Profit from operations 24,624 (3,602) 21,022
Finance income 205 453 658
Finance expenses (774) - (774)
Share of joint venture results - (520) (520)
Profit before tax 24,055 (3,669) 20,386
Tax expense (4,784) 639 (4,145)
Profit for the period 19,271 (3,030) 16,241
Other comprehensive income 1,025 - 1,025
Deferred tax charge on net investment currency movement
- 107 107
Forex reclassified to inventory - (65) (65)
Total comprehensive income 20,296 (2,988) 17,308
7. Earnings per share
Profit for the period used in the calculation of the basic and diluted
earnings per share:
Restated*
Unaudited Unaudited
26 weeks ended 26 weeks ended
25 December 2022 26 December 2021
£000 £000
Profit after tax for the period* 6,257 16,241
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 Unaudited
26 weeks ended 26 weeks ended
25 December 2022 26 December 2021
Weighted average number of share in issue for the period - basic 136,313,568 135,327,170
Effect of dilutive potential share:
Save as You Earn Plan(1) - 67,886
Long-term incentive plan 8,877 417,858
Founder Shares 27,180 -
Weighted average number of shares in issue used in the calculation of earnings 136,349,625 135,812,914
per share (number) - Diluted
Basic Earnings per share (pence)* 4.6 12.0
Diluted Earnings per share (pence)* 4.6 12.0
As at 25 December 2022, the total number of potentially dilutive shares
issued, and not yet vested, under the Hotel Chocolat Group plc Long-Term
Incentive Plan was 3,255,989 (26 December 2021: 3,254,989). Due to the nature
of the options granted under this scheme, they are considered contingently
issuable shares and therefore have no dilutive effect.
(1) The dilutive effect of Save as You Earn Plan is calculated as Nil due to
the average share price for the 26 weeks ended 25 December 2022 being lower
than the exercise price for all open schemes.
*Restated 26 weeks ended 26 December 2021 - see note 6 for more information.
8. Property, plant and equipment
Furniture & fittings, Equipment, Computer software & hardware
£000
Freehold property Leasehold property Plant & machinery Right of use asset
£000 £000 £000 £000 Total
£000
26 weeks ended 27 December 2020
Cost:
As at 27 June 2021 19,947 1,884 41,281 38,834 53,871 155,817
Additions 2,816 - 2,965 7,848 1,476 15,105
Disposals (3) - - - (314) (317)
Translation differences 548 90 424 1 5 1,068
As at 26 December 2021 23,308 1,974 44,670 46,683 55,038 171,673
As at 27 June 2021 3,426 842 29,858 14,324 23,514 71,964
Depreciation charge 109 96 1,832 665 4,273 6,975
Disposal - - - (314) (314)
Translation differences 70 - 91 317 - 478
As at 26 December 2021 3,605 938 31,781 15,306 27,473 79,103
Net book value
As at 26 December 2021 19,703 1,036 12,889 31,377 27,565 92,570
26 weeks ended 26 December 2021
Cost:
As at 26 June 2022 24,247 1,977 43,557 55,634 82,381 207,796
Additions 674 - 5,078 2,227 876 8,855
Disposals - (93) (400) - - (493)
Translation differences 276 - 70 - 8 354
As at 25 December 2022 25,197 1,884 48,307 57,861 83,265 216,512
Accumulated depreciation:
As at 26 June 2022 5,248 1,034 31,540 19,010 30,821 87,653
Depreciation charge 154 96 2,354 1,918 5,218 9,740
Reclassification - - (291) - 291 -
Disposal - (93) (290) - (857) (1,240)
Translation differences 66 - 89 - - 155
As at 25 December 2022 5,468 1,037 33,402 20,928 35,473 96,308
Net book value
As at 25 December 2022 19,729 847 14,903 36,933 47,792 120,204
As at 25 December 2022, the net book value of freehold property includes land
of £4,546k (26 December 2021: £4,564k), which is not depreciated.
9. Trade and other receivables
Unaudited Restated*
Unaudited 26 weeks ended
26 weeks ended 26 December 2021
25 December 2022 £000
£000
Current
Trade receivables 9,457 13,186
Other receivables 7,643 8,822
Prepayments and accrued income 7,656 3,620
24,756 25,628
10. Trade and other payables
Unaudited Unaudited
26 weeks ended 26 weeks ended
25 December 2022 26 December 2021
£000 £000
Current
Trade payables 21,171 20,545
Other payables 1,475 2,454
Other taxes payable 12,666 14,473
Accruals and deferred income 13,927 26,901
49,239 64,373
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