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RNS Number : 1909I Hotel Chocolat Group PLC 01 December 2022
1 December 2022
Hotel Chocolat Group plc
("Hotel Chocolat", the "Company" or the "Group")
Preliminary Results
Hotel Chocolat Group plc, a premium British chocolate maker, today announces
its preliminary results for the 52 weeks ended 26 June 2022 ("FY22").
FY22 FINANCIAL HIGHLIGHTS:
● Revenue increase of 37% to £226.1m (FY21: £164.6m)
○ UK revenue growth of 35% yoy
○ UK store sales +23% higher than pre-pandemic (FY19)
● Underlying EBITDA(1) of £40.8m (FY21: £28.6m)(1)
Underlying EBITDA(1) margin of 18.0% (FY21: 17.4%)(1)
● Underlying Profit before tax and exceptional costs(2) of £21.7m (FY21:
£9.6m), in line with market expectations
● Statutory loss after tax of (£9.4m) (FY21: profit of £3.7m)(3)
● Statutory loss includes exceptional one-off costs and adjusting items of
£30.4m(2)
● The Group has substantial headroom within its RCF facility, with £32m
unutilised and £9m cash on hand
Restated(3)
52 weeks ended 52 weeks ended
26 June 2022 27 June 2021
£m £m
Revenue 226.1 164.6
Underlying EBITDA(1) 40.8 28.6
Underlying Profit before tax(1) 21.7 9.6
Exceptional costs and adjusting items(2) 30.4 4.1
Statutory (Loss)/Profit after tax(3) (9.4) 3.7
Basic Earnings per share(3) (6.9p) 2.9p
(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
(3) Restated 52 weeks ended 27 June 2021 - see financial review
FY22 OPERATIONAL HIGHLIGHTS:
Fast Growth and improved operational cash generation
UK sales increased 35% yoy, and +68% vs pre-pandemic (FY19)
● UK retail stores in growth yoy and +23% vs pre-pandemic (FY19)
● Active customer database increased by +15% to 2m, with frequency increased by
14%
● Subscriptions in growth
● Velvetiser in-home hot chocolate system now established as a long-term
category with higher lifetime value
Previously announced strategy adjustments on International
International sales grew 126% but margins remained below internal
expectations, leading to adjustment to our international strategy and a
prudent approach to capital allocation
● Provisions made for exit from current Direct-to Consumer activity in USA
● Full impairment in connection with Japan joint venture, which entered civil
rehabilitation protection in July 2022 and continues to trade. Discussions
ongoing with potential new partnership based on a brand licensing model.
● Intent to develop capex-light, risk contained global wholesale model
Strong operational cashflows before movements in working capital of £39.5m
(FY21 £28.6m)
● Inventories increased by £20m yoy in support of faster growth and in
mitigation of post-pandemic supply chain risk, predominantly Velvetiser
machines.
● Stock cover for FY22 of 5.5 months (FY19 3.5 months) driven by higher
Velvetiser inventories. Target to now materially reduce inventory levels
● Group remains well capitalised with £41m of headroom comprising £9m cash on
hand and £32m of unutilised facilities within £50m RCF facility, immediately
prior to the peak cash-generating trading period
Clear plan, focused on brand and profitability
Defined the future shape of the business model
● Simplified activities, rationalised ranges, and increased focus on full price
sales mix (quality over quantity)
● Innovation pipeline to both reduce unit cost of goods and improve quality
● Self-help margin opportunities to mitigate inflationary pressure and brand
investments in sustainability
● Developing alternative capex-light approaches internationally, including
potential for licensing arrangements and wholesale distribution
● Transitional costs of strategic adjustment during FY23 in order to target
higher margins in future years, including the costs of new second distribution
centre
● Target set of 20% EBITDA margin in FY25 (pre IFRS16 basis)
Investing to strengthen the brand
● The first cacao harvest was completed as part of the Hotel Chocolat Gentle
Farming programme, a major investment in a new approach to cacao farming with
the goal of enabling every farmer that supplies Hotel Chocolat to earn a
'living income' by further increasing the price paid for cacao to better
reflect local costs of living. In return, farmers must commit to sustainable
farming practices, zero deforestation and zero illegal child labour.
● Achieved an outstanding all-employee Engagement score in the 2022 Best
Companies survey, ranking Hotel Chocolat as a "Top ten large company to work
for".
Dividend
● As previously announced, 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.
Current Trading and Outlook:
● The Group is approximately one third of the way through its trading year, with
retail trading in line with last year and online and wholesale sales softer
yoy.
● The Group is adopting a deliberately prudent approach to the outlook on
trading, manufacturing controlled levels of seasonal inventory with a strong
focus on self-help actions to mitigate inflationary pressures.
● A focus on "quality over quantity" will target reduced levels of discounting
and higher mix of full-price sales, with reduced spend on lower margin online
acquisition marketing.
● With the five largest annual gifting seasons yet to come, the continued shift
we're seeing in channel mix towards retail stores offers the opportunity to
mitigate the year-to date shortfall, meaning there are a range of potential
outcomes for full year expectations*. A further update will be made in
January.
*Market consensus prior to this announcement, as at 30 November 2022, is for
revenue of £236m and underlying profit before tax of £9.6m.
Board Succession planning
● After seven years, Andrew Gerrie, has confirmed his intention to step down as
Chairman in 2023 in order to focus on growing commitments to his other
business ventures.
● Matt Pritchard will also be leaving the business in 2023 to pursue new
opportunities following nine years as CFO.
Both Andrew and Matt have indicated their willingness to stand for re-election
at the AGM and will continue to be actively involved in the business in order
to support an orderly succession and a smooth transition to their successors.
Announcement details of the successors will made in due course.
Commenting on the results, Angus Thirlwell, Co-founder and Chief Executive
Officer of Hotel Chocolat, said:
"Much of what we are publishing today in terms of the business strategy has
already been announced to the market in July.
"Since then, the performance of our retail stores continues to beat 2019
pre-covid levels and subscriptions are in growth too. We have reduced online
marketing spend resulting in lower volume, but higher quality full-price
sales. Our wholesale partners are also showing caution too.
"The Hotel Chocolat brand has huge resonance with shoppers and despite the
macro-economic environment, people are still treating themselves with
affordable luxury and remaining loyal and we are winning new customers who
recognise our quality. Indeed over half of our Christmas gift range is priced
between £2.50 and £8.50.
"It goes without saying that the current environment is challenging on
multiple fronts. Over the last few months we have taken decisive steps to
reduce risk and to fully pull all our self-help Ievers in both our
manufacturing and retailing businesses. One thing is for sure, we will never
compromise on the brand standards and values which have built our following to
this point.
"We remain fiercely ambitious for the Hotel Chocolat brand for growth in both
UK and international markets. Our new stores showcasing the format of the
future opened in Norwich and Northampton and are trading very strongly.
Internationally we intend to utilise more risk-contained techniques to
capitalise on the proven brand appeal in major international markets. We will
update on developments in due course.
"As we head into our busiest part of the year, I am confident that the
strategic direction we have put in place will improve the prospects of the
business for significant years to come. Our decisions to focus on full price
sales and quality over quantity, coupled with a resurgence of physical store
performance means that we anticipate December will be busier than ever.
"I'd like to personally thank Andrew Gerrie and Matt Pritchard for their
contributions to Hotel Chocolat over many years, both having supported the
Group through the IPO and throughout the outstanding growth of the business
and development of the brand.
"I would like to thank all the Hotel Chocolat team and our partners for their
hard work during the year. I am incredibly proud of how Hotel Chocolat has
adapted to the disruption caused by COVID-19 and the later challenges. The
biggest and final thanks goes to our wonderful customers for their continued
loyalty. "
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 Matt Pritchard, Chief Financial Officer.
For further information:
Hotel Chocolat Group plc c/o Citigate Dewe Rogerson + 44 (0) 20 7638 9571
Angus Thirlwell, Co-founder and Chief Executive Officer
Matt Pritchard, Chief Financial Officer
Liberum Capital Limited - Nominated Advisor and Broker
+ 44 (0) 20 3100 2222
Clayton Bush
Edward Thomas
Miquela Bezuidenhoudt
Citigate Dewe Rogerson - Financial PR
+ 44 (0) 20 7638 9571
Angharad Couch
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, UK) and
owning its extensive direct to consumer channels (branded stores, websites).
The Group was admitted to trading on AIM in 2016.
CHAIRMAN'S STATEMENT
OVERVIEW
In FY22, for the second consecutive year, we grew strongly in the UK across
channels and categories, acquiring new customers and reacting to a changing
external landscape. The easing of pandemic restrictions saw physical retail
sales and profitability rebound, bolstered by new categories and an increase
in the active customer database. This was supported by online and partnerships
which continue to play a major role in delivering the brand to consumers at
their convenience. The breadth of activity and the pace of growth was the
fastest in the Group's history, and on behalf of the Board I would like to
thank the whole HC team for working so hard to achieve this. The fast pace of
growth included many successful elements and some initiatives that didn't
deliver the returns we had targeted. We have therefore made the tough but
compelling decision to focus our efforts on those growth drivers that can
deliver highest returns relative to risks, over the short to medium term. We
have excellent products, a skilled and committed team and a well invested
vertically integrated platform which combine to make Hotel Chocolat a strong
brand with
great prospects.
STRATEGY
Hotel Chocolat is first and foremost a strong brand in the eyes of our loyal
customers. The strong customer relationship though our multiple channels is
driven by our values of authenticity, originality and ethics. What is perhaps
often overlooked is the degree to which the brand strength is underpinned by
our manufacturing skills. We have a well-invested and high-quality production
facility in the UK which designs and makes our amazing range of products. A
greater focus on leveraging these strengths can unlock scale economies, reduce
unit costs and further improve the customer experience and product quality.
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 risk
light approaches.
FY22 FINANCIAL OVERVIEW
FY22 Group revenue of £226m (FY21: £165m) was driven by a combination of
stronger UK retail sales, and robust growth in customer numbers supported by
investment in new categories and increased acquisition marketing. Underlying
profit before tax increased 126% to £21.7m.
Our statutory reported loss in FY22 contains a number of material items
arising from our strategic decision to prioritise only the best prospects for
financial returns. This includes the decision to exit from a number of smaller
product categories, and from direct-to-consumer operations in the USA, along
with impairment of our loans to the Japan Joint Venture. The statutory loss
for the period of £9.4m reflects multiple non-recurring costs relating to the
cessation of these activities. The underlying profit before tax of £21.7m
represents a pleasing result, evidencing the ongoing success of the core
business. A full reconciliation between the statutory reported profit and the
alternate or underlying performance measure is included in the Financial
Review.
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 the light of internal growth opportunities and the external environment and
intends to recommence progressive dividend payments when appropriate to do so.
BOARD OF DIRECTORS CHANGES
The Group continues to benefit from a strong founder-led management team. As
we look towards the next phase of evolution for Hotel Chocolat, I have agreed
with the Board that it is the right time to seek a new Board Chair due to my
growing business commitments with new ventures.
I will be offering myself for re-election at the coming 2022 AGM in order to
provide continuity during the succession process. I would like to thank
everyone at HC for a rewarding seven years, and all our stakeholders for their
loyalty and commitment. Hotel Chocolat is a great business and it has been a
privilege to play a small role in the story so far.
Matt Pritchard, CFO will also be leaving in 2023 after almost nine years at
Hotel Chocolat. On behalf of the Board and the whole HC team I would like to
thank Matt for his energetic support and commitment through the Group's
significant evolution and growth. Matt continues to be actively involved in
all parts of the business and will be offering himself for re-election at the
AGM in order to support the succession plan and a smooth transition.
OUTLOOK
The Hotel Chocolat Brand is in good health as evidenced by growing sales and
progress on sustainability initiatives. Whilst there continues to be external
macro-economic challenges including inflationary pressures, the Hotel Chocolat
team have continually proven the ability to adapt to changing circumstances
whether arising from pandemic, economic factors or from the acceleration in
growth across multiple fronts. I therefore remain confident in the ability of
the brand and the team to deliver attractive returns.
Our focused strategy has led to the cessation of some activities resulting in
transitional costs in FY23 with the goal of higher profit margin thereafter.
The Board have made clear strategic choices to maximise the prospects for the
Group, and the business entered FY23 in a strong position. At the date of
publication we have two thirds of the year still to trade, including the five
largest gift events, and the Board is taking a prudent approach to manage
current trading.
ANDREW GERRIE
Non-executive Chairman
CHIEF EXECUTIVE'S STATEMENT
The business achieved another acceleration in sales growth in FY22. Sales of
£226m were 37% higher than FY21, and 71% higher than FY19, the last full year
before the Covid pandemic disruption. Our compound annual growth rate ("CAGR")
over the last two years of 29% compares to a CAGR of 12% in the four years up
to FY19 inclusive.
The higher growth rate is testament to a strong brand powering forward on many
fronts, driven by the efforts of the whole team. We have also learned that
faster growth brings new pressures, challenges and opportunities and have
therefore moved swiftly to ensure we have the best prospects for future
success with a clear and simple adapted strategy.
In 2019 we added six new growth levers to our existing strategy:
● The Velvetiser Hot Chocolate system
● VIP loyalty
● Digital growth focus
● Global wholesale
● USA D2C
● Japan joint venture
In half two of 2022, we re-rated the growth drivers:
● VIP loyalty and digital growth focus became part of business as usual, having
succeeded in their goals
● The Velvetiser Hot Chocolate System and Global Wholesale were prioritised for
more focus
● USA D2C and Japan D2C were de-prioritised whilst the Group explored
alternative, lower risk, ways to capitalise on the brand appeal in these major
markets.
In 2020 the business adapted effectively to the Covid pandemic threat and by
2021 we saw Group sales accelerate rapidly due to the performance of our six
growth drivers alongside the re-opening of the economy following the end of
lockdowns. In July 2021 we raised £40m from a new equity placing to fund
capex and working capital investments to support sales growth whilst profit
generation remained Covid-impaired. These funds were deployed and as a result
sales growth accelerated further in FY22.
BRAND HEALTH
Our planned investments in the brand delivered measurable improvements for
customers, colleagues and farmers.
Our Brand tracker uses market research to assess UK consumer awareness of
Hotel Chocolat and the degree of consideration as a business with ethics at
its heart. This research shows that we have significant customer growth
opportunity, particularly with slightly younger age groups including families
with children at home, and especially those who have a personal interest in
ethics and sustainability.
In 2021 we launched our Gentle Farming Programme, investing approximately 100
basis points of margin to pay increased prices to farmers in exchange for
undertaking a farming approach that encourages a focus on cacao tree pruning
to improve plant health and increase yields, and the planting of share trees
to encourage biodiversity and help mitigate the impact of climate change. I
visited Ghana with the team to meet with farmers and community leaders, the
initiative was well received. We will receive our first assurance data shortly
which will inform our next phase.
We continued to adhere to our More Cacao Less Sugar approach, with our range
meeting Public Health England's targets for sugar, launched Founder Shares in
the period, giving every UK employee options for free shares in Hotel Chocolat
to encourage teamwork and provide colleagues the opportunity to share in
future success.
We were delighted to achieve an 'outstanding' score in our all-employee
engagement survey.
FINANCIAL OVERVIEW
Sales
Sales grew by 37% to £226m (FY21: £165m). Sales in the UK increased by 35%
and the growth of international grew by 126%.
The performance of our UK channels, and of both our new and existing
categories, indicates that the total addressable market for the Hotel Chocolat
brand in the UK is greater than we had previously estimated. This is also
supported by market research that shows significant potential to appeal to
more UK households.
Profit
We reported a statutory loss before tax for the period of (£8.7m), which is
clearly disappointing. The loss is reflective of the significant impacts of
discontinuing activities in the year that had lower prospects for future
returns, relative to the ongoing, proven new successes. Whilst temporarily
painful to make these decisions, making choices like this has always been part
of Hotel Chocolat's entrepreneurial history.
An analysis of the components of the reported loss and the reconciliation to
the alternative performance metric of underlying profit before tax of £21.7m
(FY21: £9.6m restated) is provided in the Financial Review.
Faster growth brought with it significant internal growing pains. Our
pre-pandemic sales CAGR of 12% shaped a business that doubled revenues every
seven years, whereas the latest three-year CAGR of 29% doubles the business
size in less than three years. This means decisions on future investments in
people, technology, inventory levels and plant and equipment capex need to be
made at a much faster pace, with many of these costs needing to be committed
in advance of the future sales generation, bringing greater inherent risk. The
adjustments to correct for elements of this are very much self-help, being
directly controllable by us. Aligning our operating costs and structures to
the new shape of the business is the key to the level of future margins and
return on capital that I expect from Hotel Chocolat. We have set an internal
objective of 20% EBITDA margin by FY25 (pre IFRS 16). It is clear that some of
the growing pains were, in retrospect, avoidable and we are enhancing
governance and adopting a more risk-contained strategy that prioritises brand
health and profitability over higher rates of revenue growth.
An additional factor during H2 of FY22 was the fast deterioration in global
consumer outlook, coming so soon after an ebullient H1 sales and profit
performance. Although I believe we have reacted speedily, there will be an
overhang of some costs into FY23 before we have fully adjusted.
OPERATIONAL REVIEW
Our UK manufacturing operations are a key competitive strength and
differentiator. Our ability to manufacture a wide range of unique products is
a key source of competitive value. Our skilled team, bespoke factory
capabilities and in-house IP all combine to create long term brand strength.
In addition, we see significant opportunities to reduce unit costs of
production given the recent scaling and future range optimisation.
Throughout the business we intend to increase the focus on the role of
manufacturing within our value creation plan. This, we believe, will unlock
more of the benefits of our vertical integration and improve margins.
In March we signed a ten-year lease on a 430,000sq ft second DC near
Northampton. For peak FY22 we operated with 200,000 sq ft in our own DC with
significant inventory held off-site in third-party storage. Bringing all
inventory into our own locations supports smoother operation and improved
service. In the initial years of the new lease the dual-running costs on our
revised sales CAGR projection will temporarily represent a cost headwind of
300bps, with the expectation that this will dilute by FY25.
UK SALES CHANNEL REVIEW
Our multichannel sales model achieved UK sales growth of 35% year-on-year. The
mix of sales shifted back towards retail stores and encouragingly we are now
seeing higher sales densities in our stores than before the pandemic, with
lower property costs. In the period we upsized 4 locations, moving into larger
nearby sites, adding more elements to our offer in these towns, which we
forecast will drive improved profit per catchment. We anticipate that in
future more space growth will come from upsizes than from openings in new
catchments.
Digital and partners continue to complement our retail estate by offering
convenient delivery. The combination of all three channels, underpinned by our
VIP loyalty programme drives brand awareness and loyalty. Active customers
increased by 15% to over 2 million, with frequency also rising by 14%.
INTERNATIONAL REVIEW
The Group intends to utilise risk-contained techniques to capitalise on the
brand appeal in major international markets. These will include:
● brand licensing arrangements (with partners deploying their capital)
● selective wholesale (into established distribution channels)
USA
Having previously pivoted our D2C model from a retail rollout strategy to an
online-led approach in response to the pandemic and market learnings, we saw
some encouraging sales performance in the period with sales growing by 145% in
the first half of the year. However, we remained dissatisfied with the margins
we were achieving due to the complexity of the supply chain and the
forecasting inaccuracies for a new business, and with the ongoing heavy
demands on senior team bandwidth. We therefore decided near-term, to
prioritise development of wholesale routes to market, led by, but not
exclusive to, the Velvetised Cream alcohol category, which benefits from long
shelf-life and a long-established wholesale distribution infrastructure to
connect into with contained risk. In the medium term we see opportunities to
progressively build the Hotel Chocolat brand behind this spearhead, utilising
the valuable customer, product category, channel and operating model insights
we have acquired so far. Provisions and costs relating to the exit from
direct-to-consumer channels of £3.5m (further detail can be found in the
Financial Review).
The response to the brand, the new and unique products for the American market
have been terrific. Our message to our American customers and brand fans is
please be patient as we take a few steps back in order to be able to take more
steps forward in the medium term.
Japan Joint Venture
We were first approached by a prospective joint venture partner in 2017 and
the Japanese JV began trading in 2018. The first two store openings performed
encouragingly in FY19. The Group manufactured the majority of products for the
JV, and also provided loans for working capital purposes.
By FY20 the partner had opened eight locations and signed leases for further
openings with key mall landlords. The Covid pandemic severely disrupted sales
during the critical spring 2020 peak for chocolate gifting resulting in lower
than forecast sales per store and considerably lower margins. In 2021 the
continuation of movement-restrictions had a greater impact than in the UK
where the online channel was more developed. It was assumed that for 2022, as
happened in the UK, that Covid would not be a major impediment to sales,
however the Japanese government reinstated movement restriction guidance
again. This was the third year in succession of reduced sales and reduced
profitability, the latter steeply increasing as the estate size and consequent
scale of impact grew. When the JV partner presented their revised loan-funding
proposal for FY23 it was clear that the continued working capital needs would
exceed a level that would be appropriate for the Group over the next two to
three years, given the real possibility that peak 2023 could again be impacted
by movement restrictions. The Directors of the JV began civil restructuring
proceedings in July 2022 in order to seek alternative sources of growth
capital. At the time of publication this process is ongoing.
As a result of the JV insolvency process the Group has cumulatively fully
impaired its loans and equity investment of £23m and recognised guarantees of
£6.7m in relation to loans for shopfit capex borrowed by the JV from Japanese
banks, subsequently paid in September 2022.
As can be imagined we have asked ourselves many questions as to how we could
have done this differently. The size of the prize in Japan* certainly
sustained our risk appetite through the three increasingly difficult years of
Covid, alongside the loyal enthusiasm of our Japanese fans for all things
Hotel Chocolat. In the period the brand achieved recognition of 24% amongst
buyers of premium chocolate in Japan, a credible outcome alongside many
long-established European brands.
*Japan addressable market size for chocolate gifting estimated by management
to be greater than 2x UK for Hotel Chocolat.
Whilst recognising the above, it is clear that shortcomings in downside risk
evaluation, and the challenges of assessing the JV's management capability to
execute their plan during the two year period when visits to Japan were
prohibited did contribute to the outcome. These learnings will be taken
forwards into all other current and future HC growth activities.
GROUP OPERATING MODEL
Hotel Chocolat owes its unique brand and market position to a fast-paced
evolutionary history. This brings many positive attributes to the model which
will always be protected.
We have initiated a 'once in a decade' simplification plan to sharpen our
operating model, in furtherance of enhanced returns, our target being 20%+
EBITDA (pre IFRS 16) by FY25, by:
● providing for costs to exit underperforming activities,
● range rationalisation and focus on unit cost of goods reduction,
● increasing our focus on full price mix and tighter inventory levels,
● operating efficiency and scale economics.
OUTLOOK
Inflation is currently at elevated levels and we are taking a resolute
approach to cost reduction to mitigate this, by simplifying our business model
and leveraging the opportunities for greater efficiency within our vertically
integrated business model.
In previous periods of low consumer confidence, including FY08, Hotel Chocolat
grew and earned strong customer loyalty. Our management focus will be skewed
towards existing customer retention over new customer acquisition for FY23.
Hence our outlook is for a steadier sales profile with ongoing work at pace to
reshape the operating cost base.
One thing is for sure, we will never compromise on the brand standards and
values which have built our following to this point.
ANGUS THIRLWELL
Co-founder and Chief Executive Officer
FINANCIAL REVIEW
FY22 FY21
Underlying before exceptional and adjusting items Exceptional and adjusting items((1)) FY22 Reported Underlying before exceptional and adjusting items Exceptional items((2)) FY21 Restated((2))
£m £m £m £m £m £m
Revenue 226.1 226.1 164.6 164.6
Cost of sales (93.8) (5.5) (99.3) (62.9) (62.9)
Gross profit 132.3 126.8 101.7 101.7
Operating expenses (91.5) (24.9) (116.4) (73.1) (4.1) (77.2)
Underlying EBITDA 40.8 28.6
Share based payments (0.5) (0.5) (0.9) (0.9)
Depreciation & amortisation (16.1) (16.1) (15.8) (15.8)
Loss on disposal (0.5) (0.5) (0.1) (0.1)
Profit/(Loss) from operations 23.8 (30.4) (6.6) 11.8 (4.1) 7.7
Finance income 1.0 1.0 0.7 0.7
Finance expense (1.9) (1.9) (1.7) (1.7)
Share of joint venture loss (1.2) (1.2) (1.2) (1.2)
Profit/(Loss) before tax 21.7 (30.4) (8.7) 9.6 (4.1) 5.5
Tax expense/(credit) (0.7) (1.9)
Profit/(Loss) after tax (9.4) 3.7
EPS basic (6.9p) 2.9p
EPS diluted (6.9p) 2.9p
1 Alternative performance measurements (APMs). See page 16 for
purpose and definition of APMs.
2 Restated 27 June 2021, see note 9.
REVENUE
Revenue for the 52 weeks ended 26 June 2022 increased by 37% to £226m, driven
by the strength of the groups multi-channel approach. UK sales grew by +35%
year on year, driven by physical retail, which grew strongly following the
ending of pandemic-related restrictions, significantly more than offsetting a
-13% decline in online sales. The overall strength and flexibility of the UK
multichannel model is illustrated by UK growth of +64% compared to FY19, the
last full year before the pandemic:
Revenues £m FY22 FY21 FY19
UK channels 214.5m 159.4m 127.7m
International 11.6m 5.2m 4.7m
Whilst international sales grew by +126%, profitability was below
expectations, predominantly due to challenges with supply chains. As a result,
the Board decided to pause further investments in international
direct-to-consumer operations, both in directly controlled operations in the
USA, and in the form of any further loans to the Japan joint venture.
GROSS MARGIN
Reported gross margin of 56.1% declined by 570 basis points compared with
FY21. 243 basis points or £5.5m of the decline is a result of exceptional
provisions relating to inventory; both for underperforming categories in the
UK that will be exited during FY23, and provisions for all remaining
inventories held in the USA.
Excluding exceptional provisions, gross margin of 58.5% represents a decline
of 330 basis points, with two main causes:
● In response to rapid sales growth forecasts and supply-chain disruption, the
Group produced additional inventories which were then sold at reduced prices.
In future, the Group will focus on tighter forward inventory cover with the
objective of increasing the sales mix of 'full price' items.
● Increased mix of Velvetiser hot chocolate machines and alcohols manufactured
by third parties, which have lower gross margins than in-house production, but
also have lower operating expenses as a percent of sales.
OPERATING EXPENSES
Before exceptional costs and adjusting items, operating expenses of £91.5m
increased +25% year on year, a slower rate than sales growth of 37%, the
majority of the increase was due to increased central costs including
marketing and salaried staff in support of the initiatives to drive faster
sales growth.
Higher utility prices from April 2022 will remain at the fixed contract rates
until May 2023.
Within operating expenses, exceptional costs and adjusting items comprise:
● £23.3m of exceptional operating expenses which relate to the exit from less
profitable elements of the business plan, which are covered in more detail
below.
● A further £1.6m of adjusting items:
○ The costs of the new lease on a second DC from April 2022, which did not
become operational until FY23
○ The change of accounting policy for Software as a service (SAAS) which is now
charged as an operating expense rather than capitalised and amortised. This
changes the P&L timing of the expense but not the cashflows or absolute
cost over the life of the services.
UNDERLYING EBITDA
Underlying EBITDA of £40.8m or 18.1% of sales compares to £28.6m or 17.4% of
sales in FY21. Whilst this is a solid result, in future the Group intends to
focus on the most profitable elements of the existing business model, with the
objective of delivering improved EBITDA margins in subsequent years.
It is anticipated that FY23 will include costs of transition to the more
tightly focused strategy, resulting in temporarily lower EBITDA margins, with
the objective of improving margins for FY24 and beyond. Underlying EBITDA is a
not a statutory GAAP measure, but is included as an additional performance
measure (APM).
EXCEPTIONAL AND ADJUSTING ITEMS
The reported result for FY22 includes £28.8m of exceptional items and £1.6m
of adjusting items. The exceptional costs relate to the strategic choices to
focus on more profitable channels and categories, resulting in provisions,
impairments and one off costs of £5.5m within gross margin, and £23.3m
within operating expenses. Impairment reversals arise from a combination of
improved retail trading conditions and the release of impairments on closed
stores. The £1.6m of adjusting items relate to changes in accounting
treatment of software, and the expenses for the new DC which did not become
operational until the following period.
Further details on exceptional costs and adjusting items are provided in the
table below:
Exceptional Items
FY22 £m Japan((1)) US((2)) St Lucia((3)) UK/ Sub-total Adjusting Items((5)) Total
Group((4))
FY22 Impairment provisions 21.8 1.2 0.4 23.4 23.4
Reversal of prior impairment provisions (3.5) (1.7) (5.2) (5.2)
Material non-recurring costs 0.6 3.5 6.5 10.6 1.6 12.2
Total 22.4 - 1.2 5.2 28.8 1.6 30.4
1) Japan
£21.8m Provision for expected credit loss on loans, investments and financial
guarantee contracts in connection with Japan joint venture
£0.6m relating to onerous contracts
2) US
Reversal of prior impairments of store leases (3.5)
Provision for stock, onerous contracts, lost deposits and exit costs 3.5
3) St Lucia
£1.2m Impairment of net present value (NPV) of forecast
cashflows
4) UK/Group
FY22 Impairment of goodwill on Rabot 1745 Limited 0.4
Reversal of prior impairments of store leases made in FY20 (1.7)
Provision for inventories of discontinued categories 3.0
Organisational design and implementation of new operating model processes 1.0
Write-off of deposit paid to insolvent supplier of capital equipment 2.5
5) Adjusting Items (Operating expenses)
SAAS increase in operational expense and reduction in amortisation 0.6
In-year costs for new DC, not operational until FY23 1.0
JAPAN JOINT VENTURE
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. At the date of publication the process is
ongoing.
RESTATEMENT OF FY21 FINANCIAL STATEMENTS
Following a helpful and constructive review of the FY21 Annual Report and
Accounts conducted by the Financial Review Council's Corporate Reporting
Review team, the Directors have revisited a number of items in the FY21 Annual
Report and Accounts in relation to the application of IAS 21 and IFRS 9,
resulting in prior year restatements of the comparative amounts in the FY21
and FY20 income statement, balance sheet and statement of comprehensive income
as set our below. Further information on the scope and limitations of the
FRC's engagement can be found in Note 9.
1) Between FY19 and FY22 the Group undertook a series of investments in, and
loans to, the Japan Joint Venture and also undertook financial guarantee
contracts in respect of loans made by Japanese banks to the Joint Venture. In
July 2022 the Group announced the possibility of full impairment of the loans,
investments and guarantees, and subsequently full impairment has been
reflected in the FY22 Financial Statements. The value of loans, investments
and guarantees totalled £29.7m.
In accordance with IFRS 9, £4.5m of the total expected credit losses and
impairments should have been charged in FY20, £1.7m in FY21, with the
remaining balance of £21.8m recognised in FY22. The restatement does not give
rise to any change in Group cashflows, except for a change in the timing of
tax (relief/credits) as a result of losses being recognised in earlier
periods.
2) In prior periods foreign exchange gains and losses on long-term
intercompany loans were posted to the long-term loan reserve. This has now
been restated with the retranslation loss of £0.7m shown as Other
Comprehensive Income in FY21 in accordance with IAS 21. This adjustment has no
impact on cashflows or operating performance and an immaterial impact on
corporation tax payable.
The combined effect of the above restatements is as follows:
Group Financial Statement FY21 as previously reported FY21
Restated
FY21 opening balance sheet net assets £67.0m £63.0m
FY21 closing balance sheet net assets £71.7m £65.8m
Profit for the period £5.7m £3.7m
Total Comprehensive Income £3.3m £0.7m
EPS 4.5p 2.9p
Further details on the restatements are provided in Note 9. No dividends were
paid in the periods affected by restatement, no annual Executive performance
incentives were paid, nor were any LTIPs vested.
RENT EXPENSES
In accordance with IFRS 16, rent expense of £11m (FY21: £11.1m) are not
reported in operating expenses, being replaced by depreciation of £9.5m
(FY21: £9.3m) and interest of £1.2m (FY21: £1.1m).
FINANCE INCOME AND EXPENSE
Finance income of £1.0m is primarily accrued interest owed by the Japan JV,
which has been separately impaired within exceptional items.
Finance expense of £1.9m comprises £0.5m of bank RCF interest and £1.2m of
interest on leases under IFRS 16, and £0.2m of realised interest on
derivative financial instruments.
DEPRECIATION
Depreciation and amortisation of £16.1m compares to £15.8m in FY21. 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 4 relocations to larger sites in existing locations.
LOSS/(PROFIT) BEFORE TAX
Underlying profit before tax of £21.7m (FY21 £9.6m(1)) is before exceptional
costs and adjusting items totalling (£30.4m) which result in a reported
statutory loss before tax of £8.7m (FY21 £5.5m profit). A reconciliation of
underlying and reported profit is provided on page 17.
TAX
Tax for the period is a charge of £0.7m (FY21: £1.9m(1)) which has arisen
despite the statutory loss as the investment related to restated exceptional
items are disallowed for corporate taxes. The tax charge is made up of
£0.6m current tax credit offset by £1.3m deferred tax charge.
EPS AND DIVIDENDS
The reported loss results in a loss per share of (6.9p) which compares to a
restated FY21 EPS of 2.9p. See Note 9 for details of the restatement.
CASH
In the period the Group generated operating cashflows of £39.5m before
movements in working capital.
In July 2021 the Group raised £39.3m (net of costs) from a new equity placing
to support investments for growth. Capital expenditures in the period totalled
£25.7m, and £6.3m was loaned to the Japan JV, with the balance invested in
working capital.
At 26 June 2022 the Group had cash on hand of £17.6m with all of the £50m
RCF facility remaining undrawn.
As at 29 November 2022 the Group remains well capitalised with £41m of
headroom comprising £9m cash on hand and £32m of unutilised facilities
within its £50m RCF facility, immediately prior to the peak cash-generating
trading period.
(1) Restated 27 June 2021, see note 9.
INVENTORY
Closing inventory of £43.1m represents an increase of £11m year on year. The
majority of the increase is due to increased stock-holding of Velvetiser hot
chocolate machines. The Group intends to materially reduce inventory levels in
future periods, reducing forward cover 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 increased from £12.4m to £17.5m due to:
● £2.4m of rates prepayments following the full reinstatement of property
rates,
● £2.9m of prepayment relating to software as a service following the change in
accounting policy (previously treated as an intangible asset).
Current liabilities increased from £52.2m to £57.4m primarily as a result of
the recognition of £6.7m of liability in connection with Financial Guarantee
contracts with the Japan joint venture. These contracts were subsequently
settled in full.
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 using forecasts
drawn up to 31 December 2023, 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. The Financial
Review considers in more detail the groups trading performance and financial
position.
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
2024, with the opportunity to extend by a further year to June 2025. Subject
to three covenants: of achieving positive cash in January 2023, of net debt to
EBITDA (pre IFRS16) of less than 2.5x, and EBITDA to interest greater than 4x.
● The Group's current cash position as at 29 November 2022, giving £40.7m of
headroom within the facility as the business approaches the peak trading
period, with two thirds of annual revenues still to achieve and 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.
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.
In making their assessment the Directors have reviewed management forecasts
based on scenarios reflecting full-year sales growth/(decline) of +5%, (-9%),
(-15%), (-20%) and (-30%).
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 2023.
ALTERNATIVE PERFORMANCE MEASURES (APMS)
Management believes that Underlying EBITDA, Underlying Operating Profit and
Underlying 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 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
items.
Underlying Profit before tax Profit before tax Underlying Profit before tax is defined as profit/loss before tax excluding
exceptional and adjusting items.
RECONCILIATION OF ADDITIONAL PERFORMANCE AND STATUTORY MEASURES
Underlying EBITDA
52 weeks ended 52 weeks ended*
26 June 2022 27 June 2021
£000 £000
Profit/(Loss) from operations (6,596) 7,726
Less:
Exceptional items 28,779 4,075
Adjusting items 1,621 -
Share based payments 453 911
Depreciation & amortisation 16,059 15,796
Loss on disposal of non-current assets 516 112
Underlying EBITDA 40,832 28,620
Underlying operating profit
52 weeks ended 52 weeks ended*
26 June 2022 2
7
J
u
n
e
2
0
2
1
£000 £
0
0
0
Profit/(Loss) from operations (6,596) 7,726
Less:
Exceptional items 28,779 4,075
Adjusting items 1,621 -
Underlying operating profit 23,804 11,801
Underlying profit before tax
52 weeks ended 52 weeks ended*
26 June 2022 27 June 2021
£000 £000
Profit/(Loss) before tax (8,719) 5,535
Less:
Exceptional items 28,779 4,075
Adjusting items 1,621 -
Underlying profit before tax 21,681 9,610
* Restated for the period ended 27 June 2021 - see note 9.
MATT PRITCHARD
Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period ended 26 June 2022
Notes Restated*
52 weeks ended 52 weeks ended
26 June 2022 27 June 2021
£000 £000
Revenue 226,133 164,551
Cost of Sales (93,810) (62,877)
Cost of Sales - Exceptional 2 (5,501) -
Gross profit 126,822 101,674
Operating expenses* (110,140) (89,873)
Operating expenses - Exceptional* 2 (11,849) (2,119)
Impairment of financial assets- Exceptional* 2 (11,429) (1,956)
(Loss)/Profit from operations 3 (6,596) 7,726
Finance income* 4 1,035 711
Finance expenses 4 (1,910) (1,650)
Share of joint venture post-tax results (loss)* (1,248) (1,252)
(Loss)/Profit before tax* (8,719) 5,535
Tax expense* (720) (1,857)
(Loss)/Profit for the period* (9,439) 3,678
Other comprehensive (loss)/income:
Items that may be subsequently reclassified to profit or loss:
Gains / (losses) on cashflow hedges 1,451 (1,897)
Deferred tax (credit)/charge on derivative financial instruments (385) 308
Currency translation differences arising from consolidation (355) (825)
Currency movement on net investment* 1,297 (730)
Deferred tax charge on net investment currency movement* (324) 183
Forex reclassified to inventory* 96 143
Other comprehensive income/(loss), net of tax* 1,780 (2,818)
Total comprehensive (loss)/income for the period* (7,659) 860
Earnings per share - Basic* 5 (6.9p) 2.9p
Earnings per share - Diluted* 5 (6.9p) 2.9p
* Restated 52 weeks ended 27 June 2021 - see note 9.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 26 June 2022
Notes Restated* Restated*
As at 26 June 2022 As at 27 June 2021 As at 28 June 2020
£000 £000 £000
ASSETS
Non-current assets
Intangible assets 1,818 3,976 2,897
Property, plant and equipment 6 68,579 53,496 41,868
Right of use asset 6 51,560 30,357 39,848
Deferred tax asset - 662 1,395
Derivative financial assets - - 92
Loan to Joint Venture* - 3,269 336
Investments in Joint Venture* - 2,409 757
121,957 94,169 87,193
Current assets
Derivative financial assets 668 - 1,100
Inventories 43,062 32,038 13,916
Trade and other receivables 17,541 12,421 7,492
Corporation tax receivable 3,264 2,128 1,520
Cash and cash equivalents 17,569 10,046 27,503
82,104 56,633 51,531
Total assets 204,061 150,802 138,724
LIABILITIES
Current liabilities
Trade and other payables 8 (39,441) (42,223) (27,251)
Lease liabilities 7 (10,390) (9,061) (10,993)
Other financial liabilities (6,660) - -
Derivative financial liabilities (48) (925) (27)
Provisions (907) - -
(57,446) (52,209) (38,271)
Non-current liabilities
Other payables and accruals 8 - (2) (31)
Lease liabilities 7 (44,145) (30,503) (35,960)
Other financial liabilities* - (642) (216)
Deferred tax liability (1,130) - -
Derivative financial liabilities (38) (28) (327)
Provisions (2,919) (1,585) (959)
(48,232) (32,760) (37,493)
Total liabilities (106) (84,969) (75,764)
NET ASSETS 98,383 65,833 62,960
EQUITY
Share capital 137 126 126
Share premium 78,014 38,684 37,627
Retained earnings* 13,499 22,938 19,260
Translation reserve 399 754 1,579
Merger reserve 223 223 223
Capital redemption reserve 6 6 6
Other reserves* 6,105 3,102 4,139
Total equity attributable to shareholders 98,383 65,833 62,960
* See note 9 for explanation of restatements as at 28 June
2020 and 27 June 2021.
The financial statements of Hotel Chocolat Group plc, registered number
08612206 were approved by the Board of Directors and authorised for issue on
30 November 2022. They were signed on its behalf by:
Matt Pritchard
Chief Financial Officer
30 November 2022
CONSOLIDATED STATEMENT OF CASH FLOW
For the period ended 26 June 2022
Notes Restated*
52 weeks ended 52 weeks ended
26 June 2022 27 June 2021
£000 £000
(Loss)/Profit before tax for the period* (8,719) 5,535
Adjusted by:
Exceptional items* 2 28,779 4,075
Share of JV loss* 1,248 1,252
Depreciation of property, plant and equipment 6 6,506 5,543
Depreciation of right of use assets 6 9,545 9,287
Amortisation of intangible assets 565 965
Reversal of amortisation (SaaS) (557) -
Gain on lease modification 162 (25)
Net interest expense* 4 875 939
Share-based payments 621 911
Loss on disposal of non-current assets 3 516 112
Loss on fair value adjustment to joint venture* 3 - 46
Operating cash flows before movements in working capital 39,541 28,640
Increase in trade and other receivables (3,286) (4,718)
Increase in inventories (20,267) (19,673)
(Decrease)/ increase in trade and other payables and provisions (4,217) 13,819
Cash inflows generated from operations 11,771 18,068
Interest received 28 -
Income tax paid (533) (1,152)
Interest paid on:
- bank loans and overdraft (642) (328)
- derivative financial liabilities (165) (198)
- lease liabilities (1,181) (1,121)
Cash flows from operating activities 9,278 15,269
Purchase of property, plant and equipment (24,212) (18,632)
Purchase of intangible assets (1,504) (1,551)
Loan to joint venture (6,300) (3,607)
Acquisition of joint venture - (300)
Cash flows used in investing activities (32,016) (24,090)
Issue of ordinary shares 40,343 347
Costs associated to issue of ordinary shares (1,002) -
Capital element of leases (9,650) (8,773)
Cash flows from/(used in) financing activities 29,691 (8,426)
Net change in cash and cash equivalents 6,953 (17,247)
Cash and cash equivalents at beginning of period 10,046 27,503
Foreign currency movements 570 (210)
Cash and cash equivalents at end of period 17,569 10,046
* Restated 52 weeks ended 27 June 2021 - see note 9.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 26 June 2022
Share capital £000 Share Premium £000 Retained earnings* £000 Translation reserve £000 Merger reserve £000 Capital redemption reserve Other reserves* £000 Total
£000 £000
Equity as at 29 June 2020 126 37,627 23,290 1,579 223 6 4,139 66,990
Prior period adjustments - - (4,030) - - - - (4,030)
Restated* Equity as at 29 June 2020 126 37,627 19,260 1,579 223 6 4,139 62,960
Profit for the period* - - 3,678 - - - - 3,678
Loss on cash flow hedges - - - - - - (1,897) (1,897)
Deferred tax charge on derivative financial instruments - - - - - - 308 308
Currency translation differences - - - (825) - - - (825)
arising from consolidation
Currency movement on net investment* - - - - - - (730) (730)
Deferred tax on net investment currency movement* - - - - - - 183 183
Cash flow hedge transferred to inventory* - - - - - - 143 143
Total comprehensive income - - 3,678 (825) - - (1,993) 860
for the period:
Transactions with owners:
Issues of share capital - 1,057 - - - - - 1,057
Share-based payments - - - - - - 911 911
Deferred tax charge on share-based payments - - - - - - (11) (11)
Current tax of share-based payments - - - - - - 56 56
Restated* 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 - - - (355) - - - (355)
arising from consolidation
Currency movement on net investment - - - - - - 1,297 1,297
Deferred tax on net investment currency movement - - - - - - (324) (324)
Cash flow hedge transferred to inventory - - - - - - 96 96
Total comprehensive income - - (9,439) (355) - - 2,135 (7,659)
for the period:
Transactions with owners:
Issues of share capital 11 39,330 - - - - - 39,341
Share-based payments - - - - - - 629 629
Deferred tax charge on share-based payments - - - - - - 239 239
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 note 9.
Notes to the preliminary information
1. Basis of preparation
The financial information in this preliminary announcement has been extracted
from the audited consolidated financial statements for the period ended 26
June 2022 and does not constitute the statutory accounts for the Group.
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, JV loan and financial guarantee contracts
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 FY22,
impacting the Group that have been adopted in the annual financial statements
for the year ended 26 June 2022, 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.
● Amendment to IFRS 16, 'Leases' - Covid-19 related rent concessions
● Interest rate benchmark reform impacting:
○ IFRS 7 'Financial Instrument Disclosure',
○ IFRS 9 'Financial Instruments',
○ IFRS 16 'Leases' and
○ IAS 39 'Financial Instruments'
● IFRIC: Configuration or customisation costs in a Cloud Computing Arrangement
(IAS38 Intangible Assets)
In January 2020, the IASB issued amendments to IAS 1, which clarify the
criteria used to determine whether liabilities are classified as current or
non-current. These amendments clarify that current or non-current
classification is based on whether an entity has a right at the end of the
reporting period to defer settlement of the liability for at least twelve
months after the reporting period. The amendments also clarify that
'settlement' includes the transfer of cash, goods, services, or equity
instruments unless the obligation to transfer equity instruments arises from a
conversion feature classified as an equity instrument separately from the
liability component of a compound financial instrument. The amendments are
effective for annual reporting periods beginning on or after 1 January 2022.
New standards, amendments and interpretations which are not yet effective at
the reporting date are set out below:
● Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and
Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets;
and Annual Improvements 2018-2020 (All issued 14 May 2020)
● Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and
Errors: Definition of Accounting Estimates (issued on 12 February 2021) - not
endorsed by the UKEB
● Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice
Statement 2: Disclosure of Accounting policies (issued on 12 February 2021) -
not endorsed by the UKEB
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 2023, 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. The Financial
Review considers in more detail the groups trading performance and financial
position.
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
2024, with the opportunity to extend by a further year to June 2025. Subject
to three covenants: of achieving positive cash in January 2023, of net debt to
EBITDA (pre IFRS16) of less than 2.5x, and EBITDA to interest greater than 4x.
● The Group's current cash position as at 29 November 2022, giving £40.7m of
headroom within the facility as the business approaches the peak trading
period, with two thirds of annual revenues still to achieve and 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.
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.
In making their assessment the Directors have reviewed management forecasts
based on scenarios reflecting full-year sales growth/(decline) of +5%, (-9%),
(-15%), (-20%) and (-30%).
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 2023.
2. Exceptional items
Restated*
52 weeks ended 52 weeks ended
26 June 2022 27 June 2021
£000 £000
Impairment related to joint venture investment* 21,836 1,764
Saint Lucia impairment 1,200 216
Goodwill impairment 425 -
Store impairment (release)/charge (5,225) 2,095
Material non-recurring events: operating costs 5,042 -
Total operating expenses - exceptional 23,278 4,075
Material non-recurring costs: margin 5,501 -
Total exceptional items 28,779 4,075
* Restated 52 weeks ended 27 June 2021 - see note 9
Impairment related to joint venture investment
Credit loss on loans
There is an impairment charge of £11,429k during the year ended 26 June 2022
(27 June 2021: restated £1,956k) related to the revised assessment of
probability of recovery of loans made to the Japan joint venture over the
period 2018 to 2022.
Credit loss on guarantees
There is an impairment charge of £5,936k during the year ended 26 June 2022
(27 June 2021: restated -£192k) related to guarantees provided by the Group
in respect of external finance leases of the Japan joint venture which were
called when the Japan joint venture obtained Court approval for Civil
Rehabilitation restructuring proceedings (Minji Saisei).
Impairment on equity investment
There is an impairment charge of £4,471k during the year ended 26 June 2022
(27 June 2021: £nil) related to the recognition of losses in the joint
venture in Japan.
Saint Lucia impairment
There is an impairment of £1,200k during the year ended 26 June 2022 (27 June
2021: £216k) relating to the assets of the Saint Lucia business. The charge
in 2022 related to the decline in the value of the Project Chocolat visitor
attraction due to the continuing impact of COVID-19 on tourism in Saint Lucia
in FY21. The charge in 2021 was due to a decline in the value of the land and
property and also due to the impact of COVID-19.
Goodwill impairment
There is an impairment charge of £425k during the year ended 26 June 2022 (27
June 2021: £nil) related to goodwill which arose from the acquisition of
Rabot 1745 Limited. The goodwill related to the Rabot 1745 range of beauty
products which is no longer supportable as Rabot 1745 Limited is no longer
trading.
Store Impairments
US Gain on remeasurement of lease liabilities
There is an impairment release of £3,491k during the year ended 26 June 2022
(27 June 2021: £2,069k charge) relating to the release of lease liabilities
of the closed US stores. The prior year charge increased the impairment to
100% of the value of remaining plant & equipment and right of use assets
under IFRS 16, in recognition of poor trading conditions and the decision to
close the US stores.
UK Store impairments
There is an impairment release of £1,734k during the year ended 26 June 2022
(27 June 2021: £26k charge) relating to fixed assets and right of use assets
of stores. The release is primarily due to the improved trading conditions
during the period as well as management's assessment of future cashflows over
the remaining lease period for each store. The key assumptions used in the
future cashflows were sales and EBITDA (based on board approved plans),
assumed nil growth rate for 5 years and a discount rate of 9.670% (27 June
2021: 9.335%).
Material non-recurring events - Operating costs
Capital cash deposit impairment
There is a provision of £2,477k during the year ended 26 June 2022 (27 June
2021: £nil) for doubtful recovery of a cash deposit made to a manufacturer of
capital equipment that went into administration.
New sale and operation planning process
Non-recurring professional fees of £809k have been incurred during the year
ended 26 June 2022 (27 June 2021: £nil) in relation to the implementation of
a new sales and operation planning process.
US exit costs
There are exit costs of £611k during the year ended 26 June 2022 (27 June
2021: £nil) which relate to the doubtful recovery of rent deposits and staff
redundancy costs.
Restructuring costs
There is an expense of £181k during the year ended 26 June 2022 (27 June
2021: £nil) related to staff redundancy costs.
Onerous contracts
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 has been provided for (27 June 2021: £nil).
Material non-recurring events - Margin
Discontinued UK stock lines
There is a provision of £2,959k during the year ended 26 June 2022 (27 June
2021: £nil) related to the decision to exit certain UK product categories.
US stock provision
There is a provision of £2,542k during the year ended 26 June 2022 (27 June
2021: £nil) related to the reduced value of US stock following the decision
to exit the US market.
3. (Loss)/Profit from operations
(Loss)/Profit from operations is arrived at after charging/(crediting):
Notes Restated*
52 weeks ended 52 weeks ended
26 June 2022 27 June 2021
£000 £000
Staff costs 55,731 51,591
Government grants received(1) (94) (553)
Depreciation of property, plant and equipment 6 6,506 5,543
Depreciation of right of use asset 6 9,545 9,287
Amortisation of intangible assets 565 965
Reversal of amortisation (SaaS) (557) -
Loss on disposal of non-current assets 516 112
Loss on fair value adjustment to joint venture - 46
Exceptional items(2) 28,779 4,075
Loss/(profit) on exchange differences (346) (55)
Research & expenditure credit - 44
Write down of inventory recognised as an expense 9,797 3,098
Bad debt expense (2) (6)
1 Government grants received include the Retail Hospitality
Leisure Grant Fund and the Closed Business Lockdown Payment.
2 See note 2 - Exceptional items
* Restated 52 weeks ended 27 June 2021 - see note 9
4. Finance income and expenses
Restated*
52 weeks ended 52 weeks ended
26 June 2022 27 June 2021
£000 £000
Interest from related party* 967 656
Interest on bank deposits 68 3
Unrealised interest on derivative financial instruments - 52
Finance income 1,035 711
Interest on bank borrowings 552 328
Unrealised interest on derivative financial instruments 12 -
Realised interest on derivative financial liabilities 165 201
Interest on lease liabilities 1,181 1,121
Finance expenses 1,910 1,650
* Restated 52 weeks ended 27 June 2021 - see note 9.
5. Earnings per share
(Loss)/profit for the period used in the calculation of the basic and diluted
earnings per share. Diluted (loss)/profit 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:
Restated*
52 weeks ended 52 weeks ended
26 June 2022 27 June 2021
Weighted average number of share in issue for the period - basic 136,313,568 125,573,623
Effect of dilutive potential share:
Save as You Earn Plan 172,020 29,711
Long-term incentive plan 125,380 169,669
Founder Shares 113,536 -
Weighted average number of shares in issue used in the calculation 136,724,504 125,773,003
of earnings per share (number) - Diluted
Basic earnings per share (pence) (6.9p) 2.9p*
Diluted earnings per share (pence) (6.9p) 2.9p*
* Restated 52 weeks ended 27 June 2021 - see note 9.
As at 26 June 2022, the total number of potentially dilutive shares issued
under the Hotel Chocolat Group plc Long-Term Incentive Plan was 3,649,911 (27
June 2021: 285,289). Due to the nature of the options granted under this
scheme, they are considered contingently issuable shares and therefore have no
dilutive effect. On 23 July 2021, the Company announced the completion of an
equity placing for a total of 11,112,913 new ordinary shares.
6. Property, plant and equipment
Freehold property Leasehold improve-ments Furniture & fittings, equipment & hardware Plant & machin-ery Right of use asset Total
£000 £000 £000 £000 £000 £000
52 weeks ended 27 June 2021
Cost:
As at 28 June 2020 17,038 1,397 39,838 26,816 54,830 139,919
Additions 4,523 567 2,066 12,176 5,468 24,800
Disposals (5) (80) (280) (157) (5,872) (6,394)
Translation differences (1,609) - (343) (1) (555) (2,508)
As at 27 June 2021 19,947 1,884 41,281 38,834 53,871 155,817
Accumulated depreciation & impairments:
As at 28 June 2020 (3,267) (768) (26,173) (13,013) (14,982) (58,203)
Depreciation charge (168) (142) (3,789) (1,444) (9,287) (14,830)
Disposal - - 275 133 2,431 2,839
Impairment (216) - (419) - (1,676) (2,311)
Translation differences 225 68 248 - - 541
As at 27 June 2021 (3,426) (842) (29,858) (14,324) (23,514) (71,964)
Net book value:
As at 27 June 2021 16,521 1,042 11,423 24,510 30,357 83,853
52 weeks ended 26 June 2022
Cost:
As at 27 June 2021 19,947 1,884 41,281 38,834 53,871 155,817
Additions 2,715 93 4,481 16,923 31,159 55,371
Disposals (3) - (1,154) (126) (4,122) (5,405)
Reclassification(2) - - (1,453) - 1,453 -
Translation differences 1,588 - 402 3 20 2,013
As at 26 June 2022 24,247 1,977 43,557 55,634 82,381 207,796
Accumulated depreciation & impairments:
As at 27 June 2021 (3,426) (842) (29,858) (14,324) (23,514) (71,964)
Depreciation charge (253) (192) (3,852) (2,209) (9,545) (16,051)
Disposal - - 1,082 - 2,244 3,326
Reclassification(2) - - 610 - (610) -
Impairment(1) (1,200) - 1,130 (2,477) 604 (1,943)
Translation differences (371) - (654) - - (1,025)
As at 26 June 2022 (5,250) (1,034) (31,542) (19,010) (30,821) (87,657)
Net book value:
As at 26 June 2022 18,997 943 12,015 36,624 51,560 120,139
1 The following impairments were made in the period ended 26
June 2022: Saint Lucia estate impairment charge £1,200k (27 June 2021:
£216k), Store impairment release £1,734k (27 June 2021: £2,095k charge) and
capital cash deposit impairment charge £2,477k (27 June 2021: £nil).
2 Reclassifications represent right of use assets previously
categorised within furniture & fittings, equipment & hardware.
As at 26 June 2022, the net book value of freehold property includes land of
£4,509k (27 June 2021: £3,806k), which is not depreciated. Included in
freehold property is £2,438k of assets under construction (27 June 2021:
£2,997k). Included in Furniture & fittings, equipment & hardware is
£2,005k of assets under construction (27 June 2021: £448k). Included in
Plant & machinery is £7,475k of assets under construction (27 June 2021:
£14,610k).
7. 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 2.0% and 4.8%
(27 June 2021: 2.0% and 3.5%).
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
Right of Use Assets Land & buildings Equipment Total
£000 £000 £000
At 28 June 2020 39,623 225 39,848
Additions to right of use assets 5,468 - 5,468
Amortisation (9,068) (219) (9,287)
Effect of modification of lease (1,693) - (1,693)
Derecognition (1,748) - (1,748)
Impairment (1,676) - (1,676)
Foreign exchange (555) - (555)
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 604 - 604
Foreign exchange 20 - 20
As at 26 June 2022 51,560 - 51,560
Land & buildings Equipment Total
Lease liabilities
£000 £000 £000
At 28 June 2020 46,674 279 46,953
Additions to lease liabilities 5,534 - 5,534
Interest expense 1,117 4 1,121
Effect of modification of lease (1,717) - (1,717)
Derecognition (1,790) (9) (1,799)
Lease payments (9,697) (207) (9,904)
Foreign exchange (624) - (624)
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
During period ended 26 June 2022, a new lease for a distribution centre in
Northampton was entered into and £24,703k is included in the additions of the
right of use assets and lease liabilities. This 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.
52 weeks ended 52 weeks ended
26 June 2022
27 June 2021
£000 £000
Non-current 44,145 30,503
Current 10,390 9,061
Total lease liabilities 54,535 39,564
Leases - cash outflow
52 weeks ended 52 weeks ended
26 June 2022
27 June 2021
£000 £000
Capital element of lease cash outflows 9,650 8,773
Interest element of lease cash outflows 1,181 1,121
Low value lease cash outflows 4 1
Short term lease cash outflows 892 537
Variable lease cash outflows 3,661 1,667
Total contractual cashflows 15,388 12,099
Amounts recognised in the consolidated statement of comprehensive income
Land & buildings Equipment Total
£000 £000 £000
52 weeks ended 27 June 2021
Depreciation charge on right of use assets 9,069 218 9,287
Impairment 1,676 - 1,676
Interest on lease liabilities 1,117 4 1,121
Expenses related to low value leases - 1 1
Expenses related to short term leases 386 151 537
Expenses related to variable lease payments(1) 1,667 - 1,667
As at 27 June 2021 13,915 374 14,289
52 weeks ended 26 June 2022
Depreciation charge on right of use assets 9,539 6 9,545
Impairment (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 payments(1) 3,612 49 3,661
As at 26 June 2022 13,844 835 14,679
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 26 June 2022 is £407k (27 June 2021:
£726k).
Maturity analysis of Lease Liabilities
Lease liabilities 52 weeks ended 52 weeks ended
26 June 2022
27 June 2021
£000 £000
Maturity analysis - contractual undiscounted cashflows
Less than one year 10,610 10,237
Between one and two years 11,023 9,470
Between two and five years 21,993 20,377
After five years 18,062 7,481
Total contractual cashflows 61,688 47,565
8. Trade and other payables
The carrying value of trade and other payables classified as financial
liabilities measured at amortised cost approximates
to fair value.
52 weeks ended 52 weeks ended
26 June 2022
27 June 2021
£000 £000
Current
Trade payables 19,830 13,962
Other payables 1,471 11,250
Other taxes payable 3,011 330
Accruals and deferred income 15,129 16,681
39,441 42,223
Non-current
Other payables and accruals - 2
- 2
9. 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 2020 as set out
overleaf.
The restatements arose in response to specific enquiries made by the FRC, and
the Directors have liaised with both the FRC and its auditors during the
process of formulating the restatements which are the responsibility of the
Directors.
The FRC's review is based solely on the contents of the FY21 Annual Report and
Accounts and does not benefit from detailed or other knowledge of the
business. The FRC's remit is to consider compliance with reporting
requirements, not to verify accounts or provide assurance that accounts are
correct in all material respects. As such the FRC's enquiry should not be
relied upon by the company or any third party, including but not limited to
investors and shareholders.
Fair valuation of loan to Japan joint venture and assessment of the expected
credit loss
On 13 July 2018 the Group and the Japan joint venture entered into a loan
facility of £4.5 million.
The Loan Facility Agreement has historically been classified and measured at
amortised cost. At the initial recognition date, the Group concluded that the
agreed interest rate represented a market rate of interest based on simple
analysis. Therefore, at initial recognition the fair value of the Loan
Facility Agreement was determined to be equivalent to the transaction price.
The Loan Facility Agreement was subsequently measured at amortised cost using
the effective interest rate ("EIR method").
On the initial recognition date and subsequent reporting periods, the Group
did not determine an expected credit loss ("ECL") as the Directors believed
there was no change in credit risk and the probability of default had been
determined as nil. The Group has reperformed its analysis in relation to the
market rate of interest and the expected credit loss.
The Group has concluded that the agreed interest rate did not represent a
market rate of interest at initial recognition and at subsequent drawdowns
above the agreed facility amount. The difference between the agreed interest
rate and the market rate of interest gives rise to a difference between the
fair value at initial recognition and the transaction price. For each draw
down, this difference has been recognised as an adjustment to the investment
in joint venture.
Additionally, the Group has reperformed the expected credit loss calculation
and has determined that an expected credit loss should have been recognised
following an assessment that the financial asset was credit-impaired. As a
result, the fair value of the loans to the joint venture at initial
recognition and the carrying amount at each subsequent reporting date have
been recalculated and revised.
The impact on the restatement was to impair the Loan to Joint Venture by
£5,369k as at 28 June 2020 and by a further £3,515k during the period ended
27 June 2021. Additionally, the Investment in Joint Venture was increased by
£757k as at 28 June 2020 and by a further £1,652k during period ended 27
June 2021.
Classification and measurement of Financial Guarantee Contracts ('FGCs')
Financial guarantee contracts were issued by the Group to Sumitomo Mitsui
Finance and Leasing Company Limited (or "Sumitomo") in relation to 22 leases
entered into between Sumitomo and the Japan joint venture from 1 October 2019
to 27 June 2021. The Group has not previously accounted for the guarantees as
financial guarantee contracts in accordance with the requirements of IFRS 9
and no amounts were previously recognised within the financial statements with
respect to these contracts, other than the disclosure of the existence of and
the total value of the guarantees. The Group reassessed the accounting
treatment.
Following a review of the accounting treatment, the Group has concluded that
the guarantees meet the definition of a financial guarantee contract as per
IFRS 9. At initial recognition, the guarantees should be measured at fair
value. Subsequent to initial recognition, the guarantees should be measured at
the higher of the following values:
● the amount of the loss allowance determined in accordance with IFRS 9; and
● the amount initially recognised less, when appropriate, the cumulative amount
of income recognised in accordance with the principles of IFRS 15.
The guarantees were issued by Hotel Chocolat Group Plc for nil consideration,
i.e., no premium was paid or received. The Group has concluded that the fair
value of the guarantees at initial recognition is equivalent to the benefit
received by the Japan joint venture in obtaining an agreed rate of interest on
the lease contracts that is below the market rate of interest. Therefore, the
fair value of guarantees is considered to be the difference between the
present value of the lease cashflows discounted using a market rate of
interest and the agreed rate of interest. In addition, an expected credit loss
("ECL") is calculated in accordance with the requirements of IFRS 9 and is
compared to the fair value at each subsequent reporting date.
The impact of the restatement to recognise FGC was £216k for 28 June 2020 and
increased by a further £426k for 27 June 2021. The corresponding entries were
recorded as an increase to the Group's investment in the Japan joint venture.
Consequential amendments
During the period ended 28 June 2020 the deferred tax asset was restated to
£1,395k from £597k due to an increase in tax losses carried forward
following the above restatements. The deferred tax asset unwound in the year
ended 27 June 2021 as tax losses were used. In addition, for the period ended
27 June 2021, an additional tax credit was recognised of £282k in respect of
the above restatements.
Following increases in the carrying value of the investments in joint venture
as a result of the above restatement, the Group has recognised its share of
the joint venture losses for the period 27 June 2021 of £998k (26 June 2020:
£606k).
Currency movement on net investment reclassification to Other Comprehensive
Income
In response to the FRC review, the currency loss arising on the retranslation
of the net investment in foreign subsidiaries of £730k has been restated to
be shown as part of other comprehensive income in line with IAS 21 rather than
being taken directly to equity. A deferred tax credit of £183k has been
recognised at a rate of 25% .
Cash flow hedges transferred to inventory
In addition to the adjustments from the FRC enquiries, management have
considered other adjustments taken directly to equity for the period ended 27
June 2021 and note that the cash flow hedges transferred to inventory should
also be recognised in other comprehensive income.
Impact on prior periods
Each affected financial statement line item has been restated for the
comparative period, including the opening statement of financial position as
at 28 June 2020. As a result of the changes to the income statement for the
period ended 27 June 2021, basic and diluted EPS reduced by 1.6p.
The following tables summarise the impacts on the Group's consolidated
financial statements:
Consolidated Statement of Financial Position (extract) As at 28 June 2020 Total adjustments As at 28 June 2020 (restated)
(as previously reported)
£000 £000 £000
Investment in joint venture - 757 757
Loan to joint venture 5,705 (5,369) 336
Corporation tax receivable 1,520 - 1,520
Deferred tax asset 597 798 1,395
Other assets 134,716 - 134,716
Total assets 142,538 (3,814) 138,724
Financial guarantee contract - (216) (216)
Other liabilities (75,548) - (75,548)
Total liabilities (75,548) (216) (75,764)
Net assets 66,990 (4,030) 62,960
Retained earnings 23,290 (4,030) 19,260
Other equity 43,700 - 43,700
Total equity 66,990 (4,030) 62,960
As at 27 June 2021 Total adjustments As at 27 June 2021 (restated)
Consolidated Statement of Financial Position (extract) (as previously reported)
£000 £000 £000
Investment in joint venture - 2,409 2,409
Loan to joint venture 12,153 (8,884) 3,269
Corporation tax receivable 1,049 1,079 2,128
Deferred tax asset 479 183 662
Other assets 142,334 - 142,334
Total assets 156,015 (5,213) 150,802
Financial guarantee contract - (642) (642)
Other liabilities (84,327) - (84,327)
Total liabilities (84,327) (642) (84,969)
Net assets 71,688 (5,855) 65,833
Retained earnings 28,976 (6,038) 22,938
Other equity 42,712 183 42,895
Total equity 71,688 (5,855) 65,833
Consolidated Statement of Comprehensive Income (extract) As at 27 June 2021 Total adjustments As at 27 June 2021
(as previously reported) (restated)
£000 £000 £000
Gross Profit 101,674 - 101,674
Operating expenses (89,873) - (89,873)
Exceptional items (2,311) (1,764) (4,075)
Profit from Operations 9,490 (1,764) 7,726
Finance income 238 473 711
Finance expenses (1,650) - (1,650)
Share of joint venture post-tax results (254) (998) (1,252)
Profit before tax 7,824 (2,289) 5,535
Tax expense (2,139) 282 (1,857)
Profit for the period 5,685 (2,007) 3,678
Other comprehensive (loss)/income (2,414) - (2,414)
Currency movement on net investment - (730) (730)
Deferred tax charge on net investment currency movement - 183 183
Cash flow hedges transferred to inventory - 143 143
Total comprehensive income for the period 3,271 (2,411) 860
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