Interim Results For 6 Months Ended 29 December 2019
Financial highlights £91.7m £18.5m £14.9m £17.3m £80.7m £13.8m £71.7m £15.8m £12.9m ‘20 ‘18 ‘19 ‘18 ‘19 ‘20 ‘18 ’19 ‘20 REVENUE UNDERLYING EBITDA 1 PROFIT BEFORE TAX 2 £91.7m £18.5m £14.9m (H1 FY19: £80.7m) (H1 FY19: £17.3m) (H1 FY19: £13.8m) +14% +7% +7% YEAR-ON-YEAR YEAR-ON-YEAR YEAR-ON-YEAR PROFIT AFTER TAX EARNINGS PER SHARE INTERIM DIVIDEND £13.1m 11.5p 0.6p (H1 FY19: £10.8m) (H1 FY19: 9.6p) (H1 FY19: 0.6p) 1. Underlying EBITDA is stated before the application of IFRS 16, and excludes share-based payments (H1 FY20 £0.5m, H1 FY19 £0.4m) 2. Profit before tax of £14.9m before the impact of IFRS 16. After adoption of IFRS16, profit before tax is £15.0m 1
Operational highlights 9 1.1m THE 5 USA & +13% JAPAN VELVETISER DIGITAL GROWTH SYSTEM SALES GROWTH NEW UK LOCATIONS, VIP ME LOYALTY NEW LOCATIONS IN GROWTH ON TRACK VIA OWN SITE & +200% YOY PLUS 2 RELOCATIONS MEMBERS (+120% YOY) USA & JAPAN PARTNERS 1 Operational highlights Growth strategy 1. Open further locations where terms attractive, and UK growth continues to drive improved results refit or relocate existing locations to larger prime sites • A strong range, successful marketing and Velvetiser drove sales 2. Continue ‘test, learn, grow’ approach in USA and • Opened nine locations in UK, now have 125 in UK Japan (with joint venture) • VIP App to replace membership card in H2 3. Increase capacity and capture efficiencies from the • Velvetiser subscriptions now live vertically integrated supply chain • Strong demand created pressure on supply chain at peak, resulting in 4. Grow digital customer base and improve gifting inefficiencies. Plan underway to improve efficiency in CY20 proposition Underpinned by long-term sustainability Trading in international markets is encouraging • USA & Japan achieving growth expectations • Encouraging consumer reaction to range, flavours, and pricing • Christmas and Valentines both traded well • Opportunity to improve margins and reduce supply costs 1) Digital Growth expressed at Retail Prices charged to end consumer, includes own website, subscriptions and digital wholesale partners. 2
Group income statement 26 weeks Impact of 26 weeks 26 weeks ended adoption ended ended 29 December of IFRS 16 29 December 30 December 2019 2019 2018 Pre IFRS16 Post IFRS16 £m £m £m Revenue 91.7 91.7 80.7 Revenue growth +14% Year on Year Cost of sales (32.1) (32.1) (27.6) Mix impact reduced gross margin from 65.8% to 65.0% Operating expenses (41.1) 6.0 (35.1) (35.8) Overheads grew +15% (Pre IFRS16), rising from 44.3% of sales to 44.8% Underlying EBITDA 18.5 6.0 24.6 17.3 (Pre IFRS16) EBITDA growth +7% Year on Year Share based payments (0.5) (0.5) (0.4) Depreciation & amortisation & loss on disposal (3.0) (5.2) (8.2) (2.8) Operating profit 15.0 0.8 15.8 14.1 Finance income 0.1 0.1 - Finance expenses (0.2) (0.7) (0.9) (0.2) Share of joint venture loss - - (0.1) Profit before tax 14.9 0.1 15.0 13.8 (Pre IFRS 16) Profit Before Tax growth +7% Year on Year Tax expense (1.9) (1.9) (3.0) Profit for the period 12.9 0.1 13.1 10.8 (Post IFRS 16) Profit After Tax growth +21% Year on Year Effective rate of tax 13% 13% 22% Deferred Tax impact from vesting of 2016-2019 LTIP & SAYE Profit for the period divided by the weighted average number of shares in EPS – basic 11.3p 11.5p 9.6p issue (FY20 114m, FY19 113m). EPS – diluted 11.2p 11.4p 9.5p 3
Group balance sheet As at As at 29 December 30 December 2019 2018 £m £m Non-current assets 3.2 2.7 Intangible assets 45.0 39.1 Property, plant and equipment Capital investment in new stores and operations 50.7 - IFRS16 transition impact Right of Use Asset - - Investment in Joint Venture 4.0 0.7 Loans to Joint Venture - 0.1 Derivative Financial Assets 0.3 0.3 Deferred tax asset 103.2 43.0 Current assets - 0.2 Derivative financial assets Inventories 16.2 9.4 Includes inventory build for spring peaks, which are larger in USA & Japan than in UK 10.2 9.5 Trade and other receivables Cash and cash equivalents 24.3 21.9 50.8 41.1 Total assets 154.0 84.1 Current liabilities Trade and other payables 34.8 27.1 0.7 3.0 Corporation tax payable Derivative financial liabilities 0.4 - 11.7 - Lease Liabilities IFRS16 transition impact Borrowings - 0.1 47.6 30.3 Non-current liabilities - 2.9 Other payables and accruals 43.2 - Lease liabilities IFRS16 transition impact - - Borrowings - 0.9 Provisions 43.2 3.8 90.8 34.1 Total liabilities 5 6 63.2 50.0 NET ASSETS 4
Group cash flow 26 weeks ended 26 weeks ended 29 December 30 December 2019 2018 £m £m Profit before tax for the period 15.0 13.8 Adjusted by: Depreciation, amortisation & impairment 8.2 2.8 Impact of IFRS16 transition Net interest expense 0.8 0.2 Impact of IFRS16 transition Other non-cash expenses 0.5 0.4 Operating cash flows before movements in 24.6 17.3 working capital Changes in working capital 9.1 13.7 Cash inflow generated from operations 33.6 31.0 Income tax paid (2.5) (1.3) Interest paid (0.9) (0.2) Impact of IFRS16 transition Cash flows from operating activities 30.2 29.5 Cash flows used in investing activities (9.2) (6.7) £7.8m of capex, £1.5m loans to joint venture +£4.1m proceeds of share issue, (£1.4m) Dividends paid, (£5.1m) lease payments under Cash flows from/(used in) financing activities (2.4) (1.3) IFRS16 Net change in cash and cash equivalents 18.6 21.6 Cash and cash equivalents at beginning of period 5.8 0.2 Foreign currency movements (0.1) 0.1 Cash and cash equivalents at end of period 24.3 21.9 5 5
+7%YOY Profit Before Tax (pre IFRS 16) Profit BeforeTax (£m) £13.8m £14.9m £15.0m H1 FY19 Sales Volume +14% Margin rate Overheads Profit Before Tax Transition to IFRS 16 H1 FY20 Profit Before Tax Growth (80bps) (£5.5m) YOY pre IFRS16 Reported +7% YoY Brand appeal Velvetiser sales Includes one-off and continued mix impact impacts of new innovation drive markets and new sales growth channel growth 6
Positioned for growth Differentiated brand & products Large and growing markets £20bn UK gifting market 1 Distinctive look, feel and values resonates in UK, • • USA, Japan, and Scandinavia £6bn UK chocolate market 2 , £8bn café market 3 • • Differentiated taste “More cacao, less sugar” • US & Japan markets 3-5 times larger than UK • Accessible luxury. prices from £1 to £300 spanning • Low market share offers headroom for growth self-purchase and gifting Founder-led culture, innovation a long-term • strength Growth from proven formats Strong platform • Hotel Chocolat physical model is in robust health • Vertical integration is responsive whilst and getting stronger also protecting intellectual property in products • Further economies of scale available to improve • Digital gifts and subscriptions offer strong growth manufacturing margin • Carefully selected digital wholesale partners • Distribution improvement opportunity, to drive complement owned channels extra sales and dilute overheads • USA and Japan models both similar to UK Source: 1) Mintel 2) Canadean 3) Allegra . 7
Operational Progress 5
Physical Locations Nine new locations in the reporting period, now have 125 UK locations Economics remain attractive: • All UK locations are EBITDA profitable. • Continue to achieve sales growth, mitigating inflationary headwinds and driving double digit EBITDA growth • Grew the active VIP membership base by >100% YoY. Modest customer purchase frequency is a key opportunity • Recent relocations to larger prime sites, with addition of Drinks and Ices offer in Cardiff & Brighton are delivering attractive ROCE • Commenced refit programme, adding drinks and ices to Moorgate and Gateshead Metro Centre • Widening variety of product demonstrations; new chocolates, Velvetiser & Cacao Beauty 9
Digital & Partners Results • Total digital sales (at Retail Price) combining own website, subscriptions & partner websites grew +13% YoY • Excluding Velvetiser revenue from own site grew +8% YoY (Velvetiser was online-only in prior year, now available in all channels) • Mobile-first strategy drove revenue from mobiles +30% YoY Investing to drive further growth • In-sourced CRM to drive more targeted communications • Velvetiser refill subscriptions launched, with free delivery VIP loyalty, moving from card to app in H2 supporting • deeper engagement • Improving navigation, SEO and gift-choosing support 10
Operational capacity & capability Progress in the period • New Velvetiser Refill line now operational. In-sourced production increases capacity and will improve gross margins in H2 • Growth of multiple channels drove some inefficiency in supply chain, with DC operating near to capacity, which increased variable costs to handle stock for new channels Capital investment Strategy • We are two years into a three-year project to add a fourth production line, which is on track to deliver 30% more capacity from CY2021 • Investing in fulfilment capacity for FY20: • Capital investments to increase physical capacity and streamline IT • Strengthened team with recruitment of new Director of Fulfilment role 5 11
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