Interim Results For 6 Months Ended 29 December 2019 Financial - - PowerPoint PPT Presentation

Interim Results

For 6 Months Ended 29 December 2019

REVENUE

£91.7m

(H1 FY19: £80.7m)

+14%

YEAR-ON-YEAR

PROFIT AFTER TAX

£13.1m

(H1 FY19: £10.8m)

UNDERLYING EBITDA1

£18.5m

(H1 FY19: £17.3m)

+7%

YEAR-ON-YEAR

EARNINGS PER SHARE

11.5p

(H1 FY19: 9.6p)

PROFIT BEFORE TAX2

£14.9m

(H1 FY19: £13.8m)

+7%

YEAR-ON-YEAR

INTERIM DIVIDEND

0.6p

(H1 FY19: 0.6p)

Financial highlights

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

‘18 ‘19 ‘20 £71.7m £80.7m £91.7m ‘18 ‘19 ‘20 £15.8m £17.3m £18.5m ‘18 ’19 ‘20 £12.9m £13.8m £14.9m 1

Operational highlights

Growth strategy

• 1. Open further locations where terms attractive, and

refit or relocate existing locations to larger prime sites

• 2. Continue ‘test, learn, grow’ approach in USA and

Japan (with joint venture)

• 3. Increase capacity and capture efficiencies from the

vertically integrated supply chain

• 4. Grow digital customer base and improve gifting

proposition Underpinned by long-term sustainability

1.1m

VIP ME LOYALTY MEMBERS (+120% YOY)

9

NEW UK LOCATIONS, PLUS 2 RELOCATIONS

THE VELVETISER

SYSTEM SALES GROWTH +200% YOY

5

NEW LOCATIONS IN USA & JAPAN

+13%

DIGITAL GROWTH

VIA OWN SITE & PARTNERS1

USA & JAPAN

GROWTH ON TRACK

Operational highlights

UK growth continues to drive improved results

• A strong range, successful marketing and Velvetiser drove sales
• Opened nine locations in UK, now have 125 in UK
• VIP App to replace membership card in H2
• Velvetiser subscriptions now live
• Strong demand created pressure on supply chain at peak, resulting in
• inefficiencies. Plan underway to improve efficiency in CY20

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

2

1) Digital Growth expressed at Retail Prices charged to end consumer, includes own website, subscriptions and digital wholesale partners.

26 weeks ended 29 December 2019 Pre IFRS16 £m Impact of adoption

• f IFRS 16

26 weeks ended 29 December 2019 Post IFRS16 £m 26 weeks ended 30 December 2018 £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

EPS – basic 11.3p 11.5p 9.6p

Profit for the period divided by the weighted average number of shares in issue (FY20 114m, FY19 113m).

EPS – diluted 11.2p 11.4p 9.5p 3

Group income statement

As at 29 December 2019 £m As at 30 December 2018 £m Non-current assets Intangible assets 3.2 2.7 Property, plant and equipment 45.0 39.1

Capital investment in new stores and operations IFRS16 transition impact

Right of Use Asset 50.7

• Investment in Joint Venture
• Loans to Joint Venture

4.0 0.7 Derivative Financial Assets

• 0.1

Deferred tax asset 0.3 0.3 103.2 43.0 Current assets Derivative financial assets

• 0.2

Inventories 16.2 9.4

Includes inventory build for spring peaks, which are larger in USA & Japan than in UK

Trade and other receivables 10.2 9.5 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 Corporation tax payable 0.7 3.0 Derivative financial liabilities 0.4

• Lease Liabilities

11.7

• IFRS16 transition impact

Borrowings

• 0.1

47.6 30.3 Non-current liabilities Other payables and accruals

• 2.9

Lease liabilities 43.2

• IFRS16 transition impact

Borrowings

• Provisions
• 0.9

43.2 3.8 Total liabilities 90.8 34.1 NET ASSETS 63.2 50.0 5 6

Group balance sheet

4

5 26 weeks ended 29 December 2019 £m 26 weeks ended 30 December 2018 £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 working capital 24.6 17.3 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 Cash flows from/(used in) financing activities (2.4) (1.3) +£4.1m proceeds of share issue, (£1.4m) Dividends paid, (£5.1m) lease payments under 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

Group cash flow

H1 FY19 Profit Before Tax Sales Volume +14% Growth Margin rate (80bps) Overheads (£5.5m) YOY Profit Before Tax pre IFRS16 +7% YoY Transition to IFRS 16 H1 FY20 Reported

+7%YOY Profit Before Tax (pre IFRS 16)

£13.8m £14.9m £15.0m

Brand appeal and continued innovation drive sales growth Velvetiser sales mix impact Includes one-off impacts of new markets and new channel growth 6

Profit BeforeTax (£m)

Positioned for growth

Source: 1) Mintel 2) Canadean 3) Allegra .

• £20bn UK gifting market1
• £6bn UK chocolate market2, £8bn café market3
• US & Japan markets 3-5 times larger than UK
• Low market share offers headroom for growth

Large and growing markets

• Distinctive look, feel and values resonates in UK,

USA, Japan, and Scandinavia

• Differentiated taste “More cacao, less sugar”
• Accessible luxury. prices from £1 to £300 spanning

self-purchase and gifting

• Founder-led culture, innovation a long-term

strength

Differentiated brand & products

• Vertical integration is responsive whilst

also protecting intellectual property in products

• Further economies of scale available to improve

manufacturing margin

• Distribution improvement opportunity, to drive

extra sales and dilute overheads

Strong platform

• Hotel Chocolat physical model is in robust health

and getting stronger

• Digital gifts and subscriptions offer strong growth
• Carefully selected digital wholesale partners

complement owned channels

• USA and Japan models both similar to UK

Growth from proven formats

7

Operational Progress

5

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

Physical Locations

9

Digital & Partners

10

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

5

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

11

Japan

Developments in the period

Joint Venture opened three locations, now have five locations:

• Omotosando, Tokyo; first city-centre flagship street location
• Two further mall locations; Tokyo Bay and Osaka

Valentines and White Day (March) drive seasonal peaks comparable to Christmas in UK

Financials

• First store now annualised, achieved EBITDA profitability at site level in H1
• Significant opportunity to improve gross margins and reduce supply costs.
• Investment in high calibre local management team to drive future growth means

business will remain sub-scale in FY20

13

Omotesando in Tokyo is the first Japanese street location. Extending over two floors and acting as a brand flagship

12

Evaluation criteria – ‘Test, Learn, Grow’ Does the brand have market allure? Does our range meet local tastes? Is our price proposition attractive? Can we achieve supply chain efficiency/margin? Do we have the team and culture for success? Joint Venture terms

• HC owns 20%, local management 80%. HC has loaned

£4m on commercial terms to fund start-up and capex

• Achieving profitability would trigger management put-
• ptions that give HC a controlling stake

USA

Developments in the period

First Christmas with the full product range, driving strong LFL growth Opened two new locations, now have four locations:

• Union Station, Washington; first mass-transit location
• Turnstyle Market, NYC; smaller site without drinks

Financials

• First store now annualised, achieved EBITDA breakeven at site level in H1
• Significant opportunity to improve margins and reduce local supply costs
• Focus on driving profitability of existing sites
• Investment in high calibre local management team to drive future growth means

business will remain sub-scale in FY20 Evaluation criteria – ‘Test, Learn, Grow’ Does the brand have market allure? Does our range meet local tastes? Is our price proposition attractive? Can we achieve supply chain efficiency/margin? Do we have the team and culture for success?

15

13

Customer generated social media content.

Filming the next series of the TV documentary in New York

Environment and Sustainability

14

Engaged Ethics Cacao

• Now over 1,500 farmers in Ghana enrolled; receiving a premium for their cacao, and promoting sustainable farming
• 50% uplift in young farmer signup, helping young people to start their own cacao farming business
• Provision of clean drinking water to three isolated communities
• Conducted site visits in Honduras and Nicaragua to meet growers of efficient low-intensity fine-flavour cacao

Planet Pledge

• Planet pledge; 100% of product packaging will be reusable or recyclable by 2021
• New clear trays, recyclable at kerbside. We also take back plastic from any chocolate brand for recycling including soft plastic not recycled kerbside
• Capital upgrades at manufacturing facility including new ultra-clean waste water treatment
• Coffee Body Scrub awarded “Best Sustainable Skin Product” at the 2020 Pure Beauty Global Awards

8

Innovation Pipeline

• Refill Subscription now launched
• Upgrade VIP from card to app (H2)
• Refits and relocations
• New travel retail range in development

Channels & formats

• Nutmilk – Unbelievably vegan
• Velvetiser refills – more new flavours
• Biscuits of the gods

Products

• Planet pledge; plastic & sustainability
• 2nd series of TV show in production
• Cacao-Powered Beauty campaign for

Mothers Day 2020

Brand

15

Strong differentiated brand with “accessible luxury” price points

• Occasion-driven purchasing and relatively modest average spend per visit relative to demographics
• Ten gift seasons each year
• Lower-ticket impulse and self-purchase leisure experiences support year-round performance

Exciting opportunities for future growth

• Encouraging consumer response to the brand in both USA & Japan
• Well positioned to capitalise on consumer trends including; Wellness (more cacao, less sugar) and

experiences (Drinks and Ices, product demonstrations, evening ‘lock-in’ events)

Current trading is in line with expectations

• Velvetiser and new refill subscriptions are supporting growth
• New locations performing well, ROCE from initial refits and relocations is encouraging
• New VIP app will further improve digital engagement
• Next set of capacity & capability investments under way
• Board has confidence in Group’s continued progress

Outlook

16 16

Thank you