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Thorntons PLC (THT)

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Wednesday 07 September, 2011

Thorntons PLC

Final Results

RNS Number : 7491N
Thorntons PLC
07 September 2011
 



 

For immediate release                                                                                                7 September 2011

 

Thorntons Plc

Announcement of Preliminary Results

 

 

Thorntons Plc ("Thorntons" or "the Company") today announced its preliminary results for the 52 weeks ended 25 June 2011.

 

Financial highlights

 

·      Revenues increased by 1.7% to £218.3 million (2010: £214.6 million)

 

·      Profit before tax and exceptional items was £4.3 million (2010: £6.9 million)

 

·      Exceptional items total £5.4 million (2010: £0.8 million) consisting of impairment and onerous lease provisions and other one off charges

 

·      Net debt down £1.5 million to £24.5 million (2010: £26.0 million)

 

·      The Board recommends a nominal final dividend of 0.25p (2010: 4.10p), making the total dividend for the year 2.20p (2010: 6.05p)

 

Operational highlights

 

·      Market share of Thorntons branded products grew to 7.7% (2010: 7.4%)

 

·      Implementation of the strategic review will lead to the creation of a profitable and sustainable Own Store channel of approximately 180 stores over the next three years

 

·      New bank facilities of £57.5 million in place until October 2015

 

·      Outsourcing of the Distribution and Warehousing function, which will deliver significant savings over the next six years

 

Jonathan Hart, Thorntons' Chief Executive, said:

 

"In the year that marks the Centenary of Thorntons, I am pleased to report record overall sales, despite the challenging retail environment. This highlights the strength of our multi-channel strategy, as well as that of the Thorntons brand, with sales of branded products rising by 2.2%. Commercial sales have grown by an impressive 25.9% over the full year and we are encouraged by our forward orders for Christmas 2011.

 

"As announced at the time of our strategic review, our goal over the next three years is to rebalance the business and to create a profitable and sustainable retail estate. While we expect to see the weakness in High Street footfall and consumer spending to continue through 2012, we are confident that this strategy is right for the Company."

 

For further information please contact:

Nadja Vetter / Emma Crawshaw, Cardew Group                                       T: 020 7930 0777

 



Chairman's statement

 

Thorntons achieved a respectable increase in sales of 1.7% to £218.3 million (2010: £214.6 million) in a year which saw extremely difficult trading conditions, reflecting the continuing strength of the brand.

Last year we announced that restructuring the Retail estate was necessary because of the deteriorating conditions on many high streets as a result of the current challenging economic and financial environment and the changes in customer shopping behaviour that have taken place over the past decade.

Following the arrival in January 2011 of our new Chief Executive, Jonathan Hart, we completed a strategic review, the results of which were presented in June and demonstrate a clear plan to transform and de-risk our business over the next three years. This plan will create a profitable and rebalanced organisation, a customer-focused multi-channel business and a revitalised brand.

In 2006 almost 80% of the entire production of chocolates at Thorntons was sold through our Own Stores and our Franchise network. Anticipating the risk of this vertically integrated retail model, in 2006 we accelerated the development of our Commercial sales to supermarkets as well as growing our online sales through Thorntons Direct. The objective of this change was to "decouple" our manufacturing operations from our Own Stores.

This strategy has proved highly successful. The Commercial channel has grown strongly over recent years and last year sales increased 25.9% to £78.8 million (2010: £62.6 million). Through our Commercial channel we now lead the inlaid box chocolate market in terms of market share and, through our actions, are also the main driver of growth in our market.

Through this development Thorntons is now in a good position to deal with the underperformance and restructuring of the Own Stores estate without causing any significant impact on our manufacturing capacity.

We have concluded that we can profitably and sustainably manage an Own Store estate of between 180 and 200 stores. In light of this, over the next three years we plan to close up to 180 of our Own Stores. In the majority of these locations, however, we plan to open franchises. This restructuring of our Own Stores retail estate is further supported by a favourable lease expiry profile. 179 of our leases expire over the next three years of which we plan to close two-thirds, thus capital expenditure requirements to maintain a quality store portfolio will be substantially reduced.

The current restructuring of the Thorntons business has led to a number of exceptional costs: impairment and onerous lease charges; provision to cover the costs associated with the outsourcing of the warehousing and distribution functions; and bank refinancing. Pre-tax profit before exceptionals for the period was £4.3 million (2010: £6.9 million). The combined total of these exceptional items amounts to £5.4 million for the period (2010: £0.8 million) resulting in an overall pre-tax loss for the period of £1.1 million (2010: pre-tax profit of £6.1 million).

In June 2011 the banking facilities were renewed and the Group now has committed banking facilities with HSBC, Lloyds TSB and Barclays totalling £57.5 million through to October 2015, and an overdraft facility of £5.0 million.

Thorntons believes in delivering a sustainable and progressive dividend return to its shareholders. However, given the circumstances of the last financial year it has not been possible to maintain the current level of dividend. The Board is therefore recommending the payment of a nominal final dividend of 0.25p (2010: 4.10p) making a total dividend for the year of 2.20p (2010: 6.05p) and expects to move to a dividend cover in line with the sector average over the coming years.

 

Directors and employees

Our exciting new plans have been communicated and discussed widely throughout Thorntons including with every store manager and many franchisees. The response from across the business has been positive and my thanks go to all our colleagues for supporting these changes and also for their solid and wholehearted contribution over the past year.

In January 2011 Jonathan Hart joined us as the new CEO of Thorntons taking over from Mark Robson who had served on an interim basis following the departure of Mike Davies in September 2010. Mike's experience in brand marketing and manufacturing operations were instrumental in developing the successful growth of our Commercial channel and improving efficiency in our factory; he leaves with our thanks and we wish him well. Mark has now reverted to his role as Finance Director and I am grateful to him for covering both roles during this challenging interim period.

At the end of June Peter Wright, our Marketing Director, resigned from the Board and left Thorntons. I would like to thank Peter for his contribution to the business over the past four years and wish him well for the future.

In appointing Jonathan Hart we have recruited an experienced Chief Executive with extensive retail and brand management experience. He served on the Executive Board at Dixons and latterly managed the successful growth of Caffè Nero for the past five years as Managing Director.

The Board has also decided to enhance its structure in line with best practice and will be commencing a search for an additional two independent directors to join the Board.

 

Outlook

We anticipate that the weakness in footfall and consumer sentiment experienced through our Own Store and Franchise channels during the first half of 2011 will continue at least into 2012. We are, however, looking forward to another strong year of growth in our Commercial channel as we gain further distribution and market share. Our confidence is reinforced by a healthy order book for Christmas 2011. We expect Thorntons Direct to grow in line with the online gifting market. We have budgeted our costs and expenditure prudently and aggressively continue to pursue opportunities to improve business efficiency and customer service accordingly.

As we embark on the implementation of our new strategy our foremost challenge is to deliver a successful Christmas 2011. It is during this key selling season that customers will start to see improvements to their shopping experience in our Own Stores.

 

 

 

John von Spreckelsen

Chairman

6 September 2011



Chief Executive's report

 

The past year has been challenging for Thorntons, our customers and the economy. Nevertheless, overall sales in the year grew 1.7% to £218.3 million and our share of the UK chocolate market grew to circa 7.7% which is a reflection of the considerable strength of our brand, the quality and value it delivers, and the role it plays in our customers' lives. This sales growth was achieved despite the unprecedented impact of the poor weather before Christmas and the hottest Easter on record. This clearly demonstrates the significant strategic benefit of our multi-channel strategy.

2010/11 has seen one of the toughest consumer spending environments we have experienced and, as such, Retail, with the exception of Thorntons Direct, has had a difficult year. This contrasts with another strong year of growth for our Sales & Operations channel where we continued to grow our market share in our core categories during key seasons, in particular Easter, as well as through increased breadth and depth of distribution.

Reported pre-tax profit before exceptionals was £4.3 million (2010: £6.9 million) whilst net debt was £24.5 million (2010: £26.0 million).

We have continued to manage our costs very tightly over the period and invested where appropriate to improve efficiency. Following the renegotiation of the outsourcing agreement of our IT services in 2010, we have recently completed the outsourcing of our warehousing and distribution activities.  This,  together with the ongoing benefits of our procurement review and the recent restructuring of our Head Office cost base, should deliver a full year benefit of £2.0 million that will flow through in full in the 2012/13 financial year.

 

The year in review

Thorntons Centenary

2011 is our centenary year and as a business we wanted to mark this occasion with innovative products and moments to remember with our customers and staff.

 

In the course of the year, we have produced a number of unique products including the 'Jubilee Box' which contains 100 of Thorntons favourite chocolates as well as new flavours such as Lime and chilli, Raspberry and Rose. We have also brought back some old favourites in our sugar range including chocolate éclairs and launched a collectable ceramic toffee cabin, as well as limited edition Chocolate Blocks including classic flavours such as English rose, cloudy lemonade and Bakewell tart.

 

Thorntons Master Chocolatier has created a limited edition "Wonder Box" that are a mix of heritage and contemporary flavours and also include a bar of chocolate which tastes as chocolate would have done 100 years ago. All the chocolates have been handmade in Thorntons' kitchens.

 

To celebrate our anniversary with our customers we have hidden 100 Golden Keys in our chocolate blocks and the lucky winners will get a behind-the-scenes trip to the Thorntons chocolate factory during Chocolate Week in October. Visiting 22 city centre locations over the first half of this year, our 'Live Mechanical Chocolatier' has brought some theatre to the streets of Britain. In addition, in the Summer, a team of five Thorntons employees cycled from John O'Groats to Lands End covering 1,200 miles and visiting 100 Thorntons stores along the way, all in the name of the Company's nominated charity, the NSPCC.

 

From September onwards Thorntons has invited chocolate lovers around the country to step inside its amazing Chocolate Kabin to find a Golden Key to the chocolate factory.  The Kabin is a re-creation of the delightful little chocolate shop first opened by Norman and Stanley Thornton. The Kabin was unveiled in London on 2 September and will travel to Liverpool, Nottingham, Edinburgh and Sheffield thereafter.

 

Along with all these exciting activities, we have also been celebrating our centenary with our staff. A Gala Day for employees and their families at Thornton Park was a great success and we will be holding a Centenary Ball in December.



Product innovation

The development of new and exciting products will always be key to the success and vibrancy of the Thorntons brand. The period under review saw the successful re-launch of our two core boxed chocolate brands Continental and Classics in Retail, as well as a refreshed Classic Collection in our Commercial channel.

Our new Melts brand grew well over the period and was joined by a new caramel variety which was created with a unique, two-tone shell delivered through our new "triple-shot" technology.

Our children's range has been re-launched and we have seen some strong development in our key seasonal lines, such as the launch of our Bramble Bunny range at Easter.

We re-launched our Hampers and Photoboxes in Thorntons Direct, which, along with our Alphabet Truffles, drove significant sales growth.

In Spring 2011 we were thrilled to be awarded four Gold Awards from the Academy of Chocolate: three for the chocolates in our Centenary "Wonder" box and one for our outstanding Tonka Chocolate Block. Finally our Master Chocolatier Keith Hurdman was awarded the accolade of Joint Chocolatier of the Year, recognition from within our industry not only of Keith's remarkable skill but also of the quality of Thorntons' products.

 

Retail

Total Retail sales, including Own Stores, Franchise and Thorntons Direct declined 8.2% to £139.5 million (2010: £152.0 million).

Own Stores

Sales in Own Stores fell 8.9% to £118.3 million over the period (2010: £129.8 million). Like for like sales declined by 7.9% reflecting the significant impact of the weak consumer environment, the reduced footfall on high streets and the aforementioned weather impacts at Christmas and Easter.

During the period 18 stores were refurbished or reformatted, 16 stores were closed and three successfully re-sited, resulting in a total of 364 stores at the year end (2010: 377).

Franchise

Franchise sales for the period declined 10.8% to £11.6 million (2010: £13.0 million) as they too suffered from the consumer downturn. Over the year, eight independent Franchise locations closed and six Birthdays units in Eire went into liquidation and were also closed. Nevertheless, we continue to be encouraged by the interest in the Thorntons Franchise, with 19 new Franchise locations opening during the period. This resulted in an overall increase in the Franchise estate to 227 by the year end (2010: 222).

Thorntons Direct

Overall Thorntons Direct sales grew 4.3% to £9.6 million (2010: £9.2 million). We continue to invest in improving the customer experience, optimising online conversion levels and creating a new contact centre to improve our customer service.

 

Sales & Operations

Commercial sales

2011 was another strong year for our Commercial channel, with sales increasing 25.9% to £78.8 million (2010: £62.6 million). The period was characterised by our continued positive relationships with the major supermarkets, where our "mass-premium" positioning has helped us to deliver category-leading initiatives and further drive our leadership in our core markets, as well as the overall growth in these markets.

Thorntons now has 34% (2010: 30%) of the inlaid box chocolate market in the UK (Nielsen, July 2011).

During the period we were particularly pleased with our 2.9% market share at Easter (2010: 1.9%) where we participated with our Commercial partners in their core Easter promotions for the first time. In addition to this we have also seen some pleasing development in gifting opportunities for Eid and Diwali.



Manufacturing operations

In our manufacturing operations we delivered strong and sustained improvements over the period. Productivity improvements continued to offset cost increases, in particular in utilities. We achieved volume growth of circa 5% with a virtually flat overhead cost and the investment in our new moulding line has delivered the anticipated savings.

Service levels to our internal and commercial customers increased further during the period, exceeding 97% (2010: 96%). Since the year end we outsourced our warehouse and distribution functions under a six-year contract. Over 130 of our colleagues have now transferred from Thorntons to our partner. We thank them and wish them well as we start this new relationship.

Raw material prices saw further significant increases during the period. Dairy products increased by more than 20% and sugar by more than 50%. Packaging materials and diesel have also experienced significant price increases. Our forward cover purchasing during the period enabled us to avoid the spike in the price of cocoa witnessed during the period of political uncertainty in the Ivory Coast. This is one of a number of strategies that we have deployed to mitigate these price increases. Improvements in our procurement approach combined with product and ingredient re-engineering have also continued to help reduce some, though not all, of these effects.

Export sales

Although starting from a low base, Export sales increased strongly by 33.3% to £3.6 million (2010: £2.7 million). There was strong growth in duty free sales and in the development of sales to a number of territories including South Africa, Singapore, Cyprus and Poland. Our business in the Republic of Ireland also grew despite the challenging economic conditions.

Notwithstanding these encouraging results, we will shortly be commencing a strategic review of international opportunities and will report the results in approximately twelve months' time.

 

Future plans

At the end of the period I presented our plans for the future of Thorntons. This followed a strategic review that found significant underlying strength in our brand, our multi-channel distribution model, our market-leading manufacturing capability and our great people. The most significant issues were identified in our Own Stores and addressing these challenges is at the heart of our plan.

Our plan sets out to achieve three key objectives:

·      A profitable and rebalanced organisation: a smaller Retail estate with a clear proposition and offer. Growth in sales and earnings from our Commercial and Franchise channels which will more than offset the reduction in Own Store sales and earnings;

·      A customer-focused business: serving our customers where they choose to buy from us with increased frequency of purchase and improved advocacy; and

·      A revitalised brand brought to life in-store and online.

 

A profitable and rebalanced organisation

Our Own Stores have been affected in three ways over the past decade:

·      There have been significant changes in consumer shopping habits, notably the growth of out of town centres and malls, supermarkets and online shopping;

·      Our Commercial sales growth has also impacted sales in our Own Stores to some extent. Despite this growth however, it is important to note that the growth in our Commercial channel has outweighed any possible loss to our Own Stores many times over; and

·      The current downturn has exacerbated the weakness in many smaller towns and shopping centres.

As a result of the above, a significant number of our Own Stores now find themselves poorly located with low or declining profitability.

Our Own Stores can, and will be, key to the future success of Thorntons, driving profitable and sustainable sales and showcasing our brand. We believe that this can be achieved with an estate of between 180 and 200 stores, located primarily in the top 150 retail locations. Taking advantage of the 179 lease expiries over the next three years we plan to close around 120 stores and explore opportunities to close a further 60 stores in weak locations in the same time frame.

This will have significant implications for our other channels:

·      Our Franchise estate will grow rapidly as we open franchises in the majority of locations where we close our Own Stores;

·      Our Commercial channel will become the main sales channel over the next three years as we see further growth in supermarket sales driven by more stores and greater demand from customers; and

·      Our Thorntons Direct channel will continue to grow in line with the online gifting market. We will invest further in our website and in new customer relationship management systems as we start to align the direct consumer element of this channel with our Own Stores channel.

Rebalancing our business across our channels in this way will ensure that we protect the capacity utilisation levels in our factory by maintaining modest growth in overall production levels.

 

A customer-focused business

We know and understand our core customers well since many purchase Thorntons across a number of our channels. They tell us that they want us to improve their experience in our Own Stores and we have committed to investing in our stores, in our products and in delivering a truly engaging experience through our store teams.

On average, our customers visit and purchase from us five times a year. Just under half of our customers visit us only once or twice a year. Our key customer objective is to encourage existing customers to visit and purchase more frequently. Achieving just one extra visit and purchase per year would transform our Own Stores business.

 

A revitalised brand

We will revitalise our brand by bringing it to life in our Own Stores, creating a "theatre of the senses" that puts the special touch back into the customer experience. Key to delivering this is the creation of a differentiated and less seasonal offer. Whilst the brand will always be famous for the key seasonal events, we will grow the relevance for other gifting occasions in our customers' lives, for example birthdays, anniversaries, congratulations, or simple "I love you", "thank you" and "just because" moments.

We will deliver this by developing and introducing new products including a new range of delightful, innovative and affordable gifts as well as introducing a new flagship range of boxed chocolates. We will significantly increase the number of opportunities to personalise and customise gifts, building on our heritage for the icing of names and messages. We will introduce some of the successful lines from our Thorntons Direct channel into our stores, including hampers and Alphabet Truffles.

All of this will be implemented in stores that are easier to shop in and that highlight the quality of our product, supported by engaging and friendly store teams. Our Own Stores will be the place to come for the "full" Thorntons brand experience.

I am pleased to report that we are already making progress in delivering these improvements. In May of this year we successfully introduced a number of new initiatives in two of our stores.  These new initiatives included new fixtures and visual merchandising approaches, many of which will be rolled out across the estate this Autumn.

Achieving this transformation over the next three years will deliver a stronger, de-risked business in a position of strength for sustainable and profitable growth in the future. There is no doubt that we will be undertaking this transformation in the face of considerable and unprecedented adverse economic headwinds. These headwinds, nevertheless, reinforce our need for change.

This transformation will not be possible without the continued support from the passionate and committed people across Thorntons, including our loyal franchisees. Our colleagues' response to our plan has been positive and enthusiastic. I would like to express my thanks for all their hard work and efforts over the past year and for their continued support during the exciting and challenging period ahead of us.

 

Jonathan Hart

Chief Executive

6 September 2011



Finance Director's report

Key performance indicators

The Board uses five Key Performance Indicators to measure progress in building shareholder value. These are shown below for the last two years:


2011

2010*

Net sales movement

1.7%

(0.1)%

Own Stores like for like sales growth

(7.9)%

(3.5)%

Profit before tax and exceptional items

£4.3m

£6.9m

Gross margin return on sales

46.2%

49.7%

Cash flow from operating activities

£14.8m

£15.1m

 

*For comparative purposes, profit before tax and exceptional items for 2010 has been re-presented in 2011 in order to reflect the treatment of onerous lease and impairment provision charges as exceptional items and bank arrangement fees as finance costs, as per the 2011 financial accounts. Throughout this report the represented numbers are used to discuss performance.

 

Sales

Thorntons' sales are made through a number of channels, whose performance is summarised below:


2011

£m

2010

       £m

% increase/ decrease

Own Stores

118.3

129.8

(8.9)%

Franchise

11.6

13.0

(10.8)%

Thorntons Direct

9.6

9.2

4.3%

Total Retail sales

139.5

152.0

(8.2)%

Sales & Operations

78.8

62.6

25.9%

Total sales

218.3

214.6

1.7%

 

A detailed review of the sales performance by channel is set out in the Chief Executive's report.

 

Profit before taxation

Reported profit before taxation and exceptionals fell 37.3% to £4.3 million (2010: £6.9 million). Whilst Group sales grew by 1.7% to £218.3 million (2010: £214.6 million), trading was particularly challenging in the Retail channels due, in part, to the adverse effect of weather conditions over the key Christmas and Easter trading periods. Lower Own Stores and Franchise sales in the key trading periods resulted in higher levels of discounting to clear stocks, particularly in the lead up to Easter.

At the end of the first half of the year the Company reported a profit before taxation of £8.3 million (2010: £9.1 million). However, Own Stores sales declined by £6.6 million to £44.2 million in the second half of the year with like for like sales of (12.0)% in Own Stores. With lower Own Store sales and higher levels of discounting charges, the loss before taxation and exceptionals in the second half was £4.0 million (2010: £2.2 million).



Exceptionals

The exceptional charge for 2011 is made up of the following items:


2011

£m

2010

£m

Onerous lease provisions

2.5

0.6

Asset impairment charge

1.8

0.2

One-off charge incurred with the outsourcing of the warehousing and distribution facilities

0.7

-

Bank re-financing fees

0.4

-

Total

5.4

0.8

 

As a result of the significant decline in Own Store trading and profitability over the year, a substantial provision has been made for onerous leases. Of the charge, £1.0 million relates to two stores in Eire where trading has been particularly challenging.

Further details of the calculation of the asset impairment charge of £1.8 million are set out in note 2 to this announcement.

The charge incurred on the outsourcing of the warehousing and distribution facilities relates to one-off redundancy charges and transition costs as the supplier takes control of the operations.

The Company's banking facilities were due for renewal in August 2012 but were successfully re-negotiated in June 2011. The charge of £0.4 million includes the write-off of arrangement fees amortised in line with the term of the old facilities and professional fees incurred in setting up the new facilities.

 

Gross margin return on sales

Gross profit margin percentage reduced by 3.5 percentage points for the year to 46.2% (2010: 49.7%).  A number of factors contributed to this decline:

·      As a result of the successful growth of Commercial, sales from this channel now represent 36.1% of total Company sales (2010: 29.2%). Commercial sales are made at wholesale prices and consequently reduce the overall gross margin percentage;

·      Higher levels of discounting and promotional support costs were incurred in both the Own Stores and Commercial channels;

·      Changes in product mix principally due to the growth in lower margin value boxes in Own Stores and seasonal exclusive lines in the Commercial channel;

·      Raw material costs increased over the period and despite the continuation of forward purchasing, ingredient optimisation, product re-engineering plus selective price increases, overall gross margin was still impacted; and

·      Incremental costs were incurred across all Channels as a result of the adverse weather conditions in the Christmas period. These costs were estimated to be approximately £0.5 million.

 

We believe that the new strategy plus the continued improvements in manufacturing efficiencies and the management of raw material costs will, over time, contribute to a recovery in our gross margin percentage.

 

Operating expenses

Operating expenses reduced by 3.2% to £96.4 million (2010: £99.6 million). As a percentage of sales, operating expenses reduced from 46.4% in 2010 to 44.2% in 2011.

The reduction in operating expenses has come from the closure of 16 stores in the year as well as from the benefits of implementing sustainable cost-saving initiatives in both the current and last financial year. These initiatives have included headcount reductions and procurement work in IT, telecoms, point of sale, marketing and other areas of discretionary spend.

During the period £0.6 million (2010: £0.1 million) of costs were incurred in respect of the closure of 16 stores.

 

Other operating income

Other operating income increased to £1.7 million (2010: £1.4 million). Within other operating income licensing income increased from £1.0 million in 2010 to £1.3 million in 2011. This includes the full year benefit of Thorntons branded biscuit and chilled desserts licences, which commenced during 2010, and the new chocolate liquor licence, which commenced during 2011. The levels of franchise income and rent receivable remained relatively flat year on year.

 

Taxation

The £0.8 million tax credit for the year represents 76.4% of the loss before taxation (2010 charge: 29.1% of profit before taxation). The credit is higher than the effective statutory rate of 27.5% and is due to the tax effect of permanently disallowable items and the effect of the change in the corporation tax rate announced in the period.

 

Shareholders' returns and dividends

As a consequence of the challenging trading conditions and the exceptional charges, the basic loss per share equates to 0.4p (2010: earnings per share of 6.5p). Dividends paid in the year amounted to 6.05p per share (2010: 6.80p) which, following the reasonable trading reported for the first half of the year, included an interim dividend of 1.95p per share (2010: 1.95p). With the trading losses and exceptional charges reported in the second half of the year, the Board is recommending a nominal final dividend of 0.25p be paid to shareholders in November 2011, thus making a total dividend of 2.20p (2010: 6.05p).

 

Cash and debt

Cash generated from operating activities before taxation decreased from £15.1 million to £14.8 million. The continued growth in Commercial sales, combined with the planned stock phasing for the new financial year and the effects of cost inflation contributed to higher year end stock levels which increased by £6.6 million to £37.0 million. The increased investment in stock was partially funded through improved payment terms from suppliers.

Net debt was £24.5 million at the year end (2010: £26.0 million). In June 2011 the banking facilities were renewed. The Group now has committed banking facilities with HSBC, Lloyds TSB and Barclays totalling £57.5 million through to October 2015 and overdraft facilities of £5.0 million.

 

Capital expenditure

Investment in fixed assets totalled £5.9 million (2010: £5.7 million) of which £1.9 million (2010: £1.5 million) was funded through finance leases.

In the first half of the year £1.4 million was spent on 18 store refits and three resites. No further expenditure on store refits was incurred in the second half of the year as the development of a new store format is underway. The balance of £4.5 million was spent on completing a new moulding line, product tooling and other supply chain and IT improvements.

 

Pensions

The IAS 19 pension scheme deficit increased from £24.2 million in 2010 to £25.3 million at the 2011 year end. The increase in the value of the equity markets over the twelve months to June 2011 contributed to a £5.1 million increase in the valuation of the pension scheme assets. The increase was offset by the basis on which the present value of the scheme's obligations are measured. The key changes were an increase in inflation assumption from 3.30% per annum to 3.50% per annum and an adjustment to the mortality assumption for both current and future pensioners to reduce the age adjustment factor to +1 year to reflect improvements in life expectancy. These changes contributed to actuarial losses of £5.2 million.



Information systems

System developments have continued to ensure that the business remains compliant with the credit card industry's PCI-DSS standard, which sets the security standards for handling credit and debit card transactions.

 

 

 

 

 

 

Mark Robson

Finance Director

6 September 2011



Consolidated income statement

52 weeks ended 25 June 2011


52 weeks ended 25 June 2011


52 weeks ended 26 June 2010*



Before



Before





exceptionals

Exceptionals

Total

exceptionals

Exceptionals

Total



£'000

£'000

£'000

£'000

£'000

£'000

Revenue


218,255

-

218,255

214,553

-

214,553

Cost of sales


(117,516)

-

(117,516)

(108,009)

-

(108,009)

Gross profit


100,739

-

100,739

106,544

-

106,544

Operating expenses


(96,403)

(5,158)

(101,561)

(99,573)

(775)

(100,348)

Other operating income


1,674

-

1,674

1,386

-

1,386

Operating profit/(loss)


6,010

(5,158)

852

8,357

(775)

7,582

Finance income


11

-

11

212

-

212

Finance costs


(1,685)

(249)

(1,934)

(1,657)

-

(1,657)

Profit/(loss) before taxation


4,336

(5,407)

(1,071)

6,912

(775)

6,137

Taxation credit/(charge)


(174)

992

818

(2,000)

217

(1,783)

Profit/(loss) attributable to owners
of the parent


4,162


(4,415)

(253)


4,912


(558)


4,354

 

(Loss)/earnings per share








Basic




(0.4)p



6.5p

Diluted




(0.4)p



6.5p

 

All activities in both the current and previous year relate to continuing operations.

*Exceptional items have been reanalysed for comparative purposes

 

 

Dividend per share


Note

2011

2010

Proposed Final dividend


0.25p

4.10p

Impact on shareholders' funds (£'000)

3

167

2,748

Total dividend in respect of the year


2.20p

6.05p

Impact on shareholders' funds (£'000)

3

1,473

4,054

Paid in the year


6.05p

6.80p

Impact on shareholders' funds (£'000)

3

4,054

4,553

 

 

 



Statement of comprehensive income - Group

52 weeks ended 25 June 2011


52 weeks

52 weeks


ended

ended


25 June 2011

26 June 2010


£'000

£'000

(Loss)/profit for the period


(253)

4,354

Other comprehensive (expense)/income:




- actuarial loss recognised in the defined benefit pension scheme


(2,375)

(4,040)

- movement of deferred tax on pension liability


133

1,131

Total other comprehensive expense


(2,242)

(2,909)

Total comprehensive (expense)/income for the financial period attributable to owners of the parent



(2,495)


1,445

 

 

Statement of changes in shareholders' equity - Group

52 weeks ended 25 June 2011


Share

Share

Retained



capital

premium

earnings

Total


£'000

£'000

£'000

£'000

At 27 June 2009

6,835

13,752

8,151

28,738

Profit for the period

-

-

4,354

4,354

Other comprehensive expense:





- actuarial loss recognised in the defined benefit pension scheme

-

-

(4,040)

(4,040)

- movement of deferred tax on pension liability

-

-

1,131

1,131

Total comprehensive income for the period ended 26 June 2010

-

-

1,445

1,445

Transactions with owners:





- new share capital issued

2

16

-

18

- share-based payment charge

-

-

379

379

- effect of tax on share option movement

-

-

(59)

(59)

- dividends

-

-

(4,553)

(4,553)

At 26 June 2010

6,837

13,768

5,363

25,968

Loss for the period

-

-

(253)

(253)

Other comprehensive expense:

 

 



- actuarial loss recognised in the defined benefit pension scheme

-

-

(2,375)

(2,375)

- movement of deferred tax on pension liability

-

-

133

133

Total comprehensive expense for the period ended 25 June 2011

-

-

(2,495)

(2,495)

Transactions with owners:





- share-based payment charge

-

-

(110)

(110)

- dividends

-

-

(4,054)

(4,054)

At 25 June 2011

6,837

13,768

(1,296)

19,309



Consolidated balance sheet

as at 25 June 2011



2011

2010



£'000

£'000

Assets




Non-current assets




Intangible assets


2,792

3,451

Property, plant and equipment


52,667

58,533

Investment in subsidiaries


-

-

Deferred tax assets


-

-



55,459

61,984

Current assets




Inventories


37,018

30,393

Trade and other receivables


16,017

15,977

Cash and cash equivalents


1,752

1,626



54,787

47,996

Total assets


110,246

109,980

Equity and liabilities




Shareholders' equity attributable to owners of the parent




Ordinary shares


6,837

6,837

Share premium


13,768

13,768

(Deficit)/retained earnings


(1,296)

5,363

Total equity


19,309

25,968

Liabilities




Current liabilities




Trade and other payables


32,457

25,390

Borrowings


22,886

24,090

Current tax liabilities


-

614

Provisions for liabilities


967

297



56,310

50,391

Non-current liabilities




Borrowings


3,355

3,557

Deferred tax liabilities


599

1,800

Retirement benefit obligations


25,264

24,219

Other non-current liabilities


2,699

2,827

Provisions for liabilities


2,710

1,218



34,627

33,621

Total liabilities


90,937

84,012

Total equity and liabilities


110,246

109,980

 



Consolidated cash flow statement

52 weeks ended 25 June 2011



52 weeks

52 weeks



ended

ended



25 June

2011

26 June 2010


Note

£'000

£'000

Cash flows from operating activities




Cash generated from operations


14,823

15,123

Corporate taxation paid


(1,392)

(2,255)

Interest received


12

177

Cash flows generated from operating activities


13,443

13,045

Cash flows from investing activities




Proceeds from sale of property, plant and equipment


46

136

Purchase of property, plant and equipment


(4,208)

(4,605)

Net cash used in investing activities


(4,162)

(4,469)

Cash flows from financing activities




Net proceeds from issue of ordinary shares


-

18

Interest paid


(1,802)

(1,890)

Capital element of finance lease rental payments


(2,499)

(3,613)

Borrowings (repaid)/advanced


(800)

2,500

Dividends paid

3

(4,054)

(4,553)

Net cash used in financing activities


(9,155)

(7,538)

Net increase in cash and cash equivalents and bank overdrafts


126

1,038

Cash and cash equivalents at beginning of period


1,626

588

Cash and cash equivalents at end of period


1,752

1,626

 



Notes to the preliminary announcement

 

1.   Basis of preparation

 

This preliminary announcement does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information for the years ended 25 June 2011 and 26 June 2010 has been extracted from the consolidated financial statements on which the auditors have given unqualified opinions and which do not contain statements under Sections 498(2) or 498(3) of the Companies Act 2006. This announcement has been agreed with the Company's auditors for release.

 

The financial information included in this preliminary announcement does not include all the disclosures required by International Financial Reporting Standard ("IFRS") or the Companies Act 2006 and accordingly it does not itself comply with IFRS or the Companies Act 2006.

 

The Group's financial statements for the year ended 26 June 2010 have been delivered to the Registrar of Companies and 25 June 2011 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

 

The Group prepares its annual consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations as adopted by the European Union ("EU") and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. There are no material differences between the accounting policies adopted for use in the preparation of the consolidated financial statements for the year ended 25 June 2011, the financial information included in this preliminary announcement and the accounting policies disclosed in the 2010 Annual Report and Financial Statements, copies of which are available on Thorntons plc website, www.thorntons.co.uk.

                                               

These consolidated financial statements have been prepared under the historical cost convention with the exception of derivative financial instruments and share based payments which are recognised at fair value.

 

This preliminary announcement will be published on the Company's website, in addition to the paper version. The maintenance and integrity of the website is the responsibility of the directors. The work carried out by the auditors does not involve consideration of these matters. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

2.   Exceptional items

Exceptional items comprise:

 


52 weeks

ended

 25 June 2011

£'000

52 weeks

ended

26 June 2010

£'000

Impairment and onerous lease charges

4,334

775

Outsourcing costs

687

-

Refinancing costs

386

-

Total exceptional items

5,407

775

Tax credit attributable to exceptional items

(992)

(217)

Total exceptional items after tax

4,415

558

 

Impairment and onerous lease charges
As a result of the performance of Retail Own Stores during the year, significant impairment and onerous lease charges have been required.

Assets are reviewed for impairment on a regular basis and a provision made where necessary. A discounted cash flow is calculated for each Retail store, including attributable overheads, using the Group's weighted average cost of capital. The net book value of assets attributable to the Retail store are impaired to the extent that the net present value of the cash flows is lower than the net book value.

The provision for onerous leases is held in respect of leasehold properties for which the Group is liable to fulfil rent and other property commitments for stores from which either the Group no longer trades or for which future trading cash flows are projected to be insufficient to cover these costs. Amounts have been provided for the shortfall between projected cash flows and the property costs up to the lease expiry date on a discounted basis.

Outsourcing costs
On 27 June 2011 the Group announced the outsourcing of its distribution and warehousing functions. As the decision to sign the contract in an agreed form had been made and approved by the Board prior to the year end date, exceptional transition costs relating to this contract have been included in the accounts for the year ended 25 June 2011.

Refinancing costs
On 24 June 2011 the Group agreed and signed new committed bilateral revolving credit facilities totalling £57.5 million with a maturity date of October 2015 to replace the existing bank facilities of £52.5 million. At 25 June 2011 loans against the existing facilities were in place, expiring by 28 June 2011, at which point the new facility commenced. These facilities continue to be unsecured.

The associated exceptional costs relate to professional fees for the arrangement of the new bank facility agreements and the write-off of remaining unamortised arrangement fees of the previous facilities which were due to expire in August 2012.

Tax charge attributable to exceptional items
This is the tax charge arising in relation to the exceptional items which are an allowable deduction for tax and it has been calculated at the UK standard corporation tax rate of 27.5%.

 

3.   Ordinary dividends


2011

2010

Group and Company

£'000

£'000

Final dividend paid for the 52 weeks ended 26 June 2010 of 4.10p
(52 weeks ended 27 June 2009: 4.85p)


2,748


3,247

Interim dividend paid in respect of the 52 weeks ended 25 June 2011 of 1.95p
(52 weeks ended 26 June 2010: 1.95p)


1,306


1,306

Amounts recognised as distributions to owners of the parent

4,054

4,553

 

In addition, the Directors are proposing a final dividend in respect of the year ended 25 June 2011 of 0.25p per share which will absorb an estimated £167,000 of shareholders' funds. It will be paid on 25 November 2011 to shareholders who are on the register of members on 28 October 2011.

The trusts operating the long term incentive plan scheme ("LTIP 2007") have fully waived dividends on the 504,610 (2010: 504,610) shares held at 25 June 2011 and all but 0.01p per share on the 905,070 (2010: 905,070) shares held in respect of the 2001 Executive Share Option Scheme.



 

4.   Reconciliation of movement in net debt


2011

2010


£'000

£'000

Increase in cash and cash equivalents

126

1,038

Cash flows from decrease in debt

3,300

1,113

Change in net debt resulting from cash flow

3,426

2,151

Inception of new finance leases

(1,894)

(1,498)

Movement in net debt in the period

1,532

653

Net debt at beginning of period

(26,021)

(26,674)

Net debt at end of period

(24,489)

(26,021)

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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