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Company Thorntons PLC
TIDM THT
Headline

Half Yearly Report

Released 07:00 25-Feb-2013
Number 5342Y07

RNS Number : 5342Y
Thorntons PLC
25 February 2013
 



 

For immediate release                                                                                                                

Thorntons Plc ("Thorntons" or "the Company")

Announcement of Half Year Results

Thorntons today announces its half year results for the 28 weeks ended 12th January 2013.

Financial

·    Revenues up 2.9% to £133.7 million (2012: £130.0 million).
·    Profit before tax and exceptional items rose by £2.2 million to £5.3 million (2012: £3.1 million).
·    Profit after tax rose by 49.3% to £4.0 million (2012: £2.7 million)
·    Exceptional items total £0.7 million (2012: £2.4 million) consisting of impairment and onerous lease provision movements.
·    Cash generated from operations £15.0 million (2012: £11.6 million).
·    Net debt at period end was £17.5 million (2012: £16.2 million).
·    There is no interim dividend (2012: Nil).
 
 
Operational
·    Sales of Thorntons branded product in the UK Commercial channel increased strongly by 16.1% to £51.8 million (2012: £44.6 million).
·    Significant market share gains in UK Commercial channel.
·    Own Store sales declined by 8.3% to £62.6 million (2012: £68.3 million), mainly due to the closure of a further 13 stores in line with the long-term strategy. Like for like sales decreased by 1.5%.
·    Franchise sales declined by 25.4% to £5.0 million (2012: £6.7 million), mainly reflecting the placing into administration of our major franchisee in May 2012.
·    Thorntons Direct sales declined by 11.9% to £5.9 million (2012: £6.7 million) due to the late deployment of our new website and operational issues in the peak selling period.
·    International sales grew by 57.7% to £4.1 million (2012: £2.6 million).
·    Sales of Private Label grew to £3.9 million from £0.8 million.
·    As a consequence of the continued rebalancing of sales away from Own Stores into Commercial channels gross margin declined by 1.1% points.

  

 

Jonathan Hart, Thorntons' Chief Executive, commented:

 

"We are encouraged by the overall progress we made during the first half of the year. This performance demonstrates that our strategy is generating results as we continue to rebalance the business, revitalise the brand and restore profitability.

"Our customers have responded positively to our increased focus on innovation, value and service and our market share has grown further. This reflects the continued strength of the Thorntons brand across our multi-channel distribution model.

"Whilst trading since the period end has been in line with our expectations, we look forward to our important spring trading seasons of Mothers' Day and Easter which will be key to the outcome of the full year. We have strong trading plans in place and exciting new products across all channels. We are confident in the actions we are taking but remain cautious given the continuing challenge of the economic climate."

 

For further information please contact:

Nadja Vetter / Georgina Hall, Cardew Group                                                                     T: 020 7930 0777

 

This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, Directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, the Company undertakes no obligation to update or revise these forward-looking statements. Nothing in this document should be construed as a profit forecast. The Company and its Directors accept no liability to third parties in respect of this document save as would arise under English law.

Half-year management report

 

Introduction

 

In the first half of the financial year further progress has been made in transforming Thorntons in line with our strategy by rebalancing our business, revitalising our brand and restoring profitability. This has resulted in an encouraging trading performance over the important Christmas period. Whilst the economy continues to have a real impact on our customers, our plans have been constructed accordingly, with a strong focus on innovation, value and service. We have been encouraged by the positive response to the actions that we have taken over the past 18 months and believe that these results illustrate the strength of our multi-channel model and endorse our Company strategy.

 

During the period under review profit before tax and exceptional items was £5.3 million (2012: £3.1 million). Having considered the current and future capital requirements of the business, the Board has decided not to recommend an interim dividend (2012: nil pence). The Board intends to adopt a progressive dividend policy as soon as the trading performance and prospects for the business allow.

 

Overall sales increased by 2.9% to £133.7 million (2012: £130.0 million) reflecting the continued strength of the Thorntons brand with our customers and the appropriateness of our strategy to make our products available where our customers want to buy them. In this respect, we were particularly pleased with the continued strong growth of the Thorntons brand in our Commercial channel where our share of the boxed chocolate and Christmas seasonal specialities markets grew significantly. Additionally, we saw strong growth in International and Private Label sales as we pursued the initiatives outlined earlier in the financial year albeit from a small base.

 

This positive growth supports our plan for our Commercial channel to become the largest channel over the next couple of years while significantly reducing our Own Stores estate to between 180 and 200 stores in the medium term, creating a profitable and sustainable retail presence where our brand can be brought to life for our customers.

 

We continue to make good progress with our store closure programme first outlined in June 2011 and are on track to close approximately 40 stores over the course of this financial year and a similar number the year after.

 

The period saw further successful product innovation as we continued to revitalise the Thorntons brand, encouraging brand reappraisal and repeat purchases. Amongst a large number of new lines, we launched a new range of boxed chocolates aimed at the everyday gifting market, created several new large-format boxes for gifting and sharing, and introduced two iconic Continental items; our first advent calendar for grown-ups and a wonderful table centrepiece, both of which sold out in our Own Stores. Our traditional and new seasonal specialities sold well across all channels, with advent calendars and our new and refreshed Santa and reindeer models delivering particularly strong sales.

 

Retail

 

During the period, Own Store sales reduced by 8.3% to £62.6 million (2012: £68.3 million), mainly as a result of store closures. Like for like sales decreased by 1.5% (2012: ‑5.5%), reflecting the continued challenges for the High Street and for our core customers.

 

Ahead of the peak selling season we further invested in new merchandising initiatives in more than 100 of our top stores, creating improved presentation of our key offers, investing in space to re-present our famous Continental range as well as improving focus on our "Finishing Touches" of new gift wrap, bows and tags, all of which were well received by our customers. Efforts to improve the customer experience were rewarded with good growth in customer ratings, advocacy and intention to revisit, particularly over our busiest trading period.

 

We closed 13 stores (2012: 20 stores) over the period at a cost of £0.4 million (2012: £0.7 million), mainly in line with lease expiry. We are on track with our programme to close approximately 40 stores during this financial year, the majority of which are back-weighted to the final quarter in order to take advantage of trading through Christmas and the key spring seasons. We ended the first half with 317 stores.

 

Franchise

 

Franchise sales declined by 25.4% to £5.0 million (2012: £6.7 million). Whilst our franchisees also suffered from the widespread pressure on consumers and general High Street weakness, the main reason for the decline was the loss of sales following the placing into administration of our major franchisee in May 2012.

 

Although our franchisees approached the key Christmas season with caution, we saw good sales of our seasonal ranges and have received a positive response to the new ranges for the Spring seasons.

 

Interest in our new "mini-franchise" format translated into ten new openings during the period. We opened a further six full-franchise stores, which demonstrates the continued attractiveness of Thorntons' proposition to the independent card and gift retailer.

 

During the period four franchises closed, resulting in 189 franchises at the end of the period.

 

Thorntons Direct had a disappointing period in both the corporate and consumer parts of this channel. Sales declined 11.9% to £5.9 million (2012: £6.7 million).

 

Corporate sales suffered as our customers continued to tighten expenditure in light of economic pressures. However, it was our consumer online business that provided the greatest challenges. Our new website was delayed and was launched in Autumn 2012 without the planned full functionality and consumer offer. This was compounded by operational issues at our peak period during which we moderated marketing efforts in order to protect customer service.

 

These issues are being resolved and we anticipate returning to good growth during the Spring season. We remain confident of the significant potential to grow the consumer online element of this channel and will seek to invest further in developing this important contributor to our multi-channel offer.

 

 

Sales & Operations

Sales of Thorntons branded product increased strongly by 16.1% to £51.8 million (2012: £44.6 million). The attractiveness of our quality and value was demonstrated by significant growth in market share in both the boxed chocolate and Christmas specialities markets building on previous gains.

 

Promotional activity continues to be prevalent in today's competitive retail environment and we worked closely with our Commercial customers to ensure attractive offers whilst protecting margin.

 

Sales were driven by further improvements in depth and breadth of distribution, a large number of Thorntons-branded bays and feature space across the major grocers and some effective off-shelf promotions. Additionally, we commenced the roll-out of our famous Continental brand into this channel with encouraging initial results. We approach the Spring seasons with confidence supported by a strong Easter order book.

 

International sales grew strongly by 57.7% to £4.1 million (2012: £2.6 million). Six months ago we outlined a new structured approach to developing our business outside of the UK. We have been particularly pleased with the reception towards Thorntons in our first target markets and have been rewarded with encouraging seasonal and year-round sales in South Africa and Australia alongside good growth in the UAE in both grocery and tax-free locations.

 

Whilst we remain focused on our strategy and efforts to revitalise our business at home, we will continue to take sensible steps to accelerate our growth internationally and consider the performance in this period as a positive start towards growth that should make a meaningful profit contribution in a three to five-year timeframe.

Sales of Private Label grew to £3.9 million from £0.8 million in the same period last year. Early in 2012 we responded to interest from third parties wanting us to produce for them under their own label.  This had been an area from which we had hitherto withdrawn due to low profitability. We have been pleased that the interest in our quality, innovation and flexibility has been matched by efficiencies in our production ensuring that this has now become a profitable line of business.

 

It is important for our long-term rebalancing strategy to maintain production volumes, and in the period under review overall production volume grew. During our peak season we produced, packed and despatched a record number of items supported by our warehousing and distribution partner DHL. Again we demonstrated our agility and flexibility in being able to respond to fast-changing demands from our channels in addition to delivering new supply chain solutions for new domestic and international customers. Overall stock and customer service levels were managed closely and we ended the Christmas period with clean seasonal stocks. Stock levels at the end of the period were below forecast and last year's levels. 

 

In terms of input costs, despite some ingredient costs now being lower than the recent peaks, other costs continue to trade around their market highs. Our procurement extends on a global basis and we continue to take opportunities to buy forward in order to secure prices in core commodities, thereby enabling more robust planning.

 

Margin and operating expenses

Gross margins declined by 1.1 percentage points compared to the same period last year. This was primarily due to the increased mix of lower gross margin sales through our Commercial channels which accounted for a decline of 1.4 percentage points. A further 0.1 percentage point reduction was caused by lower overhead costs absorbed into balance sheet stock levels at the half-year end. Offsetting these was a positive variance of 0.4 percentage points due to, in aggregate, improved trading margins.

 

Operating expenses before exceptional items reduced by 4.3% to £49.7 million (2012: £52.0 million). This was primarily due to lower costs from our Own Stores as we continued with our closure programme as well as the continued benefits of our on-going procurement improvement programmes.

 

Other operating income reduced to £710,000 (2012: £838,000) due mainly to slightly lower sales through our product licensing partners.   

 

Financial position

 

The Company's strategy to rebalance sales across distribution channels has had the anticipated effect of restoring the profitability and cash generating potential of the business in the first half of the current financial year.

 

Reported pre-exceptional PBT in the first half was £5.3 million (2012: £3.1million).  Pre-exceptional EBITDA also increased year on year to £10.6 million (2012: £9.0 million).

 

The lower level of stock held at the half end is a good indicator of our continued tight control over cash which, when combined with increased profitability and working capital management, contributed to improved cash generation of £15.0 million (2012: £11.6 million).

 

The Company has committed unsecured bank facilities of £57.5 million which expire in October 2015. The committed borrowing facilities have financial covenants attached which are tested half yearly.  At the 12 January 2013 testing date all of the covenant tests were passed.

 

We expect that the Company will operate within the terms of its borrowing facilities and covenants for the foreseeable future. Accordingly, after making appropriate enquiries, the Directors believe that the Company has adequate resources to continue as a going concern.

 

Exceptional costs

 

In the first half year under review, the Company has incurred gross impairment and onerous lease charges of £0.7 million (2012: £2.4 million). Further details of exceptional items are contained in note 6.

 

Taxation

 

The total tax charge after exceptional items for the period under review was £1.3 million (2012: £nil) with the underlying tax rate amounting to 27.8% (2012: 29.1%) of profit before tax. This is higher than the statutory rate of 23.75% (2012: 25.75%) mainly due to the effect of permanently disallowable items and depreciation on assets for which the Group receives no tax allowances.

 

Pension Scheme

 

The valuation of the Thorntons' Pension Scheme as at 30 June 2012 has been updated on an actuarial basis, applying current discount and inflation rate assumptions and incorporating the valuation of the plan assets as at 12 January 2013. The deficit is now £30.9 million (2012: £29.1 million).  The scheme will close to future benefit accrual for employee members on 5 April 2013.

Board changes

 

Martin George joined the Board on 1 November 2012 as an independent Non-Executive Director, bringing extensive experience in consumer brand development as well as commercial and general management.

 

Paul Wilkinson, formerly our Senior Independent Director, succeeded John von Spreckelsen as Chairman upon his retirement from the Board on 1 February 2013. Keith Edelman, Non-Executive Director, succeeded Paul Wilkinson as Senior Independent Director on the same date.

 

On behalf of the Board, the Executive team and everyone at Thorntons, I would like to thank John for his contribution, support and passionate commitment to the Company over the past six years. He has steered Thorntons through an unprecedented period of economic difficulty and was instrumental in the decision to de-risk a retail-centric business by creating the multi-channel model that serves our business and our customers well today. 

 

Principal risks and uncertainties

Key risks are regularly reviewed by the Executive Directors and Senior Management. The key risks and uncertainties facing the business are detailed in note 18.

Outlook

 

Despite an encouraging performance during the first half of the financial year, we recognise this as a single and important step in a journey that will still take several years. The broader economic environment has remained challenging and we anticipate that 2013 will present more of the same in terms of weak consumer sentiment and activity. Since our statement on 16 January 2013, trading across our sales channels has been in line with our expectations.

 

We have strong plans for our key Spring trading seasons of Mothers' Day and Easter with further innovation in exciting new products, packaging and merchandising. As last year, we have planned cautiously for our Own Store and Franchise channels but anticipate further growth in sales and market share this Easter in our UK Commercial channel. We have a strong order book to support this. As ever, the performance of the Company over these important seasons will define the outcome for the year as a whole.

 

There is still much to do in delivering our vision for the future of Thorntons. We are confident in our strategy and in the actions we have taken.

 

Rebalancing should see good growth in Commercial sales and a return to growth in Thorntons Direct with further Own Store closures in line with our lease expiry profile.

 

Revitalising should see further exploitation of the inherent strengths of our brand, delivering more product innovation. We will also make further progress towards a comprehensive refresh of our range and packaging in line with our new brand look and feel, which will start to become available to our customers in the second half of 2013.

 

Restoring profitability is our core commitment. Margin improvement and cost control remain our key priorities. We are confident that we have the right plans and have taken the appropriate actions to deliver this.

 

As ever, the Board is sincerely grateful for the continued support from all of our customers and would like to express our appreciation to our loyal staff and franchisees.

 

On behalf of the Board

 

Jonathan Hart

Chief Executive

22 February 2013

             

              

Consolidated income statement 
28 weeks ended 12 January 2013

 

 

Unaudited

Unaudited

Audited

 

 

28 weeks

28 weeks

53 weeks

 

 

ended

ended

ended

 


12 January

7 January

30 June

 

 

2013

2012

2012

 

Note

£'000

£'000

£'000

Revenue

5

133,697

129,979

217,144

Cost of sales


(78,364)

(74,710)

(121,507)

Gross profit

 

55,333

55,269

95,637

Operating expenses





- operating expenses before exceptional items


(49,745)

(51,974)

(94,349)

- exceptional items

6

(714)

(2,448)

(3,065)

Total operating expenses

 

(50,459)

(54,422)

(97,414)

Other operating income


710

838

1,474

Operating profit

 

 

 


- operating profit before exceptional items

 

6,298

4,133

2,762

- exceptional items

6

(714)

(2,448)

(3,065)

Total operating profit/(loss)

5

5,584

1,685

(303)

Finance income

 

-

-

2

Finance costs

6

(995)

(1,067)

(1,913)

Profit/(loss) before taxation

 

 

 


- profit before taxation and exceptional items

 

5,303

3,066

851

- exceptional items

6

(714)

(2,448)

(3,065)

Total profit/(loss) before taxation

5

4,589

618

(2,214)

Taxation

 

 

 


- taxation before exceptional items

7

(1,322)

(399)

846

- exceptional items

6

43

392

470

Total taxation

 

(1,279)

(7)

1,316

Profit/(loss) attributable to owners of the parent

 

 

 


- profit attributable to owners of the parent before exceptional items

 

3,981

2,667

1,697

- exceptional items

6

(671)

(2,056)

(2,595)

Total profit/(loss) attributable to owners of the parent


3,310

611

(898)

 

 

 



Earnings/(loss) per share

 

 

 


Basic

8

4.9p

0.9p

(1.4)p

Diluted

8

4.8p

0.9p

(1.4)p

 

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

The notes form an integral part of this condensed set of financial statements.

             

             
               Consolidated statement of comprehensive income
            28 weeks ended 12 January 2013

 

Unaudited

Unaudited

Audited

 

28 weeks

28 weeks

53 weeks

 

ended

ended

ended

 

12 January

7 January

30 June

 

2013

2012

2012

 

£'000

£'000

£'000

Profit/(loss) for the period

3,310

611

(898)

Other comprehensive (expense)/income:

 

 

 

- actuarial loss recognised in the defined benefit pension scheme

(3,546)

(4,549)

(7,197)

- movement of deferred tax on pension liability

586

987

1,359

Total other comprehensive expense

(2,960)

(3,562)

(5,838)

Total comprehensive income/(expense) for the financial period attributable




to owners of the parent

350

(2,951)

(6,736)

 

The notes form an integral part of this condensed set of financial statements.

              

              

 Consolidated statement of changes in equity 
 28 weeks ended 12 January 2013

 

 

Ordinary

Share

Retained

 

 

 

shares

premium

earnings

Total

 

Note

£'000

£'000

£'000

£'000

At 25 June 2011

 

6,837

13,768

(1,296)

19,309

Profit for the period

 

-

-

611

611

Other comprehensive expense

 

-

-

(3,562)

(3,562)

Total comprehensive income for the period ended 7 January 2012

 

-

-

(2,951)

(2,951)

Transactions with owners:

 

 

 

 

 

- share-based payment credit

 

-

-

(496)

(496)

- dividends

9

-

-

(168)

(168)

At 7 January 2012


6,837

13,768

(4,911)

15,694

At 30 June 2012

 

6,837

13,768

(8,658)

11,947

Profit for the period

 

-

-

3,310

3,310

Other comprehensive expense

 

-

-

(2,960)

(2,960)

Total comprehensive income for the period ended 12 January 2013

 

-

-

350

350

Transactions with owners:

 

 

 

 

 

- share-based payment charge

 

-

-

168

168

At 12 January 2013


6,837

13,768

(8,140)

12,465

 

The notes form an integral part of this condensed set of financial statements.

              

Consolidated balance sheet 
as at 12 January 2013

 

 

Unaudited

Unaudited

Audited

 


12 January

7 January

30 June

 

 

2013

2012

2012

 

Note

£'000

£'000

£'000

Assets





Non-current assets

 

 

 

 

Intangible assets

10

2,071

2,316

2,140

Property, plant and equipment

11

44,412

49,351

47,221

Deferred tax assets


2,692

596

2,346

 

 

49,175

52,263

51,707

Current assets

 

 

 

 

Inventories


29,336

31,147

38,070

Trade and other receivables

 

32,890

27,553

15,467

Cash and cash equivalents

13b

12,660

1,919

2,918

 

 

74,886

60,619

56,455

Total assets


124,061

112,882

108,162

 

 

 



Equity and liabilities





Shareholders' equity attributable to owners of the parent

 

 

 

 

Ordinary shares

 

6,837

6,837

6,837

Share premium

 

13,768

13,768

13,768

Retained deficit

 

(8,140)

(4,911)

(8,658)

Total equity

 

12,465

15,694

11,947

Liabilities





Current liabilities

 

 

 

 

Trade and other payables

 

43,245

42,213

27,559

Borrowings

 

28,500

15,898

30,354

Current tax liabilities

 

796

316

370

Provisions for liabilities

 

1,383

1,470

1,410

 

 

73,924

59,897

59,693

Non-current liabilities

 

 

 

 

Borrowings

 

1,653

2,261

1,653

Retirement benefit obligations

12

30,892

29,118

29,080

Other non-current liabilities

 

2,399

2,481

2,490

Provisions for liabilities

 

2,728

3,431

3,299

 

 

37,672

37,291

36,522

Total liabilities

 

111,596

97,188

96,215

Total equity and liabilities

 

124,061

112,882

108,162

 

The notes form an integral part of this condensed set of financial statements.

             

Consolidated statement of cash flows 
28 weeks ended 12 January 2013

 

 

Unaudited

Unaudited

Audited

 

 

28 weeks

28 weeks

53 weeks

 

 

ended

ended

ended

 

 

12 January

7 January

30 June

 

 

2013

2012

2012

 

Note

£'000

£'000

£'000

Cash flows from operating activities

13a

14,998

11,598

1,497

Corporate taxation (paid)/received

 

(613)

630

628

Net cash generated from operating activities

 

14,385

12,228

2,125

Cash flows from investing activities

 

 

 

 

Proceeds from sale of property, plant and equipment


75

442

539

Purchase of property, plant and equipment

 

(2,068)

(2,948)

(4,875)

Net cash used in investing activities

 

(1,993)

(2,506)

(4,336)

Cash flows from financing activities

 

 

 

 

Interest paid

 

(796)

(1,305)

(2,222)

Capital element of finance lease repayments

 

(854)

(1,482)

(2,234)

Borrowings repaid

 

(1,000)

(6,600)

8,000

Dividends paid


-

(168)

(167)

Net cash used in financing activities

 

(2,650)

(9,555)

3,377

Net increase in cash and cash equivalents


9,742

167

1,166

Cash and cash equivalents at beginning of period

 

2,918

1,752

1,752

Cash and cash equivalents at end of period

13b

12,660

1,919

2,918

 

The notes form an integral part of this condensed set of financial statements.

 

               

 


Notes to the half-year financial statements

1 General information

Thorntons PLC ("the Company") is a company incorporated and domiciled in the UK and is listed on the London Stock Exchange. The address of the Company's registered office is Thornton Park, Somercotes, Derbyshire DE55 4XJ.

The principal activities of the Company and its subsidiaries during the period were the manufacturing, retailing and distribution of high-quality confectionery and other sweet foods.

The condensed and consolidated set of half-yearly financial statements ("the financial statements") for the 28 weeks ended 12 January 2013 was approved by the Directors on 25 February 2013. These financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The financial information contained in this set of financial statements in respect of the 53 weeks ended 30 June 2012 has been extracted from the Annual Report and Accounts, which were approved by the Board of Directors on 11 September 2012 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

The half-year results for the current and comparative periods are unaudited. The auditors have carried out a review of these financial statements for the 28 weeks ended 12 January 2013 and their report is set out below.

2 Basis of preparation

This condensed set of financial statements for the 28 weeks ended 12 January 2013 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 'Interim financial reporting' as adopted by the European Union ("EU"). This condensed set of financial statements should be read in conjunction with the annual financial statements for the 53 weeks ended 30 June 2012, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU.

3 Accounting policies

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 June 2012, as described in those annual financial statements.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year ending 29 June 2013 but are not considered to have a significant impact:

•    Amendment to IAS 12 'Income taxes' on deferred tax; and

•    Amendment to IAS 1, 'Presentation of financial statements' on other comprehensive income.

4 Estimates

The preparation of half-yearly financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated half-year financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 June 2012, with the exception of changes in estimates that are required in determining the provision for income taxes and disclosure of exceptional items. 

5 Segmental reporting

The Executive Directors review the Group's internal reporting in order to assess performance and allocate resources. The operating segments of the Group have been determined on this basis.

All revenue arises from UK operations to external customers and therefore the Executive does not consider the business from a geographic perspective, only an operational one. Two reportable segments have been identified: "Retail" which incorporates Own Stores, Franchise and Thorntons Direct; and "Sales & Operations" ("S&O") encompassing the Commercial trading channel and manufacturing operations. One Commercial customer represents greater than 10% of Group revenue, with revenue in the period of £18.3 million (2012: £16.7 million).

The Executive assesses the performance of the operating segments based on a measure of operating profit. Costs specific to Head Office and finance costs are not included in the result for each operating segment as these costs are not managed on a segmented basis.

Total segment assets exclude IT assets, non-trade receivables and cash and cash equivalents as these are managed centrally. Assets are located in the UK.


Unaudited
28 weeks ended
12 January 2013

 

 

 

Unaudited
28 weeks ended
7 January 2012

 

 

 

Audited
53 weeks ended
30 June 2012


Retail

S&O

Central

Total

Retail

S&O

Central

Total

Retail

S&O

Central

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Total revenue

73,449

60,248

-

133,697

81,653

48,326

-

129,979

132,150

84,994

-

217,144

Depreciation and amortisation

1,571

2,574

671

4,816

2,388

2,668

712

5,768

3,747

5,012

1,260

10,019

Segment operating profit

5,153

10,303

-

15,456

6,507

6,941

-

13,448

3,432

16,625

-

20,057

Head Office costs




(9,158)




(9,315)




(17,295)

Exceptional items

(714)

-

-

(714)

(2,443)

-

(5)

(2,448)

(3,060)

-

(5)

(3,065)

Operating profit




5,584




1,685




(303)

Net finance costs




(995)




(1,067)




(1,911)

Profit/(loss) before taxation




4,589




618




(2,214)

Additions to non-current assets (other than deferred tax assets)

634

667

660

1,961

561

1,700

331

2,592

1,300

2,493

827

4,620

Total assets

11,496

87,316

25,249

124,061

14,372

84,954

13,556

112,882

10,351

83,628

14,183

108,162

 

6 Exceptional items

 

Unaudited

Unaudited

Audited

 

28 weeks

28 weeks

53 weeks

 

ended

ended

ended

 

12 January

7 January

30 June

 

2013

2012

2012

 

£'000

£'000

£'000

Impairment and onerous lease charges

714

2,443

3,060

Outsourcing costs

-

5

5

Total exceptional items

714

2,448

3,065

Tax credit attributable to exceptional items

(43)

(392)

(470)

Total exceptional items after tax

671

2,056

2,595

 

Impairment and onerous lease charges

As a result of the performance of Retail Own Stores during the period, significant impairment and onerous lease charges have been required. An onerous lease provision is made in respect of stores for which projected discounted cash flows inclusive of attributable overheads are insufficient to cover property costs up to the lease expiry date, held at the level of the projected shortfall. Additionally where these discounted cash flows fall below the net book value of store assets, an impairment provision is made.

Outsourcing costs

Transition costs incurred as a result of the Group's decision to outsource its warehousing and distribution functions.

7 Taxation

During the period, as a result of the change in the UK main corporation tax rate from 24% to 23% that was substantively enacted on 3 July 2012 and effective from 1 April 2013, the relevant deferred tax balances have been re-measured.

The March 2012 Budget proposed a further 1% reduction in the UK corporation tax rate from 23% to 22% from 1 April 2014. This change had not been substantively enacted at the balance sheet date and therefore is not recognised in these financial statements.

The tax charge for the 28 weeks ended 12 January 2013 is based on a full year overall expected tax rate of 27.8% (full year 2012: 29.1%). The charge for the period is lower than this expected rate primarily due to the impact of the re-measurement mentioned above.

The current year rate has been calculated by reference to the projected charge for the full year ending 29 June 2013 and reflects the mainstream corporation tax rate of 23.75%. The ordinary tax charge exceeds the charge based on these statutory rates, principally due to depreciation on owned assets not qualifying for capital allowances and other permanently disallowable items.

8 Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held in the employee share trust which are treated as cancelled.

For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Dilutive potential ordinary shares are those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:


Unaudited
28 weeks ended
12 January 2013

 

 

 

Unaudited
28 weeks ended
7 January 2012

 

 

 

Audited
53 weeks ended
30 June 2012



Basic

Diluted


Basic

Diluted


Basic

Diluted


Earnings

earnings

earnings

Earnings

earnings

earnings

Earnings

earnings

earnings


£'000

per share

per share

£'000

per share

per share

£'000

per share

per share

Profit before exceptional items

3,981

5.9p

5.8p

2,667

4.0p

4.0p

1,697

2.5p

2.5p

Effect of exceptional items

(671)

(1.0)p

(1.0)p

(2,056)

(3.1)p

(3.1)p

(2,595)

(3.9)p

(3.9)p

Profit/(loss) attributable to owners
of the parent

3,310

4.9p

4.8p

611

0.9p

0.9p

(898)

(1.4)p

(1.4)p

 


Unaudited

Unaudited

Audited


28 weeks

28 weeks

53 weeks


ended

ended

ended


12 January

7 January

30 June


2013

2012

2012

Weighted average number of ordinary shares

66,955,838

66,955,838

66,955,838

Dilutive effect of shares from share options

2,051,270

210,800

1,233,787

Fully diluted weighted average number of ordinary shares

69,007,108

67,166,638

68,189,625

 

9 Ordinary dividends

 

Unaudited

Unaudited

Audited

 

28 weeks

28 weeks

53 weeks

 

ended

ended

ended

 

12 January

7 January

30 June

 

2013

2012

2012

 

£'000

£'000

£'000

Final dividend paid for the 53 weeks ended 30 June 2012 of £nil  
(52 weeks ended 25 June 2011: 0.25p)

-

167

167

Amounts recognised as distributions to owners of the parent

-

167

167

 

No half-year dividend was declared in respect of the 53 weeks ended 30 June 2012.

10 Intangible assets

 

Unaudited

 

computer

 

software

 

£'000

Cost

 

At 30 June 2012

28,022

Additions at cost

626

Disposals

(530)

At 12 January 2013

28,118

 


Accumulated amortisation

 

At 30 June 2012

25,882

Charge for the period

695

Disposals

(530)

At 12 January 2013

26,047

Net book amount at 12 January 2013

2,071

Net book amount at 30 June 2012

2,140

 

11 Tangible assets

 

Unaudited

 

property,

 

plant and

 

equipment

 

£'000

Cost

 

At 30 June 2012

182,770

Additions at cost

1,335

Disposals

(1,442)

At 12 January 2013

182,663

 

 

Accumulated depreciation

 

At 30 June 2012

135,549

Charge for the period

4,121

Disposals

(1,419)

At 12 January 2013

138,251

Net book amount at 12 January 2013

44,412

Net book amount at 30 June 2012

47,221

 

The impairment charge for the period of £535,000 (2012: £881,000) has been recognised within the depreciation charge for the year and has been classified as an exceptional item (see note 6).

12 Retirement benefit obligations

The valuation of the Thorntons' Pension Scheme ("the Scheme") at 30 June 2012 has been updated on an actuarial basis applying current discount and inflation rate assumptions and incorporating the valuation of the plan assets at 12 January 2013 and payments made into the scheme during the period. This has led to a net increase in the deficit of £1.8 million from 30 June 2012.

In August 2012, and as part of the Schedule of Contributions agreed with the Trustees to the Thorntons' Pension Scheme, it was agreed that the Company's annual deficit contribution would increase from 1 June 2012 from £2.2 million to £2.75 million. It was also agreed that the Company would make an additional contribution over each of the next three financial years' equivalent to the higher of either:

•    a third of any reduction in the net debt excluding VAT creditors for the years ending June 2013, 2014 and 2015; or

•    the amount of dividends paid to shareholders above the level of £1.5 million.

Following consultation with employee members, in December 2012 the Company announced the closure of the Scheme to future benefit accrual on 5 April 2013. A curtailment gain is being calculated and will be confirmed in the second half of the financial year.

13 Cash flow from operating activities

a) Cash generated from operations

 

Unaudited

Unaudited

Audited

 

28 weeks

28 weeks

53 weeks

 

ended

ended

ended

 

12 January

7 January

30 June

 

2013

2012

2012

 

£'000

£'000

£'000

Continuing operations

 

 

 

Operating profit/(loss)

5,584

1,685

(303)

Adjustments for:

 

 

 

- depreciation and amortisation

4,816

5,768

10,019

- amortisation of Government grants received

(10)

(11)

(21)

- (profit)/loss on disposal of property, plant and equipment

(52)

174

160

- share-based payment charge/(credit)

168

(496)

(459)

Operating cash flow before working capital movements

10,506

7,120

9,396

Changes in working capital

 

 

 

Decrease/(increase) in inventories

8,734

5,871

(1,052)

(Increase)/decrease in trade and other receivables

(17,076)

(12,055)

22

Increase/(decrease) in trade and other payables

15,166

10,133

(4,520)

(Decrease)/increase in provisions

(598)

1,224

1,032

Increase in post-employment benefit obligations

(1,734)

(695)

(3,381)

Cash generated from operations

14,998

11,598

1,497

 

b) Cash and cash equivalents for the statement of cash flows

 

Unaudited

Unaudited

Audited

 

28 weeks

28 weeks

53 weeks

 

ended

ended

ended

 

12 January

7 January

30 June

 

2013

2012

2012

 

£'000

£'000

£'000

Cash and cash equivalents at end of period

12,660

1,919

2,918

 

14 Reconciliation of movement in net debt

 

Unaudited

Unaudited

Audited

 

28 weeks

28 weeks

53 weeks

 

ended

ended

ended

 

12 January

7 January

30 June

 

2013

2012

2012

 

£'000

£'000

£'000

Increase in cash and cash equivalents

9,742

167

1,166

Cash flows from decrease/(increase) in debt

1,854

8,082

(5,766)

Change in net debt resulting from cash flow

11,596

8,249

(4,600)

Movement in net debt in the period

11,596

8,249

(4,600)

Net debt at beginning of period

(29,089)

(24,489)

(24,489)

Net debt at end of period

(17,493)

(16,240)

(29,089)

 

15 Operating lease commitments - minimum lease payments

 

Unaudited

Restated

Restated

 

28 weeks

53 weeks

52 weeks

 

ended

ended

ended

 

12 January

30 June

25 June

 

2013

2012

2011

Group

£'000

£'000

£'000

Land and buildings commitments under non-cancellable operating leases:


 

 

Within one year

15,272

16,470

19,811

Later than one year and less than five years

37,821

40,903

46,511

After five years

17,852

20,940

25,576

 

70,945

78,669

91,968

 

Land and buildings operating lease commitments as at 30 June 2012 have been corrected to remove the lease commitment associated with a long leasehold which was already included in the balance sheet within fixed assets. Half-year 2013 comparatives have been included for information.

16 Related party transactions

There are no related party transactions requiring disclosure in these financial statements.

17 Seasonality

Sales are subject to seasonal fluctuations, with peak Christmas demand in the second quarter of the year. In the 53 weeks ended 30 June 2012, the 28 week period to 7 January 2012 represented 60% of annual sales.

18 Principal risks and uncertainties

Key risks are reviewed by the Executive Directors and Senior Management. The assessment of risks on the basis of likelihood and potential impact, together with the controls and actions to manage or mitigate them, are reviewed by the Audit Committee and Board. The key risks and uncertainties facing the business are considered to be as follows:

•               economic and industry risks;

•               key input prices driven by commodity markets;

•               operational risks; and

•               people risks.

These risks and uncertainties are unchanged from those as at 30 June 2012, and further details on them are set out in our 2012 Annual Report and Accounts. This is available on our website at investors.thorntons.co.uk. 


 

Statement of Directors' responsibility


The Directors confirm that, to the best of their knowledge, these financial statements have been
prepared in accordance with IAS 34 as adopted by the EU, and that the half-year management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8.

The Directors of Thorntons PLC are listed in the Thorntons PLC Annual Report and Accounts 2012. Martin George was appointed Non-Executive Director in November 2012 and Paul Wilkinson, previously Non-Executive Director, succeeded John von Spreckelsen as Chairman on 1 February 2013.

A list of current Directors is maintained on the Thorntons PLC web site: www.thorntons.co.uk.

On behalf of the Board

Jonathan Hart                         Mike Killick

Chief Executive                       Finance Director

22 February 2013

 

This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, Directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, the Company undertakes no obligation to update or revise these forward-looking statements. Nothing in this document should be construed as a profit forecast. The Company and its Directors accept no liability to third parties in respect of this document save as would arise under English law. 


Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 28 weeks ended 12 January 2013, which comprises the Consolidated income statement, Consolidated statement of comprehensive income, Consolidated statement of changes in equity, Consolidated balance sheet and Consolidated statement of cash flows and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

The annual financial statements of the Group are prepared in accordance with IFRs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim financial reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 28 weeks ended 12 January 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

Leeds

22 February 2013

Notes:

(a)  The maintenance and integrity of the Thorntons PLC website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. 

(b)  Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.


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The company news service from the London Stock Exchange
 
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Half Yearly Report - RNS