Interim Results For 6 months ended 31 Dec 2017 February 2018
Financial highlights 62.5m 55.7m 71.7m 13.7m 10.8m 15.8m 8.8m 11.2m 12.9m 16 17 18 16 17 18 16 17 18 REVENUE 71.7m (H1 FY17: 62.5m) +14.7% YEAR-ON-YEAR UNDERLYING EBITDA 1 15.8m (H1 FY17: 13.7m) +15.3% YEAR-ON-YEAR PROFIT BEFORE TAX 12.9m (H1 FY17: 11.2m) +15.2% YEAR-ON-YEAR PROFIT AFTER TAX 10.1m (H1 FY17: 8.8m) EARNINGS PER SHARE 9.0p (H1 FY17: 7.8p) INTERIM DIVIDEND 0.6p 1. Underlying EBITDA is stated before share-based payments (H1 FY18 0.4m, H1 FY17 0.3m)
Operational highlights +10 NEW STORES OPENED IN H1 +2 NEW LOCATIONS IN HONG KONG DIGITAL WHOLESALE ACHIEVING EXPECTATIONS +16% WEBSITE SALES GROWTH +25% FACTORY CAPACITY GROWTH STRONGER NEW STORE PIPELINE GROWTH STRATEGY IS ON TRACK 1. Open stores & new shop+cafe format 2. Increase capacity and capture efficiencies from the vertically integrated supply chain 3. Grow digital customer base and improve gifting proposition 15 OPERATIONAL HIGHLIGHTS A strong Christmas range improved availability and wider selection of gift boxes drove increases in existing store and online sales. Opened 10 stores in UK & ROI. Now have 26 shop+cafe format stores, with ability to flex offer for each location. Pipeline for H2 is stronger YoY Hong Kong franchise partner now trading from 4 locations including a seasonal pop-up Digital wholesale delivering encouraging sales without cannibalising own website Factory capacity increased by over 25%, from improved asset utilisation and capital investment in liquid chocolate storage 2
Group income statement 26 weeks ended 31 December 2017 000 26 weeks ended 25 December 2016 000 Revenue 71,709 62,528 Revenue growth +15% year-on-year Cost of sales (22,601) (19,983) Operating expenses (33,316) (28,846) Underlying EBITDA 15,791 13,698 Share-based payments (367) (277) EBITDA margin improved by +11bps. Previously anticipated headwinds of currency (35bps) and cost to in-source subscription distribution (60bps) both fully mitigated by new efficiencies and scale economies Depreciation & amortisation (2,216) (1,759) Operating profit 13,209 11,662 Finance income 16 3 Finance expenses (296) (446) Includes 0.1m non-cash interest on FX derivatives (H1 FY17: 0.1m) Profit before tax 12,936 11,219 Tax expense (2,821) (2,422) Profit for the period 10,115 8,797 Profit growth +15% year-on-year EPS basic 9.0p 7.8p Number of shares in issue is unchanged since IPO EPS diluted 8.9p 7.8p DPS 0.6p - 3
Group balance sheet At 31 December 2017 000 At 25 December 2016 000 Non-current assets Intangible assets 2,548 2,144 Property, plant and equipment 34,678 29,195 Capital investments in new stores and factory capacity Investments in joint ventures 7 - Derivative financial assets 9 9 Prepayments 18 5 Deferred tax asset 382-37,641 31,353 Current assets Derivative financial assets 74 523 Inventories 9,034 7,569 Trade and other receivables 6,495 6,194 Cash and cash equivalents 24,995 23,522 40,598 37,809 Total assets 78,239 69,162 Current liabilities Trade and other payables 25,809 25,799 Corporation tax payable 2,818 2,396 Derivative financial liabilities 52 145 Borrowings 3,482 3,773 3.3m of chocolate bonds Provisions - - 32,162 32,115 Non-current liabilities Other payables and accruals 2,546 1,850 Derivative financial liabilities - 102 Deferred tax liabilities - 11 Borrowings 3,192 3,542 3.1m of chocolate bonds Provisions 826 706 6,564 6,212 Total liabilities 38,726 38,327 NET ASSETS 39,512 30,836 56 4
Group cash flow 26 weeks ended 31 December 2017 000 26 weeks ended 25 December 2016 000 Profit before tax for the period 12,936 11,219 Adjusted by: Depreciation, amortisation & impairment 2,207 1,743 Net interest expense 280 443 Other non-cash expenses 376 293 Operating cash flows before movements in working capital 15,798 13,698 15% increase driven by sales growth & cost control Changes in working capital 10,336 9,215 Cash inflow generated from operations 26,134 22,913 Income tax paid (1,116) (591) Net interest paid (85) (183) Cash flows from operating activities 24,933 22,139 Cash flows used in investing activities (6,394) (4,837) Cash flows used in financing activities (2,052) (415) Net change in cash and cash equivalents 16,487 16,887 Cash and cash equivalents at beginning of period 8,470 6,475 Foreign currency movements 37 160 Cash and cash equivalents at end of period 24,994 23,523 5
Positioned for growth DIFFERENTIATED BRAND & PRODUCTS LARGE AND GROWING MARKETS Core brand ethos of: ORIGINALITY, AUTHENTICITY AND ETHICS Differentiated taste More cocoa, less sugar Accessible luxury: prices from 1 to 300 High rate of product innovation within disciplined range architecture Consumer research shows high advocacy 20bn UK gifting market 1 6bn UK chocolate market 2 8bn UK cafe market 3 HC has significant headroom in each Consumer research shows perceived lack of access is the main barrier to purchase GROWTH FROM PROVEN FORMATS STRONG PLATFORM Shop+cafe format is flexible; diverse locations Website growth of +16%, App launches H2 Weekly Subscriptions launched Feb 2018 New digital wholesale partners (Amazon & Ocado) Vertical integration is responsive whilst also protecting intellectual property Further economies of scale available Ability to increase capacity at factory and distribution centre Mitigated cost headwinds with efficiencies Source: 1) Mintel 2) Canadean 3) Allegra 6
Operational Progress
Store Portfolio Growth / New Location Types Opened 10 stores in H1 FY18, all of which included the cafe drinks offer, as will the majority of future openings. Format is now proven to be adaptable across multiple location types: Small / Travel Beverley, Clarks Designer Village Medium Shrewsbury, Eastbourne, Birmingham, Bracknell, Colchester Large Oxford Westgate, Dublin Dundrum First Edge-of-town retail park Teesside 80 90 103 Including 3 signed leases Jun 16 Jun 17 Feb 18 All location types are on track to deliver target ROCE implying a broader pipeline of potential new locations All stores are profitable Opportunities identified to further enhance cafe offer and increase capex efficiency New store leases signed to open in H2: York Designer Outlet, Sunderland, Epsom New shop & cafe Dublin Dundrum 9
Digital growth opportunity Website benefits from mobile 1 st approach Sales +16%, mobile generated 85% of all traffic growth, average spend also increasing 62% of traffic now from mobile devices, mobile conversion increased +19% New Partnerships with Amazon & Ocado provide easier access for customers Loyalty & Gifting App launches in H2 FY18 New opportunity to engage retail shoppers Rewards and treats to support loyalty 10
Subscriptions H1 Results Monthly Tasting Club LFL receipts (-13%) year-on-year In-sourcing of distribution increases cost base but improves response time and flexibility, enabling new formats / delivery frequencies. Underlying cash profitability increased Live from February 2018 New Weekly Subscription Mbox Different customer proposition to monthly selection: Trialled successfully in 2017 Convenient weekly delivery of most popular recipes Designed to be portable (individually wrapped) Social media led marketing plan Monthly box remains a core part of the offer: The deepest level of brand engagement Opportunity to test and score our newest recipes Box designed to be shared and discussed Phase III (FY19 and beyond) Invest in profitable new customer acquisition Further new subscriptions (drinking chocolate) 11
Social Media Enhancing and further extending our content to increase engagement with diverse customer groups Mobile 1 st approach, focussed on content relevant for user by location Flex content for location, store type and season Adaptable and cost effective for international markets Shared our first ever live-stream of an in-store tasting experience Empowering team members to become social media ambassadors 12
Production capacity & capability +25% factory capacity REALISED FROM IMPROVED ASSET UTILISATION AND INTELLIGENT PLANNING GROSS MARGIN IMPROVED +44 bps (despite FX headwind 35bps) FY18 Capital project to increase liquid chocolate capacity commissioned on time in Feb 2018, storage and mixing capacity increased +180% H1 Asset utilisation increased from 80% to 85% via smarter planning (making similar chocolate types on same production shift etc.) Production capacity increased by 20% by aggregating production across sales channels and seasons (fewer, longer runs etc.) Longer-term capacity and margin drivers Partial automation of packing (completion 2019) Further production capacity within current roof line including small-scale automation projects and 4 th production line (2019) New roof-line extension with 5th production line for solid shapes (2020) 513
Key new product highlights Flexible Gift Solutions Extended range of gift solutions and hampers Combine existing SKU s in themed collections at attractive gift price points New Selector gift boxes allow customers to create a unique personalised gift box from the Selector Wall of Chocolate Simple to adapt outer packaging for international markets and different gifting seasons (e.g Chinese new year) New incremental categories Higher value gifts ( 65 Grand Advent Calendar very popular) New Cocoa Beauty sub-brand, Rabot 1745: Launched December 2017 Name inspired by cocoa estate Uses cocoa and other St Lucia inspired ingredients Wellbeing an important trend for gifts and self-purchase Exploring wholesale potential 514
Outlook Strong differentiated brand with accessible luxury price points Occasion-driven purchasing and relatively modest average spend per visit relative to demographics Well positioned to capitalise on consumer trends Wellness (more cocoa, less sugar) Experiences (rollout of shop+cafe format to more locations) Mobile (new loyalty app launching in 2018) Current trading is in line with expectations Strong trading plan for key Mother s Day and Easter seasons New stores performing well, stronger pipeline for potential sites Test and learn approach to new opportunities, including wholesale, international and new subscription types Finalising next set of capacity & capability investments Board has confidence in Group s continued progress 16
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