Thorntons PLC - Final Results - Part 1
October 07 1997 - 2:31AM
UK Regulatory
RNS No 8272f
THORNTONS PLC
7th October 1997
PART 1
THORNTONS PLC
Announcement of Preliminary Results for
52 weeks ended 28 June 1997 (Audited)
Thorntons, the speciality retailer and manufacturer of
high quality chocolate, toffee, and other
confectionery, today reports its Preliminary Results
for the 52 weeks ended 28 June 1997 (1996: 53 weeks).
Financial highlights
Continuing operations
1997 1996
Turnover #109.2m #91.7m Up 19.1%
Profit before tax and
exceptional items #11.5m #8.8m Up 31.5%
Earnings per share before
exceptionals 13.32p 8.79p Up 51.5%
Dividend per Ordinary Share 5.85p 5.30p Up 10.4%
* Successful completion of the first year of the retail
estate relaunch with 157 new look shops opened
* Own shop sales grew by 27.5% to #80.2m with like-for-
like sales growing by 12.9%
* Target number of own shops by the year 2001 increased
from 359 to 507 due to the success of a number of new
retail initiatives
* Average growth in sales of 15% per annum targeted over
the next four years
* Manufacturing investment of #35m over the next two
years to consolidate all chocolate packing operations
onto Thornton Park and generate significant productivity
gains
* 820 new permanent full time equivalent jobs being
created over the next four years (520 in retail, 300 in
manufacturing).
Commenting on prospects, Chairman John Thornton said:
"We are very confident that our focus as a market led,
retail driven business is working. We now believe that
we can accelerate and expand our future growth plans
for the business over the next four years".
Chairmans Statement
I am delighted to report an extremely positive first
full-years results in response to our new strategic
plan to relaunch our retail estate, expand our product
range and refocus our culture.
Results
Sales from continuing businesses for the year ending 28
June 1997 grew by 19.1% to a record #109.2m.
Profit before taxation at #11.5m grew by 31.5% from
#8.8m before exceptional items and taxation the
previous year. Profits after tax before exceptional
items grew by 51.9% to #8.6m partly as a result of the
Groups successful claim for relief of prior year
foreign losses.
Earnings per Share before this non-recurring tax
benefit were 11.44p, an increase of 30.1% from last
years 8.79p.
The Company continued to be highly cash generative,
enabling us to fund our major retail investment
programme and total capital expenditure of over #18m
whilst containing net year end gearing to 15.6%, well
within our projected levels.
Your Board is recommending a final dividend of 4.2p net
per share, taking total dividends for the year to 5.85p
net per share, an increase of 10.4%.
Progress on Restructuring
As we indicated in the interim announcement progress on
restructuring is on target, with total exceptional
costs in line with and not more than the #21.9m
provided in last years accounts.
The sale of the Groups interest in its French retail
business has led to a #0.8m reduction in the amount
provided for in last years accounts for the disposal
of our foreign subsidiaries.
At the same time the excellent results from our new and
refitted larger shops have led us to take a more
aggressive view of the pace of change in retail with
the decision to resite an additional 65 undersized
shops leading to an increase in retail restructuring
costs of a similar amount.
Forward Growth Strategy
The overwhelmingly positive customer response to the
157 new, refitted and larger shops launched during the
year, together with the success of a number of trials -
own shops in small market towns, dual siting in major
regional shopping centres, units in factory outlet
malls and our first shop in Eire - has led us to revise
upwards the number of locations from which we believe
we can operate successfully. Consequently we have
increased our original target of own shops for the year
2000 from 359 to a revised target of 507 for the year
2001. Our estimate of franchise outlets remains at 200
locations.
As a result of this expansion strategy and our ongoing
product development plans we are targeting to achieve
average growth in sales of 15% per annum over the next
four years.
Manufacturing
This significant uplift in sales targets, together with
a major opportunity to gain production efficiencies,
has led us to the decision to accelerate the
consolidation of all chocolate packing operations onto
our Thornton Park site in time for the Christmas 1998
season. The costs associated with this new packing
facility and further investment in chocolate production
capacity are anticipated to total #35m over the next
two years.
This major investment will have a rapid payback through
gains in productivity and additional capacity.
Financing
In order to finance these investments in manufacturing
and additional shops, we are raising finance from a
private placement of medium term unsecured loan notes.
Despite this increase in borrowing facilities, we will
be seeking to contain year end gearing to a maximum of
75% and to maintain interest cover of at least three
times.
Board
I am delighted to welcome Jonathan Fellows who took up
his position as Director of Finance on 10 February
1997.
Alan Goodwin left the Company on 18 April 1997 after
more than 19 years service, 10 as a director. I thank
him for his substantial contribution to the development
of our business over this period and wish him well for
the future.
People
Opening 157 new-look shops in one year is a major
achievement. It is a tribute to the talent, energy and
teamwork of our people right across the business that
we have achieved such a retail revolution with such
success. To all the Thorntons team my personal thanks
for all their hard-work and enthusiasm in the face of
considerable challenges.
Outlook
The current year has started well. Like-for-like sales
in the first quarter are 7.5% ahead of last year with
significant contributions from the recent new product
launches, in particular our range of countline bars.The
vigorous pace of our shop-opening programme is being
maintained with 30 new and resited shops opened to date
and a total of 80 new shops and resites planned for the
year.
We continue to seek opportunities for growth beyond the
horizons of our current plan and have a number of
trials of new business opportunities currently under
evaluation. We aim to update shareholders on the
results of these trials and on our forward plans in
October next year.
John Thornton
Chairman
Chief Executives Report
1996/97 Results
In last years review I described the changes taking
place in our business as revolution not evolution. I
could find no parallel for a company undergoing the
extent and pace of change which we faced. And the
outcome? Well thanks to unprecedented levels of hard
work, commitment, enthusiasm and determination from
everyone involved we didnt just achieve our targets
for the first year of our three year plan - we beat
them!
* We achieved record sales of #109m
* We opened 157 new look shops
* We increased operating profits by 31.5%
As a result of the successes achieved to date, combined
with the early results of our trials undertaken in
small catchment towns, factory outlets and major
shopping malls, we believe our business can grow faster
and larger than our original three year plan targets
and accordingly have revisited these. More of that
later, first lets review the main reasons for the
success so far.
Own Shops
Own shop sales grew by 27.5% to #80.2m, with like-for-
like sales growing by 12.9%. Whilst many retailers
have seen encouraging like-for-like increases, we were
particularly pleased that:
* We maintained double digit like-for-like growth
throughout the year, in spite of the second half of
the previous year having benefited from the start of
our retail expansion and product innovation
programmes
* Every one of our key four seasons of Christmas,
Valentines Day, Mothers Day and Easter performed
strongly
* Day to day and self treat sales, previously areas
where the Group has been weak, saw significant
uplifts, driven by a high number of new product
launches including an extensive countline range,
Choccies cookies and the extended and improved ice
cream offer.
* The 72 refitted shops saw average sales uplifts of
12% over and above sales increases of non-refitted
shops
* The 85 new and resited stores achieved average
increases of 3% over the sales targets calculated
from our location model
* The 31 resited stores together achieved sales uplifts
of 60% compared with their previous locations
* We achieved all the key retail performance targets
set out in our last annual report as illustrated
below:
Key Retail Performance Targets 1996/97
1995/96 1996/97 1996/97
Actual Target Actual
No. of new and resited shops 13 69 85
Average sq. ft. 305 329 335
Sales per sq.ft. #781 #833 #839
Sales per shop (#000) #238 #269 #281
* A number of new retail initiatives proved successful
encouraging us to expand further our retail estate.
These include:
Smaller Market Towns
A five shop trial in smaller market towns - Elgin,
Berwick-on-Tweed, Retford, Sutton-in-Ashfield and
Abingdon has proved successful averaging a 34% market
share of our core market, well above our 21% target.
Factory Mall Outlets
We expanded our factory mall representation from one to
six in the year and have opened a further three this
summer - every one is amongst the top sales per square
foot performers in the mall.
Dual-Siting in Major Centres
Our second shop in Sheffield Meadowhall regional
shopping mall, opened in November 1996, has convinced
us that we should expand multi-siting to a further
twelve similar major shopping centres.
Larger Shops
The key learning from our customers response to our
store expansion and refit programmes was that our
stores needed to be larger in order to accommodate more
customers and to display our expanding product range.
Our best results have been achieved in shops with 16
bays (approx. 450 sq.ft.) and performance in shops
under 12 bays (approx. 400 sq.ft.) begins to drop off.
This is a significant change from our traditional shops
(averaging seven bays - approx. 305 sq.ft) and has led
to a more radical approach to our resite and refit
programme through the course of the year.
A move to more, larger shops in prime locations will
inevitably increase pressures on our retail property
ratios and levels of depreciation. We are confident
that this impact will be more than offset by
manufacturing productivity gains achieved by
accelerating our investment programmes at Thornton Park
as described later.
Franchise
We continued our planned closure programme of
underperforming or inappropriately located franchises,
leaving 202 franchises trading at the end of the year.
This represents a fall in numbers of 27% over the last
two years. The remaining franchises saw buoyant sales,
with the full year sales of #10.9m falling only
slightly below the #11.2m achieved in 1996. However we
anticipate a 15% sales decline in the year ahead as we
continue to close inappropriate outlets.
A number of new look franchise trials are planned to
open before Christmas. Whilst it is too early to draw
firm conclusions, their initial results indicate that
there is the long-term potential for around 200
franchise concessions, once the product range and store
layouts have been optimised.
Commercial
Sales to commercial customers totalled #18.1m, an
increase of 3.1% from the previous year in line with
our strategic plan.
Our business with our main commercial customer, Marks &
Spencer grew by 10.6%, whilst our export sales also saw
a healthy increase.
New Business Development
Whilst our existing businesses have demonstrated
exciting growth potential for the next four years, we
continue to look for further growth vehicles that can
capitalise on the strength of the Thorntons brand.
We are especially pleased with the potential of four
specific new business initiatives and trials in
particular, and intend to review their full business
potential in time for next years annual report. These
are:
The Cafe Thorntons format. Still at a very early
stage of the trial - we have:
* Moorgate (opened August 1996)
* Oxford (opened May 1997)
* Liverpool Station (opened July 1997)
* Milton Keynes (opened September 1997)
The initial results from all four are very
encouraging. We are looking to extend the trials to a
tourist location, a smaller market town, a first floor
location and to a suburban location and we plan to
trade these trial locations throughout all the key
seasons in order to optimise the format, layout and
offering. We plan to be in a position to identify the
full potential for this new business opportunity by
next October.
New shops in travel locations (stations and airports),
with new products and presentations specifically
prepared for this type of location, which we believe
offer a significant growth opportunity.
Our trials of traditional sugar confectionery which are
being extended through Summer 1998. We have already
learnt valuable lessons about the flexibility of range
and layout needed to optimise sales in this area and
believe that there may well be significant long-term
potential in this market for Thorntons.
The Thorntons mail order offer was launched in August.
We are confident that this business can grow
substantially over time and intend to extend our
offering to the Internet. Orders can be placed by
post, over the telephone or via any Thorntons shop.
Our mail order catalogue containing the full Christmas
range is being distributed to over 1 million potential
customers. We look forward to receiving your orders!
Simply phone free on 0800 19 11 11
Product Development
We continue to develop innovative and exciting
additions to our core product range, both for our key
seasonal offerings and, increasingly, for our day to
day business where we see major potential for growth.
A key element of our success in the seasons was the
emphasis on innovation and expansion to deliver fresh
and appealing choices to our customers. The recent
repackaging and relaunch of the Classics range and the
introduction of Swiss and Austrian Continental and the
forthcoming launch of our Awesome American range are
designed to continue to attract new customers, to offer
a wide ranging and tempting choice to existing ones,
and to maintain our success in key seasons.
Day to day ranges have seen intense activity. We
introduced a total of 27 new countline bars during the
year, giving us a five fold increase from our previous
countline offering. Combined with Choccies which
proved sensational and with our expanded ice cream
range, these new developments were the driving force
behind second half like-for-like growth of 12.4%.
An exciting initiative for the year ahead is the launch
in Spring 1998 of our major childrens range, including
more than a hundred different products ranging from
"dalmation spots" to "dinosaur footprints"! In the
past, the appeal of our product range to children has
been limited so this initiative represents the single
biggest growth opportunity within our core
confectionery markets.
We intend to maintain the exciting pace of innovation
in our seasonal gift markets in the years ahead, with
additions to the Global range to follow on from
American, together with a traditional range aimed at
the top end of the market and several more mouth-
watering ideas in the pipeline.
Manufacturing & Supply Chain
The closure of Flixborough and the sale of the Gartner
factory were completed in the second half of last year
with their activities absorbed successfully into our
two main factories this year, enabling us to start the
process of improving productivity and achieving
efficiency savings.
We have reviewed our entire product range, to identify
those products where we derive a competitive advantage
from in-house manufacturing, either because of recipe
or process knowledge, or because we can manufacture
more cost effectively. We are now actively seeking to
outsource those remaining products which do not provide
such advantages, which will lead to the proportion of
externally manufactured products increasing over time.
We have also made progress in streamlining our supply
chain, improving key performance measures and reducing
lead times, with a key part in the progress being
played by the integrated manufacturing computer system
installed in 1996.
The productivity gains we have already identified
through innovative investment in automation this year -
including a new chocolate enrobing line, the new toffee
breaking and packing line, the automatic Continental
box erector - have highlighted significant
profitability gains still to be achieved in our
business.
Following a comprehensive review of these opportunities
in the light of the considerable additional volume from
our planned retail expansion we have decided to
consolidate our chocolate manufacturing and packaging
operations onto a single site at Thornton Park at the
earliest opportunity.
The combined cost of building a state of the art
facility together with further investment in automation
is significant - #35m - but this investment exceeds our
target return on capital of 20%, as well as
underwriting the additional capacity requirements of
our ambitious growth plans for the next decade.
We will continue to maintain our non chocolate
confectionery production and packing at Belper,
together with our main warehouse and distribution
facilities. We would not anticipate relocating these
functions unless such a relocation became self
financing.
We anticipate the total expansion programme will create
additional jobs over the next four years and are keen
to ensure that all employees affected remain with the
business.
Our aim is to have the new packaging facilities
operational on Thornton Park in time for Christmas
1998, with the additional investment in automation due
shortly thereafter. Another challenge, but another
major opportunity for us!
Outlook
The achievements and advances made towards our
objectives in this, the first year of our initial
strategic plan have been very satisfying.
We have learnt numerous valuable lessons from the
progress made so far and now firmly believe that where
"we get it right"(i.e. right location, right image,
right size), we are capable of achieving a higher share
of our core market than our original 21% target.
This together with the trials undertaken in smaller
market towns, in factory outlets, in major shopping
centres, and the opportunities to develop and grow our
retail estate in both the South East of England and in
Eire has led us to recalculate the number of potential
locations from which we can operate profitably up from
our original 359 target in 2000 to a higher number of
507 by the year 2001.
New 4 Year Plan Targets
Original Targets New Targets
for 2000 for 2001
New shops 140 288
Resited shops 76 141
Refitted shops 143 78
Total shops 359 507
Average sq.ft per shop 388 425
Sales per sq.ft. #924 #882
Sales per shop (#000) #350 #375
The increased number of larger shops has led us to
update our key performance targets with greater
emphasis on larger shops, higher sales turnover per
shop but with a slight reduction in sales per sq.ft.
growth.
From June 1997 we plan to open 331 new or resited shops
over the next four years. This is an ambitious and
exciting target. However the speed with which we
accomplish this programme will be responsive to market
and property conditions. We will not sacrifice
profitability for growth, but are however, confident
that we can double sales in our own shops over this
period.
We are determined to maintain our growth momentum, not
just for the initial four year planning horizon, but
beyond and are progressing a number of exciting new
business trials throughout the year. We look forward
to updating our shareholders on their potential next
October.
Roger Paffard
Chief Executive
Contact:
Roger Paffard, Chief Executive 0171 466 5000
on Tuesday 7 October, thereafter on 01773 540550
Jonathan Fellows, Director of Finance 0171 466 5000
on Tuesday 7 October, thereafter on 01773 540550
Tim Anderson/Charles Ryland, Buchanan Communications
0171 466 5000
M O R E T O F O L L O W
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