british cacao grower
TRANSCRIPT
BRITISH CACAO GROWER
Chocolate. Reinvented.
FY20 Preliminary Results
September 2020
Financial Highlights
1
1. Underlying EBITDA is pre IFRS16, and excludes share-based payment charges and related tax and exceptional non-cash impairment charges
2. Exceptional costs are non-cash impairment charges of £10m (FY19: nil)
STRONG FINANCIAL POSITION: Net cash of £16.5m and liquidity headroom of £51.5m as at 20 September.
Operational Highlights
COVID-19 HAS ACCELERATED OUR
EXISTING GROWTH STRATEGIES
• UK lockdown immediately prior to Easter gift season resulted in lower sales and higher variable costs
• Rapid and safe business-wide actions partly mitigated impact and also improved ongoing resilience and flexibility
• Customer loyalty evidenced by multichannel switching, informing our investments for short and medium term
Strategic Focus:
1. Continue to improve luxury gifting
2. In-home growth via Velvetiser and new subscriptions
3. Leisure, leveraging new lifestyle physical format
4. Customer loyalty across channels: new digital loyalty app
OPERATIONAL HIGHLIGHTS
UK CHANNEL FLEXIBILITY & RESILIENCE IMPROVED
• Retail locations closed for 12 weeks at Easter, with factory closed for 8 weeks. Digital growth of over 150%Swift, safe and dynamic response to shifting customer demand
• Existing multichannel plans accelerated; DC capacity increased with multichannel flexibility, improved website, new products and new services
• VIP loyalty database and improving customer engagement
• Equity raised for growth investment and to mitigate near-term volatility
MAKING PROGRESS ON INTERNATIONAL MODEL
• Whilst Covid-19 has impacted results, market attractions remain strong
• Japan JV(1): physical locations attractive, rents set as a percent of sales
• Pursuing digital opportunity in USA
2
1. Current minority interest in Japan JV only consolidates to the extent of the initial equity investment of £7k
FY20
Post IFRS16
£m
Impact of
adoption
of IFRS 16
FY20
Pre IFRS16
£m
FY19
£m
Revenue 136.3 – 136.3 132.5 Revenue growth 3% Year on Year (+14% H1, -14% H2)
Cost of sales (53.3) – (53.3) (45.1) Gross margin -500bps due to temporary closures of Retail and the factory
Operating expenses (61.4) 12.1 (73.5) (66.7) Overheads grew +10% (Pre IFRS16), rising from 50.3% of sales to 54.0%
Underlying EBITDA 21.6 12.1 9.4 20.7
Share based payments (0.4) – (0.4) (0.9)
Depreciation & amortisation & loss on disposal (17.3) (10.9) (6.4) (5.5)
Operating profit 3.9 1.3 2.7 14.3
Finance income 0.2 – 0.2 0.1
Finance expenses (1.7) (1.4) (0.3) (0.3)
Underlying Profit before tax 2.4 (0.1) 2.5 14.1
Non Cash Impairment (10.0) (3.2) (6.8) – Non-cash impairment including goodwill, selected Retail locations & Saint Lucia
Reported Profit/(Loss) Before Tax (7.5) (3.3) (4.3) 14.1
Tax expense / (credit) 1.1 – 1.1 (3.1)
Profit/(Loss) for the period (6.5) (3.3) (3.2) 10.9
EPS/(LPS) – basic (5.5) (2.7) 9.7Profit for the period divided by the weighted average number of shares in
issue (FY20: 118m, FY19: 113m)
EPS/(LPS) – diluted (5.5) (2.7) 9.5
3
Group Income Statement
As at
28 June 2020
£m
As at
30 June 2019
£m
Non-current assets
Intangible assets 2.9 2.9
Property, plant and equipment 41.0 40.1
Right of use asset 40.7 –
Derivative financial assets 0.1 –
Prepayments – –
Loan to Japan Joint venture 5.7 2.5
Deferred tax asset 0.6 0.6
91.0 46.2
Current assets
Derivative financial assets 1.1 0.1
Inventories 13.9 12.8
Trade and other receivables 6.9 9.4
Corporation Tax receivable 1.5 –
Cash and cash equivalents 28.1 5.8 Equity placing for growth investment raised £22m
51.5 28.0
Total assets 142.5 74.2
Current liabilities
Trade and other payables 27.2 19.5
Lease liabilities 11.0 –
Corporation tax payable – 1.6
Derivative financial liabilities 0 –
Borrowings – –
38.3 21.2
Non-current liabilities
Other payables and accruals 0 2.8
Lease liabilities 36.0
Derivative financial liabilities 0.3 –
Provisions 1.0 0.9
37.3 3.7
Total liabilities 75.5 24.9
NET ASSETS 67.0 49.3 56
Group Balance Sheet
4
5
Group Cash Flow
52 weeks ended
28 June 2020
£m
52 weeks ended
30 June 2019
£m
Profit/(Loss) before tax for the period (7.5) 14.1
Adjusted by:
Depreciation, amortisation & impairment 27.3 5.5
Net interest expense 1.5 0.2
Other non-cash expenses 0.4 0.3
Operating cash flows before movements
in working capital21.6 20.1
Changes in working capital 5.3 1.9
Cash inflow generated from operations 27.0 22.0
Income tax paid (2.5) (2.8)
Interest received 0 0
Interest paid (1.7) (0.3) Includes (£1.4m) relating to IFRS16 leases, (£0.2m) relating to derivative financial liabilities.
Cash flows from operating activities 22.9 18.9
Cash flows from/(used in) investing activities (17.2) (11.3) Includes (£3.1m) loans to Japan joint venture (FY19: £2.5m)
Cash flows from/(used in) financing activities 16.7 (2.1) Placing proceeds of £22m, (£7.8m) of payments relating to IFRS16 liabilities
Net change in cash and cash equivalents 22.3 5.5
Cash and cash equivalents at beginning of period 5.8 0.2
Foreign currency movements (0.1) 0.1
Cash and cash equivalents at end of period 28.1 5.8
5
(80.0%)
(40.0%)
0.0%
40.0%
W/E
05/01
Easter
fortnight*
FY20
Yr end
28/06
W/E
13/09
Retail YOY £m Online YoY £m
Improving Sales Trend, Increasingly Multichannel
6
All UK Retail
locations close
(Two weeks before
Easter sales peak)
UK Retail
re-opens
(Father’s Day fell one
week later, 21/06/20 vs
16/06/19)
UK Retail & Online, combined YOY Sales %
UK Retail & Online YOY Sales £m
*Easter fell on 12/4/20 vs 19/04/19 so two weeks data
combined to reduce timing distortion
0
FY20 Operational Results
7
H1 Underlying EBITDA +£1mYoY H2 Underlying EBITDA (-£12m) YoY
H1 Growth driven
by brand strength,
product innovation
and VIP loyalty
Impact of channel
mix and increase of
capex-light third-
party products
including Velvetiser
9 new locations
Higher supply-chain
costs at peak
Investments in
digital, marketing
and innovation
teams & systems
Retail closed for
12 weeks over
Easter, normally
generate 70% of
H2 sales
Saint Lucia Hotel
closed March to
September
Costs to collect
stock from retail &
pre-bundle for
online
Fixed costs from 8
week factory
closure to
implement safe
distancing
Clearance costs
post-Easter having
built inventory for
+14% YoY growth
Continued
investments in
digital, marketing
and innovation
Net of furlough
support and rates
relief
H1 FY19
Underlying
EBITDA
Sales Volume
+14% YoY
Margin rate
(80bps)
Overheads
increase
£5.3m (+15%)
H1 FY20
Underlying
EBITDA
H2 FY19
Underlying
EBITDA
Sales Volume
-14% YoY
Margin rate
(1370bps)
Overheads
increase
£1.5m (+5%)
H2 FY20
Underlying
EBITDA loss
£17.3m£18.5m
£3.4m
(£9.0m)
5
Strategy Evolved to Accelerate Growth
8
2021 and beyond:
“To become the leading global direct-to-consumer
premium chocolate brand”
2016 to 2020:
“The Leading UK Premium Chocolate Brand”
GROWTH PILLARS:
1) Grow UK Physical salesLocations, experiences, formats
2) Grow UK DigitalEase of access via digital and wholesale
3) Increase ManufacturingEfficiency, capacity, product innovation
4) InternationalTest, Learn, Grow
1) Luxury GiftingTake-home & delivered gifts
2) In-homeVelvetiser and subscriptions
3) LeisureImpulse self-purchase and experiences
A channel-agnostic approach, provided we can both deliver a premium
customer brand-experience, and achieve our financial returns.
Opportunity to Accelerate
Source: 1) Mintel 2) Canadean 3) Allegra .4) Forbes, Harper Dennis Hobbs, Yano Keizai
• £20bn UK gifting market1
• £6bn UK chocolate market2, £8bn café market3
• US & Japan markets 3-5 times larger than UK4
• Low market share offers headroom for growth
Large and growing markets
• Brand resonates in UK, USA, and Japan,
• Differentiated taste “More cacao, less sugar”
• Accessible luxury. prices from £1 to £350 spanning
self-purchase and gifting
• Founder-led culture, innovation a long-term
strength
Differentiated brand & products
• Vertical integration is responsive whilst
also protecting intellectual property in products
• Further economies of scale available to improve
chocolate manufacturing margin
• 3rd party manufacturing for ‘extension’ categories
• Recent investments to increase distribution capacity
with greater multichannel flexibility designed in
Strong & flexible platform
• USA and Japan business models both similar to UK
• Digital gifts & subscriptions offer strong potential
• Committed to Hotel Chocolat physical model,
improving offer, anticipating lower property costs
• Carefully selected digital wholesale partners
complement owned channels for wider access
Growth Opportunities
9
Progress on our Three Strategic Growth-Drivers
Luxury giftingRationalised existing range ‘tail’ to make space for innovation pipeline:
• Range extension with new gifts at both higher and lower price points
• Vegan Nutmilk gift assortments launching soon
• VIP app will deliver the easiest gift sending experience
• Completely new ranges for key Japan Valentines and White Day 2021 gifting seasons
In-home recurring purchase & subscriptions• Velvetiser: Increasing user-base, with fantastic customer reviews.
Wider range of flavours, new lattes launch this autumn
• Subscriptions: Inventing Room, for innovation,
Recurring Purchase, for price and convenience,
Rabot Coterie, for sustainability and super-fine cacao
Leisure• Physical retail is key to driving brand engagement
• Japan property market is based on turnover rents = retail is thriving as a result
• Japan leading the development of new lifestyle formats with more year-round
reasons to visit and greater competitive differentiation
10
126 UK physical locations
• Sales currently lower YOY, but improving trend post-lockdown; smaller towns and retail parks strongest with central London softer
• Unparalleled ability to drive brand engagement through impulse self-treats, engaging customer service and product demonstrations. Recruited 1.3m VIP’s
• 67% of leases have a break or end in the next 24 months, with potential for renegotiation
• Anticipate adjustment in property market, bringing new opportunities in 2021 and beyond
Customers that were once ‘retail-only’ are increasingly also buying online
• Post-lockdown, almost half of UK sales generated by online, recurring purchase and digital partners
• Investments in people, systems and supply-chain to step-change capacity, flexibility and customer services, engaging 1.3m active VIP members (+50% YoY)
• For the winter gifting peak will hold inventory in DC later into the season to maximise responsiveness to changes in channel mix
Multichannel Focus
11
Operational Capacity & Capability
12
Manufacturing capacity increased by 50%
Freehold site with capacity to grow from current three lines to seven, further increasing capacity by +130%
Factory closed for eight weeks from March in order to implement safe-distancing measures, resulting in 10%
slower line-speeds, but now more than mitigated by:
• Commercial range rationalisation, with range tail removed
• Introduction of third shift, increasing output capacity by c.50%
• Improved planning, reducing changeover downtime and improving asset utilisation
As a result, commissioning of the fourth line will now be deferred from FY21 to FY22
• New Velvetiser refill line commissioned, increasing capacity and reducing cost per unit. 2nd line in 2021
• Enlarged facility for bean-to-bar fine cacao and vegan Nutmilk under construction, triples capacity 2021
• New “Inventing Room”, a small-batch facility for Wonka-esque creations for new subscriptions
Supply-chain capacity increased by 100%
• In July, took possession of 10,000 square metre leasehold extension on our existing site, doubling the size
of the existing DC, giving the opportunity to fit-out with increased multichannel flexibility. The additional
capacity is now operational.
International Outlook
USA
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•
•
JAPAN(1)
•
•
•
•
EVALUATION CRITERIA FOR INTERNATIONAL
14
(1) Japan joint-venture structure:
13
Development of Lifestyle Location Format
1514
•
•
Environment and Sustainability
15
Continued progress on our four focus areas:
OUR PLANET
• Commitment to net zero carbon by 2030
• 100% of packaging to be recyclable or reusable by 2022
OUR FARMERS
• 30% YoY increase in farmers registered to our Engaged Ethics scheme in Ghana
• Educational ‘tree-to-bar’ visitor attraction on our farm in Saint Lucia opens in FY21
OUR COMMUNITIES
• First ever business-wide charity week in March raising money for Mind, our charity partner
• Extended our colleague discount to NHS workers with over 60,000 morale-boosting parcels shipped
• Launch of anti-racism working group in response to Black Lives Matter to drive awareness and inclusion
OUR TEAM – THE HOTEL CHOCOLAT FAMILY
• All furloughed workers received ‘top-up’ to 100% of normal pay in line with non-furloughed colleagues
• Improved team communication with “The Pod” our internal social media and personal development app
• Achieved our best ever all-employee engagement score in our September 2020 survey
8
Innovation Pipeline
16
THE INNOVATION PIPELINE IS STRONG
NEW PRODUCTS
Lattes for Velvetiser
NutmilkVegan truffles, caramels
and pralines for gifting
Velvetised Chocolate Cream
Liqueurs in four flavours
New Valentine’s and White Day
ranges for Japan
CHANNELS & FORMATS
Four new subscription offers:
Inventing Room · Curated Collections
Patrons of Rabot · Recurring purchase
New gift-sending VIP app
Lifestyle format with more food and
drinks including Rabot Estate Coffee and
dedicated space for beauty
Digital-first growth plan for USA
BRAND
Second series of TV show
Continued sustainability progresson people, planet and cacao
Diversity and Inclusion: new employee-led steering group
New educational and brand-enhancing visitor experience in Saint Lucia:
‘Project Chocolat’
Strong differentiated brand with “accessible luxury” price points
• Occasion-driven purchasing and relatively modest average spend-per-visit relative to demographics.
• Many gift occasions throughout the year, lower ticket impulse and leisure experiences all-year round.
Exciting opportunities for future growth
• Increasing capability to serve customer across channels
• New categories and new territories are encouraging
• Deploying equity investment for in capex to drive future growth
Trading is in line with expectations
• UK Retail recovering trend post-lockdown, online and partners in strong growth
• Have increased near-term resilience and increased working capital facility
• Confident for medium to long-term opportunity
Outlook
17
“WE HAVE WORKED HARD TO ADAPT TO THE CHALLENGES OF 2020 AND TO ACCELERATE OUR PLANS. AS A RESULT, WE ARE ON THE PATH TO BECOMING THE LEADING GLOBAL DIRECT-TO-CONSUMER PREMIUM CHOCOLATE BRAND”
Thank you