1. business and industrial
2. advertising and marketing
3. brand management

Thorntons PLC
2002/2003
Final Results Presentation
9 September 2003
Agenda
 Financial Review
 Recent Trading and Outlook
 Strategic Update
2002/2003 Results Summary
£m
2002/3
2001/2
167.1
163.8
2.0%
6.4
7.1
(9.9%)
Operating cash flows
21.3
23.9
(10.9%)
Net cash inflow
24.9
21.2
17.5%
Net debt
(28.9)
(37.2)
22.3%
Gearing
67%
87%
22.4%
Turnover
Profit before tax
+/(-)
2002/03 Sales
2002/3
Own Shops
2001/2 % Change
133.8
134.5
(0.5)
Franchise
12.3
11.3
8.8
Private Label Commercial
12.6
12.2
3.3
Thorntons Branded Commercial
3.1
1.6
93.8
Gift Delivery Service
5.3
4.2
26.2
167.1
163.8
2.0
Royalties
£0.5m vs £0.2m
Sales by Volume
30%
70%
Own Shops
Memo: By Value 80% Own Shops
Other Routes
to Market
Margins
£m
2002/3
2001/2
Sales
167.1
163.8
Gross profit
%
Selling & distribution - costs
- depreciation
Net margin
Net %
88.7
53.1%
(59.4)
(5.2)
24.1
14.5%
87.5
53.4%
(57.9)
(6.6)
23.0
14.0%
Excludes Royalties
Memo: Rent/Rates/Services
27.0
26.7
Cost Issues
(presented last year)
• Insurance
• Pensions
+£0.6m
+£0.3m
• Rent reviews
• National Insurance
• Strategic investments
Over 100 shops
+£0.5m
New Product Development
Training
Information Systems
Incentives
Administration Costs*
£m
2001/2 Full Year
13.0
Insurance Costs
0.6
Pension Costs
0.3
Director Severance
0.2
Strategic Investments
1.5
2002/3 Full Year
*Excluding asset disposals
15.6
Cash Generation
£m
2002/3
2001/2
9.4
10.4
Loss on disposal
(0.2)
0.4
Depreciation/amortisation
12.1
13.5
-
(0.4)
21.3
23.9
Working capital
3.6
(2.7)
Net cash inflow
24.9
21.2
Memo: Stock
13.7
14.1
Operating profit
Non-cash movements
Operating cash flow
-
Cash Summary
£m
2002/3
2001/2
Cash
(4.5)
(3.5)
US loan notes
23.7
31.7
Total borrowings
19.2
28.2
Finance leases
9.7
9.0
Total net debt
28.9
37.2
Gearing
67%
87%
PBIT Interest Cover
EBITDA Interest Cover
3.1
7.1
3.2
7.3
-22.2%
Tax, EPS and Dividend
2002/3
2001/2
30.8%
+3.3%
-Excluding deferred element
28.5%
8.0%
-Excluding prior period adjustments
36.3%
36.7%
Earnings Per Share – Headline
6.80p
11.19p
At ‘Standard’ 30% rate
6.88p
7.58p
Dividend per share
6.80p
6.80p
Tax Rate-Headline
-
Agenda
 Financial Review
 Recent Trading and Outlook
 Strategic Update
2002/3 Like for Like Sales
First 18 weeks
+6.0%
Christmas
1st Half
-0.9%
+1.6%
2002/3 Like for Like Sales
First 18 weeks
+6.0%
Christmas
1st Half
-0.9%
+1.6%
Up to Easter week
+3.6%
Other 10 weeks
-3.5%
2nd Half
-0.3%
2002/3 Like for Like Sales
First 18 weeks
+6.0%
Christmas
1st Half
-0.9%
+1.6%
Up to Easter week
+3.6%
Other 10 weeks
-3.5%
2nd Half
-0.3%
Full year
+0.9%
(Last Year
+3.6%)
Current Trading
First 9 weeks
LFL
Own Shops
-1.9%
Total
-2.4%
Current Trading
First 9 weeks
LFL
Own Shops
Commercial
-1.9%
Total
-2.4%
+24.6%
Current Trading
First 9 weeks
LFL
Own Shops
Commercial
Franchise
-1.9%
Total
-2.4%
+24.6%
-7.2%
Current Trading
First 9 weeks
LFL
Own Shops
Commercial
-1.9%
Total
-2.4%
+24.6%
Franchise
-7.2%
Gift Delivery Service
+6.9%
Outlook for Christmas
• Continuing improvements in product and packaging
• Strong promotional offer for first part of season
• Much stronger advertising for TV and radio
- Campaignable theme: “The Art of Gift Giving”
- Personality (good appeal to men and women)
- Witty executions with focus on product and promotion
• Positive impact of range and space planning
• New store incentive scheme introduced in July very
positively received
Agenda
 Financial Review
 Recent Trading and Outlook
 Strategic Update
– Vision and Corporate Strategy
– Strategic Agenda
Our Vision
“The UK’s leading
retailer and distributor
of sweet special food”
What are we?
Our assets
Supply
Chain
People
Brand
Multiple
Channels
Our environment
•
•
•
•
Edge of Town trend
Premium on convenience
Grocers range and quality
Specialists can win on the
High Street
Branded
manufacturer with
multiple channels
to the consumer
Are there Risks?
Sales cannibalisation ?
• Low current market share
• 97% of confectionery not bought at Thorntons
• 91% of boxed chocolates not bought at Thorntons
• Much broader range and value added service in
shops/franchises
Brand dilution ?
• Lindt and Suchard are ubiquitous but highly rated
• Consumer research indicates wish to purchase
Thorntons more widely
• Product, packaging and advertising are the key
Margin erosion ?
• Supermarkets pricing at or above shop prices
• Steady stream of innovation the best ‘weapon’
• Increased volume leads to cost savings
2002/03 Strategic Agenda
• Brand development and communication
• Outward growth
• Project Focus (formerly Retail Support Processes)
• Product and packaging innovation
• Café Thorntons
• New sources of growth
Brand Development and Communication –
Our brand values
The artistry and craft of the chocolatier
• Chef expertise in recipe development
• Unwavering quest for the best ingredients
• High presentational standards
Emotional warmth
• Interested and thoughtful about others’ needs
• Charming and witty
• Approachable
Innovation
• Surprising, inspiring and intriguing
Trust and credibility
• Authentic
• Honest
Brand Development and Communication –
Putting our values into action
• Two-day brand workshops between July and February
for over 850 colleagues
• Brand marketing training for the new Trading and
Marketing team
• Brand manuals and sub-manuals to guide NPD
• New look website to be launched in Autumn
Outward Growth
• Strategy
- Rapid evolution of distribution and range
- Listings in all major grocers bar one (still in negotiation for
stand-alone fixture)
- Gaining listings in other confectionery retailers
- Licensed products development being focused on existing categories
• Organisation
- Total overhaul of structure and team members for next phase of growth
- New management processes being introduced
- Systems investment in supply chain required
Project FOCUS
(Formerly Retail Support Processes)
• Investigative stage revealed that supply chain not store
based processes were the priority
• Investment in systems will enable
- Complete visibility of stock/best before status
- More accurate forecasting and warehouse picking
- Lower stock in system
- Enhanced margin for retail, franchise and GDS
- Enhanced sales and margin for commercial channel
• Expenditure likely to be in region of £6m spread over 2 – 3
years, commencing in 2004, with benefits of about £2m p.a.
Product and Packaging Innovation
• NPD process redesigned to improve speed and allocation of resources
• NPD Strategy Group, chaired by Chief Executive, meeting bimonthly to
guide resource allocation and encourage experimentation
• Eden successfully launched with £1.5m sales in FY 2002/03
• Continental and Toffee relaunched this month
• “Batons” to be launched in November
• New boxed chocolate ranges for next year
Café Thorntons
• Cafes performing ahead of the rest of the estate with
2.9% like for like growth
- Café products the main driver with 11% like for like through NPD
and pricing
- Confectionery requires more focus
• New concept producing enhanced sales and profit in 5
locations but not ready for total roll-out
- Designer/factory outlets payback in less than 2 years
- Insertions have good payback but few opportunities
- Resites in attractive towns do not pay back well enough yet
- Investigating EOT and mall kiosk formats for trial next year
New Sources of Growth
• Acquisitions (reviewed to date) and international
franchises have been rejected for the foreseeable future
• Export to North America and Commonwealth countries
appears attractive but
- More work required, eg. Supply chain
- Not a short payback opportunity
• UK outward growth and improving retail is the main
priority and has much potential for growth
2003/04 Strategic Agenda
• Café Thorntons
• Project FOCUS
• Product margin enhancement
• Delivering ‘Chocolate Heaven’
Summary
• Great brand
• Great assets
• New strategy underway
• Work on delivery continuing
Questions