BRITISH CACAO GROWER

Chocolate. Reinvented.

FY19 Preliminary Results

September 2019

Revenue

£132.5m(FY18: £116.3m)

+14%YEAR-ON-YEAR

(+13% excl. USA)

Profit after tax

£10.9m(FY18: £10.0m)

Underlying EBITDA1

£20.7m(FY18: £18.9m)

+9%YEAR-ON-YEAR

(+14% excl. USA)

Diluted EPS

9.5p(FY18: 8.8p)

Profit before tax

£14.1m(FY18: £12.7m)

+11%YEAR-ON-YEAR

(+19% excl. USA)2

Final dividend

1.2p(Full Year 1.8p, FY18: 1.7p)

1. Underlying EBITDA is stated before share-based payments and related tax of £0.9m (FY19 £0.7m).

Financial highlights

2. Current minority interest in Japan JV only consolidates to the extent of the initial equity investment of £7k.

1

+2NEW LOCATIONS IN

USA

+2NEW LOCATIONS IN

JAPAN (WITH JV)

Operational highlights

GROWTH STRATEGY IS ON TRACK

1. Open more locations, invest in existing sites to add more experiential elements.

2. Increase capacity and capture efficiencies from the vertically integrated supply chain.

3. Grow digital customer base and improve gifting proposition.

4. Cautious ‘test, learn, grow’ approach to new international markets.

+0.9mVIP ME LOYALTY

CUSTOMER SIGN-UPS

+14UK & ROI LOCATIONS

OPENED

THE

VELVETISER

LAUNCHED TO

5 STAR REVIEWS

DRINKS+ICES,

EXPERIENCESROLLOUT TO MORE

LOCATIONS

OPERATIONAL HIGHLIGHTS

UK GROWTH CONTINUES TO DRIVE IMPROVED RESULTS

• FY19 included launches of VIP Me loyalty and Velvetiser, which drove sales through both physical and online.

• Opened 14 locations in UK & ROI, now have 118 locations.

• Digital wholesale partners improve customer access and provide capex-light growth, with minimal overheads and strong EBITDA margin.

• Factory efficiencies improved with long-term investment plan in place.

INITIAL TRADING IN INTERNATIONAL MARKETS IS ENCOURAGING

• First locations in USA & Japan1 are achieving early expectations.

• Encouraging consumer reaction to range, flavours, and pricing.

• Further test locations opening Autumn/Winter 2019.

2

1. Current minority interest in Japan JV only consolidates to the extent of the initial equity investment of £7k.

52 weeks

ended

30 June 2019

£m

52 weeks ended

30 June 2019

Excluding USA

£m

52 weeks

ended

1 July 2018

£m

Revenue 132.5 132.0 116.3 Revenue growth +14% Year-on-Year. +13% excl USA.

Cost of sales (45.1) (45.0) (36.7) Gross margin reduced by 250bps from 68.4 to 65.9%.

Operating expenses (66.7) (65.3) (60.7) Operating cost ratio improved 180bps from 52.2% to 50.3%.

Underlying EBITDA 20.7 21.7 18.9 EBITDA growth +9% Year on Year, +14% excl USA.

Share based payments (0.9) (0.8) (0.7)

Depreciation & amortisation (5.5) (5.4) (4.8)

Impairment (non-recurring) 0 0 (0.3)

Profit / (Loss) on disposal 0 0 0.1

Operating profit 14.3 15.4 13.2

Finance income 0.1 0.1 0

Finance expenses (0.3) (0.3) (0.6)

Profit before tax 14.1 15.2 12.7

Tax expense (3.1) (3.1) (2.7)

Profit for the period 10.9 12.1 10.0 Profit growth +11% Year on Year, +19% excl USA.

EPS – basic 9.7 8.8pProfit for the period divided by the weighted average number of shares in issue

(FY18 113m, FY17 113m).

EPS - diluted 9.5 2016 LTIP will vest in full, 2.8m shares under option become exercisable.

Group income statement

3

As at

30 June 2019

£m

As at

1 July 2018

£m

Non-current assets

Intangible assets 2.9 2.8

Property, plant and equipment 40.1 36.4 Capital investments in factory and new stores.

Derivative financial assets – 0.1

Prepayments – –

Loan to Japan JV 2.5

Deferred tax asset 0.6 0.6

46.2 39.9

Current assets

Derivative financial assets 0.1 –

Inventories 12.8 12.6

Trade and other receivables 9.4 7.5

Cash and cash equivalents 5.8 0.2 Strong EBITDA generation.

28.0 20.3

Total assets 74.2 60.2

Current liabilities

Trade and other payables 19.5 15.5

Corporation tax payable 1.6 1.3

Derivative financial liabilities – 0.1

Borrowings – 0.2

21.2 17.1

Non-current liabilities

Other payables and accruals 2.8 2.6

Derivative financial liabilities – –

Borrowings – –

Provisions 0.9 0.9

3.7 3.5

Total liabilities 24.9 20.6

NET ASSETS 49.3 39.6

56

Group balance sheet

4

5

Group cash flow52 weeks ended

30 June 2019

£m

52 weeks ended

1 July 2018

£m

Profit before tax for the period 14.1 12.7

Adjusted by:

Depreciation, amortisation & impairment 5.5 5.0

Net interest expense 0.2 0.6

Other non-cash expenses 0.3 0.6

Operating cash flows before movements

in working capital20.1 18.9

Changes in working capital 1.9 (4.1)

Cash inflow generated from operations 22.0 14.8

Income tax paid (2.8) (2.5)

Interest received - -

Interest paid (0.3) (0.2) Includes (£0.2m) relating to derivative financial liabilities.

Cash flows from operating activities 18.9 12.2

Cash flows used in investing activities (11.3) (11.3) FY19 includes £2.5m investment in Japan JV

Cash flows from/(used in) financing activities (2.1) (9.2) Includes repayment of £6.5m of Chocolate Bonds in FY18.

Net change in cash and cash equivalents 5.5 (8.3)

Cash and cash equivalents at beginning of period 0.2 8.5

Foreign currency movements 0.1 0.0

Cash and cash equivalents at end of period 5.8 0.2

5

Existing Business: +19% YOY Profit Before Tax

6

£12.7m

£15.2m

£14.1m

Profit Before Tax (£m)

YOY sales growth from Wholesale & Velvetiser

at lower margin but with lower overheads.

First stores opened in

November 2018 and

February 2019.

FY18 PBT Sales Volume

+13% GrowthMargin rate

(250bps)

see next slide

Overheads

(£4.9m) YOY

+300bps favourable excl USA

EXISTING

OPERATIONS

+19% YOY

USA

(£1.2m)

FY19 £14.1m

Gross Margin Drivers

Drivers Continued scale

economies, efficiencies and better buying.

Third party production resulting in lower gross.

Investment gives visibility of retail buying patterns for first time.

Growth of existing online

partners at lower GP% but also

lower overhead % giving comparable EBITDA margin.

Tighter inventory

control resulting in improved ‘full price’ sales mix.

Actions Ongoing continuous

improvement and additional

capital investment.

Scale economies to improve

machine and refill margins.

FY20 focus on relevant and

timely personal communication.

Euro FX purchases hedged to end FY20.

Target to continue growth.

Target to continue.

68.4%

65.9%

7

FY18

68.4%

Production

efficiency +40bps

Velvetiser Mix

(180bps)

VIP Me Rewards

(60bps)

FX

(20bps)

Wholesale Mix

(30bps)

FY19

65.9%

Other

+10bps

Positioned for growth

Source: 1) Mintel 2) Canadean 3) Allegra .

• £20bn UK gifting market1.

• £6bn UK chocolate market2.

• £8bn UK cafe market3.

• HC has significant headroom in each.

• Consumer research shows perceived “lack of

access” is the main barrier to purchase.

• Cautious ‘test, learn, grow’ approach to International

Markets multiple times larger than the UK.

LARGE AND GROWING MARKETS

• Core brand ethos of:

ORIGINALITY, AUTHENTICITY AND ETHICS.

• Differentiated taste “More cocoa, less sugar”.

• Accessible luxury: prices from £1 to £500.

• High rate of product innovation within disciplined

range architecture.

• Consumer research shows high advocacy.

DIFFERENTIATED BRAND & PRODUCTS

• 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.

STRONG PLATFORM

• Physical locations continue to deliver attractive

returns.

• Website growth of +22%.

• Wholesale partners growth of +19%.

• US and Japan JV currently sub-scale, however store

revenues, margins and site-level opex are in line

with management expectations.

GROWTH FROM PROVEN FORMATS

8

Operational Progress

Opened 14 new locations, now have 118 locations in the UK and Ireland

Further 6 leases signed, opening H1 FY20

The economics remain attractive:

• New locations continue to achieve payback targets similar to earlier vintages.

• Existing locations continue to achieve growth, mitigating inflationary headwinds.

• Property market starting to adjust to the new reality.

• Acquired 0.9m active VIP Me members; modest frequency is a key opportunity.

• Trials of refits and relocations are delivering attractive ROCE.

• Potential to roll out more experiential elements to more locations:

Physical Locations

10

Our relaunched “School of Chocolate” gives our team the knowledge and

confidence to deliver a great experience for our guests.

Digital & Partners

11

Results

• Digital wholesale partners provide easy access for customers. Total digital sales (at Retail Price)

combining own website, subscriptions & partner websites grew by a total of +25% YoY.

• Website sales +22% YoY. Visits up +31% with 85% of the increase coming from mobiles.

• Subscription sales -26%YoY, Tasting Club recruitment paused whilst investing in building user

base for the Velvetiser.

Implementing improvements in four key areas:

E-commerce: Improve navigation, quicker & simpler checkout, more delivery options.

Email & CRM: New CRM system goes live this autumn, improving relevance of communication.

Apps & Subscriptions: VIP Me, switching from physical card to new app.

Launch of Hot Chocolat refill subscription app for Velvetiser.

Social Media: Invested in skills, now creating deeper and more relevant content.

User-generated social media content demonstrates high levels of Brand engagement

5

Production capacity & capability

EFFICIENCIES & BETTER-BUYING

+40 bps

FY19 Progress

• Improved efficiency and better buying delivered 40bps of margin improvement, which funded

sustainability investments and mitigated the FX impact of lower sterling.

• New mezzanine at Distribution Centre doubles number of despatch picking locations for FY20 peak.

Capital investment Strategy:

• We are one year into a three year project to add a fourth production line which will deliver 30%

more capacity from 2021.

• We are investing over £1m in a new facility to produce Velvetiser hot chocolate refills, which will

deliver increased capacity, improved margins and a wider variety of seasonal flavours.

• Future Investments:

• In FY19 we purchased freehold land adjacent to our factory.

• Outline planning permission secured.

• Potential to add three more lines as required (total seven) delivering 200% more capacity.

12

USA – ‘Test, Learn, Grow’

US VS UK KEY INITIAL LEARNINGS

•

•

•

Financials:

•

•

•

•

EVALUATION CRITERIA

1513

Customer generated social media content.

Japan Joint Venture

JAPAN VS UK KEY INITIAL LEARNINGS

•

•

•

Financials:

•

•

•

•

EVALUATION CRITERIA

15

JV terms

•

•

14

8

Innovation Pipeline

• Subscription app launch.

• Upgrade VIP Me from card to app.

• Store refits and relocations.

• Travel retail test.

CHANNELS & FORMATS

• Velvetiser refills - seasonal flavours.

• Mint cream liqueur for this Christmas.

• Biscuits of the Gods.

• New & Improved Easter range.

PRODUCTS

• Planet pledge, plastic & sustainability.

• Further recipe developments; more

cocoa less sugar, more Vegan recipes.

• 2nd series of TV show in production.

BRAND

15

Strong differentiated brand with “accessible luxury”

price points

• Occasion-driven purchasing and relatively modest average spend per visit relative to demographics.

• 10x gift seasons each year.

• Lower ticket impulse and self purchase leisure experiences all-year round.

Exciting opportunities for future growth

• Well positioned to capitalise on consumer trends including; Wellness (more cocoa, less sugar) and

experiences (Drinks + Ice, product demonstrations, Chocolate Lock-in events).

• Encouraging initial consumer response to the brand in two large new territories.

Current trading is in line with expectations

• Velvetiser, Drinks + Ices and VIP Me supporting growth.

• New locations performing well, pipeline for sites and ROCE from refits/relocations are encouraging.

• Clear digital roadmap in place.

• Next set of capacity & capability investments under way.

• Contingency plan in place for hard Brexit, holding additional inventory to de-risk supply disruptions.

• Board has confidence in Group’s continued progress.

Outlook

16

Thank you