Over half Hotel Chocolat’s share price wiped out as retrenching plan leaves bitter taste – Business Weekly

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The heatwave was purely coincidental but an unsavoury trading update saw shares in Hotel Chocolat melt away – the Cambridge company losing more than 50 per cent of its stock price at the time of writing this morning.
The shares plunged 50.64 per cent (119p) to 116p at one point after the company flagged impending losses and a scale-back in its international activities. Now it has decided to batten down the hatches.
Hotel Chocolat stands to be hit by a non-cash impairment on £23 million of loans made to its Japan joint venture with a possible full impairment charge while £3m has had to be provisioned because of stores closing in the United States.
And this despite total revenue increasing 37 per cent to £226m in the year to June 26 with second-half growth seen as robust.
The company confided that the statutory reported profit for FY22 was, in fact, expected to be a loss – hit by the outcomes of an internal business review, “predominantly as a result of the non-cash impairment provisions and costs arising from discontinued activities including the closure of retail stores in the US.”
Despite the stock stampede, Hotel Chocolat remains well capitalised with cash in hand of £17m and £50m of available undrawn headroom in the group’s working capital RCF. Inventory production for FY23 is well advanced, the company says.
Having raised £40m of new equity in July 2021 to support growth investments, the board has now reviewed the relative performance of each strategic growth driver over the year. 
Given the current global macro-economic climate, it will now deliberately focus its efforts over the next three years on its most proven and lowest-risk strategies with the greatest potential for further increased profitability and scaled cash generation. 
It says: “In response to the change in the global macroeconomic environment, investment levels in the USA and the Japan joint venture will be materially reduced, with ongoing investment limited to essential working capital only.” 
The Japan JV partner is said to have experienced three consecutive peak Valentine’s and White Day trade periods being severely impacted by Covid-related restrictions, which has delayed the development to a profitable business.
Hotel Chocolat co-founder and CEO Angus Thirlwell said: “The Hotel Chocolat brand is achieving very strong growth in the UK and we are pleased to have beaten sales expectations and expect to meet underlying profit expectations for FY22. 
“The way the market has rapidly changed for all businesses in the second half certainly emphasises the resilience value of investments that we have made over the last 20 years: in building a differentiated brand with strong customer loyalty, a unique and desirable product range, and our own, dependable UK chocolate factory.
“A year of exceptional sales growth following two years of reactionary tactics to the pandemic has left clear opportunities for us to proactively streamline overheads and improve gross margins. 
“We have set ourselves the target of becoming a 20 per cent EBITDA margin business within three years by applying systemisation, automation, and capacity investments to our 70 per cent larger scale.
“While we expect a temporary lower sales growth rate and profit margin for FY23 as we carry through our adjustments, the result will be a business delivering greater results, with less risk and an even stronger balance sheet with a higher profit percentage growth in FY24 and FY25.
“We have discovered that our UK market can be a lot bigger for us than we thought a year ago, thanks to the new drinkable chocolate products (Velvetiser & Velvetised Cream alcohol) and the way our digital and stores businesses are performing.”
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