THORNTONS PLC

1
THORNTONS PLC INTERIM RESULTS PRESENTATION 28
weeks to 10 January 2009 WEDNESDAY 18 FEBRUARY
2009
2
INTERIM RESULTS
m 2008/09 2007/08 change
Turnover 128.4m 126.7m 1.3
Profit before tax 7.3m 11.9m -38.7
EBITDA 14.6m 19.0m -23.0
EPS (Basic) 3.3p 12.5p -73.9
Underlying EPS 7.5p 12.5p -39.6
Interim dividend per share 1.20p 1.95p -38.5

3
H1 SALES (28 WEEKS)
m 2008/09 2007/08 change
Retail 80.7m 82.1m -1.7
Franchise 9.9m 9.6m 3.7
Commercial 32.4m 29.7m 8.9
Thorntons Direct 5.4m 5.3m 1.2
Total 128.4m 126.7m 1.3
4
BRANDED OUTLETS
2007/08 H1 New Resites Closures 2008/09 H1
Retail 378 4 - (1) 381
Franchise 252 11 - (3) 260
Total 630 15 - (4) 641
Retail LfL Sales 3.7 -3.7

5
MARGINS AND PBT
2008/09 2007/08 change
Sales (m) 128.4m 126.7m 1.3
Gross margin ( of sales) 49.2 51.5 (2.3)
PBT ( of sales) 5.7 9.4 (3.7)
Underlying tax charge 31.7 31.7 -
One-off deferred tax charge arising from abolition of IBAs (m) 2.9m -

6
GROSS PROFIT AND OPERATING EXPENSES
Gross profit margin 2007/08 51.5
Change in sales channel mix (0.5)
Promotional sales activity (1.5)
Production cost increases (2.2)
Price increases 2.5
Other (0.6)
Gross profit margin 2008/09 49.2
Operating expense ( of sales)
2007/08 41.6
2008/09 43.2
7
CASH AND DEBT
m 2008/09 2007/08
EBITDA 14.6m 19.0m
Share-based payment charge etc 0.3m -
Working capital movements 9.6m 5.7m
Operating cashflow 24.5m 24.7m
Net capital investment (7.3)m (4.5)m
Interest (1.2)m (1.2)m
Dividends (3.2)m (3.2)m
Share issue proceeds - 0.2m
Other - mainly tax (0.8)m (0.9)m
Movement in net debt 12.0m 15.1m
Closing net debt 16.3m 11.3m
8
EXISTING COVENANTS
Bank covenant tests were met at the end of H1

• Interest cover
• Net debt to EBITDA
• Fixed charge cover

9
STRATEGY
Deliver sustainable, profitable growth by

• Developing innovative new products
• Giving the brand greater relevance and a more
  premium feel
• Modernising the instore environment
• Further expanding the Commercial and Direct
  business
• Attracting and retaining the best people

BUT ADAPTED TO CURRENT MARKET CONDITIONS AND WITH
GREATER EMPHASIS ON COST SAVING INITIATIVES
10
NEW PRODUCT SUCCESSES

• Excellent sales of Thorntons Moments in first
  half
• 2.6m in Thorntons stores
• 2.2 in Commercial sales
• Chocolate Blocks
• 0.8m in Thorntons stores from September to
  Christmas
• Fusions
• Successfully tested in 20 stores and online
  despite cut back in support
• Ice Cream
• 2 new varieties planned for this summer - mint
  and white

11
INCREASING BRAND RELEVANCE

• The building blocks are in place. Consumers are
  increasingly seeing us as being accessible and
  relevant to them.

2007 2008
Source Brand Tracker Christmas 2008
12
IN-STORE ENVIRONMENT
Transforming the Customer Experience in 6 Concept
Stores

• Launch of five new stores in Kingston, Reading,
  Bluewater, Nottingham (King Street) and
  Edinburgh. The first step in creating a
  contemporary and interactive in-store experience
  for customers
• First Hot Chocolate Bar in the UK in Nottingham
  (Listergate). A welcoming, modern destination,
  indulgent hot drinks and cakes, and the Thorntons
  in store chocolatier
• Added a net 3 new own stores and 8 new
  franchisees in the half year

13
CUSTOMER SERVICE IMPROVEMENTS
Own Stores

• New EPOS successfully implemented (over 4m
  capex)
• Transaction time down by 2/3
• Reduced queues at Christmas
• On time, on budget, all functional benefits
  delivered
• Improved stock management resulting in improved
  availability
• Auto replenishment fully implemented
• No Christmas stock hangover
• Improved in-store navigation

14
COMMERCIAL SALES GROWTH

• Successful re-launch of the Thorntons inlaid
  boxed chocolates range, leading to 23 growth
• Added Mints and Dark Collections to the
  Commercial range
• Driven value into the market predominantly by
  full value sales throughout the season
• Strong product availability throughout the
  Christmas season
• Strong growth via independent and convenience
  sectors due to increased distribution
• A successful first season in the twist-wrap
  category with the Thorntons
  Moments brand
• Grew the total business 8.9 despite the loss of
  the Woolworths
  account. Growth excluding Woolworths
  was a strong 15

15
INLAID BOXED CHOCOLATE VALUE GROWTH
Value Sales (m)
Change YOY
25 -6 10 -34 3 -4 49 -4
Source Nielsen Scantrack data to 27.12.08
16
THORNTONS GROWTH OUTPERFORMS THE MARKET
Thorntons Inlaid (MAT)
Inlaid Market (MAT)
Kg (m)
m
m
Kg (m)
Thorntons has shown growth in both value and
volume terms, bucking the declining trend of the
total inlaid market. We have seen faster growth
in value than volume, suggesting that our growth
has come whilst discounting less than the total
inlaid market.
Source Nielsen Scantrack data to 27.12.08
Assorted Chocolates in an Inlaid Box
17
STEADY INCREASES IN OVERALL DISTRIBUTION
Thorntons Weighted Distribution

Removal of Advent calendars, (increased selling
space)
2nd phase of Christmas stock displays
Introduction of Christmas stock displays
Stores listing any Thorntons product as a of
total number of outlets in the country weighted
by the relative importance of the store (usually
on category volume)
Source Nielsen Scantrack data to 27.12.08
18
CHRISTMAS COMMERCIAL PERFORMANCE
Inlaid (m)
Twist Wrap (m)
Source Nielsen Scantrack data to 27.12.08
19
THORNTONS DIRECT

• Online sales growth of 26 offset the decline of
  the corporate sector due to the challenging
  economic climate, leading to overall sales growth
  of 1.3
•  
• October launch of new online checkout process was
  a key driver of improved site conversion by 11
  YoY
•  
• Improved CRM focus lead to 125 increase in sales
  generated via e-mails
• deeper database segmentation
• more targeted communications
•  
• Successful 30 growth of the database through new
  initiatives to increase awareness of
  www.thorntons.co.uk helped secure new visitors to
  the site and deliver market share gains
•  
• Service level improvements to gt 98.5 across
• both consumer and corporate

20
ATTRACTING AND RETAINING THE BEST PEOPLE

• Sarah Riley, new Director of HR, joined in August
• 2008
• Developed an HR strategy aimed at individual,
  team and business performance improvement
• Introduced a business wide employee engagement
  survey
• achieved 56 response rate
• 64 employee engagement index
• action planning taking place throughout business
  at team level
• Store staff turnover continues to decline with
  consequent improvement to customer services and
  sales
• Won 2 awards in the 2008 Personnel Today Awards
  in relation to achievements in working practices
  across retail

21
PROFIT IMPROVEMENT INITIATIVES
Growth Opportunities

• Driving footfall harder e.g. improved window
  communication, bounce back schemes, sampling,
  Perfect Partner offers, etc
• Most boxed chocolate competitors are sourced in
  Euros
• Woolworths creates an opportunity on the High
  Street in our own stores, franchises and other
  accounts
• Recruitment of Woolworths Category Manager as
  consultant until Easter
• Opportunities in other accounts
• Eg Sainsburys, Morrisons and ASDA Valentines
  offers on TV
• Opportunity for Corporate Sales into the Hotel
  sector gathering momentum

22
PROFIT IMPROVEMENT INITIATIVES
Cost Saving Initiatives - Operational

• Brought sourcing of Thorntons Moments in-house
• Streamlining production
• 1.1m Capex for second flexible packaging line
• Delivering 30 improvement on direct packaging
  labour costs
• 2.7 improvement of labour derived average
  product margin
• No overtime costs compared to last year (early
  Easter)
• Improvements to factory layout to avoid
  unnecessary intermediate handling

23
PROFIT IMPROVEMENT INITIATIVES
Cost Saving Initiatives Operational ..(cont.)

• More effective purchasing of raw materials
  (except cocoa) and consumables by using
  e-auctions
• Further standardising packaging and ingredients
• Dual sourcing from the Far East (ribbons, trim
  and rigid boxes)
• Froze all small IT projects
• Realigned Thorntons Direct costs in line with
  drop in Corporate sales

24
RAW MATERIALS UPDATE
Dairy markets have collapsed against recent
highs, whereas the cocoa market continues its
bullish trend
Cocoa Jul 07- Present Date
154
177
100
115
Butter Jul 07- Present Date
140
85
100
57
25
PROFIT IMPROVEMENT INITIATIVES
Cost Saving Initiatives - Payroll

• Froze external recruitment in the Autumn
• More closely aligned shop staff hours to sales
• Changing defined benefit pension scheme (closed
  to new starters in 2002) from final salary to
  career average (CARE)
• Gave all employees the opportunity to apply for
  flexible working for a limited time period
• Invited applications from employees who want to
  take a sabbatical
• Engaged employees in taking unpaid leave
• Kept redundancies to a minimum to keep skilled
  employees ready for the upturn

26
PROFIT IMPROVEMENT INITIATIVES
Cost Saving Initiatives - Property
Cost Saving Initiatives - Property

• Over 40 of estate due for lease renewals or rent
  reviews due to rapid increase in store numbers 10
  years ago
• Thorntons perceived as a good quality tenant
  (good covenant)
• New leases/lease renewals
• 5 year lease maximum
• No more upward only reviews if we agree a
  longer lease
• Monthly payments
• Reduced rent (if a renewal)
• Rent Reviews
• Nil increases (due to upward only clauses)
• Monthly payments where possible

27
PROFIT IMPROVEMENT INITIATIVES
Cost Saving Initiatives Property ..(cont)

• Service Charges
• Downward trend, Landlords acting together because
  they are having to pay service charges and rates
  on empty properties
• eg, Meadowhall (Sheffield) 20
• White Rose (Leeds) 15
• Laborious process 380 stores and over 150
  Landlords but benefits next 5 years

28
OUTLOOK
Thorntons is continuing to make progress despite
the current market conditions. Our focus on
customer service combined with our strong
operational platform and cost initiatives
position us well to take advantage of
opportunities to improve performance in the
second half of the financial year. These include

• a three week longer selling season due to a late
  Easter
• increased selling opportunities following the
  closure of Woolworths
• improved manufacturing productivity versus last
  year when we incurred higher costs due to the
  early Easter

29
SUMMARY

• Positive like for likes every week since
  Christmas (except snow week)
• Well positioned to emerge from current market
  conditions a more vibrant, efficient business
• The Board has agreed a reduced dividend of 1.20
  pence per share in line with underlying earnings