In some ways, Jonathan Hart will leave the UK chocolate maker and retailer Thorntons next month in a better position than he found the business when he joined in January 2011.
However, when Hart steps down on 27 June, a decision announced yesterday (18 May), Thorntons should be looking for – or be set to install – a new chief executive with more experience in FMCG and in selling branded products to UK and international grocers.
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If one looks at Thorntons' results for its most recent full financial year – for the period to 28 June – Thorntons' top line and underlying pre-tax profits were higher than in the fiscal year before Hart took the reins. Net debt was higher but Thorntons said that had come through investment in working capital and capex in the last 12 months. It has since refinanced that debt, which Hart, when he announced those latest annual results, would "support the growth of our business for the next three years and continue our transformation into an international FMCG business with a UK multi-channel retail presence".
And, under Hart's stewardship, Thorntons has become a group less focused on its own retail outlets and one where sales to other UK retailers is now the largest chunk of the company's business.
Nevertheless, selling to the UK's multiples is a challenge and, in recent months, there have been signs Thorntons has found the going tough.
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In December, Thorntons' shares slumped after it announced a profit warning amid pressure on its UK commercial business – which sells to customers including UK supermarkets – in the run-up to Christmas. The company said it had seen "a significant reduction in previously indicated orders from the major grocers", which, it added had "also took in stock later than anticipated".
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By GlobalDataThe problems were compounded by issues in Thorntons' new centralised warehouse, which led to "lost and late sales" for its UK commercial arm "with consequent missed promotional slots and reorders".
Thorntons last reported to the City on 29 April, when it provided a trading update for the third quarter of its financial year. Sales were down 6%, contributing to a more than 7% for the first nine months of the year. The company's FMCG division, which also includes its fledgling international business, saw UK commercial sales slide 6.1% in the third quarter.
Hart said: "The sales decline in UK Commercial is now solely due to reduced levels of orders from one customer which have continued into the second half of the year. We are, however, encouraged by positive sales across the balance of our trade partners. Our Easter specialities sold well with these customers and in our retail channels and we ended the season with clean stocks."
Thorntons' now smaller retail estate, which continues to see stores closed and relocated, saw like-for-like sales inch up 0.1% for the third quarter and increase 1.5% for the first three quarters of the year.
One of the most significant changes to take place during Hart's tenure has been to reduce the size of its own retail business, which had been struggling to grow sales.
At the start of 2011, Thorntons had 371 company-owned stores and 229 franchise outlets. On 10 January this year, the group owned 247 outlets and had 175 franchises. It has a long-term ambition to reduce the number of owned stores to between 180 and 200.
Hart joined Thorntons from UK coffee-shop chain Caffè Nero, where he was MD. His career included stints as group MD at electronics retailer Dixons and group MD at PC World International.
He appears to have achieved success in getting sales from the smaller Thorntons store estate growing but a new chief executive may need other skills.
"We believe Thorntons requires a different set of capabilities – most likely garnered from the FMCG industry – to deliver the necessary execution and focus to establish a fundamentally different competitive position and a lasting step-change in Thorntons' operational and financial performance," Charles Stanley analyst Peter Smedley said yesterday. "Mr Hart has done a very good job in turning around the group’s retail business, as well as laying the foundations for the significant changes in the group’s strategy, business model, and organisation that have put Thorntons on the right trajectory for success. The challenge is now clearly around execution."
Matthew McEachran, an analyst covering Thorntons for N+1 Singer Equity Research, agrees. "In effect, his stepping down does pave the way potentially for someone who's got a bit more background in that FMCG side to come in and pick up the baton," McEachran told just-food.
"With the best will in the world, that's not Jonathan's background. The platform is there, whatever people say. The business is on a different footing now. There is no reason, given the strength of the product and the brand work they've done – depending on what metric you use there has been quite a lot of improvements – if they can just get that last account on the grocery side to start ordering in a slightly more normal manner then actually the business should get back on the recovery tack."
However, McEachran adds: "But it's very difficult to be certain that's going to happen at the moment."
It is almost certain Thorntons will recruit externally for Hart's successor. Announcing Hart's decision to step down yesterday, chairman Paul Wilkinson perhaps gave a hint in how he described what Thorntons wants to be. "Over the past four years Jonathan has turned around our Retail business, as well as creating and delivering the vision and strategy that will serve as the platform for the continued transformation of Thorntons into an international consumer goods business."
Reflecting on Thorntons' options, McEachran said: "The hire is probably going to come from the FMCG world, having worked for a big brand historically."
In the meantime, Thorntons said yesterday, COO Barry Bloomer will be interim chief executive. For Bloomer and for whomever succeeds Hart, the key will be Thorntons' relationships with its retail customers, not least the UK multiple where, McEachran says, the chocolate maker, had "barely any product listed" throughout Valentine's and Easter.
"The strategy and platform that Jonathan has put in place is the one that's going to serve them on an ongoing basis," McEachran said. "It's about execution. The difference is going to be execution in FMCG. Although it looks like a dire day because of the most recent warnings and Hart going, in truth there is still a possibility of the business making a full recovery. But it needs to hurry up because it's indebted and it's got a pension deficit as well."
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