Investment: Sweet success for Thorntons

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THORNTONS, the Derbyshire-based chocolate maker, has just completed the most eventful year in its 87-year history, and shows no signs of scaling back the five-year makeover programme it embarked on two years ago. In the year to 27 June it spent pounds 45m extending the factory, adding another 59 shops, re-siting a further 41 and launching 132 new product lines, of which 15 flopped.

In the period it boosted sales by 22 per cent to pounds 133m, including like- for-like sales increases of 9.6 per cent, but profits increased by only 9 per cent to pounds 12.6m as a result of higher packaging and distribution costs resulting from the introduction of so many new lines. The business generates a great deal of cash, but net debt rose from pounds 6m to pounds 35m and gearing to 67 per cent.

In the current climate this might seem foolhardy, as like-for-like sales growth has slowed to 5 per cent, but the chocolate market has never grown by less than 3 per cent a year in the past 20 years. Thorntons believes a 60 per cent rise in sales from refurbished shops is the best possible use of assets.

It will complete the installation of electronic point-of-sale equipment in the rest of its 485 shops, open or re-site a further 80 shops, and complete the building of its new warehouse facility just off the M1, spending a further pounds 45m and driving gearing up to around 95 per cent.

The programme will take another three years, during which investment spending will be scaled down to between pounds 15m and pounds 20m a year. Analysts are maintaining forecasts for the current year of around pounds 14m. On a forward p/e ratio of 13 the shares - which rose 7p to 184.5p yesterday - look good value in a recession.