Hotel Chocolat Annual Report 2023

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FY2023 Annual Report · Hotel Chocolat

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Annual Report and Accounts
2023

Our mission

To make people and nature happy
through reinventing chocolate.

COMPANY OVERVIEW

GOVERNANCE

2023 highlights
At a glance

STR ATEGIC REPORT

Chairperson’s statement
Business overview
Our business model
Chief Executive’s statement
Financial review
Risk management
Sustainability
Considering all of our stakeholders (s172)

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Board of Directors
Corporate governance statement
The QCA Corporate Governance code
Audit Committee report
Remuneration Committee report
Nomination Committee report
Directors’ report
Statement of Directors’ responsibilities

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FINANCIAL STATEMENTS

Independent Auditor’s report
Consolidated statement
of comprehensive income
Consolidated statement of financial position
Consolidated statement of cash flow
Consolidated statement of changes in equity
Notes to the financial statements
Company statement of financial position
Company statement of changes in equity
Notes to the Company financial statements
Company information

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2023 highlights

Financial highlights

REVENUE

UNDERLYING EBITDA1

£204.5m
10%

£24.1m
41%

UNDERLYING (LOSS)/PROFIT
BEFORE TAX1

£(0.8)m
104%

2023

2022

2021

£204.5m

£226.1m

£164.6m

2023

2022

2021

£24.1m

2023

£(0.8)m

£40.8m

£28.6m

2022

2021

£9.6m

£21.7m

REPORTED LOSS AFTER TAX

DILUTED LOSS PER SHARE

£6.2m
FY22: £9.4m

4.5p
FY22: 6.9p

DIVIDEND

£nil

FY22: £nil

Operational highlights

SALES GROWTH

ACTIVE CUSTOMER DATABASE

UK RETAIL SALES GROWTH

+54%
vs FY19 (pre-COVID-19)

1.9m
6% vs FY22

+17%
vs FY19 (pre-COVID-19)

STRATEGIC FOCUS ON
IMPROVING MARGINS FOR
SCALABLE RETURNS

MARKET HEADROOM

INTERNATIONAL

GENTLE FARMING

Larger UK addressable market* from
new categories and channels (younger
families interested in sustainability)
50 new physical retail sites over the
next 5 years

Rebase in US and Japan with new
operating models

Second harvest following launch of
programme in Ghana

1 Alternative performance measures (APMs). See page 24 for purpose and definitions of APMs.

* Management estimate.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

At a glance

FY23 has been a challenging year with
ecommerce sales decline and the refocussing of our
international business leading to Group sales decline of 10% YoY.
However, clear progress against our Business Shaper efficiency
initiatives has allowed us to exit the year with a more
appropriate cost base and healthy cash position, despite
delivering lower levels of revenue YoY.

Our key product ranges

Gifting

In-home

Leisure

Online gift delivery direct to
your recipient or make your
selection in-store.

The total gifting market is larger
than FMCG chocolate markets
in the UK and in many other
developed economies.

Compelling brand-led gifts with prices
from £5 to £350.

Specialise in ranges for the largest
cultural events and occasions when Hotel
Chocolat products can be a focal point of
family togetherness and celebration.

Exclusive alcohol range – led by
Velvetised Cream.

A regular taste of Hotel
Chocolat within your family.

Hotel Chocolat has cross-
generation brand appeal driven by
product attributes, brand values
and category breadth.

Drinkable and edible chocolate
categories now address multiple family
requirements/occasions.

The Velvetiser system for hot chocolate,
iced chocolate and lattes, with an
extensive range of flavours.

Simple no-hassle recurring delivery
of your Hotel Chocolat favourites
on subscription.

The joy of strolling into a
physical store for self-treat
or experience.

The most accessible way into
Hotel Chocolat. A powerful and
profitable way to recruit new
customers and retain existing.

Our Wall of Chocolate featuring recipes
with something for every taste tribe.

Cafés serving Velvetiser drinking
chocolate, Choc Shakes, Ice Cream of the
Gods and our own coffee roast.

And for the ultimate leisure immersion:
Our Rabot Hotel and Project Chocolat,
a six-acre cacao and chocolate visitor
attraction, both set in a UNESCO world
heritage site in Saint Lucia.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

At a glance

1.
UK OWN STORES

2.
INTERNATIONAL

3.
UK DIGITAL AND PARTNERS

58%
7.7%

3%
38.4%

39%
24.3%

Revenue by channel

TOTAL REVENUE

£204.5m
9.6%

UK
hotelchocolat.com

Growth strategy
We continue to believe there is significant opportunity for physical
store expansion in the UK. This will be unlocked by our new store
rollout programme

Through newer categories
Success of newer categories has proven that we can sell more to
existing customer families

Through the brand appeal
New market research has identified significant newly addressable UK
audience segments who respond well to the brand focus on gentle
farming and sustainability, and the More Cacao Less Sugar approach
to recipes

Focus on profitability
Production efficiencies and increase ratio of full-price sales

International

Capital light, risk-contained approach to potential
opportunities

Growth strategy
Exploring future potential for capex-light risk contained approaches

Brand licencing with partners providing
growth capital
Following the exit of the Group’s previous joint venture in Japan, a
new brand licensing agreement was entered into in January ’23 with a
local partner in which the Group holds a minority equity investment
but in which all further growth capital comes from the licensee

Ecommerce-led US Velvetiser model rollout
We have reentered the US market with a low risk ecommerce
drinkable chocolate model, focused on Velvetiser and Velvetised
Cream alcohol products. We believe this is a significant growth
opportunity for the Group

Differentiated brand and product

Differentiated brand ethical, luxury, contemporary

Differentiated taste ‘More Cacao Less Sugar’

Differentiated product with strong IP protection and
a distinctive take on chocolate

Differentiated culture founder-led with innovation and
sustainability at heart

Differentiated approach to cacao ethics using the
knowledge from 15 years of cacao farming on our own
land to create a practical programme

Strong, flexible
manufacturing platform

Strong internal IP generation

Vertical integration benefits

Recent investments in manufacturing capacity and capability
create headroom for growth

World-class product quality with unique techniques

Potential scale economies to reduce unit cost and further
improve quality

Our key strengths protect the
opportunity to drive strong
return on capital

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Strategic report
Ready for the next
stage of growth

Chairperson’s statement
Business overview
Our business model
Chief Executive’s statement
Financial review
Risk management
Sustainability
Considering all of our stakeholders (s172)

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Chairperson’s statement

Stephen Alexander

I joined the Hotel Chocolat Board in the knowledge that Hotel Chocolat is a phenomenal
brand with huge potential. Not only is Hotel Chocolat a highly differentiated
consumer brand that has a large and loyal customer base who appreciate
the unique quality and range of our chocolate, but also the authenticity and values
that underpin the brand are reflected in our Gentle Farming Programme
and the way the company conducts and develops its business.

Joining the Board
I joined the Board as Chair in May 2023, taking
over from Andrew Gerrie. I did so knowing that
I was joining a highly respected, founder-led,
values driven business known for its innovative,
high quality products and strong premium brand.

Strategy
Hotel Chocolat is first and foremost a strong
brand in the eyes of our loyal customers.
The strong customer relationship through our
multiple direct to consumer channels is driven by
our values of authenticity, originality and ethics.
Our vertical integration allows us to invest in
sustainable farming and supply chain initiatives,
whilst our innovation and product range is
underpinned by our manufacturing skills, all in
service of delighting our customers.

In the short term, the business is focused on
driving further growth through innovation and
store expansion in the UK and unlocking further
efficiencies from our unique vertically integrated
model. Alongside this, the Group continues
to retain its long-term international growth
ambitions but near term, will adopt a more
focused approach by backing capex-light and
lower risk approaches.

As a result of lower sales and the corresponding
impact on operational gearing, the business
delivered an underlying loss* before tax and
exceptional items of £0.8m (FY22: profit £21.7m).
As part of the cost base reduction, restructuring
activities resulted in exceptional costs of £6.1m
(FY22: £30.4m) and a statutory reported loss of
£6.2m (FY22: £9.4m), as explained in the Financial
review on page 20.

Business activity in the year
In FY23 we achieved sales of £205m, a decline of
10% on FY22; however, the business continues
to see significant growth on pre-pandemic levels
with FY23 delivering an increase of 54% on FY19.
FY23 was a transition year with changes in the
ecommerce and international channels impacting
sales performance, whilst strong progress has
been made on reshaping our cost base from
which the business will benefit fully in future
years. We have refined our operating models
for international expansion and have re-entered
both the Japanese and US markets with lower
risk, capital light operating models to address the
previous operating model challenges.

Dividend
Given the opportunities to invest for further
growth and returns, the Board has determined
that it would not be appropriate to declare
a dividend for the period. The Board will
continue to review the financial position of the
Group in light of internal growth opportunities
and the external environment and intends to
recommence progressive and sustainable dividend
payments when appropriate to do so.

* Underlying loss is an alternative performance measure,

see page 24 for definition and calculation.

FY23 has been a critical year for the business in
which we have seen a rebalancing of pandemic-
driven, ecommerce sales, a reset of our international
operations and the initial benefits of the significant
work to reshape our cost base.

Board of Directors changes
The Group continues to benefit from a strong
founder-led management team and I am delighted
to have joined as Chair, replacing Andrew Gerrie,
to support the next phase of Hotel Chocolat’s
expansion.

In May the Group also welcomed our new CFO,
Jon Akehurst, who replaces Matt Pritchard.
Jon brings strong commercial and operational
experience to support the Group’s growth and
margin expansion strategies.

On behalf of the Board and the wider Hotel
Chocolat team, I would like to thank
Andrew Gerrie and Matt Pritchard for the
leadership they brought to the business and for
their significant contribution.

Outlook
The Board continues to believe that the Hotel
Chocolat brand has an exciting future both in the
UK and internationally as evidenced by continuing
growth of UK stores and proven consumer
demand in both the US and Japan. Despite the
existence of external macro- economic challenges
including inflationary pressures and the cost
of living crisis, the Hotel Chocolat team has
continually proven the ability to adapt to changing
circumstances which is demonstrated through
the good progress the business has made in FY23
and early FY24 on the five Business Shapers
that support margin expansion and working
capital reduction. FY24 and FY25 will see an
ambitious store opening programme to capture
the increasing demand for in-store experiences,
and further progress on our five Business Shapers
is expected to deliver pre-IFRS 16 EBITDA2
margin of 20% by FY26. The Board, therefore, is
confident in the ability of the brand and the team
to deliver attractive sales growth and returns.

The Board has made a clear strategic choice to
maximise the prospects for the Group through
focus on the UK, whilst deploying lower risk
operating models in the Japanese and US markets
with limited capital requirements. The business
entered FY24 in a strong position with a healthy
cash balance and significant headroom. Since
3 July 23 cash outflows have been significantly
better than FY23 due to well controlled working
capital management. At the date of publication,
the Group is entering its key FY24 Christmas
trading season in a strong position with good
liquidity due to improved cash balances and
lower working capital. With three quarters of the
year still to trade, including the five largest gift
events, the Board is taking a prudent approach
to managing current trading to ensure costs and
capital outlay are aligned to sales performance..

Stephen Alexander
Non-executive Chair

2 Pre-IFRS 16 EBITDA margin is an internal measure that management use to understand the
cash health of the Group. The metric is calculated by removing all IFRS 16 impacts thereby
treating all leases as operating expenses.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Business overview
Our values-led approach creates long-term
success for all our stakeholders

Our mission
To make people and nature
happy through reinventing
chocolate

Our growth strategies are based on our three core values
that underpin everything we do and who we are.

Originality
Fresh thinking
To be the most innovative
chocolate brand

Authenticity
To be the real thing
Our focus on More Cacao Less
Sugar results in a superior taste
To have the deepest, direct
customer connection and
a dependably excellent
product range

Ethics
To be brave and kind
To become the world’s most
sustainable chocolate brand

How we operate
Our business model
Our vertically integrated model means we are involved in every
stage of chocolate; from working with partner farmers, to designing
and innovating new products, to making, distributing and engaging
customers through our own direct channels.
By delivering growth we can progressively increase investment in
sustainability and continuously improve our product range and services.

Delivering long-
term success for our
stakeholders

Our customers
Differentiated product and
engaging experiences

Our brand
Deployed into multiple categories and occasions

CORE CHOCOLATE

| VELVETISER

| ALCOHOL

| CAFÉS

| EXPERIENCES

GIFTING

IN-HOME

| LEISURE

Our colleagues
Rewarding, engaging work
& wellbeing

How we grow
Our drivers

Omni-channel model
Store expansion to drive brand engagement through greater physical
proximity to consumers and stronger brand experience. More
stores equates to more immersive brand experiences and increased
engagement with multiple routes into the household. This drives
cross-category penetration and increased frequency. Increased focus
on leisure and destination stores to drive brand immersion and
cross-category consideration.

Multi-category
and occasion
In-home Velvetiser and
Velvetised Creams
Out of home Café offering
Fully immersive cacao experience
through Project Chocolat

International
US digital-only Velvetiser model
New Japanese equity investment
and brand licensing agreement

VIP Me – customer
Driving customer acquisition,
frequency and basket spend

Expanding margins to
reinvest
Delivering our Business Shapers
will generate cash to fund further
growth opportunities

Our growers
and suppliers
Sustainable long-term
partnerships

Our investors
Strengthening returns

Our communities
Giving back and making
people happy

Our environment
Treading lightly, with
respect for the planet

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Our business model
As well as being a source of competitive advantage,
our vertically integrated business model allows us to
operate sustainably throughout the value chain

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C reating

W e g r ow | We design

We own our c h a n n e l s
and customer ex p e r i e
n

Entertai n i n g

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Creating
We grow

The deep understanding of the cacao
growing process from our Rabot Estate
in Saint Lucia enables us to continuously
improve our relationship with all of our
cacao growers worldwide, as part of our
new Gentle Farming Programme.

We design

Our in-house team of designers
balance prolific new-concept creation
with a disciplined range architecture to
minimise waste.

Entertaining
We own our
channels and
customer experience

‘Entertaining while we sell’ is our mantra.
Underpinned by great digital storytelling
and a knowledgeable School of Chocolate
qualified team. A complete 100% happiness
guarantee backs up everything we do.

Digital & continuity

Cacao estate

Physical stores

Premium wholesale
partners

Hotel & visitor
attraction

Making
We manufacture

We make 95% of our chocolate
products at our manufacturing campus in
Cambridgeshire, UK. In-house production
allows faster innovation, increases control
over quality, protects intellectual property
and improves gross margins.

We distribute

Running our own distribution centre and
fleet allows us to deliver high availability
to all our channels and maximise the
efficiency of routes.

Reinvesting
We care

Our Engaged Ethics Programme
drives a progressively increasing
investment in sustainability, both
in the UK and worldwide.

We keep
getting better

Our culture of continuous improvement
drives a relentless focus on improving our
efficiency and the customer experience.

What this
means for our
stakeholders

Our customers
Differentiated products and engaging
experiences for our customers

Our growers and suppliers
Sustainable, long-term partnerships
with our growers and suppliers

Our colleagues
Innovative culture and rewarding
careers for our colleagues

Our communities and planet
Increasing investment in sustainability
initiatives to support our communities
and planet

Our investors
Attractive returns for our investors

READ MORE P50

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Chief Executive’s statement

Angus Thirlwell

FY23 will go down in Hotel Chocolat
history as the year we set ourselves up for
our next era of strong growth.

The year in summary
FY23 will go down in Hotel Chocolat history as
the year we set ourselves up for our next era
of forward development. The previous three
years, FY20 to FY22, had delivered an impressive
54% revenue growth over FY19, alongside agile
COVID-19 adaptations, but had left us out of
shape on several fronts, compared to what we
know Hotel Chocolat is capable of.

So we took a year, FY23, to put that right. We
established the comprehensive ‘shape of the
future’ strategy in H1 and deployed it during
H2, with pleasing results so far. Sticking to this
strategy will guide us to achieve an ever-stronger
brand and 20%+ pre-IFRS 16 EBITDA returns
from FY26.

UK channels
£197.4m (FY22: £214.5m)

• Stores £117.8m (FY22: £109.4m).

A strong performance from our stores,
with +8% sales growth. Space growth was
deliberately curtailed with a year-long pause
on our store opening programme while we
observed the performance of our latest store

format trial sites. FY24 is now benefitting from
this with 12 additional UK store openings
planned, based mostly on the new format, and
new store openings at 50 locations planned
over the next 5 years.

The Hotel Chocolat multi-channel model is led by
our compelling store format. With 124 locations
open at the period end, all format types delivered
excellent EBITDA returns. It was reassuring to
see a return to form for our railway stations
thanks to resurgent passenger numbers.

Our multi-channel approach means that each
store has on average c.25,000 VIP.ME members
within close proximity, nourishing the high sales
densities our brand achieves.

Our multi-category approach means that each
store has multiple points of attraction for brand
fans spanning gifting, self-gifting and the Velvetiser
in-home system.

Our product range architecture by category,
genre and pricing means that we genuinely offer
accessible luxury. The warm welcome from our
team underscores this.

With significant investments made into products,
formats and training programmes during FY23,
we expect to keep delivering more great things
from our physical store experiences.

• Digital £58.3m (FY22: £79.1m).

As a significant portion of our customer tilted
back to shopping in stores post pandemic,
our digital sales declined by 26% in the year.
Marketing spend was deliberately curtailed in
this channel due to significant online media
inflation in this period. Our online ratio of
D2C revenues is still comfortably ahead of pre-
pandemic levels, 29% FY23 vs 19% FY19 - an
increase of +58%.

Digital will continue to be a very important
element of our distribution channels. Indeed, it is
our ambition to be the online leader in chocolate
across major markets. Whilst sales through
digital experienced a decline as a proportion of
Group sales during FY23, this was against the
backdrop of FY22 being positively impacted by
the pandemic.

The Hotel Chocolat multi-channel model means
that any investment in a particular channel
creates a halo effect. We have developed
expertise in acquiring new customers across the
full breadth of our channels and activities.

We expect the strong new store opening
programme (12 expected in FY24) and the brand
building media spend (+c.90% over FY23) to
underpin performance in our digital channel.

• Wholesale £21.3m (FY22: £26.0m).

Performance in this channel declined by 18% in
the period. Wholesale was adversely impacted
by similar trends to that seen in our own digital
channel and several non-strategic accounts
were closed, with a ‘quality over quantity’
approach being taken.

Our strategy continues to restrict the product
offer to a limited range for reselling partners,
with full range present only through Hotel
Chocolat owned channels.

Our Velvetised Cream alcohol category was
presented at several international trade shows
during the year, in furtherance of our distribution
plans outside the UK market. Within the UK,
the product is currently ranged within several
major grocers.

International channels

£7.2m (FY22: £11.6m)

US £0.2m (FY22: £2.9m).

A 100% subsidiary business

We are confident that our brand resonates in the
US and, at the time of writing, we are in the early
stages of relaunching our offering - testing both
customer responses and distribution arrangements
for our US Velvetiser-led digital sales channel.

This is the result of applying all learnings acquired
so far and adapting our way to a better approach.
It includes a new operating model, an adapted
customer offer and a more specialist small team.
The first stage of our plan is to be focused on
our Velvetiser-led digital model with further
stages available to be layered in after solid success
foundations have been achieved.

Initial performance and customer response is
encouraging. Given that the US business was
closed for the majority of FY23, whilst an
improved operating model and approach was
being put together, sales declines £2.7m YoY.

The Instagram feed HotelChocolatUS is a good
way to view current brand activity.

Japan £0.9m (FY22: £3.8m)

Equity Investment

A brand licence partnership in which
Hotel Chocolat owns 20%

Eat Creator are the new partner for Japan since
29 December 2023, with 21 Hotel Chocolat
locations across the country at the year end.
Eat Creator bring their skills to develop the
model and offer local Japanese market expertise,
providing the growth capital and the resources
to achieve this. Hotel Chocolat brings a strong
brand and supplies key products including some
for onward assembly and packing within Japan.
This has been achieved through a 20% equity
investment in HC St Lucia Inc, a company
incorporated in Japan (with Eat Creator owning
the remaining 80%), and a royalty and distribution
agreement on all sales as the business develops.

A key early achievement has been c.10 new
‘made in Japan’ products designed and introduced
by the Eat Creator team in this period.

The Instagram feed Hotelchocolat_japan_official
is a good way to view current brand activity.

Saint Lucia £4.7m (FY22: £3.8m)

A 100% subsidiary business

Solid progress has been made at our Rabot
model farm, Rabot Hotel and the new Project
Chocolat with the infrastructure now complete
across all three areas of the business. As a key
unique immersive brand experience we are now
well set to benefit from the expected recovery of
visitors to the island over the coming years. The
business currently uses the discounted cash flow
method when performing its annual valuation for
impairment review. As a result of the expected
short term impact of slower than anticipated
recovery of visitor numbers to the island (which
are still below pre-covid levels) we have recorded
an impairment to the carrying value of £3.5m in
the year. The Group remains fully committed to
the exciting developments in St Lucia.

Our vision, conceived 20 years ago, is to connect
the worlds of cacao agriculture and chocolate
luxury:

• physically, from the experiences and unique

propositions we have in St Lucia; and

• spiritually, through the positive impact our
brand can bring everywhere, built out from
our knowledge and confidence of what we are
learning by being a gentle farmer of cacao.

The Hotel: award winning, with 25 rooms
and an acclaimed restaurant serving cacao-
inspired cuisine.

The Farm: 140 acres with shade grown, organic
cacao, fostering astonishing biodiversity, soil
quality and central fermentation activities for
the independent island grower within our
ethical programme. The principles of gentle
farming were first tried and tested here before
being adopted by our Ghana programme.

The Visitor Experience: known as Project
Chocolat, the 6 acre site offers deeply authentic
learning, dining and shopping within an
expansive space that is already hosting tens of
thousands of visitors per annum. The majority
are US based and our aim is that, after an
immersion in the Project Chocolat experience,
they will never look upon chocolate in the same
way again.

The Instagram feed ProjectChocolatSaintLucia is
a good way to view current brand activity.

Profit summary
We entered the year over-leveraged on
overheads and stock. The excess stock position
and corresponding price discounting put
downward pressure on product margins and
higher absolute overheads led to lower Group
operating margins. These factors together with
the Group revenue declines, led to a statutory
loss for the year. After a year of wrestling the
business back into a better shape, we exited
the year with reshaped overheads, improved
organisational design, lean stock levels and
resurgent gross margins. Whilst the overall
Group cash position has deteriorated in FY23,
cash from operations was strong, driven by the
action taken around our business shapers. These
actions continue to impact cash from operations
since the end of FY23, with favourable working
capital movements compared to Q1 FY23.

We are determined that the focus on Business
Shapers will deliver excellent improvements in
profit returns for years ahead.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Chief Executive’s statement continued

Our shape of the future

The Brand Shapers

Our brand always takes top priority for our resources and long-term focus.
I am pleased with the energy we invested during FY23, with a number
of initiatives to surface during FY24 across channels, products, team
knowledge and ethics. Our everlasting brand values: to be original, authentic
and ethical will be progressively strengthened as we follow through our
Brand Shaper strategy.

Reinventing
chocolate

Velvetising
the world

Driving the
nature
positive cacao
revolution

Owning the
chocolate
alcohol
category

Building a
super-brand

Reinventing chocolate

Velvetising the world

- rolling out to an ever-larger
audience for ever-greater impact

- leading and scaling the in-home
drinkable chocolate market

FY23 was dedicated to putting in the
foundational design and test work on our
latest store format to enable a rollout of 50
new locations in the UK within the next 5
years. The new format has approximately
100% more trading space than the current
estate, with more room for a Velvetiser café
and an enhanced layout for gifting and
self-gifting ranges. We have used more
reusable and long-lasting natural materials
and a sharper more distinctive, post-modern
look. This format works well out of town as
it can draw its own footfall due to the quality
of the offer and the customer database
depth. Most locations offer parking and
are near convenient major road networks,
addressing clear ‘white-space’ store gaps we
can see from our database analytics.

For FY24 we have 12 new locations targeted,
four of them already opened. Each one will
draw a large number of new customers into
Hotel Chocolat, with a halo effect for all
our channels.

Throughout FY23 we also invested in our
customer relationship tools to increase
customer lifetime value across channels, as
well as our customer database analytical
tools. We approach FY24 with a c.90%
increase in our brand building media spend
value with these enhanced abilities.

UK customer demand for our in-home
drinking chocolate system was resilient
throughout FY23. We are close to achieving
1m UK households with a Velvetiser and are
confident we will surpass that number during
FY24. The development of limited edition
seasonal recipes continues apace, with
stunning results from close matching lifestyle
flavours with the weather. An iced drinking
chocolate for the Velvetiser with real banana,
chocolate and butterscotch sold out within 5
weeks around the time of writing this report.
A pipeline of exciting new flavour launches
for all palates and lifestyles is planned every
quarter for the foreseeable future.

In Saint Lucia, we of course have Velvetisers
installed in all our 25 bedrooms and they are
on sale from the shopping space at
Project Chocolat in US and UK voltage.

Our US Velvetiser website launched in July
2023 and we are pleased with operating
model performance as well as customer
reactions so far.

In Japan, Velvetisers are on sale through all 21
locations and customers may try the drinks
in the cafés hot or iced.

Owning the chocolate
alcohol category

– creating THE chocolate brand
for the alcohol market

We are in the early stages of building this
model relative to other categories we
play in. During FY23, the UK distribution
focus included activating the on-trade with
several successful collaborations. Significant
distribution is in place with key major
grocers, supported by ‘always on’ sampling
though our UK store network. International
solutions are in the developmental phase,
with strong trade demand in several key
markets.

Driving the nature positive
cacao revolution

– unlocking customer power to help
us make it right for farmer families
and for nature

Having established some momentum behind
gentle farming in Ghana, we will be increasing
the prominence of this dimension of our
brand from FY24 and throughout our multi-
channel marketing. We know that we have
a receptive and large audience who can join
with us to make good things happen in cacao
agriculture.

Building a super-brand

– earning pricing and loyalty power by investing behind our 3 brand values

To be Original, Authentic, Ethical are the 3 everlasting values. During FY23, we invested strongly in all 3, with the benefits set to be visible over FY24.

Original: c.28 new products for FY24 Christmas and Easter.

Authentic: a revamp of our internal School of Chocolate launches this Autumn, underpinning our team confidence and knowledge.

Ethical: our Gentle Farming Programme enters its third year in Ghana, supported by a key new product launching in the Autumn which helps fund our
ambitious plans by contributing 100% of the sale proceeds.

The Business Shapers

We established the Business Shaper strategy during FY23 to drive the
UK business to a recurring 20%+ pre-IFRS 16 EBITDA margin. Since the
deployment of the new Business Shapers, we have seen significant progress
and expect to carry this momentum into FY24.

Cost of
service

Trading
margin

Manufacturing
cost of goods

Overhead
costs

Inventory

Trading margin1

Overheads

Improved by 0.7 percentage points in H2
FY23 vs prior year, driven by improved
inventory control methods. Short shelf life
product levels are now at historical lows
resulting in lower levels of discounting. Over
the course of FY23, aged finished goods
as a proportion of finished good stock has
reduced from 13% in calendar year 2022 to
1% at FY23 year end. This means customers
are getting the freshest and tastiest stock and
the business is reaping the full-price rewards
of higher margins and minimal discount from
short shelf life. Price increases on selected
product ranges also contributed.

Customers have shown strong loyalty - there
has been no marked change in volume since
the cost-inflation driven price increases.

Organisational restructuring was completed
in the closing months of FY23 with the
objective of supporting higher performance. A
leaner approach for our vertically integrated
business structure and methods meant that
£5m of ongoing permanent costs (salary
related) were removed vs FY22. Several
high level appointments were made during
the year, with deliberate high investments
behind strategic decisions fully costed into this
reduced overall overhead base.

Inventory balances

Have been tightened significantly, with total
inventories down 19% vs FY22 closing
balances. Finished goods inventories are
down over 23% YoY whilst availability is still
excellent, in the mid-high 90%.

Manufacturing cost of goods

Efficiency gains here have been deliberately
delayed by 6-9 months as the business
re-prioritised the pull forward launch of
new products to ensure it can optimise
FY24 Christmas and Easter trading seasons
by addressing gaps in the product range.
However, the detailed workstreams to
deliver these gains are fully in place to deliver
the goals we have set.

Cost of service

In FY24 and onwards, this will benefit from
reduced distribution centre costs with c.50%
of the Northampton DC now generating
income through a sub-let.

1 Trading margin is defined as sales less standard costs less the following price variances:

– calculated standard cost of goods to purchase order
– purchase order to invoice.

The People Shapers

At the time of writing, we were delighted to launch our People Shaper
strategy, the culmination of work throughout 2023. It is our foundational
belief that all three Shapers need to be performing well for the Hotel
Chocolat brand to achieve its strategy.

Focussing
on the
fundamentals

Leading &
developing
people

Rewarding
everyone
fairly

Ensuring we’re
fit for the
future

Having
a winning
culture, we’re
proud of

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Chief Executive’s statement continued

Operational Outlook
Our view ahead assumes a low-growth general
consumer demand environment and stubborn
cost inflation in the UK.

Some of the key trends noted, and the steps
taken to address them, are:

Demand: We anticipate that competition for
household spending will increase in the
short-term due to macro factors. In order to
help drive demand during our peak period,
we have included in the FY24 business plan an
enhanced marketing budget with c.£9m brand
building media spend from October through to
March 2024 - an increase of c90% on FY23. This
type of activity has previously proven, in FY22
in particular, to be successful in driving demand
in all channels (FY22: c£11m brand building
media spend).

Channel mix: Partly due to macro-economic
factors, we are seeing a shift in consumer
preference toward the store channel. Our
response to this has been to allocate substantially
more capital expenditure to new store space and
anticipate a conservative level of digital growth
over the next 3 years.

Additionally, in June ’23, we launched
‘Love Match’, which is a strategic initiative to drive
enhanced conversion rates and loyalty by close
matching customers’ individuality to the perfect
match of chocolate from within the extensive
breadth of the Hotel Chocolat range. The full
benefits of this will be seen from FY24 onwards.

Current trading is encouraging, however with
our key Christmas trading period to come the
majority of H1 sales will be delivered in Q2
consistent with prior years.

Angus Thirlwell
Chief Executive

Customer behaviour: Whilst purchase
frequency remains high, we have seen a slight
reduction in the average order value. To fill
gaps in our price points resulting from recent
increases, we have accelerated the development
of c.28 new products to achieve an optimum
price architecture for our customers in
the upcoming peak periods, commencing
Christmas 2023.

We have further invested in CRM activities
to ensure we maximise available returns from
our existing loyal customer base, including a
successful trial of AI software tools - which from
FY24 onwards we will fully benefit from.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Financial review

Jon Akehurst

FY23 was a challenging year but one that saw significant progress
on reshaping the business through the transformation of our cost base
to set the business up for further growth and improved returns.

Revenue
Revenue for the 53 weeks ended 2 July 2023
decreased by 10% to £205m (FY22: £226m),
driven by lower online and international revenues.
UK sales declined by 8% year-on-year, with online
sales continuing to decline at 26% as the channel
mix rebalances after COVID-19, however,
physical retail stores delivered growth of 8% on
FY22 as consumers returned to stores. Similarly,
performance in resale partners declined driven
by the online channel and strategic decisions to
withdraw from lower margin resellers.

International revenue decline also weighed on
Group performance as the strategic decision to
reset the operating model in both the Japanese
and US markets materialised.

Lower revenues led to reduction in marketing
investments in the second half of FY23 with
specific focus on pulling back from the digital and
ecommerce channel where return on investment
has dropped throughout FY23 due to significant
cost inflation.

Gross margin
Statutory reported gross margin of 58.3%
increased by 2.2% compared with FY22. This
was primarily driven by the release of prior year
stock provisions which were unwound during
the year. The high stock levels carried into FY22
were unwound in H1 FY23 through discounted
pricing. This has resulted in a substantial decrease
in finished goods inventory which has released
cash. Gross margin in H2 FY23 has benefited
from lower aged finished goods inventories with
less price discounting and reduced inventory
provisions. This has resulted in H2 FY23 gross
margin increasing 10.6% year-on-year.

Excluding exceptional provisions, gross margin
of 58.3% represents a decline of 0.2%, with
two main causes:

• In response to rapid sales growth forecasts
in FY22, the Group produced additional
inventories which were then sold at reduced
prices throughout H1 FY23 placing downward
pressure on gross margin.

• This is offset by inventory provision releases
in FY23 due to significant progress that has
been made on our Inventory Shaper where,
at 2 July 2023, Finished Goods Inventories
expiring within three months at the end of
FY23 reduced to less than 1% of total Finished
Goods Inventories, down from 13% at
26 June 2022.

Revenue £m

UK channels

International

FY23

197.3m

7.2m

FY22

214.5m

11.6m

FY21

159.4m

5.2m

FY19

127.7m

4.7m

With FY23 expected to be a transition year, we are pleased with the strong progress on our objectives to implement cost
and capital efficiencies, leaving the Group well placed for the future. There is still significant opportunity for revenue
growth in our core UK market and this is supported by strong in-store performance in FY23 despite the rebalancing
of ecommerce revenues. Our international operations have been reshaped with a relaunch of the brand in both North
America with a lower risk, capital light operating model and Japan, with a new partner in which we have a 20% equity
investment and distribution and royalty arrangements in place. This allows us to take advantage of the significant potential
demand for the brand in these markets.

FY23 (53 weeks)

FY22 (52 weeks)

Underlying
before
exceptional
items

Exceptional
and adjusting
items1

FY22

reported

226.1

(99.3)

126.8

–

(5.5)

Revenue

Cost of sales

Gross profit

Operating Income

Operating expenses

Underlying EBITDA

Share-based payments

Depreciation & amortisation

Loss on disposal

Profit/(loss) from operations

Finance income*

Finance expense

Share of joint venture loss*

(Loss)/profit before tax

Tax credit/(expense)

Loss after tax

EPS basic

Underlying
before
exceptional
and adjusting
items

204.5

(85.3)

119.2

0.3

(95.4)

24.1

(1.5)

(20.5)

(0.2)

1.9

0.4

(3.2)

–

(0.8)

–

Exceptional
items1

FY23
reported

–

204.5

(85.3)

119.2

0.3

(5.8)

(101.2)

–

(0.1)

–

(5.9)

0.1

–

(0.3)

(6.1)

–

(1.5)

(20.6)

(0.2)

(4.0)

0.5

(3.2)

(0.3)

(6.9)

0.7

(6.2)

(4.5p)

226.1

(93.8)

132.3

(91.5)

40.8

(0.5)

(16.1)

(0.5)

23.8

1.0

(1.9)

(1.2)

21.7

–

Interest receivable and share of joint venture loss have been classified as exceptional items as the Japanese JV entered Civil Rehabilitation in July 22.

1 Alternative performance measurements (APMs). See page 24 for purpose and definition of APMs.

(24.9)

(116.4)

–

(30.4)

–

(30.4)

–

(0.5)

(16.1)

(0.5)

(6.6)

1.0

(1.9)

(1.2)

(8.7)

(0.7)

(9.4)

(6.9p)

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Financial review continued

Performance indicators agreed and monitored by the Board

REVENUE

UNDERLYING EBITDA1

£204.5m

(2022: £226.1m)

£24.1m

(2022: £40.8m)

UNDERLYING (LOSS)/
PROFIT BEFORE TAX1

REPORTED LOSS BEFORE
TAX

£(0.8)m

(2022: £21.7m)

£6.9m

(2022: £8.7m)

Operating expenses
Before exceptional costs and adjusting items,
operating expenses less operating income of
£95.4m increased +4.3% year-on-year (FY22:
£91.5m). As a transition year, operating expenses
were the focus of structural cost reductions to
reduce operational gearing and reduce the Group’s
fixed cost base to deliver more efficiencies.
Significant reductions were made to headcount
costs across the year with specific focus on central
and administrative roles and has removed £5m
from the Group’s underlying cost base moving
forward compared against FY22. This restructure
created an exceptional cost as outlined below.

Utility prices were higher YoY with the forward
contracts put in place during FY23 rolling into new
contracts at lower unit prices in FY24.

A foreign exchange loss of £0.8m was recognised
in operating expenses (FY22: £0.4m profit) in
relation to stock purchases in EUR & USD.

Operating income
During the year, the Group received operating
income of £0.3m made up of:

• £0.2m rental income from the sub-lease of the
Northampton Distribution Centre (FY22: £nil)

• £0.1m research and development credit for

FY20 & FY21 HMRC R&D claim (FY22: £nil).

Underlying EBITDA
Underlying EBITDA of £24.1m or 11.8% of
sales compares to £40.8m or 18.1% of sales in
FY22. Whilst the Group has seen the expected
significant deterioration in Underlying EBITDA in
FY23, it is encouraging to see the progress made
on our Business Shapers in FY23 that will enable
the Group to more readily invest behind future
growth opportunities.

Underlying EBITDA is a not a statutory GAAP
measure, but is included as an additional
performance measure (APM), see page 24 for
further information on APMs.

Exceptional items
The reported result for FY23 includes £5.9m of
exceptional items within operating expenses, plus a
further £0.2m relating to non-operating expenses.
The exceptional costs relate predominantly to the
impairment of the estate in St Lucia of £3.5m and
strategic choices to restructure the cost base in
FY23 of £1.6m. The impairment of the estate in St
Lucia is driven by continued Covid-19 disruption
where visitor numbers to the island have not
recovered to pre-pandemic levels. As a result the
short term valuation using the discounted cash
flow method has decreased, as the key sensitivity
of this valuation method lies in the revenue
assumption, which leads to swings in valuation
both ways as revenue assumptions change YoY.
The Group remains fully committed to its exciting
development opportunities in St Lucia as a unique
driver of brand value.

Additionally, the remainder of the charge is made
up of:

• £0.3m of the operating expenses relating to the
Japan JV (Joint Venture) which were written off
in the year;

• Store impairment reversal of £0.1m;

• £0.1m loss on disposal of coffee hardware

tooling;

• £0.5m FX on LT loan which reverses FX on US

loan which was provided for in FY22; and

• Non-operating exceptional expenses relating

to the Japan JV of £0.3m for share of JV losses
offset by interest receivable of £0.1m.

Japan Joint Venture – progress
update on windup of HCKK
Having previously provided financial support
to the JV in the form of investments, loans and
guarantees, the Directors of the Group concluded
that it was inappropriate to continue to advance
further working capital to the venture. In July
2022, the JV entered Civil Rehabilitation “Minji
Saisei” under the supervision of the Tokyo court.
The Group does not believe that there will be any
further exposure in relation to the Japan JV. At the
date of publication the process is ongoing.

Finance income and expense
Finance income of £0.5m is primarily interest
received from the bank.

Finance expense of £3.2m comprises £1.1m
of bank RCF interest and £1.9m of interest on
leases under IFRS 16, and £0.2m of interest on
derivative financial instruments.

Depreciation
Depreciation and amortisation of £20.5m
compares to £16.6m in FY22. Key capital
investments in the period included upgrades to
the manufacturing facility, internal fit-out of a
newly leased second distribution centre, with
1 new store and 1 relocation to larger sites in
existing locations.

Loss/(profit) before tax
Underlying loss before tax of £0.8m (FY22:
underlying profit of £21.7m) is before exceptional
costs and adjusting items totalling £6.1m which
result in a reported statutory loss before tax of
£6.9m (FY22: £8.7m loss). A reconciliation of
underlying and reported profit is provided on
page 25.

1 Alternative performance measurements (APMs). See

page 24 for purpose and definition of APMs.

Tax
Tax for the period is a credit of £0.7m (FY22:
£0.7m charge). In FY22 there was a tax charge
despite the statutory loss as the investment
related to exceptional items were disallowed for
corporate taxes. The current year tax credit is
made up of £0.1m current tax credit and a £0.6m
deferred tax credit.

EPS and dividends
The reported loss results in a loss per share of
4.5p which compares to a FY22 loss per share
of 6.9p.

Cash
In the period, the Group generated operating
cashflows of £22.3m before movements in
working capital. After movement in working
capital cash flows are £17.1m which includes
£6.4m paid to settle financial guarantee contracts
for the Japan JV.

Capital expenditures in the period totalled £10.3m,
with £0.5m being a loan to the Japan JV prior to
Civil Rehabilitation. A £0.1m investment was made
to acquire 20% equity in HC St Lucia Inc in Japan,
with the balance invested in working capital.

At 2 July 2023 the Group had cash on hand
of £11.2m with all of the £50m RCF facility
remaining undrawn. In H1 FY23 the Group
utilised the RCF by drawing down £34m; the
drawdown was also repaid in this period.

As at 10 October 2023 the Group remains well
capitalised with £30m headroom comprising
of £8m cash on hand and £22m of unutilised
facilities within its £50m RCF, immediately prior
to the peak cash-generating trading period.

Inventory
Closing inventory of £35.0m represents a
decrease of £8.0m YoY. The majority of the
decrease is due to the Group's intention to
materially reduce inventory to a level reflective of
prudent sales forecasts with a modest buffer to
allow sales outperformance to forecast.

Other working capital
Trade and other receivables decreased from
£17.5m to £12.9m mainly due to £4.6m of
prepaid deposits for goods which transferred into
inventory.

Current liabilities decreased from £57.4m to
£39.5m primarily as a result of:

• a reduction in capital, inventory and other

expenditure reduction having a positive impact
on trade payables and accruals; and,

• settlement of £6.7m financial guarantee

contracts on behalf of the Japan joint venture.

Going concern
The Directors have undertaken a comprehensive
assessment in order to conclude that the Group
has the ability to trade as a going concern based
on forecasts drawn up to 31 December 2024,
considering the current macro-economic
environment and the potential impact of relevant
uncertainties facing all businesses, together with
the Group’s ability to influence its activities and
hence the financial position, cash flows and
profitability. The Financial review on pages 20 to
25 considers in more detail the Group's trading
performance and financial position.

In reaching their conclusion, the Directors’
considerations have included the following factors:

• That the Group continues to operate within

its facilities, which are used to fund day-to-day
working capital requirements.

• The availability of funding in the form of a £50m

RCF. This was extended by 12 months on
29 September 2023 through the exercise of
extension option which takes the agreement out
to July 2025.

• The headline covenants remain unchanged: of
achieving positive cash in January 2024, of net
debt to EBITDA (pre-IFRS 16) of less than 2.5
times, and EBITDA to interest greater than 4
times. These covenants are tested at the end
of each financial quarter on a twelve month
rolling basis.

• In order to support additional inter-company
lending to the Group’s St Lucian business to
fund further infrastructure investment there is a
condition to add the Group’s two St Lucian legal
entities to the agreement as obligors. To secure
this inter-company lending, a share pledge is
required to be completed within 60 days of
execution of the amended and restated RCF
agreement. It is the opinion of the Board, acting
upon external legal advice, that this is a straight
forward legal process, fully achievable in the
required time frame. This opinion underpins the
Board’s going concern assessment.

• The Groups’ current cash position as at 10

October 2023 is £8m, giving £22m headroom
within the facility as the business approaches the
peak trading period, with around 85% of annual
revenues still to achieve with the five largest
seasonal gifting seasons still to come.

• The ability to progressively reduce working

capital levels by leveraging the vertical integration
from manufacture to end-consumer, including
the ability to use prices to influence demand.

• The ability to communicate with a database of
two million active customers at modest cost in
order to stimulate sales demand.

• Multiple levers of mitigation in the form of

discretionary spend-reduction opportunities.

• Having made significant capital investments to
increase capacity in recent years, the Group
has sufficient operational headroom to support
several years of volume growth and can
therefore exercise discretion over the timing of
further capex.

• Consideration of specific factors impacting
current and estimated future consumer
demand, including channel and category sales
performance.

• Current elevated levels of consumer price
inflation, which may create pressure on
consumer discretionary spend, leading the
Group to prepare a number of possible
scenarios for sales demand during the going
concern review period.

The Directors have modelled a number of
scenarios, including a reverse stress test. In the
scenarios, sales are flexed, along with the impact
on related expenses, working capital changes
and other mitigations such as cost reduction and
timing of capital expenditures. These scenarios
are used to evaluate the implications for gross
margins, operating expenses, profitability,
working capital, capital expenditure and the
consequent financial position, including operating
within financial covenants attaching to the RCF,
which are outlined in more detail in Note 30
on page 129. For each scenario, the Directors
have identified relevant actionable mitigating
measures that the Group could undertake at its
own discretion to adjust future cash flows and
continue to operate within their facilities.

In making their assessment, the Directors have
reviewed management forecasts based on
scenarios reflecting full-year sales in line with
FY24 Budget along with scenarios showing
declines vs budget of -10% (-2% YoY) and -20%
(-13% YoY) which reflect the Directors' view on
most probable worst case scenario and a reverse
stress test respectively. The full details of the
going concern analysis undertaken are set out on
page 99.

The Directors have considered the impact of
mitigations and the Group’s ability to implement
these changes at its own discretion. The Directors
have also considered the probability of each sales
scenario, concluding that the most extreme sales
decline scenario reflected in the reverse stress test
is of remote probability. As a result, the Directors
have concluded that the use of the going concern
basis of accounting is appropriate for the period to
31 December 2024.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Financial review continued

Alternative performance measures (APMs)
Management believes that Underlying EBITDA, Underlying Operating Profit and Underlying (Loss)/Profit before tax are useful measures for investors
because these are measures closely tracked by management to evaluate the Group’s operating performance and to make financial, strategic and operating
decisions. These may help investors to understand and evaluate, in the same manner as management, the underlying trends in operational performance on
a comparable basis, period on period.

Alternative performance measure

Underlying EBITDA

Closest equivalent IFRS
measure

Profit/(loss)
from operations

Definition/reconciling items

Underlying EBITDA is defined as earnings before net finance costs, depreciation and
amortisation, profit/loss on disposal of assets, share-based payment charges (and related
taxes), share of profit/loss of JV, tax and exceptional and adjusting items.

Underlying Operating Profit

Profit/(loss)
from operations

Underlying Operating Profit is defined as profit/loss from operations before net finance
costs, share of profit/loss of JV and exceptional and adjusting items.

Underlying (Loss)/profit before
tax

(Loss)/profit before tax

Underlying (Loss)/Profit before tax is defined as (loss)/profit before tax excluding
exceptional and adjusting items.

Reconciliation of additional performance and statutory measures
Underlying EBITDA

(Loss) from operations

Add:

Exceptional items

Adjusting items

Share-based payments

Depreciation & amortisation

Loss on disposal of non-current assets

Underlying EBITDA

53 weeks ended
02 July 2023

52 weeks ended
26 June 2022

£000

(4,013)

5,948

–

1,525

20,423

193

24,076

£000

(6,596)

28,779

1,621

453

16,059

516

40,832

Underlying operating profit

(Loss) from operations

Add:

Exceptional items

Adjusting items

Underlying operating profit

Underlying (loss)/profit before tax

(Loss) before tax

Add:

Exceptional items - operating

Exceptional items - non-operating

Adjusting items

Underlying (loss)/profit before tax

Jon Akehurst
Chief Financial Officer

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

(4,013)

(6,596)

5,948

–

1,935

28,779

1,621

23,804

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

(6,933)

(8,719)

5,948

211

–

(774)

28,779

–

1,621

21,681

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Risk management

The Board is responsible for reviewing risks to ensure that the business is not exposed to unnecessary
or poorly-managed risks.
Whilst review of the risk register is a scheduled item on the annual calendar of Board agenda items, the Board’s consideration of risk matters is not limited
to those occasions. Risks and opportunities are factors which are continually considered when the Board is making decisions about the business and
strategy. The Audit Committee assists the Board in this process by reviewing the risk register as well as the effectiveness of internal controls, including
financial controls.

Risk

Global or regional
pandemic and public
health event

Potential impact

A future resurgence of the
COVID-19 virus, and public
health mitigations, may lead
to loss of access to physical
sites impacting the ability
to trade, reduced customer
demand, delays or disruption
to the supply of goods.

Mitigation

Multi-channel model gives
option to trade through
alternative channels to
market.

Proven capability for remote
working for many roles for
extended periods.

Business continuity
management processes have
been proven to operate
effectively during previous
disruption.

Negative publicity
affecting the brand

Disruption to supply or
production of goods,
or to IT systems

Inconsistent quality or
contamination of the
Group’s products

International
expansion

Negative publicity affecting
the brand could reduce
consumer demand for the
Group’s products.

Disruption to supply or
production of goods, or
to IT systems, could limit
availability of products and
consequently reduce sales.

Inconsistent quality or
contamination of the
Group’s products could
reduce demand for the
Group’s products.

Operating in new territories
may give rise to increased
complexity and costs.

The business adheres to
core values of Originality,
Authenticity and Ethics
which result in a strong
brand.

The sustainability report
on pages 30 to 48 covers
the approach to brand
protection in more detail.

The Board of Directors
considers potential
reputational risks as part of
its operational framework.

The Group maintains a
business continuity plan
which is updated annually
and tested quarterly with
the incident management
team.

The Group uses a structured
process to mitigate
cyber-security risks including
specialist roles, software
upgrades and mandatory
user compliance training.

Factory food safety
standards are independently
audited by BRC.

All upstream suppliers are
subject to rigorous risk
assessment, independent
accreditation and must
confirm adherence to our
Supplier Code of Conduct.

Supplier performance is
monitored and a rolling
programme of supplier
audits is undertaken.

The Group reentered the
Japanese market in FY23
and plans to reenter the
US market in FY24 through
lower risk operating models
in line with the risk-
contained,
capital light strategy.

In Japan, a new company has
been incorporated in which
the Group has a 20% equity
investment. The entity
operates on a self-funded
royalty model.

The US model is digital-only
direct to consumer with
a limited range of product
offering.

Change in residual risk in FY23

The Group’s response to
the pandemic resulted in
many operational changes to
help mitigate the impacts of
potential future movement
restrictions. Vaccines have
reduced likelihood of impacts
with the severity of prior
years.

In FY23, the Group made
additional investments in its
gentle farming sustainability
programme, and continued
to improve its disclosures of
ESG issues.

The business continuity
management process was
deployed effectively in
response to COVID-19.

In 2023, the business
retained its AA-grade
accreditation from the BRC
food standards audit.

Limited equity investment
in Japanese company with
no further funding from the
Group required.

The Group’s response to the
unforeseen pandemic has
resulted in many operational
changes to help mitigate risk
of disruption.

In the year, there were no
instances of suppliers being
delisted due to audit or
quality issues.

US exposure is limited to
minimal levels of working
capital due to digital model
and limited range offered.

Risk

Foreign exchange

Potential impact

The Group purchases many
of its ingredients and capital
items in currencies other
than sterling. A fall in the
value of sterling would
increase the cost of imports.

Revenues from the hotel in
Saint Lucia are denominated
in US dollars.

Mitigation

The Group forecasts its
requirement for foreign
exchange purchases and
hedges these purchases up
to 18 months ahead.

Economic and political
factors beyond the
Group’s direct control

Increased competition
and changes in consumer
tastes

Key management

Climate change

Loss of key personnel could
impact the Group’s ability to
implement strategy and the
intended pace of growth.

Changes to competition
and/or consumer
preferences may reduce
demand for the Group’s
products.

Increased competition could
make it more difficult or
more costly to acquire new
store leases.

The business adheres to
core values of Originality,
Authenticity and Ethics
which result in a strong
brand.

Business plans and initiatives
are documented and
prepared with cross-
functional input to reduce
reliance on single individuals.

The Board strives for
continuous improvement
to products and services to
increase sales and customer
happiness.

The Remuneration
Committee seeks to ensure
rewards are commensurate
with performance and aid
retention. As part of this, a
full annual bonus scheme has
been reimplemented for all
levels of employees in FY24.

Increasing interest rates and
a corresponding downturn
in the macro-economy may
reduce consumer demand
generally. Costs may be
increased by inflation and/
or changes to government
policy, including tax changes
or other legislation.

Supply chains may be subject
to disruption or sustained
inflationary pressure.

The Board seeks to ensure
the brand retains its position
as an affordable luxury in
order to appeal to a broad
range of consumers and
at price points that are
appropriate.

Ongoing focus on cost
efficiency assists in mitigating
individual cost increases.

The Board has planned for a
variety of potential scenarios
including mitigations for
continued periods of high
inflation and longer supply
lead times.

Climate change may lead
to ongoing disruption to
the Group’s business model
and supply chains and/or
disruptive short-term events
such as localised flooding.

The actions required to
reduce carbon emissions
and to mitigate the impacts
of climate change may be
wide-ranging, resulting in an
increase in operational costs
or capital expenditure.

The business has previously
committed to net zero
carbon (Scope 1 & 2 by
2030 and Scope 3 by 2040).
As part of the preparations
for TCFD, the feasibility
of these timelines will be
considered in further detail.

Business continuity planning
includes exercises for
business interruption from
extreme weather events and
climate change.

The Gentle Farming
Programme includes specific
actions to improve climate
resilience in cacao farming.

Change in residual risk in FY23

The Group extends its
currency hedges on a
quarterly basis and is
fully hedged for Euro and
US Dollar forecast stock
purchases.

Inflation has persisted as a
result of macro-economic
factors and interest rates
increased materially on prior
year. The Group is actively
pursuing opportunities to
mitigate inflation through
business shaper efficiencies.

The Group has a database
of active customers, allowing
promotion of the Group’s
products and services to
maintain strong awareness.

Annual bonus scheme
reintroduced in FY24 to
complement the five-year
LTIP which was granted to
senior leaders in FY22.

The Gentle Farming
Programme is intended to
bring climate-smart practices
to our Ghanaian cacao
supply.

The Group are planning to
open 50 new stores over
the next 5 years in a new
format to cater for changes
in customers demands.

FY23 is the first year that
the Group has reported
its Taskforce on Climate-
Related Financial Disclosures
(TCFD).

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Sustainability

The Group strives to ensure that its activities positively benefit all of our
stakeholders: our customers, growers, suppliers, shareholders, communities,
the environment and Hotel Chocolat colleagues

The Group set up an Executive Sustainability
Committee in FY18 in order to:

• set targets for further improvement aligned to

strategy and materiality;

• formulate plans to deliver the targets and

mobilise the business to act;

• measure current performance to establish the

‘baseline’ position and report progress;

• provide governance and oversight to ensure

programmes deliver results; and

• increase awareness of how communities can

play a part in progress on sustainability.

In 2021/2022, two additional Executive-led
working groups were created with a specific
focus on gentle farming and net zero.

The Executive Sustainability Committee considers
what our stakeholders expect from the business,
gathering data from many sources and cross-
referencing this to the United Nations Sustainable
Development Goals to which the Group is
committed. Whilst all of the UN Goals were
found to be relevant and applicable to the Group,
we sought to identify those areas that are most
material to the Group’s activities and which are
therefore:

• the most material risks, or

• the most material opportunities for

positive impact.

We originally organised these into three strategic
themes, eight sub-workstreams and 24 specific
focus areas. Over the past year, we have reviewed
the targets associated with the focus areas and
updated them to be more relevant to the current
Group’s forecast activities. These are set out on
the next page.

Our priorities are organised under three key themes:

1. RESPECT THE PLANET

Climate change

Recycling and waste

Natural resources

Becoming a net zero carbon business

Sustainable packaging

Climate change adaptations

Reduce waste and by-products

Financing the solutions

Biodiversity and land use

Reduce water stress

Land use/palm oil removal

2. POWERED BY PEOPLE

Social opportunity

Customers & products

Team members

Incomes for farm families

Responsible labour practices

Product quality, health & nutrition

Fair treatment, diversity & inclusion

Product end-of-life use

Career opportunity & engagement

Giving back

Sustainable & transparent supply chain

Wellbeing, health & safety

3. CORPORATE RESPONSIBILITY

Sound governance

Corporate behaviour

Board & leadership diversity

Business ethics and values

Executive pay

Anti-bribery and anti-corruption

Reporting & accounting

Tax transparency

Privacy and data security

Hotel Chocolat Gentle Farming Programme objectives.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Sustainability continued

Hotel Chocolat Gentle Farming Programme

Since we first launched our Engaged Ethics cacao
initiative in 2004, we have been progressively
investing more into cacao projects, in particular
in the cacao growing regions of Ghana. In 2006,
we purchased a cacao farm in Saint Lucia to
develop our farming knowledge. As the business
has grown in scale and developed stronger
relationships in farming regions, we have sought
to improve our programme and have increased
the price we pay for cacao. In 2021, we materially
step changed our support and investment for the
farming families and the land which both make
the chocolate industry possible.

Our gentle farming approach was launched in
September 2021 to all our partner Ghanaian cacao
farmers, as approximately 96% of our cacao is
sourced from Ghana. We developed this approach
using learnings from our previous farmer scheme,
Engaged Ethics, which focused on offering a
guaranteed purchase above market rate.

We have always paid the farmers we work with
above market-rate for their cacao, but through
our gentle farming approach, we pay an increased
price for cacao as well as a premium to support
farmers in closing the gap towards a living income
in return for their uptake of our practices. This
premium allows farmers to make their own
investment decisions based on their family and
farm needs.

We believe the combination of a meaningful
premium, an increased yield and consequently
more bags of cacao to sell from the farm is the
key to making cacao a serious and sustainable
business for all.

A unique aspect of our nature-positive approach
is that we have dedicated labour teams that
visit farms to perform pruning and train farmers
on the practice of pruning and other on-farm
activities that increase their yield.

By funding over 300 farm skilled workers to
visit farms and train farmers in effective pruning
techniques we are equipping farmers with life-
long skills that help improve disease resistance
and increase yield. Additionally, we invest in
regenerative agriculture (last year distributing
over 486,158 cacao and shade tree seedlings) to
promote biodiversity, carbon sequestration, and
land rehabilitation.

The premium we pay, and the investment in
labour teams and seedlings, is designed to support
farmers in closing the gap towards a living income,
improve their farms’ productivity and increase
biodiversity. In return for receiving this premium,
farmers commit to adopting nature positive
practices our gentle farming approach outlines:

• Eliminating deforestation and good labour

practices (No child or forced labour; we use
Child Labour Monitoring and Remediation
System (CLMRS) where found.);

• Increasing yield and carbon sequestration

through effective pruning;

• Regenerative agriculture and rehabilitation; and

• Working towards the use of organic fertilisers.

Farms are surveyed annually, with any
non-compliance leading to remediation. The core
elements of the program are audited annually
by a third party, with results available in January
for the preceding crop year. Our ambition is to
create a meaningful impact to the environment,
farmers and their families. There are many long-
term challenges in the cacao supply chain, so we
will continue to learn what creates an impact and
use these learnings to further develop and refine
the program over time.

Sustainable Development Goals:

Calculating a living income in rural Ghana

Cost of a basic, decent standard
of living for a household

Closing the gap to living income
considers

Other sources
of income

Primary cash
crop income

Secondary
crop income

Produce
consumed
at home

Food for model diet

Decent housing

Other essential needs

Unexpected needs

Source: Living income Reference Prices for Cocoa |
Carla Veldhuyzen | September 2019

• The average size of the farming household;
• The local costs of a decent basic standard

of living;

• The size of an average farm, the volume that
can be produced annually and the costs of
materials and labour.

For a typical cacao farmer in rural Ghana, where
the average household size is 4.4 people, the
living income is approximately $5,000 per year.

With an average farm size of 1.7
hectares, there are two elements to
raising farm incomes:

Pay more per kilo of cacao above open-
market farmgate prices.

Make payments to support on-farm activity
to sustainably increase the productivity of
the land, including the costs of additional
labour, estimated at 25 days per hectare
per year.

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Sustainability continued

Programme overview

Farmers receive the higher price in return for agreement to:

Biodiversity, land use and climate – target outcomes

1 No deforestation or forest encroachment.

Increase biodiversity & regenerative activities by:

• planting shade trees to prevent evaporation and conserve water;

Increasing pre-harvest work to drive productivity:

• applying compost/mulch and weeding;

• pruning cacao trees to increase yields and reduce disease;

• increasing farm resilience to the risk of long-term temperature

• minimising the use of chemical inputs & no usage of

unapproved/unsafe chemicals.

rise and lower rainfall.

2 Reduce CO2 per metric tonne of cacao from 1.4T to 1.31T.

3 No illegal child labour and no forced labour. Use of CLMRS where found.

3 Responsible water use.

Child labour prevention by age

<13

13–14

15–17

Measuring results and assurance

Light irregular work not affecting
school attendance
(according to national legislation)

Hazardous work

Forced labour

Annual visits to farm and detailed household surveys
completed on risk assessed basis.

Annual independent review against agreed upon procedures by
PriceWaterhouseCoopers LLP (PwC), in addition to a core metric
verified by PwC.

Child Labour Monitoring and Remediation System (CLMRS).

* Allowed within the allocated time span according to national legislation.

Key Performance Indicators following year two of the programme:

Farmers' Premium

"We have paid farmers a premium of more
than 10% above market price for the last
two years … and increased our additional
investment per/kg cacao, to drive sustainable
productivity techniques on farm".

Last year was a challenging year for many,
including farmers in Ghana. The premium we
pay directly to farmers, alongside the investment
in sustainable productivity techniques, is
designed to support farmers in closing the
gap towards a living income. Which is why we
paid farmers a premium of more than 10%
above market price for the last two years.

On top of this, we increased our additional
investment into sustainable productivity
techniques on farm, per/kg of cacao.

Currency devaluation in Ghana is the cause
of significant change when comparing our
investments in USD. Market (farmgate) prices
are set by the Ghanaian Government.

Price per kg in USD

Farmgate price paid direct to farmer

Additional investment for sustainable productivity on farm

Total

Productivity and Biodiversity – data reviewed by third party

On farm labourers recruited, trained and employed

• Cacao seedlings distributed to farmers

• Shade trees distributed to farmers

Total seedlings distributed

Open market price

Hotel Chocolat price

21/22

22/23

$1.74/kg

$1.23/kg

–

$1.74/kg

$1.23/kg

21/22

$2.10/kg

$0.23/kg

$2.33/kg

22/23

$1.38/kg

$0.27/kg

$1.65/kg

21/22

298

22/23

280*

158,187

*report pending

327,971

*report pending

486,158

*report pending

Respect the planet
Our planet programme focuses on our three key areas of impact:
Climate Change, Recycling and Waste, and Natural Resources.

PACKAGING PLEDGE

96% recyclable

Target: 100%

UK SECR CARBON INTENSITY

+3.9% from FY22

Target: net zero Scope 1&2 by 2030;
Scope 3 by 2040

PALM OIL USAGE

0.01% by weight

Target: zero

On pages 42 to 43, we set out our eight key
goals to respect the planet.

Having committed to net zero carbon, we have
undertaken carbon audits at all our main sites to
understand the investments required and have
begun to implement improvements.

We are also making progress on waste, with
96% (FY22: 96%) of our consumer packaging by
weight now recyclable (specialist or kerbside) and
we have plans in place to reach 100%. However,
we recognise that we must ensure that any
packaging changes do not affect the shelf life of
our products because food waste can have a
greater carbon impact than packaging materials.

In 2020, we began the implementation of an
Environmental Management System across our
manufacturing operations to track resource use
and reduce wastage. We have full ISO 14001
accreditation for Hadley Park and the Alpha
Distribution Centre.

Our Gentle Farming Programme (pages 30 to
32) incorporates goals for biodiversity, land
preservation and responsible water use. Outside
of cacao farming, we are reviewing our impact
on land use. We have limited our RSPO certified
palm oil consumption and are reviewing third
party suppliers' recipes to achieve zero palm oil
by the end of 2023.

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Sustainability continued

Group non-financial and sustainability information statement

The Group knows that climate change is already
happening and that we must understand and
prepare ourselves for the challenges created
by this, ranging from energy price rises and
potential commodity shortages, to supply chain
disruption. Understanding these risks is key to
ensuring that the Group remain resilient to this
uncertain future.

The Group is committed to reporting voluntarily
against the recommendations of the Taskforce
on Climate-Related Financial Disclosures (TCFD).
The disclosures are also consistent with the
Companies (Strategic Report) (Climate-related
Financial Disclosures) Regulations 2022 which is
applicable to the Group for FY23.

During the year a ‘gap analysis’ has been
completed against TCFD recommendations
led by the Sustainability Team. While progress

has been made, FY23 has been a transition
year for the Group with the Board focus on
the recruitment of two key Board positions as
well as the development and deployment of the
'Shape of the future' strategy. This has delayed
our compliance with the new climate related
disclosure. We recognise that it is critical to
monitor how our climate related risks evolve and
assess the results of our gap analysis so that the
required improvements can be made to align with
TCFD recommendations.

Our Governance process has been defined in
FY23 and the reporting of sustainability targets
and progress to the Board and Audit Committee
has not been as regularly delivered in FY23 as
planned. To address this point a sustainability
climate related and TCFD agenda item will be
a standing agenda point for the Board, Audit
and Executive Committee meetings at regular
intervals which are appropriate for each of these
governing bodies.

Good progress has been made within the
Group on identifying climate related risks and
opportunities as well as the processes to mitigate
and contain them. In FY24 it is planned that the
Board will be undertaking an external review of
the Risk Register at which stage climate related
risks and opportunities will be incorporated and
fully aligned.

We will continue to embed climate
considerations into our working practices
which will improve our understanding of risk
interdependencies and guide mitigation plans.

TCFD Pillars

Governance
We have an Executive Committee
member with accountability for
climate change who regularly reports
to the Executive Committee

The Managing Director, Manufacturing Operations, is the nominated Executive Committee member with
responsibility for overseeing the overall sustainability programme, which includes climate change related topics.
The Sustainability Team supports internal stakeholders to deliver on sustainability targets and reports progress to
the MD, Manufacturing Operations, who ensures that the sustainability programme is applied consistently across
the Company and reported regularly to the Board and Audit Committee. The Audit Committee receives updates
from management on Hotel Chocolat's compliance with changing sustainability-related reporting requirements,
including our TCFD disclosures.

Set up in 2019, the MD, Manufacturing Operations, chairs an Executive Sustainability Committee which meets on
a biennial basis to:

• set targets for further improvement aligned to strategy and materiality;

• formulate plans to deliver the targets and mobilise the business to act;

• measure current performance to establish the ‘baseline’ position and report progress;

• provide governance and oversight to ensure programmes deliver results; and

• increase awareness of how communities can play a part in progress on sustainability.

In the period, two additional Executive-led working groups were created with a specific focus on gentle farming
and net zero.

As well as Board and Executive members, the Steering Teams also include team members with specialist expertise
such as cacao growing, sourcing and environmental management. External specialists are invited to attend both to
share knowledge and externally validate activity.

ESG KPIs are included within the Executive Annual Incentive Plan which includes annual sales growth plus an
improvement in an ESG metric, namely the all-employee Engagement Score, which forms 20% of the award.
We also provide monetary rewards through our Employee Recognition Scheme. This quarterly scheme gives
all employees the opportunity to nominate someone who consistently demonstrates our values of Originality,
Authenticity and Ethics which can include a sustainability element within the nomination.

Risk management
Risk assessment processes and
management structures are in place
for climate change related issues

The Board is ultimately responsible for the management, governance, controls, risk management, direction and
performance of the Group. The Board is responsible for reviewing risks, including new threats, and the processes
to mitigate and contain them, to ensure that the business is not exposed to unnecessary or poorly managed risks;
however, whilst the Board is responsible for risk, our culture seeks to empower all colleagues to manage risk
effectively.

Whilst a review of the risk register is a scheduled item on the annual calendar of Board agenda items, the Board’s
consideration of risk matters is not limited to those occasions. The Audit Committee assists the Board in this
process twice a year by reviewing the risk register as well as the effectiveness of internal controls, including financial
controls.

Risks and opportunities are factors which are continually considered when the Board is making decisions about the
business and strategy.

Strategy
Climate change has been identified
within the top ten company risks as
reported within the Annual Report

Business continuity plans include exercises for business interruption from extreme weather events, and the gentle
farming approach includes specific actions to improve climate resilience in cacao farming.

In 2023, we carried out an in-depth assessment of specific climate-related risks and opportunities (see later for the
processes used and the key risks and opportunities identified).

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Sustainability continued

TCFD Pillars continued

Strategy:
Resilience to climate change and
climate change impact on strategy
and financial planning

We are yet to carry out climate scenario analysis on our key risks and plan to do this within the next financial
year, with the aim to develop how we can build the findings into our strategy and financial planning process and,
therefore, improve our business resilience further.

We consider Hotel Chocolat to be resilient to the key climate-related risks identified in our in-depth analysis.
We plan to further our assessments in the next financial year to evolve this analysis further. Whilst we recognise
that climate creates some risks and uncertainties for our business, we consider the risk is low as there would be
sufficient time to evolve our business model and activities to mitigate any risks.

Metrics and targets:
We have targets in place to manage
climate-related risks and performance
against targets

We have several targets in place under the planet section of our sustainability programme which focuses on three
key areas of impact: Climate Change, Recycling and Waste, and Natural Resources. Progress against these targets is
reported within the Annual Report each year, see page 42.

These targets are planned to be reviewed to ensure that they are still appropriate based on scenario analysis of our
identified key risks and to include targets to derive benefit from opportunities.

Metrics and targets:
UK Scope 1 and 2 intensity emissions
are reported to an approved
methodology within mainstream
financial reports

Streamlined Energy and Carbon Reporting (SECR) Scope 1, 2 and required Scope 3 emission calculations are
carried out annually, with absolute and intensity results, and associated narrative, included within the SECR section
of the Annual Report.

In FY23, the Group has carried out a detailed
assessment of climate-related risks and
opportunities in the following areas:

• Operations: Utilities, buildings, equipment,

transport, employees, consumables

• Supply chain

The Group plans to carry out a detailed
assessment within market/customers in FY24.

This process has identified a number of risks
and opportunities that were categorised by the
following risk types:

i) Transition risks

• Policy, regulatory and legal changes

• Technology shifts

• Changing market demand

ii) Physical risks

• Acute: event driven, e.g. flooding, extreme

weather events

• Chronic: longer term changes in climate,

e.g. prolonged higher temperatures

Alongside an internally led peer review carried
out by the Sustainability Team, working with key
stakeholders across our business representing
various functions has enabled us to identify a
number of key risks and opportunities related to
climate change over a short-, medium-, and
long-term horizon, with existing and planned
mitigating activities being reviewed.

This initial process has demonstrated no material
concern in the short (0-2 years; aligned to the
Group's sales & operation planning process),
medium (2-5 years; aligned to the business
forecasting strategic view) and long (5-10 year;
aligning with longer term investment and financing
considerations) terms partly due to the mitigation
activities already in place to manage our risks.

There is more uncertainty in longer term risks
due to the unknown climate scenario path likely
to occur.

These key outputs are outlined in the risk and
opportunity description sections on the next
page. The risk analysis process utilised the
timescales noted below and the Hotel Chocolat
standard risk scoring framework of likelihood
versus impact.

We are yet to carry out climate scenario analysis
on our key risks and plan to carry this out within
the next financial year, with the aim to develop
our TCFD disclosure year-on-year, as we build on
the granularity of our data and processes in order
to fully comply with the recommendations.

Taskforce on Climate-Related Financial Disclosures

Climate change related risks – physical risks

Description

Time
Horizon

Impact

Potential impact

Business response / Mitigating actions

Extreme weather effects Short

Minor

Short

Minor

Challenges in sourcing goods potentially leading to
increased costs or having to source reduced quality
alternatives. The main impact to us would be from
sourcing agricultural items grown in locations at
high risk of: high temperatures, water shortage or
large temperature variations leading to a reduction
in crop yields and/or reduced quality.

Logistics challenges for transporting goods and
services due to transportation being disrupted
or cancelled as a result of severe weather events
(e.g. flooding, high winds, etc.) leading to increased
costs, having to source reduced quality alternatives
from elsewhere, or in an extreme event -
potentially temporary inability to operate.

Extended hedging policy & 10 year planning. Gentle
Farming Initiative for cocoa. Internal procurement
function who challenge costs and ensure continuity
of supply.

Business continuity plan in place for all critical
commodities and for manufacturing operations
following an event.

Short

Major

Increase in energy costs, for example, from
heating and cooling our retail stores, head offices,
manufacturing and fulfilment locations due to
changing and/or extreme temperature swings.

Investment in more efficient, thermostatic cooling
solutions and infrastructure.

Long

Minor

Risk of increased cost of public water supply/
reduced water availability due to climate induced
water scarcity.

Fulfilment and manufacturing operations being
located in “Low” baseline water stress areas
according to WRI Aqueduct.

Physical impact on
operational sites leading
to increased costs

Short

Minor

Physical damage to manufacturing, warehousing
and retail buildings, or their respective
infrastructure. This could lead to increased
maintenance costs, increased insurance premiums,
delays in repairs and potentially temporary inability
to operate.

Business continuity plan in place for manufacturing
& fulfilment following an event, with good insurance
coverage in place which would cover exceptional
costs.

Physical impact on
workers' transport links

Short

Minor

Increased instances of severe weather preventing
employees being able to access the workplace due
to transport link and road disruption due to severe
weather leading to reduced operational output.

Reduced impact on service due to multi-site
options. Business continuity plan in place for all
sites.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Sustainability continued

Taskforce on Climate-Related Financial Disclosures continued

Climate change related risks – transition risks

Time
Horizon

Impact

Medium Minor

Short

Minor

Description

More stringent
sustainability
reporting
requirements

Increased cost
of moving to low
carbon building
technology enforced
by legislation

Potential impact

Business response / Mitigating actions

New and emerging legislation could increase
costs for procuring energy and packaging for
our manufacturing, fulfilment, retail and head
office operations.

Risk of legislative requirement to procure
low-carbon technologies (transportation and
equipment) which may cost more or lead to
stranded assets and associated write off costs
(e.g. green transportation, replacements for
gas boilers).

Dedicated in-house resource and use of
specialist consultants where necessary to
support.

Future fit sustainability considered for all future
procured solutions in any investment decisions.
Packaging recyclability targets and using
increased recycled content in packaging where
possible.

Extreme weather
effects

Long

Minor

Extreme weather events impacting customers visiting
our retail outlets, or changing their purchasing
patterns, which may lead to lower sales.

Ability to offer online sales through digital
channel.

Increase of remote
working leads to less
travel to work and
less retail footfall

Changes in customer
carbon related
consumption
preferences

Short

Minor

Less customer business travel from increased remote
working, as businesses look to reduce their Scope 3
commuting emissions, leading to less footfall at our
retail outlets which may lead to lower sales.

Ability to offer online sales through digital
channel.

Medium Moderate Customer preferences might lead to a negative

reputation and loss of sales for HC should we not
adapt to requirements (e.g. low carbon, no palm oil,
sustainable packaging or locally sourced goods).

Packaging recyclability targets and using
increased recycled content in packaging where
possible, Gentle Farming Initiative, net zero and
palm usage targets.

Climate change related opportunities

Description

Time
horizon

Impact

Potential impact

Current status

Extreme weather
effects

Short

Moderate

Increase in online sales due to inability of
customers to get to a retail store due to weather
related issues.

Able to offer multiple channels to purchase
products.

Short

Minor

Increased sales of hot and cold options based on acute
and chronic weather patterns.

Product offerings include hot and cold
options.

Changes in customer
carbon related
consumption
preference

Short

Moderate Ability to capitalise on trend towards veganism

by further expanding options to cater to this
growing segment of the market.

Opportunity to source local food and other
input
materials.

Short

Minor

Attract more customers who are focussed on climate
change - align brand proposition to climate friendly
offering to maintain and grow market share.

The gentle farming approach to cacao
farming.

Changes in employees
sustainable business
preferences

Short

Moderate Attract and retain staff by being seen as a sustainability

Results from employee engagement surveys.

leader.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Sustainability continued

Energy and Carbon – SECR Requirements

FY23 is the fourth year that we report under
the Streamlined Energy & Carbon Reporting
(SECR) framework. Our SECR report covers the
CO2e from our UK Scope 1 (direct) and Scope 2
(indirect) emissions for the periods 1 July 2022 to
30 June 2023 compared to 1 July 2021 to 30 June
2022 using the 2022 version 2.0 GHG Protocol
Corporate Accounting and Reporting Standard
methodology to calculate our emissions.

Scope 1 includes emissions from the fuels we
use in our UK manufacturing and fulfilment
operations, retail stores and offices, such as
natural gas. It also includes CO2e from UK
business owned vehicles (which incorporates
company vans and distribution vehicles we lease),
refrigerant gases and diesel used in generators.

Scope 2 relates to the indirect emissions
associated with the electricity consumed on
our sites.

Where possible we have reported billed
Automated Meter Readings (AMRs). Where
there is incomplete data, extrapolation has
been carried out. For those operations where
the electricity usage is currently beyond our
reporting capabilities, we have used an estimation
model based on the average from comparable
stores, scaled to floor area.

With the changing mix of online sales, we have
chosen tCO2e per £million of sales as the most
meaningful intensity metric. Our UK CO2e
SECR emissions have decreased by 3.5%, whilst
sales decreased by 10% resulting in our carbon
intensity increasing by 7%.

Whilst our location based emission intensity has
this year grown by 7% due to the previous year
(FY22) being heavily impacted by temporary
store closures, and the expansion of information
being included within this year’s Scope 1 data -
our carbon intensity increased by 7% compared
to FY22.

Our market based emissions have reduced due
to purchasing renewable electricity, backed by
Renewable Energy Guarantees of Origin.

UK GHG emissions in tCO2e:

Scope 1

Scope 2 (location based)

Scope 2 (market based)

Scope 3†

Total (location based)

Group sales/£m

Location based intensity (tCO2e per £ million sales)
kWh usage:

Natural gas/million kWh

Generator diesel/million kWh

Electricity/million kWh

Scope 1 and 3 transportation/million kWh

Total kWh usage:

FY23

1,278

1,799

142

680

3,757

205

18.4

0.44

0.012

8.69

5.26

14.41

% change

FY22

FY23 vs FY22

1,230

2,051

153

612

3,893

226

17.2

0.57

0.01

10.61

4.54

15.73

3.9%

-12.3%

-7.1%

11.1%

-3.5%

-10%

-22%

15%

-18%

16%

-8.4%

† Scope 3 CO2e reporting relates solely to business mileage, electricity transmission and distribution, plus well to tank for

natural gas, gas oil and electricity.

Increases in emissions have arisen from:

During FY23 we have:

• Fuel use (Scope 1) in our own fleet increased in
line with an increased demand for deliveries to
retail stores throughout the year.

• The increase also aligns with the opening of a
new depot in Northampton with new stores
and new routes being supplied, and one-off
transaction activity.

Scope 3 relates solely to business travel which
has increased in FY23 compared to FY22, as
restrictions to travel operated during COVID-19
have been relaxed.

• Mitigated some transport emissions by:

– reducing the frequency of our store
deliveries during off-peak seasons

– using new transport planning software to

optimise our delivery routes

• Significantly reduced our gas usage, partly due

to replacement of machinery

• Reduced our electricity consumption by

scheduling operations cooling and heating
systems to be off, where possible

• Invested in a heat recovery vessel which

has reduced our electricity consumption in
the factory

Respect for the planet: stakeholder priorities and materiality

Climate change

Recycling & waste

Natural resources

A NET ZERO CARBON BUSINESS

SUSTAINABLE PACKAGING

BIODIVERSITY AND LAND USE

Why it matters
Climate change is occurring in every region
globally, according to UN IPCC

Why it matters
Packaging protects products and reduces
waste, but also consumes resources

Stakeholders & priorities
Anyone potentially at risk from adverse
impacts of climate change. To understand
Hotel Chocolat’s mitigation plan

Stakeholders & priorities
Consumers want to make informed choices.
Suppliers want to understand priorities and
collaborative change opportunities

REDUCE WASTE AND
BY-PRODUCTS

Why it matters
Waste and by-products consume
unnecessary resources

Stakeholders & priorities
Customers, suppliers, local communities,
waste processors. Minimise waste

CLIMATE CHANGE ADAPTATION

Why it matters
Climate change impact is uncertain and
likely to be variable by region but may
disrupt business and supply chains or give
rise to increased costs

Stakeholders & priorities
Farmers, customers, suppliers, shareholders.
For the business to prepare adaptations and
mitigations to increase resilience

FINANCING THE SOLUTIONS

Why it matters
Decarbonising our operations will require
significant investment. Mitigating potential
climate impacts may also increase costs

Stakeholders & priorities
Shareholders will require clarity on the
investments required to achieve net zero.
Regulators may begin to mandate specific
disclosures for listed companies

Why it matters
Responsibility to support cacao farming
without deforestation and with farming
techniques that are low impact and
climate smart

Stakeholders & priorities
All cacao farmers who supply Hotel
Chocolat. Farming to be a sustainable land
use ongoing, minimising use of chemical
fertilisers

REDUCE WATER STRESS

Why it matters
Risk that climate change in Ghana will
reduce rainfall in the regions where cacao is
grown, impacting agriculture

Stakeholders & priorities
Climate change has the potential to affect
everybody

LAND USE – PALM OIL

Why it matters
Palm oil production is at high risk of
deforestation and loss of biodiversity

Stakeholders & priorities
To minimise land degradation and
habitat loss

Sustainable Development Goals that connect directly with our priorities:

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Sustainability continued

Progress against respect the planet targets

Subject

FY22 status

Goal

Executive
accountable

FY23 progress
against target

Comments

Net zero Scope 1 & 2 by
2030; Scope 3 by 2040.

Environmental
Management System
(“EMS”) installation to
be complete by
December 2022.

Matt Margereson
MD, Manufacturing
Operations

3,757 tonnes CO2
equivalent in FY23 for
UK Scope 1-3 emissions
in Scope of SECR
reporting.

Intensity per £ of sales
increased by 7% vs FY22.

100% of our Ghanaian
cacao farmers are
receiving premium.

Matt Margereson
MD, Manufacturing
Operations

Present a first draft
plan as part of inaugural
sustainability report
in FY22.

Jon Akehurst
CFO

100% of our Ghanaian
cacao farmers –
estimated at 4,624*
for 22/23 crop year –
delivering against
Gentle Farming
Programme, including
2,500 farmers receiving
productivity investment.

Progress towards TCFD
has bee made and a
voluntary disclosure
has been included in
FY23 ARA

See pages 35 to 38

A net zero
carbon
business

Climate change
adaptation

Climate change
solutions

3,893 tonnes CO2
equivalent in FY22 for
UK Scope 1-3 emissions
in Scope of SECR
reporting.

Intensity per £ of sales
increased by 4.5% vs
FY21, however has
decreased by 25%
from FY20.

EMS on track for
December 2022.

100% of our Ghanaian
cacao farmers –
estimated at 4,572*
for 21/22 crop year –
delivering against
Gentle Farming
Programme, including
2,500 farmers receiving
productivity investment.

During FY22, we have
completed a ‘gap analysis’
against the TCFD
recommendations and
created a plan to take
us towards a full
TCFD disclosure.

The initial gap analysis
highlighted that we fulfil
some of the TCFD’s
recommendations
already.

Sustainable
packaging

96% of Hotel Chocolat’s
customer facing
packaging by weight† is
reusable or recyclable.

100% Hotel Chocolat’s
packaging by weight to be
reusable or recyclable by
end 2022.

Matt Margereson
MD, Manufacturing
Operations

96% of Hotel Chocolat’s
customer facing
packaging by weight is
reusable or recyclable.

On track for
Environment
Management
System (EMS)
accreditation
by December
2022

On track for EMS
accreditation by
December 2022.

EMS installation
to be complete by
December 2022.

Matt Margereson
MD, Manufacturing
Operations

No chocolate production
waste has gone to landfill
during this financial year.

Full ISO 14001
accreditation in Hadley
Park and the Alpha
DC; due to timing of
opening, the Beta DC
could not be included in
the audit.

100% target by end
of 2022 was not met;
work is ongoing for the
remaining parts which are
harder to transform.

Beta DC to be added to
the Scope for FY24.

Subject

FY22 status

Goal

Executive
accountable

FY23 progress
against target

Matt Margereson
MD, Manufacturing
Operations

100% of Ghana cacao
farmers supplying
Hotel Chocolat to have
adopted the Gentle
Farming Programme by
end of 2022.

100% of Ghana cacao
farmers on Gentle
Farming Programme by
December 2022.

Matt Margereson
MD, Manufacturing
Operations

EMS at factory
fully operational by
December 2022.

100% of Ghana cacao
farmers supplying
Hotel Chocolat to have
adopted the Gentle
Farming Programme by
end of 2023.

On track to distribute
similar seedling
quantities as prior year.

100% of Ghana cacao
farmers delivering
against Gentle Farming
Programme.

On track to distribute
similar seedling
quantities as prior year.

Full ISO 14001
accreditation in Hadley
Park and the Alpha
DC; due to timing of
opening, the Beta DC
could not be included in
the audit.

Comments

Data pending for FY23.

Beta DC to be added to
the Scope for FY24.

Commitment to
reformulate recipes and
remove palm oil from all
Hotel Chocolat products
by 2023.

Matt Margereson
MD, Manufacturing
Operations

Limited palm oil usage
in our UK finished
products.

Review of palm oil usage
in third party recipes
continues.

Biodiversity and
land use

Reduce water
stress

Land use –
palm oil

100% of Ghana cacao
farmers delivering
against Gentle Farming
Programme and over
500,000 cacao and
shade tree seedlings
distributed*.

Assurance date verified
486,158 with >50,000
additional distributed
outside the assurance
review.

100% of Ghana cacao
farmers delivering
against Gentle Farming
Programme and over
500,000 cacao and
shade tree seedlings
distributed*.

On track for EMS
accreditation by
December 2022. At
the time of writing, the
third party auditors
have completed stage 2
and have recommended
that we receive full
accreditation, which we
expect to have by end
December 2022.

Last year, we used 0.01%
palm oil by weight in our
UK finished products.

100% of the palm oil
used is RSPO certified.
We have reformulated all
recipes and are on track
to achieve zero palm oil
by the end of 2023.

* Data provided is pre third party assurance and therefore may be subject to change.

† Calculated using 2021 calendar year data.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Sustainability continued

Powered by people
Everything we do is powered by people, from cacao growing to designing
and creating, from planning to making and supplying products and
entertaining while we sell. Our customers rightly have high expectations
of us, which we are proud to live up to.

Engaged team
An all-employee survey was conducted in the
year and saw an increase in engagement.

Our customer initiatives focus on consistent
product quality, safety and information, whilst
ensuring post-consumption waste can be recycled.

More cacao less sugar

Our product range average meets the Public
Health England’s targets for reduced sugar.

Diversity & inclusion

Equality, Diversity and Inclusion employee groups
active across the business.

On page 45 we set out our nine goals for people
spanning our supplier base, our customers and
our team members.

Our commitment to social opportunity spans our
cacao farmers (see pages 45 to 48) along with
all those who work within our supplier base. All
of our key suppliers have been risk assessed, and
95% of our most material suppliers have been
independently audited to ensure compliance with
our code of conduct.

Colleagues’ engagement at Hotel Chocolat
is a crucial indicator of the health of the
overall business.

During a period of developing our future business
strategy, alongside extremely challenging market
conditions – we have taken various significant
steps to ensure that employee morale, wellbeing
and overall happiness is the start of every
business conversation.

We have continued to refine our weekly and
monthly colleague briefings to provide employees
with information on matters of concern to them;
informing them of the financial and economic
factors affecting the performance of the Group,
and providing the opportunity to ask questions of
the Executive Team.

An all-employee survey was conducted in the
year and saw an increase in engagement. We
took a break to evaluate our engagement survey
approach and have identified a new engagement
survey supplier to run future surveys, as well as
regular pulse surveys between the more detailed
annual surveys.

A business wide Employee Forum was launched
during the year with 25 representatives from
across all the business. The group meets monthly
with the CEO or a member of the Executive
Team and our HR team, to discuss any topic
which is relevant to them and the business areas
they represent. It is entirely led and governed by
the team and has its own internal structure. The
objectives of the Forum are to Engage, Champion
and Connect.

We are in the process of launching the People
Shapers; the third strand to our three part shape
of the future business plan which places the
importance of our people to our business plans
firmly at the heart of our future decisions.

Giving back
In FY23 our charity, chosen by team members,
was the Trussell Trust who support a nationwide
network of food banks, provide emergency food
and support to people locked in poverty, and
campaign for change to end the need for food
banks in the UK. Over the year, we donated over
£23,000 to the charity. We have continued to
develop charity initiatives including the Movember
campaign in support of men's health and our
'Giving Something Back Day' to be involved in the
local community.

Gender pay

The table below shows the gender composition of our team as of June 2023. We will report the next
gender pay gap report ahead of the reporting deadline of April 2024.

Headcount by gender – June 2023

Female

Male

Team member

Line manager

Direct reports to Executives

Executive team

Non-executive Directors

Co-founders

974

340

–

419

172

Social opportunity

Customers and products

Team members

INCOMES FOR FARM FAMILIES

Why it matters
Every cacao farmer should be able to earn a
decent income for their family.

Stakeholders & priorities
All cacao farmers who supply Hotel
Chocolat have the ability to earn a decent
income to meet their families' needs.

RESPONSIBLE LABOUR PRACTICES

Why it matters
The eradication of illegal and unsafe farming
practices, including child labour is a priority.

Hotel Chocolat should only work with
suppliers that treat employees fairly.

Stakeholders & priorities
Suppliers and cacao farmers who supply
Hotel Chocolat to be treated fairly.

GIVING BACK

Why it matters
Customers and team members expect Hotel
Chocolat to support charities. This improves
team morale and demonstrates our ethical
culture to future and current team members.

Stakeholders & priorities
Customers and employees expect Hotel
Chocolat to consider a wide set of
stakeholder needs.

PRODUCT QUALITY, HEALTH &
NUTRITION

Why it matters
Customers have the right to expect safe
products and to receive accurate information
to make informed choices on consumption.

Stakeholders & priorities
All potential consumers of Hotel Chocolat
products to be assured that the product is
safe, and to be informed of ingredients.

PRODUCT END-OF-LIFE USE

Why it matters
Consumers expect packaging to be
recyclable or reusable.

SUSTAINABLE & TRANSPARENT
SUPPLY CHAIN

Why it matters
Customers expect Hotel Chocolat to
only work with responsible suppliers who
operate sustainably, treat their team fairly
and respect human rights.

Stakeholders & priorities
All suppliers and their employees

DIVERSITY, EQUITY & INCLUSION

Why it matters
Everyone has the right to fair treatment at
work and equality of opportunity.

Stakeholders & priorities
Current and potential employees of
Hotel Chocolat to be treated fairly, for
diversity to be celebrated, and opportunities
to improve discussed openly and addressed.

CAREER OPPORTUNITY &
ENGAGEMENT

Why it matters
Engaged employees deliver better results
through stronger teamwork and greater
clarity and commitment to shared goals.

Stakeholders & priorities
Current and potential employees
expect clarity of communication,
recognition and reward.

WELLBEING, HEALTH & SAFETY

Why it matters
Hotel Chocolat employees and contractors
have the right to work in a safe environment
where risks are appropriately managed.

Stakeholders & priorities
All Hotel Chocolat employees
and contractors.

UN Sustainable Development Goals directly connected to our people plans:

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Sustainability continued

Progress against the powered by people targets

Subject

FY22 status

Goal

Executive
accountable

FY23 progress
against target

Comments

Report is pending.

Matt Margereson
MD, Manufacturing
Operations

Within three years, all
Hotel Chocolat farmers
in Ghana are supported
to close the gap towards
a living income. As a
condition of participation,
farmers must commit to
zero illegal child labour.

Incomes for
farming families

Responsible
labour
practices

Sustainable and
transparent
supply chain

We have paid an
increased price for cacao
– last year at over
250 USD per MT
cacao beans above the
published price.*

Additional payments
made to farmers
to support greater
productivity on-farm.

Started a payment for an
environmental services
scheme which will also
reward farmers in the
years to come.

Independent assurance
of data progress will be
available in 2023.

100% of Ghana cacao
farmers delivering
against Gentle Farming
Programme.*

Independent assurance
of data progress will be
available in 2023.

95% of our most material
suppliers have been
independently audited to
ensure compliance with
our code of conduct.

All of our key suppliers
have been risk assessed,
and 95% of our most
material suppliers have
been independently
audited to ensure
compliance with our
code of conduct.

Supplier Code of
Conduct updated in
December 2021. Third
party assurance standard
updated and launched
with suppliers in
January 2022.

Matt Margereson
MD, Manufacturing
Operations

100% of Ghana cacao
farmers to adopt
the Gentle Farming
Programme and all key
suppliers audited
by a third party
(December 2022).

Report is pending.

Matt Margereson
MD, Manufacturing
Operations

Supplement existing
audit programme with
independent third party
assurance of all top
suppliers by
December 2022.

Objectives under
review as Procurement
Team now in place to
consolidate on Supplier
Code implementation
working in partnership
with the Primary Supply
Chain Fulfillment Team.

Subject

FY22 status

Goal

Executive
accountable

FY23 progress
against target

Comments

Product quality,
health and
nutrition

The independent BRC
Audit, carried out in
June 2022, scored us an
AA grade.

Continue to achieve
industry best practice,
assured via independent
audit.

Matt Margereson
MD, Manufacturing
Operations

The independent BRC
Audit, carried out in
June 2023, scored us an
AA grade.

This is the highest score
achievable.

Product
end-of-life use

96% of customer facing
packaging by weight† is
reusable or recyclable.

100% Hotel Chocolat’s
packaging by weight to be
reusable or recyclable.

Matt Margereson
MD, Manufacturing
Operations

96 % of Hotel
Chocolat’s packaging
by weight is reusable or
recyclable.

Giving back

£26,000 was donated to
Trussell Trust from our
team charity fundraising.

Not set as yet – target
to be agreed during the
next FY.

Jon Akehurst
CFO

£23,000 was donated to
Trussell Trust from our
team charity fundraising.

Diversity,
equality and
inclusion

In addition, colleagues
can take one paid day a
year to volunteer for a
charity or good cause of
their choice. In FY22, 436
hours were gifted.

For senior managers and
above, we have increased
the female population
from 48% to 52% over
the last year.

We have launched
our inclusive guide to
recruitment supporting
equal opportunities to
all applicants, enabling a
more diverse workforce.
In addition, we have
introduced consistent
interview question
templates, transparent
scoring, and a principle of
having two interviewers
present to ensure
objectivity.

Track the diversity of
new hires and leavers
ongoing.

Matt Margereson
MD, Manufacturing
Operations

Target next 50 senior
leadership hires to match
national workforce
diversity in terms of
gender, race, ethnicity,
sexuality and disability.

For senior managers
and above, we have
increased the female
population from 52% to
53% over the last year.

100% target by end
of 2022 was not met;
work continues for the
remaining parts which are
harder to transform.

In addition, colleagues
can take one paid day a
year to volunteer for a
charity or good cause of
their choice.

We launched a business
wide Employee Forum
with representation
across all business areas.
The forum has three
objectives:

1. Engage: Build
engagement with a voice
for everyone across the
business

2. Champion: Equality,
diversity and inclusion
for all

3. Connect: Establish
a permanent group
that fosters influence,
trust and connection
with Hotel Chocolat
leadership.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Sustainability continued

Progress against the powered by people targets continued

Subject

FY22 status

Goal

Executive
accountable

FY23 progress
against target

During a challenging
year when employees
have faced cost of living
pressures at all levels,
we’ve focused our
efforts on maintaining
regular pay reviews;
focusing on initiatives
to create a healthy and
diverse workforce, as
well as ensuring that our
team members are given
a voice to feedback and
drive improvements.

We’ve also introduced
new tools to help
people assess their own
performance to grow
and create meaningful
long-term careers
with us.

Career
opportunity
and engagement

We returned to our Best
Companies' engagement
rating of a two star
‘Outstanding’ company.

Improve engagement
score for the February
2022 survey.

Matt Margereson
MD, Manufacturing
Operations

We saw a slight step
back in our results in
September 2021 in two
key areas:

• Wellbeing and Fair

Deal, so these were
our core focuses.

• Rewarding people

fairly is important to
us, so we delivered
two impactful actions:

We launched our new
Founder Shares scheme
which allows everybody
in the business to
become an owner in
Hotel Chocolat, creating
an aligned sense of
purpose and a deeper
connection to the
business.

We implemented a
business wide pay review
in April 2022 at a time
where the cost of living
was becoming more of a
concern for many people.

Wellbeing,
health and
safety

50% reduction in
RIDDOR reportable
incidents from
operations.

Reduce RIDDOR
reportable incidents from
operations by 25% for
FY22.

Peter Harris
Co-founder

RIDDOR rate for
operations was 1.61.

RIDDOR rate = 0.21 per
100 employees.

We have achieved this
reduction by focusing
on hazard identification
and elimination/control.
Next year, we will focus
on additional further
campaigns to achieve
a reduction.

* Data provided is pre third party assurance and therefore may be subject to change.

† Calculated using 2021 calendar year data.

Comments

Some of our most
impactful actions this
year have included:

• The introduction of
the Hotel Chocolat
Employee Forum
with representatives
from all parts of the
business

• Introduction of My
Performance goal
setting and ratings

• Enhanced maternity
pay and support.

Target for FY24 is to
reduce RIDDOR by
40% to reflect structural
changes and training staff
to cover areas they are
not experienced in.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Considering all of our stakeholders (s172)
Hotel Chocolat’s values – Originality, Authenticity and Ethics – are central to the key
matters our Board steer, such as our culture, strategic pillars and customer proposition.

Our interactions with, and treatment of, our stakeholders are guided by our
belief in the importance of fairness and respect.
By behaving responsibly, we protect, enhance and differentiate our brand.

OUR KEY STAKEHOLDER GROUPS AND HOW WE ENGAGE

CUSTOMERS

THE HOTEL CHOCOLAT FAMILY

SUPPLIERS & FARMERS

SHAREHOLDERS

COMMUNITIES

ENVIRONMENT

Making people happy through chocolate is at
the heart of our mission. Every
Hotel Chocolat colleague is guided by our
100% guest happiness guarantee.

Our customers share our love of premium,
ethically-sourced chocolate and it is important
that we understand our customers’ views.
The Board has set out customer KPIs to track
progress on delivering the five
customer-focused Brand Shapers which will
drive growth in our business.

Customer views are collated weekly and
reported to the Executive Board monthly, and
to the Board periodically. Insight comes from
our Hotel Chocolat Insiders' customer panel
whose members are regularly surveyed on new
products, services and customer experience,
and our customer-facing colleagues can also
report verbatim customer feedback.

We use a range of tools, including Love
Match and VIPMe, to ensure our customer
engagement is targeted and relevant. We
reward our VIPMe members for their
loyalty and love of our brand by offering
them exclusive events and early access to
new products.

Regular visits to cacao growing regions to
meet with farmers, co-operatives and NGOs.
Every farmer commits to respect a code
of conduct. Independent research being
conducted to obtain farmer feedback.

Comprehensive supplier assessments are
undertaken prior to on-boarding, with an
ongoing programme of risk assessments
and audits.

Strategic collaborative planning meetings are
held with key suppliers.

Periodic supplier surveys are undertaken
covering topics such as Brexit preparedness,
Supplier Code of Conduct, compliance and
traceability.

Dialogue with suppliers is active to achieve
goal of increased innovation on products,
packaging and digital services.

We launched our Gentle Farming Programme
for farmers in Ghana in September 2021.
The scheme provides training in a different
farming approach which has a greater climate
resilience and increases productivity and
ensures farmers receive a premium supporting
closing the gap to a living income.

We nurture the talents of every member
of the Hotel Chocolat family and encourage
their commitment to our mission to make
people and nature happy through the
reinvention of chocolate. Sophie Tomkins
has a special role as lead for colleague
engagement on the Board.

The Board has adopted five areas of focus
within our People Shapers strategic pillars.
These define how we will attract, retain and
develop the best people to deliver successful
outcomes for the Group.

Insight from our colleagues helps steer and
lead change initiatives. During the year, our
Employee Forum was established with 25
elected colleagues representing all levels and
teams within the business, adopting three
areas of focus – Engage, Champion and
Connect. Its activities have already led to
enhancement of our approach to maternity
policies and pay.

We communicate with all our colleagues
through monthly business briefings, a
fortnightly update from our CEO ('Angus’ 5
good things'), and our intranet site and app,
the Pod. The Pod provides access to colleague
resources, news and business information
plus a facility for colleagues to post their
own updates.

Our success depends on the efforts and
excellence of every one of our colleagues. We
have revamped our approach to individual
performance assessment; our bonus scheme
covers all permanent employees, and
colleagues also continue to participate in our
Sharesave and Founder Share incentives.

Hotel Chocolat benefits from the capital and

With stores up and down the country, we

We are aiming for our own operations to be

support that its shareholders provide. We

are embedded in local communities, providing

net zero in relation to by 2030 and to include

engage with our investors through our regular

rewarding employment opportunities and

offering happiness through chocolate to

people throughout the UK.

our supply chain in this by 2040. Current

initiatives include procurement, waste,

packaging and energy usage.

market updates, reporting on our financial

performance and outlook, and face-to-face

meetings. Investor meetings are, as standard

practice, led by the Executive Directors but

the Chair and Non-executive Directors are

also available for discussions if needed.

Hotel Chocolat recognises that all its

investors, both large and small, need

opportunities to engage with our Board

and may wish to participate in any future

fundraisings. All shareholders are also, of

We are also important to the community in

During the year, we saw an increase in our

St Lucia where we have our award-winning

‘closed loop’ recycling, whereby waste from

Rabot Hotel, the Project Chocolat centre of

our products is recycled and returned to us;

excellence for sustainable farming which hosts

reduced the frequency of store deliveries to

our tree and bean-to-bar experiences, and

support the launch of new stores without

our own organic, sustainable 140-acre cacao

increasing our food miles; and introduced a

farm. Our support for local cacao farmers and

Group-wide waste partnership with a policy

the responsible tourist dollars we generate on

of zero waste going to landfill. Our plastic

the island, benefit the Saint Lucian economy in

packaging trays are now 100% recyclable

course, invited to attend the Annual General

a sustainable and ethically-engaged way.

Meeting and to submit questions to the

Directors. An investor relations email makes it

simple for shareholders to contact us.

In Ghana, our Gentle Farming Initiative offers

improved standards of living and wellbeing for

our farmers and their families, as well as vital

and typically made of 70% recycled content,

with the minimum being 30%. We achieved

a like-for-like 327,000kWh saving across our

manufacturing operations.

At its last Annual General Meeting, the

biodiversity benefits. We are proud of our

In our stores, we are introducing single-phase,

Company sought specific authority to make a

longstanding commitment and track record

high-efficiency air conditioning systems and

‘follow on’ offer to facilitate retail shareholder

of supporting our Ghanaian farmers and the

air curtains to retain store temperatures. We

participation in the event of a future

wider community in which they live.

share placing.

We want to play our part in creating a

fair and equal society where kindness and

understanding prevails. We have a number of

colleague-led groups to reduce discrimination

use LED low-power lighting supplied by a B

Corp certified partner, and have introduced

the use of recycled fabrics and café furniture

and recyclable steel and timber for joinery

manufacture.

and promote equality of opportunity for all.

Our Gentle Farming Programme, which will

These include our anti-racism group, LGBTQ+

have positive benefits for biodiversity and

group, DisABILITY awareness group and

climate change, continues to be rolled out

mental health awareness group.

with farmers in Ghana.

Our wonderful colleagues support a number

of charitable causes, during our annual Charity

Week and beyond. We are proud to back

our colleagues who are making a difference

to the causes they care about. The charities

supported have included the Trussell Trust,

Movember and Wear Red for Racism.

Priorities for stakeholder group

Innovative and imaginative products whether
for gifting or treating themselves.

Friendly, knowledgeable service from our
passionate team of chocolate lovers.

Nature positive products sourced and
produced to the highest ethical standards.

Safe, secure and enjoyable employment.

Opportunity for learning, development and
career progress.

Freedom from harassment and equality of
treatment.

Opportunity to earn a decent living by
working with Hotel Chocolat.

Ongoing collaborative relationships for mutual
benefit.

Clear shared objectives and business plans.

Recognition for their contribution.

Prompt payment.

Regular communication on business progress
and giving back to society.

Sharing in the Company’s ownership
and success.

Development of sustainable farming techniques
and skills to increase productivity and reduce
climate-related impacts.

A compelling investment case, strategy and

The communities where we operate expect

Ensuring the Group is resilient to the risks of

reporting of performance against plan.

us to behave in a responsible way, showing

climate change on farmers, the supply chain

respect for those around us, making a

and the business.

positive impact to their wellbeing and creating

opportunity. Our environmental impact is also

an important priority.

Minimising pollution and waste.

Achieving net zero carbon.

A clear roadmap to success leading to

increased return on capital.

A cohesive approach to environmental,

social and governance matters that provides

assurance that Hotel Chocolat is a sustainable

and responsible business.

Robust and appropriate controls to

mitigate risk.

CUSTOMERS

THE HOTEL CHOCOLAT FAMILY

SUPPLIERS & FARMERS

SHAREHOLDERS

COMMUNITIES

ENVIRONMENT

Making people happy through chocolate is at

We nurture the talents of every member

Regular visits to cacao growing regions to

the heart of our mission. Every

of the Hotel Chocolat family and encourage

meet with farmers, co-operatives and NGOs.

Hotel Chocolat colleague is guided by our

their commitment to our mission to make

100% guest happiness guarantee.

Our customers share our love of premium,

ethically-sourced chocolate and it is important

that we understand our customers’ views.

people and nature happy through the

reinvention of chocolate. Sophie Tomkins

has a special role as lead for colleague

engagement on the Board.

The Board has set out customer KPIs to track

The Board has adopted five areas of focus

Every farmer commits to respect a code

of conduct. Independent research being

conducted to obtain farmer feedback.

Comprehensive supplier assessments are

undertaken prior to on-boarding, with an

ongoing programme of risk assessments

progress on delivering the five

customer-focused Brand Shapers which will

drive growth in our business.

Customer views are collated weekly and

within our People Shapers strategic pillars.

and audits.

These define how we will attract, retain and

develop the best people to deliver successful

outcomes for the Group.

reported to the Executive Board monthly, and

Insight from our colleagues helps steer and

to the Board periodically. Insight comes from

our Hotel Chocolat Insiders' customer panel

lead change initiatives. During the year, our

Employee Forum was established with 25

whose members are regularly surveyed on new

elected colleagues representing all levels and

Strategic collaborative planning meetings are

held with key suppliers.

Periodic supplier surveys are undertaken

covering topics such as Brexit preparedness,

Supplier Code of Conduct, compliance and

traceability.

Dialogue with suppliers is active to achieve

goal of increased innovation on products,

packaging and digital services.

We launched our Gentle Farming Programme

for farmers in Ghana in September 2021.

The scheme provides training in a different

farming approach which has a greater climate

resilience and increases productivity and

ensures farmers receive a premium supporting

closing the gap to a living income.

products, services and customer experience,

and our customer-facing colleagues can also

report verbatim customer feedback.

We use a range of tools, including Love

Match and VIPMe, to ensure our customer

engagement is targeted and relevant. We

reward our VIPMe members for their

loyalty and love of our brand by offering

them exclusive events and early access to

new products.

teams within the business, adopting three

areas of focus – Engage, Champion and

Connect. Its activities have already led to

enhancement of our approach to maternity

policies and pay.

We communicate with all our colleagues

through monthly business briefings, a

fortnightly update from our CEO ('Angus’ 5

good things'), and our intranet site and app,

the Pod. The Pod provides access to colleague

resources, news and business information

plus a facility for colleagues to post their

own updates.

Our success depends on the efforts and

excellence of every one of our colleagues. We

have revamped our approach to individual

performance assessment; our bonus scheme

covers all permanent employees, and

colleagues also continue to participate in our

Sharesave and Founder Share incentives.

Hotel Chocolat benefits from the capital and
support that its shareholders provide. We
engage with our investors through our regular
market updates, reporting on our financial
performance and outlook, and face-to-face
meetings. Investor meetings are, as standard
practice, led by the Executive Directors but
the Chair and Non-executive Directors are
also available for discussions if needed.

Hotel Chocolat recognises that all its
investors, both large and small, need
opportunities to engage with our Board
and may wish to participate in any future
fundraisings. All shareholders are also, of
course, invited to attend the Annual General
Meeting and to submit questions to the
Directors. An investor relations email makes it
simple for shareholders to contact us.

At its last Annual General Meeting, the
Company sought specific authority to make a
‘follow on’ offer to facilitate retail shareholder
participation in the event of a future
share placing.

With stores up and down the country, we
are embedded in local communities, providing
rewarding employment opportunities and
offering happiness through chocolate to
people throughout the UK.

We are aiming for our own operations to be
net zero in relation to by 2030 and to include
our supply chain in this by 2040. Current
initiatives include procurement, waste,
packaging and energy usage.

During the year, we saw an increase in our
‘closed loop’ recycling, whereby waste from
our products is recycled and returned to us;
reduced the frequency of store deliveries to
support the launch of new stores without
increasing our food miles; and introduced a
Group-wide waste partnership with a policy
of zero waste going to landfill. Our plastic
packaging trays are now 100% recyclable
and typically made of 70% recycled content,
with the minimum being 30%. We achieved
a like-for-like 327,000kWh saving across our
manufacturing operations.

In our stores, we are introducing single-phase,
high-efficiency air conditioning systems and
air curtains to retain store temperatures. We
use LED low-power lighting supplied by a B
Corp certified partner, and have introduced
the use of recycled fabrics and café furniture
and recyclable steel and timber for joinery
manufacture.

Our Gentle Farming Programme, which will
have positive benefits for biodiversity and
climate change, continues to be rolled out
with farmers in Ghana.

We are also important to the community in
St Lucia where we have our award-winning
Rabot Hotel, the Project Chocolat centre of
excellence for sustainable farming which hosts
our tree and bean-to-bar experiences, and
our own organic, sustainable 140-acre cacao
farm. Our support for local cacao farmers and
the responsible tourist dollars we generate on
the island, benefit the Saint Lucian economy in
a sustainable and ethically-engaged way.

In Ghana, our Gentle Farming Initiative offers
improved standards of living and wellbeing for
our farmers and their families, as well as vital
biodiversity benefits. We are proud of our
longstanding commitment and track record
of supporting our Ghanaian farmers and the
wider community in which they live.

We want to play our part in creating a
fair and equal society where kindness and
understanding prevails. We have a number of
colleague-led groups to reduce discrimination
and promote equality of opportunity for all.
These include our anti-racism group, LGBTQ+
group, DisABILITY awareness group and
mental health awareness group.

Our wonderful colleagues support a number
of charitable causes, during our annual Charity
Week and beyond. We are proud to back
our colleagues who are making a difference
to the causes they care about. The charities
supported have included the Trussell Trust,
Movember and Wear Red for Racism.

Priorities for stakeholder group

Innovative and imaginative products whether

Safe, secure and enjoyable employment.

Opportunity to earn a decent living by

for gifting or treating themselves.

Opportunity for learning, development and

working with Hotel Chocolat.

Friendly, knowledgeable service from our

career progress.

Ongoing collaborative relationships for mutual

passionate team of chocolate lovers.

Freedom from harassment and equality of

benefit.

Clear shared objectives and business plans.

Nature positive products sourced and

produced to the highest ethical standards.

treatment.

Recognition for their contribution.

Prompt payment.

Regular communication on business progress

Development of sustainable farming techniques

and giving back to society.

and skills to increase productivity and reduce

climate-related impacts.

Sharing in the Company’s ownership

and success.

A compelling investment case, strategy and
reporting of performance against plan.

A clear roadmap to success leading to
increased return on capital.

A cohesive approach to environmental,
social and governance matters that provides
assurance that Hotel Chocolat is a sustainable
and responsible business.

Robust and appropriate controls to
mitigate risk.

The communities where we operate expect
us to behave in a responsible way, showing
respect for those around us, making a
positive impact to their wellbeing and creating
opportunity. Our environmental impact is also
an important priority.

Ensuring the Group is resilient to the risks of
climate change on farmers, the supply chain
and the business.

Minimising pollution and waste.

Achieving net zero carbon.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Considering all of our stakeholders (s172) continued

In accordance with section 172 of the Companies Act 2006, the Board regularly considers the likely consequences of our strategy and long-term decisions,
taking into account the interests of colleagues, suppliers, customers, communities and the environment. The table below outlines some of the considerations
in relation to wider stakeholders and the environment which the Board took account of in making key decisions.

The Board reviewed the Group’s strategic ambitions and agreed:

Key Board decisions

Considerations

To withdraw from its joint venture in Japan and suspend activities in the US.
A new capital light brand licensing and minority equity investment model has
been established with a new partner in Japan and online Velvetiser sales in
the US have recommenced.

For the benefit of all stakeholders, in particular shareholders and colleagues,
this decision was taken to protect the most proven and lowest-risk
strategies with the greatest potential for further increased profitability and
scaled cash generation.

To establish three strategic pillars as part of the Group’s transformation
plans – the Business Shapers, Brand Shapers and People Shapers.

To optimise our fulfilment facilities, taking account of our future
warehousing, packing and fulfilment capacity requirements in line with our
growth strategy.

To grow the UK retail estate through the addition of new stores.

FY23 has been a year of transition. The Board took account of the needs
of our farmers, staff, customers, investors and the environment in creating
the Shapers, which are designed to prioritise actions that will protect the
Group’s profitability, grow the reputation of the brand for Originality,
Authenticity and Ethics, and ensure a working environment in which
colleagues can succeed and progress.

Decisions to adjust the Group’s fulfilment facilities were made, taking
account of the need to meet customer service and product quality
expectations through appropriate storage and efficient fulfilment, and the
desirability of retaining colleagues with the fulfilment skills we need.

Expansion of our store estate in the UK is a key element of our business
growth strategy which will introduce our brand to new customers,
provide valued employment opportunities, and enhance the relevant local
communities’ retail landscape.

To support key stakeholders in the business and to recognise their important contribution to the
success of the Company, the Board approved the following actions:

Key Board decisions

Considerations

To approve the People Shapers as a core strategic pillar.

To continue our Gentle Farming Initiative, which supports closing the gap to
a living income for our Ghanaian farmers, improves farming techniques and
productivity and protects the environment and biodiversity
through regenerative activity.

Ensuring that Hotel Chocolat attracts, retains and develops the best people
to support our business is a strategic priority. The People Shapers define
how we will do this, making sure that we get the basics right, lead and
ensure a working environment in which colleagues are fully engaged and
invested in to deliver their full potential.

The Gentle Farming Programme is an essential element of Hotel Chocolat’s
approach to engaged ethics. It was specifically protected when the Board
approved the FY24 budget.

Adjustments to Board governance structure and Executive Committee were agreed as follows:

Key Board decisions

Considerations

To adopt a sales and operations planning (S&OP) model to strengthen
governance throughout the Group and support development of a more
effective, data-driven governance framework.

To establish a Nomination Committee to lead on matters of Board
composition and succession planning.

To appoint a Senior Independent Director.

To appoint a new Chair and Chief Financial Officer.

To adjust Board and Executive Committee meeting cadence and focus.

Ensuring internal processes are as clear, efficient and robust as possible not
only mitigates process risk, but also supports improved job satisfaction for
colleagues by removing barriers to efficiency. These efficiencies enabled
resources, including people structures, to be streamlined.

Having Directors with the right balance of skills, experience and knowledge
is critical to delivery of the Group’s strategic ambitions for the benefit of all
stakeholders, but in particular shareholders, colleagues, suppliers and the
environment.

The appointment of a Senior Independent Director is an important
governance safeguard for investors and others. Greg Hodder was appointed
to this role.

During the year, the Board’s composition, which had largely been stable
since IPO, was refreshed bringing in the skills and experience needed to lead
the business with delivery of our new strategic priorities for the benefit of
all stakeholders.

With the development of our new strategic pillars, the cadence of Board
meetings was altered to fit more effectively with the Executive Committee’s
own new schedule and facilitate better information flows to the Board. The
Board believes this will help enhance its governance and oversight for the
benefit of all stakeholders.

This Strategic report and information herein was approved on behalf of the Board on 11 October 2023.

Jon Akehurst
Chief Financial Officer

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Governance

Board of Directors
Corporate Governance Statement
The QCA Corporate Governance Code
Audit Committee Report
Remuneration Committee Report
Nomination Committee Report
Directors’ Report
Statement of Directors’ responsibilities

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70
72
76
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82
84

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Board of Directors
An experienced founder-led team

Stephen Alexander

Non-executive Chair

Sophie Tomkins

Greg Hodder

Angus Thirlwell

Peter Harris

Jon Akehurst

Independent Non-executive Director

Senior Independent Director

Co-founder and Chief Executive Officer

Co-founder and Development Director

Chief Financial Officer

Appointed 2023

Appointed 2016

Appointed 2017

Co-founded in 1993

Appointed 2023

Stephen has held numerous Chair roles of
public and private equity-backed companies,
predominantly in the consumer sector, for
more than 20 years.

Prior to this, Stephen was Chief Executive
of Hillsdown Holdings and at Allied Domecq,
where he was Chief Executive of both
the Food and Retailing Divisions. He has
also chaired the charities Look Ahead and
Employment Autism.

Sophie has considerable public markets
experience gained through a 17-year career in
the City. Sophie is Non-executive Director and
Chair of the Audit Committees at System1
Group PLC, and Virgin Wines UK plc.

Sophie qualified as a Chartered Accountant
in 1994.

Greg was CEO of Charles Tyrwhitt from
2008 to 2017 and previously CEO of Direct
Wines including Laithwaites and The Sunday
Times Wine Club. Greg has considerable
experience of growth through digital and
international retail, including as former Chair
of Naked Wines.

Angus co-founded Hotel Chocolat with Peter

Peter co-founded Hotel Chocolat with Angus

Jon joined Hotel Chocolat as Chief Financial

Harris in 1993 and has a particular focus on

Thirlwell in 1993 and is responsible for real

Officer in 2023 and is responsible for the

brand strategy, product and channel models,

estate, legal and intellectual property.

finance function and investor relations.

Peter qualified as a Chartered Accountant

Jon’s career includes management and leadership

marketing and creative.

Angus attended Cranfield School of

Management Business Growth Programme

and is a Special Advisor to the Academy

of Chocolate.

in 1979.

roles with General Mills, Mars, Aggreko and

most recently at Terumo Corporation as

CFO of their Aortic division. He has extensive

experience across branded goods, manufacturing

and international development.

Jon qualified as a Chartered Accountant in 2009.

My chocolate love match is
SERIOUS
DARK FIX

My chocolate love match is
EXUBERANTLY
FRUITY

My chocolate love match is
EXQUISITELY
NUTTY

My chocolate love match is

EXQUISITELY

NUTTY

EXQUISITELY

NUTTY

EXQUISITELY

NUTTY

Committee membership

Audit Committee

Remuneration Committee

Group Board

Chair

Executive Committee

Sustainability Committee

Nominations Committee

Stephen Alexander

Non-executive Chair

Sophie Tomkins

Greg Hodder

Angus Thirlwell

Peter Harris

Jon Akehurst

Independent Non-executive Director

Senior Independent Director

Co-founder and Chief Executive Officer

Co-founder and Development Director

Chief Financial Officer

Appointed 2023

Appointed 2016

Appointed 2017

Co-founded in 1993

Appointed 2023

Stephen has held numerous Chair roles of

Sophie has considerable public markets

Greg was CEO of Charles Tyrwhitt from

public and private equity-backed companies,

experience gained through a 17-year career in

2008 to 2017 and previously CEO of Direct

predominantly in the consumer sector, for

the City. Sophie is Non-executive Director and

Wines including Laithwaites and The Sunday

of Hillsdown Holdings and at Allied Domecq,

Sophie qualified as a Chartered Accountant

in 1994.

Chair of the Audit Committees at System1

Group PLC, and Virgin Wines UK plc.

Times Wine Club. Greg has considerable

experience of growth through digital and

international retail, including as former Chair

of Naked Wines.

more than 20 years.

Prior to this, Stephen was Chief Executive

where he was Chief Executive of both

the Food and Retailing Divisions. He has

also chaired the charities Look Ahead and

Employment Autism.

Angus co-founded Hotel Chocolat with Peter
Harris in 1993 and has a particular focus on
brand strategy, product and channel models,
marketing and creative.

Angus attended Cranfield School of
Management Business Growth Programme
and is a Special Advisor to the Academy
of Chocolate.

Peter co-founded Hotel Chocolat with Angus
Thirlwell in 1993 and is responsible for real
estate, legal and intellectual property.

Jon joined Hotel Chocolat as Chief Financial
Officer in 2023 and is responsible for the
finance function and investor relations.

Peter qualified as a Chartered Accountant
in 1979.

Jon’s career includes management and leadership
roles with General Mills, Mars, Aggreko and
most recently at Terumo Corporation as
CFO of their Aortic division. He has extensive
experience across branded goods, manufacturing
and international development.

Jon qualified as a Chartered Accountant in 2009.

My chocolate love match is

SERIOUS

DARK FIX

EXUBERANTLY

FRUITY

EXQUISITELY

NUTTY

My chocolate love match is
EXQUISITELY
NUTTY

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

The Executive Team

Lysa Hardy

Managing Director, Retail

Matt Margereson

Managing Director, Manufacturing Operations

Appointed 2018

Appointed 2006

Lysa joined Hotel Chocolat in 2018 and is
responsible for our retail business unit in the
UK, including retail, ecommerce, marketing,
category management, customer service,
customer insight, merchandising and stock
forecasting.

Lysa has over 20 years’ experience including
Chief Commercial Officer at Holland &
Barrett, Chief Customer Officer at Joules,
as well as telecoms marketing, general
management and a number of
international roles.

Lysa is a fellow of The Marketing Academy,
Chair of the board of Trustees for a mental
health charity, and was appointed Non-
Executive Director of Superdry in May 23.

Matt joined Hotel Chocolat in 2006 and
is responsible for product development,
manufacturing operations, supply chain,
including procurement, warehousing &
fulfilment as well as HR, technology
and systems.

Matt has over 20 years’ experience in
operations and supply chain management.

Matt completed a MBA in 2013 and is a
member of the Chartered Institute of Logistics
and Transport.

My chocolate love match is
EXQUISITELY
NUTTY

My chocolate love match is
EXUBERANTLY
FRUITY

Committee membership

Audit Committee

Remuneration Committee

Group Board

Chair

Executive Committee

Sustainability Committee

Nominations Committee

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Corporate Governance Statement

The composition of the Board
The Board is responsible to the shareholders and
sets the Group’s strategy for achieving long-
term success. It is also ultimately responsible
for the management, governance, controls,
risk management, direction and performance
of the Group. The Board comprises three
Non-executive Directors and three Executive
Directors, two of whom are the co-founders.
The three Non-executive Directors are
considered fully independent.

An introduction from our Chair
The Hotel Chocolat Board is fully committed
to strong governance of the business within
a culture that recognises and delivers on our
responsibilities to all the Group’s stakeholders,
including shareholders, customers, suppliers,
colleagues and the wider community. In
this section of our report, we have set out
our approach to governance and provided
further information on how the Board and its
committees operate.

The Board has adopted, and believes that it
complies with, all of the principles of The QCA
Corporate Governance Code (QCA Code). The
corporate governance framework which the
Group operates, including Board leadership and
effectiveness, Board remuneration and internal
control, is based upon practices which the Board
believes are proportional to the size, risks,
complexity and operations of the business and
reflective of the Group’s values. Our governance
framework continues to evolve as the business
and its operations and ambitions develop.

Formal committee meetings held

Scheduled Board meetings held

Members and attendance

Stephen Alexander (Chair)1

Andrew Gerrie (Chair)2

Sophie Tomkins

Greg Hodder

Angus Thirlwell

Peter Harris

Jon Akehurst3

Matt Pritchard4

A further 11 Board meetings were held
in the year in response to current events.

1 Stephen Alexander appointed 5 May 2023

2 Andrew Gerrie resigned 4 May 2023

3 Jon Akehurst appointed 15 May 2023

4 Matt Pritchard resigned 31 January 2023

The Board’s role is to determine Hotel
Chocolat’s long term strategic ambitions and
to steer the business safely towards them.

The remit of the Board and committees

The Board
The operation of the Board is documented
in a formal schedule of matters reserved for
its approval, which is reviewed periodically. A
forward-looking programme of agenda items
is planned in advance, including deep-dives
from key parts of the business, regular strategy
reviews and updates on significant projects.
Meeting agendas focus on matters of key
strategic importance but also ensure that
Directors are provided with opportunities
to understand and debate areas of risk,
performance and controls.

Committees
The Board has delegated specific
responsibilities to the Audit, Remuneration
and Nomination committees. Each committee
has written terms of reference setting out its
duties, authority and reporting responsibilities.
Copies of all the committee terms of
reference are available on the Group’s website.
These terms of reference are kept under
review to ensure they remain appropriate and
reflect any changes in legislation, regulation or
best practice.

Audit Committee
The Audit Committee has primary
responsibility for monitoring the quality
of internal controls and ensuring that the
financial performance of the Group is
properly measured, reported and audited.

Remuneration Committee
The Remuneration Committee reviews the
performance of the Executive Directors
and makes recommendations to the Board
on matters relating to their remuneration
and terms of employment.

Nominations Committee
Since its IPO, matters relating to Board
composition and Director appointment
have been dealt with by the Board as
a whole. One of the outcomes of the
Board’s most recent Board effectiveness
review was to agree to form a
Nominations committee and its terms
of reference have been published on the
Group’s website. The committee’s remit
includes keeping the Board’s composition
under review to ensure it remains relevant
and appropriate to lead the Group’s long
term strategic ambitions, managing any
Board recruitment activity, and assessing
Director independence.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Corporate Governance Statement continued

Governance framework

Customers

Suppliers

Shareholders

Employees

The environment

Government & regulation

Consideration of

The Board

Responsible for

Strategy

Performance

Governance

Controls

Risk management

The Chair is responsible for leading the Board,
setting its agenda and monitoring its effectiveness.
There is a clear division of responsibility between
the Chair and the Chief Executive Officer.

How the Board operates
The Board is responsible for the Group’s
strategy and for its overall management and
performance. The Strategic report on pages
8 to 53 summarises the Group’s strategy to
promote sustainable long-term growth and
value for shareholders. The role of the Board
is documented in a formal schedule of matters
reserved for its approval. These include matters
relating to:

• the Group’s strategic aims and objectives;

• the structure and capital of the Group;

• financial reporting, financial controls and

dividend policy;

• setting budgets and forecasts;

• internal control, risk and the Group’s risk

appetite;

• the approval of significant contracts and

expenditure;

• effective communication with shareholders;

• any changes to Board membership or

structure; and

• oversight of the Executive Committee.

The Group maintains communication with a
wide range of stakeholders to ensure that their
needs, interests and expectations are understood
and reflected within the Group’s strategy and in
Board decision-making. Further details of how
the Board has taken account of the needs of
the Group’s stakeholders are set out on pages
50 to 53.

Board meetings
The Board held seven scheduled Board meetings
during the period, together with another eleven
meetings held between full Boards in order to
discuss specific issues or matters of an urgent
nature. Board and committee meetings provide
time for collective discussion and decision-
making, but informal communication channels
also operate to ensure open dialogue and
information sharing with the Non-executive
Directors continues between meetings.

The following table shows Directors’ attendance at scheduled Board and committee meetings during
the period:

Board

Remuneration
Committee

Audit
Committee

Nomination
Committee

Scheduled meetings

Andrew Gerrie1

Sophie Tomkins

Greg Hodder

Angus Thirlwell

Peter Harris

Matt Pritchard2

Jon Akehurst3

Stephen Alexander4

n/a

1 Andrew Gerrie resigned 4 May 2023

2 Matt Pritchard resigned 31 January 2023

3 Jon Akehurst appointed 15 May 2023

4 Stephen Alexander appointed 5 May 2023

Directors are expected to, and consistently do,
attend all meetings of the Board, and of the
committees on which they sit. Outside of formal
meetings, they also devote significant time to
the Group’s affairs, for example in reviewing
Board papers before meetings. If, by exception,
Directors are unable to attend a meeting, their
comments on papers to be considered at the
meeting may be discussed in advance with the
Chair so that their contribution can be included
in the wider meeting discussion.

Oversight of the Executive
Committee
The Executive Committee’s activities, priorities,
proposals and concerns are regularly reported
to the Board. The Executive Committee has
an agreed ongoing programme of performance
monitoring and reviews of key strategic matters
which then feed into the reports and updates
provided to the Board. The Executive Committee
is led by Angus Thirlwell, CEO. Its other
members are:

• Jon Akehurst, Chief Financial Officer;

• Lysa Hardy, Managing Director, Retail; and

• Matt Margereson, Managing Director,

Manufacturing Operations.

Board decisions and activity
during the period
The Board has a schedule of regular business,
financial and operational matters, and each Board
committee has compiled a schedule of work to
ensure that all areas for which the Board has
responsibility are addressed and reviewed during
the course of the year. The Chair, aided by the
Company Secretary, is responsible for ensuring
that, to inform decision-making, Directors receive
accurate, sufficient and timely information.

n/a

The Company Secretary compiles the Board
and committee papers which are circulated to
Directors prior to meetings.

To support the Directors in keeping up-to-date
with changes to the regulatory landscape and
best practice thinking on matters of corporate
governance, the Company Secretary provides
regular updates on these matters. The Board also
reviews its AIM obligations with its Nominated
Advisor annually.

The Company Secretary provides and prepares
minutes and action lists after each meeting.
Every Director is aware of the right to have any
concerns specifically minuted and of the process
to seek independent advice at the Group’s
expense where appropriate.

During the period, the Board considered and
approved a 20% equity investment in a newly
established vehicle with Eat Creator Corporation
based in Japan - aligned with strategic changes to
the Group’s priorities and business model.

In addition, the Board received a number of
deep-dive presentations from management,
covering matters such as procurement strategy,
customer strategy and insight, category strategy,
technology transformation plans and broader
transformation plans, including the introduction
of sales and operational planning processes
(S&OP) to improve Group governance.

Board Committees
The Board has delegated specific responsibilities
to the Audit, Remuneration and Nomination
committees, details of which are set out below.

Each committee has written terms of reference
setting out its duties, authority and reporting
responsibilities. Copies of all the committee terms
of reference are available on the Group’s website.

These terms of reference are kept under review
to ensure they remain appropriate and reflect any
changes in legislation, regulation or best practice.
Each committee comprises Non-executive
Directors of the Group.

Audit Committee

The Audit Committee is chaired by Sophie
Tomkins and its other members are Andrew
Gerrie (until 4 May 2023) and Greg Hodder;
Stephen Alexander was appointed to the Audit
Committee on 22 June 2023. All three members
of the Audit Committee are considered to be
fully independent. The Audit Committee has
primary responsibility for monitoring the quality
of internal controls and ensuring that the financial
performance of the Group is properly measured
and reported on. It receives and reviews reports
from the Group’s management and the external
auditor relating to the annual accounts and the
accounting and internal control systems in use
throughout the Group. It reviews the risk register
to ensure that it is comprehensive and that
appropriate mitigations are in place. It also advises
the Board on the appointment of the external
auditor, reviews their fees and discusses the nature,
scope and results of the audit with the external
auditor. The Audit Committee generally meets
three times a year and has unrestricted access to
the Group’s auditor. The Chief Financial Officer
attends the committee meetings by invitation.

The Audit Committee report on pages 72 to
74 contains more detailed information on the
committee’s role and how it discharged its
responsibilities during the period.

Remuneration Committee

The Remuneration Committee is chaired by Greg
Hodder. Its other members are Sophie Tomkins
and Stephen Alexander (appointed 22 June 2023).
Greg Hodder, Stephen Alexander and Sophie
Tomkins are considered to be fully independent.
The Remuneration Committee reviews the
performance of the Executive Directors and makes
recommendations to the Board on matters relating
to their remuneration and terms of employment.
The Remuneration Committee also consults
with shareholders as appropriate and makes
recommendations to the Board on proposals for
the granting of share options and other equity
incentives pursuant to any share option scheme or
equity incentive scheme in operation from time to
time. The remuneration and terms and conditions
of appointment of the Non-executive Directors
of the Group are set by the Board. The Chief
Executive Officer and Chief Financial Officer are
invited to attend for some parts of the committee
meetings where their input is required, although
they do not take part in any discussion on their
own benefits and remuneration.

The Remuneration Committee report on pages
76 to 79 contains more detailed information
on the committee’s role and the Directors’
remuneration and fees.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Corporate Governance Statement continued

Nominations Committee

During the year, a Nominations Committee has
been established. The Nomination Committee
was chaired by Greg Hodder with Stephen
Alexander being appointed as Chair on 22 June
2023. Greg remains a member of the committee.
Its other member is Sophie Tomkins. Stephen
Alexander, Greg Hodder and Sophie Tomkins
are considered to be fully independent. The
Nomination Committee is responsible for
ensuring that the size, composition and
collective skills of the Board is aligned to deliver
Group strategy.

The Nomination Committee report on pages 80
to 81 contains more detailed information on the
committee’s role, responsibilities and activities.

Internal controls & risk
management
The Board has ultimate responsibility for the
Group’s system of internal control and for
reviewing its effectiveness. Any such system of
internal control can provide reasonable, but not
absolute, assurance against material misstatement
or loss. However, the Board considers that the
internal controls in place are appropriate for the
size, complexity and risk profile of the Group.

The principal risks faced by the business are
summarised on pages 26 and 27.

The principal elements of the Group’s internal
control system include:

• close management of the day-to-day activities

of the Group by the committee;

• an organisational structure with defined
levels of responsibility, which promotes
entrepreneurial decision-making and agile
implementation whilst mitigating risks. These
structures are currently being enhanced
through the introduction of S&OP processes;

• segregation of duties so no individual can have
undue influence or control over an activity,
process or transaction;

• a comprehensive annual budgeting process,

producing a detailed integrated profit and loss,
balance sheet and cash flow, which is approved
by the Board;

• detailed monthly reporting of performance

against budget; and

• central control over key areas such as capital

expenditure authorisation and banking facilities.

The Group continues to review its system of
internal control to ensure adherence to best
practice, whilst also having regard to its size and
the resources available. The Board continues
to keep the introduction of an internal audit
function under review.

The Board conducts annual reviews of its
register of key risks and seeks independent
third party support to review the risk landscape
in detail, including a consideration of risks,
likelihood, scale of potential impact and the
existence of assurance, mitigation or appropriate
contingencies.

After discussion and taking account of the
significant influence which the new Chair, in
particular, was expected to have on Board
operations and effectiveness, the Board
concluded that the full review should be deferred.
Accordingly, the next full review will be carried
out during the current financial year.

The Board has reviewed the lessons learnt in
connection with prior period restatements and
exceptional items. The Board has established a
comprehensive 'shape of the future' strategy in
H1 and deployed it in H2 FY23, see pages 16
and 17. This strategy is reviewed monthly by
the Executive Committee and Board meetings.
In addition, bank covenants and funding are
reviewed in more detail at Board meetings as a
result of the learnings.

The experience and knowledge of each of the
Directors gives them the ability to constructively
challenge strategy and to scrutinise performance.
The Board meets regularly with external experts,
including the Group’s Nominated Adviser,
to ensure that Directors remain abreast of
developments and current best practice. The
skills and experience of the Directors are set out
in their biographical details on pages 56 to 57.

All Directors take part in a thorough induction
process on joining the Board, tailored to the
existing knowledge and experience of the
Director concerned.

Board effectiveness
The purpose of a Board effectiveness review is to
establish objectives which will help drive continual
improvement in Board practice and outcomes.
The last year was one of transition for the Board,
with a new Chair and Chief Financial Officer both
being appointed in place of outgoing Directors.
Both these new Directors had only just joined
the Board at the time when the full Board
effectiveness review would ordinarily have been
undertaken. Their contribution to the review
would, as a result, have been limited.

Board experience

Although a full Board effectiveness review was
not undertaken during the year, the Board did
nevertheless discuss its own effectiveness and
the progress it had made towards completing
the action plan agreed following the prior year’s
review.

As part of this process, the annual Board meeting
schedule was reconsidered and adjusted to better
fit with the cadence of Executive Committee
meetings and the production of the high level
management information needed by the Board.
This will ensure that reporting to the Board is
always as up-to-date and relevant as possible.
Furthermore, the annual Board meeting schedule
was reviewed to ensure that strategic level
matters are appropriately forward-planned at
suitable intervals to provide adequate and timely
opportunities for the Board to provide input
and guidance to management on those matters
which are most critical to the Group’s future
development.

Outstanding actions agreed as a result of the
prior year’s Board effectiveness review process
were reviewed at each Board meeting until they
were satisfactorily completed. They included:

• formation of a Nomination Committee so

that matters such as Board succession planning,
reviews of Board composition and Director
recruitment would no longer be dealt with
by the Board as a whole. The committee
was established and its report is available on
page 80;

• appointment of a Senior Independent Director

– Greg Hodder was appointed to, and
continues to perform, this role;

Stephen
Alexander

Sophie
Tomkins

Greg
Hodder

Angus
Thirlwell

Peter
Harris

Jon
Akehurst

Financial management

Global business

Leadership & values

Sales & marketing

Technology &
operations

Retail

Sustainability

Customer feedback is collected from guests in
physical Hotel Chocolat locations, online reviews
and via social media.

We work directly with cacao growers and other
agricultural producers, and with organisations
that promote their interests to understand their
needs. We continue with our Gentle Farming
Programme to support our community of
growers in Ghana and St. Lucia and to promote
mutual learning and understanding of best
practice agricultural methods. As well as seeking
to eradicate child labour and deforestation, the
programme enhances farmers’ incomes and
encourages regenerative activities to improve
biodiversity and help combat climate change.

We meet with existing and potential suppliers
and visit trade fairs. We also meet with charities,
other activist groups, academics and specialists
to keep abreast of developments in fields such as
sustainability, recycling and nutrition.

Employee feedback is sought via regular
anonymous surveys, with the opportunity to
discuss topics directly with the Board or via an
intermediary to present topics on their behalf.

Relations with shareholders
The Group maintains communication with
institutional shareholders through individual
meetings with Executive Directors, particularly
following publication of the Group’s interim and
full period results.

General information about the Group is available
on the Group’s website (www.hotelchocolat.
com). The Non-executive Directors are available
to discuss any matter shareholders might wish
to raise, and the Chair and independent Non-
executive Directors will attend meetings with
investors and analysts as required. Investor
relations activity, shareholder feedback and a
review of the share register are regular items on
the Board’s agenda.

Annual General Meeting (AGM)
The Annual General Meeting of the Group will
take place on 23 November 2023. The Notice
of Annual General Meeting and the ordinary and
special resolutions to be put to the meeting are
included in the Notice of AGM accompanying this
Annual Report.

• carrying out a review into the factors leading to
the Board’s decision to change its international
strategy; and

• introduction of changes to Board reporting to

ensure that, those actions arising from previous
meetings which are most strategic and high
priority in nature, are reported on in the early
part of each meeting until they have been
satisfactorily completed.

During the current financial year, the Board has
committed to undertaking a full Board evaluation
process. This will provide an opportunity for
all Directors to provide feedback on questions
such as:

• how the Board determines the Group’s

strategy, culture and values;

• how effective the Board’s risk management

oversight and management is;

• if the Board has the appropriate composition

and collective skills to lead the business;

• whether the Group’s governance framework

and Board delegations remain appropriate and
fit for purpose;

• how well supported the Board and its

committees are;

• the extent to which Board debate is sufficiently

open, rigorous and challenging;

• whether decision-making is balanced, objective,

well-informed and supported by data;

• the extent to which wider stakeholder and

ESG issues are taken into account in decision-
making; and

• how communications and relationships with

stakeholders are managed.

We look forward to reporting back on the
Board’s conclusions on these matters in next
year’s report.

Business culture, values and
behaviours
The brand and the business have been guided
from the beginning by the principles of Originality,
Authenticity and Ethics. These principles inform
every aspect of business operation and decision-
making from the agreement of strategy to the
operational implementation of the business
plan. The business conducts regular engagement
surveys with all employees, and also operates
a number of confidential hotlines to allow
employees to feedback on culture and behaviours
and speak up in confidence if they suspect any
wrongdoing. Sophie Tomkins has taken the
lead on ensuring that all colleagues have the
opportunity to have their views represented in
the Boardroom.

Time commitments
All Directors recognise the need to commit
sufficient time to fulfil the role. This requirement
is included in their letters of appointment. The
Board is satisfied that the Chair and Non-executive
Directors devote sufficient time to the Group’s
business.

Development
The Company Secretary ensures that all Directors
are kept abreast of changes in relevant legislation
and regulations, with the assistance of the Group’s
advisers where appropriate, and that regulatory
updates are a regular feature of Board meeting
agendas. New external advice was sought by
the Board and committees from appropriately
qualified third parties. Executive Directors are
subject to the Group’s performance review
process through which their performance against
predetermined objectives is reviewed and their
personal and professional development needs
considered. An annual performance appraisal of
Non-executive Directors is undertaken as part of
the Board evaluation process, at which time any
training or development needs can be identified
and addressed.

External appointments
As appropriate, the Board may authorise Executive
Directors to take a Non-executive position in
other companies and organisations, provided
the time commitment does not conflict with
the Director’s duties to the Group, since such
appointments should broaden their experience.
The acceptance of appointment to such positions
is subject to the approval of the Chair and to
any actual or potential conflicts of interest being
declared and, where appropriate, authorised.

Conflicts of interest
At each meeting, the Board considers Directors’
interests and notifications are made of any
changes. The Group’s Articles of Association
provide for the Board to authorise any actual or
potential conflicts of interest.

Directors’ and Officers’ liability
insurance
The Group has purchased Directors’ and
Officers’ liability insurance during the period as
allowed by the Group’s articles.

Election of Directors
All continuing Directors of the Group will offer
themselves for re-election at the Annual General
Meeting.

Relations with stakeholders
The Group maintains communication with a wide
range of stakeholders to ensure that their needs,
interests and expectations are understood and
reflected within the Group’s strategy. Further
details are set out on pages 50 to 53.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Progress against the Corporate Governance targets

Corporate responsibility

Corporate behaviour

Sound governance

BOARD & LEADERSHIP DIVERSITY

Why it matters
Diversity of thought and opinion within leadership teams encourages
broader debate and thorough examination of ideas, which delivers
better decision-making.

Stakeholders & priorities
Hotel Chocolat shareholders, Hotel Chocolat employees. To observe
the active steps taken to increase diversity.

Business ethics & values

Why it matters
Hotel Chocolat’s brand values are Originality, Authenticity and Ethics.
It is essential that the ethical aspect of the brand is continuously
developed and reinforced.

Stakeholders & priorities
Customers, employees, shareholders, suppliers, communities.
Expectation that Hotel Chocolat achieves long-term success by
considering a wide set of stakeholder needs.

Executive pay

Why it matters
Executive pay should attract and retain talented leaders; it should be
appropriate and tied to business performance.

Stakeholders & priorities
Shareholders, employees, Executives require a leadership team with
the skills and capability to drive the ongoing success of the Group.

Anti-bribery and anti-corruption

Why it matters
Bribery and corruption represent the abuse of trust for unfair gain,
and are barriers to equality and sustainable development.

Stakeholders & priorities
Suppliers and their employees, shareholders, government, colleagues
and customers expect Hotel Chocolat to operate honestly,
transparently and fairly.

Reporting & accounting

Privacy & data security

Why it matters
Board of Directors have a duty to prepare the interim and Annual
report, Strategic report and Financial Statements in accordance with
applicable law and regulations.

Stakeholders & priorities
Shareholders and other stakeholders expect reports to give a true
and fair view of the results and state of affairs for the Group.

Why it matters
Confidentiality of personal data is important in ensuring long-
term trust, allowing the business to serve its customers effectively.
Protection of the business from loss of IT systems and data to enable
the business to function effectively.

Stakeholders & priorities Customers and team members.

Sustainable development Goals: directly
connected to the Group's priorities:

Tax transparency

Why it matters
Hotel Chocolat acknowledges that paying tax is making a contribution
to society.

Stakeholders & priorities
Shareholders, government, local communities who expect
transparency and fair taxation.

Subject

FY22 status

Goal

Executive
accountable

FY23 progress
against target

Comments

Diversity and Inclusion
policy applied ongoing to
all new Board and senior
management hires and
promotions.

Stephen Alexander,
Chair

PLC comprises: 2 male
co-founders, 3 other
male Directors and 1
other female Director.

Board and
leadership
diversity

PLC comprises: 2 male
co-founders, 3 other male
Directors and 1 other
female Director.

33% of the Executives
reporting to the Board
are female.

33% of the direct reports
to the Executive are female.

Executive pay

Performance related pay
is attached to profitability,
sales growth, ESG (team
engagement) and share
price increase.

Executive targets for
performance related pay
were not met.

Launch an all-employee
equity participation scheme
during FY22 to share the
rewards of ownership with
every team member, in
addition to existing SAYE
scheme.

Greg Hodder, SID,
Remuneration
Committee Chair

Executive targets for
performance related pay
were not met.

Reporting and
accounting

See Audit Committee
report (page 72).

Ongoing consideration of
internal audit function and
appropriate timing.

Jon Akehurst, CFO
and Sophie Tomkins,
NED, Audit Chair

Reviewed.

Business ethics
and values

Assurance over supplier
base including compliance
with Group policies.

Supplier Code of Conduct
covering quality, ethical
supply, anti-bribery and
fair treatment of labour.
Whistleblower policy
in place.

Angus Thirlwell, CEO All of our key suppliers
have been risk assessed,
and 95% of our most
material suppliers have
been independently
audited to ensure
compliance with our
code of conduct.

Our Equality, Diversity
& Inclusion policy covers
all levels of our Hotel
Chocolat family, including
the Board. A new
Nominations Committee
was constituted to
oversee succession
planning and ensure
the Board is composed
of individuals with the
necessary skills and
diversity.

Annual SAYE scheme
in place.

At present, we do not
have an internal audit
function, however
the Audit Committee
continues to believe
that management is
able to derive assurance
as to the adequacy
and effectiveness of
internal controls and risk
management procedures
without one. This
position will continue
to be reviewed as to its
adequacy.

We have in place relevant
codes of conduct and
expected behaviour for
our team members which
includes our approach
to ethical behaviour and
whistleblowing so we can
ensure that things are
done in the right way.
We also have a Supplier
Code of Conduct
covering quality, ethical
supply, anti-bribery and
fair treatment of labour.

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Progress against the Corporate Governance targets continued

Subject

FY22 status

Goal

Executive
accountable

FY23 progress
against target

Comments

Anti-bribery
and anti-
corruption

Privacy and
data security

Tax
transparency

As a UK company, the
Group adheres to the
UK Anti-bribery and
Modern Slavery Acts,
and applies a Supplier
Code of Conduct,
supported by risk
assessments and
site audits.

Programme of security
measures and assurance
including tests of controls
and access restrictions.
Compliance with GDPR.

Hotel Chocolat does
not engage in tax paying
structures that move
profits to low-tax
jurisdictions where it does
not trade.

Augment internal
assurance with third
party supplier audits by
December 2022.

Matt Margereson,
MD, Manufacturing
Operations

Data council
implemented FY22.

Matt Margereson,
MD, Manufacturing
Operations

All of our key suppliers
have been risk assessed,
and 95% of our most
material suppliers have
been independently
audited to ensure
compliance with our
code of conduct.

We have a Data
Governance Board in
place which covers
IASC, PCI and GDPR
compliance.

Jon Akehurst, CFO

Our tax strategy is
available to view online.

We have an anti-bribery
and anti-corruption
policy which sets out our
zero-tolerance position
and provides information
and guidance to those
working for us and our
suppliers on how to
recognise and deal with
bribery and corruption
issues.

Confidentiality of
personal data is
important in ensuring
long-term trust, allowing
the business to serve its
customers effectively.

We see tax as a vital
part of our society,
paying tax is part of our
contribution. The money
we pay in tax goes back
into our communities;
allowing things such
as education, health
services and government
infrastructure to grow
and develop alongside us
as we grow as a business.

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The QCA Corporate Governance Code

Governance principles

Compliant

Explanation

Further reading

Maintain a dynamic management framework

Maintain the Board as a well-
functioning, balanced team led by
the Chair.

Ensure that between them the
Directors have the necessary
up-to-date experience, skills and
capabilities.

Evaluate Board performance based
on clear and relevant objectives,
seeking continuous improvement.

Promote a corporate culture that
is based on ethical values and
behaviours.

Maintain governance structures and
processes that are fit for purpose
and support good decision-making
by the Board.

Ensure the Audit Committee
obtains assurance on effective risk
management and related controls.

Ensure Director skillsets are kept
up to date.

Our Board works well together as a team
exploiting the deep experience of strategy, retail,
international and financial matters. Meetings
are characterised by lively debate and active
idea generation and management are rigorously
challenged and held to account.

Our Directors and details of their
individual roles, backgrounds and
experience are provided on pages 56
and 57.

We assess the adequacy of the Board’s collective
skills and experience as part of the annual
Board effectiveness review. Directors’ individual
development needs are discussed annually with
the Chair.

Further information about how
Directors keep their knowledge and
skills up-to-date is provided on page
64.

An annual Board review is undertaken to
consider the Board’s effectiveness, track
improvements since the previous year and plan
additional actions.

The criteria assessed as part of the
Board evaluation and the outcomes
of that process are summarised on
page 64.

The Hotel Chocolat values of authenticity,
originality and ethics have always underpinned,
and are evident in, everything we do. Examples
include our Gentle Farming Programme, Engaged
Ethics Programme, sustainability commitments,
workforce engagement and community activities.

Our governance structures are underpinned by
the matters which the Board reserves to itself.
A scheme of delegation, including established
committees, an annual agenda plan, regular
business deep-dives and good information flows
all contribute to the Board making well-informed
and properly debated decisions.

The Audit Committee reviews the risk register
and liaises with the Board, management and
the Group’s auditor to devise a programme of
assurance, including the scheduling of key matters
for ‘deep-dive’ reviews by the Board.

Our sustainability report on pages 28
to 48 illustrates some of the ways in
which our corporate culture positively
influences what we do.

More detailed information about
our governance structures and
processes can be found in our
corporate governance statement on
pages 60 to 65 and the reports of
the Audit Committee, Remuneration
Committee and Nomination
Committee on pages 72 to 81.

See the Audit Committee report on
page 72.

Directors are expected to undertake necessary
personal development and appropriate external
network, with additional support and input from
the Company Secretary and Nomad.

See Director biographies on pages
56 and 57 and corporate governance
statement on pages 60 to 65.

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Audit Committee Report

Sophie Tomkins

Formal committee meetings held

Members and attendance

Sophie Tomkins (Chair)

Greg Hodder

Stephen Alexander1

Andrew Gerrie2

1 Stephen Alexander was appointed to Audit Committee

on 22 June 2023

2 Five meetings of the Committee were held in the period
prior to Andrew Gerrie’s resignation from the Board

The Audit Committee is responsible for ensuring
that the financial performance of the Group
is properly reported and reviewed. Its role
includes monitoring the integrity of the financial
statements (including annual and interim accounts
and results announcements), reviewing internal
control and risk management systems, reviewing
any changes to accounting policies, reviewing and
monitoring the extent of the non-audit services
undertaken by external auditors and advising on
the appointment of external auditors.

The Board is satisfied that I, as Chair of the
committee, have recent and relevant financial
experience. I am a Chartered Accountant and
Chair of the Audit Committees at System1
Group plc, and Virgin Wines UK plc. A
Chartered Governance Professional from Indigo
Independent Governance acts as Secretary
to the committee. I report the committee’s
deliberations at the next Board meeting and the
minutes of each meeting are made available to all
members of the Board.

Members of the Audit
Committee
The committee consists of three independent
Non-executive Directors: myself, Sophie Tomkins
(as Chair), Greg Hodder and Board Chair,
Stephen Alexander. Our former Board Chair,
Andrew Gerrie, was also a member of the
committee until his resignation from the Board in
May 2023. Jon Akehurst, Chief Financial Officer,
and other Executive Directors may attend
committee meetings by invitation. The committee
formally met six times in the period.

Duties
The main duties of the Audit Committee are set
out in its terms of reference, which are available
on the Group’s website (www.hotelchocolat.
com). The main items of business considered by
the Audit Committee during the year included:

• review of the FY23 audit plan and audit

engagement letter;

• consideration of key audit matters and how

they are addressed;

• review of suitability of the external auditor;

• audit partner rotation;

• review of the financial statements, interim and

Annual Report;

On behalf of the Board, I am pleased to
present the Audit Committee report
for the period ended 2 July 2023.

• consideration of the external audit report and

management representation letter;

• going concern review;

• review of the risk management and internal

control systems;

• review of the need for an internal audit

function;

• meeting with the external auditor without

management present; and

• review of whistleblowing and anti-bribery

arrangements.

Auditor objectivity,
independence, and performance
FY23 is the second reporting year for our
relatively newly appointed Auditor, RSM. The
Audit Committee monitors the relationship with
the external auditor, RSM, to ensure that auditor
independence and objectivity are maintained. As
part of its review, the committee monitors the
provision of non-audit services by the external
auditor. The breakdown of fees between audit
and non-audit services is provided in Note 8 of
the Group’s financial statements. There were no
significant non-audit services provided by RSM
during the year.

The external auditors are required to rotate audit
partners responsible for the Group audit every
five years and the current lead audit partner,
Catherine Hackney, was appointed in 2022, on
appointment of RSM.

The Audit Committee also assesses the auditor’s
performance. During the year, the committee
reviewed performance and met with the external
auditors, RSM, regularly, without management
present. The committee has adopted a broad
framework to review the effectiveness of the
Group’s external audit process and audit quality
which includes: assessment of the audit partner
and team with particular focus on the lead audit
engagement partner; planning and scope of the
audit, with identification of particular areas of
audit risk; the planned approach and execution
of the audit; management of an effective audit
process; communications by the auditors with the
committee; how the audit contributes insights
and adds value; a review of independence and
objectivity of the audit firm; and the quality of the
formal audit report to shareholders.

Having reviewed the auditor’s independence and
performance, the Audit Committee recommends
that RSM be re-appointed as the Group’s auditor
at the next AGM.

Areas of key significance in the
preparation of the financial
statements
Prior to publication of this Annual Report
and Accounts, the committee reviewed the
accounting policies and significant judgements and
estimates underpinning the financial statements
as disclosed in notes to the consolidated financial
statements.

Significant focus is placed on key accounting
judgements and estimates, which underpin the
financial statements, namely:

• Going concern;

• Impairment of the St Lucia estate;

• Valuation of inventory;

• Japan Joint Venture;

• Equity investment;

• Impairment of investments and property;

• Accounting for leases and right of use

assets; and

• Treatment of exceptional items.

Detail on how going concern and the impairment
of the St Lucia estate were addressed are
contained in RSM’s formal audit report.

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Audit Committee Report continued

Whistleblowing
The Group has in place a whistleblowing policy
which sets out the formal process by which
an employee of the Group may, in confidence,
speak up about concerns about possible
improprieties in financial reporting or other
matters. Whistleblowing is a regular item on
the committee’s agenda. The committee is
comfortable that the current policy is operating
effectively.

Anti-bribery
The Group has in place an anti-bribery and
anti-corruption policy which sets out its zero
tolerance position and provides information and
guidance to those working for the Group and
its suppliers on how to recognise and deal with
bribery and corruption issues. The committee
is comfortable that the current policy is
operating effectively.

Sophie Tomkins
Chair of the Audit Committee

This is the first year that the Group has reported
enhanced climate-related financial disclosures
voluntarily under the TCFD framework, detailed
in pages 34 to 38. This represents a significant
step change in reporting, and the Group
welcomes feedback from stakeholders as this
continues to evolve.

There was significant work in the prior year on
the treatment of the Japan Minority Interest
under the detailed provisions of IFRS 9 and
IFRS 10. The structure of operations in Japan
has changed significantly year-on-year and the
involvement of HC Group is now materially
lower, but given the complexity of these
standards, it has remained an ongoing focus of
the audit to ensure that the evolving relationship
has been correctly reflected under IFRS.

Internal audit
At present, the Group does not have an internal
audit function and the Committee believes that
management is able to derive assurance as to the
adequacy and effectiveness of internal controls
and risk management procedures without one.
However, the Audit Committee continues to
assess this.

Risk management and
internal controls
As described on pages 60 to 68 of the
Corporate Governance statement, the Group
has established a framework of risk management
and internal control systems, policies and
procedures. The Audit Committee is responsible
for reviewing the risk management and internal
control framework and ensuring that it operates
effectively. The committee supports the Board
in its overall responsibility for risk management
activities and implementing policies to ensure that
all risks are evaluated, measured and kept under
review by way of appropriate KPIs. An external
assessment of risks and the effectiveness of
associated controls is planned in FY24 following
the implementation of the Group's 'shape of
the future' strategy. Presentations from senior
management across the business are provided
to the Board to further develop information,
understanding and debate on risks.

2022 saw a significant change in the Group’s
risk assessments as a result of fast changing
macro-economic factors combined with the
resourcing requirements of numerous expansion
opportunities, principally overseas. The resulting
strategic change involved a significant refocus on
the Group’s core markets.

The Group will continue to improve and evolve
its risk management framework by developing
and embedding the necessary capabilities within
the organisation to support informed risk taking
by the business. Management, together with
the Board, periodically review and revise risk
appetites setting out risks that should be avoided
and those that can offer sustainable and positive
returns.

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Remuneration Committee Report

Greg Hodder

Formal committee meetings held

Members and attendance

Greg Hodder (Chair)

Sophie Tomkins

Stephen Alexander1

1 Stephen Alexander was appointed to Remuneration

Committee on 22 June 2023.

Remuneration strategy
As you will see elsewhere in this Annual Report
and Accounts, the Board of Hotel Chocolat is
pursuing a strategy to drive improved financial
profitability and deliver a great customer
experience. The people within our business are
key to successful delivery of these aspirations
and our remuneration strategy is designed to
incentivise colleagues right across the Group to
achieve the goals we have set for ourselves.

Our pay and reward arrangements, both at
Executive level and throughout the organisation,
are overseen by the Remuneration Committee.
This report describes the operations of the
committee and the policies it has adopted as well
as specific Directors’ remuneration arrangements.

Composition and role
The Remuneration Committee’s members are
Greg Hodder (as Chair), Sophie Tomkins and
Stephen Alexander. The committee operates
under agreed terms of reference and is
responsible for reviewing all Senior Executive
appointments and determining the Group’s
policy in respect of their terms of employment,
including remuneration packages of Executive
Directors. The Remuneration Committee met
8 times during the period and plans to meet at
least twice a year going forward.

I am pleased to present this remuneration
report, which sets out the remuneration
policy and the remuneration paid to the
Directors for the period.

Non-executive Directors
The Non-executive Directors signed letters of
appointment with the Group for the provision of
Non-executive Directors’ services, which may be
terminated by either party giving three months’
written notice. The Non-executive Directors’
fees are determined by the Board.

Remuneration policy
The objective of the Group’s remuneration
policy is to attract, motivate and retain high
quality individuals who will contribute fully to the
success of the Group. To achieve this objective,
the Group provides competitive salaries and
benefits to all employees. Executive Directors’
remuneration is set to create an appropriate
balance between both fixed and performance-
related elements. Remuneration is reviewed each
year in light of the Group’s business objectives.
It is the Remuneration Committee’s intention
that remuneration should reward achievement
of objectives and that these are aligned with
shareholders’ interests over the medium term.

Remuneration can consist of the following
elements:

• basic salary;

• performance related Annual Incentive, based
on achieving financial and sustainability targets;

• Long-Term Incentive Plans; and

• pension contribution.

Executive Directors’ service
contracts
The Executive Directors signed new service
contracts with the Group on admission to AIM
in May 2016. These are not of fixed duration.
Angus Thirlwell and Peter Harris’s contracts are
terminable by either party giving 12 months’
written notice. Jon Akehurst’s contract is
terminable by either party giving six months'
written notice.

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Remuneration Committee Report continued

Directors’ remuneration
The following table summarises the total gross remuneration of the Directors who served during the period to 2 July 2023.

Executive

Angus Thirlwell

Peter Harris

Jon Akehurst1

Matt Pritchard2

Non-executive

Stephen Alexander3

Andrew Gerrie4

Sophie Tomkins

Greg Hodder

FY23

Bonus

Benefits

Pension

Total

Basic
salary/fee
£

320,000

228,000

–

35,517

124,000

143,497

15,641

41,667

40,000

47,282

–

1,132

2,006

–

387

–

16,000

11,400

–

17,500

–

337,132

241,406

159,517

161,384

15,641

41,667

40,000

47,282

FY22

Total

294,635

233,014

–

258,265

–

50,000

40,000

1 Jon Akehurst was appointed 15 May 2023.

2 Matt Pritchard resigned 31 January 2023. As part of his compensation for loss of office, Matt Pritchard received a contractual payment of £155,100 and the immediate vesting of 98,000

shares awarded from the 2021 LTIP with a value of £215,502 at the date of resignation.

3 Stephen Alexander was appointed 5 May 2023.

4 Andrew Gerrie resigned 4 May 2023.

The Executive remuneration policy for FY24 is set out in the table below:

FY24

Executive

Angus Thirlwell

Peter Harris

Jon Akehurst

Basic salary/fee
£

Maximum bonus
%

320,000

228,000

260,000

50%

40%

50%

Pension
£

16,000

11,400

13,000

FY23 Annual Incentive
Annual performance incentive schemes were reinstated for all employees for FY23. For Executives Directors and other senior employees, the Annual
Incentive Plan operated as follows:

• Achievement of FY23 budgeted profit margin acts as the gateway to ensure the plan self-funds. The statutory/reported profit margin target was not met

and therefore no payments will be made in respect of the FY23 incentive scheme.

The quantum paid was to be determined by annual sales growth (80% of award) and improvement in an ESG metric, namely the all-employee Engagement
Score (20% of award); however, no payment will be made because the profit margin gateway was not met.

FY24 Annual Incentive

For FY24, the Remuneration Committee has approved a guaranteed bonus for Jon Akehurst of £130,000. For other Executive Directors, any bonus payment
in respect of FY24 is subject to the business making continued progress towards delivering its strategically important Brand and Business Shapers. These
strategic drivers, which are more fully described on pages 16 to 17, are designed to deliver both sales growth and EBITDA margin improvements. No bonus,
other than the CFO’s guaranteed bonus, will be payable to the Executive Directors unless profit before tax for FY24 is aligned to, or in excess of, market
consensus. It is intended that, conditional upon Remuneration Committee approval, 50% of the forecast FY24 bonus will be paid in January 2024, subject to
appropriate malus and clawback arrangements. Any remaining balance due will be paid after the end of the financial year.

Long-Term Incentive Plan
Awards to Executive Directors were granted in 2021, which are underpinned by financial performance triggers.

Angus Thirlwell and Peter Harris, along with other senior management, have been granted options under the Group’s Long-Term Incentive Plan. The Group
also operates an all-employee Save As You Earn programme and, in addition, a new all-employee equity participation scheme (Founder Shares) in the form of
restricted stock options was launched during FY22, to foster a culture of employee ownership. Jon Akehurst is entitled to participate in the Group's Long-
Term Incentive Plan, at year end these options had not been granted.

• The 2021 LTIP will be tested at the end of FY24, FY25 and FY26. Vesting is triggered by ambitious share price growth targets, with the minimum threshold

at a share price of £4.72 with full vesting at a share price of £12.00.

LTIP vesting conditions are based on Enterprise Value (EV) increase

Share price

Percentage vesting

£3.55
As at grant

Nil

£4.72
Minimum threshold

20%

£8.00

56%

£12.00

>Treble EV full vesting

100%

• The 2021 LTIP grant extends to the 29 most senior employees in the Group, with the maximum dilution under full vesting of this LTIP award is 2.7%

dilution.

• Executive Directors will be subject to a minimum holding period of two years post-vesting.

• Vesting will be subject to a performance underpin, where the Remuneration Committee regards overall Company performance, and subject to achieving a

minimum sales CAGR of 10% from FY21 to each test date.

• No further LTIP grants will take place until these awards have vested, i.e. the single grant is intended to span multiple years, rather than be one of a series

of rolling annual grants.

• Malus and clawback will apply to all awards and incentives for two years post-vesting.

• Directors in receipt of vested LTIP awards are required to maintain a shareholding of 100% of salary.

Director

Date of grant

Performance condition

Angus Thirlwell

03.08.21

Peter Harris

03.08.21

FY24, FY25, FY26 Group
share price, subject to
performance underpin

1 Anticipated first test event, subject to satisfaction of performance underpin.

Number of
ordinary
shares
granted under
option

525,000

166,667

Value of
ordinary
shares under
option

Number
of shares
vested

Number
of shares
exercised
and date

Exercise
price

Exercise period

n/a

0.1p

n/a

0.1p

02.07.241–
03.08.31

If you have any comments or queries on anything contained within this Remuneration report, I will be available at the Annual General Meeting.

Greg Hodder
Chair of the Remuneration Committee

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Nomination Committee Report

Greg Hodder

Formal committee meetings held

Members and attendance

Stephen Alexander (Chair appointed
after period end)

Greg Hodder (past Chair and
current member)

Sophie Tomkins

Nomination strategy
The Nomination Committee was formed in FY23
in response to a priority identified through the
Board effectiveness review. Board composition
is key to the successful delivery of the Group’s
strategic objectives, culture and values and,
accordingly, the committee's remit focusses,
among other things, on Board membership as
well as Director succession planning.

This report describes the activities and
responsibilities of the committee.

Composition and role
During the period, the Nomination Committee’s
members were Greg Hodder (Chair), and Sophie
Tomkins. Although Greg Hodder remains a
member of the committee, since the last meeting
held during the period, Stephen Alexander has
been appointed as its Chair. The committee’s
terms of reference provide that its members
must be drawn solely from the Company’s Non-
executive Directors, a majority of whom must
be independent. Both Greg Hodder and Sophie
Tomkins, who served on the committee during
the period, are considered to be independent.

The committee operates under agreed terms of
reference and its remit includes reviewing the
Board to ensure that the size, composition and
collective skills of the Directors remain relevant
and appropriate, managing any Board recruitment
activity, leading Director succession planning
and making recommendations on proposals for
Directors to stand for re-election at the AGM.
The Nomination Committee met 6 times during
the period and plans to meet at least twice a year
going forward.

Nomination Committee
priorities
The overriding priority of the Nomination
Committee is to ensure that the Board consists
of Directors with the range of skills and qualities
to meet its principal responsibilities, in a way
which ensures the interests of stakeholders
are protected and promoted. en Alexander as

Chairman, non-executive director.

Specifically the Co

I am pleased to present this first
nomination report, which sets
out the Nomination Committee's
role, responsibilities and activities.

Specifically the committee's responsibilities

Activities in year

include:

• reviewing the composition of the Board and

its committees and making recommendations
to the Board with regard to changes that
are deemed necessary. Skills, knowledge,
experience and diversity are taken into account

• managing Board recruitment and appointment

activities

• overseeing succession planning for the Board,

ensuring skills and expertise align to the
current business model and strategy

• assessing feedback from the annual Board and
committee performance review insofar as it
relates to Board and committee balance, skills,

experience and diversity.

• Review of Board composition in light of the
changes to the Group's strategic priorities

• Appointment of search and selection advisers
to assist with the recruitment of a CFO and
Chair

• Identification of key skills to prioritise for the

new appointments

• Recommendation for the appointment of Jon

Akehurst as Chief Financial Officer

• Recommendation for the appointment of

Stephen Alexander as Non-executive Chair

If you have any comments or queries on anything
contained within this Nomination report, I will be
available at the Annual General Meeting.

Greg Hodder
Past Chair and current member of the
Nomination Committee

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Directors' Report

The Directors present their report together with
the audited financial statements for the period
ended 2 July 2023.

Directors
The Directors of the Group during the period were:

The corporate governance statement on pages
60 to 68 also forms part of this Directors’ report.

Review of business
The Chairman’s statement on page 8 and the
Strategic report on pages 6 to 53 provides a
review of the business, the Group’s trading
for the period ended 2 July 2023 and key
performance indicators.

Result and dividend
The Group has reported its Consolidated
Financial Statements in accordance with UK
international accounting standards in accordance
with the Companies Act 2006.

The Group’s results for the period are set out in
the Consolidated Statement of Comprehensive
Income on page 94. The Company financial
statements have been prepared under FRS 102
for the period ended 2 July 2023.

The Group’s revenue of £204.5m (FY22:
£226.1m), gross margin of 58.3% (FY22: 56.1%)
and loss after tax of £6.6m (FY22: £9.4m) reflect
the impacts of the over-leveraged position of
the Group as it entered FY23, which led to the
revised strategy.

Period ended

02 July 2023

26 June 2022

Reported IFRS

Revenue (£m)

Gross margin %

Loss after tax
(£m)

204.5

58.3

6.6

226.1

56.1

9.4

The Board is not recommending a final dividend
(FY22: nil).

Executive

Angus Thirlwell

Peter Harris

Non-executive

Andrew Gerrie Resigned 04 May 2023

Sophie Tomkins

Matt Pritchard Resigned 31 January 2023

Greg Hodder

Jon Akehurst Appointed 15 May 2023

Stephen Alexander Appointed 05 May 2023

The Directors' biographical details, are provided on pages 56 and 57.

Directors’ interests
No Director has any beneficial interest in the
share capital of any subsidiary undertaking.

Existence of branches
The Group has one branch outside the United
Kingdom, located in the Republic of Ireland.

The Group also purchased and maintained
throughout the financial period Directors’ and
Officers’ liability insurance in respect of itself and
its Directors.

Political donations
The Group made no political donations in the
financial period (FY22: nil).

Disclosure of information
to auditor
As far as the Directors are aware, there is no
relevant audit information (that is, information
needed by the Group’s auditor in connection
with preparing their report) of which the Group’s
auditor is unaware; and each Director has taken
all reasonable steps that he or she ought to have
taken as a Director in order to make himself or
herself aware of any relevant audit information
and to establish that the Group’s auditor is aware
of that information.

Financial instruments
The financial risk management objectives of the
Group, including credit risk, interest rate risk
and foreign exchange risk, are provided in Note
37 to the Consolidated Financial Statements on
page 132.

Share capital structure
At 02 July 2023, the Company’s issued share
capital was £137,538 divided into 137,537,673
ordinary shares of 0.1p each. The holders of
ordinary shares are entitled to one vote per share
at the General Meetings of the Company.

Substantial shareholders
At 30 June 2023, the Company had been
notified of the following substantial shareholders
comprising of 3% or more of the issued ordinary
share capital:

Angus Thirlwell

Peter Harris

Phoenix Asset Management
Partners

Columbia Threadneedle
Investments

% of issued
share capital

27.1%

15.4%

4.6%

Share option schemes
Details of employee share schemes are set
out in Note 11 to the Consolidated Financial
Statements.

The Group won’t make assumptions about a
person’s ability to carry out their work, for
example based on their ethnic origin, gender,
sexual orientation, marital status, religion or
other philosophical beliefs, age or disability.
Likewise, it won’t make general assumptions
about capabilities, characteristics and interests
of particular groups that may influence the
treatment of individuals, the assessment of their
abilities and their access to opportunities for
training, development and promotion.

Auditor
RSM UK Audit LLP has expressed its willingness
to continue in office as auditor and a resolution
to reappoint them will be proposed at the
forthcoming Annual General Meeting.

Annual General Meeting
The Annual General Meeting will be held on
23 November 2023. The ordinary business
comprises receipt of the Directors’ report and
audited financial statements for the period ended
2 July 2023, the re-election of Directors, the
reappointment of RSM UK Audit LLP as auditor
and authorisation of the Directors to determine
the auditor’s remuneration, and to authorise the
Directors to allot new shares. Special resolutions
are also proposed to authorise the Directors,
to a limited extent consistent with Pre-Emption
Group guidelines, to disapply statutory pre-
emption rights, and to make market purchases
of the Company’s shares. The Notice of Annual
General Meeting sets out the ordinary and special
resolutions to be put to the meeting.

Approval
This Directors’ report was approved on behalf of
the Board on 11 October 2023.

Jon Akehurst
Chief Financial Officer

Purchase of own shares
There was no purchase of own shares in the
current or prior period.

Going concern
After making enquiries, the Directors have a
reasonable expectation that the Group and
company have adequate resources to continue
in operational existence for the foreseeable
future. For this reason, they continue to adopt
the going concern basis in preparing the financial
statements. Further detail on going concern is on
page 99.

Post-balance sheet events
In July 2023, the Group reentered the US market
with our Velvetiser-led digital sales channel.

On 29 September 2023, the Group signed a
new £50m Revolving Credit Facility. This facility
replaces the existing RCF and runs to July 2025.
See Note 38 on page 135.

Future developments

The Board intends to continue to pursue the
business strategy as outlined in the Strategic
report on pages 6 to 53.

Stakeholder involvement
policies and employee
engagement policies
The Directors believe that the involvement
of employees, customers and suppliers is an
important part of the business culture and
contributes to the successes achieved to date
(view our Sustainability report on pages 30 to 48
and s172 statement on pages 50 to 53, including
how the Board has considered stakeholders in
their decision making during FY23).

Climate-Related Financial
Disclosures
Our climate-related financial disclosures can be
found as part of our voluntary TCFD disclosures
on page 35.

SECR
Our Streamlined Energy & Carbon Reporting
(SECR) framework can be found on page 40.

Equal opportunities
The Group is committed to eliminating
discrimination and encouraging diversity. Its aim
is that its people will be truly representative of
all sections of society and that each person feels
respected and is able to perform to the best of
their ability. The Group aims for its people to
reflect the business's diverse customer base.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Statement of Directors’ Responsibilities

The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the Group and Company’s
transactions, and disclose with reasonable
accuracy, at any time, the financial position of the
Group and Company and enable them to ensure
that the financial statements comply with the
requirements of the Companies Act 2006. They
are also responsible for safeguarding the assets of
the Group and Company and hence, for taking
reasonable steps for the prevention and detection
of fraud and other irregularities.

Website publication
The Directors are responsible for ensuring the
Annual Report and the financial statements are
made available on a website (www.hotelchocolat.
com/uk/investor-relations.html). Financial
statements are published on the Group’s
website in accordance with legislation in the
United Kingdom governing the preparation and
dissemination of financial statements, which
may vary from legislation in other jurisdictions.
The maintenance and integrity of the Group’s
website is the responsibility of the Directors.
The Directors’ responsibility also extends to
the ongoing integrity of the financial statements
contained therein.

Approval
This Directors’ report was approved on behalf of
the Board on 11 October 2023.

Jon Akehurst
Chief Financial Officer

The Directors are responsible for preparing the
Strategic report, the Directors’ report and the
financial statements in accordance with applicable
law and regulations.

Company law requires the Directors to prepare
Group and Company financial statements for
each financial year. The Directors have elected
under company law and are required by the AIM
Rules of the London Stock Exchange to prepare
Group financial statements in accordance with
UK-adopted International Accounting Standards
and have elected under Company Law to prepare
the Company financial statements in accordance
with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting
Standards and applicable law).

The Group financial statements are required by
law and UK-adopted International Accounting
Standards to present fairly the financial position
and performance of the Group. The Companies
Act 2006 provides, in relation to such financial
statements, that references in the relevant part of
that Act to financial statements giving a true and
fair view are references to their achieving a fair
presentation.

Under Company Law, the Directors must not
approve the financial statements unless they are
satisfied that they give a true and fair view of the
state of affairs of the Group and the Company,
and of the profit or loss of the Group for that
period.

In preparing these financial statements, the
Directors are required to:

• select suitable accounting policies and then

apply them consistently;

• make judgements and accounting estimates

that are reasonable and prudent;

• for the Group financial statements, state
whether they have been prepared in
accordance with UK-adopted International
Accounting Standards;

• for the Company financial statements, state
whether applicable UK accounting standards
have been followed, subject to any material
departures disclosed and explained in the
Company financial statements; and

• prepare the financial statements on a going
concern basis unless it is inappropriate to
presume that the Group will continue in
business.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Financials

Independent Auditor’s Report
Consolidated Statement
of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flow
Consolidated Statement of Changes in Equity
Notes to the Financial Statements
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Company information

94
95
96
97
98
137
138
139
142

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Independent Auditor's Report
to the members of Hotel Chocolat Group plc

Opinion
We have audited the financial statements of Hotel Chocolat Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the period ended 2 July
2023 which comprise the Consolidated Statement of Comprehensive Income, Consolidated and Company Statements of Financial Position, Consolidated
Statement of Cash Flow, Consolidated and Company Statements of Changes in Equity and Notes to the financial statements, including significant accounting
policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and UK-adopted
International Accounting Standards. The financial reporting framework that has been applied in the preparation of the parent company financial statements is
applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK
and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).

In our opinion:

• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 2 July 2023 and of the group’s loss for

the period then ended;

• the group financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards;

• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the
group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our opinion is consistent with our reporting to the Audit Committee.

Summary of our audit approach

Key audit matters

Group

• Going concern

• Impairment of St Lucia Estate

Materiality

Group

• Overall materiality: £492,000 (2022: £1,000,000)

• Performance materiality: £295,000 (2022: £651,000)

Parent Company

• Overall materiality: £490,000 (2022: £782,000)

• Performance materiality: £294,000 (2022: £508,000)

Scope

Our audit procedures covered 100% (2002: 98%) of revenue, 98% (2002: 100%) of net assets and 99% (2022: 96%) of
results before tax.

Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the
greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the group financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.

Going concern

Key audit matter
description

How the matter was
addressed in the audit

The Group has recorded a loss for the period of £6.2m (2022: £9.4m). The macro-economic conditions within the retail
sector and the economy as a whole remain challenging and in response the Group has sought to implement several
operational and cost saving measures during the period, with the expectation that these changes will fully deliver in future
periods. Significant judgements are always required around the assumptions underpinning future cashflow projections.
These judgements are heightened in the current retail environment, given the uncertainties surrounding the impact of
cost of living pressures, and forecast drop in consumer confidence and suppression in disposable incomes. In addition,
post period-end, the Group has extended its financing arrangements beyond those in place at the period end through to
July 2025. These factors give rise to uncertainty which poses forecasting challenges for most businesses and in particular
retailers.

The Directors have concluded that the Group has sufficient resources available to meet its liabilities as and when they
fall due and that therefore there are no material uncertainties that cast significant doubt on the Group’s ability to
continue as a going concern. In undertaking their assessment of going concern, the Directors have reviewed forecast
future performance and anticipated cashflows for the Group. These forecasts have also been applied to management’s
impairment tests on property related assets as set out in the key audit matter below. The Directors have applied several
downside sensitivities to their forecasts, including a reverse stress test of the Group’s ability to meet its covenants. Their
assessment has considered cashflow forecasts and financing and covenants in place for the period to 31 December 2024.

The Group’s existing Revolving Credit Facility was due to expire in July 2024, and its extension to July 2025 has been
agreed upon with the lenders post period-end and was executed on 29 September 2023. The headline covenants remain
unchanged. As a part of the extension process, the lenders reviewed their securitisation coverage and concluded the St
Lucian entities of the group should accede to become obligors. This process must be completed within 60 days of the
execution date.

As set out in accounting policy 2, the Directors have assessed the likelihood of completion of these terms within the
required 60 day period through consultation with external legal counsel and their lenders. We have identified a key audit
matter related to going concern as a result of the judgement required in undertaking a going concern assessment in the
current uncertain trading environment, the adequacy and accuracy of disclosures and the conclusion that there is not a
material uncertainty related to going concern.

Our procedures included:

• Understanding management’s going concern models, discussing key assumptions with management, such as forecast
cost mitigations and revenue decreases, and assessing whether those assumptions were plausible and consistent with
those applied elsewhere including management’s impairment testing.

• Testing the mathematical accuracy of management’s cashflow models and agreeing opening balances to 2 July 2023

actual figures.

• Testing management’s forecast covenant compliance calculations to determine whether there is a risk of breach

and assessing whether the assumptions in management’s base and sensitised models appear realistic, achievable and
consistent with other internal and external evidence.

• Comparing forecast sales with recent historical information to consider the accuracy of forecasting and evaluated post

period-end sales patterns to determine whether they are consistent with those assumed in the base model.

• Comparing actual post period end cash balances against those forecast and evaluated the reasons for differences.

• Testing management’s sensitivity analysis and reverse stress test and performing our own analysis to assess whether the

scenarios take account of reasonably possible outcomes that could arise from the risks identified.

• Testing whether the feasibility of mitigating actions available to management, should these be required, if the forecast

performance is not achieved.

• Reviewing agreements and correspondence relating to the availability of financing arrangements including reviewing the

revised RCF.

• Understanding the complexity of the RCF accession process for the St Lucian entities and challenging the feasibility of

completion within the required 60 day timeline.

• Assessing the adequacy of going concern related disclosures in Note 2 to the financial statements, including the degree

of sensitivity to changes in assumptions.

Key observations

From the work performed above and our review of the going concern disclosures within the accounting policies Note 2,
we consider the disclosures made by the Directors to be appropriate and reasonable.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Independent Auditor's Report
to the members of Hotel Chocolat Group plc continued

Impairment of St Lucia Estate

Key audit matter
description

Against the backdrop of slower than expected recovery of tourism post COVID, management identified that there were
indications of impairment in relation to the St Lucia Estate. As required by IAS36 (Impairment of Assets) the Group has
performed an impairment review of the Estate. As a result of this review, an impairment of £3.5m has been recognised in
these financial statements.

How the matter was
addressed in the audit

As described in Notes 2 and 3 to the financial statements the impairment review involves management judgements and
estimates in relation to the value of the Estate (being the net present value of forecast related cashflows, in lieu of being
able to obtain a reliable estimate of fair value less costs to sell). The values are then compared to the book value of the
related assets to determine whether impairment is required. In making this assessment management determined there to
be two cash generating units (CGU’s), being the Hotel & Spa and tourist attraction.

The value in use calculations involve significant assumptions regarding future cashflows, the long-term growth rate in
like for like sales, an assessment of expected visitor numbers, pressure on margins and determination of an appropriate
discount rate. Accordingly, we determined that the valuation of the Estate had a high degree of estimation uncertainty.
Due to the factors explained above we have identified impairment of the St Lucia Estate as a key audit matter.

Following the impairment of the St Lucia Estate, a further impairment of £0.7m was recorded against the investment in St
Lucia within the parent company entity financial statements. This has resulted in this investment being fully impaired to nil.

Our work included, but was not limited to:

• Obtaining an understanding of how management performed their impairment testing of the St Lucia estate and

their approach to valuation. We critically assessed the methodology applied by management with reference to the
requirements of IAS 36 and tested the integrity of the value in use calculations and the calculated impairments by CGU.
In particular we challenged the significant assumptions within management’s models through:

– Evaluating management’s assumptions through consideration of historical and current trading performance and

external data points;

– Sensitising the assumptions in management’s impairment models and reviewing the financial statement disclosures

documenting assumptions and the impacts of applied sensitivities; and

– Testing the reconciliation between the cashflows used in the value in use calculations with those used to assess going

concern to ensure they were consistent.

• Performing sensitivity analysis of the discount rates and growth rates used in the forecast performance and the impact

on the discounted cash flow calculation to assess the margin for error in forecasting.

• Challenging growth assumptions utilised within the impairment models.

• Engaging valuations specialists to perform an independent assessment of the discount rate assumption determined by

management and benchmark the discount rate against comparable market data.

• Assessing the adequacy of disclosures in respect of the impairment and key judgements and estimates utilised.

Key observations

Following management’s reassessment as a result of our challenge, we found the judgements made by management and
their approach to the calculation of impairments recorded, together with the associated disclosures, to be reasonable.

Changes to key audit matters
In the prior year we reported key audit matters in respect of the assessment of control in Hotel Chocolat KK and accounting for loans and financial
guarantees given to the entity. Following the entry into Civil Rehabilitation programme during the financial year Hotel Chocolat KK is no longer a joint venture
and loans have been written off and guarantees paid during the financial period. We therefore no longer consider these to be key audit matters.

Our application of materiality
When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures.
When evaluating whether the effects of misstatements, both individually and on the financial statements as a whole, could reasonably influence the economic
decisions of the users we take into account the qualitative nature and the size of the misstatements. Based on our professional judgement, we determined
materiality as follows:

Group

Parent company

Overall materiality

£492,000 (2022: £1,000,000)

£490,000 (2022: £782,000)

Basis for determining
overall materiality

5% of the three year average of results before tax,
adjusted for exceptional items

1% of net assets (capped at group overall materiality)*

Rationale for benchmark
applied

The Group uses adjusted results before tax in its
communications with its shareholders, we have
determined this to be the most appropriate benchmark
as it provides a more stable measure year on year than
Group results before tax in a single year, due to the
volatility caused by external factors over the past
three years.

The parent company does not trade and therefore
net assets is considered to be the most appropriate
benchmark.

Performance materiality

£295,000 (2022: £651,000)

£294,000 (2022: £308,000)

Basis for determining
performance materiality

Reporting of
misstatements to the
Audit Committee

60% (2022: 65%) of overall materiality

Misstatements in excess of £25,000 and misstatements
below that threshold that, in our view, warranted
reporting on qualitative grounds.

Misstatements in excess of £39,000 and misstatements
below that threshold that, in our view, warranted
reporting on qualitative grounds.

An overview of the scope of our audit
The Group consists of 5 trading entities, the most significant of which are based in and operate from the United Kingdom, but there are also entities located
in the USA and St Lucia.

The coverage achieved by our audit procedures was:

Full scope audit

Targeted audit procedures

Total

Number of
components

Revenue

Net assets

Result before tax

97%

100%

91%

98%

93%

99%

For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality
allocated across components was £351,000 to £386,000. Certain components were audited to a local statutory audit materiality that was also less than our
overall group materiality.

In addition to performing work at a component level our audit procedures included testing of the consolidation and areas of significant judgement, including
impairment of assets and accounting for right of use assets and lease liabilities. All full scope and targeted audit procedures were performed by the group
engagement team.

Analytical procedures at group level were performed for the rest of the components.

The parent company, Hotel Chocolat Group PLC was subject to a full scope audit for Parent Company financial statements only.

Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is appropriate. For an explanation of how we evaluated the directors’ assessment of the group’s and parent company’s ability to continue to adopt
the going concern basis of accounting included and our key observations arising in respect to that evaluation, please see the going concern key audit matter.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may
cast significant doubt on the group’s or the parent company’s ability to continue as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Independent Auditor's Report
to the members of Hotel Chocolat Group plc continued

The impact of climate change on the audit
As part of our audit, we made enquiries of management to understand the Group’s progress on their ESG Strategy, and the extent of the potential impact of
climate risk on the group’s and company’s financial statements, and we remained alert when performing our audit procedures for any indicators of the impact
of climate risk. Our procedures did not identify any material impact as a result of climate risk on the group’s and company’s financial statements.

Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The
directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:

• the information given in the Strategic Report and the Directors’ Report for the financial period for which the financial statements are prepared is consistent

with the financial statements; and

• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not
identified material misstatements in the Strategic Report or the Directors’ Report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not

visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 84, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.

The extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities are instances of non-compliance with laws and regulations. The objectives of our audit are to obtain sufficient appropriate audit evidence
regarding compliance with laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements,
to perform audit procedures to help identify instances of non-compliance with other laws and regulations that may have a material effect on the financial
statements, and to respond appropriately to identified or suspected non-compliance with laws and regulations identified during the audit.

In relation to fraud, the objectives of our audit are to identify and assess the risk of material misstatement of the financial statements due to fraud, to obtain
sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud through designing and implementing appropriate
responses and to respond appropriately to fraud or suspected fraud identified during the audit.

However, it is the primary responsibility of management, with the oversight of those charged with governance, to ensure that the entity’s operations are
conducted in accordance with the provisions of laws and regulations and for the prevention and detection of fraud.

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud, the group audit engagement team:

• obtained an understanding of the nature of the industry and sector, including the legal and regulatory frameworks that the group and parent company

operate in and how the group and parent company are complying with the legal and regulatory frameworks;

• inquired of management, and those charged with governance, about their own identification and assessment of the risks of irregularities, including any

known actual, suspected or alleged instances of fraud;

• discussed matters about non-compliance with laws and regulations and how fraud might occur including assessment of how and where the financial

statements may be susceptible to fraud.

The most significant laws and regulations were determined as follows:

Legislation/Regulation

Additional audit procedures performed by the Group audit engagement team included:

UK-adopted IAS, FRS102 and
Companies Act 2006

Review of the financial statement disclosures and testing to supporting documentation; and

Completion of disclosure checklists to identify areas of non-compliance.

Tax compliance regulations

Inspection of advice received from internal / external tax advisors;

Food Safety

Input from a tax specialist was obtained regarding the audit of the consolidated tax disclosure; and

Consideration of whether any matter identified during the audit required reporting to an appropriate authority
outside the entity.

ISAs limit the required audit procedures to identify non-compliance with these laws and regulations to inquiry of
management and where appropriate, those charged with governance (as noted above) and inspection of legal and
regulatory correspondence, if any.

The areas that we identified as being susceptible to material misstatement due to fraud were:

Risk

Audit procedures performed by the audit engagement team:

Revenue recognition

Testing recognition of sales on a sample basis pre and post period end to dispatch of stock;

Management override
of controls

Testing key wholesale contracts for rebate agreement and application of them at the period end; and

Review of journals for appropriateness using financial data analytics software.

Testing the appropriateness of journal entries and other adjustments;

Assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and

Evaluating the business rationale of any significant transactions that are unusual or outside the normal course of
business.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.
org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as
a body, for our audit work, for this report, or for the opinions we have formed.

CATHERINE HACKNEY (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor

Chartered Accountants
25 Farringdon Street,
London,
EC4A 4AB

11 October 2023

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income
For the period ended 02 July 2023

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

Notes

Revenue

Cost of sales

Cost of sales – exceptional

Gross profit

Other income

Operating expenses

Operating expenses – exceptional

Impairment of financial assets – exceptional

Operating loss

Finance income

Finance costs

Share of joint venture post-tax results

Loss before tax

Tax credit/(expense)

Loss for the period

Other comprehensive (expense)/income:

Items that may be reclassified to the income statement in subsequent years

Fair value movement on cash flow hedges

Ineffectiveness in cash flow hedges transferred to the income statement

Deferred tax credit/(charge) on derivative financial instruments

Currency translation differences arising from consolidation

Currency movement on net investment

Deferred tax charge on net investment currency movement

Forex reclassified to inventory/cost of sales

Other comprehensive (expense)/income, net of tax

Total comprehensive expense for the period

204,500

(85,298)

–

119,202

319

226,133

(93,810)

(5,501)

126,822

–

(117,586)

(110,140)

(5,948)

–

(4,013)

494

(3,153)

(261)

(6,933)

702

(6,231)

481

(355)

197

(9)

237

(59)

(815)

(323)

(6,554)

(11,849)

(11,429)

(6,596)

1,035

(1,910)

(1,248)

(8,719)

(720)

(9,439)

1,451

–

(385)

(355)

1,297

(324)

1,780

(7,659)

(6.9p)

Earnings per share – Basic and diluted

(4.5p)

Consolidated Statement of Financial Position
As at 02 July 2023

ASSETS

Non-current assets

Intangible assets

Property, plant and equipment

Right of use assets

Equity investments

Investments in Joint Venture (JV)

Current assets

Derivative financial assets

Inventories

Trade and other receivables

Corporation tax receivable

Cash and cash equivalents

Total assets

LIABILITIES

Current liabilities

Trade and other payables

Lease liabilities

Other financial liabilities

Derivative financial liabilities

Provisions

Non-current liabilities

Lease liabilities

Deferred tax liability

Derivative financial liabilities

Provisions

Total liabilities

NET ASSETS

EQUITY

Share capital

Share premium

Retained earnings

Translation reserve

Merger reserve

Capital redemption reserve

Other reserves

Total equity attributable to shareholders

As at
02 July 2023
£000

As at
26 June 2022
£000

Notes

1,292

65,612

45,066

125

–

1,818

68,579

51,560

–

112,095

121,957

35,040

12,945

2,354

11,196

61,535
173,630

(28,787)

(10,622)

–

(115)

(23)

668

43,062

17,541

3,264

17,569

82,104
204,061

(39,441)

(10,390)

(6,660)

(48)

(907)

(39,547)

(57,446)

(37,339)

(408)

(17)

(2,840)

(40,604)
(80,151)

93,479

138

78,193

10,566

390

223

3,963

93,479

(44,145)

(1,130)

(38)

(2,919)

(48,232)
(105,678)

98,383

137

78,014

13,499

399

223

6,105

98,383

The financial statements of Hotel Chocolat Group plc, registered number 08612206, were approved by the Board of Directors and authorised for issue on
11 October 2023. They were signed on its behalf by:

Jon Akehurst
Chief Financial Officer

11 October 2023

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Consolidated Statement of Cash Flow
For the period ended 02 July 2023

Loss before tax for the period

Adjusted by:

Exceptional items

Share of JV loss

Other income from JV

Depreciation of property, plant and equipment

Depreciation of right of use assets

Amortisation of intangible assets, net of impairment release

Reversal of amortisation (SaaS)

Gain on lease modification

Net interest expense

Share-based payments

Loss on disposal of non-current assets

Operating cash flows before movements in working capital

Decrease/(increase) in trade and other receivables

Decrease/(increase) in inventories

Decrease in trade and other payables and provisions

Cash inflows generated from operations

Interest received

Corporation tax received/(paid)

Income received from JV

Interest paid

Cash flows from operating activities

Purchase of property, plant and equipment

Purchase of intangible assets

Proceeds from sale of fixed assets

Loan to joint venture

Acquisition of equity investment

Cash flows used in investing activities

Issue of ordinary shares

Costs associated to issue of ordinary shares

Utilisation of revolving credit facility

Repayment of revolving credit facility

Lease payments

Cash flows (used in)/from financing activities

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Foreign currency movements

Cash and cash equivalents at end of period

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

Notes

(6,933)

(8,719)

4,315

261

(109)

8,776

11,040

597

–

(4)

2,659

1,525

193

22,320

5,096

7,678

(18,003)

17,091

444

1,003

109

(3,320)

15,327

(9,754)

(497)

132

(500)

(125)

(10,744)

180

–

34,000

(34,000)

(11,073)

(10,893)

(6,310)

17,569

(63)

11,196

28,779

1,248

–

6,506

9,545

565

(557)

162

875

621

516

39,541

(3,286)

(20,267)

(4,217)

11,771

(533)

–

(1,988)

9,278

(24,212)

(1,504)

–

(6,300)

–

(32,016)

40,343

(1,002)

–

(9,650)

29,691

6,953

10,046

570

17,569

Consolidated Statement of Changes in Equity
For the period ended 02 July 2023

Equity as at 27 June 2021

Loss for the period

Fair value movement on cash flow hedges

Deferred tax charge on derivative financial
instruments

Currency translation differences arising from
consolidation

Currency movement on net investment

Deferred tax charge on net investment currency
movement

Cash flow hedge transferred to inventory/cost of sales

Total comprehensive (expense)/income for
the period:

Transactions with owners:

Issues of share capital

Share-based payments

Deferred tax credit on share-based payments

Share
capital
£000

Share
premium
£000

Retained
earnings
£000

Translation
reserve
£000

Merger
reserve
£000

126

38,684

22,938

754

223

–

(9,439)

–

(355)

–

(9,439)

(355)

–

39,330

–

Equity as at 26 June 2022

137

78,014

13,499

399

223

Loss for the period

Fair value movement on cash flow hedges

Ineffectiveness in cashflow hedges transferred to
income statement

Deferred tax credit on derivative financial instruments

Currency translation differences arising from
consolidation

Currency movement on net investment

Deferred tax charge on net investment currency
movement

Cash flow hedge transferred to inventory/cost of sales

Total comprehensive (expense)/income for
the period:

Transactions with owners:

Issues of share capital

Share-based payments

Deferred tax charge on share-based payments

Transfer un-utilised share-based payments

–

(6,231)

–

(9)

–

(6,231)

(9)

179

–

3,298

–

Capital
redemption
reserve
£000

Other
reserves*
£000

Total
£000

–

3,102

65,833

–

(9,439)

1,451

(385)

–

1,297

(324)

(355)

1,297

(324)

2,135

(7,659)

–

629

239

39,341

629

239

6,105

98,383

–

(6,231)

481

(355)

197

–

197

(9)

237

(59)

(815)

(314)

(6,554)

–

180

1,525

(55)

(3,298)

(55)

–

Equity as at 02 July 2023

138

78,193

10,566

390

223

3,963

93,479

* Further detail on the nature of these transactions can be found in Note 32.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

Notes to the Financial Statements
For the period ended 02 July 2023

1. General information
Hotel Chocolat Group plc (the Company, and together with its subsidiaries, the Group) is a UK based chocolate manufacturer and retailer incorporated and
domiciled in the United Kingdom under the Companies Act. The registered office of the Company is Mint House, Newark Close, Royston, Hertfordshire,
SG8 5HL, United Kingdom. The registered company number is 08612206. A list of all of the Company’s subsidiaries is presented in Note 20. The Group’s
principal activities are that of the manufacture and retail of chocolate in the United Kingdom and overseas. The Group consolidated financial statements were
authorised for issuance by the Board of Directors on 11 October 2023.

2. Accounting policies
The principal accounting policies applied in the preparation of the consolidated financial information are set out below. These policies have been consistently
applied to all periods presented, unless otherwise stated.

Basis of preparation
The consolidated financial information has been prepared in accordance with UK-adopted International Accounting Standards in conformity with the
requirements of the Companies Act 2006 (“IFRS”). The financial statements have been prepared on the historical cost basis, except for the revaluation of
derivative financial instruments and the equity investment that are measured at fair values at the end of each reporting period, as explained in the accounting
policies below.

New standards, amendments and interpretations, that were effective in FY23, impacting the Group that have been adopted in the annual financial statements
for the year ended 02 July 2023, and which have given rise to changes in the Group’s accounting policies are set out below. None of these changes had a
material impact upon the financial statements.

• Annual Improvements 2018-2020 Cycle – Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41

• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

• Onerous Contracts - cost of fulfilling a contract (Amendments to IAS 37)

• Reference to the Conceptual Framework (Amendments to IFRS 3)

• Initial Application of IFRS 17 and IFRS 9 – Comparative Information (Amendments to IFRS 17) (issued on 9 December 2021)

New standards, amendments and interpretations which are not yet effective at the reporting date but will be adopted in future reporting are set out below:

• Classification of liabilities as current or non-current (Amendments to IAS 1)

• Lack of exchangeability (Amendments to IAS 21)

• Definition of Accounting Estimate (Amendments to IAS 8)

• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)

• Non-current liabilities with covenants (Amendments to IAS 1)

• Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12 Income Taxes

Basis of consolidation
The consolidated financial information incorporates the financial statements of the Group and all of its subsidiary undertakings. The financial statements of
all Group companies are adjusted, where necessary, to ensure the use of consistent accounting policies. Acquisitions are accounted for under the acquisition
method from the date control passes to the Group. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values. Any excess of
the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. As allowed under IFRS 1, any acquisitions or Group
reorganisations which occurred before the transition date to IFRS have not been restated, but instead the previous accounting treatment has been adopted.
During the period ended 29 June 2014, Hotel Chocolat Group Limited (now plc) was incorporated and undertook a share for share exchange with the direct
subsidiaries listed in Note 20, excluding Hotel Chocolat (St Lucia) Holdings Limited. This has been accounted for under the basis of merger accounting given
that the ultimate ownership before and after the transaction remained the same. Merged subsidiaries undertakings are treated as if they had always been
a member of the Group. Any difference between the fair value of the shares issued by the Company and the fair value of the shares acquired taken to the
merger reserve.

(i) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity where the Group is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the
entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the Group.

(ii) Interest in other entities
Joint ventures are entities which the Group has significant influence over but not control. Significant influence is the power to participate in the financial and
operating policy decisions, but is not control of these. The investment in the Joint Venture is accounted for using equity method whereby the initial investment
is recognised at cost and the carrying amount is increased or decreased to recognise the Group’s share of the change in the assets after the acquisition date.

Going concern
The Board has concluded that it is appropriate to adopt the going concern basis.

The Directors have undertaken a comprehensive assessment in order to conclude that the Group has the ability to trade as a going concern using forecasts
drawn up to 31 December 2024, considering the current macro-economic environment and the potential impact of relevant uncertainties facing all businesses,
together with the Group’s ability to influence its activities and hence the financial position, cash flows and profitability. The Financial review on pages 20 to 25
considers in more detail the Group’s trading performance and financial position.

In reaching their conclusion, the Directors’ considerations have included the following factors:

• That the Group continues to operate within its facilities, which are used to fund day-to-day working capital requirements.

• The availability of funding in the form of a £50m RCF committed until July 2025 through an amended and restated RCF agreement that was entered into on

29 September 2023, where the option to extend the existing agreement by 12 months until July 2025 was exercised.

• The headline covenants remain unchanged: achieving positive cash in January 2024, net debt to EBITDA (pre IFRS16) of less than 2.5x, and EBITDA to

interest greater than 4x.

• In order to support additional inter-company lending to the Group’s St Lucian business to fund further infrastructure investment there is a condition to

add the Group’s two St Lucian legal entities to the agreement as obligors. To secure this inter-company lending, a share pledge is required to be completed
within 60 days of execution of the amended and restated RCF agreement. It is the opinion of the Board, acting upon external legal advice, that this is a
straight forward legal process fully achievable in the required time frame. This opinion underpins the Board’s going concern assessment.

• The Group’s current cash position as at 10 October is £8m, giving £22m of headroom within the facility as the business approaches the peak trading period,

with around 85% of annual revenues still to achieve with the five largest seasonal gifting seasons still to come.

• The ability to progressively reduce working capital levels by leveraging the vertical integration from manufacture to end-consumer, including the ability to use

prices to influence demand.

• The ability to communicate with a database of c.two million active customers at modest cost in order to stimulate sales demand.

• Multiple levers of mitigation in the form of discretionary spend-reduction opportunities.

• Having made significant capital investments to increase capacity in recent years, the Group has sufficient operational headroom to support several years of

volume growth and can therefore exercise discretion over the timing of further capex.

• Consideration of specific factors impacting current and estimated future consumer demand, including channel and category sales performance.

• Current elevated levels of consumer price inflation, which may create pressure on consumer discretionary spend, leading the Group to prepare a number of

possible scenarios for sales demand during the going concern period.

The Directors have modelled a number of scenarios, including a reverse stress test. In the scenarios sales are flexed, along with the impact on related
expenses, working capital changes and other mitigations such as cost reduction and timing of capital expenditures. These scenarios are used to evaluate the
implications for gross margins, operating expenses, profitability, working capital, capital expenditure and the consequent financial position, including operating
within financial covenants attaching to the RCF, which are outlined in more detail in Note 30 on page [129]. For each scenario, the Directors have identified
relevant actionable mitigating measures that the Group could undertake at its own discretion to adjust future cash flows and continue to operate within their
facilities.

In making their assessment the Directors have reviewed management forecasts based on scenarios reflecting full-year sales in line with FY24 Budget along with
scenarios showing declines vs budget of -10% (-2% YoY) and -20% (-13% YoY) which reflect the Directors’ view on most probable worst case scenario and a
reverse stress test respectively.

The Directors have considered the impact of mitigations and the Group’s ability to implement these changes at its own discretion. The Directors have
also considered the probability of each sales scenario, concluding that the more extreme sales decline scenarios are of remote probability. As a result, the
Directors have concluded that the use of the going concern basis of accounting is appropriate because there are no material uncertainties related to events or
conditions that may cast significant doubt about the ability of the Group and Company to continue as a going concern in the period to 31 December 2024.

Revenue recognition
Revenue is measured by reference to the fair value of consideration receivable for goods provided, excluding taxes, rebates and trade discounts. There are
four categories of income:

• Physical

• Digital

• Partners and business to business (B2B)

• Cacao estate, hotel and visitor attraction

Physical
Revenue arising from the sale of goods and services is recognised when the goods have been despatched or services delivered. In physical retail locations,
revenue is recognised at the point goods are transferred to the customer.

Digital
Revenue for online transactions revenue is recognised on delivery of goods to the customer, which is when the Group has assessed that control passes
to the customer.

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100

Notes to the Financial Statements continued
For the period ended 02 July 2023

2. Accounting policies continued
Revenue recognition continued
Where sales of gift cards are made physically and digitally, the income is deferred until the card is used. An estimate, based on historic redemption rates, is

made to release revenue from those cards not expected to be used.

Where products are sold within a bundle and a discount is offered on the recommended retail price, the discount offered is recognised over all products
within the bundle. Where the bundle includes a subscription of product, subsequent deliveries (up to a maximum of the next 12 months) will be recognised at
the discounted value.

Partners and B2B
Revenue is recognised on despatch or delivery of goods dependent on the terms of the relationship and when control has transferred to the partners and
B2B. There are a number of volume, rebate and discount agreements, which are assessed on a case by case basis as to whether they are distinct goods
or services. Volume rebates are earned based on sales volume triggers set over specific periods and rebates consist of promotional or marketing support
provided to customers. If the rebate is not distinct or is judged to represent a discount, this is accounted for as a reduction in the underlying revenue
recognised.

Cacao estate, hotel and visitor attraction
Revenue is recognised over the duration of the hotel guest’s stay. Visitor attraction revenue is recognised on the date of visit. Revenue is recognised when the
amount of revenue can be reliably measured and it is probable that the future economic benefit will flow to the entity.

Exceptional and adjusting items
Exceptional items are items of income or expense which because of their nature or size, management believe separate presentation is required to allow
shareholders to better understand the financial performance of the year and allow comparison with prior periods. Adjusting items are one-off income/
expenditure items that are excluded from underlying performance measures.

Government grants
In response to COVID-19, the UK Government announced a number of initiatives for businesses to assist with cash flow. In the prior year, the Group
received financial assistance in the following areas:

Retail, Hospitality and Leisure Grant (“RHLGF”) – the business grant has been recognised in the Consolidated Statement of Comprehensive Income and
the Group has elected to offset the grants received against the relevant rates expense, in line with IAS 20. Please see Note 7.

The Closed Business Lockdown Payment – restart grants, national lockdown grants and local restrictions support grants have been recognised in the
Consolidated Statement of Comprehensive Income over the period which the Group recognises costs for which the grants are intended to compensate,
within operating expenses. The Closed Business Lockdown payments have been treated the same way as the RHLGF.

Other income
Other income comprises Research & Development credits, rental and sub-lease income.

Foreign currency translation
The Group’s consolidated financial information is presented in sterling, which is also the Parent Company’s functional currency. The financial information has
been rounded and presented in £000, unless otherwise stated.

a) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions are recognised in the Consolidated Statement of Comprehensive Income. Foreign exchange
gains and losses resulting from the translation of monetary assets and liabilities denominated in foreign currencies at the reporting period end exchange rates
are also recognised in the Consolidated Statement of Comprehensive Income.

b) Group companies
The results and financial position of Group entities that have a functional currency different from the presentation currency are translated into the
presentation currency as follows:

• assets and liabilities at each period end are translated at the prevailing closing rate at the date of the Consolidated Statement of Financial Position;

• income and expenses for each period within the Consolidated Statement of Comprehensive Income are translated at the rate of exchange at the

transaction date. Where this is not possible, the average rate for the period is used; and

• on consolidation, exchange differences arising from the translation of the net investment in foreign entities are recognised in other comprehensive income

and accumulated in the other reserves which is as a separate component of equity.

Employee benefits
(i) Short-term benefits
Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered
by employees of the Group.

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2. Accounting policies continued
Employee benefits continued
(ii) Defined contribution plans
The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group. The
annual contributions payable are charged to the Consolidated Statement of Comprehensive Income. The Group also contributes to the personal pension
plans of some Directors at the Group’s discretion.

Share-based payments
A transaction is accounted for as a share-based payment where the Group receives services from employees, Directors or third parties and pays for these in
shares or similar equity instruments.

The Group makes equity-settled share-based payments to certain employees and Directors. Equity-settled share-based schemes are measured at fair value,
including any market performance conditions and the impact of any non-vesting conditions (but excluding the effect of service and non-market performance
vesting conditions) at the date of grant, measured by use of an appropriate valuation model. The expected life used in the model has been adjusted, based on
management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight line basis over the period services are
received, based on the Group’s estimate of shares that will eventually vest. At the end of each period, the entity revises its estimates of the number of options
that are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit
or loss, with a corresponding adjustment to equity.

Share options are forfeited when an employee ceases to be employed by the Group unless determined by the Board to be a ‘good leaver’. A participant who
ceases employment by reason of death, injury, ill-health or disability is also deemed a good leaver.

The Company has discretion to recover the employer’s National Insurance liability from the employee.

Leases
Right of use assets
The Group recognises a right of use asset at the lease commencement date. Right of use assets are initially measured at the amount of the lease liability,
reduced for any lease incentives received, and increased for:

• lease payments made at or before commencement of the lease;

• initial direct costs incurred; and

• the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset (typically leasehold
dilapidations). Subsequent to measurement, right of use assets are amortised on a straight line basis over the remaining term of the lease or over the
remaining economic life of the asset if assessed to be shorter.

Lease liabilities
The lease liabilities are measured at the present value of the remaining lease payments, discounted using a rate implicit to the lease unless this is not readily
determinable as at lease commencement date. In practice, the incremental borrowing rate is used. The incremental borrowing rate is the rate at which a
similar borrowing could be obtained over a similar term in a similar economic environment. Judgement is required to determine an approximation with
consideration given to the Group’s borrowing facilities and SONIA adjusted by an indicative credit premium and lease specific adjustments linked to store
performance, store type and location.

Subsequently, the lease liability is increased by the interest cost on the lease liability and decreased by the lease payments made. It is remeasured if there is a
modification, a change in lease term or a change in the fixed lease payment.

When the Group revises its estimate of the term of any lease (because for example it reassesses the probability of a break option being exercised), it adjusts
the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at a revised discount rate. An equivalent
adjustment is made to the carrying value of the right of use asset, with the revised carrying amount being depreciated over the remaining (revised) lease term.

Lease liabilities include fixed payments, variable lease payments that are based on an index or a rate, amounts expected to be paid when the lease ends, and
the payment of penalties for terminating the lease if this is expected to be terminated early.

Lease payments which are variable in nature and are not linked to any index or rate are expensed in the period to which they relate.

Lease dilapidations
The Group recognises obligations arising from lease contracts where it is required to restore leased properties to their pre-lease condition upon the expiry
of the lease. In line with IFRS 16, each lease dilapidation provision is capitalised within the right of use asset of each lease and depreciated over the life of the
lease where any dilapidation costs could be reasonably estimated at the commencement date.

For retail stores, the dilapidations provision is estimated based on historical dilapidation costs incurred on stores of a similar type (i.e. café or shop), size and
location. Management review historic dilapidation costs and will amend the provision if remeasurement is indicated. For non-retail leases, dilapidations are
based on management’s accumulated historical knowledge of buildings of similar size and purpose.

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102

Notes to the Financial Statements continued
For the period ended 02 July 2023

2. Accounting policies continued
Lease modifications
The Group has taken advantage of the IASB Practical Expedient allowing rent concessions, relating to the COVID-19 pandemic, to be treated as variable lease
payments and recognised directly in the Statement of Comprehensive Income. The concessions received by Hotel Chocolat relate to the same type of lease,
i.e. property rental leases, and therefore the Group has chosen to apply the practical expedient across all leases where permitted by the IASB. Not all lease
modifications qualified for the practical expedient and those that didn’t were treated in one of the following two ways:

1. Where the consideration of the lease changed
Lease liabilities were remeasured based on the revised payment amounts and frequency. The difference between the revised liability and the original liability at
the effective date (the date the change came into force) was then applied as a matching adjustment to the right of use asset.

2. Where the scope of the lease changed (specifically where break options were triggered within property leases)
Remeasurements involved the recalculation of right of use assets on a proportionate basis. In practical terms, this meant calculating a percentage reduction for
the asset value using the length of time from the effective date to the revised lease end date and dividing by the length of time from the effective date to the
original lease end date. The lease liability was remeasured based on the net present value of revised lease payments up to the break date, using a revised IBR.
Any difference between the remeasured asset and liability was taken as a gain or a loss to the Consolidated Statement of Comprehensive Income.

Under both of the remeasurement methods, lease payments are discounted using an updated discount rate and the revised right of use asset is amortised on
a straight line basis to the revised lease end date.

Short term / low value exemptions
Payments associated with short-term leases and all leases of low-value assets are recognised on a straight line basis as an expense in the Consolidated
Statement of Comprehensive Income. Short-term leases are leases with a lease term of 12 months or less; for the current financial year this includes all
property leases with a holding over or tenancy at will status. Where renewal discussions on a lease extension are ongoing with the landlord at the lease
expiry date, the expired lease is treated as a disposal and the new lease recognised as an addition after the heads of terms have been agreed. Low-value assets
comprise storage rents and office equipment.

Property, plant and equipment
Property, plant and equipment is stated at historic cost, including expenditure that is directly attributable to the acquired item, less accumulated depreciation
and impairment losses.

Freehold land is not depreciated. Depreciation on assets under construction does not commence until they are complete and available for use. Depreciation is
provided on all other items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives.

Management estimates that the useful life of assets is as follows:

Leasehold property improvements

– Over the remaining lease term

Plant and machinery

– 5 to 15 years on a straight line basis

Fixtures, fittings, equipment, and hardware

– 5 to 10 years on a straight line basis

Freehold property

– 50 years on a straight line basis

Intangible assets
Goodwill
Goodwill arising on the acquisition of a subsidiary undertaking is the difference between the fair value of the consideration paid and the fair value of the assets
and liabilities acquired. Positive goodwill is capitalised. Goodwill is deemed to have an indefinite useful economic life, however impairment tests on the carrying
value of goodwill are undertaken:

• at the end of the first full financial period following acquisition and at the end of every subsequent financial period; and

• in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable.

Website development costs and software
Website development costs where Group companies’ websites are expected to generate future revenues in excess of the costs of developing those websites,
together with expenditure on the functionality of the website is capitalised and treated as an internally generated intangible asset. Expenditure incurred on
maintaining websites and expenditure incurred on developing websites used only for advertising and promotional purposes is expensed through profit and loss
as incurred.

The cost of development and/or implementation of other software utilised by the Group is amortised over the useful economic life of the software.

Management estimates that the useful life of assets is as follows:

Software

– 3 to 10 years on a straight line basis

Website development costs

– 3 to 5 years on a straight line basis

103

2. Accounting policies continued
Inventories
Inventories are carried at the lower of cost or net realisable value. The costs of raw materials, consumables, work in progress and finished goods are measured
by means of weighted average cost using standard costing techniques. The cost of finished goods comprises direct production costs such as raw materials,
consumables, utilities and labour, and production overheads such as employee costs, maintenance and indirect factory costs. Standard costs are reviewed
regularly in order to ensure relevant measures of utilisation, production lead-time and appropriate levels of manufacturing expense are reflected in the
standards. For manufactured goods an estimate of the appropriate deferral of production variances to standard cost is made.

Net realisable value is calculated based on the revenue from sale in the normal course of business less any costs to sell.

Provision is made against specific inventory lines considering factors including age and condition of inventories as well as due allowance made for obsolete and
slow-moving items.

Business combinations
On acquisition, the assets and liabilities of a subsidiary are measured at their fair values. Any excess of the cost of acquisition over the fair values or the
identifiable net assets required is recognised as goodwill.

If a business combination occurs in stages, the accounting treatment of an entity’s pre-combination interest in an acquiree is consistent with the view that
obtaining control is triggered by a significant economic event. The acquirer remeasures any previously held interest at fair value and takes this amount into
account in the determination of goodwill. Any resultant gain or loss is recognised in the Consolidated Statement of Comprehensive Income, as appropriate.

Impairment of non-financial assets
Impairment tests on goodwill are undertaken at each reporting period. The carrying values of both tangible (including right of use assets) and intangible
assets are reviewed at the end of each reporting period for impairment when there is an indication that the assets might be impaired. An impairment loss
is recognised in the Consolidated Statement of Comprehensive Income. Impairment is measured by comparing the carrying values of the assets with their
recoverable amounts. The recoverable amount of the assets is the higher of the assets’ fair value less costs to sell and their value in use, which is measured by
reference to discounted future cash flow. Cash flows are discounted using an appropriate discount rate applicable to the relevant cash generating units.

In respect of assets other than goodwill, and when there is a change in the estimates used to determine the recoverable amount, a subsequent increase in
the recoverable amount of an asset is treated as a reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the
asset that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in the
Consolidated Statement of Comprehensive Income. Impairment of stores is assessed on a store-by-store basis as each is a distinct cash generating unit.

Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the Consolidated Statement of Financial Position differs
from its tax base, except for differences arising on:

• the initial recognition of goodwill;

• the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting

or taxable profit; and

• investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not

reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be
utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are
expected to apply when the deferred tax liabilities or assets are settled or recovered. Deferred tax balances are not discounted.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax
assets and liabilities relate to taxes levied by the same tax authority on either:

• the same taxable Group company; or

• different entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously,

in each future period in which significant amounts of deferred tax assets and liabilities are expected to be settled or recovered.

Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating
decision maker has been identified as The Board.

The Board considers that the Group’s activity constitutes one operating and one reporting segment, as defined under IFRS 8. The total profit measures are
operating profit and (loss)/profit for the period, both disclosed on the face of the Consolidated Statement of Comprehensive Income. Management exclude
items deemed exceptional from headline performance measures, which are considered to be non-trading, in order to understand the underlying performance
of the Group and they reconcile these alternative performance measures to the figures in Group financial information.

Financial instruments
Financial instruments are recognised and classified according to the substance of the contractual arrangements into which the Group enters. An equity
instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Financial assets and financial
liabilities are recognised in the Group’s Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

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104

Notes to the Financial Statements continued
For the period ended 02 July 2023

2. Accounting policies continued
Financial assets
Equity investments, cash and cash equivalents, trade and other receivables (excluding prepayments and accrued income) and derivative financial instruments
are categorised as financial assets.

On initial recognition, financial assets are classified as either fair value through profit or loss, amortised cost or fair value through Other Comprehensive
Income. The classification depends on the purpose for which the financial assets were acquired and their contractual cash flows.

Amortised cost assets are non-derivative debt instruments that meet the following conditions:

• the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal

amount outstanding.

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the
cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss
allowance.

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.
For financial assets other than purchased or originated credit-impaired financial assets, the effective interest rate is the rate that exactly discounts estimated
future cash receipts excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross
carrying amount of the debt instrument on initial recognition.

Interest income is recognised in profit or loss and is included in the “finance income – interest income” line item.

Derivative financial instruments are initially recognised at fair value on the date that a derivative contract is entered into, and they are subsequently
remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is
designated as a hedging instrument or not. If hedge accounting is applied, subsequent movements are recognised in other comprehensive income, otherwise
gains/(losses) are recognised at fair value through the income statement.

Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held on call, together with other short-term highly liquid investments which are not subject to
significant changes in value and have original maturities of less than three months. The Group’s bank facilities are provided under a Group facility.

Loans to joint venture
Loans to the joint venture are initially measured at fair value upon recognition. Where the fair value is not equivalent to the transaction price, the fair value is
calculated using the market rate of interest for the loan. The loan is subsequently classified under IFRS 9 as an amortised cost asset. This is because the loan to
joint venture is a debt instrument that meets the following conditions:

• the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal

amount outstanding.

The effective interest method has been applied to calculate the amortised cost of the loan to joint venture and allocate interest income over the relevant
period. The effective interest rate is the market rate of interest for the loan and is the rate that exactly discounts estimated future cash receipts, through the
expected life of the loan, to its gross carrying amount on initial recognition.

The amortised cost of the loan to joint venture is the amount at which the financial asset is measured at initial recognition minus the principal repayments,
plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any
loss allowance.

Interest income is recognised in profit or loss and is included in the “finance income” line item.

Investment in equity investments
The Group’s investment has been accounted as an equity investment under IFRS 9. The Group has taken the IFRS 9 irrevocable election to present in other

comprehensive income subsequent changes in the fair value of the investment.

Trade and other receivables
Trade and other receivables include trade receivables, other receivables, prepayment and accrued income.

(i) Impairment of trade receivables
The Group applies the IFRS 9 simplified approach to measure expected credit losses using a lifetime expected credit loss (ECL) provision for financial assets.
To measure expected credit losses on a collective basis, financial assets are grouped based on similar credit risk and ageing. Expected loss rates for the
recently expanded corporate/wholesale business are based on historical credit losses, adjusted for forward looking information. There are no expected losses
for retail sales as consideration is received at the point of sale.

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2. Accounting policies continued
Trade receivables continued
(ii) Impairment of other financial instruments
For all financial instruments other than trade receivables, the general approach under IFRS 9 for measuring ECL is applied. This means the Group recognises
12 months ECL unless there has been a significant increase in credit risk.

The ECL is estimated using a probability of default based on credit spreads observed on comparable indexes and internally estimated loss given defaults.
Forward looking information is incorporated into calculation of the expected credit loss. The probability of default is implied making use of comparable
credit spreads.

The Group recognises lifetime ECL when there has been a significant increase in credit risk since initial recognition which is determined by:

• review of existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor’s

ability to meet its debt obligations;

• an actual or expected significant change in the operating results of the debtor; and

• significant increases in credit risk on other financial instruments of the same debtor.

For those balances that are beyond 30 days past due, it is presumed to be an indicator of a significant increase in credit risk.

The Group considers that an event of default has occurred when a financial asset is more than 90 days past due. The Group will write off a financial asset
where there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has
been placed under liquidation or has entered into bankruptcy proceedings.

Financial liabilities
Trade and other payables, accruals, lease liabilities and financial guarantee contracts are categorised as financial liabilities.

Financial liabilities are recognised when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. On initial
recognition, financial liabilities are classified as either fair value through profit or loss, or other financial liabilities. Fair value through profit or loss liabilities arise
from hedge accounted derivatives. They are carried in the Consolidated Statement of Financial Position at fair value with changes in fair value recognised in the
Consolidated Statement of Comprehensive Income. There are no other liabilities classified as fair value through profit or loss.

Other financial liabilities are recognised initially at fair value plus directly attributable transaction costs, and subsequently measured at amortised cost using the
effective interest method.

A financial liability is de-recognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by
another from the same party on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification
is treated as a de-recognition of the original liability and the recognition of a new liability, the difference in the respective carrying amounts is recognised in the
Consolidated Statement of Comprehensive Income.

Financial guarantee contracts
Financial guarantee contracts are measured initially at their fair values. Subsequent to initial recognition, these are measured at the higher of:

• the amount of the loss allowance determined in accordance with IFRS 9 (see financial assets above); and

• the amount recognised initially less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policies

set out above.

In assessing whether there has been a significant increase in the credit risk since initial recognition of a financial guarantee contract, the Group considers the
changes in the risk that the specified debtor will default on the contract. The exposure includes the amount of guaranteed debt that has been drawn down as
at the reporting date.

For a financial guarantee contract, where the Group is required to make payments only in the event of a default by the debtor in accordance with the terms
of the instrument that is guaranteed, the expected loss allowance is the expected payments to reimburse the holder for any credit loss that it incurs.

Provisions
Provisions are recognised where the Group has a present obligation (legal or constructive) as a result of past events and it is probable that an outflow of
resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the
reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

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106

Notes to the Financial Statements continued
For the period ended 02 July 2023

2. Accounting policies continued
Hedge accounting
Hedge accounting is applied to financial assets and financial liabilities only where all of the following criteria are met:

• the hedging instrument is measured at fair value through Other Comprehensive Income/(loss) and is with an external party to the Group;

• the hedged items are reliably measurable;

• the items are managed as a group for risk management purposes;

• for cash flow hedges the foreign currency and the reporting period, nature and volume of forecast transactions expecting to affect profit or loss is specified;

• at the inception of hedge there is formal designation and documentation of the hedging relationship, the Group’s risk management objective and strategy for

undertaking the hedge, the hedged item and hedging instrument, and how the hedge effectiveness will be assessed;

• an economic relationship exists between the hedged item and the hedging instrument;

• credit risk does not dominate changes in value; and

• the hedge ratio is the same for both the hedging relationship and the quantity of the hedged item actually hedged and the quantity of the hedging

instrument used to hedge it.

Cash flow hedges
The effective part of forward contracts (spot component) designated as a hedge of the variability in cash flows of foreign currency risk arising from firm
commitments and highly probable forecast transactions. Changes in the fair value of the hedging instrument due to the forward points are immediately
recognised in Other Comprehensive Income and accumulated in the hedging reserve. The Group uses such contracts to fix the cost of foreign currency
transactions in the functional currency of the Group entity concerned. If a highly probable forecast transaction results in the recognition of a non-monetary
asset, the cumulative loss/(gain) is added to/(subtracted from) the cost of the asset acquired (“basis adjustment”). Otherwise the cumulative gain or loss
recognised in other comprehensive income is reclassified from the hedging reserve to profit or loss at the same time as the hedged transaction affects profit
or loss. The two transactions are recognised in the same line item. Gains and losses relating to ineffectiveness is recognised immediately in profit or loss.

If a forecast transaction is no longer considered highly probable but the forecast transaction is still expected to occur, the cumulative gain or loss recognised
in other comprehensive income is frozen and recognised in profit or loss in accordance with the policy set out in the paragraph above. Subsequent changes
in the fair value of the derivative are recognised in profit or loss. If the Group closes out its position before the transaction takes place (even though it is still
expected to take place) the cumulative gain or loss on changes in fair value of the derivative is similarly recognised in accordance with the policy set out in the
paragraph above. If, at any point, the hedged transaction is no longer expected to occur, the cumulative gain or loss is reclassified from the hedging reserve to
Consolidated Statement of Comprehensive Income immediately.

Equity instruments
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of
tax, from proceeds within share premium. Dividends on ordinary shares are recognised as liabilities when approved for distribution.

3. Summary of critical accounting estimates and judgements
The preparation of financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Directors
to exercise their judgement in the process of applying the accounting policies which are detailed above. These judgements are continually evaluated by
the Directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances.

The key estimates and underlying assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are reviewed
on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or
in the period of the revision and future periods if the revision affects both current and future periods.

The critical accounting estimates and judgements made by the Group regarding the future or other key sources of estimation, uncertainty and judgement that
may have a significant risk of giving rise to a material adjustment to the carrying values of assets and liabilities within the next financial period are:

• Japan Joint Venture (critical accounting judgement)
During the year ended 30 June 2019, the Group acquired a 20% interest in the Japan Joint Venture. An assessment was performed at the time under ‘IFRS
10 Consolidated Financial Statements’. It was assessed that the Group does not have the unilateral ability to direct the relevant activities of the Japan Joint
Venture through either its contractual rights, or through any other substantive matters. As a result, the Group has concluded it does not have control. The
carrying value of the loan before expected credit losses at 02 July 2023 is £nil (28 June 2022: £17,816k). As of 26 June 2022, the loan had been fully impaired
on the basis that the Japan Joint Venture had entered into Civil Restructuring. The Group obtained Court approval for Civil Rehabilitation restructuring
proceedings (Minji Saisei) in July 2022 and the winding up of the organisation is nearing completion. During the period ended 02 July 2023, the investment was
written off as detailed in Note 19.

• Equity Investment (critical accounting judgement)
On 29 December 2022, Hotel Chocolat Group plc signed a new strategic partnership agreement with Kram Inc. Under the partnership agreement a new
venture, HC Saint Lucia Inc. (“HC St Lucia KK”), a company incorporated in Japan was established. Hotel Chocolat Limited has acquired a 20% equity
investment in this venture. The strategic partnership leverages Kram Inc skills and expertise in the local Japanese market, as well as providing the capital
growth and resources. Hotel Chocolat brings a strong brand and supplies key products for onward assembly and packing within Japan and will receive a
royalty on all sales as the business develops.

107

3. Summary of critical accounting estimates and judgements continued
• Equity investment (critical accounting judgement) continued

In line with IFRS 10, management have reviewed whether Hotel Chocolat Limited has a controlling interest or significant influence in HC Saint Lucia KK.

The Group is not entitled to appoint any members to the HC St Lucia KK board (which is the company’s sole decision-making body) and therefore whilst the
shares are voting shares, the voting rights would not give the Group power to direct the company’s activities. On this basis, the Group is not deemed to have
controlling interest in HC St Lucia KK and therefore will not consolidate this investment in the Group’s Annual Report.

In line with IAS 28, an investor is deemed to have significant influence where they have the power to participate in decision-making but not control or joint
control of the investee. The voting shares of the Group do not give it power to direct the activities in HC St Lucia KK, and therefore the Group does not have
the ability to participate in the financial and operating policy decisions of HC St Lucia KK. In addition, the shareholders’ agreement specifically states that the
Group does not have the right to appoint any Director of the company, nor does it have the right to appoint any observer to the board of HC St Lucia KK
and as such the Directors have concluded that it is appropriate that this investment is considered an equity investment under IFRS 9.

The Directors have taken the allowable irrevocable election to present in other comprehensive income subsequent changes in the fair value of the HC St

Lucia KK investment.

• Inventory provisions (critical accounting estimate)
Management applies judgement in determining the appropriate stock provisions based on past experience of future sales, considering factors including age and
condition of inventories as well as due allowance for obsolete and slow-moving items.

At 02 July 2023, £4,393k of stock provisions have been recognised (26 June 2022: £9,133k). In the UK the provision of £1,409k (26 June 2022: £6,591k) is
made up of fully impaired stock held in the UK, mainly in relation to slow moving packaging, consumables, podcyclers and other stock items totalling £1,389k,
and BBE finished goods provision of £20k. Additionally £2,984k (26 June 2022: £2,542k) has been provided for hardware held in overseas territories. An
estimate of the net realisable value of these items has been made using management’s experience and knowledge of potential exit routes for the stock. No
external data points are currently available for the overseas territories.

Sensitivity analysis

Stock held overseas

Impact upon income statement

5% increase in
provision

5% decrease in
provision

189

(189)

• Impairments (critical accounting judgement)
Impairment tests are performed on retail stores, property, plant and equipment (including right of use assets) and loan assets at the end of each reporting
period, when there are indicators to do so. Management uses judgement to determine future cash flows and the discount rates applied.

• Impairments (critical accounting estimate)
The right of use assets and associated property, plant and equipment are assessed for impairment at each reporting period in line with IAS 36 to review
whether the carrying amount exceeds its recoverable amount. For impairment testing purposes, the Group has determined that each site is treated as a
separate cash generating unit in determining the recoverability of property, plant and equipment and right of use assets. During the year ended 02 July 2023,
the Group reversed previous impairments of £70k (26 June 2022: £5,225k release of which £1,734k related to UK stores) relating to Hotel Chocolat UK retail
locations as a result of improved trading performance. Further detail is set out within Note 5. Value in use is determined using internal cash flow forecasts and
EBITDA based on a 5-year period or the remaining lease life of the stores, assumed nil growth rate and a discount rate of 10.79% (26 June 2022: 9.335%). A
sensitivity analysis has been performed based on a 10% change in EBITDA which resulted in a £nil impairment change.

The recoverable amount of the net asset at physical retail locations that have incurred an impairment (either in the current period or previously) is £1,399k
(26 June 2022: £1,405k). The impairment charge has been recorded within exceptional items as per Note 5.

The Group made an impairment charge of £3,498k during the year ended 02 July 2023 (26 June 2022: £1,200k charge) relating to the freehold property within
the Saint Lucia business. The disruption caused by COVID-19 has reduced the short-term valuations and as a result the carrying value has been impaired. The
resort and tourist attraction are treated as separate cash generating units. Value in use is determined using internal cash flow forecasts and EBITDA based on
a 5-year period into perpetuity with assumed growth rates based on occupancy and visitor numbers with a pre-tax discount rate of 22.62% (26 June 2022:
22.00%). The sensitivity analysis has been performed based on revenue growth rates.

Sensitivity analysis

Saint Lucia impairment

Impact upon income statement

10% increase in
revenue growth
rates

10% decrease in
revenue growth
rates

6,042

(9,086)

The recoverable amount of the St Lucia estate that has not been impaired at the period end is £9,086k (26 June 2022: £14,444k). The impairment charge has
been recorded within exceptional items as per Note 5.

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108

Notes to the Financial Statements continued
For the period ended 02 July 2023

3. Summary of critical accounting estimates and judgements continued
• Accounting for leases and right of use assets (critical accounting judgement)
Under IFRS 16, the Group recognises a right of use asset representing its right to use the underlying asset and a lease liability representing its obligation to
make lease payments. The lease liability is initially measured at the present value of the remaining lease payments, discounted using the Group’s incremental
borrowing rate (IBR), adjusted to take into account the risk associated with the length of the lease which ranges between 1 and 15 years, expected returns
of the asset, and the location of the lease. Given the significant impact on the balance sheet following the transition to IFRS 16, determination of the discount
rate is considered to be a significant judgement. The discount rate applied ranged between 0.93% and 8.9% (26 June 2022: 2.0% and 4.8%) as per Note 17.
At the commencement date of property leases the Group determines the lease term to be the full term of the lease, assuming that any option to break
or extend the lease is unlikely to be exercised. The Group monitors actual returns of the asset and reassesses this assumption; the Group therefore makes
a judgement as to whether the option to break or extend the lease will be exercised. As a result of the significant impact on the balance sheet changes to
assumed lease terms has had, assessing the likelihood of exercising an option to break or extend a lease is considered to be a significant judgement.

• Exceptional items (critical accounting judgement)
Exceptional items are those that are deemed to be significant in size and nature and are therefore highlighted on the face of the Income Statement.
Exceptional items are excluded from headline performance measures in order to reflect the underlying performance of the Group. Management exercises
judgement in determining whether an item is exceptional or not. Further detail is set out within Note 5.

4. Revenue
Segmental analysis
Revenue arising from the sale of goods and services is recognised when the goods have been despatched or services delivered. As permitted under IFRS 15,
as all revenue contracts are for periods of one year or less, the transaction price allocated to the unsatisfied contracts are not disclosed.

The Group has one operating segment which is reviewed monthly by the Group’s chief operating decision-maker ‘The Board’. IFRS 8 requires operating
segments to be identified on the basis of internal financial information reported to the Chief Operating Decision Maker (“CODM”). The Group’s CODM has
been identified as the Board of Directors who are primarily responsible for the allocation of resources to the segments and for assessing their performance.
The disclosure in the Group accounts of segmental information is consistent with the information used by the CODM in order to assess profit performance
from the Group’s operations.

The Group has no individual customer which contributes more than 10% of its revenues.

Sale of goods

Sale of services*

Total revenue

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

200,021

4,479

204,500

222,354

3,779

226,133

Includes revenue recognised over time for hotel stays in Saint Lucia of £1,564k (26 June 2022: £1,540k). All other sales are recognised at a point in time.

Revenue by channel

Physical

Digital

Partners & B2B

International

Cacao estate & hotel

Total revenue

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

117,756

58,293

21,282

2,459

4,710

109,364

79,130

25,999

7,812

3,828

204,500

226,133

109

4. Revenue continued
UK Physical – includes revenue attributable to our UK stores, cafés, and restaurant.

UK Digital – includes revenue attributable to our UK online sales, including subscriptions.

UK Partners & B2B – includes UK wholesale and partners.

International – includes revenue from our overseas locations including US, Ireland as well as sales to the Joint Venture in Japan.

Cacao estate, hotel and visitor attraction – includes revenue from our cacao farm and hotel in Saint Lucia.

Revenue for each of the geographical areas is as follows:

Revenue by destination of sale

United Kingdom

Europe

Saint Lucia

United States

Japan*

Total revenue

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

197,331

214,493

1,374

4,710

183

902

1,191

3,828

2,861

3,760

204,500

226,133

* Group sales made to the new Japan equity investment £343k (26 June 2022: £nil), and the Japan Joint Venture £559k (26 June 2022: £3,760k).

Non-current assets are held in the United Kingdom, Ireland, the United States, Saint Lucia and Japan. Non-current assets for each of the countries is as
follows:

Non-current assets

United Kingdom

Ireland

United States

Saint Lucia

Japan

Total non-current assets

5. Exceptional items

Impairment and write off related to Joint Venture investment, net of exceptional credits

Saint Lucia impairment

Goodwill impairment

Store impairment release

Material non-recurring events: operating costs

Total operating expenses – exceptional

Material non-recurring costs: margin

Total exceptional items

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

104,090

109,760

344

–

7,536

125

170

12,001

112,095

121,957

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

258

3,498

–

(70)

2,262

5,948

–

5,948

21,836

1,200

425

(5,225)

5,042

23,278

5,501

28,779

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

110

Notes to the Financial Statements continued
For the period ended 02 July 2023

5. Exceptional items continued
Impairment and write off related to Joint Venture investment
During the year ended 02 July 2023, £nil impairment was provided (26 June 2022: £21,836k) related to the Joint Venture investment.

Exposure of £592k was written off during the year ended 02 July 2023 relating to loans provided to the Japan Joint Venture before the Joint Venture obtained
Court approval for Civil Rehabilitation restructuring proceedings (Minji Saisei).

Offsetting these costs is £109k received from the Japan Joint Venture as repatriation of funds, as the restructuring proceedings progress to their conclusion.

During the year ended 02 July 2023, an FX gain of £225k was realised when financial guarantee contract liabilities supporting the Joint Venture were settled.

Saint Lucia impairment
There is an impairment of £3,498k during the year ended 02 July 2023 (26 June 2022: £1,200k) relating to the assets of the Saint Lucia business. The charge in
2023 related to the decline in the value of the Rabot Estate, as tourism in Saint Lucia has not fully recovered from the impacts of COVID-19.

Goodwill impairment
£nil impairment was provided during the year ended 02 July 2023 (26 June 2022: £425k). The goodwill arose from the acquisition of Rabot 1745 Limited
which is no longer supportable as Rabot 1745 Limited is no longer trading.

Store impairments
US gain on remeasurement of lease liabilities
There was no further release or charge during the year ended 02 July 2023 (26 June 2022: £3,491k release) relating to the release of lease liabilities of the US
stores.

UK store impairments
There is an impairment release of £70k during the year ended 02 July 2023 (26 June 2022: £1,734k release) relating to fixed assets of stores. The release is
primarily due to the improved trading conditions during the period as well as management’s assessment of future cash flows over the remaining lease period
for each store. The key assumptions used in the future cash flows were sales and EBITDA (based on board approved plans), assumed nil growth rate for 5
years and a discount rate of 10.790% (26 June 2022: 9.670%).

Material non-recurring events – operating costs
Restructuring costs
An expense of £2,110k was incurred during the year ended 02 July 2023 (26 June 2022: £181k) relating to staff redundancy costs.

This expense is partially offset by a release of the share-based payment forfeited in relation to the restructure of £477k (26 June 2022: £nil).

Capital cash deposit impairment
In the prior year, there was a provision of £2,477k for doubtful recovery of a cash deposit made to a manufacturer of capital equipment that went into
administration. No provisions have been recognised in the year ended 02 July 2023.

Sale and operation planning process
In the prior year, non-recurring professional fees totalled £809k in relation to the implementation of a new sales and operating planning process. No fees have
been incurred in the year ended 02 July 2023.

US exit costs
In the prior year, there was a provision of £611k incurred in relation to recovery of rent deposits and staff redundancy. No provisions have been recognised in

the year ended 02 July 2023.

Onerous contracts
In the prior year, forward contracts for items of stock had been entered into to support activities in the US and Japan markets. Following management’s
decision to exit these markets, £964k had been provided for. No additional provisions have been recognised in the year ended 02 July 2023 for US and Japan
markets.

Coffee machine tooling
During the year ended 02 July 2023, coffee machine tooling was written off totalling £126k (26 June 2022: £nil) following the exit from this product category.

FX on long-term loan
During the year ended 02 July 2023, an FX expense of £503k (26 June 2022: £nil) was recognised in relation to the US intercompany loan that was provided
for in the period ended 26 June 2022. £392k relates to the reversal of a FX gain realised during year ended 26 June 2022, and £111k FX loss during the year
ended 02 July 2023.

111

5. Exceptional items continued
Material non-recurring events – margin
During the year ended 02 July 2023, there were no material non-recurring events that impacted margin.

Discontinued UK stock lines
No additional provision was made during the year ended 02 July 2023 (26 June 2022: £2,959k) relating to the exit certain UK product categories.

US stock provision
£nil provision made during the year ended 02 July 2023 (26 June 2022: £2,542k) relating to US stock following the decision to exit the US market in FY22.

6. Other income

Rental income and sub-lease income

Research and development expenditure credit

Other items

Total

7. Loss from operations
Loss from operations is arrived at after charging/(crediting):

Staff costs

Government grants received1

Depreciation of property, plant and equipment

Depreciation of right of use asset

Amortisation of intangible assets and impairment

Reversal of amortisation (SaaS)

Loss on disposal of non-current assets

Exceptional items

Loss/(profit) on exchange differences

(Release of provision)/write down of inventory recognised as a (credit)/expense

Impairment of trade receivables

1 Government grants received include the Retail Hospitality Leisure Grant Fund and the Closed Business Lockdown Payment.

8. Audit and non-audit fees
An analysis of auditor’s remuneration is as follows:

Audit fee:

– the Parent Company and Group audits

– the Group’s subsidiaries pursuant to legislation

Total audit fees

Non-audit fees

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

149

144

319

–

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

Notes

67,019

60,146

–

8,776

11,040

597

–

193

5,948

849

(5,927)

(94)

6,506

9,545

565

(557)

516

28,779

(346)

9,797

(2)

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

240

355

595

–

415

450

865

–

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

112

Notes to the Financial Statements continued
For the period ended 02 July 2023

9. Staff costs
The average number of employees (including Directors) during the period was made up as follows:

Production staff

Administrative staff

Retail staff

Total

The cost of employees (including Directors) during the period was made up as follows:

Wages and salaries*

Share-based payments

Social security costs

Pension costs

Total

53 weeks ended
02 July 2023

52 weeks ended
26 June 2022

508

623

1,208

2,339

537

637

1,257

2,431

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022*
£000

59,261

1,525

4,841

1,392

67,019

54,290

621

3,948

1,287

60,146

* Wages and salaries during year ended 26 June 2022 has been restated to include additional temporary staff costs of £4,415k, increasing the total to £54,290k from £49,875k. During the

period ended 02 July 2023, temporary staff costs of £5,108k (26 June 2022: £8,357k) are included within wages and salaries.

Social security includes a credit of £185k of employer’s national insurance for 2016, 2019 and 2021 LTIPs and a charge of £37k on Founder Shares Plan (26
June 2022: £167k charge on 2016 and 2019 LTIP; £7k on Founder Shares Plan).

10. Remuneration of key management personnel
Key management personnel includes all members of the Executive Committee of the Group. The number of key management personnel is eight (26 June
2022: ten). Emoluments and benefits include:

Short-term employee benefits

Share-based payments

Social security costs

Post-employment benefits

Total

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

1,965

231

291

2,565

1,916

116

233

2,335

Further information about the remuneration of individual Directors, including the highest paid Director, is provided in the Remuneration Report on
pages 76 to 79.

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11. Share-based payments
The Hotel Chocolat Group plc Long-Term Incentive Plan
Under the Hotel Chocolat Group plc Long-Term Incentive Plan, the Group gives awards to Directors and staff subject to the achievement of pre-agreed
performance conditions. These shares vest after the delivery of the audited Annual Report for the relevant financial year. For further details on vesting
conditions, please refer to the Remuneration Committee Report on page 79.

Awards are forfeited if the employee leaves the Group before the awards vest, except under circumstances where the employee is considered a ‘good leaver’.

Details of the share awards outstanding are as follows:

Outstanding at beginning of the period

Granted during the period

Exercised during the period

Forfeited during the period

Outstanding at the end of the period

Vested and exercisable at the end of the period

53 weeks ended 02 July 2023

52 weeks ended 26 June 2022

Number of
share options

3,843,586

–

(218,540)

(1,044,319)

2,580,727

73,135

Weighted
average
exercise price
£

0.08

–

0.82

0.003

0.04

1.48

Number of
share options

570,045

3,800,716

(91,081)

(436,094)

3,843,586

193,675

Weighted
average
exercise price
£

0.74

0.001

1.48

0.0004

0.08

1.48

Exercise price of outstanding options

Grant date

Expiry date

53 weeks ended
02 July 2023

52 weeks ended
26 June 2022

Number of
share options

Exercise price 0.001

Exercise price 1.481

1 Exercisable at the end of the period.

02/08/2021

24/03/2022

30/09/2016

02/08/2031

2,220,405

3,113,124

02/08/2031

30/09/2026

287,187

73,135

536,787

193,675

2,580,727

3,843,586

The awards outstanding at the end of 02 July 2023 have a weighted average remaining contractual life of 7.95 years (26 June 2022: 8.86 years) and a range of
exercise prices between £0.0001 and £1.48. No options expired during the periods covered by the tables above.

The exercises during the year took place between 3 January 2023 and 10 February 2023, with an average share price during this period of £2.06.

The Group recognised total expenses related to the above equity-settled share-based payment transactions in the form of options during the period ended 02

July 2023 of £487k (26 June 2022: £83k charge).

There were nil options granted during the period ended 02 July 2023 (26 June 2022: 3,800,716 options). The fair value of the share options granted in the
period ended 26 June 2022 were determined using a stochastic model to value awards with market based conditions in order to incorporate a discount factor
into the fair value for the probability of achieving the relevant targets.

The aggregate of the fair value of these shares granted during the period ended 02 July 2023 was £nil (26 June 2022: £5,992k). The inputs used for fair valuing
awards granted during the period were as follows:

Weighted average share price (£)

Exercise price (£)

Expected volatility (%)

Term to vesting (years)

Holding period (years)

Risk free interest rate (%)

Dividend yield (%)

53 weeks ended
02 July 2023

52 weeks ended
26 June 2022

–

3.75

0.0001

41.53%

4.07

1.50

0.19%

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Notes to the Financial Statements continued
For the period ended 02 July 2023

11. Share-based payments continued
The expected price volatility is based on the historical volatility (based on the remaining life of the options) adjusted for any expected changes to future
volatility due to publicly available information.

Forfeitures prior to vesting due to employees failing to meet the service condition are estimated at 5% per annum of outstanding awards (2022: 0%).

The Hotel Chocolat Group plc Save As You Earn Plan
Under the Hotel Chocolat Group plc Save As You Earn Plan, all employees of the Group who have been employed for a minimum period set by the
Remuneration Committee are eligible to join. In order to participate in the scheme, employees must make a regular monthly contribution up to an agreed
maximum, for a three-year period, after which time employees can utilise the lump sum to purchase ordinary shares in the Group, at a pre-agreed price.

The option to purchase shares is cancelled if the employee withdraws from the saving scheme during the period, and is forfeited if the employee leaves the

Group before the awards vest, except under circumstances where the employee is considered a ‘good leaver’.

Details of the share awards outstanding are as follows:

Outstanding at the beginning of the period

Granted during the period

Exercised during the period

Forfeited during the period

Cancelled during the period

Outstanding at the end of the period

Vested and exercisable at the end of the period

53 weeks ended 02 July 2023

52 weeks ended 26 June 2022

Number of
share options

1,208,445

1,665,084

(119)

(189,242)

(1,075,017)

1,609,151

–

Weighted
average
exercise price
£

Number of
share options

Weighted
average
exercise price
£

3.21

1.68

2.54

2.88

1.93

–

930,978

513,382

(70,426)

(165,489)

–

1,208,445

–

2.83

3.80

2.56

3.15

–

3.21

–

Exercise price of outstanding options

Grant date

Expiry date

53 weeks ended
02 July 2023

52 weeks ended
26 June 2022

Number of
share options

Exercise price 1.68

Exercise price 2.56

Exercise price 2.78

Exercise price 3.04

Exercise price 3.80

13/02/2023

31/10/2018

10/11/2020

25/10/2019

05/11/2021

01/09/2026

1,359,480

31/05/2022

01/06/2024

31/05/2023

–

125,369

–

01/06/2025

124,302

–

1,406

531,241

215,829

459,969

1,609,151

1,208,445

The awards outstanding at the end of 02 July 2023 have a weighted average remaining contractual life of 2.89 years (26 June 2022: 2.13 years) and a range of
exercise prices between £1.68 and £3.80. No options expired during the periods covered by the tables above. There were no exercises during the year.

The Group recognised total expenses related to the above equity-settled share-based payment transactions in the form of the employee share plan during the
period ended 02 July 2023 of £871k (26 June 2022: £500k).

The aggregate of the fair value of these shares granted during the period ended 02 July 2023 was £498k (26 June 2022: £1,121k). The fair values were
calculated using a Black Scholes model less a deduction of 72% (2022: 0%) for estimated cancellations (caused by employees withdrawing from the saving
scheme prior to vesting).

115

11. Share-based payments continued
The Hotel Chocolat Group plc Save As You Earn Plan continued
The inputs used in the Black Scholes model for valuing awards granted during the period were as follows:

Weighted average share price (£)

Exercise price (£)

Expected volatility (%)

Option life (years)

Risk free interest rate (%)

Dividend yield (%)

53 weeks ended
02 July 2023

52 weeks ended
26 June 2022

2.22

1.68

55.1%

3.5

3.34%

5.25

3.80

43.11%

3.5

0.49%

The expected price volatility is based on the historical volatility (based on the remaining life of the options) adjusted for any expected changes to future
volatility due to publicly available information.

Forfeitures prior to vesting due to employees failing to meet the service condition are estimated at 5% per annum of outstanding awards (2022: 0%).

The Hotel Chocolat Group plc Founder Shares Plan
Under the Hotel Chocolat Group plc Founder Shares Plan, employees of the Group who have been employed for a minimum period set by the Remuneration
Committee are eligible to join, excluding those employees already included in a LTIP scheme.

The option to purchase shares is forfeited if the employee leaves the Group before the awards vest, except under circumstances where the employee is
considered a ‘good leaver’.

Details of the share awards outstanding are as follows:

Outstanding at beginning of the period

Granted during the period

Exercised during the period

Forfeited during the period

Outstanding at the end of the period

Vested and exercisable at the end of the period

53 weeks ended 02 July 2023

52 weeks ended 26 June 2022

Number of
share options

Weighted
average
exercise price
£

218,028

0.001

–

(53,241)

164,787

–

0.001

–

Number of
share options

Weighted
average
exercise price
£

–

275,372

–

(57,344)

218,028

–

0.001

–

0.001

–

Exercise price of outstanding options

Exercise price 0.001

Grant date

Expiry date

01/05/2022

01/11/2025

53 weeks ended
02 July 2023

52 weeks ended
26 June 2022

Number of
share options

164,787

218,028

The awards outstanding at the end of 02 July 2023 have a weighted average remaining contractual life of 2.34 years (26 June 2022: 3.34 years) and an exercise
price of £0.001. No options expired during the periods covered by the tables above. There were no exercises during the year.

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116

Notes to the Financial Statements continued
For the period ended 02 July 2023

11. Share-based payments continued
The Hotel Chocolat Group plc Founder Shares Plan continued
The aggregate of the fair value of these shares granted during the period ended 02 July 2023 was £nil (26 June 2022: £765k). The fair values were calculated
using a Monte Carlo Simulation model. The inputs used for fair valuing awards granted during the period were as follows:

Weighted average share price (£)

Exercise price (£)

Expected volatility (%)

Option life (years)

Risk free interest rate (%)

Dividend yield (%)

53 weeks ended
02 July 2023

52 weeks ended
26 June 2022

–

3.50

0.001

45.3%

3.0

1.97%

Forfeitures prior to vesting due to employees failing to meet the service condition are estimated at 5% per annum of outstanding awards (2022: 0%)

12. Finance income and expenses

Interest from related party

Interest from related party - exceptional*

Interest on bank deposits

Finance income

Interest on bank borrowings

Unrealised interest on derivative financial instruments

Realised interest on derivative financial liabilities

Interest on lease liabilities

Finance expenses

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

–

444

494

1,071

207

1,871

3,153

967

–

1,035

552

165

1,181

1,910

Interest of £50k was calculated in relation to loan made to the Japan Joint Venture during the year ended 02 July 2023 before the Joint Venture obtained Court approval for Civil
Rehabilitation restructuring proceedings (Minji Saisei) in July 2022. As the entity has ceased trading the finance income has been categorised as an exceptional item.

13. Taxation

UK corporation tax

Adjustment in respect of previous periods

Total current tax credit

Deferred tax:

Adjustment in respect of previous periods

Adjust deferred tax in respect of change in future rate of taxation

Origination and reversal of temporary differences

Total tax (credit) / expense

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

–

(63)

198

(168)

(669)

(702)

132

(734)

(602)

(42)

305

1,059

720

Factors affecting current tax (credit)/charge: The tax assessed on the loss for the period is different to the standard rate of corporation tax in the UK.

117

13. Taxation continued
The differences are explained below:

Loss on ordinary operations before income tax

Standard rate of corporation tax

Loss for the year multiplied by the standard rate of corporation tax

Effects of:

Expenses/Income not deductible for tax purposes1

Permanently allowed depreciation

Other tax adjustments

Adjustment in respect of prior years

Adjust deferred tax in respect of change in future rate of taxation

Losses carried back

Unrecognised losses carried forward

Total tax (credit) / expense

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

(6,933)

20.50%

(1,421)

1,027

(274)

(45)

135

(168)

–

(702)

(8,719)

19.00%

(1,657)

2,302

(357)

–

(776)

305

697

206

720

1 In the period ended 26 June 2022, expenses not deductible related primarily to the impairment of financial guarantees, the impairment of the investment in the Japan joint venture and write

off of intercompany loans and balances. In the period ended 02 July 2023, expenses not deductible for tax purposes related primarily to the impairment of fixed assets in Saint Lucia.

The Group’s effective tax rate for the period ended 02 July 2023 was 10.12% (26 June 2022: -8.25%). The effective rate is an amalgamation of UK, US and
European rates for the periods reported. At 02 July 2023, the Group has tax losses to carry forward against future profits of the Irish branch of £nil (26 June
2022: £245k) and Hotel Chocolat Ltd of £13,970k (26 June 2022: £6,345k). There is no expiry on these losses and they are recognised at the rate they expect
to be utilised in the future. The US operations have restricted tax losses carried forward of £6,979k (26 June 2022: £7,220k). US losses, which have no expiry
date, amount to approximately £3,833k, of which £199k (26 June 2022: £172k) have been recognised at the rate they expect to be utilised in the future.

An increase in the UK corporation tax from 19% to 25% (effective 1 April 2023) was enacted during the financial period ended 27 June 2021.

14. Earnings per share
Loss for the period is used in the calculation of the basic and diluted earnings per share. Diluted loss per share is capped at the basic earnings per share as the
impact of dilution cannot result in a reduction in the loss per share.

The weighted average number of shares for the purposes of diluted earnings per share reconciles to the weighted average number of shares used in the
calculation of basic earnings per share as follows:

Weighted average number of share in issue for the period – basic

Effect of dilutive potential share:

Save as You Earn Plan

Long-Term Incentive Plan

Founder Shares

53 weeks ended
02 July 2023

52 weeks ended
26 June 2022

137,428,284

136,313,568

–

7,423

–

172,020

125,380

113,536

Weighted average number of shares in issue used in the calculation of earnings per share (number) – Diluted

137,435,707

136,724,504

Earnings per share – Basic and diluted

(4.5p)

(6.9p)

As at 02 July 2023, the total number of potentially dilutive shares issued under the Hotel Chocolat Group plc 2021 Long-Term Incentive Plan was 2,507,592
(26 June 2022: 3,649,911). Due to the nature of the options granted under this scheme, they are considered contingently issuable shares and therefore have
no dilutive effect. For further information on the movements in the share capital, please refer to Note 31.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

118

Notes to the Financial Statements continued
For the period ended 02 July 2023

15. Intangible assets
Computer software and website costs

Cost:

At beginning of period

Additions

Disposals

Reclassification1

SaaS reclassification*

Exchange difference

At end of period

Amortisation:

At beginning of period

Amortisation charge

Disposals

SaaS reclassification*

Impairment release

Exchange difference

At end of period

Net book value

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

2,549

497

(297)

(239)

–

2,513

731

607

(103)

–

(10)

(4)

1,221

1,292

6,606

1,504

(2,385)

–

(3,195)

2,549

3,055

565

(2,349)

(557)

–

731

1,818

1 Reclassifications represent assets under construction brought forward balances which were categorised as intangible assets and have now been reclassified within furniture & fittings,

equipment & hardware.

In April 2021, the IFRS Interpretations Committee clarified the position that configuration and customisation expenditure that is distinct from access to the cloud software can only be
capitalised to the extent it gives rise to an asset for a SaaS customer, i.e., they have the power to obtain the future economic benefits and can restrict others’ access to those benefits,
otherwise such expenditure should be expensed. During FY22, the Group reviewed and revised its accounting policy relating to IAS38 Intangible Assets resulting in the derecognition
of £3,195K of costs of previously capitalised intangible assets and £557k reversal of amortisation.

Amortisation is included within operating expenses in the Consolidated Statement of Comprehensive Income.

Strategic data development within computer software and website costs have been capitalised in the year and the carrying amount at the period end is £935k.
In the prior year these were categorised as assets under construction (26 June 2022: £1,161k).

119

16. Property, plant and equipment

52 weeks ended 26 June 2022

Cost:

As at 27 June 2021

Additions

Disposals

Reclassification2

Translation differences

As at 26 June 2022

Accumulated depreciation & impairments:

As at 27 June 2021

Depreciation charge

Disposal

Reclassification2

Impairment (charge)/release1

Translation differences

As at 26 June 2022

Net book value:

As at 26 June 2022

53 weeks ended 02 July 2023

Cost:

As at 26 June 2022

Additions

Disposals

Reclassification3

Translation differences

As at 02 July 2023

Accumulated depreciation & impairments:

As at 26 June 2022

Depreciation charge

Disposal

Reclassification3

Impairment (charge)/release1

Translation differences

As at 02 July 2023

Net book value:

As at 02 July 2023

Freehold
property
£000

Leasehold
improvements
£000

Furniture
& fittings,
equipment
& hardware
£000

Plant &
machinery
£000

Total
£000

19,947

2,715

(3)

–

1,588

24,247

(3,426)

(253)

–

(1,200)

(371)

(5,250)

1,884

–

1,977

(842)

(192)

–

41,281

4,481

(1,154)

(1,453)

402

43,557

(29,858)

(3,852)

1,082

610

1,130

(654)

38,834

16,923

(126)

–

101,946

24,212

(1,283)

(1,453)

1,993

55,634

125,415

(14,324)

(2,209)

–

(2,477)

–

(48,450)

(6,506)

1,082

610

(2,547)

(1,025)

(1,034)

(31,542)

(19,010)

(56,836)

18,997

943

12,015

36,624

68,579

24,247

1,065

–

(2,492)

(617)

22,203

(5,250)

(305)

–

(3,498)

135

1,977

–

(95)

–

43,557

5,559

(3,448)

156

(17)

55,634

3,128

(2,627)

2,670

(1)

125,415

9,754

(6,075)

239

(635)

1,884

45,807

58,804

128,698

(1,034)

(31,542)

(19,010)

(56,836)

(192)

–

(4,332)

3,312

(3,947)

2,501

–

(8,776)

5,813

–

(3,428)

141

(8,918)

(1,226)

(32,486)

(20,456)

(63,086)

13,285

658

13,321

38,348

65,612

1 The following impairments were made in the period ended 02 July 2023: Saint Lucia estate impairment charge £3,498k (26 June 2022: £1,200k), Store impairment release £70k (26 June

2022: £1,130k release) and capital cash deposit impairment charge £nil (26 June 2022: £2,477k). The capital cash deposit has been disposed during the period ended 02 July 2023.

2 Reclassifications during year ended 26 June 2022 represent right of use assets previously categorised within furniture & fittings, equipment & hardware.
3 Reclassifications during the year ended 02 July 2023 represent assets under construction brought forward balances from freehold property and intangible assets to categories across PPE.

As at 02 July 2023, the net book value of freehold property includes land of £2,521k (26 June 2022: £4,509k), which is not depreciated. Included in freehold
property is £585k of assets under construction (26 June 2022: £2,438k). Included in Furniture & fittings, equipment & hardware is £388k of assets under
construction (26 June 2022: £2,005k). Included in Plant & machinery is £198k of assets under construction (26 June 2022: £7,475k).

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

120

Notes to the Financial Statements continued
For the period ended 02 July 2023

17. Leases
The lease liability is initially measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate (IBR).
The determination of the discount rate is considered to be a significant judgement. The discount rate applied ranged between 0.93% and 8.9% (26 June 2022:
2.0% and 4.8%).

All leases where the Group is a lessee are accounted for by recognising a right of use asset and a lease liability except for:

• leases of low value assets, and

• leases with a term of 12 months or less.

Amounts recognised in the Consolidated Statement of Financial Position

Right of use Assets

As at 27 June 2021

Additions to right of use assets

Amortisation

Reclassification

Effect of modification of lease

Derecognition

Impairment release1

Foreign exchange

As at 26 June 2022

Additions to right of use assets

Amortisation

Effect of modification of lease

Derecognition

Foreign exchange

As at 02 July 2023

Lease liabilities

As at 27 June 2021

Additions to lease liabilities

Interest expense

Effect of modification of lease

Derecognition

Lease payments

Foreign exchange

As at 26 June 2022

Additions to lease liabilities

Interest expense

Effect of modification of lease

Derecognition

Lease payments

Foreign exchange

As at 02 July 2023

Land & buildings
£000

Equipment
£000

30,351

31,159

(9,539)

843

(1,281)

(597)

604

51,560

4,060

(11,001)

550

(412)

(8)

–

(6)

–

356

(39)

–

Total
£000

30,357

31,159

(9,545)

843

(1,281)

(597)

604

51,560

4,416

(11,040)

550

(412)

(8)

44,749

317

45,066

Land & buildings
£000

Equipment
£000

39,497

29,604

1,181

(4,331)

(989)

(10,764)

337

54,535

4,015

1,862

546

(417)

(12,895)

(1)

47,645

Total
£000

39,564

29,604

1,181

(4,331)

(989)

–

(67)

(10,831)

–

356

–

(49)

–

316

337

54,535

4,371

1,871

546

(417)

(12,944)

(1)

47,961

During the period ended 02 July 2023, all leases entered into are on normal terms. During period ended 26 June 2022, a new lease for a distribution centre in
Northampton was entered into and £24,703k was included in the additions of the right of use assets and lease liabilities. The lease term is 10 years; the Group
has no right to extend or terminate the lease and there are no variable lease payments associated with the lease arrangement.

1 Land and building impairment was £nil in the period ended 02 July 2023 (26 June 2022: £604k).

121

02 July 2023
£000

26 June 2022
£000

37,339

10,622

47,961

44,145

10,390

54,535

02 July 2023
£000

26 June 2022
£000

17. Leases continued

Non-current

Current

Total lease liabilities

Leases – cash outflow

Capital element of lease cash outflows

Interest element of lease cash outflows

Low value lease cash outflows

Short term lease cash outflows

Variable lease cash outflows

Total contractual cash flows

11,073

1,871

1,959

4,204

19,112

9,650

1,181

892

3,661

15,388

Total
£000

9,545

(604)

1,181

892

3,661

14,679

11,040

1,871

1,958

4,204

19,078

Amounts recognised in the Consolidated Statement of Comprehensive Income

52 weeks ended 26 June 2022

Depreciation charge on right of use assets

Impairment release

Interest on lease liabilities

Expenses related to low value leases

Expenses related to short term leases

Expenses related to variable lease payments1

As at 26 June 2022

53 weeks ended 02 July 2023

Depreciation charge on right of use assets

Interest on lease liabilities

Expenses related to low value leases

Expenses related to short term leases

Expenses related to variable lease payments1

As at 02 July 2023

Land & buildings
£000

Equipment
£000

9,539

(604)

1,181

–

116

3,612

13,844

11,001

1,862

–

201

4,148

17,212

–

776

835

1,757

1,866

1 The amount recognised in the income statement that arises from rent concessions to which the Group has applied the practical expedient under IFRS 16 for the period ended 02 July 2023

is £134k (26 June 2022: £407k).

Maturity analysis of Lease liabilities

Lease liabilities

Maturity analysis – contractual undiscounted cash flows

Less than one year

Between one and two years

Between two and five years

After five years

Total contractual cash flows

02 July 2023
£000

26 June 2022
£000

12,461

10,295

18,896

13,305

54,957

10,610

11,023

21,993

18,062

61,688

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

122

Notes to the Financial Statements continued
For the period ended 02 July 2023

18. Equity Investments

Investments

At beginning of period

Additions

At end of period

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

–

125

–

On 29 December 2022, Hotel Chocolat Group plc signed a new strategic partnership agreement with Kram Inc. Under the partnership agreement a new
venture, HC Saint Lucia Inc. (“HC St Lucia KK”), a company incorporated in Japan was established. The Group has acquired a 20% equity stake in this venture
(750 ordinary shares at JPY26,660 per share).

Management have taken the allowable irrevocable election to present in other comprehensive income subsequent changes in the fair value of the HC St Lucia
KK investment.

19. Investments in Joint Ventures
Hotel Chocolat KK
The Group owned a 20% interest in the Japan Joint Venture, a separate company incorporated and operating in Japan. The investment was written off during
the year to 02 July 2023 (26 June 2022: impaired to £nil) as a result of the Japan Joint venture entering into a Civil Restructuring in July 2022.

The Group’s 20% share of unrecognised losses for the period to 02 July 2023 amount to £261k (26 June 2022: £1,248k). The cumulative unrecognised losses
total £3,112k (26 June 2022: £2,851k).

Detail of Hotel Chocolat KK are as follows:

• Country of incorporation: Japan.

• Registered address: MG Meguro Ekimae 2-15-19, Kamiosaki, Shinagawa-ku, Tokyo 141-0021.

• Principal activity: sale of chocolate.

Summary financial information for the Japan Joint Venture can be found in Note 29.

Investment in Joint Ventures

Cost:

At beginning of period

Increased investment re. FGC

Increased investment re. loan drawdown

Disposal of investment

At end of period

Share of losses / impairment:

At beginning of period

Share of losses in Joint Ventures

Share of losses in Joint Venture - exceptional*

Impairment

Disposal of investment

At end of period

Carrying value

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

7,564

–

261

(7,825)

–

(7,564)

–

(261)

–

7,825

–

4,020

316

3,228

–

7,564

(1,611)

(1,248)

–

(4,705)

–

(7,564)

–

* Share of losses relating to the Japan Joint Venture during the year ended 02 July 2023 have been categorised as an exceptional item as the entity is no longer trading after the Joint Venture

obtained Court approval for Civil Rehabilitation restructuring proceedings (Minji Saisei) in July 2022.

Principal activities

Country of
business / incorporation

Proportion of
ordinary shares
directly held
by Parent

Proportion
of ordinary
shares held by
the Group

123

20. Investment in subsidiaries
The Group’s operating subsidiaries as at 02 July 2023 are as follows:

Name

Direct Holding

HOTC Limited*

Hotel Chocolat Limited
The Chocolate Tasting Club Ltd*
Hotel Chocolat UK Holdings Ltd*
Hotel Chocolat USA Inc*

Holding Company

England & Wales1

Manufacturer and Distributor of chocolates England & Wales1

Chocolate Retailer

Holding Company

England & Wales1

USA2

St Lucia3

Hotel Chocolat (St Lucia) Holdings Limited*

Holding Company

Indirect Holdings
Rabot 1745 Limited*

Hotel Chocolat Retail Limited
Hotel Chocolat Stores Limited*
Rabot Estate UK Limited*
Hotel Chocolat Europe Limited*
Hotel Chocolat EU Retail Limited*
Hotel Chocolat Corporate Limited*
Chocolate Tasting Club Inc*
HCLEX Inc*
HCGSP Inc*
HC Union Inc*
HC Turnstyle Inc*
Hotel Chocolat Inc*

Hotel Chocolat Estates Limited*
Applehill Properties Limited*
Braeburnhill Properties Limited*
Bramleyhill Properties Limited*
Cashewhill Properties Limited*
Colanuthill Properties Limited*
Crispinhill Properties Limited*
Gingerhill Properties Limited*
Hazelnuthill Properties Limited*
Hotel Chocolat DK Limited*
Lemonhill Properties Limited*
Limehill Properties Limited*
Macadamiahill Properties Limited*
Melonhill Properties Limited*
Orangehill Properties Limited*
Papayahill Properties Limited*
Peachhill Properties Limited*
Peanuthill Properties Limited*
Pearmainnhill Properties Limited*
Plumhill Properties Limited*
Satsumahill Properties Limited*

Distributor of skincare products

England & Wales1

Chocolate Retailer and Restaurateur

England & Wales1

Chocolate Distributor

Property Holding Company

Chocolate Retailer

Dormant

Chocolate Distributor

Property Holding Company

Holding Company

Hotel & Cocoa Estate

Property Holding Company

England & Wales1

USA2

St Lucia4

England & Wales1

Registered addresses:
1. Mint House, Newark Close, Royston, Hertfordshire, SG8 5HL, United Kingdom.
2. c/o Ruberto, Israel & Weiner, PC, 7th Floor, 255 State Street, Boston, MA 02109, USA.
3. Foster Capital Inc, Robin Kelton Building, Choc Bay, Castries, St Lucia.
4. 20 Micoud Street, Castries, St Lucia.
*

Hotel Chocolat Group plc has issued parental guarantee exempting the named company from the requirements of the Companies Act 2006 related to the audit of individual accounts
by virtue of s479A of the Act.

100%

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

124

Notes to the Financial Statements continued
For the period ended 02 July 2023

21. Derivative financial instruments

Derivative financial assets:

Current

Foreign currency forward contracts

Non-current

Foreign currency forward contracts

Derivative financial liabilities:

Current

Foreign currency forward contracts

Non-current

Foreign currency forward contracts

Total gross contractual cash flows

02 July 2023
£000

26 June 2022
£000

Fair value

Notional

Fair value

Notional

–

115

–

6,851

3,347

10,198

668

–

10,670

–

3,992

5,625

20,287

All derivatives noted above are designated as hedging instruments. The Group has elected to adopt the hedge accounting requirements of IFRS 9 Financial
Instruments. The Group enters hedge relationships where the critical terms of the hedging instrument and the hedged item match, therefore, for the
prospective assessment of effectiveness a qualitative assessment is performed. Hedge effectiveness is determined at the origination of the hedging relationship.
Quantitative effectiveness tests are performed at each period end to determine the continued effectiveness of the relationship. There are no forecast
transactions for which hedge accounting had previously been used, but which are no longer expected to occur.

Hedge ineffectiveness can arise from:

• Differences in the timing of the cash flows of the hedged items and the hedging instruments.

• Changes to the forecasted cash flows of the hedged items.

The loss/(gain) recognised in the Group statement of comprehensive income, within operating expenses, on cash flow hedges of foreign currency receipts
during the year, is as follows:

Other (gain)/loss – hedge ineffectiveness

Other comprehensive income

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

(355)

(481)

(836)

(1,451)

(1,372)

The effects of the foreign currency-related hedging instruments on the Group’s financial position and performance are as follows:

Euro

Carry amount

Notional amount (€)

Maturity date

Hedge ratio*

Change in discounted spot value of outstanding hedging instruments since inception of the hedge

Change in value of hedged item used to determine hedge ineffectiveness

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

(132)

10,198

15,738

July 2023 –

December 2024

July 2022 –
December 2023

1:1

(12)

1:1

(51)

Weighted average hedged rate for outstanding hedging instruments (including forward points)

1.1328

1.1782

125

21. Derivative financial instruments continued

US Dollar

Carry amount

Notional amount ($)

Maturity date

Hedge ratio*

Change in discounted spot value of outstanding hedging instruments since inception of the hedge

Change in value of hedged item used to determine hedge ineffectiveness

Weighted average hedged rate for outstanding hedging instruments (including forward points)

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

–

Nil

–

572

8.860

June 2022 –
November 2022

1:1

546

(546)

1.3410

* The fair value of the derivative financial liabilities are split between current and non-current depending on the remaining maturity of the derivative contract and its contractual cash flows.

The fair value of foreign currency forward contracts are based on observable information on exchange and interest rates. The hedged forecast transactions
denominated in foreign currency are expected to occur at various dates within the next 18 months. Gains and losses on foreign currency forward contracts
which have been recognised in the hedging reserve, within other reserves in equity as at 02 July 2023, will be recognised in the Consolidated Statement of
Comprehensive Income in the periods during which the hedged forecast transaction occurs.

The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the Consolidated Statement of Financial Position.

The movement in the fair value on forward contracts in the period of £481k profit (26 June 2022: £1,451k profit) has been included within other
comprehensive income in the Consolidated Statement of Comprehensive Income.

22. Inventories

Raw materials

Finished goods

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

12,317

22,723

35,040

13,413

29,649

43,062

Inventories are stated net of provision for obsolete and slow moving inventory of £4,393k (26 June 2022: £9,133k). Total inventory recognised as an expense
in the Statement of Comprehensive Income during the period was £84,747k (26 June 2022: £98,385k).

During the period ended 02 July 2023, a total of £4,740k was recognised as a credit, of which £nil is classed as exceptional as per Note 5 (26 June 2022:
£8,205k charge, exceptionals: £5,501k) due to the movement in provision of inventory. An additional £1,183k credit (26 June 2022: £7,092k charge) was
recognised due to the disposal of inventory.

23. Trade and other receivables
There were no material receivables which were past due but not impaired at the end of any period. The carrying value of trade and other receivables is
classified at amortised cost approximates fair value.

Current

Trade receivables

Less provision for bad and doubtful debts

Other receivables*

Prepayments and accrued income

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

2,459

(67)

2,392

2,195

8,358

12,945

2,091

(44)

2,047

6,634

8,860

17,541

* Other receivables comprises £1,048k (26 June 2022: £979k) relating to cash-in-transit and £945k (26 June 2022: £1,042k) for rental deposits. The remainder relates to sundry debtors. The

reduction in other receivables in the period relates to the deposits made for Velvetiser hardware which have now been received and included as finished goods within inventories.

For ageing analysis and credit risk of trade receivables please refer to Note 37.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

126

Notes to the Financial Statements continued
For the period ended 02 July 2023

24. Cash and cash equivalents
For the purpose of the statements of cash flows, cash and cash equivalents comprise the following:

Cash and cash equivalents

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

11,196

17,569

Significant balances are held with the Group’s main banking provider, Lloyds Bank plc. As per the Standard and Poor’s credit rating on 1 December 2022,
Lloyds Bank plc has a credit rating of A+ long term and A-1 short term.

25. Trade and other payables
The carrying value of trade and other payables classified as financial liabilities measured at amortised cost approximates to fair value.

Current

Trade payables

Other payables

Other taxes payable

Accruals and deferred income

26. Other financial liabilities

Current

Financial guarantee contract

27. Provisions

Non-current

Lease dilapidations provision

Current

Onerous contract provision

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

13,496

365

2,656

12,270

28,787

19,830

1,471

3,011

15,129

39,441

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

–

6,660

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

2,840

2,863

2,919

907

3,826

The dilapidations provision relates to potential rectification costs expected should the Group vacate its head office, distribution site or retail locations.

127

27. Provisions continued
The movement in provisions is summarised below:

52 weeks ended 26 June 2022

At beginning of period

Released through profit and loss

Amounts capitalised during the period

Additional provisions in the year

At end of period

53 weeks ended 02 July 2023

At beginning of period

Released through profit and loss

Amounts capitalised during the period

Additional provisions in the year

At end of period

Lease
dilapidation
provision
£000

Onerous
Contract
Provision
£000

1,585

–

1,334

–

2,919

(79)

–

2,840

–

907

(907)

–

Total
£000

1,585

–

1,334

907

3,826

(986)

–

2,863

Lease dilapidation provision
The dilapidations provision relates to potential rectification costs expected should the Group vacate its head office, distribution site or retail locations.
Provisions for dilapidations are inherently uncertain in terms of quantum and timing, not least because they involve negotiations with landlords at future dates.
The figures provided in the financial statements represent management’s best estimate of the likely outflows to the Group.

Onerous contract provision
The onerous contract provisions relate to forward contracts to purchase stock items which have been identified as no longer being required. During the year

ended 02 July 2023 the provision of £907k was settled and a further £23k has been identified for provision.

28. Deferred tax liability

Deferred taxation liability

Reconciliation of deferred tax balances:

Balance at beginning of period

Deferred tax credit/(charge) for the period through profit and loss

Deferred tax credit/(charge) for the period through Other Comprehensive Income

Deferred tax (charge)/credit for the period through Statement of Changes in Equity

Balance at end of period

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

(408)

(1,130)

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

(1,130)

639

138

(55)

(408)

662

(1,322)

(709)

239

(1,130)

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

128

Notes to the Financial Statements continued
For the period ended 02 July 2023

28. Deferred tax liability continued
The provision for deferred taxation consists of the tax effect of timing differences in respect of:

Short term
differences
£000

Derivative
financial
instruments
£000

Share-based
payments
£000

Fixed assets
£000

Currency
movement
on net
investment
£000

Unused trade
losses
£000

As at 27 June 2021

(Charge)/credit to the income statement

(Charge)/credit to equity

(Charge)/credit to OCI

As at 26 June 2022

(Charge)/credit to the income statement

Charge to equity

(Charge)/credit to OCI

Reclassification - OCI

As at 02 July 2023

(1,603)

(2,538)

–

(4,141)

(894)

–

(5,035)

1,601

(121)

–

1,560

(558)

–

(79)

–

923

–

(465)

(378)

–

276

104

332

(50)

239

–

521

(55)

–

472

183

–

(324)

(141)

–

(59)

(104)

(304)

1,387

–

1,449

2,085

–

Total
£000

662

(1,322)

239

(709)

(1,130)

639

(55)

138

–

3,534

(408)

At 02 July 2023, the Group had £2,229k unrecognised deferred tax assets relating to the US business (26 June 2022: £2,352k).

Deferred tax is calculated using the rate that is expected to be in force on the date the temporary differences are expected to reverse. For UK temporary
differences expected to reverse in future periods, a rate of 25% has been used (26 June 2022: 19%).

The unused tax losses are UK losses and are expected to be utilised against future profits. As set out in the Strategic Report, the current year loss contained a
number of non-recurring material items and therefore underlying profit from operations of £1,935k (26 June 2022: £23,804k) supports that future profits will

be generated.

29. Loan to the Japan Joint Venture
Hotel Chocolat had a working capital loan agreement with the Japan Joint Venture, the loan was denominated in sterling and interest was payable on a
quarterly basis. The Japan Joint Venture first drew down on the loan of £4.5m in July 2018, and the loan facility had been extended to the Japan Joint Venture
from December 2023 until December 2028. During the year to 26 June 2022, the loan of £17,816k was fully impaired. The Group had provided a further
£592k to the Japan Joint Venture in July 2022 which was subsequently impaired following the Joint Venture entering into Civil Rehabilitation. During the period
to 02 July 2023, the loan balance was written off due to the Japan Joint Venture being in the process of being wound up.

Summary financial information for the Japan Joint Venture:

Current assets

Non-current assets

Current financial liabilities (excluding trade payables)

Other current liabilities

Non-current financial liabilities (excluding trade payables)

Other non-current liabilities

The following amounts have been included in the amounts above:

Cash and cash equivalents

Revenue

Total comprehensive loss

The following amounts have been included in the amounts above:

Depreciation and amortisation

Interest expense

Income tax

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

–

11,767

(5,959)

(1,330)

(479)

–

5,330

15,640

–

(2,967)

(5,697)

(25,046)

1,600

14,504

(7,044)

(1,623)

(663)

2,092

129

29. Loan to the Japan Joint Venture continued

Composition of loan balance

Cash

Stock

Recharges

Interest

Total loan to Joint Venture

Lifetime ECL opening balance

Increase in loss allowance

Increase in loan value*

Loan write-off

Lifetime ECL closing balance

Loan to Japan Joint Venture

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

Actual
£000

Present value
£000

Actual
£000

Present value*
£000

14,380

10,278

7,132

1,550

2,013

4,949

1,168

2,013

25,075

18,408

13,880

6,788

1,592

1,963

24,223

(17,816)

–

(592)

18,408

–

9,940

4,717

1,196

1,963

17,816

(6,387)

(11,429)

–

(17,816)

–

* The loan to the Joint Venture provided during the year ended 02 July 2023 has been categorised as an exceptional item as the entity is no longer trading after the Joint Venture obtained

Court approval for Civil Rehabilitation restructuring proceedings (Minji Saisei) in July 2022.

30. Borrowings
The Group’s borrowing facilities are a two-year £30m revolving credit facility (“RCF”) with Lloyds Plc, which began on 16 July 2021, and a £20m revolving
credit facility (“RCF”) with Bank of Ireland, which began on 20 December 2021. On 29 September 2023, an amended and restated RCF agreement was
entered into where the option to extend the existing agreement by 12 months until Jul 2025 was exercised. During H1 FY23, the Group withdrew and repaid
£34.0m (26 June 2022: £5.0m).

The facility carries an interest rate of SONIA plus a margin. Both utilisation and non-utilisation fees are also applicable, being charged when utilisation
rises above a set percentage, with non-utilisation based on a set percentage of the applicable margin. These charges are based on market rates as are the
commitment fees.

The Group’s financial covenants to be reported for the RCF are as follows: positive cash flow 14 days in January, EBITDA to interest ratio of 4 and net debt
to EBITDA of 2.5. These are calculated on a pre-IFRS 16 basis. The RCF is secured by a first fixed and first floating charge over all assets of Hotel Chocolat
Group plc, Hotel Chocolat UK Holdings Ltd, HOTC Ltd, The Chocolate Tasting Club Ltd, Hotel Chocolat Ltd, Hotel Chocolat Europe Ltd, Rabot Estate
UK Ltd, Hotel Chocolat EU Retail Ltd, Hotel Chocolat Stores Ltd, Hotel Chocolat Retail Ltd and Hazelnuthill Properties Ltd. In order to support additional
inter-company lending to the Group’s St Lucian business to fund further infrastructure investment there is a condition to add the Group’s two St Lucian legal
entities to the agreement as obligors. To secure this inter-company lending, a share pledge is required to be completed within 60 days of execution of the

amended and restated RCF agreement.

31. Share capital

Allotted, called up and fully paid:

Ordinary shares of £0.001 each

As at 02 July 2023

As at 26 June 2022

£000

137,537,673

138

137,319,014

137

The issued share capital of Hotel Chocolat Group plc comprises ordinary shares of 0.1p each. Pursuant to the Company’s Articles of Association, the ordinary
shares carry full voting, dividend and capital rights and are not subject to any restrictions.

The Board have agreed not to recommend payment of a final dividend (26 June 2022: none). There are no authorised shares not yet issued as at the period
ended 02 July 2023 (26 June 2022: none).

Period ended 02 July 2023:
During the period ended 02 July 2023, 119 shares were issued to satisfy shares allotted under the Company’s Save as You Earn plan and 218,540 shares under
the Company’s Long-Term Incentive Plan.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

130

Notes to the Financial Statements continued
For the period ended 02 July 2023

31. Share capital continued
Period ended 26 June 2022:
During the period ended 26 June 2022, 11,267,605 shares were issued following an equity placement on 27 July 2021. 80,170 ordinary shares were issued
during the period ended 26 June 2022 to satisfy shares allotted under the Company’s Save as You Earn plan and 91,081 shares under the Company’s Long-
Term Incentive Plan.

32. Reserves
This note explains material movements recorded in shareholders’ equity that are not explained elsewhere in the financial statements. The movements in
equity and the balance sheet at 02 July 2023 are presented in the Consolidated Statement of Changes in Equity.

The share premium represents the amounts subscribed for share capital in excess of the nominal value of the shares. This includes transaction costs of £nil
(26 June 2022: £1,002k).

The translation reserve represents cumulative foreign exchange differences arising from the translation of the financial statements of foreign subsidiaries and is
not distributable by way of dividends.

The merger reserve arose when the Company undertook a share for share exchange with the companies listed in Note 20 and is not distributable by way
of dividends.

Retained earnings are all other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

The capital redemption reserve represented the aggregate nominal value of all the ordinary shares repurchased and cancelled by the Group.

Other reserves

Equity as at 27 June 2021

Fair value movement on cash flow hedges

Currency movement on net investment

Forex gain transferred to net investment

Cash flow hedge transferred to inventory/cost of sales

Share-based payments

Deferred tax (credit)/charge

Equity as at 26 June 2022

Currency movement on net investment

Ineffectiveness transferred to income statement

Fair value movement on cash flow hedges

Cash flow hedge transferred to inventory/cost of sales

Share-based payments

Transfer un-utilised share-based payments

Deferred tax reclassification

Deferred tax (credit)/charge

Equity as at 02 July 2023

Share based
payment
reserve £000

4,018

–

629

239

4,886

–

1,525

(3,298)

–

(55)

3,058

Hedging
reserve
£000

Long term
loan FX reserve
£000

(369)

1,451

–

(416)

–

(385)

377

–

(355)

481

(815)

–

104

197

(11)

(547)

–

1,297

416

–

(324)

842

237

–

(104)

(59)

916

Total
£000

3,102

1,451

1,297

–

629

(470)

6,105

237

(355)

481

(815)

1,525

(3,298)

–

3,963

Other reserves includes the movements in share-based payments and derivative financial instruments and the long-term loan reserve which represents the
foreign exchange gains and losses arising on the retranslation of the long term portion of a series of intercompany loans.

33. Capital commitments
The Group had capital commitments totalling £750k as at 02 July 2023 (26 June 2022: £2,450k).

34. Contingent liabilities and guarantees
There were no contingent liabilities as at 02 July 2023 (26 June 2022: £nil).

The Group provides a duty deferment guarantee of £300,000 to HMRC.

131

35. Related party transactions
The remuneration of the key management personnel of the Group are disclosed in Note 10 Interests and related party transactions are disclosed below.

On 2 August 2021, under the terms of the Group’s 2016 Long-Term Incentive Plan, the Group granted 3,263,977 options over ordinary shares of 0.1p in the
Company. Of these options granted 525,000 were granted to Angus Thirlwell, 416,667 to Matt Pritchard and 166,667 to Peter Harris.

In the prior period the Group extended long-term loan facilities to the Japan Joint Venture. During the period to 02 July 2023 the loan balance was written off
due to the Japan Joint Venture being in the process of being wound up. Please refer to Note 29 for further details.

The Group rents property in the ordinary course of business from Harwell Management, a company in which Peter Harris and Angus Thirlwell have a material
interest. The rentals (inclusive of building insurance) totalled £335k in the period ended 02 July 2023 (26 June 2022: £232k). There was no rent outstanding at
the period end (26 June 2022: £nil) and there is a lease liability of £234k (26 June 2022: £413k).

The Group engaged the services of a consultant, Oliver Pearce, who is a related party to Angus Thirwell. The cost of the consultancy services was £28k in the
period to 02 July 2023 (26 June 2022: £nil). There was an outstanding expense of £7k at the period end for services provided (26 June 2022: £nil).

Two Directors are investors in Phoenix Asset Management Fund which has a 15.94% shareholding in Hotel Chocolat Group plc.

No other amounts were due to Directors (26 June 2022: £nil).

36. Categories of financial instruments
Fair value hierarchy
The financial instruments on the Hotel Chocolat Group plc Consolidated Statement of Financial Position are measured at either fair value or amortised cost.

In the following table those financial instruments which are measured subsequent to initial recognition at fair value are grouped into levels based on the degree
to which the inputs used to calculate the fair value are observable.

• Level 1 fair value measurements are those derived from quoted prices (adjusted) in active markets for identical assets and liabilities.

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable

market data (unobservable inputs).

Financial assets

At amortised cost

Trade and other receivables (excluding prepayments)

Cash and cash equivalents

At fair value

Investment in HC St Lucia KK

Derivative financial assets

Financial liabilities

At amortised cost

Trade and other payables

Accruals

Lease liabilities

Financial guarantee contract

At fair value

Derivative financial liabilities

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

4,758

11,196

15,954

125

–

13,861

12,270

47,961

–

74,092

8,681

17,569

26,250

–

668

20,854

15,129

54,535

6,660

97,178

132

In the Directors’ view, the fair value of the Group’s borrowings is considered equal to their carrying value.

The Group measures its derivative financial liabilities relating to foreign currency forward contracts at fair value and these are grouped as Level 2 instruments.
Movements on the underlying value of financial instruments of foreign exchange contracts have been measured versus market rates and therefore are easily
identifiable. Refer to Note 21 for further information. There have been no transfers between levels in the period.

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132

Notes to the Financial Statements continued
For the period ended 02 July 2023

37. Financial risk management
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, fair value interest rate risk and price risk), liquidity

risk and credit risk.

Capital risk management
The Group’s capital management objectives are:

• to ensure the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders;

• to provide an adequate return to shareholders by pricing products and services commensurate with the level of risk; and

• to maintain at least £50k of capital as required by the AIM listing rules. There are no other externally imposed capital requirements on the Group.

The Group defines capital as total equity attributable to shareholders. For the period ended 02 July 2023 the total was £93,479k (26 June 2022: £98,383k).

The Group has met these objectives for the year and the Directors’ believe that these objectives will continue to be met for the period of 12 months from
the date of approval of the accounts.

To meet these objectives, the Group reviews the budgets and forecasts on a regular basis to ensure there is sufficient capital to meet the needs of the Group.

The capital structure of the Group consists of shareholders’ equity as set out in the Consolidated Statement of Changes in Equity. All working capital

requirements are financed from existing cash resources and borrowings.

Market risk
Cash flow risk
The Group’s primary cash flow risk is the exposure through the Group’s activities to changes in foreign currency exchange rates. The Group enters into
foreign currency forward contracts in order to manage the exposure to foreign exchange risk which arises on transactions denominated in foreign currencies.
Refer to Note 21 for further information about the Group’s foreign currency forward contracts.

Foreign currency contract assets and liabilities are shown under the heading of ‘derivative financial assets and derivative financial liabilities within the Group
balance sheet. The following table details the forward currency contracts outstanding at the year end:

Group – as at 02 July 2023

US Dollars

Average
contract rate

Nominal
currency
‘000

Contract
£000

Fair value
£000

Forward contract to buy USD within 1–6 months

–

Euros

Forward contract to buy EUR within 1–6 months

Forward contract to buy EUR within 7–12 months

Forward contract to buy EUR within 13–18 months

Group – as at 26 June 2022

US Dollars

1.135

1.134

1.125

Average
contract rate

6,941

1,389

3,222

Nominal
currency
‘000

6,111

1,225

2,861

(109)

(6)

(17)

Contract
£000

Fair value
£000

Forward contract to buy USD within 1–6 months

1.341

8,860

6,626

571

Euros

Forward contract to buy EUR within 1–6 months

Forward contract to buy EUR within 7–12 months

Forward contract to buy EUR within 13–18 months

1.173

1.200

1.165

6,400

2,943

6,395

5,533

2,503

5,626

(10)

(38)

The derivative financial instruments for the foreign currency contracts described above are all held as cash flow hedges and are classified as Level 2. The fair
value of the foreign currency contracts at the year end equate to the mark-to-market valuation of the contracts provided by Lloyds and Bank of Ireland. These
represent the amounts the Group would expect to pay or receive in order to close out the contracts at the balance sheet date.

The Group’s treasury risk management policy to address its exposure to currency movements is as follows:

• Hedge 80% of Euro denominated forecast spend for a period up to and including 18 months; due to the inherent uncertainty around forecasting the

remaining 20% of forecasted costs are purchased at spot rate in the month in which they occur.

• Hedge 100% of all future contracted US Dollar costs up to and including 18 months forward.

• Purchases denominated in Swiss Franc are no longer material to the Group and therefore no longer hedged.

133

37. Financial risk management continued
Interest rate risk
The Group is exposed to interest rate risk on its short-term revolving credit facility with Lloyds Bank and Bank of Ireland, which carries interest at variable
rates, as they linked to Bank of England base rate, on amounts which are drawn down. The revolving credit facility is typically used on a short-term basis to
fund working capital. The Group manages this risk though the monitoring of cash and cash equivalents versus future cash flow requirements.

Sensitivity analysis shows that the impact of a 1.25% movement in interest rates on the financial position and performance of the Group is insignificant (FY22:
0.5%).

The Group’s cash position by currency at year end, is as follows:

Bank balances and RCFs

Sterling

Euro

US Dollar

Swiss Franc

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

9,602

613

981

–

11,196

12,753

1,853

2,456

507

17,569

A currency sensitivity analysis has been performed on the financial assets and liabilities to sensitivity of a 10% increase/decrease in the Sterling to Euro, Sterling
to US Dollar exchange and Sterling to Swiss Francs exchange rate. A 10% strengthening has been used, comprising management’s assessment of reasonably
possible changes in exchange rates.

The impact on (loss)/ profit for the year in the income statement and impact on net assets are as follows:

Sterling strengthens by 10%

Euro

US Dollar

Swiss Francs

Sterling weakens by 10%

Euro

US Dollar

Swiss Francs

Income Statement

Net assets

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

–

(68)

(100)

–

168

223

(206)

(273)

(56)

(91)

–

100

–

(168)

(223)

(46)

206

273

Price risk
Price risk is the risk that oscillation in the price of key input costs will affect the profitability of the business. The Group manages this risk by agreeing long–
term prices with suppliers where possible.

Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management
framework for management of the Group’s short-, medium-, and long-term funding and liquidity management requirements. The Group manages liquidity
risk by maintaining cash balances to provide funding for normal trading activity. The Group also has access to both short-term and long-term borrowings to
finance individual projects. Trade and other payables are monitored as part of normal management routine.

The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have
been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table

includes both interest and principal cash flows.

The amounts included in the following table for financial guarantee contracts are the maximum amount the Group could be forced to settle under the
arrangement for the full guaranteed amount if that amount is claimed by the counterparty to the guarantee (see Note 26). The amounts detailed within
derivative financial instruments relate to the gross contractual cash flows of the Group’s forward contracts.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

134

Notes to the Financial Statements continued
For the period ended 02 July 2023

37. Financial risk management continued
Borrowings and other liabilities mature according to the following schedule, lease liabilities have been excluded from the table below, for maturity analysis on
lease liabilities refer to Note 17.

52 weeks ended 26 June 2022

Trade and other payables

Accruals

Derivative financial instruments1

Financial guarantee contract

53 weeks ended 02 July 2023

Trade and other payables

Accruals

Derivative financial instruments1

Financial guarantee contract

1 Refer Note 21.

Within

one year
£000

One to two
years
£000

21,301

14,840

14,662

6,660

57,463

13,861

12,270

6,851

–

32,982

–

5,625

–

5,625

–

3,347

–

3,347

Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. In order to minimise this risk
the Group endeavours only to deal with companies which are demonstrably creditworthy. In addition, a significant proportion of revenue results from cash
transactions, and therefore the provision against trade debtors is immaterial.

The aggregate financial exposure is continuously monitored. The maximum exposure to credit risk is the carrying value of the outstanding amount of trade
receivables, loan to Joint Venture and financial guarantee contracts issued. The loan to Joint Venture forms part of the RCF covenants which monitors an
upper limit not to be exceeded.

The Group was exposed to credit risk on the Japan Joint Venture in the form of loan to Joint Venture and the financial guarantee contract over external leases
issued to the Joint Venture. Both exposures led to concentration risk. The loan to Joint Venture has been written off, and the financial guarantee have been
settled. This has been disclosed under Note 29.

Ageing analysis:

Cash and cash equivalents

Up to three months

Cash in transit

Up to three months

Loan to Japan Joint Venture

Above six months

Financial guarantee contracts

Impairment provision

Total

Expected
loss rates

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

100%

11,196

17,569

1,048

979

–

3,269

(6,660)

(3,269)

(6,660)

135

37. Financial risk management continued

Trade receivables

Up to three months

Three to six months

Six to twelve months

Above twelve months

Impairment provision

Total

Expected
loss rates

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

1.21%

100%

1,878

1,457

228

348

(67)

277

289

(44)

2,392

2,047

These receivables are not secured by any collateral or credit enhancement. The Group applies the IFRS 9 simplified approach to measure credit losses using a
lifetime expected credit loss provision for trade receivables.

Expected loss rates for the recently expanded wholesale partners and business to business are based on historical credit losses experienced over the 12
months prior to the period end, adjusted for any anticipated future change in expected credit losses. The expected loss rate is 1.21% (26 June 2022: 0.8%) and
the expected loss provision is £14k (26 June 2022: £23k).

The impairment provision of £67k (26 June 2022: £44k) relates to £52k (26 June 2022: £21k) of specifically provided debt and £14k (26 June 2022: £23k) of
expected credit losses.

The exposure of credit risk for trade receivables by geographical region is as follows:

United Kingdom

Europe

Rest of world

Total

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

2,049

–

343

2,392

1,654

375

2,047

Trade receivables are written off when there is no reasonable expectation of recovery.

38. Events subsequent to the reporting date – Group and Company
There have been the following events subsequent to the period end and up to 11 October 2023, the date of approval of the financial statements by
the Board;

In July 2023, online Velvetiser sales in the USA have recommenced. As at the reporting date, an estimate cannot be made of the financial impact on the FY24
financial statements.

On 29 September 2023, the Group signed a new £50m Revolving Credit Facility with Lloyds Bank. This facility replaces the existing Revolving Credit Facility
and runs to July 2025.

39. Ultimate controlling party
The Directors believe that there is no ultimate controlling party of the Group.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

136

Notes to the Financial Statements continued
For the period ended 02 July 2023

40. Analysis of net cash/net debt

Cash and cash equivalents

Net cash per statement of cash flows

Borrowings

Net cash before lease liabilities

Lease liabilities

New debt after lease liabilities

Cash and cash equivalents

Net cash per statement of cash flows

Borrowings

Net cash before lease liabilities

Lease liabilities

New debt after lease liabilities

As at
26 June 2022
£000

17,569

–

17,569

(54,535)

(36,966)

Cash flow
£000

(6,815)

–

(6,815)

12,944

6,129

Non-cash
changes
£000

As at
02 July 2023
£000

442

–

442

(6,370)

(5,928)

11,196

–

11,196

(47,961)

(36,765)

As at
27 June 2021
£000

Cash flow
£000

Non-cash
changes
£000

As at
26 June 2022
£000

10,046

–

10,046

(39,564)

(29,518)

6,953

–

6,953

10,831

17,784

570

–

570

(25,802)

(25,232)

17,569

–

17,569

(54,535)

(36,966)

In the period ended 26 June 2022 non-cash charges primarily equate to new lease liabilities including £25m for the new Northampton Distribution Centre and
foreign exchange movements.

137

Company Statement of Financial Position

ASSETS

Non-current assets

Investments

Amounts due from related parties

Current assets

Trade and other receivables

Cash and cash equivalents

Total assets

LIABILITIES

Current liabilities

Trade and other payables

Total liabilities

NET ASSETS

EQUITY

Share capital

Share premium

Retained earnings

Capital redemption reserve

Share based payment reserve

Total equity attributable to shareholders

As at
02 July 2023
£000

As at
26 June 2022
£000

Notes

5,139

74,355

4,315

74,219

79,570

78,587

(316)

(329)

79,254

78,258

138

78,193

(812)

1,729

79,254

137

78,014

(3,401)

3,502

78,258

As permitted by section 408(3) of the Companies Act 2006, a separate Statement of Comprehensive Income, dealing with the results of the Parent Company,
has not been presented. The Parent Company loss for the period ended 02 July 2023 is £709k (26 June 2022: loss £8,253k).

The financial statements of Hotel Chocolat Group plc, registered number 08612206 were approved by the Board of Directors and authorised for issue on
11 October 2023. They were signed on its behalf by:

Jon Akehurst
Chief Financial Officer

11 October 2023

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

138

Company Statement of Changes in Equity

Equity as at 27 June 2021

Share-based payments

Issue of share capital

Other comprehensive income:

Loss for the period

Equity as at 26 June 2022

Share-based payments

Transfer un-utilised share-based payments

Issue of share capital

Other comprehensive income:

Loss for the period

Equity as at 02 July 2023

Share capital
£000

126

–

137

–

Share
premium
£000

38,684

–

39,330

–

78,014

–

179

–

138

78,193

Retained
earnings
£000

4,852

–

(8,253)

(3,401)

–

3,298

–

(709)

(812)

Capital
redemption
reserve
£000

Share-based
payment
reserve
£000

2,873

629

–

3,502

1,525

(3,298)

–

Total
£000

46,541

629

39,341

(8,253)

78,258

1,525

–

180

(709)

1,729

79,254

139

Notes to the Company Financial Statements

41. Accounting policies
To the extent that an accounting policy is relevant to both the Hotel Chocolat Group and the Company financial statements, refer to the Group financial
statements for disclosure of the accounting policy.

Basis of preparation
The financial statements have been prepared under the historical cost convention and in accordance with FRS 102 the Financial Reporting Standard applicable
in the United Kingdom and the Republic of Ireland. The principal accounting policies, which have been applied consistently, are set out below.

The preparation of financial statements in compliance with FRS 102, requires the use of certain critical accounting estimates. It also requires management to
exercise judgement in applying the Company’s accounting policies.

In preparing the separate financial statements of the Parent Company, advantage has been taken of the following disclosure exemptions available in FRS 102:

• no statement of cash flow has been prepared for the Parent Company;

• disclosures in respect of the Parent Company’s share-based payment arrangements have not been presented as equivalent disclosures have been provided in

respect of the Group as a whole; and

• no disclosure has been given for the aggregate remuneration of the key management personnel of the Parent Company as their remuneration is included in

the totals for the Group as a whole.

Investments
Fixed asset investments comprise investments by the Company in the shares of subsidiary undertakings. The carrying value of is reviewed for indicators of
impairment on an annual basis. Where such indicators are present, a quantified impairment test is required and the value in use calculated based upon a
discounted cash flow methodology using the most recent forecasts prepared by management.

The key assumptions for the value in use calculation are assumed market conditions, cost assumptions, discount rates and foreign exchange. Management
estimates discount rates that reflect current market assessments of the time value of money, the rate used to discount the forecast cash flows reflects the
Group’s weighted average cost of capital (“WACC”). As a result of this analysis, management determine whether impairment is required. Investments are
stated at cost less provisions for diminution in value.

Financial assets
Financial assets, other than investments and share based payments, are initially measured at transaction price (including transaction costs) and subsequently
held at cost, less any impairment. Impairments are calculated on an incurred loss basis. The Company’s assets at amortised cost comprise trade and other
receivables, and cash and cash equivalents including cash held at bank.

Financial liabilities
Financial liabilities are classified according to the substance of the financial instrument’s contractual obligations rather than the financial instrument’s legal form.
Financial liabilities are initially measured at transaction price (after deducting transaction costs) and subsequently held at cost, less any impairment.

Share-based payments
Details of the Group’s share option schemes are provided in Note 11 to the consolidated financial statements. The Company grants share options under the
share-based schemes directly to employees of its subsidiaries. In accordance with the provisions of the plan, the cost of the share-based payments will be
recorded by each subsidiary as an increase in expense, with a corresponding credit to a share-based payment reserve. The Company, over whose shares the
options are issued, recognises an increase in the investment in the related subsidiary and a credit to the share-based payment reserve. The fair value of the
employee service is based on the fair value of the equity instrument granted.

42. Summary of critical accounting estimates and judgements
The preparation of financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Directors to
exercise their judgement in the process of applying the accounting policies which are detailed above. These judgements are continually evaluated by

the Directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances.

Classification of intercompany loan (key judgement)
On considering the FRS102 definition of non-current assets inter-co loans have been assessed as long term despite being repayable on demand as we do not
expect to realise these within 12 months from the reporting period.

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STRATEGIC REPORTCORPORATE GOVERNANCECOMPANY OVERVIEWFINANCIAL STATEMENTS

140

Notes to the Company Financial Statements continued

43. Investments
Investments in subsidiaries held by the Company as non-current assets are stated at cost less any provision for impairment.

Cost

At beginning of period

Share-based payments

Impairment

At end of period

Carrying amount

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

4,315

1,525

(701)

5,139

11,937

629

(8,251)

4,315

During the period ended 02 July 2023, the investment in Hotel Chocolat (St Lucia) Holdings Limited was impaired by £701k (26 June 2022: £8,251k). The
value in use was calculated based upon discounted cash flow methodology using the most recent forecasts prepared by management using the Group’s pre-
tax weighted average cost of capital (“WACC”) of 10.79% (26 June 2022: 9.67%).

A list of the significant investments in subsidiaries, including the name, proportion of ownership interest, country of operation and country of registration can
be found in Note 20.

44. Trade and other receivables
There were no material receivables which were past due but not impaired at the end of any period.

Other receivables

45. Amounts due from related parties

Amounts due from related parties*

*Refer to Note 42 for the critical accounting judgement relating to intercompany loans

46. Trade and other payables

Accruals

Amounts due to related parties

Total trade and other payables

Amounts due to related parties are non interest bearing and are payable on demand.

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

74,355

74,219

53 weeks ended
02 July 2023
£000

52 weeks ended
26 June 2022
£000

316

329

141

47. Share capital and reserves
The share capital, share premium and the capital redemption reserve are consistent with Hotel Chocolat Group plc financial statements. Refer to Notes 31
and 32 of the Group financial statements.

The Company did not pay a dividend during the period (26 June 2022: none).

48. Contingent liabilities
The Company forms part of the Group guarantee in respect of the Lloyds RCF. At the year end, the potential liability of this security is £Nil (26 June 2022: £Nil).

49. Related party transactions
Amounts owed by and to subsidiaries is disclosed in Notes 45 and 46 respectively, of the Company financial statements.

The only employees are Directors who are remunerated through Hotel Chocolat Limited.

The remuneration of the Directors of the Company are disclosed within the Remuneration report on pages 76 to 79.

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142