Thorntons Plc SWOT and PEST Analysis - Case Study Example

Thornton’s Plc Essay Table of Contents Introduction 3 1 Background of the Company 3 2 Thornton’s Plc Mission ment 3 2 Identification of Company’s Strategies 3 2.1 SWOT Analysis 3 2.2 PEST Analysis 4 2.3 Thornton’s Plc Business Model 5 2.4 Long Term and Short Term Strategy 5 3 Company Enhancing Corporate Governance 6 3.1 UK Code of Governance 6 3.2 Leadership 7 3.3 Efficiency 7 3.4 Accountability 8 3.5 Remuneration 8 3.6 Shareholder Relationship 8 4 Thornton’s Plc in Preventing Scandals 9 5 Company’s Financial Strategy & Results 9 5.1 Income Statement of Thornton’s Plc 9 5.2 Financial Innovation 10 Reference List 12 1 Introduction 1.1 Background of the Company For many years Thornton’s plc is considered as one of the famous chocolate manufacturing brand of United Kingdom. Thornton’s plc is an UK based chocolate company established by Joseph William Thornton in the year 1911. When Cadburys became a division of a non-confectionary specific group, Thornton’s became one of the leading confectionary corporations in the UK. It retains a marginal sale of its toffee and fudge; the company shifted its speciality after the end of the post war rationing into delicious chocolates and gradually developed since then. The company became famous for its Swiss and Belgium chocolate ranges and its sales gradually increased (Hardman, Rogers, Etchells, Houstoun and Munafò, 2013). They bring to use the best quality cocoa beans for creating delicious dark, smooth milk, and white chocolate collections. Thornton’s make celebrations such as weddings and birthdays memorable for people by producing luxury chocolates and wrapping them in many innovative ways for presenting them to their loved ones. By the company’s increasing sales and production, it opened up many small shops which diversified to become cafes. 1.2 Thornton’s Plc Mission Statement The company’s mission is to become Britain’s most loved chocolate brand and to bring smile on every customers face. Their mission is to boost creativeness and bring nation together through their appetizing chocolates. They also believe in effective communication with customers and enhancing their relationship with their stakeholders. Adopting, implementing and reviewing strategies are also considered vital by the renowned chocolate brand (Ishizaka, Balkenborg and Kaplan, 2011). The company decided to have a mission statement in order to make people aware of their goals for the organization. These statements are generated for the employees of the organization to notice the rules and mission f the organization in achieving goals. The mission statement is also included in the employee handbook so that they realize their responsibility of achieving the organizational goal (Thortons, 2014). 2 Identification of Company’s Strategies 2.1 SWOT Analysis STRENGHTS Vertical integration Growth of market share High quality production Renowned brand name Local diversification WEAKNESSES Reducing profitability Expansion threat Seasonal sales OPPORTUNITIES Large number of chocolate lovers Increasing sales Growing industry THREATS Increasing competition No barriers for new competitors 2.2 PEST Analysis The political factors affecting company are high rates of taxation on operating and production of confectionaries and the company is benefitting by operating on free trading zone of the European Union. Keeping in mind these political factors, the company develops its long and short term strategies to sustain in the competitive market (Spence and Townsend, 2006). The economic factors affecting company are decline of French economy, incapability of achieving target demands and profits and the devaluation of pound sterling. These economic factors affect the pattern of seasonal demand of the company’s products. The company considers these factors in developing their product innovation strategies. The sociological factors involve the reduction in the required number of employees due to implementation of automated manufacturing and seasonal demand getting increased. Another sociological factor is the age group profile of the company’s customers who are generally teenagers and children. The technological factors include installation of a new program that is the EPOS costing £3 million. The company also invested in new factory and warehouses which involved spending a large amount of money (Stewart, 2004). Also, the company launched various innovative internet and interactive sales operation. The company also invested in warehousing and implementing new machineries. These technological factors are considered by the company in managing various costs. 2.3 Thornton’s Plc Business Model Analysing Thornton’s plc annual report, we get to know how successfully it is performing in the British market. The company earned revenues up to £ 222.4 million in 2014, which was £ 221.1 million in 2013 (Gray and Foods, 2001). The aim of the company’s business model is focussed on rebalance and growth. Their strategies are to revitalize and restore and to maintain their business growth in the future years. The model is designed to establish itself as an emerging international FMCG business along with the presence of strong UK multichannel retail presence (Chesbrough and Rosenbloom, 2002). Their business model consists of three major strategies. First is to rebalance and grow. They are focusing on the strong growth in the FMCG division. They wish to improve retail performance and also plan to right sizing their stores (Thody and Punter, 2000). Their future plans include looking for opportunities for maintaining strong growth in the UK commercial channel. Developing approaches for international growth are also there in their business models. Their business model strategy is to revitalize. They are launching refreshed products and wish to continue that in the future. They are making plans to enhance cross channel merchandising to improve business performance. They are extending their plans for refreshing their packaging and products (Ellis-Chadwick, Doherty and Hart, 2002). The final strategy of their business model is to restore their business. They are planning to retain growth in the FMCG sector and are focussing on reducing costs from retail sector. Their future plans are to continue rebalancing their sales towards increased net margin contribution. Develop disciplined approach towards margin and managing costs (Bunnefeld, Hoshino and Milner-Gulland, 2011). 2.4 Long Term and Short Term Strategy The company’s major shareholders are Crystal Amber fund Ltd, Prudential PLC and a few more. The company has adopted many long and short term financial strategies in gaining competitive advantage (Goodwin and Wright, 2001). They mostly use two types of strategies that is the global corporate strategy and the balanced scorecard strategy. The focus on the global corporate strategy is on establishing export strategy, globalization strategy and multi domestic strategy. The balanced scorecard focuses on the company’s economic performance, consumer information, and domestic trading method and also focuses on knowledge and expansion. The company decided on achieving global corporate strategy by becoming a multichannel (Brown and Thornborrow, 1996). They wished to own a store channel and sell their products directly through their outlets. They made a strategy to be a commercial channel and sell their products via supermarkets and local franchises, especially in those areas where shops were closed. They made a strategy to be an internet channel and sell their chocolates via the direct website of Thornton’s plc. Their innovative strategies were focused on diversifying its sales (Stewart, 2004). Following the grand strategy, the company has aimed to rebalance itself and increase their brand strength by getting more focused on the retail estates. They aimed to renew the customer focus and assemble with the growing commercial market and franchise. The companies long term strategies includes eliminating their business risk in the coming years, to be wholly customer focused multichannel industry and increase prosperity, and to refresh the trade name (Haddock, 2005). Their short term strategies were on paying attention on product development in order to make their product much attractive and important for gifting. They looked for strategic opportunities to sell their products to a greater extent on any key occasion such as on Christmas or on birthdays. Their short term strategies also includes addressing various challenges such as forward purchasing, optimization of ingredients, product engineering and changes in relation to seasonal range. These strategies have proved to give out optimum results to the chocolate brand through an increase in their turnover for the past years. The company is constantly measuring their long and short term strategies to sustain itself as a renowned confectionary brand (Chesbrough, 2007). 3 Company Enhancing Corporate Governance 3.1 UK Code of Governance The UK governance code can be understood as the set of principles of good corporate governance focused on the companies those are listed in the London stock exchange. The UK code of governance prioritizes leadership, effectiveness, accountability, remuneration and the company’s relation with its stakeholders. The company took these priorities seriously in increasing the sufficiency of its corporate governance (Tayler, 2010). The company followed the provisions set out in the UK code of governance and accordingly set up their nomination committee comprising chairman, chief executive, human resource director and non- executive director’s leader (Neophytou and Molinero, 2004). The roles and responsibilities of the board were clearly defined and they conducted meetings eight times per financial year. As per the recommendation of the codes, the board frequently reviewed the operational performance and plans of the company and determined the company’s proposed strategies for recovering the company’s affectability. The audit committee met at least twice annually with the external auditors and addressed any issues that cropped up during the course of their audit work. According to the UK code, the committee was held responsible for reviewing an ample range of matters which included interim and the annual financial statements before they are required to be submitted to the board. They also monitored the reliability of the information that they required to submit to their shareholders. In order to gain more efficiency on corporate governance, the company framed remuneration policy by giving full consideration to the provisions listed in the UK codes. 3.2 Leadership Leadership is described as a process socially influencing people, organizing and supporting them in accomplishing a common organizational goal. In order to enhance their leadership team they appointed an experienced director of International development to retain and enhance their growth. Thornton’s applies category leadership in their strategies such as “excellent for unique occasions” and “made with care”. The board of the company provides leadership within a scaffold of efficient and discreet controls intended to enable uncertainties to be gauged and controlled. They are responsible for maintaining effective leadership in order to run their business fruitfully and lead the market as a popular chocolate brand. 3.3 Efficiency In line with their strategies of supplying chocolates to their customers anywhere they wish to collect them helps them to maintain their efficiency in manufacturing and supply chain operations. In order to increase their efficiency their FMCG division they are continuously building distribution in their UK commercial channel for expanding accessibility of their products, strengthening their seasonal offers and for creating an enhanced gifting range throughout the year. They launched their third robot packaging machine which continues to run in a full capacity improving the packaging of the boxed chocolate ranges and also saving time. For being an efficient market leader the company majorly focuses on their operational pillars of quality, safety and delivery which in turn improved their performance by reducing lost time and reportable accidents (Lewis and Stubbs, 2014). 3.4 Accountability Thornton’s understands their responsibilities towards their employees, customers, shareholders and the environment very sincerely. They ensure the quality and safety of their chocolates and bring to use the finest ingredients in manufacturing their products. Thornton’s takes pride in providing superior customer service wherever their customers buy their products. The company focuses on high standard of health and safety. They provide nutritional information on the packaging of their products and recommend that it is a luxury food item and should be enjoyed along with a healthy balanced diet. Responsible measures are taken by Thornton’s in reducing wastes, improving recycling on spot and conserving energy. They continue to beat their climate change agreement targets, set up by food and drinks federation and focus to further reduce their energy consumption in the forging years. 3.5 Remuneration The remuneration committee of Thornton’s comprises of three independent directors. The board has delegated authority to the remuneration committee for deciding the chairman’s and executive director’s remuneration and the performance based awards. The remuneration policy makes sure the individual rewards and incentives are in accordance to the company’s performance and the shareholders interest (Clark, 2011). They also stressed on maintaining a competitive remuneration package for enabling the company to motivate, attract and preserve the high ability executives. 3.6 Shareholder Relationship The chairman of Thornton’s plc understood their responsibility for the leadership and the effective running of the board. The shareholders are given much priority by the company.. It can be summarized that the board of Thornton’s plc take their corporate social responsibility seriously and continue looking for vigorous and open reviews for their actions for ensuring that they are good citizens for their every stakeholders. The company regularly monitors the policies for reducing risks and for meeting the requirements of corporate and financial assiduousness which includes setting apparent responsibilities and cross checking by reviewing the responsibilities internally and externally (Macqueen, 2011). 4 Thornton’s Plc in Preventing Scandals The renowned chocolate brand maintains efficient corporate governance strategies in avoiding any scandals. A few scandals rose stating that the companies fall in sales and heading towards the decline stage. Thornton’s plc actively participates in numerous local charities and encourages its staff to get involved in fund raising activities as it claims to understand the importance of neighbouring community (Dalzell-Payne, 2004). They ensure maintaining a sustainable business and behaving responsibly towards its stakeholders. Managing every factor required to run business through efficient corporate governance as mentioned in the UK code of governance and Cadbury report, it is successfully preventing the scandals (Goodwin and Wright, 2001). 5 Company’s Financial Strategy & Results 5.1 Income Statement of Thornton’s Plc By an in depth study of the companies income statement, it can be summarised that the companies increased over the past years resulting to £ 222.4 million in 2014. The expenses turned out to be £213.80 million. The retained profit resulted to £ 5.27 million. The earnings per share reported to be 7.10. The profit after tax of the company resulted to be £ 5,390,000 in 2014. By analysing the income statement of the company, the answers to a few questions can be found. The reason behind it is realised to be their responsible actions and efficient strategies in improving the performance of the company. The increase in the revenue earnings is the cause that improved the numbers of income statement of the company. Few effective strategies include rebalancing their sales for ensuring that the consumers readily get the product in the places they wish to buy (Laviosa, 2005). They launched refreshed products which received positive response from the customers and they successfully restored profitability towards industry competitive returns. Their international sales also grew for the past years. This result demonstrates the positive results of the companies adopted strategies. The operating expenses decreased by £ 3.0 million and resulted to £ 91.3 million which was previously £ 94.3 million. Due to the increased percentage of sales, the operating expenses of the company decreased from 43.4% in 2013 to 41.3% in 2014 (Baron and Wass, 2005). The operating profit margin is observed to be 3.3% this year. Other operating income reduced to £ 1.3 million as a result of reduction in rent receivable. This result is because of store closures and also because of subletting arrangement changes. The accounting charge in the financial year 2014 for corporation tax was £ 1.0 million which was £ 1.2 million in the previous year. An incredible decrease in the applicable tax rate resulted in the offset of the increased taxable profits year after year. The effective tax rate as observed in the half year was found to be 23.4% which was 27.8% in the previous year. It is considered to be higher than the rate set by the government which is 22.5% (Brumwell, 2003). This result primarily is due to the effect of tax on the non-deductable expenses which mainly includes depreciation. The post exceptional tax charge for the financial year reflects 27.4% of the post exceptional profit before taxation. The charge seems superior to the statutory rate of 23.75%, which is a result of tax effect of permanently disallowable items and the effect of delayed tax balances in the corporate tax rate changes that were applicable during the year (Hamilton, 2005). The company did not recommend paying out of dividends in the financial year. Unless the board approved to generate cash and increased more equity, the company planned not to give out any dividends. It is projected to pay out a dividend of 0.3p in the current financial year. They decided as the financial performance of the company improves and as they start returning to their progressive dividend policy, they will start giving out dividends (Carrotte, Winstanley and Watts, 2004). 5.2 Financial Innovation Various financial innovation strategies are being adopted by the chocolate manufacturing firm in improving their firm’s performance. Thornton’s efficiently continues to operate in difficult trading environment as the UK economic recession. They are innovating strategies in mitigating risks and efficiently dealing with the uncertainties. They are constantly improving their products for maintaining their customer relevance and to sustain in the highly competitive market. They are rigorously identifying, developing and researching unique product ideas and reviewing them on a regular basis. The company is also innovating multi channel strategies in order to satisfy their customer’s desires much better than its competitors and also wishes to mitigate diverse risks of business. The company in order to increase sales introduced hampers and alphabet truffles in their stores and various franchisee channels and the two of them continued to be successful online and resulted to further growth of sales of their chocolate photo boxes (Tayler, 2010).Their chocolates in the shape of heats and eggs were liked by their customers as they could create their personalised and bespoke gifts through those chocolates. The company invented the “best of British” rage of chocolates for the summer celebrations which gained successful results. Their future plans for commercial business is supposed to generate over half of their overall sales establishing it as the largest channel. They are planning to refresh their model range and create further new little gifts for expanding their markets and for creating a path of reappraisal of their brand. Thornton’s are providing a wide range of products in various price points, attained flexibility in trading and promotional campaigns for efficiently responding to customers and the changing trends of the market (Dalzell-Payne, 2004). They are designing innovative approaches in developing payment system that are efficient in the exchange of goods, for managing agency costs and they are developing innovative approaches in transferring their products across geographic regions easily. Reference List Baron, S. and Wass, K., 2005. Towards an Understanding of Airport Shopping Behaviour. International Review of Retail, Distribution and Consumer Research, 6(3), pp. 301-322. Brown, A. D. and Thornborrow, W. T., 2011. Do Organizations Get The Followers They Deserve. Leadership & Organization Development Journal, 17(1), pp. 5-11. 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Available at: < http://investors.thorntons.co.uk/download/pdf/thorntons-plc-annual-report-and-accounts-08102014-a.pdf > [Accessed 14 April 2014]. Read More