REG - Nichols PLC - 2022 Preliminary Results
01/03/2023 07:00
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RNS Number : 4128R Nichols PLC 01 March 2023
1 March 2023
Nichols plc
2022 PRELIMINARY RESULTS
Nichols plc ('Nichols' or the 'Group'), the diversified soft drinks Group,
announces its Preliminary Results for the year ended 31 December 2022 (the
'period').
Year ended Year ended
31 December 2022 31 December 2021 Movement
Group Revenue £164.9m £144.3m +14.3%
Adjusted Profit Before Tax (PBT)1 £25.0m £21.8m +14.5%
Profit/(Loss) Before Tax (PBT) £13.8m £(17.7)m (178.4%)
Adjusted PBT Margin1 15.1% 15.1% -
PBT Margin 8.4% (12.2%) +20.6ppts
Statutory EBITDA2 £26.9m £23.7m +13.3%
Adjusted earnings per share (basic)1 55.38p 46.15p +20.0%
Earnings/(Loss) per share (basic) 31.86p (60.04p) +153.1%
Free Cash Flow(3) (FCF) £14.6m £17.5m (16.7%)
Adjusted Return on Capital Employed(4) 27.2% 26.6% +0.6ppts
Statutory Return on Capital Employed(5) 14.2% (15.8%) +30.0ppts
Proposed Final Dividend 15.3p 13.3p +15.0%
Full Year Dividend 27.7p 23.1p +19.9%
Financial highlights
· Group revenue increased by 14.3% to £164.9m (2021: £144.3m)
o Still products +8.2% to £78.3m (2021: £72.4m)
o Carbonated products +20.4% to £86.6m (2021: £71.9m)
· UK revenues increased by 13.7% to £127.0m (2021: £111.6m)
o UK Packaged route to market sales +2.9%
o UK Out of Home (OoH) recovery continues post pandemic, with revenues
+42.8%
· International revenues +16.1% to £38.0m (2021: £32.7m)
o Middle East revenue +20.4% (+11.3% excluding 2021 marketing investment)
o Significant progress in Africa continued with revenue +15.0%
o ROW markets revenue +12.7%, supported by strong OoH recovery in Europe
· Maintained Adjusted PBT Margin at 15.1%, despite significant
inflationary pressures (2021: 15.1%)
· Continued strong cash performance with FCF(3) of £14.6m (£18.9m
excluding historic HMRC incentive scheme tax settlement during the year)
(2021: £17.5m)
o Cash conversion(6) at 72% (2021: 103%)
· Exceptional charge of £11.1m; £8.7m attributable to non-cash
impairment of OoH intangible and fixed assets
· Proposed final dividend of 15.3p, up 15.0% year-on-year and
reflecting 2x cover(7), in-line with the Group's dividend policy. If approved
at the Group's AGM, the full year dividend of 27.7p would represent a 19.9%
increase year-on-year
Strategic and Operational highlights
· Vimto's brand value in the UK +3.0%(8)
o Continued outperformance of the dilutes market, by +2.3%(9)
o Significant and continued progress in the ready to drink market, with
brand value +15.9%(9)
· Successful transfer of Dilutes contract manufacturing to faster and
more efficient lines in H1, supporting a more favourable underlying cost of
goods
· Strategic review of the OoH route to market completed, with
opportunities for net margin improvement identified. Actions have commenced
and will continue to be implemented throughout FY23 with benefits largely
realised in FY24 and beyond
· Segmental reporting and separate strategic focus between Packaged
and OoH businesses from FY23
John Nichols, Non-Executive Chairman, commented:
"Vimto continues to perform well both in the UK and internationally and
despite ongoing inflationary pressures, which accelerated during the second
half, the brand has ensured a robust financial performance for the Group. In
the UK we have again seen the brand outperform in dilutes and continued to
make significant progress in the ready to drink subcategory. Internationally,
we continued to see solid growth across all regions. In particular, it was
pleasing to see strong underlying growth in both the Middle East and Africa
given the importance of these markets to the Group.
The Board currently expects FY23 Adjusted PBT(1) to be in line with FY22 and
market expectations(10), with International ahead and OoH behind initial
market forecasts. The Board remains confident of significant progress in FY24
as inflationary pressures abate and the benefits of the Out of Home Strategic
Review are realised.
With a long-term track record of growth, a proven and diversified strategy in
the UK and internationally, a quality range of brands and a strong balance
sheet, the Board remains highly confident that the Group is very well
positioned to deliver its long-term growth plans."
References:
1 Excluding Exceptional items
2 EBITDA is the statutory profit before tax, interest, depreciation, and
amortisation
3 Free Cash Flow is the net increase in cash and cash equivalents before
acquisition funding and dividends
4 Adjusted return on capital employed is the adjusted operating profit divided
by the average period-end capital employed
5 Statutory return on capital employed is the operating profit divided by the
average period-end capital employed
6 Cash Conversion is the Free Cash Flow / Adjusted Profit After Tax
7 Dividend cover is adjusted basic earnings per share divided by the dividend
per share
8 Source: Nielsen IQ RMS data for the Total Soft Drinks category for the YTD
ending 31 December 2022 for the GB Total Coverage market
9 Source: Nielsen IQ RMS data for the Dilutes and RTD Stills categories for
the 12 months to 31 December 2022 for the GB Total Coverage market
10 FY23 market expectations refers to a Group compiled consensus of adjusted
PBT of £25.1m
Contacts
Nichols plc Telephone: 0192 522 2222
Andrew Milne, Group Chief Executive Officer
David Rattigan, Group Chief Financial Officer
Singer Capital Markets (NOMAD & Broker) Telephone: 0207 496 3000
Steve Pearce / Jen Boorer Website: www.singercm.com (http://www.singercm.com)
Hudson Sandler (Financial PR) Telephone: 0207 796 4133
Alex Brennan / Charlotte Cobb / Harry Griffiths Email: nichols@hudsonsandler.com (mailto:nichols@hudsonsandler.com)
Notes to Editors:
Nichols plc is an international diversified soft drinks business with sales in
over 73 countries, selling products in both the Still and Carbonate
categories. The Group is home to the iconic Vimto brand which is popular in
the UK and around the world, particularly in the Middle East and Africa. Other
brands in its portfolio include SLUSH PUPPiE, Feel Good, Starslush, ICEE, Levi
Roots and Sunkist.
For more information about Nichols, visit: www.nicholsplc.co.uk
(http://www.nicholsplc.co.uk)
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the company's obligations under Article 17 of
MAR.
Chairman's Statement
It gives me great pleasure to write to our shareholders in what is my final
report as Non-Executive Chairman of Nichols.
Vimto continues to perform well both in the UK and internationally and despite
ongoing inflationary pressures, which accelerated during the second half, the
brand has ensured a robust financial performance for the Group. In the UK we
have again seen the brand outperform in dilutes and continued to make
significant progress in the ready to drink subcategory. Internationally, we
continued to see solid growth across all regions. In particular, it was
pleasing to see strong underlying growth in both the Middle East and Africa
given the importance of these markets to the Group.
As Out of Home (OoH) recovers from the impact of the pandemic, the Group's OoH
Strategic Review is now complete, with opportunities for net margin
improvement identified. Actions are expected to be implemented throughout
FY23, with benefits being realised largely in FY24 and beyond. Given the
differing strategic challenges between our Packaged and OoH routes to market,
the Group will be segmented during FY23 to ensure appropriate strategic focus
exists for each of its two proposed operating segments.
Trading
Total Group revenues for the period were £164.9m, an increase of 14.3%
compared to 2021, with all routes to market and geographies progressing in the
period.
Revenue of Still products increased by 8.2% to £78.3m (2021: £72.4m), driven
by the strong performance of the Vimto Squash and RTD brands in the UK and the
progression of Vimto Cordial in the Middle East. Revenue from Carbonated
products increased 20.4% to £86.6m (2021: £71.9m), driven largely by the
recovery of the Group's OoH Dispense business as outlets fully reopened
following the pandemic, and by continued strong growth in Africa.
In the UK, revenue increased by 13.7% versus last year to £127.0m (2021:
£111.6m) as the OoH route to market, and in particular the Dispense business,
recovered post the pandemic. The Vimto brand continued to progress by +3.0% to
£105.9m, according to Nielsen(1).
Sales across our International markets were £38.0m, an increase of 16.1%
(underlying +13.4% adjusting for the impact of the completion of the Group's
marketing investment in the Middle East in 2021) versus the prior year (2021:
£32.7m). Revenue in Africa increased 15.0%, following a 17.1% growth last
year which was particularly pleasing given the long-term opportunity presented
by these markets.
Share Buyback
On 14 December 2021, the Group announced its plans to conduct on-market
purchases under a share buyback programme. This included the intention
to repurchase up to 453,486 ordinary shares of 10p each in the capital of
the Group (the 'Ordinary Shares'), representing up to approximately 1.2 per
cent of the Group's issued share capital, pursuant to the authority obtained
at the Group's most recent Annual General Meeting (AGM) at that time, held on
28 April 2021 (the 'Buyback').
The Buyback was put in place to meet the Group's future obligations under its
SAYE Option Scheme and/or Long-Term Incentive Plan. The Buyback was completed
on 5 April 2022 and was funded from the Group's existing cash resources. All
Ordinary Shares repurchased are now held in treasury. The weighted average
price paid was 1428.18 pence and the total cost of the Buyback in the period
was £5.5m.
Dividend
Considering the Group's improved performance in the period and in-line with
the Group's stated dividend policy of broadly 2x cover, the Board today
proposes a final dividend of 15.3p which, together with the interim dividend
paid, would result in a full year dividend for 2022 of 27.7p, representing a
19.9% increase year-on-year.
Subject to approval at the Group's AGM on 26 April 2023, payment will be made
on 4 May 2023. The ex-dividend date and record date will be 23 March and 24
March 2023 respectively.
1 Nielsen IQ RMS data for the Total Soft Drinks category for the YTD ending 31
December 2022 for the GB Total Coverage market
Chair Succession
I announced at the last AGM that, after 15 years in the role, it was my
intention to retire as Non-Executive Chair once a suitable replacement had
been identified. On 11 January 2023, the Board was pleased to announce the
appointment of Elizabeth (Liz) McMeikan as the Group's next Non-Executive
Chair. In Liz, the Nominations Committee have identified an outstanding
candidate with significant experience in consumer-facing businesses and public
company boards.
Liz joined the Group as a Non-Executive Director on 1 February 2023 and will
become Non-Executive Chair on 26 April 2023 following the conclusion of the
AGM on that date, subject to her re-appointment as a Director.
I am delighted to remain on the Board as a NED, taking the second of the two
Nichols family Board seats, agreed as part of the Relationship Agreement
signed in July 2020 alongside my son James Nichols.
Outlook
The Group has a proven, diversified, and international business model.
However, it is not immune to the significant and accelerating inflationary
pressures impacting the wider consumer and soft drinks markets. Whilst FY23
will be a challenging year as cost of living pressures impact consumer demand
across all routes to market, the Group will continue to seek to mitigate
these pressures through both cost efficiency and revenue
management. Throughout FY22, this has helped the Vimto brand continue to grow
in the UK and internationally, which the Board is confident will continue in
FY23.
The Board currently expects FY23 Adjusted PBT(1) to be in line with FY22 and
market expectations(2), with International ahead and OoH behind initial market
forecasts. The Board remains confident of significant progress in FY24 as
inflationary pressures abate and the benefits of the Out of Home Strategic
Review are realised.
With a long-term track record of growth, a proven and diversified strategy in
the UK and internationally, a quality range of brands and a strong balance
sheet, the Board remains highly confident that the Group is very well
positioned to deliver its long-term growth plans.
John Nichols
Non-Executive Chairman
1 March 2023
1 Excluding exceptional items
2 FY23 market expectations refers to a Group compiled consensus of adjusted
PBT of £25.1m
Chief Executive Officer's Statement
I am incredibly proud of the Group's strong performance in 2022, which is a
great testament to the commitment, resilience and determination of the entire
Nichols team as we navigated what was a challenging and volatile trading
environment. The teams should be very pleased with what we have achieved this
year, delivering strong sales growth across all our key geographies.
Having experienced unprecedented trading conditions in recent years because of
the Covid-19 pandemic, 2022 was another challenging and unpredictable year. We
saw rapidly rising inflation, increased cost of living pressures on consumers
and experienced a number of logistical challenges relating to the strike
action that occurred in Spain during the first half of 2022 that, whilst not
affecting the overall year performance, did cause a phasing issue H1 to H2.
Whilst our teams have had to be flexible and continuously adapt to changing
circumstances, I am really pleased that our clear strategy and diversified
business model have enabled us to successfully overcome the challenges
throughout the year and, ultimately, deliver returns for our shareholders.
The performance of the Vimto brand was central to the Group's success in 2022.
Vimto's unique flavour continues to be loved by consumers across the globe. In
the UK, the brand saw growth of 3.0%(1) during the year, once again
outperforming the dilutes and ready to drink (RTD) subcategories.
One of the Group's key strategic focus areas in 2022 was to drive further
operational excellence, with the objective of delivering enhanced levels of
product availability and ensuring our consumers can enjoy our brands on a
daily basis. A key initiative that has been successfully delivered to drive
this during the year was the transition of our dilutes contract manufacturing
to more efficient and faster lines that has increased our capability and
capacity at an underlying favourable cost of goods position.
Happier Future
At the beginning of the year, we shared our Happier Future sustainability
commitments with our stakeholders, and I am pleased to report that in 2022 we
made strong progress against our three key pillars of:
· Everyone Matters - looking after our Nichols plc family and giving
back to our local communities
· Products We're Proud Of - developing products that allow consumers
to make healthier choices, strengthening our approach to responsible sourcing,
and continuing to find sustainable packaging solutions
· Owning Our Climate Impact - ensuring we are conducting our business
in the most sustainable way to protect the world around us
Our people are focused on embedding our commitments and pledges in these key
areas across all our business practices. Sustainability is front of mind for
everyone, and key to our day-to-day decision-making. Some of our key
highlights during the year included launching our first Camp Vimto programme
which is focused on raising aspirations and driving opportunities for young
people in the communities we serve and ensuring that we continue to launch a
range of No Added Sugar (NAS) products to offer our consumers a balanced
choice of product range. Within our Owning Our Climate Impact pillar we have
delivered on transitioning all our Nichols UK sites to be operating on 100%
renewable energy. You can read more on our Happier Future strategy and
progress during the year in our FY22 Annual Report.
UK Soft Drinks(1)
The UK soft drinks market delivered value growth during 2022 of 9.2% with a
total market value of £10.5bn (2021: 9.6bn). However, market sales volumes
declined 2.1% year-on-year, mainly due to the impact of cost of living
pressures on consumers and despite the easing of trading and social
restrictions imposed during the Covid-19 pandemic. This value growth reflected
price increases seen across the market in response to inflationary pressures.
The Vimto brand continued to perform well in 2022 and, once again, delivered
strong value sales of £105.9m. This was a result of the continued investment
in its distribution channels, product availability, innovation, promotions and
strong marketing campaigns.
1 Nielsen IQ RMS data for the Total Soft Drinks, Squash, Flavoured Carbonates
and RTD Stills category for the YTD ending 31 December 2022 for the GB Total
Coverage market
The dilutes category continued to be a segment where we flourished. I am
incredibly proud to say that Vimto is the only UK dilutes brand to have
achieved growth pre, during, and post Covid. Building on the momentum of our
brand re-launch in 2021, Vimto dilutes continues to gain market share from
peers and during 2022 we further cemented our clear No.2 position in the
market. Vimto Squash is the fastest-growing dilutes brand and outperformed the
sub-sector by 2.3% in 2022.
Our Vimto Still RTD range experienced significant value growth in 2022,
achieving 15.9% year-on-year sales growth, and a +3.8% market outperformance.
This has been achieved as a result of winning several new listings for our
products across a range of key outlets during the year.
2022 has been a challenging year for our Carbonates portfolio. We have faced
significant cost of goods pressures in what is a highly competitive
subcategory. As a result we have focused on protecting our margins which has
resulted in both value (-3.3%) and volume decline (-16.4%).
Innovation continued to be a key growth driver in 2022 as we launched a range
of exciting new products that all share the unique and distinctive Vimto taste
experience. We remain passionate and committed to providing consumers with the
opportunities to make balanced and informed choices when it comes to healthy
hydration, with all our Packaged products now High in Fat, Salt and Sugar
(HFSS) compliant. Our product launches in 2022 included:
· Vimto Zero Cherry, Raspberry & Blackcurrant Sparkling
· Vimto Zero Blackberry, Raspberry & Blueberry Still
· Two new NAS dilutes flavours - Vimto Orange and Pineapple, and
Vimto Mango and Passionfruit
Following its launch in 2021, summer 2022 saw the return of Vimto's highly
successful 'Find Your Different' marketing and advertising campaign. Building
on the strength of its activation last year, the multi-media campaign
continued to drive a strong uplift in overall brand awareness, consideration
and engagement, whilst highlighting the benefits of our fortified squash
flavour range. Our fully-integrated campaign ran on platforms including TV,
video on demand, digital, social media and in cinemas. The campaign was seen
by around six million consumers in total, with 80% of this group sitting
within our key target audience of families.
In addition to our broadcast communications, we also ran two promotions across
our Carbonates and RTD ranges, including our 'Big Cash Giveaway' and 'Love
Potion' initiatives in the impulse sector. Both incentivised shoppers with the
chance to win cash instantly when buying our products.
Our Levi Roots brand had another successful year, delivering strong value
growth of 5.3%. This has been driven by an increase in the number of
distribution points across wholesale and convenience channels, alongside a
successful sales distribution drive, ensuring that the Levi Roots brand is
readily accessible for both retailers and consumers.
Our Feel Good brand continues to see accelerated customer and consumer demand,
with year-on-year volume and revenue growth. This was driven by strong
distribution gains for multi-packs into new grocery retailers as well as new
listings for our single serve range in the on-trade. In addition to our retail
distribution wins, our new direct to consumer partnership will unlock more
growth for the brand online.
In April 2022, Feel Good launched an exciting new partnership with Project
Seagrass, a marine conservation charity dedicated to global seagrass meadow
protection. We supported the protection of the UK's first seagrass nursery in
Wales through our #youbuyweplant programme.
Throughout 2022, we continued to work closely with all our customers across
our UK grocery, foodservice, discounter, and wholesale channels to ensure
their needs are at the heart of our operations. The strength of these
relationships is paramount to ensuring our end consumers can enjoy our
products each day.
UK On-Trade
Similar to the broader hospitality industry, our Out of Home route to market
experienced another challenging 12 months in 2022.
During the year, we supported our key customers and partners as they faced
numerous challenges resulting from increasing energy costs to rising inflation
and supply shortages. Throughout the year, we remained focused on maintaining
strong service levels and always maximising product availability, thereby
ensuring all of our customers' drinks equipment were fully operational, and
that our deliveries arrived on time and in full.
I am satisfied with the OoH route to market's performance in 2022, as it
continued to recover from the impact of the pandemic to deliver sales growth
of 43% versus 2021. Nonetheless, its performance during the second half of the
year slowed to +5% against tougher post-Covid comparatives and many channels
were impacted by the accelerating cost of living crisis which resulted in
reduced footfall and consumer spending in our key leisure outlets.
Strong innovation and marketing programmes have once again been fundamental in
driving the performance of our brands across key leisure and hospitality
venues. Synchronising with movie launches has become an increasingly important
part of our ICEE brand's strategy, driving brand visibility by trialling the
product in venue. In 2022, this included collaborating with Paramount Pictures
and Cineworld on the 'ICEE Challenge', a cinema advert reel led by Johnny
Knoxville, to support the launch of the Jackass Forever movie.
During the year, we also launched our 'ICEE Big Flavour Vote', inviting fans
to select their preferred new flavour from a range of three. As a result, the
winning flavour, Mango & Passion Fruit, was launched in July across a
range of cinema venues and was focused on driving incremental consumers to the
brand on a more regular basis.
We continue to have strong relationships with our key partners including
Coca-Cola, Pepsi, Irn-Bru, Ocean Spray and Sunkist. This year, we also
introduced the Old Jamaica Ginger Beer brand on draught in the UK as part of
an exclusive partnership. The strength of these partnerships underpinned
double digit revenue growth versus last year on our core dispense branded
offerings. In addition, in November we launched our new Vimto Out of Home
website, providing customers with a more user-friendly experience, where they
can easily view our portfolio and service offering in full. The website will
be at the heart of future trade engagement plans.
Out of Home Strategic Review
As previously announced, in 2022 we conducted a strategic review of our OoH
route to market as we assessed the significant impact of the pandemic on this
channel. The review has allowed us to create a clear strategy that we believe
will deliver significant additional net margin gains through a range of
actions that will be implemented during 2023, with the benefits being largely
realised in 2024 and beyond.
The OoH route to market's financial performance was heavily impacted by the
Covid-19 pandemic, reflecting the lower margin and higher level of operational
gearing that exists compared to our Packaged route to markets, particularly
when its full operational costs and overheads are factored in.
The OoH dispense business is serviced on a regional basis through both owned
distribution channels and third party distributors. OoH also services several
national frozen contracts which cannot be serviced profitably without a wholly
owned national distribution network.
The strategic review performed by the Company during 2022 provided clarity on
the financial performance of OoH. It also identified that OoH operates with
distinct operations, customers, products and, in part, suppliers.
It is clear post the pandemic that the strategic challenges within our OoH
route to market are quite distinct from those that exist within our Packaged
route to markets. The likely long-term returns from OoH are lower and a
different approach to the management of the business is required to deliver
shareholder value in the long term.
The strategic review identified several immediate actions that will be
implemented through FY23.
These actions include:
· operating OoH as a distinct division within the Group
· exiting underperforming contracts and product categories, including
coffee and national frozen accounts
· exiting the in-house central frozen region, which is considered sub
scale and unprofitable and for dispense is already serviced by a distributor
· reviewing processes to simplify the business ensuring a
rationalisation of operating costs and central overheads; and
· improving financial reporting, including divisional and regional
reporting focusing on net profit and return on capital employed.
The Group incurred £0.5m of costs in the period, to prepare its
recommendations for implementation. Implementation of these actions commenced
in Q1 FY23 and additional exceptional costs will be incurred through the year
as these recommendations are implemented.
The benefits from these actions will largely be realised during FY24.
Vimto International
I am pleased to report strong International sales growth of 16% in 2022. This
was achieved despite the challenges posed by inflation, global supply chain
challenges, and political instability in some of our international markets
during the year.
Double digit growth and market share gains were achieved across all our key
geographies. Sales in MEAP (Middle East Asia Pacific) were up 20% supported by
strong in performance in Yemen, despite the ongoing tragic civil war, and
across the Gulf Cooperation Council (GCC). This was fuelled by strengthened
in-store execution, effective integrated marketing campaigns and product
innovation.
In its 96th Ramadan season, our partner in MEAP, Aujan Coca-Cola Bottling
Company (ACCBC), launched the region's first ever Zero Sugar cordial, a
limited-edition format which proved extremely popular. Outstanding market
execution and a highly effective promotional campaign, including a spectacular
take-over of the Burj Khalifa, helped ensure that sales across the season
exceeded those achieved in 2021. We also achieved strong sales growth in our
RTD ranges with the launch of a new campaign celebrating 'The Unique Taste of
Sweet Togetherness'. In November, we launched a new Vimto citrus flavoured RTD
product in a green can, targeted to drive incremental consumers to the brand.
Across all our key markets and geographies, we have continued to roll out our
new Vimto branding, with Senegal, Cameroon and Mali all being delivered in
Africa, as well as Sweden and Cyprus within Europe.
In Africa, sales growth remained strong at 15% year-on-year, as we increased
our distribution network into Angola, Chad and the Central African Republic,
and launched new flavour extensions into a number of existing markets.
Our investment in strong marketing programmes across key territories delivered
further success, with seasonal activations around Valentine's Day, Ramadan and
Tabaski within all key markets in Africa. In Algeria, we invested in a range
of shopper activations and a first-ever digital campaign across Instagram and
Facebook, which supported the delivery of record sales in 2022.
Inflation in North America proved extremely challenging to mitigate throughout
2022 and we saw demand for our products soften during the period. We continue
to work in close collaboration with our partners in-market to ensure we
maintain our key distribution points.
In Europe, positive sales growth of 23% was extremely encouraging in the
context of the challenging market conditions. In Europe we are maintaining our
strong focus on driving new distribution wins, improving product availability,
and ensuring excellent in-market execution.
Looking Ahead
We have successfully delivered consistently strong performances across the
breadth of the Group, through our diversified business model, clear strategy,
strong brand equity and embedded ESG commitments, as well as the strength of
our key partnerships and talent of our highly engaged people. Our outstanding
portfolio of iconic brands has continued to grow across all markets in 2022,
which remains at the heart of our success. We have a strong balance sheet and
international reach.
Our performance this year is testament to the strength of our business. Whilst
2023 will undoubtedly bring challenges, as inflationary pressures are expected
to persist and consumer confidence remains under pressure, the soft drinks
category has proven to be highly resilient over many years and I expect that
this resilience will continue to support our business growth.
I am confident that the momentum we have built will enable us to continue to
deliver our long-term strategic objectives, achieve profitable growth and
generate considerable returns for all our stakeholders.
Andrew Milne
Chief Executive Officer
1 March 2023
Chief Financial Officer's Statement
Revenue
Group revenues were £164.9m, an increase of £20.6m or 14.3% compared to
2021. The period was dominated by significant and accelerating inflationary
pressures and, in H2 in particular, by the widely publicised cost of living
pressures impacting consumers.
The Group's clear and long held value over volume strategy provided clear
direction as we sought to mitigate these pressures through both cost
efficiency and revenue management. Of the £20.6m revenue growth, £8.8m came
from a combination of appropriate price recovery (+£8.0m), implemented in
partnership with our customers, and the impact of the removal of the marketing
investment (+£0.8m) in the Middle East in 2021 (reported as part of the
Group's revenue line). The balance of revenue growth was generated by net
improved volumes (both quantity and sales mix) across the Group's three routes
to market. Throughout FY22, this balanced approach helped the Vimto brand to
continue to achieve growth in the UK and internationally, whilst also
protecting the Group's net margins.
Gross Profit
Gross profit at £71.0m was £5.8m higher than 2021 (£65.2m) and 2.1
percentage points lower at 43.1% (2021: 45.2%). Excluding the impact of the
input costs aligned to the price recovery implemented in partnership with our
customers gross profit % was consistent with 2021.
Significant volume growth was seen in both the Group's OoH and International
routes to market and improved gross profit by approximately £5.7m. Reduced
volumes in the UK Packaged route to market, where quantity declines were
marginally offset by positive changes to the sales mix, resulted in a negative
gross profit impact of £0.9m. The removal of the marketing investment
(reported as part of the Group's revenue line) in the Middle East in 2021
supported year-on-year gross profit comparisons by £0.8m.
Underlying cost of goods inflation approached 14% across the year, with
mitigating actions successfully implemented to reduce this to closer to 10%.
Mitigating actions included the successful transfer of the Group's UK dilutes
contract manufacturing volume to faster and more efficient lines in H1
following completion of its UK operational supply chain review.
The impact of movements in foreign exchange rates on gross profit was
favourable at +£0.2m.
Distribution Expenses
Distribution expenses within the Group are those associated with the UK
Packaged route to market and, for OoH, the distribution costs incurred from
factory to depot. "Final leg" distribution costs within OoH are reported
within administrative expenses.
Distribution expenses totalled £10.7m (2021: £9.1m), an increase of 17.0%,
due to a combination of net higher trading volumes across the UK and ongoing
and significant inflationary pressure. The Group entered a new five-year
distribution arrangement in H2 2021 that became operational during 2022,
resulting in both significant additional capacity as well as opportunities for
improved efficiency in the coming years.
Administration Expenses
Administration expenses excluding exceptional items totalled £35.7m (2021:
£34.1m), an increase of £1.6m or 4.7% year-on-year, largely related to
increases in net payroll and staff related costs in response to cost of living
increases.
Exceptional Costs
The Group has incurred £11.1m of exceptional costs during the year (2021:
£39.5m), £8.7m of which is non-cash.
Review of UK packaged supply chain
In Q4 2020, the Group commenced a review of its UK operational supply chains.
The project has progressed steadily with significant changes implemented,
including the Group entering several new five-year contract manufacturing and
distribution arrangements that both built significant additional capacity,
in-line with the Group's growth plans, and improved efficiency. These
projects, which completed during 2022, resulted in £1.5m of exceptional costs
in the period (2021: £0.6m, 2020: £0.3m).
Out of Home Strategic Review
In Q1 2021 the Group commenced a strategic review into its OoH route to
market, to consider customer and product mix as well as review ways to enhance
net margin and profitability going forward. The Group incurred £0.5m of costs
in the period to prepare its recommendations for implementation. Additional
costs will be incurred through 2023 as these recommendations are implemented.
These additional implementation costs are one-off in nature and will be
treated as exceptional.
Impairment of intangible and fixed assets
The impact of Covid-19 resulted in a difficult period of trade for OoH from
2020 through 2021, with many outlets being closed for a prolonged period of
time. Whilst trade within the hospitality industry has reopened post the
pandemic, the impact of the war in the Ukraine, and its impact on inflation
and cost of living pressures have meant that whilst trade within the
hospitality industry initially returned to pre-Covid levels, growth is
significantly slower than previously forecast in the short term and saw a
significant slowdown in Q4 as inflationary pressures impacted consumers.
Certain sectors of the hospitality industry, for example Cinema, Holiday and
Theme Parks where our frozen business operates, have seen significant volume
decline all year versus pre-pandemic revenues.
In line with market expectations, we anticipate that growth projections for
OoH beyond 2022 will be lower than previously estimated, given the economic
outlook and change in consumer patterns.
Whilst cost pressure is expected to be fully recovered within OoH, the gross
margin progression anticipated previously is not now likely to be achieved,
despite there being significant opportunities to enhance net margin through
better alignment of our customer and product mix with our cost base.
The Group's cost of capital has increased, largely due to macro-economic
factors affecting all businesses, from 8.2% to 13.1%. This has resulted in a
higher threshold required to support the carrying values of assets.
As a result, management have recognised a further non-cash impairment charge
of £8.7m, in the current year, impairing all the remaining intangible assets
(£4.8m) within our OoH route to market and a proportion of its fixed assets
(£3.9m). In 2021, as previously announced, the Group impaired the Goodwill
generated from previous OoH acquisitions (2021: £36.2m).
Historic incentive scheme
The Group has now settled with HMRC the £4.3m tax and interest charges
relating to a historic incentive scheme and will now commence recovery of
debts from current and previous management who had indemnified the Company.
The Group incurred legal costs in the period of £0.1m in relation to the
case.
Group Systems Review
The Group has commenced a project to implement a new enterprise resource
planning (ERP) system, which is expected to be operational through 2024.
Initial review costs of £0.3m were incurred in the period.
Due to the one-off nature of these charges, the Board is treating these items
as exceptional costs and their impact has been removed in all adjusted
measures throughout this report.
Finance Costs
Net finance income of £0.4m (2021: £0.1m loss) was significantly up on the
prior year, as the Group ensured the best return for its deposits following
the Bank of England interest rate rises.
Adjusted profit before tax/Profit before tax and tax rate
Adjusted profit before tax increased by 14.5% to £25.0m (2021: £21.8m). The
tax charge on adjusted profit before tax for the period of £4.8m (2021:
£4.8m) represents an effective tax rate of 19.0% (2021: 21.9%). Reported
profit before tax was £13.8m (2021: £17.7m loss).
Adjusted Earnings per share/Earnings per Share
On an adjusted basis, diluted earnings per share (EPS) was 55.32 pence (2021:
46.09p). Total adjusted EPS increased to 55.38 pence (2021: 46.15p) with basic
EPS at 31.86 pence (2021: -60.04p).
Cash and Cash Equivalents and Balance Sheet
The Group's focus on cash conversion continued and the Group achieved a cash
conversion of 72% (31 December 2021: 103%).
Free cash flow (FCF) in the period was £14.6m (31 December 2021: £17.5m), after paying a gross £4.3m tax settlement in relation to historic incentive schemes during the year as described above. Excluding this settlement, the Group's FCF would have improved year-on-year to £18.9m.
The Group's FCF was fully utilised this year, undertaking a £5.5m treasury
share Buyback to facilitate future servicing of the Group's SAYE Option Scheme
and/or Long-Term Incentive Plan, alongside £9.4m for dividend payments made
during the period.
Cash and cash equivalents at the end of the period remained strong at £56.3m
(31 December 2021: £56.7m).
Working capital is now normalised post the pandemic and is reflective of the
higher raw material and packaging costs experienced in the period. Capital
expenditure of £1.2m was broadly consistent year-on-year (2021: £1.2m).
The Group's current Adjusted Return on Capital Employed progressed marginally
at 27.2% (31 December 2021: 26.6%). Statutory Return on Capital employed is
14.2% (31 December 2021: 15.8% loss).
Pensions
The Group operates two employee benefit plans: a defined benefit plan that
provides benefits based on final salary, which is now closed to new members,
and a defined contribution group personal plan. At 31 December 2022, the Group
recognised a surplus on its UK defined benefit scheme of £4.1m (2021: surplus
£5.3m).
During the year the Trustees were able, with the support of the Company, to
further de-risk the assets held within the scheme. This is in addition to the
de-risking work carried out during 2021. Assets versus liabilities is now at
122% versus 83% at the time of the last valuation (April 2020). The Company is
now working with the Trustees to develop its future funding strategy ahead of
the next valuation in April 2023.
David Rattigan
Chief Financial Officer
1 March 2023
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2022
2022 2021
£'000 £'000
Continuing operations
Revenue 164,926 144,328
Cost of sales (93,905) (79,153)
Gross profit 71,021 65,175
Distribution expenses (10,677) (9,129)
Administrative expenses (46,888) (73,601)
Operating profit/(loss) 13,456 (17,555)
Finance income 514 57
Finance expense (134) (158)
Profit/(loss) before taxation 13,836 (17,656)
Taxation (2,201) (4,512)
Profit/(loss) for the year 11,635 (22,168)
Earnings/(loss) per share (basic) 31.86p (60.04p)
Earnings/(loss) per share (diluted) 31.82p (60.04p)
Adjusted for exceptional items
Operating profit/(loss) 13,456 (17,555)
Exceptional items 11,146 39,477
Adjusted operating profit 24,602 21,922
Profit/(loss) before taxation 13,836 (17,656)
Exceptional items 11,146 39,477
Adjusted profit before taxation 24,982 21,821
Adjusted earnings per share (basic) 55.38p 46.15p
Adjusted earnings per share (diluted) 55.32p 46.09p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
2022 2021
£'000 £'000
Profit/(loss) for the financial year 11,635 (22,168)
Items that will not be reclassified subsequently to profit or loss
Re-measurement of net defined benefit liability (2,071) 4,083
Deferred taxation on pension obligations and employee benefits 459 (962)
Other comprehensive (expense)/income for the year (1,612) 3,121
Total comprehensive income/(expense) for the year 10,023 (19,047)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
2022 2021
ASSETS £'000 £'000
Non-current assets
Property, plant and equipment 10,958 17,099
Intangibles 88 5,546
Pension surplus 4,125 5,276
Total non-current assets 15,171 27,921
Current assets
Inventories 10,432 9,706
Trade and other receivables 39,561 36,124
Corporation tax recoverable 695 743
Cash and cash equivalents 56,296 56,674
Total current assets 106,984 103,247
Total assets 122,155 131,168
LIABILITIES
Current liabilities
Trade and other payables 30,711 28,791
Provisions - 4,242
Total current liabilities 30,711 33,033
Non-current liabilities
Other payables 2,038 1,954
Deferred tax liabilities 670 3,155
Total non-current liabilities 2,708 5,109
Total liabilities 33,419 38,142
Net assets 88,736 93,026
EQUITY
Share capital 3,697 3,697
Share premium reserve 3,255 3,255
Capital redemption reserve 1,209 1,209
Other reserves 1,280 676
Retained earnings 79,295 84,189
Total equity 88,736 93,026
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
2022 2021
£'000 £'000 £'000 £'000
Cash flows from operating activities
Profit/(loss) for the financial year 11,635 (22,168)
Adjustments for:
Depreciation and amortisation 4,521 4,969
Impairment losses on goodwill, intangible and fixed assets 8,714 36,244
Loss on sale of property, plant and equipment 186 63
Finance income (514) (57)
Finance expense 134 158
Tax expense recognised in the income statement 2,201 4,512
Increase in inventories (726) (3,785)
Increase in trade and other receivables (4,100) (6,804)
Increase in trade and other payables 2,963 7,429
(Decrease)/increase in provisions (4,242) 4,242
Change in pension obligations (920) (846)
Fair value loss/(gain) on derivative financial instruments 662 (178)
8,879 45,947
Cash generated from operating activities 20,514 23,779
Tax paid (4,178) (3,878)
Net cash generated from operating activities 16,336 19,901
Cash flows from investing activities
Finance income 514 57
Proceeds from sale of property, plant and equipment - 2
Acquisition of property, plant and equipment (1,245) (1,239)
Payment of contingent consideration (71) (67)
Net cash used in investing activities (802) (1,247)
Cash flows from financing activities
Payment of lease liabilities (995) (1,189)
Purchase of own shares (5,534) (1,217)
Dividends paid (9,383) (6,868)
Net cash used in financing activities (15,912) (9,274)
Net (decrease)/increase in cash and cash equivalents (378) 9,380
Cash and cash equivalents at 1 January 56,674 47,294
Cash and cash equivalents at 31 December 56,296 56,674
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 31 December 2022
Called up share capital Share premium reserve Capital redemption reserve
£'000 £'000 £'000 Other reserves Retained earnings Total
£'000 £'000 equity
£'000
At 1 January 2021 3,697 3,255 1,209 394 111,321 119,876
Movement in ESOT - - - 10 - 10
Credit to equity for equity-settled share-based payments - - - 272 - 272
Purchase of own shares
- - - - (1,217) (1,217)
Dividends - - - - (6,868) (6,868)
Transactions with owners - - - 282 (8,085) (7,803)
Loss for the year - - - - (22,168) (22,168)
Other comprehensive income - - - - 3,121 3,121
Total comprehensive expense - - - - (19,047) (19,047)
At 1 January 2022 3,697 3,255 1,209 676 84,189 93,026
Movement in ESOT - - - 5 - 5
Credit to equity for equity-settled share-based payments - - - 599 - 599
Purchase of own shares
- - - - (5,534) (5,534)
Dividends - - - - (9,383) (9,383)
Transactions with owners - - - 604 (14,917) (14,313)
Profit for the year - - - - 11,635 11,635
Other comprehensive expense - - - - (1,612) (1,612)
Total comprehensive income - - - - 10,023 10,023
At 31 December 2022 3,697 3,255 1,209 1,280 79,295 88,736
NOTES
1. Basis of Preparation
The preliminary financial information does not constitute statutory accounts
for the financial years ended 31 December 2022 and 31 December 2021, but has
been derived from those accounts. The accounting policies remained unchanged
from those set out in the 2021 Annual Report.
Statutory accounts for 2021 have been delivered to the Registrar of Companies
and those for the financial year ended 31 December 2022 will be delivered
following the Group's Annual General Meeting. The auditors have reported on
those accounts and their reports were unqualified, did not draw attention to
any matters by way of emphasis, and did not contain a statement under 498(2)
or 498(3) of the Companies Act 2006.
2. Going Concern
In assessing the appropriateness of adopting the going concern basis in
preparing the Annual Report and financial statements, the Directors have
considered the current financial position of the Group, its principal risks
and uncertainties, the potential impact of further Covid-19 restrictions in
addition to a continued cost of living crisis. The review performed considers
severe but plausible downside scenarios that could reasonably arise within the
period.
The estimated impacts of Covid-19 restrictions are primarily based around our
OoH market and the potential for future lockdowns within the hospitality
industry. Our modelling has sensitised trading within this market to reflect
varying degrees of lockdowns with the most severe scenario assuming that some
restrictions will return during the remainder of 2023 and the start of 2024.
During the year the Group experienced a period of significant inflation and a
cost of living crisis against which a number of mitigation actions were
introduced. These are largely evidenced in the results announced. Our
modelling has sensitised the impacts of Russia's continued invasion of
Ukraine, in particular their impact on global supply chains and macroeconomic
inflationary factors.
In addition to the further impacts of Covid-19, alternative scenarios,
including the potential impact of key principal risks from a financial and
operational perspective, have been modelled with the resulting implications
considered. In all cases, the business model remained robust. The Group's
diversified business model and strong balance sheet provide resilience against
these factors and the other principal risks that the Group is exposed to. At
the 31 December 2022 the Group had cash and cash equivalents of £56.3m with
no external bank borrowings.
On the basis of these reviews, the Directors consider the Group has adequate
resources to continue in operational existence for the foreseeable future
(being at least one year following the date of approval of the Annual Report)
and, accordingly, consider it appropriate to adopt the going concern basis in
preparing the accounts.
3. Segmental Reporting
The Board considers the business from a product perspective and reviews the
Group's performance based on the operating segments identified below. There
has been no change to the segments during the period. Based on the nature of
the products sold by the Group, the types of customers and methods of
distribution, management consider reporting operating segments at the Still
and Carbonate level to be reasonable, particularly in light of market research
and industry data made available by Nielsen. Gross profit is the measure used
to assess the performance of each operating segment.
The Group's OoH strategic review is now complete. Given the differing
strategic challenges between our Packaged and OoH routes to market, the Group
will be segmented during FY23 to ensure appropriate strategic focus exists for
each of its two proposed operating segments.
Still Carbonate Group
£'000 £'000 £'000
Year ended 31 December 2022
Sales 78,307 86,619 164,926
Gross profit 40,277 30,744 71,021
Year ended 31 December 2021
Sales 72,393 71,935 144,328
Gross profit 37,980 27,195 65,175
A geographical split of revenue is provided below:
Year ended Year ended
31 December 2022 31 December 2021
£'000 £'000
Geographical split of revenue
Middle East 11,752 9,765
Africa 18,870 16,410
Rest of the World 7,350 6,523
Total exports 37,972 32,698
United Kingdom 126,954 111,630
Total revenue 164,926 144,328
4. Exceptional items
Year ended Year ended
31 December 31 December 2021
2022
£'000 £'000
Review of UK Packaged supply chain 1,464 620
Out of Home Strategic Review 518 -
Impairment of goodwill, intangible and fixed assets 8,714 36,244
Historic incentive scheme 134 2,613
Group Systems Review 316 -
11,146 39,477
The Group incurred £11.1m of exceptional costs during the year (2021:
£39.5m), £8.7m of which is non-cash.
Review of UK packaged supply chain
In Q4 2020, the Group commenced a review of its UK operational supply chains.
The project has progressed steadily with significant changes implemented,
including the Group entering several new five-year contract manufacturing and
distribution arrangements that both built significant additional capacity,
in-line with the Group's growth plans, and improved efficiency. These
projects, which completed during 2022, resulted in £1.5m of exceptional costs
in the period (2021: £0.6m, 2020: £0.3m).
Out of Home Strategic Review
In Q1 2021 the Group commenced a strategic review into its OoH route to
market, to consider customer and product mix as well as review ways to enhance
net margin and profitability going forward. The Group incurred £0.5m of costs
in the period to prepare its recommendations for implementation. Additional
costs will be incurred through 2023 as these recommendations are implemented.
These additional implementation costs are one-off in nature and will be
treated as exceptional.
Impairment of goodwill, intangible and fixed assets
Following the annual impairment review of the Group's OoH cash-generating unit
(CGU), the Group has incurred a non-cash impairment of £8.7m, impairing all
intangible assets (£4.8m) and a proportion of fixed assets (£3.9m). Further
detail is provided in note 6.
Historic incentive scheme
The Group has now settled with HMRC the £4.3m tax and interest charges
relating to a historic incentive scheme and will now commence recovery of
debts from current and previous management who had indemnified the Company.
The Group incurred legal costs in the period of £0.1m in relation to the
case.
Group Systems Review
The Group has commenced a project to implement a new enterprise resource
planning (ERP) system, which is expected to be operational through 2024.
Initial review costs of £0.3m were incurred in the period.
Due to the one-off nature of these charges, the Board is treating these items
as exceptional costs and their impact has been removed in all adjusted
measures throughout this report.
5. Earnings Per Share
Basic earnings per share is calculated by dividing the Group's profit after
tax for the year by the weighted average number of ordinary shares in issue
during the financial year. The weighted average number of ordinary shares is
calculated by adjusting the shares in issue at the beginning of the period by
the number of shares bought back or issued during the period multiplied by a
time-weighting factor. Diluted earnings per share is calculated by adjusting
the weighted average number of ordinary shares in issue assuming the
conversion of all potentially dilutive ordinary shares.
The earnings per share calculations for the period are set out in the table
below:
Earnings Weighted average number of shares Earnings
£'000 per share
31 December 2022
Basic earnings per share 11,635 36,522,645 31.86p
Dilutive effect of share options 39,639
Diluted earnings per share 11,635 36,562,284 31.82p
Adjusted earnings per share before exceptional items has been presented in
addition to the earnings per share as defined in IAS 33 Earnings per share,
since, in the opinion of the Directors, this provides shareholders with a more
meaningful representation of the earnings derived from the Groups' operations.
It can be reconciled from the basic earnings per share as follows:
Earnings Weighted average number of shares Earnings
£'000 per share
31 December 2022
Basic earnings per share 11,635 36,522,645 31.86p
Exceptional items after taxation 8,590
Adjusted basic earnings per share 20,225 36,522,645 55.38p
Diluted effect of share options 39,639
Adjusted diluted earnings per share 20,225 36,562,284 55.32p
6. Property, plant and equipment and Intangibles
Property,
Plant &
Equipment Intangibles
£'000 £'000
Cost
At 1 January 2022 34,088 9,760
Additions 1,822 -
Disposals (599) -
At 31 December 2022 35,311 9,760
Depreciation and Amortisation
At 1 January 2022 16,989 4,214
Charge for the period 3,881 640
Disposals (413) -
Impairment 3,896 4,818
At 31 December 2022 24,353 9,672
Net book value
At 31 December 2021 17,099 5,546
At 31 December 2022 10,958 88
Impairment Review
Intangible assets which have indefinite useful lives, including the Group's
acquired brands, are subject to annual impairment testing or more frequent
testing if there are indicators of impairment.
Annual impairment reviews were performed on the intangible assets with
indefinite lives, all of which relate the Group's OoH route to market. The
value in use calculation uses cash flow projections from financial budgets
approved by management in addition to annual growth projections for the next
five years and into perpetuity.
The impact of Covid-19 resulted in a difficult period of trade for OoH from
2020 through 2021 with many outlets being closed for a prolonged period of
time. Whilst trade within the hospitality industry has now opened post the
pandemic, the impact of the war in the Ukraine, and its impact on inflation
and cost of living pressures have meant that, whilst trade within the
hospitality industry initially returned to pre-Covid levels, growth is
significantly slower than previously forecast in the short term and saw a
significant slowdown in Q4 as inflationary pressures impacted consumers.
Certain sectors of the hospitality industry, for example Cinema, Holiday and
Theme Parks where our frozen business operates, have seen significant volume
decline all year versus pre-pandemic revenues.
Growth projections beyond 2022 are now expected to be lower than previously
estimated given the economic outlook and change in consumer patterns.
Whilst cost pressure is expected to be fully recovered within OoH, the gross
margin progression anticipated previously is not now likely to be achieved
despite there being significant opportunities to enhance net margin through
better alignment of our customer and product mix with our cost base.
The pre-tax discount rate applied to cash projections is 13.1% (2021: 8.2%)
and cash flows beyond the five-year period are extrapolated using a 2% growth
rate (2021: 2%). Based on the review it was concluded that the carrying value
of the assets were not supported by the value in use calculated. As a result
of this analysis, management have recognised an impairment charge of £8.7m in
the current year, £4.8m in relation to the intangible assets and £3.9m
relating to a proportion of the fixed assets. The impairment charge has been
recognised as an exceptional item within these financial statements.
Key assumptions
The calculation of value in use is most sensitive to the following
assumptions:
• Revenue growth
• Gross margin
• Overheads
• Discount rate
• Growth rate estimates used to extrapolate cash flows beyond the forecast
period
Revenue growth - We exit 2022 with a smaller OoH route to market than
anticipated 12 months ago which in turn is significantly smaller than that
anticipated pre-pandemic.
The impact of inflation on the UK economy and its resulting cost of living
pressure for our consumers have meant that, whilst trade within the
hospitality industry initially returned to pre-Covid levels, growth is
significantly slower than previously forecast in the short term and saw a
significant slowdown in Q4 2022. Certain sectors of the hospitality industry,
for example Cinema, Holiday and Theme Parks where our frozen business
operates, have seen significant volume decline all year versus pre-pandemic
revenues.
Whilst we do expect growth to return in the medium term, the short-term impact
of recent years' events - the pandemic, cost of living pressures, consumer
spending habits - is significant for the OoH route to market.
Within the year-end impairment review revenue growth of 2% has been forecast
from year five into perpetuity but before that we see slower growth than
anticipated previously.
A faster rate of recovery would increase the value in use calculation and
therefore reduce any impairment noted. A year-on-year increase in annual
revenue of 3% per year over the five-year period, starting from year one,
would result in no impairment being required for OoH.
Gross margin - Whilst cost pressure is expected to be fully recovered within
OoH, the gross margin progression anticipated previously is now not likely to
be achieved despite there being significant opportunities to enhance net
margin through better alignment of our customer and product mix with our cost
base.
A softening of inflationary pressures and improvement in material input prices
would lead to an improvement in the gross margin forecast. An increase of
3.3ppts in the gross margin by the end of the five-year forecast period would
result in no impairment being required for OoH.
Overheads - Overhead cost estimates have been reviewed and increased to
reflect both inflationary pressures and the cost estimates required to serve
the customer base given the complexities of the current business
environment/model.
A reduction in overheads would result in an increase in the value in use
calculation and thus a reduced impairment. A reduction in overheads by 9% at
the end of the five-year forecast period would result in no impairment to OoH.
Discount rate - Discount rates represent the current market assessment of the
risks specific to the OoH CGU, taking into consideration the time value of
money and risks of the underlying assets that have not been incorporated in
the cash flow estimates. The discount rate calculation is based on the
specific circumstances of the Group and is derived from its weighted average
cost of capital (WACC). Adjustments to the discount rate are made to factor in
the specific amount and timing of the future tax flows in order to reflect a
pre-tax discount rate.
A reduction in the pre-tax discount rate to 8.6% (i.e. -4.5ppts) would result
in no impairment.
Growth rate estimates - The long-term growth rate used to extrapolate the
period of review is based upon management's expectations of the OoH CGUs'
ongoing potential and is considered consistent with the drinks hospitality
industry as a whole. An increase of 5.0ppts from 2% to 7% growth into
perpetuity would be required for there to be no impairment.
7. Defined Benefit Pension Scheme
The Group operates a defined benefit plan in the UK. A full actuarial
valuation was carried out on 5 April 2020 and updated at 31 December 2022 by
an independent qualified actuary.
A summary of the pension surplus position is provided below:
Pension surplus £'000
At 1 January 2022 5,276
Current service cost (25)
Scheme administrative expenses (69)
Net interest income 105
Actuarial losses (2,071)
Contributions by employer 909
At 31 December 2022 4,125
8. Provisions
The Group has now settled with HMRC the tax and interest charges regarding the
historic incentive scheme provided for in the prior year annual report
(£4.2m).
Recovery will now commence of debts from current and previous management who
had indemnified the company. Included within other receivables is a
reimbursement asset in respect of these historic contracts.
9. Contingent consideration
Within the Consolidated Statement of Cash Flows there is a £0.1m (2021:
£0.1m) cash outflow in relation to the payment of contingent consideration.
These payments relate to contingent consideration paid for acquisitions made
in previous financial years.
10. Dividends
The final dividend proposed is 15.3p, which will become ex-dividend on the 23
March 2023 and paid, subject to shareholder approval to all shareholders on
the register on 24 March 2023, on 4 May 2023.
Annual Report
The annual report will be mailed to shareholders and made available on our
website during March 2023. Copies will be available after that date from: The
Secretary, Nichols plc, Laurel House, Woodlands Park, Ashton Road,
Newton-le-Willows, WA12 0HH.
Cautionary Statement
This Preliminary Report has been prepared solely to provide additional
information to shareholders to assess the Group's strategies and the potential
for those strategies to succeed. The Preliminary Report should not be relied
on by any other party or for any other purpose.
-Ends-
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AnnouncementREG - Nichols PLC - Grant of SAYE Options and PDMR Dealings
AnnouncementREG - Nichols PLC - Holding(s) in Company
AnnouncementREG - Nichols PLC - Result of Annual General Meeting
AnnouncementREG - Nichols PLC - AGM Trading Update
Announcement