REG - Nichols PLC - 2023 Preliminary Results
06/03/2024 07:00
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RNS Number : 7206F Nichols PLC 06 March 2024
6 March
2024
Nichols plc
2023 PRELIMINARY RESULTS
Strong performance underpinned by diversified business model and core Vimto
brand
Nichols plc ('Nichols', the 'Company' or the 'Group'), the diversified soft
drinks group, announces its Preliminary Results for the year ended 31 December
2023 (the 'Period').
Year ended Year ended
31 December 2023 31 December 2022 Movement
Group Revenue £170.7m £164.9m +3.5%
Adjusted Profit Before Tax (PBT)(1) £27.2m £25.0m +8.7%
Profit Before Tax (PBT) £24.3m £13.8m +75.3%
Adjusted PBT Margin(1) 15.9% 15.1% +0.8ppts
PBT Margin 14.2% 8.4% +5.8ppts
EBITDA(2) £24.7m £26.9m (8.1%)
Adjusted earnings per share (basic)(1) 56.41p 55.38p +1.9%
Earnings per share (basic) 50.34p 31.86p +58.0%
Cash and cash equivalents £67.0m £56.3m +19.0%
Free Cash Flow(3) (FCF) £20.9m £14.6m +43.1%
Adjusted Return on Capital Employed(4) 26.3% 27.2% (0.9ppts)
Return on Capital Employed(5) 23.3% 14.2% +9.1ppts
Proposed Final Dividend 15.6p 15.3p +2.0%
Total Dividend 28.2p 27.7p +1.8%
Financial Highlights
· Revenue +3.5% at £170.7m (2022: £164.9m)
o Overall Packaged business revenue increased by +6.1%
§ International Packaged revenue increased by +16.8% with double digit growth
in all geographic segments
§ UK Packaged revenue increased by +1.3%
o Out of Home ("OoH") business revenue decreased by -3.4% in line with
revised strategy post restructuring
§ As anticipated following exit from unprofitable accounts
· Gross Margin of 42.3% (2022: 43.1%)
o UK Packaged gross margin maintained despite inflationary pressures
o Market mix resulted in lower percentage margin
· Adjusted Operating Profit increased by +£0.6m (+2.4%)
o Investment made across the Group to prepare for further growth, including
distribution channels within the International Packaged business, additional
marketing and enhanced operational capabilities
o Savings in overheads associated with restructured OoH business
· Adjusted Operating Margin maintained at 14.8% (2022: 14.9%)
· Adjusted Profit before Tax +8.7% to £27.2m
· Exceptional items: Net charge of £2.9m (2022: £11.1m)
o Costs associated with restructuring OoH and Business Change Programme and
Systems Development
· Strong FCF of £20.9m (2022: £14.6m) resulting in cash and cash
equivalents of £67.0m (2022: £56.3m)
o Assessment of forward cash and investment requirements
o Identification of surplus cash in order to return to shareholders during
2024
· Final dividend proposed at 15.6p (2022: 15.3p). Total dividend of
28.2p (2022: 27.7p).
Strategic and Operational Highlights
· Strong growth across our Packaged business from continued
investment in our brands, including product range extension and geographical
expansion
o Continued strong progress in international markets reflecting strong
market penetration across existing and new territories in Africa and the
Middle East
o Celebrated 100th Ramadan season during 2023 with outstanding in-store
displays that generated increased consumer engagement and purchases
· Successful mitigation of the strong inflationary headwinds
· OoH division realising benefits from the strategic review earlier
than expected
o Restructuring refocuses the business on profitability and reduces overall
scale and complexity
· Progress against ESG strategy ('Happier Future')
o New responsible sourcing policy with supplier code of conduct
o Roadmap for Scope 3 emissions established
Current Trading and Outlook
· 2024 trading has started well, with a performance in line with
management expectations
· The Company remains confident in its ability to deliver further
strategic progress across its business in FY24
Andrew Milne, Chief Executive Officer of Nichols, commented:
"2023 was a year of strong progress and execution for Nichols, as the Packaged
business delivered another year of growth underpinned by the Vimto brand, and
benefits from the newly streamlined OoH business were delivered earlier than
anticipated. The Group delivered a very strong performance in international
markets driven by strong market penetration across existing and new
territories in Africa and the Middle East. Innovation remained a critical
growth driver and we have an exciting pipeline of new products planned for
2024.
Building on the progress achieved in 2023, I am confident about our prospects
for 2024 and the well-defined strategy we have in place to drive further
growth. Our diversified business model provides the foundation for continued
success, reinforced by our well-established portfolio of owned and licensed
brands, the close partnerships we have with our suppliers and customers and
our long-term strategic focus. These strengths, coupled with a resilient soft
drinks market and the dedication of our people, will enable us to continue to
deliver value to shareholders."
References:
1 Excluding exceptional items
2 EBITDA is the 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 Return on capital employed is the operating profit divided by the average
period-end capital employed
Contacts
Nichols plc Telephone: 0192 522 2222
Andrew Milne, Chief Executive Officer
David Taylor, Interim Chief Financial Officer
Richard Newman, Chief Financial Officer Designate
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 / Hattie Dreyfus / 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 60 countries. 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, 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.
Chair's Statement
Introduction
In what is my first set of full-year results as Non-Executive Chair of
Nichols, I am pleased to report to shareholders on what has been a successful
year for the Group. It is often tempting to focus on short-term achievements
but I am satisfied that, in addition to delivering a strong performance
against our targets during the year, and despite the challenges raised by an
uncertain macroeconomic environment, we have made considerable progress in
developing and implementing our long-term growth strategy. A substantial
amount of work has been undertaken on a number of long-term projects and
initiatives which are now beginning to deliver results and which we expect to
continue to enhance our performance in the medium to long term.
During 2023, revenue increased by 3.5% to £170.7m (2022: £164.9m). Our core
Packaged business performed well, with sales up 6.1%, and saw particularly
strong growth from our International Packaged division where revenue increased
by 16.8%. As anticipated, and in-line with our strategic plans, revenue in our
OoH business reduced as we withdrew from unprofitable accounts, with sales
down by 3.4%. Adjusted Operating Profit increased to £25.2m (2022: £24.6m)
and Adjusted Profit before Taxation rose by 8.7% to £27.2m (2022: £25.0m).
Operating Profit increased to £22.3m (2022: £13.5m) and Profit before
Taxation increased to £24.3m (2022: £13.8m). Cash and cash equivalents
increased to £67.0m (2022: £56.3m).
Nichols operates in a fast-moving industry with a constant need to be agile
and adapt to changing market dynamics. Due to the strength of our brands and
operations, the diversity of our business model and a focus on long-term
opportunities, the Group is well positioned to navigate shifting market
conditions. I am pleased to report that Nichols was able to respond quickly to
a high level of input cost inflation early in 2023 and successfully managed
other market challenges later in the year. Importantly, however, this was
delivered whilst the business was increasing the levels of new product
introduction, expanding distribution in export markets and implementing the
strategic review of the OoH business. All these projects are important parts
of our overall strategy and are intended to provide the basis for long-term
progress within the Group. Further initiatives are planned for 2024 and
beyond. Nichols is a Company that does not stand still and it is important
that we prioritise sustainable growth to allow us to deliver against our
ambitions.
People
I would like to give my thanks to all my colleagues at Nichols for their
continued hard work and dedication. The Nichols team is rich in experience,
knowledge and expertise; the commitment shown to both the Company and to each
other is impressive and a key differentiator for us. All our stakeholders
benefit significantly from the strength of our people and from their ability
to drive sustained high levels of performance that position us well for the
future.
The Board
The Board continued to evolve during the year. In addition to my appointment
as Chair in February, we were pleased to welcome David Taylor to the Board as
an Executive Director in his role as Interim Chief Financial Officer, ahead of
the appointment of Richard Newman as our new Chief Financial Officer with
effect from 21 March 2024. Post year end, in January 2024 we also welcomed
Matt Nichols to the Board as a Non-Executive Director representing the Nichols
family. I look forward to working with both Richard and Matt over the coming
years.
Both James Nichols and David Rattigan stood down from the Board during the
year, and David Taylor will step down in March. I would like to thank each of
them for their service and commitment to the Group. I particularly wish to
thank my predecessor, John Nichols, for his guidance during my first months
with the Company. John has an enormous amount of experience within the
business and his support has made my task of assuming the role of Chair much
more straightforward than it might otherwise have been.
We further strengthened our succession planning process during the year and
recognise that we must ensure that the composition of the Board remains
effective and appropriate for our business.
Environment, Social and Governance
We are proud of the Group's commitment to the Nichols Happier Future strategy.
The Happier Future pillars of "Everyone Matters", "Products We're Proud Of"
and "Owning Our Climate Impact" underpin the development of our growth
strategy as well as our day-to-day decision-making. During the course of the
year we made significant progress towards achieving our objectives. Highlights
for 2023 include extending our Diversity and Inclusion strategy within the
business, continuing our Camp Vimto project with local school children and
extending our Heathier Hydration programme to international markets.
Dividend and Capital Allocation
The Board is pleased to recommend an increased final dividend of 15.6p per
share (2022: 15.3p) to give a proposed total dividend in respect of the year
of 28.2p per share (2022: 27.7p). If approved, the final dividend will be
payable to shareholders on the Register of Members at 22 March 2024. The
ex-dividend date will be 21 March 2024. The Board is committed to operating a
progressive and sustainable dividend policy, offering a good return to
investors while meeting the needs of the business and its growth plans.
Nichols has a strong record of long-term cash generation and holds significant
cash and deposit balances of £67.0m as at 31 December 2023. The Board intends
to maintain the strength of its balance sheet while prioritising investment in
growth opportunities, both organic and via acquisitions. The Board also
recognises the importance of maintaining an efficient capital structure and,
as a result, is assessing the future funding requirements of the Company's
business plan and intends to identify surplus cash reserves for return to
shareholders during 2024.
Outlook
The Group continues to derive considerable benefit from its diversified
business model, with an established UK position complemented by the enhanced
growth opportunities within our International business. Within our Packaged
business, we have continued our strategy of investment in extending our
product range and in the development of our international markets during the
year, both of which are expected to continue to provide growth over the short
and long term. The action taken to restructure our OoH division during 2023 is
beginning to provide the anticipated benefits and the Company is confident
that the business will contribute positively to overall Group performance
during 2024.
The Group intends to accelerate the rate of investment in its longer-term
development over the next 12 months in accordance with our established
strategic plan. Whilst inflationary pressures now appear to be moderating in
the UK, we remain aware of continued uncertainty affecting some of our
markets but remain confident that necessary mitigating actions are in place.
The Group remains confident that it is well positioned to deliver its
strategic plans and deliver sustainable shareholder returns, benefiting from
the strength of its diversified business model, brands and financial position.
Liz McMeikan
Non-Executive Chair
6 March 2024
Chief Executive Officer's Statement
Overview
I am pleased to report our results for the year ended 31 December 2023. The
team has again delivered a very strong set of results despite a challenging
and volatile market environment. This performance has been achieved thanks to
our people's commitment, versatility and resilience. I would like to thank all
of them for continuing to embody the values of the Company and ensuring the
business delivers value for all our stakeholders. I would also like to thank
all our partners for their support in helping us achieve our goals and
targets.
During the year we remained focused on mitigating significant inflationary
costs through a range of cost management strategies and revenue growth
management initiatives. We implemented price increases across all our
portfolio of brands but worked closely with our customers to support them
during these challenging times.
I am pleased that our strong portfolio of owned and licensed brands continued
to perform well in the marketplace, achieved by a combination of strong
marketing programmes and initiatives. Our long-term customer partnerships are
critical to our success, and we continued to execute our joint business plans
to maintain high service levels and strong in-market delivery of our
promotions and innovation programmes throughout the year.
Ensuring our consumers can enjoy the taste of our brands on a daily basis is
paramount to our success. We continued to invest in our marketing programmes
in both the UK and across our international markets. Protecting the Group's
long-term brand equity underpins our strategic goals and once again we have
delivered some exceptional brand experiences in outlets for our consumers.
Innovation is a crucial pillar of our long-term strategic plan and I am
pleased we have delivered exciting new products both in the UK and Middle
East.
We focused in 2023 on executing the outputs of the strategic review we
conducted in our OoH business in 2022. The strategic review resulted in us
having a more simplified business that is generating additional contribution
to our overall business. I am delighted with how these plans have been
executed during the year which has driven additional value.
Our Happier Future strategy continues to be a crucial element of our long-term
strategy and we again made progress versus our commitments with a clear policy
on responsible sourcing, including a supplier code of conduct, and a roadmap
for our scope 3 emissions with short and medium-term objectives established.
Since launching our Happier Future strategy and commitments in 2022,
sustainability has become embedded in our business and is at the forefront of
our decision making.
Strategy
As we emerged from the Covid pandemic we refreshed our strategy to ensure we
continued to deliver strong growth and returns for all shareholders. We
segmented our business into Packaged (UK and International) and OoH. Our
overall target is to accelerate the performance in our Packaged business. This
should deliver better returns for our shareholders whilst driving bottom line
value from a simplified OoH division. Our Packaged business has grown revenue
by +6.1% versus 2022, in line with our strategic intent, and OoH has reported
an improved profit performance.
We have four clear strategic pillars that will remain our focus to drive
long-term growth:
· More from the Core
o Focus on building a diversified and optimised product range across all of
our core geographies
· Thirst for New
o Drive growth across our Packaged business through product portfolio
innovation, channel growth, targeted acquisition and entering new selective
international geographies
· Fuel for Growth
o Continually drive efficiencies within our operations to enable investment
and support the long-term growth of our business
· Happier Future
o Deliver across our key pillars of People, Products and Planet by doing the
right things, acting responsibly and meeting the long-term needs of the
business
These growth pillars will be delivered through three key enablers of:
1. A strong portfolio of brands
2. A culture that allows people to thrive
3. Working in close collaboration with all of our key partners
Market Performance
International Packaged
We delivered a very strong performance across our International markets,
growing revenues by 16.8% versus 2022. Pleasingly, double digit revenue growth
was delivered across all the key international markets that we operate in,
driven by disciplined market execution, new product innovation, geographical
expansion and working with new partners in key markets.
The Middle East has performed well, delivering revenue growth of 10.3%.
Ramadan continues to be a critical sales driver in this market and we
celebrated our 100(th) Ramadan season during 2023. The team delivered
outstanding in-store displays that generated increased consumer engagement and
purchases. This was supported by a strong integrated marketing campaign that
has delivered excellent results, particularly across digital and social
platforms.
We launched new product innovations across the Middle East, including the new
Vimto Green Lemon Berry flavour, which continued to deliver strong growth and
has proved popular with younger consumers. A new Vimto carbonated Zero product
has been launched across the original Vimto portfolio, reflecting the changing
tastes and preferences of local consumers. Both products are bringing
incremental consumers into the brand and therefore boosting market
penetration. Significant focus during the year has been placed on the new
Zero-sugar cordial range to ensure the brand remains relevant and reflects the
changing needs of our consumers to drive long-term growth.
In Africa we delivered revenue growth of 17.6% which builds on the 15.0%
growth achieved in 2022. The business continues to grow across the continent
from our strong base in West Africa. We re-opened our market in Gambia and
enjoyed strong sales growth, reigniting the consumer appreciation for the
Vimto brand. Product Innovation remains an important element of our growth
strategy. During the year we launched our Watermelon range in our key market
of Senegal via our local partner which has delivered strong consumer
engagement. Across the Sudan region, we have capitalised on the strong
consumer demand for Pomegranate flavours through launching a new cordial
range.
Targeted marketing is critical to driving engagement across Africa, and we
continued to invest in strong integrated campaigns focusing on the key events
such as Valentine's Day, Tabaski, Ramadan and Back to School. These events
deliver increased visibility and availability for our brand that drive strong
consumer engagement and brand penetration.
New market expansion remains a key growth driver. During the year we have
developed a new partnership with a local distributor in the Ivory Coast,
allowing us to gain market share within this territory.
Across our Rest of World markets we delivered double digit revenue growth of
26.5%, building on the strong performance delivered in Europe in 2022. This
success was achieved by driving additional distribution points for our core
ranges across key retailers and wholesalers. Our partners focused heavily on
implementing key marketing programmes, targeted at improving brand visibility
and availability to deliver increased penetration and market share.
UK Packaged
2023 once again proved a year of sustained growth in our UK Packaged division
against a backdrop of high inflationary pressures. As a result, we implemented
price increases early in the year to help mitigate these rising costs and help
protect our margins.
The Vimto brand achieved its highest ever brand value of £107m(1), largely as
a result of additional investment to expedite new product innovation, enhanced
communications campaigns, new distribution points and driving improved
availability.
We have maintained our position as the number two squash brand in the UK. We
launched two new flavours of Orange & Pineapple and Mango &
Passionfruit which helped increase on-shelf visibility for the brand and
deliver incremental consumer penetration. We also focused on driving sales of
squash during the colder winter months by rolling out our "Try me Hot"
marketing campaign. During the second half of the year we invested further in
promotions to increase value for our consumers which resulted in us achieving
increased market share within the category.
At the start of 2023 we renovated our 500ml carbonated and still ranges.
Launching transparent labels has enabled our on the go ranges to be more
easily recycled. We also delivered our largest ever van sales distribution
drive and ran a national campaign for 26 weeks. This focused on securing new
distribution points across the key wholesale and convenience channel. This
drive was supported with our Big Cash Giveaway on-pack promotion allowing our
customers to win a share of up to £1 million in cash.
During the year we also launched our first ever Natural Vimto Energy product
into the fast-growing energy subcategory. The product was launched in two
varieties both in a 500ml can format, delivering the benefits of natural
caffeine with added B vitamins. The product has secured strong listings across
the retail market with very encouraging sales growth.
2023 saw the third year of our highly successful 'Find Your Different'
marketing and advertising campaign. We delivered our largest ever multimedia
campaign through TV, Video on Demand, Cinema, digital and a Spotify
partnership. The campaign proved hugely successful reaching 88% of our target
audience and was seen on average 12 times by our target consumers.
We continue to utilise digital communications as a key interface with
consumers, and launched Vimto onto Tik Tok during the year, already securing
over 88 thousand followers. Our 'Vimpto' campaign went viral in March across
social media reaching 3 million in organic reach.
By investing into our e-commerce business, we have secured new listings with
Amazon, Go Puff and Uber Eats delivering new reach and penetration via this
fast-growing channel.
Within our brand licensing channel, we have extended our Myprotein Vimto range
from its online platform into mainstream retail with a listing in Boots.
Across our licensed brands portfolio, we entered a new partnership in 2023
with SLUSH PUPPiE, launching a carbonated version of the well-loved brand in
our grocery, wholesale and convenience channels. The launch proved extremely
successful with a large trade and shopper support package bringing excitement
to the carbonates category. Sales have been incredibly strong since the launch
and more listings continue to be secured which will result in long-term
growth.
Our Levi Roots portfolio was relaunched in its iconic green bottle in 2023. We
introduced a new Price Mark Pack promotion to offer value for our consumers.
On the back of this activity the brand delivered strong sales value and volume
growth in Q4.
Out of Home
During 2023 we implemented the actions relating to the full strategic review
of our OoH business. I am pleased that we have driven a very robust margin
performance having also realised some of the benefits from the review earlier
than anticipated. As expected, our sales revenue declined in the year as we
exited unprofitable accounts in line with our strategy.
The OoH business is now operated as a distinct division within the Group, with
a key focus on profitability.
The key changes implemented within the OoH business include:
· Exited underperforming customer contracts, channels and regions which
were considered sub scale and unprofitable
· Implemented processes to simplify the business and a
rationalisation of operating costs and central overheads
· Improved financial reporting, including divisional and regional
reporting focusing on net profit and return on capital employed
During the year we rebranded and relaunched our dispense V range of products
as Premium Mixers by Vimto which has received positive feedback across the
trade. We also launched a new limited flavour ICEE product to add excitement
for our consumers across our cinema channel.
In line with our Happier Future commitments, we reformulated our still frozen
slush range to ensure our consumers can enjoy great tasting products in line
with our "Products we are Proud of" pillar.
Looking Ahead
Our business has again delivered a strong performance in a challenging and
uncertain marketplace. The strength of our portfolio of owned and licensed
brands, the resilience of our people, the close partnerships we have with our
suppliers and customers and our long-term strategic focus have been at the
core of the success we have achieved.
We have delivered a strong financial performance by having a very clear
strategy across our different routes to market, and I am pleased that we have
executed our initiatives in accordance with that plan. We are very focused on
driving accelerated growth in our Packaged business and delivering bottom line
value in our OoH division.
The diversity of our business has once again proved pivotal to our success.
The momentum we have as we enter 2024 has been achieved by the strength of our
core brands, our innovation pipeline, the opportunity for geographical
expansion and the strong balance sheet we have for future investment in
organic growth and targeted acquisitions.
I am confident that we will continue to deliver growth, ensuring we focus on
the clear priorities we have in place. These plans, combined with a resilient
soft drinks market and the passion, tenacity and dedication of our people will
ensure we are able to offer strong returns for our shareholders. Trading in
2024 has started well and is in line with our expectations. While our markets
are clearly subject to some general levels of uncertainty we remain confident
in our ability to deliver an improved performance from each of our businesses
and for the Group as a whole.
Andrew Milne
Chief Executive Officer
6 March 2024
References:
1 Nielsen IQ RMS for Squash, Flavoured Carbonates, RTDs, and Flavoured Water
categories for 12 months to 30.12.23 for the total coverage market
Interim Chief Financial Officer's Statement
Revenue
Group revenue increased by 3.5% to £170.7m (2022: £164.9m). This increase
reflected further progress in our export sales and increased prices arising
from our response to higher input costs, which has been partially offset by
the fall in revenue following the restructuring of our OoH business. We raised
prices to recover significantly higher material input costs early in the year
where we were unable to mitigate these costs, with the expectation that we
would lose some volume in the UK as a result of our decision to protect our
gross margins. The price increase was designed to recover higher costs rather
than to increase profitability and was consistent with our long-term strategic
positioning. Overall revenue from the UK and International Packaged business
rose by £7.3m (6.1%) to £127.2m with International accounting for the
majority of the improvement. Revenue from our OoH business fell by £1.5m to
£43.6m (-3.4%) as we withdrew from lower margin products and customer
accounts.
Gross Profit
At the start of the year, we made a conscious decision as discussed above to
prioritise the maintenance of our gross margins. Absolute gross profit was
£72.2m (2022: £71.0m), with Group gross margin falling slightly to 42.3%
from 43.1%. This reduction reflected a change in sales mix within our
operating units and our decision to pass on cost inflation only.
We mitigated much of the cost increases experienced in the latter part of 2022
and early 2023 through more effective purchasing and working closely with our
manufacturing partners to optimise productivity. Where appropriate we
increased sales pricing and also de-listed lower margin products. Our gross
margin fell slightly as a result of changes to our Group market mix.
Distribution Expenses
Distribution expenses totalled £9.6m (2022: £10.7m), a fall of 10.4% as
overall volumes fell, in UK Packaged and in OoH, and fuel costs reduced in the
second half of the year.
Administration Expenses
Administration expenses (excluding exceptional items) increased in the year by
£1.7m to £37.4m. Planned investments in the future growth of our business
were implemented during the year. The majority of this investment was made in
additional people and resource in our International business, Procurement,
Marketing and IT operations.
All these investments should improve our capacity to generate additional
returns in the long-term. These were supported by a substantial reduction in
overhead costs in OoH as we implemented the restructuring of that business.
Within the figure of £37.4m additional costs were incurred in the
reformulation of Slush products and in an increase in bad debt provisions
within International reflecting a more uncertain business climate in the Yemen
and other markets.
Including exceptional items, administrative expenses were £40.3m (2022:
£46.9m).
Segmental Performance
Our revised segmental disclosure, identifying operating profit arising from
our Packaged and OoH businesses alongside shared Central expenses, has been
adopted to better reflect the strategic focus and forward plans of the Group.
The Board's intention is to invest for future growth in our Packaged business,
whilst allowing clearer focus on optimising performance in OoH.
In line with our strategic focus, the Group's Packaged business grew revenue
during the year to £127.2m (2022: £119.9m, +6.1%) with gross profit
improving proportionately. The majority of this improvement came from our
International operations with good progress in the UK. Profit growth was
strong with Adjusted Operating Profit increasing to £36.3m (2022: £34.3m)
and this allowed further investment in the long-term development of the
business. Overall profitability was impacted by a provision against the
recoverability of customer debts in the Yemen and other export markets.
Within OoH the reported fall in revenue to £43.6m (2022: £45.1m) reflected a
reduction in scale of the business as our restructuring progressed. This was
carefully considered and recognised the cost to serve individual customers.
Where the overhead associated with delivering a service was high relative to
the additional contribution created, we withdrew. Revenue may have fallen but
importantly the reduction in costs arising from the restructuring has allowed
us to improve our profitability in this area. Adjusted Operating Profit
increased to £5.1m (2022: £3.5m). The Board is pleased with the progress of
OoH and the restructuring process has allowed much clearer reporting lines and
an improved focus on profit optimisation within the operation. The benefits of
the change are being secured earlier than we initially anticipated and we
expect further progress in 2024, particularly given the negative effect on
reported performance of product reformulation costs during 2023.
Central costs increased in the year to £16.2m (2022: £13.3m). The majority
of this increase was in employment costs reflecting both cost of living
increases and investment into creating additional capability within the Group.
This additional capability is targeted against clear strategic growth plans
and we expect it to support our forward performance.
Exceptional Items
The Group has incurred £2.9m of net Exceptional Costs during the year (2022:
£11.1m).
Out of Home Strategic Review and Restructuring
In 2022 the Group completed a strategic review into its OoH business following
a number of changes to the market it serves. This review included an
assessment of customer and product profitability and the identification of
opportunities to raise operating margins. As the changes arising from this
review have been implemented during 2023 costs of £1.8m have been incurred to
restructure the operations of the business. These additional restructuring
costs are one-off in nature and will be treated as exceptional.
Business Change Programme and Systems Development
The Group commenced a project in 2022 to identify the potential benefits from
replacing current operational and IT processes and systems, which are reaching
the end of their planned life, with an integrated Enterprise Resource Planning
(ERP) solution. During 2023 this project has progressed well and a number of
future operational benefits have been identified. Costs of £1.7m (2022:
£0.3m) have been incurred in completing the review, vendor selection and
business design phases of the programme. Further costs will be incurred on the
development of new systems and processes during 2024 and the project is
expected to be completed in 2025. Due to the nature of these charges, the
Group is treating the costs as exceptional.
Historic Incentive Scheme
During 2022 the Group finalised the treatment of a historic incentive scheme
with HM Revenue and Customs and agreed to pay a sum in settlement of
additional tax and interest liabilities. The Group also commenced the process
of the recovery of debts from current and former employees who had indemnified
the Company. A reserve was put in place to provide against the potential
irrecoverability of some of these debts. Given the progress made in the
collection of outstanding amounts this provision has been reduced during 2023
giving a net exceptional credit (after further legal fees) of £0.6m (2022:
cost £0.1m).
Interest Income
Net finance income of £2.0m (2022: £0.4m) has been received during the year.
The Group has benefitted significantly from increased interest rates during
the year and also from higher average cash holdings.
Adjusted Profit Before Tax, Profit Before Tax and Tax Rate
Adjusted Profit Before Tax (excluding exceptional items) increased by 8.7% to
£27.2m (2022: £25.0m) and Profit Before Tax (including exceptional items)
increased by 75.3% to £24.3m (2022: £13.8m). The tax rate for the year has
increased to 23.75% following the general increase in UK Corporation Tax to
25% effective from April 2023.
Adjusted Earnings per Share and Earnings Per Share
Adjusted Earnings per Share ('Adjusted EPS') increased by 1.9% from 55.38p to
56.41p. The difference between the rate of increase in Adjusted EPS (+1.9%)
and Adjusted Profit Before tax (+8.7%) reflects the increase in UK Corporation
Tax rates noted above. Earnings per Share were 50.34p (2022: 31.86p).
Cash and Cash Equivalents and Balance Sheet
The Group's cash generated from operating activities was once again strongly
positive at £24.8m (2022: £20.5m). Working capital was well controlled with
a fall in Inventory levels offsetting increased Trade and Other Receivables.
The Group's cash contribution to our final salary pension scheme also fell as
deficit reduction payments ceased. Our cash conversion performance improved
substantially and was 102% (2022: 72%). Free cash flow after the payment of
tax and capital expenditure was £20.9m (2022: £14.6m). After the payment of
dividends of £10.2m (2022: £9.4m) and the purchase of shares into treasury
of £nil (2022: £5.5m) net cash increased by £10.7m to £67.0m (2022:
decrease of £0.4m to £56.3m).
Capital expenditure in the period was lower than in 2022 at £0.5m (2022:
£1.2m) with the reduction largely a result of lower investment in OoH.
Working capital was well controlled.
The Group retains substantial cash resources to fund investment in its forward
strategic growth plans alongside its aim to improve shareholder returns. As
detailed in the Chair's Statement, the Board is currently assessing the
future funding requirements of the Company's business plan and intends to
identify surplus cash reserves for return to shareholders during 2024.
The Group's Adjusted Return on Capital Employed remained strong at 26.3%
(2022: 27.2%). Return on Capital Employed rose from 14.2% to 23.3%.
David Taylor
Interim Chief Financial Officer
6 March 2024
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2023
2023 2022
£'000 £'000
Continuing operations
Revenue 170,741 164,926
Cost of sales (98,565) (93,905)
Gross profit 72,176 71,021
Distribution expenses (9,567) (10,677)
Administrative expenses (40,323) (46,888)
Operating profit 22,286 13,456
Finance income 2,095 514
Finance expense (123) (134)
Profit before taxation 24,258 13,836
Taxation (5,896) (2,201)
Profit for the year 18,362 11,635
Earnings per share (basic) 50.34p 31.86p
Earnings per share (diluted) 50.32p 31.82p
Adjusted for exceptional items
Operating profit 22,286 13,456
Exceptional items 2,907 11,146
Adjusted operating profit 25,193 24,602
Profit before taxation 24,258 13,836
Exceptional items 2,907 11,146
Adjusted profit before taxation 27,165 24,982
Adjusted earnings per share (basic) 56.41p 55.38p
Adjusted earnings per share (diluted) 56.39p 55.32p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2023
2023 2022
£'000 £'000
Profit for the financial year 18,362 11,635
Items that will not be reclassified subsequently to profit or loss
Re-measurement of net defined benefit surplus (192) (2,071)
Deferred taxation on pension obligations and employee benefits 48 459
Other comprehensive expense for the year (144) (1,612)
Total comprehensive income for the year 18,218 10,023
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2023
2023 2022
ASSETS £'000 £'000
Non-current assets
Property, plant and equipment 9,457 10,958
Intangibles 256 88
Pension surplus 4,014 4,125
Total non-current assets 13,727 15,171
Current assets
Inventories 8,809 10,432
Trade and other receivables 41,393 39,561
Corporation tax recoverable - 695
Cash and cash equivalents 67,030 56,296
Total current assets 117,232 106,984
Total assets 130,959 122,155
LIABILITIES
Current liabilities
Trade and other payables 30,719 30,711
Corporation tax payable 318 -
Total current liabilities 31,037 30,711
Non-current liabilities
Other payables 1,865 2,038
Deferred tax liabilities 715 670
Total non-current liabilities 2,580 2,708
Total liabilities 33,617 33,419
Net assets 97,342 88,736
EQUITY
Share capital 3,697 3,697
Share premium reserve 3,255 3,255
Capital redemption reserve 1,209 1,209
Other reserves 1,845 1,280
Retained earnings 87,336 79,295
Total equity 97,342 88,736
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2023
2023 2022
£'000 £'000 £'000 £'000
Cash flows from operating activities
Profit for the financial year 18,362 11,635
Adjustments for:
Depreciation and amortisation 2,343 4,521
Impairment losses on intangible and fixed assets - 8,714
Loss on sale of property, plant and equipment 67 186
Finance income (2,095) (514)
Finance expense 123 134
Tax expense recognised in the income statement 5,896 2,201
Decrease/(Increase) in inventories 1,623 (726)
Increase in trade and other receivables (1,549) (4,100)
Increase in trade and other payables 384 2,963
Decrease in provisions - (4,242)
Change in pension obligations (81) (920)
Fair value (gain)/loss on derivative financial instruments (285) 662
6,426 8,879
Cash generated from operating activities 24,788 20,514
Tax paid (4,776) (4,178)
Net cash generated from operating activities 20,012 16,336
Cash flows from investing activities
Finance income 2,095 514
Proceeds from sale of property, plant and equipment 192 -
Acquisition of property, plant and equipment (479) (1,245)
Payment of contingent consideration - (71)
Net cash from/(used in) investing activities 1,808 (802)
Cash flows from financing activities
Payment of lease liabilities (909) (995)
Purchase of own shares - (5,534)
Dividends paid (10,177) (9,383)
Net cash used in financing activities (11,086) (15,912)
Net increase/(decrease) in cash and cash equivalents 10,734 (378)
Cash and cash equivalents at 1 January 56,296 56,674
Cash and cash equivalents at 31 December 67,030 56,296
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 31 December 2023
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 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 1 January 2023 3,697 3,255 1,209 1,280 79,295 88,736
Movement in ESOT - - - (2) - (2)
Credit to equity for equity-settled share-based payments - - - 567 - 567
Dividends - - - - (10,177) (10,177)
Transactions with owners - - - 565 (10,177) (9,612)
Profit for the year - - - - 18,362 18,362
Other comprehensive expense - - - - (144) (144)
Total comprehensive income - - - - 18,218 18,218
At 31 December 2023 3,697 3,255 1,209 1,845 87,336 97,342
NOTES
1. Basis of Preparation
The preliminary financial information does not constitute statutory accounts
for the financial years ended 31 December 2023 and 31 December 2022, but has
been derived from those accounts. The accounting policies remained unchanged
from those set out in the 2022 Annual Report and Accounts.
Statutory accounts for 2022 have been delivered to the Registrar of Companies
and those for the financial year ended 31 December 2023 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 Accounts, the Directors have considered the
current financial position of the Group and its principal risks and
uncertainties. The review performed considers severe but plausible downside
scenarios that could reasonably arise within the period.
Our modelling has sensitised the impacts of Russia's invasion of Ukraine and
the conflict within Yemen, in particular their impact on global supply chains
and macroeconomic inflationary factors. 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 31
December 2023 the Group had cash and cash equivalents of £67.0m 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 Accounts) and, accordingly, consider it appropriate to adopt the going
concern basis in preparing the financial statements.
3. Segmental Reporting
The Board, as the entity's chief operating decision maker, analyses the
Group's internal reports to enable an assessment of performance and allocation
of resources. The operating segments are based on these reports.
During the year, the Group changed its reportable segments to ensure the
appropriate strategic focus across the business given the differing strategic
challenges between its Packaged and OoH routes to market. The Group is now
segmented into the operating segments Packaged, OoH and Central. This replaces
the operating segments, Stills and Carbonates, used in the 2022 Annual Report
and Accounts.
The new segmental reporting allows the Group to deliver on its strategic
ambitions of accelerated growth across the Packaged business, both in
the UK and Internationally, and maximise value within the OoH business,
whilst providing oversight to manage central overheads from a total Group
perspective.
This is the first time results have been presented in these segments within
the Group's year end financial statements and thus the results reported for
the previous financial year to 31 December 2022 have been re-presented for
comparison purposes.
The accounting policies of the reportable segments are the same as the Group's
accounting policies. Segment performance is evaluated based on adjusted
operating profit (excluding exceptional items), finance income and exceptional
items. This is the measure reported to the Board for the purpose of resource
allocation and assessment of segment performance.
Year ended Packaged
31 December 2023 UK Middle East Africa Rest of World Total Packaged Out of Home Total Segments Central(1) Total Group
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 83,914 12,963 22,184 8,122 127,183 43,558 170,741 - 170,741
Adjusted operating profit 36,317 5,063 41,380 (16,187) 25,193
Net finance income 1,972
Adjusted profit before tax 27,165
Exceptional items (2,907)
Profit before tax 24,258
Year ended Packaged
31 December 2022 UK Middle East Africa Rest of World Total Packaged Out of Home Total Segments Central(1) Total Group
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 82,813 11,752 18,870 6,420 119,855 45,071 164,926 - 164,926
Adjusted operating profit 34,338 3,537 37,875 (13,273) 24,602
Net finance income 380
Adjusted profit before tax 24,982
Exceptional items (11,146)
Profit before tax 13,836
(1) Central includes the Group's central and corporate costs, which relate to
salaries and head office overheads such as rent and rates, insurance and IT
maintenance as well as the costs associated with the Board and Executive
Leadership Team, Governance and Listed Company costs.
A geographical split of revenue is provided below:
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Geographical split of revenue
Middle East 12,963 11,752
Africa 22,184 18,870
Rest of the World 8,518 7,350
Total exports 43,665 37,972
United Kingdom 127,076 126,954
Total revenue 170,741 164,926
4. Exceptional items
Year ended Year ended
31 December
31 December
2023
2022
£'000 £'000
Out of Home Strategic Review and Restructuring 1,784 518
Business Change Programme and Systems Development 1,722 316
Historic incentive scheme (599) 134
Impairment of intangible and fixed assets - 8,714
Review of UK Packaged supply chain - 1,464
2,907 11,146
The Group incurred £2.9m of exceptional costs during the year (2022:
£11.1m).
Out of Home Strategic Review and Restructuring
In 2022 the Group completed a strategic review into its OoH business following
a number of changes to the market it serves. This review included an
assessment of customer and product profitability and the identification of
opportunities to raise operating margins. As the changes arising from this
review have been implemented during 2023 costs of £1.8m have been incurred to
restructure the operations of the business. These additional restructuring
costs are one-off in nature and will be treated as exceptional.
Business Change Programme and Systems Development
The Group commenced a project in 2022 to identify the potential benefits from
replacing current operational and IT processes and systems, which are reaching
the end of their planned life, with an integrated Enterprise Resource Planning
(ERP) solution. During 2023 this project has progressed well and a number of
operational benefits have been identified. Costs of £1.7m (2022: £0.3m) have
been incurred in completing the review, vendor selection and business design
phases of the programme. Further costs will be incurred on the development of
new systems and processes during 2024 and the project is expected to be
completed in 2025. Due to the nature of these charges, the Group is treating
the costs as exceptional.
Historic Incentive Scheme
During 2022 the Group finalised the treatment of an historic incentive scheme
with HM Revenue and Customs and agreed to pay a sum in settlement of
additional tax and interest liabilities. The Group also commenced the process
of the recovery of debts from current and former employees who had indemnified
the Company. A reserve was put in place to provide against the potential
irrecoverability of some of these debts. Given the progress made in the
collection of outstanding amounts, this provision has been reduced during 2023
giving a net exceptional credit to profit of £0.6m, after further legal fees
(2022: cost £0.1m).
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 profit after tax for
the period of the Group by the weighted average number of ordinary shares in
issue during the period. 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 2023
Basic earnings per share 18,362 36,477,926 50.34p
Dilutive effect of share options 14,995
Diluted earnings per share 18,362 36,492,921 50.32p
Adjusted earnings per share (excluding 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 2023
Basic earnings per share 18,362 36,477,926 50.34p
Exceptional items after taxation 2,217
Adjusted basic earnings per share 20,579 36,477,926 56.41p
Diluted effect of share options 14,995
Adjusted diluted earnings per share 20,579 36,492,921 56.39p
6. Property, plant and equipment and Intangibles
Property,
Plant &
Equipment Intangibles
£'000 £'000
Cost
At 1 January 2023 35,311 9,760
Additions 1,269 -
Disposals (4,668) -
Transfers (238) 238
At 31 December 2023 31,674 9,998
Depreciation and Amortisation
At 1 January 2023 24,353 9,672
Charge for the period 2,273 70
Disposals (4,409) -
At 31 December 2023 22,217 9,742
Net book value
At 31 December 2022 10,958 88
At 31 December 2023 9,457 256
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 2023 by an independent qualified actuary.
A summary of the pension surplus position is provided below:
Pension surplus £'000
At 1 January 2023 4,125
Current service cost (11)
Scheme administrative expenses (124)
Net interest income 194
Actuarial losses (192)
Contributions by employer 22
At 31 December 2023 4,014
8. Provisions
During the second half of 2022, the Group settled with HMRC the tax and
interest charges regarding the historic incentive scheme (£4.2m). Recovery of
debts from current and previous management who had indemnified the Company
commenced during 2023. Included within other receivables is a reimbursement
asset in respect of the remaining amounts owed from these historic contracts.
9. Dividends
The final dividend proposed is 15.6p, which will become ex-dividend on the 21
March 2024 and paid, subject to shareholder approval to all shareholders on
the register on 22 March 2024, on 2 May 2024.
Annual Report and Accounts
The Annual Report and Accounts will be mailed to shareholders and made
available on our website during March 2024. 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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