Nichols plc Regulatory News (NICL)

3 March 2021

Nichols plc

2020 PRELIMINARY RESULT

Resilient financial performance despite challenging trading conditions

Nichols plc ('Nichols' or the 'Group'), the diversified soft drinks Group, announces its Preliminary results for the year ended 31 December 2020 (the 'period').

· Vimto Brand Value in the UK +6.7% versus soft drink market of +2.5%3

· Vimto Brand 'in-market' Middle East sales remained resilient through Ramadan despite Sweetened Beverage Tax (SBT) and Covid-19 restrictions

· Vimto in Africa delivered strong revenue growth of +7.4%

· Vimto continues to progress across the rest of the world, delivering revenue growth of 17.3% 

· Out of Home (OoH) significantly impacted by the pandemic with revenues down 61.4% and fixed costs weighing heavily on overall financial performance

· Strong cash performance in the period, Free Cash Flow4 +£17.6m, Cash Conversion5 at 186%

o Working capital focus with slower end of year 2020 due to Covid-19

· Exceptional charge of £5.1m

o Of which £3.8m, non-cash Impairment of Feel Good Goodwill and Intangible Assets

o £1.3m operational review and restructuring

· Final dividend proposed of 8.8p reflecting 2x cover7 for combined 2019 and 2020 performance period

· Continued uncertainty for 2021 outlook, guidance remains withdrawn

1 Excluding Exceptional items; impairment charges of £3.8m, operational review and restructuring costs of £1.3m (2019: £nil)

2 EBITDA is the statutory profit before tax, interest, depreciation and amortisation

3 Nielsen Total Coverage Year to Date 26 December 2020

4 Free Cash Flow is the net increase in cash and cash equivalents before acquisition funding and dividends

5 Cash Conversion is the Free Cash Flow/ Adjusted Profit After Tax

6 2019 Final Dividend was cancelled on 31 March 2020 due to the effect of the Covid-19 pandemic

7 Dividend cover is the adjusted basic earnings per share divided by the dividend per share

John Nichols, Non-Executive Chairman, commented:

"The Covid-19 pandemic presented us with unequalled challenges in 2020 and our first and most important objective through this unprecedented period has been the protection and wellbeing of our employees and customers. Throughout these difficult times, our colleagues have consistently demonstrated their values and commitment to our business, and I would like to wholeheartedly thank everyone for their efforts.

The strength of the Vimto brand, the Group's robust balance sheet and our diversified business model has ensured a resilient financial performance in the period despite the challenging trading conditions across our markets. We have achieved significant outperformance from the Vimto brand in the UK, solid growth in Africa and a good performance in the Middle East despite the impact of the recently introduced Sweetened Beverage Tax (SBT) and Covid-19 restrictions.

Whilst recognising the current and near-term impact of the pandemic on the soft drinks market, the Board continues to believe that Nichols, underpinned by the strength of the Vimto brand, the Group's diversified business model and the skill and commitment of our colleagues, remains well placed to deliver its long-term strategic ambitions. Given the continued near-term uncertainty, 2021 guidance remains withdrawn."

Contacts

Notes to Editors:

Nichols plc is an international soft drinks business with sales in over 85 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 Feel Good, Starslush, ICEE, Levi Roots and Sunkist.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

Chairman's Statement

The Covid-19 pandemic presented us with unequalled challenges in 2020 and our first and most important objective through this unprecedented period has been the protection and wellbeing of our employees and customers. Throughout these difficult times, our colleagues have consistently demonstrated their values and commitment to our business, and I would like to wholeheartedly thank everyone for their efforts.

The strength of the Vimto brand, the Group's robust balance sheet and our diversified business model has ensured a resilient financial performance in the period despite the challenging trading conditions across our markets. We have achieved significant outperformance from the Vimto brand in the UK, solid growth in Africa and a good performance in the Middle East despite the impact of the recently introduced Sweetened Beverage Tax (SBT) and Covid-19 restrictions.

Cash and cash equivalents at the end of the period amounted to £47.3m (2019 £40.9m), marginally ahead of the half year position of £46.8m. Management took prudent measures to conserve cash within the business throughout the year, ensuring that Nichols is in the best possible place to 'Build Back Better' from the impact of the pandemic.

Trading

Ahead of the pandemic, the Group was achieving good revenue growth with a 6.2% increase in Q1 versus the prior year.

The arrival of the pandemic in our markets at the end of Q1 was a watershed moment for the year. The introduction of social distancing, the enforced closure of the Group's Out of Home ('OoH') customers and the various lockdown measures introduced across the globe materially impacted our business.

Q2-Q4 2020 revenues were 26.1% lower compared to the prior year. As a result, total Group revenue for the period was 19.3% lower at £118.7m (2019: £147.0m).

The Still and Carbonates product categories were impacted significantly by the pandemic, predominantly as a result of the enforced closures of the Group's OoH customers. In addition, the introduction of the SBT (reported against the revenue line) in the Middle East impacted performance. As a result, revenue of Still products decreased by 8.3% to £65.7m (2019: £71.7m). Revenue from Carbonates was down 29.7% to £53.0m (2019: £75.3m) as outlets closed and impulse sales reduced.

In the UK, revenue decreased by 22.0% to £91.6m (2019: £117.5m) driven by a 61.4% reduction within the OoH sector. However, within this, the Vimto brand's value increased by 6.7% against a soft drinks market performance of +2.5% (Nielsen to 26 December 2020), reflecting further market share gains.

Sales across our International markets were £27.0m (2019: £29.5m). This represented a year on year decrease of 8.3%. Despite Covid-19 restrictions in the Middle East and the introduction of the SBT, the Vimto brand was resilient throughout Ramadan and 'in-market' sales were broadly in line with the prior year. This performance, combined with African sales growth of 7.4% to £14.0m (2019: £13.0m) and rest of world sales growth of 17.3% to £5.7m (2019: £4.9m), demonstrates the continuing strength of the Vimto brand internationally. The Group supported its local partner with brand investment to mitigate the impact of the introduction of the SBT in the Middle East.

Dividend

In March 2020, the Board made the decision to withdraw the final dividend (28.0p) for 2019, due to the uncertainties concerning the financial impact of Covid-19. At the half year, the Board agreed the rebalancing of dividend policy to consider the two financial years 2019 and 2020 as a single review period and paid 28.0p, as the Interim Dividend for 2020, in September 2020.

In the second half year, the Board has agreed to evolve the dividend policy to reflect the balance of shareholder needs and the clear opportunities for growth that will exist in the soft drinks market post the pandemic. Dividend cover going forward will move to broadly 2x.

Therefore, the final dividend proposed is 8.8p, which will become ex-dividend on the 25 March and paid subject to shareholder approval on 6 May 2021.

Board Changes during the year

Andrew Milne was appointed CEO of the Group with effect from 1 January 2021, replacing Marnie Millard OBE. Andrew has been with the Group for eight years and brings significant industry expertise and excellent knowledge of our business to the role. I am delighted to welcome Andrew as CEO and wish him every success in leading the business during the next phase of its development, and I thank Marnie for her significant contribution over the years.

We were also pleased to welcome David Rattigan to our business as our new CFO during the year. David became CFO with effect from 2 March 2020, replacing Tim Croston.

The Board entered into a Relationship Agreement with the Nichols Family on 22 July 2020. The purpose of the Relationship Agreement is to formalise Board representation for the Nichols Family whilst also ensuring that the Group conducts its business independently at all times. As a result, James Nichols joined the Board on the 22 July 2020 as a Non-Executive Director.

Outlook

Whilst recognising the current and near-term impact of the pandemic on the soft drinks market, the Board continues to believe that Nichols, underpinned by the strength of the Vimto brand, the Group's diversified business model and the skill and commitment of our colleagues, remains well placed to deliver its long-term strategic ambitions. Given the continued near-term uncertainty, 2021 guidance remains withdrawn.

John Nichols

Non-Executive Chairman

3 March 2021

Chief Executive Officer's Statement 

The value of the Group's diversification across multiple geographies and routes to market has once again been proven during 2020. The foundation of our performance in 2020 has been our unique Vimto brand, which remains as relevant for our consumers today as it was when it was established 112 years ago.

In line with the market, trading conditions in the UK on-trade have been extremely challenging due to closures across the hospitality sector throughout the majority of the year. However, the UK retail sector has proved to be more resilient as people have consumed more products at home, bought from stores or via fast-growing online platforms.

Operating across a range of International markets has also been beneficial during the year. Our Middle East markets have been impacted by the introduction of a sweetened beverage tax at 50%, but we have achieved good growth across our African, American and European markets as a result of outstanding in-market execution. Across all our geographies we have focused on driving strong in-market execution of our commercial programmes, coupled with focused new product launches to ensure we have taken market share. We have also continued to build long term partnerships with all our key customers and distributors, who I would like to thank for their continued loyalty and support during 2020.

UK Soft Drinks

(Market statistics given below are as measured by Nielsen in the year to 26 December 2020)

In 2020, volumes in the £8.9bn UK soft drinks market grew by 3% whilst value sales grew by 2.5% versus the prior year.

Within the soft drinks market, the strongest value growth was delivered across Cola, Mixers, Dilutes and Energy drinks. Plain water, Flavoured water, Fruit drinks and Sports drinks were all sectors that suffered declines versus 2019.

The Vimto brand delivered strong value growth of 6.7%, gaining significant market share and adding £6m to its brand value (Nielsen data) in the twelve-month period to a record £96.5m.

The soft drinks category remains intensely competitive and promotionally driven, but we continue to focus on adding value through strong in-market execution, product innovation and new distribution gains.

Within the UK packaged sector, our dilutes portfolio has been at the heart of our exceptionally strong performance. We have delivered value sales growth of 24% versus the dilutes sub-category growth of 12.8% growth. This has further consolidated our position as the UK's No.2 dilutes brand.

We have also continued to ensure all new product innovation and marketing activity focuses heavily on driving our 'No Added Sugar' ranges, promoting healthier options to consumers as part of our sustainability strategy to achieve a Happier Future. As a result, we have once again delivered accelerated growth on this part of our portfolio.

Innovation has again been central to our success in 2020. Although certain planned new product launches were delayed due to the pandemic, we added an exciting new flavour to our Remix range and released a Vimto 'Winter Warmer' limited edition squash proposition. Offering new flavours and concepts is crucial to attracting new consumers to the Vimto brand and ensuring we stay relevant to evolving consumer needs and tastes.

Core to the brand's growth in 2020 has been our award winning 'I see Vimto in you' marketing campaign. The campaign was first launched in 2018 and has played a vital role in underpinning our continued growth over the last three years. We have focused on delivering a social, digital and influencer communications plan during 2020 and we have seen our brand penetration reach record levels at 7.1m households (+407K households vs. 2019 as measured by Kantar).

During 2020 we had planned to relaunch our Feel Good brand into the marketplace. We repositioned the brand as a 100% natural product, targeted to go to market in early April 20. Due to the pandemic our launch plans have been delayed until 2021.

We continue to work in close collaboration with our customers across the UK grocery, foodservice, wholesale and discount channels. Ensuring the strength of these relationships has been more important than ever during 2020, and we will continue to keep our customers' needs at the heart of what we do to ensure that consumers can enjoy our products every day.

The UK On-Trade

(As measured by CGA Total Out of Home, Licensed & Foodservice. Last 12 months to 30 November 2020)

It has been the most challenging trading period in the on-trade sector for 80 years, but we believe consumer demand remains strong, with a clear willingness to re-engage in hospitality once restrictions eventually ease.

Soft Drinks remain a hugely important part of Out of Home sales, worth 1.1bn litres, representing £3.9bn in the last 12 months. In Licensed outlets, soft drinks volume is worth 348m litres, £2.2bn in the last year. This represents approximately a quarter share of total drinks volume.

In comparison to other categories in Licensed, the sales performance of soft drinks is in line with total drinks sales and performing at a similar rate to Wine & Spirits. The Eat Out to Help Out scheme and national heatwave during Q3, combined with the temporary lifting of certain pandemic-related social restrictions, contributed towards a lift in sales of soft drinks for a limited period.

In the UK, sales of soft drinks in Licensed & Foodservice combined saw a drop in consumption during 2020 vs. 2019 as volume declined 41%, delivering 1.1bn litres in the year. This was driven by a 53% decline in Licensed and a 36% decline in Foodservice.

Category performance has retracted significantly due to the impact of the coronavirus pandemic reflected in the 40% decline in annual turnover in the overall UK hospitality sector over the past year. This equates to an annual loss of £53bn across the sector across food and drink sales.

As the pandemic took hold during 2020, 64% of UK consumers ate and drank out less frequently than they usually would between July and October. That equates to 88m fewer visits during a key trading period of the year.

Due to the challenges highlighted above our business was severely affected by the closures from March onwards. The first two months of the year proved strong, despite the fact that traditionally they are the quietest time of the trading year. During the first quarter we also launched our frozen carbonated range, ICEE, into the cinema chain Showcase, which we had been successful in securing as incremental business for 2020.

Throughout the remainder of 2020 our primary focus was on supporting our customers and partners across our Out of Home trading division. Making sure we did everything possible to ensure that these valued customers can survive in the long term as the hospitality sector re-opens was our team's priority. I am extremely proud of the effort we have put in to support our partners during this challenging period.

Vimto International

During 2020, the Covid-19 pandemic affected all our International regions as lockdowns were put in place on a global scale.

In our Middle East region this has been coupled with VAT increases and the implementation of a 50% excise tax on sweetened beverages. As a result, trading conditions have been extremely challenging throughout the year.

We have taken the long-term strategic decision in conjunction with our long standing partner of over 90 years, Aujan Coca-Cola Bottling Company (ACCBC) to invest in an enhanced marketing programme to protect our market share of Vimto in this key region, and I am pleased to report that, as a result, our market share in the Middle East has not been impacted.

Over the key Ramadan trading period, a comprehensive digital campaign and outstanding in-store execution delivered one of the most successful campaigns in the brand's history.

We have accelerated our Innovation pipeline on the Vimto brand across the region in recent years, and in 2020 we launched new products including a No Added Sugar cordial product, an orange still ready-to-drink variant and a sour cherry carbonated drink. These new products have increased the availability and visibility of the brand across a number of key customers. Adapting the brand to changing consumer needs has played a key role in ensuring our continued success.

During 2020 we again achieved strong growth in our African region. We delivered sales revenue of £14.0m, representing 7.4% growth versus 2019. This was driven by our core red can carbonated range, supported by our strong integrated marketing campaign and new distribution wins. We also successfully launched our Vimto Watermelon flavour within Algeria and Mali in a bottled format. Local consumer reaction has been extremely strong, resulting in a strong sales performance.

We have achieved strong momentum within the USA over recent years working alongside our partner, Ziyad. 2020 saw another excellent performance, with double digit sales revenue growth supported by focusing our commercial activity on key trading periods.

Across our European territories we continued to focus on delivering new points of distribution for our core products within our key customers, which has resulted in the Group making market share gains and delivering strong sales momentum.

Summary

As we enter 2021, I have no doubt that we will continue to operate in a challenging and changing environment that will continue for a sustained period. Over many years soft drinks has proven to be a highly resilient category and even throughout 2020 during the global pandemic we have seen value growth. I feel confident that given our strong portfolio of brands, diverse business model and exceptional people we can continue to deliver our long-term strategic objectives in 2021 and beyond.

Andrew Milne

Chief Executive Officer

3 March 2021

Chief Financial Officer's Statement

Revenue

Group revenues were £118.7m, a decrease of 19.3% compared to 2019, as Covid-19 restrictions significantly impacted the OoH sector (where revenues were down 61.4%), impacting both Still and Carbonate performance.

The Group's packaged routes to market had an excellent year, delivering growth in both the UK and internationally in volume terms. Across the globe, Vimto performed well and delivered solid progress. Internationally, reported numbers were impacted in value terms through the Group's investment to offset some of the pricing impact of the newly introduced Middle East SBT.

UK packaged revenues improved by 2.7%, driven by the performance of the Vimto brand, in particular within Multiple and Discount Retailers, where revenues increased by 9.5%. Revenues across Convenience, Delivered Wholesale and Cash and Carry fell 10.9% as a result of Covid-19 closures and restrictions.

Internationally, Middle East volumes performed well through Ramadan, with 'in market' sales broadly flat year on year. In Africa, progress continued at pace with revenues improving 7.4%. Elsewhere, sales into the US performed particularly well.

The impact of movements in foreign exchange rates on revenue year on year was immaterial, at less than £0.1m.

Gross Profit

Gross profit at £49.6m was £20.4m lower than 2019 (£70.0m) and 5.8 percentage points lower at 41.8% (2019 47.6%). Of this, £11.8m was the net volume effect of the OoH route to market Covid-19 impact and the growth seen across the UK packaged and International markets.

The International route to market experienced a range of gross margin pressures in the period. The Group supported its local partner with brand investment to mitigate the impact of the introduction of the SBT in the Middle East and encouragingly 'in market' volumes were flat in the year despite the impact of the SBT and Covid-19 restrictions. Additionally, there was a £0.4m gross profit impact across the African business as supply moved to imported cans from concentrate to support local supply chains impacted by Covid-19 closures. A further £0.3m of gross profit was invested to develop the Group's rest of world markets which performed strongly during the year in volume terms.

UK raw material cost increases in the year combined with some positive one-offs in 2019, resulted in a further negative gross profit impact of £2.3m when compared with 2019.

Within OoH under recovery of costs largely associated with the factory at Ross-on-Wye led to further gross profit pressure of £1.1m as a result of Covid-19.

In addition, the Group supported OoH customers with new for old stock following the re-opening from lockdown 1 and provided for stock write offs as owned stock became obsolete, impacting gross profit by a further £1.0m.

Distribution Expenses

Distribution expenses totalled £8.0m (2019 £7.4m), an increase of 7.5%. Distribution costs within the Group are largely associated with the UK packaged route to market and the increase is largely due to the higher trading volumes reported in the period but also additional disruption within our outbound supply chain as a result of the Covid-19 pandemic.

Administration Expenses

Administration expenses, excluding exceptional items, totalled £30.0m (2019 £30.1m), a decrease of 0.3%.

Management focused on reducing discretionary spend and realigning marketing investment resulting in cost reductions of £1.2m. No bonuses or LTIPs were accrued during the year and labour costs were managed closely, resulting in cost reductions of £1.1m.

The Group incurred further bad debt provisioning and asset write offs associated with the OoH business totalling £1.9m versus 2019. As smaller customers in the hospitality sector failed to re-open following lockdowns, the Group has made additional provisions for bad debt. A detailed exercise been undertaken to trace and verify assets held at customer outlets and as a result they have been written off when determined to be obsolete, lost or unlikely to deliver economic benefit.

The Group's prior year investment in OoH, acquisitions and machinery increased the Group's depreciation charge by £0.4m year on year.

Exceptional Costs

The Group has incurred £5.1m of exceptional costs during the year (2019: £nil).

Following a strategic review of the Group's 'Feel Good' Brand and its recognition as a separate Cash Generating Unit ('CGU'), the Group has incurred a non-cash impairment to Goodwill and Intangible Assets of its 'Feel Good' Brand of £3.8m. The Group remains committed to the 'Feel Good' Brand, which has recently been relaunched in the UK.

The Group commenced a review of its UK packaged supply chain in Q4, engaging third party consultants and this is expected to conclude with implementation through 2021. Costs incurred to date amount to £0.3m with further costs expected in 2021.

The Group completed a review of its operational and leadership structures in Q4.

Operational changes followed the integration of prior year acquisitions and the implementation of new systems into the OoH route to market. These changes were implemented in Q4, making a number of roles redundant at the year-end incurring costs of £0.7m.

The Group decided to move from three Executive Directors to two at the year-end following a review of the Executive Board members portfolios. Early termination costs associated with these changes were £0.3m.

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.

Operating Profit

Adjusted Operating Profit was £11.7m was down £20.7m, a 64.1% decrease on prior year (2019 £32.4m). Operating Profit of £6.6m (2019 £32.4m) is after charging exceptional items of £5.1m (2019: nil) during the period.

The impact of movements in foreign exchange rates on operating profit year on year was highly immaterial, amounting to less than £0.1m.

Finance Costs

Net Finance costs of £nil (2019: £0.1m) were broadly in the line with the prior year.

Profit before tax and tax rate

Reported profit before tax was £6.5m, a decrease of 79.8% compared to the prior year (2019: £32.4m). Adjusted profit before tax reduced by 64.2% to £11.6m (2019: £32.4m). The tax charge on adjusted profit before tax for the period of £2.2m (2019: £5.6m) represents an effective tax rate of 18.7% (2019: 17.2%).

Balance Sheet and Cash and Cash Equivalents

Despite the impact of the pandemic on trading, cash and cash equivalents at the end of the period remained strong at £47.3m (2019 £40.9m), marginally ahead of the half year position of £46.8m.

The Group focused significantly on cash management throughout this unique year with particular emphasis on balancing the needs of its various stakeholders by working flexibly with shareholders, staff, customers, and the UK Government as events developed. At the same time, the Board has remained focused on ensuring the Group remains well positioned to deliver its long-term growth plans and exploit growth opportunities across the business as the impact of the pandemic subsides.

Whilst the Group took mitigating actions to conserve cash, including the rebalancing of its dividend policy as described in the Chairman's Statement, Nichols also supported its stakeholders by:

· Topping up all furloughed staff's pay to 100% throughout the furlough period (£0.3m) having utilised the Government furlough scheme (£1.4m);

· Replacing old stock with new (£0.4m), free of charge for its OoH customers following lockdown 1 as well as providing enhanced credit terms; and

· Continued full payment of taxes and by not participating in loan or payment deferral opportunities.

The Group's focus on working capital management, the restriction of non-essential capital expenditure, and maintenance of customer relationships resulted in lower debtor and inventory balances than the prior year. Creditor balances were broadly in line year on year. The strength of the Group's closing balance sheet reflects its diversified routes to market, asset light model, and insourced OoH manufacturing.

The Group was pleased to generate Free Cash Flow of £17.6m, with a cash conversion of 186%, recognising the unwinding of 2019 working capital balances in 2020. Whilst recognising the current and near-term impact of the pandemic on the soft drinks market, the Board expects the Group's debtors and inventories to return to 2019 levels over the medium term. As noted at the half year, the Group benefitted from a prior year insurance claim during the period, which provided £2.0m of cash (there was no 2020 income statement impact and this is reported within the movement in trade and other payables line in the Consolidated Cash Flow statement).

Earnings per share

On an adjusted basis, diluted earnings per share (EPS) was 25.54 pence (2019: 72.77p). Total adjusted EPS increased to 25.56 pence (2019: 72.81p) with basic EPS at 13.14 pence (2019: 72.81p).

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 2020, the Group recognised a surplus on its UK defined benefit scheme of £0.3m (31 December 2019: deficit £0.3m).

During the start of 2021, the Group has agreed with the Trustees a de-risking future funding plan for the defined benefit scheme.

Brexit

In light of the EU-UK Trade and Cooperation Agreement being signed on 30 December 2020, the Board continues to monitor the impact of Brexit. A multi-functional project steering committee has been working to identify the impact of Brexit on the Group's operations with a comprehensive mitigation plan now in place.

The free trade agreement implemented between the EU and UK has eliminated the risk of significant incremental trade tariffs that a no deal Brexit would have posed to the Group. The Group has experienced an increased administrative burden post Brexit although its exposure to EU-UK trade is relatively low given our outsourced manufacturing supply chain (UK and EU).

The Board will continue to closely monitor the impact of the agreement and the implications this has on the movement of products into and from the EU.

David Rattigan

Chief Financial Officer

3 March 2021

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2020

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2020

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 31 December 2020

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2020

NOTES

1. Basis of Preparation

The preliminary financial information does not constitute statutory accounts for the financial years ended 31 December 2020 and 31 December 2019, but has been derived from those accounts. The accounting policies remained unchanged from those set out in the 2019 annual report.

Statutory accounts for 2019 have been delivered to the Registrar of Companies and those for the financial year ended 31 December 2020 will be delivered following the Company'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 and the potential impact of further Covid-19 restrictions. 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 Out of Home market and the length of time that lockdown restrictions may be in place for 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 persist throughout the whole of 2021, with Out of Home performance only beginning to return to pre Covid-19 levels during 2022.

In addition to the continued impact 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 busines model remained robust. The Group's diversified business model and strong balance sheet entering 2021, combined with its strong cash generation in 2020 all provide resilience against these factors and the other principal risks that the Group is exposed to. At the 31 December 2020 the Group had cash and cash equivalents of £47.3m with no external bank borrowings. This equates to 95% of 2020 gross profit.

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 financial statements.

3. Impact of Covid-19 on Financial Statements

In light of the effects of Covid-19 and social distancing measures on the Group's business and customers, the Directors have considered the impact on the accounting judgements and estimates within the financial statements. All commercial and operational impacts of Covid-19 have been treated within the underlying results and no Covid-19 impact has been treated as exceptional.

Expected credit loss provisions on the Group's trade receivables have been reviewed in light of potential increased risk of bad debt, particularly in relation to smaller independent customers.

Reductions in sales, particularly in Out of Home, have increased the amount of potentially out-of-date and obsolete stock held by the Group. This has resulted in an increase in stock provisions of £0.7m by 31 December 2020. Following lockdown 1, within Out of Home the business provided customers with new stock to replace old out of date stock free of charge.

The Group has accessed the funds made available by the Government under the Job Retention Scheme. This was used to partially offset the payroll expense incurred for employees who were furloughed. In Q2 a large proportion of the UK OoH team were furloughed, largely returning to work in the early summer. Through the fourth quarter of the year (Q4) increased customer outlet closures meant a return to furlough for a number of our OoH team. The business has paid furloughed employees at 100% of salary throughout the year and only furloughed employees where reductions in workload have been deemed temporary due to Government restrictions. The financial contribution made by the Government from the scheme to Nichols was £1.4m during the year.

Our offices and depots have remained open in a Covid secure manner throughout the year for wellbeing purposes or office critical activities, but the vast majority of office-based employees have worked effectively from home. High levels of service have continued to be provided to all of our customers.

4. 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.

A geographical split of revenue is provided below:

5. Exceptional items

Following a strategic review of the Group's 'Feel Good' Brand and its recognition as a separate Cash Generating Unit ('CGU'), the Group has incurred a non-cash impairment to Goodwill and Intangible Assets of its 'Feel Good' Brand of £3.8m. The Group remains committed to the 'Feel Good' Brand, which has recently been relaunched in the UK.

The Group commenced a review of its UK packaged supply chain in Q4, engaging third party consultants and this is expected to conclude with implementation through 2021. Costs incurred to date amount to £0.3m with further costs expected in 2021.

The Group completed a review of its operational and leadership structures in Q4.

Operational changes followed the integration of prior year acquisitions and the implementation of new systems into the OoH route to market. These changes were implemented in Q4, making a number of roles redundant at the year-end incurring costs of £0.7m.

The Group decided to move from three Executive Directors to two at the year-end following a review of the Executive Board members portfolios. Early termination costs associated with these changes were £0.3m.

Due to the 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.

6. Earnings Per Share

Basic earnings per share is calculated by dividing the profit after tax for the year of the Group by the weighted average number of ordinary shares in issue during the financial year. 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:

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:

7. Non-current Assets

Goodwill and other 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.

The identification of Feel Good as an independent CGU, and the associated future cash flow forecasts due to its change in focus following rebranding, were recognised by management as a potential trigger of impairment. Following review, an impairment totalling £3.8m (£2.5m Goodwill and £1.5m Intangible assets) has been recognised as an exceptional item.

Annual impairment reviews were performed on the remaining Goodwill and Intangible assets with indefinite lives, all of which relate the Group's Out of Home Business. The discount rate used of 8.2% is a pre-tax rate and reflects the risks specific to the relevant cash-generating unit. Out of Home business cash flow projections are based on the most recent financial budgets approved by management. Management have applied an annual growth rate in projecting the cash flows for a period of five years in line with these budgets. Further periods have been included in the impairment test based on growth into perpetuity of 2% per annum.

When compiling the financial budgets and the annual growth projections for the five years and into perpetuity, management have considered the current economic climate, including the impacts of Covid-19, along with future growth rates reasonable to this market. The level of growth assumed in these forecasts fully takes into account the time the hospitality industry is anticipated to take to recover from the impact of the pandemic.

Based on the review performed no impairment has been made in relation to the Out of Home business. As part of forming this conclusion a sensitivity analysis has been performed which focused on the change required in key assumptions (long-term growth and the pre-tax discount rate), both individually and collectively, to give rise to an impairment. If the discount rate were to increase by 1.3 percentage points and the terminal growth rate were to decrease by 1.7 percentage points, which whilst not management's current expectation is considered to be reasonably possible, this would lead to an impairment charge.

8. 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 2020 by an independent qualified actuary.

A summary of the pension surplus position is provided below:

9. Contingent Liability

The Group had previously entered into contracts with some of its senior management relating to incentive schemes which were designed to motivate, retain and engage those key employees. HMRC have written to the Group with their initial view that the arrangements should have been taxed as employment income which the Group and its advisors dispute.

If HMRC pursues its current position and is successful in its argument, then the Group may have to pay up to £3.4m (2019: £3.2m) in Income Tax and National Insurance. In addition, the Group may have to pay up to £0.7m of interest to HMRC that hadn't previously been included.

The employees who are party to the contracts have formally indemnified the Group in relation to income tax and employees' National Insurance and an amount of up to £2.6m (2019: £2.4m) can be requested from them.

The Directors have obtained external advice and on the basis of this do not believe that the Group has a liability for any additional tax or National Insurance.

The tribunal appeal is being heard through spring 2021. In common with such disputes with HMRC it may take some time to settle and the Directors are unable to assess how long this will take and the timing of any potential settlement if required. As at the date of this report, there has been no significant progress in the case to note since this time last year.

10. Contingent consideration

Within the Consolidated Statement of Cash Flows there is a £0.9m cash outflow in relation to the payment of contingent consideration. These payments relate to contingent consideration paid for acquisitions made in previous financial years.

11. Dividends

In March 2020, the Board made the decision to withdraw the final dividend (28.0p) for 2019, due to the uncertainties concerning the financial impact of Covid-19. At the half year, the Board agreed the rebalancing of dividend policy to consider the two financial years 2019 and 2020 as a single review period and paid 28p, as the Interim Dividend for 2020, in September 2020.

In the second half year, the Board has agreed to evolve the dividend policy to reflect the balance of shareholder needs and the clear opportunities for growth that will exist in the soft drinks market post the pandemic. Dividend cover going forward will move to broadly 2x.

Therefore, the final dividend proposed is 8.8p, which will become ex-dividend on the 25 March and paid subject to shareholder approval on 6 May 2021.

Annual Report

The annual report will be mailed to shareholders and made available on our website on or around 16 March 2021. 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-