Nichols plc Regulatory News (NICL)

Nichols plc

PRELIMINARY RESULTS

Nichols plc ('Nichols' or the 'Group'), the soft drinks Group, announces its Preliminary results for the year ended 31 December 2017 (the 'period').

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.

Financial Highlights:

John Nichols, Non-Executive Chairman, said:

 "In 2017 we delivered strong double-digit sales growth across both the UK and international businesses, even though the market conditions have been challenging. Profits were maintained despite previously announced external challenges in the Yemen region and we are proposing to increase the final dividend by 15.3%.

The Group expects to deliver further progress in 2018, supported by the advantages of our diversified business model and the strength of our brands."

Chairman's Statement

The Group has delivered a strong revenue performance throughout 2017, with both the UK and international businesses contributing to a double-digit increase compared to the prior year.

Despite industry wide cost input increases and the challenges in Yemen as reported in our Trading Update on 19 December 2017, profit pre-exceptional items has been maintained at the same level as the prior year and the Board has recommended a 15.3% increase in the final dividend.

Trading

Total Group revenue for 2017 has increased by 13.2% to £132.8m (12.2% on a constant exchange rate basis). This has been delivered across the Group in both our UK and international businesses highlighting the advantages of our diversified business model.

UK sales totalled £100.8m, an increase of 11.0%, which is a strong performance given ongoing challenges in the UK market. Once again, the Vimto brand has significantly outperformed the market with sales in 2017 up by 9.0% compared to the overall UK soft drinks market which was up by 2.2% in the same period (Nielsen year to 30 December 2017). Elsewhere in the UK, our Out of Home business increased its sales by 21.5% compared to the prior year. This was delivered from both our dispensed soft drinks and frozen beverages product ranges and demonstrates the benefits of recent acquisitions in this part of our business.

Sales to our international customers grew by 20.4% to £32.0m (2016: £26.6m). Revenues to Africa were £12.7m, an increase of 21.2% compared to 2016. Despite the reported challenges in Yemen, revenues to the Middle East region were up 13.4%, although this was in the context of softer comparatives in the prior year (2016: -7%).

Whilst the Group remains highly profitable with Group Profit Before Tax and exceptional items delivering a 23% return on sales (2016: 26%), the margin has been impacted by increased input costs affecting the wider industry. In addition to the margin dilution and as reported in our Trading Update on 19 December 2017, the escalation in hostilities in Yemen prevented the planned shipments of Vimto concentrate in December. As a result, Group Profit Before Tax and exceptional items of £30.5m was broadly in line with the prior year (2016: £30.4m).

Exceptional Items

The Group incurred a number of costs during 2017 which by their nature were non-recurring and have been reported as exceptional items. These costs fell into three categories: merger and acquisition expenses, restructuring costs and costs incurred in preparation for the introduction of the Soft Drinks Industry Levy. The total cost of these exceptional items was £1.8m.

Dividend

As a reflection of the Board's confidence in the Group's financial position and future growth prospects, we are pleased to recommend a final dividend of 23.4 pence per share (2016: 20.3 pence).

If accepted by our shareholders, the total dividend for 2017 will be 33.5 pence (2016: 29.3 pence), an increase of 14.3% on the prior year. Subject to shareholder approval, the final dividend will be paid on 4 May 2018 to shareholders registered on 23 March 2018; the ex-dividend date is 22 March 2018.

Outlook

In 2018, we expect to maintain the positive sales trend in the UK with the Vimto brand being supported by a new marketing campaign launching in the spring. In addition, we are well prepared for the introduction of the Sugar Levy with 100% of the Vimto and Feel Good brands portfolio already exempt from the levy.

In our international business, we are confident of continued sales growth in Africa, however, the current conflict in the Yemen coupled with a slowdown in the Saudi economy, suggests that sales to the Middle East region will soften in 2018.

In summary, the Group remains highly profitable and our diversified business model, strong balance sheet, and the resilience of the Vimto brand will continue to support the expected sales growth in 2018.

John Nichols

Non-Executive Chairman

28 February 2018

Chief Executive Officer's Report

I am pleased to report Group sales grew by 13.2% despite the global soft drinks market remaining challenging. The strength of the Vimto brand, our geographical reach and continued focus on driving "value over volume" delivered an excellent sales performance across the Group. All of our routes to market have performed well and it's particularly rewarding to see the diversified business model contributing so positively to the overall growth of our business.

We are proud of the heritage of our brand and proud of all the partners we work with across the globe. Some overseas core markets have proved challenging during 2017, but the resilience of the brand and the love our consumers have for Vimto, ensures we continue to perform strongly in these geographies.

The acquisition of one of our distributors, DJ Drink Solutions Limited, was made in 2017 to further strengthen our Out of Home presence in the North of England.

The Soft Drinks Industry Levy will be introduced into the UK in April 2018 and I am delighted to report we are already 100% levy free across the Vimto and Feel Good brands portfolio. All Vimto reformulation work was completed and introduced into the market during the second half of 2017. Our no added sugar Vimto sales grew by 20% in 2017 and I am extremely pleased with the position of our product portfolio ahead of the implementation of the levy.

The UK Soft Drinks Market

(As measured by Nielsen year to date 30 December 2017)

In 2017, volumes in the UK soft drinks market were flat at 0.2%. Value sales were slightly higher but still only showing modest growth of 2.2%, with the overall market totalling £7.8 billion.

Within the soft drinks market, value growth was seen across mixers, colas, plain and flavoured waters and fruit carbonates. Energy drinks, dilutables, fruit drinks and sports drinks were all sectors in decline.

Vimto has added an impressive £3.5m to its brand value (Nielsen data) in twelve months and is now worth £76m, an increase of 5%. This metric is important to us as the UK soft drinks market remains highly competitive and promotionally driven, but we continue with our focus of adding value to the brand through our focus on driving "value over volume" and to the sector as a whole. The category remains highly competitive and promotionally driven but we continue with our focus of adding value to the sector. Our product innovation, under the sub brand Remix has added £6.3m to the retail sales brand value in less than 3 years. In both the dilutable and ready to drink categories, Vimto has significantly outperformed the market. Vimto dilutes grew by 9.0% versus a market decline of 3.6%, whilst Vimto ready to drink has outperformed the market by 7.2 percentage points.

The UK on-Trade

(As measured by CGA, Total Licensed, Total Soft Drinks, last 12 months to 4 November 2017)

The UK on-trade soft drinks sector saw a dip in consumption as volume has decreased by 1.6% and value sales also decreased by 1.3%, as consumers remain cautious with spending.

All categories, including beers, wines & spirits, are experiencing a challenging time, potentially related to the drop in frequency in total eating out as consumers tighten their belts during these uncertain economic times.

Category performance has also been affected by the number of licensed outlets in the UK declining 1%. This is across Free Trade and Leased & Tenanted as the market remains a challenging place.

Operational Review

Vimto UK

Vimto achieved an impressive sales increase of 9.0% during 2017, with both original and Remix contributing to that market leading performance. Driven through all market channels and across all pack formats, dilute and ready to drink achieved double digit growth at 10% and 11% respectively.

It is more important than ever for brands to remain relevant and top of mind for consumers. The UK market is fiercely competitive, with unprecedented changes taking place in the retail space. Our customers are continually looking for winning brands and are taking tough decisions to ensure they are fit for the future. Therefore, with this backdrop it is particularly pleasing to see Vimto succeeding in these difficult times.

Pink Remix 500ml ready to drink was launched in 2017 and delivered a 13% increase in sales on our Remix brand in the Cash & Carry sector. Our launch of drink now water in the form of Vim2o helped to improve our Convenience business by 12% and we achieved 4,000 new distribution points for our Vimto 500ml range within the M25 as part of our Go South extended trial.

Our marketing campaign for 2017 continued to feature our very own successful Vimtoad alongside the Remixed toad. However, I am sad to report this is the last you will see of the Vimtoad as he prepares for retirement. We have appointed a new creative agency and have developed new brand positioning which will be launched in spring 2018.

Feel Good was relaunched in 2017 with new packaging design, new and improved flavours as well as launching Feel Good Infusions, which allowed the brand to enter the water category.

The launch was announced with 100 women taking part in a Skinny Dip to celebrate the strapline "100% natural and 100% Feel Good". The subsequent digital advert reached 2.4 million of our target "Health Conscious Urbanites", the outdoor advertising seen by 2.5 million people and the radio campaign attracted 2.5 million listeners. As a result of this good work, I am pleased to report Feel Good now has a brand value of £3.2m.

Vimto International

International revenue, despite some extraordinary trading challenges was up 20.4%.

Africa delivered an outstanding performance with growth of 21.2% (14.1% on a constant exchange rate basis), with three new countries coming on stream in 2017: Mauritania, Benin and Uganda. Core markets in this geographical region continued to perform well with in market sales up by 21%.

We launched a new 250ml Vimto can, which was initially sold into Guinea in order to celebrate, with Vimto, at large family gatherings. Pleasingly, this has not detracted sales from the original 330ml can, but created a new drinking occasion for Vimto.

Following our hugely successful launch into Sudan in 2016, we introduced Vimto ready to drink in a carton, which has already resulted in 2.3m units being consumed in market. The rollout of Vimto Ginger and Vimto Malt continued into 2017 and will be joined by Vimto Watermelon in 2018.

The relationship with our partner Aujan Coca Cola Bottling Company in the Middle East is over 90 years old and again in 2017 they delivered a truly impressive 360-degree marketing campaign, which included new creative content for Ramadan delivered across all forms of media. Their TV campaign reached 96% of their target audience, in store displays were as magnificent as previous years, with the star of the show being a 6 metre tall replica of Big Ben and their digital content achieved collectively over 220 million impressions.

Despite the challenging macro-economic environment in the region, which saw the introduction of a "bubble tax" at the end of 2017, our sales to the Middle East were up 13.4%. The tax has been applied to carbonated soft drinks and energy drinks at a level of 50% and 100% respectively. Our first new flavour development, Vimto strawberry, was launched into the region and our Vimto 250ml still ready to drink targeted at children was the star performer of the portfolio.

2017 saw the launch of Vimto slush into the region in the United Arab Emirates and the Kingdom of Saudi Arabia. So far, the results have been encouraging and we look forward to installing additional machines during 2018.

Our long standing partner in Yemen has experienced many operational challenges during 2017 due to the hostilities in his country and this situation remains unchanged. Unfortunately, this did impact our Group Profit, as we were unable to ship concentrate as we had planned in December.

Vimto Out of Home

Vimto Out of Home delivered a second year of good organic sales growth of 11.0%. Including the DJ Drink Solutions Limited (DJ) acquisition, who were our largest distributor based in the North of England, overall sales were up 21.5%.

I am very pleased with the performance of our Distributor network in this sales channel and would like to thank them for their continued hard work and support. Our overall market share of cola dispense grew in 2017, with sales of no added sugar cola accelerating as we start to see consumer tastes change in the on trade.

The Starslush brand performed well in 2017 with increased sales of 7%, driven by some great new business wins such as Tayto Park in Ireland and Flamingo Land in Yorkshire. In addition we introduced our first ever new flavour under the Starslush brand for Halloween, a blood orange variant, which delivered good incremental volume.

In line with all our UK packaged products, all our frozen beverage brands will be sugar levy ready by April and we have made absolutely sure they have kept their original great taste. In 2017, we embarked on a new long-term relationship with the great American ICEE brand which is famous for its frozen carbonated beverage. ICEE in the USA already works in partnership with many of the great brands we have in our Out of Home product range. We look forward to developing that partnership over the coming years, as frozen carbonated beverages are particularly strong in the cinema chains in both the UK and Europe.

Corporate Responsibility

The Soft Drinks Industry Levy will be introduced in April 2018. Before this legislation was introduced, we had been working for many years on the following:

· Reducing sugar in our product portfolio

· All new product development for the last 5 years has focused on no added sugar

· All our advertising has featured our no added sugar ranges

As a result:

· 100% of our own brands are exempt from the Soft Drinks Industry Levy

· We have removed 2,000 tonnes of sugar since 2011

· We have reduced 9.5 billion calories from our products

· By 2020 we will have taken more than 20% of calories out of our drinks

Our Community

We continued to support Warrington Youth Club in 2017. Warrington Youth Club believes in "inspiring young people to achieve" and supports young people's development by offering opportunities to increase and develop skills, self-awareness and confidence. In support of this work, Nichols plc ran a "dragons den" workshop as part of the national NCS programme and over six weeks, twenty young people took part in this initiative. They were given a real business issue for which they had to find a solution and then pitch their proposal to a panel of Vimto dragons. The successful all-girl winning team were then taken to the House of Lords for the day accompanied by Baroness Helen Newlove. Thanks also goes to all our partners, suppliers and friends who joined us at our annual golf day and attended our Moonlight gala dinner where we raised over £30,000 for the Youth Club.

Our People

I would like to take this opportunity to thank each and every member of our work family. It has been a challenging year with many changes taking place within the business. Many individuals have taken on additional tasks to their day job and they have tackled that with the "vim and vigour" I see day in and day out in the organisation. A very big thank you to you all!

We conducted our second employee engagement survey at the beginning of 2017. 88% of our colleagues responded to our survey and we achieved an engagement score of 95% which was very pleasing. 99% of our respondents are proud to work at Vimto, with 93% feeling they have an opportunity to work and grow with us.

Our Vision

We continue to develop our rolling long-term strategy built up on our four key pillars:

More from the Core

We will build upon the success we have achieved for Vimto in 2017. We remain focussed on value driving activity and look forward to the new exciting creative campaign to be released in 2018. There is significant headroom for growth for both Vimto and Feel Good both in the UK and overseas.

Thirst for New

As we have proven with Remix, product innovation is key to attracting new consumers into our brands. It remains a key part of our growth strategy along with appropriate acquisitions.

Healthier Future

Our entry into the water category with Vim2o and Feel Good Infusions are indicative of our determination to have natural healthier soft drinks within our product portfolio. We will continue to work on our product formulations in order to ensure we meet the changing tastes of our consumers, which include taking into account their desire for less sugar both home and abroad.

Wherever Whenever

With our diversified portfolio and our flexible outsourced global production model, we are able to meet the ever changing needs of our consumers. Geographic expansion for both the UK and international remains a high priority for the business.

Outlook

Vimto will be a magnificent 110 years old in 2018 and its brand performance in 2017 is as strong as ever. We are facing unprecedented change in our market environment, not just in the UK but internationally. Consumers' tastes, beliefs and habits are all contributing to different choices being made and we believe with continued investment in our brands and our people, we are well placed to meet these challenging times. Our diversified model has and will continue to serve us well and we remain committed to acquisition of the right brand and or the right business.

Marnie Millard

Chief Executive Officer

28 February 2018

Chief Financial Officer's Report

Reflecting on 2017, the Group has delivered a solid performance. Double digit revenue growth was achieved in both our UK and international businesses, in addition, the Group remains very profitable and is underpinned by a strong balance sheet.

This is despite the headwinds of challenges in the UK trading environment and an escalation of hostilities in one of our Middle Eastern territories.

Income Statement

Group revenue increased by 13.2% to £132.8m (2016: £117.3m).

Whilst both business segments contributed to the sales growth, the majority of the increase came from Carbonates. This excellent performance was driven by the growth in Africa, where the vast majority of sales are Carbonate and the increase in Out of Home sales in the UK.

UK sales

UK revenues increased by 11.0% to £100.8m which represents 76% of Group income.

This was a very strong performance within a challenging trading environment. The UK market dynamics are evolving at a rapid pace, although overall growth is minimal, the rising trend for convenience shopping and the increasing influence of the discounters means that suppliers need to be agile and responsive to change.

Against that backdrop, I am delighted to report that Vimto brand sales grew by 9.0% in the year which compares to an overall market growth of 2.2% growth (Nielsen MAT to 30 December 2017). Once again, the Vimto brand has gained market share, the growth was driven by sales within the Still segment across the multiples and discounters.

Elsewhere in our UK business, sales within our Out of Home business totalled £38.9m, a 21.5% increase on the prior year. Growth on a like for like basis excluding the acquisition of DJ (acquired 2 June 2017) was 7.3%.

International sales

Sales in our international business grew by 20.4% (15.9% on a constant exchange rate basis) to £32.0m.

It is pleasing to report that revenue from the USA and central Europe increased by 37% compared to the prior year, growing our international footprint beyond the core markets of Africa and the Middle East. These regions now represent c20% of our international revenues.

The strong momentum in Africa was maintained in 2017 with sales up 21.2% on the prior year (14.1% on a constant exchange rate basis). This result is all the more impressive as the 2016 comparatives delivered 19.7% year on year growth. The 2017 increase came from both core and new markets in the region.

In our pre-Christmas Trading Update (19 December 2017) we reported that an escalation of hostilities in Yemen had prevented the shipments of Vimto concentrate planned for December 2017. At the time of writing, the situation in Yemen remains unchanged, therefore we are uncertain as to the timing at which we will be able to resume shipments to our Yemeni customer. Despite this unfortunate situation, which is clearly something that management cannot control, sales to the Middle East region in 2017 increased by 13.4% (12.1% on a constant exchange rate basis). However, this performance should be considered in combination with the 2016 reported sales to the Middle East which were 7.0% down on the prior year. As previously explained, reported Middle East sales are sensitive to timing around the Group's year end as the shipment date is driven by the supply chain requirements ahead of the following year's Ramadan period.

Gross Profit

Gross Profit for the year was £60.6m, 2.6% above the prior year (2016: £59.1m).

The Group remains highly profitable with a Gross Margin of 45.6% (2016: 50.4%). As expected and consistent with many UK businesses, weaker sterling post the Brexit vote had an adverse effect on our input costs in 2017, which has diluted our margins during the year.

Distribution Expenses

The majority of our distribution expenses relate to our UK business. The total cost in 2017 of £5.9m represents a 5.3% saving compared to the prior year (2016: £6.3m) and equates to 4.5% of sales (2016: 5.3%). The savings have been achieved from a number of cost efficiency projects.

Administrative expenses

Pre-exceptional overheads in 2017 totalled £24.1m which is an increase of £1.6m compared to the prior year. Of this increase, the majority is the incremental overheads associated with DJ, which was acquired during the year.

Operating Profit

As indicated in the Group's pre-Christmas Trading Update, pre-exceptional Operating Profit of £30.5m is marginally ahead of the prior year.

EBITDA

Given the acquisitive nature of the Group, the directors have started to utilise EBITDA as a key performance indicator. EBITDA is defined as profit before interest, tax, depreciation and amortisation and is similarly marginally ahead of the prior year at £31.7m (2016: £31.4m).

Profit Before Tax and Exceptional Items

Profit Before Tax (PBT) and exceptional items totalled £30.5m and is in line with the prior year, it should be noted that the Group remains highly profitable with a 23.0% return on sales (2016: 26.0%). The decline in PBT margin is principally as a result of increased input costs noted above. Nevertheless, the Group has delivered compound annual PBT growth of 8% over the last five years.

Exceptional items

Exceptional costs during 2017 totalled £1.8m and were made up of:

· Merger & Acquisition costs (£0.3m)

· Restructuring costs (£1.3m)

· Preparations for the introduction of the Soft Drinks Industry Levy (£0.2m)

Cash

The Group continues to be very cash generative in relation to its operating activities and had a year-end cash balance of £36.1m (2016: £39.8m).

Management aim to leverage the strong cash position to reinvest in the long-term growth strategy for the Group. During 2017, £6.6m of cash was used to acquire DJ to enhance our growing Out of Home business. DJ was the largest of our Out of Home distributors, covering the North West, North East and North Wales regions. This acquisition consolidates the Group's route to market in the regions and is consistent with our successful business model already operating in other UK regions.

A further £1.2m was invested in our Ross on Wye manufacturing facility. This expenditure completes a long-term project that has seen a significant expansion of the factory as well as investment in state of the art robotic and automated machinery capable of much greater volume and efficiency than the Out of Home division has previously been capable of. During the year, a special pension contribution of £1.9m was made, which allowed the pension scheme to acquire the adjoining property to that occupied by Nichols plc in Newton-le-Willows. This property purchase safeguards our plans for future growth and expansion.

Tim Croston

Chief Financial Officer

28 February 2018

Consolidated income statement

Year ended 31 December 2017

Consolidated statement of comprehensive income

Year ended 31 December 2017

Statement of financial position

Year ended 31 December 2017

Consolidated statement of cash flows

Year ended 31 December 2017

Consolidated statement of changes in equity

Year ended 31 December 2017

Nichols plc

NOTES TO THE PRELIMINARY FINANCIAL INFORMATION

Basis of preparation

The preliminary financial information does not constitute statutory accounts for the financial years ended 31 December 2017 and 31 December 2016, but has been derived from those accounts. The accounting policies used in preparation of this preliminary announcement have remained unchanged from those set out in the 2016 annual report. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for the financial year ended 31 December 2017 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.

Exceptional costs

The Group incurred a number of costs during 2017, which by their nature were non-recurring and have been reported as exceptional items within administrative expenses. These costs fall into three categories: merger and acquisition expenses (£0.3m), restructuring costs which represent redundancies as well as costs incurred in respect of the exit from an operating site in the Out of Home division (£1.3m) and costs incurred in preparation for the introduction of the Soft Drinks Industry Levy (£0.2m).

Earnings per share

The calculation of basic earnings per share is based on earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. Shares held in the Employee Share Ownership Trust and Employee Benefit Trust are treated as cancelled for the purposes of this calculation.

The calculation of diluted earnings per share is based on the basic earnings per share adjusted to allow for the assumed conversion of all dilutive options.

Basic earnings per share is 62.88 pence (2016: 69.13 pence).

Basic earnings per share (pre-exceptional items) is 67.76 pence (2016: 66.18 pence).

Segmental information

The Board analyses the Group's internal reports to enable an assessment of performance and allocation of resources. The operating segments are based on these reports.

The Board considers the business from a product perspective and reviews the Group on the operating segments identified below. There has been no change to the segments during the year. 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. Gross profit is the measure used to assess the performance of each operating segment as identified as a KPI in the Chief Financial Officer's Report.

There are no sales between the two operating segments, and all revenue is earned from external customers.

The operating segments gross profit is reconciled to profit before taxation as per the consolidated income statement.

The Group's assets are managed centrally by the Board and consequently there is no reconciliation between the Group's assets per the statement of financial position and the segment assets.

Annual report

The annual report will be mailed to shareholders and made available on our website on or around 30 March 2018. Copies will be available after that date from: The Secretary, Nichols plc, Laurel House, Woodlands Park, Ashton Road, Newton-le-Willows, WA12 0HH.

Annual General Meeting

The Annual General Meeting will be held at Nichols plc, Laurel House, Woodlands Park, Ashton Road, Newton-le-Willows, WA12 0HH on Wednesday 25 April 2018 at 11.00am.

Copies of the announcement can be found on the Investors Relations section of the Company's website: www.nicholsplc.co.uk.