Nichols plc Regulatory News (NICL)

Nichols plc

2018 PRELIMINARY RESULT

Nichols plc ('Nichols' or the 'Group'), the soft drinks Group, announces its Preliminary results for the year ended 31 December 2018 (the 'period').

Financial Highlights:

John Nichols, Non-Executive Chairman, said:

"Nichols plc delivered a strong performance in 2018, achieving growth in revenue, profit and earnings per share, resulting in a 14.5% increase in the final dividend.

The UK sales performance was driven by the strength of the Vimto brand, now in its 110th year and continuing to outperform the wider soft drinks market, in addition to the increasing growth opportunities in the Out of Home sector following successful investment in this area.

As a result of the Group's diversified business model, strong portfolio of brands and successful track record, the Board remains confident of delivering continued profitable growth."

Chairman's Statement

2018 was a significant year for the Vimto brand, marking 110 years since my grandfather invented the drink that today is still enjoyed in the UK and around the world.

I am pleased therefore, to announce another strong performance from Nichols plc during this special year. In 2018, Group revenue grew by 7.0%, Profit Before Tax was up 4.0% and we are proposing a 14.5% increase in the final dividend.

Trading

Group revenue in the year was £142.0m, £9.2m ahead of 2017.

Total sales in the UK business increased by 12.7% to £114.6m (2017: £101.7m).

In its 110th year, sales of the Vimto brand grew by 12.9%, gaining market share and significantly outperforming the UK soft drinks category which grew at +7.8% (Nielsen MAT 29 December 2018).

Elsewhere in the UK, sales in the Out of Home channel increased by 15.2% compared to the prior year. This strong performance was driven by sales of both our dispensed soft drinks and frozen beverage products which reflects the significant investment in this part of our business over recent years.

In the international business, a strong sales performance in Africa during the second half of the year delivered full year growth of 6.5% in this region.

As anticipated in our 2017 Preliminary Results Statement (1 March 2018), sales to the Middle East were down on the prior year due to the ongoing conflict in Yemen and the timing of shipments to Saudi Arabia. As a result, sales to the Middle East region totalled £9.6m (2017: £13.0m). The Group's total international sales were £27.4m (2017: £31.0m).

Dividend

Reflecting the Board's ongoing confidence in the Group's financial position, we are pleased to recommend a final dividend of 26.8 pence per share (2017: 23.4 pence).

If accepted by our shareholders, the total dividend for 2018 will be 38.1 pence (2017: 33.5 pence), an increase of 13.7% on the prior year. Subject to shareholder approval, the final dividend will be paid on 3 May 2019 to shareholders registered on 22 March 2019; the ex-dividend date is 21 March 2019.

Post Balance Sheet Acquisition

Alongside the continued investment in the Vimto brand, our strategy identifies acquisition as a key driver of the Group's future growth plans. Therefore, we are delighted to announce the acquisition of 100% of the shares in Adrian Mecklenburgh Limited (AML) on 1 February 2019. AML is currently one of our Out of Home soft drinks dispense distributors covering the Kent region. This acquisition is consistent with a number of recent successful investments in our Out of Home business and consolidates the route to market in the region.

Outlook

We are well positioned with a diversified business model, a strong balance sheet and remain highly profitable. We continue to monitor the ongoing Brexit process, taking all possible actions to reduce the risk and we are confident that the Group can maintain its forward momentum in 2019 and beyond.

In 2019, we expect our UK business to maintain its positive performance driven by the strength of the Vimto brand and the increasing opportunities in the Out of Home sector.

In our international business, we are confident that the long term prospects in the Middle East and Africa remain strong, although the ongoing conflict in Yemen continues to create uncertainty for 2019.

In Summary, the Board is pleased with Nichols plc's performance during 2018. The Vimto brand marked its 110th year with a 12.9% increase in sales, the Group has delivered further profit growth and the Board is proposing a 14.5% uplift in the final dividend.

John Nichols

Non-Executive Chairman

26 February 2019

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

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.

Chief Executive Officer's Report

It is particularly pleasing to note the performance of Nichols plc in 2018, the year when Vimto reached its 110th anniversary. The Group delivered excellent revenue growth of 7.0% to reach sales of £142.0m. Sales of Carbonate products grew by 12.7% and the Still portfolio increased by 0.8%. The Still category performance was attributable to the reduced level of trading within the Middle East.

The Group revenue was driven by our UK business where sales increased by 12.7% to £114.6m, whilst international sales declined in the year to £27.4m, as we anticipated as we went into 2018. Despite experiencing a decline within the Middle East, the Group maintained its strong gross margin of 45.7% and the growth in gross profit was consistent with our revenue growth at 7.0%, as a result of the continued success of our value over volume strategy.

Financial Highlights

· Revenue +7.0% to £142.0m (2017: £132.8m)

· Profit Before Tax* +4.0% to £31.8m (2017: £30.5m)

· Gross profit +7.0% to £64.9m (2017: £60.6m)

· EPS (basic) +10.1% to 69.23p (2017: 62.88p)

· Strong balance sheet £38.9m free cash (2017: £36.1m)

· Final dividend +14.5% to 26.8p (2017: 23.4p)

* pre-exceptional items

These results were despite a challenging global market place and the expected reduced trading position within the Middle East.

In April 2018, the UK government implemented the Soft Drinks Industry Levy on drinks containing sugar of more than 4.9g per 100ml. We have been working on our sugar reduction programme for the last six years and as a result, our total UK product portfolio was sugar levy exempt as we went into 2018.

The impressive performance of the Vimto brand in the UK indicates the continued consumer love for Vimto and the successful evolution of the brand. We experienced a highly competitive UK market place with lots of change taking place in packaging, pricing and promotional strategies along with consolidation within the markets we operate. However, we had one of the finest summers for many years in the UK and despite an industry wide shortage of CO2, Vimto performed extremely well. I would like to thank all of our supply partners for their continued collaboration and support.

The UK Soft Drinks Market

(As measured by Nielsen year to date 29 December 2018)

In 2018, volumes in the UK soft drinks market grew at 3.0%. Value sales were higher showing growth of 7.8%, with the market size reaching £8.4 billion. Within the total soft drinks market, with the exception of fruit drinks and breakfast drinks, all sectors delivered value growth.

In the last twelve months, Vimto's brand value increased by an impressive £10.6m (Nielsen data) and is now worth £87m, an increase of 13.9%. This market outperformance has resulted in Vimto gaining market share in both the Still and Carbonate categories.

In spite of the market remaining highly competitive and promotionally driven, we continue with our focus of adding value to the category. Our product innovation, under the sub brand Remix, has added £9m to our Vimto retail sales brand value in less than 4 years. The addition of new flavours across the Remix brand has driven incremental sales through gaining increased distribution and new customer listings.

The UK On-Trade

(As measured by CGA, Total Licensed, Total Soft Drinks, last 12 months MAT 31 October 2018)

The UK on-trade soft drinks sector saw an uplift in consumption as volume increased by +0.3%. However, value sales have grown at a faster rate, with an increase of +3.8% year on year reflecting the premium nature of the category. This performance was achieved against a head wind of outlet closures in the trade and as a result, soft drinks outlets are down -2.1% year on year.

Draught sales in the UK on-trade have seen a mixed performance. Draught Cola value sales grew by +3.6% ahead of volume at +1.7% in the last 12 months. However, draught flavoured carbonates have retracted in sales, declining -26% in value and -36% in volume.

As consumers have increased their intake of soft drinks, they do not compromise on brand choice. All categories, including beers, wines & spirits, are experiencing the premium effect with value growth ahead of volume.

Operational Review

Vimto UK

In 2018, Vimto delivered impressive sales revenue growth of 12.9%, which was well ahead of the overall market. It is encouraging that the fastest area of growth has come again from our No Added Sugar products (+22%). Within the UK, all of our product areas are in growth and gaining market share. UK Carbonates were up 14% and the Still products increased overall by 11%.

We continue to work in collaboration with all of our customers across the key UK trading channels and by putting them at the heart of what we do, we have delivered double digit growth within UK grocery, UK wholesale, foodservice and the discounters. This is despite a high level of customer consolidation within the UK market, which we expect to continue as we move into 2019.

In 2018, we launched our new UK marketing campaign to focus on our core teen target audience of 16-19 year olds. We launched the new 'I see Vimto in you' creative programme across multiple touchpoints in June, aimed at celebrating the uniqueness of Vimto. It was a disruptive campaign, which included personalised video on demand and cinema advertising and as a result, the engagement levels were more than double the industry standard and brand advocacy grew by 9%.

Vimto Out of Home

The Vimto Out of Home business has delivered a third consecutive year of strong sales growth of 15.2% in 2018. A key driver of this performance was our frozen drinks business that delivered double-digit growth via both organic sales and innovation. Our new Unicorn flavour proved extremely popular with our consumers and provided incremental sales growth during the key summer trading period. We have also made a move into the adult frozen cocktail category launching our new FRYST brand in selected outlets and festivals, which has brought excitement to consumers throughout the UK.

Our branded cola ranges have performed very strongly in 2018 within the dispense sector as we have seen the continued shift by consumers to choose and drink lower sugar variants. Our customers across our distributor network in this area performed well once again and continued to drive strong sales across the on-trade.

The Out of Home performance benefitted from the annualised sales following the acquisition of DJ Drink Solutions Limited (DJ) in June 2017, however like for like sales were up 10.3%. During 2018, we successfully integrated the DJ business into Vimto Out of Home, which continues to win new customer partnerships. The acquisition of The Noisy Drink Company North West Limited in February 2018, one of our Out of Home frozen soft drinks distributors covering the North West region, has further consolidated our route to market in the region and contributed to this performance.

We have also continued to invest in the operational effectiveness of our Out of Home business, opening a state of the art showroom and new customer service centre in Newton-le-Willows and a new technical centre of excellence in Swindon. These investments underpin our commitment to deliver leading edge ranges, equipment and technical expertise to all of our customers across the UK and Europe.

Vimto International

The African region continued to build on its strong performance as we have seen in recent years and delivered sales revenue growth for the full year of 6.5%. The second half year performance for this part of the business was significantly stronger. In addition to our focus on driving penetration of our brands in our established markets, we also launched into two new countries across East Africa. Kenya and Tanzania are both key markets with well-established soft drinks categories and provide us with a fabulous opportunity to grow sales over the next few years.

Our relationship with our partner Aujan Coca-Cola Beverages Company in the Middle East is over 93 years old and in 2018 they delivered another outstanding 360-degree marketing campaign. It was entitled "The Same One" and was on air as always during Ramadan. The campaign focused on the evolving role of women in Khaleeji society from the 1960's to the current day and showed Vimto as a constant feature of daily life throughout all those years. Impressive results were delivered through excellent in-store visibility and awareness; the TV campaign drove 99% awareness and the digital platforms achieved 290 million impressions.

Despite extremely challenging economic conditions in the region, the in-market sales of cordial and the 250ml ready to drink products continued to deliver sales growth, which demonstrates the strength of the brand and the affection our consumers have for that special Vimto taste.

Due to the political unrest in the region during 2018, our long-standing partner in the Yemen continued to suffer many operational difficulties and challenges. This has made trading at times during the year impossible and as a result, we have been unable to ship as much concentrate as in previous years.

Overall, our sales to the Middle East region were down by 26.4% due to the timing of shipments to Aujan and the challenges with supply to the Yemen.

Last but certainly not least, we have continued to build momentum in the USA with our long-standing partner Ziyad. We have been encouraged by the successes Ziyad have delivered in 2018, which resulted in us gaining distribution of our Vimto products in 100 Walmart stores in their Mediterranean aisle.

Brand Licensing

Our brand licensing team launched some exciting new partnerships during 2018 that has helped to ensure the iconic Vimto flavour is enjoyed across a range of categories. We agreed a new exciting collaboration with Krispy Kreme that secured over 1,000 distribution points for two bespoke Vimto branded doughnuts. Vimto Millions were developed for both UK and Europe with the product being available and selling well in over 1,000 dispense units.

Marnie Millard

Chief Executive Officer

26 February 2019

Financial Review

Income Statement

Revenue

Group revenue for the year was £142.0m, an increase of 7.0% compared to 2017.

Sales of Carbonate products grew by 12.7% in the year and income from the sales of Still products increased by 0.8%. The Still category was impacted by the reduced level of trading with the Middle East.

The Group's revenue performance was driven by our UK business, where sales increased by 12.7% to £114.6m, whilst and as anticipated, international revenues declined in the year to £27.4m.

Gross Profit

Gross Profit increased commensurate to revenue by 7.0% to £64.9m.

It should be noted that the Gross Margin of 45.7% was in line with the prior year despite the decline in the higher margin sales to the Middle East.

Distribution Expenses

Distribution expenses were £7.2m in 2018 (2017: £5.9m). The increase is reflective of the higher stock holding, as referred to below, and the sales mix during the year. The revenue growth has been driven by the UK business which incurs the majority of our warehouse and distributions cost.

Operating Expenses

Operating expenses totalled £26.0m in the year, an increase of 7.7% compared to the prior year. The significant cause of the increase was the full year incremental costs associated with the acquisition of DJ Drink Solutions Limited (purchased in June 2017) and The Noisy Drink Company North West Limited (purchased in February 2018). In addition, £1.1m of bad debt provision has been released in the year, following cash received against previously provided for debt.

EBITDA

EBITDA grew by 6.6% to £33.8m.

The EBITDA growth was in-line with the revenue performance.

Operating Profit

Operating Profit increased by 3.6% to £31.6m.

The margin return on sales was 22.3% compared to 23.0% in the prior year.

Finance Income and Expense

Finance income of £0.2m relates to the bank interest received during the year on the Group's cash deposits.

The majority of the finance expense relates to the net interest on the defined benefit pension liability in line with the application of IAS 19.

Profit Before Tax

Profit Before Tax was £31.8m for the year, an increase of 4.0% compared to the prior year (2017: £30.5m).

The margin return on sales was 22.4% compared to 23.0% in the prior year.

Taxation

The effective rate of taxation is 19.6% (2017: 19.3%). This is higher than the standard rate of 19%.

Statement of Financial Position

Cash

The Group cash balance at the year end was £38.9m (2017: £36.1m).

Nichols' business model remains very cash generative and due to favourable working capital movements, operating profit/ cash conversion has increased to 91% (2017: 77%). The cash conversion rate is based on net cash generated from operating activities as a percentage of the profit for the financial year.

By exception, other points of note regard the Statement of Financial Position are:

· Property, plant and equipment increased by £2.5m to £14.6m during the year. The majority of the increase was the purchase of dispense equipment supporting the growth of the Out of Home business.

· The majority of the £3.8m increase in Goodwill was associated with the acquisition of The Noisy Drink Company North West Limited in February 2018.

· The year end value of inventories was £7.2m, £2.4m higher than the prior year. There were a number of supply chain developments affecting the year on year stock increase, most notably, as part of our Brexit strategic planning. In addition, the prior year value was relatively low when compared to normal levels of stock holding.

· Trade and other receivables increased by 9.8% during 2018, this was largely due to the strong growth in trading activity compared to the prior year.

Key Performance Indicators

The following Key Performance Indicators (KPIs) are used by management to monitor the Group's profit performance:

Revenue Growth +7.0% (2017: +13.2%)

The increase in the current year revenue as a percentage of the prior year value.

Gross Margin 45.7% (2017: 45.7%)

Gross Profit as a percentage of revenue. This KPI is monitored at segment (Still and Carbonate) and product level.

Operating Profit Margin 22.3% (2017: 23.0%)

Group profit before financing income or expense as a percentage of revenue. This is considered for the Group as a whole rather than at product level.

EBITDA £33.8m (2017: £31.7m)

EBITDA is defined as profit before interest, tax, depreciation and amortisation.

Tim Croston

Chief Financial Officer

26 February 2019

Consolidated income statement

Year ended 31 December 2018

All results relate to continuing operations.

Consolidated statement of comprehensive income

Year ended 31 December 2018

Statement of financial position

Year ended 31 December 2018

Consolidated statement of cash flows

Year ended 31 December 2018

Consolidated statement of changes in equity

Year ended 31 December 2018

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 2018 and 31 December 2017, but has been derived from those accounts. With effect from 1 January 2018, the Group has implemented two new accounting standards; IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments. All other accounting policies remained unchanged from those set out in the 2017 annual report. The adoption of IFRS 15 and IFRS 9 has had no material effect on transition. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for the financial year ended 31 December 2018 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 in 2017

The Group incurred a number of costs during 2017, which by their nature were non-recurring and were reported as exceptional items within administrative expenses. These costs fell into three categories: merger and acquisition expenses (£0.3m), restructuring costs which represented 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 69.23 pence (2017: 62.88 pence).

Basic earnings per share (pre-exceptional items) is 69.23 pence (2017: 67.76 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 annual 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 20 March 2019. 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 1 May 2019 at 11.00am.

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