Nichols plc Regulatory News (NICL)

Nichols plc

Nichols plc ('Nichols' or the 'Group'), the soft drinks Group, announces its Preliminary results for the year ended 31 December 2019 (the 'period').

John Nichols, Non-Executive Chairman, said:

"I am pleased to report on a year of further progress during which Nichols achieved continued revenue growth in both our International and UK businesses. As a result, the Group delivered year-on-year increases in profit before tax and earnings per share and we are today proposing a final dividend of 28.0 pence per share, resulting in a 6.0% increase in the full year dividend.

The Group's performance demonstrates the strength of our diversified business model, which provides a strong platform to deliver continued growth."

Chairman's Statement

I am pleased to announce another strong performance from Nichols plc. During the year, the Group delivered further progress against its strategic objectives, successfully increasing revenue, profit and earnings per share. This performance was delivered against challenging market conditions as has been widely reported elsewhere.

Trading

Total Group revenue increased by 3.5% to £147.0m (2018: £142.0m). Both our UK and International businesses contributed to this positive performance.

UK sales grew by 2.5% to £117.5m (2018: £114.6m).

Within the UK business, Vimto brand sales performed well, increasing by 0.8% against very strong prior year comparatives (2018: +12.9%). This performance was primarily driven by the Still category where sales of Vimto dilutes grew by 15% and continued to gain market share.

Elsewhere in our UK business, Out of Home sales increased by 8.0% to £45.5m (2018: £42.2m) and now contribute 31% of Group revenue. This increase was largely driven by the acquisition of one of our post mix and coffee distributors (Adrian Mecklenburgh Limited) and the growth of frozen beverages into the cinema channel. The continued growth in Out of Home demonstrates our diversified strategy and is a result of the significant investment in this part of our business over recent years.

International sales grew by 7.5% to £29.5m (2018: £27.4m). In our African markets, revenues were £13.0m compared to £13.6m in the prior year. Sales to the Middle East grew by 20.6% to £11.6m against softer prior year comparatives (2018: £9.6m). As anticipated, this performance reflects a return to normal levels of concentrate sales during the year. Within the region, we achieved our best ever sales performance of the Vimto brand during Ramadan 2019.

Elsewhere in our International regions, there was good growth in the USA, which is primarily a Stills market (+23.1% to £1.4m) and Europe which is primarily a Carbonate market (+5.2% to £3.3m).

Group Profit Before Tax was £32.4m for the year, an increase of 2.1% compared to the prior year (2018: £31.8m).

Dividend

As a reflection of the Board's confidence in the Group's long-term financial position and the performance in the year, we are pleased to recommend a final dividend of 28.0 pence per share (2018: 26.8 pence).

If approved by our shareholders, the total dividend for 2019 will be 40.4 pence per share (2018: 38.1 pence), an increase of 6.0% on the prior year. Subject to shareholder approval, the final dividend will be paid on 1 May 2020 to shareholders registered on 20 March 2020; the ex-dividend date is 19 March 2020.

Summary

In summary, the Board is pleased with the Group's performance in 2019. Despite the market headwinds, the business has once again delivered profitable sales growth, maintained its strong cash generative model and as a Board, we are proposing a final dividend of 28.0 pence per share, resulting in a 6.0% increase in the full year dividend.

Outlook

Further to our trading announcement on 23 December 2019 regarding the new Sweetened Beverage Excise Tax in Saudi Arabia and the UAE, we anticipate being in a position to update the market in our Interim Results Announcement on 22 July 2020. At that point in time, we will have the benefit of the data post the critical Ramadan trading period.

Elsewhere across the Group, we are confident that our diversified and profitable business model will support the continued growth trend into 2020 and beyond.

John Nichols

Non-Executive Chairman

25 February 2020

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 Statement

During 2019, we continued to evolve our strategy aimed at the long-term, sustainable development of our business by delivering growth opportunities across the Group. To support this, we launched a series of initiatives to ensure our stakeholders share the Board's exciting long-term vision for Nichols plc and have clarity on our priorities over the coming years.

During 2019, the Group made further progress in the area of sustainability, but we recognise that there is much more we can do. In January 2020 we launched our revised Environmental, Social and Governance agenda to our colleagues, which is focused on creating a "Happier Future". Further details of our sustainability commitments and vision are set out in our 2019 Annual Report. Not only are these commitments the right thing to do, we firmly believe that the "Happier Future" pillar of our strategy is critical to ensuring the Group's sustainable growth for future generations.

Underpinning our strategy are the strengths of our unique brands, a relentless focus on putting the customer front and centre of everything we do, and our fantastic team. I would like to thank our colleagues for all their hard work in delivering success against some challenging trading conditions during the year. In particular, I would like to show my appreciation to Tim Croston, our outgoing Chief Financial Officer, for his significant contribution to Nichols plc over his 15 years with the Group and to wish him every success in his future ventures. As announced in October 2019, Tim will step down from the Board by 30 June 2020 and we are pleased to welcome David Rattigan as our new Chief Financial Officer, who officially takes up the role on 2 March 2020.

Marnie Millard

Chief Executive Officer

25 February 2020

Chief Operating Officer's Report

2019 has again been a strong year for the whole Group with both the UK and International regions contributing to the growth of the business. This again highlights the strength of our diversified business model, which gives us a strong platform to drive success in the market place.

Total Group revenue grew by 3.5% to £147.0m. Sales of our Still portfolio grew by 10.8% which was driven by the excellent results in our Middle East region, reflecting an exceptional sales performance during Ramadan 2019. Carbonates declined by 2.6% as a result of the strong comparatives in our UK business from the summer of 2018. Our gross profit grew by 7.9%, ahead of revenue growth, with gross margin improving to 47.6% from 45.7% in 2018. This pleasing result demonstrates the continued success of our "Value over Volume" strategy.

All of the partners we work with across our entire business continue to play an important role in helping us to achieve our success and I would like to thank them all for their collaboration and support during 2019.

UK Soft Drinks

(Statistics given below on the market are as measured by Nielsen in the year to 28 December 2019.)

In 2019, volumes in the £8.7bn UK soft drinks market declined by 2.4%. However, value sales grew by 0.8% against very strong comparatives in the prior year (2018: +7.8%).

Within the soft drinks market, value growth was seen across Cola, Energy, Iced Coffee and Fruit Carbonate categories. Fruit drinks, Plain and Flavoured Water and Fruit Juice were all sectors in decline in 2019.

Vimto grew in line with the total market, adding £0.8m to its brand value (Nielsen data) in the twelve month period to a record £90.3m.

The soft drinks category remains intensely competitive and promotionally driven, but we continue to add value with our product innovation under the sub brand Remix, growing at an impressive 30% and adding £3.2m to the brand total year-on-year.

Vimto continues to outperform the market in Stills. Vimto Squash achieved 8.7% growth versus a market decline of 1.4%, whilst Vimto ready to drink has outperformed the market by 5.1 percentage points.

All of our marketing campaigns in 2019 have been at the core of driving the brand's growth. Our 'I see Vimto in you' campaign that was launched successfully in the UK during 2018 was again used throughout 2019. The teams received external recognition from the industry for the success of the campaign by winning the Drum, Fab and Prolific North Awards. Our consumers continue to love the brand, as demonstrated by us achieving our highest ever household penetration in the UK at 6.7m households (+500k households vs. 2018 as measured by Kantar).

Within the UK packaged sector, the exceptionally strong performance of our dilutes portfolio has been the key driving force of our success. We have achieved sales revenue growth of 15% in 2019. This has driven strong market share growth and has firmly consolidated our position as the UK's No.2 squash brand.

Our continued focus on health has seen our 'No Added Sugar' portfolio grow by 7% as consumer tastes and preferences continue to evolve.

Innovation has once again played a crucial role in our success and our Remix brand portfolio has delivered sales growth of 14%. Offering new and exciting flavours is critical to bringing new younger consumers into the brand to ensure Vimto's longevity in the marketplace.

We continue to work in collaboration with all of our customers across the UK grocery, foodservice, wholesale and discount channels. We were proud to have been awarded The Grocer's 'Soft Drinks Supplier of the Year Award', voted by our customers who highlighted our strong category management approach, clear long-term strategic focus and the high quality of our sales people. We will continue to put our customers at the heart of what we do to ensure we deliver long-term success together.

UK On-Trade

(As measured by CGA Total Out of Home, Licensed & Foodservice in the 12 months to 31 October 2019.)

Soft drinks remain a hugely important part of Out of Home sales, particularly when we look at the Licensed sector total drinks sales mix. In Licensed outlets, soft drinks sales volume totals 750m litres annually, representing a quarter share of total drinks sales volume and nearly 15% of sales value.

When we look at the trends in comparison to other categories in Licensed, the sales of soft drinks are in line with total drinks sales and ahead of Beer, Cider & Wine. Soft drinks sales are outperforming other categories, which have been greater impacted by cautious consumer spending and a decline in eating out visits compared to 2018.

In the UK, sales of soft drinks in Licensed & Foodservice combined saw a drop in consumption during 2019 vs. 2018, as volume declined 2.2% to 1.8 billion litres for the year. This was driven by a 3.3% decline in Foodservice as well as the impact of the number of Licensed & Foodservice outlets in the UK declining 1.8%.

Sales by value are up 1.3% year-on-year at £7.3bn for total Out of Home. Value over volume sales have been driven through a combination of premium sales in Licensed and taxation from the Soft Drinks Industry Levy.

The Out of Home channel has delivered strong sales growth of 8% in 2019. A key driver of this growth has been due to the launch of our new ICEE Frozen Carbonated range, with leading edge equipment, into the cinema channel. We have delivered a range of innovative flavours, supported by a marketing campaign in venues and on cinema screens.

Acquisitions have played a vital role in our success within Out of Home in 2019. Having acquired The Noisy Drink Company North West Limited in 2018, we made a further acquisition of one of our distributor partners, Adrian Mecklenburgh Limited (AML), in February 2019. AML sell both bag-in-box soft drinks and liquid coffee via dispense equipment within the Kent region and also has the rights to sell liquid coffee in partnership with Douwe Egberts in both Kent and Central London. This now gives us the opportunity to enter the fast growing coffee market with a strong branded partner in key UK geographies.

A key pillar of our long-term strategy is to offer leading brands across all of our markets and we are pleased to have secured a new long-term partnership with Coca-Cola Europe Partners that allows us to continue to offer our customers in the Out of Home channel bag-in-box Coca-Cola.

We have also opened a new state of the art technical centre and showroom in Swindon allowing our customers to see our world class equipment and brands all under one roof. We have also created a new technical apprenticeship scheme in conjunction with local Governments, giving young people the opportunity to learn new skills within our business.

Vimto International

Despite the backdrop of difficult trading conditions in the Middle East region, in 2019 we have delivered one of our strongest ever Ramadan campaigns; a fully integrated 360-degree marketing campaign called '#Always Shining', coupled with outstanding in-store execution, delivered 8% sales growth.

The '#Always Shining' campaign focused on the evolving role of Middle Eastern women in their diverse roles from a warm, welcoming family home to the busy world of work.

Innovation has played a pivotal role in our success across the region in 2019. One example of this is the launch of a brand new blue raspberry flavour in still 250ml PET plastic bottles and a 400ml carbonated range, which consumers have reacted very positively to the flavour profile and the products have made a significant contribution throughout the campaign.

Against some challenging trading conditions in Africa, we have again opened new markets within the continent during the year. We have partnered with Bakhresa, who are a well-established distributor within Tanzania and launched a range of Vimto products across the various trading channels. The products have been well received by consumers during the season. Overall, sales within our African region totalled £13.0m (2018: £13.6m), 3.8% behind the prior year.

The momentum we have seen in the USA with our long-standing partner, Ziyad, continues to progress well and with a strong focus on in-store execution, double-digit sales growth was delivered during the key summer trading period.

Across our European markets, we have focused on driving deeper distribution, which has resulted in new business wins and strong revenue growth.

Brand Licensing

Our brand licensing division ensure the iconic Vimto flavour is enjoyed across a variety of ranges by our consumers and launched some exciting new products during the year. A key highlight during 2019 was our Jelly Babies being awarded the 'Grocer Best Product Award 2019'.

Andrew Milne

Chief Operating Officer

25 February 2020

Financial Review

Income Statement

Revenue

Group revenue for the year was £147.0m, an increase of 3.5% compared to 2018. Excluding the acquisition of Adrian Mecklenburgh Limited (AML), like for like Group revenue was £144.0m, an increase of 1.4% compared to 2018.

The year-on-year growth came entirely from the Still category, where revenues increased by 10.8% to £71.7m (2018: £64.7m). This growth was driven by the Vimto dilutes category in the UK where sales were up 14.8% and shipments of Vimto concentrate to the Middle East, which were 20.6% ahead of 2018, albeit against softer prior year comparatives.

The Carbonate category sales were £75.3m, 2.6% down on the prior year (2018: £77.4m) which was indicative of the industry wide slow-down in 2019 in comparison to 2018, when we had the record summer weather.

It is pleasing to report that both our UK and International business delivered growth in the year, which again demonstrates the value of our diversified business model.

Gross Profit

Gross Profit was £70.0m, an increase of 7.9% in comparison to the prior year. The increase was relatively ahead of revenue performance due to the strong growth in the Middle East. As a result, Gross Margin improved to 47.6% from 45.7% in 2018.

Distribution Expenses

Distribution expenses totalled £7.4m which was a marginal (2.6%) increase on the prior year and commensurate with UK revenue growth, which incurs the majority of Nichols' distributions costs.

Operating Expenses excluding Depreciation and Amortisation

Operating expenses excluding depreciation and amortisation were £25.6m, an increase of £1.8m in comparison to 2018.

The significant cost increases during the year were:

·; £1.3m incremental overheads from the acquisition of AML

·; £1.0m net adverse forex cost in contrast to a gain in 2018

·; £0.4m incremental uplift in wages & salaries

A credit of £1.0m has been recognised within operating expenses during the year, following a fair value assessment of the deferred consideration payable as part of the acquisition of AML.

Nichols plc adopted IFRS 16, Leases for the first time in 2019. The Group adopted IFRS 16 using the modified retrospective approach, without the restatement of comparative figures. This had the effect of removing approximately £1.1m of lease charges from operating expenses. However, the corresponding increase in depreciation and finance charges negated any impact on Profit Before Tax.

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)

EBITDA for the year was £37.0m, an increase of 9.5% (£3.2m) compared to the prior year.

As explained above, the adoption of IFRS 16 had the effect of inflating EBITDA by £1.1m due to the removal of operating lease charges. EBITDA on a like for like basis (i.e. excluding the impact of IFRS 16) would have been £35.8m which would have been 5.9% ahead of the prior year and still broadly in line with the Gross Profit increase.

Depreciation and Amortisation

Like for like depreciation and amortisation has increased to £3.5m from £2.2m in the prior year. The increase is mainly caused by incremental depreciation of freezer equipment, which supports the growth in our Out of Home business and additional amortisation of intangibles associated with recent acquisitions.

Additional depreciation as a result of adopting IFRS 16 is approximately £1.0m for the year, which nets off against a similar value of lease charges in prior years. Therefore, there is no significant impact on Profit Before Tax from the adoption of IFRS 16 and no cash impact.

Operating Profit

Operating Profit for the year was £32.4m, an increase of 2.5% compared to 2018.

The operating margin was 22.1% which was similar to the prior year (2018: 22.3%).

Finance Income and Expense

Finance income of £0.2m (2018: £0.2m) relates to the bank interest received during the year on the Group's cash deposits.

The finance expense of £0.3m (2018: £0.1m) is made up of £0.2m relating to IFRS16 interest charges and a £0.1m net interest charge for the defined contribution pension scheme.

Profit Before Tax (PBT)

Profit Before Tax was £32.4m for the year, an increase of 2.1% compared to the prior year (2018: £31.8m).

The margin return on sales was 22.1% compared to 22.4% in the prior year.

Taxation

The effective rate of Corporation Tax for Nichols plc in 2019 was 17.2% (2018: 19.6%). This is lower than the standard rate of 19%.

Nichols plc repatriates all worldwide profit to the United Kingdom.

Statement of Financial Position

The Group cash balance at the end of 2019 was £40.9m (2018: £38.9m).

Nichols plc's business model continues to be very cash generative, the operating profit cash conversion was 105% (2018: 91%). The cash conversion metric is calculated as 'net cash generated from operating activities' as a percentage of 'profit for the financial year'.

By exception, other points of note regarding the Statement of Financial Position are as follows:

·; There has been a significant increase in the value of property, plant and equipment during the year. The NBV at the year-end was £21.7m compared to £14.6m in 2018. Increased investment in freezer equipment to support the growth in our Out of Home business (£4.0m) and leased assets capitalised (£4.6m) due to the adoption of IFRS 16, as mentioned elsewhere, are the key contributors to this increase.

·; The increase in goodwill of £4.1m is due to the acquisition of AML referred to above. The total carrying value of goodwill at the year end was £38.6m (2018: £34.5m).

·; Inventories of £8.3m were held at the year end (2018: £7.2m), an increase of 16.7%. £0.3m of the increase is due to the inclusion of stocks owned by AML following the acquisition.

·; Non-current liabilities - Trade and other payables. The balance of £3.0m is largely the recognition of lease liabilities as part of adopting IFRS 16 during the year.

·; It is pleasing to see the pension obligation has reduced to £0.3m (2018: £2.8m). The reduction in the pension obligation is due to a significant increase in the fair value of the scheme's assets during the year.

KEY PERFORMANCE INDICATORS

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

Revenue Growth +3.5% (2018: +7.0%)

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

Gross Margin 47.6% (2018: 45.7%)

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

Operating Profit Margin 22.1% (2018: 22.3%)

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 £37.0m (2018: £33.8m)

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

As mentioned above, Nichols has adopted IFRS16 during the year, which has a positive effect on EBITDA, by adding back the expense previously referred to as operating lease charges. Therefore, the accounting change distorts the year on year comparison during this year of transition. Without the IFRS 16 change, 2019 EBITDA would have been £35.8m.

Tim Croston

Chief Financial Officer

25 February 2020

Consolidated income statement

Year ended 31 December 2019

All results relate to continuing operations.

Consolidated statement of comprehensive income

Year ended 31 December 2019

Statement of financial position

Year ended 31 December 2019

Consolidated statement of cash flows

Year ended 31 December 2019

Consolidated statement of changes in equity

Year ended 31 December 2019

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 2019 and 31 December 2018, but has been derived from those accounts. With effect from 1 January 2019, the Group has implemented two new accounting standards; IFRS 16, Leases and IFRIC 23, Uncertainty Over Tax Treatments. All other accounting policies remained unchanged from those set out in the 2018 annual report.

The adoption of IFRS 16 has resulted in the Group identifying non-cancellable operating lease commitments relating to property leases for operational sites and motor vehicles. The Group has applied the modified retrospective transition approach to its leases with effect from 1 January 2019, whereby the asset and liability values recognised are equal to one another, with no adjustment to opening reserves. The impact of adopting IFRS 16 on a modified retrospective basis was therefore to recognise a right-of-use asset and a lease liability of £3.1m at 1 January 2019.

IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The Group elected to apply IFRIC 23 retrospectively with the cumulative effect recorded in retained earnings as at the date of initial application, being 1 January 2019. The adoption of IFRIC 23 has had no material effect on transition.

Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for the financial year ended 31 December 2019 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.

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 72.81 pence (2018: 69.23 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 16 March 2020. 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 29 April 2020 at 11.00am.

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