TIDMNICL
RNS Number : 4958R
Nichols PLC
01 March 2023
The following amendment has been made to the 2022 Preliminary
Results announcement released on 1 March 2023 at 07:00, RNS Number:
4128R. The correction relates to the movement in PBT % on the front
page which should have been +178.4%. All other details remain
unchanged.
1 March 2023
Nichols plc
2022 PRELIMINARY RESULTS - CORRECTION
Nichols plc ('Nichols' or the 'Group'), the diversified soft
drinks Group, announces its Preliminary Results for the year ended
31 December 2022 (the 'period').
Year ended Year ended
31 December 31 December Movement
2022 2021
Group Revenue GBP164.9m GBP144.3m +14.3%
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Adjusted Profit Before
Tax (PBT) 1 GBP25.0m GBP21.8m +14.5%
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Profit/(Loss) Before Tax
(PBT) GBP13.8m GBP(17.7)m +178.4%
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Adjusted PBT Margin 1 15.1% 15.1% -
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PBT Margin 8.4% (12.2%) +20.6ppts
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Statutory EBITDA 2 GBP26.9m GBP23.7m +13.3%
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Adjusted earnings per share
(basic) 1 55.38p 46.15p +20.0%
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Earnings/(Loss) per share
(basic) 31.86p (60.04p) +153.1%
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Free Cash Flow(3) (FCF) GBP14.6m GBP17.5m (16.7%)
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Adjusted Return on Capital
Employed(4) 27.2% 26.6% +0.6ppts
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Statutory Return on Capital
Employed(5) 14.2% (15.8%) +30.0ppts
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Proposed Final Dividend 15.3p 13.3p +15.0%
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Full Year Dividend 27.7p 23.1p +19.9%
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Financial highlights
-- Group revenue increased by 14.3% to GBP164.9m (2021: GBP144.3m)
o Still products +8.2% to GBP78.3m (2021: GBP72.4m)
o Carbonated products +20.4% to GBP86.6m (2021: GBP71.9m)
-- UK revenues increased by 13.7% to GBP127.0m (2021: GBP111.6m)
o UK Packaged route to market sales +2.9%
o UK Out of Home (OoH) recovery continues post pandemic, with
revenues +42.8%
-- I nternational revenues +16.1% to GBP38.0m (2021: GBP32.7m)
o Middle East revenue +20.4% (+11.3% excluding 2021 marketing
investment)
o Significant progress in Africa continued with revenue
+15.0%
o ROW markets revenue +12.7%, supported by strong OoH recovery
in Europe
-- Maintained Adjusted PBT Margin at 15.1%, despite significant
inflationary pressures (2021: 15.1%)
-- Continued strong cash performance with FCF(3) of GBP14.6m
(GBP18.9m excluding historic HMRC incentive scheme tax settlement
during the year) (2021: GBP17.5m)
o Cash conversion(6) at 72% (2021: 103%)
-- Exceptional charge of GBP11.1m; GBP8.7m attributable to
non-cash impairment of OoH intangible and fixed assets
-- Proposed final dividend of 15.3p, up 15.0% year-on-year and
reflecting 2x cover(7) , in-line with the Group's dividend policy.
If approved at the Group's AGM, the full year dividend of 27.7p
would represent a 19.9% increase year-on-year
Strategic and Operational highlights
-- Vimto's brand value in the UK +3.0%(8)
o Continued outperformance of the dilutes market, by
+2.3%(9)
o Significant and continued progress in the ready to drink
market, with brand value +15.9%(9)
-- Successful transfer of Dilutes contract manufacturing to
faster and more efficient lines in H1, supporting a more favourable
underlying cost of goods
-- Strategic review of the OoH route to market completed, with
opportunities for net margin improvement identified. Actions have
commenced and will continue to be implemented throughout FY23 with
benefits largely realised in FY24 and beyond
-- Segmental reporting and separate strategic focus between
Packaged and OoH businesses from FY23
John Nichols, Non-Executive Chairman, commented:
"Vimto continues to perform well both in the UK and
internationally and despite ongoing inflationary pressures, which
accelerated during the second half , the brand has ensured a robust
financial performance for the Group. In the UK we have again seen
the brand outperform in dilutes and continued to make significant
progress in the ready to drink subcategory. Internationally, we
continued to see solid growth across all regions. In particular, it
was pleasing to see strong underlying growth in both the Middle
East and Africa given the importance of these markets to the
Group.
The Board currently expects FY23 Adjusted PBT (1) to be in line
with FY22 and market expectations (10) , with International ahead
and OoH behind initial market forecasts. The Board remains
confident of significant progress in FY24 as inflationary pressures
abate and the benefits of the Out of Home Strategic Review are
realised.
With a long-term track record of growth, a proven and
diversified strategy in the UK and internationally, a quality range
of brands and a strong balance sheet, the Board remains highly
confident that the Group is very well positioned to deliver its
long-term growth plans."
References:
1 Excluding Exceptional items
2 EBITDA is the statutory profit before tax, interest,
depreciation, and amortisation
3 Free Cash Flow is the net increase in cash and cash
equivalents before acquisition funding and dividends
4 Adjusted return on capital employed is the adjusted operating
profit divided by the average period-end capital employed
5 Statutory return on capital employed is the operating profit
divided by the average period-end capital employed
6 Cash Conversion is the Free Cash Flow / Adjusted Profit After
Tax
7 Dividend cover is adjusted basic earnings per share divided by
the dividend per share
8 Source: Nielsen IQ RMS data for the Total Soft Drinks category
for the YTD ending 31 December 2022 for the GB Total Coverage
market
9 Source: Nielsen IQ RMS data for the Dilutes and RTD Stills
categories for the 12 months to 31 December 2022 for the GB Total
Coverage market
10 FY23 market expectations refers to a Group compiled consensus
of adjusted PBT of GBP25.1m
Contacts
Nichols plc Telephone: 0192 522 2222
Andrew Milne, Group Chief Executive
Officer
David Rattigan, Group Chief Financial
Officer
Singer Capital Markets (NOMAD Telephone: 0207 496 3000
& Broker) Website: www.singercm.com
Steve Pearce / Jen Boorer
----------------------------------
Hudson Sandler (Financial PR) Telephone: 0207 796 4133
Alex Brennan / Charlotte Cobb Email: nichols@hudsonsandler.com
/ Harry Griffiths
----------------------------------
Notes to Editors:
Nichols plc is an international diversified soft drinks business
with sales in over 73 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 SLUSH PUPPiE, Feel Good, Starslush, ICEE, Levi Roots and
Sunkist.
For more information about Nichols, visit:
www.nicholsplc.co.uk
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the company's obligations under Article 17 of MAR.
Chairman's Statement
It gives me great pleasure to write to our shareholders in what
is my final report as Non-Executive Chairman of Nichols.
Vimto continues to perform well both in the UK and
internationally and despite ongoing inflationary pressures, which
accelerated during the second half , the brand has ensured a robust
financial performance for the Group. In the UK we have again seen
the brand outperform in dilutes and continued to make significant
progress in the ready to drink subcategory. Internationally, we
continued to see solid growth across all regions. In particular, it
was pleasing to see strong underlying growth in both the Middle
East and Africa given the importance of these markets to the
Group.
As Out of Home (OoH) recovers from the impact of the pandemic,
the Group's OoH Strategic Review is now complete, with
opportunities for net margin improvement identified. Actions are
expected to be implemented throughout FY23, with benefits being
realised largely in FY24 and beyond . Given the differing strategic
challenges between our Packaged and OoH routes to market, the Group
will be segmented during FY23 to ensure appropriate strategic focus
exists for each of its two proposed operating segments.
Trading
Total Group revenues for the period were GBP164.9m, an increase
of 14.3% compared to 2021, with all routes to market and
geographies progressing in the period.
Revenue of Still products increased by 8.2% to GBP78.3m (2021:
GBP72.4m), driven by the strong performance of the Vimto Squash and
RTD brands in the UK and the progression of Vimto Cordial in the
Middle East. Revenue from Carbonated products increased 20.4% to
GBP86.6m (2021: GBP71.9m), driven largely by the recovery of the
Group's OoH Dispense business as outlets fully reopened following
the pandemic, and by continued strong growth in Africa.
In the UK, revenue increased by 13.7% versus last year to
GBP127.0m (2021: GBP111.6m) as the OoH route to market, and in
particular the Dispense business, recovered post the pandemic. The
Vimto brand continued to progress by +3.0% to GBP105.9m, according
to Nielsen(1) .
Sales across our International markets were GBP38.0m, an
increase of 16.1% (underlying +13.4% adjusting for the impact of
the completion of the Group's marketing investment in the Middle
East in 2021) versus the prior year (2021: GBP32.7m). Revenue in
Africa increased 15.0%, following a 17.1% growth last year which
was particularly pleasing given the long-term opportunity presented
by these markets.
Share Buyback
On 14 December 2021, the Group announced its plans to conduct
on-market purchases under a share buyback programme. This included
the intention to repurchase up to 453,486 ordinary shares of 10p
each in the capital of the Group (the 'Ordinary Shares'),
representing up to approximately 1.2 per cent of the Group's issued
share capital, pursuant to the authority obtained at the Group's
most recent Annual General Meeting (AGM) at that time, held on 28
April 2021 (the 'Buyback').
The Buyback was put in place to meet the Group's future
obligations under its SAYE Option Scheme and/or Long-Term Incentive
Plan. The Buyback was completed on 5 April 2022 and was funded from
the Group's existing cash resources. All Ordinary Shares
repurchased are now held in treasury. The weighted average price
paid was 1428.18 pence and the total cost of the Buyback in the
period was GBP5.5m.
Dividend
Considering the Group's improved performance in the period and
in-line with the Group's stated dividend policy of broadly 2x
cover, the Board today proposes a final dividend of 15.3p which,
together with the interim dividend paid, would result in a full
year dividend for 2022 of 27.7p, representing a 19.9% increase
year-on-year.
Subject to approval at the Group's AGM on 26 April 2023, payment
will be made on 4 May 2023. The ex-dividend date and record date
will be 23 March and 24 March 2023 respectively.
1 Nielsen IQ RMS data for the Total Soft Drinks category for the
YTD ending 31 December 2022 for the GB Total Coverage market
Chair Succession
I announced at the last AGM that, after 15 years in the role, it
was my intention to retire as Non-Executive Chair once a suitable
replacement had been identified. On 11 January 2023, the Board was
pleased to announce the appointment of Elizabeth (Liz) McMeikan as
the Group's next Non-Executive Chair. In Liz, the Nominations
Committee have identified an outstanding candidate with significant
experience in consumer-facing businesses and public company
boards.
Liz joined the Group as a Non-Executive Director on 1 February
2023 and will become Non-Executive Chair on 26 April 2023 following
the conclusion of the AGM on that date, subject to her
re-appointment as a Director.
I am delighted to remain on the Board as a NED, taking the
second of the two Nichols family Board seats, agreed as part of the
Relationship Agreement signed in July 2020 alongside my son James
Nichols.
Outlook
The Group has a proven, diversified, and international business
model. However, it is not immune to the significant and
accelerating inflationary pressures impacting the wider consumer
and soft drinks markets. Whilst FY23 will be a challenging year as
cost of living pressures impact consumer demand across all routes
to market, the Group will continue to seek to mitigate these
pressures through both cost efficiency and revenue management.
Throughout FY22, this has helped the Vimto brand continue to grow
in the UK and internationally, which the Board is confident will
continue in FY23.
The Board currently expects FY23 Adjusted PBT (1) to be in line
with FY22 and market expectations (2) , with International ahead
and OoH behind initial market forecasts. The Board remains
confident of significant progress in FY24 as inflationary pressures
abate and the benefits of the Out of Home Strategic Review are
realised.
With a long-term track record of growth, a proven and
diversified strategy in the UK and internationally, a quality range
of brands and a strong balance sheet, the Board remains highly
confident that the Group is very well positioned to deliver its
long-term growth plans.
John Nichols
Non-Executive Chairman
1 March 2023
1 Excluding exceptional items
2 FY23 market expectations refers to a Group compiled consensus
of adjusted PBT of GBP25.1m
Chief Executive Officer's Statement
I am incredibly proud of the Group's strong performance in 2022,
which is a great testament to the commitment, resilience and
determination of the entire Nichols team as we navigated what was a
challenging and volatile trading environment. The teams should be
very pleased with what we have achieved this year, delivering
strong sales growth across all our key geographies.
Having experienced unprecedented trading conditions in recent
years because of the Covid-19 pandemic, 2022 was another
challenging and unpredictable year. We saw rapidly rising
inflation, increased cost of living pressures on consumers and
experienced a number of logistical challenges relating to the
strike action that occurred in Spain during the first half of 2022
that, whilst not affecting the overall year performance, did cause
a phasing issue H1 to H2. Whilst our teams have had to be flexible
and continuously adapt to changing circumstances, I am really
pleased that our clear strategy and diversified business model have
enabled us to successfully overcome the challenges throughout the
year and, ultimately, deliver returns for our shareholders.
The performance of the Vimto brand was central to the Group's
success in 2022. Vimto's unique flavour continues to be loved by
consumers across the globe. In the UK, the brand saw growth of
3.0%(1) during the year, once again outperforming the dilutes and
ready to drink (RTD) subcategories.
One of the Group's key strategic focus areas in 2022 was to
drive further operational excellence, with the objective of
delivering enhanced levels of product availability and ensuring our
consumers can enjoy our brands on a daily basis. A key initiative
that has been successfully delivered to drive this during the year
was the transition of our dilutes contract manufacturing to more
efficient and faster lines that has increased our capability and
capacity at an underlying favourable cost of goods position.
Happier Future
At the beginning of the year, we shared our Happier Future
sustainability commitments with our stakeholders, and I am pleased
to report that in 2022 we made strong progress against our three
key pillars of:
-- Everyone Matters - looking after our Nichols plc family and
giving back to our local communities
-- Products We're Proud Of - developing products that allow
consumers to make healthier choices, strengthening our approach to
responsible sourcing, and continuing to find sustainable packaging
solutions
-- Owning Our Climate Impact - ensuring we are conducting our
business in the most sustainable way to protect the world around
us
Our people are focused on embedding our commitments and pledges
in these key areas across all our business practices.
Sustainability is front of mind for everyone, and key to our
day-to-day decision-making. Some of our key highlights during the
year included launching our first Camp Vimto programme which is
focused on raising aspirations and driving opportunities for young
people in the communities we serve and ensuring that we continue to
launch a range of No Added Sugar (NAS) products to offer our
consumers a balanced choice of product range. Within our Owning Our
Climate Impact pillar we have delivered on transitioning all our
Nichols UK sites to be operating on 100% renewable energy. You can
read more on our Happier Future strategy and progress during the
year in our FY22 Annual Report.
UK Soft Drinks(1)
The UK soft drinks market delivered value growth during 2022 of
9.2% with a total market value of GBP10.5bn (2021: 9.6bn). However,
market sales volumes declined 2.1% year-on-year, mainly due to the
impact of cost of living pressures on consumers and despite the
easing of trading and social restrictions imposed during the
Covid-19 pandemic. This value growth reflected price increases seen
across the market in response to inflationary pressures.
The Vimto brand continued to perform well in 2022 and, once
again, delivered strong value sales of GBP105.9m. This was a result
of the continued investment in its distribution channels, product
availability, innovation, promotions and strong marketing
campaigns.
1 Nielsen IQ RMS data for the Total Soft Drinks, Squash,
Flavoured Carbonates and RTD Stills category for the YTD ending 31
December 2022 for the GB Total Coverage market
The dilutes category continued to be a segment where we
flourished. I am incredibly proud to say that Vimto is the only UK
dilutes brand to have achieved growth pre, during, and post Covid.
Building on the momentum of our brand re-launch in 2021, Vimto
dilutes continues to gain market share from peers and during 2022
we further cemented our clear No.2 position in the market. Vimto
Squash is the fastest-growing dilutes brand and outperformed the
sub-sector by 2.3% in 2022.
Our Vimto Still RTD range experienced significant value growth
in 2022, achieving 15.9% year-on-year sales growth, and a +3.8%
market outperformance. This has been achieved as a result of
winning several new listings for our products across a range of key
outlets during the year.
2022 has been a challenging year for our Carbonates portfolio.
We have faced significant cost of goods pressures in what is a
highly competitive subcategory. As a result we have focused on
protecting our margins which has resulted in both value (-3.3%) and
volume decline (-16.4%).
Innovation continued to be a key growth driver in 2022 as we
launched a range of exciting new products that all share the unique
and distinctive Vimto taste experience. We remain passionate and
committed to providing consumers with the opportunities to make
balanced and informed choices when it comes to healthy hydration,
with all our Packaged products now High in Fat, Salt and Sugar
(HFSS) compliant. Our product launches in 2022 included:
-- Vimto Zero Cherry, Raspberry & Blackcurrant Sparkling
-- Vimto Zero Blackberry, Raspberry & Blueberry Still
-- Two new NAS dilutes flavours - Vimto Orange and Pineapple, and Vimto Mango and Passionfruit
Following its launch in 2021, summer 2022 saw the return of
Vimto's highly successful 'Find Your Different' marketing and
advertising campaign. Building on the strength of its activation
last year, the multi-media campaign continued to drive a strong
uplift in overall brand awareness, consideration and engagement,
whilst highlighting the benefits of our fortified squash flavour
range. Our fully-integrated campaign ran on platforms including TV,
video on demand, digital, social media and in cinemas. The campaign
was seen by around six million consumers in total, with 80% of this
group sitting within our key target audience of families.
In addition to our broadcast communications, we also ran two
promotions across our Carbonates and RTD ranges, including our 'Big
Cash Giveaway' and 'Love Potion' initiatives in the impulse sector.
Both incentivised shoppers with the chance to win cash instantly
when buying our products.
Our Levi Roots brand had another successful year, delivering
strong value growth of 5.3%. This has been driven by an increase in
the number of distribution points across wholesale and convenience
channels, alongside a successful sales distribution drive, ensuring
that the Levi Roots brand is readily accessible for both retailers
and consumers.
Our Feel Good brand continues to see accelerated customer and
consumer demand, with year-on-year volume and revenue growth. This
was driven by strong distribution gains for multi-packs into new
grocery retailers as well as new listings for our single serve
range in the on-trade. In addition to our retail distribution wins,
our new direct to consumer partnership will unlock more growth for
the brand online.
In April 2022, Feel Good launched an exciting new partnership
with Project Seagrass, a marine conservation charity dedicated to
global seagrass meadow protection. We supported the protection of
the UK's first seagrass nursery in Wales through our #youbuyweplant
programme.
Throughout 2022, we continued to work closely with all our
customers across our UK grocery, foodservice, discounter, and
wholesale channels to ensure their needs are at the heart of our
operations. The strength of these relationships is paramount to
ensuring our end consumers can enjoy our products each day.
UK On-Trade
Similar to the broader hospitality industry, our Out of Home
route to market experienced another challenging 12 months in
2022.
During the year, we supported our key customers and partners as
they faced numerous challenges resulting from increasing energy
costs to rising inflation and supply shortages. Throughout the
year, we remained focused on maintaining strong service levels and
always maximising product availability, thereby ensuring all of our
customers' drinks equipment were fully operational, and that our
deliveries arrived on time and in full.
I am satisfied with the OoH route to market's performance in
2022, as it continued to recover from the impact of the pandemic to
deliver sales growth of 43% versus 2021. Nonetheless, its
performance during the second half of the year slowed to +5%
against tougher post-Covid comparatives and many channels were
impacted by the accelerating cost of living crisis which resulted
in reduced footfall and consumer spending in our key leisure
outlets.
Strong innovation and marketing programmes have once again been
fundamental in driving the performance of our brands across key
leisure and hospitality venues. Synchronising with movie launches
has become an increasingly important part of our ICEE brand's
strategy, driving brand visibility by trialling the product in
venue. In 2022, this included collaborating with Paramount Pictures
and Cineworld on the 'ICEE Challenge', a cinema advert reel led by
Johnny Knoxville, to support the launch of the Jackass Forever
movie.
During the year, we also launched our 'ICEE Big Flavour Vote',
inviting fans to select their preferred new flavour from a range of
three. As a result, the winning flavour, Mango & Passion Fruit,
was launched in July across a range of cinema venues and was
focused on driving incremental consumers to the brand on a more
regular basis.
We continue to have strong relationships with our key partners
including Coca-Cola, Pepsi, Irn-Bru, Ocean Spray and Sunkist. This
year, we also introduced the Old Jamaica Ginger Beer brand on
draught in the UK as part of an exclusive partnership. The strength
of these partnerships underpinned double digit revenue growth
versus last year on our core dispense branded offerings. In
addition, in November we launched our new Vimto Out of Home
website, providing customers with a more user-friendly experience,
where they can easily view our portfolio and service offering in
full. The website will be at the heart of future trade engagement
plans.
Out of Home Strategic Review
As previously announced, in 2022 we conducted a strategic review
of our OoH route to market as we assessed the significant impact of
the pandemic on this channel. The review has allowed us to create a
clear strategy that we believe will deliver significant additional
net margin gains through a range of actions that will be
implemented during 2023, with the benefits being largely realised
in 2024 and beyond.
The OoH route to market's financial performance was heavily
impacted by the Covid-19 pandemic, reflecting the lower margin and
higher level of operational gearing that exists compared to our
Packaged route to markets, particularly when its full operational
costs and overheads are factored in.
The OoH dispense business is serviced on a regional basis
through both owned distribution channels and third party
distributors. OoH also services several national frozen contracts
which cannot be serviced profitably without a wholly owned national
distribution network.
The strategic review performed by the Company during 2022
provided clarity on the financial performance of OoH. It also
identified that OoH operates with distinct operations, customers,
products and, in part, suppliers.
It is clear post the pandemic that the strategic challenges
within our OoH route to market are quite distinct from those that
exist within our Packaged route to markets. The likely long-term
returns from OoH are lower and a different approach to the
management of the business is required to deliver shareholder value
in the long term.
The strategic review identified several immediate actions that
will be implemented through FY23.
These actions include:
-- operating OoH as a distinct division within the Group
-- exiting underperforming contracts and product categories,
including coffee and national frozen accounts
-- exiting the in-house central frozen region, which is
considered sub scale and unprofitable and for dispense is already
serviced by a distributor
-- reviewing processes to simplify the business ensuring a
rationalisation of operating costs and central overheads; and
-- improving financial reporting, including divisional and
regional reporting focusing on net profit and return on capital
employed.
T he Group incurred GBP0.5m of costs in the period, to prepare
its recommendations for implementation. Implementation of these
actions commenced in Q1 FY23 and a dditional exceptional costs will
be incurred through the year as these recommendations are
implemented.
The benefits from these actions will largely be realised during
FY24.
Vimto International
I am pleased to report strong International sales growth of 16%
in 2022. This was achieved despite the challenges posed by
inflation, global supply chain challenges, and political
instability in some of our international markets during the
year.
Double digit growth and market share gains were achieved across
all our key geographies. Sales in MEAP (Middle East Asia Pacific)
were up 20% supported by strong in performance in Yemen, despite
the ongoing tragic civil war, and across the Gulf Cooperation
Council (GCC). This was fuelled by strengthened in-store execution,
effective integrated marketing campaigns and product
innovation.
In its 96th Ramadan season, our partner in MEAP, Aujan Coca-Cola
Bottling Company (ACCBC), launched the region's first ever Zero
Sugar cordial, a limited-edition format which proved extremely
popular. Outstanding market execution and a highly effective
promotional campaign, including a spectacular take-over of the Burj
Khalifa, helped ensure that sales across the season exceeded those
achieved in 2021. We also achieved strong sales growth in our RTD
ranges with the launch of a new campaign celebrating 'The Unique
Taste of Sweet Togetherness'. In November, we launched a new Vimto
citrus flavoured RTD product in a green can, targeted to drive
incremental consumers to the brand.
Across all our key markets and geographies, we have continued to
roll out our new Vimto branding, with Senegal, Cameroon and Mali
all being delivered in Africa, as well as Sweden and Cyprus within
Europe.
In Africa, sales growth remained strong at 15% year-on-year, as
we increased our distribution network into Angola, Chad and the
Central African Republic, and launched new flavour extensions into
a number of existing markets.
Our investment in strong marketing programmes across key
territories delivered further success, with seasonal activations
around Valentine's Day, Ramadan and Tabaski within all key markets
in Africa. In Algeria, we invested in a range of shopper
activations and a first-ever digital campaign across Instagram and
Facebook, which supported the delivery of record sales in 2022.
Inflation in North America proved extremely challenging to
mitigate throughout 2022 and we saw demand for our products soften
during the period. We continue to work in close collaboration with
our partners in-market to ensure we maintain our key distribution
points.
In Europe, positive sales growth of 23% was extremely
encouraging in the context of the challenging market conditions. In
Europe we are maintaining our strong focus on driving new
distribution wins, improving product availability, and ensuring
excellent in-market execution.
Looking Ahead
We have successfully delivered consistently strong performances
across the breadth of the Group, through our diversified business
model, clear strategy, strong brand equity and embedded ESG
commitments, as well as the strength of our key partnerships and
talent of our highly engaged people. Our outstanding portfolio of
iconic brands has continued to grow across all markets in 2022,
which remains at the heart of our success. We have a strong balance
sheet and international reach.
Our performance this year is testament to the strength of our
business. Whilst 2023 will undoubtedly bring challenges, as
inflationary pressures are expected to persist and consumer
confidence remains under pressure, the soft drinks category has
proven to be highly resilient over many years and I expect that
this resilience will continue to support our business growth.
I am confident that the momentum we have built will enable us to
continue to deliver our long-term strategic objectives, achieve
profitable growth and generate considerable returns for all our
stakeholders.
Andrew Milne
Chief Executive Officer
1 March 2023
Chief Financial Officer's Statement
Revenue
Group revenues were GBP164.9m, an increase of GBP20.6m or 14.3%
compared to 2021. The period was dominated by significant and
accelerating inflationary pressures and, in H2 in particular, by
the widely publicised cost of living pressures impacting
consumers.
The Group's clear and long held value over volume strategy
provided clear direction as we sought to mitigate these pressures
through both cost efficiency and revenue management. Of the
GBP20.6m revenue growth, GBP8.8m came from a combination of
appropriate price recovery (+GBP8.0m), implemented in partnership
with our customers, and the impact of the removal of the marketing
investment (+GBP0.8m) in the Middle East in 2021 (reported as part
of the Group's revenue line). The balance of revenue growth was
generated by net improved volumes (both quantity and sales mix)
across the Group's three routes to market. Throughout FY22, this
balanced approach helped the Vimto brand to continue to achieve
growth in the UK and internationally, whilst also protecting the
Group's net margins.
Gross Profit
Gross profit at GBP71.0m was GBP5.8m higher than 2021 (GBP65.2m)
and 2.1 percentage points lower at 43.1% (2021: 45.2%). Excluding
the impact of the input costs aligned to the price recovery
implemented in partnership with our customers gross profit % was
consistent with 2021.
Significant volume growth was seen in both the Group's OoH and
International routes to market and improved gross profit by
approximately GBP5.7m. Reduced volumes in the UK Packaged route to
market, where quantity declines were marginally offset by positive
changes to the sales mix, resulted in a negative gross profit
impact of GBP0.9m. The removal of the marketing investment
(reported as part of the Group's revenue line) in the Middle East
in 2021 supported year-on-year gross profit comparisons by
GBP0.8m.
Underlying cost of goods inflation approached 14% across the
year, with mitigating actions successfully implemented to reduce
this to closer to 10%. Mitigating actions included the successful
transfer of the Group's UK dilutes contract manufacturing volume to
faster and more efficient lines in H1 following completion of its
UK operational supply chain review.
The impact of movements in foreign exchange rates on gross
profit was favourable at +GBP0.2m.
Distribution Expenses
Distribution expenses within the Group are those associated with
the UK Packaged route to market and, for OoH, the distribution
costs incurred from factory to depot. "Final leg" distribution
costs within OoH are reported within administrative expenses.
Distribution expenses totalled GBP10.7m (2021: GBP9.1m), an
increase of 17.0%, due to a combination of net higher trading
volumes across the UK and ongoing and significant inflationary
pressure. The Group entered a new five-year distribution
arrangement in H2 2021 that became operational during 2022,
resulting in both significant additional capacity as well as
opportunities for improved efficiency in the coming years.
Administration Expenses
Administration expenses excluding exceptional items totalled
GBP35.7m (2021: GBP34.1m), an increase of GBP1.6m or 4.7%
year-on-year, largely related to increases in net payroll and staff
related costs in response to cost of living increases.
Exceptional Costs
The Group has incurred GBP11.1m of exceptional costs during the
year (2021: GBP39.5m), GBP8.7m of which is non-cash.
Review of UK packaged supply chain
In Q4 2020, the Group commenced a review of its UK operational
supply chains. The project has progressed steadily with significant
changes implemented, including the Group entering several new
five-year contract manufacturing and distribution arrangements that
both built significant additional capacity, in-line with the
Group's growth plans, and improved efficiency. These projects,
which completed during 2022, resulted in GBP1.5m of exceptional
costs in the period (2021: GBP0.6m, 2020: GBP0.3m).
Out of Home Strategic Review
In Q1 2021 the Group commenced a strategic review into its OoH
route to market, to consider customer and product mix as well as
review ways to enhance net margin and profitability going forward.
T he Group incurred GBP0.5m of costs in the period to prepare its
recommendations for implementation. Additional costs will be
incurred through 2023 as these recommendations are implemented.
These additional implementation costs are one-off in nature and
will be treated as exceptional.
Impairment of intangible and fixed assets
The impact of Covid-19 resulted in a difficult period of trade
for OoH from 2020 through 2021, with many outlets being closed for
a prolonged period of time. Whilst trade within the hospitality
industry has reopened post the pandemic, the impact of the war in
the Ukraine, and its impact on inflation and cost of living
pressures have meant that whilst trade within the hospitality
industry initially returned to pre-Covid levels, growth is
significantly slower than previously forecast in the short term and
saw a significant slowdown in Q4 as inflationary pressures impacted
consumers. Certain sectors of the hospitality industry, for example
Cinema, Holiday and Theme Parks where our frozen business operates,
have seen significant volume decline all year versus pre-pandemic
revenues.
In line with market expectations, we anticipate that growth
projections for OoH beyond 2022 will be lower than previously
estimated, given the economic outlook and change in consumer
patterns.
Whilst cost pressure is expected to be fully recovered within
OoH, the gross margin progression anticipated previously is not now
likely to be achieved, despite there being significant
opportunities to enhance net margin through better alignment of our
customer and product mix with our cost base.
The Group's cost of capital has increased, largely due to
macro-economic factors affecting all businesses, from 8.2% to
13.1%. This has resulted in a higher threshold required to support
the carrying values of assets.
As a result, management have recognised a further non-cash
impairment charge of GBP8.7m, in the current year, impairing all
the remaining intangible assets (GBP4.8m) within our OoH route to
market and a proportion of its fixed assets (GBP3.9m). In 2021, as
previously announced, the Group impaired the Goodwill generated
from previous OoH acquisitions (2021: GBP36.2m).
Historic incentive scheme
The Group has now settled with HMRC the GBP4.3m tax and interest
charges relating to a historic incentive scheme and will now
commence recovery of debts from current and previous management who
had indemnified the Company. The Group incurred legal costs in the
period of GBP0.1m in relation to the case.
Group Systems Review
The Group has commenced a project to implement a new enterprise
resource planning (ERP) system, which is expected to be operational
through 2024. Initial review costs of GBP0.3m were incurred in the
period.
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.
Finance Costs
Net finance income of GBP0.4m (2021: GBP0.1m loss) was
significantly up on the prior year, as the Group ensured the best
return for its deposits following the Bank of England interest rate
rises.
Adjusted profit before tax/Profit before tax and tax rate
Adjusted profit before tax increased by 14.5% to GBP25.0m (2021:
GBP21.8m). The tax charge on adjusted profit before tax for the
period of GBP4.8m (2021: GBP4.8m) represents an effective tax rate
of 19.0% (2021: 21.9%). Reported profit before tax was GBP13.8m
(2021: GBP17.7m loss).
Adjusted Earnings per share/Earnings per Share
On an adjusted basis, diluted earnings per share (EPS) was 55.32
pence (2021: 46.09p). Total adjusted EPS increased to 55.38 pence
(2021: 46.15p) with basic EPS at 31.86 pence (2021: -60.04p).
Cash and Cash Equivalents and Balance Sheet
The Group's focus on cash conversion continued and the Group
achieved a cash conversion of 72% (31 December 2021: 103%).
Free cash flow (FCF) in the period was GBP14.6m (31 December
2021: GBP17.5m), after paying a gross GBP4.3m tax settlement in
relation to historic incentive schemes during the year as described
above. Excluding this settlement, the Group's FCF would have
improved year-on-year to GBP18.9m.
The Group's FCF was fully utilised this year, undertaking a
GBP5.5m treasury share Buyback to facilitate future servicing of
the Group's SAYE Option Scheme and/or Long-Term Incentive Plan,
alongside GBP9.4m for dividend payments made during the period.
Cash and cash equivalents at the end of the period remained
strong at GBP56.3m (31 December 2021: GBP56.7m).
Working capital is now normalised post the pandemic and is
reflective of the higher raw material and packaging costs
experienced in the period. Capital expenditure of GBP1.2m was
broadly consistent year-on-year (2021: GBP1.2m).
The Group's current Adjusted Return on Capital Employed
progressed marginally at 27.2% (31 December 2021: 26.6%). Statutory
Return on Capital employed is 14.2% (31 December 2021: 15.8%
loss).
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 2022, the Group recognised a surplus on its UK
defined benefit scheme of GBP4.1m (2021: surplus GBP5.3m).
During the year the Trustees were able, with the support of the
Company, to further de-risk the assets held within the scheme. This
is in addition to the de-risking work carried out during 2021.
Assets versus liabilities is now at 122% versus 83% at the time of
the last valuation (April 2020). The Company is now working with
the Trustees to develop its future funding strategy ahead of the
next valuation in April 2023.
David Rattigan
Chief Financial Officer
1 March 2023
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2022
2022 2021
GBP'000 GBP'000
Continuing operations
Revenue 164,926 144,328
Cost of sales (93,905) (79,153)
---------------------------------------- --------- ---------
Gross profit 71,021 65,175
Distribution expenses (10,677) (9,129)
Administrative expenses (46,888) (73,601)
---------------------------------------- --------- ---------
Operating profit/(loss) 13,456 (17,555)
Finance income 514 57
Finance expense (134) (158)
---------------------------------------- --------- ---------
Profit/(loss) before taxation 13,836 (17,656)
Taxation (2,201) (4,512)
---------------------------------------- --------- ---------
Profit/(loss) for the year 11,635 (22,168)
---------------------------------------- --------- ---------
Earnings/(loss) per share (basic) 31.86p (60.04p)
Earnings/(loss) per share (diluted) 31.82p (60.04p)
Adjusted for exceptional items
Operating profit/(loss) 13,456 (17,555)
Exceptional items 11,146 39,477
---------------------------------------- --------- ---------
Adjusted operating profit 24,602 21,922
---------------------------------------- --------- ---------
Profit/ (loss) before taxation 13,836 (17,656)
Exceptional items 11,146 39,477
---------------------------------------- --------- ---------
Adjusted profit before taxation 24,982 21,821
---------------------------------------- --------- ---------
Adjusted earnings per share (basic) 55.38p 46.15p
Adjusted earnings per share (diluted) 55.32p 46.09p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
2022 2021
GBP'000 GBP'000
Profit/(loss) for the financial year 11,635 (22,168)
Items that will not be reclassified
subsequently to profit or loss
Re-measurement of net defined benefit
liability (2,071) 4,083
Deferred taxation on pension obligations
and employee benefits 459 (962)
Other comprehensive (expense)/income
for the year (1,612) 3,121
Total comprehensive income/(expense)
for the year 10,023 (19,047)
-------------------------------------------- -------- ----------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
2022 2021
ASSETS GBP'000 GBP'000
Non-current assets
Property, plant and equipment 10,958 17,099
Intangibles 88 5,546
Pension surplus 4,125 5,276
-------------------------------- -------- --------
Total non-current assets 15,171 27,921
Current assets
Inventories 10,432 9,706
Trade and other receivables 39,561 36,124
Corporation tax recoverable 695 743
Cash and cash equivalents 56,296 56,674
-------------------------------- -------- --------
Total current assets 106,984 103,247
-------------------------------- -------- --------
Total assets 122,155 131,168
-------------------------------- -------- --------
LIABILITIES
Current liabilities
Trade and other payables 30,711 28,791
Provisions - 4,242
Total current liabilities 30,711 33,033
Non-current liabilities
Other payables 2,038 1,954
Deferred tax liabilities 670 3,155
-------- --------
Total non-current liabilities 2,708 5,109
-------------------------------- -------- --------
Total liabilities 33,419 38,142
-------------------------------- -------- --------
Net assets 88,736 93,026
-------------------------------- -------- --------
EQUITY
Share capital 3,697 3,697
Share premium reserve 3,255 3,255
Capital redemption reserve 1,209 1,209
Other reserves 1,280 676
Retained earnings 79,295 84,189
Total equity 88,736 93,026
-------------------------------- -------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Profit/(loss) for the financial
year 11,635 (22,168)
Adjustments for:
Depreciation and amortisation 4,521 4,969
Impairment losses on goodwill, intangible
and fixed assets 8,714 36,244
Loss on sale of property, plant
and equipment 186 63
Finance income (514) (57)
Finance expense 134 158
Tax expense recognised in the income
statement 2,201 4,512
Increase in inventories (726) (3,785)
Increase in trade and other receivables (4,100) (6,804)
Increase in trade and other payables 2,963 7,429
(Decrease)/increase in provisions (4,242) 4,242
Change in pension obligations (920) (846)
Fair value loss/(gain) on derivative
financial instruments 662 (178)
8,879 45,947
Cash generated from operating activities 20,514 23,779
Tax paid (4,178) (3,878)
-------------------------------------------- -------- --------- ---------- ---------
Net cash generated from operating
activities 16,336 19,901
Cash flows from investing activities
Finance income 514 57
Proceeds from sale of property,
plant and equipment - 2
Acquisition of property, plant and
equipment (1,245) (1,239)
Payment of contingent consideration (71) (67)
Net cash used in investing activities (802) (1,247)
Cash flows from financing activities
Payment of lease liabilities (995) (1,189)
Purchase of own shares (5,534) (1,217)
Dividends paid (9,383) (6,868)
-------------------------------------------- -------- --------- ---------- ---------
Net cash used in financing activities (15,912) (9,274)
Net (decrease)/increase in cash
and cash equivalents (378) 9,380
Cash and cash equivalents at 1
January 56,674 47,294
-------------------------------------------- -------- --------- ---------- ---------
Cash and cash equivalents at 31
December 56,296 56,674
-------------------------------------------- -------- --------- ---------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 31 December 2022
Called Share Capital
up share premium redemption Other Retained Total
capital reserve reserve reserves earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2021 3,697 3,255 1,209 394 111,321 119,876
Movement in ESOT - - - 10 - 10
Credit to equity for
equity-settled share-based - - - 272 - 272
payments
Purchase of own shares - - - - (1,217) (1,217)
Dividends - - - - (6,868) (6,868)
Transactions with
owners - - - 282 (8,085) (7,803)
----------------------------- ----------- ---------- ------------- ----------- ----------- ----------
Loss for the year - - - - (22,168) (22,168)
Other comprehensive
income - - - - 3,121 3,121
----------------------------- ----------- ---------- ------------- ----------- ----------- ----------
Total comprehensive
expense - - - - (19,047) (19,047)
----------------------------- ----------- ---------- ------------- ----------- ----------- ----------
At 1 January 2022 3,697 3,255 1,209 676 84,189 93,026
Movement in ESOT - - - 5 - 5
Credit to equity for
equity-settled share-based - - - 599 - 599
payments
Purchase of own shares - - - - (5,534) (5,534)
Dividends - - - - (9,383) (9,383)
Transactions with
owners - - - 604 (14,917) (14,313)
----------------------------- ----------- ---------- ------------- ----------- ----------- ----------
Profit for the year - - - - 11,635 11,635
Other comprehensive
expense - - - - (1,612) (1,612)
----------------------------- ----------- ---------- ------------- ----------- ----------- ----------
Total comprehensive
income - - - - 10,023 10,023
----------------------------- ----------- ---------- ------------- ----------- ----------- ----------
At 31 December 2022 3,697 3,255 1,209 1,280 79,295 88,736
----------------------------- ----------- ---------- ------------- ----------- ----------- ----------
NOTES
1. Basis of Preparation
The preliminary financial information does not constitute
statutory accounts for the financial years ended 31 December 2022
and 31 December 2021, but has been derived from those accounts. The
accounting policies remained unchanged from those set out in the
2021 Annual Report.
Statutory accounts for 2021 have been delivered to the Registrar
of Companies and those for the financial year ended 31 December
2022 will be delivered following the Group's Annual General
Meeting. The auditors have reported on those accounts and their
reports were unqualified, did not draw attention to any matters by
way of emphasis, and did not contain a statement under 498(2) or
498(3) of the Companies Act 2006.
2. Going Concern
In assessing the appropriateness of adopting the going concern
basis in preparing the Annual Report and financial statements, the
Directors have considered the current financial position of the
Group, its principal risks and uncertainties, the potential impact
of further Covid-19 restrictions in addition to a continued cost of
living crisis. 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 OoH market and the potential for future lockdowns
within 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
return during the remainder of 2023 and the start of 2024.
During the year the Group experienced a period of significant
inflation and a cost of living crisis against which a number of
mitigation actions were introduced. These are largely evidenced in
the results announced. Our modelling has sensitised the impacts of
Russia's continued invasion of Ukraine, in particular their impact
on global supply chains and macroeconomic inflationary factors.
In addition to the further impacts 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
business model remained robust. The Group's diversified business
model and strong balance sheet provide resilience against these
factors and the other principal risks that the Group is exposed to.
At the 31 December 2022 the Group had cash and cash equivalents of
GBP56.3m with no external bank borrowings.
On the basis of these reviews, the Directors consider the Group
has adequate resources to continue in operational existence for the
foreseeable future (being at least one year following the date of
approval of the Annual Report) and, accordingly, consider it
appropriate to adopt the going concern basis in preparing the
accounts.
3. 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.
The Group's OoH strategic review is now complete. Given the
differing strategic challenges between our Packaged and OoH routes
to market, the Group will be segmented during FY23 to ensure
appropriate strategic focus exists for each of its two proposed
operating segments.
Still Carbonate Group
GBP'000 GBP'000 GBP'000
Year ended 31 December 2022
Sales 78,307 86,619 164,926
Gross profit 40,277 30,744 71,021
Year ended 31 December 2021
Sales 72,393 71,935 144,328
Gross profit 37,980 27,195 65,175
A geographical split of revenue is provided below:
Year ended Year ended
31 December 31 December
2022 2021
GBP'000 GBP'000
Geographical split of revenue
Middle East 11,752 9,765
Africa 18,870 16,410
Rest of the World 7,350 6,523
-------------- --------------
Total exports 37,972 32,698
United Kingdom 126,954 111,630
-------------- --------------
Total revenue 164,926 144,328
-------------- --------------
4. Exceptional items
Year ended Year ended
31 December 31 December
2022 2021
GBP'000 GBP'000
Review of UK Packaged supply chain 1,464 620
Out of Home Strategic Review 518 -
Impairment of goodwill, intangible and fixed
assets 8,714 36,244
Historic incentive scheme 134 2,613
Group Systems Review 316 -
11,146 39,477
-------------- --------------
The Group incurred GBP11.1m of exceptional costs during the year
(2021: GBP39.5m), GBP8.7m of which is non-cash.
Review of UK packaged supply chain
In Q4 2020, the Group commenced a review of its UK operational
supply chains. The project has progressed steadily with significant
changes implemented, including the Group entering several new
five-year contract manufacturing and distribution arrangements that
both built significant additional capacity, in-line with the
Group's growth plans, and improved efficiency. These projects,
which completed during 2022, resulted in GBP1.5m of exceptional
costs in the period (2021: GBP0.6m, 2020: GBP0.3m).
Out of Home Strategic Review
In Q1 2021 the Group commenced a strategic review into its OoH
route to market, to consider customer and product mix as well as
review ways to enhance net margin and profitability going forward.
T he Group incurred GBP0.5m of costs in the period to prepare its
recommendations for implementation. Additional costs will be
incurred through 2023 as these recommendations are implemented.
These additional implementation costs are one-off in nature and
will be treated as exceptional.
Impairment of goodwill, intangible and fixed assets
Following the annual impairment review of the Group's OoH
cash-generating unit (CGU), the Group has incurred a non-cash
impairment of GBP8.7m, impairing all intangible assets (GBP4.8m)
and a proportion of fixed assets (GBP3.9m). Further detail is
provided in note 6.
Historic incentive scheme
The Group has now settled with HMRC the GBP4.3m tax and interest
charges relating to a historic incentive scheme and will now
commence recovery of debts from current and previous management who
had indemnified the Company. The Group incurred legal costs in the
period of GBP0.1m in relation to the case.
Group Systems Review
The Group has commenced a project to implement a new enterprise
resource planning (ERP) system, which is expected to be operational
through 2024. Initial review costs of GBP0.3m were incurred in the
period.
Due to the one-off nature of these charges, the Board is
treating these items as exceptional costs and their impact has been
removed in all adjusted measures throughout this report.
5. Earnings Per Share
Basic earnings per share is calculated by dividing the Group's
profit after tax for the year by the weighted average number of
ordinary shares in issue during the financial year. The weighted
average number of ordinary shares is calculated by adjusting the
shares in issue at the beginning of the period by the number of
shares bought back or issued during the period multiplied by a
time-weighting factor. Diluted earnings per share is calculated by
adjusting the weighted average number of ordinary shares in issue
assuming the conversion of all potentially dilutive ordinary
shares.
The earnings per share calculations for the period are set out
in the table below:
Earnings Weighted average Earnings
GBP'000 number of shares per share
31 December 2022
Basic earnings per share 11,635 36,522,645 31.86p
Dilutive effect of share options 39,639
Diluted earnings per share 11,635 36,562,284 31.82p
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:
Earnings Weighted average Earnings
GBP'000 number of shares per share
31 December 2022
Basic earnings per share 11,635 36,522,645 31.86p
Exceptional items after taxation 8,590
Adjusted basic earnings per
share 20,225 36,522,645 55.38p
Diluted effect of share options 39,639
Adjusted diluted earnings per
share 20,225 36,562,284 55.32p
6. Property, plant and equipment and Intangibles
Property,
Plant &
Equipment Intangibles
GBP'000 GBP'000
Cost
At 1 January 2022 34,088 9,760
Additions 1,822 -
Disposals (599) -
At 31 December 2022 35,311 9,760
----------- --------------
Depreciation and Amortisation
At 1 January 2022 16,989 4,214
Charge for the period 3,881 640
Disposals (413) -
Impairment 3,896 4,818
At 31 December 2022 24,353 9,672
------- ------
Net book value
At 31 December 2021 17,099 5,546
At 31 December 2022 10,958 88
------- ------
Impairment Review
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.
Annual impairment reviews were performed on the intangible
assets with indefinite lives, all of which relate the Group's OoH
route to market. The value in use calculation uses cash flow
projections from financial budgets approved by management in
addition to annual growth projections for the next five years and
into perpetuity.
The impact of Covid-19 resulted in a difficult period of trade
for OoH from 2020 through 2021 with many outlets being closed for a
prolonged period of time. Whilst trade within the hospitality
industry has now opened post the pandemic, the impact of the war in
the Ukraine, and its impact on inflation and cost of living
pressures have meant that, whilst trade within the hospitality
industry initially returned to pre-Covid levels, growth is
significantly slower than previously forecast in the short term and
saw a significant slowdown in Q4 as inflationary pressures impacted
consumers. Certain sectors of the hospitality industry, for example
Cinema, Holiday and Theme Parks where our frozen business operates,
have seen significant volume decline all year versus pre-pandemic
revenues.
Growth projections beyond 2022 are now expected to be lower than
previously estimated given the economic outlook and change in
consumer patterns.
Whilst cost pressure is expected to be fully recovered within
OoH, the gross margin progression anticipated previously is not now
likely to be achieved despite there being significant opportunities
to enhance net margin through better alignment of our customer and
product mix with our cost base.
The pre-tax discount rate applied to cash projections is 13.1%
(2021: 8.2%) and cash flows beyond the five-year period are
extrapolated using a 2% growth rate (2021: 2%). Based on the review
it was concluded that the carrying value of the assets were not
supported by the value in use calculated. As a result of this
analysis, management have recognised an impairment charge of
GBP8.7m in the current year, GBP4.8m in relation to the intangible
assets and GBP3.9m relating to a proportion of the fixed assets.
The impairment charge has been recognised as an exceptional item
within these financial statements.
Key assumptions
The calculation of value in use is most sensitive to the
following assumptions:
-- Revenue growth
-- Gross margin
-- Overheads
-- Discount rate
-- Growth rate estimates used to extrapolate cash flows beyond
the forecast period
Revenue growth - We exit 2022 with a smaller OoH route to market
than anticipated 12 months ago which in turn is significantly
smaller than that anticipated pre-pandemic.
The impact of inflation on the UK economy and its resulting cost
of living pressure for our consumers have meant that, whilst trade
within the hospitality industry initially returned to pre-Covid
levels, growth is significantly slower than previously forecast in
the short term and saw a significant slowdown in Q4 2022. Certain
sectors of the hospitality industry, for example Cinema, Holiday
and Theme Parks where our frozen business operates, have seen
significant volume decline all year versus pre-pandemic
revenues.
Whilst we do expect growth to return in the medium term, the
short-term impact of recent years' events - the pandemic, cost of
living pressures, consumer spending habits - is significant for the
OoH route to market.
Within the year-end impairment review revenue growth of 2% has
been forecast from year five into perpetuity but before that we see
slower growth than anticipated previously.
A faster rate of recovery would increase the value in use
calculation and therefore reduce any impairment noted. A
year-on-year increase in annual revenue of 3% per year over the
five-year period, starting from year one, would result in no
impairment being required for OoH.
Gross margin - Whilst cost pressure is expected to be fully
recovered within OoH, the gross margin progression anticipated
previously is now not likely to be achieved despite there being
significant opportunities to enhance net margin through better
alignment of our customer and product mix with our cost base.
A softening of inflationary pressures and improvement in
material input prices would lead to an improvement in the gross
margin forecast. An increase of 3.3ppts in the gross margin by the
end of the five-year forecast period would result in no impairment
being required for OoH.
Overheads - Overhead cost estimates have been reviewed and
increased to reflect both inflationary pressures and the cost
estimates required to serve the customer base given the
complexities of the current business environment/model.
A reduction in overheads would result in an increase in the
value in use calculation and thus a reduced impairment. A reduction
in overheads by 9% at the end of the five-year forecast period
would result in no impairment to OoH.
Discount rate - Discount rates represent the current market
assessment of the risks specific to the OoH CGU, taking into
consideration the time value of money and risks of the underlying
assets that have not been incorporated in the cash flow estimates.
The discount rate calculation is based on the specific
circumstances of the Group and is derived from its weighted average
cost of capital (WACC). Adjustments to the discount rate are made
to factor in the specific amount and timing of the future tax flows
in order to reflect a pre-tax discount rate.
A reduction in the pre-tax discount rate to 8.6% (i.e. -4.5ppts)
would result in no impairment.
Growth rate estimates - The long-term growth rate used to
extrapolate the period of review is based upon management's
expectations of the OoH CGUs' ongoing potential and is considered
consistent with the drinks hospitality industry as a whole. An
increase of 5.0ppts from 2% to 7% growth into perpetuity would be
required for there to be no impairment.
7. Defined Benefit Pension Scheme
The Group operates a defined benefit plan in the UK. A full
actuarial valuation was carried out on 5 April 2020 and updated at
31 December 2022 by an independent qualified actuary.
A summary of the pension surplus position is provided below:
Pension surplus GBP'000
At 1 January 2022 5,276
Current service cost (25)
Scheme administrative expenses (69)
Net interest income 105
Actuarial losses (2,071)
Contributions by employer 909
At 31 December 2022 4,125
--------
8. Provisions
The Group has now settled with HMRC the tax and interest charges
regarding the historic incentive scheme provided for in the prior
year annual report (GBP4.2m).
Recovery will now commence of debts from current and previous
management who had indemnified the company. Included within other
receivables is a reimbursement asset in respect of these historic
contracts.
9. Contingent consideration
Within the Consolidated Statement of Cash Flows there is a
GBP0.1m (2021: GBP0.1m) cash outflow in relation to the payment of
contingent consideration. These payments relate to contingent
consideration paid for acquisitions made in previous financial
years.
10. Dividends
The final dividend proposed is 15.3p, which will become
ex-dividend on the 23 March 2023 and paid, subject to shareholder
approval to all shareholders on the register on 24 March 2023 , on
4 May 2023.
Annual Report
The annual report will be mailed to shareholders and made
available on our website during March 2023. Copies will be
available after that date from: The Secretary, Nichols plc, Laurel
House, Woodlands Park, Ashton Road, Newton-le-Willows, WA12
0HH.
Cautionary Statement
This Preliminary Report has been prepared solely to provide
additional information to shareholders to assess the Group's
strategies and the potential for those strategies to succeed. The
Preliminary Report should not be relied on by any other party or
for any other purpose.
-Ends-
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END
FR UPUQAWUPWURG
(END) Dow Jones Newswires
March 01, 2023 04:17 ET (09:17 GMT)
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