TIDMNICL
RNS Number : 2938D
Nichols PLC
02 March 2022
2 March 2022
Nichols plc
2021 PRELIMINARY RESULTS
Nichols plc ('Nichols' or the 'Group'), the diversified soft
drinks Group, announces its Preliminary Results for the year ended
31 December 2021 (the 'period').
Year ended Year ended
31 December 31 December Movement
2021 2020
GBPm GBPm
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Group Revenue 144.3 118.7 +21.6%
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Adjusted Operating Profit
1 21.9 11.7 +88.1%
----------------------------- ------------- ------------- -----------
Operating (Loss)/Profit (17.6) 6.6 (366.8%)
----------------------------- ------------- ------------- -----------
Adjusted Profit Before
Tax (PBT) 1 21.8 11.6 +87.9%
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(Loss)/Profit Before Tax
(PBT) (17.7) 6.5 (370.0%)
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Adjusted PBT Margin 1 15.1% 9.8% 5.3ppts
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PBT Margin (12.2%) 5.5% (17.7ppts)
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EBITDA 2 23.7 16.5 +44.1%
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Adjusted earnings per share
(basic) 1 46.15p 25.56p +80.6%
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(Loss)/earnings per share
(basic) (60.04p) 13.14p (556.9%)
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Cash and cash equivalents 56.7 47.3 +19.8%
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Proposed Final Dividend 13.3p 8.8p +51.1%
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Full year dividend 23.1p 36.8p (37.2%)
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-- Vimto Brand value in the UK +6.3%(3)
o Vimto squash outperformed the dilutes market by +10.4%(3)
o Vimto Brand value +13.2%(4) since 2019 versus the wider soft
drinks market of +11.0%(4)
-- Vimto Brand continues to progress internationally, with
revenue +21.0% (underlying(5) +9.8%)
o Africa and Rest of World significantly ahead
o Underlying(5) Middle East revenues broadly flat (-2.0%)
-- Out of Home (OoH) continues to recover from the pandemic with revenues +77.4%
o Revenues -31.4% versus 2019, with Q4 improving run rates
versus pre-Omicron
o Fixed costs still weighing heavily on overall financial
performance
-- Gross margin improvement to 45.2% (2020: 41.8%)
o Completion of Middle East marketing investment
o Significant volume recovery in OoH
-- Continued strong cash performance, Free Cash Flow(6) +GBP17.5m (2020: GBP17.6m)
o Cash Conversion(7) at 103% (2020: 186%)
-- OoH impairment review completed and strategic review commenced
-- Exceptional charge of GBP39.5m
o GBP36.2m of this attributable to non-cash impairment of OoH
Goodwill
o GBP0.6m operational review and restructuring (cumulative
GBP0.9m)
o GBP2.6m net liability relating to tax and interest on historic
incentive schemes
-- Final dividend of 13.3p proposed, reflecting 2x cover(8)
1 Excluding Exceptional items
2 EBITDA is the statutory profit before tax, interest,
depreciation, and amortisation
3 Source: Nielsen, Total Coverage 12 months to 1 January
2022
4 Source: Nielsen, Total Coverage 12 months to 1 January 2022
vs. 12 months to 4 January 2020
5 Excluding the impact of the Group's marketing investment in
the Middle East
6 Free Cash Flow is the net increase in cash and cash
equivalents before acquisition funding and dividends
7 Cash Conversion is the Free Cash Flow / Adjusted Profit After
Tax
8 Dividend cover is adjusted basic earnings per share divided by
the dividend per share
John Nichols, Non-Executive Chairman, commented:
"The continued strengthening of the Vimto brand, both in the UK
and internationally, combined with the benefits of our diversified
business model, has ensured another resilient financial performance
in the period. We have achieved significant outperformance of the
Vimto brand in dilutes in the UK, and we delivered solid growth
internationally, particularly in Africa where we continue to grow,
and critically delivered a robust performance in the Middle East.
In this, my 50th year with the Group, I would like to
wholeheartedly thank everyone for their efforts.
The Coronavirus pandemic has continued to present significant
challenges for us all throughout 2021. Our first and most important
objective continued to be the protection and wellbeing of our
employees and customers. Throughout these difficult times, I have
been delighted to witness how our colleagues have pulled together
and consistently demonstrated their values and commitment to our
business.
The Group enters 2022 with excellent momentum and in a strong
financial position. The Group's Adjusted PBT(1) expectations for
the year FY22(2) are unchanged, whilst we remain mindful of the
well-publicised inflationary pressures which are now being
realised.
In the medium term for 2023 we expect continued revenue growth
as well as inflationary and legislation cost pressure. We expect to
see high single digit growth in Group Adjusted PBT(1) versus
FY22.
The Board believes the Group is well positioned to deliver
against its long-term growth plans."
1 Excluding exceptional items
2 FY22 expectations refers to a Group compiled market consensus
of adjusted PBT GBP25.2m
Contacts
Andrew Milne, Group Chief Executive Officer
David Rattigan, Group Chief Financial Officer
Nichols plc
Telephone: 0192 522 2222
Website: www.nicholsplc.co.uk
Alex Brennan / Hattie Dreyfus Steve Pearce / Rachel Hayes
/ Elfie Kent
Hudson Sandler Singer Capital Markets (Nominated
Adviser & Broker)
Telephone: 0207 796 4133 Telephone: 0207 496 3000
Email: nichols@hudsonsandler.com Website: www.singercm.com
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.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014
Chairman's Statement
The continued strengthening of the Vimto brand, both in the UK
and internationally, combined with the benefits of our diversified
business model, has ensured another resilient financial performance
in the period. We have achieved significant outperformance of the
Vimto brand in dilutes in the UK, and we delivered solid growth
internationally, particularly in Africa where we continue to grow,
and critically delivered a robust performance in the Middle East.
In this, my 50th year with the Group, I would like to
wholeheartedly thank everyone for their efforts.
The Coronavirus pandemic has continued to present significant
challenges for us all throughout 2021. Our first and most important
objective continued to be the protection and wellbeing of our
employees and customers. Throughout these difficult times, I have
been delighted to witness how our colleagues have pulled together
and consistently demonstrated their values and commitment to our
business.
As Out of Home (OoH) recovers from the impact of the pandemic,
management focus has ensured a strengthening of our balance sheet
in the period, with cash and cash equivalents at the end of the
period at GBP56.7m (2020: GBP47.3m). We are now well positioned to
deliver our long-term growth plans as the impact of the pandemic
subsides.
Trading
Total Group revenues for the period were GBP144.3m, an increase
of 21.6% compared to 2020 and importantly, broadly in line with
pre-Covid 2019 levels.
Both the Still and Carbonates product categories have recovered
strongly in the period. Revenue of Still products increased by
10.2% to GBP72.4m (2020: GBP65.7m), now ahead of 2019 (GBP71.7m),
driven by the strong performance of the Vimto Squash brand in the
UK. Revenue from Carbonated products increased 35.8% to GBP71.9m
(2020: 53.0m; 2019: GBP75.3m), driven largely by the gradual
recovery of the Group's OoH route to market as outlets reopened,
and by strong growth in Africa.
In the UK, revenue increased by 21.8% versus last year to
GBP111.6m (2020: GBP91.6m) as the OoH route to market recovered and
the Vimto brand progressed. For the first time, Vimto brand's value
in the UK has exceeded GBP100m, and increased by +6.3% according to
Nielson(1) , with Vimto Squash outperforming the dilutes market by
+10.4%.
Sales across our International markets were GBP32.7m, an
increase of 21.0% (underlying +9.8% adjusting for the impact of the
completion of the Group's marketing investment in the Middle East)
versus the prior year (2020: GBP27.0m). Performance in Africa at
+17.1% was particularly pleasing given the long-term opportunity
presented by these markets.
Share buy back
On December 14, 2021, the Group announced its intention to
conduct on-market purchases under a share buyback programme 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, held on 28 April 2021 (the "Buyback").
The purpose of the Buyback is to meet future obligations under
the Group's SAYE Option Scheme and/or Long-Term Incentive Plan. The
Buyback will be funded from the Group's existing cash resources and
all Ordinary Shares repurchased will be held in treasury.
Repurchases may be made up to and including 23 August 2022. Any
repurchases made following the Group's 2022 annual general meeting
will be conditional on further shareholders' approval being
obtained. During December 2021, the Group repurchased 68,000
Ordinary shares under this authority, with a nominal value of
GBP6,800.
Dividend
In 2020 the Board advised a dividend policy of broadly 2x cover,
which balances shareholder distributions with the investment needs
and growth opportunities of the business post-pandemic.
The Board therefore propose a final dividend of 13.3p, which
together with the interim, results in a full year dividend for 2021
of 23.1p. The ex-dividend date will be 24 March 2022 and payment
will be made on 5 May 2022 subject to shareholder approval at the
Group's AGM on the 27 April 2022.
1 Nielsen Total Coverage 12 months to 1 January 2022
Outlook
The Group enters 2022 with excellent momentum and in a strong
financial position. The Group's Adjusted PBT(1) expectations for
the year FY22(2) are unchanged, whilst we remain mindful of the
well-publicised inflationary pressures which are now being
realised.
In the medium term for 2023 we expect continued revenue growth
as well as inflationary and legislation cost pressure. We expect to
see high single digit growth in Group Adjusted PBT(1) versus
FY22.
The Board believes the Group is well positioned to deliver
against its long-term growth plans.
1 Excluding exceptional items
2 FY22 expectations refers to a Group compiled market consensus
of adjusted PBT GBP25.2m
John Nichols
Non-Executive Chairman
2 March 2022
Chief Executive Officer's Statement
The value of the Group's diversification across both the UK and
internationally has once again in 2021 proved to be pivotal to the
success the business has achieved. The Vimto brand has been the
driving force of growth both at home and abroad, and its unique
flavour and taste continues to be loved by consumers around the
globe.
One of the key challenges during the year has been maintaining
the availability of our products in our customers' outlets.
Globally, we have seen a number of shortages on key ingredients,
logistical challenges and insufficient labour availability in
certain markets. I am pleased we have shown extremely strong
resilience to maintain excellent service levels and ensure our
consumers can still enjoy our brands every day through our enhanced
focus on operational excellence.
The soft drinks market in the UK has proved to be extremely
resilient during 2021. Growth in the UK on-trade sector has been
strong as we observed fewer restrictions and closures across the
hospitality sector versus 2020. Within the UK retail sector, the
momentum that was built in 2020, as more people consumed products
at home, has continued into 2021 with robust growth being delivered
both in stores and via growing online platforms.
All the international geographies we operate in have suffered a
number of challenges similar to those felt in the UK, but our
brands have shown to be very resilient and demonstrated their
strength. Our continued focus on driving growth across a range of
global markets throughout the year has proved beneficial. We have
delivered excellent in-market execution across the Middle East,
Africa, Europe and the USA. As a result, we have driven growth and
market share gains in all these markets.
We continue to build long-term partnerships with several key
customers and distributors both in the UK and abroad who I would
like to thank for their continued loyalty and support.
UK Soft Drinks
(statistics given below are as measured by Nielsen for the 12
months to 1 January 2022)
In 2021, volumes in the GBP9.6bn UK soft drinks market grew by
+2.3%, whilst value sales grew by +8.5% versus the prior year.
Within the soft drinks market, the strongest value growth was
delivered across the Energy, Water and Flavoured Carbonates
sub-categories, whilst Mixers, Dilutes and Lemonade all suffered
declines versus 2020.
The soft drinks category remains intensely competitive and
promotionally driven. However, we continue to add value by focusing
on strong in-market execution, product innovation and new
distribution gains.
For the first time in its 113 year history, the Vimto brand
achieved value sales worth in excess of GBP100m, a significant
milestone and an achievement that all of our people should be
extremely proud of.
Within the UK packaged sector, our dilutes portfolio delivered
very strong growth. It significantly outperformed the market and
gained share versus our competitors. As a result of this out
performance, we have firmly consolidated our position as the No.2
brand in the dilutes market.
Our still Ready-to-Drink portfolio delivered double digit growth
in the UK marketplace, with our 500ml range being the standout
performer across all the sectors it operates in.
It is also pleasing that our carbonates range delivered +8.8%
growth, driven by our performance across our cans portfolio.
Delivering strong growth across all three sub-categories we
operate in has been encouraging against the tough market conditions
we faced during 2021.
We have also continued to ensure that all of our new product
innovation and marketing activity heavily focuses on driving our
'No Added Sugar' ranges as part of our healthier future strategic
commitments and, as a result, we have made strong progress across
the year.
In 2021, innovation has again been at the core of our growth. We
have launched two new flavours across the range and moved our
broader flavours range into a 2L dilutes format. We have also
fortified our dilutes portfolio with the addition of Vitamin C and
D and brought to market a brand new look to our packaging.
Launching new flavours and concepts are crucial to ensuring we
attract new consumers to the Vimto brand and stay relevant to their
changing needs and tastes.
Core to the brand's growth in 2021 has been the introduction of
our new marketing campaign Find Your Different, which first aired
in the spring. It was launched with two through the line executions
- one focused on a masterbrand campaign to drive top of mind
awareness and a dilutes vitamin D campaign to target parents and
families. It was a fully integrated campaign across TV, Video on
Demand, Digital, Outdoor and Social. We also ensured we supported
the activity in store across our key national accounts.
Our Levi Roots brand had another successful year in 2021. Strong
growth of +24.7% was achieved, with the core flavours and pack
formats delivering this uplift. The key focus has been on new
distribution gains and strong in-market execution.
During 2021, we relaunched our Feel Good brand into the
marketplace. We have repositioned the brand as a 100% natural
product with a strong set of ESG commitments. We have successfully
started to build distribution both in single and multipack formats
across the retail, foodservice and convenience channels in the
UK.
We continue to work in partnership with all our customers across
the UK grocery, foodservice, wholesale and discount channels. It
has been more important than ever during 2021 to have these strong
relationships in place, and we will continue to put our customers'
needs at the heart of what we do to ensure all our consumers can
enjoy our products every day.
The UK On-Trade
Following an extremely tough year in 2020 for the UK On-Trade,
we have seen the sector recover strongly in 2021 as outlets
reopened. However, the industry has had to face challenges with
some restrictions still in place impacting footfall, as well as
staff shortages and logistics issues.
New trends have emerged across the sector due to the pandemic,
with consumers now much more positive about "al fresco" dining and
visiting outdoor hospitality venues, a boom in the suburbs as
people are shifting away from visits to city centres and consumers
adopting a "live for the moment" mindset.
I am pleased with our progress across our Out of Home (OoH)
business, as we have delivered +77.4% sales growth versus 2020.
However, versus 2019, the channel is still down -31.4% due to some
restrictions remaining in place.
Encouragingly, year-on-year growth has been delivered across all
the channels we operate in within OoH. A key driver of this has
been due to the support we have provided to our customers
throughout the last two years, which has enabled them to reopen
their businesses as restrictions have eased. As a result, we have
also retained a number of key contracts with important
customers.
Innovation remained important during 2021, and we launched ICEE
and Starslush ZERO (no sugar) products to complement our current
ranges. These launches support our ambition to offer consumers
balanced and healthier choices. Consumer feedback to date has been
extremely positive regarding the new additions.
During the year, we continued to ensure we invested in exciting
marketing campaigns across the sector, which included in-outlet and
digital campaigns.
Finally, we secured a long-term agreement to be the exclusive
partner to distribute the global No.1 uncarbonated frozen brand -
SLUSH PUPPiE.
However, the OoH drinks market has been significantly impacted
by the pandemic with the prolonged closure of many outlets. Whilst
recognising the hospitality trade has shown growth and is beginning
to return to pre-Covid-19 levels, it is doing so at a pace slower
than previously forecast and the margin progression after overheads
anticipated previously is now not likely to be achieved without
transformational change, in terms of how the Group services the
trade and its wider customer base. Therefore, a full strategic
review into the Group's OoH route to market has commenced.
Throughout 2021 we continued to focus on supporting our
customers and partners across our entire OoH channel. Ensuring that
our valued customers received the right service to guarantee
product availability during the various challenges the industry
encountered has demonstrated the resilience of our supply chains
and delivery model. I am extremely proud of the team's focus and
commitment to support our partners during this challenging period
and throughout the ongoing recovery from the impact of the
pandemic.
Vimto International
During 2021 the challenges presented by the Covid-19 pandemic
and supply chain restrictions in the UK have been echoed across all
our International markets. Considering these challenges, I feel
extremely proud that the teams have delivered +21.0% sales growth
versus 2020. It is particularly pleasing that this growth has been
delivered across all our key markets through strong execution,
innovation, new and exciting marketing campaigns and new
distribution wins.
Our growth across the African continent in 2021 has been
extremely strong, delivering sales growth of +17.1% versus last
year. This has been delivered through a combination of our
integrated marketing campaigns, new flavours, extending our pack
formats and a strong focus on market execution in a number of our
core markets. In Algeria, we launched a new 2L pack format across
our carbonates range. This was aimed at capturing the take
home/multi-serve opportunity in the market and has been well
received by our customers and consumers across the country. In
Sudan, we launched a range of still products to extend our
portfolio in this market. We have invested in strong marketing
campaigns to drive consumer awareness and the resulting sales
performance has been positive.
The Middle East market has once again proved extremely
resilient, delivering +33.6% sales growth versus 2020. This has
been against tough market conditions due to rising taxes and
conflicts taking place across the region.
Our long-standing (over 90 years) partner, Aujan Coca-Cola
Bottling Company (ACCBC), delivered another outstanding marketing
campaign during Ramadan. The "Sweet Togetherness" campaign - which
promoted the introduction of a No Added Sugar product alongside
themes of togetherness, health, cooking and value for money - was
heavily focused on driving awareness via online channels. The
campaign was extremely popular and reached 2.5 billion views on
TikTok and 2.5m views on YouTube.
Our partner in the Yemen faced many operational challenges due
to the ongoing hostilities in the country, but still delivered a
robust performance on the back of strong in-market execution and
distribution gains.
2021 has again seen us deliver another strong performance across
the USA with our long-standing partners, the Ziyad brothers.
Through excellent in-market execution and strong marketing
campaigns, we delivered +21.6% sales growth versus the previous
year.
Across all of our European territories, we again focused on
expanding new points of distribution for our core products within
key customers, which resulted in us delivering market share gains
and positive sales momentum.
Summary
As we focus on 2022, I have no doubt that we will continue to
operate in a challenging and changing environment that will
continue for a sustained period. Inflationary headwinds are going
to be a key threat which we will aim to mitigate through savings
realised as part of our operational change programme and the
implementation of appropriate pricing strategies.
Over many years, soft drinks has proven to be a highly resilient
category which has again been evident in 2021. I feel confident
that given our high brand equity, diverse business model,
strengthened balance sheet, clear ESG commitments and exceptional
people, we can continue to achieve our long-term strategic
objectives and deliver continued profitable growth.
Andrew Milne
Chief Executive Officer
2 March 2022
Chief Financial Officer's Statement
Revenue
Group revenues were GBP144.3m, an increase of 21.6% compared to
2020 and, encouragingly, broadly in line with 2019 levels.
Both the Still and Carbonates product categories have recovered
strongly in the period. Revenue of Still products increased by
10.2% to GBP72.4m (2020: GBP65.7m), now ahead of 2019 (GBP71.7m).
Revenue from Carbonated products increased 35.8% to GBP71.9m (2020:
53.0m; 2019: GBP75.3m).
The Group's packaged routes to market delivered another year of
strong growth both in the UK and internationally.
UK packaged revenues improved by 8.5%, driven by the performance
of the Vimto & Levi Roots brands. There was a particularly
strong performance within the Multiple and Discount Retailers,
where revenues increased by 7.0% (2020: increase of 9.5%), as
distribution points increased significantly over the pandemic
period (2020 and 2021) and consumers increasingly chose Vimto.
Revenues across Convenience, Delivered Wholesale and Cash and Carry
recovered in 2021 following the severity of 2020's lockdowns and
increased by 11.3% (2020: decrease of 10.9%).
International revenues improved by 21.0%.
Africa revenues improved 17.1% (2020: increase of 7.4%) with
significant progress achieved across our African markets. Middle
East revenues increased by 33.6% (2020: decrease of 36.8%) with
in-market volumes performing resiliently through Ramadan despite
the challenges posed from the introduction of the Sweetened
Beverage Tax in 2020. The Group's marketing investment in the
region (reported as part of the Group's revenue line) was, in
agreement with our local partner, completed during the year.
Underlying revenues were broadly flat, decreasing by 2.0% versus
2020. Our rest of world markets continued the momentum of the prior
period with revenue growth of 14.2% (2020: increase of 17.3%), with
the US and Europe continuing to perform well, building on increased
brand awareness generated within the Middle East and Africa.
Our OoH route to market continues to recover from the impact of
the pandemic, with revenues up by 77.4% versus 2020, when the OoH
route to market was severely impacted by closures due to the
pandemic and subsequent lockdowns. Revenues remain down by 31.4%
versus 2019. We are encouraged that trade within the hospitality
industry has begun to show growth and return towards pre-Covid-19
levels, with Q4 in particular seeing improving run rates pre the
emergence of the Omicron variant. However, the long-term impact of
Covid-19 on the hospitality industry remains uncertain. As a
result, and as previously announced, due to the ongoing challenges
in the OoH market, the Board has carried out an impairment review
into its OoH route to market and will recognise an impairment
charge of GBP36.2m in the current year. In addition, the Board has
commenced a strategic review of the Group's OoH route to
market.
The impact of movements in foreign exchange rates on revenue
year-on-year was immaterial, at approximately GBP0.6m adverse.
Gross Profit
Gross profit at GBP65.2m was GBP15.6m higher than 2020
(GBP49.6m) and 3.4 percentage points higher at 45.2% (2020: 41.8%).
Of this increase, GBP9.4m resulted from the additional volumes
delivered across all of the Group's routes to market in the period.
The current gross margin percentage is more aligned to the years
immediately preceding the pandemic (2019: 47.6%, 2018: 45.7%, 2017:
45.7%).
As noted previously the Group's Middle East marketing investment
(reported as part of the Group's revenue line) was, in agreement
with our local partner, completed during the year. GBP2.7m (2021:
GBP0.8m investment, 2020: GBP3.5m investment) of the year-on-year
improvement in gross profit was due to this change. Customer price
and mix has further contributed GBP1.8m to gross profit largely due
to a return of revenues from the Group's In-house and National OoH
customers, effectively rebalancing the Group margins.
The Group was better placed in 2021 to plan for Covid-19
disruption, following the restructuring at our manufacturing site
in Ross at the end of 2020 to more effectively align labour and
volumes, combined with a consistent approach from the UK Government
in terms of the easing of lockdown restrictions. Consequently, the
costs associated with stock write off and under recovery seen in
the previous year were not repeated (2021: GBP0.4m cost, 2020:
GBP2.1m cost) and benefited margin by GBP1.7m versus the prior
year. The Group continued to support its OoH customers with new for
old stock following the reopening of outlets post the Q1 2021
lockdown.
During the year, the Group was prepared for and able to mitigate
a large proportion of raw material and contract manufacturing
inflation. However, in Q4 2021 significant inflationary pressures
were experienced and are expected to continue through 2022.
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 Administration costs.
Distribution expenses totalled GBP9.1m (2020: GBP8.0m), an
increase of 14.4%, due to a combination of higher trading volumes
across both of our UK routes to market and significant inflationary
pressure experienced since Q2 2021. In both routes to market,
significant disruption was experienced through the summer and
autumn months due to driver shortages. The Group entered into a new
5-year distribution arrangement in H2 2021 that both builds
significant additional capacity, given the Group's growth plans,
and improves efficiency.
Administration Expenses
Administration expenses, excluding exceptional items, totalled
GBP34.1m (2020: GBP30.0m), an increase of GBP4.1m or 13.7%.
Through the early pandemic, in 2020, management focused on
reducing discretionary spend and realigning marketing investment.
This resulted in significant cost reductions; no bonuses or LTIPs
were accrued and labour costs (recruitment etc.) were managed
closely. The Group also benefited in 2020 from deferred
consideration credits of GBP1.3m following completion of the Noisy
Drink Company North West Limited and Adrian Mecklenburgh Limited
acquisitions.
In 2021 the Group ran its highly successful 'Find Your
Different' marketing campaign, investing an additional GBP1.9m. The
campaign increased Vimto's awareness with new consumers, helping
fuel the distribution expansion seen in the year and which is
planned to continue into 2022.
Reinstatement of the Group's Bonus and LTIP schemes led to an
additional GBP2.3m charge in the year.
Restructuring through 2020 meant costs reduced by GBP1.2m in the
period; this was partly offset by an increase in staff related
travel and entertainment costs of GBP0.5m.
The detailed exercise, commenced in 2020, to trace and verify
assets held at the Group's OoH customer outlets completed in the
period and fully utilised the provision established in the prior
period (GBP1.1m), resulting in a positive year on year comparison.
Strict OoH capital allocation through 2020 and 2021 has meant the
Group's depreciation charge has now peaked and is level in 2021
versus 2020.
Revaluation of working capital balances across the year resulted
in foreign exchange losses. In comparison with prior year, the year
on year impact is GBP0.4m adverse (2021: net loss GBP0.2m, 2020:
net gain GBP0.2m).
Exceptional Costs
The Group has incurred GBP39.5m of exceptional costs during the
year (2020: GBP5.1m), GBP38.9m of which is non-cash.
The impact of Covid-19 has resulted in a difficult period of
trade for OoH with many outlets being closed for a prolonged period
of time. Whilst trade within the hospitality industry has begun to
show growth and return towards pre-Covid-19 levels, it is doing so
at a slower pace than previously forecast and is only forecast to
fully return to pre-pandemic levels through 2022. Growth
projections beyond 2022 are expected to be lower than previously
estimated given that a number of outlets are expected not to
re-open and footfall is expected to be restricted for a prolonged
period as staffing shortages and local restrictions/social
distancing is either mandated or occurs naturally, as was
experienced through 2021.
Whilst cost pressure is expected to be fully recovered within
OoH, the gross margin progression anticipated previously is now not
likely to be achieved without transformational change in terms of
how the Group services the trade and its wider customer base.
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 and model. As a result, and in response to
this challenging climate, during 2022 the Board has commenced a
full strategic review into its OoH route to market in terms of
customer and product mix, as well as ways to ensure appropriate
margin and profitability going forward.
As a result of the impairment review, management have recognised
an impairment charge of GBP36.2m in the current year, impairing the
entire Goodwill held.
In Q4 2020 the Group commenced a review of its UK operational
supply chains. The project has progressed steadily with significant
change already implemented, including entering into new 5-year
contract manufacturing and distribution arrangements that both
build significant additional capacity, given the Group's growth
plans, and improve efficiency. These specific projects are expected
to be completed through 2022, with further foundation work
progressing. As a result of this work, the Group has incurred a
further GBP0.6m of costs (2020: GBP0.3m) in the year, with
additional costs expected in 2022.
In previous annual reports, the Group reported a contingent
liability in respect of historic contracts with some of its senior
management relating to incentive schemes which were designed to
motivate, retain and engage those key employees. HMRC were of the
view that the arrangements should have been taxed as employment
income, which the Group and its advisors had previously disputed.
During the period a tribunal was convened to consider the dispute
of the Group's scheme as well as similar schemes operated by other
companies. Subsequent to the year end, the tribunal found that the
arrangements should have been taxed as employment income.
Accordingly, as at 31 December 2021, the Group has recognised a net
liability of GBP2.6m in relation to this ruling, being a reasonable
estimate of the final outcome, including the Group's additional tax
liability, interest costs and amounts expected to be recovered.
Due to the one-off nature of these charges, the Board is
treating these items as exceptional costs and their impact has been
removed in all adjusted measures throughout this report.
Operating Loss/Adjusted Operating Profit
Adjusted operating profit at GBP21.9m was up GBP10.2m, an 88.1%
increase on prior year (2020: GBP11.7m). An operating loss of
GBP17.6m (2020: GBP6.6m profit) is after charging exceptional items
of GBP39.5m (2020: GBP5.1m charge) during the period. For reference
adjusted operating profit in 2019 was GBP32.4m.
Finance Costs
Net finance costs of GBP0.1m (2020: GBPnil) were broadly in the
line with the prior year.
Loss before tax/Adjusted profit before tax and tax rate
Reported loss before tax was GBP17.7m (2020: GBP6.5m profit).
Adjusted profit before tax increased by 87.9% to GBP21.8m (2020:
GBP11.6m). The tax charge on adjusted profit before tax for the
period of GBP4.8m (2020: GBP2.2m) represents an effective tax rate
of 21.9% (2020: 18.7%). The increase in effective tax rate is
largely due to deferred tax balances as at 31 December 2021 being
recognised at 25%, following an amendment to the UK Corporation Tax
rate being enacted during the year to increase the rate of tax from
19% to 25% with effect from 1 April 2023.
For reference profit before tax in 2019 was GBP32.4m.
Balance Sheet and Cash and Cash Equivalents
The Group has continued to focus on the strength of its balance
sheet during the period.
As noted above, management have recognised an impairment charge
of GBP36.2m during the period, impairing the entire Goodwill held
for the Group.
Strict OoH capital allocation through 2020 and 2021 has meant
that the Group's investment in property, plant and equipment
reduced by GBP3.0m.
The Group invested GBP3.8m into Inventories during the year to
ensure security of customer service given the volatility
experienced in UK supply chains and to protect stock levels, given
changes planned through H1 2022 to the Group's Dilutes contract
manufacturing arrangements.
The unwind of working capital experienced in 2020, that led to a
cash conversion of 186% in that year, has largely been protected.
Cash conversion for the period was 103%. The increase in Trade and
other Receivables by GBP7.0m (2020: decrease of GBP8.6m versus
2019) was more than offset by the Group's increase in Trade and
other Payables, up by GBP7.1m (2020: decrease of GBP1.6m versus
2019) and Provisions increase of GBP4.2m.
The Group recorded a net GBP2.6m liability (recorded within both
Other Receivables and Provisions), representing the additional tax
liability and interest costs arising from the HMRC ruling into the
treatment of the Group's historic incentive schemes for some of its
senior management.
The Group again delivered a strong Free Cash Flow of GBP17.5m
(2020: GBP17.6m). Cash and cash equivalents at the end of the year
were GBP56.7m (2020: GBP47.3m).
The Group has focused significantly on cash management
throughout the pandemic years of 2020 and 2021, with particular
emphasis on balancing the needs of its various stakeholders by
working flexibly with shareholders, staff, customers, and the UK
Government as events developed. At the same time, the Board has
remained focused on ensuring the Group remains well positioned to
deliver both our long-term growth plans.
Earnings per share
On an adjusted basis, diluted earnings per share (EPS) was 46.09
pence (2020: 25.54p). Total adjusted EPS increased to 46.15p pence
(2020: 25.56p) with basic EPS at -60.04 pence (2020: 13.14p).
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 2021, the Group recognised a surplus on its UK
defined benefit scheme of GBP5.3m (2020: surplus GBP0.3m).
With the agreement of Trustees, assets were transferred from
equities to reduce the overall value at risk (GBP10m to GBP5m)
during the year, securing the gains achieved over the last 2 years.
Funding, assets versus liabilities, is now at 108% versus 83% at
the time of the last valuation (April 2020).
David Rattigan
Chief Financial Officer
2 March 2022
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2021
2021 2020
GBP'000 GBP'000
Continuing operations
Revenue 144,328 118,657
Cost of sales (79,153) (69,021)
---------------------------------------- --------- ---------
Gross profit 65,175 49,636
Distribution expenses (9,129) (7,979)
Administrative expenses (73,601) (35,077)
---------------------------------------- --------- ---------
Operating (loss)/profit (17,555) 6,580
Finance income 57 150
Finance expenses (158) (190)
---------------------------------------- --------- ---------
(Loss)/profit before taxation (17,656) 6,540
Taxation (4,512) (1,686)
---------------------------------------- --------- ---------
(Loss)/profit for the year (22,168) 4,854
---------------------------------------- --------- ---------
(Loss)/earnings per share (basic) (60.04p) 13.14p
(Loss)/earnings per share (diluted) (60.04p) 13.13p
Adjusted for exceptional items
Operating (loss)/profit (17,555) 6,580
Exceptional items 39,477 5,074
---------------------------------------- --------- ---------
Adjusted operating profit 21,922 11,654
---------------------------------------- --------- ---------
(Loss)/profit before taxation (17,656) 6,540
Exceptional items 39,477 5,074
---------------------------------------- --------- ---------
Adjusted profit before taxation 21,821 11,614
---------------------------------------- --------- ---------
Adjusted earnings per share (basic) 46.15p 25.56p
Adjusted earnings per share (diluted) 46.09p 25.54p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
2021 2020
GBP'000 GBP'000
(Loss)/profit for the financial year (22,168) 4,854
Items that will not be reclassified
subsequently to profit or loss
Re-measurement of net defined benefit
liability 4,083 (155)
Deferred taxation on pension obligations
and employee benefits (962) 32
Other comprehensive income/(expense)
for the year 3,121 (123)
Total comprehensive (expense)/income
for the year (19,047) 4,731
-------------------------------------------- --------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
2021 2020
ASSETS GBP'000 GBP'000
Non-current assets
Property, plant and equipment 17,099 20,126
Goodwill - 36,244
Intangibles 5,546 6,206
Pension surplus 5,276 347
-------------------------------- -------- --------
Total non-current assets 27,921 62,923
Current assets
Inventories 9,706 5,921
Trade and other receivables 36,124 29,143
Corporation tax recoverable 743 671
Cash and cash equivalents 56,674 47,294
-------------------------------- -------- --------
Total current assets 103,247 83,029
-------------------------------- -------- --------
Total assets 131,168 145,952
-------------------------------- -------- --------
LIABILITIES
Current liabilities
Trade and other payables 28,791 21,669
Provisions 4,242 -
Total current liabilities 33,033 21,669
Non-current liabilities
Other payables 1,954 2,922
Deferred tax liabilities 3,155 1,485
-------- --------
Total non-current liabilities 5,109 4,407
-------------------------------- -------- --------
Total liabilities 38,142 26,076
-------------------------------- -------- --------
Net assets 93,026 119,876
-------------------------------- -------- --------
EQUITY
Share capital 3,697 3,697
Share premium reserve 3,255 3,255
Capital redemption reserve 1,209 1,209
Other reserves 676 394
Retained earnings 84,189 111,321
Total equity 93,026 119,876
-------------------------------- -------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit for the financial
year (22,168) 4,854
Adjustments for:
Depreciation and amortisation 4,969 4,971
Impairment losses on goodwill
and intangible assets 36,244 3,820
Impairment losses on property,
plant and equipment - 1,016
Loss on sale of property, plant
and equipment 63 71
Finance income (57) (150)
Finance expense 158 190
Tax expense recognised in the
income statement 4,512 1,686
(Increase)/decrease in inventories (3,785) 2,440
(Increase)/decrease in trade and
other receivables (6,804) 9,220
Increase/(decrease) in trade and
other payables 7,429 (838)
Increase in provisions 4,242 -
Change in pension obligations (846) (755)
Fair value gain on derivative (178) -
financial instruments
45,947 21,671
Cash generated from operating
activities 23,779 26,525
Tax paid (3,878) (5,017)
--------------------------------------- ---------- --------- ---------- ------------
Net cash generated from operating
activities 19,901 21,508
Cash flows from investing activities
Finance income 57 150
Proceeds from sale of property,
plant and equipment 2 35
Acquisition of property, plant
and equipment (1,239) (2,701)
Acquisition of intangible assets - (170)
Payment of contingent consideration (67) (880)
Net cash used in investing activities (1,247) (3,566)
Cash flows from financing activities
Payment of lease liabilities (1,189) (1,254)
Purchase of own shares (1,217) -
Dividends paid (6,868) (10,338)
--------------------------------------- ---------- --------- ---------- ------------
Net cash used in financing activities (9,274) (11,592)
Net increase in cash and cash
equivalents 9,380 6,350
Cash and cash equivalents at 1
January 47,294 40,944
--------------------------------------- ---------- --------- ---------- ------------
Cash and cash equivalents at 31
December 56,674 47,294
--------------------------------------- ---------- --------- ---------- ------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 31 December 2021
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 2020 3,697 3,255 1,209 253 116,928 125,342
Dividends - - - - (10,338) (10,338)
Movement in ESOT - - - 24 - 24
Credit to equity for
equity-settled share
based payments - - - 117 - 117
Transactions with
owners - - - 141 (10,338) (10,197)
------------------------- ----------- ---------- ------------- ----------- ----------- ----------
Profit for the year - - - - 4,854 4,854
Other comprehensive
expense - - - - (123) (123)
------------------------- ----------- ---------- ------------- ----------- ----------- ----------
Total comprehensive
income - - - - 4,731 4,731
------------------------- ----------- ---------- ------------- ----------- ----------- ----------
At 1 January 2021 3,697 3,255 1,209 394 111,321 119,876
Dividends - - - - (6,868) (6,868)
Movement in ESOT - - - 10 - 10
Credit to equity for
equity-settled share - - - 272 - 272
based payments
Purchase of own shares - - - - (1,217) (1,217)
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 31 December 2021 3,697 3,255 1,209 676 84,189 93,026
------------------------- ----------- ---------- ------------- ----------- ----------- ----------
NOTES
1. Basis of Preparation
The preliminary financial information does not constitute
statutory accounts for the financial years ended 31 December 2021
and 31 December 2020, but has been derived from those accounts. The
accounting policies remained unchanged from those set out in the
2020 annual report.
Statutory accounts for 2020 have been delivered to the Registrar
of Companies and those for the financial year ended 31 December
2021 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 and the potential
impact of future Covid-19 restrictions. The review performed
considers severe but plausible downside scenarios that could
reasonably arise within the period.
The estimated impacts of Covid-19 restrictions are primarily
based around our Out of Home market and the 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 persist throughout the whole of 2022.
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 entering 2022,
combined with its strong cash generation in 2021, all provide
resilience against these factors and the other principal risks that
the Group is exposed to. At the 31 December 2021 the Group had cash
and cash equivalents of GBP56.7m with no external bank borrowings.
This equates to 87% of 2021 gross profit.
On the basis of these reviews, the Directors consider the Group
has adequate resources to continue in operational existence for the
foreseeable future (being at least one year following the date of
approval of the Annual Report) and, accordingly, consider it
appropriate to adopt the going concern basis in preparing the
financial statements.
3. 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.
Still Carbonate Group
GBP'000 GBP'000 GBP'000
Year ended 31 December 2021
Sales 72,393 71,935 144,328
Gross Profit 37,980 27,195 65,175
Year ended 31 December 2020
Sales 65,688 52,969 118,657
Gross Profit 32,817 16,819 49,636
A geographical split of revenue is provided below:
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Geographical split of revenue
Middle East 9,765 7,309
Africa 16,410 14,010
Rest of the World 6,523 5,712
-------------- --------------
Total exports 32,698 27,031
United Kingdom 111,630 91,626
-------------- --------------
Total revenue 144,328 118,657
-------------- --------------
4. Exceptional items
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Impairment of goodwill and intangible assets 36,244 3,820
Review of UK packaged supply chain 620 277
Historic incentive scheme 2,613 -
Redundancy costs - 723
Restructuring costs - 254
39,477 5,074
-------------- --------------
The Group has incurred GBP39.5m of exceptional costs during the
year (2020: GBP5.1m), GBP38.9m of which is non-cash.
Following the annual impairment review of the Group's Out of
Home Cash Generating Unit ('CGU'), the Group has incurred a
non-cash impairment to Goodwill of GBP36.2m. Further detail is
provided in note 6.
In Q4 2020 the Group commenced a review of its UK operational
supply chains. The project has progressed steadily with significant
change already implemented, including entering into new 5-year
contract manufacturing and distribution arrangements that both
build significant additional capacity, given the Group's growth
plans, and improve efficiency. These specific projects are expected
to be completed through 2022, with further foundation work
progressing. As a result of this work, the Group has incurred a
further GBP0.6m of costs (2020: GBP0.3m) in the year, with
additional costs expected in 2022.
In previous annual reports, the Group reported a contingent
liability in respect of historic contracts with some of its senior
management relating to incentive schemes which were designed to
motivate, retain and engage those key employees. HMRC were of the
view that the arrangements should have been taxed as employment
income, which the Group and its advisors had previously disputed.
During the period a tribunal was convened to consider the dispute
of the Group's scheme as well as similar schemes operated by other
companies. Subsequent to the year end, the tribunal found that the
arrangements should have been taxed as employment income.
Accordingly, as at 31 December 2021, the Group has recognised a net
liability of GBP2.6m in relation to this ruling, being a reasonable
estimate of the final outcome, including the Group's additional tax
liability, interest costs and amounts expected to be recovered.
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. 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:
Loss Weighted average Loss per
number of shares share
GBP'000
31 December 2021
Basic loss per share (22,168) 36,919,085 (60.04p)
Dilutive effect of share options -
Diluted loss per share (22,168) 36,919,085 (60.04p)
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:
(Loss)/ Weighted average (Loss)/earnings
earnings number of shares per share
GBP'000
31 December 2021
Basic loss per share (22,168) 36,919,085 (60.04p)
Exceptional items after taxation 39,206
Adjusted basic earnings per
share 17,038 36,919,085 46.15p
Diluted effect of share options 48,656
Adjusted diluted earnings per
share 17,038 36,967,741 46.09p
6. Non-current Assets
Property, Goodwill Intangibles
Plant
& Equipment
GBP'000 GBP'000 GBP'000
Cost
At 1 January 2021 35,932 38,748 9,760
Additions 1,347 - -
Disposals (3,191) - -
At 31 December 2021 34,088 38,748 9,760
------------- --------- ------------
Depreciation and Amortisation
At 1 January 2021 15,806 2,504 3,554
Charge for the period 4,309 - 660
Disposals (3,126) - -
Impairment - 36,244 -
At 31 December 2021 16,989 38,748 4,214
-------- ------- ------
Net book value
At 31 December 2020 20,126 36,244 6,206
At 31 December 2021 17,099 - 5,546
------- ------- ------
Goodwill and intangible assets with indefinite lives are tested
at least annually for impairment and whenever there are indications
that the assets might be impaired. The recoverable amount of a
cash-generating unit (CGU) is based on its value in use, being the
present value of the projected cash flows of the CGU.
An annual impairment review was performed on the Goodwill
(GBP36.2m) and Intangible assets with indefinite lives (GBP2.6m),
all of which relate the Group's Out of Home Business. 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 has resulted in a difficult period of
trade for Out of Home with many outlets being closed for a
prolonged period of time. Whilst trade within the hospitality
industry has begun to show growth and return towards pre-Covid-19
levels, it is doing so at a slower pace than previously forecast
and is only forecast to fully return to pre-pandemic levels through
2022. Growth projections beyond 2022 are expected to be lower than
previously estimated given a number of outlets are expected not to
open and footfall is expected to be restricted for a prolonged
period as staffing shortages and local restrictions/social
distancing is either mandated or occurs naturally, as was
experienced through 2021.
The Group has experienced unprecedented cost inflation towards
the end of 2021 which will impact returns in 2022 and beyond.
Whilst cost pressure is expected to be fully recovered within Out
of Home, the gross margin progression anticipated previously is now
not likely to be achieved without transformational change in terms
of how the business services the trade and its wider customer base.
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. As a result, and in response to this
challenging climate, during 2022 the Board has commenced a full
strategic review into its Out of Home route to market in terms of
customer and product mix as well as ways to ensure appropriate
margin and appropriate profitability going forward.
The pre-tax discount rate applied to cash projections is 8.2%
(2020: 8.2%) and cashflows beyond the five year period are
extrapolated using a 2% growth rate (2020: 2%) (being the average
of cashflow growth in years 3-5). Based on the review it was
concluded that the fair value less costs of disposal were not
supported by the value in use calculated. As a result of this
analysis, management have recognised an impairment charge of
GBP36.2m in the current year, impairing the entire Goodwill held.
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 rates estimates used to extrapolate cash flows beyond
the forecast period
Revenue growth - Based on the continued impact of coronavirus
and subsequent hospitality lockdowns, the Board's view on the
outlook for the industry recovery is that whilst there will be
continued revenue growth, it will be at a slower pace than
previously anticipated. Within the year-end impairment review,
revenue growth of 1% per annum has been forecast for each of the
five years. This compares to the previously assumed 3% revenue
growth noted within the prior year review.
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 4% per year over the
five year period forecast would result in no impairment being
required for Out of Home.
Gross margin - Based on the continued impact of coronavirus and
the impact of inflationary pressures including fuel, labour and
materials, the gross margins forecast previously (2021 and previous
impairment models) are not expected to be achieved without
transformational change in terms of how the Group services the
trade and its wider customer base. Gross margins included within
the impairment review are based on budget expectations and
anticipated changes over the five year forecast period.
A softening of inflationary pressures and improvement in
material input prices would lead to an improvement in the gross
margin forecast. An increase of 6ppts in the gross margin by the
end of the five year forecast period would result in no impairment
required for Out of Home.
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 13.7% at the end of the five year forecast period
would result in no impairment to Out of Home.
Discount rate - Discount rates represent the current market
assessment of the risks specific to the Out of Home 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 4.5% (i.e. -3.7ppts)
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 Out of Home CGUs' ongoing potential and is
considered consistent with the drinks hospitality industry as a
whole. An increase of 4ppts from 2% to 6% 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 2021 by an independent qualified actuary.
A summary of the pension surplus position is provided below:
Pension surplus GBP'000
At 1 January 2021 347
Current service cost (26)
Scheme administrative expenses (43)
Net interest income 10
Actuarial gains 4,083
Contributions by employer 905
At 31 December 2021 5,276
--------
8. Provisions
In previous annual reports, the Group reported a contingent
liability in respect of historic contracts with some of its senior
management relating to incentive schemes which were designed to
motivate, retain and engage those key employees. HMRC were of the
view that the arrangements should have been taxed as employment
income, which the Group and its advisors had previously disputed.
During the period a tribunal was convened to consider the dispute
of the Group's scheme as well as similar schemes operated by other
companies. Subsequent to the year end, the tribunal found that the
arrangements should have been taxed as employment income.
Accordingly, as at 31 December 2021, the Group has recognised a
provision of GBP4.2m in relation to this ruling, being the Group's
additional tax liability and interest costs.
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 (2020: GBP0.9m) cash outflow in relation to the payment of
contingent consideration. These payments relate to contingent
consideration paid for acquisitions made in previous financial
years.
10. Dividends
The final dividend proposed is 13.3p, which will become
ex-dividend on the 24 March 2022 and paid, subject to shareholder
approval, on 5 May 2022.
Annual Report
The annual report will be mailed to shareholders and made
available on our website during March 2022. 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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