Nichols PLC

LSE:NICL

Earnings Call Analysis

Earnings Call Transcript 2021-Q4

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the

Nichols

Plc

Full-Year

Results

Investor

Presentation.

Throughout

this

recorded

presentation,

investors

will

be

in

listen-only

mode.

Questions

are

encouraged

and

can

be

submitted

at

any

time

via

the

Q&A

tab

just

situated

on

the

right-hand

corner

of your

screen.

Please

simply

type

in

your

questions

at

any

time

and

press

send.

The

company

may

not

be

in

a

position

to

answer

every

question

they

received

during

the

meeting

itself.

However,

the

company

will

review

all

questions

submitted

today

and

publish responses

where it's

appropriate

to

do

so.

These

will

be

available

via

Investor Meet

Company

dashboard,

and

we

will

notify

you

by

e-mail

when

these

are

ready

for

your

review.

Before

we begin,

I

would

like

to

submit

the

following

poll,

and

if

you'd

give

that

your

kind

attention,

I'm

sure

the

company

would be

most

grateful.

And

I

now like

to

hand

you

over

to

Andrew

Milne,

CEO;

and

David

Rattigan,

CFO.

Good

afternoon

to

you both.

[Andrew Paul Milne]

Good

afternoon, everybody.

A

warm

welcome

to

our

2021

results

presentation

and thank

you

for taking

the

time

to

dial

in

this

afternoon.

Okay.

In

terms

of

the

flow

today

– I'll

just move

the

slider.

Yes.

Three

parts

of the

presentation,

so,

I

will

kick

off

giving

you

an

overview

of

our

strategic

and

operational

performance

in

2021.

I

will

then

hand

over to

David, who

will

talk you

through

our financial

numbers for

the

year

and

also

give

you

a financial

outlook.

And

I

will

come

back

in

and

just

clarify

our

strategy

going

forward

and

sum

up.

And

then after

about

40

minutes, we

will

open

up the

floor

to

questions.

Okay.

So,

if

I

can kick

off

today

and

by

first just

giving

you

a

top

line

executive summary

of

the

key

takeaways.

So,

firstly,

we're

really

pleased

with

the

growth

we've

seen

again

in 2021

on

Vimto

both

in

the

UK

and across

all

of

our

key

international

markets.

A

particular standout

for us

would

be

the

accelerated

growth

that

we've

seen

in

Africa

where

we

delivered

17%

sales

revenue

growth

versus

the

prior

year.

Again,

in

one

of

our

major

markets,

the

Middle

East,

back

in

December

2019,

there

was

a

Sweetened Beverage

Tax

that

was

introduced

that

put

50%

on

the

retail

price

of

all

of

our

products.

We

decided

to invest

with

our

long-term

partner,

the

Aujan

Coca-Cola

Bottling

Company,

in

that

region,

to

help

mitigate

the

impact of

that cost.

And

I'm

really

pleased to

say,

as

we've

exited

2021, we're

really pleased

with

how

we protected

our

market share

in

country

during

that

period.

Throughout

2021,

we've

invested

heavily

again

in

our

Vimto

brand,

both

at

home

and abroad,

in

a

series

of integrated

marketing

campaigns

to

drive

the

equity of

our brand

in

the

long

term.

We've

also

made

strong

progress

on

our

Happier

Future ESG

strategy

and

outlined

a

number

of

commitments

that

we're

delivering

against

on

that

program.

We've

also

in 2021

started

investing

in

what

we're

calling

our

operational

change

program,

and

that's

to

make

sure

that

we've

got

the right

infrastructure

and

the

right

foundations

in

our

business

to

support

the

growth

we

want

to

deliver over

the

next

few

years

to

ensure

great

service

levels

and

availability

of our

products.

We

know over

the

last

two

years

our

Out

of

Home

business

has

been

seriously

impacted

by

the

coronavirus

pandemic

through

our

closures,

restrictions

due

to

social

distancing

and

outlets

and

our

footfall

reduction

in

that

period.

As

a

result

of

that,

we

have

seen

70%

growth

2021 versus

2020. But

versus

where

we

were

in

2019,

we

are

30%

behind

that

progress.

So,

result

of that,

we've

put an impairment

review in

place.

We've impaired

all the

goodwill

on

our

balance

sheet.

And

most

importantly

now,

we've

commenced

the strategic

review

of

that

sector

to

ensure

we

grow

back

stronger

and

more

profitably

in

the future.

Again,

in

2021, we've

maintained

a

very

strong

cash

position

to

similar

levels

that

we've

seen

pre

the

pandemic.

And

the

well-publicized

inflationary

cost

that

hit

in

the

whole

of

the

industry

at

the

moment,

we've

put plans

in

place

through

cost

reduction

programs

or

appropriate

pricing

strategies

with

a

range

of

our

customers

to

help

mitigate

those

costs.

Okay. So,

those

are

the

key

headlines

I'd

ask

you to

take

away

today.

What

I'm now

going

to do

is

just

give

you

a

bit

of

an update

on

what's happening

in

the

UK

packaged

market

using

the

Nielsen

data

which

measures ePOS

brand value

sales

at

retail.

So,

the

key takeaways

from

this

slide

would

be

once

again

in

2021,

the

soft

drinks markets has

proved

incredibly

resilient,

driving

value

growth

at

8.5%.

We've

seen

shoppers

buying

soft

drinks

more

often

at

higher

prices,

and

you

see

that

play

out

and

the volume

is

up

2.3%

but

value,

as

I

say,

at

8.5%.

So,

that

metric

playing

out.

In

terms

of

some

of

the subcategories

within

soft

drinks, some

of

the

real

winners

have been

the

energy

category

which

has

grown

at 15.9%

through

lots

of

innovation

and

flavor

expansion.

In

coffee,

we're

a

nation

of

tea

drinkers

in

the

home,

but

definitely

a

nation

of

coffee

drinkers

out

of

the

home.

And

that

cold

ready-to-drink

coffee

category

has

shown

great

progression,

delivering

over

32%

growth

during

2021.

The

subcategories

that have

not

performed

as

well

has

been

squash,

and

that

is

due

to

lapping

a

really

strong

2020 as

lots

of

us

stayed at

home

and

consumed

more

squash.

But

over

the

two

years,

squash category

has

grown

7.5%,

so

proved

resilient. Also

mixes

during

2020, lots

of

us

consumed

more

gin

and

tonic

in home,

and

during

2021, we've

seen people

return

to

the

hospitality

sector

so

that

growth

not

coming

back.

Okay, if

we

compare

from Nielsen's perspective

how

we

have

performed,

firstly, I'm

really

pleased

to

say that

across the

three

subcategories

we

play

in,

that

being

squash,

fizzy-flavored

carbonates

or

our

ready-to-drink

still

juice

drinks,

we've

delivered

value

growth

across

the

piece.

We've

also for

the

first time

in

our

history

have

delivered

over £100

million

worth

of

brand

value,

and

we've

done

that

drive in

value

at

6.3%

versus

volume

of

0.1%

and

made

that,

while

making

sure

we've

not

given

our margin

away.

Over the

last

five

years,

we've

driven

growth

through

bringing

new

households

into

the

brand,

and

you

can

see that

nearly

900,000 new

households

and

really

importantly, 300,000

of

those

households have

been

in

the

South,

which

is

where we

have a

targeted

approach

to

grow the

brand.

Across

the

portfolio

of

the

squash

brands

and

the

main

players,

we

are

now

the

number

two

squash

brand

behind

Robinsons

and

during

2021,

we've

been the

fastest-growing

squash

brand

as

well.

If

we

dive a

bit

deeper into

our

UK

packaged

performance

and

across the

UK

packaged

arena,

we

have

about 40% of

our

sales

in

grocery,

30%

in

discounters

and

30%

in

wholesale

cash

and

carry,

which

means

our

risk

is

quite

well-spread

within

the

UK

market.

Definitely

at

the

corner of

our

growth

this

year

has

been

the

new

branding

we've

rolled

out.

We

fortified

our

squash ranges,

so

they

now

have vitamin

C

and

vitamin

D

and

on

the back

of

consumer

research.

And

a

few

years

ago,

we

only

had

our

original purple

flavor

and

no

added

sugar

and

we've

extended

that

portfolio

now

to

offer

seven

different

variants.

And

as

you

can see

in

the

second

picture

there,

that

has really

driven

the

visibility

and

availability

of our brands

in

the

marketplace.

During

2020, our

independent

convenience

stores

often

gave

extra

space

to

toilet

rolls

and

pasta and,

therefore,

we

lost

distribution.

And

we've

had

a

concerted

van sales push

during

2021

to

make

sure

we

win

that

distribution

back.

And

I'm pleased

to

report,

we've

won

over

13,000 points

of

new

distribution

both

in

independent retailers,

but

also

win

some big, major

forecourt retailers.

We've

also

focused on

driving

weighted purchase

during

2021,

and

we've

awaited

our

multipack cans

to

an

eight-pack

in ASDA.

And

also

for

the first

time,

we've

taken

our

flavored

portfolio

in

squash

into

our

two-liter

variants

in ASDA and

we

fully

expect

to see

that

rolling

out

further across subsequent

years.

And

finally, through

our

category

work,

we've

identified

an

opportunity

in

what

we

call the

power-up

category,

which

is

heavily focused

on

protein

drinks

and

protein

shakes.

Some

of

the

insight

there has

been

that

people

enjoy

those

products

but

find

the taste

quite

bland.

So,

we

partnered

with

the

Myprotein

brand,

which

is

owned

by

The

Hut

Group, and

through

their

direct-to-consumer

website

have

done

a brand

licensing partnership

where

we've done

limited

edition

flavorings

on some

of

their

protein

drinks

with

Vimto,

which have

proved

extremely

popular,

and

I'm

pleased

to

say

some

of

those

will

return

in

2022

[indiscernible]



(00:10:13).

We've

also

underpinned

our campaign

in

the

UK

with

a

brand

new

fully

through-the-line

marketing

campaign

called

Find

Your

Different. It's

been

on

TV,

video-on-demand

right

through

to

in store,

and

we've

increased

both

awareness,

consideration

and

advocacy

with

our

core

consumer

target

of

[indiscernible]



(00:10:40).

And

what

I'd

like to do

now

is

just

share

with

you

one

of

the

adverts

that

aired

live

on

TV

in

May

this

year.

[Video Presentation]

(00:10:52-00:11:15)

Okay.

Thank

you.

So,

as we

look

further afield

and

out to

the

Middle

East, which

is

one

of

our

key

markets, what

again

we

have

seen

in

2021 through

the

investment

we've made

as

well

around

the

Sweetened

Beverage Tax

is outstanding

execution

in

marketplace,

and

whereas

traditionally the

execution we've

seen

in

Saudi

Arabia, which

is

our

major market,

the

picture

you

see

there

is

in Kuwait.

So,

that

execution reaching

out

to

some

of those

broader

markets.

We've

also,

for

the

first time,

made a move

into

a

No Added

Sugar

cordial

product and

also,

our

tetra

packs have

been

in

No

Added

Sugar.

And

as

we

move into

2022, we're

going

to

be

launching

our

Vimto ZERO

cordial and

also, Vimto

Zero

carbonate

packs. And

again,

we've

seen

a

very

strong

and

integrated

marketing

campaign around

Sweet

Togetherness, which

is

celebrating families

coming

together at

that

key

Ramadan period.

In

Africa,

where

we've seen

accelerated

growth, that has

been

on

the

back

of

a

fully

integrated

marketing

campaign

across Valentine's

Day,

Ramadan, Tabaski

and

back-to-school.

We've

rolled

out

our new

branding across

our African

markets.

And

again,

we'll launch

new flavors

such

as watermelon

into

new

pack formats

so

that's

our

2-liter carbonate

pack

that has

been

proven

very successful

at

launch

in

Algeria

midway

through the year.

[indiscernible]

(00:12:53)

I

mentioned we've

had challenges

there

over

the

last

two

years

on our

product portfolio.

We've

made

good

progress

in 2021,

but

due

to

where

we

were

versus

our

projections

as

we come

out

of 2021,

we

have

impaired

all

the

goodwill

from

our

balance

sheet and

now we

commence

the

strategic review

to

ensure

by

looking

on

how

we

go-to-market,

our

product

portfolio and

the financial

thresholds

we

have

in

place

in

this

route-to-market.

We

will

build

this

business

back

stronger

and

more

profitably going

forward.

And

then

finally,

before

I

pass

back to

David, we

have our

Feel

Good

brand,

which

is

a

brand

we've

launched

this

year

into

a space

that

we

can't stretch

Vimto.

So,

this

is

an

all-natural product,

fruit,

sparkling

water

drink,

very

low

calorie

with

a

very

strong

purpose

ESG

proposition

to

back

it

up.

We've

launched it into

foodservice and

out

of

home via

listings

with

Brakes

and

Bidfood

who

are

the

route

to

market

into

that

sector.

And

in

Q4,

we

listed

the

brand

in

the premium

retailer,

Sainsbury's,

and

our focus

as

we

go

into

2022

will

be

driving

distribution

and

driving

awareness

of

the

brand

to

grow

it

over

the

long

term.

Okay.

I'm

now going

to

hand

over

to

David,

who

will

give

you

an

overview

of

the

numbers and

then

a

financial

outlook

as

well,

and

then I

will

come

back

and

summarize.

Thank

you.

[David Thomas Rattigan]

Thank

you,

Andrew.

In

terms of

revenue

performance,

we've

seen

revenues

grow

by

21.6%

to

£144.3

million

with

strong

performance

across

all

three

of

our

routes

to

market.

This

takes us

broadly back

to

the

2019

pre-pandemic

levels

of

£147

million.

We're

delighted to

report

UK

packaged

growth

of

8.5%

with

strong

brand

performance

from

both

our

Vimto

and

Levi

Roots

brands.

For

Vimto,

we

saw continued

progress

in

each

of

its

subcategories

with

growth

in

Squash,

Carbs

and

Stills.

Vimto

brand

value

is

now

13.2%

larger

than

in

2019.

In

the

UK,

we

see

multiples

and

discounters

grow

again

by

7%

and

seen

convenience

delivered

wholesale

and

cash and carry

recover

back

to

2019

levels

following

the

significant

impact

caused

by

outlet

closures

in

2020.

2021

saw a

softer

version

of

2020's coronavirus

restrictions

and the

out of

home route

to

market

recovered

accordingly,

growing

77.4%

versus

2020.

It

was

quarter

four

though

before

we

saw

anything

like

a

return

to

2019

rates

of

sale

in out of home and overall

out

of

home

closed

the

year

31.4%

down

versus

2019.

Our

international

business

reported

underlying

revenue

growth

of

9.8%

once

adjustments

are

made

for

the

year-on-year

impact

of

our

investments

in

the

Middle

East

to

mitigate

the

impact

of

the

Sweetened

Beverage

Tax

which

is

now

complete, and

we

are

delighted

to

report

revenue

growth

of

17.1%

in

Africa

and

14.2%

across

our

European

and

US,

rest

of

world

markets.

Moving

on

to

adjusted

PBT.

The

group

delivered

87.9%

growth

with

adjusted

PBT

now

at

£21.8

million,

which

was

at

the

top

end

of

previous

guidance

and

market

expectations.

Our

gross profit

grew

£15.6

million

versus

2020, and

by

3.4

percentage

points

to

45.2%,

broadly

back

to

the

gross

margin

seen

in

2017 and

2018 of

45.7%.

Of

that

£15.6

million,

£9.4

million

is

a

direct

consequence

of

the

volume

growth

seen

year-on-year.

The

balancing

£6.2

million,

a

combination

of mix

and

margin

management

gains

versus

2020. £2.7

million

of

this

being

the

only

line

that

the

group's

investments

to

mitigate

the impact

of

the

introduction

of

the Sweetened

Beverage

Tax,

as

mentioned,

now

complete.

In

the

year,

our

customer mix

was

richer

from

a

gross

margin

perspective

as

in-house

and

national

out of

home

customers

returned,

and

margin

– that

benefited

from

a

more

consistent

coronavirus

road

map

from

the

UK

government

which,

combined

with restructuring

in

Q4 2020,

meant

that

we

have

less

downtime

in

our

factory

and

planning

for

the

coronavirus

became

more

manageable.

Distribution

costs

increased

£1.1

million

due

to

both

volume

and

price.

The

UK

driver

shortages

and

fuel

cost

increases

impacting

as

might

be

expected.

The

group

continues

to

invest

in

capacity

to

support

the

significant

growth

we

are

experiencing.

And

during

the

year,

we

signed

a

new

five-year

distribution

contract,

which

is

already

providing

significant

benefit

to

the

group.

The

group

continued

to

increase

its

marketing

investments

behind

the

Vimto

brand,

with

costs

increasing

£1.9

million

as

a

result

of

our

successful

delivery

of

the

Find

Your

Different

campaign.

The

campaign has

supported

significant

distribution

gains

during

the

year.

From

an

overhead perspective,

costs

were

£0.9

million

adverse to 2020

and

as

reported

at

the half

year

and

in

2020,

the

group

had

a

£1.3

million

deferred

consideration

credit

relating

to

the Noisy

Drinks

Company

and

AML

acquisitions,

which

created

in

2021

an

adverse comparison.

Moving

on

to exceptionals.

We've

seen

significant

exceptional charges

this

year

of

£39.5

million

as

the

group

updates

its

balance

sheet

following

the

impact

of

the

coronavirus

on

its

out-of-home

route-to-markets,

and

also

accounts

for

the

previous

contingent

liability

associated

with

historic

incentive

schemes

where

the

tax

treatments

have been

previously

challenged

by

the

HMRC.

More

positively,

and

perhaps

most

importantly,

the

group charged

a

further

£0.6

million

of

costs

to

underpin

capacity

and

capability

development

in

its

UK

packaged

supply

chain,

which

continues to

experience

significant

growth.

The vast

majority

of

this

year's

exceptional

charge relates

to

a

goodwill

impairment

in

out

of

home

of

£36.2

million

and

is

entirely

non-cash.

The

impairment follows

a

review

that

highlights

that

future

growth

prospects

for

this

route

to

market

are

expected

to be

slower

than

previously

thought

and

net

margins

lower

than

anticipated.

Significant

opportunity

exists

in

our

out-of-home

route

to

market,

but

it

will

require

a

more

transformational

approach

than

anticipated

and

this

strategic

review

has

now

commenced.

In

terms of

cash,

as

we

have referenced

in

previous

presentations,

we

recognized

early

in

the

pandemic

the

unique

circumstances

we

were

facing

and

challenged

ourselves to

ensure

we

exited

the

pandemic

with

at

least

the

same

financial

strength

we

entered

it

and

a

clear

view of

the

strategic

choices

we

needed

to

make.

Cash

and

cash equivalents

closed

the

period

at

£56.7

million,

up

from

£47.3

million

last

year.

Cash

conversion

remained

very

strong at

103%

and

held

the

cash

gains

from 2020

where

working

capital

unwound

as

businesses

went

into

hibernation

through

the

various

lockdowns.

Working

capital

was

largely neutral

in

the

year

despite

a

significant

stock

build

in

readiness

for

operational

changes

in

H1 2022

as

part

of

our

UK

packaged

supply

chain

project.

Higher

financial

return

thresholds

in

out

of home

limited

CapEx

spend.

And

all

in

all,

we

were

delighted

to

deliver

another

strong

free

cash

flow

performance

of

£17.5

million

which,

despite

the

pandemic,

was

broadly

in

line

with

historical averages.

Moving

on

to

dividend,

in

2020, the

board

applies

a

dividend

policy

of

broadly

2

times

cover,

in

line

with

historical

averages.

Final

adjusted

basic

EPS

is

£0.4615

for

the

year

and,

therefore,

we

proposed

a

final

dividend of

£0.133

per

share,

meaning

a

full

year dividend

per

share

of

£0.231.

The

final

dividend

will

be

paid

on

the

5th

of

May,

subject

to shareholder

approval.

I'm

delighted

to

say

that

the

company's AGM

this

year

will

be

a

physical

one

again

and

will

take

place

on

the

27th

of

April

in

Newton-le-Willows.

Okay.

As

mentioned

earlier,

the

group's revenue

performance

of £144.3

million

was

broadly

back

to

pre-pandemic

FY 2019

levels

of

$147

million.

It has

been

a

challenging

couple

of

years

for

us

all. 2020

was

uniquely

impactful

and

2021

has

seen

significant

recovery.

As we

now

hopefully

exit

the

pandemic,

we

thought

it

would

be

useful

to

contrast

2021's

performance

with

2019,

as

this will

hopefully

give

a

better

sense

of

where

the

group

is

now

and

help

you

understand

our

direction

of travel

for

the

future.

The

soft drinks

market

has

grown

11%

since 2019,

powered

by

segments

like

cola,

energy,

mixers

and

ready-to-drink

coffee,

areas

where

Vimto

does

not

currently

trade.

Over

the

same

period,

our

UK

packaged

revenues

for

Nichols

have grown

12%

and

Vimto's brand

value

has

grown

13.2%.

We've

seen

significant distribution

gains

and

very

encouraging

improvements

across

all

brand

awareness

metrics

in

the

UK.

Internationally,

despite

some

reporting

turbulence

associated

with

the

Sweetened

Beverage

Tax,

revenues

of

progress,

11%.

We've

seen

significant

progress

in

Africa

with

growth

of

26%.

And

the

Middle

East,

while not

seeing

underlying

volume

growth

has remained

stable

despite

the

introduction

of

a

50%

Sweetened

Beverage

Tax.

Where

our

Middle East

and

Africa

consumers

go,

they

want

to

drink

Vimto.

And

whilst

not the mainstream

US

and

European

markets,

we

are

delighted

with

Vimto's

progress

there.

In terms

of

out

of home,

the

pandemic has

provided

an

opportunity

to

take

stock

and

consider

the

route-to-market

from

an

overall

returns

perspective.

The

heavier

asset

and

overhead

associated

with

this

route-to-market

have

weighed

heavily

on

the

group

over

the

last

two

years.

And

whilst

we

recognize

that,

as

the

specter

of

COVID

recedes

and

revenues

return,

overall

returns

will

remain

challenged

without

a

more

transformational

approach.

Moving

on

to

adjusted PBT

versus 2019.

So,

whilst

revenues

have

largely

returned

to

2019 levels,

profits

have

not.

Adjusted

PBT is

£10.6

million.

Whilst

volume still

accounts

for

£1.3

million

of

difference,

gross

margin

in 2019

at

47.6%

was

a

couple

of

percentage

points

ahead

of

both

2017

and

2018

levels.

Gross

margin

in

2021

is

largely

back

to

what

we

might

expect

for

the

group. Distribution

costs for

the

group

are

largely

UK-based,

and

volume

and

inflation

have

played

a

part

in

the

higher

cost

scene. The

group has

continued

to

increase

its

investments

in

future

brand

of

growth

and

marketing

and management

costs

associated

with Vimto

campaigns

and

Feel

Good

have

increased.

The

group's

pre-pandemic

investments

in

out-of-home

assets

have

meant

a

largely

fixed

cost,

including

higher

depreciation

charge,

have

remained

in

situ

without

the

support

in

contribution.

Revenues,

as

previously

noted,

remain

31%

lower

than

in

2019.

The

group

also

benefited

in

2019 from

a

£1.1

million

credit

associated

with

deferred consideration

associated

with its AML

acquisition.

We exit

the pandemic

with

a different

shape

to

our

business.

Financially,

we

have

both

significant

opportunities

for

branded

growth

and

an

out-of-home

route-to-market

readying

for

transformational

change.

So,

what

does all

that

mean

for

return

on

capital

employed?

Excluding

the

cash

on

the

balance

sheet,

the

business

delivered a healthy 37%

return

from

its

capital

employed

in

2021.

With

significant

firepower

now

in

cash

reserves

of

£56.7

million,

how

that

capital

is

allocated

is

a

critical

consideration

for the

group

going

forward.

Over

the

last

nine

years,

in

addition

to

the

£27.6

million

of

acquisition

spend,

the

group

invested

£26.4

million

in

property,

plant

and

equipment, largely,

as

we

built

the

out-of-home

route-to-market.

Out-of-home

growth

projections,

as

noted,

are

now

expected

to

be

lower

than

previously

estimated.

And

its

overall

financial

proposition

will

undergo

a

transformational

change

over

the

coming

years.

From

2022,

ROCE

will

become

one

of our

key

performance

indicators

as

we

believe

efficient

and

effective

capital

allocation

presents

a

significant

opportunity

for

the

group

given

our

strong

balances

and

highly

resilient

free

cash

flow.

Whilst

out-of-home

investments

will

need

to

meet

higher financial

return

thresholds,

we

see

both

significant

organic

growth

opportunities

for

Vimto

and

new

packaged

soft

drinks

opportunities

in

adjacent

categories.

So,

in

terms of

takeout

then.

2019

revenues

have

largely

returned.

But

without

the

full

recovery

of

adjusted PBT,

we

end the

pandemic

with

a

different shape

and

focus

for

our

business.

Vimto

is

the

real

long-term

winner.

It

has

shown

itself

to

be

both

flexible

and

resilient.

We

see

significant

headroom

for

organic

growth

in

both

the

UK

and

internationally.

Vimto

will

be

supported

to

realize

its potential,

whether

that

be

through

investing

with

our

partners, for

capacity

and

process

improvements

or

marketing

to

ensure

we

reach

new

consumers

and

drive

further

distribution

gains.

The Vimto

range

will

continue

to

be

renovated,

and

innovation

remains

key

to

our

future

success.

We

see

significant

long-term

soft

drink

market

growth

in

adjacent

categories

in

areas

where

Vimto

does

not

trade

and

perhaps cannot

easily

stretch

to.

We

continue

to

invest

in

the

Feel Good brand

and

continue

to

assess

acquisition

opportunities

in

adjacent

soft

drinks categories

or

for

brands that

complement

Vimto

in

existing

categories

in

both

the

UK

and

internationally.

We

will

only

progress,

though,

if

the

business

case

makes

sense

over

the

long-term

from

a

ROCE

perspective.

Our

strong

balance

sheet

will,

for

the

right

opportunities,

mean

we can

invest

for the

future

and

play

the

long

game.

However,

we

do have

some

near-term

headwinds

to

navigate.

We've discussed

the

strategic

review

in

out-of-home

and

the

need

for

us

to

deliver

a

transformational

financial

proposition.

We

need

to

manage

and

mitigate

the

impact

of

inflation

of

13.6%

for

2022

versus

2021.

We

will

do this

in

a

number

of

ways,

including

through

operational

efficiency

gains

and

through

customer

price

increases.

In

2023,

the

deposit

return

scheme

commences

in

Scotland,

and

while

this is

a positive

step

in

the ESG

agenda,

it

initially

brings

operational

complexity

and

significant

cost.

So,

finally,

before

handing

back

to

Andrew,

I

would

like

to

provide

some

financial

guidance

in

terms

of

outlook

for

FY 2022

and

FY

2023. Firstly,

I

would

like

to

confirm

that

the

group's

adjusted

PBT

expectations

for

FY

2022 remain

unchanged.

The

group has

a firm

focus

on

its

strategic

agenda,

and

we

will

continue

to

execute

it

at

pace

through

2022,

whilst

navigating

the

short

to

near-term

headwinds

highlighted.

In

terms

of

that

FY

2023,

when

all

things

are

considered,

we

are

pleased

to

be

able

to

guide

to

high-single

digits

adjusted

PBT

growth,

continuing

the

momentum

seen

in

both

2021

and

2022. Thank

you.

[Andrew Paul Milne]

Thank

you,

David.

Okay.

I'm just

going

to

now

have

a

bit of

a deep

dive

into

our

ESG

strategy.

And

then,

just

sum

up

before

we

open

the

floor

to questions.

So,

from an

ESG

perspective

then,

we

are currently

focused

in

three

key

areas.

So,

the first

pillar

of

our

strategy

is

around

everyone

matters.

And

this

starts with

our

own

people,

both

in

their

well-being, but

also

in

their

difference,

and

it

also

focuses

on

how

we

support

young

people

in

the

local

communities

where

we

operate

who

haven't perhaps

not had

for

whatever

reason

the

chance

to

fulfill

their

potential.

The

second

pillar is

absolutely

about

having

products

we're

proud

of,

and

that's

threefold.

It's

about

the

liquid,

it's

about the

packaging,

and

it's

about

how

we

responsibly

source.

And

last but

not

least,

it's

about

owning

our

own

climate

impact,

both

in

terms

of

the

emissions

that

we're directly

responsible

for

in

our

Scope

1

and

2

and

how

we

decarbonize

our

supply

chains

in

Scope

3

and

then

very

much with

the

water

we

use

as

a

soft

drinks company,

how

do we

do

that responsibly.

And

we have

a lot

of

commitments

out

there that

we're

tied

to

and

commitments

that

we

believe

as

a

management

team

we'll

be

able

to

deliver

against,

and

we make

them short

term enough

that

we

will

still

be

here

to

do

that.

I'd

just like

to pull

out

some of

the commitments

that

I've

highlighted

in

bold.

So,

[ph]



where now

(00:32:40) everyone

matters,

we're

absolutely

pledging

by

2025

that

we

will

help

improve

the

future

for

over

100

young

people

in

our

communities

and

we're

going

to

launch our

Vimto

Camps

this

year

that

will

focus

on developing

those

people.

And

wouldn't it

be

wonderful

if

some

of

those

people

could actually

end

up

working with

us

here

at

Nichols?

In

October

2022, there

is

legislation

coming

into

the

market,

which

is

called

the

HFSS

Compliance,

which

is

high

fat,

sugar,

salt

legislation.

And

if

you're

not

in

line

with

that

legislation,

you

will

no longer

be

able

to

display

your

products

at

[ph]



sale

points

(00:33:24) or on gondola end

during

promotions.

And

I'm really pleased to say that all of our recipes now are compliant in that they are below the 4.1 grams per 100 mil of liquids and they will be rolling out in the first half of 2022 to ensure we're compliant by October.

I'm really

pleased

to

say

that

all

of

our

PET

packaging

is

recyclable,

but

we're

making

a

firm

commitment

that

by 2025

by

supporting

the

rollout

of

the

deposit

return

scheme

in

the

UK that

will

then

give

us

a

closed

loop

system

that

can

operate

in

the

UK,

and

we

will

have

100%

recycled

PET

in

our

products

sourced

from either

the

UK

or

Europe, if

it's

not

all

available

in

the

UK

by

2025.

And

on

our

owning

our

climate

impact,

in

terms

of

Scope

1

and Scope

2,

we're

fully

committed

that

by

2025, we

will

have reduced

our

direct

emissions

by

25%

and

that

by

2030

it

will

be

reduced

by

80%.

So, hopefully,

some

clear commitments

there

that

we're

going

to

deliver

against

in the

next

few

years.

So,

hopefully,

you

will

take

from

our

presentation today

we

have

five

very

clear

strategic

imperatives

that

we're

going

to

focus

on

over

the

next

few

years.

The

first will

be

we'll

be ruthlessly

focused

on

our

asset-light

package

business

both

in

the

UK, but

also

further

afield

and

particularly

in

Africa

where

we're seeing

that

accelerated

growth.

We're

investing

in

our

infrastructure to

make

sure

that

we

can

deliver

that

growth

with

our

supply

chain

partners

and

deliver

great

service levels

to

our

customers.

Our

strategic review

and

our development will

ensure

we

build

that

better

and

more

profitably

for

the

long

term.

ESG

is

at

the

heart

of

what

we

do

and

we have

clear

commitments.

And

from

an

M&A

perspective,

with

that

strength

we

have

on

the balance

sheet,

we

will

target

branded

acquisitions

predominantly

in

the

UK,

but also

maybe

internationally,

but

only

where

the business

case

stacks up

and

we

can

add

real

value.

So,

in summary,

I'm

pleased

to

say

that

we

have

strong,

diverse

business,

both

in

the

UK

and

abroad

that

is

being

powered

and

fueled

by

the

momentum

we've

got

on

our

Vimto

brand.

We

remain

highly

profitable,

cash

generative

with

a

very strong

balance

sheet

and

a

clear

strategic

focus. Importantly,

we

are in

line

with

our

expectations

for 2022,

so

no

change

there,

and

we're

very

confident

of

delivering

profitable

growth

through

the

long-term

strategic

plan

we

now

have

in

place

to

deliver

in

the

future.

Okay. Thank

you

for

listening

today.

And

we

will

now

open

up

to

be able to take questions.

[Operator]

Andrew,

David,

that's

great.

Thank

you

very

much

for

your

presentation

this

afternoon.

[Operator Instructions]



I

just

want

the team

to take

a

few

moments

to

review

those

questions

submitted

already.

I

would

like

to

remind

you

that

a

recording

of

this

presentation,

along

with a

copy

of the

slides

and

the

published

Q&A,

can

be

accessed

via

Investor

dashboard.

Andrew,

David,

I'm

just

going

pop

your

camera

back

up.

And

as

you

can

see,

we've

received

a

number

of

questions

throughout

today's

event

and

thank

you

to

all

investors

for

submitting

those.

If

I

could

please

ask

you

to

read

out

those

questions

and

give

responses

where

it's

appropriate

to do

so

and

I'll

pick

up

from

you

at the

end.

Thank

you.

[Andrew Paul Milne]

Great.

Thank

you.

So,

the

first

couple

of

questions,

I'll

summarize

those

by

– we're

being asked, do

we

see

our

growth

firstly coming

from

M&A

or

organic

growth. And

I

think

we

definitely

see

our

growth

coming

organically.

The

momentum

we

have

on

the

Vimto

brand

in

the

UK and,

particularly,

in

our

Squash portfolio,

the

Squash

category

has

grown

by

7.5%

in

the

last

two

years.

We've

grown

Squash

by

30%.

So,

the

momentum

there

is

very

strong

and

we

expect that

to

continue and across

the

broader

portfolio.

I

we

look further

afield,

our

African

growth

has

been

very

strong

and

our

Middle

East

growth

has been

very

resilient

and

we

now

see

with

broader

innovation

in

the

Middle East, broader

portfolio,

that

growth

continuing

as

well.

M&A

is

very

important

to

us.

We

have

the

firepower

on

the

balance

sheet

and

we

very

much

hope

it

will

come

from

M&A.

But

it

will

only

come

from

M&A

if

we

can find

the

right

brands

that

we

can

add

value

to

and

that

drive

our

ROCE

measure.

There's

another question here

saying

about,

are

we

overly

reliant

on

the

Middle

East.

And

hopefully,

what

you've

seen

from

the

presentation today,

I

think what

we've

done

in

the Middle

East

over

the

last

two

or

three

years

where

we've

had

significant

challenges

of

the Sweetened

Beverage

Tax,

that brought the

retail

price up

by

potentially

50%

and

also

the

introduction

of

taxes

to

that

region

for

the

first time,

like

we've

seen

VAT come

in.

The

brand

itself has

proved

very

resilient,

but

broadly,

in-market

sales

are

flat.

So,

you

can see

that

our

growth

has

come

from

other

areas

and

a

great

example

would

be

Africa.

So,

I

would

actually say

at

the moment,

we

are

less

reliant

on the

Middle East

than

we

have ever

been

because

of the

growth

we

see

elsewhere.

We

have

a

question

here

about

inflation

and

supply

chain.

So,

I'll perhaps,

hand

over

to

David

as

I

read

this

out. The

question

is,

have

you

experienced

any

supply

chain

issues

and

how

have you

mitigated

these?

So

perhaps,

David

you

can

answer that.

[David Thomas Rattigan]

Yeah,

sure.

So,

if

you look

at

our

overall

financials

for

2021,

the

largest

single

inflationary

pressure

was

around

the

driver

shortage

and

the

various

rate

changes

that

needed

to

take

place

to

manage

those

very

difficult

supply

chain

issues

that

all

of

the

UK

faced

in

the

summer,

particularly

on

the

early

autumn.

Interestingly, we

at

that

time,

we're

entering

into

negotiations

for

a

longer

term

contract

with

logistics

providers,

and

we

were

able

to

secure

– we

did

have

to

pay

a

bit

more,

but

we

did secure

a

great

opportunity,

build capacity

and

has allowed

us

to come

out

through

that

period

with

service levels

now

largely

what

they

were

before

that

issue

hits us.

So,

some

of

the

supply

chain

issues

that

everybody

has seen

through

the

summer,

autumn,

we

would

say, it

now

starts to

ease,

particularly

around some

of

the

driver

shortages.

There

is still

a

challenge

in

the

market,

but

we've

been

able

to

come

through

that.

Clearly, there

have

been,

coming

into

2022, a

whole

series

of

inflationary

pressures

that

have

come

to the

business,

and

we've

got

ways

that

we

plan

to

mitigate

that,

as

we

referenced

in

the

presentation.

But

that

inflation

has

come

really

right

across

the

board.

It's

something

that

we've

not

seen

in

probably

a

generation,

really

that

kind

of

a

13.6%.

If

you

look

at

packaging,

whether

it

be

plastics,

whether

it

be

aluminum,

whether

it

be

card,

all

of

these

things have

been

in

short

supply

and

pricing

has been

quite

challenging.

Obviously,

we talked

about

distribution

cost

and

labor

shortages,

generally

have

put

pressure

in

the

system

also.

And

ingredients

in

the

summer

of

last

year,

there

were

a

number

of

crop

failures

which put

an

awful

lot

of

pressure

in

the

system.

So,

that

13.6%

of

inflation

was

unique

and

we

see

hitting

us

in

2022

versus

2021.

But

it's

one

of

the

great

strengths

of

this

brand

at

a

time

when

we

are

seeing

that

kind

of

challenging

inflation

on

a

number of

our

peers

and

other

companies in

the

UK

are experiencing

that,

in

fact,

globally.

The

strength

of

our

brand,

the

choices

that

we

have

and

the

options

that

we

have

in

terms of

changing

supply

and

moving

things

forward.

So,

it

mitigates

a

number

of

those

areas.

And

given

the growth

and

the

strength

of

the

brand

in

the

right

way,

in

the

appropriate

way,

passing

that

through

to

customers

is

something

that

we

are

trying

very

hard

to manage

and

that's

something

that

we

are

playing

through.

So,

yes,

it

is

a

very

challenging

inflationary

environment,

but

we

believe

the

company is

well-placed

to

manage

that

over

this

immediate

future.

[Andrew Paul Milne]

Okay. Thanks,

David.

There's another

question

here

that

I

will

take.

So,

the

first bit

is, can

you

add

color

on

your

prospects

in

the

US?

And

then,

the

second

question from

the

same

person

is,

are

the energy

and

mixer

markets

too

crowded

for

Nichols

to launch

it?

So,

if I

talk

about the

US,

I

think

as

a

reminder,

our

US

business

is

very

heavily

focused

in

the

ethnic

market

trade

of

where

our

Middle

Eastern

or

African

consumers travel

and

want

to

purchase those

products.

So,

we

have

seen

good

growth

in

that

market

over

the

last

few

years,

although

it

would be

transparent

to

say the US

contribution

to

our

overall

business

is

still

below

5%.

What

we

are

seeing though

is

our

partner over

there

at

the

moment

has

had

an

injection

of

cash

from

private

equity

and

that's going

to give

it some

real

firepower

to

go

after

acquisitions there

that

I think

could

open

some

routes

to

market for

us.

So,

we

still

expect

growth

in

the

ethnic

channels,

but

I

don't think

that

will

be

transformational

for

the

group,

and

I

don't see

our

brand

moving

into

the

very,

very

competitive

main

market

there

in

carbonates

because

there

isn't

a

squash

market

that

exists in

the

main

market

in

America.

In

terms of

mixers and

energy,

a

great

question,

it's

interesting.

It's

interesting,

in

energy,

94%

of

the

value

in

that

market

comes

from

three

players,

which

is

Monster,

Red

Bull

and

Lucozade.

So,

although

there's

lots

of

players

in

that

category

outside

of

those

big

three,

it's

very

tough

to

win,

and

I

don't

see

energy

as

a

big

category

growth

for

us.

You

may

enter

it

in

some

ways,

but

I

don't see

it

as

a

big

focus.

And

also

mixers

as

well,

I

mean, we

know

the

[indiscernible]



(00:44:33) over

the

years,

but

there's

a

lot of

players

now that

have

gone

into

that

market.

So,

we

kind

of

see that

as

very

crowded.

I

see other

white

spaces

as

a much

better

opportunity

for

us

to

go

in

and

try

and

win.

Okay.

The

next

question

is

let

me

read

the

question.

[David Thomas Rattigan]

Yeah,

so...

[Andrew Paul Milne]

Do

you want

to

read

that

out

and

then

you...

[indiscernible]

(00:44:54)

[David Thomas Rattigan]

...

[ph]



it's

okay,

I

can

cover

on

here (00:44:56).

So,

the

question

is

with

regards to

the

share

buyback

program

that

you,

no

doubt, had

all

seen

in recent

RNSs

over

recent

months.

The

share buyback

is

a

very

tactical process.

I

want

to be

clear.

It's

not

a

strategic

item

in

terms

of

trying

to

change

the

capital

structure of

the

business

or

anything

of

that

nature.

We

have

a

[indiscernible]



(00:45:23) scheme

and

other

employee

share

option

schemes

for

the

group

going

forward,

and

that

is an

area

that

we've

needed

to top

up

the

shares

that

we

own

in

order

to

satisfy

those

options

for

the

future.

And

that

share

buyback

is

entirely

for

that

purpose.

So,

it

should

be viewed

in

that

light.

It's

in

order

to

provide

those

longer-term

share

ownership

options

for

employees

of

the

group.

There

are

no

further

plans to

change

the

capital

structure

of the

group

in

terms

of

numbers

of shares

at

this

stage.

[Andrew Paul Milne]

Okay.

Thanks, David.

I

think

that looks, Jake,

that the...

[Operator]

Yeah.

David,

Andrew,

thank

you

for

addressing

all

of

those

questions

that

have come

through

from

investors

this

afternoon.

Of

course,

ladies

and

gentlemen,

the

company

will

have the

opportunity

to

review

all

questions

submitted

today,

and

we'll

publish

those

responses

on

the

Investor

Meet

Company

platform

when

they're

ready

for

your

review.

Perhaps

before

redirecting

investors

to

provide

you with

their

feedback,

which

I

know

is

particularly

important

to

the

company,

David,

Andrew,

if

I

could

please

ask you

for

a few

closing

comments

to

wrap

up

with.

Thank

you.

[Andrew Paul Milne]

No

problem. So once

again, just

to

say

a

big

thank

you

for

dialing

in

today.

Hopefully,

you've

found

the

presentation

interesting and

insightful.

If

you're

already

an

investor,

we

hope

you

remain

an

investor.

If

you're

not

an

investor,

we

hope

we've convinced

you

today

to

invest

in

the

business

as

well.

So,

thank

you

for your

time.

[Operator]

Andrew,

David,

thank

you

for

taking

the

time

to

update

investors

this

afternoon.

Could

I please

ask

investors

not

to

close

this

session

as

you'll

now

be

automatically

redirected

for

the

opportunity

to

provide

your

feedback

in

order

that the

management

team

could

better

understand

your

views

and

expectations.

This

will

only take

a

few

moments

to complete

and I'm

sure

it

would be

greatly

valued

by

the

company.

On

behalf of

the

management

team

of

Nichols

Plc,

we

would

like

to

thank

you

for

attending

today's

presentation.

That

now

concludes

today's

session

and good

afternoon

to

you

all.