Nichols lifts expectations after bumper first half

24th Jul 2024 11:21

(Sharecast News) - Soft drinks maker Nichols reported continued strong trading in its interim results on Wednesday, underpinned by the delivery of its strategic priorities, as it lifted its adjusted profit expectations for the full year.

The AIM-traded owner of brands including Vimto said it achieved a 5.3% increase in UK packaged revenue to £45.4m, driven by volume growth of 4.9%, reflecting product innovation, distribution gains, and increased marketing investment.

However, international packaged revenue declined 6.9% to £20m due to the timing of shipments into the Middle East and reduced volumes in Africa.

Despite that, a strong performance is forecast for the second half.

Out-of-home (OoH) revenues decreased by 11.3% to £18.6m, reflecting a planned reduction in activity after exiting several unprofitable accounts as part of the OoH strategic review.

As a result, overall group revenue declined 1.8% to £84m.

Gross margin improved by 2.9 percentage points to 44%, driven by UK volume growth and pricing actions taken in the 2023 financial year to mitigate inflationary pressures.

That led to a gross margin increase of £1.8m.

Adjusted profit before tax grew 18% to £14.5m, and adjusted operating profit rose 14.1% to £13.1m, supported by improved gross margin and reduced administrative costs following the OoH strategic plan implementation.

The company incurred exceptional costs of £2.7m, including a £2.7m charge for investment in the new ERP system, £0.2m for the OoH review implementation, and a £0.2m credit from the recovery of costs related to a historical incentive scheme.

Nichols reported strong cash and cash equivalents of £70.3m, up from £56.1m in the first half of 2023, with increased net interest receipts of £1.4m.

The interim dividend was increased to 14.9p per share, with a special dividend of 54.8p per share, totaling £20m, set to be paid alongside the interim dividend.

On the operational front, Nichols reported strong market share growth in both squash and carbonate categories in the UK.

The Vimto brand achieved its highest-ever UK annual retail sales value of £109m, driven by increased marketing investment and growth from innovation and distribution gains.

Internationally, Nichols executed strongly across the Middle East during the key Ramadan trading period and started phased can production in Senegal.

That move aimed to better serve the West African market by bringing production closer to consumers, with benefits expected in the second half.

The OoH strategic review implementation was meanwhile largely concluded during the period, resulting in significant profitability improvements.

Nichols said it started the third quarter positively and in line with management expectations.

Reflecting the progress made in the first half and supported by ongoing focus on margin improvement, the board said it now expected to report full-year adjusted profit before tax slightly ahead of current market expectations.

The company said it remained well-positioned to capitalise on its strategic initiatives and deliver sustained growth.

"I am pleased to report further strategic progress in the first half, resulting in strong double digit increases in adjusted profit before tax and adjusted earnings per share," saidc chief executive officer Andrew Milne.

"As a result of our progress, the board's high levels of confidence in the outlook and the strength of our balance sheet, we are pleased to announce a special dividend of 54.8p per share - which equates to a total of £20m - alongside an 18% increase in the interim dividend to 14.9p per share.

"This reflects a long history of strong cash flow generation and the board's commitment to delivering attractive shareholder returns."

Milne said positive trading momentum in the firm's UK packaged business reflected further market share gains in squash and carbonates, driven by increased marketing investment, growth from innovation, and distribution gains.

"Our biggest ever UK promotional campaign was launched towards the end of the period, and we are confident this will support the continued growth of the Vimto brand over the summer.

"Whilst mindful of continued pressure on consumer spending, despite levels of inflation stabilising, our diversified business model and the enduring strength of the Vimto brand have enabled us to deliver a strong performance.

"As a result, we now expect full-year profitability to be slightly ahead of current market expectations and we remain confident that Nichols is well placed to deliver its strategic growth ambitions."

At 1321 BST, shares in Nichols were up 9.66% at 1,096.6p.

Reporting by Josh White for Sharecast.com.