2 contents 04 Chairman’s Statement 06 Business Review 13 Financial Review 15 Directors and Advisors 16 Directors’ Report 19 Report of the Independent Auditor 22 Financial Statements 63 Five Year Summary 64 Notice of Meeting 3 chairman’s statement In my statement last year I said the group was a stronger, more focused business, with a stable of well performing brands and that we expected further progress to be made. 2008 is Vimto’s centenary, so I am delighted to report in this very special year that in 2007 the group continued to perform strongly and we produced an excellent set of results. This news is particularly pleasing when taken against the backdrop of extreme wet weather conditions that prevailed throughout last summer. When combined with the successful transformation of our Dispense Systems Operation, I believe our overall progress is testament to the strength of our business. An increasing international presence has also helped our resilience, especially given the difficult UK trading conditions. 4 Results In the year to 31 December 2007, group profit before tax and exceptional items increased by 13.9% to £9.0 million (2006: £7.9 million), on revenues up 5.7% to £55.3 million (2006: £52.3 million). Turnover includes £1.4 million of sales relating to Cariel Soft Drinks Limited acquired in April 2007. Earnings per share (pre-exceptional items) increased 12.5% to 17.36 pence (2006: 15.43 pence). An exceptional charge of £0.98 million is shown in the accounts, which includes the professional charges associated with the lapsed Offer discussions that ended in September 2007 and the costs of integrating Cariel into our Dispense Systems Operation. IAS 19 costs, including interest charges, relate to the group’s adoption of the new accounting standard in relation to the final salary pension scheme, now closed to new members. As at 31 December 2007 the group had net positive cash of £7.8 million, up from £7.5 million in 2006. Dividend Given the underlying strength of the business and our confidence in the future, the Board is pleased to recommend an increase of 6.1% in the final dividend to 6.90 pence per share (2006: 6.50 pence). Together with the interim dividend, this would bring the total dividend for the year to 10.40 pence (2006: 9.80 pence), representing an increase of 6.1% on last year. If approved, the final dividend will be paid on 15 May 2008 to shareholders registered on 18 April 2008, the ex-dividend date being 16 April 2008. People I would also like to thank our Board, management and employees for the hard work and commitment shown in the year, particularly during the uncertainty created by the Offer Period discussions. Our progress stands testament to their combined efforts, for which I am most grateful. In November 2007 we announced the Board had accepted my request to move from being Executive Chairman to become Non-Executive Chairman. At the same time I was delighted to announce the appointment of Brendan Hynes, formerly Group Finance Director, to Group Chief Executive. The new structure is working well and we are in the process of recruiting a new Finance Director, to complete the executive team. In line with our commitment to the wider community, during 2007 we raised funds for our chosen charity, the Derian House Hospice, an outstanding organisation that exists to provide care and support to life threatened children and their families. Outlook These are a strong set of results, especially given the degree of weather- related difficulty generally experienced by the soft drinks sector during 2007. I am also pleased to report we have a strong, focused business that continues to generate good returns and positive cash. Our core brand Vimto is well positioned both in the UK and internationally and it continues to outperform the market. Our Dispense Systems Operation, which had a very good year in 2007, continues to perform strongly. Despite the uncertainty around the economic and consumer environment for 2008, we will continue to pursue our successful strategy of focusing on growing UK market share while continuing to develop our business overseas. We are confident these measures will deliver further progress in the coming year. John Nichols Non-Executive Chairman 17 March 2008 5 business review We are pleased with the excellent progress made in 2007, with our core Vimto brand again outperforming the market - despite trading being difficult in a highly competitive sector, exacerbated by the extremely poor summer weather of 2007. We are also pleased with the continuing improvement in our Dispense Systems Operation, which is now very well positioned as we move into 2008. 6 soft drinks operation The group’s Soft Drinks Operation consists of the sales and marketing of the Vimto brand throughout the world, where it is available in over 65 countries, along with sales of the Panda and Sunkist brands in the UK. 2007 revenues in the Soft Drinks Operation increased by 4.5% to £41.7 million (2006: £39.9 million) and operating profits increased by 6.4% to £8.3 million (2006: £7.8 million). The strong increase was mainly as a result of overseas growth, particularly in our core Middle East and African markets. In the UK, the poor summer weather followed by abnormally deep, market wide promotional activity, presented difficult and challenging conditions for the sector as a whole. Despite this, however, we continued to win market share, particularly in the ‘carbonate’ and ‘ready to drink’ categories, although inevitably at lower margins in order to remain competitive. We view as exceptional the promotional activity experienced in the UK during 2007, therefore our core strategy of driving volume growth whilst maintaining margin, remains in place. As reported previously, we re-launched and re-positioned Panda, our children’s drinks brand in 2006 and it continues to grow its share of the ‘still’ and ‘water’ categories. Panda carbonates suffered, however, as a result of the general trend towards non-fizzy drinks, particularly in the children’s category. Overseas our expansion into new territories remains a key area of opportunity and growth and we made good progress in 2007 on a number of fronts. Within the Soft Drinks Operation, international revenues for 2007 reached a record £8.9 million (2006: £6.8 million) showing very healthy year on year growth of 31%. Working with our local partners, we were able to create and execute sustainable brand awareness and increased visibility, which continues to build the Vimto brand presence abroad. This was reflected in strong volume growth of 12% during 2007, with annualised consumption of the Vimto brand reaching a record 342 million litres during the year (2006: 306 million litres). 7 soft drinks operation In the Middle East, a ‘viral’ marketing campaign via “YouTube”, as well as more traditional in-store displays and presentations, helped us reach our target consumers. The results achieved delivered another record year for sales of Vimto Cordial in this important territory for us. We also continue to optimise sales of the Vimto brand in other areas around the world, through the use of differing products and formats which best meet the demands of our local consumers. In Africa, for instance, we accelerated the expansion of locally manufactured carbonated Vimto in PET plastic bottles, with a major launch in Senegal at the end of 2007. 8 New Products and Brand Extensions During the year, new pack sizes for the Vimto range were also developed for the UK market, including a three pack ‘tetra- pack’ for the discount market channel, a new improved 500ml still bottle and a new shape 500ml fizzy bottle. Over the years, the Vimto brand has been extended into a range of licensed products, including Vimto Chewy Sweets, Vimto Tongue Ticklers, Vimto Bon-Bons, Vimto Lollipops and Vimto Ice Lollies. These products continue to help increase Vimto’s brand awareness among our core target audiences. Under the Panda brand we developed “Panda Juice” in 250ml ‘tetra-prisma’ cartons for the foodservice sector. “Panda Still” and “Panda Spring” were also developed in multi-packs too, primarily for the multiple retail channel. 9 10 dispense systems operation In 2007 we began to see the benefits of having transformed the Operation into an ‘external distributor model’ - designed to reduce operating costs whilst increasing brand share and penetration. This change means the costs of providing both the original dispense equipment and its subsequent ongoing maintenance are now the responsibility of third party distributors. The external distributors have long term agreements with the group, for its Dispense Systems Operation to supply them with the consumable soft drink ‘syrups’ and ‘juices’ from which the dispensed drinks are made at the point of sale. It is pleasing the switch to this new model is bearing fruit and as a result, the Dispense Systems Operation delivered increased sales of 9.7% to £13.6 million (2006: £12.4 million) during the year and produced operating profits up 100% to £0.8 million (2006: £0.4 million). To strengthen Cabana’s presence in Scotland, in April 2007 we acquired Cariel Soft Drinks Limited and we are now in the process of fully integrating it into our Scottish operation. Once this has been completed, we will then have in place a national distribution network and the scale to continue to grow market share in the dispense market. 11 corporate responsibility Nichols plc takes its Corporate Responsibility extremely seriously and has sustainable business strategies which take into account our environmental and wider social responsibilities. Sustainability and the Environment Working with our key suppliers, the group’s high standards in health and safety, environment and packaging systems were maintained throughout 2007 and as a member of Valpak, which ensures our compliance with waste regulations, we aim to control and minimise the direct impact our business activities have on the external environment. Specifically, during the year we reviewed the removal of trays from carbonated drinks, the use of recycled PET bottles, ‘light- weighting’ existing bottles and ‘blowing’ bottles on line at our suppliers to reduce HGV transportation movements. We are also reviewing the design of our products and evaluating changes to the PET sleeves to facilitate recycling. Community Our commitment to the community continued throughout 2007 and our staff again worked hard for charity, this year raising funds on behalf of the Derian House Hospice for children. 12 financial review Income Statement In 2007, revenues from continuing operations were £55.3 million, an increase of 5.7% (2006: £52.3 million). Operating profit on continuing operations (before exceptional items) increased by 10.1% to £8.7 million (2006: £7.9 million). Cash Flow from operations was £7.2 million Cash generated (2006: £5.8 million). Net cash used in investing activities was £1.1 million, which consisted mainly of the acquisition of Cariel Soft Drinks Limited in April 2007, including associated debt. Operating profits were calculated taking into account the following charges: Capital expenditure was £0.34 million (2006: £0.84 million). IAS 19 “Employee benefits” charges £164,000 (2006: £184,000) Borrowing and Interest At 31 December 2007 the group had positive cash balances of £7.8 million (2006: £7.5 million). IFRS 2 “Share-based payment” charges £192,000 (2006: £100,000) Net bank interest earned during the year amounted to £287,000 (2006: £84,000). Due to the weakness of the US Dollar during the year we also incurred £129,000 (2006: £76,000) of foreign exchange translation losses. Exceptional Items In March 2007, the group entered an offer period which incurred unplanned advisory costs. Following the offer period the group re-structured the Nichols plc Board and Vimto Soft Drinks businesses which gave rise to further exceptional people costs of £0.55 million. Costs of £0.43 million have been incurred due to the integration of Cariel Soft Drinks into the Cabana business in Scotland. These costs are mainly severance costs and property costs. Earnings Per Share Earnings per share (basic) – before exceptional items was 17.36 pence (2006: 15.43 pence). Earnings per share (basic) – after exceptional items was 15.49 pence (2006: 17.10 pence). Dividend The Board is recommending a final dividend of 6.90 pence per ordinary share (2006: 6.50 pence) payable to shareholders on the register at 18 April 2008. The final dividend of 6.90 pence together with the interim dividend of 3.50 pence, gives a total dividend of 10.40 pence per share for the full year (2006: 9.80 pence). 13 financial review Internal Control The Nichols group complies with the principles of good corporate governance, and has an established process of control and risk management. Internal Financial Control The Board is ultimately responsible for maintaining sound internal control systems to safeguard the investment of shareholders and the company’s assets. The systems are reviewed by the Board and are designed to provide reasonable, but not absolute, assurance against material mis-statement or loss. Audit Committee The Audit Committee consists of J B Diggines and J D Bee. The terms of reference of the Committee include keeping under review the scope and results of the external audit. The Committee ensures the independence and objectivity of the external auditors, including the nature and extent of non- audit services supplied. Any further services with a value over £25,000 would require Nichols plc Board approval. minimise this risk we have rigorous back-up and disaster recovery procedures in place. Shareholders Shareholders of Nichols plc have enjoyed another successful year in terms of Total Shareholder Return. This is shown in the chart relative to the FTSE AIM index and the FTSE Fledgling index, which we have used as benchmarks in previous years. Risks and Uncertainties As a group we are dependent on third party suppliers for all our products and therefore have expanded our audit checks to ensure we are selling stock of the highest quality. Outsourcing has reduced the risks of employer’s liability associated with manufacturing and has also reduced our direct environmental risks, but has increasingly moved the risk of interruption of supply outside our direct control. Going Concern After making enquiries, the directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the financial statements. A large proportion of our international business is with the Middle East and Africa. Any political instability in these key regions could lead to volatility in our trading patterns. In common with many businesses we are now also highly dependent on the availability of IT systems to carry out many trading activities. To B M Hynes Chief Executive Officer, Nichols plc 17 March 2008 14 directors & advisors J B Diggines Senior Non-executive Director B M Hynes MBA FCMA Chief Executive Officer PJ Nichols BSc Non-executive Chairman J D Bee Non-executive Director Auditors Grant Thornton UK LLP 4 Hardman Square, Spinningfields, Manchester M3 3EB Stockbrokers & Nominated Advisor Brewin Dolphin Securities PO Box 512 National House 36 St Ann Street Manchester M60 2EP Bankers The Royal Bank of Scotland plc 1 Spinningfields Square Manchester M3 3AP Solicitors DLA 101 Barbirolli Square Manchester M2 3DL Financial Advisors N M Rothschild & Sons Limited 82 King Street Manchester M2 4W Registrars Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0GA Registered Office Laurel House Woodlands Park Ashton Road Newton-le-Willows WA12 0HH Registered Number 238303 15 directors’ report The directors present their report and the audited financial statements for the year ended 31 December 2007. Principal activities and business review The company and its principal operating subsidiaries are engaged in the supply of soft drinks to the retail, wholesale, catering, licensed and leisure industries. A review of the group’s trading during the year and its prospects are contained in the Chairman’s Statement on pages 4 and 5, the Business Review on pages 6 to 11 and the Financial Review on pages 13 to 14. Details of significant events since the balance sheet date are contained in the Chairman’s Statement and the Business and Financial Reviews. Reconciliation of profit for the financial year to retained earnings movement 2007 2006 Profit for the financial year Interim dividend 3.50p (2006: 3.30p) per share paid 7 September 2007 2006 final dividend 6.50p (2005: 6.10p) per share paid 15 May 2007 Other recognised gains and losses and movement on ESOT (note 20) Retained earnings movement Non-executive directors £’000 (1,294) (2,403) 1,521 £’000 5,669 (2,176) 3,493 £’000 (1,220) (2,255) 49 £’000 6,273 (3,426) 2,847 J B Diggines (55) – senior non-executive director Mr Diggines is Chief Executive of Enterprise Ventures Limited. He was appointed to the Board of Nichols plc in July 1995. J D Bee (66) Mr Bee has held a number of non-executive directorships with both public and private companies and is currently Chairman of the Manchester Building Society. He was appointed to the Board of Nichols plc in January 2002. P J Nichols (58) Mr Nichols has been a director of the company since 1976. He was appointed Managing Director in 1986 and Chairman in 1999. In November 2007, Mr Nichols moved to non-executive Chairman. All of the above are members of the audit and remuneration committees of the Board. Executive directors B M Hynes (47) Mr Hynes joined the company as Group Finance Director in 2002 and was appointed Chief Executive Officer in November 2007. He has previously been Group Finance Director at William Baird plc and KPS plc. Financial risk management objectives and policies Business risks are included within the Financial Review on page 14 and financial risks are set out in note 22 to the financial statements. Creditor payment policy The group’s policy is to agree terms of payment at the start of business with all suppliers, to abide by these terms and to pay in accordance with its contractual and other legal obligations. At 31 December 2007 there were 42 (2006: 54) creditor days outstanding. 16 directors’ report Employees The group’s policy is to recruit and promote on the basis of aptitude and ability without discrimination of any kind. Applications for employment by disabled people are always fully considered bearing in mind the qualification and abilities of the applicants. In the event of employees becoming disabled every effort is made to ensure their continued employment. The management of the individual operating companies consult with employees and keep them informed on matters of current interest and concern to the business. Charitable and political donations Charitable donations during the year amounted to £17,000 (2006: £6,000). There were no political donations in either 2007 or 2006. Substantial share holdings The following parties have notified the company of disclosable interests in shares. The figures in brackets represent the percentage of the issued share capital at 17 March 2008. S J Harper Invesco Asset Management K Irvine UBS Global Asset Management S C Nichols 3,395,055 2,897,158 2,500,000 1,703,190 1,311,350 (9.18) (7.84) (6.76) (4.61) (3.54) Share options The company operates a Save As You Earn share option scheme. In conjunction with this it makes donations to an Employee Share Ownership Trust to enable shares to be bought in the market to satisfy the demand from option holders. Share capital The resolutions concerning the ability of the Board to purchase the company’s own shares and to allot shares are again being proposed at the Annual General Meeting. In exercising its authority in respect of the purchase and cancellation of the company’s shares, the Board takes as its major criterion the effect of such purchases on future expected earnings per share. No purchase is made if the effect is likely to be deterioration in future expected earnings per share growth. During the year the company purchased 100,000 of its own shares for a value of £224,000. The Board believes that being permitted to allot shares within the limits set out in the resolution without the delay and expense of a general meeting gives the ability to take advantage of circumstances that may arise during the year. Auditors In accordance with Section 385 of the Companies Act 1985 a resolution will be proposed at the Annual General Meeting that Grant Thornton UK LLP be re-appointed auditors. Statement of directors’ responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare financial statements in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable International Financial Reporting Standards as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the company will continue in business. the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European The directors, to the best of their knowledge, state that: • Union, give a true and fair view of the assets, liabilities, financial position and profit of the group; and • the directors’ report includes a fair review of the development and performance of the business and the position of the group together with a description of the principal risks and uncertainties that it faces. 17 directors’ report Directors Report The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the directors are aware: • • there is no relevant audit information of which the company’s auditors are unaware; and the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Transition to IFRS The June 2007 interim statements were the first set of results published by Nichols plc under IFRS, and the December 2007 financial statements are the first full set of accounts and notes published by Nichols plc under IFRS. Directors’ indemnity The group has agreed to indemnify its directors against third party claims which may be brought against them and has in place an officers’ insurance policy. Directors’ remuneration Salary and fees £’000 195 154 17 17 383 Benefits in kind £’000 32 1 - - 33 Bonuses £’000 45 39 - - 84 Pension contributions £’000 30 21 - - 51 Contract termination £’000 250 - - - 250 Total 2007 Total 2006 £’000 552 215 17 17 801 £’000 289 206 17 17 529 P J Nichols B M Hynes J B Diggines J D Bee Total P J Nichols moved from executive director to non executive director on 31 December 2007. Severance payments made were those due under his service contract. P J Nichols is a member of the final salary pension scheme; B M Hynes has a personal pension plan. The company contributions to the respective schemes are shown in the above table. The executive directors are members of the group Save As You Earn scheme. The options outstanding under the scheme are as follows: Exercisable Issue price Number at 31 December 2007 Number at 31 December 2006 P J Nichols B M Hynes 16 October 2011 16 October 2009 192p 192p 8,203 4,922 8,203 4,922 The options are exercisable on the date shown above and for six months thereafter. There were no changes to the directors’ share options between 31 December 2007 and 17 March 2008. The share price during 2007 varied between 221p and 317p and the share price at 31 December 2007 was 228p. By order of the Board B M Hynes Secretary Laurel House, Ashton Road , Newton le Willows WA12 0HH 17 March 2008 18 report of the independent auditor to the members of Nichols plc Report of the independent auditors This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. We have audited the group and parent company financial statements (the ‘’financial statements’’) of Nichols plc for the year ended 31 December 2007, which comprise the group income statement, the group and parent company balance sheets, the group and parent company statements of cash flows, the group and parent company statement of recognised income and expense, the reconciliations of UK GAAP to IFRS and notes 1 to 27. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report and the financial statements, in accordance with applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union, are set out in the statement of directors’ responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether, in our opinion, the information given in the Directors’ Report is consistent with the financial statements. The information given in the Directors’ Report includes that specific information presented in the Chairman’s Statement, the Business Review and the Financial Review, that is cross-referred from the Business Review section of the Directors’ Report. In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors’ Report, the Chairman’s Statement, the Business Review, the Financial Review and the Five Year Summary. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s and company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary, in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: • the group financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, of the state of the group’s affairs as at 31 December 2007 and of its profit for the year then ended; the parent company financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as at 31 December 2007; the financial statements have been properly prepared in accordance with the Companies Act 1985; and the information given in the Directors’ Report is consistent with the financial statements. • • • GRANT THORNTON UK LLP REGISTERED AUDITOR CHARTERED ACCOUNTANTS MANCHESTER 17 March 2008 19 F i n a n c i a l S t a t e m e n t s 2 0 0 7 Consolidated income statement Year ended 31 December 2007 Before Before exceptional Exceptional exceptional Exceptional items 2007 £’000 items 2007 £’000 Total 2007 £’000 items 2006 £’000 items 2006 £’000 Notes Revenue Cost of sales Gross profit Distribution expenses Administrative expenses Operating profit Finance income Finance expense Profit before taxation Taxation Profit from continuing operations Profit on disposal of discontinued operations 0 0 0 55,276 52,296 (27,321) (24,764) 27,955 27,532 0 0 0 3 55,276 (27,321) 27,955 (3,795) (15,418) 0 (978) (3,795) (16,396) (3,721) (15,914) 0 (2,482) (3,721) (18,396) 8,742 (978) 7,764 7,897 (2,482) 5,415 291 (7) 0 0 291 (7) 156 (98) 0 0 156 (98) 9,026 (978) 8,048 7,955 (2,482) 5,473 (2,672) 6,354 293 (685) (2,379) 5,669 (2,296) 5,659 1,058 (1,424) (1,238) 4,235 0 0 0 0 2,038 2,038 5 6 6 8 5 Total 2006 £’000 52,296 (24,764) 27,532 Profit for the financial year 6,354 (685) 5,669 5,659 614 6,273 Earnings per share (basic) - all activities Earnings per share (diluted) - all activities Earnings per share (basic) - continuing operations Earnings per share (diluted) - continuing operations Dividends paid per share 10 10 10 10 9 15.49p 15.47p 15.49p 15.47p 10.00p The accompanying accounting policies and notes form an integral part of these financial statements. 17.10p 17.08p 11.54p 11.53p 9.40p 22 F i n a n c i a l S t a t e m e n t s 2 0 0 7 Consolidated and parent company balance sheets Year ended 31 December 2007 Group 2007 £’000 Notes ASSETS Non-current assets Property, plant and equipment Goodwill Investments Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets LIABILITIES Current liabilities Trade and other payables Current tax liabilities Provisions Total current liabilities Non-current liabilities Pension obligations Deferred tax liabilities Total non-current liabilities Total liabilities Net assets EQUITY Share capital Additional paid in capital Capital redemption reserve Other reserves Retained earnings Total equity 11 12 13 14 15 16 17 17 18 27 14 19 20 20 20 20 2006 £’000 3,179 9,624 0 2,201 15,004 2,169 12,364 7,460 21,993 Parent 2007 £’000 638 5,480 7,696 1,187 15,001 1,546 11,199 6,777 19,522 2006 £’000 750 5,480 6,331 2,142 14,703 1,162 11,361 6,714 19,237 2,448 10,910 0 1,197 14,555 2,509 13,177 7,814 23,500 38,055 36,997 34,523 33,940 8,828 1,058 681 10,567 3,635 356 3,991 8,366 598 1,211 10,175 6,504 309 6,813 7,941 842 117 8,900 3,635 192 3,827 7,553 700 424 8,677 6,504 86 6,590 14,558 16,988 12,727 15,267 23,497 20,009 21,796 18,673 3,697 3,255 1,209 (492) 15,828 23,497 3,697 3,255 1,209 (487) 12,335 20,009 3,697 3,255 1,209 283 13,352 21,796 3,697 3,255 1,209 288 10,224 18,673 The financial statements on pages 22 to 62 were approved by the Board of Directors on 17 March 2008 and were signed on its behalf by: P J Nichols Chairman The accompanying accounting policies and notes form an integral part of these financial statements. 23 Consolidated statement of cash flows Year ended 31 December 2007 Profit for the financial year Cash flows from operating activities Adjustments for: Depreciation Loss/(profit) on sale of property, plant and equipment Sale of discontinued operations Equity-settled share-based payment transactions Interest receivable Interest payable Tax expense recognised in the income statement Change in inventories Change in trade and other receivables Change in trade and other payables Change in provisions Change in pension obligations Cash generated from operating activities Tax paid Net cash generated from operating activities Cash flows from investing activities Interest received Proceeds from sale of property, plant and equipment Acquisition of property, plant and equipment Disposal of discontinued operation, net of cash disposed of Acquisition of subsidiary, net of cash acquired Acquisition of subsidiary’s net overdraft Net cash used in investing activities Cash flows from financing activities Interest paid Repayment of borrowings Repurchase of own shares Dividends paid Notes 2007 £’000 2007 £’000 5,669 2006 £’000 2006 £’000 6,273 782 27 0 192 (291) 7 2,379 (299) (570) 159 (530) (347) 1,509 7,178 (1,800) 5,378 291 455 (336) 0 (1,365) (144) 13 13 (4) 0 20 9 (224) (3,697) 794 (98) (2,038) 100 (156) 98 1,238 163 (194) (2,326) 2,491 (504) 156 7,474 (837) 6,455 (120) 0 (432) 5,841 (1,654) 4,187 (72) (6,308) 0 (3,475) (9,855) 7,460 0 7,460 (1,099) 13,128 Net cash used in financing activities 0 (3,925) Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 21 354 7,460 7,814 The accompanying accounting policies and notes form an integral part of these financial statements. 24 Parent company statement of cash flows Year ended 31 December 2007 Profit for the financial year Cash flows from operating activities Adjustments for: Depreciation Profit on sale of property, plant and equipment Equity-settled share-based payment transactions Interest receivable Interest payable Tax expense recognised in the income statement Change in inventories Change in trade and other receivables Change in trade and other payables Change in provisions Change in pension obligations Cash generated from operating activities Tax paid Net cash generated from operating activities Cash flows from investing activities Interest received Proceeds from sale of property, plant and equipment Acquisition of property, plant and equipment Disposal of discontinued operation, net of cash disposed of Notes 2007 £’000 2007 £’000 5,304 238 0 192 (291) 7 2,208 (384) 162 214 (308) (347) 291 0 (126) 0 1,691 6,995 (1,807) 5,188 Additional consideration in respect of a prior acquisition 13 (1,365) 2006 £’000 8,549 2,963 11,512 (1,482) 10,030 2006 £’000 198 (55) 100 (156) 98 1,597 (5) 1,715 206 (231) (504) 156 6,107 (347) 1,249 (120) Net cash used in investing activities (1,200) 7,045 Cash flows from financing activities Interest paid Repayment of borrowings Repurchase of own shares Dividends paid (4) 0 20 9 (224) (3,697) (72) (7,208) 0 (3,081) Net cash used in financing activities (3,925) (10,361) Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 21 63 6,714 6,777 6,714 0 6,714 The accompanying accounting policies and notes form an integral part of these financial statements. F i n a n c i a l S t a t e m e n t s 2 0 0 7 25 Statement of recognised income and expense Year ended 31 December 2007 Group Defined benefit plan actuarial gain Deferred taxation on pension obligations Income and expense recognised directly in equity Profit for the financial year Total recognised income and expense for the year Parent Defined benefit plan actuarial gain Deferred taxation on pension obligations Income and expense recognised directly in equity Profit for the financial year Total recognised income and expense for the year 2007 £’000 2,522 (933) 1,589 2006 £’000 91 (27) 64 5,669 6,273 7,258 6,337 2007 £’000 2,522 (933) 1,589 2006 £’000 91 (27) 64 5,304 8,549 6,893 8,613 26 Reconciliation of UK GAAP to IFRS Year ended 31 December 2007 Group income statement for the year ended 31 December 2006 Revenue Cost of sales Gross profit Distribution expenses Administrative expenses Operating profit Finance income Finance expense Profit before tax Taxation Profit from continuing operations Profit on disposal of discontinued operations Profit for the period UK GAAP 2006 £’000 52,296 (24,764) 27,532 (3,721) (18,908) 4,903 156 (98) 4,961 (1,152) 3,809 2,038 5,847 Goodwill Adjustment £’000 0 0 0 0 512 512 0 0 512 (86) 426 0 426 Pension Adjustment £’000 0 0 0 0 0 0 0 0 0 0 0 0 0 IFRS 2006 £’000 52,296 (24,764) 27,532 (3,721) (18,396) 5,415 156 (98) 5,473 (1,238) 4,235 2,038 6,273 F i n a n c i a l S t a t e m e n t s 2 0 0 7 27 Reconciliation of UK GAAP to IFRS Year ended 31 December 2007 Group balance sheet as at 31 December 2006 ASSETS Non-current assets Property, plant and equipment Goodwill Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets LIABILITIES Current liabilities Trade and other payables Current tax liabilities Provisions Total current liabilities Non-current liabilities Pension obligations Deferred tax liabilities Total non-current liabilities Total liabilities Net assets EQUITY Share capital Additional paid in capital Capital redemption reserve Other reserves Retained earnings Total equity 28 UK GAAP 2006 £’000 Goodwill Adjustment £’000 Pension Adjustment £’000 3,179 9,112 336 12,627 2,169 12,364 7,460 21,993 0 512 (86) 426 0 0 0 0 0 0 1,951 1,951 0 0 0 0 IFRS 2006 £’000 3,179 9,624 2,201 15,004 2,169 12,364 7,460 21,993 34,620 426 1,951 36,997 8,366 598 1,211 10,175 4,553 309 4,862 15,037 0 0 0 0 0 0 0 0 19,583 426 3,697 3,255 1,209 (487) 11,909 19,583 0 0 0 0 426 426 0 0 0 0 1,951 0 1,951 8,366 598 1,211 10,175 6,504 309 6,813 1,951 16,988 0 0 0 0 0 0 0 20,009 3,697 3,255 1,209 (487) 12,335 20,009 Reconciliation of UK GAAP to IFRS Year ended 31 December 2007 Group balance sheet as at 1 January 2006 UK GAAP 2006 £’000 Goodwill Adjustment £’000 Pension Adjustment £’000 ASSETS Non-current assets Property, plant and equipment Goodwill Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Total current assets Total assets LIABILITIES Current liabilities Bank overdraft Loans and borrowings Trade and other payables Current tax liabilities Provisions Total current liabilities Non-current liabilities Loans and borrowings Pension obligations Deferred tax liabilities Total non-current liabilities Total liabilities Net assets EQUITY Share capital Additional paid in capital Capital redemption reserve Other reserves Retained earnings Total equity 13,563 9,504 0 23,067 3,972 14,592 18,564 41,631 2,886 2,672 11,202 772 655 18,187 750 4,906 797 6,453 24,640 16,991 3,697 3,255 1,209 (658) 9,488 16,991 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 F i n a n c i a l S t a t e m e n t s 2 0 0 7 IFRS 2006 £’000 13,563 9,504 2,115 25,182 3,972 14,592 18,564 0 0 2,115 2,115 0 0 0 2,115 43,746 0 0 0 0 0 0 0 2,102 13 2,115 2,886 2,672 11,202 772 655 18,187 750 7,008 810 8,568 2,115 26,755 0 0 0 0 0 0 0 16,991 3,697 3,255 1,209 (658) 9,488 16,991 29 Reconciliation of UK GAAP to IFRS Year ended 31 December 2007 Parent balance sheet as at 31 December 2006 ASSETS Non-current assets Property, plant and equipment Goodwill Investments Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets LIABILITIES Current liabilities Trade and other payables Current tax liabilities Provisions Total current liabilities Non-current liabilities Pension obligations Deferred tax liabilities Total non-current liabilities Total liabilities Net assets EQUITY Share capital Additional paid in capital Capital redemption reserve Other reserves Retained earnings Total equity 30 UK GAAP 2006 £’000 Goodwill Adjustment £’000 Pension Adjustment £’000 750 5,070 6,331 191 12,342 1,162 11,361 6,714 19,237 0 410 0 0 410 0 0 0 0 0 0 0 1,951 1,951 0 0 0 0 IFRS 2006 £’000 750 5,480 6,331 2,142 14,703 1,162 11,361 6,714 19,237 31,579 410 1,951 33,940 7,553 700 424 8,677 4,553 0 4,553 13,230 0 0 0 0 0 86 86 86 18,349 324 3,697 3,255 1,209 288 9,900 18,349 0 0 0 0 324 324 0 0 0 0 1,951 0 1,951 7,553 700 424 8,677 6,504 86 6,590 1,951 15,267 0 0 0 0 0 0 0 18,673 3,697 3,255 1,209 288 10,224 18,673 F i n a n c i a l S t a t e m e n t s 2 0 0 7 IFRS 2006 £’000 6,653 5,355 7,460 2,115 21,583 1,157 14,698 15,855 Reconciliation of UK GAAP to IFRS Year ended 31 December 2007 Parent balance sheet as at 1 January 2006 UK GAAP 2006 £’000 Goodwill Adjustment £’000 Pension Adjustment £’000 ASSETS Non-current assets Property, plant and equipment Goodwill Investments Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Total current assets Total assets LIABILITIES Current liabilities Bank overdraft Loans and borrowings Trade and other payables Current tax liabilities Provisions Total current liabilities Non-current liabilities Loans and borrowings Pension obligations Deferred tax liabilities Total non-current liabilities Total liabilities Net assets EQUITY Share capital Additional paid in capital Capital redemption reserve Other reserves Retained earnings Total equity 6,653 5,355 7,460 0 19,468 1,157 14,698 15,855 35,323 3,786 2,672 9,175 369 655 16,657 750 4,906 25 5,681 22,338 12,985 3,697 3,255 1,209 117 4,707 12,985 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,115 2,115 0 0 0 2,115 37,438 0 0 0 0 0 0 0 2,102 13 2,115 3,786 2,672 9,175 369 655 16,657 750 7,008 38 7,796 2,115 24,453 0 0 0 0 0 0 0 12,985 3,697 3,255 1,209 117 4,707 12,985 The goodwill and pension adjustments detailed within the above income statements and balance sheets are as a result of the group’s effective transition to International Financial Reporting Standards (IFRS) on 1 January 2006. The main impact on the income statements is that there is no longer an annual amortisation charge in respect of goodwill held. Instead, goodwill is reviewed for impairment annually. The pension adjustments are balance sheet reclassifications only, and arise because under IAS 19 “Employee benefits”, the group’s pension scheme deficit is shown separately from other net assets on the balance sheet and the deferred tax is shown with other deferred tax balances. 31 Notes to the financial statements Year ended 31 December 2007 1. Reporting entity Nichols plc (the “company”) is a company domiciled in the United Kingdom. The address of the company’s registered office is Laurel House, Woodlands Park, Ashton Road, Newton-le-Willows, WA12 0HH. The consolidated financial statements of the company as at and for the year ended 31 December 2007 comprise the company and its subsidiaries (together referred to as the “group”). The group primarily is engaged in the supply of soft drinks to the retail, wholesale, catering, licensed and leisure industries. 2. Accounting policies Basis of preparation The consolidated and parent company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The financial statements were approved by the Board of Directors on 17 March 2008. . The financial statements have been prepared on the historical cost basis. Historically, Nichols plc has prepared its consolidated financial statements in accordance with UK Generally Accepted Accounting Principles. As a result of AIM rule changes, Nichols plc has prepared consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) for the year ended 31 December 2007. The comparative information has been restated in accordance with IFRS. The group’s effective date of transition to IFRS was 1 January 2006. The accounting policies have been applied consistently by the group. Transition to IFRS These financial statements show the results for the years ended 31 December 2007 and 31 December 2006. The results for the year ended 31 December 2006 have been extracted from the group financial statements for that year and have been adjusted for the effects of changes in accounting policies on transition to IFRS. These adjustments were set out in detail in the transition document which was published via Regulatory News Service (RNS) on 30 July 2007. Functional and presentation currency These consolidated financial statements are presented in sterling, which is also the functional currency of the parent company. Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The following is the critical judgement, apart from those involving estimations (see next page), that management have made in the process of applying the group’s accounting policies, and that has the most significant effect on the amounts recognised in the financial statements. 32 F i n a n c i a l S t a t e m e n t s 2 0 0 7 Notes to the financial statements Year ended 31 December 2007 2. Accounting policies (continued) Revenue recognition In making their judgement, management have considered the detailed criteria for the recognition of revenue from the sale of goods as outlined in IAS 18 “Revenue”, and in particular where the group has transferred to the customer the significant risks and rewards of ownership of the goods. Management are satisfied that recognition of all such revenue in the current year is appropriate, and that the significant risks and rewards attached to such sales have been transferred to the buyer. The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The “value in use” calculation requires management to estimate the future cash flows expected to arise from the cash- generating unit and a suitable discount rate in order to calculate present value (see note 12). The carrying amount of goodwill at the balance sheet date was £10.9m. Share options The assumptions on the expected life of share options, volatility of shares, risk free yield to maturity and expected dividend yield on shares are used in the IFRS fair value calculation of the group’s share options outstanding at the balance sheet date (see note 20). Defined benefit obligations For the group’s defined benefit plan, the main assumptions used by the actuary are the rate of future salary increases, the rate of increase in pensions in payment, the discount rate and the expected rate of inflation (see note 27). Useful lives of property, plant and equipment As described within the Property, Plant and Equipment paragraph below, the group reviews the estimated useful lives of property, plant and equipment at least annually. Estimates and underlying assumptions are reviewed by management on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Basis of consolidation The group financial statements consolidate those of the company and all of its subsidiary undertakings drawn up to 31 December 2007. Subsidiaries are entities controlled by the group. Control exists when the group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances, and any unrealised gains and losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. All group companies have coterminous year ends. 33 Notes to the financial statements Year ended 31 December 2007 2. Accounting policies (continued) Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the basis for subsequent measurement in accordance with group accounting policies. Goodwill is stated after separating out identifiable assets. Goodwill represents the excess of acquisition costs over the fair value of the group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. The group has elected not to apply IFRS 3 “Business combinations” retrospectively to business combinations established prior to 1 January 2006. Accordingly the classification of the combination (acquisition, reverse acquisition or merger) remains unchanged from that used under UK GAAP. Assets and liabilities are recognised at the date of transition if they would be recognised under IFRS, and are measured using their UK GAAP carrying amount immediately post-acquisition as deemed cost under IFRS, unless IFRS requires fair value measurement. Deferred tax and minority interest are adjusted for the impact of any consequential adjustments after taking advantage of the transitional provisions. First time application of IFRS IFRS 1 “First time adoption of IFRS” sets out the procedures that the group must follow when it adopts IFRS for the first time as the basis for preparing its consolidated financial statements. The group has established its IFRS accounting policies as at 31 December 2007, and has applied these retrospectively to determine the IFRS opening balance sheet at its date of transition, 1 January 2006. This standard provides a number of optional and mandatory exemptions to this general principle. The only exemptions adopted by the group are set out below : IFRS 3 “Business combinations” The group has elected not to apply IFRS 3 to the business combinations that took place prior to the date of transition. Accordingly, combinations prior to 1 January 2006 have not been restated. As a result the carrying value of goodwill is frozen as at 1 January 2006, but accounted for thereafter in accordance with IFRS. IFRS 2 “Share-based payment” The group and parent company have elected to apply IFRS 2 only to relevant share-based payment transactions granted after 7 November 2002 and not vested at 1 January 2006. Previously, share-based payments were accounted for under UITF 17. There was no impact on the UK GAAP income statement because at the date of grant the exercise price was materially equal to the intrinsic value. Revenue recognition Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts, volume discounts and excluding VAT. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, the amount of revenue can be measured reliably, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably and there is no continuing management involvement with the goods. 34 Transfer of risks and rewards vary depending on the individual term of the contract of sale. For sales in the UK, transfer occurs when F i n a n c i a l S t a t e m e n t s 2 0 0 7 Notes to the financial statements Year ended 31 December 2007 2. Accounting policies (continued) the product is despatched to the customer. However, for some international shipments, transfer occurs either upon loading the goods onto the relevant carrier or when the goods have arrived in the overseas port. Foreign currency transactions Transactions in foreign currencies are translated into the respective functional currencies of group entities at exchange rates at the date of transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the consolidated income statement in the period in which they arise. Exceptional items Exceptional items are material items which individually, or if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence in order to assist in understanding the group’s financial performance. Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax Current tax is the expected tax payable on the taxable income for the year, using rates which are enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax Deferred tax is recognised using the balance sheet method, with no discounting, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not provided on the initial recognition of goodwill, or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, provided they are enacted or substantively enacted at the reporting date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Goodwill Goodwill arises on the acquisition of subsidiaries, associates and joint ventures. Goodwill representing the excess of the cost of acquisition over the fair value of the group’s share of the identifiable assets acquired, is capitalised and reviewed annually for impairment. Goodwill is measured at cost less accumulated impairment losses. As part of its transition to IFRS, the group elected to restate only those business combinations that occurred on or after 1 January 35 Notes to the financial statements Year ended 31 December 2007 2. Accounting policies (continued) 2006. In respect of acquisitions prior to 1 January 2006, the net book value of goodwill at the date of transition is the deemed cost of goodwill to the group under IFRS. For acquisitions on or after 1 January 2006, goodwill represents the excess of the cost of the acquisition over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative, it is recognised immediately in the group income statement. Goodwill written off to reserves prior to the date of transition to IFRS remains in reserves. There is no re-instatement of goodwill previously amortised on the transition to IFRS. Goodwill previously written off to reserves is not written back to the income statement on subsequent disposal. Impairment The carrying values of the group’s non-current assets are reviewed at each reporting date to determine whether there is any indication of impairment. Goodwill is reviewed for impairment annually. All other non-current assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indication of impairment exists then the asset’s recoverable amount is estimated. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at a cash-generating unit level. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using the cost of capital that reflects the current market assessments of the time value of money and the risks specific to the asset. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. Impairment losses are recognised in the income statement. Property, plant and equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of replacing part of an item of plant, property and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in the income statement as incurred. Depreciation is calculated on a straight line basis to write down the cost less estimated residual value on property, plant and equipment over their estimated useful lives. Leased assets are depreciated over the shorter of the lease and their useful lives. Land is not depreciated. 36 Notes to the financial statements Year ended 31 December 2007 2. Accounting policies (continued) The estimated useful lives for the current and comparative periods are as follows: Buildings 50 years Plant and equipment 4-10 years Material residual value estimates are updated at least annually. F i n a n c i a l S t a t e m e n t s 2 0 0 7 An impairment review will be performed on property, plant and equipment if it is believed that there is a significant difference between the recoverable amount and the measured cost less accumulated depreciation. Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. Financial assets The group’s financial assets comprise primarily cash, bank deposits and trade receivables that arise from its business operations. For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise deposits with banks and bank and cash balances. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provisions for impairment. A provision for impairment of trade receivables is established when there is evidence that the group will not be able to collect all amounts due according to the original terms of the receivable. Financial liabilities The group’s financial liabilities comprise trade payables. Financial liabilities are obligations to pay cash or other financial assets and are recognised when the group becomes a party to the contractual provisions of the instruments. Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method. Leased assets Leases in terms of which the group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are regarded as operating leases and the payments are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. 37 Notes to the financial statements Year ended 31 December 2007 2. Accounting policies (continued) Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. Employee benefits Defined contribution plan Obligations for contributions to the group’s defined contribution pension plan are recognised as an expense in the income statement when they are due. Defined benefit plan The group’s net obligation in respect of its defined benefit pension plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the group, the recognised asset is limited to the net total of any unrecognised past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. Actuarial gains and losses are recognised in the statement of recognised income and expense. Interest expenses related to pension obligations are included in “finance costs” in the group income statement. All other post employment benefits are included in administrative expenses in the group income statement. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement. Share-based payment transactions The group issues equity-settled share-based payments to certain employees. The fair value, determined at the date of grant, is recognised as an expense. The total amount to be expensed over the vesting period is determined with reference to the fair value of options granted, excluding the impact of any non market vesting conditions. Non market vesting conditions are included in the assumptions about the number of options expected to vest. At each balance sheet date the group revises its estimate of the number of options expected to vest. It recognises the impact of revisions to original estimates, if any, in the income statement, with a corresponding adjustment to equity. The proceeds received, net of any directly attributable transactions costs, are credited to share capital and additional paid in capital when the options are exercised. Provisions and contingent liabilities A provision is recognised if, as a result of a past event, the group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and 38 the risks specific to the liability. F i n a n c i a l S t a t e m e n t s 2 0 0 7 Notes to the financial statements Year ended 31 December 2007 2. Accounting policies (continued) A provision for restructuring is recognised when the group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for. Finance income and expenses Finance income comprises interest income on funds invested. Interest income is recognised as it accrues, using the effective interest method. Dividend income is recognised on the date that the group’s right to receive payment is established. Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, foreign currency losses, changes in the fair value of financial assets at fair value through the income statement, impairment losses recognised on financial assets and losses on hedging instruments that are recognised in the income statement. All borrowing costs are recognised in the income statement using the effective interest method. Earnings per share The group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees. Employee Share Ownership Trust The assets and liabilities of the Employee Share Ownership Trust (“ESOT”) have been included in the group accounts. The costs of purchasing own shares held by the ESOT are shown as a deduction against equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the group income statement. Investments in subsidiaries Investments in subsidiaries are shown in the parent company balance sheet at cost less any provision for impairment. 39 Notes to the financial statements Year ended 31 December 2007 2. Accounting policies (continued) Standards and interpretations in issue not yet adopted The following standards and interpretations have been issued, but are not yet effective and have not been adopted early by the group: - IAS 1 (revised in 2007) “Presentation of financial statements” - applicable to accounting periods beginning on or after 1 January 2009 * - IAS 23 (revised in 2007) “Borrowing costs” - applicable to accounting periods beginning on or after 1 January 2009 * - IAS 27 (revised in 2008) “Consolidated and separate financial statements” - applicable to accounting periods beginning on or after 1 July 2009 * - IFRS 2 “Share-based payment” amendment - applicable to accounting periods beginning on or after 1 January 2009 - IFRS 3 (revised in 2008) “Business combinations” - applicable to accounting periods beginning on or after 1 July 2009 - IFRS 8 “Operating segments” - applicable to accounting periods beginning on or after 1 January 2009 - IFRIC 11 IFRS 2 “Group and treasury share transactions” - applicable to accounting periods beginning on or after 1 March 2007 - IFRIC 12 “Service concession arrangements” - applicable to accounting periods beginning on or after 1 January 2008 - IFRIC 13 “Customer loyalty programmes” - applicable to accounting periods beginning on or after 1 July 2008 * - IFRIC 14 IAS 9 “The limit on a defined benefit asset, minimum funding requirements and their interaction” - applicable to accounting periods beginning on or after 1 January 2008 * IAS 1 (revised in 2007), IAS 23 (revised in 2007), IAS 27 (revised in 2008), and IFRIC 13 had not been endorsed by the European Union at the date on which the financial statements were approved. IAS 1 (revised in 2007) “Presentation of financial statements” will result in changes to the presentation of the group’s financial statements as the format currently adopted for the statement of changes in equity will no longer be permitted. Instead, the group will present a statement of comprehensive income combining the existing income statement with other income and expenses currently presented as part of the statement of changes in equity. In addition, the group will present a separate statement of changes in equity 40 showing owner changes in equity. F i n a n c i a l S t a t e m e n t s 2 0 0 7 Notes to the financial statements Year ended 31 December 2007 2. Accounting policies (continued) IAS 23 (revised in 2007) “Borrowing costs” requires that borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset are capitalised as part of the cost of that asset. The standard must be applied for accounting periods beginning on or after 1 January 2009. The group’s current accounting policy would be to recognise borrowing costs in the income statement as incurred. However, currently the group does not have any borrowings of this type in place which would fall within the boundaries of the new standard. If, and following implementation of the new standard, the group does fund the acquisition or construction of property, plant and equipment through borrowings, the cost of the asset and associated depreciation charge are expected to increase and finance costs are expected to reduce. IFRS 2 “Share-based payment” amendment clarifies the term “vesting conditions”, and provides the accounting treatment for non- vesting conditions and cancellations. IFRS 3 (revised in 2008) “Business combinations” will apply to any future business combinations that the group may undertake once it is in force. The group has no plans to adopt the revised standard in advance of its mandatory implementation date and it is not possible to quantify the effect of the standard on future business combinations until those combinations take place. IFRIC 11 IFRS 2 “Group and treasury share arrangements” provides guidance on the accounting for share-based payments in the financial statements of a subsidiary where equity instruments of the parent are granted to employees of the subsidiary, either directly by the parent or by the subsidiary company. The IFRIC also clarifies the implications of using treasury shares or equity instruments provided by the shareholders to settle share-based payment transactions. The IFRIC is effective for annual periods beginning on or after 1 March 2007. The other standards and interpretations are not expected to have any significant impact on the group’s financial statements, in their periods of initial application, except for the additional disclosures on operating segments when IFRS 8 “Operating segments” comes into effect for periods beginning on or after 1 January 2009. 41 Notes to the financial statements Year ended 31 December 2007 3. Segmental information a. Primary reporting format-by business segment Soft Drinks Dispense Systems IAS 19 “Employee benefits” charge IFRS 2 “Share-based payment” charge Operating profit before exceptional items and interest Exceptional items - Soft Drinks Exceptional items - Dispense Systems Operating profit Finance income Finance expense Profit before tax Employee benefits obligations Cash and cash equivalents Revenue (sales to third parties) 2007 £’000 41,709 13,567 55,276 2006 £’000 39,922 12,374 52,296 Operating profit Net assets 2007 £’000 8,332 766 9,098 (164) (192) 8,742 (544) (434) 7,764 291 (7) 2006 £’000 7,775 406 8,181 (184) (100) 7,897 0 (2,482) 5,415 156 (98) 8,048 5,473 2007 £’000 9,535 9,783 19,318 2006 £’000 10,052 9,001 19,053 (3,635) 7,814 23,497 (6,504) 7,460 20,009 The group is managed according to two operating divisions: Soft Drinks and Dispense Systems. These divisions are the basis on which the group reports its primary segment information. Central costs are allocated to the operating subsidiaries and divisions. Exceptional items include amounts directly attributable to a segment, in addition to those costs that can be allocated on a reasonable basis. Capital expenditure Capital expenditure costs within Soft Drinks totalled £126,000 (2006: £347,000), and within Dispense Systems totalled £210,000 (2006: £490,000). Depreciation Depreciation costs within Soft Drinks totalled £238,000 (2006: £198,000), and within Dispense Systems totalled £544,000 (2006: £596,000). 42 Notes to the financial statements Year ended 31 December 2007 b. Secondary reporting format-by geographic segment Revenue by geographic destination Middle East Africa Rest of the world Total exports United Kingdom F i n a n c i a l S t a t e m e n t s 2 0 0 7 2007 2006 £’000 6,492 2,156 217 8,865 46,411 55,276 % 11.7 3.9 0.4 16.0 84.0 100.0 £’000 4,457 2,056 307 6,820 45,476 52,296 % 8.5 3.9 0.6 13.0 87.0 100.0 Revenue from continuing operations arose principally from the provision of goods. The group’s business segments operate in the Middle East, Africa, the Rest of the world and the United Kingdom. The group’s Head Office operations are located in the United Kingdom. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers and not on the legal entity in which the transaction occurred. Total assets The assets of the group at 31 December 2007 and 31 December 2006 are entirely located within the United Kingdom. Capital expenditure The capital expenditure of the group for the years ended 31 December 2007 and 31 December 2006 was entirely made within the United Kingdom. Depreciation The group’s depreciation charges for the years ended 31 December 2007 and 31 December 2006 are against fixed assets all retained within the United Kingdom. 43 Notes to the financial statements Year ended 31 December 2007 4. Operating profit Operating profit is stated after charging/ (crediting): Inventory amounts charged to cost of sales Auditors’ remuneration - audit of the company’s annual accounts Fees payable to the auditors for other services: Audit of the company’s subsidiaries Other services pursuant to legislation Depreciation of property, plant and equipment Operating lease rentals payments Equity-settled share-based payments Loss on foreign exchange differences Loss/(profit) on sale of property, plant and equipment 5. Exceptional items Cariel Soft Drinks Limited integration costs Head Office restructuring costs Total The cash impact in 2007 of the exceptional items is £275,000. Profit on disposal of discontinued operations: Profit on disposal of Balmoral Trading Limited (net of tax) The group disposed of Balmoral Trading Limited on 1 January 2006, and therefore there were no trading results from the discontinued operation included in the consolidated income statement for 2006. 6. Finance income and expense Finance income comprises: Bank interest received Finance expense comprises: Bank interest paid Expected return on defined benefit pension scheme assets Interest on defined benefit pension scheme obligations Finance expense 44 2007 £’000 291 4 (1,085) 1,088 7 2007 £’000 2006 £’000 26,521 24,346 30 17 12 782 522 192 129 27 2007 £’000 434 544 978 2007 £’000 0 34 17 14 794 1,165 100 76 (98) 2006 £’000 0 2,482 2,482 2006 £’000 2,038 2006 £’000 156 72 (981) 1,007 98 Notes to the financial statements Year ended 31 December 2007 7. Directors and employees a. Average number of persons employed during the year, including directors: Soft Drinks Dispense Systems b. Group employment costs were as follows: Wages and salaries Social security costs Pension costs - defined contribution scheme Pension costs - defined benefit scheme (see note 27) Equity-settled share-based payments F i n a n c i a l S t a t e m e n t s 2 0 0 7 2007 Number 68 69 137 2007 £’000 5,510 548 236 161 192 2006 Number 64 83 147 2006 £’000 4,906 556 154 158 100 6,647 5,874 The amounts disclosed above are also the employment costs for the parent company for the year ended 31 December 2007. Directors’ remuneration for the year, including pension costs 2007 £’000 801 2006 £’000 529 The highest paid director has received £292,675 (2006: £289,011) including pension contributions. He has an accrued pension benefit of £138,535 (2006: £129,219) and an accrued lump sum of £622,966 (2006: £290,744). Benefits are accruing to 1 director (2006: 1 director) under a defined benefit scheme and to 1 director (2006: 1 director) under a defined contribution scheme. Equity-settled share-based payments in respect of directors amounted to £107,000 (2006: £62,000). Further information regarding directors’ remuneration is provided in the directors’ report on pages 16 to 18. c. Key management personnel are deemed to be the executive directors of the company and members of the Executive Committee. The compensation payable to key management in the year is detailed below: Wages and salaries Equity-settled share-based payments 2007 £’000 350 58 408 2006 £’000 291 34 325 45 Notes to the financial statements Year ended 31 December 2007 8. Taxation a. Analysis of expense recognised in the consolidated income statement Current taxation: UK corporation tax on income for the year Adjustments in respect of prior years Total current tax charge for the year Deferred tax: Origination and reversal of temporary differences Adjustments in respect of prior years Total deferred tax charge/(credit) for the year 2007 £’000 2,318 (57) 2,261 29 89 118 2006 £’000 1,675 70 1,745 (350) (157) (507) Total tax expense in the consolidated income statement 2,379 1,238 The tax expense is wholly in respect of UK taxation. b. Tax reconciliation Profit before taxation Profit before taxation multiplied by the standard rate of corporation tax in the United Kingdom of 30% (2006: 30%) Effect of: Expenses not deductible for tax purposes Tax exempt revenues Adjustments to the tax charge in respect of prior years Differences in tax rates Reduction in tax rate to 28% in respect of deferred taxation Total tax expense in the consolidated income statement 2007 £’000 8,048 2006 £’000 5,473 2,414 1,642 42 (78) 32 (16) (15) 39 (356) (87) 0 0 2,379 1,238 The effective rate of tax for the year of 29.6% (2006: 22.6%) is lower than the standard rate of corporation tax in the United Kingdom (30%). The differences are explained above. c. The effective rate of tax on profit before exceptional items is 29.6% (2006: 28.9%). d. Tax on items charged to equity In addition to the amount charged to the consolidated income statement, £933,000 (2006: £27,000) has been charged directly to equity, being the movement on deferred taxation relating to retirement benefit obligations. 46 Notes to the financial statements Year ended 31 December 2007 9. Equity dividends Interim dividend 3.50p (2006: 3.30p) paid 7th September 2007 Final dividend proposed in 2006 6.50p paid 18th May 2007 F i n a n c i a l S t a t e m e n t s 2 0 0 7 2007 £’000 1,294 2,403 3,697 2006 £’000 1,220 2,255 3,475 The interim dividend for the prior year of £1,220,000 was paid on 15th September 2006. In accordance with IAS 10 “Events after the balance sheet date”, the 2007 final dividend of £2,551,000 (6.90p per share) has not been accrued as it had not been proposed by the year-end. 10. Earnings per share Earnings per share (basic) - all activities Earnings per share (diluted) - all activities Earnings per share (basic) - continuing activities Earnings per share (diluted) - continuing activities Earnings per share (basic) - discontinued activities Earnings per share (diluted) - discontinued activities Earnings per share (basic) - before exceptional items Earnings per share (diluted) - before exceptional items 2007 15.49p 15.47p 15.49p 15.47p 0.00p 0.00p 17.36p 17.34p 2006 17.10p 17.08p 11.54p 11.53p 5.56p 5.55p 15.43p 15.41p Earnings per share Basic earnings per share Dilutive effect of share options Diluted earnings per share 2007 Weighted average number of Earnings £’000 shares 5,669 36,602,810 49,557 5,669 36,652,367 Earnings per share 15.49p Earnings £’000 6,273 15.47p 6,273 2006 Weighted average number of shares 36,685,868 39,063 36,724,931 Earnings per share 17.10p 17.08p 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 group’s operations. It can be reconciled from the basic earnings per share as follows (see next page): 47 Notes to the financial statements Year ended 31 December 2007 10. Earnings per share (continued) Earnings per share - before exceptional items Basic earnings per share Exceptional items Taxation in respect of exceptional items Basic earnings per share before exceptional items Dilutive effect of share options Diluted earnings per share before exceptional items Basic earnings per share Exceptional administrative expenses Taxation in respect of exceptional items Basic earnings per share before exceptional items Dilutive effect of share options Diluted earnings per share before exceptional items Earnings per share - continuing activities Basic earnings per share Dilutive effect of share options Diluted earnings per share Earnings per share - discontinued activities Basic earnings per share Dilutive effect of share options Diluted earnings per share 48 2007 Weighted average number of shares 36,602,810 36,602,810 49,557 36,652,367 2006 Weighted average number of shares 36,685,868 Earnings per share 15.49p 17.36p 17.34p Earnings per share 17.10p 36,685,868 39,063 36,724,931 15.43p 15.41p Earnings £’000 5,669 978 (293) 6,354 6,354 Earnings £’000 6,273 444 (1,058) 5,659 5,659 2007 Weighted average number of Earnings £’000 shares 5,669 36,602,810 49,557 Earnings per share 15.49p 2006 Weighted average number of shares Earnings £’000 Earnings per share 4,235 36,685,868 11.54p 39,063 5,669 36,652,367 15.47p 4,235 36,724,931 11.53p 2007 Weighted average number of shares 0 36,602,810 Earnings £’000 Earnings per share 0.00p 2006 Weighted average number of shares Earnings £’000 Earnings per share 2,038 36,685,868 5.56p 49,557 39,063 0 36,652,367 0.00p 2,038 36,724,931 5.55p Notes to the financial statements Year ended 31 December 2007 11. Property, plant and equipment Group Cost At 1 January 2006 Additions Disposal of subsidiary undertaking Disposals At 1 January 2007 Acquisitions through business combinations (note 13) Additions Disposals At 31 December 2007 Depreciation At 1 January 2006 Charge for the year Disposal of subsidiary undertaking On disposals At 1 January 2007 Charge for the year On disposals At 31 December 2007 Net book value at 31 December 2007 Net book value at 31 December 2006 Parent Cost At 1 January 2006 Additions Disposals At 1 January 2007 Additions At 31 December 2007 Depreciation At 1 January 2006 Charge for the year On disposals At 1 January 2007 Charge for the year At 31 December 2007 Net book value at 31 December 2007 Net book value at 31 December 2006 F i n a n c i a l S t a t e m e n t s 2 0 0 7 Long leasehold land and buildings £’000 7,081 0 0 (7,081) 0 0 0 0 0 1,133 0 0 (1,133) 0 0 0 0 0 0 Long leasehold land and buildings £’000 7,022 0 (7,022) 0 0 0 1,106 0 (1,106) 0 0 0 0 0 Plant and equipment £’000 14,957 837 (3,473) (6,057) 6,264 197 336 (1,114) 5,683 7,342 794 (1,799) (3,252) 3,085 782 (632) 3,235 2,448 3,179 Plant and equipment £’000 1,603 347 (296) 1,654 126 1,780 866 198 (160) 904 238 1,142 638 750 Total £’000 22,038 837 (3,473) (13,138) 6,264 197 336 (1,114) 5,683 8,475 794 (1,799) (4,385) 3,085 782 (632) 3,235 2,448 3,179 Total £’000 8,625 347 (7,318) 1,654 126 1,780 1,972 198 (1,266) 904 238 1,142 638 750 49 Notes to the financial statements Year ended 31 December 2007 12. Goodwill Group Cost At 1 January 2006 Additions At 1 January 2007 Additions At 31 December 2007 Net book value at 31 December 2007 Net book value at 31 December 2006 Parent Cost At 1 January 2006, at 1 January 2007 and 31 December 2007 Net book value at 31 December 2007 Net book value at 31 December 2006 The asset has a finite useful economic life. £’000 9,504 120 9,624 1,286 10,910 10,910 9,624 Goodwill £’000 5,480 5,480 5,480 Goodwill of £1.0 million arising on the acquisition of Cariel Soft Drinks Limited has been allocated to the Dispense division, as this segment is the group of cash-generating units expected to benefit from the synergies of the business combination. The total goodwill allocated to the Dispense division is £5.4 million. The remaining goodwill of £5.5 million has been allocated to the Panda soft drinks range. Goodwill is tested at least annually for impairment and whenever there are indications that goodwill might be impaired. The recoverable amount of a cash-generating unit is based on its value in use. Value in use is the present value of the projected cash flows of the cash-generating unit. The key assumptions regarding the value in use calculations were forecast growth in revenues and the discount rate applied. Budgeted revenue growth was estimated based on actual performance over the past two years and expected market changes. The discount rate used is a pre-tax rate and reflects the risks specific to the relevant cash-generating unit. Panda Cash flow projections are based on the most recent financial budgets approved by management. Management has analysed projected sales according to product type, specifically fruit drinks, spring water and carbonated drinks, and have applied growth rates of 6%, 3% and -2% respectively to these product lines. These annual growth rates have been used in projecting the cash flows for a period of five years. Cash flows beyond this period are extrapolated using a growth rate of 2.25%, which is consistent with the average annual growth in GDP in the United Kingdom. The discount rate applied was 7%. The directors believe that any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed the recoverable amount of the cash-generating unit. Dispense division Cash flow projections are based on the most recent financial budgets approved by management. Management have applied an annual growth rate of 6% in projecting the cash flows for a period of five years. Cash flows beyond this period are extrapolated using a growth rate of 2.25%. The discount rate applied was 7%. The directors believe that any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed the recoverable amount of the cash-generating unit. 50 Notes to the financial statements Year ended 31 December 2007 13. Investments: shares in group undertakings Parent Cost and net book amount At 1 January 2006 Additions Disposal of subsidiary undertakings At 1 January 2007 Additions (see * below) At 31 December 2007 F i n a n c i a l S t a t e m e n t s 2 0 0 7 £’000 13,467 120 (7,256) 6,331 1,365 7,696 * Additions comprise £1,125,000 relating to the group’s acquisition of Cariel Soft Drinks Limited (see Acquisitions below), and £240,000 relating to Beacon Drinks Limited, a prior year acquisition, in respect of earn-out arrangements on the shares acquired by the group. All fixed asset investments relate to group undertakings. Listed below are the trading subsidiaries and the ownership of their ordinary share capital by the group. Beacon Holdings Limited Beacon Drinks Limited * Cabana (Holdings) Limited Cabana Soft Drinks Limited * Cariel Soft Drinks Limited % 100 100 100 100 100 The company directly owns Cabana (Holdings) Limited, Beacon Holdings Limited and Cariel Soft Drinks Limited (see Acquisitions table below). *Cabana Soft Drinks Limited is directly owned by Cabana (Holdings) Limited. *Beacon Drinks Limited is directly owned by Beacon Holdings Limited. All group undertakings are consolidated. The above companies and the parent company were all incorporated and operate in the United Kingdom. Particulars of non-trading companies are filed with the annual return. All companies in the group are engaged in the supply of soft drinks and other beverages. Acquisitions On 6 April 2007 the group acquired the entire issued share capital of Cariel Soft Drinks Limited for £1.1 million. The acquisition was made to increase the geographical range of the group’s Dispense business and to enhance the group’s position as the third largest operator in the Dispense sector in the UK. The contribution of Cariel Soft Drinks Limited to the group results has not been disclosed since, in the opinion of the directors, the operations of this business have been integrated into the group’s Dispense division to the extent that it is not practicable to obtain this information. Similarly, and also due to a lack of IFRS specific data for Cariel Soft Drinks Limited prior to its acquisition, the pro-forma revenue and profit of the group had the company been acquired on 1 January 2007 have also not been disclosed as they cannot be determined reliably. Details of the net assets acquired and the goodwill are as follows: Property, plant and equipment Inventories Trade and other receivables Trade and other payables Overdraft Net assets acquired Cash consideration Goodwill Fair value £’000 197 41 243 (258) (144) 79 1,125 1,046 Management have reviewed the fair value of the assets and liabilities acquired, and have concluded that there is no significant difference between the fair value of the net assets acquired and their book value. Upon acquisition of the company, management performed a detailed exercise reviewing all assets acquired. A value was not associated with either the product, brand or order book which were acquired as part of the transaction. Therefore, no other intangible assets qualified for recognition within the group financial statements. 51 Notes to the financial statements Year ended 31 December 2007 14. Deferred tax assets and liabilities Movement in temporary differences during the year Group Property, plant and equipment Goodwill Employee benefits Provisions Group Property, plant and equipment Goodwill Employee benefits Provisions Parent Property, plant and equipment Goodwill Employee benefits Provisions Parent Property, plant and equipment Goodwill Employee benefits Provisions Net balance at 1 January 2007 £’000 (95) (86) 1,951 122 1,892 Net balance at 1 January 2006 £’000 (810) 0 2,102 13 1,305 Net balance at 1 January 2007 £’000 128 (86) 1,951 63 2,056 Net balance at 1 January 2006 £’000 (38) 0 2,102 13 2,077 Recognised in income £’000 36 (106) 41 (89) (118) Recognised in income £’000 715 (86) (124) 109 614 Recognised in income £’000 (33) (106) 41 (30) (128) Recognised in income £’000 166 (86) (124) 50 6 Recognised in equity £’000 0 0 (933) 0 (933) Recognised in equity £’000 0 0 (27) 0 (27) Recognised in equity £’000 0 0 (933) 0 (933) Recognised in equity £’000 0 0 (27) 0 (27) Net balance at 31 December 2007 £’000 (59) (192) 1,059 33 841 Net balance at 31 December 2006 £’000 (95) (86) 1,951 122 1,892 Net balance at 31 December 2007 £’000 95 (192) 1,059 33 995 Net balance at 31 December 2006 £’000 128 (86) 1,951 63 2,056 Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Group Assets Liabilities Net Property, plant and equipment Goodwill Employee benefits Provisions Current year £’000 105 0 1,059 33 1,197 Prior year £’000 128 0 1,951 122 2,201 Current year £’000 (164) (192) 0 0 (356) Prior year £’000 (223) (86) 0 0 (309) Current year £’000 (59) (192) 1,059 33 841 Prior year £’000 (95) (86) 1,951 122 1,892 Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Parent Assets Liabilities Net Property, plant and equipment Goodwill Employee benefits Provisions 52 Current year £’000 95 0 1,059 33 1,187 Prior year £’000 128 0 1,951 63 2,142 Current year £’000 0 (192) 0 0 (192) Prior year £’000 0 (86) 0 0 (86) Current year £’000 95 (192) 1,059 33 995 Prior year £’000 128 (86) 1,951 63 2,056 F i n a n c i a l S t a t e m e n t s 2 0 0 7 Notes to the financial statements Year ended 31 December 2007 15. Inventories Finished goods Group 2007 £’000 2,509 2006 £’000 2,169 Parent 2007 £’000 1,546 2006 £’000 1,162 In 2007 the group write-down of inventories to net realisable value amounted to £168,422 (2006: £191,236). 16. Trade and other receivables Trade receivables Amounts owed by group undertakings Other receivables Prepayments and accrued income Group Parent 2007 £’000 11,741 0 1,198 238 13,177 2006 £’000 10,636 0 1,282 446 12,364 2007 £’000 8,761 2,227 5 206 11,199 2006 £’000 8,057 2,885 34 385 11.361 With the exception of £864,000 due from customers, all the above amounts are short-term debt. The difference between the carrying value and fair value of all receivables is not considered to be material. All trade and other receivables have been reviewed for indicators of impairment, and a provision of £544,088 (2006: £103,741) has been recorded accordingly. In addition, some of the unimpaired trade receivables are past due at the reporting date. The age of receivables past due but not impaired is as follows: Group Up to 30 days overdue Over 30 days and up to 60 days overdue Over 60 days and up to 90 days overdue Over 90 days overdue Parent Upto 30 days overdue Over 30 days and up to 60 days overdue Over 60 days and up to 90 days overdue Over 90 days overdue 2007 £’000 2,511 433 108 92 3,144 2007 £’000 1,775 337 97 378 2,587 17. Trade and other payables and current tax liabilities Trade payables Amounts owed to group undertakings Other taxes and social security Accruals and deferred income Current tax liabilities Group Parent 2007 £’000 3,452 0 689 4,687 1,058 9,886 2006 £’000 3,780 0 530 4,056 598 8,964 2007 £’000 2,588 803 486 4,064 842 8,783 All amounts shown above are short-term. The carrying values are considered to be a reasonable approximation of fair value. At 31 December 2007, liabilities have contractual maturities which are summarised below: 2006 £’000 1,441 171 176 474 2,262 2006 £’000 737 458 49 866 2,110 2006 £’000 3,184 803 274 3,292 700 8,253 Group Trade payables Other short term financial liabilities 2007 2006 Within 6 months £’000 3,452 4,687 8,139 Within 6 to 12 months £’000 0 0 0 Within 6 months £’000 3,780 4,056 7,836 Within 6 to 12 months £’000 0 0 0 53 Notes to the financial statements Year ended 31 December 2007 17. Trade and other payables and current tax liabilities (continued) Parent Trade payables Other short term financial liabilities 2007 2006 Within 6 months £’000 2,588 4,064 6,652 Within 6 to 12 months £’000 0 803 803 Within 6 months £’000 3,184 3,292 6,476 Within 6 to 12 months £’000 0 803 803 In addition to the above, the contractual maturity of the forward exchange contracts outstanding at 31 December was as follows: Group and parent Forward exchange contracts 18. Provisions Group Exceptional cost provision Parent Exceptional cost provision 2007 Within 6 months £’000 590 Within 6 to 12 months £’000 472 2006 Within 6 months £’000 606 Within 6 to 12 months £’000 606 At 1 January 2007 £’000 1,211 Charge in the year £’000 978 Reclassification £’000 (300) At 1 January 2007 £’000 424 Charge in the year £’000 544 Reclassification £’000 (300) At 31 December 2007 £’000 681 At 31 December 2007 £’000 117 Utilised £’000 (1,208) Utilised £’000 (551) The group’s exceptional cost provision at 1 January 2007 disclosed within current liabilities comprised costs in respect of group restructuring that were committed (but not incurred) at 31 December 2006. A further amount of £978,000 was charged against the provision in 2007 in respect of the costs of the continued group restructuring which were committed but not incurred at the reporting date. An amount of £300,000 within the provision was reclassified within trade receivables. Cash outflows of £381,000 are expected to be incurred during 2008 in relation to the group’s exceptional cost provision. 19. Share capital Authorised 52,000,000 (2006: 52,000,000) 10p ordinary shares Allotted, issued and fully paid 36,968,772 (2006: 36,968,772) 10p ordinary shares 2007 £’000 5,200 3,697 2006 £’000 5,200 3,697 The share capital of Nichols plc consists only of ordinary 10p shares. All shares are equally eligible to receive dividends and the repayment of capital, and represent one vote at shareholders’ meetings. There were no movements in the group’s authorised and allotted, issued and fully paid share capital for the financial years ending 31 December 2007 and 31 December 2006. 54 Notes to the financial statements Year ended 31 December 2007 20. Reserves Group and parent Additional paid in capital £’000 3,255 0 0 0 0 0 3,255 0 0 0 0 0 0 3,255 Called up share capital £’000 3,697 0 0 0 0 0 3,697 0 0 0 0 0 0 3,697 Capital redemption reserve £’000 1,209 0 0 0 0 0 1,209 0 0 0 0 0 0 1,209 At 1 January 2006 Profit for the financial year Dividends Other recognised gains and losses Movement in ESOT Share options charge At 1 January 2007 Profit for the financial year Dividends Other recognised gains and losses Purchase of own shares Movement in ESOT IFRS 2 “Share-based payment” charge At 31 December 2007 F i n a n c i a l S t a t e m e n t s 2 0 0 7 Group Group Parent Parent Other reserves £’000 (658) 0 0 0 71 100 (487) 0 0 0 (224) 27 192 (492) Retained earnings £’000 9,488 6,273 (3,475) 64 (15) 0 12,335 5,669 (3,697) 1,589 0 (68) 0 15,828 Other reserves £’000 117 0 0 0 71 100 288 0 0 0 (224) 27 192 283 Retained earnings £’000 4,707 8,549 (3,081) 64 (15) 0 10,224 5,304 (3,697) 1,589 0 (68) 0 13,352 An income statement is not provided for the parent company as permitted by Section 230 of the Companies Act 1985. The profit dealt with in the financial statements of Nichols plc was £5,304,000 (2006: £8,549,000). Other reserves Other reserves incorporate purchases of own shares, movements in the group’s ESOT and the IFRS 2 “Share-based payment” charge for the year. Purchase of own shares During the year, the group purchased 100,000 of its own 10p ordinary shares. The shares acquired represent 0.3% of the group’s total called up share capital. The purchase of own shares occurred because the group opted to hold a pre-determined number of its shares in treasury for a fixed period of time. Share-based payments The group’s equity-settled share-based payments comprise the grant of options under the group’s share option schemes. Details of the share options subject to equity-settled share-based payments are set out below. In accordance with IFRS 2 “Share-based payment”, the group has recognised an expense to the income statement representing the fair value of outstanding equity-settled share-based payment awards to employees which have not vested as at 1 January 2007 for the year ending 31 December 2007. Those fair values were charged to the income statement over the relevant vesting period adjusted to reflect actual and expected vesting levels. The group has calculated the fair market value of the nil-cost options as being based on the market value of a company share at the date of grant adjusted to reflect the fact that an employee is not entitled to receive dividends over the relevant holding period. The group operates a Long Term Incentive Plan for senior managers which is based upon the achievement of performance targets over a three year period. The estimated fair values of options which fall under the IFRS 2 “Share-based payment” accounting charge, and inputs used in the Binomial model to calculate those fair values, are as follows: Date of Grant 3 October 2003 3 October 2003 14 October 2004 14 October 2004 26 September 2005 26 September 2005 10 October 2005 10 October 2005 3 October 2006 3 October 2006 Number granted Share price on Grant Date Exercise Price Fair Values on Grant Date Vesting period Expected Dividend Yield 64,168 21,112 39,751 24,052 26,151 28,991 85,000 85,000 57,075 60,376 £1.36 £1.36 £1.60 £1.60 £2.05 £2.05 £2.02 £2.02 £2.51 £2.51 £1.04 £1.04 £1.26 £1.26 £1.63 £1.63 £0.00 £0.00 £1.92 £1.92 £0.23 £0.27 £0.30 £0.33 £0.36 £0.40 £1.98 £1.96 £0.42 £0.46 3.25 years 5.25 years 3.25 years 5.25 years 3.25 years 5.25 years 2.00 years 3.00 years 3.25 years 5.25 years 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% Lapse Rate Risk free rate Volatility 5.00% 4.29% 22.80% 4.52% 22.80% 5.00% 4.60% 24.08% 5.00% 4.50% 24.08% 5.00% 4.02% 22.65% 5.00% 3.91% 22.65% 5.00% 3.95% 22.65% 0.00% 3.87% 22.65% 0.00% 21.13% 4.47% 5.00% 21.13% 4.38% 5.00% 55 Notes to the financial statements Year ended 31 December 2007 20. Reserves (continued) Expected volatility The volatility of the company’s share price on each date of grant was calculated as the average of annualised standard deviations of daily continuously compounded returns on the company’s stock, calculated over five years back from the date of the grant, where applicable. Risk-free rate The risk-free rate is the yield to maturity on the date of grant of a UK Gilt Strip, with term to maturity equal to the life of the option. Expected life The expected life of a Save As You Earn option is equal to the vesting period plus a three month exercise period and for an employee share option is equal to the vesting period. The following options for 10p ordinary shares under the Save As You Earn scheme were outstanding at the year end: Date of grant: 4 October 2001 4 October 2002 3 October 2003 14 October 2004 26 September 2005 3 October 2006 At 1 January 2007 10,052 10,606 6,705 26,660 37,553 117,451 Granted Exercised Lapsed At 31 December 2007 Exercise price per share - - - - - - (9,334) (684) - (16,995) (1,211) - (718) - - (2,168) (15,669) (9,546) - 9,922 6,705 7,497 20,673 107,905 94p 96p 104p 126p 163p 192p Options are exercisable at the end of a three or five year savings contract commencing on the date of grant and for a period of six months thereafter. The share price during 2007 varied between 221p and 317p and the weighted average price for the year was 264p. At 31 December 2007, options over 152,702 shares were outstanding under Employee Share Option Plans. The total number and value of the options outstanding under both of the company’s share option schemes are as follows: 2007 2006 Weighted average exercise price in pence 118.65 - 116.28 168.23 116.59 Number 700,703 - (28,224) (28,101) 644,378 Weighted average exercise price in pence 89.98 192.00 106.28 114.29 118.65 Number 644,402 234,902 (57,874) (120,727) 700,703 At 1 January 2007 £’000 7,460 At 1 January 2007 £’000 6,714 Cash flow At 31 December 2007 £’000 7,814 £’000 354 Cash flow At 31 December 2007 £’000 6,777 £’000 63 Outstanding on 1 January Granted Exercised Lapsed Outstanding on 31 December 21. Cash and cash equivalents Group Cash at bank and in hand Parent Cash at bank and in hand 56 F i n a n c i a l S t a t e m e n t s 2 0 0 7 Notes to the financial statements Year ended 31 December 2007 22. Financial instruments Exposure to interest rate, credit and currency risks arises in the normal course of the group’s business. Treasury management The group’s treasury activities are targeted to provide suitable, flexible funding arrangements to satisfy the group’s requirements. Interest rate and liquidity risk are managed at a group level. Foreign currency risk is managed, in consultation with group management, in subsidiaries which are responsible for the majority of purchases. The group’s policy for investing any surplus cash balances is to place such amounts on deposit. Liquidity risk The group seeks to manage financial risk to ensure sufficient liquidity is available to meet foreseeable needs. The acquisition of companies and the continuing investment in non-current assets will be achieved by a mix of operating cash and short term borrowing facilities. Short term flexibility is achieved by bank overdraft. Interest rate risk The group finances its activities through a mixture of retained profits and borrowings. All borrowings are in sterling at floating rates of interest, based upon the prevailing base rate or LIBOR. The group has reviewed the impact of sensitivity on interest rate fluctuations and has concluded that there would be no impact on the income statement following the effects of such variances. Credit risk The group has no significant concentrations of credit risk. The group has implemented stringent policies that ensure that credit evaluations are performed on all potential customers before sales commence. Credit risk is managed by limiting the aggregate exposure to any one individual counterparty, taking into account its credit rating. Such counterparty exposures are regularly reviewed and adjusted as necessary. Accordingly, the possibility of material loss arising in the event of non-performance by counterparties is considered to be unlikely. Foreign currency risk The group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the functional currency of the group. The currencies giving rise to this risk are primarily US Dollars (USD) and Euros (€). The group uses forward exchange contracts to hedge its foreign currency risk. Forward purchase contracts in Euros are made to cover at least the full year of projected purchases. The forward foreign currency purchase contracts, which are a mixture of firm contracts and conditional options, mature in line with expected purchases throughout 2008 (as disclosed in note 17). The directors have reviewed the fair value of the forward contracts outstanding at the balance sheet date, and have concluded that this amount is not material. 57 Notes to the financial statements Year ended 31 December 2007 22. Financial instruments (continued) Foreign currency assets/(liabilities) US Dollar Euro 2007 £’000 2,423 (37) 2,386 2006 £’000 919 (73) 846 All short term creditors and debtors have been excluded from these disclosures. Foreign currency sensitivity Some of the group’s transactions are carried out in US Dollars and Euros. As a result, management have undertaken sensitivity analysis to consider the financial impact if Sterling had both strengthened and weakened against the US Dollar and the Euro. If Sterling had strengthened against the US Dollar and Euro by 5% (2006: 5%), then this would have had the following impact: Net result for the year 2007 £’000 Euro (2) USD 128 Total 126 USD 49 2006 £’000 Euro (4) If Sterling had weakened against the US Dollar and Euro by 5% (2006: 5%), then this would have had the following impact: Net result for the year 2007 £’000 Euro 2 USD (116) Total (114) USD (45) 2006 £’000 Euro 3 Total 45 Total (42) Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the group’s exposure to currency risk. 58 F i n a n c i a l S t a t e m e n t s 2 0 0 7 Notes to the financial statements Year ended 31 December 2007 23. Summary of financial assets and liabilities by category The IAS 39 categories of financial asset included in the balance sheet and the headings in which they are included are as follows: Current assets Trade receivables and other receivables Cash and cash equivalents Total loans and receivables Group Parent 2007 £’000 12,939 7,814 20,753 2006 £’000 11,918 7,460 19,378 2007 £’000 10,993 6,777 17,770 2006 £’000 10,976 6,714 17,690 The IAS 39 categories of financial liability included in the balance sheet and the headings in which they are included are as follows: Group Current liabilities Other financial liabilities - trade and other payables Group Parent 2007 £’000 8,139 2006 £’000 7,836 2007 £’000 7,455 2006 £’000 7,279 24. Capital management policies and procedures The group manages its capital to ensure that entities in the group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. This strategy remains unchanged from 2006. At 31 December 2007 the group had no debt, and therefore the capital structure consists of equity only. The directors regularly monitor the level of net assets of the company in accordance with Section 142 of the Companies Act 1985 (Serious Loss of Capital). 25. Operating leases Non-cancellable operating lease rentals are payable as follows: Within one year Between one and five years More than five years Group Parent 2007 £’000 917 524 34 1,475 2006 £’000 848 980 16 1,844 2007 £’000 724 346 0 1,070 2006 £’000 745 809 0 1,554 The group leases its headquarters, Laurel House, under a non-cancellable operating lease agreement, and leases dispensing and certain other plant and equipment under non-cancellable operating lease agreements which have varying terms, escalation clauses and renewal rights. 59 Notes to the financial statements Year ended 31 December 2007 26. Related party transactions Parent company The parent company entered into the following transactions with subsidiaries during the year: Transaction value Year ended 31 December 2007 £’000 3,444 2006 £’000 3,877 Balance outstanding As at 31 December 2007 £’000 1,424 2006 £’000 2,082 Sale of goods and services (including recharge of costs) All balances with the related parties are priced on an arm’s length basis. 27. Employee benefits The group operates two employee benefit plans, a defined benefit plan which provides benefits based on final salary which is now closed to new members, and a defined contribution group personal plan. The group personal plan consists of individual contracts with contributions from both the employer and employee. The charge for the year for the group personal plan was £236,000 (2006: £154,251). The company operates a defined benefit plan in the UK. A full actuarial valuation was carried out on 5 April 2005 and updated at 31 December 2007 by an independent qualified actuary. The company paid an additional £0.5 million into the plan in the year (2006: £0.6 million) and will continue to monitor the deficit. The principal actuarial assumptions used by the actuary at the reporting date (expressed as weighted averages) were as follows : Future salary increases Rate of increase in (post 1997) pensions in payment (a) Discount rate at 31 December Expected rate of inflation Overall expected return on plan assets 31 December 31 December 31 December 2007 3.90% 3.40% 5.80% 3.40% 5.80% 2006 3.60% 3.10% 4.90% 3.10% 5.40% 2005 3.25% 3.00% 4.90% 2.75% 5.30% The expected return on plan assets is based on the long term rates of return on the market values of equities, fixed interest assets, corporate bonds and cash and other assets at 31 December. Other material actuarial assumptions were the rate of salary increases and mortality assumptions. In terms of future salary increases, the actuary is recommending an assumption of approximately 1% in excess of inflation based on historic differences between price inflation and salary inflation. However, the actuary has allowed for salary inflation at the same level as last year, adopting an allowance of inflation plus 0.5% as the rate of salary increase. Assumptions regarding future mortality experience are set based on the advice of actuaries and in accordance with published statistics. Life expectancies have been estimated as 92 years for men (2006: 92 years) and 92 years for women (2006: 92 years). (a) Increases on pre-6 April 1997 pensions are fixed at 3% per annum. Post-6 April 1997 increases are in line with price inflation, subject to a minimum of 3% and a maximum of 5%. Over the year the company contributed to the plan at the rate of 12.7% of salaries (3% in respect of members of the Stockpack section). The charge to the consolidated income statement was £161,000 (2006: £158,401). The company will continue to contribute at this rate pending the results of the next actuarial valuation. The plan is now closed to new entrants. This means that the average age of the membership can be expected to rise which in turn means that the future service cost (as a percentage of scheme members’ pensionable salaries) can be expected to rise. 60 F i n a n c i a l S t a t e m e n t s 2 0 0 7 Notes to the financial statements Year ended 31 December 2007 27. Employee benefits (continued) The assets of the group’s defined benefit plan and the expected rates of return on these assets are summarised as follows: Equity securities Gilts Government bonds Cash and other Equity securities Gilts Government bonds Cash and other Long term rate of return expected at 31 December 2007 31 December 2006 7.50% 4.50% 5.80% 5.50% 7.50% 4.50% 4.90% 4.80% Market value of assets at 31 December 2007 31 December 2006 £’000 12,009 2,094 2,042 425 16,570 £’000 11,771 1,852 1,849 456 15,928 The following amounts were measured in accordance with IAS 19 “Employee benefits”. The amounts recognised in the consolidated and parent company balance sheets are determined as follows: Fair value of plan assets Present value of defined benefit obligations Recognised liability for defined benefit obligations The expense is recognised in the following line items in the consolidated income statement: Operating profit Current service costs Total operating charge Finance expense Expected return on plan assets Interest on obligation Total finance expense Total charge to the consolidated income statement Group Statement of Recognised Income and Expense Actual return less expected return on plan assets Experience gains and losses arising on plan liabilities Changes in the assumptions underlying the present value of the plan liabilities Actuarial movement in defined benefit plan recognised in group statement of recognised income and expense 2007 £’000 16,570 (20,205) (3,635) 2006 £’000 15,928 (22,432) (6,504) 2007 £’000 (161) (161) 1,085 (1,088) (3) (164) (634) (22) 3,178 2,522 2006 £’000 (158) (158) 981 (1,007) (26) (184) 256 836 (1,001) 91 61 Notes to the financial statements Year ended 31 December 2007 27. Employee benefits (continued) The movement during the year in the liability for defined benefit obligations was as follows: Liability for defined obligations at 1 January Current service costs Contributions paid into the plan Other finance costs Actuarial gain recognised in equity Liability for defined benefit obligations at 31 December The movement during the year in the present value of the plan assets was as follows: Opening fair value of plan assets Expected return on plan assets Actuarial (loss)/gain Contributions by the group Closing fair value of plan assets The movement during the year in the present value of defined benefit obligations was as follows: Opening defined benefit obligations Current service costs Contributions by participants Other finance costs Actuarial (gain)/loss Closing defined benefit obligations Difference between expected and actual return on plan assets Amount Percentage of plan assets Experience gains and losses on plan liabilities Amount Percentage of present value of plan liabilities Gain and losses on changes in assumptions Amount Percentage of present value of plan liabilities Total actuarial gains and losses Amount Percentage of present value of plan liabilities 2007 (634) (3.8%) (22) (0.1%) 3,178 15.7% 2,522 12.5% 2006 256 1.6% 836 3.9% 2005 1,004 7.1% (1,194) (5.7%) (1,001) (4.5%) (2,316) (11.0%) 91 0.5% (2,506) (11.9%) 2007 £’000 (6,504) (161) 511 (3) 2,522 (3,635) 2006 £’000 (7,008) (158) 597 (26) 91 (6,504) 15,928 1,085 (634) 191 14,102 981 256 589 16,570 15,928 22,432 21,110 161 (320) 1,088 (3,156) 20,205 2004 188 1.6% (215) (1.3%) (514) (3.1%) (541) (3.2%) 158 (8) 1,007 165 22,432 2003 337 3.3% (98) (0.6%) (983) (6.4%) (744) (4.9%) 62 F i n a n c i a l S t a t e m e n t s 2 0 0 7 Five year summary Years ended 31 December Revenue Operating profit before exceptional items and IAS 19 and IFRS 2 charges Exceptional items IAS 19 operating profit charges IFRS 2 operating profit charges Operating profit after exceptional items Profit/(loss) on disposal of businesses and tangible fixed assets Net interest receivable/(paid) Profit before tax Tax Profit after tax Dividends paid Retained profit/(loss) Earnings per share - (basic) Earnings per share - (diluted) Earnings per share - (basic) before exceptional items Earnings per share - (diluted) before exceptional items Dividends paid per share IFRS 2007 £’000 55,276 9,098 (978) (164) (192) 7,764 0 284 8,048 (2,379) 5,669 (3,697) 1,972 15.49p 15.47p 17.36p 17.34p 10.00p 2006 £’000 52,296 8,181 2005 £’000 63,336 7,756 UK GAAP 2004 £’000 88,073 7,153 2003 £’000 97,110 7,342 (2,482) (1,002) (2,291) (3,994) (184) (100) 5,415 2,038 58 7,511 (1,238) 6,273 (3,475) 2,798 17.10p 17.08p 15.43p 15.41p 9.40p (51) (33) (36) (6) 0 (1) 6,670 4,820 3,347 0 (11,062) (707) 5,963 (1,999) 3,964 (3,309) (887) (7,129) (1,579) (8,708) (3,253) 655 (11,961) 10.82p 10.79p 12.74p 12.70p 8.95p (23.84p) (23.84p) 11.54p 11.52p 8.80p 0 (790) 2,557 (820) 1,737 (3,253) (1,516) 4.78p 4.77p 12.47p 12.44p 8.80p The above amounts for 2003, 2004 and 2005 are presented under UK GAAP and have not been restated to comply with IFRS. The main adjustments required to these amounts to comply with IFRS are as follows: - reversal of goodwill amortisation charges - corresponding deferred tax adjustments on reversal of amortisation charges 63 notice of meeting Notice is hereby given that the seventy eighth Annual General Meeting of Nichols plc (“company”) will be held at its Registered Office, Laurel House, Woodlands Park, Ashton Road, Newton le Willows WA12 0HH on Wednesday 14 May 2008 at 11.00am for the purpose of transacting the following business: As ordinary business: 1. To receive the directors’ report and the company’s annual accounts for the year ended 31 December 2007 together with the auditors’ report on those accounts. 2. To declare a final dividend for the year ended 31 December 2007 of 6.90 pence per ordinary share in the capital of the company to be paid on 15 May 2008 to shareholders whose names appear on the register of members at the close of business on 18 April 2008. 3. To re-elect B M Hynes, who retires by rotation, as a director of the company. 4. To re-appoint Grant Thornton UK LLP as auditors of the company to hold office from the conclusion of the meeting until the conclusion of the next general meeting of the company at which accounts are laid and to authorise the directors to determine their remuneration. As special business: To consider and, if thought appropriate, approve the following resolutions of which resolution 5 will be proposed as an ordinary resolution and resolutions 6,7, 8 and 9 will be proposed as special resolutions. Ordinary resolution: 5. That, pursuant to Section 80 of the Companies Act 1985 (“Act”) and in substitution for all existing authorities under that section, the directors be and are generally and unconditionally authorised to exercise all the powers of the company to allot relevant securities (as defined in Section 80 of the Act) up to a maximum nominal amount of £184,843 to such persons and at such times and on such terms as they think proper during the period expiring at the conclusion of the Annual General Meeting of the company to be held in 2009 or on 15 October 2009 (whichever is the earlier) save that the company may prior to the expiry of such period make an offer or agreement which would or might require relevant securities to be allotted after the expiry of the said period and the directors may allot such securities in pursuance of any such offer or agreement notwithstanding the expiring of the authority given by this resolution. Special resolutions: 6. That, subject to the passing of resolution 5, pursuant to Section 95 of the Companies Act 1985 (“Act”) and in substitution for all existing authorities under that section, the directors be and are generally empowered to make allotments of equity securities (as defined in Section 94(2) of the Act) for cash pursuant to the general authority conferred upon them by resolution 5 above as if Section 89(1) of the Act did not apply to any such allotment, provided that this power shall be limited to: (a) the allotment of equity securities in connection with an offer (whether by way of a rights issue, open offer or otherwise) to holders of ordinary shares in the capital of the company in proportion (as nearly as practicable) to the respective numbers of ordinary shares held by them, subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to fractional entitlements or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; (b) the allotment of equity securities for cash (otherwise than pursuant to paragraph (a) above) up to an aggregate nominal amount of £184,843 and (unless previously revoked, varied or renewed) shall expire at the conclusion of the next Annual General Meeting of the company after the passing of this resolution or on 15 October 2009 (whichever is the earlier), save that the company may make an offer or agreement before the expiry of this power which would or might require equity securities to be allotted for cash after such expiry and the directors may allot equity securities for cash pursuant to any such offer or agreement as if the power conferred by this resolution had not expired. 7. That, pursuant to section 166 of the Companies Act 1985 (“Act”) the company be and is generally and unconditionally authorised to make market purchases (within the meaning of section 163 of the Act) of ordinary shares of 10 pence each in the company (“ordinary shares”), provided that: (a) the maximum number of ordinary shares hereby authorised to be purchased is 3,696,877; (b) the minimum price (exclusive of expenses) which may be paid for an ordinary share is 10 pence per ordinary share (exclusive of expenses); (c) the maximum price (exclusive of expenses) which may be paid for an ordinary share is an amount equal to 105% of the average of the middle market quotations for an ordinary share taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the ordinary share is purchased; 64 and (unless previously revoked, varied or renewed) the authority hereby granted shall expire at the conclusion of the next annual general meeting of the company after the passing of this resolution or on 15 October 2009 (whichever is the earlier), save that the company may enter into a contract to purchase ordinary shares before the expiry of this authority under which such purchase will or may be completed or executed wholly or partly after such expiry and may make a purchase of ordinary shares pursuant to any such contract as if the authority conferred by this resolution had not expired. 8. That: (a) the rules (“LTIP Rules”) of the Nichols plc Long Term Incentive Plan in the form set out in the draft rules, a copy of which having been produced to the meeting and initialled by the Chairman for the purposes of identification, and the principal features of which are summarised in the Note to Resolutions 8 and 9 (sent to shareholders with this notice) be and are approved and the directors of the company be and are authorised to do all acts and things which they may consider necessary or expedient to give effect to the LTIP Rules including, but not limited to, making any amendment to the LTIP Rules; and (b) the directors be and are authorised to issue ordinary shares of 10 pence each in the capital of the company (“ordinary shares”) at a subscription price which is not less than the current market value of such ordinary shares to the trustee of any trust established by the company for the benefit of employees (and others) of the company and its subsidiaries for the purposes of satisfying the exercise of share options or other share awards granted by such trustees or the company pursuant to the LTIP Rules. 9. That: The rules (“Sharesave Rules”) of the Nichols plc Sharesave Plan in the form set out in the draft rules, a copy of which having been produced to the meeting and initialled by the Chairman for the purposes of identification, and the principal features of which are summarised in the Note to Resolutions 8 and 9 (sent to shareholders with this notice) be and are approved and the directors of the company be and are authorised to do all acts and things which they may consider necessary or expedient to give effect to the Sharesave Rules including, but not limited to, making any amendment to the Sharesave Rules. By order of the Board B M Hynes Secretary 10 April 2008 F i n a n c i a l S t a t e m e n t s 2 0 0 7 65 General notes: (i) The directors’ service agreements will be available for inspection at the registered office of the company during normal business hours (excluding weekends and public holidays) from the date of this notice until the conclusion of the Annual General Meeting. (ii) Only those members registered in the register of members of the company on 18 April 2008 or, in the event that the meeting is adjourned, in the register of members 48 hours before the time of any adjourned meeting shall be entitled to attend or vote at the meeting in respect of the number of shares registered in their name at that time. Changes to entries in the register of members on 18 April 2008 or, in the event that the meeting is adjourned, after 48 hours before the time of any adjourned meeting shall be disregarded in determining the rights of any person to attend or vote at the meeting. (iii) A member is entitled to appoint one or more persons as proxies to exercise all or any of his rights to attend, speak and vote at the meeting. A proxy need not be a member of the company. A member may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by him. The appointment of a proxy will not preclude a member from attending and voting in person at the meeting if he or she so wishes. (iv) A form of proxy is enclosed. To be valid, it must be completed, signed and sent to the offices of the company’s registrars, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU so as to arrive no later than 11.00am on Monday 12 May 2008 (or, in the event that the meeting is adjourned, no later than 48 hours before the time of any adjourned meeting). (v) Crest members who wish to appoint a proxy or proxies through the Crest electronic proxy appointment service may do so by using the procedures described in the Crest Manual. Crest personal members or other Crest sponsored members, and those Crest members who have appointed a service provider(s), should refer to their Crest sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. (vi) In order for a proxy appointment or instruction made using the Crest service to be valid, the appropriate Crest message (a “Crest Proxy Instruction”) must be properly authenticated in accordance with CrestCo’s specifications, and must contain the information required for such instruction, as described in the Crest Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuer’s agent, Capita Registrars (Crest ID RA10), by 10.30 am on 22 April 2008. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the Crest Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to Crest in the manner prescribed by Crest. After this time any change of instructions to proxies appointed through Crest should be communicated to the appointee through other means. (vii) Crest members and, where applicable, their Crest sponsors or voting service providers should note that CrestCo does not make available special procedures in Crest for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of Crest Proxy Instructions. It is the responsibility of the Crest member concerned to take (or, if the Crest member is a Crest personal member or sponsored member, or has appointed a voting service provider, to procure that his Crest sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the Crest system by any particular time. In this connection, Crest members and, where applicable, their Crest sponsors or voting system providers are referred, in particular, to those sections of the Crest Manual concerning practical limitations of the Crest system and timings. (viii) The company may treat as invalid a Crest Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. Directions to the Annual General Meeting: Leave the M6 at Junction 23 and take the A49 south towards Newton. Woodlands Park is on the left in approximately 0.3 miles. On entering the estate Laurel House is accessed from the fourth exit of the roundabout. 66