Nichols PLC
Annual Report 2008

Plain-text annual report

annual report & financial statements 2008 the group The group is a soft drinks business comprising two divisions; Soft Drinks and Dispense Operation. Soft Drinks Our brand portfolio in the main consists of; Vimto, Panda and Sunkist. In the UK, the division sells into major retail, wholesale and cash and carry customers. Outside of the UK, Vimto is available in over 65 countries. Our typical business model is to work with local partners who share our passion for building the Vimto brand and providing consumers with the Vimto flavour experience. Dispense Operation The Dispense Operation provides consumers with a broad range of cold soft drinks on draught and was previously referred to as the Dispense Systems Operation. Typically our products are available to consumers via pubs, clubs, restaurants and other leisure outlets. The division comprises; our Cabana, Cariel and Beacon businesses. The group’s 50% holding in Dayla Liquid Packing Limited, acquired in December 2008 is also now part of the division. financial calendar Preliminary results announced 25 March 2009 Annual general meeting 20 May 2009 Interim results announced 5 August 2009 02 1919 1924 contents Chairman’s Statement Chief Executive’s Review Financial Review Directors and Advisors Director’s Report Report of the Independent Auditor Financial Statements Notice of Meeting 04 06 13 15 16 19 22 56 1925 1932 1933 1947 03 chairman’s statement It is pleasing to announce another year of strong results for 2008, our centenary year, particularly within the context of a deteriorating economy, increased promotional activity by our competitors and another year of poor summer weather. If approved, the final dividend will be paid on 21 May 2009 to shareholders registered on 24 April 2009, the ex-dividend date being 22 April 2009. Sales of the Vimto brand again grew strongly and were up by 16.1% in the UK, with end user international sales in the Middle East, Africa and the Rest of the World also increasing year on year. Our Dispense Operation improved operating profits by 18.1%, despite volumes being impacted by the economic downturn within the pubs and clubs sectors, however, the acquisition of 50% equity in Dayla Liquid Packing Limited in December 2008 further strengthens this division. Dayla provides the Group with direct access to the growing premium juice market, as well as a number of other exciting opportunities in the UK and overseas. Results For the year ended 31 December 2008, the Group’s profit before tax and exceptional items increased by 11.1% to £10.0 million (2007: £9.0 million) on revenues up 1.6% to £56.2 million (2007: £55.3 million). Earnings per share (pre-exceptional items) increased 15.4% to 20.03 pence (2007: 17.36 pence). Our financial statements for 2008 include exceptional items of £5.9 million, £5.7 million of which is attributable to non-cash write downs, principally goodwill impairment on the Panda brand. The remaining exceptional item of £0.2 million represents re- organisation costs within the Dispense Operation. At 31 December 2008 the Group’s net cash position was £6.0 million (31 December 2007: £7.8 million), after having purchased 50% of Dayla for £2.9 million in cash. Dividend As a reflection of the confidence the Board has in the ongoing strength of the Group, it is pleased to recommend a final dividend of 7.40 pence per share (2007: 6.90 pence). This gives a total dividend for the year of 11.15 pence (2007: 10.40 pence) which is an increase of 7.2% on last year. People I would like to take this opportunity, on behalf of the Board, to thank our employees for their individual and collective contributions to our Group’s ongoing success. In July 2008, I announced the appointment of Taylor Purkis as Group Finance Director, which completed the Executive team and positions us well to build upon our progress to date. Nichols has a privileged role to play in being of service to the wider community and, during 2008, we committed to various fund raising initiatives. The Derian House Hospice remains our favoured charity, as it is an outstanding organisation that exists to provide care and support to terminally ill children and their families. Outlook Nichols continues to be a robust, focused, profitable and cash generative soft drinks business, which I believe is well placed to respond to the challenges presented by the current economic climate. We continue to invest for growth in our core Vimto brand both in the UK and overseas. This, together with the structural changes made in our Dispense Operation during 2008 and our investment in Dayla, puts us in the best possible shape to face the future. Based on the combination of our clear strategy, our people and our brands we remain confident of continuing our progress in 2009. John Nichols Non-Executive Chairman 24 March 2009 1950 1964 1984 1989 1990 1993 1995 2008 04 “We continue to invest for growth in our core brand Vimto both in the UK and overseas.” 1950 1964 1984 1989 1990 1993 1995 2008 05 “Vimto performed extremely well and once more grew its share ahead of the market in the following categories: Dilutes, Carbonates and Ready to Drink.” 06 chief executive’s review The Soft Drinks Market The summer of 2008 was again disappointingly cool, not dissimilar to the previous year. Nonetheless, the total soft drinks market, excluding the ‘on’ trade (pubs and clubs), grew by 1.0% in value terms but was 2% down in volume terms (AC Neilson data to 27 December 2008), with the main growth categories being energy, sports and juice drinks. The Dilutes category grew by 2% in value terms and the Fruit Carbonates category declined by 1%. Against this backdrop, Vimto performed extremely well and once more grew its share ahead of the market in the following categories: Dilutes, Carbonates and Ready to Drink. Inevitably though, following the poor summer, volume driven promotions featured heavily in the final quarter but our mixed value/volume marketing strategy again clearly worked successfully - as not only did our market share increase, but our margins were also maintained despite rising commodity costs. The general economic and consumer uncertainty experienced throughout 2008 also saw consumers move more towards better value offerings or extra fill promotions. We believe this trend is likely to continue into 2009. Group Financial Performance In a difficult market and a deteriorating economic environment, we are pleased to have made further strong progress in 2008; we have again delivered sales growth, margin growth, profit growth and double digit growth in earnings per share (pre-exceptional items). We have also improved our underlying cash generation, ending the year with £6.0 million of cash in the bank, having paid £2.9 million for 50% of Dayla, invested more year on year in our core brands and increased our market share in all territories. 07 chief executive’s review (continued) 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. In 2008 the division’s sales increased by 4.3% to £43.5 million (2007: £41.7 million) and operating profits increased by 15.7% to £9.6 million (2007: £8.3 million). This progress was mainly driven by increased distribution of Vimto in the UK, which led to the market share gains referred to above and further growth overseas, particularly in Africa, Turkey, USA and northern Europe. Internationally, we saw further volume growth with annualised consumption of the Vimto brand reaching 370 million litres during the year, a growth of 8% on 2007. In the Group’s core Middle Eastern market, a new TV advertising campaign in 2008 helped to drive increased end user sales; however, this was slightly offset by a reduction in shipments to the Yemen, driven by local 08 down the carrying value of the Panda brand in these accounts. As mentioned in the Chairman’s Statement, this is a non cash accounting adjustment and is shown as an exceptional item. Although we will continue to produce and promote Panda, future Group marketing investment will concentrate more on our Vimto brand. manufacturing difficulties. In Africa we accelerated the expansion of locally manufactured product during 2008, resulting in sales increasing by 19%. Overall, the reduced shipments meant that international sales into the market for 2008 were broadly flat. Revenues from Brand Licensing were significantly up in 2008 and the Vimto brand is now available in a number of licensed products including Vimto Chewy Sweets, Vimto Tongue Ticklers, Vimto Bon- Bon Bags, Vimto Lollipops and Vimto Ice Lollies. This range was extended last year into new confectionery products, improving Vimto’s brand awareness and penetration. Despite making great progress with the Vimto brand in the UK, internationally and via Brand Licensing, we were less successful with Panda, which has suffered from the decline in the “kids carbonate” market in the UK and also from a number of multiple retailers deciding to move away from single bottles and into multipacks. As a result of this and the requirements of international accounting standard IAS 36, we have decided to write “In 2008 the division’s sales increased by 4.3% to £43.5 million.” 09 chief executive’s review (continued) Dispense Operation This division, which consists of our Cabana, Beacon, Cariel and Dayla businesses, is entirely focused on dispensing cold soft drinks on draught and used to be called the Dispense Systems Operation. In recognition of 2008 being Cabana’s first full year operating under its new ‘distributor business model’ it has been decided to rename this division the Dispense Operation. The new business model is designed to reduce operating costs, whilst increasing market share and penetration through a greater regional focus. I am pleased to report these aims have been realised and we are now a strong number three in the draught soft drinks market, behind Coca Cola and Britvic (Pepsi) and have the scale to grow further. Operating profits in the Dispense Operation increased by a very healthy 18% to £0.91 million (2007: £0.77 million) on reduced sales (because of the change in business model) of £12.7 million (2007: £13.6 million). It should also be noted the soft drinks on dispense market was particularly impacted by reduced consumption in the licensed ‘on’ trade being down by circa 9% year on year – with pub closures hitting record levels. Anticipating the decline in the ‘on’ trade sector, over recent years we have re-focused our Dispense Operation towards the Leisure, Foodservice, Hotels and Restaurants markets, as well as moving into new healthy product categories such as energy and juice drinks. This, combined with our move to the new business model, has enabled us to improve the performance of our dispense activities, despite the turbulence in the pubs and clubs market. Towards the end of 2008 we acquired a 50% share of Dayla Liquid Packing Limited, with an option to acquire the remaining balance in three or four years time. This move provides access to the high growth premium juice dispense market, particularly in Europe, as well as securing the manufacturing and supply chain for our syrups – the core constituent ingredient of our dispensed products. 10 “Operating profits in the Dispense Operation increased by a very healthy 18% to £0.91 million.” 11 chief executive’s review (continued) Corporate Responsibility Nichols plc has a sustainable business strategy which takes into account our environmental and wider social responsibilities. Sustainability and the Environment We are actively working with the British Soft Drinks Association (BSDA) and also our key external suppliers and have identified four key areas for improvement, being: • Climate change • Waste and packaging • Water • Transport During 2008 we realised some tangible improvements including a rationalisation of our product range and packaging requirements in the group’s Soft Drinks division and also, in collaboration with our logistics partner and customers, we generated meaningful transportation efficiencies, whereby vehicles were loaded for both outbound and inbound journeys. Employees Over many years we have evolved a strong culture of mutual support, with an emphasis on excellence, learning and fun and our standards of health and safety remain exemplary. In 2008 we were delighted to receive the Manchester Evening News Best Company Award, in the over £50 million turnover listed company category. In early 2009 we were also awarded First Class accreditation status in the 2009 Best Companies survey. These are external acknowledgments of excellence in our workplace and both awards are a credit to the whole team at Nichols plc. Community Our commitment to the community continued throughout 2008, with our charity team again working hard on behalf of Derian House - raising funds from a variety of events including the annual Nichols Charity Golf Day. Brendan Hynes Chief Executive 24 March 2009 12 financial review Income Statement In 2008, revenues from continuing operations were £56.2 million, an increase of 1.6% (2007: £55.3 million). Operating profit on continuing operations (before exceptional items) increased by 12.6% to £9.8 million (2007: £8.7 million). As shown in note 4 to the accounts, the group has benefited from a £0.8 million year on year swing in foreign exchange differences. This upside has been offset by incremental expenditure elsewhere, mainly relating to the centenary year, pension costs and share- based payments. Taking this into consideration, the underlying improvement borne from trading activities remains in excess of 10% year on year. Exceptional Items A total charge of £5.9 million has been incurred. This includes a £5.7 million charge from writing down brand related assets, principally goodwill on the Panda brand. A fair value review as required under IAS 36, was undertaken by estimating future cash flows and restating them to present value. A discount rate of 9% was applied. The remaining £0.2 million charge relates to re- organisation costs within the Dispense Operation. Taxation Before exceptional items the tax charge was £2.7 million, an effective rate of 27.2% (2007: 29.6%). Including exceptional items the charge was £1.1 million, after having recognised a deferred tax asset of £1.5 million for the year, attributable in the main to the goodwill write down pertaining to the Panda brand. The deferred tax asset on goodwill will be amortised in future years. Cash Flow Cash generated from operations was £9.4 million (2007: £7.2 million). Net cash used in investing activities amounted to £4.1 million. This spend included; £2.9 million acquisition of a 50% equity stake in Dayla Liquid Packing Limited and £0.8 million as settlement on final salary pension benefits; attributable to ex employees. Capital expenditure was £0.22 million (2007: £0.34 million). Borrowing and Interest At 31 December 2008 the group had positive cash balances of £6.0 million (2007: £7.8 million). Absent £3.0 million incremental investments, year on year (Dayla Liquid Packing Limited in the main), the underlying cash balance increase was £2.2 million compared to 31 December 2007. Net bank interest earned during the year amounted to £0.28 million (2007: £0.29 million). 13 financial review Earnings Per Share Earnings per share (basic) – before exceptional items was 20.03 pence (2007: 17.36 pence). 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. Earnings per share (basic) – after exceptional items was 8.10 pence (2007: 15.49 pence). In common with many businesses we are now also highly dependent on the availability of IT systems to carry out many trading activities. We have robust business continuity plans and stress test procedures in place to minimise all risks and exposures that the Group faces. Shareholders We consider that both the FTSE AIM index and FTSE Fledgling index serve well as ongoing performance comparatives against the Total Shareholder Return delivered by Nichols plc. Nichols plc TSR vs AIM and Fledgling indices 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. T M Purkis Group Finance Director 24 March 2009 Dividend The Board is recommending a final dividend of 7.40 pence per ordinary share (2007: 6.90 pence) payable to shareholders on the register at 24 April 2009. The final dividend of 7.40 pence together with the interim dividend of 3.75 pence, gives a total dividend of 11.15 pence per share for the full year (2007: 10.40 pence). 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. Risks and Uncertainties The investment in Dayla Liquid Packing Limited provides the Group with increased direct influence over product supply for the Dispense Operation. Conversely the Soft Drinks division continues to be fully dependent Conversely the Soft Drinks division continues to be fully dependent Conversely the Soft Drinks division continues to be fully dependent on third party suppliers for all products. For both scenarios we have appropriate and adequate audit procedures and resource at our disposal to ensure that the Group procedures and resource at our disposal to ensure that the Group procedures and resource at our disposal to ensure that the Group as a whole sells product of the highest quality. In the case of the Dispense Operation the risk of interruption of supply is back within our direct control, offset by increased direct supply is back within our direct control, offset by increased direct supply is back within our direct control, offset by increased direct risk of employer’s liability associated with manufacturing and direct environmental risk. The reverse is true of the Soft Drinks division. 14 ���������������������������������������������������������������������������������������������������������� directors and advisors Back to Front: BM Hynes Chief Executive, JB Diggines Senior Non-executive Director, JD Bee Non-executive Director, PJ Nichols Non-executive Chairman, TM Purkis Group Finance Director and Secretary Auditors Grant Thornton UK LLP 4 Hardman Square Spinningfields Manchester M3 3EB Financial Advisors N M Rothschild & Sons Limited 82 King Street Manchester M2 4WQ Bankers The Royal Bank of Scotland plc 1 Spinningfields Square Manchester M3 3AP Solicitors DLA Piper 101 Barbirolli Square Manchester M2 3DL Stockbrokers and Nominated Advisor Brewin Dolphin Limited PO Box 512 National House 36 St Ann Street Manchester M60 2EP Registrars Capita Registrars Limited 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 2008. Principal Activities and Chief Executive’s 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 Chief Executive’s Review on pages 6 to 12 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, the Chief Executive’s and Financial Reviews. Reconciliation of profit for the financial year to retained earnings movement 2008 2007 Profit for the financial year Interim dividend 3.75p (2007: 3.50p) per share paid 3 September 2008 2007 final dividend 6.90p (2006: 6.50p) per share paid 15 May 2008 Other recognised gains and losses and movement on ESOT (note 20) Retained earnings movement £’000 (1,374) (2,540) (1,192) £’000 2,957 (5,106) (2,149) £’000 (1,294) (2,403) 1,521 £’000 5,669 (2,176) 3,493 Non-executive Directors J B Diggines (56) – 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 (67) 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 (59) Mr Nichols has been a director of the company since 1976. He was appointed Managing Director in 1986 and executive 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 (48) Mr Hynes joined the company as Group Finance Director in 2002 and was appointed Chief Executive in November 2007. He has previously been Group Finance Director at William Baird plc and KPS plc. T M Purkis (41) Mr Purkis is the Group Finance Director. He joined the company and was appointed to the Board of Nichols plc in July 2008. Financial Risk Management Objectives and Policies Business risks and uncertainties 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 2008 there were 48 (2007: 42) 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 £11,000 (2007: £17,000). There were no political donations in either 2008 or 2007. 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 242,447 of its own shares for a value of £535,000. 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 group and parent company 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 parent company and 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 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. 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. 17 directors’ report Directors’ Remuneration Salary and Fees Benefi ts in Kind Bonuses Pension contributions Total 2008 Total 2007 £’000 76 200 57 22 22 377 £’000 37 1 0 0 0 38 £’000 £’000 £’000 £’000 78 72 0 0 0 150 0 23 5 0 0 28 191 296 62 22 22 593 552 215 0 17 17 801 P J Nichols B M Hynes T M Purkis J B Diggines J D Bee Total PJ Nichols is a member of the final salary pension scheme; BM Hynes and TM Purkis each have a personal pension plan. The company contributions to the respective schemes are shown in the above table. PJ Nichols and BM Hynes 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 2008 Number at 31 December 2007 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 2008 and 24 March 2009. The share price during 2008 varied between 204p and 255p and the share price at 31 December 2008 was 204p. By order of the Board TM Purkis Secretary Laurel House Ashton Road Newton le Willows WA12 0HH 24 March 2009 18 report of the independent auditor to the members of nichols plc Report of the independent auditor to the members of Nichols plc We have audited the group and parent financial statements (the ‘financial statements’) of Nichols plc for the year ended 31 December 2008 which comprise the consolidated income statement, the consolidated and parent company balance sheets, the consolidated and parent company statement of cash flows, the consolidated and parent company statement of recognised income and expense and notes 1 to 27. These financial statements have been prepared under the accounting policies set out therein. 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. 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 (IFRSs) 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 Chief Executive’s Statement 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 Chief Executive’s 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 consolidated 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 2008 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 2008; • 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 24 March 2009 19 20 21 Consolidated income statement Year ended 31 December 2008 Revenue Cost of sales Gross profit Distribution expenses Administrative expenses Operating profit Finance income Finance expense Profit before taxation Taxation Profit for the financial year Earnings per share (basic) Earnings per share (diluted) Dividends paid per share (27,520) 28,701 (3,892) (15,005) Before exceptional items 2008 £’000 56,221 Exceptional items 2008 £’000 0 Notes 3 Before exceptional items 2007 £’000 55,276 Exceptional items 2007 £’000 0 Total 2008 £’000 56,221 0 0 (27,520) (27,321) 28,701 27,955 0 0 Total 2007 £’000 55,276 (27,321) 27,955 0 (5,940) (3,892) (20,945) (3,795) (15,418) 0 (978) (3,795) (16,396) 9,804 (5,940) 3,864 8,742 (978) 7,764 288 (54) 0 0 288 (54) 291 (7) 0 0 291 (7) 10,038 (5,940) 4,098 9,026 (978) 8,048 (2,732) 1,591 (1,141) (2,672) 293 (2,379) 7,306 (4,349) 2,957 6,354 (685) 5,669 8.10p 8.10p 10.65p 15.49p 15.47p 10.00p 5 6 6 8 10 10 9 The accompanying accounting policies and notes form an integral part of these financial statements. 22 Consolidated and parent company balance sheets Year ended 31 December 2008 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 Share premium Capital redemption reserve Other reserves Retained earnings Total equity Group Parent Notes 2008 £’000 2007 £’000 2008 £’000 2007 £’000 11 12 13 14 15 16 21 17 17 18 27 14 19 20 20 20 20 2,006 9,521 0 2,705 14,232 2,758 13,575 6,048 22,381 2,448 10,910 0 1,197 14,555 2,509 13,177 7,814 23,500 372 0 12,001 2,697 15,070 1,287 11,009 4,458 16,754 638 5,480 7,696 1,187 15,001 1,546 11,199 6,777 19,522 36,613 38,055 31,824 34,523 10,136 1,308 181 11,625 3,567 155 3,722 8,828 1,058 681 10,567 3,635 356 3,991 8,525 894 0 9,419 3,567 0 3,567 7,941 842 117 8,900 3,635 192 3,827 15,347 14,558 12,986 12,727 21,266 23,497 18,838 21,796 3,697 3,255 1,209 (574) 13,679 21,266 3,697 3,255 1,209 (492) 15,828 23,497 3,697 3,255 1,209 201 10,476 18,838 3,697 3,255 1,209 283 13,352 21,796 The financial statements on pages 22 to 54 were approved by the Board of Directors on 24 March 2009 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 2008 Profit for the financial year Cash flows from operating activities Adjustments for: Depreciation Loss on sale of property, plant and equipment Impairment of goodwill and 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 Acquisition of subsidiary, net of cash acquired Acquisition of subsidiary’s net overdraft Acquisition of joint venture, net of cash acquired Acquisition of joint venture’s net overdraft Additional consideration in respect of a prior acquisition Payment on settlement of pension obligations Net cash used in investing activities Cash flows from financing activities Interest paid Repurchase of own shares Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Notes 2008 £’000 2008 £’000 2,957 2007 £’000 2007 £’000 5,669 656 20 5,615 543 (288) 54 1,141 342 347 (1,032) (353) (588) 288 135 (220) 0 0 (2,908) (131) (480) (809) (11) (535) (3,914) 13 13 27 6 20 9 21 6,457 9,414 (2,595) 6,819 782 27 0 192 (291) 7 2,379 (299) (570) 159 (530) (347) 291 455 (336) (1,125) (144) 0 0 (240) 0 1,509 7,178 (1,800) 5,378 (4,125) (1,099) (4) (224) (3,697) (4,460) (1,766) 7,814 6,048 (3,925) 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 2008 Profit for the financial year Cash flows from operating activities Adjustments for: Depreciation Impairment of goodwill and 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 Acquisition of property, plant and equipment Acquisition of subsidiary, net of cash acquired Acquisition of joint venture Additional consideration in respect of a prior acquisition Payment on settlement of pension obligations Net cash used in investing activities Cash flows from financing activities Interest paid Repurchase of own shares Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Notes 2008 £’000 2008 £’000 2,230 2007 £’000 2007 £’000 5,304 234 5,615 543 (288) 53 806 259 190 (460) (117) (588) 288 (104) 0 (2,908) (480) (809) (10) (535) (3,914) 13 27 20 9 21 238 0 192 (291) 7 2,208 (384) 162 214 (308) (347) 291 (126) (1,125) 0 (240) 0 1,691 6,995 (1,807) 5,188 6,247 8,477 (2,324) 6,153 (4,013) (1,200) (4) (224) (3,697) (4,459) (2,319) 6,777 4,458 (3,925) 63 6,714 6,777 The accompanying accounting policies and notes form an integral part of these financial statements. 25 Statement of recognised income and expense Year ended 31 December 2008 Group Defined benefit plan actuarial (loss)/gain (see note 27) Deferred taxation on pension obligations and employee benefits (see note 14) 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 (loss)/gain (see note 27) Deferred taxation on pension obligations and employee benefits (see note 14) Income and expense recognised directly in equity Profit for the financial year Total recognised income and expense for the year 2008 £’000 2007 £’000 (1,286) 2,522 132 (933) (1,154) 1,589 2,957 5,669 1,803 7,258 2008 £’000 2007 £’000 (1,286) 2,522 132 (933) (1,154) 1,589 2,230 5,304 1,076 6,893 26 Notes to the financial statements Year ended 31 December 2008 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 2008 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 24 March 2009. The financial statements have been prepared on the historical cost basis. The accounting policies have been applied consistently by the group. 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 below), 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. 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 £9.5 million (2007: £10.9 million). 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). 27 Notes to the financial statements Year ended 31 December 2008 2. Accounting policies (continued) 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 2008. 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. Entities whose economic activities are jointly controlled by the group and other ventures independent of the group are accounted for using the proportionate consolidation method. 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 with the exception of Dayla Liquid Packing Limited which has a year end of 30 September. 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 (acquistion, 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. 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. Transfer of risks and rewards vary depending on the individual term of the contract of sale. For sales in the UK, transfer occurs when 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. 28 Notes to the financial statements Year ended 31 December 2008 2. Accounting policies (continued) 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 (see note 5). 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 2006. In respect of acquistions 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 property, plant and equipment is 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. 29 Notes to the financial statements Year ended 31 December 2008 2. Accounting policies (continued) 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. The estimated useful lives for the current and comparative periods are as follows: Buildings Plant and equipment 50 years 3-10 years Material residual value estimates and useful economic lives are updated at least annually. 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 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. 30 Notes to the financial statements Year ended 31 December 2008 2. Accounting policies (continued) 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 the risks specific to the liability. 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 and are recognised in the income statement. 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. 31 Notes to the financial statements Year ended 31 December 2008 2. Accounting policies (continued) Employee Share Ownership Trust The assets and liabilities of the Employee Share Ownership Trust (“ESOT”) have been included in the consolidated financial statements. 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 consolidated income statement. Investments in subsidiaries Investments in subsidiaries are shown in the parent company balance sheet at cost less any provision for impairment. 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 IAS 32 (Amendment) “Financial instruments: Presentation” with consequential amendments to IAS 1 “Presentation of financial statements” applicable to accounting periods beginning on or after 1 January 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 13 “Customer loyalty programmes” applicable to accounting periods beginning on or after 1 July 2008 IFRIC 17 Distributions of Non-cash Assets to Owners applicable to accounting periods beginning on or after 1 January 2009. * 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 exisiting income statement with other income and expenses currently presented as a part of the statement of changes in equity. In addition, the group will present a seperate statement of changes in equity showing owner changes in equity. * 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. Management is assessing the impact of changes to vesting conditions and cancellations on the group’s option scheme. * 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. * IFRS 8 “Operating segments” requires that the group will be required to report operating segments on the basis of internal reports about components of the business which are regularly reviewed by management. The effect of this standard has been considered and management are satisfied that the group can continue to report two segments in the financial statements. 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. 32 Notes to the financial statements Year ended 31 December 2008 3. Segmental information a. Primary reporting format-by business segment Soft Drinks Dispense Operation IAS 19 “Employee benefits” charge IFRS 2 “Share-based payment” charge Operating profit before exceptional items and interest Exceptional items (see note 5) - Soft Drinks Exceptional items (see note 5) - Dispense Operation Operating profit Finance income Finance expense Profit before tax Soft Drinks Dispense Operation Employee benefits obligations Cash and cash equivalents Revenue (sales to third parties) 2007 £’000 41,709 13,567 55,276 2008 £’000 43,479 12,742 56,221 Operating profit 2008 £’000 9,569 905 10,474 (127) (543) 9,804 (5,713) (227) 3,864 288 (54) 4,098 2007 £’000 8,332 766 9,098 (164) (192) 8,742 (544) (434) 7,764 291 (7) 8,048 Assets Liabilities 2008 £’000 13,649 16,916 30,565 0 6,048 36,613 2007 £’000 17,823 12,418 30,241 0 7,814 38,055 2008 £’000 (8,614) (3,166) (11,780) (3,567) 0 (15,347) 2007 £’000 (8,288) (2,635) (10,923) (3,635) 0 (14,558) Net assets 2008 £’000 5,035 13,750 18,785 (3,567) 6,048 21,266 2007 £’000 9,535 9,783 19,318 (3,635) 7,814 23,497 The group is managed according to two operating divisions: Soft Drinks and Dispense Operation. 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 £103,000 (2007:£126,000), and within Dispense Operation totalled £117,000 (2007: £210,000). Depreciation Depreciation costs within Soft Drinks totalled £234,000 (2007: £238,000), and within Dispense Operation totalled £422,000 (2007: £544,000). 33 Notes to the financial statements Year ended 31 December 2008 3. Segmental information (continued) b. Secondary reporting format-by geographic segment Revenue by geographic destination Middle East Africa Rest of the World Total exports United Kingdom 2008 2007 £’000 6,058 2,627 297 8,982 47,239 56,221 % 10.8 4.7 0.5 16.0 84.0 100.0 £’000 6,492 2,156 217 8,865 46,411 55,276 % 11.7 3.9 0.4 16.0 84.0 100.0 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 2008 and 31 December 2007 are entirely located within the United Kingdom. Capital expenditure The capital expenditure of the group for the years ended 31 December 2008 and 31 December 2007 was entirely made within the United Kingdom. Depreciation The group’s depreciation charges for the years ended 31 December 2008 and 31 December 2007 are against fixed assets all retained within the United Kingdom. 34 Notes to the financial statements Year ended 31 December 2008 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 (Profit)/ loss on foreign exchange differences Loss on sale of property, plant and equipment 2008 £’000 2007 £’000 27,462 35 26,521 30 15 0 656 472 543 (672) 20 17 12 782 522 192 129 27 During 2008 depreciation of £30,000 has not been charged through the income statement as a provision was made for this cost at the end of 2007. 5. Exceptional items Soft Drinks brands portfolio review Dispense Operation restructuring costs Cariel Soft Drinks Limited integration costs Head Office restructuring costs Total 2008 £’000 5,713 227 0 0 5,940 2007 £’000 0 0 434 544 978 The brands portfolio review comprises £5.5 million impairment on Panda goodwill, £0.1 million write down on equipment pertaining to Panda and £0.1 million write down on costs incurred relating to Simpsons’ Smoothies. The restructuring of the Dispense Operation has incurred staff costs of £118,000 and stock and equipment write offs of £109,000. The cash impact in 2008 of the exceptional items is £104,000 (2007: £275,000). 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 2008 £’000 288 2007 £’000 291 11 1,145 (1,102) 54 4 (1,085) 1,088 7 35 Notes to the financial statements Year ended 31 December 2008 7. Directors and employees a. Average number of persons employed during the year, including directors: Soft Drinks Dispense Operation 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 2008 Number 60 67 127 2007 Number 68 69 137 2008 £’000 5,678 514 227 84 543 7,046 2007 £’000 5,510 548 236 161 192 6,647 The amounts disclosed above are also the employment costs for the parent company for the year ended 31 December 2008. Directors’ remuneration for the year, including pension costs 2008 £’000 593 2007 £’000 801 The highest paid director has received £295,780 (2007: £551,675) including pension contributions. He has no accrued pension benefit (2007: £138,535) and no accrued lump sum (2007: £622,966). There are no longer any directors accruing benefits (2007: 1 director) under a defined benefit scheme. Benefits are accruing to 2 directors (2007: 1 director) under a defined contribution scheme. Equity-settled share-based payments in respect of directors, not included in the above figures, amounted to £302,000 (2007: £107,000). 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 Pension costs - defined contribution scheme Pension costs - defined benefit scheme Equity-settled share-based payments 2008 £’000 939 40 12 525 1,516 2007 £’000 1,100 34 41 165 1,340 36 Notes to the financial statements Year ended 31 December 2008 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 (credit)/charge for the year 2008 £’000 2,539 229 2,768 (1,551) (76) (1,627) 2007 £’000 2,318 (57) 2,261 29 89 118 Total tax expense in the consolidated income statement 1,141 2,379 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 28.5% (2007: 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 2008 £’000 4,098 1,168 38 (231) 143 (5) 28 1,141 2007 £’000 8,048 2,414 42 (78) 32 (16) (15) 2,379 The effective rate of tax for the year of 27.8% (2007: 29.6%) is lower than the standard rate of corporation tax in the United Kingdom (28%). The differences are explained above. c. The effective rate of tax on profit before exceptional items is 27.2% (2007: 29.6%). d. Tax on items charged to equity In addition to the amount credited to the consolidated income statement, £132,000 (2007: charge £933,000) has been charged directly to equity, being the movement on deferred taxation relating to retirement benefit obligations and employee benefits. 9. Equity dividends Interim dividend 3.75p (2007: 3.50p) paid 3 September 2008 Final dividend proposed in 2007 6.90p (2006: 6.50p) paid 15 May 2008 2008 £’000 1,374 2,540 3,914 2007 £’000 1,294 2,403 3,697 The interim dividend for the prior year of £1,294,000 (2006: £1,220,000) was paid on 7 September 2007. In accordance with IAS 10 “Events after the balance sheet date”, the 2008 final dividend of £2,736,000 (7.40p per share) has not been accrued as it had not been approved by the year end. 37 Notes to the financial statements Year ended 31 December 2008 10. Earnings per share Earnings per share (basic) Earnings per share (diluted) Earnings per share (basic) - before exceptional items Earnings per share (diluted) - before exceptional items Earnings per share 2008 8.10p 8.10p 20.03p 20.01p 2007 15.49p 15.47p 17.36p 17.34p Basic earnings per share Dilutive effect of share options Diluted earnings per share 2008 Weighted average number of Earnings £’000 shares 2,957 36,480,421 24,879 2,957 36,505,300 Earnings per share 8.10p 8.10p 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 15.47p Earnings per share before exceptional items has been presented in addition to the earnings per share as defined in IAS 33 “Earnings per share” since in the opinion of the directors, this provides shareholders with a more meaningful representation of the earnings derived from the groups’ operations. It can be reconciled from the basic earnings per share as follows; Earnings 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 2008 Weighted average Earnings number of shares £’000 2,957 36,480,421 5,940 (1,591) 7,306 36,480,421 24,879 7,306 36,505,300 Earnings per share 8.10p 20.03p 20.01p 2007 Weighted average Earnings number of shares £’000 5,669 36,602,810 978 (293) 6,354 36,602,810 49,557 6,354 36,652,367 Earnings per share 15.49p 17.36p 17.34p 38 Notes to the financial statements Year ended 31 December 2008 11. Property, plant and equipment Group Cost At 1 January 2007 Acquisitions through business combinations Additions Disposals At 1 January 2008 Acquisitions through business combinations (see note 13) Additions Impairment Disposals At 31 December 2008 Depreciation At 1 January 2007 Charge for the year On disposals At 1 January 2008 Charge for the year Impairment On disposals At 31 December 2008 Net book value at 31 December 2008 Net book value at 31 December 2007 Parent Cost At 1 January 2007 Additions At 1 January 2008 Additions Impairment At 31 December 2008 Depreciation At 1 January 2007 Charge for the year At 1 January 2008 Charge for the year Impairment At 31 December 2008 Net book value at 31 December 2008 Net book value at 31 December 2007 Plant and equipment £’000 6,264 197 336 (1,114) 5,683 312 220 (300) (568) 5,347 3,085 782 (632) 3,235 686 (165) (415) 3,341 2,006 2,448 Plant and equipment £’000 1,654 126 1,780 103 (300) 1,583 904 238 1,142 234 (165) 1,211 372 638 39 Notes to the financial statements Year ended 31 December 2008 12. Goodwill Group Cost At 1 January 2007 Additions At 1 January 2008 Additions Impairment At 31 December 2008 Parent Cost At 1 January 2007 and 1 January 2008 Impairment At 31 December 2008 £’000 9,624 1,286 10,910 4,091 (5,480) 9,521 £’000 5,480 (5,480) 0 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 is 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. Dispense Operation 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 1.1%. The discount rate applied was 9%. Goodwill additions for 2008 in the main are arising from the acquisition of 50% of the issued share capital of Dayla Liquid Packing Limited which has been allocated to the Dispense Operation, as this segment is the group of cash-generating units expected to benefit from the business combination. The total goodwill is entirely attributable to the Dispense Operation. A full review of the Panda brand has been performed by management and due to continuously falling sales volumes, the goodwill attributable to the Panda brand has been fully impaired. Panda goodwill relates to the Soft Drinks division. Cash flow projections are based on the most recent financial budgets as approved by management. Management have applied an annual rate of decline of 5% (2007: fruit drinks growth 6%, spring water growth 3%, carbonated drinks decline 2%) in projecting the cash flows for a period of five years. The discount rate applied is 9% (2007: 7%). 13. Investments: shares in group undertakings Parent Cost and net book amount At 1 January 2007 Additions At 1 January 2008 Additions (see * below) At 31 December 2008 £’000 6,331 1,365 7,696 4,305 12,001 *Parent company additions comprise £3.9 million relating to the group’s acquisition of Dayla Liquid Packing Limited (see acquistions on the next page) and £0.4 million relating to Beacon Drinks Limited, a prior year acquisition, in respect of earn-out arrangements on the shares acquired by the group. 40 Notes to the financial statements Year ended 31 December 2008 13. Investments: shares in group undertakings (continued) 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 Dayla Liquid Packing Limited % 100 100 100 100 100 50 The company directly owns Cabana (Holdings) Limited, Beacon Holdings Limited, Cariel Soft Drinks Limited and 50% of Dayla Liquid Packing 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 9 December 2008 the group acquired 50% of the issued share capital of Dayla Liquid Packing Limited for £2.9 million. At 31 December 2008 there is an obligation to pay £1 million deferred consideration that is payable on 9 December 2009. Dayla Liquid Packing Limited manufactures and distributes soft drinks. The acquisition enables Nichols plc to capitalise on opportunities both in the UK and overseas and allow it direct access in the premium juice market. The company has an option to buy the remaining 50% shareholding in 2011 or 2012. Management have assessed the fair value of the option but have concluded that they cannot reliably estimate the fair value and therefore, in accordance with IAS 39 “Financial Instruments: Recognition and Measurement” the option is held at cost. The contribution of Dayla Liquid Packing Limited to the group results has not been disclosed since, in the opinion of the directors, the value of contribution and cash generated since acquisition is not material. 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 Deferred consideration Total consideration Goodwill Due to the acquisition occuring on 9 December 2008, management are continuing to finalise their evaluation of the fair value of the assets acquired, in particular the evaluation of intangible assets currently recognised as goodwill in the balance sheet and hence the values included in the table above are deemed to be provisional. This exercise will be completed before the first anniversary of the acquisition date. Provisional and fair value £’000 312 590 745 (1,177) (131) 339 2,908 1,000 3,908 3,569 41 Notes to the financial statements Year ended 31 December 2008 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 2008 £’000 (59) (192) 1,059 33 841 Net balance at 1 January 2007 £’000 (95) (86) 1,951 122 1,892 Net balance at 1 January 2008 £’000 95 (192) 1,059 33 995 Net balance at 1 January 2007 £’000 128 (86) 1,951 63 2,056 Recognised in income £’000 88 1,533 (2) 8 1,627 Recognised in income £’000 36 (106) 41 (89) (118) Recognised in income £’000 39 1,533 (2) 0 1,570 Recognised in income £’000 (33) (106) 41 (30) (128) Recognised in equity £’000 0 0 132 0 132 Recognised in equity £’000 0 0 (933) 0 (933) Recognised in equity £’000 0 0 132 0 132 Recognised in equity £’000 0 0 (933) 0 (933) Deferred tax acquired £’000 (50) 0 0 0 (50) Deferred tax acquired £’000 0 0 0 0 0 Deferred tax acquired £’000 0 0 0 0 0 Deferred tax acquired £’000 0 0 0 0 0 Net balance at 31 December 2008 £’000 (21) 1,341 1,189 41 2,550 Net balance at 31 December 2007 £’000 (59) (192) 1,059 33 841 Net balance at 31 December 2008 £’000 134 1,341 1,189 33 2,697 Net balance at 31 December 2007 £’000 95 (192) 1,059 33 995 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 £’000 134 1,341 1,189 41 2,705 Prior year £’000 105 0 1,059 33 1,197 Current year £’000 (155) 0 0 0 (155) Prior year £’000 (164) (192) 0 0 (356) Current year £’000 (21) 1,341 1,189 41 2,550 Prior year £’000 (59) (192) 1,059 33 841 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 42 Current year £’000 134 1,341 1,189 33 2,697 Prior year £’000 95 0 1,059 33 1,187 Current year £’000 0 0 0 0 0 Prior year £’000 0 (192) 0 0 (192) Current year £’000 134 1,341 1,189 33 2,697 Prior year £’000 95 (192) 1,059 33 995 Notes to the financial statements Year ended 31 December 2008 15. Inventories Finished goods Group 2008 £’000 2,758 2007 £’000 2,509 Parent 2008 £’000 1,287 2007 £’000 1,546 In 2008 the group write-down of inventories to net realisable value amounted to £107,000 (2007: £168,000). 16. Trade and other receivables Trade receivables Amounts owed by group undertakings Other receivables Prepayments and accrued income Group Parent 2008 £’000 12,215 0 1,079 281 13,575 2007 £’000 11,741 0 1,198 238 13,177 2008 £’000 9,121 1,717 19 152 11,009 2007 £’000 8,761 2,227 5 206 11,199 Other receivables include an amount of £327,000 (2007: £864,000) due in more than one year, all other amounts above 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 £674,000 (2007: £544,000) 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 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 Group Bad debt provision Parent Bad debt provision 2008 £’000 1,332 612 343 299 2,586 2008 £’000 1,037 590 339 347 2,313 2007 £’000 2,511 433 108 92 3,144 2007 £’000 1,775 337 97 378 2,587 At 1 January 2008 £’000 544 Charge in the year £’000 159 At 1 January 2008 £’000 481 Charge in the year £’000 131 Utilised £’000 (29) Utilised £’000 (2) At 31 December 2008 £’000 674 At 31 December 2008 £’000 610 43 Notes to the financial statements Year ended 31 December 2008 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 2008 £’000 2,264 0 778 7,094 10,136 1,308 11,444 2007 £’000 3,452 0 689 4,687 8,828 1,058 9,886 2008 £’000 1,026 805 645 6,049 8,525 894 9,419 2007 £’000 2,588 803 486 4,064 7,941 842 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 2008, liabilities have contractual maturities which are summarised below: Group Trade payables Other short term financial liabilities Parent Trade payables Other short term financial liabilities 2008 2007 Within 6 months £’000 2,264 6,094 8,358 Within 6 to 12 months £’000 0 1,000 1,000 Within 6 months £’000 3,452 4,687 8,139 Within 6 to 12 months £’000 0 0 0 2008 2007 Within 6 months £’000 1,026 5,049 6,075 Within 6 to 12 months £’000 0 1,805 1,805 Within 6 months £’000 2,588 4,064 6,652 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 2008 2007 Within 6 months £’000 582 Within 6 to 12 months £’000 0 Within 6 months £’000 590 Within 6 to 12 months £’000 472 44 Notes to the financial statements Year ended 31 December 2008 18. Provisions Group Exceptional cost provision Parent Exceptional cost provision At 1 January 2008 £’000 681 Charge in the year £’000 132 Utilised £’000 (632) At 31 December 2008 £’000 181 At 1 January 2008 £’000 117 Charge in the year £’000 0 Utilised £’000 (117) At 31 December 2008 £’000 0 An amount of £132,000 was charged against the provision in 2008 in respect of the costs committed but not incurred at the reporting date. 19. Share capital Authorised 52,000,000 (2007: 52,000,000) 10p ordinary shares Allotted, issued and fully paid 36,968,772 (2007: 36,968,772) 10p ordinary shares 2008 £’000 5,200 3,697 2007 £’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 2008 and 31 December 2007. 45 Notes to the financial statements Year ended 31 December 2008 20. Reserves Group and parent Group Group Parent Parent Called up share capital £’000 3,697 0 0 0 0 0 0 3,697 0 0 0 0 0 0 3,697 Share premium reserve £’000 3,255 0 0 0 0 0 0 3,255 0 0 0 0 0 0 3,255 Capital redemption reserve £’000 1,209 0 0 0 0 0 0 1,209 0 0 0 0 0 0 1,209 Other reserves £’000 (487) 0 0 0 (224) 27 192 (492) 0 0 0 (535) (90) 543 (574) Retained earnings £’000 12,335 5,669 (3,697) 1,589 0 (68) 0 15,828 2,957 (3,914) (1,154) 0 (38) 0 13,679 Other reserves £’000 288 0 0 0 (224) 27 192 283 0 0 0 (535) (90) 543 201 Retained earnings £’000 10,224 5,304 (3,697) 1,589 0 (68) 0 13,352 2,230 (3,914) (1,154) 0 (38) 0 10,476 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 1 January 2008 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 2008 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 £2,230,000 (2007: £5,304,000). 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 242,447 of its own 10p ordinary shares. The shares acquired represent 0.7% 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 2008 for the year ending 31 December 2008. 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. 46 Notes to the financial statements Year ended 31 December 2008 20. Reserves (continued) The group operates a Long Term Incentive Plan (LTIP) for senior managers which is based upon the achievement of performance targets over a three year period. The group also operates a Save As You Earn (SAYE) scheme for all other employees. 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: Save As You Earn Scheme Date of Grant 3 October 2003 3 October 2003 14 October 2004 14 October 2004 26 September 2005 26 September 2005 3 October 2006 3 October 2006 1 September 2008 1 September 2008 Number granted 64,168 21,112 39,751 24,052 26,151 28,991 57,075 60,376 30,796 11,398 Long Term Incentive Plan Date of Grant 10 October 2005 10 October 2005 11 June 2008 11 June 2008 11 June 2008 Number granted 150,000 150,000 125,000 150,000 150,000 Share price on grant date £1.36 £1.36 £1.60 £1.60 £2.05 £2.05 £2.51 £2.51 £2.45 £2.45 Share price on grant date £2.02 £2.02 £2.43 £2.43 £2.43 Exercise price £1.04 £1.04 £1.26 £1.26 £1.63 £1.63 £1.92 £1.92 £1.77 £1.77 Exercise price £0.00 £0.00 £0.00 £0.00 £0.00 Fair values on grant date £0.23 £0.27 £0.30 £0.33 £0.36 £0.40 £0.42 £0.46 £0.66 £0.65 Fair values on grant date £1.98 £1.96 £2.37 £2.28 £2.18 Vesting period 3.25 years 5.25 years 3.25 years 5.25 years 3.25 years 5.25 years 3.25 years 5.25 years 3.25 years 5.25 years Vesting period 2.00 years 3.00 years 3.00 years 3.00 years 3.00 years Expected dividend yield 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 4.35% 4.35% Expected dividend yield 3.50% 3.50% 4.28% 4.28% 4.28% Lapse rate 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Lapse rate 0.00% 0.00% 0.00% 0.00% 0.00% Risk free rate 4.29% 4.52% 4.60% 4.50% 4.02% 3.91% 4.47% 4.38% 4.36% 4.37% Risk free rate 3.95% 3.87% 5.22% 5.26% 5.22% Volatility 22.80% 22.80% 24.08% 24.08% 22.65% 22.65% 21.13% 21.13% 20.31% 20.31% Volatility 22.65% 22.65% 19.93% 19.93% 19.93% 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 SAYE option is equal to the vesting period plus a six month exercise period and for an LTIP share option is equal to the vesting period. 47 Notes to the financial statements Year ended 31 December 2008 20. Reserves (continued) The following options for 10p ordinary shares under the SAYE and LTIP schemes were outstanding at the year end: Date of grant: 4 October 2002 3 October 2003 14 October 2004 26 September 2005 10 October 2005 3 October 2006 11 June 2008 11 June 2008 11 June 2008 1 September 2008 At 1 January 2008 Granted Exercised Lapsed At 31 December 2008 Exercise price per share 9,922 6,705 7,497 20,673 300,000 107,905 0 0 0 0 452,702 0 0 0 0 0 0 125,000 150,000 150,000 42,194 467,194 (9,922) (6,705) (2,109) (11,007) (230,000) (953) 0 0 0 0 (260,696) 0 0 (143) 0 (70,000) (15,055) 0 0 0 0 (85,198) 0 0 5,245 9,666 0 91,897 125,000 150,000 150,000 42,194 574,002 96p 104p 126p 163p n/a 192p n/a n/a n/a 177p 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 2008 varied between 204p and 255p and the weighted average price for the year was 227p. At 31 December 2008, options over 149,002 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: 2008 2007 Weighted average exercise price in pence 116.59 177.00 126.81 191.38 141.71 Number 452,702 467,194 (260,696) (85,198) 574,002 Weighted average exercise price in pence 118.65 - 116.28 168.23 116.59 Number 509,027 - (28,224) (28,101) 452,702 At 1 January 2008 £’000 7,814 At 1 January 2008 £’000 6,777 Cash flow £’000 (1,766) At 31 December 2008 £’000 6,048 Cash flow £’000 (2,319) At 31 December 2008 £’000 4,458 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 48 Notes to the financial statements Year ended 31 December 2008 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 (see note 17 for maturity analysis). 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. Cash at bank is held only with major UK banks with high quality external credit ratings or government support. 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 2009 (see 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. 49 Notes to the financial statements Year ended 31 December 2008 22. Financial instruments (continued) Foreign currency assets/(liabilities) US Dollar Euro 2008 £’000 81 4 85 2007 £’000 2,423 (37) 2,386 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% (2007: 5%), then this would have had the following impact: Net result for the year 2008 £’000 Euro 0 USD 4 Total 4 USD 128 2007 £’000 Euro (2) If Sterling had weakened against the US Dollar and Euro by 5% (2007: 5%), then this would have had the following impact: Net result for the year 2008 £’000 Euro 0 USD (4) Total (4) USD (116) 2007 £’000 Euro 2 Total 126 Total (114) 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. 50 Notes to the financial statements Year ended 31 December 2008 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 2008 £’000 13,294 6,048 19,342 2007 £’000 12,939 7,814 20,753 2008 £’000 10,857 4,458 15,315 2007 £’000 10,993 6,777 17,770 The IAS 39 categories of financial liability included in the balance sheet and the headings in which they are included are as follows: Current liabilities Other financial liabilities at amortised cost Trade and other payables Group Parent 2008 £’000 9,358 2007 £’000 8,139 2008 £’000 7,880 2007 £’000 7,455 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 2007. At 31 December 2008 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 2008 £’000 533 443 213 1,189 2007 £’000 917 524 34 1,475 2008 £’000 390 144 0 534 2007 £’000 724 346 0 1,070 The group leases its headquarters, Laurel House, under a non-cancellable operating lease agreement and also leases dispensing and certain other plant and equipment under non-cancellable operating lease agreements which have varying terms, escalation clauses and renewal rights. 51 Notes to the financial statements Year ended 31 December 2008 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 2008 £’000 2,741 2007 £’000 3,444 Balance outstanding as at 31 December 2008 £’000 690 2007 £’000 1,424 Sale of goods and services (including recharge of costs) All balances with the related parties are 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 £197,000 (2007: £236,000). 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 2008 by an independent qualified actuary. The company paid an additional £0.5 million into the plan in the year (2007: £0.5 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 2008 3.10% 2.60% 6.70% 2.60% 6.00% 31 December 2007 3.90% 3.40% 5.80% 3.40% 5.80% 31 December 2006 3.60% 3.10% 4.90% 3.10% 5.40% The expected return on plan assets is based on the 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 (2007: 92 years) and 92 years for women (2007: 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. The charge to the consolidated income statement was £84,000 (2007: £161,000). 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. 52 Notes to the financial statements Year ended 31 December 2008 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 31 December 2008 6.60% 3.60% 6.50% 1.50% 31 December 2008 £’000 8,826 1,610 1,502 602 12,540 Long term rate of return expected at 31 December 2006 7.50% 4.50% 4.90% 4.80% 31 December 2007 7.50% 4.50% 5.80% 5.50% 31 December 2005 7.50% 4.50% 4.90% 4.50% Market value of assets at 31 December 2006 £’000 11,771 1,852 1,849 456 15,928 31 December 2007 £’000 12,009 2,094 2,042 425 16,570 31 December 2005 £’000 10,659 1,722 1,721 0 14,102 31 December 2004 7.50% n/a 5.20% n/a 31 December 2004 £’000 5,746 0 5,701 0 11,447 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 31 December 2008 £’000 12,540 (16,107) (3,567) 31 December 2007 £’000 16,570 (20,205) (3,635) 31 December 2006 £’000 15,928 (22,432) (6,504) 31 December 2005 £’000 14,102 (21,110) (7,008) 31 December 2004 £’000 11,447 (16,766) (5,319) The expense is recognised in the following line items in the consolidated income statement : Operating profit Current service costs Curtailment gain 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 2008 £’000 (84) 0 (84) 1,102 (1,145) (43) (127) 2007 £’000 (161) 0 (161) 1,085 (1,088) (3) (164) 2006 £’000 (158) 0 (158) 981 (1,007) (26) (184) 2005 £’000 (51) 0 (51) 755 (887) (132) (183) (4,782) 1,113 (634) (22) 256 836 1,004 (1,194) 2,383 3,178 (1,001) (2,316) (1,286) 2,522 91 (2,506) 2004 £’000 (421) 385 (36) 660 (838) (178) (214) 188 (215) (514) (541) 53 Notes to the financial statements Year ended 31 December 2008 27. Employee benefits (continued) The movement during the year in the liability for defined benefit obligations was as follows: Liability for defined benefit obligations at 1 January Current service costs Contributions paid into the plan Gain on settlement of obligations Other finance costs Actuarial (loss)/gain recognised in equity Liability for defined benefit obligations at 31 December 2008 £’000 (3,635) (84) 672 809 (43) (1,286) (3,567) 2007 £’000 (6,504) (161) 511 0 (3) 2,522 (3,635) 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 Assets distributed on settlement of obligations Closing fair value of plan assets 2008 £’000 16,570 1,102 (4,782) 417 (767) 12,540 2007 £’000 15,928 1,085 (634) 191 0 16,570 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 Liabilities discharged on settlement 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 2008 £’000 20,205 84 (255) 1,145 (3,496) (1,576) 16,107 2008 (4,782) (38.1%) 1,113 6.9% 2,383 14.8% (1,286) (8.0%) 2007 £’000 22,432 161 (320) 1,088 (3,156) 0 20,205 2007 (634) (3.8%) (22) (0.1%) 3,178 15.7% 2,522 12.5% 2006 £’000 (7,008) (158) 597 0 (26) 91 (6,504) 2006 £’000 14,102 981 256 589 0 15,928 2006 £’000 21,110 158 (8) 1,007 165 0 22,432 2006 256 1.6% 836 3.7% (1,001) (4.5%) 91 0.5% 2005 £’000 (5,319) (51) 1,000 0 (132) (2,506) (7,008) 2005 £’000 11,447 755 1,004 896 0 14,102 2005 £’000 16,766 51 (104) 887 3,510 0 21,110 2005 1,004 7.1% (1,194) (5.7%) (2,316) (11.0%) (2,506) (11.9%) 2004 £’000 (4,991) (36) 427 0 (178) (541) (5,319) 2004 £’000 10,341 660 188 258 0 11,447 2004 £’000 15,332 36 (169) 838 729 0 16,766 2004 188 1.6% (215) (1.3%) (514) (3.1%) (541) (3.2%) 54 Five year summary Years ended 31 December Revenue Operating profit before exceptional items, 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 business Net interest receivable/(paid) Profit before tax Tax Profit after tax Dividends paid Retained (loss)/profit 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 2008 £’000 56,221 10,474 (5,940) (127) (543) 3,864 0 234 4,098 (1,141) 2,957 (3,914) (957) 8.10p 8.10p 20.03p 20.01p 10.65p 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 (2,482) (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 UK GAAP 2005 £’000 63,336 7,756 (1,002) (51) (33) 6,670 0 (707) 5,963 (1,999) 3,964 (3,309) 655 10.82p 10.79p 12.74p 12.70p 8.95p 2004 £’000 88,073 7,153 (2,291) (36) (6) 4,820 (11,062) (887) (7,129) (1,579) (8,708) (3,253) (11,961) (23.84p) (23.84p) 11.54p 11.52p 8.80p The above amounts for 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 55 Notice of meeting Notice is hereby given that the seventy ninth 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 20 May 2009 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 2008 together with the auditors’ report and the directors’ report on those accounts. 2. To declare a final dividend for the year ended 31 December 2008 of 7.40 pence per ordinary share in the capital of the company to be paid on 21 May 2009 to shareholders whose names appear on the register of members at the close of business on 24 April 2009. 3. To re-elect P J Nichols , who retires by rotation, as a director of the company. 4. To re-elect J Bee, who retires by rotation, as a director of the company. 5. To re-appoint T M Purkis, who has been appointed by the Board since the last Annual General Meeting, as a director of the company. 6. 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. 7. To authorise the directors to determine the remuneration of the auditors. As special business: To consider and if thought appropriate approve the following resolutions of which resolution 8 will be proposed as an ordinary resolution and resolutions 9 and 10, will be proposed as special resolutions. Ordinary resolution: 8. 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 2010 or 20 August 2010 (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: 9. That, subject to the passing of resolution 8, 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 8 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; and (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) this authority shall expire at the conclusion of the next Annual General Meeting of the company after the passing of this resolution or on 20 August 2010 (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. 56 10. 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, 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 20 August 2010 (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. By order of the Board T M Purkis Secretary 16 April 2009 57 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 May 2009 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 after 18 May 2009 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. To appoint more than one proxy, you will need to complete a separate proxy form in relation to each appointment. You may photocopy the proxy form already in your possession, additional proxy forms may be obtained from the company’s registrar on shareholder.services@capitaregistrars.com or on 0871 664 0300 (calls cost 10p per minute plus network charges). You will need to state clearly on each proxy form the number of shares in relation to the proxy appointed. A failure to specify the number of shares each proxy appointment relates to or specifying a number in excess of those held by the member may result in the proxy appointment being invalid. Please also indicate by ticking the box provided if the proxy instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same envelope. 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 18 May 2009 (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 11.00 am on 18 May 2009. 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. (ix) Arrangements will be put in place at the meeting in order to facilitate voting by representatives of members which are corporations on a poll (if required) in accordance with the procedures set out in the Institute of Chartered Secretaries and Administrators’ January 2008 guidance note on “Proxies & Corporate Representatives at General Meetings”. 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. 58 the group The group is a soft drinks business comprising two divisions; Soft Drinks and Dispense Operation. Soft Drinks Our brand portfolio in the main consists of; Vimto, Panda and Sunkist. In the UK, the division sells into major retail, wholesale and cash and carry customers. Outside of the UK, Vimto is available in over 65 countries. Our typical business model is to work with local partners who share our passion for building the Vimto brand and providing consumers with the Vimto flavour experience. Dispense Operation The Dispense Operation provides consumers with a broad range of cold soft drinks on draught and was previously referred to as the Dispense Systems Operation. Typically our products are available to consumers via pubs, clubs, restaurants and other leisure outlets. The division comprises; our Cabana, Cariel and Beacon businesses. The group’s 50% holding in Dayla Liquid Packing Limited, acquired in December 2008 is also now part of the division. financial calendar Preliminary results announced 25 March 2009 Annual general meeting 20 May 2009 Interim results announced 5 August 2009 02 1919 1924 annual report & financial statements 2008 

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