Nichols PLC Annual Report 2012

Plain-text annual report

ANNUAL REPORT & FINANCIAL STATEMENTS 2012 NICHOLS PLC IS A HIGHLY FOCUSED SOFT DRINKS BUSINESS; THE GROUP HAS A LEADING MARKET POSITION IN BOTH THE STILL AND CARBONATE DRINKS CATEGORIES. ITS BRAND PORTFOLIO INCLUDES VIMTO, WHICH IS SOLD IN OVER 65 COUNTRIES AND LEVI ROOTS, WEIGHT WATCHERS, SUNKIST & PANDA WHICH ARE SOLD IN THE UK. THE G R O U P 04 06 10 13 14 CHAIRMAN’S STATEMENT CHIEF EXECUTIVE’S REVIEW FINANCIAL REVIEW DIRECTORS & ADVISORS DIRECTORS’ REPORT 18 19 48 51 AUDITOR’S REPORT FINANCIAL STATEMENTS NOTICE OF MEETING FINANCIAL CALENDAR C O N T E N T S 0 3 ’ S N A M R A H C I T N E M E T A T S “The Group again outperformed the market, delivering EPS growth of 14%, proﬁ t growth of 13% and increasing its cash reserves” JOHN NICHOLS NON-EXECUTIVE CHAIRMAN I am pleased to report that 2012 was another very strong year for Nichols plc. Once again we have delivered double digit growth in proﬁ t, earnings per share and cash. Group sales increased to £107.8m, up 9% on 2011, an excellent performance against our own tough prior year comparatives and the challenging UK retail environment. Continued high levels of raw material inﬂ ation impacted our UK gross margins; however, the sales growth combined with strong cost control led to increased operating margins. Overall the Group delivered a 13% increase in proﬁ t, with proﬁ t before tax of £20.5m, a £2.4m increase on 2011. As a result, earnings per share increased 14% to 41.4p. 4 0 Year ended 31 Dec 2012 £m Year ended 31 Dec 2011 £m % movement Group Revenue Operating Proﬁt Operating Proﬁt R.O.S. Proﬁt Before Tax Net Cash EPS (basic) (pence) 107.8 20.5 19% 20.5 24.7 41.4p 98.9 18.1 18% 18.1 20.1 36.3p +9% +13% +13% +23% +14% R E S U L T S TRADING Continuing the trend of recent years, sales growth has been delivered from both our domestic and export businesses. Our UK sales grew 9% in 2012 to £85m, outperforming the UK soft drinks market which grew 3% (AC Nielsen 52 week data to 5 Jan 2013). The growth was driven by a strong performance from our core Vimto brand and our innovative new products such as Levi Roots and the recently launched Weight Watchers range of soft drinks. Export sales totalled £22.7m in the year, up 8% against the prior year’s tough comparatives (2011 +31%). Within the regions, the momentum in Africa continued with sales up 22% (2011 +28%) and sales into mainland Europe also increased by 24%. Sales into the Middle East region were broadly ﬂat on last year partly due to the timing of shipments at the end of 2012 as well as the strong comparatives from the prior year (2011 +24%). DIVIDEND Following another strong performance and reﬂecting conﬁdence in the outlook, the Board is pleased to recommend a ﬁnal dividend of 11.7 pence per share. This takes the total 2012 dividend to 17.32 pence (2011: 15.30 pence), an increase of 13%. If approved, the ﬁnal dividend will be paid on 3 May 2013 to shareholders registered on 2 April 2013; the ex-dividend date is 27 March 2013. SUCCESSION ANNOUNCEMENT We have announced that after ten successful years with the Group, Brendan Hynes, Chief Executive Ofﬁcer, has informed the Board of his intention to step down at the AGM on 1 May 2013, in order to pursue a non-executive portfolio career. He will hand over the leadership of the business to Marnie Millard from the date of the AGM. Marnie is currently Managing Director of our UK Soft Drinks business. To ensure a seamless transition, Brendan will be available to assist with the handover through to the end of 2013. The Board would like to thank Brendan for his contribution, which has helped to ensure that the business has made consistently strong progress during the last ten years. OUTLOOK 2012 was extremely challenging for the UK soft drinks market and the broader grocery market as consumer spending was restrained by the economic environment. The industry also had to deal with the effects of the second wettest summer on record, further dampening demand for soft drinks. Against this backdrop, the Group again outperformed the market, delivering EPS growth of 14%, proﬁt growth of 13% and increasing its cash reserves. Although we anticipate the UK retail environment will be just as challenging in 2013, we are conﬁdent that the Group will again outperform the market with continued investment behind our brands, launching innovative new products and further growth in our international markets. In summary, the Board is conﬁdent that the Group is in a strong position to deliver further proﬁtable growth in 2013 and beyond. JOHN NICHOLS NON-EXECUTIVE CHAIRMAN 6 MARCH 2013 0 5 I ’ S E V T U C E X E F E H C I I W E V E R “We have once again been successful in growing our share of both the UK and international markets” BRENDAN HYNES CHIEF EXECUTIVE OFFICER Nichols plc is a growing international business with an enviable stable of brands, selling to over 65 countries worldwide. We have leading market positions in both the still and carbonate drinks categories and continuously seek to bring new and innovative products to the soft drinks market both in the UK and internationally. In 2012, Nichols plc was delighted to be awarded the prestigious Queen’s Award for International Trade. This award is made annually to businesses achieving substantial overseas growth for a sustainable period by Her Majesty the Queen. THE UK SOFT DRINKS MARKET In overall terms the UK soft drinks market, excluding the on-trade, grew by 3.0% in value terms but declined 1.0 % in volume terms (AC Nielsen 52 week data to 5 Jan 2013). Economic and consumer conditions continued to provide a big challenge, particularly in the UK. This, combined with signiﬁ cant raw material cost inﬂ ation and continued high levels of price promotion from the competition, led to an extremely competitive marketplace throughout the whole of 2012. Despite this, we have once again been successful in growing our share of both the UK and international markets and, as a result, Group sales increased by 9% year on year and operating margins were improved. 6 0 I 1 4 % E A R N N G S P E R S H A R E G R O W T H I 1 3 % P R O F T G R O W T H I I 1 3 % D V D E N D G R O W T H 9 % S A L E S G R O W T H We have also continued to invest in our core brands, which has helped to increase our market share both in the UK and overseas, in the still and carbonate categories. GROUP FINANCIAL PERFORMANCE In 2012 the Group delivered another strong ﬁnancial performance, which was again ahead of both internal and external expectations. To summarise our ﬁnancial performance in 2012 we delivered: • 9% sales growth • 13% profit growth • 14% earnings per share growth (basic) • 13% dividend growth In addition, cash conversion was also strong and we ended the year with £24.7m of cash in the bank. TRADING HIGHLIGHTS Sales in the UK increased by 9% to £85.0m (2011: £77.8m) driven by increased market share for Vimto, together with new product and brand extensions such as Weight Watchers and Levi Roots. We invested heavily in marketing in 2012, and again increased household penetration bringing new consumers to the Vimto brand. 0 7 I ’ S E V T U C E X E I F E H C ) I D E U N T N O C ( I W E V E R Internationally, 2012 was another successful year with sales increasing by 8% to £22.7m. This was helped by Vimto again increasing its market share, particularly in key markets such as Africa and Europe. We sell to more than 28 countries in Africa and in 2012 increased sales by 22% in this region, in spite of very strong sales comparatives from last year. In summary, growth from our existing core markets, both in the UK and overseas, combined with innovative new product developments and further new brand launches, has enabled the Group to deliver strong top and bottom line growth in 2012. CORPORATE RESPONSIBILITY Nichols plc prides itself on having a sustainable business strategy which takes into account our wider corporate, environmental and social responsibilities. SUSTAINABILITY AND THE ENVIRONMENT We continue to make good progress on each of the four key areas targeted, being climate change, waste and packaging, water and transport. We continue to work actively with the British Soft Drinks Association (BSDA), the Food and Drink Federation (FDF) and our key suppliers on environmental improvements. We are also signatories to the Courtauld Commitment and the Department of Health’s Public Health Responsibility Deal. Our high standards in health and safety continued in 2012 and we are an active member of Valpak, ensuring our compliance with waste regulations, and minimising the direct impact our business activities have on the external environment. 8 0 COMMUNITY Our commitment to the wider community continued in 2012 as we actively look to give something back in return for the support we enjoy. In 2012 our charity team once again worked hard on behalf of our chosen charity Derian House, including a 10 kilometre run, fund raising golf day and a wide variety of events involving our customers, suppliers and advisors. EMPLOYEES As a team, our core values emphasise the importance of customer service, quality, professionalism, teamwork and mutual support. We have a strong people orientated culture that is a key priority for our business and critical to our continuing success. Our overriding objective is to consistently deliver high results in everything we do and this has once again been recognised externally with Nichols plc being shortlisted for the AIM company of the year in 2012, for the second year in succession. BRENDAN HYNES CHIEF EXECUTIVE OFFICER 6 MARCH 2013 0 9 I W E V E R 120 100 80 60 40 20 0 R E V E N U E ( £ ) 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 I L A C N A N F I “Despite the pressure on UK gross margins the excellent news is that the Group actually increased its Operating Proﬁ t return on sales in the year” TIM CROSTON GROUP FINANCE DIRECTOR The Group delivered another strong revenue performance in 2012, sales totalled £107.8m increasing 9% on 2011’s tough comparatives. As our revenue breaks through the £100m barrier it’s timely to reﬂ ect that in the space of just ﬁ ve years, the Group’s sales have grown by 95% (2007: £55.3m). 2012 £m 2011 Growth £m £m Still 54.5 48.8 5.7 12% Carbonate 53.3 50.1 3.2 Total 107.8 98.9 8.9 6% 9% SEGMENTS Similar to last year the growth of our still products outstripped carbonate sales growth. Sales of still increased by £5.7m, 12% ahead of 2011, the growth largely came from UK sales including a 22% increase in sales of our Vimto 500ml still and the launch of Weight Watchers. Carbonate increased by 6% on the prior year including a 15% increase in our African export market. In 2012 the UK soft drinks market 0 1 25 20 15 10 5 0 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 ( P R E I E X C E P T O N A L £ M ) I P R O F T B E F O R E T A X was generally subdued as a result of reduced consumer spending which impacted all areas of grocery retailing. As a result, the underlying market volume actually declined by 1% although inﬂationary pressures pushed up revenues by 3% (AC Nielsen 52 week data to 5 Jan 2013). Against this backdrop our UK soft drinks business delivered a strong performance, increasing sales by 8% to £61.7m (2011: £57.2m) well outperforming the market. The foundation of the growth was driven by our core brand, Vimto, with sales increasing 5% against the prior year. In addition, our growth momentum has been supported by the development of new products, following the launch of the Levi Roots range of soft drinks in 2011 and introducing our Weight Watchers range early in 2012 delivering an incremental £2m of sales during the year. Also in the UK we operate in the Out of Home market, although this market and in particular the on-trade continues to be very challenging, our sales increased by £2.7m (14%); the growth coming from both on-trade sales of carbonate dispense products partly as a result of the acquisition of Festival Drinks Ltd in October and still juices into the catering sector. Our export sales totalled £22.7m, an increase of 8% over 2011. On the back of signiﬁcant increases in 2011 (+28%), sales to Africa have continued to perform well in the year, increasing a further 22% to £6.6m. In the Middle East, our sales during the year were broadly ﬂat in comparison to 2011 due to timings of shipments around the year ends. Elsewhere in our export markets, sales to the Rest of the World increased by 24% totalling £5.1m. PROFIT As forecast, our UK gross margin was under pressure during the year from a combination of the promotionally driven retail sales environment and high input cost inﬂation. As a result of these pressures, our Group GM% slipped two percentage points to 45%. Although we anticipate UK soft drinks retail will continue to experience high promotional activity during 2013, we are pleased to report that input cost inﬂation has eased for the ﬁrst time in three years and we expect low single digit cost increases during the year. Despite the pressure on UK gross margins the excellent news is that the Group actually increased its Operating Proﬁt return on sales in the year, rising to 19% (2011: 18%). This was achieved by strong overhead and infrastructure cost control allowing the beneﬁts of our revenue growth to ﬁlter down to the ‘bottom line’ without signiﬁcant increase in operating costs. Group Proﬁt Before Tax (PBT) increased by £2.4m to £20.5m, 13% up on 2011, a strong performance in current conditions and again on the back of our own tough comparatives (2011: +20%). As we reﬂect on the ﬁve year sales growth, it is pleasing and arguably more signiﬁcant, to report that proﬁt has increased by an even greater extent. Since 2007 PBT has grown by 127%. The accrued tax charge for 2012 was £5.3m, an effective rate of 26% (2011: 26%). EARNINGS PER SHARE Earnings Per Share (EPS) increased 14% to 41.43 pence for the year. The ﬁve year growth trends shows 139% increase since 2007. EPS BEFORE EXCEPTIONAL ITEMS (PENCE PER SHARE) 50.00 40.00 30.00 20.00 10.00 0.00 2007 2008 2009 2010 2011 2012 EPS BEFORE EXCEPTIONAL ITEMS STATEMENT OF FINANCIAL POSITION The Group’s Statement of Financial Position (formerly the Balance Sheet) remains strong, debt free and includes net cash at the year- end of £24.7m (2011: £20.1m), an increase of £4.6m. By exception, other key points of interest with regard to the Statement of Financial Position are: • Goodwill has increased by £2.3m primarily due to the acquisition of Festival Drinks Ltd which was added to our Out of Home business in October 2012. • Despite the revenue increase, inventories have reduced by £0.5m, this was in part due to stock efﬁciencies and also the fact that the 2011 comparative included pre launch stock build for our Weight Watchers range. 1 1 ) I D E U N T N O C ( I W E V E R I L A C N A N F I INTERNAL CONTROL The Nichols Group complies with the principles of good corporate governance and has an established process of control and risk management. 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. comparison both sets of data are shown as an index using 2007 as the base. NICHOLS PLC V ALL AIM (INDEXED FROM 2007) 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 E Healey, P J Nichols and J Longworth. 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 UK soft drinks business continues to be largely dependent on third party suppliers for its products. To manage this risk we have appropriate and adequate audit procedures and resource at our disposal to ensure that we sell product of the highest quality. Following the acquisition of the remaining 50% of the shares of Dayla Liquid Packing Ltd (March 2011), the Out of Home business has direct inﬂuence over product supply. 2 1 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 DIVIDEND The Board is recommending a ﬁnal dividend of 11.7 pence per ordinary share (2011: 10.3 pence) payable to shareholders on the register at 2 April 2013. The ﬁnal dividend together with the interim dividend of 5.62 pence, gives a total dividend of 17.32 pence per share for the year which represents a 13% increase on the prior year (2011: 15.3 pence). TOTAL DIVIDEND (PENCE PER SHARE) 4 3.5 3 2.5 2 1.5 1 0.5 0 2007 2008 2009 2010 2011 2012 NICHOLS PLC ALL AIM INDEX 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 J CROSTON GROUP FINANCE DIRECTOR 6 MARCH 2013 19 17 15 13 11 9 7 2007 2008 2009 2010 2011 2012 SHARE PRICE The Nichols plc share price performance in 2012 was outstanding, ending the year at 852 pence, an increase of 62% from December 2011. The following graph charts the Group’s share price performance compared to the All AIM index. For ease of JOHN NICHOLS NON-EXECUTIVE CHAIRMAN & A D V S O R S I I D R E C T O R S BRENDAN HYNES CHIEF EXECUTIVE OFFICER ERIC HEALEY NON-EXECUTIVE DIRECTOR TIM CROSTON GROUP FINANCE DIRECTOR & COMPANY SECRETARY JOHN LONGWORTH NON-EXECUTIVE DIRECTOR AUDITORS Grant Thornton UK LLP, 4 Hardman Square, Spinningﬁ elds, Manchester, M3 3EB BANKERS The Royal Bank of Scotland plc, 1 Spinningﬁ elds Square, Manchester, M3 3AP SOLICITORS DLA Piper, 101 Barbirolli Square, Manchester, M2 3DL STOCKBROKERS & NOMINATED ADVISOR Nplus1 Singer Advisory LLP, West One Wellington Street, Leeds, LS1 1BA FINANCIAL ADVISORS N M Rothschild & Sons Limited, 82 King Street, Manchester, M2 4WQ REGISTRARS Capita Registrars Limited, Northern House, Woodsome Park, Fenay Bridge, Huddersﬁ eld, HD8 0GA REGISTERED OFFICE Laurel House, Woodlands Park, Ashton Road, Newton-le-Willows, WA12 0HH REGISTERED NUMBER 238303 1 3 T R O P E R ’ S R O T C E R D I C L P S L O H C N I The directors present their report and the audited ﬁnancial statements for the year ended 31 December 2012. PRINCIPAL ACTIVITIES AND BUSINESS REVIEW The Company and its principal operating subsidiaries are engaged in the supply of soft drinks to the retail, wholesale, catering, licensed and leisure industries. A review of the Group’s trading during the year and its prospects are contained in the Chairman’s Statement on pages 4 and 5, the Chief Executive’s Review on pages 6 to 9 and the Financial Review on pages 10 to 12. Reconciliation of proﬁt for the ﬁnancial year to retained earnings movement 2012 2011 Proﬁt for the ﬁnancial year Interim dividend 5.62p (2011: 5.00p) per share paid 31 August 2012 Final dividend 10.30p (2010: 9.10p) per share paid 4 May 2012 Other comprehensive expense and movement on ESOT Retained earnings movement £’000 £’000 £’000 £’000 15,258 13,326 (2,071) (3,795) (771) (1,842) (3,353) (2,088) (6,637) 8,621 (7,283) 6,043 NON-EXECUTIVE DIRECTORS J LONGWORTH (54) Mr Longworth is currently a Non-Executive Director of the Cooperative Group, Cooperative Food Ltd and is also a Panel Member of the Competition Commission. He is Chairman of a business he founded in 2010, SVA Limited. He was appointed as Director General of the British Chamber of Commerce in September 2011. Previous roles have included being a Main Board Director of Asda and a Director of Tesco Stores. He was appointed to the Board of Nichols plc in November 2010. E HEALEY (64) Mr Healey, a Chartered Accountant, is a member of the Audit Committee of the University of Salford and an adviser to a number of enterprises. He is a former senior partner of an international accounting ﬁrm. He was appointed to the Board in January 2011. P J NICHOLS (63) Mr Nichols has been a director of the Company since 1976. He was appointed Managing Director in 1986 and Chairman in 1999. In November 2007, Mr Nichols moved to non-executive Chairman. All of the above are members of the audit and remuneration committees of the Board. 4 1 EXECUTIVE DIRECTORS B M HYNES (52) Mr Hynes joined the Company as Group Finance Director in 2002 and was appointed Chief Executive Ofﬁcer in November 2007. He has previously been Group Finance Director at William Baird plc and KPS plc. T J CROSTON (49) Mr Croston initially joined the Company as Group Financial Controller in 2005 and moved to Finance and Operations Director for the Soft Drinks Division in 2007. He was appointed Group Finance Director on 1 January 2010. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Business risks and uncertainties are included within the Financial Review on pages 10 to 12 and ﬁnancial risks are set out in note 21 to the ﬁnancial statements. CREDITOR PAYMENT POLICY The Company’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 2012 there were 24 (2011: 41) creditor days outstanding. 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 £16,000 (2011: £13,000). There were no political donations in either 2012 or 2011. 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 did not purchase any of its own shares. 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. 1 5 T R O P E R ’ S R O T C E R D I C L P S L O H C N I ) I D E U N T N O C ( AUDITORS In accordance with Section 489 of the Companies Act 2006 a resolution will be proposed at the Annual General Meeting that Grant Thornton UK LLP be re-appointed auditors. DIRECTORS’ RESPONSIBILITIES STATEMENT The directors are responsible for preparing the Directors’ 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 the ﬁnancial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the ﬁnancial statements unless they are satisﬁed that they give a true and fair view of the state of affairs and proﬁt or loss of the Company and Group for that period. In preparing these ﬁnancial statements, the directors are required to: • • • • select suitable accounting policies and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent; state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements; 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 adequate accounting records that are sufﬁcient to show and explain the Company’s transactions and 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 2006. 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. The directors conﬁrm that: • • so far as each of the directors is aware there is no relevant audit information of which the Company’s auditor is unaware; and the directors have taken all steps that they ought to have taken as directors in order 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. 6 1 DIRECTORS’ REMUNERATION Salary and fees Beneﬁ ts in kind Bonuses Pension contributions Total 2012 Total 2011 P J Nichols B M Hynes T J Croston J Longworth E Healey Total £’000 £’000 £’000 £’000 £’000 £’000 100 240 121 22 22 505 27 1 12 0 0 40 0 114 61 0 0 175 0 25 9 0 0 34 127 380 203 22 22 754 117 358 190 22 22 709 Bonuses which are not guaranteed are accruing to the executive directors and certain senior executives based on pre-determined performance targets. The remuneration committee considered it appropriate to issue awards under an incentive plan (the Growth Securities Ownership Plan (GSOP)) related to growth in operating proﬁ t from continued operations before exceptional items, tax and ﬁ nance costs. The current incentive plan runs from 1 January 2011 to 31 December 2013. P J Nichols is a member of the ﬁ nal salary pension scheme; B M Hynes and T J Croston have a personal pension plan. The Company contributions to the respective schemes are shown in the above table. By order of the Board T J CROSTON Secretary Laurel House Ashton Road Newton le Willows WA12 0HH 6 March 2013 1 7 T R O P E R S R O T D U A ’ I T N E D N E P E D N I I C L P S L O H C N F O S R E B M E M E H T O T We have audited the ﬁ nancial statements of Nichols plc for the year ended 31 December 2012 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the Group and parent company statement of ﬁ nancial position, the consolidated and parent company statements of cash ﬂ ow, the Group and parent company statements of changes in equity and the related notes. The ﬁ nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent and Company ﬁ nancial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 AUDITOR As explained more fully in the Directors’ Responsibilities Statement set out on page 16, the directors are responsible for the preparation of the ﬁ nancial statements and for being satisﬁ ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the ﬁ nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS A description of the scope of an audit of ﬁ nancial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private. cfm. Opinion on ﬁ nancial statements In our opinion: • the fi nancial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December 2012 and of the Group’s proﬁ t for the year then ended; • the Group fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the fi nancial statements have been prepared in accordance with the requirements of the Companies Act 2006. OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion the information given in the Directors’ Report for the ﬁ nancial year for which the ﬁ nancial statements are prepared is consistent with the ﬁ nancial statements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company fi nancial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration speciﬁ ed by law are not made; or • we have not received all the information and explanations we require for our audit. Kevin Engel Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Manchester 6 March 2013 8 1 i f N a N c a l i s t a t e m e N t s CONSOLIDATED INCOME STATEMENT YEAR ENDED 31 DECEMBER 2012 Revenue Cost of sales Gross proﬁt Distribution expenses Administrative expenses Operating proﬁt Finance income Finance expense Proﬁt before taxation Taxation Total 2012 £’000 Total 2011 £’000 Notes 3 107,788 98,912 (59,661) (52,683) 48,127 46,229 (6,569) (5,862) (21,041) (22,218) 20,517 18,149 5 5 324 (331) 72 (116) 20,510 18,105 7 (5,252) (4,779) Proﬁt for the ﬁnancial year attributable to equity holders of the parent 15,258 13,326 Earnings per share (basic) Earnings per share (diluted) 9 9 41.43p 36.28p 41.38p 36.25p The accompanying accounting policies and notes form an integral part of these ﬁnancial statements. All results relate to continuing operations. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME YEAR ENDED 31 DECEMBER 2012 Proﬁt for the ﬁnancial year Other comprehensive expense Deﬁned beneﬁt plan actuarial loss (see note 26) Deferred taxation on pension obligations and employee beneﬁts (see note 13) Other comprehensive expense for the year Total comprehensive income for the year 2012 £’000 2011 £’000 15,258 13,326 (773) (2,926) 78 842 (695) (2,084) 14,563 11,242 0 2 STATEMENT OF FINANCIAL POSITION YEAR ENDED 31 DECEMBER 2012 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 reserve Capital redemption reserve Other reserves Retained earnings Total equity Group Parent Notes 2012 £’000 2011 £’000 2012 £’000 2011 £’000 10 11 12 13 14 15 20 16 16 17 26 13 18 1,275 15,973 0 2,148 19,396 5,331 23,741 24,745 53,817 1,374 13,658 398 0 0 16,566 2,579 17,611 2,082 19,046 5,790 21,118 20,111 47,019 2,769 20,446 21,948 45,163 461 0 16,566 2,512 19,539 4,056 16,510 17,871 38,437 73,213 64,630 64,209 57,976 19,377 20,073 20,427 2,191 47 1,752 139 1,368 47 21,154 1,138 99 21,615 21,964 21,842 22,391 6,556 6,313 6,556 6,313 47 51 0 0 6,603 6,364 6,556 6,313 28,218 28,328 28,398 28,704 44,995 36,302 35,811 29,272 3,697 3,255 1,209 (474) 37,308 44,995 3,697 3,255 1,209 (546) 28,687 36,302 3,697 3,255 1,209 301 27,349 35,811 3,697 3,255 1,209 229 20,882 29,272 The ﬁnancial statements on pages 22 to 47 were approved by the Board of Directors on 6 March 2013 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. Registered number 238303 2 1 CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED 31 DECEMBER 2012 Proﬁt for the ﬁnancial year Cash ﬂows from operating activities Adjustments for: Depreciation Loss on sale of property, plant and equipment Finance income 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 Finance income 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 Net cash used in investing activities Cash ﬂows from ﬁnancing activities (Acquisition)/ disposal of own shares Dividends paid Net cash used in ﬁnancing activities Notes 2012 £’000 2012 £’000 15,258 2011 £’000 2011 £’000 13,326 5 460 2 (324) 5,252 611 (2,297) (1,071) (92) (530) 324 7 (297) (2,254) 0 2,011 17,269 (4,545) 12,724 467 26 (72) 4,779 (1,674) (4,069) 4,794 (226) (748) 72 1 (302) (2,300) (24) 3,277 16,603 (3,794) 12,809 (2,220) (2,553) (4) 8 (5,866) 83 (5,195) (5,870) 4,634 20,111 24,745 (5,112) 5,144 14,967 20,111 Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 20 The accompanying accounting policies and notes form an integral part of these ﬁnancial statements. 2 2 PARENT COMPANY STATEMENT OF CASH FLOWS YEAR ENDED 31 DECEMBER 2012 Proﬁt for the ﬁnancial year Cash ﬂows from operating activities Adjustments for: Depreciation Proﬁt on sale of property, plant and equipment Finance income 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 Finance income Proceeds from sale of property, plant and equipment Acquisition of property, plant and equipment Acquisition of subsidiary, net of cash acquired Net cash used in investing activities Cash ﬂows from ﬁnancing activities (Acquisition)/ disposal of own shares Dividends paid Net cash used in ﬁnancing activities Notes 2012 £’000 2012 £’000 13,104 2011 £’000 2011 £’000 11,759 185 (2) (324) 4,535 1,287 (3,939) (711) (52) (530) 324 2 (138) 0 449 13,553 (3,794) 9,759 170 0 (72) 4,225 (2,302) (4,652) 7,050 (179) (748) 72 0 (154) (2,300) 3,492 15,251 (3,068) 12,183 188 (2,382) (4) 8 (5,866) 83 (5,195) (5,870) 4,077 17,871 21,948 (5,112) 4,689 13,182 17,871 Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 20 The accompanying accounting policies and notes form an integral part of these ﬁnancial statements. 2 3 STATEMENT OF CHANGES IN EQUITY YEAR ENDED 31 DECEMBER 2012 Called up share capital £’000 Share premium reserve £’000 Capital redemption reserve £’000 Other reserves £’000 Retained earnings £’000 Total equity £’000 3,697 3,255 1,209 (629) 22,644 30,176 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 83 83 0 0 0 (5,195) (5,195) (4) (5,199) 13,326 (2,084) 11,242 79 (5,116) 13,326 (2,084) 11,242 3,697 3,255 1,209 (546) 28,687 36,302 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 72 72 0 0 0 (5,866) (5,866) (76) (4) (5,942) (5,870) 15,258 (695) 15,258 (695) 14,563 14,563 3,697 3,255 1,209 (474) 37,308 44,995 Called up share capital £’000 Share premium reserve £’000 Capital redemption reserve £’000 Other reserves £’000 Retained earnings £’000 Total equity £’000 3,697 3,255 1,209 146 16,406 24,713 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 83 83 0 0 0 (5,195) (5,195) (4) 79 (5,199) (5,116) 11,759 11,759 (2,084) (2,084) 9,675 9,675 3,697 3,255 1,209 229 20,882 29,272 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 72 72 0 0 0 (5,866) (5,866) (76) (4) (5,942) (5,870) 13,104 (695) 13,104 (695) 12,409 12,409 3,697 3,255 1,209 301 27,349 35,811 Group At 1 January 2011 Dividends Movement in ESOT Transactions with owners Proﬁt for the year Other comprehensive expense Total comprehensive income At 1 January 2012 Dividends Movement in ESOT Transactions with owners Proﬁt for the year Other comprehensive expense Total comprehensive income At 31 December 2012 Parent At 1 January 2011 Dividends Movement in ESOT Transactions with owners Proﬁt for the year Other comprehensive expense Total comprehensive income At 1 January 2012 Dividends Movement in ESOT Transactions with owners Proﬁt for the year Other comprehensive expense Total comprehensive income At 31 December 2012 4 2 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 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 2012 comprise the Company and its subsidiaries (together referred to as the “Group”). The Group is primarily engaged in the supply of soft drinks to the retail, wholesale, catering, licensed and leisure industries. The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive’s Review on pages 6 to 9. The ﬁnancial position of the Company, its cash ﬂows, liquidity position and borrowing facilities are described in the Finance Review on pages 10 to 12. In addition, notes 21 and 23 to the ﬁnancial statements include the Company’s objectives, policies and processes for managing its capital, its ﬁnancial risk management objectives, details of its ﬁnancial instruments and hedging activities, and its exposures to credit risk and liquidity risk. The Company has considerable ﬁnancial resources together with long-term contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook. The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual ﬁnancial statements. 2. ACCOUNTING POLICIES Basis of preparation The consolidated and parent company ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the Companies Act 2006 as applicable to companies reporting under IFRS. The ﬁnancial statements were approved by the Board of Directors on 6 March 2013. The ﬁnancial statements have been prepared on the historical cost basis. The accounting policies have been applied consistently by the Group. An income statement is not provided for the parent company as permitted by Section 408 of the Companies Act 2006. The proﬁt dealt with in the ﬁnancial statements of Nichols plc was £13,104,000 (2011: £11,759,000). Functional and presentation currency These consolidated ﬁnancial statements are presented in sterling, which is also the functional currency of the parent and subsidiary companies. 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 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 11). The carrying amount of goodwill at the balance sheet date was £16.0 million (2011: £13.7 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 19). 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 26). 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. 2 5 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 Basis of consolidation The Group ﬁnancial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 31 December 2012. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the ﬁnancial and operating policies of an entity so as to obtain beneﬁts from its activities. In assessing control, potential voting rights that are exercisable are taken into account. The ﬁnancial statements of subsidiaries are included in the consolidated ﬁnancial statements from the date that control commences until the date that control ceases. Intra-Group balances and any unrealised gains and losses arising from intra-Group transactions are eliminated in preparing the consolidated ﬁnancial statements. All Group companies have coterminous year ends. Acquisitions of subsidiaries are dealt with by the acquisition method. The acquisition 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 the fair value of the consideration transferred over the fair value of the Group’s share of the identiﬁable net assets of the acquired subsidiary at the date of acquisition. 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. The point of transfer for international shipments is dictated by the terms of each sale. Segmental reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components and for which discrete ﬁnancial information is available. An operating segment’s operating results are reviewed regularly by the management committee (as chief operating decision maker) to make decisions about resources to be allocated to the segment and assess its performance. Segment results that are reported to the management committee include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment reporting for the Group is made to the gross proﬁt level for the operating segments but no segment reporting is made for further expenditure or for the assets and liabilities of the Group. The assets and liabilities of the Group are reported as Group totals and no reporting of these balances is recorded at a segment level. As a result all of the Group’s assets and liabilities are unallocated items and no reconciliation of segment assets to the Group’s total assets is prepared. 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. During 2012 the Group entered into foreign currency transactions that over the course of the year resulted in the Group having a natural hedge. This then meant the Group did not need to enter into forward contracts to minimise the impact of movements in foreign currency rates on the spot market. During 2011 the Group used forward exchange contracts to hedge its foreign currency risk. Forward purchase contracts in US Dollars were made to cover at least the full year of projected purchases. The forward foreign currency purchase contracts, which were a mixture of ﬁrm contracts and conditional options, matured in line with expected purchases. 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 in other comprehensive expense. 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. 6 2 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 Deferred tax Deferred tax is recognised using the balance sheet liability 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 fair value of the consideration transferred 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 acquisitions prior to 1 January 2006, the net book value of goodwill at the date of transition is the deemed cost of goodwill to the Group under IFRS. For acquisitions on or after 1 January 2006, goodwill represents the excess of the fair value of the consideration transferred 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. Reserves Share capital represents the nominal value of equity shares. Share premium reserve represents the excess over nominal value of the fair value of the consideration received for equity shares. Capital redemption reserve represents the reserve created upon redemption of shares. Other reserves incorporate purchase of own shares, movements in the Group’s ESOT and the IFRS 2 “Share-based payment” charge for the year. Retained earnings represents retained earnings. 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. 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 property, plant 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. 2 7 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 The estimated useful lives for the current and comparative periods are as follows: Property, plant and equipment 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 and other 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. 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. Employee beneﬁts - 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 other comprehensive income. Interest expenses related to pension obligations are included in ﬁnance expense 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’s equity-settled share-based payments comprise the grant of options under the Group’s share option schemes. 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 2012 for the year ending 31 December 2012. 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 options as being based on the market value of a company’s share at the date of grant adjusted to reﬂect the fact that an employee is not entitled to receive dividends over the relevant holding period. The total amount to be expensed over the vesting period is determined with reference to the fair value of options granted, excluding 8 2 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 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 share premium 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 Finance income comprises interest income on funds invested. Interest income is recognised as it accrues, using the effective interest method. Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the proﬁt or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the proﬁt or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees. Employee Share Ownership Trust The assets and liabilities of the Employee Share Ownership Trust (“ESOT”) have been included in the 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 New standards and interpretations currently in issue but not effective for accounting periods commencing on 1 January 2012 are: • IFRS 9 Financial Instruments (effective 1 January 2015) • IFRS 10 Consolidated Financial Statements (effective 1 January 2014) • IFRS 11 Joint Arrangements (effective 1 January 2013) • IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2014) • IFRS 13 Fair Value Measurement (effective 1 January 2013) • IAS 19 Employee Benefits (Revised June 2011) (effective 1 January 2014) • IAS 27 (Revised), Separate Financial Statements (effective 1 January 2014) • IAS 28 (Revised), Investments in Associates and Joint Ventures (effective 1 January 2013) • Presentation of Items of Other Comprehensive Income - Amendments to IAS 1 (effective 1 July 2012) • Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7 (effective 1 January 2013) • Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (effective 1 January 2014) • Mandatory Effective Date and Transition Disclosures - Amendments to IFRS 9 and IFRS 7 (effective 1 January 2015) • Transition Guidance - Amendments to IFRS 10, IFRS 11 and IFRS 12 (effective 1 January 2013) • Investment Entities - Amendments to IFRS 10, IFRS 12 and IAS 27 (effective 1 January 2014) The Directors are currently considering the potential impact of adoption of these standards and interpretations in future periods on the consolidated ﬁnancial statements of the Group. 2 9 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 3. SEGMENTAL INFORMATION a. Key Operating segment The Executive Committee analyses the Group’s internal reports to enable an assessment of performance and allocation of resources, the operating segments are based on these reports. The Executive Committee reviews the Group on the operating segments identiﬁed below. Gross proﬁt is the measure used to assess the performance of each operating segment. Still Carbonate Total Revenue (sales to third parties) Gross Proﬁt 2012 £’000 2011 £’000 2012 £’000 54,516 53,272 107,788 48,809 28,036 50,103 98,912 20,091 48,127 2011 £’000 26,130 20,099 46,229 There are no sales between the two operating segments, and all revenue is earned from external customers. The operating segments gross proﬁt is reconciled to proﬁt before taxation as per the consolidated income statement. The Group’s assets are managed centrally by the Management Committee and consequently there is no reconciliation between the Group’s assets per the statement of ﬁnancial position and the segment assets. Capital Expenditure Depreciation b. Reporting by geographic area Revenue by geographic destination Middle East Africa Rest of the World Total exports United Kingdom 2012 £’000 297 460 2011 £’000 302 467 2012 £’000 11,015 6,574 5,148 22,738 85,050 2012 % 10.2 6.1 4.8 21.1 78.9 107,788 100.0 2011 £’000 11,489 5,379 4,224 21,092 77,820 98,912 2011 % 11.6 5.4 4.3 21.3 78.7 100.0 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 areas, area revenue is based on the geographical location of customers and not on the legal entity in which the transaction occurred. No individual customer accounts for 10% or more of the Group’s revenue in either 2012 or 2011. Total assets The assets of the Group at 31 December 2012 and 31 December 2011 are entirely located within the United Kingdom. Capital expenditure The capital expenditure of the Group for the years ended 31 December 2012 and 31 December 2011 was entirely made within the United Kingdom. Depreciation The Group’s depreciation charges for the years ended 31 December 2012 and 31 December 2011 are against ﬁxed assets all retained within the United Kingdom. 0 3 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 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 relating to employee incentive scheme Depreciation of property, plant and equipment Operating lease rentals payments Awards under Growth Securities Ownership Plan Loss / (gain) on foreign exchange differences Loss on sale of property, plant and equipment 5. FINANCE INCOME AND EXPENSE Finance income comprises: Bank interest receivable Finance expense comprises: Expected return on deﬁned beneﬁt pension scheme assets Interest on deﬁned beneﬁt pension scheme obligations Finance expense 2012 £’000 2011 £’000 59,661 52,683 60 0 0 460 883 1,117 113 2 38 19 110 467 823 770 (15) 26 2012 £’000 2011 £’000 324 72 (793) 1,124 331 (1,059) 1,175 116 3 1 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 6. DIRECTORS AND EMPLOYEES a. Average number of persons employed during the year, including directors: Total 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 26) Awards under Growth Securities Ownership Plan The employment costs for the parent company amounted to £6,189,000 (2011: £6,038,000). Directors’ remuneration for the year Pension costs Payment under Growth Securities Ownership Plan 2012 Number 2011 Number 162 169 2012 £’000 6,464 724 261 107 1,117 8,673 2011 £’000 6,789 620 215 119 770 8,513 2012 £’000 2011 £’000 720 34 0 754 606 33 70 709 The highest paid director has received £355,000 (2011: £333,000) excluding pension contributions. Beneﬁts are accruing to 2 directors (2011: 2 directors) under a deﬁned contribution scheme. Awards accruing under Growth Securities Ownership Plan in respect of directors amounted to £798,000 (2011: £465,000), which is not included in the above disclosure relating to directors. Further information regarding directors’ remuneration and the Growth Securities Ownership Plan is provided in the directors’ report on page 16 & 17. 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 Awards under Growth Securities Ownership Plan 2012 £’000 1,199 52 24 1,117 2,392 2011 £’000 1,171 58 27 765 2,021 2 3 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 7. TAXATION a. Analysis of expense recognised in the consolidated income statement Current taxation: UK corporation tax on income for the year Adjustments in respect of prior years Total current tax charge for the year Deferred tax: Origination and reversal of temporary differences Adjustments in respect of prior years Total deferred tax charge for the year Total tax expense in the consolidated income statement The tax expense is wholly in respect of UK taxation. b. Tax reconciliation Proﬁt before taxation 2012 £’000 2011 £’000 4,901 (154) 4,747 4,130 (146) 3,984 288 217 505 805 (10) 795 5,252 4,779 2012 £’000 20,510 2011 £’000 18,105 Proﬁt before taxation multiplied by the standard rate of corporation tax in the United Kingdom of 24.5% (2011: 26.5%) 5,025 4,796 Effect of: Non-deductible expenses Permanent element of share scheme deduction Impact on deferred tax of use of hybrid tax rate Other timing differences Adjustments to the tax charge in respect of prior years Depreciation for the year greater than capital allowances Group relief not paid for Impact on deferred tax due to rate change taken to SOCIE Net income not taxable / additional expenses allowable for tax purposes 39 (1) 178 (35) 26 35 0 (15) 0 38 (113) 144 3 (159) 39 32 0 (1) Total tax expense in the consolidated income statement 5,252 4,779 The effective rate of tax for the year of 25.6% (2011: 26.4%) is higher than the standard rate of corporation tax in the United Kingdom (24.5%). The differences are explained above. c. The effective rate of tax on proﬁt is 25.6% (2011: 26.4%). d. Tax on items recognised in other comprehensive expense In addition to the amount credited to the consolidated income statement, £78,000 (2011: £842,000) has been recognised in other comprehensive expense, being the movement on deferred taxation relating to retirement beneﬁt obligations and employee beneﬁts. 8. EQUITY DIVIDENDS Interim dividend 5.62p (2011: 5.00p) paid 31 August 2012 Final dividend for 2011 10.30p (2010: 9.10p) paid 4 May 2012 2012 £’000 2,071 3,795 5,866 2011 £’000 1,842 3,353 5,195 The interim dividend for the prior year of £1,842,000 was paid on 9 September 2011. The 2012 ﬁnal proposed dividend of £4,311,000 (11.70p per share) has not been accrued as it had not been approved by the year end. 3 3 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 9. EARNINGS PER SHARE Earnings per share (basic) Earnings per share (diluted) 2012 41.43p 41.38p 2011 36.28p 36.25p Earnings per share Basic earnings per share Dilutive effect of share options Diluted earnings per share 2012 Weighted average number of shares Earnings £’000 Earnings per share Earnings £’000 2011 Weighted average number of shares Earnings per share 15,258 36,826,460 41.43p 13,326 36,728,932 36.28p 50,569 32,013 15,258 36,877,029 41.38p 13,326 36,760,945 36.25p 4 3 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 10. PROPERTY, PLANT AND EQUIPMENT Group Cost At 1 January 2011 Acquisitions through business combinations Additions Disposals At 1 January 2012 Acquisitions through business combinations Additions Disposals At 31 December 2012 Depreciation At 1 January 2011 Charge for the year On disposals At 1 January 2012 Charge for the year On disposals At 31 December 2012 Net book value at 31 December 2012 Net book value at 31 December 2011 Parent Cost At 1 January 2011 Additions At 1 January 2012 Additions Disposals At 31 December 2012 Depreciation At 1 January 2011 Charge for the year At 1 January 2012 Charge for the year On disposals At 31 December 2012 Net book value at 31 December 2012 Net book value at 31 December 2011 Property, plant and equipment £’000 5,115 323 302 (173) 5,567 132 297 (235) 5,761 3,827 467 (101) 4,193 460 (167) 4,486 1,275 1,374 Property, plant and equipment £’000 2,018 154 2,172 138 (19) 2,291 1,541 170 1,711 185 (3) 1,893 398 461 3 5 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 11. GOODWILL Group Cost At 1 January 2011 Additions At 1 January 2012 Additions (see below) At 31 December 2012 £’000 11,914 1,744 13,658 2,315 15,973 Goodwill relates to the historic still and carbonate Out of Home business which is considered by management to be one cash-generating unit. This cash generating unit is reported across both our still and carbonate segments. 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 of 9% is a pre-tax rate and reﬂects the risks speciﬁc to the relevant cash-generating unit. Out of Home business cash ﬂow projections are based on the most recent ﬁnancial budgets approved by management. Management have applied an annual growth rate of 5% in projecting the cash ﬂows for a period of ﬁve years. Further periods have not been included in the impairment test due to the value of the free cash ﬂows after a period of ﬁve years being greater than the carrying value of goodwill. Therefore management do not believe it is necessary to project any further into the future. Management have considered the allocation of the fair value of the consideration transferred over the fair value of the Group’s share of the identiﬁable assets acquired to other intangibles and are satisﬁed that is it correctly allocated to goodwill. Goodwill additions for 2012 consist of the acquisition of 100% of the issued share capital of Festival Drinks Limited. The total goodwill is entirely attributable to the Out of Home business. If the discount rate were to increase by 10% the discounted cashﬂows would still exceed the carrying amount, likewise if the free cashﬂows were to reduce by 10% the discounted cashﬂows would still exceed the carrying amount. Acquisitions On 1 October 2012 the Group acquired 100% of the issued share capital of Festival Drinks Limited, a wholesaler of bag in box syrups and juices. 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 Current tax liabilities Cash Net assets acquired Cash consideration Goodwill (see above) Revenue of the acquiree since the acquisition date included in the consolidated statement of comprehensive income amounted to: The proﬁt of the acquiree since the acquisition date included in the consolidated statement of comprehensive income amounted to: The revenue for the Group as though the acquisition date had occurred at the beginning of the reporting period would have amounted to: The proﬁt for the Group as though the acquisition date had occurred at the beginning of the reporting period would have amounted to: Acquisition costs are not considered to be material but have been expensed in the income statement. 6 3 Fair value £’000 132 152 326 (432) (239) 221 160 2,475 2,315 767 95 1,892 392 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 12. INVESTMENTS: SHARES IN GROUP UNDERTAKINGS Parent Cost and net book amount At 1 January 2011 Additions At 1 January 2012 Additions At 31 December 2012 £’000 14,266 2,300 16,566 0 16,566 All non current investments relate to Group undertakings. Listed below are the trading subsidiaries and the ownership of their ordinary share capital by the Group. Beacon Drinks Limited * Ben Shaws Dispense Drinks Limited Cabana Soft Drinks Limited ** Dayla Liquid Packing Limited Festival Drinks Limited *** The Company directly owns Ben Shaws Dispense Drinks Limited and Dayla Liquid Packing Limited. * Beacon Drinks Limited is directly owned by Beacon Holdings Limited. ** Cabana Soft Drinks Limited is directly owned by Cabana (Holdings) Limited. *** Festival Drinks Limited is directly owned by Cabana Soft Drinks 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. % 100 100 100 100 100 3 7 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 13. 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 2012 £’000 Recognised in income £’000 Recognised in other comprehensive expense £’000 Net balance at 31 December 2012 £’000 66 441 1,944 77 2,528 3 (58) (442) (8) (505) 0 0 78 0 78 69 383 1,580 69 2,101 Net balance at 1 January 2011 £’000 Recognised in income £’000 Recognised in other comprehensive expense £’000 Net balance at 31 December 2011 £’000 83 1,170 1,179 83 2,515 (17) (729) (77) (6) (829) 0 0 842 0 842 66 441 1,944 77 2,528 Net balance at 1 January 2012 £’000 Recognised in income £’000 Recognised in other comprehensive expense £’000 Net balance at 31 December 2012 £’000 50 441 1,944 77 2,512 0 (58) (442) (8) (508) 0 0 78 0 78 50 383 1,580 69 2,082 Net balance at 1 January 2011 £’000 Recognised in income £’000 Recognised in other comprehensive expense £’000 Net balance at 31 December 2011 £’000 82 1,170 1,179 83 2,514 (32) (729) (77) (6) (844) 0 0 842 0 842 50 441 1,944 77 2,512 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 Prior year £’000 Current year £’000 Prior year £’000 Current year £’000 Prior year £’000 116 383 1,580 69 2,148 117 441 1,944 77 2,579 (47) (51) 0 0 0 0 0 0 (47) (51) 69 383 1,580 69 2,101 66 441 1,944 77 2,528 Parent Assets Liabilities Net Current year £’000 Prior year £’000 Current year £’000 Prior year £’000 Current year £’000 Prior year £’000 50 383 1,580 69 2,082 50 441 1,944 77 2,512 0 0 0 0 0 0 0 0 0 0 50 383 1,580 69 2,082 50 441 1,944 77 2,512 Property, plant and equipment Goodwill Employee beneﬁts Provisions 8 3 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 14. INVENTORIES Finished goods Raw materials Total inventories Group Parent 2012 £’000 3,881 1,450 5,331 2011 £’000 5,790 0 2012 £’000 2,769 0 2011 £’000 4,056 0 5,790 2,769 4,056 In 2012 the Group write-down of inventories to net realisable value amounted to £185,000 (2011: £198,000). 15. TRADE AND OTHER RECEIVABLES Trade receivables Amounts owed by Group undertakings Other receivables Prepayments and accrued income Group Parent 2012 £’000 2011 £’000 22,616 19,895 0 493 632 0 703 520 2012 £’000 17,153 2,665 244 384 2011 £’000 15,143 546 430 391 23,741 21,118 20,446 16,510 Other receivables include an amount of nil (2011: £39,000) 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 £1,031,000 (2011: £1,679,000) has been recorded accordingly in parent and Group. 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 Parent Up to 30 days overdue Over 30 days and up to 60 days overdue Over 60 days and up to 90 days overdue Group Bad debt provision Group Bad debt provision Parent Bad debt provision Parent Bad debt provision At 1 January 2012 £’000 Release in the year £’000 1,679 (594) At 1 January 2011 £’000 Charge in the year £’000 1,647 88 At 1 January 2012 £’000 Release in the year £’000 1,577 (544) At 1 January 2011 £’000 Charge in the year £’000 1,553 26 Utilised £’000 (54) Utilised £’000 (56) Utilised £’000 (17) Utilised £’000 (2) 2012 £’000 3,232 131 (62) 3,301 2012 £’000 3,139 115 (75) 3,179 2011 £’000 2,607 579 (579) 2,607 2011 £’000 1,695 328 (505) 1,518 At 31 December 2012 £’000 1,031 At 31 December 2011 £’000 1,679 At 31 December 2012 £’000 1,016 At 31 December 2011 £’000 1,577 3 9 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 16. 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 2012 £’000 3,877 0 1,635 13,865 19,377 2,191 2011 £’000 5,968 0 1,037 13,068 20,073 1,752 2012 £’000 3,203 3,383 1,121 12,720 20,427 1,368 2011 £’000 4,430 3,906 506 12,312 21,154 1,138 21,568 21,825 21,795 22,292 All amounts shown above are short-term. The carrying values are considered to be a reasonable approximation of fair value. At 31 December 2012, liabilities have contractual maturities which are summarised below: Group Trade payables Other short term ﬁnancial liabilities Parent Trade payables Other short term ﬁnancial liabilities 17. PROVISIONS Group Exceptional cost provision Parent Exceptional cost provision 18. SHARE CAPITAL 2012 2011 Within 6 months £’000 3,877 13,865 17,742 Within 6 to 12 months £’000 0 0 0 Within 6 months £’000 5,968 13,068 19,036 2012 2011 Within 6 months Within 6 to 12 months Within 6 months £’000 3,203 12,720 15,923 £’000 0 3,383 3,383 £’000 4,430 12,312 16,742 Within 6 to 12 months £’000 0 0 0 Within 6 to 12 months £’000 0 3,906 3,906 At 1 January 2012 £’000 Charge in the year £’000 139 0 At 1 January 2012 £’000 Charge in the year £’000 99 0 Utilised £’000 (92) Utilised £’000 (52) At 31 December 2012 £’000 47 At 31 December 2012 £’000 47 2011 £’000 5,200 3,697 2012 £’000 5,200 3,697 Authorised 52,000,000 (2011: 52,000,000) 10p ordinary shares Allotted, issued and fully paid 36,968,772 (2011: 36,968,772) 10p ordinary shares 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 2012 and 31 December 2011. 0 4 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 19. SHARE OPTIONS The Group operates a Save As You Earn (SAYE) scheme for all 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 Number granted Share price on grant date Exercise price Fair values on grant date Vesting period Expected dividend yield Lapse rate Risk free rate Volatility 11,398 46,776 9,008 27,177 8,970 18,179 18,925 £2.45 £3.54 £3.54 £5.58 £5.58 £7.08 £7.08 £1.77 £2.83 £2.83 £3.85 £3.85 £5.04 £5.04 £0.65 5.00 years 3.43% 5.00% 4.37% 20.31% £0.70 3.00 years 3.43% 5.00% 2.25% 25.70% £0.69 5.00 years 3.43% 5.00% 4.75% 25.70% £1.73 3.00 years 2.43% 5.00% 2.75% 32.94% £1.73 5.00 years 2.43% 5.00% 1.75% 32.94% £2.04 3.00 years 2.16% 5.00% 0.66% 30.63% £2.04 5.00 years 2.16% 5.00% 1.01% 30.63% Date of Grant 1 September 2008 1 June 2010 1 June 2010 1 June 2011 1 June 2011 1 June 2012 1 June 2012 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. Date of grant: 1 September 2008 1 June 2010 1 June 2011 1 June 2012 At 1 January 2012 Granted Exercised Lapsed At 31 December 2012 Exercise price per share 4,044 52,578 36,147 0 92,769 0 0 0 37,104 37,104 0 (867) (240) 0 0 (5,736) (6,566) (6,855) (1,107) (19,157) 4,044 45,975 29,341 30,249 109,609 177p 283p 385p 504p 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 2012 varied between 530p and 883p and the weighted average price for the year was 728p. At 31 December 2012, options over 109,609 shares were outstanding under Employee Share Option Plans (2011: 92,769). Outstanding on 1 January Granted Exercised Lapsed Outstanding on 31 December 20. CASH AND CASH EQUIVALENTS Group Cash at bank and in hand Parent Cash at bank and in hand 2012 2011 Weighted average exercise price in pence Number Weighted average exercise price in pence 318.12 130,635 504.00 36,147 305.11 (73,620) 397.04 367.38 (393) 92,769 224.77 385.00 186.00 188.22 318.12 Number 92,769 37,104 (1,107) (19,157) 109,609 At 1 January 2012 £’000 Cash ﬂow £’000 20,111 4,634 At 31 December 2012 £’000 24,745 At 1 January 2012 £’000 Cash ﬂow £’000 17,871 4,077 At 31 December 2012 £’000 21,948 4 1 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 21. FINANCIAL INSTRUMENTS Exposure to treasury management, liquidity, 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. 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 (€). During 2012 the Group entered into foreign currency transactions that over the course of the year resulted in the Group having a natural hedge. This then meant the Group did not need to enter into forward contracts to minimise the impact of movements in foreign currency rates on the spot market. During 2011 the Group used forward exchange contracts to hedge its foreign currency risk. Forward purchase contracts in US Dollars were made to cover at least the full year of projected purchases. The forward foreign currency purchase contracts, which were a mixture of ﬁrm contracts and conditional options, matured in line with expected purchases. Foreign currency assets US Dollar Euro Chinese Yuan Foreign currency sensitivity 2012 £’000 2,565 2,150 1 4,716 2011 £’000 2,199 918 1 3,118 Some of the Group’s transactions are carried out in US Dollars, Euros and Chinese Yuan. As a result, management have undertaken sensitivity analysis to consider the ﬁnancial impact if Sterling had both strengthened and weakened against the US Dollar, the Euro and the Chinese Yuan. If Sterling had strengthened against the US Dollar, Euro and Chinese Yuan by 5% (2011: 5%), then this would have had the following impact: Net result for the year USD (122) Euro (102) CNY 0 Total (224) USD (104) Euro (44) CNY 0 Total (148) 2012 £’000 2011 £’000 If Sterling had weakened against the US Dollar, Euro and Chinese Yuan by 5% (2011: 5%), then this would have had the following impact: Net result for the year USD 135 Euro 114 CNY 1 Total 250 USD 116 Euro 48 CNY 1 Total 165 2012 £’000 2011 £’000 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. 2 4 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 22. SUMMARY OF FINANCIAL ASSETS AND LIABILITIES BY CATEGORY The IAS 39 categories of ﬁnancial assets 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 ﬁnancial assets 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 Amounts owed to Group undertakings Total ﬁnancial liabilities Group Parent 2012 £’000 23,109 24,745 47,854 2011 £’000 2012 £’000 20,599 20,062 20,111 40,710 21,948 42,010 2011 £’000 16,119 17,871 33,990 Group Parent 2012 £’000 3,877 0 2011 £’000 5,968 0 3,877 5,968 2012 £’000 3,203 3,383 6,586 2011 £’000 4,430 3,906 8,336 23. 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 2011. At 31 December 2012 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 656 of the Companies Act 2006 (Serious Loss of Capital). 24. OPERATING LEASES Non-cancellable operating lease rentals are payable as follows: Within one year Between two and ﬁve years More than ﬁve years Group Parent 2012 £’000 2011 £’000 2012 £’000 2011 £’000 822 444 63 865 993 95 1,329 1,953 627 215 0 842 669 752 0 1,421 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. 25. RELATED PARTY TRANSACTIONS Parent company The parent company entered into the following transactions with subsidiaries during the year: Sale of goods and services (including recharge of costs) All balances with the related parties are on an arm’s length basis. Transaction value Year ended 31 December Balance outstanding as at 31 December 2012 £’000 1,734 2011 £’000 1,627 2012 £’000 718 2011 £’000 3,360 4 3 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 26. 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 £261,000 (2011: £215,000). The Company operates a deﬁned beneﬁt plan in the UK. A full actuarial valuation was carried out on 5 April 2011 and updated at 31 December 2012 by an independent qualiﬁed actuary. The Company paid an additional £0.9 million into the plan in the year (2011: £0.9 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 2012 31 December 2011 31 December 2010 2.90% 3.40% 4.30% 2.90% 4.30% 3.05% 3.40% 4.70% 3.05% 4.40% 4.45% 3.40% 5.40% 3.40% 5.90% The expected return on plan assets is based on the long term rates of return on the market values of equities, ﬁxed interest assets, corporate bonds and cash and other assets at 31 December. Other material actuarial assumptions were the rate of salary increases and mortality assumptions. In terms of future salary increases, the actuary is recommending an assumption of approximately 1% in excess of inﬂation based on historic differences between price inﬂation and salary inﬂation. 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 90 years for men (2011: 88 years) and 92 years for women (2011: 90 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 18.6% of salaries. The charge to the consolidated income statement was £107,000 (2011: £119,000). 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. The assets of the Group’s deﬁned beneﬁt plan and the expected rates of return on these assets are summarised as follows: Long term rate of return expected at 31 December 2012 31 December 2011 31 December 2010 31 December 2009 31 December 2008 5.50% 2.50% 3.90% 0.50% 5.60% 2.60% 4.50% 0.50% 6.90% 3.90% 5.20% 0.50% 7.20% 4.20% 5.40% 0.50% 6.60% 3.60% 6.50% 1.50% Market value of assets at 31 December 2012 £’000 31 December 2011 £’000 31 December 2010 £’000 31 December 2009 £’000 31 December 2008 £’000 12,168 1,579 3,621 2,483 19,851 11,207 993 2,570 3,053 12,511 1,938 1,983 1,463 11,004 1,772 1,800 963 8,826 1,610 1,502 602 17,823 17,895 15,539 12,540 Equity securities Gilts Government bonds Cash and other Equity securities Gilts Government bonds Cash and other 4 4 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 26. EMPLOYEE BENEFITS (CONT) The following amounts were measured in accordance with IAS 19 “Employee beneﬁts”. The amounts recognised in the statement of ﬁnancial position are determined as follows: Fair value of plan assets 31 December 2012 £’000 31 December 2011 £’000 31 December 2010 £’000 31 December 2009 £’000 31 December 2008 £’000 19,851 17,823 17,895 15,539 12,540 Present value of deﬁned beneﬁt obligations (26,407) (24,136) (22,030) (20,283) (16,107) Recognised liability for deﬁned beneﬁt obligations (6,556) (6,313) (4,135) (4,744) (3,567) The expense is recognised in the following line items in the consolidated income statement: 2012 £’000 2011 £’000 2010 £’000 2009 £’000 2008 £’000 Operating proﬁt Current service costs Total operating charge Finance expense Expected return on plan assets Interest on obligation Total ﬁnance expense Total charge to the consolidated income statement (107) (107) 793 (1,124) (331) (438) (119) (119) 1,059 (1,175) (116) (235) Group consolidated statement of comprehensive income Actual return less expected return on plan assets Experience gains and losses arising on plan liabilities 821 396 (1,460) 96 (84) (84) 1,102 (1,145) (43) (127) (110) (110) (56) (56) 979 737 (1,142) (1,068) (331) (387) (163) (273) 1,033 (72) 1,901 120 (4,782) 1,113 Changes in the assumptions underlying the present value of the plan liabilities Actuarial movement in deﬁned beneﬁt plan recognised in statement of comprehensive income (1,990) (1,562) (887) (3,586) 2,383 (773) (2,926) 74 (1,565) (1,286) The movement during the year in the liability for deﬁned beneﬁt obligations was as follows: 2012 £’000 2011 £’000 2010 £’000 2009 £’000 2008 £’000 Liability for deﬁned beneﬁt obligations at 1 January (6,313) (4,135) (4,744) (3,567) (3,635) Current service costs Contributions paid into the plan Gain on settlement of obligations Other ﬁnance costs (107) 968 0 (331) (119) 983 0 (116) (110) 808 0 (163) (56) 775 0 (331) (84) 672 809 (43) Actuarial (loss)/gain recognised in statement of comprehensive income Liability for deﬁned beneﬁt obligations at 31 December (773) (6,556) (2,926) (6,313) 74 (4,135) (1,565) (4,744) (1,286) (3,567) 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 gain/(loss) Contributions by the Group Assets distributed on settlement of obligations 2012 £’000 17,823 793 821 414 0 2011 £’000 17,895 1,059 (1,460) 329 0 2010 £’000 2009 £’000 15,539 12,540 979 1,033 344 0 737 1,901 361 0 2008 £’000 16,570 1,102 (4,782) 417 (767) Closing fair value of plan assets 19,851 17,823 17,895 15,539 12,540 4 5 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2012 26. EMPLOYEE BENEFITS (CONT) 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 loss/(gain) 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 2012 £’000 2011 £’000 2010 £’000 24,136 22,030 20,283 107 (554) 1,124 1,594 0 119 (654) 1,175 1,466 0 110 (464) 1,142 959 0 2009 £’000 16,107 56 (414) 1,068 3,466 0 26,407 24,136 22,030 20,283 2012 £’000 821 4.1% 2011 £’000 (1,460) (8.2%) 2010 £’000 1,033 5.8% 396 1.5% 96 0.4% (72) (0.3%) 2009 £’000 1,901 12.2% 120 0.6% (1,990) (7.5%) (1,562) (6.5%) (887) (4.0%) (3,586) (17.7%) 2008 £’000 20,205 84 (255) 1,145 (3,496) (1,576) 16,107 2008 £’000 (4,782) (38.1%) 1,113 6.9% 2,383 14.8% (773) (2.9%) (2,926) (12.1%) 74 0.3% (1,565) (7.7%) (1,286) (8.0%) 6 4 UNAUDITED FIVE YEAR SUMMARY YEARS ENDED 31 DECEMBER Revenue 2012 £’000 2011 £’000 2010 £’000 2009 £’000 2008 £’000 107,788 98,912 83,899 72,378 56,221 Operating proﬁt before exceptional items, IAS 19 and long term incentive charges 21,741 19,038 15,426 12,891 Exceptional items IAS 19 operating proﬁt charges Long term incentive charges 0 (107) (1,117) 0 (119) (770) (293) (110) (199) Operating proﬁt after exceptional items, IAS 19 and long term incentive charges 20,517 18,149 14,824 Net ﬁnance (expense)/income Proﬁt before taxation Taxation Proﬁt after taxation Dividends paid Retained proﬁt/(loss) Earnings per share - (basic) Earnings per share - (diluted) Earnings per share - (basic) before exceptional items Earnings per share - (diluted) before exceptional items Dividends paid per share (7) 20,510 (5,252) 15,258 (5,866) 9,392 41.43p 41.38p 41.43p 41.38p 15.92p (44) 18,105 (4,779) 13,326 (5,195) 8,131 36.28p 36.25p 36.28p 36.25p 14.10p (34) 14,790 (3,966) 10,824 (4,601) 6,223 29.63p 29.59p 30.22p 30.18p 12.55p (293) (56) (334) 12,208 (282) 11,926 (3,572) 8,354 (4,193) 4,161 22.86p 22.57p 23.44p 23.15p 11.45p 10,431 (5,940) (84) (543) 3,864 234 4,098 (1,141) 2,957 (3,914) (957) 8.10p 8.10p 20.03p 20.01p 10.65p 4 7 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the twenty ﬁrst Annual General Meeting of Nichols plc (“Company”) will be held at its registered ofﬁce at Laurel House, Woodlands Park, Ashton Road, Newton le Willows, WA12 0HH on Wednesday, 1 May 2013 at 11:00 a.m. for the following purposes: To consider and, if thought ﬁt, to pass the following resolutions as ordinary resolutions: 1. 2. 3. 4. 5. 6. 7. 8. To receive the Company’s annual accounts and directors’ and auditor’s reports for the year ended 31 December 2012. To declare a ﬁnal dividend for the year ended 31 December 2012 of 11.7 pence per ordinary share of 10 pence in the capital of the Company to be paid on 3 May 2013 to shareholders whose names appear on the register of members at the close of business on 2 April 2013. To re-elect E J Healey, who retires by rotation, as a director of the Company. To re-elect J Longworth, who retires by rotation, as a director of the Company. To reappoint M-J Millard, who has been appointed by the Board since the last Annual General Meeting, as a director of the Company. To reappoint Grant Thornton UK LLP as auditors of the Company. To authorise the directors to determine the remuneration of the auditors. That, pursuant to section 551 of the Companies Act 2006 (“Act”), the directors be and are generally and unconditionally authorised to exercise all powers of the Company to allot shares in the Company or to grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal amount of £1,219,969, provided that (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 1 August 2014 (whichever is the earlier), save that the Company may make an offer or agreement before this authority expires which would or might require shares to be allotted or rights to subscribe for or to convert any security into shares to be granted after this authority expires and the directors may allot shares or grant such rights pursuant to any such offer or agreement as if this authority had not expired. This authority is in substitution for all existing authorities under section 551 of the Act (which, to the extent unused at the date of this resolution, are revoked with immediate effect). To consider and, if thought ﬁt, to pass the following resolutions as special resolutions: That, subject to the passing of resolution 8 and pursuant to sections 570 and 573 of the Companies Act 2006 (“Act”), the directors be and are generally empowered to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant to the authority granted by resolution 8 and to sell ordinary shares held by the Company as treasury shares for cash, as if section 561(1) of the Act did not apply to any such allotment or sale, provided that this power shall be limited to the allotment of equity securities or sale of treasury shares: in connection with an offer of equity securities (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; and to holders of other equity securities in the capital of the Company, as required by the rights of those securities or, subject to such rights, as the directors otherwise consider necessary, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; and otherwise than pursuant to paragraph 9.1 of this resolution, up to an aggregate nominal amount of £184,843, and (unless previously revoked, varied or renewed) this power shall expire at the conclusion of the next annual general meeting of the Company after the passing of this resolution or on 1 August 2014 (whichever is the earlier), save that the Company may make an offer or agreement before this power expires which would or might require equity securities to be allotted or treasury shares to be sold for cash after this power expires and the directors may allot equity securities or sell treasury shares for cash pursuant to any such offer or agreement as if this power had not expired. This power is in substitution for all existing powers under section 570 and 573 of the Act (which, to the extent unused at the date of this resolution, are revoked with immediate effect). That, pursuant to section 701 of the Companies Act 2006 (“Act”), the Company be and is generally and unconditionally authorised to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 10p each in the capital of the Company (“Shares”), provided that: the maximum aggregate number of Shares which may be purchased is 3,696,877; the minimum price (excluding expenses) which may be paid for a Share is 10p; 9. 9.1 9.1.1 9.1.2 9.2 10. 10.1 10.2 8 4 GENERAL NOTES 10.3 the maximum price (excluding expenses) which may be paid for a Share is an amount equal to 105 per cent of the average of the middle market quotations for a Share as derived from the Daily Ofﬁcial List of the London Stock Exchange plc for the ﬁve business days immediately preceding the day on which the purchase is made, 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 1 August 2014 (whichever is the earlier), save that the Company may enter into a contract to purchase Shares before this authority expires under which such purchase will or may be completed or executed wholly or partly after this authority expires and may make a purchase of Shares pursuant to any such contract as if this authority had not expired. By order of the Board T J Croston Secretary 27 March 2013 Registered ofﬁce Laurel House Woodlands Park Ashton Road Newton le Willows WA12 0HH Registered in England and Wales No. 238303 General Notes 1. 2. 3. 4. 5. 6. 7. Copies of the executive directors’ service agreements and non-executive directors letters of appointment 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. The right to vote at the meeting is determined by reference to the register of members. Only those shareholders registered in the register of members of the Company as at 6:00 p.m. on Monday, 29 April 2013 (or, if the meeting is adjourned, 6:00 p.m. on the date which is two working days before the date of the adjourned meeting) shall be entitled to attend and 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 that time shall be disregarded in determining the rights of any person to attend or vote (and the number of votes they may cast) at the meeting. A member is entitled to appoint another person as his or her proxy 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 or her. To appoint more than one proxy, you will need to complete a separate proxy form in relation to each appointment. Additional proxy forms may be obtained from the Company’s registrar at shareholder.services@capitaregistrars.com or on 0871 664 0300 (calls cost 10p per minute plus network extras. Lines are open 8:30 a.m. – 5:30 p.m., Monday - Friday) or you may photocopy the proxy form already in your possession. You will need to state clearly on each proxy form the number of shares in relation to which the proxy is appointed. A failure to specify the number of shares each proxy appointment relates to or specifying a number which when taken together with the number of shares set out in the other proxy appointments is in excess of those held by the member, may result in the proxy appointment being invalid. A proxy may only be appointed in accordance with the procedures set out in notes 4 to 8 below and the notes to the form of proxy. 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. 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, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU so as to arrive no later than 11:00 a.m. on Monday 29 April 2013 (or, in the event that the meeting is adjourned, no later than 48 hours before the time of any adjourned meeting). CREST members who wish to appoint a proxy or proxies for the meeting (or any adjournment of it) 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 voting 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. 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 Euroclear UK & Ireland Limited’s speciﬁcations and must contain the information required for such instructions, 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 Company’s Registrar, Capita Registrars (CREST ID RA10) no later than 11:00 a.m. on Monday 29 April 2013 (or, if the meeting is adjourned, no later than 48 hours before the time of any adjourned meeting). For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the 4 9 GENERAL NOTES & DIRECTIONS TO THE ANNUAL GENERAL MEETING message by the CREST Applications Host) from which Capita Registrars 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. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages 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(s), to procure that his or her 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 service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat a CREST Proxy Instruction as invalid in the circumstances set out in Regulation 35(5)(a) of the Uncertiﬁcated Securities Regulations 2001. A shareholder which is a corporation may authorise one or more persons to act as its representative(s) at the meeting. Each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual shareholder, provided that (where there is more than one representative and the vote is otherwise than on a show of hands) they do not do so in relation to the same shares. As at 22 March 2013 (being the last practicable date before the publication of this notice), the Company’s issued share capital consists of 36,968,772 ordinary shares of 10 pence each, carrying one vote each. As the Company holds 144,747 ordinary shares in treasury, in respect of which it cannot exercise any votes, the total voting rights in the Company as at 22 March 2013 are 36,824,025. You may not use any electronic address provided either in this notice of general meeting or any related documents (including the form of proxy) to communicate with the Company for any purposes other than those expressly stated. 8. 9. 10. 11. North A 4 9 A580 M6 J23 A580 To Manchester A49 Laurel House T o N e w t o n - l e - W ill o w s south 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. 0 5 i f N a N c a l i c a l e N d a r PRELImINARy RESuLTS ANNOuNcED 7TH mARcH 2013 ANNuAL GENERAL mEETING 1ST mAy 2013 INTERIm RESuLTS ANNOuNcED 25TH JuLy 2013 Laurel House / Woodlands Park / Ashton Road / Newton-le-willows / merseyside / WA12 0HH 01925 22 22 22 / www.nicholsplc.co.uk

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