Nichols PLC
Annual Report 2014

Plain-text annual report

2014 ANNUAL REPORT & FINANCIAL STATEMENTS. 1 THE GROUP. Nichols PLC is a highly focused soft drinks business. Its brand portfolio includes Vimto, which is sold in over 65 countries and Levi Roots, Sunkist and Panda which are sold in the UK. The Group has a leading market position in both the “Still” and “Carbonate” drinks categories. CONTENTS. 04 STRATEGIC REPORT. Chairman’s Statement Chief Executive’s Review Financial Review 30 36 68 DIRECTORS. AUDITOR’S REPORT. NOTICE OF MEETING. 32 38 DIRECTORS REPORT. FINANCIAL STATEMENTS. 71 FINANCIAL CALENDAR. 2 3 STRATEGIC REPORT THE HERITAGE AND STRENGTH OF OUR BRAND REMAIN A CORE ELEMENT OF OUR CONTINUED SUCCESS Performance at a glance. (Pre-exceptional items) Group Revenue Operating Profit Operating Profit R.O.S 2013 105.5m 2013 22.4m 2013 21% 2014 109.2m 2014 25.6m 2014 23% +3.5% +14.1% Profit Before Tax Net Cash EPS (basic) 2013 22.5m 2013 34.3 2014 25.7m 2014 34.5 2013 45.8p 2014 55.0p +14.1% +20.2% 4 5 STRATEGIC REPORT CHAIRMAN’S STATEMENT One of the key strengths of our business is the diversity of our markets. Our Still and Carbonate revenues span both the domestic and international regions. 6 7 JOHN NICHOLS Non-Executive Chairman STRATEGIC REPORT CHAIRMAN’S STATEMENT I am delighted to report another strong performance for the Nichols Group. Once again, our sales growth has outperformed the soft drinks market (as measured by Nielsen), we have delivered double digit profit growth and the Group continues to be cash generative. Trading Group sales totalled £109.2m, an increase of 3.5% compared to the prior year and represents growth of 4.1% on a constant exchange rate basis. In addition to the sales increase we continued with our strategy of focusing on value over volume and our operating margin improved to 23% (2013: 21%) driven by healthy international growth. As a result, profit before tax (pre-exceptional items) grew by 14.1% to £25.7m (2013: £22.5m). One of the key strengths of our business is the diversity of our markets. Our Still and Carbonate revenues span both the domestic and international regions with sales of packaged products, dispensed products and concentrate. In the UK our total sales increased by 3.3%, out-performing the soft drinks market growth of 0.4% (Nielsen MAT to 3 January 2015). During 2014 we continued to invest in our brands and in the spring we successfully introduced the new Vimtoad advertising campaign along with a complete redesign of the Vimto packaging. These activities contributed to a healthy 4.5% growth in UK sales of the Vimto brand, which was achieved despite the continued challenging trading conditions in the UK grocery market. Driven by our performance in the Middle East, international sales increased by 4.3% to £24.1m. The underlying increase was even stronger at 7.3% when viewed on a constant exchange rate UK SALES INCREASED BY 3.3% INTERNATIONAL SALES INCREASED BY MIDDLE EAST SALES INCREASED BY AFRICAN MARKETS INCREASING YOY BY 4.3% 12.3% 3.9% basis. It was encouraging to see Vimto concentrate sales to our key Middle East market increase by 12.3% on the back of strong in-country demand for the brand. Elsewhere sales to our African markets again performed well, increasing 3.9% on a reported basis, or 8.6% on a constant exchange rate basis against the prior year. Exceptional cost As reported in our Interim announcement, the Group’s Income Statement includes a one-off exceptional cost of £7.8m with regard to damages awarded against Nichols plc in the High Court. The cash payment was settled in the second half of 2014. Dividend After another strong performance in 2014 and reflecting the Board’s continued confidence in the outlook, I am pleased to recommend a final dividend of 15.3 pence per share (2013: 13.3 pence). If approved by our shareholders, the total dividend for 2014 will be 22.4 pence per share (2013: 19.62 pence), an increase of 14.2% on the prior year. The final dividend will be paid on 5 May 2015 to shareholders registered on 7 April 2015; the ex-dividend date is 2 April 2015. Board Change Eric Healey, Non-Executive Director, is stepping down from the Board today and we would like to thank Eric for his contribution to Nichols plc’s success over the last four years. A successor will be appointed in due course. Outlook 2014 proved to be another successful year for the Group. Despite the ongoing challenges within the UK grocery sector, our UK sales again outperformed the soft drinks market and in particular the Vimto brand performance was strong. General consensus suggests that the UK grocery market will continue to be challenging into 2015 and against that back drop it is important to emphasise the Group’s diverse income streams, with less than 25% of Group sales coming from the UK major multiple retailers. As we progress into 2015, we will continue to deliver our growth strategy, including further investment in our brands and markets both in the UK and overseas. In summary, the Group has continued to perform successfully in 2014 delivering increased sales, strong profit growth and has maintained a robust ‘balance sheet’. The Board is confident that the Group is well placed to continue this trend into 2015. John Nichols Non-Executive Chairman 4 March 2015 8 9 STRATEGIC REPORT CHIEF EXECUTIVE’S REVIEW The Vimto brand, now 107 years old, is distributed and sold in more than 65 countries worldwide 10 11 MARNIE MILLARD Chief Executive Officer STRATEGIC REPORT CHIEF EXECUTIVE’S REVIEW I am very pleased with Nichols’ strong performance and continued progress during the year, delivering 14.1% profit growth (pre-exceptional items) in what remained a challenging soft drinks market globally. Nichols is a focused international soft drinks Group and the home of Vimto. The Vimto brand, now 107 years old, is distributed and sold in more than 65 countries worldwide. The strength and heritage of our core brand continues to be a key element of the Group’s growth and success. The diversification of our business underpins the Group’s track record of consistent growth. Our leading portfolio of soft drinks brands, as well as established UK, International and Out of Home operations, means we are able to grow and generate value for the Group and its shareholders. The UK Soft Drinks Market (as measured by Nielsen MAT to 3 January 2015) In 2014, volumes in the UK soft drinks market decreased by 1%. The total value of the UK soft drinks market, excluding the “on trade” channel, grew by a modest 0.4% year on year to a total value of £7.6bn. All sectors of the market remained competitive during the year with continued reliance by many brands on heavy promotional activity to drive sales. During the year we continued to execute our successful strategy of focusing on value over volume and minimising promotional driven sales. As a result the Vimto brand value grew during the year by 6.2% to £69.1m. Within the Vimto portfolio, whilst we saw strong performances from both the Still and Carbonate product categories, the most noticeable growth was from the Vimto ready to drink range which Our commercial platforms for development and growth as detailed below, reflect the changing behaviours of the consumer: MORE FROM THE CORE Unlocking and exploiting growth opportunities that still exist for our core and much loved Vimto brand. WHEREVER WHENEVER Extending Vimto’s availability to wider geographical territories and through different routes to market. HEALTHIER FUTURE THIRST FOR NEW Ensuring that our product range provides a wide range of choice to meet consumer needs for healthier drinks. Having a culture of innovation to develop our business and our products to meet consumers’ prefer- ences and needs. 14% PROFIT BEFORE TAX GROWTH 20% EARNINGS PER SHARE GROWTH 14% FULL YEAR DIVIDEND GROWTH £34.5m CASH IN THE BANK significantly outperformed the market to deliver growth of 26% versus the prior year. It is clear that over recent years the buying habits of the UK consumer have fundamentally changed as shoppers increasingly prioritise value and convenience. Consumers now shop more frequently but are happy to visit different fascia stores to buy different products. It is therefore critical for the ongoing success of Vimto that we continue to innovate and evolve so that all pack formats are relevant for the designated route to market and satisfy consumers’ changing needs. 12 13 STRATEGIC REPORT CHIEF EXECUTIVE’S REVIEW Festive Vimtoad 4,231 TWITTER FOLLOWERS NO’3 TREND WORLDWIDE 3,439 APP DOWNLOADS Some interesting facts from the first week of launching the Vimtoad onto social media The national multi-channel campaign was launched on TV in April, with additional activity on radio, digital media and social media, as well as a nationwide sampling road show. This was supported by trade advertising and PR to enhance retailers’ interest and demand. At the same time, the entire Vimto range benefited from a complete redesign, which ensured the presentation of each of our products reflected the appropriate category language. This redesign saw the launch of Vimto Fizzy Zero, which is our diet carbonated product. During the year a new sector emerged in the UK soft drinks market in the form of water enhancers. We spotted this emerging category and the potential growth opportunity early on. Vimto Squeezy was launched in January 2014 and was one of the first water enhancers to be launched in the UK market. The sales performance of this new product has been promising during the year adding in excess of £1.0m to the brand value. Operational Review In 2014, the sales of our Still products grew by 5.3% to £56.0m with this product area being the strategic focus for the Vimto brand. Supporting this required a broadening of our target audience to encompass both teens and their parents. As a result we embarked on a new communications campaign to enhance our engagement with this audience. A new branded character, a giant purple toad named Vimtoad, was developed to front this campaign and explains to target consumers looking for refreshment why Vimto is both delicious and unique. 14 15 STRATEGIC REPORT CHIEF EXECUTIVE’S REVIEW Consolidation in the Group’s Out of Home business was successfully concluded in 2014. A product rationalisation programme was also realised during the year to simplify the business and make it more relevant for the market. During 2015 we will represent Coca- Cola within our Out of Home business via the dispense route to market. Our ability to secure distribution of the biggest global soft drink brand is indicative of our commitment to the quality and service we provide to the independent on trade sector. Internationally, in the Middle East a new above the line communications campaign for Vimto was launched by our partner Aujan Coca-Cola. The theme “Bring them Home” was targeted at younger mothers but still emphasised the traditional family values that Vimto represents to our customers during the period of Ramadan. This was supported with a fully integrated digital campaign helping to drive year on year market growth of 6% in the region, contributing to the growth of the Group’s Still business. Within the African Business Unit, Senegal and Cameroon performed very well during the year, as did Nigeria where we were able to re-establish the presence of Vimto. Our model within this region is to seed a territory with imported cans and, as critical mass is achieved, we seek to partner a local bottler. As a result, in 2014 we experienced a switch in sales from cans to sales of concentrate, accounting for a 9% increase in Concentrate revenue in the overall African business. Shipments to the West African region remained broadly stable, despite the devastating and indeed tragic outbreak of Ebola in that region during the year. Non soft drinks brand licensing continues to grow within our portfolio. In 2014 we had over 20 million Vimto brand interactions with our consumers. Vimto Jellies were successfully launched and in their first year achieved retail sales in excess of £1.0m. Financial Review The Group has delivered pleasing sales growth of 3.5% to £109.2m (2013: £105.5m) despite challenging overall market conditions. We have continued with our strategy of focusing on value over volume and as a result our gross margin has remained robust and contributed to the strong profit delivery. In summary in 2014 we achieved: • 3.5% total sales growth to £109.2m (2013: £105.5m) • 4.3% International sales growth to £24.1m (2013 £23.1m) • 14.1% profit before tax growth (pre- exceptional items) to £25.7m (2013: £22.5m) • 20.2% earnings per share growth (pre-exceptional items) • 14.2% full year dividend growth Cash generation remained positive in 2014 and, as a result, we finished the year with £34.5m cash in the bank. VIMTO BONBONS IN 2014 WE SOLD A TOTAL OF 4 MILLION BAGS AND JARS OF BONBONS WHICH EQUATED TO VIMTO JELLIES GAINED LISTINGS IN ASDA & MORRISONS. IN 2014 RETAIL SALES EXCEEDED £1M (£1.041M). THATS VIMTO GIFTING WAS NEW FOR 2014. FRONT OF STORE LISTINGS IN SELFRIDGES MADE RETAIL SALES OF 117million 2,167,380 INDIVIDUAL BONBONS! INDIVIDUAL JELLIES! £443K IN JUST A FEW MONTHS! CALORIES PER 100ML OF OUR READY TO DRINK PRODUCTS IS DOWN BY PROPORTION OF OUR NO ADDED SUGAR SALES HAS INCREASED FROM 19% TO OUR TOTAL USE OF SUGAR HAS REDUCED BY 28% 36% 23% Corporate Responsibility Issues of obesity and sugar consumption continue to challenge the soft drinks industry. We believe that improving dietary health in the UK is a shared responsibility and we are working hard to ensure that our product range offers our consumers a range of options, as well as transparency to enable them to make an informed choice. We continue to support the Government’s Public Health Responsibility Deal and strive to improve our calorie reduction pledge year on year. Since 2011 we have achieved the following: • A reduction of 28% in average calories per 100ml of our Ready to Drink products sold. • Proportion of our no added sugar sales has increased from 19% to 36%. • Our total use of sugar has reduced by 23%. To support our corporate responsibility programme, we embarked on a recipe rationalisation programme at the Nichols manufacturing site in Ross-on- Wye. This has resulted in improved manufacturing efficiencies, better labour utilisation and a reduction in energy usage and waste levels. 16 17 STRATEGIC REPORT CHIEF EXECUTIVE’S REVIEW OUR COMMUNITY. I am pleased to report our key charity this year has been Warrington Youth Club. Warrington Youth Club believes in “inspiring young people to achieve” and supports young people’s development by offering opportunities to gain, increase and develop skills, self awareness and confidence. This in turn enables them to make positive and healthy life choices through a range of programmes. CLIMB TO KILIMANJARO. In order to launch Nichols support of WYC, 3 members of Nichols staff agreed to climb Mount Kilimanjaro in March 2014. Kilimanjaro is the highest mountain in Africa and the highest free standing mountain in the world, standing at 5,895 metres or 19,341 feet high. James Nichols, Tim Spurr and David Perkins were joined in their efforts by 3 of Nichols Plc suppliers; Paul Heesterman from Senient Flavors, Steve Watt from Rose Confectionery and Bin Donaldson from Cobell. The Group aimed to raise £25,000 for WYC. In fact, thanks to the fantastic generosity of friends, families, colleagues and suppliers; the Group raised in excess of £50,000. A fantastic start to Nichols Plc support of WYC and put us well on track to the £100k total that was raised for the club in 2014. OUR TEAM. Our strongest asset remains the quality of our people and the excellent team work found across our Group. Our business thrives on the energy, enthusiasm and positive attitude of all colleagues. The professionalism and capability of our people reinforces my confidence in our ability to continue to improve our performance and achieve our strategic goals together. We have a strong and distinctive culture which we are proud of and work hard to narture and maintain. I would like to take this opportunity to thank all my colleagues for their continued effort and commitment. Outlook Overall 2014 was a good year for the Group, underpinned by our strengths of core brands, international operations and a winning team. We look forward with continued confidence into 2015. s n i k r e P d i v a D d n a r r u p S m T h t i i w s l o h c i N s e m a J l u a P ; ) g n ti e k r a M e s o R ( tt a W e v e t S ; ) s l o h c i N ( l ) s r o v a F t n e i s n e S ( n a m r e t s e e H STAR AWARDS DIANE McGINN Innovator of the Year ANDY JOHNSON Mentor of the Year JOE ASHCROFT NewComer of the Year DAVID EAVES Unsung Hero of the Year FINANCE Team of the Year Dragons Den, winning designs! In order to support the charity, Team Vimto climbed Kilimanjaro in early 2014 and hosted a “Dragons Den” style activity which produced some amazing performances and ideas from the students. The co-operation between the two organisations has been mutually beneficial and highly rewarding. 18 19 STRATEGIC REPORT CHIEF EXECUTIVE’S REVIEW THE DIVERSIFICATION OF OUR BUSINESS IS A MAJOR CONTRIBUTOR TO OUR CONSISTENT GROWTH. VIMTO FROM AROUND THE WORLD. As a long standing global organisation our aim is to be a business admired for our people, partnerships, products and performance. Our Vision We have an established five year rolling strategy for all the activities within our Group. Our plan for growth is centred around our commercial activities in both the UK and overseas. To support our commercial initiatives we work to ensure we have well established operations and partners to support our business growth and development. In the UK our core focus will be the Vimto brand. Investment, commitment and innovation will be central to the continued growth of the Vimto brand. Our intention will be to grow the brand more aggressively by geographical expansion in our home market. Internationally we will continue to develop and expand our large presence in the Middle East region. There also remains potential new territories in Africa, where it is essential we seek new partners to realise further success. In addition we continue to evaluate opportunities in new export markets to add to our successful international business. As a truly diversified business acquisition remains a key feature in our growth strategy. It is likely that any successful acquisition either in the UK or overseas would be incorporated into our current business model characterised by outsourcing production and using third party distribution partners in the export markets. Marnie Millard Chief Executive Officer 4 March 2015 20 21 STRATEGIC REPORT FINANCIAL REVIEW Whilst it is very pleasing to report that our UK sales again outperformed the market, our strong performance in the international regions demonstrates the diversity of the Group’s business 22 23 TIM CROSTON Group Finance Director STRATEGIC REPORT FINANCIAL REVIEW 2014 was another successful year for Nichols plc, our sales growth outperformed the market and we delivered a double digit increase to profit. The strong performance was delivered from both our UK and international markets. Whilst it is very pleasing to report that our UK sales again outperformed the market, our strong performance in the international regions demonstrates the diversity of the Group’s business and that we are not overly reliant on any one market or geographic region. Income Statement Total Group sales increased by 3.5% to £109.2m, on a constant exchange rate basis, the increase was 4.1%. Business Segments Still Carbonate 2013 53.2m 2013 52.3m 2014 56.0m 2014 53.2m +5.3% +1.7% Total 2013 105.5m 2014 109.2m +3.5% VIMTO BRAND INCREASED BY 4.5% UK REVENUE INCREASED 3.3% TO MIDDLE EAST SALES INCREASED BY £85.1M 12% GROSS PROFIT INCREASED BY 4.3% Group sales growth was weighted towards the Still category which was 5.3% ahead of the prior year. This was driven by the strong performance of Vimto 500ml sportscap in the UK and from the incremental sales of Vimto concentrate to the Middle East. Reported Carbonate sales showed a relatively modest year on year increase of 1.7%, however it should be noted that the majority of the Group’s negative currency impact affects this category as the majority of our African sales are traded in Euros. UK Sales Given the market conditions, our UK sales performance was excellent. During the year UK revenue increased 3.3% to £85.1m. In contrast, subdued consumer spending in the grocery sector as a whole was reflected in the UK soft drinks performance and as a result the market growth, as measured by Nielsen, reported marginal growth of 0.4% in the 12 months to 3 January 2015. The UK performance was driven by sales of Vimto branded products which increased by 4.5% in 2014, in particular we saw strong growth from both the Still and Carbonate 500ml products. International Sales The strong performance in our export markets was particularly pleasing, full year sales growth was 4.3% and a more indicative 7.3% higher when reported on a constant exchange rate basis. As anticipated in our Interim announcement, the significant headline was the strong growth in our Middle East markets in the second half of the year. Whilst in-country sales of finished product have remained in healthy growth in the Middle East, the shipments of Vimto concentrate had been relatively flat in 2013 and the first half of 2014. The timing differences between our concentrate shipments and in-country production requirements have now worked through the supply chain system resulting in a 12% increase in sales for 2014 (14% on a constant exchange rate basis). Elsewhere sales to Africa increased by 4% against tough prior year comparatives (2013 up by 21%). The majority of our sales to Africa are traded in Euros, meaning the increase was 9% when reported on a constant exchange rate basis which reveals an even stronger underlying trading performance. With regard to the exchange rate impact reported above, it should be noted that the Group manages a ‘natural currency hedge’, whereby our foreign currency payments largely match income and therefore the net exchange rate exposure to profit is minimal. Restatement of 2013 reported sales - During the latter part of 2014, the management team undertook a review of certain customer invoiced promotional investment that was previously included within administrative expenses. This review is explained further in note 2. 24 25 STRATEGIC REPORT FINANCIAL REVIEW Pre-exceptional Profit Gross Profit totalled £50.2m an increase of 4.3%, adding an incremental £2.1m contribution compared to the prior year. Gross Margin return on sales was maintained at the increased rate of 46% attained in 2013. As referred to in the Chairman’s Statement, we continued our strategy of focusing on value over volume meaning that whilst we are ambitious and invest to grow sales, we are not prepared to participate in deep discounting to the detriment of profitability and our brand values. Administrative expenses were £19.3m, the total cost remained relatively flat in comparison to the prior year (2013: £19.6m). Operating Profit for the year increased by £3.2m (14.1%), to £25.6m. The Operating Profit Margin increased to 23% (2013: 21%), this was achieved by maintaining the Gross Margin percentage and managing our administrative costs at the same level as the prior year. As a result of the strong trading performance and good cost control, Group Pre-exceptional Profit Before Tax increased significantly to £25.7m, 14.1% up on the prior year (£22.5m). During the year, the Group maintained its impressive performance of delivering strong year on year profit growth. Group PBT has increased by 110% over the last five years. Profit before tax (pre exceptional £m) Exceptional Cost As announced on 2 July 2014, the High Court awarded damages against Nichols plc with regard to the litigation claim from Gul Bottlers (PVT) Ltd. As a consequence, a one-off exceptional cost of £7.8m has been included in the Group’s Consolidated Income Statement. The settlement was paid during the second half of 2014 and is reflected in the Group’s Consolidated Statement of Cash Flows. Earnings Per Share Pre-Exceptional Earnings Per Share increased by 20% to 55.03 pence. The 2014 performance continues the strong growth trend. Over the last five years earnings have increased by 135%. 2009 2010 2011 2012 2013 2014 EPS before exceptional item (pence per share) 2009 2010 2011 2012 2013 2014 30 25 20 15 10 5 0 60.00 50.00 40.00 30.00 20.00 10.00 0.00 26 Key Performance Indicators As reported in more detail above, the following Key Performance Indicators are used by management to monitor the Group’s Income Statement: REVENUE GROWTH GROSS MARGIN OPERATING PROFIT MARGIN +3.5% The increase in the current year’s revenue as a percentage of the prior year’s total 46% Revenue less product cost as a percentage of revenue 23% Group Profit before financing income or charges as a percentage of revenue pre-exceptional costs Statement of Financial Position As I explained last year, the Group’s ‘Balance Sheet‘ is relatively uncomplicated. We continue to outsource the majority of our production therefore the business is asset light. The Group remains debt free and we apply strong control to our working capital. The year-end cash balance was £34.5m (2013: £34.3m). By exception, other points of note with regard to the Statement of Financial Position are: • Property, Plant and Equipment increased by £3.5m. In March 2014 we purchased the freehold to our Head Office for £3.4m. This investment delivers annual benefit to the Income Statement without affecting the Group’s ability to invest in its growth strategy. • Inventories increased by £0.6m (14%). In addition to the trading growth, the balance of the year on year variance was simply caused by the timing of stock movements. • Provisions reduced to zero. The Board is ultimately responsible for maintaining sound internal control systems to safeguard the investment of shareholders and the Group’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. The prior year provision for the litigation case was paid during 2014. Audit Committee • Pension liability increased to £6.2m (2013: £4.0m). The year on year movement is primarily due to anticipated lower corporate bond yields. The Group has a recovery plan in place to fund the deficit. Internal Control The Nichols Group complies with the principles of good corporate governance and has an established process of control and risk management. The Audit Committee members for 2014 were 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 non-audit services with a value over £25,000 would require Nichols plc Board approval. 27 STRATEGIC REPORT FINANCIAL REVIEW Risks and Uncertainties Management consider the following issues to be the principal risks potentially affecting our business: Risk Mitigation Unavailability of the Vimto compound – As the Vimto brand accounts for the majority of the Group’s revenue it is vital that we have surety of supply of the compound. Working in partnership with our suppliers, we have established production capability at more than one location to ensure continuity of supply. Loss of a major customer account Loss of a production facility. We are dedicated to maintaining long term relationships with all of our customers but the Group’s diverse income stream across markets and regions means we are not overly reliant on any one customer. Our supply chain team work with our third party suppliers to ensure robust recovery plans are in place to ensure continuity of supply in the event of the loss of one of our production facilities. Loss of our IT infrastructure - In common with many businesses we are now also highly dependent on the availability of IT systems. We have a robust disaster recovery plan including the use of third party professional providers to host our systems and data. 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Shareholders Total Dividend (pence per share) Dividend The Board is recommending a final dividend of 15.3 pence per ordinary share (2013: 13.3 pence) payable to shareholders on the register at 7 April 2015. The final dividend together with the interim dividend of 7.1 pence, gives a total dividend of 22.4 pence per share for the year which represents a 14.2% increase on the prior year (2013: 19.62 pence). 2009 2010 2011 2012 2013 2014 25 23 21 19 17 15 13 11 9 7 28 Nichols v All AIM (indexed from 2009) Share Price 2009 2010 2011 2012 2013 2014 Nichols PLC All AIM index The Nichols plc share price closed the year at 900 pence, down 24% from the start of the year. To my knowledge, there was no business justification for the reduction other than the volatility of the markets. At the time of writing I am pleased to report that the share price has recovered considerably (1,078 pence as at 4 March 2015) and is hopefully more reflective of shareholder confidence in our future performance. The graph to the left charts the Group’s share price performance compared to the All AIM index. For ease of comparison both sets of data are shown as an index using 2009 as the base. 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. Strategic Report The Strategic Report on pages 4 to 29 was approved by the Board of Directors on 4 March 2015 and signed on its behalf by: Tim Croston Group Finance Director 4 March 2015 29 DIRECTORS FROM THE DIRECTORS DESKS. P J NICHOLS Mr Nichols has been a director of the Group since 1976. He was appointed Managing Director in 1986 and Chairman in 1999. In November 2007, Mr Nichols moved to Non-Executive Chairman. M J MILLARD T J CROSTON E HEALEY J LONGWORTH Mrs Millard joined the Group as Managing Director of the Soft Drinks Division in 2013 and was appointed Chief Executive Officer in May 2014. Previously she has held senior roles at Gerber Juice Company Ltd, Refresco Ltd and Macaw Soft Drinks Ltd. Mr Croston initially joined the Group 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. He is a former senior partner of an international accounting firm. He was appointed to the Board in January 2011. Mr Healey resigned as Non-Executive Director on 5 March 2015. 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 Chambers 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. 30 31 DIRECTORS’ REPORT OUR PLAN FOR GROWTH IS CENTRED AROUND OUR COMMERCIAL ACTIVITIES IN BOTH THE UK & OVERSEAS The directors present their report and the audited financial statements for the year ended 31 December 2014 Non-Executive Directors J LONGWORTH E HEALEY (Resigned 4 March 2015) P J NICHOLS All of the above are members of the audit and remuneration committees of the Board. Executive Directors M J MILLARD T J CROSTON Financial risk management objectives and policies Business risks and uncertainties are included within the Financial Review on pages 22 to 29 and financial risks are set out in note 21 to the financial statements. 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. Political donations There were no political donations in either 2014 or 2013. 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. 32 33 DIRECTORS’ REPORT Directors’ remuneration payable in year ended 31 December 2014 Summary of directors’ interests in the Company Salary and fees Benefits in kind Bonuses Growth Securities Ownership Plan 2014 Pension contributions P J Nichols M J Millard T J Croston J Longworth E Healey B M Hynes Total £’000 98 203 150 22 22 0 495 £’000 5 12 16 0 0 0 33 £’000 0 21 16 0 0 0 37 £’000 0 95 70 0 0 0 165 £’000 0 13 12 1 0 0 26 Total 2014 £’000 103 344 264 23 22 0 756 Total 2013 £’000 108 259 227 22 22 90 728 Auditors Grant Thornton UK LLP resigned as auditor during the year and BDO LLP were appointed. In accordance with Section 489 of the Companies Act 2006 a resolution will be proposed at the Annual General Meeting that BDO LLP be re-appointed auditors. Directors’ Responsibilities Statement The directors are responsible for preparing the Strategic Report and 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 (IFRS) 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; 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: • state whether applicable IFRSs have • so far as each of the directors 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 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. (Number of Shares) Opening shareholding 2014 movement Closing shareholding P J Nichols M J Millard T J Croston J Longworth E Healey 2,077,060 - 17,250 140 - - - - - - 2,077,060 - 17,250 140 - All figures above relate to shares owned outright, please refer to Note 19 to the financial statements for details of share options relating to directors. By order of the Board Tim Croston Secretary Laurel House, Ashton Road, Newton-Le-Willows, WA12 0HH 4 March 2015 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. Director’s Remuneration Bonuses which are not guaranteed are accruing to the executive directors and certain senior executives based on pre-determined performance targets. The Remuneration committee have considered it appropriate to issue awards under an incentive plan (the Growth Securities Ownership Plan (GSOP)) relating to growth in operating profit from continued operations before exceptional items, tax and finance costs. The new Growth Securities Ownership Plan runs from 1 January 2014 to 31 December 2016 and the remuneration level at grant was linked to a theoretical number of shares equivalent in value to no more than twelve months salary for each year of the incentive scheme. In respect of the scheme the first year’s performance criteria has been met and as a result the Group has provided for a potential bonus in 2014 of £471,000 for two executive directors, which will be payable subsequent to the year ended 31 December 2016 if Group targets continue to be met. P J Nichols is a member of the final salary pension scheme and M J Millard and T J Croston have a personal pension plan. The Company contributions to the respective schemes are shown in the table detailed on page 34. 34 35 AUDITOR’S REPORT Independent Auditor’s report to the members of Nichols PLC We have audited the financial statements of Nichols plc for the year ended 31 December 2014 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Group and parent Company Statement of Financial Position, the consolidated and parent Company Statements of Cash Flow, the Group and parent Company Statements of Changes in Equity and the related notes. The financial 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 Company financial 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 Auditors As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors. the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. • the parent Company financial statements are not in agreement with the accounting records and returns; or Opinion on other matters prescribed by the Companies Act 2006 • certain disclosures of directors’ remuneration specified by law are not made; or In our opinion the information given in the strategic report and directors’ report for the financial year for which the financial statements are prepared is consistent with the financial 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 • we have not received all the information and explanations we require for our audit. Philip Storer (Senior Statutory Auditor) For and on behalf of BDO LLP, statutory auditor, Manchester, United Kingdom 4 March 2015. BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Scope of the Audit of the Financial Statements • A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate. Opinion on Financial Statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s and the parent Company’s affairs as at 31 December 2014 and of the Group’s profit for the year then ended; • • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent Company financial 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 OUR ADVISORS. Auditors Solicitors Financial Advisors Registered Office BDO LLP, 3 Hardman Street, Spinningfields, Manchester, M3 3EB. DLA Piper, 101 Barbirolli Square, Manchester, M2 3DL. N M Rothschild & Sons Limited, 82 Kings Street, Manchester, M2 4WQ. Bankers The Royal Bank of Scotland PLC, 1 Spinningfields Square, Manchester, M3 3AP. Stockbrokers & Nominated Advisor N+1 Singer Advisory LLP, West One Wellington Street, Leeds, LS1 1BA. Registrars Capita Registrars Limited, Northern House, Woodsome Park, Fenay Bridge, Huddersfield, HD8 0GA. Laurel House, Woodlands Park, Ashton Road, Newton-Le-Willows, WA12 0HH. Registered Number 238303. 36 37 CONSOLIDATED INCOME STATEMENT YEAR ENDED 31 DECEMBER 2014 STATEMENT OF FINANCIAL POSITION YEAR ENDED 31 DECEMBER 2014 2014 2013 Before exceptional items £’000 Exceptional items £’000 Notes Total £’000 Before exceptional items £’000 Restated (Note 2) Exceptional items £’000 (Note 2) 3 109,205 (59,035) 50,170 (5,271) 0 0 0 0 109,205 105,529 (59,035) (57,430) 50,170 (5,271) 48,099 (6,063) 0 0 0 0 Total £’000 Restated (Note 2) 105,529 (57,430) 48,099 (6,063) (19,302) (7,768) (27,070) (19,609) (3,680) (23,289) 4 5 5 7 9 9 25,597 (7,768) 17,829 22,427 (3,680) 18,747 257 (164) 25,690 (5,413) 0 0 257 (164) (7,768) 17,922 1,637 (3,776) 347 (264) 22,510 (5,645) 0 0 347 (264) (3,680) 18,830 924 (4,721) 20,277 (6,131) 14,146 16,865 (2,756) 14,109 38.39p 38.34p 38.30p 38.25p Revenue Cost of sales Gross profit Distribution expenses Administrative expenses Operating profit Finance income Finance expense Profit before taxation Taxation Profit for the financial year attributable to equity holders of the parent Earnings per share (basic) Earnings per share (diluted) 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 2014 Profit for the financial year Items that will not be reclassified subsequently to profit or loss Remeasurement of net defined benefit liability (see note 26) Deferred taxation on pension obligations and employee benefits (see note 13) Other comprehensive (expense) / income for the year Total comprehensive income for the year 2014 £’000 2013 £’000 14,146 14,109 (2,796) 436 (2,360) 1,909 (308) 1,601 11,786 15,710 38 Group 2014 £’000 2013 £’000 Parent 2014 £’000 Notes Assets Non-current assets Property, plant and equipment Goodwill Investments Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Current tax liabilities Provisions Total current liabilities Non-current liabilities Pension obligations Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Share premium reserve Capital redemption reserve Other reserves Retained earnings Total equity 10 11 12 13 14 15 20 16 16 17 26 13 18 2013 £’000 355 0 16,566 1,321 18,242 2,182 20,565 30,964 53,711 4,817 16,447 0 1,699 22,963 4,712 23,525 34,483 62,720 1,295 16,057 0 1,321 18,673 4,144 22,721 34,293 61,158 3,759 0 16,566 1,699 22,024 2,634 21,120 19,124 42,878 85,683 79,831 64,902 71,953 19,486 1,859 0 18,152 1,675 2,018 17,210 1,090 0 23,107 803 2,018 21,345 21,845 18,300 25,928 6,190 70 6,260 4,047 0 4,047 6,190 4,047 0 0 6,190 4,047 27,605 25,892 24,490 29,975 58,078 53,939 40,412 41,978 3,697 3,255 1,209 (560) 50,477 58,078 3,697 3,255 1,209 (598) 46,376 53,939 3,697 3,255 1,209 215 32,036 40,412 3,697 3,255 1,209 177 33,640 41,978 The financial statements on pages 38 to 66 were approved by the Board of Directors on 4 March 2015 and were signed on its behalf by: PJ Nichols Chairman The accompanying accounting policies and notes form an integral part of these financial statements. Registered number 238303 39 CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED 31 DECEMBER 2014 PARENT COMPANY STATEMENT OF CASH FLOWS YEAR ENDED 31 DECEMBER 2014 Cash flows from operating activities Profit for the financial year Adjustments for: Depreciation (Profit)/loss on sale of property, plant and equipment Finance income 5 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 trade and assets Net cash used in investing activities Cash flows from financing activities Funds provided to ESOT Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 8 20 Notes 2014 £’000 2014 £’000 2013 £’000 2013 £’000 14,146 14,109 Profit for the financial year Cash flows from operating activities Notes 2014 £’000 2014 £’000 8,441 2013 £’000 2013 £’000 11,332 480 (80) (257) 3,776 (568) (787) 1,324 (2,018) (653) 239 124 (4,034) (85) (305) (129) (7,518) 513 11 (347) 4,721 1,103 1,050 (1,224) 1,971 (600) 316 148 (692) 0 0 7,198 21,307 (4,765) 16,542 1,217 15,363 (3,465) 11,898 (4,061) (228) (127) (6,639) (6,766) 9,548 24,745 34,293 (7,647) 190 34,293 34,483 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 (used up in)/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 Net cash (used in)/generated from investing activities Cash flows from financing activities Funds provided to ESOT Dividends paid Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 272 14 (257) 2,258 (452) (548) (5,897) (2,018) (653) 239 0 (3,679) (129) (7,518) 209 0 (347) 3,812 587 632 2,677 1,971 (600) 316 18 (184) 8,941 20,273 (4,641) 15,632 (7,281) 1,160 (1,913) (753) (3,440) 150 (127) (6,639) (6,766) 9,016 21,948 30,964 (7,647) (11,840) 30,964 19,124 8 20 The accompanying accounting policies and notes form an integral part of these financial statements. The accompanying accounting policies and notes form an integral part of these financial statements. 40 41 STATEMENT OF CHANGES IN EQUITY YEAR ENDED 31 DECEMBER 2014 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 Group 1. Reporting entity Adoption of new and revised standards 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 (474) 37,308 44,995 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (6,639) (6,639) (124) (124) 0 0 0 (3) (127) (6,642) (6,766) 14,109 14,109 1,601 1,601 15,710 15,710 3,697 3,255 1,209 (598) 46,376 53,939 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 38 38 0 0 0 (7,518) (7,518) (167) (129) (7,685) (7,647) 14,146 14,146 (2,360) (2,360) 11,786 11,786 3,697 3,255 1,209 (560) 50,477 58,078 Called up share capital £’000 Share premium reserve £’000 Capital redemption reserve £’000 3,697 3,255 1,209 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Other reserves £’000 Retained earnings £’000 Total Equity £’000 301 0 (124) (124) 0 0 0 27,349 35,811 (6,639) (6,639) (3) (127) (6,642) (6,766) 11,332 11,332 1,601 1,601 12,933 12,933 3,697 3,255 1,209 177 33,640 41,978 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 38 38 0 0 0 (7,518) (7,518) (167) (129) (7,685) (7,647) 8441 8441 (2,360) (2,360) 6,081 6,081 3,697 3,255 1,209 215 32,036 40,412 Nichols plc (the “Company”) is a company incorporated and 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 2014 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 10 to 21. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Finance Review on pages 22 to 29. 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 4 March 2015.The financial statements have been prepared on the historical cost basis. The accounting policies have been applied consistently by the Group, except as stated below. 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 £8,441,000 (2013: £11,332,000). At 1 January 2013 Dividends Movement in ESOT Transactions with owners Profit for the year Other comprehensive income Total comprehensive income At 1 January 2014 Dividends Movement in ESOT Transactions with owners Profit for the year Other comprehensive expense Total comprehensive income At 31 December 2014 Parent At 1 January 2013 Dividends Movement in ESOT Transactions with owners Profit for the year Other comprehensive income Total comprehensive income At 1 January 2014 Dividends Movement in ESOT Transactions with owners Profit for the year Other comprehensive expense Total comprehensive income At 31 December 2014 42 In the current year, the following new and revised Standards and Interpretations, all effective for periods beginning on 1 January 2014, have been adopted and have affected the amounts reported in these financial statements. The directors do not consider that the new and revised Standards and Interpretations described below have had a material impact on the Group consolidated results. IFRS 10 Consolidated Financial Statements. IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 11 Joint Arrangements. The principle in IFRS 11 is that a party to a joint arrangement recognises its rights and obligations arising from the arrangement rather than focussing on the legal form. IFRS 12 Disclosure of Interests in Other Entities. IFRS 12 Disclosure of Interests in Other Entities includes the disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. IAS 27 Separate Financial Statements. IAS 27 contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The Standard requires an entity preparing separate financial statements to account for those investments at cost or in accordance with the applicable financial instruments standard (i.e. IAS 39 or IFRS 9). IAS 32 Offsetting Financial Assets and Liabilities – Amendments to IAS 32. This amendment seeks to clarify rather than to change the off-setting requirements previously set out in IAS 32. The changes clarify: the meaning of ‘currently has a legally enforceable right of set-off’; and • • Transition Guidance - Amendments to IFRS 10, IFRS 11 and IFRS 12. The Amendments clarify the transition guidance in IFRS 10 Consolidated Financial Statements. They also provide additional transition relief in IFRS 10 ‘Consolidated Financial Statements’, IFRS 11 ‘Joint Arrangements’ and IFRS 12 ‘Disclosure of Interests in Other Entities’, limiting the requirement to provide adjusted comparative information to only the preceding comparative period. IFRS 10, IFRS 12, IAS 27 Investment Entities – Amendments to IFRS 10, IFRS 12 and IAS 27. The Amendments clarify the transition guidance in IFRS 10 Consolidated Financial Statements. 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 reporting 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). that some gross settlement systems may be considered equivalent to net settlement. The carrying amount of goodwill at the reporting date was £16.4 million (2013: £16.1 million). IAS 36 Recoverable Amount Disclosures – Amendments to IAS 36. The amendments align the disclosures required for the recoverable amount of an asset (or CGU) when this has been determined on the basis of fair value less costs of disposal with those required where the recoverable amount has been determined on the basis of value in use. Certain disclosures are now only required when an impairment loss has been recorded or reversed in respect of an asset or CGU. Other disclosures requirements have been clarified and expanded, for assets or CGUs where the recoverable amount has been determined on the basis of fair value less costs of disposal. 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 reporting 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). 43 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 Useful lives of property, plant and equipment of the acquired subsidiary at the date of acquisition. 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. Settlements and legal costs During 2014 the Group lost an outstanding legal case which an exceptional cost and provision had been provided for in 2013. The quantum of this was significantly higher than the Group had provided for at the end of 2013 and consequently a charge of £7,768,000 has been charged to exceptional costs during the year (see note 4). Basis of consolidation The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 31 December 2014. Subsidiaries are entities controlled by the Group. Control exists if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. 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 statement of financial position 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 Revenue recognition Revenue from the sale of goods is calculated on the basis of the invoiced price, less any agreed discounts or rebates and excluding VAT and after the deduction of certain promotional and brand support costs invoiced by customers. 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. With regards to discounts, rebates, promotional costs and brand support costs, these costs are calculated to reflect the expected amount of customer claims in respect of these items. The statement of financial position includes accruals for claims yet to be received for discounts, rebates and promotional costs. 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 2014 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. Exceptional items Exceptional items are material items which individually, or if a similar type, in aggregate, need to be disclosed separately by virtue of their size, nature or incidence in order to better understand the Group’s financial performance. Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive income/ (expense), in which case it is recognised in comprehensive income. Current tax Current tax is the expected tax payable on the taxable income for the year, using rates which are enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. Deferred tax Deferred tax is recognised using the balance sheet 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. 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. Goodwill Property, plant and equipment Goodwill arises on the acquisition of subsidiaries. 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. Reserves Share capital represents the nominal value of equity shares. Share premium 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 cash-generating unit. 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. The estimated useful lives for the current and comparative periods are as follows: Property, plant and equipment 3-10 years Land and buildings 50 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. Financial assets are a contractual right to receive cash or another financial asset from another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity. 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, such as significant financial difficulties on the part of the counterparty or default or significant delay in payment. 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. Post-employment benefit plans The Group provides post-employment benefits through various defined contribution and defined benefit plans. Defined contribution plan The Group pays fixed contributions into independent entities in relation to plans and insurances for individual employees. The Group has no legal or constructive obligations to pay contributions in addition to its fixed contributions, which are recognised as an expense in the period that relevant employee services are received. Defined benefit plan Under the Group’s defined benefit plan, the amount of pension benefit that an employee will receive on retirement is defined by reference to the employee’s length of service and final salary. The legal obligation for any benefits remains with the Group, even if plan assets for funding the defined benefit plan have been set aside. Plan assets may include assets specifically designated to a long-term benefit fund as well as qualifying insurance policies. The liability recognised in the statement of financial position for defined benefit plans is the present value of the defined benefit obligation (DBO) at the reporting date less the fair value of plan assets. Management estimates the DBO annually with the assistance of independent actuaries. This is based on the standard rates of 44 45 Standards and interpretations in issue not yet adopted At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU): • • • IFRIC 21, Levies IFRS 9, Financial instruments IFRS 15, Revenue from contracts with customers • Amendments to IFRS 10 and IAS28, Consolidated Financial Statements and Investments in Associates and Joint Ventures • Amendments to IFRS 11, Joint Arrangements • Amendments to IAS 1, Disclosure initiative • Amendments to IAS 16 and IAS 38, Clarification of Acceptable Methods of Depreciation and Amortisation • Amendments to IAS 19, Defined Benefit Plans: Employee Contributions • Amendments to IAS 27, Equity Method in Separate Financial Statements • Annual Improvements to IFRSs, 2010-2012 Cycle, 2011-2013 Cycle and 2012–2014 Cycle 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. NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 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 statement of financial position at cost less any provision for impairment. Restatements The revenue figure for comparative periods has been restated to include certain customer invoiced promotional investment that was previously included within administrative expenses. This change in policy reduces revenue by £4.4m by including certain invoiced costs associated with promotional activities and brings our reporting to a basis consistent with the accounting policy adopted by our peer group. This has no impact on the operating profit previously reported, nor on the statement of financial position at the beginning of the preceding period and therefore a third statement of financial position has not been presented. inflation, salary growth and mortality. Discount factors are determined close to each year-end by reference to high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. Service cost on the net defined benefit liability is included in employee benefits expense. Net interest expense on the net defined benefit liability is included in finance costs. 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 recognises 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 2014 for the year ending 31 December 2014. Those fair values are charged to the income statement over the relevant vesting period adjusted to reflect actual and expected vesting levels. The Group calculates the fair market value of the 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 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 reporting 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 potential costs of a legal claim is recognised when Management have considered the merits of the claim and taken appropriate legal advice as to the outcome of the litigation. 46 47 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 3. Segmental information a. Key Operating segments The Management 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 Management 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 Gross Profit 2014 £’000 56,025 53,180 2013 £’000 Restated 53,225 52,304 109,205 105,529 2014 £’000 30,756 19,414 50,170 2013 £’000 Restated 28,721 19,378 48,099 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 overheads are managed centrally by the Management Committee and consequently there is no reconciliation to profit before tax at a segmental level. 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 2014 £’000 4,035 480 b. Reporting by geographic area Revenue by geographic destination Middle East Africa Rest of the World Total exports United Kingdom 2014 £’000 11,789 8,289 3,997 24,075 85,130 2013 £’000 692 513 2014 % 10.8 7.6 3.6 22.0 78.0 2013 £’000 Restated 10,498 7,975 4,619 23,092 82,437 109,205 100.0 105,529 2013 % Restated 9.9 7.6 4.4 21.9 78.1 100.0 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 4. Operating profit Operating profit is stated after charging/(crediting): Inventory amounts charged to cost of sales Grant Thornton remuneration whilst auditor: Audit services Non-audit services BDO remuneration before auditor: Non-audit services BDO remuneration whilst auditor: Audit services Non audit services Depreciation of property, plant and equipment Operating lease rentals payments Awards under Growth Securities Ownership Plan Equity-settled share-based payment Gain on foreign exchange differences (Profit) / loss on sale of property, plant and equipment In the prior year awards under GSOP of £720,000 were included within costs classified as exceptional items. These were amounts awarded to individuals as part of the restructure. Exceptional expenses included within administrative expenses are summarised below; Group restructuring costs Litigation costs Total 2014 £’000 2013 £’000 59,035 57,430 0 72 175 55 35 480 576 929 0 (157) (80) 2014 £’000 0 7,678 7,678 60 17 0 0 0 513 824 2,671 179 (108) 11 2013 £’000 1,662 2,018 3,680 As announced on 2 July 2014, the High Court awarded damages against Nichols plc with regard to the litigation claim from Gul Bottlers (PVT) Ltd. As a consequence, a one-off exceptional cost of £7.8m has been included in the Group’s consolidated income statement. The settlement was paid during the second half of 2014 and is reflected in the Group’s Consolidated Statement of Cash Flows. 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. Total assets The assets of the Group at 31 December 2014 and 31 December 2013 are entirely located within the United Kingdom. Capital expenditure 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. The capital expenditure of the Group for the years ended 31 December 2014 and 31 December 2013 was entirely made within the United Kingdom. No individual customer accounts for 10% or more of the Group’s revenue in either 2014 or 2013. Depreciation The Group’s depreciation charges for the years ended 31 December 2014 and 31 December 2013 are against property, plant and equipment all retained within the United Kingdom. 5. Finance income and expense Finance income comprises: Bank interest receivable Finance expense comprises: Net interest income on defined benefit pension scheme assets Interest on defined benefit pension scheme obligations Finance expense 48 Notes 26 26 2014 £’000 257 (1,001) 1,165 164 2013 £’000 347 (854) 1,118 264 49 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 6. Directors and employees 7. Taxation a. Average number of persons employed during the year, including directors: Total 2014 Number 171 2013 Number 172 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 Equity-settled share-based payment The employment costs for the parent Company amounted to £7,911,000 (2013: £8,352,000). Key management personnel compensation Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the directors of the Company listed on page 33. Wages and salaries Pension costs Awards under annual Growth Securities Ownership Plan Awarded under 2011 - 2013 Growth Securities Ownership Plan Accrued under 2014 - 2016 Growth Securities Ownership Plan 2014 £’000 7,155 782 333 103 929 0 9,302 2014 £’000 565 25 165 0 471 1,226 2013 £’000 7,366 769 269 96 2,671 179 11,350 2013 £’000 597 18 121 2,462 0 3,198 The highest paid director has received £331,000 (2013: £1,684,000) excluding pension contributions. Equity settled share based payments in respect of directors, not included in the above figures amounted to nil (2013: £179,000). Benefits are accruing to 2 directors (2013: 1 director) under a defined contribution scheme, the highest paid director has received contributions of £13,000 in the year. Further information regarding directors’ remuneration and the Growth Securities Ownership Plan is provided in the directors’ report on page 34. The following employment costs were classified within exceptional items. Wages and salaries Social security costs Pension costs - defined contribution scheme Awards under Growth Securities Ownership Plan 2014 £’000 0 0 0 0 0 2013 £’000 801 64 16 720 1,601 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 2014 £’000 3,771 (123) 3,648 166 (38) 128 2013 £’000 4,234 15 4,249 390 82 472 Total tax expense in the Consolidated Income Statement 3,776 4,721 The tax expense is wholly in respect of UK taxation b. Tax reconciliation Profit before taxation Profit before taxation multiplied by the standard rate of corporation tax in the United Kingdom of 21.5% (2013: 23.25%) Effect of: Non-deductible expenses Permanent element of share scheme deduction Removal of 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 Impact on deferred tax due to rate change taken to SOCIE Total tax expense in the consolidated income statement 2014 £’000 17,922 3,853 71 0 0 62 1 (162) (49) 0 3,776 2013 £’000 18,830 4,378 64 (25) 25 223 0 50 (24) 30 4,721 The effective rate of tax for the year of 21.1% (2013: 25.1%) is lower than the standard rate of corporation tax in the United Kingdom (21.5%). The differences are explained above. c. The effective rate of tax on profit is 21.1% (2013: 25.1%). d. Tax on items recognised in other comprehensive expense In addition to the amount charged to the consolidated income statement, £436,000 (2013: £308,000) has been recognised in other comprehensive (expense)/income, being the movement on deferred taxation relating to retirement benefit obligations and employee benefits. 50 51 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 10. Property, plant and equipment Group Parent At 31 December 2014 3,444 (1,098) (1,098) Land and buildings £’000 Property, plant and equipment £’000 0 0 0 0 3,444 0 5,761 692 5,355 591 (139) 5,807 Land and buildings £’000 Property, plant and equipment £’000 0 0 0 0 40 0 40 4,486 513 (939) 4,060 440 (106) 4,394 Total £’000 5,761 692 5,355 4,035 (139) 9,251 Total £’000 4,486 513 (939) 4,060 480 (106) 4,434 3,404 1,413 4,817 0 1,295 1,295 Cost At 1 January 2013 Additions Disposals At 1 January 2014 Additions Disposals Depreciation At 1 January 2013 Charge for the year On disposals At 1 January 2014 Charge for the year On disposals At 31 December 2014 Net book value at 31 December 2014 Net book value at 31 December 2013 Cost At 1 January 2013 Additions Disposals At 1 January 2014 Additions Disposals Land and buildings £’000 Property, plant and equipment £’000 0 0 0 0 3,444 0 2,291 184 (41) 2,434 235 (3) Total £’000 2,291 184 (41) 2,434 3,679 (3) At 31 December 2014 3,444 2,666 6,110 Land and buildings £’000 Property, plant and equipment £’000 Total £’000 1,893 209 (23) 1,893 209 (23) 2,079 2,079 232 0 272 0 2,311 2,351 0 0 0 0 40 0 40 3,404 355 3,759 0 355 355 Depreciation At 1 January 2013 Charge for the year On disposals At 1 January 2014 Charge for the year On disposals At 31 December 2014 Net book value at 31 December 2014 Net book value at 31 December 2013 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 8. Equity dividends Interim dividend 7.10p (2013: 6.32p) paid 29 August 2014 Final dividend for 2013 13.30p (2012: 11.70p) paid 2 May 2014 2014 £’000 2,618 4,900 7,518 2013 £’000 2,328 4,311 6,639 The interim dividend for the prior year of £2,328,000 was paid on 30 August 2013. The 2014 final proposed dividend of £5,656,000 (15.30p per share) has not been accrued as it had not been approved by the year end. 9. Earnings per share Earnings per share (basic) Earnings per share (diluted) Earnings per share (basic) - before exceptional items Earnings per share (diluted) - before exceptional items Earnings per share - before exceptional items 2014 38.39p 38.34p 55.03p 2013 38.30p 38.25p 45.79p 54.96p 45.72p Basic earnings per share Dilutive effect of share options Diluted earnings per share 2014 Weighted average number of shares Earnings £’000 Earnings per share Earnings £’000 2013 Weighted average number of shares Earnings per share 14,146 36,846,564 38.39p 14,109 36,834,655 38.30p 45,714 49,447 14,146 36,892,278 38.34p 14,109 36,884,102 38.25p Earnings per share before exceptional items has been presented in addition to the earnings per share as defined in IAS 33 “Earnings per share” since in the opinion of the directors, this provides shareholders with a more meaningful representation of the earnings derived from the Group’s operations. It can be reconciled from the basic earnings per share as follows; Basic earnings per share Exceptional items Taxation in respect of exceptional items 2014 Weighted average number of shares Earnings £’000 Earnings per share Earnings £’000 2013 Weighted average number of shares Earnings per share 14,146 36,846,564 38.39p 14,109 36,834,655 38.30p 7,768 (1,637) 3,680 (924) Basic earnings per share before exceptional items 20,277 36,846,564 55.03p 16,865 36,834,655 45.79p Dilutive effect of share options 45,714 49,447 Diluted earnings per share before exceptional items 20,277 36,892,278 54.96p 16,865 36,884,102 45.72p 52 53 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 11. Goodwill Group Cost At 1 January 2013 Restatement of fair value of assets acquired in prior year At 1 January 2014 Acquisitions At 31 December 2014 £’000 15,973 84 16,057 390 16,447 Goodwill relates to the historic Out of Home business which is considered by management to be two cash-generating units of Still and Carbonate inline with our Group operating segments. On 31 January 2014 the Group acquired 100% of the issued share capital of Dispense Solutions (Wales) Limited and the trade and assets of a distribution territory from Cabana Soft Drinks (Essex) Limited, paying cash consideration of £85,000 and £305,000 respectively. The fair value of assets acquired by the Group was deemed to be nil and therefore goodwill increased by £390,000. Goodwill is tested at least annually for impairment and whenever 12. Investments: shares in Group undertakings Parent Cost and net book amount At 1 January 2013, 1 January 2014 and at 31 December 2014 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 £’000 16,566 % 100 100 100 100 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 10.35% 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 5 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 excess 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. 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. Festival Drinks Limited *** Nichols Dispense Limited Nichols Dispense (S.W.) Limited **** Dispense Solutions (Wales) Limited ***** % 100 100 51 100 The Company directly owns Ben Shaws Dispense Drinks Limited, Dayla Liquid Packing Limited and Nichols Dispense 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. **** Nichols Dispense (S.W.) Limited is directly owned by Nichols Dispense Limited. ***** Dispense Solutions (Wales) Limited is directly owned by Nichols Dispense (S.W.) Limited. All Group undertakings are consolidated. Although there is a non-controlling interest in Nichols Dispense (S.W.) Limited the value of this interest is not considered to be material and is therefore not disclosed in the accounts. 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. As part of a Group restructuring, the assets and trade of Beacon Drinks Limited, Ben Shaws Dispense Drinks Limited, Cabana Soft Drinks Limited, Dayla Liquid Packing Limited and Festival Drinks Limited were transferred to Nichols Dispense Limited on 31 December 2013. The fair value of assets transferred is deemed to be the same as the book value and consideration has been settled through an intercompany account. This transaction has no impact on the Group result for the financial year. 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 2014 £’000 Recognised in income £’000 Recognised in other comprehensive expense £’000 Net balance at 31 December 2014 £’000 28 314 971 8 1,321 (65) (20) (130) 87 (128) 0 0 436 0 436 (37) 294 1,277 95 1,629 Net balance at 1 January 2013 £’000 Recognised in income £’000 Recognised in other comprehensive income £’000 Net balance at 31 December 2013 £’000 69 383 1,580 69 2,101 (41) (69) (301) (61) (472) 0 0 (308) 0 (308) 28 314 971 8 1,321 Net balance at 1 January 2014 £’000 Recognised in income £’000 Recognised in other comprehensive expense £’000 Net balance at 31 December 2014 £’000 28 314 971 8 1,321 6 (20) (130) 86 (58) 0 0 436 0 436 34 294 1,277 94 1,699 Net balance at 1 January 2013 £’000 Recognised in income £’000 Recognised in other comprehensive income £’000 Net balance at 31 December 2013 £’000 50 383 1,580 69 2,082 (22) (69) (301) (61) (453) 0 0 (308) 0 (308) 28 314 971 8 1,321 54 55 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 13. Deferred tax assets and liabilities (continued) 15. Trade and other receivables Assets Liabilities Net Trade receivables Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Group Property, plant and equipment Goodwill Employee benefits Provisions Parent Property, plant and equipment Goodwill Employee benefits Provisions 14. Inventories Finished goods Raw materials Total inventories Current year £’000 Prior year £’000 Current year £’000 Prior year £’000 Current year £’000 Prior year £’000 33 294 1,277 95 1,699 28 314 971 8 (70) 0 0 0 1,321 (70) 0 0 0 0 0 (37) 294 1,277 95 1,629 28 314 971 8 1,321 Assets Liabilities Net Current year £’000 Prior year £’000 Current year £’000 Prior year £’000 Current year £’000 Prior year £’000 34 294 1,277 94 1,699 28 314 971 8 1,321 0 0 0 0 0 0 0 0 0 0 34 294 1,277 94 1,699 28 314 971 8 1,321 Group Parent 2014 £’000 3,900 812 4,712 2013 £’000 3,136 1,008 4,144 2014 £’000 2,634 0 2,634 2013 £’000 2,182 0 2,182 In 2014 the Group write-down of inventories to net realisable value amounted to £257,000 (2013: £79,000). Amounts owed by Group undertakings Other receivables Prepayments and accrued income Group Parent 2014 £’000 21,919 0 876 730 2013 £’000 22,019 0 125 577 2014 £’000 16,981 3,257 304 578 2013 £’000 16,328 3,776 3 458 23,525 22,721 21,120 20,565 All 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 £424,000 (2013: £528,000) has been recorded accordingly. In addition, some of the unimpaired trade receivables are past due at the reporting date. The age of receivables past due but not impaired is as follows: Group Up to 30 days overdue Over 30 days and up to 60 days overdue Over 60 days and up to 90 days overdue 2014 £’000 3,118 188 82 2013 £’000 2,300 75 64 3,388 2,439 Parent Up to 30 days overdue Over 30 days and up to 60 days overdue Over 60 days and up to 90 days overdue 2014 £’000 2,402 149 76 2013 £’000 1,947 56 55 2,627 2,058 Group Bad debt provision Group Bad debt provision Parent Bad debt provision Parent Bad debt provision At 1 January 2014 £’000 Release in the year £’000 528 (85) At 1 January 2013 £’000 Charge in the year £’000 1,031 98 At 1 January 2014 £’000 Release in the year £’000 512 (90) At 1 January 2013 £’000 Charge in the year £’000 1,016 97 Utilised £’000 (19) Utilised £’000 (601) Utilised £’000 (7) Utilised £’000 (601) At 31 December 2014 £’000 424 At 31 December 2013 £’000 528 At 31 December 2014 £’000 415 At 31 December 2013 £’000 512 56 57 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 16. Trade and other payables and current tax liabilities 19. Share options Trade payables Amounts owed to Group undertakings Other taxes and social security Accruals and deferred income Current tax liabilities Group Parent 2014 £’000 5,705 0 720 13,061 19,486 1,859 21,345 2013 £’000 1,031 0 1,719 15,402 18,152 1,675 19,827 2014 £’000 4,097 805 (24) 12,332 17,210 1,090 18,300 2013 £’000 624 6,981 885 14,617 23,107 803 23,910 All amounts shown above are short-term. The carrying values are considered to be a reasonable approximation of fair value. At 31 December 2014, 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 2014 2013 Within 6 months £’000 Within 6 to 12 months £’000 Within 6 months £’000 Within 6 to 12 months £’000 5,705 13,061 18,766 0 0 0 1,031 15,402 16,433 0 0 0 2014 2013 Within 6 months £’000 Within 6 to 12 months £’000 Within 6 months £’000 Within 6 to 12 month £’000 4,097 12,332 16,429 0 805 805 624 14,617 15,241 0 6,981 6,981 At 1 January 2014 £’000 2,018 At 1 January 2014 £’000 2,018 Charge in the year £’000 0 Charge in the year £’000 0 Utilised £’000 (2,018) Utilised £’000 (2,018) At 31 December 2014 £’000 0 At 31 December 2014 £’000 0 The exceptional cost provision was utilised by the settlement paid to Gul Bottlers (PVT) in respect of the exceptional cost discussed in Note 4. 18. Share capital Allotted, issued and fully paid 36,968,772 (2013: 36,968,772) 10p ordinary shares 2014 £’000 3,697 2013 £’000 3,697 The share capital of Nichols plc consists only of ordinary 10p shares. All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at shareholders’ meetings. There were no movements in the Group’s authorised and allotted, issued and fully paid share capital for the financial years ending 31 December 2014 and 31 December 2013. 58 The Group operates a Long Term Incentive Plan (LTIP) for certain executive board members to reward performance during the year. These options are exercisable on the completion of three years service from the date of grant. The Group also 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 Date of Grant 1 June 2010 1 June 2011 1 June 2011 1 June 2012 1 June 2012 31 May 2013 31 May 2013 1 June 2014 1 June 2014 Number granted 9,008 27,177 8,970 18,179 18,925 19,545 5,841 32,327 10,978 Share price on grant date Exercise price Fair values on grant date Vesting period Expected dividend yield £3.54 £4.81 £4.81 £6.30 £6.30 £8.85 £8.85 £10.56 £10.56 £2.83 £3.85 £3.85 £5.04 £5.04 £7.08 £7.08 £7.92 £7.92 £0.71 5.00 years £0.96 3.00 years £0.96 5.00 years £1.26 3.00 years £1.26 5.00 years £1.77 3.00 years £1.77 5.00 years £2.64 3.00 years £2.64 5.00 years 3.43% 2.43% 2.43% 2.16% 2.16% 1.79% 1.79% 1.86% 1.86% Lapse rate 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Risk free rate Volatility 4.75% 2.75% 1.75% 0.66% 1.01% 0.50% 0.92% 1.04% 1.87% 25.70% 32.94% 32.94% 30.63% 30.63% 21.02% 21.02% 22.10% 22.10% Long Term Incentive Plan Date of Grant 31 July 2013 Number granted 17,561 Share price on grant date Exercise price Fair values on grant date Vesting period Expected dividend yield £10.20 £0.00 £10.20 3.00 years 1.70% Lapse rate 5.00% Risk free rate Volatility 0.47% 20.50% Expected volatility Risk-free rate 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. 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 June 2010 1 June 2011 1 June 2012 31 May 2013 31 July 2013 1 June 2014 At 1 January 2014 Granted Exercised Lapsed At 31 December 2014 Exercise price per share 7,910 26,962 28,345 24,624 17,561 0 105,402 0 0 0 0 0 43,305 43,305 (3,737) (20,395) (878) (320) (3,121) (4,830) (513) (2,067) 0 0 0 (953) 3,295 6,247 20,394 22,044 17,561 42,352 283p 385p 504p 708.4p 0p 792.3p (27,766) (9,048) 111,893 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 2014 varied between 838.5p and 1,175.69p and the weighted average price for the year was 1,060p. At 31 December 2014, options over 111,893 shares were outstanding under Employee Share Option Plans (2013: 105,402). 59 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 19. Share options (continued) Outstanding on 1 January Granted Exercised Lapsed Outstanding on 31 December 20. Cash and cash equivalents Group Cash at bank and in hand Parent 2014 2013 Weighted average exercise price in pence 420.76 792.30 390.62 555.41 561.14 Number 105,402 43,305 (27,766) (9,048) 111,893 Weighted average exercise price in pence 367.38 418.74 275.05 454.19 420.76 Number 109,609 42,947 (41,936) (5,218) 105,402 At 1 January 2014 £’000 34,293 At 1 January 2014 £’000 Cash flow £’000 190 At 31 December 2014 £’000 34,483 Cash flow £’000 At 31 December 2014 £’000 Cash at bank and in hand 30,964 (11,840) 19,124 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 Foreign currency sensitivity Some of the Group’s transactions are carried out in US Dollars and Euros. As a result, management have undertaken sensitivity analysis to consider the financial impact if Sterling had both strengthened and weakened against the US Dollar and the Euro. If Sterling had strengthened against the US Dollar and Euro by 5% (2013: 5%), then this would have had the following impact: Net result for the year USD £’000 (190) 2014 Euro £’000 (242) Total £’000 (432) USD £’000 (102) If Sterling had weakened against the US Dollar and Euro by 5% (2013: 5%), then this would have had the following impact: Net result for the year USD £’000 217 2014 Euro £’000 281 Total £’000 498 USD £’000 111 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. 2013 Euro £’000 (89) 2013 Euro £’000 98 Total £’000 (191) Total £’000 209 21. Financial instruments 22. Summary of financial assets and liabilities by category Exposure to treasury management, liquidity, credit and currency risks arise 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 2014 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. Foreign currency assets US Dollar Euro 60 2014 £’000 4,057 3,942 7,999 2013 £’000 2,125 1,859 3,984 The IAS 39 categories of financial assets included in the Statement of Financial Position and the headings in which they are included are as follows: Current assets Group Parent Loans and other receivables Trade receivables and other receivables Cash and cash equivalents Total financial assets 2014 £’000 22,795 34,483 57,278 2013 £’000 22,144 34,293 56,437 2014 £’000 20,542 19,124 39,666 2013 £’000 20,107 30,964 51,071 The IAS 39 categories of financial liability included in the Statement of Financial Position and the headings in which they are included are as follows: Current liabilities Group Parent Other financial liabilities at amortised cost Trade and other payables Total financial liabilities 2014 £’000 5,705 5,705 2013 £’000 1,031 1,031 2014 £’000 4,902 4,902 2013 £’000 7,605 7,605 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 2013. At 31 December 2014 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). 61 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 24. Operating leases At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non cancellable operating leases, which fall due as follows: Within one year Between two and five years More than five years Group Parent 2014 £’000 496 940 5 2013 £’000 532 900 46 1,441 1,478 2014 £’000 301 390 0 691 2013 £’000 303 155 0 458 The Group leases its operating depots under non-cancellable operating lease agreements 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: Transaction value Year ended 31 December Balance outstanding as at 31 December 2014 £’000 1,173 2013 £’000 1,775 2014 £’000 2,452 2013 £’000 (3,205) Sale of goods and services (including recharge of costs) All balances with the related parties are on an arm’s length basis. Details of key management personnel compensation have been disclosed in note 6, no other transactions were entered into with key management personnel in the year. 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 £256,000 (2013: £269,000). 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 2014 by an independent qualified actuary. The assets of the defined benefit plan are managed by a pension fund that is legally separated from the Group. Governance of the plan is the responsibility of appointed trustees, acting on professional advice. The plan is exposed to a number of risks, including changes to long term UK interest rates and inflation expectations, movements in global investment markets, changes in UK life expectancy rates and regulatory risk from changes in UK pension legislation. Interest rate risk The present value of the defined benefit liability is calculated using a discount rate determined by reference to market yields of high quality corporate bonds. The estimated term of the bonds is consistent with the estimated term of the defined benefit obligation and it is denominated in sterling. A decrease in market yield on high quality corporate bonds will increase the Group’s defined benefit liability, although it is expected that this would be offset partially by an increase in the fair value of certain of the plan assets. Investment risk The plan assets at 31 December 2014 are predominantly equity and debt instruments. Longevity risk The Group is required to provide benefits for life for the members of the defined benefit liability. Increases in the life expectancy of the members, where the pension payments are linked to CPI, will increase the defined benefit liability. Inflation risk A significant proportion of the defined benefit liability is linked to inflation. An increase in the inflation rate will increase the Group’s liability. A portion of the plan assets are inflation-linked debt securities which will mitigate some of the effects of inflation. A reconciliation of the pension obligation and plan assets to the amounts presented in the statement of financial position for 2014 and 2013 is shown below. Present value of funded obligations Fair value of plan assets Deficit in the plan Related deferred tax asset Net liability recognised 31 December 2014 £’000 31 December 2013 £’000 (29,970) 23,780 (6,190) 1,368 (4,822) (26,250) 22,203 (4,047) 809 (3,238) Defined benefit obligation The details of the Group’s defined benefit obligation are as follows: Opening defined benefit obligation Current service cost (Company only) Interest cost Actual contributions paid by plan participants Experience adjustment Actuarial losses from changes in financial assumptions Actuarial losses from changes in demographic assumptions (Benefits paid - including insurance premiums) Closing defined benefit obligation 31 December 2014 £’000 31 December 2013 £’000 26,250 26,407 103 1,165 13 (110) 3,918 (509) (860) 29,970 96 1,118 25 (339) (98) - (959) 26,250 62 63 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 26. Employee benefits (continued) NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 Plan assets The reconciliation of the balance of the assets held for the Group’s defined benefit plan is presented below: Defined benefit plan expenses Plan assets do not comprise any of the Group’s own financial instruments or any assets used by Group companies. Plan assets can be broken down into the following category of investments. Remeasurements recognised in Other Comprehensive Income Fair value of plan assets at start of accounting period Interest income Return on plan assets (excluding amounts included in net interest) Contributions paid by the employer Actual contributions paid by plan participants (Benefits paid) Fair value of plan assets at end of accounting period The actual return on plan assets was £1,504,000 (2013: £2,326,000). 31 December 2014 £’000 31 December 2013 £’000 22,203 1,001 503 920 13 (860) 23,780 19,851 854 1,472 960 25 (959) 22,203 The major categories of plan assets, measured at fair value are: 31 December 2014 £’000 31 December 2013 £’000 Equities Gilts Bonds Other, including cash Total fair value of assets Assets included which do not have a quoted market value: Equities Gilts Other, including cash Total 14,791 1,684 3,864 3,441 23,780 - - - - 14,392 1,461 3,079 3,271 22,203 - - - - The significant actuarial assumptions used for the valuations are as follows: 31 December 2014 31 December 2013 Future salary increases Rate of increase in (post 1997) pensions in payment (a) Discount rate at 31 December Expected rate of inflation - RPI Overall expected return on plan assets 3.10% 3.20% 3.50% 3.10% 3.50% 3.40% 3.40% 4.50% 3.40% 4.50% The expected return on plan assets is based on the the long term rates of return on the market values of equities, fixed interest assets, corporate bonds and cash and other assets at 31 December. Other material actuarial assumptions were the rate of salary increases and mortality assumptions. In terms of future salary increases, the actuary is assuming salaries will increase in line with the RPI inflation assumption. Assumptions regarding future mortality experience are set based on the advice of actuaries and in accordance with published statistics. For members not yet retired, life expectancies have been estimated as 90 years for men (2013: 90 years) and 92 years for women (2013: 92 years). For current pensioners life expectancies have been estimated as 87 years for men (2013: 88 years) and 90 years for women (2013: 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 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. 64 Amounts recognised in profit or loss are: Current service cost (Company) Net interest cost (on net defined benefit liability) Total amount recognised in the Consolidated income statement 31 December 2014 £’000 31 December 2013 £’000 103 164 267 96 264 360 The current service cost is included in employee benefits expense and the net interest expense is included in finance costs. Amounts recognised in other comprehensive income related to the Group’s defined benefit plan are as follows: Actuarial gains on the assets Experience adjustment Actuarial (losses) / gains from changes in financial assumptions Changes in demographic assumptions Total (loss) / gain recognised in Other Comprehensive Income Other defined benefit plan information. Employees of the Group are required to contribute a fixed 6% of their pensionable salary. The remaining contribution is partly funded by the Group’s subsidiaries. The funding requirements are based on the pension funds actuarial measurement framework as set out in the funding policies. Based on historical data, the Group expects contributions of £908,000 to be paid in 2015. The weighted average duration of the defined benefit obligation at 31 December 2014 is 18 years (2013: 17.4 years). 31 December 2014 £’000 31 December 2013 £’000 503 110 (3,918) 509 (2,796) 1,472 339 98 - 1,909 The significant actuarial assumptions for the determination of the defined benefit obligation are the discount rate, salary growth rate, the inflation assumption and the mortality loading. The calculation of the net defined benefit liability is sensitive to these assumptions. The table below summarises the sensitivity of the obligation to changes to these assumptions. Increase in discount rate by 0.5% Increase in salary growth by 0.5% Increase in inflation adjustment by 0.5% Increase of 10% on the mortality loading 31 December 2014 31 December 2013 9.40% 0.40% 7.70% -3.00% 9.10% 0.60% 9.10% -3.00% 65 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2014 UNAUDITED FIVE YEAR SUMMARY YEARS ENDED 31 DECEMBER 27. Audit exemption statement Under section 479A of the Companies Act 2006 the Group is claiming exemption from audit for the subsidiary companies listed below. The parent undertaking guarantees all outstanding liabilities to which the subsidiary company is subject at the end of the financial year. Beacon Drinks Limited Ben Shaws Dispense Drinks Limited Cabana Soft Drinks Limited Dayla Liquid Packing Limited Festival Drinks Limited Nichols Dispense Limited Nichols Dispense (S.W.) Limited Dispense Solutions (Wales) Limited Company Number 1732905 231218 938594 603111 1256006 8795779 8766560 8671127 Revenue Operating profit before exceptional items, IAS 19 and Long Term Incentive Scheme Charges Exceptional items IAS 19 operating profit charges Long Term Incentive Scheme operating profit charges Operating profit after exceptional items, IAS 19 and Long Term Incentive Scheme Charges Net finance income/(expense) Profit before taxation Taxation Profit after taxation Dividends paid Retained earnings 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 Restated 2014 £’000 2013 £’000 2012 £’000 109,205 105,529 103,642 26,464 25,194 21,741 (7,768) (3,680) (103) (764) 17,829 93 17,922 (3,776) 14,146 (7,518) 6,628 38.39p 38.34p 55.03p 54.96p 20.40p (96) (2,671) 18,747 83 18,830 (4,721) 14,109 (6,639) 7,470 38.30p 38.25p 45.79p 45.72p 18.02p 0 (107) (1,117) 20,517 (7) 20,510 (5,252) 15,258 (5,866) 9,392 41.43p 41.38p 41.43p 41.38p 15.92p 2011 £’000 95,072 19,038 0 (119) (770) 2010 £’000 80,925 15,426 (293) (110) (199) 18,149 14,824 (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 66 67 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the twenty third Annual General Meeting of Nichols plc (“Company”) will be held at Haydock Park Racecourse, Newton le Willows, Merseyside, WA12 0HQ on Wednesday, 29 April 2015 at 11:00 a.m. for the following purposes: 8.1.1 8.1.2 To consider and, if thought fit, to pass the following resolutions as ordinary resolutions: 1. 2. 3. 4. 5. 6. 7. To receive the Company’s annual accounts, strategic report and directors’ and auditors’ reports for the year ended 31 December 2014. 8.2 To declare a final dividend for the year ended 31 December 2014 of 15.3 pence per ordinary share of 10 pence in the capital of the Company to be paid on 5 May 2015 to shareholders whose names appear on the register of members at the close of business on 7 April 2015. To re-elect M J Millard, 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 BDO 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 £1,228,135.90, 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 28 July 2016 (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). 9. 9.1 9.2 9.3 To consider and, if thought fit, to pass the following resolutions as special resolutions: 8. That, subject to the passing of resolution 7 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 7 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 shallbe limited to the allotment of equity securities or sale of treasury shares: 8.1 in connection with an offer of equity securities (whether by way of a rights issue, open offer or otherwise): 68 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, otherwise than pursuant to paragraph 8.1 of this resolution, up to an aggregate nominal amount of £184,244, 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 28 July 2016 (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 3,684,882. the minimum price (excluding expenses) which may be paid for a Share is 10p; 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 28 July 2016 (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 Tim Croston Secretary 17 March 2015 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. To receive the Company’s annual accounts, strategic report and directors’ and auditors’ reports for the year ended 31 December 2014. Biographical details of all those directors who are offering themselves for re-election at the meeting are set out on pages 30-31 of the enclosed annual report and accounts. 8. 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, 27 April 2015 (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 asset services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU so as to arrive no later than 11:00 a.m. on Monday 27 April 2015 (or, in the event that the meeting is adjourned, no later than 48 hours (excluding any part of the day that is not a working day) before the time of any adjourned meeting). 8. 9. 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 mmby the Company’s Registrar, Capita Registrars (CREST ID RA10) no later than 11:00 a.m. on Monday 7 April 2015 (or, if the meeting is adjourned, no later than 48 hours (excluding any part of the day that is not a working day) 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 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. 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. 10. As at 13 March 2015 (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 69 GENERAL NOTES & DIRECTIONS TO THE ANNUAL GENERAL MEETINGS NOTES 122,208 ordinary shares in treasury, in respect of which it cannot exercise any votes, the total voting rights in the Company as at 17 March 2015 are 36,846,564. 11. 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. Directions to the Annual General Meeting: Leave the M6 at Junction 23 and take the A49 north towards Ashton and Haydock Park. Haydock Park Racecourse is on the right after approximately 0.6 miles. On entering the estate, Haydock Park is accessed via a long drive. FINANCIAL CALENDAR Interim Results Announced 23 July 2015 Annual General Meeting 29 April 2015 Preliminary Results Announced 5 March 2015 70 71 Laurel House, Woodlands Park, Ashton Road, Newton-le-willows, Merseyside, WA12 0HH 01925 22 22 22 www.nicholsplc.co.uk 72 

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