Nichols PLC
Annual Report 2021

Plain-text annual report

2021 ANNUAL REPORT 2 3 3 4 Welcome to the 2021 Nichols plc Annual Report. Nichols plc is an international soft drinks business with sales globally, selling products in both the still and carbonate categories. The Group is home to the iconic Vimto brand which is popular in the UK and around the world, particularly in the Middle East and Africa. Other brands in its portfolio include Feel Good, Starslush, ICEE, SLUSH PUPPiE, Levi Roots and Sunkist. 2 0 2 1 N I C H O L S P L C A N N U A L R E P O R T 5 5 OUR BRA DS OUR PORTFOLIO. At Nichols we are proud to offer a leading portfolio of distinctive and iconic brands, which meet a variety of consumer needs and occasions in a range of product formats – packaged, frozen, post mix and coffee. PACKAGED. Vimto, the iconic refreshingly different soft water and frozen. With a choice of unique drink that has it all. Created in Manchester in flavours and Original and No Added Sugar 1908 by John Noel Nichols, Vimto was originally options, there are lots of ways to enjoy designed as a herbal tonic to give its drinkers Vimto. This also includes our extensive ‘Vim and Vigour’. For over 100 years, we have range of licensed products – from pancake been mixing our secret recipe – a blend of mixes and home baking kits, to desserts and fruits, herbs and spices – to produce a unique confectionery. and irresistible range of drinks. Today, we’re the 9th most chosen beverage brand in the UK*, and enjoy a Global footprint consumed by consumers in 73 countries around the world. Our Vimto range includes squash, carbonates, still drinks, flavoured *Kantar – British Brand Footprint 2021 6 6 O U R B R A N D S 7 O U R B R A N D S Levi Roots is one of the UK’s best loved and most successful entrepreneurs. In 2010, we were proud to gain the licence to create Levi’s range of carbonated soft drinks – a mouth-watering taste of the Caribbean. These delicious, tropical fruit flavours each put a little “music in your glass”. Experience the taste of California with Sunkist, which has been making waves since 1978. Our Sunkist products reflect the brand’s Californian roots of sun, sand and surf and make Sunkist a firm favourite across the UK. Available in six refreshing low sugar flavours. Feel Good is a naturally flavoured range of fruitful sparkling waters available in three unique flavours. Feel Good has a mission to ‘make the world feel better one sip at a time’ and through the ‘3% for People and Planet Fund’ the brand donates 3% of gross to initiatives that support people and planetary wellbeing and we have a commitment to be net zero by 2030. OUT OF HOME. We’re a one stop shop for the UK’s hospitality and leisure industry with the widest range of soft drinks brands, for post mix, frozen, and coffee occasions. FROZEN. We are the UK’s leading frozen beverage supplier with a range of enviable category leading brands. Frozen, fizzy and full of flavour, there’s no other slush like the world’s No.1 brand - ICEE. A favourite in the USA and around the globe since 1967, ICEE is the Swizzle Fizzle Freshy Freeze frozen drink. Our ICEE range can be found chilling in some of the UK’s largest cinema chains and premium leisure venues. 8 8 O U R B R A N D S 9 O U R B R A N D S Starslush is the UK’s favourite frozen drink, available in over 5,500 outlets across the UK. The brand has a full range of fabulous flavours. It’s vegan friendly, sugar free and contains vitamins A, C and E. So you can feel good about quenching your thirst and tingling your taste buds with Starslush, the perfect addition to any day out. SLUSH PUPPiE, the original iconic frozen drink that has been putting a smile on families faces for over 50 years across the world. Available in a range of four delicious fruit flavours. It’s vegan friendly, sugar free and contains Vitamins A, C and E. The perfect combination of frozen, healthy fun for all to enjoy. We have the widest and unrivalled range of owned and licensed post mix brands across the marketplace. • Vimto • Coca cola • Coke zero • Diet Coke • Pepsi • Irn-Bru • Ocean Spray • Sunkist • V Range Working in partnership with Jacobs Douwe Egberts – one of the largest coffee roasters in the world, we supply high quality coffee blends including Douwe Egberts, L’OR, Kenco, Tassimo and the unique liquid coffee concept Cafitesse. 10 10 O U R B R A N D S 11 CONTENTS 2 0 2 1 N I C H O L S P L C A N N U A L R E P O R T STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS KEY PERFORMANCE INDICATORS CHAIRMAN’S STATEMENT OUR BUSINESS MODEL CHIEF EXECUTIVE OFFICER’S REPORT HAPPIER FUTURE REPORT CHIEF FINANCIAL OFFICER’S REPORT RISK MANAGEMENT SECTION 172 REPORT 16 18 20 22 36 54 60 60 THE BOARD CORPORATE GOVERNANCE STATEMENT AUDIT COMMITTEE REPORT 74 76 84 INDEPENDENT AUDITOR’S REPORT CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME REMUNERATION COMMITTEE REPORT 88 STATEMENT OF FINANCIAL POSITION NOMINATION COMMITTEE REPORT DIRECTORS’ REPORT 96 98 CONSOLIDATED STATEMENT OF CASH FLOWS PARENT COMPANY STATEMENT OF CASH FLOWS STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS UNAUDITED FIVE YEAR SUMMARY NOTICE OF ANNUAL GENERAL MEETING GENERAL NOTES FINANCIAL CALENDAR 104 112 112 113 114 115 116 118 158 159 161 161 13 12 STRATEGIC REPORT 14 S T R A T E G I C R E P O R T 15 KEY PERFORMANCE INDICATORS CHAIRMAN’S STATEMENT OUR BUSINESS MODEL CHIEF EXECUTIVE OFFICER’S REPORT OUR HAPPIER FUTURE REPORT CHIEF FINANCIAL OFFICER’S REPORT RISK MANAGEMENT SECTION 172 REPORT 16 18 20 22 36 54 60 60 01 KEY PERFORMANCE INDICATORS REVENUE (£M) 147.0 142.0 144.3 132.8 118.7 S T R A T E G I C R E P O R T ADJUSTED* OPERATING PROFIT (£M) OPERATING PROFIT (£M) 30.5 31.6 32.4 28.7 31.6 32.4 21.9 11.7 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 +£25.6m +22% +£10.2m +88% 6.6 (17.6) 2017 2018 2019 2020 2021 (£24.2m) (367%) ADJUSTED* PROFIT BEFORE TAX (£M) PROFIT BEFORE TAX (£M) ADJUSTED* BASIC EARNINGS PER SHARE (PENCE) 32.4 31.8 30.5 72.81 69.23 67.76 21.8 31.8 32.4 28.7 11.6 2017 2018 2019 2020 2021 +£10.2m +88% 46.15 25.56 6.5 2017 2018 2019 2020 2021 +£20.59p +81% (17.7) 2017 2018 2019 2020 2021 (£24.2m) (370%) BASIC EARNINGS PER SHARE (PENCE) CASH AND CASH EQUIVALENTS (£M) 62.88 69.23 72.81 56.7 36.1 38.9 47.3 40.9 13.14 2017 2018 2019 2020 2021 +£9.4m +20% (60.04) 2017 2018 2019 2020 2021 (£73.18p) (557%) 16 *Source: Nielsen, Total coverage 12 months to 1 January 2022. *Excluding exceptional items set out within note 4 of the financial statements 17 THE CHAIRMAN’S STATEMENT with Vimto Squash outperforming the dilutes market by dividend for 2021 of 23.1p. The ex-dividend date will +10.4%. Sales across our International markets were £32.7m, an increase of 21.0% (underlying +9.8% adjusting for be 24 March 2022 and payment will be made on 5 May 2022 subject to shareholder approval at the Group’s AGM on the 27 April 2022. the impact of the completion of the Group’s marketing OUTLOOK investment in the Middle East) versus the prior year (2020: £27.0m). Performance in Africa at +17.1% was particularly pleasing given the long-term opportunity presented by these markets. The Group enters 2022 with excellent momentum and in a strong financial position. The Group’s Adjusted PBT2 expectations for the year FY223 are unchanged, whilst we remain mindful of the well-publicised inflationary SHARE BUY BACK pressures which are now being realised. On December 14, 2021, the Group announced its In the medium term for 2023 we expect continued intention to conduct on-market purchases under revenue growth as well as inflationary and legislation a share buyback programme to repurchase up to cost pressure. We expect to see, high single digit growth 453,486 ordinary shares of 10p each in the capital of in Group Adjusted PBT versus FY22. the Group (the “Ordinary Shares”), representing up to approximately 1.2 per cent of the Group’s issued share capital, pursuant to the authority obtained at the Group’s most recent annual general meeting, held on 28 April 2021 (the “Buyback”). The purpose of the Buyback is to meet future obligations under the Group’s SAYE Option Scheme and/or Long-Term Incentive Plan. The Buyback will be funded from the Group’s existing cash resources and all Ordinary Shares repurchased will be held in treasury. Repurchases may be made up to and including 23 August 2022. Any repurchases made following the Group’s 2022 annual general meeting will be conditional on further shareholders’ approval being obtained. During December 2021, the Group repurchased 68,000 Ordinary shares under this authority, with a nominal value of £6,800. DIVIDEND In 2020 the Board advised a dividend policy of broadly 2x cover, which balances shareholder distributions with the investment needs and growth opportunities of the business post-pandemic. The Board therefore propose a final dividend of 13.3p, which together with the interim, results in a full year The Board believes the Group is well positioned to deliver against its long-term growth plans. 1 Nielsen Total Coverage 12 months to 1 January 2022 2 Excluding exceptional items 3 FY22 expectations refers to a Group compiled market consensus of adjusted PBT £25.2m John Nichols Non-Executive Chairman 1 March 2022 19 N A M A I R H E C T I V U C E X E - N O N NICHOLS The continued strengthening of the Vimto TRADING brand, both in the UK and internationally, combined with the benefits of our diversified business model, has ensured another resilient financial performance in the period. We have Total Group revenues for the period were £144.3m, an increase of 21.6% compared to 2020 and importantly, broadly in line with pre-Covid 2019 levels. achieved significant outperformance of the Vimto Both the Still and Carbonates product categories brand in dilutes in the UK, and we delivered solid have recovered strongly in the period. Revenue of growth internationally, particularly in Africa where Still products increased by 10.2% to £72.4m (2020: we continue to grow, and critically delivered a robust £65.7m), now ahead of 2019 (£71.7m), driven by performance in the Middle East. In this, my 50th year the strong performance of the Vimto Squash with the Group, I would like to wholeheartedly thank brand in the UK. Revenue from Carbonated everyone for their efforts. The Coronavirus pandemic has continued to present significant challenges for us all throughout 2021. Our first and most important objective continued to be the protection and wellbeing of our employees and customers. Throughout products increased 35.8% to £71.9m (2020: 53.0m; 2019: £75.3m), driven largely by the gradual recovery of the Group’s OoH route to market as outlets reopened, and by strong growth in Africa. these difficult times, I have been delighted to witness how our In the UK, revenue increased by colleagues have pulled together and consistently demonstrated 21.8% versus last year to £111.6m their values and commitment to our business. As Out of Home (OoH) recovers from the impact of the pandemic, management focus has ensured a strengthening of our balance sheet in the period, with cash and cash equivalents at the end of the period at £56.7m (2020: £47.3m). We are now well positioned to deliver our long- term growth plans as the impact of the pandemic subsides. (2020: £91.6m) as the OoH route to market recovered and the Vimto brand progressed. For the first time, Vimto brand’s value in the UK has exceeded £100m, and increased by +6.3% according to Nielson1, 18 18 OUR BUSINESS MODEL EXISTS TO MAKE LIFE 20 BETTER S T R A T E G I C R E P O R T Ingredients Like all great tastes - it all starts with the best ingredients! The ‘Vimto secret recipe’ is testimony to this. Manufacture Our much loved products are made by the very best - ourselves or our supplier partners. Transport We use the most effective distribution solutions to meet customer needs, whether that be via our own team or an expert partner. Consumers It’s ultimately all about getting our much loved brands into people’s hands! Retailers Our retailers vary from some of the biggest to some of the smallest in the world. 21 CHIEF EXECUTIVE OFFICER’S REPORT R E F I C F E O T I V U C E X F E H I E C MILNE One of the key challenges during the year has been maintaining the availability of our products in our customers’ outlets. Globally, we have seen a number of shortages on key ingredients, logistical challenges I would like to say an enormous thankyou to every single member of the Vimto team who have worked tirelessly to ensure we have delivered against these priorities in often difficult and demanding circumstances. We continue to build long-term partnerships with several key customers and distributors both in the UK and abroad who I would like to thank for their continued loyalty and support. I am extremely proud of what we have achieved during 2021 which has once again proved to be a very challenging year against a backdrop of issues for our industry and society. Our priority in 2021 as it was in 2020 when the Covid-19 pandemic started has been to protect the safety and wellbeing of our people, continue to serve our customers and support the local communities in which we work. I would like to say an enormous thankyou to every single member of the Vimto team who have worked tirelessly to ensure we have delivered against these priorities in often difficult and demanding circumstances. The value of the Group’s diversification across both the UK and internationally has once again in 2021 proved to be pivotal to the success the business has achieved. The Vimto brand has been the driving force of growth both at home and abroad, and its unique flavour and taste continues to be loved by consumers around the globe. and insufficient labour availability in certain markets. I am pleased we have shown extremely strong resilience to maintain excellent service levels UK Soft Drinks and ensure our consumers can still enjoy our brands every day through our enhanced focus on operational excellence. The soft drinks market in the UK has proved to be extremely resilient during 2021. Growth in the UK on-trade sector has been strong as we observed fewer restrictions and closures across the hospitality sector versus 2020. Within the UK retail sector, the momentum that was built in 2020, as more people consumed products at home, has continued into 2021 with robust (Statistics given below are as measured by Nielsen for the 12 months to 1 January 2022.) In 2021, volumes in the £9.6bn UK soft drinks market grew by +2.3%, whilst value sales grew by +8.5% versus the prior year. Within the soft drinks market, the strongest value growth was delivered across the Energy, Water and Flavoured Carbonates sub-categories, whilst Mixers, Dilutes and Lemonade all suffered declines versus 2020. growth being delivered both in stores and via growing The soft drinks category remains intensely competitive online platforms. All the international geographies we operate in have suffered a number of challenges similar to those felt in and promotionally driven. However, we continue to add value by focusing on strong in-market execution, product innovation and new distribution gains. the UK, but our brands have shown to be very resilient For the first time in its 113 year history, the Vimto and demonstrated their strength. Our continued focus brand achieved value sales worth in excess of £100m, a on driving growth across a range of global markets significant milestone and an achievement that all of our throughout the year has proved beneficial. We have people should be extremely proud of. delivered excellent in-market execution across the Middle East, Africa, Europe and the USA. As a result, we have driven growth and market share gains in all these markets. Within the UK packaged sector, our dilutes portfolio delivered very strong growth. It significantly outperformed the market and gained share versus our 23 23 No brainer – Vimto Fizzy Raspberry, Orange and Passionfruit (in a can!) 22 22 S T R A T E G I C R E P O R T competitors. As a result of this out performance, we portfolio with the addition of Vitamin C and D and have firmly consolidated our position as the No.2 brand brought to market a brand new look to our packaging. in the dilutes market. Our still Ready-to-Drink portfolio delivered double digit growth in the UK marketplace, with our 500ml range Launching new flavours and concepts are crucial to ensuring we attract new consumers to the Vimto brand and stay relevant to their changing needs and tastes. being the standout performer across all the sectors it Core to the brand’s growth in 2021 has been the operates in. It is also pleasing that our carbonates range delivered +8.8% growth, driven by our performance across our cans portfolio. introduction of our new marketing campaign Find Your Different, which first aired in the spring. It was launched with two through the line executions – one focused on a masterbrand campaign to drive top of mind awareness and a dilutes vitamin D campaign to target parents and Delivering strong growth across all three sub-categories families. It was a fully integrated campaign across TV, we operate in has been encouraging against the tough Video on Demand, Digital, Outdoor and Social. We also market conditions we faced during 2021. ensured we supported the activity in store across our key national accounts. We have also continued to ensure that all of our new product innovation and marketing activity heavily focuses on driving our ‘No Added Sugar’ ranges as part of our healthier future strategic commitments and, as a result, we have made strong progress across the year. In 2021, innovation has again been at the core of our growth. We have launched two new flavours across the range and moved our broader flavours range into a 2L dilutes format. We have also fortified our dilutes 24 24 25 25 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T Our Levi Roots brand had another successful year in 2021. Strong growth of +24.7% was achieved, with the core flavours and pack formats delivering this uplift. The key focus has been on new distribution gains and strong in-market execution. We continue to work in partnership with all our customers across the UK grocery, foodservice, wholesale and discount channels. It has been more important than ever during 2021 to have these strong relationships in place, and we will continue to put our customers’ needs at the heart of what we do to ensure all our consumers can enjoy our products every day. OUR FEEL GOOD RANGE During 2021, we relaunched our Feel Good brand into the marketplace. We have repositioned the brand as a 100% natural product with a strong set of ESG commitments. We have successfully started to build distribution both in single and multipack formats across the retail, foodservice and convenience channels in the UK. 26 27 27 the levi roots team at the barcode festival S T R A T E G I C R E P O R T During the year, we continued to ensure we invested in exciting marketing campaigns across the sector, which included in-outlet and digital campaigns. Finally, we secured a long-term agreement to be the exclusive partner to distribute the global No.1 uncarbonated frozen brand - SLUSH PUPPiE. However, the OoH drinks market has been significantly impacted by the pandemic with the prolonged closure of many outlets. Whilst recognising the hospitality trade has shown growth and is beginning to return to pre-Covid-19 levels, it is doing so at a pace slower than THE UK ON-TRADE Following an extremely tough previously forecast and the margin progression after year in 2020 for the UK On- overheads anticipated previously is now not likely to Trade, we have seen the sector be achieved without transformational change, in terms recover strongly in 2021 as outlets of how the Group services the trade and its wider reopened. However, the industry customer base. Therefore, a full strategic review into the has had to face challenges with Group’s OoH route to market has commenced. some restrictions still in place impacting footfall, as well as staff shortages and logistics issues. Throughout 2021 we continued to focus on supporting our customers and partners across our entire OoH New trends have emerged across the sector due to the channel. Ensuring that our valued customers received pandemic, with consumers now much more positive the right service to guarantee product availability during about “al fresco” dining and visiting outdoor hospitality the various challenges the industry encountered has venues, a boom in the suburbs as people are shifting demonstrated the resilience of our supply chains and away from visits to city centres and consumers adopting delivery model. I am extremely proud of the team’s focus and commitment to support our partners during this challenging period and throughout the ongoing recovery from the impact of the pandemic. a “live for the moment” mindset. I am pleased with our progress across our Out of Home (OoH) business, as we have delivered +77.4% sales growth versus 2020. However, versus 2019, the channel is still down -31.4% due to some restrictions remaining in place. Encouragingly, year-on-year growth has been delivered across all the channels we operate in within OoH. A key driver of this has been due to the support we have provided to our customers throughout the last two years, which has enabled them to reopen their businesses as restrictions have eased. As a result, we have also retained a number of key contracts with important customers. Innovation remained important during 2021, and we launched ICEE and Starslush ZERO (no sugar) products to complement our current ranges. These launches support our ambition to offer consumers balanced and healthier choices. Consumer feedback to date has been extremely positive regarding the new additions. 28 29 29 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T VIMTO INTERNATIONAL During 2021 the challenges presented by the Covid 19 pandemic and supply chain restrictions in the UK have been echoed across all our International markets. Considering these challenges, I feel extremely proud that the teams have delivered +21.0% sales growth versus 2020. It is particularly pleasing that this growth has been delivered across all our key markets through strong execution, innovation, new and exciting The Sweet Togetherness campaign marketing campaigns and new distribution wins. Our partner in the Yemen faced many operational Our growth across the African continent in 2021 has been extremely strong, delivering sales growth of +17.1% versus last year. This has been challenges due to the ongoing hostilities in the country, but still delivered a robust performance on the back of strong in-market execution and distribution gains. delivered through a combination of our integrated 2021 has again seen us deliver another strong marketing campaigns, new flavours, extending our pack performance across the USA with our long-standing partners, the Ziyad brothers. Through excellent in- market execution and strong marketing campaigns, we delivered +21.6% sales growth versus the previous year. Across all of our European territories, we again focused on expanding new points of distribution for our core products within key customers, which resulted in us delivering market share gains and positive sales momentum. formats and a strong focus on market execution in a number of our core markets. In Algeria, we launched a new 2L pack format across our carbonates range. This was aimed at capturing the take home/multi-serve opportunity in the market and has been well received by our customers and consumers across the country. In Sudan, we launched a range of still products to extend our portfolio in this market. We have invested in strong marketing campaigns to drive consumer awareness and the resulting sales performance has been positive. The Middle East market has once again proved extremely resilient, delivering +33.6% sales growth versus 2020. This has been against tough market conditions due to rising taxes and conflicts taking place across the region. Our long-standing (over 90 years) partner, Aujan Coca- Cola Bottling Company (ACCBC), delivered another outstanding marketing campaign during Ramadan. The “Sweet Togetherness” campaign – which promoted the introduction of a No Added Sugar product alongside themes of togetherness, health, cooking and value for money – was heavily focused on driving awareness via online channels. The campaign was extremely popular and reached 2.5 billion views on TikTok and 2.5m views on YouTube. 30 First International Production with the new branding- 30cl Vimto Original 31 31 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T OUR STRATEGIC FRAMEWORK Our core purpose as a business is to ‘Make Life Taste Better’ which our people live and breathe every day. We want this purpose to inspire all the partners we work with and the consumers across the globe who enjoy our brands on a daily basis. STRATEGY IN ACTION - GROWTH PILLARS CORE PRODUCTS, CORE CUSTOMERS, CORE MARKETS. Our core brands continue to be loved by all our consumers and customers and we will continue to invest and drive growth in these key areas. 2021 has again shown how important our core products are across our core markets as demonstrated by the strong growth delivered via our excellent marketing campaigns and in market execution. RIGHT PRODUCTS, RIGHT PLACE, RIGHT TIME. As we continue to expand our range of products and portfolios, we have focused on driving new points of distribution within new channels and new geographies. We have also through our enhanced operational excellence programme focused on ensuring we drive strong customer service and product availability to ensure our consumers can enjoy our products whenever they desire one. 32 33 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T INNOVATION AND ACQUISITION. MAKING LIFE TASTE BETTER FOR EVERYONE. I am very proud that this year we are also publishing our first standalone Happier Future Report visit www.nicholsplc.co.uk/happier-future which outlines the Nichols vision for a Happier Future. Core to our vision is a long held belief that Everyone Matters, with a focus on the wellbeing of our people and our communities, particularly supporting the people in those communities who need it most. Fundamental to creating our Happier Future is to have Products that we are Proud of – from helping our consumers to make healthier hydration choices, to having sustainable packaging solutions and ensuring that we source our ingredients and materials responsibly. All businesses have an important responsibility to tackle the global climate crisis and at Nichols, we are serious about Owning Our Climate Impact and are taking the right actions to reduce our own direct emissions and working closely with the partners across our UK in the first instance, to reduce our impact throughout our supply chain. Summary: As we focus on 2022, I have no doubt that we will continue to operate in a challenging and changing environment that will continue for a sustained period. Inflationary headwinds are going to be a key threat which we will aim to mitigate through savings realised as part of our operational change programme and the implementation of appropriate pricing strategies. Over many years, soft drinks has proven to be a highly resilient category which has again been evident in 2021. I feel confident that given our high brand equity, diverse business model, strengthened balance sheet, clear ESG commitments and exceptional people, we can continue to achieve our long-term strategic objectives and deliver Driving growth through innovation and acquisition will continue to be at the heart of our long-term growth strategy. continued profitable growth. This pillar has delivered growth in the business over many years and will continue to be a key area in which we will prioritise our efforts. Using consumer and market insights to understand the long-term trends, will be crucial in ensuring we carefully plan the evolution of our business growth. Andrew Milne Chief Executive Officer 1 March 2022 34 35 OUR HAPPIER FUTURE REPORT EVERYONE MATTERS INTRODUCTION Consumers don’t just buy our drinks, they buy our We’ve evolved our Happier Future strategy to focus on At Nichols, we want to ensure everyone is looked after, from our colleagues to those in our local communities. Our approach is led by our core values, with a focus on putting our people first and giving back to our communities. values. Our Happier Future framework sets out our three core pillars, which we report against to measure “Everyone Matters” is core to our Happier Future strategy and fundamental to our values at Nichols; we want to approach to doing business in the right way, for our our progress each year: consumers, customers, partners, teams and the world around us. • Everyone Matters • Products we’re Proud of • Owning our Climate Impact “make life taste better” for everyone. The primary consumers of our products are young people, and we want to support them with more than just refreshment. We are committed to improving the lives of those young people who need it most – through raising aspirations by providing opportunities to develop their skills and careers. The pandemic continues to have a significant impact on our business and our ways of working. In 2021 the health and safety of our people, partners and communities has remained a priority for the business. HIGHLIGHTS THIS YEAR INCLUDE: Putting our People first Giving back to our Communities • Focus on wellbeing – resilience training offered to all • Day to Make A Difference – our employees members of staff volunteered in their local communities across the UK • Regular Covid Wellbeing check-ins for employees held • £20,000 invested in Waves for Change’s accelerator over the year programme to expand surf therapy to more children • Launch of our first Inclusion and Diversity policy in across Africa September 2021 • Long-term supporter of Warrington Youth Club (WYC) • #ThisIsMe – employees from across the business • Sponsorship of Salford City FC Development Teams volunteered to share their stories, celebrating the diversity and difference we have in our business FOCUS FOR THE FUTURE: Putting our People first Giving back to our Communities • Our employee engagement survey in 2022 provides • Pledge to improve the future of over 100 young another opportunity to listen to our people and take people in our local communities by 2025 by raising action where appropriate to ensure life continues to aspirations through skills development and by taste great working at Nichols providing career development opportunities • Develop our three Inclusion & Diversity priorities, • Continue to support further rollout of the Wave including establishing two communities, Female Accelerator Project and surf therapy internationally Leaders Network and LGBTQ Resource Group, to inform and drive an inclusive culture • Using data and insights from employee engagement to shape strategic approach to Inclusion & Diversity • Embedding Day to Make a Difference into annual employee volunteering programme This year, we’ve also published our first standalone deliver a Happier Future for all stakeholders. To read Happier Future report, which goes into greater detail our Happier Future Report, visit about our business principles and commitments to www.nicholsplc.co.uk/happier-future 36 36 37 37 OUR PEOPLE Our people are the foundation of our business, and it’s thanks to their continued motivation to find a better way facilities and training. Our manufacturing operation at Ross-on-Wye continues to demonstrate its strong safety culture, evidenced through the annual audit processes. that we have had a successful year. For office-based employees we know that remote 2021 has been another year of continued and sustained challenges presented by the ongoing pandemic. The uncertainty around coronavirus throughout the year and various lockdowns, isolation periods and sickness, working over the pandemic has been challenging. In line with government guidance, we have been encouraging people to return to their normal workplace to increase productivity, collaboration and wellbeing. have all been draining experiences for many of our Our focus on our people’s mental wellbeing continued employees. We fully recognise that these challenges in 2021 through regular one-to-one discussions and have extended well beyond the workplace, such as our performance & development process. In addition, S T R A T E G I C R E P O R T INCLUSION & DIVERSITY We are committed to being an inclusive employer and are learning what this means every day. Whilst our people tell us that Nichols plc is a great place to work, we know we can do more. We’ve been around long enough to know that we cannot create value without people feeling valued, and that’s why we are committed to ensuring every employee feels included and can bring their whole self to work and feel positive about their remote working, home schooling and a reduction in we offered our employees and people managers the contributions. ability to collaborate, all of which have had an impact on opportunity to attend resilience training. We recognise that there are many facets that make up who we are such as thinking our people’s resilience over time. Our internal Wellbeing Hub is a holistic access point and processing styles, nationality, ethnicity, gender, sexuality and life experiences. Therefore, finding new ways to bring our people for the various wellbeing resources that we provide. together has been an important part of how we have We offer 24/7 helplines for counselling, medical operated this year. STAR AWARDS appointments and legal, financial and support, as well as 24-hour access to GP services and specific helplines for supporting managers with their roles. Through the We strongly believe in encouraging recognition for My Healthy Advantage Wellbeing App, employees have the fantastic work our employees do, and our local access to a range of personalised wellbeing tools. Star Awards are designed to share and celebrate our people’s successes. During the year these are nominated EMPLOYEE SURVEY by peers within each function of our business, and in Our latest wellbeing check in survey took place in July February 2021 we held an annual awards ceremony to 2021. celebrate the exceptional contributions, achievements and commitments of our employees. There were 42 winners of the Local Star Awards from across our business and 5 ultimate winners of the Annual Star Awards. The highlights of the survey demonstrate the consistency of how our employees have felt throughout the pandemic in terms of how the business has communicated with them, prioritised their own and their families’ wellbeing and taken all steps to protect Nomination categories included: their health, safety and wellbeing: A priority is to build more diverse teams to more accurately reflect our consumers, customers and partners, increasing wider representation within our workforce. Developing our talent and providing all our employees with opportunities for growth is essential to our success. We know that we are at our best when we bring together our different life experiences, ways of thinking and individuality, and by empowering our people to bring their whole self to work, we unlock the valuable diversity of thought, backgrounds, experiences and identities. This has been a focus for us through our talent acquisition strategy and while some progress has been made, we recognise that to make a substantive change, we need to adopt an approach that focuses on emerging talent. Given the above, in 2021 we continued to build towards an Inclusion and Diversity Strategy, which will be formalised during 2022. Our first Inclusion and Diversity policy was approved by • Bleeds Vimto Award for always demonstrating Vimto • 97% of employees felt the business cared about their the Board in September 2021. values health, safety and wellbeing • Unsung Hero Award for delivering great things, • 94% felt supported and respected by their colleagues despite challenges and without seeking recognition and managers • Smashes it Out of the Park Award for significant • 96% felt the business has put employee health and achievement wellbeing first in making decisions about the risk of • Team of the Year Award as recognised by the Senior COVID-19 Leadership Team • 98% felt that communication from the business has • 1908 Award for individual outstanding contribution been open and honest and impact as recognised by the Senior Leadership • 65% felt confident about working from their ‘normal’ Team WELLBEING We are committed to providing 360° support to our employees to protect their mental, physical and financial wellbeing across all our different working environments. In 2021 our dedicated health and safety team continued to work across all workplaces to ensure physical workplace, which is an overall increase from previous surveys • A consideration that is top of mind for the business is how the pandemic has generated an increase in work for many employees. This was reflected in the 64% of employees who felt their workload was reasonable safety in the workplace, and a focus on continuous Our next full engagement survey will be held in 2022, improvement across our Out of Home Depots in both and the results included in the 2022 Annual Report. 38 #ThisIsMe #ThisIsMe is a new initiative from 2021 aimed at bringing to life the brilliant individuality and difference that makes up Nichols. We are proud of the diversity that exists within our business, and we wanted to find out more about what makes us, us! This year, through #ThisIsMe we encouraged employees to “find their different” and share their different experiences and perspectives on life, love, family, faith… and everything in between. Our employees jumped in and shared their stories with the rest of the team. 39 39 GENDER PAY GAP REPORT NICHOLS PLC IS PLEASED TO PRESENT ITS GENDER PAY GAP REPORTING RESULTS AS OF 5 APRIL 2021 EMPLOYEES SPLIT BY GENDER The 2021 split remains consistent with 2020 levels. During the pandemic and in line with the general market, talent acquisition across has proven challenging in some functions in terms of the external talent pools available for certain skills. We are pleased that we achieved close to an equal split of new hires during 2021. This continues to be a key area of focus for the business and we are seeking to identify new ways to bring in more female talent in order to make a substantive change to this split over the coming years. We have a large employee group within our Out of Home (OoH) 30% operations function, with males making up a significant proportion. This reflects the external talent pool for these roles in the market. 70% 2021 DATA FOR PROPORTION OF MALES AND FEMALES WITHIN THE SLT & MANAGERS MALE FEMALE 50 40 30 20 10 0 SLT Managers PROPORTION OF MALES AND FEMALES RECEIVING A BONUS Every employee has the potential to earn a bonus at Nichols Plc. For new employees, eligibility in their first year will be based on their start date in the calendar year. Bonus is linked to both Group performance and personal objectives. Therefore, data shows those employees not eligible for a bonus in 2021 due to their start date. MALE FEMALE 97% ELIGIBLE PROPORTION OF MALES & FEMALES IN EACH PAY QUARTILE & WITHIN SLT AND MANAGERS 92% ELIGIBLE MEAN/MEDIAN PAY GAP VARIANCE IN MALE PAY TO FEMALE PAY BONUS* MEAN 15% MEDIAN 0% 2021 BOTTOM 30% 70% SECOND 22% 78% THIRD 36% 64% TOP 29% 71% 2021 saw parity in the median bonus for males and females for the first time since reporting. The mean bonus saw a significant swing towards males, explained by the succession changes in the Executive structure and the changes to LTIP rewards at the Senior Leadership Team (SLT) level. For these same reasons we saw a swing towards males on mean pay, whilst median pay remained higher for females and saw a further swing from 2020, in part attributed to a continued higher proportion of female representation in the top two pay quartiles than within the male population. MALE FEMALE *Variance in male pay to female pay. 40 HOURLY PAY* 7% MEAN MEDIAN 10% 2020 BOTTOM 31% 69% SECOND 29% 71% THIRD 35% 65% TOP 29% 71% E L A M E F E L A M The proportion of males and females in each pay proportions in each quartile as described above. quartile continues to reflect the workforce and remains Changes in personnel and Executive structure has consistent with 2020. Good progress has been made in developing our female talent particularly in our leadership pipeline, with a longer term plan to realise a more balanced gender split across our workforce to see a substantive change to the resulted in a small shift in the gender balance towards males. Encouragingly, in our management structure there has been an increase in the number of female managers. 41 COMMUNITIES We believe that every young person matters, and yet in today’s society access to opportunities is not equal. We want to offer a leg up to those who need it most in our local communities. These values are at the heart of our Everyone Matters strategy. We are committed to providing support to those who need it most to help them achieve their full potential, and to foster social mobility in our local communities. In 2021, we continued to support Warrington Youth Club with our patronage and to support Salford City FC’s Development Teams. Going forward, we pledge to improve the future of over 100 young people in our local communities by 2025, raising aspirations through skills development and by providing career development opportunities. people build protective relationships, identify their emotions, learn to self soothe and help them build a positive vision of their future. The programme supports approximately 1800 children participants, at-risk children referred to W4C’s ten-month mental health programme. We support W4C’s mentors by providing essential resources for the programme such as transport, surfing equipment and access to psychiatric support. During the pandemic, Waves for Change adapted to become an online service, providing tablets and smartphones, and distributing food parcels and vouchers. In 2021 we continued to support The Wave Alliance, an accelerator-type project through which W4C’s surf therapy is achieving global scale and impact. W4C provide training and support to partner organisations who open their own surf therapy programmes in their For our local communities in the UK, during 2021, we respective countries. W4C equip as many partners with conducted a research project in collaboration with Social the knowledge and essential equipment they need to Mobility Pledge to enable us to better understand where carry out their surf therapy. This includes coordinating the specific social mobility challenges lie in our local research, programme design, and staff training. The communities in the UK. We are now using this research aim is for these local partners to then grow their own to devise a comprehensive three-year plan to deliver evidence-based surf therapy programmes across Africa on our pledge and ensure we are delivering the right and globally. support, where it is needed most. WAVES FOR CHANGE Our commitment to providing opportunities for young people extends to our international business with our on-going support for the Waves for Change (W4C) Initiative. In 2021 we contributed a total of £20,000 to supporting the growth of the Wave Alliance, programme setup and training. In addition, rash vests were shipped out to the different Wave Alliance Programmes along with branded Cape, South Africa, and take them to the surf therapy Since 2009, we have supported W4C, a non-profit programmes. organisation that offers Surf Therapy programmes to children from disadvantaged backgrounds, working in DAY TO MAKE A DIFFERENCE South Africa, Liberia and Sierra Leone, with a total of 24 We are proud of the impact that our employees have partners across ten different countries. Surf Therapy combines the positive benefits of surfing and physical activity with activities that help young on their communities, and through our Day to Make a Difference programme we offer our employees time to volunteer locally or with our charitable partners. In 2021 surf boards, and Nichols funded the re-branding of the • Over £1000 raised supporting MacMillan transport used to collect children from towns in Western Coffee Mornings our employees again volunteered across the UK, taking the time to give back to their local communities. Examples included: • 96 bags of rubbish collected and a total of 150 miles walked during beach clean-up projects in Formby, Ty Mawr, Tynemouth and Weston-Super-Mare • Gardening project in Shotton to create an outdoor education centre to provide health and wellbeing activities to members of the community • Volunteering and fence building with young people from Warrington Youth Club at Children’s Adventure Farm Trust • Building a Community Garden for Manchester Urban Diggers • Charity shop sorting at Willowbrook Hospice • Painting the Community Centre at St Helen’s YMCA 42 43 43 PRODUCTS WE’RE PROUD OF We’re passionate about making products consumers love - it’s at the heart of what we do. We recognise that consumer needs are evolving, not least the importance they place on buying products from responsible businesses. What this means for us is developing products that allow consumers to make healthier choices and continuing to challenge ourselves to find sustainable solutions to our packaging use. HIGHLIGHTS THIS YEAR INCLUDE: Healthier Hydration Sustainable Packaging • Our sugar reduction strategy saw us remove 597 • Continued commitment to improving UK waste tonnes of sugar from our UKP products, an collection and recycling with all Packaging Recovery 8% decrease since 2020 Notes directed to the UK brand sales and 62% of squash sales. Calories per litre in squash have reduced by 25% compared to 2015. Even with increased volume, this has led to an annual saving of 350 tonnes of sugar in squash versus 2020. In Carbonates, strong progress has been made on a 5-year basis, with NAS now accounting for 33.6% of sales versus 20.3% in 2015. Whilst in 2021, sugar usage fell by 281 tonnes, due to the impact of the COVID pandemic, coupled with availability of products being limited due to CO2 shortages, we saw a yoy • Vimto squash relaunched in the UK with vitamin • Focus on packaging innovation in 2021, with recycled decline in % NAS sales (from 44% in 2020). fortification to provide greater health benefits polyethylene tetraphyte (rPET) trialled in all SKUs and trials completed on low density polyethylene (LDPE) case shrinks and pallet wraps to incorporate a minimum of 30% Post-consumer Waste (PCW) FOCUS FOR THE FUTURE: Healthier Hydration Sustainable Packaging • We will be 100% HFSS Compliant on our owned • Implementing our roadmap to achieve our portfolio ahead of the introduction of legislation in commitment of 100% rPET in the UK packaged October 2022 portfolio by 2025, moving to 51% rPET in 2022 • All UK frozen slush products will be No Added Sugar from 2022 • We plan to continue our strategy to better meet emerging consumer needs in healthier hydration through renovation and innovation HEALTHIER HYDRATION Sugar Reduction Providing our consumers with products that enable In 2021 we continued to reduce the sugar content across them to make heathier choices is part of our DNA. Our our product portfolio both in the UK and Internationally. continued commitment here has been to evolve our All our products in the UK remain exempt from the Soft existing product ranges and develop new products to Drinks Industry Levy (SDIL), with 99% of our UK ranges better meet evolving consumer needs. In 2021 we are now low or no added sugar (NAS). All products in our delighted to share the following achievements: innovation pipeline for both UK Packaged and OoH will be low or NAS. In 2021 sugar usage* across our UK Packaged portfolio fell by 597 tonnes, with a saving of 9,346m calories. Since 2015, our sugar usage has reduced by 36%, while our volume in litres has grown by 30%. No Added Sugar (NAS) variants now account for 49% of total Vimto In our Out of Home route to market, we are pleased to have reduced sugar content* across our own postmix and frozen brands by 16% versus 2020. From 2022, all UK Frozen slush products will be NAS. This focus extends to our international business, where we continue to work closely with international partners to explore ways to accelerate their uptake of lower sugar recipes. We’ve reduced sugar levels in our carbonated products in a number of markets across Africa, including a 20% sugar reduction in products locally produced in Algeria. In addition, our longstanding partner in the Middle East, Aujan Coca-Cola (ACCBC) launched their first NAS Vimto Cordial and Still product and featured the NAS cordial in the celebrated 2021 Ramadan campaign. *Per litre of product Added Nutrients 2021 saw a fantastic achievement as we fortified our range with added Vitamins C&D**, bringing additional health benefits to our consumers. Fortification was introduced across 100% of our core Vimto squash range and represented 45% of our total UK Packaged portfolio. We plan to continue our strategy to better meet emerging consumer needs in healthier hydration through innovation. **Vitamin C&D is in the following Vimto squash products: Vimto Original, Vimto No Added Sugar, Vimto Orange, Strawberry & Lime, Vimto Mango, Strawberry & Pineapple and Winter Warmer. All flavours contain Vitamin D 44 45 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T SUSTAINABLE PACKAGING Packaging strategy OoH We take a responsible and practical approach to how As the UK leader for frozen drinks, we have an packaging is used throughout our organisation and are opportunity to define a sustainable future for the sector. committed to working with our partners and the wider We embrace this opportunity and are actively exploring industry to promote sustainable options and encourage options that will deliver long-term sustainability by responsible consumer behaviour. minimising both waste and emissions. UK Packaged We challenge the use of packaging across our operations and remove as much as we can wherever possible. Since 2019, across our UK Packaged portfolio The packaging strategy for our OoH business has continued to focus on two core areas: the cups in which we serve our frozen drinks and the materials we use to protect our post-mix products for delivery. we have successfully removed over 120 tonnes of Our frozen business uses 100% recyclable plastic cups plastic, a 9.2% reduction, as well as 17 tonnes of and paper cups which unfortunately due to their plastic aluminium, a 23.6% reduction. This was largely driven lining aren’t currently widely recyclable, largely due to by reducing the material usage of our bottles and cans, the availability of commercialised technology. Beyond with zero compromise to the integrity of our packaging our cups, we have made a full transition to paper straws. quality. In 2021 we focused on trialling rPET in all Nichols SKUs. In addition, trials have been completed on the LDPE case shrinks and pallet wraps to incorporate at least 30% PCW. We’re now focused on developing fully recyclable Bag in Box (BiB) solutions with our suppliers, as well as removing the plastic shrink from our BiB formats as we’ve already successfully done so with our Juice and Throughout 2021 we made further progress on Frozen Slush ranges. increasing the use of recycled PET in our packaging. We have set out a roadmap to achieving 100% rPET RESPONSIBLY SOURCED in our UK packaged portfolio by 2025, with 51% rPET The unique flavour of our products begins with quality by the end of 2022. To achieve this, we are committed ingredients sourced from trusted and responsible to sourcing rPET from the UK or Europe, as opposed suppliers. We source ingredients and materials primarily to high emission imports from Asia or further afield. from suppliers across Europe, many of whom we have Although this means we’re on a slower journey to reach been working with for decades. As a result of these our target, we’re confident this is the most responsible longstanding partnerships, we have transparency of option. product quality, labour protections and environmental During the year we continued to guarantee all packaging practices. used or supplied on our UK packaged products is 100% We are developing a comprehensive strategy to ensure recyclable, and the shrink film wrap used on our cordials partner compliance with sustainable practices and contains 50% post-consumer recycled waste, which ethical standards throughout our supply chains. would otherwise have ended up in landfill. Ensuring we have the right infrastructure in place to recycle and re-use plastic will increase availability of recyclable content in the country and is the most sustainable solution going forward. It requires collaboration with manufacturers, retailers, government bodies and end consumers. With the recent confirmation that the Deposit Return Scheme (DRS) Scotland will go ahead in 2023, we are fully involved in supporting its implementation, working closely with the British Soft Drinks Association (BSDA). This places the industry in a strong position for the expected rollout of the DRS across the rest of the UK. 46 our starslush trailer at thorpe park 47 OWNING OUR CLIMATE IMPACT The climate crisis is the greatest issue facing society today, and as a responsible business we have an important role to play in owning our impact. By taking science-based actions to reduce our total emissions and by understanding and reviewing our operational footprint and supply chain, we are able to ensure we are conducting our business in the most sustainable way. HIGHLIGHTS THIS YEAR INCLUDE: • 43% decrease in normalised gross emissions (tCO2e/ • Collaborated with UK co-packers to calculate KL intensity ratio) in UK Group operations versus emissions data and identify opportunities for 2020. On a like-for-like operational basis and with improvement consideration to normalised production volumes, 2021 net emissions across UK Group operations are 20% lower versus 2019 • Switch to green energy tariffs at our sites, backed by Renewable Energy Guarantees of Origin certificates, resulting in a reduction in net emissions of 199 tCO2e FOCUS FOR THE FUTURE: • Implemented strategic projects that will lead to further reductions of both gross and net carbon emissions • Develop the full roadmap to net zero for Scope • Working with our partners, to understand our Scope 1 and 2 3 impact • Continue with our implementation plan to deliver • Develop our Water Strategy focusing on water use on our commitment to reduce our absolute Scope 1 and reduction in our end products, manufacturing & Scope 2 GHG emissions by 25% by 2025 including processes and ingredient growing the decarbonisation of our OoH fleet LAUREL HOUSE HEAD OFFICE and carbon, but a significantly increased production the retirement of Renewable Gas Guarantees of output, normalised gross emissions decreased by Origin certificates. The result of these green tariffs is 43% from 244 tCO2e/kL to 138 tCO2e/kL drinks a reduction of net emissions of 199 tCO2e, or 17% of produced. On a like-for-like operational basis and with the gross emissions. Therefore, the 4,745 MWh energy consideration to normalised production volumes, consumed resulted in net carbon emissions of 1,002 2021 net emissions are 20% lower versus 2019, tCO2e, corresponding to a 50% reduction in normalised demonstrating the positive progress we’re making on net emissions in UK Group operations when compared our journey to Net Zero. to 2020, reducing from 229 tCO2e/ML to 115 tCO2e/ML. Due to our outsourced business model, most of the Nichols has further increased our focus on energy- emissions from the manufacture and delivery of our saving measures in the last year. At our Ross-on-Wye products are not created by our business directly but factory, we have continued to make improvements through our partners across our supply chain. The to lighting systems through replacing old units first step to collaboratively reducing these emissions with high-efficiency LED lighting. Additionally, we is measuring them, so we are implementing clauses in have removed a high energy consuming plastic film our contracts for key members of our supply chain that wrapping machine from use to further optimise our require them to report annually on their emissions, electricity consumption. At our Laurel House Head present a credible path to net zero by 2050, and Office, we have recently installed solar panels and an demonstrate annual reductions in greenhouse gases. air source heat pump to produce hot water, removing We have already calculated the carbon emissions of our the need for a gas boiler. Furthermore, during 2021 UK co-packers and from 2022 we will focus on sourcing employee engagement topics included increasing the the necessary information from our partners to get full understanding of our carbon footprint at work and clarity of our Scope 3 emissions. encouraging simple steps to reduce our footprint. DECARBONISING OUR SUPPLY CHAIN AND Therefore, the following report has been prepared in Many of our international partners need to build the EMISSIONS REDUCTION conjunction with Carbon Architecture who we have been capacity to measure emissions, and we will be working We have commenced the work to replace our OoH transport fleet with electric vehicles. Nichols has a strong track record of carbon reduction – 20% reduction achieved from 2019 to 2021 and we are developing our plan to ensure our transition to net zero for Scope 1&2 emissions. As part of our science-based working with since 2016 to provide independent analysis with them to support this. Nichols will continue to of our carbon footprint across our UK Group operations. assess climate-related risks going forward and adjust We have selected tCO2e/ kL as our SECR ratio as we feel our strategy as the studies we are undertaking into our this is most aligned to the activities of the Group. supply chain emissions yield a greater understanding of approach, we are keen to ensure the validation of our Our business operations were significantly impacted potential exposure. plans. In accordance with The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, we have prepared a Streamlined Energy & Carbon Report (SECR) for the 2021 financial year. This measurement and reporting of environmental performance will drive direct benefits for the business such as lower energy costs, improved understanding of exposure to the risks of climate change and by allowing the business to demonstrate sustainable leadership within the soft drinks industry. 48 in 2020 by the Covid-19 pandemic, which resulted in a 59% decrease in production volumes at our In 2021, Nichols produced 100% green electricity for our Ross-on-Wye factory and Laurel House Head Ross-on-Wye factory compared to 2019. This in turn Office. At least 76% green electricity was consumed reduced our energy usage and carbon emission rates. at our depots. The purchase of green electricity In 2021, Nichols’ production rebounded with a 73% through tariffs backed by Renewable Energy increase in production volume. Nichols’ total Scope 1 & Scope 2 energy consumption 2021 was 4,745 MWh, resulting in gross carbon emissions of 1,201 tCO2e. This excludes Scope 3 emissions of our partners. These figures correspond to a 1% decrease in total energy consumption and a 2% decrease in gross emissions compared to 2020. Due to the minimal change in energy Guarantees of Origin certificates covered 97% of all electricity consumed in 2021. Additionally, at two of our depots, Swindon and Newcastle, 90% of the natural gas consumed is purchased via a green tariff, which involves S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T Parameter Natural gas consumed Grid electricity consumed Transport fuels consumed Total energy consumption used to calculate emissions Emissions from combustion of gas (scope 1) Emissions from transportation in vehicles owned or controlled by reporting company (scope 1) Fugitive emissions from refrigeration plant (scope 1) Emissions from purchased electricity (scope 2) Emissions from business travel in vehicles owned or operated by 3rd parties (scope 3) Total gross carbon emissions Carbon reduction through green electricity tariff Carbon reduction through green natural gas tariff Total net carbon emissions Units kWh kWh kWh kWh tCO2e tCO2e tCO2e tCO2e tCO2e tCO2e tCO2e tCO2e tCO2e Intensity ratio: Total gross emissions per 1m litres of product Intensity ratio: Total net emissions per 1m litres of product tCO2e/ML tCO2e/ML Current reporting year 01/01/21 - 31/12/21 Comparison reporting year 01/01/20 - 31/12/20 451,700 957,010 3,336,348 4,745,058 638,415 876,145 3,270,397 4,784,957 83 789 126 203 - 1,201 (196) (3) 1,002 138 115 117 786 120 204 - 1,227 (74) - 1,153 244 229 Methodology This report has been prepared following the GHG Reporting Protocol – Corporate Standard and using the guidance set out in Environmental Reporting Guidelines: Including streamlined energy and carbon reporting guidance – HM Government (March 2019). Energy consumption data has been sourced from utility supplier invoices, or where this is not available calculated from site-based records and travel expense data. Conversion from energy to emissions was completed by application of the relevant emissions factor from UK Government GHG Conversion Factors for Company Reporting for the appropriate year. Energy Efficiency Action A program to install high-efficiency LED lighting, including proximity sensors where appropriate, has continued within our Ross-on-Wye factory. This results in the optimisation of our electricity use for lighting throughout the factory. Secondly, a plastic film wrapping machine has been removed from production due to its high energy intensity. The removal of this machine has reduced the consumption of electricity associated with packaging our products. Solar panels and an air source heat pump have been installed at our Laurel House head office, reducing the consumption of natural gas for providing hot water for the office staff. Finally, Nichols has continued a program of staff engagement which involves suggesting practical ways in which they can reduce their carbon footprint at work, including simple actions like turning off lights and equipment when not in use. WATER At Nichols we are all about maximising healthy hydration, whilst respecting water use throughout our product lifecycle. A large proportion of our products are concentrates – from cordials to our postmix bag-in-box. By concentrating our drinks, we reduce pressure on local water resources at manufacturing sites, as well as being an efficient logistics operation. Less trucks on the road and ships at sea is one of the ways we can drive lower emissions within our supply chain. We recognise that, with both the need to keep reducing emissions from water transport and the risk of increased water scarcity in some of our markets, it is more important than ever to ensure sustainable water use. That’s why we will be developing our water strategy, which will drive further efficiencies within our products, manufacturing processes, and through our upwards supply chain including sourcing of ingredients. here are the purple carrots that go into the colouring we use 50 51 CASE STUDIES S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T HEALTHIER HYDRATION VIMTO: SHAKING UP THE SQUASH CATEGORY WITH VITAMIN FORTIFICATION In April 2021, we were proud to relaunch the core Vimto squash range with added nutrients, bringing additional health benefits to our consumers. The full range was FEEL GOOD DRINKS IS A PURPOSE DRIVEN BRAND ON A MISSION TO LEAD CHANGE FROM WITHIN THE DRINKS INDUSTRY fortified with vitamin D, with both vitamin C & D added to some products*, all without Feel Good Drinks produce a sustainable, purpose-led compromising the unmistakeable great taste of Vimto. At the same time, a brand new Vimto flavour – Blackberry, Raspberry and Blueberry – was released. As the No.2 Squash brand in the UK**, part of Vimto’s ambition is to reframe range of fruitful sparkling waters made with 100% natural ingredients; created using no artificial flavours, added sugar or sweeteners and containing 15% real fruit juice. the squash category celebrating both flavour and functional health benefits, Feel Good drinks has a long term commitment to providing consumers with additional reasons to shop the category and driving sustainable incremental long-term growth. The recent shift towards at home occasions and an increase in tap water consumption, combined with guidance from Public Health England endorsing a daily supplement of vitamin D***, particularly for children, meant there was a genuine gap in the market for a new, healthier squash option. Developed closely in-line with consumer research, the new Blackberry, Raspberry and Blueberry variant performed extremely well during consumer testing and taps into two key sustainability and becoming a regenerative brand. In 2021 we completed the measurement of our carbon footprint through scopes 1 – 3, working with an independent expert we identified the brand emitted 203 tons of carbon in 2020*. Following our findings we offset 487 tons of carbon; more than twice our base line and we published our findings in the ‘Mission Possible’ report; whilst signing up to Net Zero target of 2030 with a 16 point carbon mitigation plan aligned to UN SDGs. flavour trends – Blackberry and Blueberry, both with super fruit Feel Good continues to give back through our 3% people and credentials. * Vitamin C&D is in the following Vimto squash products: Vimto Original, Vimto No Added Sugar, Vimto Orange, Strawberry & Lime, Vimto Mango, Strawberry & Pineapple and Winter Warmer. All flavours contain Vitamin D. **Nielsen Value Sales, Total Coverage, 12 months to 1 January 2022 ***Gov.co.uk - Nov 2020 planet fund and in 2021 we established a partnership with the charity Project Seagrass. Project Seagrass focuses on the active restoration of seagrass meadows across the UK and works with partners globally to conserve and protect these coastal marine ecosystems. In 2022 the relationship with Project Seagrass will be accelerating through the #youbuyweplant program; for every case of Feel Good we sell we will be planting a seagrass seed; supporting Project Seagrass’s work during the UN Decade of Ecosystem Restoration to which they are a supporting partner. Whilst we have a strong focus on the climate, we continue to support community programs and we were excited in 2021 to announce our partnership with The Wave in Bristol. Feel Good is a supporting partner for the Waves of change program; where we help young people realise the benefits of the water and blue health. This program will grow in 2022 and we are aiming to run courses across 12 weeks throughout the year. The Feel Good brand continues to encourage our consumers to recycle and we will continue to work with Every Can Counts at our events. *scope 3 measured carbon up to the point of manufacture and excludes warehousing and logistics 52 52 53 CHIEF FINANCIAL OFFICER’S REPORT Group Revenue Adjusted Operating Profit7 Operating (Loss)/Profit Adjusted Profit Before Tax (PBT)7 (Loss)/Profit Before Tax (PBT) Adjusted PBT Margin7 PBT Margin EBITDA8 Adjusted earnings per share (basic)7 (Loss)/Earnings Per Share (basic) Cash and Cash Equivalents Proposed Final Dividend Full Year Dividend Year ended 31 December 2021 £m Year ended 31 December 2020 £m 144.3 21.9 (17.6) 21.8 (17.7) 15.1% (12.2%) 23.7 46.15p (60.04p) 56.7 13.3p 23.1p 118.7 11.7 6.6 11.6 6.5 9.8% 5.5% 16.5 25.56p 13.14p 47.3 8.8p 36.8p Movement +21.6% +88.1% (366.8%) +87.9% (370.0%) +5.3ppts (17.7ppts) +44.1% +80.6% (556.9%) +19.8% +51.1% (37.2%) 1 Source: Nielsen, Total Coverage 12 months to 1 January 2022 2 Source: Nielsen, Total Coverage 12 months to 1 January 2022 vs. 12 months to 4 January 2020 3 Excluding the impact of the Group’s marketing investment in the Middle East 4 Free Cash Flow is the net increase in cash and cash equivalents before acquisition funding and dividends 5 Cash Conversion is the Free Cash Flow/ Adjusted Profit After Tax 6 Dividend cover is adjusted basic earnings per share divided by the dividend per share 7 Excluding Exceptional items 8 EBITDA is the statutory profit before tax, interest, depreciation, and amortisation 55 R E F I C F L O C I A N A F F I N H I E C RATTIGAN FINANCIAL HEADLINES • Vimto Brand value in the UK +6.3%1 • Continued strong cash performance, Free Cash Flow4 • Vimto squash outperformed the dilutes +£17.5m (2020: £17.6m) market by +10.4%1 • Cash Conversion5 at 103% (2020: 186%) • OoH impairment review completed and strategic review commenced • Exceptional charge of £39.5m • £36.2m of this attributable to non-cash impairment of OoH Goodwill • £0.6m operational review and restructuring (cumulative £0.9m) • £2.6m net liability relating to tax and interest on historic incentive schemes • Final dividend of 13.3p proposed, reflecting 2x cover6 • Vimto Brand value +13.2%2 since 2019 versus the wider soft drinks market of +11.0%2 • Vimto Brand continues to progress internationally, with revenue +21.0% (underlying3 +9.8%) • Africa and Rest of World significantly ahead • Underlying3 Middle East venues broadly flat (-2.0%) • Out of Home (OoH) continues to recover from the pandemic with revenues +77.4% • Revenues -31.4% versus 2019, with Q4 improving run rates versus pre-Omicron • Fixed costs still weighing heavily on overall financial performance • Gross margin improvement to 45.2% (2020: 41.8%) • Completion of Middle East marketing investment • Significant volume recovery in OoH 54 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T REVENUE 77.4% versus 2020, when the OoH route to market was costs associated with stock write off and under recovery In 2021 the Group ran its highly successful ‘Find Your Group revenues were £144.3m, an increase of 21.6% compared to 2020 and, encouragingly, broadly in line with 2019 levels. severely impacted by closures due to the pandemic seen in the previous year were not repeated (2021: Different’ marketing campaign, investing an additional and subsequent lockdowns. Revenues remain down by £0.4m cost, 2020: £2.1m cost) and benefited margin £1.9m. The campaign increased Vimto’s awareness with 31.4% versus 2019. We are encouraged that trade within by £1.7m versus the prior year. The Group continued new consumers, helping fuel the distribution expansion the hospitality industry has begun to show growth and to support its OoH customers with new for old stock seen in the year and which is planned to continue into Both the Still and Carbonates product categories have return towards pre-Covid-19 levels, with Q4 in particular following the reopening of outlets post the Q1 2021 2022. recovered strongly in the period. Revenue of Still seeing improving run rates pre the emergence of the lockdown. products increased by 10.2% to £72.4m (2020: £65.7m), Omicron variant. However, the long-term impact of now ahead of 2019 (£71.7m). Revenue from Carbonated Covid-19 on the hospitality industry remains uncertain. products increased 35.8% to £71.9m (2020: 53.0m; 2019: As a result, and as previously announced, due to the £75.3m). The Group’s packaged routes to market delivered another year of strong growth both in the UK and internationally. ongoing challenges in the OoH market, the Board has carried out an impairment review into its OoH route to market and will recognise an impairment charge of £36.2m in the current year. In addition, the Board has DISTRIBUTION EXPENSES commenced a strategic review of the Group’s OoH route During the year, the Group was prepared for and able led to an additional £2.3m charge in the year. Reinstatement of the Group’s Bonus and LTIP schemes to mitigate a large proportion of raw material and contract manufacturing inflation. However, in Q4 2021 significant inflationary pressures were experienced and are expected to continue through 2022. Restructuring through 2020 meant costs reduced by £1.2m in the period; this was partly offset by an increase in staff related travel and entertainment costs of £0.5m. The detailed exercise, commenced in 2020, to trace and verify assets held at the Group’s OoH customer outlets Distribution expenses within the Group are those completed in the period and fully utilised the provision associated with the UK packaged route to market and established in the prior period (£1.1m), resulting in a The impact of movements in foreign exchange rates on for OoH the distribution costs incurred from factory positive year on year comparison. Strict OoH capital revenue year-on-year was immaterial, at approximately to depot. Final leg distribution costs within OoH are allocation through 2020 and 2021 has meant the £0.6m adverse. reported within Administration costs. Group’s depreciation charge has now peaked and is UK packaged revenues improved by 8.5%, driven by to market. the performance of the Vimto & Levi Roots brands. There was a particularly strong performance within the Multiple and Discount Retailers, where revenues increased by 7.0% (2020: increase of 9.5%), as distribution points increased significantly over the GROSS PROFIT Distribution expenses totalled £9.1m (2020: £8.0m), level in 2021 versus 2020. pandemic period (2020 and 2021) and consumers increasingly chose Vimto. Revenues across Convenience, Delivered Wholesale and Cash and Carry recovered in 2021 following the severity of 2020’s lockdowns and increased by 11.3% (2020: decrease of 10.9%). Gross profit at £65.2m was £15.6m higher than 2020 (£49.6m) and 3.4 percentage points higher at 45.2% (2020: 41.8%). Of this increase, £9.4m resulted from the additional volumes delivered across all of the Group’s routes to market in the period. The current gross margin International revenues improved by 21.0%. percentage is more aligned to the years immediately Africa revenues improved 17.1% (2020: increase of 7.4%) with significant progress achieved across our preceding the pandemic (2019: 47.6%, 2018: 45.7%, 2017: 45.7%). African markets. Middle East revenues increased by As noted previously the Group’s Middle East marketing 33.6% (2020: decrease of 36.8%) with in-market volumes investment (reported as part of the Group’s revenue performing resiliently through Ramadan despite line) was, in agreement with our local partner, the challenges posed from the introduction of the completed during the year. £2.7m (2021: £0.8m investment in the region (reported as part of the Group’s improvement in gross profit was due to this change. revenue line) was, in agreement with our local partner, Customer price and mix has further contributed £1.8m completed during the year. Underlying revenues were to gross profit largely due to a return of revenues from broadly flat, decreasing by 2.0% versus 2020. Our rest the Group’s In-house and National OoH customers, of world markets continued the momentum of the prior effectively rebalancing the Group margins. period with revenue growth of 14.2% (2020: increase of 17.3%), with the US and Europe continuing to perform well, building on increased brand awareness generated within the Middle East and Africa. The Group was better placed in 2021 to plan for Covid-19 disruption, following the restructuring at our manufacturing site in Ross at the end of 2020 to more effectively align labour and volumes, combined with a Our OoH route to market continues to recover from consistent approach from the UK Government in terms the impact of the pandemic, with revenues up by of the easing of lockdown restrictions. Consequently, the Sweetened Beverage Tax in 2020. The Group’s marketing investment, 2020: £3.5m investment) of the year-on-year 13.7%. an increase of 14.4%, due to a combination of higher Revaluation of working capital balances across the year trading volumes across both of our UK routes to market resulted in foreign exchange losses. In comparison with and significant inflationary pressure experienced since prior year, the year on year impact is £0.4m adverse Q2 2021. In both routes to market, significant disruption (2021: net loss £0.2m, 2020: net gain £0.2m). was experienced through the summer and autumn months due to driver shortages. The Group entered EXCEPTIONAL COSTS into a new 5-year distribution arrangement in H2 2021 The Group has incurred £39.5m of exceptional costs that both builds significant additional capacity, given the during the year (2020: £5.1m), £38.9m of which is non- Group’s growth plans, and improves efficiency. cash. ADMINISTRATION EXPENSES The impact of Covid-19 has resulted in a difficult period Administration expenses, excluding exceptional items, totalled £34.1m (2020: £30.0m), an increase of £4.1m or of trade for OoH with many outlets being closed for a prolonged period of time. Whilst trade within the hospitality industry has begun to show growth and return towards pre-Covid-19 levels, it is doing so at Through the early pandemic, in 2020, management a slower pace than previously forecast and is only focused on reducing discretionary spend and realigning forecast to fully return to pre-pandemic levels through marketing investment. This resulted in significant cost 2022. Growth projections beyond 2022 are expected reductions; no bonuses or LTIPs were accrued and to be lower than previously estimated given that a labour costs (recruitment etc.) were managed closely. number of outlets are expected not to re-open and The Group also benefited in 2020 from deferred footfall is expected to be restricted for a prolonged consideration credits of £1.3m following completion period as staffing shortages and local restrictions/social of the Noisy Drink Company North West Limited and distancing is either mandated or occurs naturally, as was Adrian Mecklenburgh Limited acquisitions. experienced through 2021. 56 57 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T Whilst cost pressure is expected to be fully recovered of the final outcome, including the Group’s additional The Group invested £3.8m into Inventories during December 2021, the Group recognised a surplus on within OoH, the gross margin progression anticipated tax liability, interest costs and amounts expected to be the year to ensure security of customer service given its UK defined benefit scheme of £5.3m (2020: surplus previously is now not likely to be achieved without recovered. the volatility experienced in UK supply chains and to £0.3m). Due to the one-off nature of these charges, the Board is treating these items as exceptional costs and their impact has been removed in all adjusted measures protect stock levels, given changes planned through H1 2022 to the Group’s Dilutes contract manufacturing arrangements. With the agreement of Trustees, assets were transferred from equities to reduce the overall value at risk (£10m to £5m) during the year, securing the gains achieved throughout this report. The unwind of working capital experienced in 2020, that over the last 2 years. Funding, assets versus liabilities, is base, given the complexities of the current business OPERATING LOSS/ADJUSTED OPERATING PROFIT led to a cash conversion of 186% in that year, has largely now at 108% versus 83% at the time of the last valuation been protected. Cash conversion for the period was (April 2020). Adjusted operating profit at £21.9m was up £10.2m, 103%. The increase in Trade and other Receivables by an 88.1% increase on prior year (2020: £11.7m). An £7.0m (2020: decrease of £8.6m versus 2019) was more operating loss of £17.6m (2020: £6.6m profit) is after than offset by the Group’s increase in Trade and other transformational change in terms of how the Group services the trade and its wider customer base. Overhead cost estimates have been reviewed and increased to reflect both inflationary pressures and the cost estimates required to serve the customer environment and model. As a result, and in response to this challenging climate, during 2022 the Board has commenced a full strategic review into its OoH route to market in terms of customer and product mix, as well as ways to ensure appropriate margin and profitability going forward. operational supply chains. The project has progressed LOSS BEFORE TAX/ADJUSTED PROFIT BEFORE TAX senior management. charging exceptional items of £39.5m (2020: £5.1m charge) during the period. For reference adjusted operating profit in 2019 was £32.4m. As a result of the impairment review, management have recognised an impairment charge of £36.2m in the FINANCE COSTS current year, impairing the entire Goodwill held. Net finance costs of £0.1m (2020: £nil) were broadly in In Q4 2020 the Group commenced a review of its UK the line with the prior year. steadily with significant change already implemented, AND TAX RATE including entering into new 5-year contract manufacturing and distribution arrangements that both build significant additional capacity, given the Group’s growth plans, and improve efficiency. These specific projects are expected to be completed through 2022, with further foundation work progressing. As a result of this work, the Group has incurred a further £0.6m of costs (2020: £0.3m) in the year, with additional costs expected in 2022. Reported loss before tax was £17.7m (2020: £6.5m profit). Adjusted profit before tax increased by 87.9% to £21.8m (2020: £11.6m). The tax charge on adjusted profit before tax for the period of £4.8m (2020: £2.2m) represents an effective tax rate of 21.9% (2020: 18.7%). The increase in effective tax rate is largely due to deferred tax balances as at 31 December 2021 being recognised at 25%, following an amendment to the UK Corporation Tax rate being enacted during the year to In previous annual reports, the Group reported a increase the rate of tax from 19% to 25% with effect contingent liability in respect of historic contracts with from 1 April 2023. some of its senior management relating to incentive schemes which were designed to motivate, retain and For reference profit before tax in 2019 was £32.4m. engage those key employees. HMRC were of the view BALANCE SHEET AND CASH AND CASH EQUIVALENTS Payables, up by £7.1m (2020: decrease of £1.6m versus 2019) and Provisions increase of £4.2m. The Group recorded a net £2.6m liability (recorded within both Other Receivables and Provisions), David Rattigan representing the additional tax liability and interest Chief Financial Officer costs arising from the HMRC ruling into the treatment 1 March 2022 of the Group’s historic incentive schemes for some of its The Group again delivered a strong Free Cash Flow of £17.5m (2020: £17.6m). Cash and cash equivalents at the end of the year were £56.7m (2020: £47.3m). The Group has focused significantly on cash management throughout the pandemic years of 2020 and 2021, with particular emphasis on balancing the needs of its various stakeholders by working flexibly with shareholders, staff, customers, and the UK Government as events developed. At the same time, the Board has remained focused on ensuring the Group remains well positioned to deliver our long-term growth plans. EARNINGS PER SHARE On an adjusted basis, diluted earnings per share (EPS) that the arrangements should have been taxed as employment income, which the Group and its advisors had previously disputed. During the period a tribunal The Group has continued to focus on the strength of its was 46.09 pence (2020: 25.54p). Total adjusted EPS balance sheet during the period. increased to 46.15p pence (2020: 25.56p) with basic EPS was convened to consider the dispute of the Group’s As noted above, management have recognised an at -60.04 pence (2020: 13.14p). scheme as well as similar schemes operated by other impairment charge of £36.2m during the period, PENSIONS companies. Subsequent to the year end, the tribunal impairing the entire Goodwill held for the Group. found that the arrangements should have been taxed as employment income. Accordingly, as at 31 December 2021, the Group has recognised a net liability of £2.6m in relation to this ruling, being a reasonable estimate Strict OoH capital allocation through 2020 and 2021 has meant that the Group’s investment in property, plant and equipment reduced by £3.0m. The Group operates two employee benefit plans, a defined benefit plan that provides benefits based on final salary, which is now closed to new members, and a defined contribution group personal plan. At 31 58 59 RISK MANAGEMENT S T R A T E G I C R E P O R T Risk score movement key Increased Decreased No change PRINCIPAL RISKS AND UNCERTAINTIES The primary aim of the Group’s risk management working environment of both home and office based LOSS OF SYSTEM AVAILABILITY process is to assist the business in meeting its strategic working in order to limit interaction where possible, in Impact Mitigation Development and operational objectives. The Board identifies the principal risks while operational risks are identified via a bottom up approach and managed via functional risk registers. Both current risks line with government guidelines. Whilst the effects of the pandemic on the Group’s financial results are still ongoing, they are still not believed to be long-term and the Group’s strategy has remained unchanged. In common with many other Nichols operates several 2021 has seen the introduction of businesses, we are highly preventative systems and controls a new Data Centre via an external dependent on the availability of IT to reduce the risk. In addition, we partner. This data centre is hosted systems. The supply chain function have a robust disaster recovery offsite, in addition to what we and emerging risks are regularly reviewed using both The following represents the principal risks identified specifically is heavily reliant on plan, including the use of third-party already host on premise. The this top down and bottom up approach. The Board has by the Board. As previously stated, there are other risks technology. Accordingly, disruption professional providers to host our offsite environment hosts our created a Risk Management Team (RMT) which regularly affecting the business, but with a lower risk score and to IT systems could limit availability systems and data. meets to discuss, monitor and oversee the risks and impact. The Senior Leadership Team regularly reviews controls within the Group. Updates and progress from the output from the RMT and the Board has confidence the RMT are presented back to the Audit Committee that the current risk management process highlights regularly which monitors the effectiveness of the any relevant changes in both current and emerging risks process. that may be strategically important. of products and consequently impact sales. THREAT OF CYBER-ATTACK business critical applications in a dual mirrored set-up, which would restore systems within 2 hours in the event of a major outage. The effects of Covid-19 continued to impact the Out of Home route to market as we started the year in another lockdown. The key risks highlighted by the Board and the resultant measures put in place have continued throughout 2021. The Group has operated a hybrid Risk management key Short term Medium term Long term 60 Impact Mitigation Development The threat of cyber attack is an ever Nichols operates several The Group has launched multiple present and indeed, ever growing preventative systems and controls, upgrades to its cyber security risk in today’s global business including regular penetration throughout 2021. These include environment. Disruption to IT testing, to reduce the risk. In but are not limited to encryption systems could limit availability of addition, we have a robust disaster developments, multifactor products and consequently reduce recovery plan including the use of authentication and a default sales. third-party professional providers to deployment strategy of security host our systems and data. measures. The Group has also initiated a relationship with a third-party supplier providing 24/7 monitoring and reporting of all security events. SINGLE SOURCE OF SUPPLY OF VIMTO CONCENTRATE Impact Mitigation Development The unique Vimto flavour is created Working in partnership with our There has been ongoing work with across our supply base using the suppliers, we have established our strategic suppliers to review Vimto compound. Unavailability of alternate production capability at business continuity plans. the Vimto compound could impede more than one location to ensure our ability to produce and therefore continuity of supply. significantly impact the Group’s revenue. As a result, it is vital that we have surety of supply of the compound. 61 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T HEALTH & SAFETY INCIDENT Impact Mitigation Development The Group operates with multiple The Group is supported by Good progress and positive steps office locations, a large field-based an effective Health & Safety have been made in 2021, with a team and one manufacturing site. A Management system, comprising clear shift in our health and safety health and safety (H&S) incident, for policies and procedures to environment towards a proactive example in a warehouse or on the support all functions. The review safety culture. road, could result in serious injury and delivery of the health and or death or investigation by the safety management system is relevant authority. The evolving nature of the Covid-19 pandemic has presented further concerns from a H&S point of view. Management have monitored closely the developing nature of the pandemic including the increased supported by a cross functional committee, chaired by our Group H&S Manager. One of the key roles for the committee is to ensure the embedding and effectiveness of our policies and procedures across the Group. rates of transmissibility connected All operating functions within the with new variants of the virus. Nichols Group have been Covid-19 The Health & Safety team has continued to grow and as a result new Institution of Occupational Safety and Health (IOSH) ‘Managing safely’ leadership training is being rolled out across the business to all managers, which will continue throughout 2022. risk assessed, with each of our locations maintaining a certified ‘Covid Secure’ status throughout the pandemic, following Government guidelines. Covid awareness training is provided to all colleagues along with regular updates and briefing on process and procedures via a dedicated Covid Resources Hub. FAILURE TO SUCCESSFULLY EVOLVE OUR BRAND AND PRODUCT PORTFOLIO IN LINE WITH CHANGING CONSUMER NEEDS Impact Mitigation Development Consumer needs, preferences We continually track and monitor The Group has continued to and behaviours in relation to the market and category trends and innovate, extending our owned and purchase and consumption of soft consumer attitudes and behaviours licensed brands into new flavours drinks are constantly evolving. to ensure our continued relevance and consumption occasions in the Failure to anticipate and respond to consumers. This insight is the UK and Internationally. to these changes and adapt our foundation for our Portfolio, Brand portfolio through renovation and and Innovation Strategies. The Innovation Steering Committee has continued to govern and innovation, may result in a loss of volume or impede our ability to deliver growth. We have a rolling 3-year pipeline of oversee these key strategic projects Innovation and Renovation across including the addition of Slush both new and existing brands. Puppie to our brand and product portfolio. ADVERSE PUBLICITY IN RELATION TO THE SOFT DRINKS INDUSTRY, THE GROUP OR OUR BRANDS, LEADING TO REPUTATIONAL DAMAGE OR ADVERSE CONSUMER OR TRADE PERCEPTIONS Impact Mitigation Development Negative publicity affecting the The business adheres to core values The Group continues to regularly brand could reduce consumer of originality, authenticity and ethics monitor and track media coverage demand for the Group’s products. which result in a strong brand. relating to the Group and its Brands. In addition, the update of the Incident Management Process has reviewed and refined the actions we would take in the event of any adverse publicity. PRODUCT QUALITY ISSUES Impact Mitigation Development Inconsistent quality or The business demands strict quality The Group’s Incident Management contamination of any products controls from all manufacturers Process has been reviewed and LOSS OF A MAJOR CUSTOMER ACCOUNT OR KEY PARTNER Impact Mitigation Development across the Group’s portfolio reduce and suppliers of our materials refined throughout 2021. In Loss of a major customer or key We are dedicated to maintaining We have been reviewing our key demand within the market. This and finished goods. We seek addition, an unannounced product partner could limit availability of our long-term relationships with all partnerships to evolve contingency could have significant impact on the independent validation of these recall test was completed which products and consequently impact our customers and key partners. plans and business continuity Group’s financial performance and controls via Global Food Safety was deemed a real success and sales. However, the Group’s diverse planning. cause reputational damage. Initiative (GFSI) approved also used to further refine existing bodies such as the British Retail protocols. Consortium (BRC). We adopt a comprehensive risk- based monitoring approach to all suppliers and manufacturers across all routes to market, specifically designed to mitigate quality risks. income streams across markets and regions mean we are not overly reliant on any one customer or partner. We do not have any one customer that attributes more than 10% of total revenues and we are working to ensure that our key supplier partnerships are not limited to either one supplier or one site where possible. 62 63 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T INTRODUCTION OF NEW GOVERNMENT LEGISLATION Impact Mitigation Development The introduction of new The Group monitors its markets and A working group has been created Government legislation within either any potential changes in legislation. to develop a strategy to deal with the UK or overseas, could reduce Where such changes are identified, the implementation of the Scottish demand for the Group’s products the Group considers several DRS scheme in 2023. This team will and significantly impact the Group’s scenarios to manage the potential also monitor guidance regarding revenue. In addition, new legislation outcome, working with our key and prepare for the implementation could have an impact upon the cost partners as necessary. of an English scheme. of production and limit availability of our products. The introduction of the Deposit Return Scheme (DRS) is an example of Government legislation which will likely pose risk to the Group. FAILURE TO PROTECT THE GROUP’S INTELLECTUAL PROPERTY RIGHTS Impact Mitigation Development A failure to protect the Group’s The Group’s legal team employ a Monitoring of all trademark activity intellectual property rights across specialist legal firm to monitor and continues with the support of a the globe could negatively impact litigate in response to all trademark third party provider. the perception of the brand and infringements to protect its therefore revenues as a result. Intellectual property and Brands. INCREASING FOCUS ON CLIMATE CHANGE, ENVIRONMENTAL AND SOCIAL ISSUES RESULTING IN NEW GOVERNMENT LEGISLATION Impact Mitigation Development There is increasing focus on The business has developed The ongoing work within the ESG environmental and social issues in an Environmental, Social and ‘Happier Future’ strategy has seen Government. This may result in new Governance (ESG) strategy which 597 tonnes of sugar removed from legislation (eg. plastic packaging is focused on creating a Happier our products versus 2020 as the tax & High in Fat, Sugar, Salt (HFSS) Future for our planet by doing the Group works towards being HFSS foods legislation) being issued which right things in the right way. compliant in 2022. may in turn affect both customer and consumer preferences and the Group’s revenues. The remit of this strategy includes but is not limited to, Carbon consumption, sustainable packaging and health and well-being. David Rattigan Chief Financial Officer 1 March 2022 64 65 SECTION 172 STATEMENT S T R A T E G I C R E P O R T PROMOTING THE SUCCESS OF THE COMPANY ACTION: Under Section 172(1) of the Companies Act 2006, The Board is ultimately responsible for the direction, a director of a company must act in the way he or management, performance and long-term sustainable she considers, in good faith, would be most likely to success of the Company. It sets the Group’s strategy promote the success of the company for the benefit of and objectives taking into account the interests of all its its members as a whole, and in doing so have regard stakeholders. A good understanding of the Company’s (amongst other matters) to the following factors: stakeholders enables the Board to factor the potential • the likely consequences of any decision in the long-term impact of strategic decisions on each stakeholder group into Boardroom discussions. Consequently, Board resolutions are determined with reference to • the interests of the Company’s employees the Company’s key stakeholders: its employees, its • the need to foster the Company’s business relationships with suppliers, customers and others • the impact of the Company’s operations on the community and the environment customers, its suppliers, the community in which it operates, the environment and its shareholders. The following section of this Annual Report serves as an overview of how the Directors, with the support of the wider business, engage with our stakeholders and • the desirability of the Company maintaining a consider these range of factors in the course of their reputation for high standards of business conduct s172 duties. • the need to act fairly between members of the Company OOH IMPAIRMENT REVIEW – CASE STUDY BACKGROUND: The impact of COVID-19 has resulted in a difficult period slower pace than previously forecast and is only of trade for OoH with many outlets being closed for forecast to fully return to pre-pandemic levels through a prolonged period of time. Whilst trade within the 2022. hospitality industry has begun to show growth and return towards pre-COVID-19 levels, it is doing so at a The Board identified the need for a detailed analysis into this route to market. OUTCOME: Growth projections beyond 2022 are expected to be services the trade and its wider customer base. lower than previously estimated given that a number Overhead cost estimates have been reviewed and of outlets are expected not to reopen and footfall increased to reflect both inflationary pressures and is expected to be restricted for a prolonged period the cost estimates required to serve the customer as staffing shortages and local restrictions/social base, given the complexities of the current business distancing is either mandated or occurs naturally, as was environment and model. experienced through 2021. As a result the annual impairment review undertaken, Whilst cost pressure is expected to be fully recovered showed an impairment charge of £36.2m was required within OoH, the gross margin progression anticipated in the current year, the entire Goodwill held. This has previously is now not likely to be achieved without been reported in the 2021 financial statements. transformational change in terms of how the Group CONSIDERATION OF STAKEHOLDERS: The commencement of review into OoH is an affirmative The impairment gives visibility to the Group’s step by the Board into addressing the challenging shareholders around the ongoing future challenges conditions within the route to market, particularly driven within this route to market and ensures that the Group by the continuation of Covid-19. balance sheet is correctly reported. Goodwill and intangible assets with indefinite lives are Management have provided the Board with regular required to be tested at least annually for impairment updates throughout the year. FUTURE ACTIONS: or when there are indications that the assets might be impaired. For the Group, all of the Goodwill and Intangible assets reside within the OoH route to market (also the Cash Generating Unit “CGU” for testing purposes) As part of the assessment, management are required to determine the present value of the projected cashflows for the CGU, ensuring all key assumptions and estimates are reasonably updated and reflect expected performance and market changes. As a result and in response to this challenging climate, terms of customer and product mix as well as ways to during FY22 management has commenced a full ensure appropriate margin and appropriate profitability strategic review into its Out of Home route to market in going forward. KEY BOARD DECISIONS DURING THE YEAR The Board considers the following to be the principal for the Company and its stakeholders – to distinguish decisions and considerations it has made during these from the normal, ordinary course decision-making the year to 31 December 2021. The Board considers processes that the Board engages in. ‘Principal Decisions’ to be those decisions which entail significant long-term implications and consequences 66 67 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T KEY MATTERS: KEY MATTERS (CONTINUED): BOARD DECISION CONSIDERATIONS BOARD DECISION CONSIDERATIONS The Board considered the Dividend When considering the Final Dividend for the year ended 31 December 2021, As the COVID-19 pandemic The health, safety and well-being of our colleagues has continued to be our Policy in respect of the Final the Board reviewed the current Dividend Policy and its aims to reflect the continued throughout 2021, the primary concern in 2021. Dividend for the year ended 31 balance of shareholder needs and clear opportunities for growth that will December 2021. exist in the soft drinks market post the COVID-19 pandemic. As disclosed in the Nichols plc The move to broadly 2x brings the policy in line with historical averages 2020 Annual Report and Accounts, and was only established following discussions with a broad range of Board received regular updates on health and safety, in particular employee working arrangements and wellbeing. During the year, the Board has considered how our working arrangements have needed to adapt to the changing COVID-19 related restrictions in the UK. The Senior Leadership Team engaged with all employees throughout the pandemic both formally and informally via regular online team briefs and gathered feedback from employees regarding working arrangements and wellbeing through regular employee surveys. This feedback provided intelligence that enabled suitable adjustments to employee working arrangements to be implemented. The Board continually reviewed and discussed the approach to employee engagement in relation to COVID-19 safe practices. Consideration was given to effective employee communication on accountability and responsibility. the Board has adopted a dividend shareholders. policy with dividend cover at broadly 2x the adjusted earnings of the Group. In Q4 2020 the Group commenced In order to reach conclusion the Group ran a full tender process and scored a review of its UK operational responses according to a variety of criteria including the suppliers approach supply chains. The project has to business continuity. Post decision, all employees have been kept fully informed via team briefings. progressed steadily with significant change already implemented. The Board agreed entering into new 5-year contract manufacturing and distribution arrangements that both build significant additional capacity, given the Group’s growth plans, and improve efficiency. HOW THE GROUP ENGAGED WITH ITS KEY STAKEHOLDERS THROUGHOUT THE PANDEMIC EMPLOYEES The Board agreed that the The Board considered the authority obtained at the Company’s 2021 Annual Why we engage How we engaged during 2021 Company should conduct on- General Meeting (AGM) and agreed to conduct the share buybacks within market purchases under a share the limitations of the shareholder authority granted at the AGM. The Group’s long-term success is predicated During 2021, we have continued to engage with employees on the commitment of our employees to our through the COVID-19 initiatives implemented in 2020, to The Board discussed the proposed repurchase with a broad range of purpose and its demonstration of our values encourage a safe and healthy working environment and to shareholders prior to implementation. on a daily basis. To maintain our competitive support their well-being. Engagement initiatives during the year buyback programme to repurchase up to 453,486 ordinary shares of 10p each in the capital of the Company. The Board has taken all steps during the buyback process to avoid The purpose of the Buyback is to meet future obligations under the Company’s SAYE Option Scheme and/or Long Term Incentive Plan. market abuse under Article 5(1) of Regulation (EU) No 596/2014, by way of appointing an independent external party to execute and manage the purchases in addition to limiting the number of trades on any one day to 6,000 shares. advantage and meet the growing demands of included: the environment in which we operate, we need a workforce which is adaptive and whose skill base constantly evolves. • Ensuring a clear communication process to those individuals who continued to be on furlough during the first half of the year; • Through our well-being hub we provide employees with access We also value workers with long-term practical to a number of resources ranging from the Group Employee The Board considered and The Board considered the terms of the proposed SAYE Option Scheme experiences. We engage with our workforce to Assistance Programme (EAP), mental health and financial approved a grant under the grant, noting that it would be open to all eligible employees. ensure that we are fostering an environment support Company’s Save-As-You-Earn that they are happy to work in and that best Share Option Scheme (SAYE Option The Board carried out a communication process with all employees to supports their well-being. Scheme) ensure they both understood the scheme and that it was accessible to all. The Board re-evaluated and The Board balanced the need to continue focussing on overhead costs in approved the reinvestment back light of ongoing COVID-19 impacts with the wider Group need for increasing into marketing spend, following customer awareness by way of delayed marketing campaigns. the previous year of tight overhead control in response to the global The Board considered the gradual liftings of restrictions, opening of outlets pandemic. within OoH and improved financial performance of the Group when assessing the level of appropriate re-investment. 68 • Providing a safe working environment to allow those individuals who wish, or were able, to return to office working, to return safely; and • We have conducted 2 employee surveys to understand how our colleagues are feeling. The response rate for the second survey was 55% with 94% of respondents feeling supported by the business. The feedback from our employees on how they have been treated during 2021 has been very positive. 69 S T R A T E G I C R E P O R T S T R A T E G I C R E P O R T CUSTOMERS Why we engage How we engaged during 2021 Why we engage How we engaged during 2021 THE ENVIRONMENT Communications and relationships with our The Nichols plc commercial teams have continuous Nichols plc is aware of its environmental Nichols plc is an active member of the British Soft Drinks direct customers is a fundamental ingredient to communications with our direct customers, through face-to-face responsibilities and whilst all its current Association, which has reducing plastic waste high on its agenda. our success. meetings – this year we have relied heavily on virtual meetings - to understand their needs, share our plans, seek feedback, and nurture collaborative working practices. We engage with our end packaging is already recyclable, the Group is working with suppliers and customers to reduce plastic waste as part of its “Happier consumers through our on-going promotional and advertising Future” strategy. activity. During 2021, we have continued to work hard to understand the concerns of our customers and the impact of the Covid-19 pandemic on their business. In OoH, we assisted some of our valued customers by replacing out of date stock and extending credit terms. In turn, we sought support from our partners to enable us to do this. We are also signatories to the Soft Drinks Road Map – This scheme is run in collaboration with Defra and WRAP (Waste Reduction Action Plan) and sets out opportunities for business in the soft drinks supply chain to enhance the sustainability of the sector and help secure its future prosperity. We also employ the services of Valpak, ensuing our compliance with waste regulations and minimising the direct impact our business activities have on the external environment. SUPPLIERS Why we engage How we engaged during 2021 SHAREHOLDERS Why we engage How we engaged during 2021 Given Nichols’ outsourced manufacturing The Nichols plc supply chain team and senior management have Continued access to capital is of vital The Executive Directors meet our shareholders on a number of model, having long-term strategic partnerships regular review meetings with our supplier base. importance to the long-term success of occasions throughout the year and aim to have an open dialogue with our suppliers and co-packers is essential. Our suppliers are fundamental to the quality of our products and to ensuring that as a business, we meet the high standards of conduct that we set ourselves. During 2021, we have worked hard to understand the concerns and impact of the Covid-19 pandemic on our suppliers and the impact on their business. THE COMMUNITY Why we engage How we engaged during 2021 The Group cares about its community and Nichols plc supports a number of local charities including understands the importance of giving back to Warrington Youth Club which provides facilities, opportunities and help and inspire others to achieve, developing support to children in our community. positive relationships and maintaining a strong reputation within the community. The Group also supports Salford City FC and its Club Academy 92, to support aspiring football stars, developing their skills and education through a dedicated partnership. The Group’s commitment to providing opportunities for young people extends to our international business with our on-going support for the Waves For Change Initiative. During 2021 employees participated in the Group’s ‘Day to make a difference’ programme in which employees volunteered time our business. Through our engagement to receive feedback. activities, we strive to obtain investor buy-in into our strategic objectives and how we go about executing on them. We create value for our shareholders by generating strong and sustainable results that translate into dividends. We are seeking to promote an Investor roadshow meetings are undertaken at least twice a year following the preliminary and interim results announcements. During 2021, our AGM, was held as a ‘closed’ meeting in order to protect both our Shareholders and our employees. We hope that in 2022 we will again be able to invite our shareholders to investor base that is interested in a long-term participate in our AGM. This provides an opportunity for all Board holding in the Group. members to interact with our shareholders on a one to one basis and take questions as they arise. In addition, our Executive Directors specifically seek to meet retail investors at investor conferences and events and are available to meet shareholders on request and at a number of ad-hoc meetings, which are held during the year. Any shareholder feedback we receive via our meetings or otherwise is discussed at Board meetings. Shareholders also have the opportunity to field any questions that they may not want to be asked directly of the Board to the Non-Executive Directors. to give back to their local community. Examples of activities The Stratagic Report has been approved by the Board on 1 March 2022. undertaken include beach clean-ups, building community gardens, raising money through coffee mornings and decorating local community centres. 70 71 GOVERNANCE REPORT S T R A T E G I C R E P O R T 73 THE BOARD CORPORATE GOVERNANCE STATEMENT AUDIT COMMITTEE REPORT REMUNERATION COMMITTEE REPORT NOMINATION COMMITTEE REPORT DIRECTORS’ REPORT 74 76 84 88 96 98 02 72 OUR BOARD JAMES NICHOLS N O N - E X E C U T I V E D I R E C T O R MY BEVERAGE OF CHOICE “ NAS cordial. Original obviously! “ JOHN GITTINS I N D E P E N D E N T N O N - E X E C U T I V E D I R E C T O R MY BEVERAGE OF CHOICE “ Must be Vimto Original, oldest but still the best.“ JOHN NICHOLS N O N - E X E C U T I V E C H A I R M A N MY BEVERAGE OF CHOICE “Original Vimto is my favourite.“ ANDREW MILNE C H I E F E X E C U T I V E O F F I C E R MY BEVERAGE OF CHOICE “ No brainer – Vimto Fizzy Raspberry, Orange and Passionfruit (in a can!)“ DAVID RATTIGAN C H I E F F I N A N C I A L O F F I C E R MY BEVERAGE OF CHOICE “ Chilled Vimto Fizzy, Zero. No hesitation! “ HELEN KEAYS I N D E P E N D E N T N O N - E X E C U T I V E D I R E C T O R MY BEVERAGE OF CHOICE “ Vimto Cherry, Raspberry and Blackcurrant squash for me. Retains the original but a bit different too! “ G O V E R A N C E Helen Keays was appointed to the Board of Nichols as an Independent Non-Executive Director in September 2017 and is a member of the Remuneration Committee (which she chairs) as well as the Audit and Nomination Committees. After a career in Consumer Marketing at organisations such as GE Capital, Sears and Vodafone, Helen has developed significant experience working as a Non-Executive Director. She was previously Senior Independent Director at Dominos Pizza Group Plc , chair of the Remuneration Committee at Communisis Plc and has also previously held NED roles at Majestic Wines Plc, Skin Clinics and Chrysalis Plc. Helen is married with 2 teenage children who keep her busy watching their sports matches. In her spare time she likes to play tennis. Helen is also a Life Trustee of the Shakespeare Birthplace Trust. John Nichols is the grandson of the founder of the Company and inventor of Vimto, John Noel Nichols. John joined Nichols plc in 1971 and was appointed as Director in 1975. In 1986 John became the Group Managing Director, subsequently he became Executive Chairman of the Group and in 2007 he was appointed to Non-Executive Chairman. John has three grown up children and three grandchildren. John’s two sons both work in the Company. John enjoys spending time with his family and using his spare time sailing, playing golf and walking his dog on the beach in Wales. Andrew Milne joined Nichols as the Commercial Director for Vimto Soft Drinks in July 2013. He was appointed to the plc Board on 1st January 2016. Andrew also has extensive experience in the soft drinks industry having previously worked as Sales Director for the Northern region at Coca Cola Enterprises and prior to that, as Trading Director at GlaxoSmithKline. Andrew is married to Debbie and they have two children. Andrew is a keen Manchester United fan and spends what spare time he has either watching or playing sport. David Rattigan joined the Group as CFO at the end of February 2020 from McBride PLC where he had worked for the previous 6 years. David has previously held senior financial and general management positions at Cheshire Constabulary, Premier Foods PLC and United Biscuits Limited having started his career with ICI PLC. David is married to Debbie and has 4 sons. He enjoys Football, Sailing and generally being in the great outdoors as much as possible in his spare time. James Nichols is the great grandson of the founder of the Company and inventor of Vimto, John Noel Nichols; and son of the non-executive chairman, John Nichols. James has a commercial background and has worked in the business since 2005, undertaking a wide variety of sales and marketing roles. James is married to Anna, with 2 young children who take up much of their free time. James and his family enjoy travelling and spending time on, in or around the sea. John Gittins is a graduate of the London School of Economics and a chartered accountant. He was appointed to the Board of Nichols as an Independent Non-Executive Director in July 2015 and is a member of the Audit Committee (which he chairs) as well as the Remuneration and Nomination Committees. John is currently Audit Committee Chair of AIM listed Appreciate Group plc and has over 20 years’ experience of CFO roles in companies such as Begbies Traynor Group plc, Spring Group plc and Vertex Data Science Limited. John was previously an independent Non-Executive Director and the Audit Committee chair of Electricity North West Limited. 74 75 CORPORATE GOVERNANCE STATEMENT STRATEGY AND BUSINESS MODEL shareholders either via socially distanced meetings or Principle 1 of the Code requires that companies via video conference. establish a strategy and business model which promote Overall, feedback from our shareholders has continued long-term value for shareholders. The Board has to be very supportive during ,what was at the collective responsibility for setting the strategic aims outset, another uncertain year in terms of financial and objectives of the Group and our strategy, business performance due to Covid-19 restrictions. At the time model and purpose are set out in the Strategic Report of our 2020 Preliminary results presentation in March on pages 16 to 71. In the course of implementing our and our Interim results presentation in July, the Chief strategy, the Board takes into account the expectations Executive Officer and Chief Financial Officer attended of the Company’s stakeholders and wider social and investor meetings with a full range of shareholders. environmental responsibilities. Shareholders expressed understanding and support Our Section 172 statement, on pages 66 to 71, sets out how the Directors have fulfilled their duties and obligations to ensure the long-term success of the business. The Group’s Executive Directors and senior leadership team have a separate forum which meets throughout the year to focus on the delivery of the Group’s three year rolling strategic plan, which is set by the Board. The progress in delivering the strategy is reported up to the Board, which both challenges and supports the senior leadership team. The strategy is communicated to all staff members at corporate team briefs and separate team meetings. SHAREHOLDER RELATIONS Under Principle 2 of the Code, the Company must seek to understand and meet shareholder needs and expectations. The Group maintains communication for the developed dividend policy of broadly 50% of adjusted after tax earnings and encouraged further development of the strategic agenda to ensure the Group realised the growth opportunities, both organically and through acquisition, within the soft drinks market, whilst recognising the need to ensure shareholder value. Shareholders expressed support for the Group’s approach to Environmental and Social matters and welcomed the increased disclosure included in the 2020 Preliminary results presentation, 2020 annual report and Q3 trading update (2020, repeated in 2021). The Group discussed in detail the impact of Covid-19 on it’s Out of Home route to market and sought to understand more clearly how the Group would manage the period post the pandemic. The Group’s focus on balance sheet management was appreciated. with institutional shareholders through individual The Company had hoped to be able to welcome meetings with Executive Directors, particularly following shareholders in person to the 2021 AGM but due to the publication of the Group’s interim and full year results, UK Government guidelines in place at the time of the enabling the Executive Directors to have an open meeting, shareholders were unable to attend and the dialogue and receive feedback. In normal circumstances, AGM was held with the minimum attendance required we encourage our shareholders to attend our Annual to form a quorum. Shareholders were given the General Meetings (“AGMs”) and we give them the opportunity to send in questions prior to the AGM. We opportunity to pose questions to our Directors. The hope that we will be able to welcome all shareholders to Non-Executive Directors are also available to discuss any our 2022 AGM. matter stakeholders might wish to raise. OUR STAKEHOLDERS During 2021, we have maintained a regular dialogue with our shareholders. We have recognised the importance of ensuring that shareholders have been kept fully informed via public announcements and, to the extent possible, we have engaged with our Principle 3 of the Code requires that the Company takes into account wider stakeholder and social responsibilities and their implications for long-term success. We consider that our stakeholders are: our shareholders (as detailed above), our employees, our N A M A I R H E C T I V U C E X E - N O N NICHOLS CHAIRMAN’S INTRODUCTION practices and disclosures in order to ensure that they I have pleasure in introducing Nichols’ Corporate Governance Statement. support the strategic progress of the Group and the effective application of the principles going forward. Our governance structure provides a framework of Due to the ongoing Covid-19 pandemic, 2021 has clearly established roles, policies and procedures been another challenging year for the Company. designed to support our compliance with the QCA However, our commitment to supporting high Code, the AIM Rules and other legal, regulatory standards of corporate governance and our strong and compliance requirements which apply to governance framework have enabled the Board to act the Group. Further details of our corporate quickly and support the management team in making governance structure and activities are set out decisions and taking appropriate actions. on pages 76 to 83. In this section of the Annual Report, we set out our Further detail on our approach to governance framework and describe the work that we have corporate governance can also be found done during the year to ensure good corporate governance at www.nicholsplc.co.uk/Home/Aim26. throughout Nichols plc and its subsidiaries (‘the Group’). During 2021, we continued to follow the Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’). As an AIM listed company the Board considers that this is the most appropriate Code for the Company. COMPLIANCE WITH THE QCA CODE John Nichols The Board believes that it applies the ten principles of the QCA Non-Executive Chairman Code. We recognise the need to continue to develop our governance 1 March 2022 76 76 77 G O V E R N A N C E G O V E R N A N C E customers, our suppliers, our community and the OUR SUPPLIERS The Board has ultimate responsibility for the systems significant experience of plc directorships. environment. The Board recognises the importance of maintaining regular dialogue with our stakeholders to ensure, and receive and consider, their views. Given Nichols’ outsource manufacturing model, having long-term partnerships with our suppliers and co- packers is essential. The Nichols plc supply chain team of internal control and risk management. The Audit Committee reviews the Group’s internal controls and risk management processes on the Board’s behalf. In addition, James Nichols is a Non-Executive Director. James also holds the position of Commercial Controller at Vimto Out of Home and has worked within the Information on how the Company engages with its key and senior management have regular review meetings The Company’s Risk Management Team (‘RMT’) which business for 17 years. James was appointed as a stakeholders in provided on pages 66 to 71. with our supplier base. OUR EMPLOYEES OUR COMMUNITY was created in 2020, comprises members of the Senor representative of the Nichols Family pursuant to a Leadership Team (the ‘SLT’), the Risk Controller and Relationship Agreement dated 22 July 2020 between both a legal and H&S representative. The RMT has met the Company and the Nichols Family. The purpose Regular meetings take place with staff groups to share The Group cares about its community. In particular, regularly throughout 2021. The RMT reports to the SLT of the Relationship Agreement is to formalise Board Group strategy and seek feedback. The Company also Nichols plc supports Warrington Youth Club which who will provide an update to the Audit Committee representation for the Nichols Family whilst ensuring conducts a biennial staff engagement survey with provides facility opportunities and support to children three times a year. during the year. activities undertaken include beach clean-ups, building with its strategic suppliers during the year in order to current staff engagement measured at 55%. 94% of in our community. The Group also supports Salford respondents felt very well supported by the business. City FC and its Club Academy 92, to support aspiring (2020: 96%) Throughout the Covid-19 pandemic, the Senior Leadership Team presented quarterly to all employees via a live webinar to update them on key issues. Feedback from employees was extremely positive. football stars, developing their skills and education through a dedicated partnership. Our commitment to providing opportunities for young people extends to our international business, with our on-going support for the Waves For Change Initiative. Through its health and safety arrangements, the During the year employees participated in the Company has ensured it can provide a safe working Group’s ‘Day to make a difference’ programme, in environment to allow those individuals who wish, or which employees volunteered time to give back to were able, to return to office working, to do so safely their local community and charities. Examples of The well-being hub, which was launched in August 2020, provides employees with access to the Group Employee community gardens, raising money through coffee mornings and decorating local community centres. Assistance Programme (EAP), wellbeing news, mental THE ENVIRONMENT health resources and financial wellbeing support. Nichols plc is aware of its environmental responsibilities The year has proved again to be a challenging time but and whilst all its current packaging is already recyclable, the continued sprit and application of our people has the Company is working with suppliers and customers been outstanding. Further details of how we engaged with our workforce throughout 2021, including how we regularly communicated with our furloughed employees, is detailed in our section 172 Statement on page 69 of this report. OUR CUSTOMERS to reduce waste. As stated in our 2020 Annual Report, we have committed to increasing the proportion of recycled plastic which is already at 51% in our cordial range. Nichols plc is an active member of the British Soft Considerable focus was given to certain areas during the year, including cyber security and the financial impact that the Company is capable of carrying on, at all times, its business independently. Further details of the terms of the Relationship Agreement are provided on page 99. of producer fees associated with the introduction of the The Board also comprises of two Executive Directors, Deposit Return Scheme (DRS). Cyber security continues Andrew Milne and David Rattigan. to be a high risk and the Group has taken appropriate mitigating action. The introduction of the DRS poses a risk to the Group and as a result a dedicated working group has been established in order to prepare the Group for the initial roll out in Scotland during 2023. To mitigate against the risk of a single source supply of Vimto concentrate, the Group has been working closely establish multi-production capability. 2021 was the first full year of the co-sourcing relationship with EY for the provision of certain internal audit services. The Company’s management team has worked with EY to develop the Internal Audit Plan and agree areas of focus and review in 2021. The relationship provides further assurance to members of the Audit Committee and additional specialist resource to our in-house teams. Further details are included in the Audit Committee Report on page 87. The Board has delegated specific responsibilities to its three Board Committees: the Audit Committee, the Remuneration Committee and the Nomination Committee. The Audit Committee and Remuneration Committee are chaired by the two independent Non- Executive Directors. John Nichols chairs the Nomination Committee. Details of the operation of the Board Committees are set out in their respective reports. There were six Board meetings during the year. Details of Board and Committee meeting attendance of Directors during the year is set out below: N O I T A R E N U M E R 4/4 4/4 4/4 N O I T A N M O N I 2/2 2/2 2/2 T I D U A 4/4 4/4 4/4 DIRECTORS P J Nichols J A Gittins H M Keays J E Nichols A P Milne D T Rattigan D R A O B 6/6 6/6 6/6 6/6 6/6 6/6 Drinks association which has reducing plastic waste high A culture of challenge and continuous improvement on its agenda. The Board recognises that a long-term plan built is encouraged to ensure that risk management and controls evolve with the business. around sustainability is vital in ensuring our business is The Group’s significant risks and related mitigation/ Communications with our customers is a fundamental successful for many years to come. Our Happier Future control are disclosed in the Strategic Review on pages ingredient to our success. The Nichols plc team is an essential part of our strategy in this respect. Details have continuous communications with customers to of this programme are on pages 36 to 53 of this Annual understand their needs, share our plans and nurture Report. collaborative working practices. RISK MANAGEMENT 60 to 65. THE BOARD Principle 5 of the Code requires the maintenance of the Board as a well-functioning, balanced team led by the In addition, the Board held a Strategy Day in November 2021, to review its medium term strategic plans, at which all Directors were present. During the Covid-19 pandemic, we supported customers across our Out of Home trading division by replacing out of date stock and extending credit terms. In turn, we sought support from our partners to enable us to do this. 78 The fourth principle of the Code requires that the Company embeds effective risk management, considering both opportunities and threats, throughout the organisation. Chair. CHAIR’S ROLE The Board is led by our Non-Executive Chairman, John Our Non-Executive Chairman is John Nichols who is the Nichols and includes two independent Non-Executive grandson of our founder, John Noel Nichols. Directors, John Gittins and Helen Keays, who both have 79 G O V E R N A N C E G O V E R N A N C E As Chair, Mr Nichols’ primary responsibility is to will be discussed in advance with the Chairman, so that Group’s People and Sustainability Director and took the purpose and culture. The review concluded that, during effectively guide, develop and lead the Board and ensure their contribution can be included as part of the wider form of a questionnaire completed by each member the year, the Board and its Committees had performed that the Group’s corporate governance framework is Board discussion. All Directors attended every meeting of the Board. The questionnaire specifically included effectively. There were consistent improvements in appropriate, is communicated and is adopted across which they were eligible to attend matters relating to purpose and culture, ESG, Board and several areas, in particular the effectiveness of the the business activities. The Chairman is also responsible for ensuring the Board agenda concentrates on the key DIRECTORS’ SKILLS AND CAPABILITIES operational and financial issues affecting the delivery of Principle 6 of the Code requires that the Directors Nichols plc’s strategy. ensure that between them they have the necessary up- Whilst Mr Nichols’ shareholding and long association to-date experience, skills and capabilities. with the business means that he is not regarded as an The current Nichols plc Board has significant sector, Committee composition and stakeholder engagement. Board and Board and Group Performance. The evaluation also focussed on (i) the effectiveness of Progress was found to have been made on the actions the Board, (ii) the Board process including professional suggested in the 2020 review, as summarised in the development, (iii) strategy and leadership (iv) table below: stakeholders (v) Board and Group performance and (vi) independent Chairman, he is not involved in the day to financial and plc experience and the Executive Directors 2020 Performance Evaluation focus area Progress against action day operations of Nichols plc. Those responsibilities are have broad experience in the soft drinks industry and in managed by the Group’s CEO. manufacturing. INDEPENDENT NON-EXECUTIVE DIRECTORS David Rattigan who was appointed as Group Chief Mr John Gittins and Ms Helen Keays are considered by the Company as Independent Non-Executive Directors (NEDs). The NED role is to provide oversight and scrutiny of the performance of the Executive Directors. John and Helen chair the Audit and Remuneration Committees respectively. Financial Officer in 2020, was also appointed as Company Secretary on that date. Prism Cosec Limited is engaged to provide certain company secretarial services to the Company to support David in this role. This includes the attendance at, and minuting of, Board meetings to ensure that David is able to fully participate in these meetings as a Director and Group Chief Our NEDs are expected to devote such time as is Financial Officer. necessary for the proper performance of their duties and normally expect to spend a minimum of 12 days per annum on Company business, after the induction phase, normally including attendance at six board meetings, the AGM, committee meetings plus other events as required, including meetings with our employees and attendance at strategy meetings. However, the NEDs and the Company recognise that due to the nature With the support of our NOMAD and our advisors, the Board training and development needs are met. The Company’s in-house legal counsel presents to the Board regularly on legal and regulatory matters and a written report on governance developments is presented at each Board meeting by Prism Cosec, the Company’s corporate governance advisor. of their role, it is impossible to be specific about During 2021, the Nomination Committee undertook the required time commitment, and additional time an exercise to understand and identify the core skills, commitment required when the Company is undergoing experience and knowledge of the Directors. The a period of increased activity. In accordance with their exercise will assist the Board with its process for new appointment letter, our NEDs agree to commit sufficient appointments and with succession planning. More time to perform their duties. information can be found on page 97 of the Nomination EXECUTIVE DIRECTORS Committee Report. The Company has two Executive Directors: Andrew Milne and David Rattigan. The Executive Directors are charged with the delivery of the business model within Biographies on all Directors giving details of their experience and roles on the Board are shown on pages 74 to 75. Subject to Covid-19 guidelines, a number of the 2021 Due to UK Government guidelines and the uncertainty Board meetings will be held at different locations within relating to new Covid-19 variants, the Board was the Group to enable the Board to visit and experience unable to hold any of its meetings at different locations its diverse operations across the UK and engage more during the year. The Board has agreed that, subject fully with members of its workforce. to restrictions, it will hold two meetings at different locations within the Group every year. The role and responsibilities of the Remuneration The role and responsibilities of the Remuneration Committee are being reviewed, to ensure that it has an Committee were developed during the year, to include appropriately focussed approach, aligning its decision alignment with the Group’s financial calendar. The making with the Group’s financial calendar. A tender Committee considered the performance of its incentive process was undertaken to appoint advisers to this scheme at an appropriate time during the year. An Committee. advisor was appointed. The importance of shareholder feedback was fully Shareholder feedback is collected after each roadshow recognised by the Board and it was agreed that this and shared with the Board. should become a more formalised process. The table below illustrates the key areas of focus that resulted from the 2021 review and the actions that are proposed for 2022: 2021 Performance Evaluation focus area Proposed action Consideration of the composition of the Board in Current coverage of skills on the Board was reviewed. respect of diversity and skill set for future appointments. The Committee point of view was that the skills and experience were appropriate but would be reviewed further in 2022. Review of arrangements for the 2022 AGM, taking into AGM arrangements were reviewed, and appropriate the strategy set by the Board. BOARD PERFORMANCE AND EVALUATIONS account the effects of Covid-19 on meeting format and plans put into effect for April 2022. NEDs communicate with Executive Directors and senior Principle 7 of the Code requires that the Board and management between formal Board meetings. Committees evaluate their own performance based Directors are expected to attend all meetings of the Board, and of the Committees on which they sit, and to on clear and relevant objectives and seek continuous improvement. devote sufficient time to the Group’s affairs to enable A formal Board and Committee performance evaluation them to fulfil their duties as Directors. In the event was undertaken in November 2021, the outcome of that Directors are unable to attend a meeting, their which has been communicated to, and discussed by comments on papers to be considered at the meeting the Board. The performance evaluation was led by the 80 stakeholder engagement. Incorporation of more feedback on individual The appropriate process will be considered further in performance into the annual cycle and Board evaluation 2022. process. Raising awareness of ESG matters amongst employees, Individual ESG objectives will be in place for all ensuring alignment with purpose and culture. employees in 2022. 81 G O V E R N A N C E G O V E R N A N C E The Remuneration Committee evaluates Executive business strategy takes into account our wider Director performance, alongside remuneration and corporate, environmental and social responsibilities. reward. Further details are included in pages 36 to 53 of the The Audit Committee engages with the Company’s Strategic Report. external auditors biannually and holds discussions • Customers and Suppliers: We believe in building long- on the financial systems, procedures and efficacy of term partnerships with our customers and suppliers. management. • Community: We actively encourage our employees to A rigorous recruitment process is undertaken for new give something back to the wider community. candidates with the required experience and ability. The Company has adopted a Slavery and Human Any potential candidate for appointment as a Non- Trafficking Transparency Statement (the “Statement”) Executive Director will be required to disclose their other and has an anti-bribery policy. These set out the ethical commitments before being appointed as a Director. behaviour expected of our employees, with our Human Slavery Statement also including details of actions that we have taken to ensure that human slavery does not exist within Nichols or within our supply chain. We have a zero-tolerance approach for giving activities and format of Board meetings, during the year. The Board adapted to the changing UK Government guidelines to ensure meetings went ahead as smoothly as possible. The Board met six times during the year and was able to hold three meetings face to face. Nichols plc has robust internal controls, delegated authorities and authorisation processes. The controls are subject to review, both internally by individual teams within the Company and externally by the Company’s Company has appointed EY, as its co-sourcing partner to assist management in the development of a 3-year internal audit strategy. Further detail of the Group’s internal audit process is provided on page 87. The Board does not consider that the appointment of a Senior Independent Director is required at this time, although this will matter be kept under review. Shareholders have access to our Independent Non- Executive Directors, John Gittins, Chairman of the Directors prior to their proposal and election. When making new appointments, the Company will engage a market leading recruiter to provide a shortlist of suitable • Community: We actively encourage our employees to external audit provider, BDO LLP. In addition, the give something back to the wider community. or receiving of bribes or corrupt payments in any form. Audit Committee and Helen Keays, Chairman of the In addition, to ensure that any of our employees can raise any matters of genuine concern without fear of any action being taken against them, we also operate a whistleblowing policy. Further detail of the anti-bribery and whistleblowing policies, which are monitored by the Audit Committee, is provided in the Committee’s Report on page 87 of this Annual Report. In addition, these Remuneration Committee. This culture of challenge and continuous improvement is encouraged to ensure that controls evolve with the business. The Nichols plc website at www.nicholsplc.co.uk describes the roles and terms of reference for the policies and the Human Slavery Statement are available Committees. Succession planning for the Board is an ongoing topic of discussion and more information is provided on the Company’s approach to succession planning in the Nomination Committee Report on page 97. The Executive Directors and other members of the SLT attend talent calibration meetings to ensure that the business has clear development and succession plans in place. CORPORATE CULTURE Principle 8 of the Code requires that the Company promotes a corporate culture that is based on ethical values and behaviours. Nichols plc is very proud of its warm and inclusive culture. It is our people and how they go about their business that has been fundamental to the sustained success of the Group for many years. Our culture is reflected in our values and the overarching theme of our values is ‘doing the right thing’. Our Values: • People: We value and respect our employees. Their enthusiasm, ideas and hard work are fundamental on the Company’s website at www.nicholsplc.co.uk. As the Covid-19 pandemic continued in 2021, the most important objective of the Board was to protect the health and wellbeing of the Company’s employees, customers and suppliers. The Board has continued to ensure that the measures implemented at the start of the Covid-19 pandemic continue to be effective, ensuring a safe and healthy environment for employees. The Health and Safety Manager ensures that management is kept informed of arrangements in place. to the success of our Company and we recognise GOVERNANCE STRUCTURE that the education and development of our people is important. We believe that developing our talent at Nichols is essential to our success and we identify the development needs of all our employees through our appraisal programme. We support the Principle 9 of the Code requires that the Company maintains governance structures and processes that are fit for purpose and support good decision making by the Board. professional development of our employees. The challenges presented by the Covid-19 pandemic, • Sustainable Business: We value our commitment to having a sustainable business. Our sustainable including travel restrictions, social distancing and Covid- safe working environments has impacted the Board’s SHAREHOLDER AND STAKEHOLDER COMMUNICATIONS Principle 10 of the Code requires communication on how the Company is governed and performing by maintaining a dialogue with shareholders and other relevant stakeholders. Communications with shareholders are explained in Principle 2 above. In addition to the interim and full year investor roadshows, regular meetings are held with analysts, retail investor groups and prospective investors. The plc website contains information about the business activities, access to all RNS announcements and copies of the Annual Report and Accounts. The plc website also includes historical announcements, as well as the Annual Report and Accounts for more than the minimum five years. The work of the Audit, Remuneration and Nomination Committees is described on pages 84 to 99. 82 83 AUDIT COMMITTEE REPORT R O T C E E D I R T I V U C E X E - N O T N N E D N E P E D I N GITTINS The ongoing Covid-19 pandemic has continued to create a challenging environment for the Company during 2021. have recent and relevant financial experience. I am AREAS OF FOCUS IN THE REPORTING PERIOD a chartered accountant and currently chair the audit committee of Appreciate Group plc and previously of Electricity North West Limited. The Audit Committee met four times during 2021 and all Committee members were present at every meeting. DUTIES During the year, the Audit Committee discharged its responsibilities by: • approving the external auditor’s plan for the audit of the Group’s annual financial statements, including key audit matters, key risks, confirmation of auditor independence and terms of engagement, including The main duties of the Committee are set out in audit fees. its Terms of Reference which are available on the • reviewing the Group’s draft financial statements Company’s website (www.nicholsplc.co.uk/investors/ and interim results statements and reviewing the aim-rule-26/) and include the following: external auditor’s detailed reports thereon, including • To monitor the integrity of the financial statements of the Group, including its annual and half-yearly reports and accounts, announcements of preliminary results and any other formal announcement relating to its financial performance; consideration of key audit matters and risks. In each case, the Committee reviewed accounting papers prepared by management. In addition, notwithstanding the Group’s strong cash balance, the Committee reviewed the going concern assessment prepared by management, given the • To review the adequacy and effectiveness of the impact of the ongoing Covid-19 pandemic. Group’s internal financial controls and internal control and risk management systems; • meeting the external auditor twice, without management, to discuss matters relating to its remit Nevertheless the Committee, on behalf of the Board, • To consider and make recommendations to the and any issues arising from its work. continued to discharge its duties, including a focus on Board, to be put to shareholders for approval at the further development of the Group’s internal controls AGM, in relation to the appointment, re-appointment and risk management processes. or removal of the Company’s external auditor; • reviewing the performance of the external auditor. This assessment covered key areas including (i) the audit partner and team (ii) the audit approach and On behalf of the Committee, I am pleased to • To oversee the relationship with the external auditor execution (iii) the Committee and Company present the Audit Committee Report for the year including recommendations on their remuneration, interactions with the external auditor and (iv) the ended 31 December 2021, which includes actions approving their terms of engagement, assessing added value and insights that the external auditors taken by the Committee in this respect. annually their independence and objectivity and bring. The Committee’s findings were subsequently MEMBERSHIP OF THE AUDIT COMMITTEE assessing annually the qualifications, expertise and discussed with the external auditor. resources of the external auditor and the The Committee comprises three Non- effectiveness of the audit process; and • approving the plan of targeted internal reviews conducted by the finance team and, for the first time, Executive Directors: I continue to act as Committee Chair, with my colleagues John Nichols and Helen Keays. Helen and I are considered independent Directors. John Nichols is not considered independent as a result of his significant shareholding and previous executive role. The Board is satisfied that I, as Chair of the Committee, • To develop and implement a policy on the supply the internal audit plan proposed by EY, monitoring of non-audit services by the external auditor including the results of these reviews and the timely follow up prior approval of non-audit services by the committee of any control recommendations. These activities are and taking into account any relevant ethical guidance further explained in the Internal Audit section below. on the matter and thorough consideration of all appropriate matters. The Committee reviews its Terms of Reference annually and the Board approved the current Terms of Reference on 28 April 2021. • reviewing the Group’s risk management process, key risk register, risk dashboard and risk mitigations. 84 84 85 G O V E R N A N C E G O V E R N A N C E • receiving a presentation from management on FIXED ASSET VERIFICATION INTERNAL AUDIT ANTI-BRIBERY the development of the Company’s internal control framework, including the co-ordination of risk management through the Risk Management Team. • receiving a presentation from the Company’s legal department, providing an update on a compliance During the year management concluded on a Group In 2020, the Committee considered a proposal from The Group has in place an anti-bribery and anti- wide fixed asset verification process with the Committee management to enter into a co-sourcing relationship corruption policy which sets out its zero-tolerance regularly reviewing the work undertaken. with a third-party provider for the provision of certain position and provides information and guidance to NET LIABILITY FOR HISTORIC INCENTIVE SCHEMES internal audit services from 2021. This provides further those working for the Group on how to recognise and assurance to the Committee and additional specialist deal with bribery and corruption issues. The Committee review programme of the Company’s policies and The Committee has reviewed the findings of the HMRC resource. Following a formal tender process, EY were is satisfied that the policy is operating effectively. procedures in connection with a number of investigation into prior year incentive schemes and selected by the Committee as the preferred partner and regulatory matters, including anti-bribery and anti- believe that the net liability recorded within the financial appointed to carry out the role. and reported to the Board. The significant matters and discussed with the Committee, together with the EY attended three Committee meetings during the year. considered by the Committee in respect of the year Group’s external auditors. money laundering. SIGNIFICANT ISSUES CONSIDERED IN RELATION TO statements represents a reasonable outcome for the Group’s additional tax liability and interest costs. THE FINANCIAL STATEMENTS GOING CONCERN STATUS As part of the monitoring of the integrity of the Reviews of the Group’s going concern status were financial statements, significant matters and accounting carried out by management at both the half and judgments identified by the finance team and the full-year period ends. Detailed papers setting out the external auditor are reviewed by the Committee relevant considerations were tabled by management ended 31 December 2021 are set out below: EXCEPTIONAL ITEMS The Committee reviewed the accounting treatment of the items listed in note 4 and concurred with management’s view that they are exceptional in size and nature in relation to the Group. IMPAIRMENT REVIEW The Committee reviewed accounting papers prepared by management in connection with annual impairment reviews. The Committee noted that severe but plausible risk scenarios had been identified; a robust risk assessment had been carried out; and the Group’s going concern statements remained appropriate when stress tested. Taking into account the Company’s balance sheet position, the Committee concurred with management’s view that the Group has adequate resources to continue in operational existence for the foreseeable future this Annual Report). EXTERNAL AUDIT Out of Home, the Group’s only cash generating The Committee monitors the relationship with unit (CGU) with Goodwill and Intangible assets, has the external auditor, BDO, to ensure that auditor been significantly impacted by Covid-19, resulting in independence and objectivity are maintained. The a difficult period of trade with many outlets being external auditor is not engaged to perform any non- closed for a prolonged period of time. Based on this audit services, in line with the Group’s policy. Having John Gittins During the year, management have worked with EY to Chair of the Audit Committee develop an internal audit plan. This process included 1 March 2022 consideration of the Company’s principal risks, alongside sector specific risks and historical finance function internal review coverage. Areas of focus included supply and operational planning, employment and payroll controls and health and safety procedures. INTERNAL CONTROL The Board has overall responsibility 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, when asked, the Audit Committee, and are designed to provide reasonable, but not absolute, assurance against material misstatement or loss. develop its internal control and risk management environment. In addition to the development of internal audit as explained above, management committees with remits over risk management, treasury management and capital expenditure, which were established in 2020, now regularly report to the Committee. In addition, an internal controls self-assessment exercise was also carried out throughout the organisation for the first (being at least one year following the date of approval of During the year the Company has taken action to further trading performance and the CGU’s future prospects, reviewed and assessed the auditor’s independence time in 2021. management assessed the need for a goodwill and performance, the Committee recommended to the impairment of £36.2m, with which the Committee Board that a resolution to reappoint BDO as the Group’s WHISTLEBLOWING concurred. external auditor be proposed at the forthcoming AGM. The Group has in place a whistleblowing policy which Details of the impairment reviews performed are outlined in note 12 to the financial statements. BDO have been the Company’s external auditor for eight sets out the formal process by which an employee of the years. The Committee has adopted a policy of tendering Group may, in confidence, raise concerns about possible external audit services at least every ten years. improprieties in financial reporting or other matters. The Committee is satisfied that the policy is operating effectively. 86 87 REMUNERATION COMMITTEE REPORT R O T C E E D I R T I V U C E X E - N O KEAYS T N N E D N E P E D I N On behalf of the Remuneration Committee, I am pleased to present the Remuneration report for the year ended 31 December 2021. Executive Directors. The Remuneration Committee met No discretion was applied in determining the outcomes four times during the year and plans to meet at least of the Hybrid Incentive Plan and the LTIP, but the three times a year going forward. Committee noted that the performance conditions 2021 REMUNERATION OUTCOMES for the LTIP were set prior to the pandemic under significantly different market conditions to the point at This was the first year in which we operated our new which the conditions for the Hybrid Incentive Plan were Hybrid Incentive Plan. In the context of very strong set at the start of 2021. The Committee will continue to financial and personal performance during the year, set stretching targets for the Hybrid Incentive Plan in the the Committee determined that it was appropriate context of business plan and consensus forecasts. for awards to pay out at 99% of maximum overall. This incorporates maximum achievement against the REMUNERATION POLICY Group Strategic Objectives and 99% pay out against the The objective of the Group’s Remuneration Policy is Adjusted Profit Before Tax objective. Full details of the to attract, motivate and retain high quality individuals performance assessment against both the financial and who will contribute fully to the success of the Group. To key business objectives can be found on page 93. achieve this, the Group provides competitive salaries MEMBERS OF THE REMUNERATION COMMITTEE The Committee is comfortable that the outcome is and benefits to all employees. The Committee comprises the three Non-Executive Directors: I continue to act as Committee Chair, with my colleagues John Nichols and John Gittins. John Gittins and I are considered independent Directors. John Nichols is not considered independent as a result of his significant shareholding and previous executive role. PwC, our independent external consultants, also attend on a regular basis. DUTIES The Committee operates under the Group’s agreed Terms of Reference and is responsible for reviewing all senior executive appointments and determining the Group’s policy in respect of the terms of employment, including remuneration packages of in line with underlying corporate performance and The Committee has the following principles it follows shareholder experience over the year, with 10% growth when establishing Executive Director remuneration at in share price and a total dividend of 23.1p for the year. Nichols: The outturn is also in line with the experience of the wider workforce with maximum bonus being awarded. • Motivating • Simple In line with the Policy approved at the 2021 AGM, • Aligned to group strategy 60% of the award will be deferred into shares and the • Flexible remainder will be paid in cash. This deferred element of • Transparent the award, which is intended to align Executive Directors’ • Fair remuneration with shareholder value in the longer term, vests 3 years after the start of the performance period (i.e. 2 years after the pay-out of the cash element). To ensure alignment with these principles, the Group operates a hybrid incentive plan which combines the previous individual bonus and long-term incentive plans In relation to the LTIP awards granted to Andrew into a single plan. This hybrid incentive plan assesses Milne in 2018, the Committee reviewed the earnings- both short and long-term performance in a combination related performance conditions after the year end and of cash and deferred shares. determined that performance for these awards was below the threshold levels. The awards have, therefore, lapsed. The table below summarises the key elements of the revised remuneration policy for Executive Directors. 88 88 89 G O V E R N A N C E G O V E R N A N C E Element and link to strategy Operation Maximum potential Value Performance conditions and assessment Element and link to strategy Operation Maximum potential Value Performance conditions and assessment BASE SALARY Supports the recruitment and Base salary reflects the size of the Increases to base salary are Not applicable, role and responsibilities, individual determined annually by the although individual performance (assessed annually) Committee considering: performance is retention of Executive and the skills and experience of the Directors, reflecting individual. their role, skills, and experience In setting appropriate salary levels, • Individual performance. considered when determining base • The scope of the role. salary increases. the Committee considers data for • Pay levels in comparable similar positions in comparable organisations; and organisations. The data is independently commissioned, and the Committee aims to position Executive Directors competitively within this reference group • Pay increases for other employees ALL-EMPLOYEE SHARE PLAN – SAVE AS YOU EARN (“SAYE”) The Company offers a SAYE Maximum permitted based Not applicable scheme for all employees. on HMRC limits from time The operation of these plans will be to time. To encourage equity at the discretion of the Committee, ownership across all and Executive Directors will be employees and create eligible to participate on the same a culture of ownership. basis as other employees. HYBRID INCENTIVE PLAN Supports the recruitment and retention of Executive A combination of financial and non- The maximum incentive For 2022 awards, financial measures and targets are which may be earned in performance set annually. Outcome levels will be any year under the Hybrid conditions will be determined based on performance Incentive Plan is 200% of weighted 70% towards against this scorecard. base salary. financial performance PENSION Generally, the Company Up to 9% of base salary Not applicable Supports recruitment contributes to a defined and retention of contribution pension scheme Executive Directors. for the Executive Directors. The contribution can instead be paid in cash (which is excluded from incentive calculations) if the Executive Director is likely to be affected by the limits for tax- approved pension saving. BENEFITS Executive Directors are entitled to The value of such benefits is Not applicable Supports recruitment the following benefits: not capped. and retention of Executive Directors • Life assurance; Directors. For Executive Directors, 60% of Supports a high performance culture awards will be deferred into shares. The deferred proportion of awards will pay out 3 years from the start Rewards performance of the performance period. The in the context of Committee retains discretion to achieving key goals, adjust the pay-out level of deferred and encourages incentives based on performance sustainable performance that supports the achievement of strategic goals. in the deferral period. The deferred element of the award will attract dividend equivalents for the period between assessment and pay-out. • Directors and Officers Liability Insurance • Private medical insurance; • Company car/car allowance and fuel The Committee may determine that Executive Directors should receive additional reasonable benefits if appropriate, considering typical market practice and practice throughout the company. and 30% towards Strategic Goals. The financial element of the performance conditions will act as an underpin on pay outs from the remainder of the award. 90 91 G O V E R N A N C E G O V E R N A N C E NON-EXECUTIVE DIRECTORS HYBRID INCENTIVE PLAN The Non-Executive Directors signed letters of appointment with the Group for the provision of Non- Executive Directors’ services, which may be terminated by either party giving three months’ written notice. The Non-Executive Directors’ fees are determined by the Board. ANNUAL REPORT ON REMUNERATION IN 2021 The following table summarises the total gross remuneration of the Directors who served during the year to 31 December 2021. Fixed remuneration Performance related – Hybrid Incentive Plan Salary and fees £’000 Benefits in kind4 £’000 Pension5 £’000 Executive Directors A P Milne D T Rattigan M J Millard1 T J Croston2 Non-Executive Directors P J Nichols J Nichols3 H M Keays J A Gittins 325 213 - - 101 20 40 40 18 15 - - 1 - - - 29 13 - - - - - - Cash £’000 259 170 - - - - - - Deferred shares6 £’000 Total 2021 £’000 Total 2020 £’000 - - - - - - 20 40 40 9 40 40 202 191 1,891 1,203 1 MJ Millard stepped down from the Board as Group CEO as of 31 December 2020. 2 TJ Croston stepped down from the Board as Group CFO as of 2 March 2020. 3 The fee disclosed above relating to J Nichols is that for his Non-Executive Director duties as a Representative Director pursuant to the Relationship Agreement that exists between Nichols PLC and the Nichols family. Separately, J Nichols is also a Commercial Controller within the Vimto Out of Home business. 4 Benefits consist of the provision of a company car (or cash equivalent) and fuel, private healthcare. 5 Pension may be paid as a cash sum in lieu of. 6 Vesting of awards will be 3 years from the start of the performance period of 1 January 2021. For the 2021 financial year, the maximum bonus opportunity for the Executive Directors was 200% of base salary. 70% of the award was based upon financial performance and 30% was based on performance against Group Strategic Objectives. Of the award achieved, 60% has been deferred into shares to be paid out 3 years from the start of the performance period. The remaining 40% awarded is to be paid in cash. Performance Targets Target2 £m Payout Maximum £m Payout Actual Performance Actual Payout 18.9 70% 21.9 100% 21.8 99% Group Adjusted Profit Before Tax1 1 Excluding exceptional items 2 Group compiled market consensus, March/April 2021 post Q1 lockdown, following release of 2020 preliminary results and confirmed at AGM trading update. 390 257 1,021 668 - - 286 205 475 46 The Group achieved a strong financial performance in the year with Adjusted Profit Before Tax (“Adjusted PBT) of £21.8m, up £10.2m (+88%) on the prior year result of £11.6m. The target financial performance set at the end of Q1 2021 following clarity on the UK Government’s planned roadmap out of lockdown. Based upon financial planning at that time, Executive Directors would be able to earn 1,689 1,012 70% of maximum bonus with Adjusted PBT of £18.9m (+£7.3m versus prior year). This target represented the Group compiled market consensus for full year performance in existence at that time. An achievement of Adjusted PBT £21.9m represented a stretch target for the Group and would result in a maximum payout of 100%. 102 102 maximum bonus, acknowledging the strong Group performance in the period, significantly above external Based on actual performance, both the Chief Executive Officer and Chief Financial Officer achieved 99% of the expectations at that time. Personal element outcomes (30% of award) Both Executive Directors were set three personal objectives to be measured as a whole, weighted at a maximum of 30% as follows: 1. Happier Future objectives 2. Operational change objectives 3. Out of Home initial review relating to year 1 of our relating to year 1 of Strategic 3 year programme Change Programme Undertaking a review of the Out of Home route to market in terms Shaping the Group’s ESG agenda Review of UK packaged supply of the Group’s return on capital and year 1 delivery, focusing chain focussing on delivering employed metrics. This work has on scope 1 and scope 2 2025 Strategic Supply partnerships, outlined the key areas of focus commitments in the areas of enabling significant capacity for the Strategic Change climate action, packaging, expansion and efficiency Programme to be delivered healthier options and community improvements, optimising through 2022/2023. support. our outbound supply chain and advancing the Group’s internal Sales and Operational Planning process. Based on the strong performance of both Executive Directors during the year, the Committee have determined that the maximum potential 30% award in respect of their personal objectives was achieved. 92 93 G O V E R N A N C E G O V E R N A N C E OUTSTANDING SHARE AWARDS The table below sets out details of all outstanding share awards in respect of current Executive Directors: In 2022, the Hybrid Incentive Plan will be assessed against financial performance (Adjusted Profit Before Tax) and Group Strategic Objectives. Threshold performance under the profit target will act as an underpin on the remainder of the award. The bonus outcome will range from zero at a threshold performance, up to 100% for a stretch performance. The maximum bonus opportunity for the Executive Directors will be 200% of base salary with 70% of the award being based upon financial performance and 30% was based on for performance against Group Strategic Objectives. On achievement of the award 60% will be deferred into shares to be paid out 3 years from the start of the performance period with the remaining 40% being awarded paid in cash. The performance targets are not disclosed prospectively as they are considered to be commercially sensitive. Details of performance against the targets and the resulting awards earned will be disclosed retrospectively at the end of the performance period. ATTENDANCE AT REMUNERATION COMMITTEE MEETINGS There were 4 Remuneration Committee meetings held during the year. The following table sets out individual attendance by members: NON-EXECUTIVE DIRECTORS MEETINGS ATTENDED H M Keays P J Nichols J A Gittins CONCLUSION 4 4 4 On behalf of the Committee, I hope this report gives you a clear view of how we have implemented the policy in 2021 and our plans for 2022. The Committee hopes that shareholders are able to support the 2021 Annual Remuneration Report at the forthcoming AGM. Helen Keays Chair of the Remuneration Committee 1 March 2022 Award Grant date Vesting date Recipient Exercise price Number of shares out- standing Number of shares lapsed 2019 LTIP award 1 May 2019 1 May 2022 Andrew Milne £0 12,828 2020 SAYE 15 April 2020 15 April 2023 Andrew Milne 15 April 2020 15 April 2023 David Rattigan 2020 shareholding policy guideline - matching award 18 December 2020 18 December 2023 Andrew Milne David Rattigan £7.93 £7.93 £0 £0 1,513 2,269 9,668 7,734 2021 SAYE 15 April 2021 15 April 2024 Andrew Milne £10.15 1,064 - - - - - - During the year, Andrew Milne exercised share awards in relation to the 2016 SAYE scheme (603 shares), the 2018 SAYE scheme (587 shares) and the 2017 LTIP (6,609 shares). The 2019 LTIP award granted to Andrew Milne didn’t vest, based on performance against the agreed targets between 1 January 2019 and 31 December 2021. David Rattigan was appointed to the role of CFO on 2 March 2020 and therefore was not granted a 2019 LTIP award. IMPLEMENTATION OF REMUNERATION POLICY IN 2022 The following table summarises Executive Director salaries, pension levels and incentive opportunities, and Non- Executive Director fees for the 2022 financial year. This table excludes benefits in kind which are referenced in the table above. Basic salary/ fee1 £’000 Pension2 £’000 Maximum incentive (200% of salary) £’000 Cash element Deferred element3 Executive Directors A P Milne D T Rattigan Non-Executive Directors P J Nichols J E Nichols H M Keays J A Gittins 325 214 101 20 40 40 29 17 - - - - 260 171 - - - - 390 257 - - - - 1 Salary many change upon review with changes enacted from 1 April 2022. 2 Pension may be paid as a cash sum in lieu of. 3 As per the policy, 60% of pay outs from the Hybrid Incentive Plan will be deferred into shares for a further 2 years. 94 95 NOMINATION COMMITTEE REPORT • Keep under review the Board’s structure, size and • Approving adoption of annual re-election of the composition, including diversity and the balance of Directors at the AGM, in line with best practice; and independent and non-independent Non-Executive Directors, and make recommendations to the Board • Succession Planning. with regard to any changes required. BOARD SKILLS ASSESSMENT • Ensure plans are in place for orderly succession to During the year, working with the Group’s People and Board and senior management positions, Sustainability Director, the Committee developed a and oversee the development of a diverse pipeline Board Skills Matrix and carried out a skills assessment for succession. • Keep under review the leadership needs of the organisation, both executive and non-executive, with a view to ensuring the continued ability of the organisation to compete effectively in the marketplace. • Be responsible for identifying and nominating for the approval of the Board, candidates to Board vacancies as and when they arise. • Before any appointment is made by the Board, evaluate the balance of skills, knowledge, experience and diversity on the Board. • Review annually the time required from Non- Executive Directors. of the Board of Directors. The purpose of the exercise was to agree and understand the key skills and areas of expertise required on the Board of the Company. The Committee agreed the requisite skills, experience and related descriptors and then carried out a self- assessment at the end of 2021 which will be discussed at Committee meetings in 2022. The Board Skills Matrix will assist the Committee when making new appointments to the Board and in its succession planning. BOARD PERFORMANCE EVALUATION PROCESS As described on page 81, a formal Board performance evaluation was undertaken in 2021. The evaluation was carried out by way of questionnaires. The review concluded that, during the year, the Board and • Make recommendations to the Board on the Committees have continued to perform effectively. re-election by Shareholders of directors under the annual re-election provisions of the QCA Code or SUCCESSION PLANNING the retirement by rotation provisions in the A session focusing on succession planning was held Company’s articles of association. in October 2021 focusing on the outputs from the The Committee reviews its Terms of Reference annually and were last reviewed in July 2021. ACTIVITIES DURING THE YEAR During the year, the Nomination Committee discharged its responsibilities by: • Reviewing the membership of the Board and Board Committees, including the skills and experience of current Directors and the development of a Board Skills Matrix; Group’s talent management process with particular focus on CEO and CFO succession, Senior Leadership Team recruitment and Diversity and Inclusion (D&I). Succession Planning is an ongoing item for consideration by the Board. John Nichols Non-Executive Chairman • Reviewing the Non-Executive Directors’ time 1 March 2022 commitment; N A M A I R H E C T I V U C E X E - N O N NICHOLS On behalf of the Committee, I am pleased to present our Nomination Committee Report. MEMBERSHIP OF THE NOMINATION COMMITTEE The Committee comprises three Non-Executive Directors: I act as Committee Chair, with my colleagues John Gittins and Helen Keays. John and Helen are considered independent Directors. I am not considered independent as a result of my significant shareholding and previous executive role. The Nomination Committee met twice in 2021 and all Committee members were present at every meeting. ROLE OF THE NOMINATION COMMITTEE The main duties of the Committee are set out in its Terms of Reference which are available on the Company’s website (www.nicholsplc.co.uk/ investors/aim-rule-26/) and include the following: 96 96 97 The Directors who have held office during the year ended 31 December 2021 and to the date of this report In accordance with the terms of the Relationship Agreement, so long as the Nichols Family retain (i) SHARE CAPITAL DIRECTORS’ REPORT Nichols plc (the “Company”) is a public limited company, general meeting to be held on 27 April 2022 (the ‘2022 registered in England and is listed on AIM of the London AGM’). Stock Exchange. The Directors present their report for the year ended 31 December 2021, in accordance with ARTICLES OF ASSOCIATION section 415 of the Companies Act 2006. The Corporate The rules governing the appointment and replacement Governance Statement set out on pages 76 to 83 forms of Directors are set out in the Company’s Articles of part of this report. As permitted by Paragraph 1A of Schedule 7 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 certain matters which are required to be disclosed in the Report of the Directors Association. The Articles of Association may be amended by a special resolution of the Company’s shareholders. A copy of the Articles of Association can be found on the Company’s website: Articles-of-Association.pdf (nicholsplc.co.uk) have been omitted as they are included in the Strategic DIRECTORS AND THEIR INTERESTS Report on pages 16 to 71. These matters relate to a full review of the performance of the Company and its subsidiaries (together the “Group”) for the year, current trading and future outlook. The statement by the Directors in performance of are as follows: EXECUTIVE DIRECTORS their statutory duties in accordance with section 172(1) Andrew Paul Milne Companies Act 2006 is provided on pages 66 to 71. David Thomas Rattigan PRINCIPAL ACTIVITIES NON-EXECUTIVE DIRECTORS Nichols plc is an international diversified soft drinks Peter John Nichols, Chairman business with sales in over 73 countries, selling products John Anthony Gittins in both the Still and Carbonate categories. FINANCIAL RESULTS AND DIVIDENDS Helen Margaret Keays James Edward Nichols The Group’s Loss Before Taxation from continuing The roles and biographies of the Directors in office as operations for the year ended 31 December 2021 at the date of this report are set out on pages 74 to amounted to £17.7m (2020: profit £6.5m). The Group’s 75. Details of their interests in ordinary shares of the adjusted Profit Before Taxation, excluding exceptional Company as at 31 December 2021 are shown in the items, was £21.8m (2020: £11.6m). The Directors will table below. recommend a dividend of 13.3p at the 2022 annual Summary of Director’s Interests in the Company Director P J Nichols A P Milne D T Rattigan J A Gittins H M Keays J E Nichols Shares held as at 1 January 2021 2021 Shares held as at movement 31 December 2021 2,000,000 1,665 - 1,280 - 835,476 - 10,781 1,659 - - - 2,000,000 12,446 1,659 1,280 - 835,476 Details of Directors’ remuneration, including pension arrangements, service agreements and Long-Term Incentive Plan Awards are provided in the Directors’ Remuneration Report on pages 88 to 95. 98 G O V E R A N C E RELATIONSHIP AGREEMENT On 22 July 2020, the Company entered into a Relationship Agreement with the Nichols Family. The Nichols Family consists of certain members of the immediate and extended family of the Company’s Management continuously consult with employees and keep them informed on matters of current interest and concern to the business. Further information regarding employment at Nichols is provided on pages 38 to 39 of the Strategic Report. founder John Noel Nichols. Members of the Nichols CUSTOMERS AND SUPPLIERS Family hold in aggregate an interest of approximately 35.8% in the Company’s issued share capital as at the year end. The purpose of the Relationship Agreement is to formalise Board representation for the Nichols Family Detail of how the Board has engaged with its customers and suppliers is included in the Strategic Report on pages 66 to 71. POLITICAL DONATIONS whilst also ensuring that the Company is capable of The Company does not make any political donations and carrying on, at all times, its business independently. does not incur any political expenditure. an aggregate interest of equal to or greater than 20 Details of the Company’s share capital, including per cent in the issued ordinary share capital of the changes during the year, are set out in note 28 to Company, they shall be entitled (but not required) the Financial Statements. As at 31 December 2021, to appoint one Non-Executive Director; and (ii) an the Company’s share capital consisted of 36,968,772 aggregate interest of equal to or greater than 30 Ordinary shares of ten pence each. per cent in the issued ordinary share capital of the Company, they shall be entitled (but not required) to appoint one further Non-Executive Director to the Board. Ordinary shareholders are entitled to receive notice of, and to attend and speak at, any general meeting of the Company. On a show of hands, every shareholder present in person or by proxy (or being a corporation In accordance with the terms of the Relationship represented by a duly authorised representative) shall Agreement John Nichols, the Chairman of the Company have one vote, and on a poll every shareholder who and James Nichols, Non-Executive Director are the is present in person or by proxy shall have one vote Family Representative Directors. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Business risks and uncertainties are included within the Risk Management section on pages 60 to 65 and financial risks are set out in note 22 to the financial statements. EMPLOYEES for every share of which he or she is the holder. The Notice of Annual General Meeting specifies deadlines for exercising voting rights and appointing a proxy or proxies. Other than the general provisions of the Articles of Association (and prevailing legislation), there are no specific restrictions on the size of a holding or on the transfer of the Ordinary shares. The Board believes that being permitted to allot shares Detail of how the Board has engaged with its employees within the limits set out in the resolution without the is included in the Strategic Report on pages 66 to 71. delay and expense of a general meeting gives the ability The Group’s policy is to recruit and promote on the basis of aptitude and ability without discrimination to take advantage of circumstances that may arise during the year. of any kind. Applications for employment by disabled AUTHORITY FOR THE COMPANY TO PURCHASE ITS people are always fully considered bearing in mind the OWN SHARES qualification and abilities of the applicants. In the event of employees becoming disabled, every effort is made to ensure their continued employment. Subject to authorisation by shareholder resolution, the Group may purchase its own shares in accordance with the Companies Act 2006. Any shares which have been bought back may be held as treasury shares or cancelled 99 G O V E R A N C E G O V E R A N C E immediately upon completion of the purchase. Report) Regulations 2018, we have prepared a INFORMATION TO THE INDEPENDENT AUDITORS • prepare the financial statements on the going At the Company’s AGM held on 28 April 2021, the Group was generally and unconditionally authorised by its shareholders to make market purchases (within the Streamlined Energy & Carbon Report (SECR) for the financial year of 2021. More information is provided on pages 48 to 51 of the Strategic Report. meaning of section 693 of the Companies Act 2006) of GOING CONCERN up to a maximum of 3,696,877 of its Ordinary shares. During 2021, the Company has repurchased 68,000 Ordinary shares under this authority, which is due to expire at the AGM to be held on 27 April 2022, and accordingly has an unexpired authority to purchase up to 3,628,877 Ordinary shares with a nominal value likely to affect its future development, performance and position are set out in the Strategic Report on pages 16 to 71. The financial position of the Group is described in the Financial Review on pages 54 to 59. The Group’s business activities, together with the factors auditor is unaware; and of £362,888. The Group announced its intention to In assessing the appropriateness of adopting the going information. conduct on-market purchases under a share buy-back concern basis in preparing the Annual Report and programme on 14 December 2021. The purpose of the financial statements, the Directors have considered the share buy-backs is to meet future obligations under current financial position of the Group, its principal risks Each of the Directors who are Directors at the time when this Directors’ Report is approved have confirmed that: • so far as each of the Directors is aware there is no relevant audit information of which the Company’s concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position • the Directors have taken all steps that they ought of the Company and enable them to ensure that the to have taken as Directors in order to make financial statements comply with the requirements of themselves aware of any relevant audit information the Companies Act 2006. They are also responsible and to establish that the auditors are aware of that for safeguarding the assets of the Company and hence RESOLUTION TO RE-APPOINT INDEPENDENT AUDITORS WEBSITE PUBLICATION for taking reasonable steps for the prevention and detection of fraud and other irregularities. the Company’s SAYE Option Scheme and/or Long Term and uncertainties and the potential impact of further In accordance with Section 489 of the Companies Act The Directors are responsible for ensuring the Annual Incentive Plan. Shares repurchased are held in Treasury. COVID restrictions. The review performed considers 2006, a resolution will be proposed at the 2022 AGM Report and the financial statements are made available The total number of shares held in Treasury as at 31 severe but plausible downside scenarios that could that BDO LLP be re-appointed auditors. on a website. Financial statements are published on December is 107,664. reasonably arise within the period. In exercising its authority in respect of the purchase and The estimated impacts of Covid-19 restrictions are cancellation of the Group’s shares, the Board takes as its primarily based around our Out of Home market and major criterion the effect of such purchases on future the potential for future lockdowns within the hospitality expected earnings per share. No purchase is made if industry. Our modelling has sensitised trading within the effect is likely to be deterioration in future expected this market to reflect varying degrees of lockdowns earnings per share growth. 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 (the ‘ESOT’) to enable shares to be bought in the market to satisfy the demand from option holders. As at 31 December 2021, with the most severe scenario assuming that some restrictions will persist throughout the whole of 2022. In addition to the further impacts of Covid-19, alternative scenarios, including the potential impact of key principal risks from a financial and operational perspective, have been modelled with the resulting implications considered. the ESOT held 4,889 Nichols plc Ordinary 10 pence In all cases, the business model remained robust. The shares (2020: 8,975). RESEARCH AND DEVELOPMENT Group’s diversified business model and strong balance sheet entering 2022, combined with its strong cash generation in 2021 all provide resilience against these The Group undertakes research and development factors and the other principal risks that the Group is activities in order to develop its range of new and exposed to. At the 31 December 2021 the Group had existing products. Expenditure during the year on cash and cash equivalents of £56.7m with no external research and development amounted to £0.3m (2020: bank borrowings. This equates to 87% of 2021 gross £0.1m). profit. ENVIRONMENT AND GREENHOUSE GAS EMISSIONS On the basis of these reviews, the Directors consider Environmental sustainability is a core priority for Nichols, which we have embedded within our “Happier Future” strategy, which outlines the ways the business is working with its partners and for its communities to make life taste better for everyone. In accordance with The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon 100 the Group has adequate resources to continue in operational existence for the foreseeable future (being at least one year following the date of approval of the Annual Report) and, accordingly, consider it appropriate to adopt the going concern basis in preparing the financial statements. DIRECTORS’ RESPONSIBILITIES STATEMENT the Company’s website in accordance with legislation in the United Kingdom governing the preparation The Directors are responsible for preparing the annual and dissemination of financial statements, which report and the financial statements in accordance with may vary from legislation in other jurisdictions. The 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 Group and maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Company financial statements in accordance with DIRECTORS’ INDEMNITY UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006. Under Company law the Directors must not approve the financial statements unless they are 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. satisfied that they give a true and fair view of the state ANNUAL GENERAL MEETING of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on AIM. The 2022 AGM of the Company will be held at Nichols plc, Laurel House, Woodlands Park, Ashton Road, Newton-le-Willows, Merseyside, WA12 0HH on 27 April 2022 at 11am. The notice convening the meeting, together with details of the business to be considered In preparing these financial statements, the Directors and explanatory notes for each resolution, is set out on are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; pages 158 to 162. Copies of the notice will be distributed to shareholders who have elected to receive hard copies of shareholder information. • state whether they have been prepared accordance with UK adopted international accounting standards in conformity with the requirements of the David Rattigan Secretary 1 March 2022 Companies Act 2006, subject to any material Laurel House, Woodlands Park, departures disclosed and explained in the financial Ashton Road, Newton-le-Willows, WA12 0HH. statements; Registered in England and Wales No. 00238303. 101 FINANCIAL STATEMENTS F I N A N C I A L S T A T E M E N T S 103 INDEPENDENT AUDITOR’S REPORT CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CASH FLOWS PARENT COMPANY STATEMENT OF CASH FLOWS STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS UNAUDITED FIVE YEAR SUMMARY NOTICE OF ANNUAL GENERAL MEETING GENERAL NOTES FINANCIAL CALENDAR 104 112 112 113 114 115 116 118 158 159 161 161 03 102 INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS BASIS FOR OPINION OF NICHOLS PLC F I N A N C I A L S T A T E M E N T S • We reviewed the going concern disclosures, and Company’s ability to continue as a going concern for a We conducted our audit in accordance with assessed their consistency with the Director’s period of at least twelve months from when the financial OPINION ON THE FINANCIAL STATEMENTS International Standards on Auditing (UK) (ISAs forecasts. statements are authorised for issue. In our opinion: (UK)) and applicable law. Our responsibilities under those standards are further described in the • the financial statements give a true and fair view of Auditor’s responsibilities for the audit of the financial the state of the Group’s and of the Parent Company’s statements section of our report. We believe that the affairs as at 31 December 2021 and of the audit evidence we have obtained is sufficient and Group’s loss for the year then ended; appropriate to provide a basis for our opinion. • the Group financial statements have been properly INDEPENDENCE prepared in accordance with UK adopted international accounting standards; We remain independent of the Group and the Parent Company in accordance with the ethical requirements • the Parent Company financial statements have been that are relevant to our audit of the financial statements Based on the work we have performed, we have not Our responsibilities and the responsibilities of the identified any material uncertainties relating to events Directors with respect to going concern are described in or conditions that, individually or collectively, may the relevant sections of this report. cast significant doubt on the Group and the Parent OVERVIEW Coverage 100% (2020: 124%) of Group loss before tax (2020: Group profit before tax) 100% (2020: 98%) of Group revenue 99% (2020: 98%) of Group total assets properly prepared in accordance with UK adopted in the UK, including the FRC’s Ethical Standard as applied Key audit matters 2021 2020 CONCLUSIONS RELATING TO GOING CONCERN In auditing the financial statements, we have concluded Materiality Group financial statements as a whole Brand Support Arrangements Goodwill and Intangible Asset Impairment international accounting standards and as applied to listed entities, and we have fulfilled our other ethical in accordance with the provisions of the Companies responsibilities in accordance with these requirements. Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. that the Directors’ use of the going concern basis of accounting in the preparation of the financial We have audited the financial statements of Nichols plc statements is appropriate. Our evaluation of the (the ‘Parent Company’) and its subsidiaries (the ‘Group’) Directors’ assessment of the Group and the Parent for the year ended 31 December 2021 which comprise ability to continue to adopt the going concern basis of the consolidated income statement, the consolidated accounting included: statement of comprehensive income, the group and parent company statement of financial position, the consolidated and parent company statement of cash flows, the group and parent company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. • Obtaining the Directors’ assessment of the going concern status of the Group and the Parent Company which included forecasts and stress-testing covering a period of 12 months from the date of sign off of the financial statements; The financial reporting framework that has been applied • Considering the appropriateness and accuracy of in their preparation is applicable law and UK adopted these forecasts and robustly challenging their inputs international accounting standards and, as regards the using our knowledge of the business, the sector and Parent Company financial statements, as applied in wider commentary available from competitors and accordance with the provisions of the Companies Act peers; and 2006. 104 • Challenging the Directors’ assumptions and judgements made with regards to stress-testing of forecasts, re-performing sensitivities on the Directors’ base case and stressed case scenarios, considering the likelihood of these occurring and understanding the mitigating actions management would take under these scenarios £1.0m (2020: £1.2m) based on 5% of loss before tax after adjusting for exceptional items (2020: 3 year average basis utilising 5% of profit before tax, after adjusting for exceptional items) AN OVERVIEW OF THE SCOPE OF OUR AUDIT Our Group audit was scoped by obtaining an significant components. Full scope audits on these understanding of the Group and its environment, components were performed by the Group engagement including the Group’s system of internal control, and team. The remaining components are dormant and therefore were considered non-significant to the Group. assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. The Group manages its operations from two principal locations in the UK and has common financial systems, processes and controls covering all significant components. The audit of all significant components was performed by the group audit team. Our Group audit scope focused on the Group’s trading entities, being Vimto Out of Home Limited and the Parent Company which were considered to be the 105 F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S KEY AUDIT MATTERS Key audit matters are those matters that, in our allocation of resources in the audit, and directing the professional judgement, were of most significance in efforts of the engagement team. These matters were consider there to be a risk of fraud within this area and Key observations: our audit of the financial statements of the current addressed in the context of our audit of the financial period and include the most significant assessed statements as a whole, and in forming our opinion risks of material misstatement (whether or not due to thereon, and we do not provide a separate opinion on fraud) that we identified, including those which had the these matters. greatest effect on: the overall audit strategy, the therefore consider brand support arrangements to be a key audit matter. The fraud risk has been identified due to the fact that management can potentially manipulate profits by changing accounting estimates and judgements. Following the completion of our work, we consider the estimates and judgements applied by management in this area to be appropriate, and brand support arrangements have been calculated appropriately and classified in accordance with accounting standards. KEY AUDIT MATTER Brand Support Arrangements (accounting policy in note 2) HOW WE ADDRESSED THE KEY AUDIT MATTER IN THE AUDIT Consistent with industry practice, the Group incurs We undertook the following audit procedures in significant costs or rebates to customers in the support relation to brand support arrangements: and development of the group’s brands. These include promotional discounts, long term discounts, rebates and account development funds. The classification of these costs within the income statement is dependent upon the type of arrangement with the customer. As the majority of these costs and rebates are recognised as a deduction to revenue we consider there to be a significant risk concerning the appropriate application of accounting standards, particularly in respect of the Group’s measurement of the fair value of variable consideration in revenue transactions as well as the Group’s accounting for arrangements where cash consideration is given by the Group to the customer. • We tested the operating effectiveness of the relevant controls related to the approval of brand support arrangement agreements before inception and going live on the system; • We performed detailed testing over a sample of brand support arrangements charged to revenue and to costs in the year through verification to agreement and recalculation of the amounts recognised as a cost or rebate and the value of liability accrued. During this detailed testing, we reviewed the contractual terms within the brand support agreements and assessed whether the accounting policy for brand support arrangements complied with UK adopted international accounting Judgement is required in determining the period over which these costs and rebates should be recognised for these arrangements, requiring both a detailed understanding of the contractual arrangements themselves as well as complete and accurate source data. Estimates are based on past history and the level correct period and reviewed manual journal postings to revenue throughout the year for evidence of misstatement or manipulation; of recent sales made to each customer. • We selected a sample of post year end credit notes Whilst the majority of costs and rebates incurred on and checked that, where audit evidence Goodwill and Intangible Asset Impairment (note 12 Our audit procedures to address this risk included but and accounting policy in note 2) were not limited to: The Group has significant goodwill and other intangible assets including brands with indefinite lives. There is a risk that the underlying results of the separately • We evaluated and challenged management’s impairment models by: identified cash generating unit (CGUs) do not support • challenging management’s assessment of the the carrying value of indefinite life intangible assets Cash Generating Units (CGUs) being assessed for and goodwill. Management performed a full impairment assessment to determine if the carrying values of of the goodwill and indefinite life intangible assets is supported. An impairment with reference to IAS 36 and by comparing the identified CGUs to internal management reporting demonstrating how the cash flows are monitored; impairment charge of £36.2m was recognised in the • reviewing management’s workings for mechanical year relating to goodwill. The key assumptions applied by the Directors in the impairment reviews are: • Cash flow forecasts in the context of the going concern review, including assumptions on future growth, gross margin and overhead allocation; and accuracy and compliance with the requirements of relevant accounting standards • assessing the discount rate used within the impairment calculation and ensuring the rate applied lay within an acceptable range determined with the assistance of internal valuation specialists • checking historical financial information against budget to assess accuracy of the budgeting process • reviewing key estimates employed by the Directors within the cash flow forecasts to underlying information to assess reasonableness and achievability to understand the impact of reasonable changes in assumptions on the impairment models and conclusions headroom on the Vimto Out of Home CGU however the impact of the Covid-19 pandemic on the hospitality recovery at a much slower pace than previously forecast. sector lasted longer than originally expected, with • performing sensitivity analysis over key assumptions As described in note 2, the estimation of the fair value standards, had been appropriately applied and that • Discount rates. of variable consideration requires a level of estimation the classification of charges in the income statement and judgement to be applied by management. was appropriate; We considered this to be a key audit matter as the and preparation of cash flow forecasts value of the goodwill and indefinite life intangible • We performed detailed cut-off testing to verify that assets is supported by forecasts of future cash flows brand support arrangements were recorded in the of the business. Historically, there has been significant these arrangements have been settled at 31 December demonstrated that the credit note related to the As such there is inherent uncertainty within these 2021, management judgement is required in audit period, that these credit notes were forecasts arising from the changing industry and Key observations: determining the level of closing accrual required at the appropriately provided for in the financial economic conditions and thus significant management year end for promotions and brand support campaigns statements; and judgement and assumptions are required. that either span two financial years or where the costs or rebates have not been fully settled by the year end date. • We reviewed the year end liability for completeness and accuracy by reviewing arrangements in place for key customers and generating an expectation as to As a result of the level of estimation and judgements the year end liability. applied in this area, as well as management being in a position to be able to override controls, we We found the judgements and assumptions adopted by management in the assessment of the carrying value of goodwill, assets with indefinite lives and the impairment charge recognised in the year to be reasonable and appropriate in all material aspects. 106 107 Group financial statements Parent Company financial statements REPORTING THRESHOLD 2021 2020 2021 2020 We agreed with the Audit Committee that we would F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S OUR APPLICATION OF MATERIALITY COMPONENT MATERIALITY Strategic report and Directors’ report We apply the concept of materiality both in planning Importantly, misstatements below these levels will not Aside from the parent company whose materiality In our opinion, based on the work undertaken in the and performing our audit, and in evaluating the necessarily be evaluated as immaterial as we also take is detailed above, the Group has one significant course of the audit: effect of misstatements. We consider materiality to account of the nature of identified misstatements, and component, subsidiary entity Vimto Out of Home. We be the magnitude by which misstatements, including the particular circumstances of their occurrence, when set materiality for this component at 62% of Group omissions, could influence the economic decisions of evaluating their effect on the financial statements as a materiality based on its size in relation to the Group and reasonable users that are taken on the basis of the whole. financial statements. Based on our professional judgement, we determined In order to reduce to an appropriately low level the materiality for the financial statements as a whole and probability that any misstatements exceed materiality, performance materiality as follows: we use a lower materiality level, performance materiality, to determine the extent of testing needed. Materiality £1,000,000 £1,200,000 £620,000 £700,000 Basis for determining materiality Rationale for the benchmark applied 5% of profit before tax after adjusting for exceptional items. 3 year average basis utilising 5% of profit before tax after adjusting for exceptional items. 5% of profit before tax after adjusting for exceptional items. Adjusted profit before tax is determined to be a stable basis of assessing business performance and is considered to be the most significant determinant of performance for the users of the financial statements. Adjusted profit before tax is determined to be a stable basis of assessing business performance and is considered to be the most significant determinant of performance for the users of the financial statements. Adjusted profit before tax is determined to be a stable basis of assessing business performance and is considered to be the most significant determinant of performance for the users of the financial statements. 3 year average basis utilising 5% of profit before tax, after adjusting for exceptional items. Adjusted profit before tax is determined to be a stable basis of assessing business performance and is considered to be the most significant determinant of performance for the users of the financial statements. Performance materiality £750,000 £900,000 £465,000 £525,000 Basis for determining performance materiality 75% of materiality This was considered appropriate based on audit knowledge, and given the trade of the Group is contained in the parent company and one other component which minimises the risk of additional unadjusted misstatements across a number of components. 75% of materiality This was considered appropriate based on audit knowledge, and given the trade of the Group is contained in the parent company and one other component which minimises the risk of additional unadjusted misstatements across a number of components. 75% of materiality This was considered appropriate based on audit knowledge, and given the trade of the Group is contained in the parent company and one other component which minimises the risk of additional unadjusted misstatements across a number of components. 75% of materiality This was considered appropriate based on audit knowledge, and given the trade of the Group is contained in the parent company and one other component which minimises the risk of additional unadjusted misstatements across a number of components. • the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and our assessment of the risk of material misstatement of the component. Component materiality was £620,000. In the audit of the component, we further applied • the Strategic report and the Directors’ report have performance materiality levels of 75% of the component been prepared in accordance with applicable legal materiality to our testing to ensure that the risk of errors requirements. exceeding component materiality was appropriately mitigated. In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. report to them all individual audit differences in excess of £20,000 (2020: £24,000). We also agreed to report Matters on which we are required to report by differences below this threshold that, in our view, exception warranted reporting on qualitative grounds. OTHER INFORMATION The Directors are responsible for the other information. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: The other information comprises the information • adequate accounting records have not been kept by included in the annual report other than the financial the Parent Company, or returns adequate for our statements and our auditor’s report thereon. Our audit have not been received from branches opinion on the financial statements does not cover not visited by us; or the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, • the Parent Company financial statements are not in agreement with the accounting records and returns; or in doing so, consider whether the other information is • certain disclosures of Directors’ remuneration materially inconsistent with the financial statements specified by law are not made; or or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent • we have not received all the information and explanations we require for our audit. material misstatements, we are required to determine RESPONSIBILITIES OF DIRECTORS whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. OTHER COMPANIES ACT 2006 REPORTING Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going 108 109 F I N A N C I A L S T A T E M E N T S F I N A N C I A L S T A T E M E N T S concern and using the going concern basis of accounting enquiries through our review of Board minutes, unless the Directors either intend to liquidate the Group papers provided to the Audit Committee and any or the Parent Company or to cease operations, or have correspondence received from regulatory bodies. no realistic alternative but to do so. • We assessed the susceptibility of the financial AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE statements to material misstatement, including FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. fraud and evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls). Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures included but were not limited to testing manual journals, detailed testing of a sample of items for revenue cut off around the year end to ensure they were accounted for in the correct period and challenging the assumptions made by management in their significant accounting estimates in particular in relation to estimation of brand support arrangements, impairment of goodwill and intangible assets, which are Key audit matters and the Extent to which the audit was capable of detecting recognition and measurement of litigation and irregularities, including fraud contingent liabilities. Irregularities, including fraud, are instances of non- We also communicated relevant identified laws and compliance with laws and regulations. We design regulations and potential fraud risks to all engagement procedures in line with our responsibilities, outlined team members and remained alert to any indications above, to detect material misstatements in respect of fraud or non-compliance with laws and regulations of irregularities, including fraud. The extent to which throughout the audit. our procedures are capable of detecting irregularities, including fraud is detailed below: Our audit procedures were designed to respond to risks of material misstatement in the financial statements, • We obtained an understanding of the legal and recognising that the risk of not detecting a material regulatory frameworks that are applicable to misstatement due to fraud is higher than the risk of the Group and determined that the most significant not detecting one resulting from error, as fraud may frameworks which are directly relevant to specific involve deliberate concealment by, for example, forgery, assertions in the financial statements are those misrepresentations or through collusion. There are that relate to the reporting framework (UK adopted inherent limitations in the audit procedures performed international accounting standards and the and the further removed non-compliance with laws Companies Act 2006) and the relevant tax compliance and regulations is from the events and transactions regulations. • In addition, we concluded that there are certain significant laws and regulations which may have an effect on the determination of the amounts and disclosures in the financial statements being those laws and regulations relating to food safety, reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report. environmental, occupational health and safety and USE OF OUR REPORT data protection. This report is made solely to the Parent Company’s • We understood how the Group is complying with members, as a body, in accordance with Chapter 3 of those frameworks by making enquiries of Part 16 of the Companies Act 2006. Our audit work has management and those responsible for legal and been undertaken so that we might state to the Parent compliance procedures. We corroborated our 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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Stuart Wood (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor, Manchester, UK 1 March 2022 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). OUR ADVISORS AUDITORS BDO LLP, 3 Hardman Street, Spinningfields, Manchester, M3 3AT. BANKERS REGISTRARS Link Group, 10th Floor, Central Square, 29 Wellington Street, Leeds, LS1 4DL. The Royal Bank of Scotland PLC, REGISTERED OFFICE Laurel House, Woodlands Park, Ashton Road, Newton-le-Willows, WA12 0HH. REGISTERED NUMBER 00238303. 1 Spinningfields Square, Manchester, M3 3AP. SOLICITORS DLA Piper, 101 Barbirolli Square, Manchester, M2 3DL. STOCKBROKERS & NOMINATED ADVISOR Singer Capital Markets, West One Wellington Street, Leeds, LS1 1BA. 110 111 CONSOLIDATED INCOME STATEMENT-YEAR ENDED 31 DECEMBER 2021 STATEMENT OF FINANCIAL POSITION-YEAR ENDED 31 DECEMBER 2021 2021 2020 Before exceptional items £’000 Exceptional items (note 4) £’000 Before exceptional items £’000 Exceptional items (note 4) £’000 Total £’000 Total £’000 Continuing operations Notes 3 144,328 (79,153) 65,175 (9,129) - - - - 144,328 118,657 (79,153) (69,021) 65,175 (9,129) 49,636 (7,979) - 118,657 - - - (69,021) 49,636 (7,979) (34,124) (39,477) (73,601) (30,003) (5,074) (35,077) 5 6 6 8 21,922 (39,477) (17,555) 11,654 (5,074) 6,580 57 (158) - - 57 (158) 150 (190) - - 21,821 (39,477) (17,656) 11,614 (5,074) 150 (190) 6,540 (4,783) 271 (4,512) (2,174) 488 (1,686) 17,038 (39,206) (22,168) 9,440 (4,586) 4,854 Revenue Cost of sales Gross profit Distribution expenses Administrative expenses Operating profit/(loss) Finance income Finance expense Profit/(loss) before taxation Taxation Profit/(loss) for the year attributable to equity shareholders Earnings per share attributable to the ordinary equity shareholders Earnings/(loss) per share (basic) Earnings/(loss) per share (diluted) 10 10 46.15p 46.09p (60.04p) 25.56p (60.04p) 25.54p 13.14p 13.13p CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - YEAR ENDED 31 DECEMBER 2021 (Loss)/profit for the 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 15) Other comprehensive income/(expense) for the year 2021 £’000 (22,168) 4,083 (962) 3,121 Total comprehensive (expense)/income attributable to equity shareholders (19,047) 2020 £’000 4,854 (155) 32 (123) 4,731 Assets Non-current assets Property, plant and equipment Goodwill Investments Intangibles Deferred tax assets Pension surplus Total non-current assets Current assets Inventories Trade and other receivables Corporation tax recoverable Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Provisions Total current liabilities Non-current liabilities Other payables Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Share premium reserve Capital redemption reserve Other reserves Retained earnings Total equity Group 2021 £’000 2020 £’000 Parent 2021 £’000 2020 £’000 Notes 11 12 13 14 15 26 16 17 18 19 20 19 15 17 26 14 28 17,099 - - 20,126 36,244 6,327 7,344 - - - 16,566 16,566 5,546 6,206 - 5,276 27,921 9,706 36,124 743 56,674 103,247 - 347 62,923 5,921 29,143 671 47,294 83,029 122 - 5,276 28,291 6,070 40,407 756 38,767 86,000 131,168 145,952 114,291 28,791 4,242 33,033 1,954 3,155 5,109 38,142 93,026 3,697 3,255 1,209 676 84,189 93,026 21,669 - 21,669 2,922 1,485 4,407 26,076 119,876 3,697 3,255 1,209 394 111,321 119,876 50,100 4,242 54,342 1,367 1,138 2,505 56,847 57,444 3,697 3,255 1,209 1,451 47,832 57,444 156 145 347 24,558 3,526 37,655 742 30,629 72,552 97,110 39,876 - 39,876 2,040 - 2,040 41,916 55,194 3,697 3,255 1,209 1,169 45,864 55,194 The Parent Company reported a profit for the year ended 31 December 2021 of £6,932,000 (2020: £4,578,000). The financial statements on pages 112 to 157 were approved by the Board of Directors on 1 March 2022 and were signed on its behalf by: P J Nichols Chairman Registered number 00238303. 112 113 CONSOLIDATED STATEMENT OF CASH FLOWS - YEAR ENDED 31 DECEMBER 2021 PARENT COMPANY STATEMENT OF CASH FLOWS - YEAR ENDED 31 DECEMBER 2021 Notes 2021 £’000 2021 £’000 2020 £’000 2020 £’000 Parent Notes 2021 £’000 2021 £’000 2020 £’000 2020 £’000 (22,168) 4,854 Profit for the financial year 6,932 4,578 Cash flows from operating activities Group Cash flows from operating activities (Loss)/profit for the financial year Adjustments for: Depreciation and amortisation Impairment losses on goodwill and intangible assets Impairment losses on property, plant and equipment Loss on sale of property, plant and equipment Finance income Finance expense Taxation expense recognised in the income statement (Increase)/decrease in inventories (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Increase in provisions Change in pension obligations and employee benefits Fair value gain on derivative financial instruments Cash generated from operating activities Taxation 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 intangible assets Payment of contingent consideration Net cash used in investing activities Cash flows from financing activities Purchase of own shares Payment of lease liabilities Dividends paid 4,969 36,244 - 63 (57) 158 4,512 (3,785) (6,804) 7,429 4,242 (846) (178) 57 2 (1,239) - (67) (1,217) (1,189) (6,868) 4 11 6 6 20 22 21 24 9 4,971 3,820 1,016 71 (150) 190 1,686 2,440 9,220 (838) - (755) - 150 35 (2,701) (170) (880) 21,671 26,525 (5,017) 21,508 45,947 23,779 (3,878) 19,901 (1,247) (3,566) - (1,254) (10,338) Net cash used in financing activities (9,274) (11,592) Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 18 9,380 47,294 56,674 6,350 40,944 47,294 Adjustments for: Depreciation and amortisation Impairment losses on goodwill and intangible assets Loss on sale of property, plant and equipment Finance income Finance expense Taxation expense recognised in the income statement (Increase)/decrease in inventories (Increase)/decrease in trade and other receivables Increase in trade and other payables Increase in provisions Change in pension obligations and employee benefits Fair value gain on derivative financial instruments Cash generated from operating activities Taxation paid Net cash generated from operating activities Cash flows from investing activities Finance income Acquisition of property, plant and equipment Acquisition of intangible assets Net cash used in investing activities Cash flows from financing activities Purchase of own shares Payment of lease liabilities Dividends paid 1,585 - 46 (57) 126 2,228 (2,544) (4,949) 15,036 4,242 (846) (178) 57 (471) - 14,689 21,621 (3,920) 17,701 1,558 3,820 12 (150) 154 1,767 876 2,572 10,597 - (755) - 150 (576) (170) 20,451 25,029 (2,438) 22,591 (414) (596) (1,217) (1,064) (6,868) 24 9 - (1,122) (10,338) Net cash used in financing activities (9,149) (11,460) Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 18 8,138 30,629 38,767 10,535 20,094 30,629 114 115 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY-YEAR ENDED 31 DECEMBER 2021 COMPANY STATEMENT OF CHANGES IN EQUITY-YEAR ENDED 31 DECEMBER 2021 Group Parent Called up share capital £’000 Share premium reserve £’000 Capital redemption reserve £’000 Other reserves £’000 Retained earnings £’000 Total equity £’000 Called up share capital £’000 Share premium reserve £’000 Capital redemption reserve £’000 Other reserves £’000 Retained earnings £’000 Total equity £’000 At 1 January 2020 3,697 3,255 1,209 253 116,928 125,342 At 1 January 2020 3,697 3,255 1,209 1,028 51,747 60,936 Dividends Movement in ESOT Credit to equity for equity- settled share based payments Total transactions with owners Profit for the year Other comprehensive expense Total comprehensive income - - - - - - - - - - - - - - - - - - - - - - 24 117 - - 24 117 141 (10,338) (10,197) - - - 4,854 (123) 4,731 4,854 (123) 4,731 Movement in ESOT Credit to equity for equity- settled share based payments Total transactions with owners Profit for the year Other comprehensive expense Total comprehensive income - - - - - - - - - - - - - - - - - - - - - - 24 117 (10,338) (10,338) - - 24 117 141 (10,338) (10,197) - - - 4,578 (123) 4,455 4,578 (123) 4,455 (10,338) (10,338) Dividends At 1 January 2021 3,697 3,255 1,209 394 111,321 119,876 At 1 January 2021 3,697 3,255 1,209 1,169 45,864 55,194 Dividends Movement in ESOT Credit to equity for equity- settled share based payments Purchase of own shares Total transactions with owners Loss for the year Other comprehensive income Total comprehensive expense - - - - - - - - - - - - - - - - - - - - - - - - - 10 272 - 282 - - - (6,868) (6,868) Dividends - - 10 272 (1,217) (1,217) (8,085) (7,803) (22,168) (22,168) 3,121 3,121 (19,047) (19,047) Movement in ESOT Credit to equity for equity- settled share based payments Purchase of own shares Total transactions with owners Profit for the year Other comprehensive income Total comprehensive income - - - - - - - - - - - - - - - - - - - - - - - - - 10 272 - 282 - - - (6,868) (6,868) - - 10 272 (1,217) (1,217) (8,085) (7,803) 6,932 3,121 6,932 3,121 10,053 10,053 At 31 December 2021 3,697 3,255 1,209 676 84,189 93,026 At 31 December 2021 3,697 3,255 1,209 1,451 47,832 57,444 116 117 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 1. REPORTING ENTITY factors and the other principal risks that the Group is to mitigate against the impact of recent sugar levy Short term promotional discounts Nichols plc (the “Company”) is a company incorporated and domiciled in the United Kingdom, listed on the Alternative Investment Market. The address of the Company’s registered office is Laurel House, Woodlands cash and cash equivalents of £56.7m with no external bank borrowings. This equates to 87% of 2021 gross profit. The Directors have therefore made a judgement rebates across numerous customers and represent the that certain intangible assets relating to brands have cost to the Group of short-term deal mechanics. The indefinite lives. It is expected that these brands will be common deals typically include price reductions for Promotional discounts consist of many individual exposed to. At the 31 December 2021 the Group had announcements. Park, Ashton Road, Newton-le-Willows, WA12 0HH. The On the basis of these reviews, the Directors consider held and supported for an indefinite period of time and specific SKU’s during the promotional period. Amounts provided for these brand support accruals at the end of a period requires estimation and historical data and accumulated experience is used to estimate the related provision using the expected value amount method and in most instances the discount can be estimated using known facts with a high level of accuracy. Defined benefit obligations Accounting for retirement benefit schemes under IAS 19 requires an assessment of future benefits payable in accordance with actuarial assumptions. The assumptions include discount rate, inflation, pension and salary increases, expected return on scheme assets, mortality and other demographic assumptions (see note 26) which represent a key source of estimation uncertainty for the Group. Historic incentive scheme The liability and corresponding asset disclosed within note 20 and note 17 have been calculated based on specialist tax and legal advice and represent a reasonable estimate of the final outcome, including consolidated financial statements of the Company as the Group has adequate resources to continue in are expected to generate economic benefits. The Group at and for the year ended 31 December 2021 comprise operational existence for the foreseeable future (being is committed to supporting its brands and invests in the Company and its subsidiaries (together referred to at least one year following the date of approval of the significant consumer marketing promotional spend. as the “Group”). The Group is primarily engaged in the Annual Report) and, accordingly, consider it appropriate Should management have judged the intangible assets supply of soft drinks to the retail, wholesale, catering, to adopt the going concern basis in preparing the not to be of indefinite lives, an amortisation charge licensed and leisure industries. financial statements. would be made to the Consolidated Income Statement 2. ACCOUNTING POLICIES Use of adjusted measures Basis of preparation The consolidated and Parent Company financial statements have been prepared in accordance with UK adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006. The performance of the Group is assessed using adjusted measures that are not defined under IFRS and are therefore deemed non-GAAP measures. These measures include adjusted operating profit and with indefinite lives are impaired requires an estimation adjusted profit before tax, which both remove the of the value in use of the cash-generating units to impact of exceptional items. The Group also reports which the assets have been allocated. The value in use EBITDA which measures underlying performance having calculation requires management to estimate the future on an annual basis. Impairment of goodwill and intangible assets with indefinite lives Determining whether goodwill and intangible assets The accounting policies have been applied consistently by the Group, with those adopted in the previous year. removed the impact of interest, taxation, depreciation cash flows expected to arise from the cash-generating and amortisation from profit after tax. The Group also unit and a suitable discount rate in order to calculate calculates an adjusted earnings per share, based on the present value (see note 12). An income statement is not provided for the parent Company as permitted by Section 408 of the Companies Act 2006. Going concern In assessing the appropriateness of adopting the going concern basis in preparing the Annual Report and financial statements, the Directors have considered the current financial position of the Group, its principal risks and uncertainties and the potential impact of future Covid-19 restrictions. The review performed considers severe but plausible downside scenarios that could reasonably arise within the period. The estimated impacts of Covid-19 restrictions are primarily based around our Out of Home market and the potential for future lockdowns within the hospitality industry. Our modelling has sensitised trading within this market to reflect varying degrees of lockdowns with the most severe scenario assuming that some restrictions will persist throughout the whole of 2022. In addition to the further impacts of Covid-19, alternative scenarios, including the potential impact of key principal risks from a financial and operational perspective, have been modelled with the resulting implications considered. In all cases, the business model remained robust. The Group’s diversified business model and strong balance sheet entering 2022, combined with its strong cash generation in 2021, all provide resilience against these 118 adjusted profit after tax which again removes the impact of exceptional items. These adjusted measures are used to allow a better understanding of the underlying trading performance of the Group after taking account of items which due to their nature and size do not reflect the Group’s underlying performance. The measures are not comparable to similar measures used by other companies. The carrying amount of goodwill at the reporting date was £nil (2020: £36.2m). The carrying amount of brands with indefinite lives was £2.6m (2020: £2.6m). Customer list intangible assets have finite lives assigned. the Group’s additional tax liability, interest costs and Such assets are tested for impairment if an impairment amounts expected to be recovered. indicator exists. No impairment indicators were noted at 31 December 2021. Basis of consolidation and goodwill Use of estimates and judgements Carrying value of brand support accruals The Group financial statements consolidate those of the Company and all of its subsidiary undertakings 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. However, the nature of estimation means that actual outcomes 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 the most significant effect on the carrying amounts of assets and liabilities within the next financial year. Intangible assets with indefinite lives In the opinion of the Directors, the industry in which the Group operates is stable and there are relatively high barriers to entry. The brands acquired are well established in their respective sales channels and both have an important role to play in all of the Group’s routes to market. The brands are also well positioned The Group incurs significant costs in the support and drawn up to 31 December 2021. Subsidiaries are development of the Group’s brands. The majority of entities controlled by the Group. Control exists if all costs incurred on these arrangements have been settled three of the following elements are present: power over at 31 December 2021, however certain judgement is the investee, exposure to variable returns from the required in determining the level of closing accrual investee, and the ability of the investor to use its power required at a year end for promotions and brand to affect those variable returns. Control is reassessed support campaigns that either span two financial years whenever facts and circumstances indicate that there or where the costs have not been fully settled by the may be a change in any of these elements of control. year end date. Promotions and brand support campaigns comprise: Long term discounts and rebates 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 • Fixed, a defined amount over a period of time losses arising from intra-Group transactions are • % of net revenue, a percentage of net revenue, which eliminated in preparing the consolidated financial may have associated hurdle rates statements. Acquisitions of subsidiaries are dealt with by the acquisition method. The acquisition method involves the recognition at fair value of all identifiable assets and 119 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 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 liabilities at the acquisition date, regardless of whether accruals for claims yet to be received for discounts, Exceptional items provided they are enacted or substantively enacted at or not they were recorded in the financial statements of rebates and promotional costs. The Group has adopted an accounting policy that seeks the reporting date. Accruals are made for each individual promotion or to highlight significant exceptional items of income and A deferred tax asset is recognised to the extent that it rebate based on the specific terms and conditions of the expense within Group results for the year. Exceptional is probable that future taxable profits will be available customer agreement. Management makes estimates items are those considered to be of such significance, against which temporary differences can be utilised. on an ongoing basis to assess customer performance by either nature or scale, that separate disclosure Deferred tax assets are reviewed at each reporting and sales volume to calculate total amounts earned to is required in the financial statements in order to date and are reduced to the extent that it is no longer be recorded as deductions from revenue and in most provide a better understanding of the Group’s trading probable that the related tax benefit will be realised. the Group’s share of the identifiable net assets of the Segmental reporting acquired subsidiary at the date of acquisition. An operating segment is a component of the Group income statement in the year in which it is incurred Research expenditure is recognised in the consolidated instances the discount can be estimated using known facts with a high level of accuracy. performance. Research and Development Deferred tax assets and liabilities are offset where there is a legally enforceable right to set off current tax assets and liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity. In calculating goodwill, the fair value of consideration that engages in business activities from which it may has been calculated using the cash consideration plus earn revenues and incur expenses, including revenues the Directors’ best estimate of contingent consideration and expenses that relate to transactions with any of at the acquisition date. Revenue recognition the Group’s other components and for which discrete financial information is available. In line with market research and data made available by Nielsen, which Revenue from the sale of goods is based on the price documents industry performance in respect of Stills specified in the contract, being the invoice price less any and Carbonates, management identify both Stills and agreed discounts or rebates and excluding VAT and after Carbonates as operating segments where operating the deduction of certain promotional and brand support results are reviewed regularly by the Board (as chief costs invoiced by customers. operating decision maker) to make decisions about Revenue is recognised when control of the goods have been transferred to the buyer. Payment terms vary by resources to be allocated to the segment and assess its performance. Internal development expenditure is capitalised only if it meets the recognition criteria of IAS 38, Intangible Brands Assets. If the Group cannot distinguish the research Brands acquired in a business combination are phase of an internal project to create an intangible recognised at fair value at the acquisition date. Brands asset from the development phase, the entity treats acquired separately through a business combination are the expenditure for that project as if it were incurred assessed at the date of acquisition as to whether they in the research phase only. Where recognition criteria have an indefinite life. The assessment includes whether are met, intangible assets are capitalised and amortised the brand name will continue to trade and the expected on a straight-line basis over their useful economic lives. lifetime of the brand. All brands acquired to date have All intangible assets are tested for impairment when been assessed as having an indefinite life as they are there are indications that the carrying value may not expected to continue to contribute to the long-term be recoverable. Any impairment losses are recognised immediately in the consolidated income statement. future of the Group. The brands are reviewed annually for impairment, being carried at cost less accumulated customer but never exceed 12 months. The transaction Segment results that are reported to the Board include price is therefore not adjusted for the effects of a items directly attributable to a segment as well as those Taxation impairment charges. The fair value of a brand at the date of acquisition is based on the Relief from significant financing component. that can be allocated on a reasonable basis. Segment Income tax expense comprises consolidated current Royalties method, which is a valuation model based on reporting for the Group is made to the gross profit level and deferred tax. Income tax expense is recognised in discounted cash flows. Transfer of control varies depending on the individual term of the contract of sale. For sales in the UK, transfer of control occurs when the product is delivered to the customer. However, for some international shipments, transfer of control 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. With regard to discounts, rebates, promotional costs 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 and brand support costs, consideration is given as to Transactions in foreign currencies are translated into whether a distinct good or service has been received the respective functional currencies of Group entities from the goods sold to the customer. Where the at exchange rates at the date of transactions. Monetary payments do not result in the receipt of a distinct assets and liabilities denominated in foreign currencies good or service, they are treated as a deduction from at the reporting date are retranslated to the functional revenue. However when they do, they are recorded as an expense and recognised in administrative expenses. currency at the exchange rate at that date. Any exchange differences arising on the settlement of For discounts, rebates, promotional costs and brand monetary items or on translating monetary items at support costs, accumulated experience is used to rates different from those at which they were initially estimate and provide for these using the expected value recorded are recognised in the consolidated income the income statement except to the extent that it relates to items recognised in other comprehensive income/ Customer lists (expense), in which case it is recognised in consolidated Customer lists acquired in a business combination are other comprehensive income/ (expense). recognised at fair value at the acquisition date. They are Current tax amortised over the useful economic life identified at the date of acquisition with amortisation charges included Current tax is the expected tax payable on the taxable within administrative expenses. income for the year, using rates which are enacted or substantively enacted at the reporting date and any Reserves adjustment to tax payable in respect of previous years. Share capital represents the nominal value of equity Deferred tax shares. 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. 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. Deferred tax is not provided on the initial recognition Other reserves incorporate purchase of own shares, of goodwill, or on the initial recognition of an asset or movements in the Group’s ESOT and equity settled liability unless the related transaction is a business share-based payments in respect of Long-Term method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. The statement of financial position includes 120 statement in the period in which they arise. combination or affects tax or accounting profit. Deferred Incentive Plans. tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, Retained earnings represents retained earnings. 121 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 Dividends write down the cost less estimated residual value on investments that are readily convertible to known term. Other variable lease payments are expensed in Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s Financial property, plant and equipment over their estimated amounts of cash and which are subject to an the period to which they relate. useful lives. insignificant risk of changes in value. Subsequent to initial measurement lease liabilities Statements in the period in which the dividends are The estimated useful lives for the current and This Group holds derivative financial instruments in increase as a result of interest charged at a constant approved by the Company’s shareholders. In respect comparative periods are as follows: relation to foreign currency forward contracts. They are rate on the balance outstanding and are reduced of interim dividends these are recognised once paid. 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. All Plant, machinery, fixtures 3-10 years and fittings Buildings 50 years Material residual value estimates and useful economic property, plant and equipment is tested for impairment lives are updated at least annually. whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 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. 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 and intangible assets with indefinite lives are reviewed for impairment annually. Property, plant and equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Land is not depreciated. 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. Trade receivables are measured at amortised cost using the effective interest method, less any expected credit losses using the simplified approach contained within IFRS 9. Estimated irrecoverable amounts are based on historical experience and forward looking information, together with specific amounts that are not expected to be recovered. Individual amounts are written off when management deems them to be irrecoverable. The amount of expected credit losses are updated at each reporting date. Interest income is recognised by applying the effective interest rate, except for short- carried in the statement of financial position at fair value for lease payments made. Right-of-use assets are with changes in fair value recognised in the income statement. depreciated on a straight-line basis over the remaining term of the lease or over the remaining economic life of Financial liabilities The Group’s financial liabilities comprise trade and other payables and IFRS 16 lease liabilities. 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. Contingent consideration Contingent consideration represents the Group’s best estimate of the fair value of amounts payable based on the likelihood of future events occurring. Changes in fair value of contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which cannot exceed one year from the acquisition the asset if, rarely, this is judged to be shorter than the lease term. When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being depreciated over the remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss. When the Group renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification: date) about facts and circumstances that existed at the • if the renegotiation results in one or more additional acquisition date. Changes in the amount of contingent assets being leased for an amount commensurate consideration payable that results from events after the with the standalone price for the additional rights- acquisition date, such as meeting a revenue or profit of-use obtained, the modification is accounted for as target, are not measurement period adjustments and a separate lease in accordance with the above policy are, therefore, recognised in profit or loss. Leased assets All leases are accounted for by recognising a right-of-use asset and a lease liability except for: • Leases of low value assets; and • Leases with a duration of 12 months or less. • in all other cases where the renegotiation increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount • if the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial or full termination of the lease with any difference recognised in profit or loss. The lease liability is then further adjusted to ensure its carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the same amount. 123 Cost includes expenditures that are directly attributable term receivables when the recognition of interest would Lease liabilities are measured at the present value of the to the acquisition of the asset. be immaterial. The cost of replacing part of an item of property, plant Amounts owed by Group undertakings are stated after and equipment is recognised in the carrying amount any provision for expected credit loss in line with the of the item if it is probable that the future economic three stage model in IFRS 9. 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. For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise deposits with banks and bank and cash balances. Depreciation is calculated on a straight line basis to Cash equivalents are short-term, highly liquid 122 contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group’s incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 The Group sometimes negotiates break clauses in its approximating to the terms of the related pension Provisions and contingent liabilities • Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 - certain that the Group would not exercise its right Executive share award scheme for certain Directors and Finance costs property leases. On a case-by-case basis, the Group will liability. Service cost on the net defined benefit liability consider whether the absence of a break clause exposes is included in employee benefits expense. Net interest the Group to excessive risk. Typically factors considered income on the net defined benefit surplus is included in deciding to negotiate a break clause include: in finance income. Remeasurement of the DBO, • the length of the lease term; • the economic stability of the environment in which the property is located; and • whether the location represents a new area of comprising actuarial gains and losses and the return on scheme assets (excluding interest), are recognised in the statement of other comprehensive income in the year in which they arise. operations for the Group. Share-based payment transactions At 31 December 2021 the carrying amounts of lease The Group operates three equity-settled share-based liabilities are not reduced by the amount of payments payment schemes; a Save As You Earn (SAYE) scheme that would be avoided from exercising break clauses open to all employees; a Long-Term Incentive Plan because on both dates it was considered reasonably (LTIP) for certain Directors and senior executives and an to exercise any right to break the lease. Total lease senior executives. All schemes comprise the grant of payments of £1,079,000 (2020: £1,746,000) are options under the Group’s share option schemes. potentially avoidable were the Group to exercise break clauses at the earliest opportunity. The Group recognises an expense to the income statement representing the fair value of outstanding Post-employment benefit plans equity-settled share-based payment awards to The Group provides post-employment benefits through defined contribution and defined benefit plans. Defined contribution plan employees which have not vested as at 31 December 2021. Those fair values are charged to the income statement over the relevant vesting period adjusted to reflect The Group pays fixed contributions into independent actual and expected vesting levels. The Group calculates entities in relation to plans and insurances for individual the fair market value of the options as being based on employees. The Group has no legal or constructive the market value of a company’s shares at the date of obligations to pay contributions in addition to its fixed grant adjusted to reflect the fact that an employee is not contributions, which are recognised as an expense in entitled to receive dividends over the relevant holding the period that relevant employee services are received. period. 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 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. a long-term benefit fund as well as qualifying insurance It recognises the impact of revisions to original policies. The asset recognised in the statement of financial position for defined benefit plans is the fair value of plan assets at the reporting date less the present value of the defined benefit obligation (DBO). Management estimates the DBO annually with the assistance of independent actuaries. This is based on the standard rates of 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 124 estimates, if any, in the income statement, with a corresponding adjustment to equity. The proceeds received, net of any directly attributable transactions costs, are managed by the ESOT, therefore there is no impact on share capital and share premium when the options are exercised. Further disclosures in relation to the schemes above are provided in note 29. 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 Annual Improvements to IFRS Standards 2018-2020 • Amendments to IFRS 3 - References to Conceptual Framework outflow of economic benefits will be required to settle The following amendments are effective for the period the obligation. Provisions are determined by discounting beginning 1 January 2023: the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of • Amendments to IAS 1 and IFRS Practice Statement 2 - money and the risks specific to the liability. Disclosure of Accounting Policies Finance income • Amendments to IAS 8 - Definition of Accounting Estimates Finance income comprises interest income on funds • Amendments to IAS 12 - Deferred Tax Related to invested. Interest income is recognised as it accrues, using the effective interest method. Assets and Liabilities arising from a Single Transaction • • IFRS 17 Insurance Contracts (effective 1 January 2023) In June 2020, the IASB issued amendments to IFRS 17, including a deferral of its effective date to 1 Finance costs comprise of interest expenses on leases January 2023. and defined benefit pension obligations. Interest expenses are recognised as they accrue, using the effective interest method. Government grants 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. Government grants are recognised in profit or loss on a systematic basis over the periods in which the entity The Group does not expect any other standards issued, but not yet effective, to have a material impact on the recognises expenses for the related costs for which the Group. grants are intended to compensate. 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. As at 31 December 2021, the ESOT holds 4,889 shares in the Company (2020: 8,975 shares). Investments in subsidiaries Investments in subsidiaries are shown in the Parent Company statement of financial position at cost less any provision for impairment. Standards and interpretations in issue not yet adopted There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early. • Amendments to IAS 37 - Onerous Contracts – Cost of Fulfilling a Contract • Amendments to IAS 16 - Property, Plant and Equipment: Proceeds before Intended Use 125 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 3. SEGMENTAL INFORMATION a. Key operating segments The Board 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 Board considers the business from a product perspective and reviews the Group on the operating segments identified below. There has been no change to the segments during the year. Based on the nature of the products sold by the Group, the types of customers and methods of distribution, management consider reporting operating segments at the Still and Carbonate level to be reasonable, particularly in light of market research and industry data made available by Nielsen. Gross profit is the measure used to assess the performance of each operating segment. Still Carbonate Revenue Gross Profit 2021 £’000 72,393 71,935 2020 £’000 65,688 52,969 144,328 118,657 2021 £’000 37,980 27,195 65,175 2020 £’000 32,817 16,819 49,636 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 Board and consequently there is no reconciliation to profit before tax at a segmental level. The Group’s assets are managed centrally by the Board and consequently there is no reconciliation between the Group’s assets per the consolidated statement of financial position and the segment assets. Capital Expenditure IFRS 16 additions Depreciation Impairment losses on property, plant and equipment Amortisation Impairment losses on goodwill and intangible assets b. Reporting by geographic area Revenue by geographic destination Middle East Africa Rest of the World Total exports United Kingdom 2021 £’000 9,765 16,410 6,523 32,698 111,630 144,328 2021 % 6.8 11.4 4.5 22.7 77.3 100.0 2021 £’000 1,239 108 4,309 - 660 36,244 2020 £’000 7,309 14,010 5,712 27,031 91,626 118,657 2020 £’000 2,871 1,226 4,258 1,016 713 3,820 2020 % 6.2 11.8 4.8 22.8 77.2 100.0 Revenue from continuing operations arose principally from the provision of goods. The Group’s business segments operate in the Middle East, Africa, the Rest of the World and the United Kingdom. The Group’s Head Office operations are located in the United Kingdom. In presenting information on the basis of geographical areas, area revenue is based on the geographical location of customers and not on the legal entity in which the transaction occurred. No individual customer accounts for 10% or more of the Group’s revenue in either 2021 or 2020. Total assets The assets of the Group at 31 December 2021 and 31 December 2020 are located within the United Kingdom and Europe. Capital expenditure The capital expenditure of the Group for the years ended 31 December 2021 and 31 December 2020 was made within the United Kingdom and Europe. IFRS 16 additions The IFRS 16 additions of the Group for the years ended 31 December 2021 and 31 December 2020 were made within the United Kingdom and Europe. Depreciation The IFRS 16 additions of the Group for the years ended 31 December 2021 and 31 December 2020 were made within the United Kingdom and Europe. Amortisation The Group’s amortisation charges for the years ended 31 December 2021 and 31 December 2020 are against intangible assets retained within the United Kingdom and Europe. 4. EXCEPTIONAL ITEMS By virtue of their nature and size, there are a number of items which have been reported as exceptional items within administrative expenses. These items are as follows: Impairment of goodwill and intangible assets Review of UK packaged supply chain Historic incentive scheme Redundancy costs Restructuring costs 2021 exceptional items 2021 £’000 36,244 620 2,613 - - 2020 £’000 3,820 277 - 723 254 39,477 5,074 The Group has incurred £39.5m of exceptional costs during the year (2020: £5.1m), £38.9m of which is non-cash. Following the annual impairment review of the Group’s Out of Home Cash Generating Unit (CGU), the Group has incurred a non-cash impairment to Goodwill of £36.2m. Further detail is provided in note 12. In Q4 2020 the Group commenced a review of its UK operational supply chains. The project has progressed steadily with significant change already implemented, including entering into new 5-year contract manufacturing and distribution arrangements that both build significant additional capacity, given the Group’s growth plans, and improve efficiency. These specific projects are expected to be completed through 2022, with further foundation work progressing. As a result of this work, the Group has incurred a further £0.6m of costs (2020: £0.3m) in the year, with additional costs expected in 2022. In previous annual reports, the Group reported a contingent liability in respect of historic contracts with some of its senior management relating to incentive schemes which were designed to motivate, retain and engage those key employees. HMRC were of the view that the arrangements should have been taxed as employment income, which the Group and its advisors had previously disputed. During the period a tribunal was convened to consider the dispute of the Group’s scheme as well as similar schemes operated by other companies. Subsequent to the year end, the tribunal found that the arrangements should have been taxed as employment income. Accordingly, as at 31 December 2021, the Group has recognised a net liability of £2.6m in relation to this ruling, being a reasonable estimate of the final outcome, including the Group’s additional tax liability, interest costs and amounts expected to be recovered. 126 127 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 4. EXCEPTIONAL ITEMS (CONTINUED) 7. DIRECTORS AND EMPLOYEES Due to the one-off nature of these charges, the Board is treating these items as exceptional costs and their impact has been removed in all adjusted measures throughout this report. a. Average monthly number of persons employed during the year, including Directors: 2021 Number 2020 Number 2020 exceptional items In the previous year, the Group incurred a non-cash impairment of £3.8m to Goodwill and Intangible Assets of its Feel Good CGU. The Group commenced a review of its UK packaged supply chain in the previous year, incurring costs of £0.3m. The Group completed a review of its operational and leadership structures in the previous year, making a number of roles redundant and incurring costs of £0.7m. The Group decided to move from three Executive Directors to two in the previous year, incurring early termination costs of £0.3m. 5. OPERATING PROFIT Operating profit is stated after charging/ (crediting): 2021 £’000 2020 £’000 Inventory amounts charged to cost of sales 79,153 69,021 BDO LLP remuneration: Audit services of the Group’s annual accounts Depreciation of property, plant and equipment Impairment of property, plant and equipment Amortisation of intangible assets Short-term lease rental payments Charge for equity settled share based payments Loss / (gain) on foreign exchange differences Fair value gain on derivative financial instruments (note 22) Loss on sale of property, plant and equipment Release of contingent consideration on acquisition Expected credit loss provision charge (note 17) 110 4,309 - 660 240 272 437 (178) 63 (63) 294 93 4,258 1,016 713 203 177 (162) - 71 (1,349) 854 Group Parent Company 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) Equity settled share based payments charge c. Parent Company employment costs were as follows: Wages and salaries Social security costs Pension costs - defined contribution scheme Pension costs - defined benefit scheme (see note 26) Equity settled share based payments charge 308 274 2021 £’000 13,290 1,388 811 69 272 352 268 2020 £’000 11,738 1,534 787 146 177 15,830 14,382 2021 £’000 13,290 1,388 811 69 272 2020 £’000 10,889 1,428 762 146 177 15,830 13,402 A charge of £272,000 (2020: £177,000) was recognised during the year in relation to benefits accruing under the Group’s Save As You Earn schemes. Group and Parent Company 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 98. Operating lease rental payments have been included within administrative expenses and represent short-term lease expenses. Salary Defined contribution pension costs Social security costs 6. FINANCE INCOME AND EXPENSE Finance income comprises: Bank interest receivable Net interest income on defined benefit pension scheme surplus Finance expense comprises: IFRS 16 interest charge Finance expense 128 Notes 2021 £’000 2020 £’000 26 24 47 10 57 (158) (158) 147 3 150 (190) (190) The highest paid Director has received £992,000 (2020: £471,000) excluding pension contributions. Benefits are accruing to 2 Directors (2020: 3 Directors) under a defined contribution scheme, the highest paid Director has received contributions of £29,000 in the year. Aggregate amounts for loss of office totalled £nil (2020: £555,000). There is a share based payment charge of £75,000 in the year (2020: £nil) in relation to executive share awards made to 2 Directors. A Director has made a gain of £57,000 (2020: £nil) on the exercise of share options during the year. Further information regarding Directors’ remuneration and the Incentive Plan is provided in the Remuneration Committee Report on pages 88 to 95. 129 2021 £’000 1,849 42 214 2,105 2020 £’000 1,181 22 201 1,404 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 8. TAXATION 9. EQUITY DIVIDENDS 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 2021 £’000 2020 £’000 3,862 1,754 (58) 3,804 (83) 1,671 675 33 708 (82) 97 15 Total tax expense in the consolidated income statement 4,512 1,686 The tax expense is wholly in respect of UK taxation. b. Tax reconciliation (Loss)/Profit before taxation (Loss)/Profit before taxation multiplied by the standard rate of Corporation Tax in the United Kingdom of 19.00% (2020: 19.00%) Effect of: Non-deductible expenses Other tax adjustments, reliefs and transfers Other timing differences Adjustments to the tax charge in respect of prior years Income not taxable for tax purposes Depreciation for the year greater than capital allowances Impact on deferred tax due to rate change Amounts relating to other comprehensive income 2021 £’000 (17,656) (3,355) 7,402 142 (70) (25) (13) - 441 (10) 2020 £’000 6,540 1,243 41 479 117 14 (256) (15) 31 32 Total tax expense in the consolidated income statement 4,512 1,686 c. The effective rate of tax on adjusted profit before tax is 21.9% (2020: 18.7%) which is higher than the standard rate of Corporation Tax in the United Kingdom (19.00%). The effective rate of tax on loss before tax is -24.5% (2020: 25.8%) which is also higher than this rate. In May 2021, an amendment to the UK Corporation Tax rate was subsequently enacted to increase the rate of tax from 19% to 25% with effect from 1 April 2023. Accordingly, deferred tax balances as at 31 December 2021 have been recognised at 25% and this has had a significant impact on the effective rate of tax. d. Tax on items recognised in other comprehensive income/ (expense) In addition to the amount charged to the consolidated income statement, a charge of £962,000 (2020: £32,000 credit) has been recognised in other comprehensive income/ (expense), being the movement on deferred taxation relating to retirement benefit obligations and equity settled share based payments. Interim dividend 9.8p (2020: 28.0p) paid 10 September 2021 Final dividend for 2020 is 8.8p (2019: £nil) paid 6 May 2021 2021 £’000 3,619 3,249 6,868 2020 £’000 10,338 - 10,338 The interim dividend for the prior year of £10,338,000 was paid on 4 September 2020. The 2021 final proposed dividend of 13.3p per share has not been accrued as it had not been approved by the year end. 10. EARNINGS PER SHARE (Loss)/earnings per share (basic) (Loss)/earnings per share (diluted) Adjusted earnings per share (basic) - before exceptional items Adjusted earnings per share (diluted) - before exceptional items 2021 2020 (60.04p) (60.04p) 46.15p 46.09p 13.14p 13.13p 25.56p 25.54p Basic earnings per share is calculated by dividing the Group’s profit after tax for the year by the weighted average number of ordinary shares in issue during the financial year. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue assuming the conversion of all potentially dilutive ordinary shares. Earnings per share 2021 Weighted average number of shares Loss £’000 Loss per share Earnings £’000 2020 Weighted average number of shares Earnings per share Basic (loss)/earnings per share (22,168) 36,919,085 (60.04p) 4,854 36,932,032 13.14p Dilutive effect of share options - 26,551 Diluted (loss)/earnings per share (22,168) 36,919,085 (60.04p) 4,854 36,958,583 13.13p Adjusted earnings per share before exceptional items has been presented in addition to the earnings per share as defined in IAS 33, Earnings per share, since in the opinion of the Directors, this provides shareholders with a more meaningful representation of the earnings derived from the Groups’ operations. It can be reconciled from the basic earnings per share as follows: 2021 Weighted average number of shares (Loss)/ earnings per share (Loss)/ earnings per share Earnings £’000 2020 Weighted average number of shares Earnings per share Basic (loss)/earnings per share (22,168) 36,919,085 (60.04p) 4,854 36,932,032 13.14p Exceptional items after taxation 39,206 4,586 Adjusted earnings per share (basic) - before exceptional items 17,038 36,919,085 46.15p 9,440 36,932,032 25.56p Dilutive effect of share options 48,656 26,551 Adjusted earnings per share (diluted) - before exceptional items 17,038 36,967,741 46.09p 9,440 36,958,583 25.54p 130 131 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 11. PROPERTY, PLANT AND EQUIPMENT Group Cost At 1 January 2020 Additions Adjustment to acquisition of subsidiary Disposals Land and buildings £’000 3,444 - - - At 1 January 2021 3,444 Additions Disposals - - At 31 December 2021 3,444 Plant, machinery fixtures and fittings £’000 Right-of-use assets motor vehicles (note 24) £’000 Right-of-use assets property (note 24) £’000 Total £’000 Parent Cost 2,365 33,507 At 1 January 2020 25,528 2,701 (163) (1,339) 26,727 1,239 (3,191) 24,775 2,170 807 - - 419 - - 3,927 (163) (1,339) 2,977 2,784 35,932 28 - 80 - 1,347 (3,191) 3,005 2,864 34,088 Land and buildings £’000 3,444 - - Additions Disposals At 1 January 2021 3,444 Additions Disposals - - At 31 December 2021 3,444 Plant, machinery fixtures and fittings £’000 Right-of-use assets motor vehicles (note 24) £’000 Right-of-use assets property (note 24) £’000 Total £’000 4,882 576 (42) 5,416 472 (242) 5,646 2,170 807 - 2,977 28 - 1,417 11,913 419 - 1,802 (42) 1,836 13,673 80 - 580 (242) 3,005 1,916 14,011 Land and buildings £’000 Plant, machinery fixtures and fittings £’000 Right-of-use assets motor vehicles (note 24) £’000 Right-of-use assets property (note 24) £’000 10,376 3,029 1,016 (1,233) 13,188 3,172 (3,126) 13,234 11,541 637 776 - - 1,413 684 - 2,097 908 Total £’000 11,765 4,258 1,016 (1,233) 15,806 4,309 367 384 - - 751 384 - (3,126) 1,135 16,989 1,729 17,099 13,539 1,564 2,033 20,126 Depreciation At 1 January 2020 Charge for the year Impairment losses Disposals At 1 January 2021 Charge for the year Disposals At 31 December 2021 Net book value at 31 December 2021 Net book value at 31 December 2020 385 69 - - 454 69 - 523 2,921 2,990 Land and buildings £’000 Plant, machinery fixtures and fittings £’000 Right-of-use assets motor vehicles (note 24) £’000 Right-of-use assets property (note 24) £’000 Depreciation At 1 January 2020 Charge for the year Disposals At 1 January 2021 Charge for the year Disposals At 31 December 2021 Net book value at 31 December 2021 Net book value at 31 December 2020 385 69 - 454 69 - 523 2,921 2,990 3,531 420 (30) 3,921 519 (196) 4,244 1,402 1,495 637 776 - 1,413 684 - 2,097 262 279 - 541 279 - 820 Total £’000 4,815 1,544 (30) 6,329 1,551 (196) 7,684 908 1,096 6,327 1,564 1,295 7,344 Group impairment losses of £nil (2020: £1,016,000) were noted in the year for assets deemed as obsolete or lost within the Out of Home business. 132 133 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 12. GOODWILL Goodwill acquired in a business combination is allocated, at acquisition, to the Group’s cash-generating units (CGUs) that are expected to benefit from the business combination according to the level at which management monitor that goodwill. Group Cost At 1 January 2020 Impairment (see below) Adjustment to acquisitions At 1 January 2021 Impairment (see below) At 31 December 2021 Parent Cost At 1 January 2020 Impairment (see below) At 1 January 2021 and 31 December 2021 £’000 38,585 (2,504) 163 36,244 (36,244) - £’000 2,504 (2,504) - All Goodwill relates to the Out of Home business which is considered by management to be two independent Out of Home CGUs sitting below each of the Still and Carbonate operating segments. The goodwill has been allocated to these CGUs and not to the named subsidiaries. Still Carbonate 2021 £’000 - - - 2020 £’000 21,431 14,813 36,244 2021 Impairment review Goodwill and intangible assets with indefinite lives are tested at least annually for impairment and whenever there are indications that the assets might be impaired. The recoverable amount of a cash-generating unit (CGU) is based on its value in use, being the present value of the projected cash flows of the CGU. An annual impairment review was performed on the Goodwill (£36.2m) and Intangible assets with indefinite lives (£2.6m), all of which relate the Group’s Out of Home Business. The value in use calculation uses cash flow projections from financial budgets approved by management in addition to annual growth projections for the next five years and into perpetuity. The impact of COVID-19 has resulted in a difficult period of trade for Out of Home with many outlets being closed for a prolonged period of time. Whilst trade within the hospitality industry has begun to show growth and return towards pre-COVID-19 levels, it is doing so at a slower pace than previously forecast and is only forecast to fully return to pre-pandemic levels through 2022. Growth projections beyond 2022 are expected to be lower than previously estimated given a number of outlets are expected not to open and footfall is expected to be restricted for a prolonged period as staffing shortages and local restrictions/social distancing is either mandated or occurs naturally, as was experienced through 2021. The Group has experienced unprecedented cost inflation towards the end of 2021 which will impact returns in 2022 and beyond. Whilst cost pressure is expected to be fully recovered within Out of Home, the gross margin progression anticipated previously is now not likely to be achieved without transformational change in terms of how the business services the trade and its wider customer base. Overhead cost estimates have been reviewed and increased to reflect both inflationary pressures and the cost estimates required to serve the customer base given the complexities of the current business environment/model. As a result, and in response to this challenging climate, during 2022 the Board has commenced a full strategic review into its Out of Home route to market in terms of customer and product mix as well as ways to ensure appropriate margin and appropriate profitability going forward. customer base given the complexities of the current business environment/model. A reduction in overheads would result in an increase in the value in use calculation and thus a reduced impairment. A reduction in overheads by 13.7% at the end of the five year forecast period would result in no impairment to Out of Home. Discount rate - Discount rates represent the current market assessment of the risks specific to the Out of Home CGU, taking into consideration the time value of money and risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and is derived from its weighted average cost of capital (WACC). Adjustments to the discount rate are made to factor in the specific amount and timing of the future tax flows in order to reflect a pre-tax discount rate. A reduction in the pre-tax discount rate to 4.5% (i.e. -3.7ppts) would result in no impairment. Growth rate estimates - The long-term growth rate used to extrapolate the period of review is based upon management’s expectations of the Out of Home CGUs’ ongoing potential and is considered consistent with the drinks hospitality industry as a whole. An increase of 4ppts from 2% to 6% growth into perpetuity would be required for there to be no impairment. 2020 Impairment review Impairment of Feel Good Goodwill Following an impairment review of the Feel Good CGU during 2020, management fully impaired the Goodwill (£2.5m). This was recognised as an exceptional item. Adrian Mecklenburgh - Adjustment to acquisitions During 2020, the Group finalised the purchase price accounting of Adrian Mecklenburgh, an acquisition completed on 1 February 2019. As part of this work an adjustment of £163,000 was identified which increased the Goodwill balance accordingly. The pre-tax discount rate applied to cash projections is 8.2% (2020: 8.2%) and cashflows beyond the five year period are extrapolated using a 2% growth rate (2020: 2%) (being the average of cashflow growth in years 3-5). Based on the review it was concluded that the fair value less costs of disposal were not supported by the value in use calculated. As a result of this analysis, management have recognised an impairment charge of £36.2m in the current year, impairing the entire Goodwill held. The impairment charge has been recognised as an exceptional item within these financial statements. Key assumptions The calculation of value in use is most sensitive to the following assumptions: • Revenue growth • Gross margin • Overheads • Discount rate • Growth rates estimates used to extrapolate cash flows beyond the forecast period Revenue growth - Based on the continued impact of coronavirus and subsequent hospitality lockdowns, the Board’s view on the outlook for the industry recovery is that whilst there will be continued revenue growth, it will be at a slower pace than previously anticipated. Within the year-end impairment review, revenue growth of 1% per annum has been forecast for each of the five years. This compares to the previously assumed 3% revenue growth noted within the prior year review. A faster rate of recovery would increase the value in use calculation and therefore reduce any impairment noted. A year-on-year increase in annual revenue of 4% per year over the five year period forecast would result in no impairment being required for Out of Home. Gross margin - Based on the continued impact of coronavirus and the impact of inflationary pressures including fuel, labour and materials, the gross margins forecast previously (2021 and previous impairment models) are not expected to be achieved without transformational change in terms of how the Group services the trade and its wider customer base. Gross margins included within the impairment review are based on budget expectations and anticipated changes over the five year forecast period. A softening of inflationary pressures and improvement in material input prices would lead to an improvement in the gross margin forecast. An increase of 6ppts in the gross margin by the end of the five year forecast period would result in no impairment required for Out of Home. Overheads – Overhead cost estimates have been reviewed and increased to reflect both inflationary pressures and the cost estimates required to serve the 134 135 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 13. INVESTMENTS: SHARES IN GROUP UNDERTAKINGS Parent Cost and net book amount At 1 January 2020, 1 January 2021 and 31 December 2021 £’000 16,566 All non-current investments relate to Group undertakings. Listed below are the trading subsidiaries and the ownership of their ordinary share capital by the Group. Ben Shaws Dispense Drinks Limited* Dayla Liquid Packing Limited* Vimto (Out of Home) Limited* Adrian Mecklenburgh Limited ** Beacon Drinks Limited ** Cabana Soft Drinks Limited ** DJ Drink Solutions Limited ** Festival Drinks Limited ** Nichols Dispense (S.W.) Limited ** The Noisy Drinks Co. Limited ** Dispense Solutions (Wales) Limited*** The Noisy Drink Company North West Limited **** % 100 100 100 100 100 100 100 100 100 100 100 100 * The Company directly owns Ben Shaws Dispense Drinks Limited, Dayla Liquid Packing Limited and Vimto (Out of Home) Limited. ** Directly owned by Vimto (Out of Home) Limited. *** Dispense Solutions (Wales) Limited is directly owned by Nichols Dispense (S.W.) Limited. **** The shareholding in The Noisy Drink Company North West Limited is directly owned by Vimto (Out of Home) Limited. All Group undertakings are consolidated. The above companies and the Parent Company were all incorporated and operate in the United Kingdom. Particulars of non-trading companies are filed with the annual confirmation statement. All companies in the Group are engaged in the supply of soft drinks and other beverages. The registered address of each of the above is Laurel House, Woodlands Park, Ashton Road, Newton-le-Willows, WA12 0HH. 136 14. INTANGIBLES Group Cost At 1 January 2020 Additions At 1 January 2021 and 31 December 2021 Amortisation At 1 January 2020 Charge for the year Impairment (see note 4) At 1 January 2021 Charge for the year At 31 December 2021 Net book value at 31 December 2021 Net book value at 31 December 2020 Parent Cost At 1 January 2020 Additions At 1 January 2021 and 31 December 2021 Amortisation At 1 January 2020 Charge for the year Impairment (see note 4) At 1 January 2021 Charge for the year At 31 December 2021 Net book value at 31 December 2021 Net book value at 31 December 2020 Contractual agreement £’000 Customer list £’000 180 - 180 33 36 - 69 36 105 75 111 Brand name £’000 3,889 - 5,521 - 5,521 3,889 1,492 663 - 2,155 590 2,745 - - 1,316 1,316 - 1,316 Computer software £’000 - 170 170 - 14 - 14 34 48 Total £’000 9,590 170 9,760 1,525 713 1,316 3,554 660 4,214 2,776 2,573 122 5,546 3,366 2,573 156 6,206 Brand name £’000 1,316 - Computer software £’000 - Total £’000 1,316 170 170 1,316 170 1,486 - - 1,316 1,316 - 1,316 - - - 14 - 14 34 48 122 156 - 14 1,316 1,330 34 1,364 122 156 137 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 15. DEFERRED TAX ASSETS AND LIABILITIES Movement in temporary differences during the year The UK deferred tax balances are measured at 25% (2020: 19%). Group Property, plant and equipment Goodwill and intangibles Employee benefits Provisions Group Property, plant and equipment Goodwill and intangibles Employee benefits Provisions Parent Property, plant and equipment Goodwill and intangibles Employee benefits Provisions Parent Property, plant and equipment Goodwill and intangibles Employee benefits Provisions 138 Net balance at 1 January 2021 £’000 Arising on business combination £’000 Recognised in income £’000 Recognised in other comprehensive income £’000 Net balance at 31 December 2021 £’000 (618) (930) 38 25 (1,485) - - - - - (214) (226) (276) 8 (708) - - (962) - (962) (832) (1,156) (1,200) 33 (3,155) Net balance at 1 January 2020 £’000 Arising on business combination £’000 Recognised in income £’000 Recognised in other comprehensive expense £’000 Net balance at 31 December 2020 £’000 (649) (1,052) 174 25 (1,502) - - - - - 31 122 (168) - (15) - - 32 - 32 (618) (930) 38 25 (1,485) Net balance at 1 January 2021 £’000 Arising on business combination £’000 Recognised in income £’000 Recognised in other comprehensive income £’000 Net balance at 31 December 2021 £’000 (85) 167 38 25 145 - - - - - (53) - (276) 8 (321) - - (962) - (962) (138) 167 (1,200) 33 (1,138) Net balance at 1 January 2020 £’000 Arising on business combination £’000 Recognised in income £’000 Recognised in other comprehensive expense £’000 Net balance at 31 December 2020 £’000 (82) 166 174 25 283 - - - - - (3) 1 (168) - (170) - - 32 - 32 (85) 167 38 25 145 Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Group Assets Liabilities Net Property, plant and equipment Goodwill and intangibles Employee benefits Provisions - - - 33 33 2021 £’000 2020 £’000 2021 £’000 (832) 2020 £’000 (618) 2021 £’000 (832) (1,156) (1,012) (1,156) (1,200) - - - (1,200) 33 2020 £’000 (618) (930) 38 25 - 82 38 25 145 (3,188) (1,630) (3,155) (1,485) Parent Assets Liabilities Net Property, plant and equipment Goodwill and intangibles Employee benefits Provisions 2021 £’000 - 167 - 33 200 2020 £’000 - 167 38 25 2021 £’000 (138) - (1,200) - 2020 £’000 (85) - - - 2021 £’000 (138) 167 (1,200) 33 230 (1,338) (85) (1,138) 16. INVENTORIES Finished goods Raw materials Group Parent 2021 £’000 8,375 1,331 9,706 2020 £’000 5,214 707 5,921 2021 £’000 6,067 3 6,070 2020 £’000 (85) 167 38 25 145 2020 £’000 3,488 38 3,526 At the year-end, the Group provision for the write-down of inventories to net realisable value amounted to £168,000 (2020: £864,000). 139 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 Movements in the expected credit loss allowance was as follows: Group At 1 January 2021 £’000 Charge in the year £’000 Release in the year £’000 Expected credit loss provision 767 294 (65) Group At 1 January 2020 £’000 Charge in the year £’000 Release in the year £’000 Expected credit loss provision 577 854 (210) Utilised £’000 (40) Utilised £’000 (454) At 31 December 2021 £’000 956 At 31 December 2020 £’000 767 Parent At 1 January 2021 £’000 Charge in the year £’000 Release in the year £’000 Utilised £’000 At 31 December 2021 £’000 Expected credit loss provision 269 - (65) - 204 Parent At 1 January 2020 £’000 Charge in the year £’000 Release in the year £’000 Utilised £’000 At 31 December 2020 £’000 Expected credit loss provision 475 288 (210) (284) 269 The release of the expected credit loss provision in the year, as shown above, represents cash received against previously provided for debts under the expected credit loss model. 17. TRADE AND OTHER RECEIVABLES Trade receivables Group Parent 2021 £’000 2020 £’000 2021 £’000 2020 £’000 32,584 28,646 25,678 26,270 Less: provision for impairment of trade receivables (956) (767) Trade receivables - net 31,628 27,879 Amounts owed by Group undertakings Other receivables Derivative financial instruments - forward contracts (note 22) Prepayments - 2,294 178 2,024 - 378 - 886 (204) 25,474 10,087 2,719 178 1,949 (269) 26,001 10,631 353 - 670 36,124 29,143 40,407 37,655 All amounts above are short-term receivables and are generally non interest bearing. The difference between the carrying value and fair value of all receivables is not considered to be material. All trade receivables have been reviewed under the expected credit loss impairment model and a provision of £956,000 (2020: £767,000) has been recorded accordingly. The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade and other receivables, excluding any reimbursement assets. The expected loss rates are based on the Group’s historical credit losses experienced over the three year period to the year end. The historic loss rates are then adjusted for current and forward looking information on macro economic factors affecting the Group’s customers, such as inflation, interest rates and economic growth rates. An impairment assessment of amounts owed by Group undertakings as at 31 December 2021 was undertaken using the IFRS 9 simplified approach. The amounts owed by Group undertakings are readily repayable and therefore no impairment is judged to be required (2020: £nil). The Group’s expected credit loss provision was determined as follows: 31 December 2021 Expected loss rate Gross carrying amount Credit loss allowance Current Less than 30 days past due More than 30 days past due More than 60 days past due More than 90 days past due Total 0.8% 27,180 (212) 9.4% 3,152 (295) 3.6% 667 (24) 9.9% 614 (61) 37.5% 971 32,584 (364) (956) 31 December 2020 Expected loss rate Gross carrying amount Credit loss allowance Current Less than 30 days past due More than 30 days past due More than 60 days past due More than 90 days past due Total 0.3% 25,037 (86) 16.0% 661 (106) 17.0% 675 (115) 10.8% 23.0% 526 (57) 1,747 28,646 (403) (767) 140 141 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 18. CASH AND CASH EQUIVALENTS 20. PROVISIONS Group At 1 January 2021 £’000 Cash flow £’000 At 31 December 2021 £’000 Cash at bank and in hand 47,294 9,380 56,674 Parent At 1 January 2021 £’000 Cash flow £’000 At 31 December 2021 £’000 Cash at bank and in hand 30,629 8,138 38,767 The Group did not have a bank overdraft during the current and previous year. 19. TRADE AND OTHER PAYABLES Current liabilities Trade payables Amounts owed to Group undertakings Other taxes and social security Other payables Accruals Group Parent 2021 £’000 2020 £’000 2021 £’000 2020 £’000 9,210 7,831 7,326 7,143 - 794 75 - 430 56 25,548 19,893 392 8 415 5 17,843 12,330 16,053 11,490 IFRS 16 lease liabilities (note 24) 869 1,022 773 930 Non-current liabilities Other payables IFRS 16 lease liabilities (note 24) 28,791 21,669 50,100 39,876 Group Parent 2021 £’000 - 1,954 1,954 2020 £’000 198 2,724 2,922 2021 £’000 - 1,367 1,367 2020 £’000 - 2,040 2,040 The difference between the carrying value and fair value of all payables is not considered to be material. All payables are generally not interest bearing. Group and parent At 1 January 2020 and at 1 January 2021 Charge in the year £’000 Released in the year £’000 Utilised £’000 At 31 December 2021 £’000 Historic incentive scheme - 4,242 - - 4,242 In previous annual reports, the Group reported a contingent liability in respect of historic contracts with some of its senior management relating to incentive schemes which were designed to motivate, retain and engage those key employees. HMRC were of the view that the arrangements should have been taxed as employment income, which the Group and its advisors had previously disputed. During the period a tribunal was convened to consider the dispute of the Group’s scheme as well as similar schemes operated by other companies. Subsequent to the year end, the tribunal found that the arrangements should have been taxed as employment income. Accordingly, as at 31 December 2021, the Group has recognised a provision of £4.2m in relation to this ruling, being the Group’s additional tax liability and interest costs. Included within other receivables (note 17) is a reimbursement asset in respect of these historic contracts. 21. PRIOR YEAR ACQUISITIONS 2020 Acquisitions The Noisy Drink Company North West Limited On 5 March 2020, the Group acquired the remaining 25% of the issued share capital of The Noisy Drink Company North West Limited, following the initial 75% acquisition in 2018. Contingent consideration of £915,000 (£805,000 of cash and £110,000 of overdrawn Directors loans) was paid to acquire the remaining shareholding in the previous year, with £1,085,000 taken as a credit within administrative expenses during the previous year. 2019 Acquisitions Adrian Mecklenburgh Limited On 1 February 2019, the Group acquired 100% of the issued share capital of Adrian Mecklenburgh Limited. During the previous year £75,000 was paid in relation to the first stage of contingent consideration. During the current year £67,000 was paid in relation to the second stage of contingent consideration. As at 31 December 2021, a fair value assessment of the third stage of contingent consideration was performed. Based on the projected growth in coffee sales in the three year period following acquisition, it was determined that the initial forecasted growth in coffee sales will not be met. As a result, £63,000 of the amount initially recognised at acquisition has been taken as a credit within administrative expenses during the year. 142 143 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 22. FINANCIAL INSTRUMENTS Exposure to treasury management, liquidity, credit and currency risks arise in the normal course of the Group’s business. If Sterling had weakened against the US Dollar and Euro by 5% (2020: 5%), then this would have had the following impact: 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 Group does this through the use of rolling cash flow forecasts, which are reviewed periodically. The acquisition of companies and the continuing investment in non-current assets will be achieved by a mix of operating cash and where required, short term borrowing facilities. 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 2021 the Group entered into foreign currency transactions resulting in a natural hedge for a large majority of the exposure experienced over the course of the year. To supplement this and to further reduce foreign currency risk, the Group entered into a number of forward contracts to minimise the impact of movements in foreign currency rates on the spot market. Foreign currency assets US Dollar Euro Foreign currency sensitivity 2021 £’000 2,501 3,371 5,872 2020 £’000 1,594 6,001 7,595 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% (2020: 5%), then this would have had the following impact: US Dollar £’000 (119) 2021 Euro £’000 (161) Total £’000 (280) US Dollar £’000 (76) 2020 Euro £’000 (286) Total £’000 (362) Net result for the year 144 Net result for the year US Dollar £’000 132 2021 Euro £’000 177 Total £’000 309 US Dollar £’000 84 2020 Euro £’000 316 Total £’000 400 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. Derivative financial instruments Derivative financial assets Foreign currency forward contracts carried at fair value 2021 £’000 178 2020 £’000 - In December 2021, the Group entered into foreign exchange forward contracts to manage the foreign currency risk associated with anticipated cash inflows in 2022. The following table details the foreign currency forward contracts outstanding at the year-end: Derivative financial assets Sell EUR - less than 12 months Sell USD - less than 12 months Notional value in foreign currency (‘000) Notional value in local currency (£’000) Carrying amount of derivative financial asset (£’000) 4,500 6,500 3,852 4,905 72 106 Forward rate 1.168 1.325 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 2020. At 31 December 2021, the Group had no debt and therefore the capital structure consists of equity only. As the Group has no debt there is no exposure to interest rate risk. 145 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 23. SUMMARY OF FINANCIAL ASSETS AND LIABILITIES BY CATEGORY 24. LEASES The IFRS 9 categories of financial assets included in the Consolidated Statement of Financial Position and the headings in which they are included are as follows: Group Parent Fair value through profit or loss Amortised cost Fair value through profit or loss Amortised cost 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000 178 - 178 - - - 32,294 28,257 56,674 47,294 88,968 75,551 178 - 178 - - - 36,652 36,985 38,767 30,629 75,419 67,614 Financial assets Trade receivables and other receivables Cash and cash equivalents The IFRS 9 categories of financial liability included in the Statement of Financial Position and the headings in which they are included are as follows: Group Parent Fair value through profit or loss Amortised cost Fair value through profit or loss Amortised cost Financial liabilities Trade and other payables IFRS 16 lease liabilities 2021 £’000 2020 £’000 198 - 67 - 67 2021 £’000 9,218 2,823 2020 £’000 7,887 3,746 198 12,041 11,633 2021 £’000 2020 £’000 2021 £’000 2020 £’000 - - - - - - 32,882 27,041 2,140 2,970 35,022 30,011 At 31 December 2021 Trade and other payables At 31 December 2020 Trade and other payables Up to 3 months £’000 9,285 9,285 Up to 3 months £’000 7,887 7,887 Between 3 and 12 months £’000 - - Between 3 and 12 months £’000 - - Between 1 and 2 years £’000 Between 2 and 5 years £’000 Over 5 years £’000 - - - - - - Between 1 and 2 years £’000 Between 2 and 5 years £’000 Over 5 years £’000 198 198 - - - - The contractual maturities of IFRS 16 lease liabilities are disclosed in note 24. The following table sets out the Group contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities: Lease liabilities The Group has presented right-of-use assets within property, plant and equipment, with the corresponding liabilities presented within trade and other payables split between current and non-current liabilities on the consolidated statement of financial position. The Group has classified the principal and interest portions of lease payments within financing activities on the consolidated statement of cash flows. Lease payments for short-term leases and low-value assets are not included in the measurement of the lease liability. These are presented within administrative expenses within the consolidated income statement and are classified as cash flows from operating activities. The following tables reconcile the Group right-of-use assets and lease liabilities to 31 December 2021: Group Motor Vehicles £'000 1,533 807 Total £'000 3,531 1,226 (776) (1,160) Parent Motor Vehicles £'000 1,533 807 Total £'000 2,688 1,226 (776) (1,055) Property £'000 1,155 419 (279) 1,564 3,597 1,295 1,564 2,859 28 108 (684) (1,068) 908 2,637 80 (279) 1,096 28 (684) 908 108 (963) 2,004 Property £'000 1,998 419 (384) 2,033 80 (384) 1,729 Right-of-use assets At 1 January 2020 Additions Depreciation At 1 January 2021 Additions Depreciation At 31 December 2021 Group Property £'000 Motor Vehicles £'000 419 93 807 97 Parent Motor Vehicles £'000 Property £'000 1,144 1,568 419 57 807 97 Total £'000 2,712 1,226 154 Total £'000 3,584 1,226 190 (439) (815) (1,254) (307) (815) (1,122) At 1 January 2020 2,016 1,568 Additions Interest expense Lease payments At 1 January 2021 2,089 1,657 3,746 1,313 1,657 2,970 Additions Interest expense Lease payments At 31 December 2021 80 89 (391) 1,867 28 69 108 158 (798) (1,189) 956 2,823 80 57 (266) 1,184 28 69 108 126 (798) (1,064) 956 2,140 146 147 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 24. LEASES (CONTINUED) The following table sets out the Group maturities of IFRS 16 lease liabilities based on the contractual undiscounted cash flows. Group At 31 December 2021 Lease liabilities Parent At 31 December 2021 Lease liabilities Group At 31 December 2020 Lease liabilities Parent At 31 December 2020 Lease liabilities Up to 3 months £’000 273 Up to 3 months £’000 242 Up to 3 months £’000 313 Up to 3 months £’000 282 Between 3 and 12 months £’000 Between 1 and 2 years £’000 Between 2 and 5 years £’000 Over 5 years £’000 641 672 1,009 453 Between 3 and 12 months £’000 Between 1 and 2 years £’000 Between 2 and 5 years £’000 Over 5 years £’000 623 548 611 321 Between 3 and 12 months £’000 Between 1 and 2 years £’000 Between 2 and 5 years £’000 Over 5 years £’000 847 961 1,377 728 Between 3 and 12 months £’000 Between 1 and 2 years £’000 Between 2 and 5 years £’000 Over 5 years £’000 754 837 987 462 The following table reconciles the changes in IFRS 16 liabilities from financing activities during the year to 31 December 2021: Group Parent Current loans and borrowings £’000 (note 19) Non-current loans and borrowings £’000 (note 19) Total £'000 Current loans and borrowings £’000 (note 19) Non-current loans and borrowings £’000 (note 19) Total £'000 At 1 January 2020 Cash Flows Non-cash flows - interest - lease additions At 1 January 2021 Cash Flows Non-cash flows - interest paid - lease additions - transfers At 31 December 2021 1,018 (1,254) 190 1,068 1,022 (1,189) 158 45 833 869 2,566 3,584 - (1,254) - 190 158 1,226 2,724 3,746 921 (1,122) 154 977 930 - (1,189) (1,064) - 63 (833) 158 108 - 1,954 2,823 126 45 736 773 1,791 2,712 - (1,122) - 154 249 1,226 2,040 2,970 - - 63 (736) (1,064) 126 108 - 1,367 2,140 Lease payments incurred for short-term leases not included in the measurement of lease liabilities under IFRS 16 were as follows: 2021 2020 Group £’000 240 Parent £’000 Group £’000 Parent £’000 240 203 203 Short-term lease expense 25. RELATED PARTY TRANSACTIONS Parent Company The Parent Company entered into the following transactions with subsidiaries during the year: Sale of goods and services (including recharge of costs) Transaction value Year ended 31 December Balance outstanding as at 31 December 2021 £’000 1,039 2020 £’000 2021 £’000 2020 £’000 959 (15,461) (9,262) All sales noted above with the related parties are conducted in line with similar transactions with external parties. Details of key management personnel compensation have been disclosed in note 7, no other transactions were entered into with key management personnel in the year. Two family members of the Non-Executive Chairman are employed in management roles within the business. The total remuneration paid in the year was £262,000 (2020: £226,000). 148 149 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 26. PENSION OBLIGATIONS AND 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 £811,000 (2020: £787,000). The Company operates a defined benefit plan in the UK. A full actuarial valuation was carried out on 5 April 2020 and approximately updated to 31 December 2021 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 expectancies 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. Defined benefit obligation The details of the Group’s defined benefit obligation are as follows: Opening defined benefit obligation Current service cost (company only) Past service cost Interest cost Actual contributions paid by plan participants Experience adjustment Actuarial (gains) / losses from changes in financial assumptions Actuarial gains from changes in demographic assumptions Benefits paid - including insurance premiums Closing defined benefit obligation 31 December 2021 £’000 31 December 2020 £’000 30,536 28,941 26 - 390 3 - (1,910) (331) (1,094) 27,620 24 64 569 3 (1,169) 3,491 (385) (1,002) 30,536 Investment risk Plan assets The plan assets at 31 December 2021 are predominantly credit, liability driven investments and bonds. The reconciliation of the balance of the assets held for the Group’s defined benefit plan is presented below: 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 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 2021 and 2020 is shown below. Present value of funded obligations Fair value of plan assets Surplus in the plan Related deferred tax (liability)/ asset Net surplus recognised 31 December 2021 £’000 31 December 2020 £’000 (27,620) 32,896 5,276 (1,319) 3,957 (30,536) 30,883 347 9 356 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 Expenses paid Fair value of plan assets at end of accounting period 31 December 2021 £’000 31 December 2020 £’000 30,883 400 1,842 905 3 (1,094) (43) 32,896 28,689 572 1,782 898 3 (1,002) (59) 30,883 The actual return on plan assets was a gain of £2,242,000 (2020: £2,353,000). 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. The major categories of plan assets measured at fair value are: 31 December 2021 £’000 31 December 2020 £’000 150 Equities Credit Liability driven investments Diversified growth funds Absolute return bonds Equity-linked bonds Other, including cash 3,455 13,664 6,865 - 7,267 - 295 31,546 2,752 - 3,372 5,951 4,902 12,184 222 29,383 151 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 26. PENSION OBLIGATIONS AND EMPLOYEE BENEFITS (CONTINUED) With the agreement of Trustees, assets were transferred from equity-linked bonds and diversified growth funds during the year, to reduce the overall value risk and to secure the gains achieved over the last 2 years. 2020 GMP equalisation On 20 November 2020 the High Court issued a supplementary ruling in the Lloyds bank GMP equalisation case with respect to members that have transferred out of their scheme prior to the ruling. The results of this mean that: Assets included which do not have a quoted market value: • Trustees are obliged to make transfer payments that reflect equalised benefits and are required to make top up Assets included which do not have a quoted market value: Property 31 December 2021 £’000 31 December 2020 £’000 1,350 1,500 The fair value of the property was revalued as at 31 December 2021, in-line with the standards of IFRS 13, by Jones Lang LaSalle who are independent RICS valuers. The significant actuarial assumptions used for the valuations are as follows: 31 December 2021 31 December 2020 Future salary increases Rate of increase in (post 1997) pensions in payment (a) Discount rate at 31 December Expected rate of inflation - RPI 3.40% 3.40% 1.85% 3.40% 2.95% 3.30% 1.30% 2.95% 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 88 years for men (2020: 88 years) and 90 years for women (2020: 90 years). For pensioners currently aged 65, life expectancies have been estimated as 86 years for men (2020: 87 years) and 89 years for women (2020: 88 years). (a) Increases on pre-6 April 1997 pensions are fixed at 3% per annum. Post-6 April 1997 increases are in line with consumer 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 37.1% of salaries until 28 February 2021 and 46.3% of salaries from 1 March 2021. 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. Defined benefit plan expenses Amounts recognised in profit or loss are: Current service cost (Company) Net interest (on net defined benefit asset) Past service cost Scheme administration expenses Total amount recognised in the Consolidated Income Statement 31 December 2021 £’000 31 December 2020 £’000 26 (10) - 43 59 24 (3) 64 59 144 payments where this was not the case in the past; • A DB scheme that received a transfer is concurrently obliged to provide equalised benefits in respect of the transfer payments; and • There were no exclusions on the grounds of discharge forms, CETV legislation, forfeiture provisions or the Limitation Act 1980. As a result of this ruling, an assessment of the increase in liabilities of the pension scheme has been made and a resulting charge of £64,000 has been recognised as a past service cost in the previous year. Amounts recognised in other comprehensive income/(expense) relating to the Group’s defined benefit plan are as follows: Remeasurements recognised in other comprehensive income/(expense) Actuarial gains on assets Experience adjustment Actuarial gains / (losses) from changes in financial assumptions Changes in demographic assumptions Total gain / (loss) recognised in other comprehensive income / (expense) 31 December 2021 £’000 31 December 2020 £’000 1,842 - 1,910 331 4,083 1,782 1,169 (3,491) 385 (155) 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 £881,000 to be paid in 2022. The weighted average duration of the defined benefit obligation at 31 December 2021 is 17 years (2020: 17 years). The significant actuarial assumptions for the determination of the defined benefit obligation are the discount rate, the inflation assumption and life expectancy. The calculation of the net defined benefit liability is sensitive to these assumptions. The table below summarises the sensitivity of a reasonably possible change to one significant actuarial assumption, holding all other assumptions constant, on the obligation: Increase in discount rate by 0.5% Increase in price inflation adjustment by 0.5% 31 December 2021 £’000 31 December 2021 % 31 December 2020 £'000 31 December 2020 % (1,985) 646 1,467 -7.00% 2.00% 5.00% (2,256) 478 1,696 -7.00% 2.00% 6.00% The current cost is included in employee benefits expense and the net interest credit is included within interest 1 year increase in life expectancy receivable. 152 The sensitivities may not be representative of the actual change in the present value of the scheme obligation, as it is unlikely that the change in assumptions would occur in isolation of each other, as the assumptions may be linked. The method and assumptions used in this analysis have been reviewed and remain unchanged from the prior year. 153 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 27. AUDIT EXEMPTION STATEMENT 29. EMPLOYEE SHARE SCHEMES Under section 479A of the Companies Act 2006 the Group is claiming exemption from audit for the subsidiary companies listed below. The parent undertaking, Nichols plc, registered number 00238303, guarantees all outstanding liabilities to which the subsidiary company is subject at the end of the financial year (being the year ended 31 December 2021 for each company unless otherwise stated). The guarantee is enforceable against the parent undertaking by any person to whom the subsidiary company is liable in respect of those liabilities. Adrian Mecklenburgh Limited Beacon Drinks Limited Ben Shaws Dispense Drinks Limited Cabana Soft Drinks Limited Dayla Liquid Packing Limited Dispense Solutions (Wales) Limited (year ended 30 September 2022) DJ Drink Solutions Limited (year ended 31 May 2022) Festival Drinks Limited Nichols Dispense (S.W.) Limited The Noisy Drink Company North West Limited The Noisy Drinks Co. Limited Vimto (Out of Home) Limited 28. SHARE CAPITAL Company Number 01481282 01732905 00231218 00938594 00603111 08671127 05787898 01256006 08766560 05024347 05905631 08795779 Allotted, issued and fully paid 36,968,772 (2020: 36,968,772) 10p ordinary shares 2021 £’000 3,697 2020 £’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 2021 and 31 December 2020. At the Company’s AGM held on 28 April 2021, the Group was generally and unconditionally authorised by its shareholders to make market purchases (within the meaning of section 693 of the Companies Act 2006) of up to a maximum of 3,696,877 of its Ordinary shares. During 2021, the Group has repurchased 68,000 Ordinary shares under this authority, which is due to expire at the AGM to be held on 27 April 2022, and accordingly has an unexpired authority to purchase up to 3,560,877 Ordinary shares with a nominal value of £356,088. The Group announced its intention to conduct on-market purchases under a share buy-back programme on 14 December 2021. The purpose of the share buy-backs is to meet future obligations under the Group’s SAYE Option Scheme and/or Long Term Incentive Plan. Shares repurchased are held in Treasury. The total number of shares held in Treasury as at 31 December 2021 is 107,664. The Group operates three equity-settled share-based payment schemes; a Save As You Earn (SAYE) scheme open to all employees; a Long-Term Incentive Plan (LTIP) for certain Directors and senior executives and an Executive share award scheme for certain Directors and senior executives. All schemes comprise the grant of options under the Group’s share option schemes. LTIP There are three LTIPs in place. Awards made under the LTIP vest provided the participant remains under employment within the 3-year vesting period and based on the performance of the Group against Adjusted Profit Before Tax growth targets. Awards made under the LTIP have a £nil exercise price. There were no LTIPs granted during the year. The weighted average fair value of LTIP awards at their grant date in previous years are set out below. The fair value is calculated using the Black-Scholes valuation model. The movement of outstanding LTIP awards during the year is also set out below. 2017 LTIP 2018 LTIP 2019 LTIP Awards 156,295 32,063 47,245 Share price on grant date £ Expected dividend yield Risk free rate Volatility 17.14 15.60 17.67 1.92% 1.92% 1.92% 1.80% 1.80% 1.80% 17.70% 17.70% 17.70% Fair value per award £ 16.18 14.73 16.68 The movement of outstanding LTIP awards during the year is also set out below. Awards outstanding at 1 January 2021 20,674 32,063 47,245 Exercised Lapsed (20,674) - - - (32,063) (23,893) Awards outstanding at 31 December 2021 - - 23,352 2017 LTIP 2018 LTIP 2019 LTIP Of the total number of options outstanding at 31 December 2021, nil (2020: 20,674) had vested and were exercisable. The weighted average remaining life of LTIP awards at 31 December 2021 is 0.3 years. The 2018 LTIP award didn’t vest based on performance against the agreed targets between 1 January 2018 and 31 December 2020. SAYE The Group’s SAYE scheme is open to all employees. To participate in the scheme, the employees are required to save an amount of their gross monthly salary, for a period of 36 or 60 months. At the end of the 36 or 60 month period the employees are entitled to purchase shares using funds saved at a price of 20% below the market price at grant date. Only employees that remain in service and save the required amount of their gross monthly salary for 36 or 60 consecutive months will become entitled to purchase the shares. The weighted average fair value of SAYE options at their grant date in previous years are set out below. The fair value is calculated using the Black-Scholes valuation model. The movement of outstanding SAYE options during the year is also set out below. 154 155 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2021 29. EMPLOYEE SHARE SCHEMES (CONTINUED) 2016 5 year 2017 5 year Options 2,955 7,339 2018 3 year 26,145 2018 5 year 4,035 2019 3 year 27,789 2019 5 year 6,304 2020 3 year 103,095 2020 5 year 2021 3 year 2021 5 year 15,014 29,098 5,967 Exercise price per option £ Share price on grant date £ 9.94 14.57 12.25 12.25 12.84 12.84 7.93 7.93 10.15 10.15 12.80 19.20 14.28 14.28 16.90 16.90 11.35 11.35 13.95 13.95 Expected dividend yield Risk free rate Volatility Fair value per option £ 2.27% 1.93% 1.87% 1.87% 1.87% 1.87% 1.87% 1.87% 2.70% 2.70% 0.97% 0.51% 0.82% 1.12% 0.79% 0.91% 0.09% 0.09% 0.19% 0.40% 22.80% 21.50% 24.50% 23.40% 25.50% 25.40% 31.30% 31.30% 44.60% 37.50% 3.22 1.95 1.99 2.86 2.29 2.19 3.33 4.14 4.50 4.33 The movement of outstanding SAYE options during the year is also set out below. Options outstanding at 1 January 2021 Granted Exercised Lapsed Options outstanding at 31 December 2021 2016 5 year 2017 5 year 2018 3 year 2018 5 year 2019 3 year 2019 5 year 2020 3 year 2020 5 year 2021 3 year 2021 5 year 2,955 1,745 14,776 3,497 14,716 4,809 101,667 15,014 - - - - - - - - - - 29,098 5,967 (2,654) - (13,058) - - - - - - - (301) (411) (1,718) (1,615) (2,380) (2,663) (13,491) - (159) - - 1,334 - 1,882 12,336 2,146 88,176 15,014 28,939 5,967 The weighted average remaining life of SAYE awards at 31 December 2021 is 1.9 years. Volatility has been determined using statistical analysis of the Group share price over a 3 or 5 year period preceding the grant date. The share price on the vesting date of the awards vested in the year was £15.35. Executive matching share awards On 18 December 2020 the Group made awards of 17,402 share options to two executive Directors. The awards, equal to 50% of their annual salaries at the date of award, will vest on the third anniversary based on the number of Ordinary Shares purchased and retained by the Directors over the vesting period of the award. The awards will be matched on a 1:1 basis for every Ordinary Share purchased. No other performance conditions apply. Awards Share price on grant date Expected dividend yield Risk free rate Volatility Fair value per award 17,402 14.08 2.70% -0.07% 42.40% 12.98 Awards outstanding at 1 January 2021 Exercised Lapsed Awards outstanding at 31 December 2021 17,402 - - 17,402 2020 Executive share awards 2020 Executive share awards The remaining life of Executive share awards at 31 December 2021 is 2.0 years. Volatility has been determined using statistical analysis of the Group share price over a 3 year period preceding the grant date. The equity-settled share based payment charge recognised in the year is as follows: LTIP SAYE Executive share awards Total charge 2021 £’000 - 197 75 272 2020 £’000 (92) 269 - 177 156 157 UNAUDITED FIVE YEAR SUMMARY-YEAR ENDED 31 DECEMBER 2021 2022 ANNUAL GENERAL MEETING Revenue Adjusted operating profit Exceptional items Operating (loss)/profit 2021 £’000 2020 £’000 2019 £’000 2018 £’000 2017 £’000 Given the current status of the COVID-19 pandemic, it is anticipated that the 2022 Annual General Meeting (the ‘AGM’) will be held in the normal way and shareholders will be invited to attend in person. The Company will continue 144,328 118,657 146,985 142,037 132,789 to monitor the status of the pandemic and will revise arrangements in connection with the AGM should it become 21,922 (39,477) (17,555) 11,654 (5,074) 32,439 31,638 - - 30,543 (1,801) 6,580 32,439 31,638 28,742 necessary. Net finance (expense) / income (101) (40) (17) 115 (20) NOTICE OF ANNUAL GENERAL MEETING 2022 (Loss)/Profit before taxation (17,656) 6,540 32,422 31,753 28,722 Taxation (Loss)/Profit after taxation Dividends paid (4,512) (1,686) (22,168) 4,854 (5,587) 26,835 (6,238) 25,515 (5,548) 23,174 (6,868) (10,338) (14,466) (12,803) (11,213) Retained earnings movement (29,036) (5,484) 12,189 12,712 11,961 Notice is hereby given that the thirtieth Annual General revoked, varied or renewed) this authority shall Meeting (the ‘AGM’) of Nichols plc (the ‘Company’) will expire at the conclusion of the next annual be held at Nichols plc, Laurel House, Woodlands Park, general meeting of the Company after the Ashton Road, Newton-le-Willows, Merseyside, WA12 passing of this resolution or on 26 July 2023 0HH on Wednesday, 27 April 2022 at 11:00 a.m. for the (whichever is the earlier), save that the Company (Loss)/earnings per share - (basic) (60.04p) 13.14p 72.81p 69.23p 62.88p following purposes: (Loss)/earnings per share - (diluted) (60.04p) 13.13p 72.77p 69.19p 62.81p To consider and, if thought fit, to pass the following 46.15p 25.56p 72.81p 69.23p 67.76p resolutions as ordinary resolutions: 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 Earnings per share - (basic) before exceptional items Earnings per share - (diluted) before exceptional items Dividends paid per share 13.3p 28.0p 39.2p 34.7p 30.4p 46.09p 25.54p 72.77p 69.19p 67.69p 1. To receive the Company’s annual accounts, granted after this authority expires and the strategic report and directors’ and auditors’ Directors may allot shares or grant such reports for the year ended 31 December 2021. rights pursuant to any such offer or agreement 2. To declare a final dividend for the year ended as if this authority had not expired. This authority 31 December 2021 of 13.3 pence per ordinary is in substitution for all existing authorities under share of £0.10 in the capital of the Company, to section 551 of the Act (which, to the extent be paid on 5 May 2022 to shareholders whose unused at the date of this resolution, are revoked names appear on the register of members at the with immediate effect). close of business on 25 March 2022. To consider and, if thought fit, to pass the following 3. To re-elect John Nichols as a Director of the resolutions as special resolutions: Company. 12. That, subject to the passing of resolution 11 and 4. To re-elect Andrew Milne as a Director of the pursuant to sections 570 and 573 of the Company. Companies Act 2006 (‘Act’), the Directors be 5. To re-elect David Rattigan as a Director of the and are generally empowered to allot equity Company. securities (within the meaning of section 560 6. To re-elect John Gittins, as a Director of the of the Act) for cash pursuant to the authority Company. granted by resolution 11 and to sell ordinary 7. To re-elect Helen Keays, as a Director of the shares held by the Company as treasury shares Company. for cash, as if section 561(1) of the Act did not 8. To re-elect James Nichols, as a Director of the apply to any such allotment or sale, provided that Company. this power shall be limited to the allotment of 9. To reappoint BDO LLP as auditors of the equity securities or sale of treasury shares: Company. 12.1 in connection with an offer of equity securities 10. To authorise the Directors to determine the (whether by way of a rights issue, open offer or remuneration of the auditors. otherwise): 11. That, pursuant to section 551 of the Companies 12.1.1 to holders of ordinary shares in the capital of the Act 2006 (‘Act’), the Directors be and are generally Company in proportion (as nearly as practicable) and unconditionally authorised to allot shares to the respective numbers of ordinary shares in the Company or to grant rights to subscribe for held by them; and or to convert any security into shares in the 12.1.2 to holders of other equity securities in the capital Company up to an aggregate nominal amount of of the Company, as required by the rights £1,232,292.40 (representing one third of the of those securities or, subject to such rights, as existing issued ordinary share capital of the the Directors otherwise consider necessary, Company), provided that, (unless previously but subject to such exclusions or other 158 159 NOTICE OF ANNUAL GENERAL MEETING 2022 GENERAL NOTES arrangements as the Directors may deem before this authority expires under which such 1. To receive the Company’s annual accounts, strategic 5. The appointment of a proxy will not preclude necessary or expedient in relation to treasury purchase will or may be completed or executed report and directors’ and auditors’ reports for the a member from attending and voting in person at shares, fractional entitlements, record dates or wholly or partly after this authority expires and year ended 31 December 2021. the meeting if he or she so wishes any legal or practical problems under the laws of may make a purchase of Shares pursuant to any any territory or the requirements of any such contract as if this authority had not expired. regulatory body or stock exchange; and 12.2 otherwise than pursuant to paragraph 12.1 of this resolution, up to an aggregate nominal By order of the Board David Rattigan Secretary 1 March 2022 Registered Office, Laurel House, Woodlands Park, Ashton Road, Newton-le-Willows, WA12 0HH. Registered in England and Wales No. 00238303. amount of £184,843.86 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 26 July 2023 (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 sections 570 and 573 of the Act (which, to the extent unused at the date of this resolution, are revoked with immediate effect). 13. 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: 13.1 the maximum aggregate number of Shares which may be purchased is 3,696,877: 13.2 the minimum price (excluding expenses) which may be paid for a Share is 10p; and 13.3 the maximum price (excluding expenses) which may be paid for a Share is an amount equal to 105 per cent of the average of the middle market quotations for a Share as derived from the Daily Official List of the London Stock Exchange plc for the five business days immediately preceding the day on which the purchase is made, and (unless previously revoked, varied or renewed) this authority shall expire at the conclusion of the next annual general meeting of the Company after the passing of this resolution or on 26 July 2023 (whichever is the earlier), save that the Company may enter into a contract to purchase Shares 2. In accordance with corporate governance best practice, all of the Directors will retire and offer themselves for re-election at the AGM. The Board considers that each of the Directors continue to make a valuable contribution to the Board and to demonstrate commitment to the Group. Biographical details of all of the directors, who are each offering themselves for re-election respectively, are set out on pages 74 and 75 of this document. 6. In order to reduce the Company’s environmental impact, our intention is to remove paper from the voting process as far as possible. You are therefore asked to vote in one of the following ways: • Register your vote online through our registrar’s portal – www.signalshares.com. You will need your investor code which is printed on your share certificate or may be obtained by calling the Company’s registrar, Link Group (‘Link’) on 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls 3. Entitlement to attend and vote. outside the United Kingdom will be charged at the The right to vote at the meeting is determined applicable international rate. Lines are open by reference to the register of members. Only those between 09:00 – 17:30, Monday to Friday excluding shareholders registered in the register of members public holidays in England and Wales. of the Company as at close of business on Monday, • CREST members may use the CREST electronic 25 April 2022 (or, if the meeting is adjourned, proxy appointment service as detailed in note 7 close of business on the date which is two working below. days before the date of the adjourned meeting) shall be entitled to vote 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 If you prefer, you may request a hard copy form from Link using the numbers shown above and return it to Link Group, PXS 1, Central Square, 29 Wellington Street, Leeds, LS1 4DL. rights of any person to attend or vote (and the All proxy appointments, whether electronic or hard number of votes they may cast) at the meeting. copy, must be received by the Company’s registrar 4. Appointment of proxies A member is entitled to appoint another person as his or her proxy to exercise all or any of his rights to vote at the meeting. A proxy need not be a member of the Company. A member may appoint no later than 11:00 a.m. on Monday, 25 April 2022 (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). more than one proxy in relation to the meeting 7. CREST members who wish to appoint a proxy or provided that each proxy is appointed to exercise proxies for the meeting (or any adjournment of it) the rights attached to a different share or shares through the CREST electronic proxy appointment held by him or her. To appoint more than one service may do so by using the procedures proxy, each different proxy instruction must be described in the CREST Manual. CREST personal received by the Company’s registrars at: Link Group, members or other CREST sponsored members, and PXS 1, Central Square, 29 Wellington Street, those CREST members who have appointed a voting Leeds, LS1 4DL no later than 48 hours before the service provider(s), should refer to their CREST time appointed for the meeting (excluding non- sponsor or voting service provider(s), who will be working days). You will need to state clearly the able to take appropriate action on their behalf. 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 6 to 9 below and the notes to the form of proxy. 8. 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 160 161 GENERAL NOTES GENERAL NOTES proxy or is an amendment to the instruction given 11. As at 8 March 2022 (being the last practicable Directions to the Annual General Meeting to a previously appointed proxy, must, in order date before the publication of this notice), the to be valid, be transmitted so as to be received Company’s issued share capital consists of by the Company’s Registrars, Link Registrars 36,968,772 ordinary shares of 10 pence each, (CREST ID RA10) no later than 11.00 a.m. on Monday carrying one vote each. As the Company holds Car: Leave the M6 at Junction 23 and take the A49 south towards Newton, Woodlands Park is on the left in approximately 0.3 miles. On entering the estate, Laurel House is accessed from the fourth exit of the roundabout. 25 April 2022) (or, if the meeting is adjourned, no 377,664 ordinary shares in treasury, in Train: Newton-le-Willows railway station is located 1.3 miles away from Woodlands Park on Southworth Road, later than 48 hours (excluding any part of the respect of which it cannot exercise any votes, the WA12 9SF. day that is not a working day) before the time of total voting rights in the Company as at 8 March any adjourned meeting). For this purpose, the time 2022 are 36,591,108 12. You may not use any electronic address provided either in this notice of general meeting or any related documents to communicate with the Company for any purposes other than those expressly stated. 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 Link 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 members is a CREST personal member or sponsored member or has appointed a voting service provider(s) takes(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by an 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. 9. 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. 10. A shareholder which is a corporationmay 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. Bus: The nearest bus service to Woodlands Park is located on Cobden Street, 0.8 miles from Woodlands Park, operating the number 22 service into Newton-le-Willows. FINANCIAL CALENDAR ANNUAL GENERAL MEETING 27 April 2022 INTERIM RESULTS ANNOUNCED 27 July 2022 Laurel House, Woodlands Park, Ashton Road, Newton-Le-Willows, WA12 0HH. 01925 22 22 22. www.nicholsplc.co.uk 162 163 NOTES NOTES 164 165 NOTES NOTES 166 167 168 

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