Nichols PLC
Annual Report 2022

Plain-text annual report

A N N U A L R E P O R T 2 0 2 2 WELCOME - TO OU R - 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 2 2 1 1 1 WELCOMEANNUAL REPORT 2022CONTENTS STR ATEGIC REPORT Key Performance Indicators Chairman’s Statement Our Business Model Chief Executive Officer’s Report Happier Future Progress Report Chief Financial Officer’s Report Risk Management Section 172 Report GOVERNANCE The Board Corporate Governance Statement Audit Committee Report Remuneration Committee Report Nomination Committee Report Directors’ Report FINANCIAL STATEMENTS 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 Consolidated Statement of Changes in Equity Statement of Changes in Equity Notes to the Financial Statements Unaudited Five Year Summary Notice of Annual General Meeting General Notes Financial Calendar 12 14 16 18 30 56 62 68 76 78 86 90 98 100 108 118 118 119 120 121 122 123 124 167 168 172 174 2 3 ANNUAL REPORT 2022OUR BRANDS OUR PORTFOLIO At Nichols we are proud to offer a leading portfolio of distinctive, iconic brands, which meet a variety of consumer needs and occasions. PACKAGED Our Packaged range includes Still and Carbonates in a range of formats. Vimto is the refreshingly different Our Vimto range includes squash, soft drink that has it all. Created carbonates, still drinks, flavoured in Manchester in 1908 by John waters and frozen drinks. With Noel Nichols, Vimto was originally a choice of unique flavours and designed as a herbal tonic to give Original and No Added Sugar its drinkers ‘Vim and Vigour’. options, there are lots of ways to For over 100 years, we have been enjoy Vimto. This also includes mixing our secret recipe – a blend our extensive range of licensed of fruits, herbs and spices – to products – from protein powders produce a unique and irresistible and fruit spreads to desserts and range of drinks. confectionery. Today, we’re the 9th most chosen beverage brand in the UK1, and are enjoyed in 73 countries around the world. 4 5 Refreshingly different. Unmistakably 1Kantar – British Brand Footprint 2021 ANNUAL REPORT 2022OUR BRANDSLevi Roots is one of the UK’s best loved and most successful Experience the taste of California with Sunkist, the brand that has been Feel Good is a range of fruitful sparkling waters available in three unique entrepreneurs. In 2010, we were proud to gain the licence to create Levi’s making waves since 1978. Our Sunkist product range reflects the brand’s flavours that are 100% natural with no added sugar. Feel Good has a range of low sugar carbonated soft drinks – offering a mouth-watering Californian roots of sun, sand and surf and makes Sunkist a firm favourite mission to ‘make the world feel better one sip at a time’, donating 3% taste of the Caribbean. These delicious, tropical fruit flavours each put a across the UK. Available in a variety of refreshing low sugar flavours. of sales to initiatives that support people and planetary wellbeing and little “music in your glass”. through our ‘You Buy We Plant’ initiative, helping to restore our marine ecosystems and protect against climate change. OUR BRANDS OUT OF HOME POST-MIX COFFEE We’re a one stop shop for the UK’s hospitality and leisure industry with the widest range of iconic soft drinks brands for frozen, post-mix and coffee occasions. We offer the widest range of Working in partnership with Jacobs owned and licensed post-mix Douwe Egberts – one of the largest brands in the industry. This coffee roasters in the world, we includes many of the biggest and supply high quality coffee blends most well-loved brands in the UK, including Douwe Egberts, Kenco, alongside our own premium range and the unique liquid roast coffee of post-mix drinks, offering our concept Cafitesse. customers unrivalled choice. 6 6 7 ANNUAL REPORT 2022OUR BRANDSOUR BRANDS OUT OF HOME FROZEN We’re a one stop shop for the UK’s hospitality and leisure industry with the widest range of iconic soft drinks brands for frozen, post-mix and coffee occasions. We are the UK’s leading frozen ICEE - Frozen, fizzy and full of beverage supplier with a range of flavour, there’s no other slush like enviable category leading brands the world’s No.1 brand - ICEE. A favourite in the USA and around the globe since 1967, ICEE is the Swizzle Fizzle Freshy Freezy frozen drink, with a range that can be found chilling in some of the UK’s largest cinema chains and premium leisure venues. 8 8 9 ANNUAL REPORT 2022OUR BRANDSStarslush is the perfect addition to add some thirst-quenching fun to family days out, with a full range of fabulous flavours, from traditional Strawberry and Blue Raspberry to Vimto and Unicorn Watermelon. With full-on flavour, and zero sugar – you can feel good about ‘Bursting Your Thirst’ with Starslush. SLUSH PUPPiE, the iconic and original frozen drink has been loved by consumers across the world for over 50 years. Available in a range of four delicious fruit flavours that are all sugar free, vegan friendly and contain Vitamin C, it’s the perfect combination of frozen, healthy fun for all to enjoy. STR ATEGIC REPORT Key Performance Indicators Chairman’s Statement Our Business Model Chief Executive Officer’s Report Our Happier Future Progress Report Chief Financial Officer’s Report Risk Management Section 172 Report 12 14 16 18 30 56 62 68 10 11 CONTENTSSTRATEGIC REPORTKEY PERFORMANCE INDICATORS REVENUE (£M) ADJUSTED PBT1 (£M) AND MARGIN (%) PBT (£M) AND MARGIN (%) This year we have reviewed our Key Performance Indicators based on our 2022 Strategic Review. 142.0 147.0 144.3 164.9 118.7 31.8 32.4 22.4% 22.1% 25.0 21.8 15.1% 15.1% 11.6 9.8% 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 +£20.6m +14.3% +£3.2m +14.5% 31.8 32.4 22.4% 22.1% 13.8 8.4% 6.5 5.5% (12.2%) (17.7) 2018 2019 2020 2021 2022 +£31.5m +178.4% STATUTORY EBITDA2 (£M) ADJUSTED1 BASIC EARNINGS PER SHARE (PENCE) BASIC EARNINGS PER SHARE (PENCE) 33.9 37.0 26.9 23.7 69.23 72.81 69.23 72.81 55.38 46.15 16.5 25.56 31.86 13.14 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 +£3.2m +13.3% +9.23p +20.0% 2018 2019 2020 2021 2022 (60.04) +91.90p +153.1% FREE CASH FLOW3 (£M) STATUTORY ROCE4 (%) FULL YEAR DIVIDEND (PENCE) 19.6 21.4 17.6 17.5 14.6 28.7% 26.3% 38.1 36.8 27.7 23.1 14.2% 5.2% 12.4 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 -£2.9m -16.7% (15.8%) 2018 2019 2020 2021 2022 +30.0ppts +4.60p +19.9% 13 1 Excluding Exceptional items. 2 EBITDA is the statutory profit before tax, interest, depreciation, and amortisation. 3 Free Cash Flow is the net increase in cash and cash equivalents before acquisition funding and dividends. 4 Statutory return on capital employed is the operating profit divided by the average period-end capital employed. 12 KEY PERFORMANCE INDICATORSSTRATEGIC REPORTCHAIRMAN’S STATEMENT JOH N - NICHOLS - NON-EXECUTIVE CHAIRMAN It gives me great pleasure to write to our shareholders in what is my final report as Non- Executive Chairman of Nichols. Actions are expected to be In the UK, revenue increased by implemented throughout FY23, 13.7% versus last year to £127.0m with benefits being realised largely (2021: £111.6m) as the OoH route in FY24 and beyond. Given the to market, and in particular the differing strategic challenges Dispense business, recovered post between our Packaged and OoH the pandemic. The Vimto brand routes to market, the Group will be segmented during FY23 to continued to progress by +3.0% to £105.9m, according to Nielsen1. Vimto continues to perform well ensure appropriate strategic focus both in the UK and internationally exists for each of its two proposed and despite ongoing inflationary operating segments. pressures, which accelerated during the second half, the brand TRADING has ensured a robust financial Total Group revenues for the performance for the Group. In period were £164.9m, an increase the UK we have again seen the of 14.3% compared to 2021, brand outperform in dilutes and with all routes to market and continued to make significant geographies progressing in the progress in the ready to drink period. Sales across our International markets were £38.0m, an increase of 16.1% (underlying +13.4% adjusting for the impact of the completion of the Group’s marketing investment in the Middle East in 2021) versus the prior year (2021: £32.7m). Revenue in Africa increased 15.0%, following a 17.1% growth last year which was particularly pleasing given the (RTD) subcategory. Internationally, we continued to see solid growth across all regions. In particular, it was pleasing to see strong underlying growth in both the Middle East and Africa given the importance of these markets to the Group. Revenue of Still products increased long-term opportunity presented by 8.2% to £78.3m (2021: by these markets. £72.4m), driven by the strong performance of the Vimto Squash SHARE BUYBACK and RTD brands in the UK and On 14 December 2021, the Group the progression of Vimto Cordial announced its plans to conduct in the Middle East. Revenue from on-market purchases under Carbonated products increased a share buyback programme. As Out of Home (OoH) recovers 20.4% to £86.6m (2021: £71.9m), This included the intention to from the impact of the pandemic, driven largely by the recovery repurchase up to 453,486 ordinary the Group’s OoH Strategic Review is now complete, with opportunities for net margin improvement identified. of the Group’s OoH Dispense shares of 10p each in the capital of business as outlets fully reopened the Group (the ‘Ordinary Shares’), following the pandemic, and by representing up to approximately continued strong growth in Africa. 1.2 per cent of the Group’s issued share capital, pursuant to the have identified an outstanding authority obtained at the Group’s candidate with significant PBT2 to be in line with FY22 and market expectations3, with most recent Annual General experience in consumer-facing International ahead and OoH Meeting (AGM) at that time, held businesses and public company behind initial market forecasts. on 28 April 2021 (“the Buyback”). boards. The Buyback was put in place Liz joined the Group as a to meet the Group’s future Non-Executive Director (NED) on obligations under its SAYE Option 1 February 2023 and will become Scheme and/or Long-Term Non-Executive Chair on 26 April The Board remains confident of significant progress in FY24 as inflationary pressures abate and the benefits of the Out of Home Strategic Review are realised. Incentive Plan. The Buyback was 2023 following the conclusion of With a long-term track record completed on 5 April 2022 and was the AGM on that date, subject to of growth, a proven and funded from the Group’s existing her re-appointment as a Director. diversified strategy in the UK and cash resources. All Ordinary Shares repurchased are now held in treasury. The weighted average price paid was 1428.18 pence and the total cost of the Buyback in the period was £5.5m. I am delighted to remain on the Board as a NED, taking the second of the two Nichols family Board seats, agreed as part of the Relationship Agreement signed in July 2020 alongside my son James internationally, a quality range of brands and a strong balance sheet, the Board remains highly confident that the Group is very well positioned to deliver its long-term growth plans. DIVIDEND Nichols. Considering the Group’s improved OUTLOOK performance in the period and in-line with the Group’s stated dividend policy of broadly 2x cover, the Board today proposes a final dividend of 15.3p which, together with the interim dividend paid, would result in a full year dividend for 2022 of 27.7p, representing a 19.9% increase year-on-year. The Group has a proven, diversified, and international business model. However, it is John Nichols not immune to the significant and Non-Executive Chairman accelerating inflationary pressures 28 February 2023 impacting the wider consumer and soft drinks markets. Whilst FY23 will be a challenging year as cost of living pressures impact Subject to approval at the Group’s consumer demand across all AGM on 26 April 2023, payment routes to market, the Group will will be made on 4 May 2023. The continue to seek to mitigate ex-dividend date and record date these pressures through will be 23 March and 24 March both cost efficiency and 2023 respectively. revenue management. CHAIR SUCCESSION Throughout FY22, this has helped I announced at the last AGM that, the Vimto brand after 15 years in the role, it was my continue to grow intention to retire as Non-Executive in the UK and Chair once a suitable replacement internationally, had been identified. On 11 January which the Board 2023, the Board was pleased to announce the appointment of is confident will continue in FY23. Elizabeth (Liz) McMeikan as the The Board Group’s next Non-Executive Chair. currently expects In Liz, the Nominations Committee FY23 Adjusted 14 1 Nielsen IQ RMS data for the Total Soft Drinks category for the YTD ending 31December 2022 for the GB Total Coverage market. 2 Excluding exceptional items. 3 FY23 market expectations refers to a Group compiled consensus of adjusted PBT of £25.1m. 15 CHAIRMAN’S STATEMENTSTRATEGIC REPORTOUR BUSINESS MODEL EXISTS TO MAKE LIFE IN GREDIE NTS Like all great tastes - it all starts with the best ingredients! The ‘Vimto secret recipe’ is testimony to this. CONSUMER S It’s ultimately all about getting our much loved brands into people’s hands! M ANUFACTURE Our much loved products are made by the very best - ourselves or our supplier partners. RETAILER S Our retailers vary from some of the biggest to some of the smallest in the world. TR ANSPORT We use the most effective distribution solutions to meet customer needs, whether that be via our own team or an expert partner. 16 17 OUR BUSINESS MODELSTRATEGIC REPORTCHIEF EXECUTIVE OFFICER’S REPORT ANDR EW - MILNE - CHIEF EXECUTIVE OFFICER logistical challenges relating to consumers can enjoy our brands the strike action that occurred on a daily basis. A key initiative in Spain during the first half of that has been successfully 2022 that, whilst not affecting delivered to drive this during the the overall year performance, year was the transition of our did cause a phasing issue H1 to dilutes contract manufacturing H2. Whilst our teams have had to more efficient and faster lines to be flexible and continuously that has increased our capability adapt to changing circumstances, and capacity at an underlying I am really pleased that our favourable cost of goods position. I am incredibly proud to say that Vimto is the only UK dilutes brand to have achieved growth pre, during, and post Covid. clear strategy and diversified business model have enabled us to successfully overcome the challenges throughout the year and, ultimately, deliver returns for our shareholders. The performance of the Vimto brand was central to the Group’s success in 2022. Vimto’s unique flavour continues to be loved by consumers across the globe. In the UK, the brand saw growth of 3.0%1 during the year, once again outperforming the dilutes and ready to drink (RTD) subcategories. One of the Group’s key strategic focus areas in 2022 was to drive further operational excellence, with the objective of delivering enhanced levels of product availability and ensuring our I am incredibly proud of the Group’s strong performance in 2022, which is a great testament to the commitment, resilience and determination of the entire Nichols team as we navigated what was a challenging and volatile trading environment. The teams should be very pleased with what we have achieved this year, delivering strong sales growth across all our key geographies. Having experienced unprecedented trading conditions in recent years because of the Covid-19 pandemic, 2022 was another challenging and unpredictable year. We saw rapidly rising inflation, increased cost of living pressures on consumers and experienced a number of HAPPIER FUTURE communities we serve and The Vimto brand continued to At the beginning of the year, we shared our Happier Future sustainability commitments with our stakeholders, and I am pleased to report that in 2022 we made strong progress against our three key pillars of: looking after our Nichols plc family and giving back to our local communities Developing products that allow consumers to make healthier choices, strengthening our approach to responsible sourcing, and continuing to find sustainable packaging solutions ensuring that we continue to perform well in 2022 and, once launch a range of No Added again, delivered strong value sales Sugar (NAS) products to offer our of £105.9m. This was a result of consumers a balanced choice of the continued investment in its product range. Within our Owning distribution channels, product Our Climate Impact pillar we have availability, innovation, promotions delivered on transitioning all our and strong marketing campaigns. Nichols UK sites to be operating on 100% renewable energy. You can read more on our Happier Future strategy and progress during the year in our FY22 Happier Future Progress Report. UK SOFT DRINKS1 The UK soft drinks market delivered value growth during 2022 of 9.2% with a total market value of £10.5bn (2021: 9.6bn). However, market sales volumes declined 2.1% year-on-year, mainly due to the impact of cost of living pressures on consumers The dilutes category continued to be a segment where we flourished. I am incredibly proud to say that Vimto is the only UK dilutes brand to have achieved growth pre, during, and post Covid. Building on the momentum of our brand re-launch in 2021, Vimto dilutes continues to gain market share from peers and during 2022 we further cemented our clear No.2 position in the market. Vimto Squash is the fastest-growing dilutes brand and outperformed the sub-sector by 2.3% in 2022. and despite the easing of trading Our Vimto Still RTD range and social restrictions imposed experienced significant value during the Covid-19 pandemic. growth in 2022, achieving 15.9% This value growth reflected price year-on-year sales growth, and a Ensuring we are conducting our increases seen across the market +3.8% market outperformance. business in the most sustainable in response to way to protect the world around us inflationary pressures. Our people are focused on embedding our commitments and pledges in these key areas across all our business practices. Sustainability is front of mind for everyone, and key to our day- to-day decision-making. Some of our key highlights during the year included launching our first Camp Vimto programme which is focused on raising aspirations and driving opportunities for young people in the w e i v o t e r e h n a c S e g n a r l l u f r u o 18 1 Nielsen IQ RMS data for the Total Soft Drinks, Squash, Flavoured Carbonates and RTD Stills category for the YTD ending 31 December 2022 for the GB Total Coverage market 19 19 CHIEF EXECUTIVE OFFICER’S REPORTSTRATEGIC REPORT Our Levi Roots brand had another successful year, delivering strong value growth of 5.3%. This has been driven by an increase in the number of distribution points across wholesale and convenience channels, alongside a successful sales distribution drive, ensuring that the Levi Roots brand is readily accessible for both retailers and consumers. Our Feel Good brand continues on-trade. In addition to our retail Wales through our to see accelerated customer distribution wins, our new direct to #youbuyweplant programme. and consumer demand, with consumer partnership will unlock year-on-year volume and revenue more growth for the brand online. Throughout 2022, we continued to work closely with all our customers growth. This was driven by strong distribution gains for multi-packs into new grocery retailers as well as new listings for our single serve range in the In April 2022, Feel Good launched across our UK grocery, foodservice, an exciting new partnership discounter and wholesale channels with Project Seagrass, a marine to ensure their needs are at the conservation charity dedicated heart of our operations. The to global seagrass meadow strength of these relationships is protection. We supported the paramount to ensuring our end protection of the UK’s first consumers can enjoy our products seagrass nursery in each day. This has been achieved as a result Innovation continued to be a of winning several new listings for key growth driver in 2022 as our products across a range of key we launched a range of exciting outlets during the year. new products that all share the 2022 has been a challenging year for our Carbonates portfolio. We have faced significant cost of goods pressures in what is a highly competitive subcategory. unique and distinctive Vimto taste experience. We remain passionate and committed to providing consumers with the opportunities to make balanced and informed choices when it comes to healthy As a result we have focused on hydration, with all our Packaged protecting our margins which has products now High in Fat, Salt resulted in both value (-3.3%) and and Sugar (HFSS) compliant. Our volume decline (-16.4%). product launches in 2022 included: • Vimto Zero Cherry, Raspberry & Blackcurrant Sparkling • Vimto Zero Blackberry, Raspberry & Blueberry Still • Two new NAS dilutes flavours - Vimto Orange and Pineapple, on platforms including TV, video and Vimto Mango and on demand, digital, social media Passionfruit Following its launch in 2021, summer 2022 saw the return of Vimto’s highly successful ‘Find Your Different’ marketing and and in cinemas. The campaign was seen by around six million consumers in total, with 80% of this group sitting within our key target audience of families. advertising campaign. Building on In addition to our broadcast the strength of its activation last communications, we also ran two year, the multi-media campaign promotions across our Carbonates continued to drive a strong uplift and RTD ranges, including our ‘Big in overall brand awareness, Cash Giveaway’ and ‘Love Potion’ consideration and engagement, initiatives in the impulse sector. whilst highlighting the benefits of Both incentivised shoppers with our fortified squash flavour range. the chance to win cash instantly Our fully-integrated campaign ran when buying our products. 20 21 CHIEF EXECUTIVE OFFICER’S REPORTSTRATEGIC REPORT OUT OF HOME STRATEGIC REVIEW quite distinct from those that • improving financial reporting, As previously announced, in 2022 we conducted a strategic review of our OoH route to market as we assessed the significant impact of the pandemic on this channel. The review has allowed us to create a clear strategy that we believe will exist within our Packaged route including divisional and regional to markets. The likely long-term reporting focusing on net profit returns from OoH are lower and return on capital employed. and a different approach to the management of the business is required to deliver shareholder value in the long term. The Group incurred £0.5m of costs in the period, to prepare its recommendations for implementation. Implementation deliver significant additional net The strategic review identified of these actions commenced in Q1 margin gains through a range of several immediate actions that will FY23 and additional exceptional actions that will be implemented be implemented through FY23. costs will be incurred through the during 2023, with the benefits being largely realised in 2024 and beyond. The OoH route to market’s These actions include: • operating OoH as a distinct division within the Group year as these recommendations are implemented. The benefits from these actions will largely be realised during FY24. financial performance was • exiting underperforming heavily impacted by the Covid-19 contracts and product pandemic, reflecting the lower categories, including coffee and margin and higher level of national frozen accounts operational gearing that exists compared to our Packaged route to markets, particularly when its full operational costs and overheads are factored in. • exiting the in-house central frozen region, which is considered sub scale and unprofitable and for dispense is already serviced by a The OoH dispense business distributor w e i v o t e r e h n a c S e t i s b e w w e n r u o • reviewing processes to simplify the business ensuring a rationalisation of operating costs and central overheads is serviced on a regional basis through both owned distribution channels and third party distributors. OoH also services several national frozen contracts which cannot be serviced profitably without a wholly owned national distribution network. The strategic review performed by the Company during 2022 provided clarity on the financial performance of OoH. It also identified that OoH operates with distinct operations, customers, products and, in part, suppliers. It is clear post the pandemic that the strategic challenges within our OoH route to market are UK ON-TRADE accelerating cost of living crisis We continue to have strong which resulted in reduced footfall relationships with our key partners and consumer spending in our key including Coca-Cola, Pepsi, Irn-Bru, Similar to the broader hospitality industry, our Out of Home route to market experienced another leisure outlets. challenging 12 months in 2022. Strong innovation and marketing During the year, we supported our key customers and partners as they faced numerous challenges resulting from increasing energy costs to rising inflation and supply shortages. Throughout the year, we remained focused on maintaining strong service levels and always maximising product availability, thereby ensuring all of our customers’ drinks equipment were fully operational, and that our deliveries arrived on time and in full. I am satisfied with the OoH route to market’s performance in 2022, as it continued to recover from the impact of the pandemic to deliver sales growth of 43% versus 2021. Nonetheless, its performance during the second half of the year slowed to +5% against tougher post-Covid comparatives and many channels were impacted by the programmes have once again been fundamental in driving the performance of our brands across key leisure and hospitality venues. Synchronising with movie launches has become an increasingly important part of our ICEE brand’s strategy, driving brand visibility by trialling the product in venue. In 2022, this included collaborating with Paramount Pictures and Cineworld on the ‘ICEE Challenge’, a cinema advert reel led by Johnny Knoxville, to support the launch of the Jackass Forever movie. During the year, we also launched our ‘ICEE Big Flavour Vote’, inviting fans to select their preferred new flavour from a range of three. As a result, the winning flavour, Mango & Passion Fruit, was launched in July across a range of cinema venues and was focused on driving incremental consumers to the brand on a more regular basis. Ocean Spray and Sunkist. This year, we also introduced the Old Jamaica Ginger Beer brand on draught in the UK as part of an exclusive partnership. The strength of these partnerships underpinned double digit revenue growth versus last year on our core dispense branded offerings. In addition, in November we launched our new Vimto Out of Home website, providing customers with a more user-friendly experience, where they can easily view our portfolio and service offering in full. The website will be at the heart of future trade engagement plans. Strong innovation and marketing programmes have once again been fundamental in driving the performance of our brands 22 23 CHIEF EXECUTIVE OFFICER’S REPORTSTRATEGIC REPORT key territories delivered further In Europe, positive sales growth of success, with seasonal activations 23% was extremely encouraging around Valentine’s Day, Ramadan in the context of the challenging and Tabaski within all key markets market conditions. In Europe we in Africa. In Algeria, we invested in are maintaining our strong focus a range of shopper activations and on driving new distribution wins, a first-ever digital campaign across improving product availability, Instagram and Facebook, which and ensuring excellent in-market supported the delivery of record execution. sales in 2022. In Africa, sales growth remained Inflation in North America proved strong at 15% year-on-year, as we extremely challenging to mitigate increased our distribution network throughout 2022 and we saw into Angola, Chad and the Central demand for our products soften African Republic, and launched during the period. We continue to new flavour extensions into a number of existing markets. Our investment in strong marketing programmes across work in close collaboration with our partners in-market to ensure we maintain our key distribution points. INTERNATIONAL Double digit growth and market In its 96th Ramadan season, our I am pleased to report strong International sales growth of 16% in 2022. This was achieved despite the challenges posed by inflation, global supply chain challenges, and political instability in some of our international markets during the year. share gains were achieved across partner in MEAP, Aujan Coca- all our key geographies. Sales in Cola Bottling Company (ACCBC), MEAP (Middle East Asia Pacific) launched the region’s first ever were up 20% supported by strong Zero Sugar cordial, a limited- in performance in Yemen, despite edition format which proved the ongoing tragic civil war, and extremely popular. Outstanding across the Gulf Cooperation market execution and a highly Council (GCC). This was fuelled by effective promotional campaign, strengthened in-store execution, including a spectacular take-over effective integrated marketing of the Burj Khalifa, helped ensure campaigns and product innovation. that sales across the season exceeded those achieved in 2021. We also achieved strong sales growth in our RTD ranges with the launch of a new campaign celebrating ‘The Unique Taste of Sweet Togetherness’. In November, we launched a new Vimto citrus flavoured RTD product in a green can, targeted to drive incremental consumers to the brand. Across all our key markets and geographies, we have continued to roll out our new Vimto branding, with Senegal, Cameroon and Mali all being delivered in Africa, as well as Sweden and Cyprus within Europe. Double digit growth and market share gains were achieved across all our key geographies w e i v o t e r e h n a c S e t i s b e w r u o 24 25 CHIEF EXECUTIVE OFFICER’S REPORTSTRATEGIC REPORT 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. CORE PRODUCTS, CORE CUSTOMERS, CORE MARKETS. Our core range of iconic brands continue to be loved by our consumers and customers around the world and we will continue to invest to support and drive their growth. 2022 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. Our enhanced operational excellence programme has ensured we deliver great customer service and drive product availability enabling our consumers to enjoy our products wherever they are. 26 27 CHIEF EXECUTIVE OFFICER’S REPORTSTRATEGIC REPORTINNOVATION AND ACQUISITION Driving growth through innovation will continue to be at the heart of our long-term growth strategy. 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 market and consumer insights to understand the long- LOOKING AHEAD We have successfully delivered consistently strong I am confident that the momentum we have built term trends and consumer needs, performances across the breadth of the Group, will enable us to continue to deliver our long-term through our diversified business model, clear strategic objectives, achieve profitable growth and strategy, strong brand equity and embedded ESG generate considerable returns for all our stakeholders. commitments, as well as the strength of our key partnerships and talent of our highly engaged people. Our outstanding portfolio of iconic brands has continued to grow across all markets in 2022, which remains at the heart of our success. We have a strong balance sheet and international reach. Andrew Milne Our performance this year is testament to the Chief Executive Officer strength of our business. Whilst 2023 will undoubtedly 28 February 2023 bring challenges, as inflationary pressures are expected to persist and consumer confidence remains under pressure, the soft drinks category has proven to be highly resilient over many years and I expect that this resilience will continue to support our business growth. will be crucial to ensuring we evolve our business and deliver long term, sustainable growth. MAKING LIFE TASTE BETTER FOR EVERYONE I was very proud that during 2022 All businesses have an important we published our ESG Strategy and responsibility to tackle the global shared a clear set of commitments climate crisis and at Nichols, we are that outlined the Nichols vision for serious about Owning Our Climate impact and are taking the right actions to reduce our own direct emissions and working closely with our partners across our UK operations in the first instance, to reduce our impact throughout our supply chain. 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 those in the communities we serve, particularly supporting the people in those communities who need it most. Fundamental to creating our Happier Future is to develop Products that we are Proud of, helping our consumers to make healthier hydration choices, to having sustainable packaging solutions and ensuring that we source our ingredients and materials responsibly. 28 29 CHIEF EXECUTIVE OFFICER’S REPORTSTRATEGIC REPORTOUR HAPPIER FUTURE PROGRESS PROGRESS REPORT 2022 REPORT In 2022 we made clear progress in embedding our Happier Future Strategy into “how we do things at Nichols”. For example, we have introduced High in Saturated Fat, Salt and Sugar (HFSS) compliant products across our UK packaged portfolio, collected Scope 3 emissions data across our UK supply chains, embedded clear social and environmental requirements into our contracts with key partners, and worked on formalising key policies for packaging and responsible sourcing. We have also continued our focus on giving back to our local communities – evidenced by both the ongoing partnerships with Waves for Change, Salford City Football Club and Warrington Youth Zone, and through new opportunities with Manchester Thunder and launching our own Camp Vimto Programme. Our progress has been delivered under challenging external circumstances. In 2022, like many businesses worldwide, we have been impacted by the war in Ukraine and, in the UK, the significant inflationary environment and supply chain challenges. This dynamic external context has required us to remain both agile and pragmatic, whilst retaining our focus on our Happier Future commitments. On behalf of the Board, we would like to thank everyone who has contributed to the successful delivery of the 2022 Happier Future achievements. Continuing our hard work, our 2023 focus includes embedding our community partnerships, implementing the Deposit Return Scheme (DRS) in Scotland, reducing our direct (Scope 1 & 2) emissions through initiatives such as electrifying our van fleets, which was impacted by global supply chain issues in 2022, and developing our Scope 3 roadmap for our UK operations. 3030 31 31 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORTOUR HAPPIER FUTURE STRATEGY INTRODUCING THE HAPPIER FUTURE STRATEGY From the heritage of our brands to the values our Over a hundred years of experience has taught us employees demonstrate every day, social purpose that it is through continuous evolution that we ensure has been at the heart of how Nichols works across the sustainability of our business and, with this in the world for more than a century. In fact, we have mind, we have organised our strategy for a Happier made it our business to help people young and old, Future into three pillars. These are interconnected but from Manchester to the Middle East, to enjoy the provide us with tangible goals around which we can habit of regular healthy hydration. Our Happier Future align our resources, employees and stakeholders, framework sets out our approach to doing business in and measure our progress against each year. the right way, for our consumers, customers, partners, employees, and the world around us. We pledge to improve the future for over 100 young people in our local communities, raising aspirations through skills development and career development opportunities. We will innovate to allow our consumers to make healthier choices. All of our UK Packaged products will contain 51% sustainably sourced rPET by 2022. We are striving to reach 100% by 2025. We will reduce our impact on climate change by reducing absolute Scope 1 & Scope 2 Green House Gas emissions* by 25% by 2025 and define our net zero roadmap. * 2018 baseline BRINGING OUR HAPPIER FUTURE STRATEGY TO LIFE EVERY DAY We have worked hard to ensure that our Happier Future strategy is embedded throughout the organisation, with every employee understanding what it means for them and their role. team members who can input customer, consumer and supply partners requirements and expectations. Outside of the formal Happier Future Programme, all employees are responsible for enacting Happier Future’s purpose – doing the right things, in the right way in their everyday work, decisions, and interactions. We have clear governance, leadership and activation of our strategy, with every team within the organisation having an important role to play to ensure we are delivering on our commitments and that Environmental and Social Governance (ESG) is a part of how we do business everyday. We have taken deliberate steps to ensure that the strategy is embedded within our company culture at every level. Steps taken to embed the strategy throughout the organisation include: • We launched the strategy at the company-wide Our Happier Future Steerco, chaired by our People quarterly team brief meeting, with physical and & Sustainability Director, sets our overarching direction digital communication to advertise its launch to with approval from the Board and alignment with the all employees. We continue to provide updates on Senior Leadership Team. The Steerco monitors and progress at every quarterly team brief meeting reviews our progress and ensures that new insights are considered and incorporated into our Happier • We introduced a ‘green chair’ into each meeting Future workstreams and projects as appropriate. room, as a reminder that ESG must ‘have a seat’ at the table and be considered in every decision taken A clear set of workstreams ensures all plans and commitments across the 3 pillars are managed • We also introduced a new ‘Happier Future star award’, through project teams, who regularly report progress awarding employees who have really made a difference and escalate issues and risks through our project management office. Our project teams are multi- • All employees are expected to have a specific disciplinary and include relevant technical experts and personal Happier Future objective each year 32 33 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT EVERYONE MATTERS Doing things in the right way means ensuring everyone is looked after, from our people to those in our local communities. Our approach is led by our strong values, with a focus on putting our people first and giving back to those who need it most. Our primary consumers are young people, and we want to support them with more than just refreshment. Therefore, we are committed to improving the lives of young people who need it most. Highlights this year include: • Successfully trialling a new agile working policy, supported by an Agile Working Toolkit. The trial received positive feedback in our Employee Engagement Survey with 98% of respondents saying agile working supports them positively with their wellbeing • Launching our ‘Leading @ Vimto’ programme, to train and provide managers with the skills to lead and support their teams effectively • Inclusion remained a key focus area and this year we delivered training on Inclusion and Diversity (I&D) for leaders and managers and established a Female Leaders Network, bringing together women from across the organisation to explore ways to overcome common challenges and share opportunities. We also continued with our #ThisisMe series, where employees share their personal stories and connect on an individual level with other people across the business • Further developing the Wellbeing hub, to ensure a well-rounded offering of services and support to our people, including delivering seminars and further training on financial wellbeing, mental health and the Employee Assistance Programme (available for all staff) • Running a full Employee Engagement Survey this FOCUS FOR THE FUTURE We will continue to put our people first, including: • Developing our Inclusion & Diversity strategy year, covering a wide range of topics including day-to • In 2023, our Female Leaders Network will day life at Vimto, Leadership, Communication, look to engage more women across the business Development, Wellbeing and I&D. Three priority group and we will encourage the development of our themes have been identified, with actions already LGBTQ+ resource group underway on areas which will make a real difference to our people and the business • Providing exciting development opportunities for our people through our strategic projects Our Results: and key initiatives 98% 97% 97% 84% AGREE THAT THEY SHARE MANY OF THE VALUES OF VIMTO AGREE THAT THEY ARE CLEAR ABOUT WHAT THEY ARE EXPECTED TO ACHIEVE IN THEIR JOB AGREE THAT THEIR MANAGER TREATS THEM WITH RESPECT FEEL THE EXPERIENCES THEY HAVE GAINED AT VIMTO SUPPORT THEIR PERSONAL/CAREER ASPIRATIONS THE BEST THING ABOUT WORKING FOR VIMTO WAS ‘THE PEOPLE, TEAMWORK & A FAMILY-LIKE CULTURE’ WHILST 84% EMPLOYEES BELIEVE THEIR PERSONAL SAFETY, HEALTH AND WELLBEING IS ALWAYS A HIGH PRIORITY FOR VIMTO, THEY ALSO TOLD US THAT THEY WOULD LIKE MORE SUPPORT IN HELPING THEM MANAGE THEIR OWN MENTAL HEALTH • Further developing our agile working practices in 2023 to reflect the evolving external context and the needs of our people and our business • In 2023, continuing to support our people’s wellbeing and provide opportunities for them to develop their understanding and the skills to manage their own mental health, physical and financial wellbeing • Continuing to implement our Employee Engagement Survey plan to drive improvements and enhance our three Group Priority Themes - Wellbeing, Systems, and continuing to develop our people-focussed Culture WE PLEDGE TO IMPROVE THE FUTURE FOR OVER 100 YOUNG PEOPLE IN OUR LOCAL COMMUNITIES, RAISING ASPIRATIONS THROUGH SKILLS DEVELOPMENT AND CAREER DEVELOPMENT OPPORTUNITIES PUTTING OUR PEOPLE FIRST PROGRESS IN 2022 Our people are the foundation of our business and it’s thanks to their continued commitment and motivation to ‘make life taste better‘ that we have had another successful year. We have continued to put our people first in terms of their wellbeing and development. This year, we have been working on our Inclusion and Diversity (including Wellbeing) approach. The feedback we received from the Employee Engagement Survey this year has reinforced that Nichols remains a great place to work and provided us with rich insight into how we can do even better in these areas. 34 35 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT GIVING BACK TO OUR LOCAL COMMUNITIES PROGRESS IN 2022 We believe that every young person matters, yet in today’s society, access to opportunities is not equal. The primary consumers of our products are young people, and we are committed to supporting them with more than just refreshment. This year we continued to deepen our existing partnerships with youth programmes, as well as launching new partnerships and initiatives that extend our support and commitment for local young people. Highlights this year include: • Running our first pilot for Camp Vimto - our • Celebrating another year of our new programme for young people designed to ‘Day to Make a Difference’ scheme, enable them to gain life skills, build confidence where every employee can take a day and get real-life experience of working at off from work and volunteer in their Nichols (read more in the case study on page 38 local community • Continuing our partnership with Waves for Change (WFC) in Africa – a scheme that combines the positive health benefits of surfing with activities proven to help young people build positive relationships and develop resilience around their mental wellbeing. WFC helps build sustainable communities; for example, young people coming out of the surfing programme then go on to be trained as mentors and coaches themselves. The programme then supports the coaches with their next steps in employment or education • Launching a new partnership with Manchester Thunder, to establish the first ever ParaNetball club, by a Super League netball team. The programme is designed to ‘focus on the ABILITY within DisABILITY, and ensure NetbALL really is for ALL’ • Supporting both The Wave’s ‘Summer of Waves’ programme, that helps vulnerable young people try surfing, and Project Seagrass, which plants seagrass seed to help restore marine ecosystems and protect against climate change with our Feel Good brand • Continuing our partnership with Salford City Football Club, providing support to their development teams • Raising £10k through our annual Charity Golf Event to support the continued running of the fabulous Warrington Youth Zone facility FOCUS FOR THE FUTURE We are really proud of the Community Partnerships we have in place, and will continue to enhance these through the following activities in 2023: • Further developing our existing partnerships, with clear opportunities for employee involvement • Welcoming our second cohort of young people to Camp Vimto 36 37 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT C A S E S T U D Y CAMP VIMTO Last year we pledged to improve the futures of over 100 young people in our local communities by 2025. To help achieve our goal, we launched Camp Vimto this year – a programme created, led and delivered by our employees and expert partners Whysup and Bright Leaders. Its aim was to raise the aspirations 1. Engagement - With support from our partners at of young people aged 16-18 years old, Warrington Youth Zone, we recruited young people local to our Head Office, through skills from the local community to join the programme. and career development opportunities. Our specially designed programme 2. Induction - We ran an introductory session with consisted of five sessions, with in-person participants, giving them and their parents and check-ins along the way to maintain guardians the opportunity to ask questions and engagement. The sessions were: learn more about the programme. 3. Residential - We ran a 2-day residential in North Wales, where participants were able to connect with and learn from one another, and were taken out of their comfort zones in order to develop ‘real’ life skills. 4. Farm to Fizz - We organised and hosted an event at our Head Office, where the participants got to learn more about every area of our business, from sourcing and supply chain to product development, marketing and sales. Participants even got to design their own product! 5. Graduation - To celebrate their successful completion of the programme, a graduation event was held for all participants, parents and guardians. The success of Camp Vimto’s first year has been tremendous. The testimonials from our graduates demonstrate the impact the programme has had on their confidence, knowledge of how our business works, and understanding of potential career paths. The feedback from our partners highlights the authenticity and effectiveness of the programme. I’m thankful for Camp Vimto because it’s given me a new confidence in myself. It’s also been great to see how adults in the work environment sometimes need help too, because it reassures me it’s okay not to be okay even when we’re older. Camp participant testimonial We were delighted to be part of this project and collaborate with like-minded organisations that are passionate about making a difference. This project demonstrated just that! Through lots of planning and consideration we built a well-rounded, impactful programme. In our 5 years of doing this job, this has been one of our most rewarding projects. Camp Vimto proved to be a transformational journey for ALL involved. The young people gained so much and really grew in confidence over such a short period of time. The variety of activities offered throughout the duration of the programme brought challenge, diversity and fun, something which all young people need. Camp Vimto was a huge success and it showcased the culture and values that lie at the heart of Nichols. Chris Reddy, Director & Founder, Bright Leaders Mark Murrey, Co-Founder & Director, Whysup Camp Vimto was an incredible experience for all of the young people who took part, all of them got fully involved and embraced the opportunities and challenges. I genuinely believe that all of them have developed skills, confidence and knowledge which will support them throughout the transition to adulthood. Thank you for everything each of you did to make Camp Vimto a reality. Dave McNicholl, Chief Executive, Warrington Youth Zone What’s next? We feel very proud to have had such a transformative impact on participants’ lives through our programme. This is not the end of our journey together, and we look forward to continuing to work with our participants beyond this summer, exploring schemes such as mentoring and work placements. Next summer, we plan to run the programme again with a second cohort, bringing us closer to our 2025 goal of improving the futures of 100 young people. 38 39 39 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT GENDER PAY GAP REPORT Nichols plc is pleased to present our 2022 Gender Pay Report, which also offers an opportunity to share what we have been focusing on with regard to gender diversity in the business. AN INCLUSIVE WORKPLACE WHERE EVERYONE FEELS THEY CAN TRULY BE THEMSELVES, FEEL VALUED, INCLUDED AND HAVE EQUAL ACCESS TO OPPORTUNITIES IS FIRMLY ROOTED IN OUR CULTURE, VALUES AND HERITAGE. It is also paramount for our employees to feel they are able to perform to their best which of course is integral to the ongoing success of our business. In our 2022 Employee Engagement Survey our employees told us that our people and culture are one of the best things about working at Nichols, that the culture is open and inclusive. OF OUR EMPLOYEES BELIEVE THAT INDIVIDUAL DIFFERENCES SUCH AS RACE, GENDER, DISABILITY AND SEXUAL ORIENTATION ARE RESPECTED AND VALUED AT NICHOLS HAVE LEADERS THEY CAN RELATE TO AT WORK BELIEVE THAT DIFFERENCE IS VALUED AT NICHOLS 34% of our senior leaders and managers are in leadership development programmes which OUR PAY QUARTILES The proportion of males and females in each pay Every employee has the potential to earn quartile continues to reflect the workforce and a bonus at Nichols plc. For new employees, remains broadly consistent with 2021 although we eligibility in their first year will be based on their did see an increase in the number of females in start date in the calendar year and this is the the bottom quartile, which we can attribute to the reason our reported percentages are not 100%. increase in turnover in two specific areas and our success in recruiting females into these roles. Whilst In 2022, we saw a higher number of new good progress has been made in developing our employees joining the business later in the female talent, particularly in our leadership pipeline, calendar year versus 2021, which was reflective we need to realise a more balanced gender split of an active market in the UK more generally due across our workforce to see a substantive change. to wage inflation and lower unemployment. OUR GENDER PAY & BONUS GAP We have seen some substantial swings this year and in 2022 the business reported a good in the median variances of both our hourly pay financial performance which was reflected and bonus resulting in negative gaps. Our median positively in employee bonuses, including in gender pay gap for our hourly pay is marginally Executive and Senior Leadership rewards where favourable to females at -1% compared to the we have greater male representation. UK average of +14.9%1. The median on bonus is -94% favourable to females. The substantial swing from 2021 (we reported no gap) is reflective of the business performance in 2021 and the proportion of females eligible for higher bonus levels compared to males. Due to the nature of gender pay reporting in the UK, which measures the average pay and bonus of men and women across different levels and roles in the company, the reporting of our median and mean gender pay gaps continue to be skewed by the underlying structure of our workforce female. This is reflective of the overall employee provide structured learning, peer support and build In the mean variances for hourly pay and bonus, and are also impacted by the dynamic external gender split in the business. But we want and external networks. Establishment of our Female we saw a swing towards males, particularly for environment the business has been operating need this to improve as having broad employee Leaders Network has already proven invaluable in bonuses. In 2021 bonuses were impacted by the in over the past couple of years. diversity is fundamental to the business having providing peer support and developing leadership performance of the business due to the pandemic, the right discussions and making robust decisions. capability and confidence across the business. 1ONS Annual Survey of Hours and Earnings (ASHE) for 2022 We are working proactively to increase female representation in these roles, with a focus on accelerating the development of our female talent, through stretch opportunities in new roles, secondments or projects and investing OUR GENDER SPLIT Whilst we continue to focus on developing our inclusive culture, we know we have work to do to increase female representation in our business. OUR RESULTS We present our gender pay gap results for the year ending 5 April 2022 in line with our legal obligation and commitment to produce gender pay gap information. Quartile Bottom 2022 Male Female 60% 74% 65% 69% 40% 26% 35% 31% 2 3 Top This year’s gender split remains broadly professions. Our gender split remains reflective 2. Proportion of males & females in each pay quartile consistent with 2021 levels with a slight increase of our large employee group within the operations see table right 1. Employee % split by gender: 33 Female / 67 Male in females employed. We are pleased that we function of our Out of Home (OoH) business. achieved close to an even proportion of new Males make up the vast proportion of employees employees hired during this reporting period with undertaking our driver or technician roles and 46% of new hires being female and 54% being the high proportion of males is reflective of the male. This was particularly pleasing as many of broader talent pool in the market despite a highly the roles were in traditionally male dominated competitive market post the pandemic. 40 3. Proportion of males & females receiving a bonus within the reporting period 87% of males / 83% of females 4. Mean & Median pay gap* Hourly pay – median -1.0% (2021: 10%) / mean 19% (2021: 7%) Bonuses – median -94% (2021: equal) / mean 31% (2021: 15%) *variance in male pay to female pay 2021 Male Female Quartile Bottom 2 3 Top 70% 78% 64% 71% 30% 22% 36% 29% 41 41 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT PRODUCTS WE’RE PROUD OF We’re passionate about making products consumers love – it’s at the heart of what we do. This means developing products that allow consumers to make healthier choices, strengthening our approach to responsible sourcing, and continuing to challenge ourselves to find sustainable solutions for our packaging. 01 WE WILL INNOVATE TO ALLOW OUR CONSUMERS TO MAKE HEALTHIER CHOICES 02 ALL OF OUR UK PACKAGED PRODUCTS WILL CONTAIN 51% SUSTAINABLY SOURCED RPET BY 2022. WE ARE STRIVING TO REACH 100% BY 2025 HEALTHIER HYDRATION PROGRESS IN 2022 We know that we have an important role to play in helping our consumers make healthier choices. Whether by reducing sugar content or adding nutrients, we continue to develop our portfolio through innovation and continuous renovation. That is why we wanted to ensure that we were 100% HFSS compliant across our owned portfolio. Highlights this year include: • Ensuring our whole UK Packaged portfolio is now 100% HFSS compliant • Also ensuring that 97% of sales of our Out of Home (OoH) owned portfolio are now HFSS compliant1 • Celebrating that all of our new product launches in 2022 were Low or No Added Sugar. This included Double Concentrate Vimto, Cherry, Raspberry & Blackcurrant Vimto in fizzy and still varieties and zero-sugar cordial in the Middle East (read more in the case study on page 46) FOCUS FOR THE FUTURE Providing consumers with healthier choices is how we do business at Nichols, our focus areas include: • Continuing with our established approach to Innovation & Renovation, strengthening the depth of our consumer insight in 2023, in order to meet evolving needs • Continuing to work closely with our international partners to explore sugar reduction, where appropriate to the consumer needs in local markets 42 43 1 Excluding Slurp, our frozen milkshake, which we are now reviewing. HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT RESPONSIBLY SOURCED PROGRESS IN 2022 The unique flavour of our products begins with quality ingredients sourced from trusted and responsible suppliers. We source ingredients and materials primarily from long-standing partnerships, providing us with a clear understanding of product quality, labour protections and environmental practices. FOCUS FOR THE FUTURE This year, we have focused on developing the Next year, we will continue to review and policies and practices to ensure sustainability is update the procedures and processes which embedded within the entire production process support our ethical business practices, in line of our products. with our commitment for this pillar: Highlights this year include: • We will embed our responsible sourcing • Supplementing our existing supplier assurance processes, including assessing current and potential suppliers’ ethical policies and business processes • Developing and agreeing a responsible sourcing policy and supplier code of conduct • Embedding sustainable practices into the product innovation process policy as our way of working and it will form part of our expectations in all new strategic partners’ contracts • We will be partnering with Sedex to review our policies and practices and ensure they meet industry social and environmental standards SUSTAINABLE PACKAGING PROGRESS IN 2022 Unsustainable and unnecessary packaging is a pressing concern for our consumers, who don’t want to see the products they buy going on to impact the natural world. We are committed to working with our partners and the wider industry to promote sustainable options and encourage responsible consumer behaviour. • We have also conducted trials on inner ‘Liquipure’ bags - a sustainable packaging solution for our BiB products • All of our UK Packaged shrink wrap contains at least 30% post-consumer recycled waste, with 50% post-consumer recycled waste being reached with some of our suppliers. Material availability and packaging stability has prevented further progress this year • Launching a new Vimto squash bottle made from 51% recycled PET (rPET); the new bottle allows us to pack more efficiently, reducing the number of transport loads (and our carbon footprint as a result) • Introducing our new sustainable packaging policy; which clearly defines which materials we consider to be acceptable for use in our packaging That is why we are working to remove plastic going forward shrink wrapping from Bag-in-Box (BiB) formats and develop a fully recyclable BiB solution for OoH. We are also working with our suppliers to ensure that all remaining UK Packaged shrink wrap uses FOCUS FOR THE FUTURE 50% post-consumer recycled waste. We will continue to trial and implement new, innovative ways to reduce packaging in our Our plan for all of our UK Packaged products to products, and use more sustainable packaging contain 51% sustainably sourced rPET in 2022 across our portfolio. Next year this will include: unfortunately wasn’t fully achieved, however 40.5% of the UK Packaged portfolio contains • Continuing to trial & evaluate the impact of 51% sustainably sourced rPET. As a result of the removing shrink wrap from our BiB formats significant inflationary environment and cost pressures on our business, and the impact of • Introducing a fully recyclable inner BiB passing these costs onto our consumers during substrate ‘Liquipure’ packaging across our the cost-of-living crisis, we took a strategic decision post-mix portfolio not to expand further our UK Packaged portfolio containing 51% sustainably sourced rPET in 2022. • Ensuring a robust implementation of the Despite this setback, we continue to strive to reach DRS in Scotland, supporting us to move forward 100% rPET by 2025. on our roadmap to 100% rPET in our UK Highlights this year include: packaged products • Implementing our new sustainable packaging • Running trials to enable the removal of shrink policy with all our UK partners wrap from our BiB formats • Redesigning our owned V Range BiB products to include clear OPRL recycling logos, making it clear to our customers where our boxes can be recycled 44 45 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT C A S E S T U D Y EXTENDING HEALTHIER HYDRATION BEYOND THE UK At Nichols, we are passionate about innovating and renovating our products to meet emerging consumer needs for healthier hydration. In our International business, we continue to work closely with our partners to explore ways to accelerate uptake of lower sugar and no-added sugar products in countries outside of the UK. The uptake of Low or No Added Sugar products can What’s next? be lower in some international markets than in the UK. Market research has shown a growing trend in This case study evidences appetite within the health and wellness across the Middle East and a market for Low or No Added Sugar products. need for more products suitable for people looking There is a real opportunity to extend our healthier to consume less sugar in their diets. hydration strategy beyond the UK ensuring all our consumers can benefit from Nichols healthy Responding to this, last year our longstanding and great-tasting products. Due to the success of partner, Aujan Coca-Cola Beverages Company, Vimto Zero Cordial in 2022, it will be made available launched Vimto Zero Cordial. This sugar-free again in 2023. We will look to expand the markets product was launched as a limited-edition product and outlets of this product to enable even more for the Ramadan season. The launch was very of our consumers to make healthier choices in successful, and the product exceeded all its set International, as well as UK outlets. key performance indicators. Vimto Zero Cordial proved to be popular amongst consumers, selling out rapidly and receiving good feedback on the health benefits, as well as the taste. In a survey following the product launch, 81% of respondents stated that they intend to try Vimto Zero Cordial1. 46 1Source: IPSOS, Cordial Brand Health Study, Ramadan 2022 47 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT OWNING OUR CLIMATE IMPACT The climate crisis is the greatest issue facing society today and as a responsible company, we have an important role to play. By taking science-based actions to reduce our total carbon emissions, and by understanding and reviewing our operational footprint and supply chain, we can ensure we are conducting our business in the most sustainable way. Nichols recognise that the climate crisis is a principal risk to our business, with a number of potential short, medium and long-term impacts. The Board takes overall accountability for owning our climate impact and managing the risks and opportunities that this presents. The process for identifying and assessing climate-related risks is aligned to the Group’s risk management policy which is set out on pages 62 to 67. WE WILL REDUCE OUR IMPACT ON CLIMATE CHANGE BY REDUCING ABSOLUTE SCOPE 1 & SCOPE 2 GREENHOUSE GAS EMISSIONS* BY 25% BY 2025 AND DEFINE OUR NET ZERO ROADMAP *2018 BASELINE 48 STR ATEGIC REP ORT REDUCING OUR DIRECT EMISSIONS PROGRESS IN 2022 Nichols has a strong track record in reducing carbon emissions across our Scope 1 and 2 emissions, and we have an ambitious target to reduce our Scope 1 & 2 emissions by 80% by 2030, in order to reach net zero by or before 2050. Last year, gas and electricity represented a third of the energy we consumed at Nichols and 24% of our total carbon impact. In 2022 we have seen increased sales, manufacturing and new equipment installation Highlights this year include: • Installing solar panels at our head office, Laurel House in February this year SINCE REPORTING BEGAN IN MAY, THE SOLAR PANELS HAVE GENERATED NEARLY 26MWH OF ENERGY. THIS HAS SAVED OVER 35T OF CO2 EMISSIONS, EQUIVALENT IN WEIGHT TO 1 MILLION VIMTO CANS! activity across our Out of Home (OoH) business, due to • All of our Nichols UK sites are now operating further recovery within the hospitality sector. This has on 100% renewable energy, including gas resulted in an increase in our carbon emissions of 246 supplies, supplied from a combination of hydro, tCO2e for the reporting year in comparison to 2021. wind and solar power. This has saved us 239tCO2e, 16.51% of our total carbon footprint for this year We are decarbonising our fleet to reduce our transport emissions, which make up a large proportion of our Scope 2 emissions. This year we planned to replace 10 vehicles with their electric equivalents. Due to supply chain issues that impacted delivery dates and availability of suitable e-vehicles, we could not achieve this goal. FOCUS FOR THE FUTURE In 2023, we will continue our roadmap for carbon reduction across our Scope 1 and 2 emissions. This includes: • Doubling next year’s order to 20 electric vans • Embedding our new green car policy, to keep us on track with our decarbonisation which seeks to encourage our employees ambitions (given the context of 2022) to choose electric vehicle options H A P P I E R F U T U R E P R O G R E S S R E P O R T 49 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT DECARBONISING OUR SUPPLY CHAINS PROGRESS IN 2022 Reducing our Scope 1 and 2 emissions is important, but we know the majority of our emissions in the UK are created by the various supply chains that help us create quality products and deliver them to our customers (known as Scope 3 emissions). Reducing our Scope 3 emissions is vital if we are to really reduce our carbon footprint and reach our decarbonisation targets. Highlights this year include: For more details on our emissions and progress see page 52 for our Streamlined Energy and Carbon Report (SECR). FOCUS FOR THE FUTURE To continuously track and reduce our Scope 3 emissions, our focus for next year will include: • Developing and launching our UK Scope 3 emissions reduction strategy by the end of 2023, working with our key partners and suppliers to set targets and develop a roadmap for continuous reduction in our Scope 3 emissions • Following the above, we will be looking to incorporate our Scope 3 carbon data from our suppliers with our Scope 1 and 2 emissions • Mapping our supply chain comprehensively data, to track our direct and indirect carbon in the UK footprint. We can then set science-based emissions reduction targets, which we hope • Working collaboratively with our key suppliers to submit for validation by SBTi in 2023 to help them track and measure their carbon emissions • Through this process, we are now able to collect the UK supplier and partner Scope 1, 2 and (where possible) 3 emissions data. You can read more about our work decarbonising our supply chain in our case study on page 55. RESPONSIBLE WATER USAGE PROGRESS IN 2022 We recognise that with both the need to reduce 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 is why a focus for us will be to develop a clear water strategy that encompasses all of our impact in the UK. Highlights this year include: • In 2022 we have developed systems and processes that track our water consumption in our OoH manufacturing site at Ross on Wye • We now track our water consumption and compare it to the volume of goods produced in our Ross on Wye manufacturing site. We can use this data as a baseline to inform our future water consumption reduction targets FOCUS FOR THE FUTURE We plan to identify opportunities to reduce our impact from our water use. This includes: • In 2023, measuring our water consumption across our other Nichols-owned and key UK copacker sites and identify opportunities to improve our water use at Ross on Wye • Based on the above assessment, developing our water strategy to make appropriate improvements across all Nichols-owned and key supplier sites 50 51 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT SECR REPORT Parameter Natural gas consumed Grid electricity consumed Solar PV electricity generated Transport fuels consumed Units kWh kWh kWh kWh Current reporting year 01/01/2022 - 31/12/2022 Comparison calendar year 01/01/2021 - 31/12/2021 Total energy consumption used to calculate emissions kWh 6,371,626 Emissions from combustion of gas (scope 1) tCO2e 139 Emissions from transportation in vehicles owned or controlled by reporting company (scope 1) tCO2e 1,135 Fugitive emissions from refrigeration plant (scope 1) tCO2e Emissions from purchased electricity (scope 2) Emissions from business travel in vehicles owned or operated by 3rd parties (scope 3) Total gross carbon emissions tCO2e tCO2e tCO2e 760,663 873,461 26,508 4,710,994 4 169 0 1,447 (169) 451,700 957,010 0 3,336,348 4,745,058 83 789 126 203 0 1,201 (196) (3) 0 1,002 138 115 In accordance with The Companies In 2022, we procured 100% green electricity, through (Directors’ Report) and Limited Liability Partnerships tariffs backed by Renewable Energy Guarantees of (Energy and Carbon Report) Regulations 2018, we Origin certificates, for our Ross-on-Wye factory, Laurel have prepared a Streamlined Energy & Carbon Report House head office and all electricity consumed at (SECR) for the 2022 financial year. This measurement our depots. Additionally, as of 1st July 2022, 100% of and reporting of environmental performance will drive the natural gas consumed is purchased via a green direct benefits for the business such as lower energy tariff, which involves the retirement of Renewable Gas costs, improved understanding of exposure to the Guarantees of Origin certificates which covers 10% of Carbon reduction through green electricity tariff (REGOs) tCO2e risks of climate change and by allowing the business consumption, and the purchase of Carbon Credits to Carbon reduction through green natural gas tariff to demonstrate sustainable leadership within the soft cover the remaining 90%. The result of these green (RGGOs) drinks industry. tariffs is a reduction of net emissions of 238 tCO2e, or Carbon reduction through green natural gas tariff 16% of the gross emissions. Therefore, the 6,371 MWh (Carbon Credits) tCO2e (8) tCO2e (62) Therefore, the following report has been energy consumed resulted in net carbon emissions Total net carbon emissions tCO2e 1,208 prepared in conjunction with Carbon Architecture, of 1,208 tCO2e, corresponding to an 5% increase in who we have been working with since 2016 to provide normalised net emissions when compared to 2021, independent analysis of our carbon footprint across increasing from 115 tCO2e/ML to 121 tCO2e/ML. our UK Group operations. We have selected tCO2e/ kL as our SECR ratio, as we feel this is most aligned to the Nichols has continued its focus on energy and activities of the Group. carbon-saving measures in the last year. At our Ross-on-Wye factory, we have continued to make Intensity ratio: Total gross emissions / 1,000,000 Litre product Intensity ratio: Total net emissions / 1,000,000 Litre product Methodology tCO2e/ML 145 tCO2e/ML 121 Energy Efficient Actions: Nichols’ total energy consumption for improvements to lighting systems via replacements • This report has been prepared following the GHG • A continued programme to install high-efficiency this financial year was 6,371 MWh, resulting of LED lighting, as well as reaping the benefits Reporting Protocol – Corporate Standard and using LED lighting, including proximity sensors where in gross carbon emissions of 1,447 tCO2e. of the Laurel House head office solar panels, the guidance set out in Environmental Reporting appropriate, has continued within our Ross-on-Wye These figures correspond to a 34% increase which generated 26.5 MWh of electricity in 2022. Guidelines: Including streamlined energy and carbon factory. This has continued to result in the in total energy consumption and a 20% increase in Furthermore, staff engagement has continued in 2022, reporting guidance – HM Government (March 2019) optimisation of our electricity use for lighting gross emissions when compared to the 2021 financial with topics including increasing the understanding of throughout the factory year. 2022 represented a more normal operating year our carbon footprint at work and encouraging simple • Energy consumption data has been sourced from for our OoH business following the Covid pandemic steps to reduce our footprint, including switching utility supplier invoices, or where this is not available • Solar panels and an air source heat pump have been and as a result our volumes increased, impacting our off lights and equipment when not in use. Finally, calculated from site-based records and travel installed at our Laurel House head office, reducing vehicles delivering and servicing our customers, along we sought to progress our plans to replace our expense data with new installations across the UK. transport fleet with electric vehicles, with the initial the consumption of natural gas for providing hot water for the office staff, which we have seen the In an ongoing trend, our production 2022, 20 by 2023 and 30 by 2024. Given the significant by application of the relevant emissions factor from has rebounded from the COVID impacted year of 2020, challenges within the global automotive market and UK Government GHG Conversion Factors for • Given the significant challenges within the global by further increasing production volumes from 5.037 the subsequent delay in receiving delivery of the first Company Reporting for the appropriate year automotive market and the subsequent delay in target of replacing 10 fossil fuel powered vans in • Conversion from energy to emissions was completed benefit of throughout 2022 million litres (ML) in 2020 to 8.689 ML in 2021 and then electric vans, we have bolstered the 2023 delivery plan 9.965ML in 2022. Despite this increase in production to 20 vehicles. volume, there has been an increase in normalised gross emissions, by 5% from 2021 to 2022, from 138 tCO2e/ML to 145 tCO2e/ML drinks produced. 52 receiving delivery of the first electric vans, we have bolstered the 2023 delivery plan to 20 vehicles • Finally, Nichols has continued a programme of staff engagement which involves suggesting practical ways in which they can reduce their carbon footprint at work, including through the climate action switch off awareness campaign 53 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT C A S E S T U D Y MAPPING OUR SCOPE 3 IMPACT At Nichols we are committed to a low-carbon future. We know that our influence extends beyond our immediate operations and given our partnership model, the majority of our carbon emissions are produced by our suppliers and manufacturers who make our products. These are called our Scope 3, or indirect, carbon emissions. Successfully managing and reducing Scope 3 Suppliers then shared this data with us, enabling emissions is often more complex than reducing Scope us to build a comprehensive picture of our UK 1 and 2 (direct emissions), requiring engaging with emissions across our supply chain. our entire supply chain - collaborating with suppliers to track and measure their own emissions and then This collaborative effort has enabled us to identify supporting them as they make reductions. ‘carbon hotspots’ in our UK supply chain – areas where we are producing a significant proportion of our carbon This challenge couldn’t be tackled on our own. emissions. Hotspots include our product packaging, the We have partnered with specialist consultants Green sourcing and transportation of our ingredients and the Element to support us in carrying out an in-depth energy our suppliers’ use when producing our products. assessment of the carbon footprint of our UK-based These identified ‘hotspots’ inform where we will focus supply chain. Together, we engaged our suppliers, our efforts to reduce our carbon in the future, working many of with whom we have long-standing, collaboratively with our supply chain partners to identify collaborative relationships, to put in place systems alternative practices and processes that reduce their and processes to measure and track their emissions. direct (and our indirect) carbon emissions significantly. What’s next? In 2023, we will continue to develop our Scope 3 emissions reduction strategy with the expert guidance of Green Element. This work will enable us to set robust, science based targets and ensure we are reducing our direct and indirect emissions in line with global goals and targets. In this way, we can own our climate impact and work to conduct our business in the most sustainable way. With the help of Nichols, we very quickly navigated the different business streams and relevant contacts for who would help us to collect the necessary data. We have engaged with >30 individual suppliers and many internal contacts, the vast majority of which were very helpful and were able to provide detailed information. This was aided by efficient project management from Nichols’ side. Our analysis is only as good as the raw data we receive, so this was very important for us. Green Element testimonial 54 55 HAPPIER FUTURE PROGRESS REPORTSTRATEGIC REPORT CHIEF FINANCIAL OFFICER’S REPORT DAVID - R ATTIGAN - CHIEF FINANCIAL OFFICER FINANCIAL HIGHLIGHTS • Group revenue increased by 14.3% to £164.9m • Maintained Adjusted PBT Margin at 15.1%, (2021: £144.3m) despite significant inflationary pressures • Still products +8.2% to £78.3m (2021: £72.4m) (2021: 15.1%) • Carbonated products +20.4% to £86.6m (2021: £71.9m) • Continued strong cash performance with FCF1 of £14.6m (2021: £17.5m) • UK revenues increased by 13.7% to £127.0m • £18.9m excluding historic HMRC incentive (2021: £111.6m) scheme tax settlement during the year • UK Packaged route to market sales +2.9% • Cash conversion2 at 72% (2021: 103%) • UK Out of Home (OoH) recovery continues post • Exceptional charge of £11.1m pandemic, with revenues +42.8% • £8.7m attributable to non-cash impairment of • International revenues +16.1% to £38.0m OoH intangible and fixed assets (2021: £32.7m) • Middle East revenue +20.4% (+11.3% excluding 2021 marketing investment) • Proposed final dividend of 15.3p, up 15.0% year-on-year and reflecting 2x cover3, in-line with the Group’s dividend policy Year ended 31 December 2022 £m Year ended 31 December 2021 £m Group Revenue 4 Adjusted Profit Before Tax (PBT) Profit/(loss) Before Tax (PBT) 4 Adjusted PBT Margin PBT Margin Statutory EBITDA 5 4 Adjusted earnings per share (basic) Earnings/(loss) per share (basic) 1 Free Cash Flow (FCF) 6 Adjusted Return on Capital Employed 7 Statutory Return on Capital Employed Proposed Final Dividend Full Year Dividend £164.9m £25.0m £13.8m 15.1% 8.4% £26.9m 55.38p 31.86p £14.6m 27.2% 14.2% 15.3p 27.7p £144.3m £21.8m Movement +14.3% +14.5% £(17.7)m +178.4% 15.1% - (12.2%) +20.6ppts £23.7m 46.15p +13.3% +20.0% (60.04p) +153.1% £17.5m (16.7%) 26.6% +0.6ppts (15.8%) +30.0ppts 13.3p 23.1p +15.0% +19.9% • Significant progress in Africa continued with • If approved at the Group’s AGM, the full year 1 Free Cash Flow is the net increase in cash and cash equivalents before acquisition funding and dividends revenue +15.0% dividend of 27.7p would represent a 19.9% 2 Cash Conversion is the Free Cash Flow/Adjusted Profit After Tax • ROW markets revenue +12.7%, supported by strong OoH recovery in Europe increase year-on-year 3 Dividend cover is adjusted basic earnings per share divided by the dividend per share 4 Excluding Exceptional items 5 EBITDA is the statutory profit before tax, interest, depreciation, and amortisation 6 Adjusted return on capital employed is the adjusted operating profit divided by the average period-end capital employed. This is not considered to be a KPI for the Group, however, due to the number of adjustments in recent years, this has been included within our Financial Highlights 7 Statutory return on capital employed is the operating profit divided by the average period-end capital employed 56 57 CHIEF FINANCIAL OFFICER’S REPORTSTRATEGIC REPORT REVENUE Group’s revenue line). The balance were marginally offset by positive Distribution expenses totalled Out of Home Strategic Review In line with market expectations, of revenue growth was generated changes to the sales mix, resulted £10.7m (2021: £9.1m), an increase by net improved volumes (both in a negative gross profit impact quantity and sales mix) across the of £0.9m. The removal of the Group’s three routes to market. marketing investment (reported Throughout FY22, this balanced as part of the Group’s revenue of 17.0%, due to a combination of net higher trading volumes across the UK and ongoing and significant inflationary pressure. approach helped the Vimto brand line) in the Middle East in 2021 The Group entered a new five-year Group revenues were £164.9m, an increase of £20.6m or 14.3% compared to 2021. The period was dominated by significant and accelerating inflationary pressures and, in H2 in particular, by the widely publicised cost of living pressures impacting consumers. to continue to achieve growth in supported year-on-year gross the UK and internationally, whilst profit comparisons by £0.8m. also protecting the Group’s net Underlying cost of goods inflation The Group’s clear and long held margins. value over volume strategy provided clear direction as we GROSS PROFIT approached 14% across the year, with mitigating actions successfully implemented to reduce this to sought to mitigate these pressures Gross profit at £71.0m was £5.8m closer to 10%. Mitigating actions through both cost efficiency higher than 2021 (£65.2m) and included the successful transfer and revenue management. Of 2.1 percentage points lower at of the Group’s UK dilutes contract the £20.6m revenue growth, 43.1% (2021: 45.2%). Excluding the manufacturing volume to faster £8.8m came from a combination impact of the input costs aligned and more efficient lines in H1 In Q1 2021 the Group commenced a strategic review into its OoH route to market, to consider customer and product mix as well as review ways to enhance net margin and profitability going we anticipate that growth projections for OoH beyond 2022 will be lower than previously estimated, given the economic outlook and change in consumer patterns. forward. The Group incurred Whilst cost pressure is expected £0.5m of costs in the period to to be fully recovered within OoH, prepare its recommendations for the gross margin progression implementation. Additional costs anticipated previously is not now will be incurred through 2023 likely to be achieved, despite there as these recommendations are being significant opportunities to distribution arrangement in H2 2021 that became operational during 2022, resulting in both significant additional capacity as well as opportunities for improved efficiency in the coming years. ADMINISTRATION EXPENSES implemented. These additional enhance net margin through better Administration expenses excluding exceptional items totalled £35.7m (2021: £34.1m), an increase of implementation costs are one-off alignment of our customer and in nature and will be treated as product mix with our cost base. exceptional. The Group’s cost of capital has of appropriate price recovery to the price recovery implemented following completion of its UK £1.6m or 4.7% year-on-year, largely Impairment of intangible and increased, largely due to macro- (+£8.0m), implemented in in partnership with our customers operational supply chain review. related to increases in net payroll fixed assets partnership with our customers, gross profit % was consistent with and the impact of the removal 2021. The impact of movements in foreign exchange rates on gross and staff related costs in response to cost of living increases. of the marketing investment (+£0.8m) in the Middle East in 2021 (reported as part of the Significant volume growth was profit was favourable at +£0.2m. EXCEPTIONAL ITEMS seen in both the Group’s OoH and International routes to market DISTRIBUTION EXPENSES and improved gross profit by Distribution expenses within the approximately £5.7m. Reduced Group are those associated with volumes in the UK Packaged the UK Packaged route to market The Group has incurred £11.1m of exceptional costs during the year (2021: £39.5m), £8.7m of which is non-cash. The impact of Covid-19 resulted in a difficult period of trade for OoH from 2020 through 2021, with many outlets being closed economic factors affecting all businesses, from 8.2% to 13.1%. This has resulted in a higher threshold required to support the carrying values of assets. for a prolonged period of time. As a result, management have Whilst trade within the hospitality recognised a further non-cash industry has reopened post impairment charge of £8.7m, in the pandemic, the impact of the current year, impairing all route to market, and, for OoH, the distribution Review of UK Packaged supply the war in the Ukraine, and its the remaining intangible assets where quantity costs incurred from factory to chain declines depot. “Final leg” distribution costs within OoH are reported within administrative expenses. In Q4 2020, the Group commenced a review of its UK operational supply chains. The project has progressed steadily with significant changes implemented, including the Group entering several new five-year contract manufacturing and distribution arrangements that both built significant additional capacity, in-line with the Group’s growth plans, and improved efficiency. These projects, which completed during 2022, resulted in £1.5m of exceptional costs in the period (2021: £0.6m, 2020: £0.3m). impact on inflation and cost of (£4.8m) within our OoH route to living pressures have meant that market and a proportion of its whilst trade within the hospitality fixed assets (£3.9m). In 2021, as industry initially returned to pre- previously announced, the Group Covid levels, growth is significantly impaired the Goodwill generated slower than previously forecast from previous OoH acquisitions in the short term and saw a (2021: £36.2m). significant slowdown in Q4 as inflationary pressures impacted Historic incentive scheme consumers. Certain sectors of the The Group has now settled hospitality industry, for example with HMRC the £4.3m tax and Cinema, Holiday and Theme interest charges relating to a Parks where our frozen business historic incentive scheme and operates, have seen significant will now commence recovery of volume decline all year versus pre- debts from current and previous pandemic revenues. management who had indemnified the Company. 58 59 CHIEF FINANCIAL OFFICER’S REPORTSTRATEGIC REPORTThe Group’s clear and long held value over volume strategy provided clear direction as we sought to mitigate significant and accelerating inflationary pressures through both cost efficiency and revenue management. EXCEPTIONAL ITEMS deposits following the Bank of (CONTINUED) England interest rate rises. Historic incentive scheme ADJUSTED PROFIT BEFORE TAX/ (continued) PROFIT BEFORE TAX AND TAX The Group incurred legal costs in RATE the period of £0.1m in relation to Adjusted profit before tax the case. Group Systems Review increased by 14.5% to £25.0m (2021: £21.8m). The tax charge on adjusted profit before tax for The Group has commenced the period of £4.8m (2021: £4.8m) a project to implement a new represents an effective tax rate enterprise resource planning of 19.0% (2021: 21.9%). Reported (ERP) system, which is expected profit before tax was £13.8m to be operational through 2024. (2021: £17.7m loss). Initial review costs of £0.3m were incurred in the period. 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. FINANCE COSTS ADJUSTED EARNINGS PER SHARE/ EARNINGS PER SHARE On an adjusted basis, diluted earnings per share (EPS) was 55.32 pence (2021: 46.09p). Total adjusted EPS increased to 55.38 pence (2021: 46.15p) with basic EPS at 31.86 pence (2021: -60.04p). CASH AND CASH EQUIVALENTS Net finance income of £0.4m AND BALANCE SHEET (2021: £0.1m loss) was significantly up on the prior year, as the Group ensured the best return for its The Group’s focus on cash conversion continued and the Group achieved a cash conversion PENSIONS of 72% (31 December 2021: 103%). The Group operates two employee Free cash flow (FCF) in the period benefit plans: a defined benefit was £14.6m (31 December 2021: plan that provides benefits based £17.5m), after paying a gross on final salary, which is now closed £4.3m tax settlement in relation to to new members, and a defined historic incentive schemes during contribution group personal plan. the year as described above. At 31 December 2022, the Group Excluding this settlement, the recognised a surplus on its UK Group’s FCF would have improved defined benefit scheme of £4.1m year-on-year to £18.9m. (2021: surplus £5.3m). The Group’s FCF was fully utilised During the year the Trustees this year, undertaking a £5.5m were able, with the support of the treasury share Buyback to facilitate Company, to further de-risk the future servicing of the Group’s assets held within the scheme. SAYE Option Scheme and/or Long- This is in addition to the de-risking Term Incentive Plan, alongside work carried out during 2021. £9.4m for dividend payments Assets versus liabilities is now at made during the period. 122% versus 83% at the time of the last valuation (April 2020). The Company is now working with the Trustees to develop its future funding strategy ahead of the next valuation in April 2023. David Rattigan Chief Financial Officer 28 February 2023 Cash and cash equivalents at the end of the period remained strong at £56.3m (31 December 2021: £56.7m). Working capital is now normalised post the pandemic and is reflective of the higher raw material and packaging costs experienced in the period. Capital expenditure of £1.2m was broadly consistent year-on-year (2021: £1.2m). The Group’s current Adjusted Return on Capital Employed progressed marginally at 27.2% (31 December 2021: 26.6%). Statutory Return on Capital employed is 14.2% (31 December 2021: 15.8% loss). 60 61 CHIEF FINANCIAL OFFICER’S REPORTSTRATEGIC REPORTRISK MANAGEMENT PRINCIPAL RISKS AND UNCERTAINTIES LOSS OF SYSTEM AVAILABILITY Risk score movement key Increased Decreased No change The primary aim of the Group’s Updates and progress from the The following represents the Impact Mitigation Development risk management process is to RMT are presented back to the principal risks identified by the assist the business in meeting Audit Committee regularly which Board. As previously stated, its strategic and operational monitors the effectiveness of the there are other risks affecting the objectives. process. The Board identifies the principal The Board continues to review risks while operational risks its overall risk framework are identified via a bottom up within the context of an ever approach and managed via shifting and dynamic post- functional risk registers. Both Covid-19 environment, which current risks and emerging risks has seen rapidly rising inflation are regularly reviewed using both and increased cost of living this top down and bottom up pressures. During the year we approach. The Board has created a have maintained our focus on Risk Management Team (RMT) the delivery of the risk mitigation which regularly meets to discuss, plans whilst supporting the monitor and oversee the risks and ongoing progression of the control controls within the Group. environment. business, but with a lower risk score and impact. The Senior Leadership Team regularly reviews the output from the RMT and the Board has confidence that the current risk management process highlights any relevant changes in both current and emerging risks that may be strategically important. Risk management key Short term Medium term Long term 62 In common with many other Nichols operates several Whilst significant work has been businesses, we are highly preventative systems and controls undertaken over the previous dependent on the availability of IT to reduce the risk. years in order to mitigate the risk systems. The supply chain function specifically is heavily reliant on technology. Accordingly, disruption to IT systems could limit availability of products and consequently impact sales. In addition, we have a disaster recovery plan, including the use of third-party professional providers to host our systems and data. The offsite data centre hosts our business critical applications in a dual mirrored set-up, which would restore systems within 2 hours in the event of a major outage. of system availability, the Group continues to update the current systems and controls whilst seeking out further improvements as appropriate. In the year, the Group has commenced a project to implement a new a new enterprise resource planning (ERP) system, which is expected to be operational through 2024. The Group has engaged a third party transformation specialist to partner throughout all stages of the implementation who will work alongside a dedicated cross functional team from within the business. THREAT OF CYBER-ATTACK Impact Mitigation Development The threat of cyber-attack is an Nichols operates several Building on the recent system ever present and indeed, ever preventative systems and controls, updates, during the year the growing risk in today’s global including regular penetration Group has focussed on enhancing business environment. Disruption testing, to reduce the risk. staff awareness of cyber risk via to IT systems could limit availability of products and consequently reduce sales. focussed training, in addition to further strengthening of controls where possible such as blocking user access and log on outside of the UK for example. Significant upgrades were made in the prior year including, but not limited to, encryption developments, multifactor authentication and a default deployment strategy of security measures. In addition, we have a disaster recovery plan including the use of third-party professional providers to host our systems and data whilst providing 24/7 monitoring and reporting of security events. 63 RISK MANAGEMENTSTRATEGIC REPORT HEALTH & SAFETY INCIDENT Impact Mitigation Development The Group operates with multiple The Group is supported by Significant progress has been office locations, a large field-based an effective Health & Safety made during the year with the team and one manufacturing site. Management system, comprising introduction of a new incident A health and safety incident, for policies and procedures to management SharePoint including example in a warehouse or on the support all functions. The review Group policies and legal register. road, could result in serious injury and delivery of the health and or death or investigation by the safety management system is relevant authority. 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. Training within the business across all Health and Safety matters continues to be a key focus for the Group. 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 The Group has continued to and behaviours in relation to soft monitor market and category innovate, extending our owned drinks purchase and consumption trends and consumer attitudes and licensed brands into new are constantly evolving. Failure and behaviours to ensure our flavours and consumption to anticipate and respond to continued relevance to consumers. occasions in the UK and these changes and adapt our This insight is the foundation Internationally. portfolio through renovation and for our Portfolio, Brand and innovation, may result in a loss of Innovation Strategies. The Innovation Steering Committee has continued to volume or impede our ability to deliver growth. We have a rolling 3-year pipeline of govern and oversee these key Innovation and Renovation across strategic projects. both new and existing brands. SINGLE SOURCE OF SUPPLY OF VIMTO CONCENTRATE Impact Mitigation Development The unique Vimto flavour is Working in partnership with our During the year the Group 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 created across our supply base suppliers, we have established successfully entered into Negative publicity affecting the The business adheres to core The Group continues to regularly using the Vimto compound. alternate production capability at several new five-year contract brand could reduce consumer values of originality, authenticity monitor and track media coverage Unavailability of the Vimto more than one location to ensure manufacturing and distribution demand for the Group’s products. and ethics which result in a strong relating to the Group and its brand. Brands. The Group has completed a media monitoring trial during the year in addition to exploring the use of social media monitoring. compound could impede our continuity of supply. ability to produce and therefore significantly impact the Group’s revenue. As a result, it is vital that we have surety of supply of the compound. PRODUCT QUALITY ISSUES arrangements. Work continues with our strategic suppliers to further strengthen our business continuity plans. Impact Mitigation Development Inconsistent quality or The business demands strict The Group’s Incident Management contamination of any products quality controls from all Process has continued to be across the Group’s portfolio reduce manufacturers and suppliers of reviewed and refined throughout demand within the market. This our materials and finished goods. the year. could have significant impact on We seek independent validation the Group’s financial performance of these controls via Global Food and cause reputational damage. Safety Initiative (GFSI) approved bodies such as the British Retail 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. 64 65 RISK MANAGEMENTSTRATEGIC REPORT  LOSS OF A MAJOR CUSTOMER ACCOUNT OR KEY PARTNER FAILURE TO PROTECT THE GROUP’S INTELLECTUAL PROPERTY RIGHTS Impact Mitigation Development Impact Mitigation Development Loss of a major customer or key We are dedicated to maintaining We have been reviewing our key A failure to protect the Group’s The Group’s legal team employ Monitoring of all trademark activity partner could limit availability of long-term relationships with all partnerships to evolve contingency intellectual property rights across a specialist legal firm to monitor continues with the support of a our products and consequently our customers and key partners. plans and business continuity the globe could negatively impact and litigate in response to all third party provider. impact sales. However, the Group’s diverse planning. 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. INTRODUCTION OF NEW GOVERNMENT LEGISLATION Impact Mitigation Development The introduction of new The Group monitors its markets The cross functional working Government legislation within and any potential changes in group established to manage either the UK or overseas, could legislation. Where such changes the Group’s implementation of reduce demand for the Group’s are identified, the Group considers the Scottish DRS scheme has products and significantly impact several scenarios to manage the undertook significant work during the Group’s revenue. In addition, potential outcome, working with the year in preparation of the 2023 new legislation could have an our key partners as necessary. go live. This includes liaising with the perception of the brand and trademark infringements to therefore revenues as a result. protect its 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 In the year the Group made environmental and social issues a Environmental, Social and clear progress in embedding our in Government. This may result in Governance (ESG) strategy which Happier Future Strategy within new legislation (eg. plastic tax & is focused on creating a Happier the business. This included but High in Fat, Sugar, Salt (HFSS) foods Future for our planet by doing the isn’t limited to; introducing HFSS- legislation) being issued which may right things in the right way. compliant products across our 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. UK packaged portfolio, collecting Scope 3 emissions data across our UK supply chains and embedding clear social and environmental requirements into our contracts with key partners. impact upon the cost 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. appropriate governing bodies and external experts whilst meeting on a regular basis to ensure the business is well positioned to mitigate any impacts from a commercial, operational, financial and systems perspective. This team will also monitor guidance regarding and prepare for the implementation of an English scheme. David Rattigan Chief Financial Officer 28 February 2023 66 67 RISK MANAGEMENTSTRATEGIC REPORTSECTION 172 STATEMENT PROMOTING THE SUCCESS OF • the desirability of the company The following section of this ACTION: C A S E S T U D Y OUT OF HOME STRATEGIC REVIEW (CONTINUED) THE COMPANY maintaining a reputation Annual Report serves as an for high standards of business overview of how the Directors, with Under Section 172(1) of the Companies Act 2006, a director conduct of a company must act in the • the need to act fairly between way they consider, in good faith, members of the company would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to the following factors: The Board is ultimately responsible for the direction, management, performance and long-term sustainable success of the the support of the wider business, engage with our stakeholders and consider these range of factors in the course of their s172 duties. PRINCIPAL BOARD DECISIONS AND CONSIDERATIONS DURING 2022 Company. It sets the Group’s The Board considers the key strategy and objectives taking matters detailed on page 70 to • the likely consequences of any into account the interests of all its be the Principal Decisions and decision in the long-term stakeholders. • the interests of the company’s A good understanding of the considerations it has made during the year to 31 December 2022. employees Company’s stakeholders enables The Board considers ‘Principal • the need to foster the company’s business relationships with suppliers, customers and others the Board to factor the potential Decisions’ to be those decisions impact of strategic decisions which entail significant long-term on each stakeholder group implications and consequences for into Boardroom discussions. the Company and its stakeholders Consequently, Board resolutions - to distinguish these from the • the impact of the company’s are determined with reference to normal, ordinary course decision- operations on the community the Company’s key stakeholders: making processes that the Board and the environment its employees, its customers, its engages in. suppliers, the community in which it operates, the environment and its shareholders. C A S E S T U D Y OUT OF HOME STRATEGIC REVIEW BACKGROUND: the Covid-19 pandemic with the prolonged closure customer base. of many outlets. Whilst the hospitality trade began to return to pre-Covid-19 levels, albeit at a slower pace than previously forecast, on further assessment of the underlying financial performance of the route to market it was noted that margin progression after overheads could only be achieved with transformational change in terms As a result a strategic review of the Group’s OoH route to market was undertaken during 2022 in order to develop a clear strategy that the Board believe will deliver a near term return to net profitability whilst also providing clear direction in terms of how the OoH route to market should be optimally managed and developed going forward. With the assistance of external consultants, the Potential options included rationalisation of strategic review was undertaken to fully understand the business, greater outsourcing and further the drivers of performance and explore the potential consolidation or acquisition. strategic options available to improve profitability. OUTCOME: The strategic review provided clarity on the financial These actions include: performance of OoH whilst also identifying that OoH operates with discrete operations, customers, products and suppliers. It is clear post the pandemic that the strategic challenges within our OoH business are quite distinct from those that exist within our Packaged business. • operating OoH as a distinct division within the Company • exit of underperforming contracts and product categories, including coffee and national frozen accounts The likely long term returns from our OoH business • exit of the in-house central frozen region, which are lower and a different approach to management of is considered sub scale and unprofitable and for the business is required to deliver shareholder value dispense is already serviced by a distributor in the long term. • a review of processes to simplify the business The strategic review identified several immediate ensuring a rationalisation of operating costs and actions that will be implemented through FY23. central overheads • improved financial reporting, including divisional and regional reporting focusing on net profit and return on capital employed CONSIDERATION OF STAKEHOLDERS: The Strategic review undertaken and the actions The changes proposed whilst reducing numbers arising are an affirmative step by the Board into of employees within the OoH route to market addressing the challenging conditions within the route considerably increase for employee’s local to market. The change to the Group’s operating results in its to the Group’s shareholders around the ongoing future challenges and progress made within this route to market. FUTURE ACTIONS: accountability and understanding of the financial performance within their regions. Redundancy and retention packages offered to employees affected by the changes are considerably greater than statutory and various support packages are in place for individuals affected by the change. The plan to deliver this strategic project is expected to realised during FY24. OoH financial performance will be implemented during 2023 with benefits largely be segmentally reported from FY23. The OoH drinks market was significantly impacted by of how the Group services the trade and its wider external Annual Report and Accounts will give visibility 68 69 SECTION 172 STATEMENTSTRATEGIC REPORT  PRINCIPAL BOARD DECISIONS AND CONSIDERATIONS DURING 2022 HOW THE GROUP ENGAGED WITH ITS KEY STAKEHOLDERS DURING 2022 BOARD DECISION: In 2022, the Group commenced a review of its OoH route to market. EMPLOYEES Why we engage CONSIDERATIONS: The purpose of the strategic review was to develop a clear strategy that would deliver a near term return to net profitability whilst also providing clear direction in terms of how the OoH route to market should be optimally managed and developed going forward. Details on the review and outcome is within the case study on pages 68 to 69. BOARD DECISION: During the year the Board considered HMRC’s ruling into 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. In the prior year a tribunal was convened to consider the dispute of the Group’s scheme as well as similar schemes operated by other companies. At the start of 2022, the tribunal found that the arrangements should have been taxed as employment income. The Board sought its own legal opinion regarding both the likelihood of success under further appeal and debt recovery before settling with HMRC and the debt recovery process. CONSIDERATIONS: Following the ruling from HMRC the Company has settled its tax liability and will commence recovery of debts from current and previous management during 2023. BOARD DECISION: The Board carried out a review of the soft drinks market in terms of long-term growth prospects and consumer trends highlighting potential acquisition opportunities. In conjunction with the OoH strategic review the Board agreed capital allocation would focus on the Group’s Packaged route to market. The Board reviewed management’s M&A business case development processes, including financial metrics required to ensure robust integration planning and future shareholder value. The Group’s long-term success is predicated on the commitment of our employees to our purpose and its demonstration of our values on a daily basis. To maintain our competitive advantage and meet the growing demands of the environment in which we operate, we need a workforce which is adaptive and whose skill base constantly evolves. We also value workers with long-term practical experiences. We engage with our workforce to ensure that we are fostering an environment that they are happy to work in and that best supports their well-being. How we engaged during 2022 We have continued to use employee engagement surveys to understand what areas we can improve upon. Engagement by employees in these surveys is high with an average of 85% of employees responding. The Group scores highly with regards to organisational integrity; engaging managers; leadership; realising employees potential; and employees understanding the culture of the Group. Areas the Group needs to improve upon are wellbeing and employee voice. We worked to fully understand what improvements we need to make and ran local focus groups to get more specifics on the feedback and to understand where there are variations across functions/level/location. Actions plans were then drafted and implemented during the last quarter of 2022. CUSTOMERS Why we engage Communications and relationships with our direct customers is a fundamental ingredient to our success. How we engaged during 2022 The Nichols plc commercial teams have continuous communications with our direct customers, through face-to-face and virtual meetings, to understand their needs, share our plans, seek feedback, and nurture collaborative working practices. We engage with our end consumers through our on-going promotional and advertising activity. CONSIDERATIONS: The Board considered the long-term consumer trends, potential acquisition targets, appropriate cost of capital including risk premiums, reasonable valuation metrics and integration synergy planning. SUPPLIERS Why we engage BOARD DECISION: The Board considered and approved a grant under the Company’s Save-As-You- Earn Share Option Scheme (SAYE Option Scheme). CONSIDERATIONS: The Board considered the terms of the proposed SAYE Option Scheme grant, noting that it would be open to all eligible employees. The Board agreed the price at which the options would be subscribed for, being set at a 20% discount to the average mid-market share price for the previous three days prior to the grant of the options. When the SAYE Option Scheme matures, the exercise of the options would be satisfied by using shares held in Treasury, having been bought as part of the share buyback process that took place in 2022. Given Nichols’ Packaged outsourced manufacturing model and OoH in house manufacturing footprint, having long-term strategic partnerships 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. How we engaged during 2022 The Nichols plc supply chain team and senior management have regular review meetings with our supplier base. 70 71 SECTION 172 STATEMENTSTRATEGIC REPORT HOW THE GROUP ENGAGED WITH ITS KEY STAKEHOLDERS DURING 2022 (CONTINUED) THE COMMUNITY Why we engage SHAREHOLDERS Why we engage The Group cares about its community and understands the importance of giving back to help and inspire others to achieve, developing positive relationships and maintaining a strong reputation within the community. How we engaged during 2022 The Group pledged to improve the future for over 100 young people in our local communities, raising aspirations through skills development and career development opportunities. In addition to existing partnerships, during 2022 the Group entered into a partnership with Manchester Thunder, a ParaNetball team whose goal is to change the lives of deaf and disabled young people through the provision of a welcoming, accessible and inclusive ParaNetball programme. 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 2022 employees participated in “Camp Vimto” our brand-new programme that helps children from disadvantaged backgrounds learn life skills via workshops & interactive/outdoor activities to learn ‘real’ life skills such as resilience, good choices and how to look after their health. The programme also provides them with the opportunity to learn about FMCG careers and provides opportunities in mentoring, mock interview and placements within the UK business. THE ENVIRONMENT Why we engage Nichols plc is aware of its environmental responsibilities and whilst all its current consumer packaging is already recyclable, the Group is working with suppliers and customers to reduce plastic waste as part of its “Happier Future” strategy. Continued access to capital is of vital importance to the long-term success of our business. Through our engagement 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 both dividends and a platform for future shareholder value growth. We are seeking to promote an investor base that is interested in a long-term holding in the Group. How we engaged during 2022 The Executive Directors meet our institutional shareholders on a number of occasions throughout the year and aim to have an open dialogue to receive feedback. Investor roadshow meetings are undertaken at least twice a year following the preliminary and interim results announcements. During 2022, the Board committed to publish the presentations on interim and full-year results that the executive management give to institutional investors on the Company’s website so that our retail shareholders are able to view these as well. The presentation for the 2022 Interim Results has already been published. In addition the Executive Directors now utilise the online meeting platform, Investor Meet, to enable retail shareholders to participate in live investor presentations as well. This took place for the first time through 2022 and will continue into the future. 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. How we engaged during 2022 The Strategic Report has been approved by the Board on The Group has committed to reduce its impact on climate change by reducing 28 February 2023 absolute Scope 1 & Scope 2 Green House Gas emissions by 25% by 2025 and define its net zero roadmap. 100% renewable energy is now used at the Group’s Ross-on-Wye factory and Laurel House head office in the UK. Further details can be found on the Company’s website, www.nicholsplc.co.uk/happier-future/ 72 73 SECTION 172 STATEMENTSTRATEGIC REPORTGOVE RNANCE The Board Corporate Governance Statement Audit Committee Report Remuneration Committee Report Nomination Committee Report Directors’ Report 76 78 86 90 98 100 74 75 CONTENTSGOVERNANCE REPORTOUR BOARD CH A IR M AN DIRECTOR E V I T U C E X E - N O N ohn 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 moved 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. E V I T U C E X E - N O N ames 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 two 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. CHIEF EXECUTIVE O F F I C E R ndrew 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. OFF ICE R L A I C N A N I F F E I H C avid 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 four sons. He enjoys football, sailing and generally being in the great outdoors as much as possible in his spare time. ohn 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. DIRECTOR INDEPENDENT N O N - E X E C U T I V E D I R E C T O R E V I T U C E X E - N O N T N E D N E P E D N I elen Keays Helen 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 and Chrysalis plc. Helen is married with two 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. 76 77 OUR BOARDGOVERNANCE REPORT CORPORATE GOVERNANCE STATEMENT JOH N - NICHOLS - NON-EXECUTIVE CHAIRMAN PRINCIPLES OF THE QCA CODE HOW THE COMPANY HAS COMPLIED PRINCIPLE 1 The Board has collective responsibility for setting the strategic Establish a strategy and business model which promote long-term value for shareholders. aims and objectives of the Group. Our strategy is articulated on pages 26 to 28 and on our website. In the course of implementing our strategy, the Board takes into account the expectations of the Company’s stakeholders and wider social and environmental responsibilities. PRINCIPLE 2 The Group maintains communication with institutional shareholders CORPORATE GOVERNANCE established roles, policies and Seek to understand and meet shareholder needs and expectations. through individual meetings with Executive Directors, particularly following publication of the Group’s interim and full year results, enabling the Executive Directors to have an open dialogue and receive feedback. Further details can be found in our s172 Statement on pages 68 to 73. I have pleasure in introducing Nichols’ Corporate Governance Statement in what is my final report as Non-Executive Chairman of Nichols. Having experienced unprecedented trading conditions in recent years due to the effects of the Covid-19 pandemic, 2022 was another challenging and unpredictable year with rising inflation, increased cost of living pressures on consumers and global logistical challenges. However, our commitment to supporting high standards of corporate governance and our strong governance framework have enabled the Board to act quickly and support the management team in making decisions and taking appropriate actions. procedures designed to support our compliance with the QCA Code, the AIM Rules and other legal, regulatory and compliance requirements which apply to the Group. Details of how we comply with the QCA Code are set out in the table opposite. Further detail on our approach to corporate governance can also be found at www.nicholsplc.co.uk/ Home/Aim26. REPORT In this section of the Annual Report, we set out our governance framework and describe the work that we have done during the year to ensure good corporate governance throughout Nichols plc and its subsidiaries (“the Group”). THE QUOTED COMPANIES ALLIANCE CORPORATE GOVERNANCE CODE During 2022, 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 and we have complied with each of the ten principles of the QCA Code. We recognise the need to continue to develop our governance practices and disclosures in order to ensure that they support the strategic progress of the Group and the effective application of the principles going forward. Our governance structure provides a framework of clearly PRINCIPLE 3 We consider that our stakeholders are: our shareholders; our Take into account wider stakeholder and social responsibilities, and their implications for long-term success. employees; our customers; our suppliers; our community; and the environment. The Board recognises the importance of maintaining regular dialogue with our stakeholders to ensure, and receive and consider, their views. Information on how the Company engages with its key stakeholders is provided on pages 71 to 73. PRINCIPLE 4 The Board has ultimate responsibility for the systems of internal Embed effective risk management, considering both opportunities and threats, throughout the organisation. control and risk management. The Audit Committee reviews the Group’s internal controls and risk management processes on the Board’s behalf. The Company’s Risk Management Team (RMT) comprises members of the Senor Leadership Team (SLT), the Risk Controller and both a legal and H&S representative. The RMT has met regularly throughout 2022. The RMT reports to the SLT who will provide an update to the Audit Committee three times a year. The Group’s significant risks and related mitigation/ control are disclosed in the Strategic Review on pages 62 to 67. PRINCIPLE 5 Details of how the Company has complied with this principle is set Maintain the Board as a well- functioning, balanced team led by the Chairman. out further in this report. 78 79 CORPORATE GOVERNANCE STATEMENTGOVERNANCE REPORT  PRINCIPLES OF THE QCA CODE HOW THE COMPANY HAS COMPLIED PRINCIPLE 5 holds the position of Commercial Board Committees: the Audit PRINCIPLE 6 Details of how the Company has complied with this principle are set Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities. out further in this report. PRINCIPLE 7 Details of how the Company has complied with this principle are set Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement. out further in this report. PRINCIPLE 8 Details of how the Company has complied with this principle are set Promote a corporate culture that is based on ethical values and out further in this report. behaviours. PRINCIPLE 9 Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board. Details of how the Company has complied with this principle are set out further in this report. PRINCIPLE 10 Communications with shareholders are explained in Principle 2 Communicate how the Company above. In addition to the interim and full year investor roadshows, is governed and is performing regular meetings are held with analysts, retail investor groups and by maintaining a dialogue with prospective investors. shareholders and other relevant stakeholders. 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 86 to 99. Principle 5 of the Code requires the maintenance of the Board as a well-functioning, balanced team led by the Chair. Controller at Vimto Out of Home Committee, the Remuneration and has worked within the Committee and the Nomination business for 18 years. James was Committee. The Audit appointed as a representative Committee and Remuneration of the Nichols Family pursuant Committee are chaired by the The Board is led by our Non- to a Relationship Agreement two independent Non-Executive Executive Chairman, John Nichols dated 22 July 2020 between the Directors. John Nichols chairs the and includes two independent Company and the Nichols Family. Nomination Committee. Details Non-Executive Directors, John The purpose of the Relationship of the operation of the Board Gittins and Helen Keays, both of Agreement is to formalise Board Committees are set out in their whom have significant experience representation for the Nichols respective reports. of plc directorships. Liz McMeikan has been appointed on 11 January 2023 as Chair designate and is deemed to be an independent Non-Executive Director on appointment. However, when they are appointed Family whilst ensuring 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 101. as Chair of the Company at the The Board also comprises of two 2023 AGM, they will no longer be Executive Directors, Andrew Milne deemed independent. and David Rattigan. In addition, James Nichols is a Non- The Board has delegated specific Executive Director. James also responsibilities to its three There were six Board meetings during the year. Details of Board and Committee meeting attendance of Directors during the year is set out below. In addition, the Board held a Strategy Session in October 2022, to review its medium- term strategic plans, at which all Directors were present. DIRECTORS BOARD AUDIT REMUNERATION NOMINATION P J Nichols J A Gittins H M Keays J E Nichols A P Milne D T Rattigan 6/6 6/6 6/6 6/6 6/6 6/6 3/3 3/3 3/3 n/a n/a n/a 4/4 4/4 4/4 n/a n/a n/a 4/4 4/4 4/4 n/a n/a n/a Chair’s role As Chair, Mr Nichols’ primary affecting the delivery of Nichols Currently, at the time of publication of this Annual Report and Accounts, our Non-Executive Chairman is John Nichols who is the grandson of our founder, John Noel Nichols. The Board has announced the appointment of Liz McMeikan as Chair designate who will take over from Mr Nichols at the 2023 AGM. responsibility is to effectively plc’s strategy. guide, develop and lead the Board and ensure that the Group’s corporate governance framework is appropriate, is communicated and is adopted across the business activities. The Chairman is also responsible for ensuring the Board agenda concentrates on the key operational and financial issues Whilst Mr Nichols’ shareholding and long association with the business means that he is not regarded as an independent Chairman, he is not involved in the day to day operations of Nichols plc. Those responsibilities are managed by the Group’s CEO. 80 81 CORPORATE GOVERNANCE STATEMENTGOVERNANCE REPORT that the Directors ensure that A formal Board and Committee between them they have the performance evaluation was necessary up to-date experience, undertaken in November 2021, in skills and capabilities. the form of a questionnaire which Board meetings to be held at other Group locations. per annum being held at a Group site that is not the head office. PRINCIPLE 5 (CONTINUED) Directors are expected to attend legal counsel presents to the Board Independent Non-Executive Directors (INEDs) all meetings of the Board, and of regularly on legal and regulatory the Committees on which they sit, matters and a written report on and to devote sufficient time to governance developments is Mr John Gittins and Ms Helen the Group’s affairs to enable them presented at each Board meeting Keays are considered by the to fulfil their duties as Directors. by Prism Cosec, the Company’s Company as INEDs. The INED In the event that Directors are corporate governance advisor. role is to provide oversight and unable to attend a meeting, scrutiny of the performance of their comments on papers to the Executive Directors. John be considered at the meeting and Helen chair the Audit and will be discussed in advance Remuneration Committees with the Chairman, so that their Biographies on all Directors giving details of their experience and roles on the Board are shown on pages 76 to 77. respectively. contribution can be included as PRINCIPLE 7 Our INEDs are expected to devote such time as is necessary for the proper performance of their duties and normally expect to part of the wider Board discussion. All Directors attended every meeting which they were eligible to attend. spend a minimum of 12 days per PRINCIPLE 6 Principle 6 of the Code requires Principle 7 of the Code requires that the Board and Committees evaluate their own performance based on clear and relevant objectives and seek continuous improvement. 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 The current Nichols plc Board has strategy meetings. However, the significant sector, financial and INEDs and the Company recognise plc experience and the Executive that due to the nature of their role, Directors have broad experience it is impossible to be specific about in the soft drinks industry and in the required time commitment, manufacturing. was completed by each member of the Board. The questionnaire focussed on purpose and culture, ESG, Board and Committee composition, stakeholder engagement Board effectiveness, Board processes including and additional time commitment required when the Company is undergoing a period of increased activity. In accordance with their appointment letter, our INEDs agree to commit sufficient time to perform their duties. Executive Directors The Company has two Executive Directors: Andrew Milne and David Rattigan. The Executive Directors are charged with the delivery of the business model within the strategy set by the Board. INEDs communicate with Executive Directors and senior management between formal Board meetings. David Rattigan who was appointed professional development, as Group Chief Financial Officer strategy and leadership, and Board in 2020, was also appointed as and Group performance. The Company Secretary on that date. evaluation raised some actions to Prism Cosec Limited is engaged be considered by the Board and to provide certain company these were addressed during 2022. 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 Financial Officer. Accordingly, there wasn’t a formal performance evaluation of the Board and Committees during 2022. Instead, time was focussed on addressing the issues raised from the 2021 performance review. Progress was found to have been made on the actions With the support of our NOMAD suggested in the 2021 review, as and our advisors, the Board summarised in the table opposite. training and development needs are met. The Company’s in-house TOPIC AREA PROGRESS MADE AGAINST AGREED ACTIONS Board Succession: Liz McMeikan has been appointed as Chair designate to success John Nichols at the Commence search for Chair successor. 2023 AGM. 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 98. 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. Board Diversity: Align according to Board succession planning. Following the appointment of Liz McMeikan, gender diversity on the Board has increased to 29%. A rigorous recruitment process is undertaken for new 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 candidates with the required experience and ability as well as considering gender and ethnic diversity. Any potential candidate for appointment as a Non -Executive Director will be required to disclose their other commitments before being appointed as a Director. Board Effectiveness: With effect from 2023, the Board calendar will include at least two sets of meetings Processes: Draft minutes are issued to the online board portal after each meeting for each Ensure Board minutes are issued in the online board portal after each meeting. Director to review prior to the minutes being confirmed and approved at the following meeting. Professional Development: Details of training sessions and webinars offered by third parties are circulated by email to the Board. The Group’s advisers provide updates as necessary to the Board for them to comply with the AIM rules and other legal, regulatory and compliance requirements which apply to the Group. Strategy: The Board and SLT hold an annual strategy day. Outside of this day, there are regular updates on strategy at each Board meeting and the SLT hold regular strategy sessions throughout the year as a whole. Stakeholders: The AGM is held in person each year. The Board is reviewing the use of Investor Meet How to increase Board visibility to the Group’s stakeholders. Board & Group Performance: to enable it to reach more retail investors. The Board will meet more employees as Group site visits increase. The next Board and Committee performance evaluation will take place in 2023, once the new Chair has settled into their role. The Remuneration Committee evaluates Executive Director performance, alongside remuneration and reward. The Audit Committee engages with the Company’s external auditors biannually and holds discussions on the financial systems, procedures and efficacy of management. 82 83 CORPORATE GOVERNANCE STATEMENTGOVERNANCE REPORTPRINCIPLE 8 • Sustainable Business: We any form. In addition, to ensure Principle 8 of the Code requires that the Company promotes a corporate culture that is based on ethical values and behaviours. value our commitment to that any of our employees can having a sustainable business. raise any matters of genuine Our sustainable business concern without fear of any action on page 88. strategy takes into account our being taken against them, we also wider corporate, environmental operate a whistleblowing policy. Nichols plc is very proud of its and social responsibilities. Further detail of the anti-bribery warm and inclusive culture. It Further details are included in and whistleblowing policies, is our people and how they go pages 32 to 55 of the Strategic which are monitored by the Audit about their business that has been Report. 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: • Customers and Suppliers: We believe in building long-term partnerships with our customers and suppliers. • Community: We actively Committee, is provided in the Committee’s Report on page 86 of this Annual Report. In addition, these policies and the Human Slavery Statement are available on the Company’s website at www.nicholsplc.co.uk. encourage our employees to PRINCIPLE 9 • People: We value and respect our employees. Their give something back to the wider community. Principle 9 of the Code requires that the Company maintains enthusiasm, ideas and hard The Company has adopted a governance structures and work are fundamental to the Slavery and Human Trafficking processes that are fit for purpose success of our Company and Transparency Statement (the and support good decision making we recognise that the education “Statement”) and has an anti- by the Board. and development of our people bribery policy. These set out the is important. We believe that ethical behaviour expected of developing our talent at Nichols our employees, with our Human is essential to our success and Slavery Statement also including we identify the development details of actions that we have needs of all our employees taken to ensure that human through our appraisal slavery does not exist within programme. We support the Nichols or within our supply chain. 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 external audit provider, BDO LLP. In addition, professional development of our employees. We have a zero-tolerance the Company has appointed EY, approach for giving or receiving as its co-sourcing partner to assist of bribes or corrupt payments in management in the development of a 3-year internal audit strategy. Further detail of the Group’s internal audit process is provided 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 INEDs, John Gittins, Chairman of the Audit Committee and Helen Keays, Chairman of the 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 Committees. John Nichols Non-Executive Chairman 28 February 2023 84 85 CORPORATE GOVERNANCE STATEMENTGOVERNANCE REPORT AUDIT COMMITTEE REPORT JOH N - GITTINS - INDEPENDENT NON-EXECUTIVE DIRECTOR On behalf of the Committee, I am pleased to present the Audit Committee Report for the year ended 31 December 2022, which includes actions taken by the Committee during the year. The Audit Committee met • To oversee the relationship three times during 2022 and all with the external auditor Committee members were present including recommendations at every meeting. DUTIES on their remuneration, approving their terms of engagement, assessing The main duties of the Committee annually their independence are set out in its Terms of and objectivity and assessing Reference which are available on annually the qualifications, the Company’s website (www. expertise and resources of nicholsplc.co.uk/investors/ aim- the external auditor and the rule-26/) and include the following: effectiveness of the audit MEMBERSHIP OF THE AUDIT • To monitor the integrity of the process; and The Committee comprises three Non -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, have recent and relevant financial experience. I am a chartered including its annual and half- policy on the supply of yearly reports and accounts, non-audit services by the announcements of preliminary external auditor including results and any other formal prior approval of non-audit announcement relating to its services by the committee and financial performance; taking into account any relevant • To review the adequacy and effectiveness of the Group’s internal financial controls ethical guidance on the matter and thorough consideration of all appropriate matters. and internal control and risk The Committee reviews its Terms management systems; of Reference annually and they • To consider and make recommendations to the Board, currently meet best practice standards. to be put to shareholders for AREAS OF FOCUS DURING THE accountant and currently chair approval at the AGM, in YEAR the audit committee of Appreciate relation to the appointment, Group plc and previously of Electricity North West Limited. re-appointment or removal of the Company’s external auditor; During the year, the Audit Committee discharged its responsibilities by: COMMITTEE accounts of the Group, • To develop and implement a living crisis. • approving the external • approving the plan of targeted impairment review and segmental auditor’s plan for the audit internal reviews conducted reporting as follows. of the Group’s annual accounts, by the finance team and the including key audit matters, internal audit plan proposed by Impairment Review key risks, confirmation of EY, monitoring the results The Committee reviewed auditor independence and of these reviews and the accounting papers prepared by terms of engagement, including timely follow up of any control management in connection with audit fees. recommendations. These annual impairment reviews. • reviewing the Group’s draft accounts and interim results statements and reviewing the activities are further explained in the internal audit section below. Out of Home, the Group’s only cash-generating unit (CGU) with indefinite life Intangible assets, external auditor’s detailed • reviewing the Group’s risk has been significantly impacted reports thereon, including management process, key risk by COVID-19 from 2020 through consideration of key audit register, risk dashboard and risk 2021 and whilst trade within matters and risks. In each mitigations. case, the Committee reviewed accounting papers prepared by management. In addition, • approving a refreshed Delegation of Authority matrix. the hospitality industry has now opened post the pandemic, the impact of the war in the Ukraine, and its impact on inflation and notwithstanding the Group’s SIGNIFICANT ISSUES cost of living pressures had added strong balance sheet, the CONSIDERED IN RELATION TO further challenges to the CGU Committee reviewed the going THE FINANCIAL STATEMENTS with growth now significantly concern assessment prepared by management, given the impact of the ongoing cost of As part of the monitoring of the integrity of the financial statements, significant matters and accounting judgments identified • meeting the external auditor, by the finance team and the without management, to discuss external auditor are reviewed by matters relating to its remit and the Committee and reported to any issues arising from its work. the Board. The significant matters lower than previously expected. Based on this trading performance and the CGU’s future prospects, management assessed the need for an impairment of £8.7m, representing the entire intangibles assets (£4.8m) and a proportion of the fixed assets (£3.9m) with which the Committee concurred. considered by the Committee in respect of the year ended 31 Details of the impairment reviews December 2022 are set out below: performed are outlined in note 14 including (i) the audit partner Strategic Review • reviewing the performance of the external auditor. This assessment covered key areas and team (ii) the audit approach and execution (iii) the Committee and Company interactions with the external auditor and (iv) the added value and insights that the external auditors bring. The Committee’s findings were subsequently discussed with the external auditor. to the financial statements. Segmental Reporting During the year the Committee have reviewed papers prepared In light of the strategic review into by management for all accounting Out of Home, the Committee have matters relating to the Out of reviewed management’s continued Home Strategic review and its assessment and disclosure of the potential impacts during the Group’s operating segments under current year, 2023 and beyond. IFRS 8. The Committee concur These matters include but are with management’s view that not limited to, exceptional items, the Group’s operating segments 86 86 86 87 87 87 AUDIT COMMITTEE REPORTGOVERNANCE REPORT capital expenditure, which were established in 2020, now regularly report to the Committee. WHISTLEBLOWING The Group has in place a whistleblowing policy which sets out the formal process by which an employee of the Group may, in confidence, raise concerns about possible improprieties in financial reporting or other matters. The Committee is satisfied that the policy is operating effectively. ANTI-BRIBERY The Group has in place an anti- bribery and anti corruption policy which sets out its zero-tolerance position and provides information and guidance to those working for the Group on how to recognise and deal with bribery and corruption issues. The Committee is satisfied that the policy is operating effectively. John Gittins Chair of the Audit Committee 28 February 2023 for these financial statements Going Concern Status audit services at least every ten Following the Out of Home Group’s external auditors. continues to be both Stills and Carbonates, as these are the operating results that are reviewed regularly by the Board (as chief operating decision maker) in order to make decisions about resources to be allocated to the segment and assess its performance. strategic review and management’s decision to manage Out of Home separately, commencing H1 2023, from the Group’s Packaged business, the Board will change the operating segments it reviews the results for and makes decisions on as chief operating decision maker. These segments will now be Packaged, Out of Home and Corporate rather than Stills and Carbonates. Reviews of the Group’s going concern status were carried out by management at both the half and full-year period ends. Detailed years and accordingly, it is the Committee’s intention, during 2023, to conduct an external audit tender process. papers setting out the relevant INTERNAL AUDIT considerations were tabled by management and discussed with the Committee, together with the The Group has continued its successful co-sourced relationship with EY in order to undertake a number of internal audit reviews The Committee noted that severe within the Group. A 2022 internal but plausible risk scenarios had audit plan was developed between been identified; a robust risk management and EY and approved assessment had been carried out; by the Committee at the beginning and the Group’s going concern of the year. This plan took into statements remained appropriate consideration the Company’s when stress tested. Taking into principal risks, as well as sector account the Company’s balance specific risks. Areas of focus in sheet position, the Committee the year included IT controls, concurred with management’s procurement and contract view that the Group has management, as well as follow adequate resources to continue up of actions implemented from The Committee were satisfied with in operational existence for the the previous year. EY attended all the proposed change to Segmental foreseeable future (being at least three Committee meetings during reporting. one year following the date of the year and completed the agreed Exceptional Items The Committee reviewed the approval of this Annual Report). internal audit plan. EXTERNAL AUDIT INTERNAL CONTROL accounting treatment of the items The Committee monitors the The Board has overall listed in note 4 and concurred with relationship with the external responsibility for maintaining management’s view that they are auditor, BDO, to ensure that sound internal control systems exceptional in size and nature in auditor independence and to safeguard the investment of relation to the Group. objectivity are maintained. The shareholders and the Group’s Net Liability for Historic Incentive Schemes The Group has now settled with HMRC the tax and interest charges regarding the historic incentive scheme and will now commence recovery of debts from current and previous management who had indemnified the Company. The Committee have regularly reviewed management’s progress to date and their continued approach to concluding this matter. external auditor is not engaged to assets. The systems are reviewed perform any non- audit services, in by the Board and, when asked, the line with the Group’s policy. Audit Committee, and are designed Having reviewed and assessed the auditor’s independence and performance, the Committee to provide reasonable, but not absolute, assurance against material misstatement or loss. recommended to the Board that During the year the Company has a resolution to reappoint BDO as taken action to further develop the Group’s external auditor be its internal control and risk proposed at the forthcoming AGM. management environment. In BDO have been the Company’s addition to the development of external auditor for nine years internal audit as explained above, (including the current financial management committees with year). The Committee has adopted remits over risk management, a policy of tendering external treasury management and 88 88 88 89 89 89 AUDIT COMMITTEE REPORTGOVERNANCE REPORTREMUNERATION COMMITTEE REPORT HELEN - KE AYS - INDEPENDENT NON-EXECUTIVE DIRECTOR 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, 55% against the Adjusted Profit Before Tax objective which was in line with city consensus of financial performance. Full details of the performance assessment against both the financial and key business objectives can be found on pages 94 to 95.. On behalf of the Remuneration Committee, I am pleased to present the Remuneration report for the year ended 31 December 2022. MEMBERS OF THE REMUNERATION COMMITTEE The Committee comprises the three Non-Executive Directors: 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. Whilst John is not considered independent, he is a valued member of the Committee and brings over 51 years of company experience. PwC, our independent external consultants, also attend on a regular basis. outcome. The Committee will 31 December 2022 the share price To ensure alignment with these continue to set stretching targets was 1,072p. for the Hybrid Incentive Plan in the context of business plan and consensus forecasts. In relation to the 2021 Hybrid Incentive Plan award deferred into shares, the share price used for In line with the Policy approved at calculating the number of shares the 2022 AGM, 60% of the award was based on a year-end 2021 will be deferred into shares and price of 1,441p. As at 31 December principles, the Group operates a hybrid incentive plan which combines the previous individual bonus and long-term incentive plans into a single plan. This hybrid incentive plan assesses both short and long-term performance in a combination of cash and deferred shares. The table on pages 92 to 93 including remuneration packages The Committee is comfortable the remainder will be paid in 2022 the share price was 1,072p. of Executive Directors. The that the outcome is in line with Remuneration Committee met four underlying corporate performance cash. This deferred element of the award, which is intended to align REMUNERATION POLICY times during the year and plans and shareholder experience over Executive Directors’ remuneration The objective of the Group’s summarises the key elements of to meet at least three times a year the year, with the Nichols share with shareholder value in the Remuneration Policy is to attract, the revised remuneration policy going forward. I continue to act as Committee 2022 REMUNERATION Chair, with my colleagues John OUTCOMES price movement broadly in line with the wider AIM market (Nichols -28%, AIM -31%). Total dividend of 27.7p for the year is up 19.9% on This is the second year in which the prior year which is in line with we operated our Hybrid Incentive the Group adjusted earnings per Plan. In the context of positive share performance of 19.2% and financial and exceptional personal market consensus as signposted at longer term, vests 3 years after the motivate and retain high quality for Executive Directors. start of the performance period individuals who will contribute fully (i.e. 2 years after the pay-out of the to the success of the Group. To Non-Executive Directors cash element). achieve this, the Group provides The Non-Executive Directors OUTSTANDING AWARDS competitive salaries and benefits signed letters of appointment with to all employees. the Group for the provision of In relation to the LTIP awards granted to Andrew Milne in 2019, Executive Directors Non- Executive Directors’ services, which may be terminated by performance during the year, the the beginning of FY22. The outturn the Committee reviewed the The Committee has the following either party giving three months’ Committee determined that it was is also in line with the experience performance conditions after the principles it follows when written notice. The Non-Executive appropriate for awards to pay of the wider workforce with year end and determined that establishing Executive Director Directors’ fees are determined by out at 69% of maximum overall. maximum bonus being awarded. performance for these awards was remuneration at Nichols: the Board. This incorporates maximum achievement against the Group Strategic Objectives which included completion of the Out of Home strategic review and the Operational Change Programme. Financial performance paid out Taken as a whole, the Committee is satisfied that the overall pay outcomes for the year ended 31 December 2022 are appropriate and, accordingly, we have not applied any discretion to this year’s below the threshold levels. The awards have, therefore, lapsed. • Motivating • Simple In relation to the 2020 Matching • Aligned to group strategy Award deferred into shares, the • Flexible share price used for calculating the • Transparent number of shares was 1,408p at • Fair the time of award. As at 90 91 REMUNERATION COMMITTEE REPORTGOVERNANCE REPORT REMUNERATION POLICY FOR EXECUTIVE DIRECTORS REMUNERATION POLICY FOR EXECUTIVE DIRECTORS 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 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 Directors. Supports a high performance culture Rewards performance in the context of achieving key goals, and encourages sustainable performance that supports the achievement of strategic goals. A combination of financial and non- The maximum incentive For 2023 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 determined based on performance Incentive Plan is 250% (2022: be weighted 70% against this scorecard. 200%) of base salary. towards financial For Executive Directors, 60% of awards will be deferred into shares. The deferred proportion of awards will pay out 3 years from the start of the performance period. The Committee retains discretion to adjust the pay-out level of deferred incentives based on performance in the deferral period. The deferred element of the award will attract dividend equivalents for the period between assessment and pay-out. performance 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. BASE SALARY Base salary reflects the size of the Increases to base salary are Not applicable - Supports the recruitment and retention of Executive Directors, reflecting their role, skills, and role and responsibilities, individual determined annually by the although individual performance (assessed annually) Committee considering: performance is and the skills and experience of the individual. • Individual performance. considered when determining base In setting appropriate salary levels, • The scope of the role. salary increases. experience. 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. PENSION Supports recruitment and retention of Executive Directors. Generally, the Company contributes to a defined Up to 9% of base salary. Not applicable This is in line with wider contribution pension scheme workforce. After 10 years’ for the Executive Directors. The service the wider workforce contribution can instead be paid is entitled to 10% of base in cash (which is excluded from salary. 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 the following benefits: not capped but is based on cost which may change from year to year. Supports recruitment and retention of Executive Directors. • Life assurance; • Directors and Officers Liability Insurance • Private medical insurance and • 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. 92 93 REMUNERATION COMMITTEE REPORTGOVERNANCE REPORTANNUAL REPORT ON REMUNERATION IN 2022 The following table summarises the total gross remuneration of the Directors who served during the year to The Group achieved a strong financial performance in the year with Adjusted Profit Before Tax (“Adjusted PBT”) 31 December 2022. of £25.0m, up £3.2m (+14.3%) on the prior year result of £21.8m. Fixed remuneration Performance related – Hybrid Incentive Plan Salary and fees £’000 Benefits in kind2 £’000 Pension3 £’000 Cash £’000 Deferred shares4 £’000 Total 2022 £’000 30 18 183 123 275 185 840 565 Performance targets were set at the beginning of FY22 financial year. Based upon financial planning at that time, Executive Directors would be able to earn 60% of maximum bonus with Adjusted PBT of £25.2m (+£3.4m 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 £26.5m represented a stretch target for the Group and would result in a maximum pay out of 100%. Based on actual performance, both the Chief Executive Officer and Chief Financial Officer achieved 55% of the maximum bonus, acknowledging the Group performance in the period, broadly in line with target. Total 2021 £’000 1,021 668 1,405 1,689 Personal element outcomes (30% of award) Executive Directors A P Milne D T Rattigan Non-Executive Directors P J Nichols J Nichols1 H M Keays J A Gittins 332 222 101 22 45 45 20 17 1 - - - - - - - - - - - - - - - 102 102 22 45 45 20 40 40 214 202 1,619 1,891 1 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. 2 Benefits consist of the provision of a company car (or cash equivalent), fuel and private healthcare. 3 Pension may be paid as a cash sum in lieu of. 4 Vesting of awards will be 2 years from the date of grant. 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 Strategic Review relating to year 2 of our relating to year 2 of Strategic 3 year programme Change Shaping the Group’s ESG Review of UK Packaged supply Undertaking a strategic review agenda and year 2 delivery, chain focussing on delivering of the Out of Home route to focusing on scope 1 and scope 2 Strategic Supply partnerships, market 2025 commitments in the enabling significant capacity areas of climate action, expansion and efficiency packaging, healthier options improvements, optimising and community support our outbound supply chain and advancing the Group’s internal Sales and Operational Planning process HYBRID INCENTIVE PLAN Based on the exceptional performance of both Executive Directors during the year, the Committee have For the 2022 financial year, the maximum bonus opportunity for the Executive Directors was 200% of base salary. determined that the maximum potential 30% award in respect of their personal objectives was achieved. 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. Financial elements outcome (70% of award) Performance Targets Actual Performance FY21 Adjusted PBT Threshold Target Maximum £m Payout £m Payout £m Payout £m Payout 21.8 23.9 25% 25.2 60% 26.5 100% 25.0 55% Group Adjusted Profit Before Tax1 1 Excluding exceptional items 94 95 REMUNERATION COMMITTEE REPORTGOVERNANCE REPORT OUTSTANDING SHARE AWARDS ATTENDANCE AT REMUNERATION COMMITTEE MEETINGS The table below sets out details of all outstanding share awards in respect of current Executive Directors: There were 4 Remuneration Committee meetings held during the year. The following table sets out individual Award Grant date Vesting date Recipient Exercise price Number of shares outstanding Number of shares lapsed 2020 SAYE 2020 shareholding policy guideline - matching award 2021 SAYE 2021 Hybrid Incentive Scheme 15 April 2020 15 April 2020 15 April 2023 15 April 2023 Andrew Milne £7.93 David Rattigan £7.93 18 December 2020 18 December 2023 Andrew Milne £0 18 December 2020 18 December 2023 David Rattigan £0 15 April 2021 23 March 2022 15 April 2024 23 March 2024 Andrew Milne £10.15 Andrew Milne 23 March 2022 23 March 2024 David Rattigan £0 £0 1,513 2,269 9,668 7,734 1,064 26,987 17,770 - - - - - - - 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 2022 and our plans for 2023. Helen Keays Chair of the Remuneration Committee 28 February 2023 IMPLEMENTATION OF REMUNERATION POLICY IN 2023 In 2023, the Hybrid Incentive Plan The maximum bonus opportunity The performance targets are not will be assessed against financial performance (Adjusted Profit for the Executive Directors will be 250%1 of base salary with 70% disclosed prospectively as they are considered to be commercially Before Tax) and Group Strategic of the award being based upon sensitive. Details of performance Objectives. Threshold performance financial performance and 30% against the targets and the under the profit target will act as was based on performance against resulting awards earned will be an underpin on the remainder of Group Strategic Objectives. On disclosed retrospectively at the the award. The bonus outcome achievement of the award 60% end of the performance period. will range from zero at a threshold will be deferred into shares to be performance, up to 100% for a paid out 3 years from the start of stretch performance. the performance period with the remaining 40% being paid in cash. 1 The Committee reviewed the Hybrid Incentive Plan during the year as it has been in operation for two years. After careful consideration it was agreed that the Plan remains the right incentive structure with which to incentivise and retain Executive Directors. However, in order to further increase incentivisation and align more closely with market levels of remuneration, the Committee approved an increase in the maximum opportunity from 200% to 250% of salary, with a commensurate increase in the level of stretch in the targets. 96 97 REMUNERATION COMMITTEE REPORTGOVERNANCE REPORT NOMINATION COMMITTEE REPORT JOH N - NICHOLS - NON-EXECUTIVE CHAIRMAN • Keep under review the • Review annually the time Helen Keays and John Gittins led company experience, having spent Board’s structure, size and required from Non-Executive this process and were assisted the majority of her executive composition, including diversity Directors. and the balance of independent and non-independent Non-Executive Directors, and make recommendations to the Board with regard to any changes required. • Make recommendations to the Board on the re-election by Shareholders of Directors under the annual re-election provisions of the QCA Code or the retirement by rotation • Ensure plans are in place for provisions in the Company’s orderly succession to Board articles of association. and senior management positions, and oversee the The Committee reviews its Terms development of a diverse of Reference annually and these by the Company’s People & career at Colgate Palmolive and Sustainability Director. The brief Tesco and, more recently, from a was to find a candidate who had number of Non-Executive board relevant consumer experience roles where she is either the and had strong experience of Senior Independent Non-Executive being a senior board director and Director or Chair of a committee, the required skills necessary to and I am very confident will be of support the ongoing delivery of great value to the Group. the Group’s strategy. The Group engaged an external recruitment consultant to assist the Committee in its search. pipeline for succession. were last reviewed in December Helen and John met with a number John 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 • Keep under review the 2022. as a result of my significant shareholding and previous executive role. The Nomination Committee met three times in 2022 and all Committee members were present leadership needs of the ACTIVITIES DURING THE YEAR organisation, both executive and non-executive, with a view to ensuring the continued ability of the organisation to compete effectively in the marketplace. During the year, the Nomination Committee discharged its responsibilities by considering succession planning as a whole for the Board and senior at every meeting. • Be responsible for identifying management. ROLE OF THE NOMINATION COMMITTEE and nominating for the approval of the Board, candidates to Board vacancies as and when APPOINTMENT OF NON-EXECUTIVE CHAIR The main duties of the Committee they arise. 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: • Before any appointment is made by the Board, evaluate the balance of skills, knowledge experience and diversity on the Board. The Committee was made aware in April 2022 that I wished to stand down as Chair of the Company and the market was advised accordingly and a search commenced for a new Chair. of candidates and shortlisted Non-Executive Chairman two to meet with the Board as a 28 February 2023 whole and after due consideration and discussion Elizabeth (Liz) McMeikan was approved as the Chair designate. Liz initially joined the Group as a Non-Executive Director on 1 February 2023 and will be appointed Non-Executive Chair on 26 April 2023 at the conclusion of the 2023 AGM where I will stand down as Non-Executive Chair but remain on the Board as the Nichols’ family second board seat. Liz has a wealth of consumer- focused public and private 98 99 NOMINATION COMMITTEE REPORTGOVERNANCE REPORT DIRECTORS’ REPORT Nichols plc (“the Company”) is a FINANCIAL RESULTS AND The roles and biographies of the Summary of Directors’ Interests in the Company public limited company, registered DIVIDENDS in England, and is listed on AIM of the London Stock Exchange. The Directors present their report for the year ended 31 December 2022, in accordance with section 415 of the Companies Act 2006. The Corporate Governance Statement set out on pages 78 to 85 forms part of this report. As permitted by Paragraph 1A of Schedule 7 to the Large and The Group’s Profit Before Taxation from continuing operations for the year ended 31 December 2022 amounted to £25.0m (2021: loss: £17.7m). The Directors Directors in office as at the date of this report are set out on pages 76 to 77. Details of their interests in ordinary shares of the Company as at 31 December 2022 are shown in the table opposite. will recommend a dividend of Details of Directors’ remuneration, 15.3p at the 2023 Annual General including pension arrangements, Meeting to be held on 26 April service agreements and Long- 2023 the (“2023 AGM”). Term Incentive Plan Awards are ARTICLES OF ASSOCIATION provided in the Annual Report on Remuneration within the Medium-sized Companies and The rules governing the Remuneration Committee Report Groups (Accounts and Reports) appointment and replacement on pages 90 to 97. Regulations 2008 certain matters of Directors are set out in the which are required to be disclosed Company’s Articles of Association. in the Report of the Directors have The Articles of Association may be been omitted as they are included amended by a special resolution in the Strategic Report on pages of the Company’s shareholders. A 12 to 73. These matters relate to a copy of the Articles of Association full review of the performance of can be found on the Company’s the Company and its subsidiaries website, nicholsplc.co.uk. (together “the Group”) for the year, current trading and future outlook. DIRECTORS AND THEIR INTERESTS The statement by the Directors in performance of their statutory duties in accordance with section 172(1) Companies Act 2006 is provided on pages 68 to 73. PRINCIPAL ACTIVITIES The Directors who have held office during the year ended 31 December 2022 and to the date of this report are as follows: EXECUTIVE DIRECTORS Nichols plc is an international soft drinks business with sales in over Andrew Milne David Rattigan 73 countries, selling products NON-EXECUTIVE DIRECTORS in both the Still and Carbonate categories. John Nichols, Chairman John Gittins Helen Keays James Nichols Director P J Nichols A P Milne D T Rattigan J A Gittins H M Keays J E Nichols Shares held as at 2022 Shares held as at 1 January 2022 movement 31 December 2022 2,000,000 12,446 1,659 1,280 - 835,476 - 3,152 3,806 - - - 2,000,000 15,598 5,465 1,280 - 835,478 RELATIONSHIP AGREEMENT share capital of the Company, they and abilities of the applicants. On 22 July 2020, the Company entered into a Relationship Agreement with the Nichols Family. shall be entitled (but not required) In the event of employees to appoint one further Non- becoming disabled, every effort is Executive Director to the Board. made to ensure their continued The Nichols Family consists of In accordance with the terms employment. certain members of the immediate of the Relationship Agreement, Management continuously consult and extended family of the John Nichols, the Chairman of the with employees and keep them Company’s founder John Noel Company and James Nichols, Non- informed on matters of current Nichols. Members of the Nichols Executive Director are the Family interest and concern to the Family hold in aggregate an Representative Directors. business. Further information 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 whilst also ensuring that the Company is capable of carrying independently. In accordance with the terms of the Relationship Agreement, so long as the Nichols Family retain (i) an aggregate interest of equal to or greater than FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Business risks and uncertainties are included within the Risk regarding employment at Nichols is provided on page 71 of the Strategic Report. CUSTOMERS AND SUPPLIERS Management section on pages 62 Detail of how the Board has to 67 and financial risks are set out engaged with its customers in note 2 to the accounts. and suppliers is included in the Strategic Report on page 71. POLITICAL DONATIONS Detail of how the Board has engaged with its employees is The Company does not make any included in the Strategic Report on political donations and does not page 71. incur any political expenditure. on, at all times, its business EMPLOYEES 20 per cent in the issued ordinary The Group’s policy is to recruit and SHARE CAPITAL share capital of the Company, they promote on the basis of aptitude shall be entitled (but not required) and ability without discrimination to appoint one Non-Executive of any kind. Applications for Director; and (ii) an aggregate employment by disabled people interest of equal to or greater than are always fully considered 30 per cent in the issued ordinary bearing in mind the qualification Details of the Company’s share capital, including changes during the year, are set out in note 28 to the Accounts. As at 31 December 2022, the Company’s share capital 100 101 DIRECTORS’ REPORTGOVERNANCE REPORTconsisted of 36,968,772 Ordinary At the Company’s AGM held on As at 31 December 2022, the ESOT the Directors have considered and the other principal risks that DIRECTORS’ INDEMNITY Shares of ten pence each, of which 27 April 2022, the Group was held 4,101 Nichols plc Ordinary 10 the current financial position of the Group is exposed to. At the 493,150 are held in treasury and generally and unconditionally pence shares (2021: 4,889). accordingly have no voting rights. authorised by its shareholders to make market purchases (within RESEARCH AND DEVELOPMENT the Group, its principal risks and 31 December 2022 the Group uncertainties, the potential impact had cash and cash equivalents of further Covid-19 restrictions of £56.3m with no external bank the meaning of section 693 of The Group undertakes research in addition to a continued cost of borrowings. The Group has agreed to indemnify its Directors against third party claims which may be brought against them and has in place a Directors’ and Officers’ Ordinary Shareholders are entitled to receive notice of, and to attend and speak at, any general meeting of the Company. Every shareholder present in person or the Companies Act 2006) of up and development activities in to a maximum of 3,696,877 of its order to develop its range of new Ordinary Shares. and existing products. Expenditure during the year on research and development amounted to £0.2m (2021: £0.3m). by proxy (or being a corporation During 2022, the Company represented by a duly authorised completed its share buyback representative) shall have one vote programme, the purpose of which living crisis. The review performed considers severe but plausible downside scenarios that could reasonably arise within the period. On the basis of these reviews, the insurance policy. Directors consider the Group has adequate resources to continue ANNUAL GENERAL MEETING in operational existence for the The 2023 AGM of the Company The estimated impacts of Covid-19 foreseeable future (being at least will be held at Nichols plc, Laurel restrictions are primarily based one year following the date of House, 5 Woodlands Park, on a show of hands, and on a poll is to meet future obligations ENVIRONMENT AND around our OoH market and the approval of the Annual Report) Ashton Road, Newton-le-Willows, shall have one vote for every share under the Company’s SAYE GREENHOUSE GAS EMISSIONS potential for future lockdowns and, accordingly, consider it Merseyside, WA12 OHH on rights to receive dividends. In accordance with The Companies of which he or she is the holder Option Scheme and/or Long Term or authorised representative. The Incentive Plan. In the period the Notice of Annual General Meeting Company repurchased 385,486 specifies deadlines for exercising Ordinary Shares under this voting rights and appointing a authority, which is due to expire 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 at the AGM to be held on 26 April 2023. These Ordinary Shares are held in Treasury and accordingly do not have any voting rights or a holding or on the transfer of the In exercising its authority in Ordinary Shares. The Board believes that being permitted to allot shares within the limits set out in the resolution without the delay and expense of a general meeting gives the ability to take advantage of circumstances that may arise during the year. respect of the purchase and cancellation of the Group’s shares, the Board takes as its major criterion the effect of such purchases on future expected earnings per share. No purchase is made if the effect is likely to lead to deterioration in future expected earnings per share growth. AUTHORITY FOR THE COMPANY TO PURCHASE ITS OWN SHARES SHARE OPTIONS 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 immediately upon completion of the purchase. The Company operates a Save-As- You-Earn Share Option scheme. In conjunction with this, the Company will use some of the shares held in Treasury to satisfy future exercises of options under the scheme. The Company has, in the past, also made donations to an 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. (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, we have prepared a Streamlined Energy & Carbon Report (SECR) for the financial year of 2022. More information is provided on pages 52 to 53 of the Strategic Report and on our website, nicholsplc.co.uk. GOING CONCERN The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The financial position of the Group is described in the Chief Financial Officer’s Report on pages 56 to 61. Employee Share Ownership Trust In assessing the appropriateness (“the ESOT”) to enable shares to of adopting the going concern be bought in the market to satisfy basis in preparing the Annual the demand from option holders. Report and financial statements, within the hospitality industry. Our appropriate to adopt the going 26 April 2023 at 11:00am. The modelling has sensitised trading concern basis in preparing the notice convening the meeting, within this market to reflect varying accounts. degrees of lockdowns with the most severe scenario assuming that some restrictions will return INFORMATION TO THE INDEPENDENT AUDITORS together with details of the business to be considered and explanatory notes for each resolution, is set out on pages 170 during the remainder of 2023 and Each of the Directors who are to 171. Copies of the notice will be the start of 2024. Directors at the time when this distributed to shareholders who Directors’ Report is approved have have elected to receive hard copies During the year the Group experienced a period of significant confirmed that: inflation and a cost of living • so far as each of the Directors crisis against which a number of is aware there is no relevant mitigation actions were introduced. audit information of which the These are largely evidenced in the Company’s auditor is unaware; results announced. Our modelling and of shareholder information. The voting on all resolutions at the 2023 AGM will be via a poll and not on a show of hands in accordance with best practice. has sensitised the impacts of Russia’s continued invasion of Ukraine, in particular their impact on global supply chains and macroeconomic inflationary factors. • the Directors have taken all steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the auditors David Rattigan In addition to the further impacts are aware of that information. Secretary of Covid-19, alternative scenarios, including the potential impact of key principal risks from a financial RESOLUTION TO RE-APPOINT 28 February 2023 INDEPENDENT AUDITORS Laurel House, Woodlands Park, and operational perspective, In accordance with Section 489 have been modelled with the of the Companies Act 2006, a Ashton Road, Newton-le-Willows, WA12 0HH. resulting implications considered. resolution will be proposed at the Registered in England and Wales In all cases, the business model 2023 AGM that BDO LLP be re- No. 00238303. remained robust. The Group’s appointed auditors. diversified business model and strong balance sheet provide resilience against these factors 102 103 DIRECTORS’ REPORTGOVERNANCE REPORT DIRECTORS’ REPORT DIRECTORS’ RESPONSIBILITIES STATEMENT The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the group and company financial statements in accordance with UK adopted international accounting standards. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with UK adopted international accounting standards subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The 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. Andrew Milne David Rattigan Chief Executive Officer Chief Financial Officer 28 February 2023 28 February 2023 104 105 DIRECTORS’ REPORTGOVERNANCE REPORT F INANC IAL STATEMEN TS 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 Consolidated Statement of Changes in Equity Statement of Changes in Equity Notes to the Financial Statements Unaudited Five Year Summary Notice of Annual General Meeting General Notes Financial Calendar 108 118 118 119 120 121 122 123 124 167 168 172 174 106 106 106 107 107 107 CONTENTSFINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT TO THE statements section of our report. We believe that the Based on the work we have performed, we have not for a period of at least twelve months from when MEMBERS OF NICHOLS PLC audit evidence we have obtained is sufficient and identified any material uncertainties relating to events the financial statements are authorised for issue. appropriate to provide a basis for our opinion. or conditions that, individually or collectively, may Our responsibilities and the responsibilities of the OPINION ON THE FINANCIAL STATEMENTS In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2022 and of the Group’s profit for the year then ended; Independence We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have • the Group financial statements have been properly fulfilled our other ethical responsibilities in accordance prepared in accordance with UK adopted international accounting standards; • the Parent Company financial statements have with these requirements. CONCLUSIONS RELATING TO GOING CONCERN been properly prepared in accordance with UK In auditing the financial statements, we have adopted international accounting standards and concluded that the Directors’ use of the going concern cast significant doubt on the Group and the Parent Directors with respect to going concern are described Company’s ability to continue as a going concern in the relevant sections of this report. OVERVIEW Coverage 100% (2021: 100%) of Group profit before tax (2021: Group loss before tax) 100% (2021: 100%) of Group revenue 99%0 (2021: 99%) of Group total assets Key audit matters Brand Support Arrangements Goodwill and Intangible Asset Impairment* 2022 2021 as applied in accordance with the provisions of the basis of accounting in the preparation of the financial Impairment - Brands with indefinite lives and Out of Home assets Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent ability to continue to adopt the going concern basis of accounting included: We have audited the financial statements of Nichols plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2022 which comprise the consolidated income statement, the consolidated statement of comprehensive income, • 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; *Goodwill was fully impaired in the prior year, therefore the Key Audit Matter titled ‘Goodwill and Intangible Asset Impairment’ is no longer applicable for the current year. Materiality Group financial statements as a whole £1.1m (2021: £1.0m) based on approximately 5% of profit before tax after adjusting for exceptional items (2021: based on 5% of loss before tax after adjusting for exceptional items) AN OVERVIEW OF THE SCOPE OF OUR AUDIT these components were performed by the Group Our Group audit was scoped by obtaining an engagement team. the Group and Parent company statement of financial • Considering the appropriateness and accuracy of understanding of the Group and its environment, The remaining components are dormant and position, the Group and Parent company statement of these forecasts and robustly challenging their including the Group’s system of internal control, and therefore were considered non-significant to the cash flows, the Group and Parent company statement inputs using our knowledge of the business and assessing the risks of material misstatement in the Group. of changes in equity and notes to the financial the sector and wider commentary available from statements, including a summary of significant competitors and peers; and financial statements. We also addressed the risk of management override of internal controls, including Key audit matters accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial • 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 the Directors would take under these scenarios; and • Reviewing the going concern disclosures, and assessing their consistency with the Director’s forecasts. assessing whether there was evidence of bias by the Key audit matters are those matters that, in our Directors that may have represented a risk of material professional judgement, were of most significance in 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. our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the Our Group audit scope focused on the Group’s trading efforts of the engagement team. These matters were entities, being Vimto Out of Home Limited and the addressed in the context of our audit of the financial Parent Company which were considered to be the statements as a whole, and in forming our opinion significant components. Full scope audits on thereon, and we do not provide a separate opinion on these matters. 108 108 108 109 109 109 INDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS BRAND SUPPORT ARRANGEMENTS (accounting policy in note 2) Key Audit Matter Consistent with industry practice, the Group incurs understanding of the contractual arrangements How the scope of our audit addressed the key audit matter significant costs or rebates to customers in the themselves as well as complete and accurate source We undertook the following audit procedures in support and development of the Group’s brands. data. Estimates are based on past history and the level relation to brand support arrangements: These include short term promotional discounts, long of recent sales made to each customer. term discounts and rebates. Whilst the majority of costs and rebates incurred relevant controls related to the approval of brand a sample of live and completed brand • We tested the operating effectiveness of the • We performed detailed cut-off testing by selecting The classification of these costs within the income on these arrangements have been settled at 31 support arrangement agreements before inception arrangements, agreeing back to supporting statement is dependent upon the type of arrangement December 2022, management judgement is required and going live on the system; with the customer. As the majority of these costs and in determining the level of closing accrual required rebates are recognised as a deduction to revenue at the year end for promotions and brand support we consider there to be a significant risk concerning campaigns that either span two financial years or the appropriate application of accounting standards, where the costs or rebates have not been fully settled particularly in respect of the Group’s measurement by the year end date. 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. As a result of the level of estimation and judgements applied in this area, as well as management being in a position to be able to override controls and potentially manipulate profits by changing accounting estimates As described in note 2, the estimation of the fair value and judgements, we consider there to be a risk of of variable consideration requires a level of estimation fraud within this area and therefore considered brand • We challenged the judgements and estimates made and judgement to be applied by management. support arrangements to be a key audit matter. by management in determining the year end Judgement is required in determining the period over which these costs and rebates should be recognised for these arrangements, requiring both a detailed contractual terms and performing a recalculation to verify that brand support arrangements were recorded in the correct period; • We assessed whether the accounting policy for brand support arrangements complied with UK adopted international accounting standards. • We tested manual journal postings to • We performed detailed testing over a sample of brand support arrangements charged to revenue and to costs in the year through verification to revenue throughout the year back to supporting documentation for evidence of misstatement or manipulation; the underlying agreement and recalculation of the • We selected a sample of post year end credit notes amounts recognised as a cost or rebate and the and checked that, where audit evidence value of the liability accrued. demonstrated that the credit note related to the audit period, that these credit notes were appropriately provided for in the financial statements; and accrual through: • Reviewing the contractual terms within the brand support agreements • We reviewed the year end liability for completeness and accuracy by reviewing arrangements in place for key customers, generating an expectation as to • assessing the appropriateness of the inputs the year end liability and comparing to that used such as sales data by verifying to recorded by the Group. supporting documentation and • performing a recalculation of the year end accrual for a sample of promotions. Key observations: 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. 110 110 110 111 111 111 INDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS IMPAIRMENT - BRANDS WITH INDEFINITE LIVES AND OUT OF HOME ASSETS (note 14, note 11 and accounting policy in note 2) Key Audit Matter The Group has significant tangible assets and operates within the hospitality industry which has How the scope of our audit addressed the key audit matter intangible assets including brands with indefinite been impacted significantly over the past 2 years Our audit procedures to address this risk included but lives. There is a risk that the underlying results of the by the Covid-19 pandemic and more recently, rising were not limited to: separately identified cash generating units (CGUs) inflation and cost of living pressures which has led to do not support the carrying value of indefinite life a Strategic Review commencing into the Out of Home intangible assets and other assets held by one CGU business. (being the Out of Home business). As such there is inherent uncertainty within these Management performed a full impairment assessment forecasts arising from the changing industry and to determine if the carrying value of the indefinite economic conditions and thus significant management life intangible assets is supported. The assessment judgement and assumptions are required. resulted in an impairment that was greater than the forecasts arising from the changing industry and indefinite life intangible assets carrying value and economic conditions and thus significant management therefore the impairment charge was allocated on a judgement and assumptions are required. pro-rata basis across the assets within the CGU. An impairment charge was recognised of £4.8m in relation to intangible assets and £3.9m in relation to property, plant and equipment. 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 • Discount rates. We considered this to be a key audit matter as the value of the indefinite life intangible assets and tangible assets is supported by forecasts of future cash flows of the business. The Out of Home business • We evaluated and challenged management’s • reviewing key estimates employed by the Directors impairment models by: • challenging management’s assessment of the Cash Generating Units (CGUs) being assessed for impairment with reference to IAS 36 and by comparing the identified CGUs to internal within the cash flow forecasts and challenging the rationale for the assumptions utilised by using our knowledge of the business, the sector and wider commentary available from competitors and peers; and management reporting demonstrating how the • performing sensitivity analysis over key cash flows are monitored; assumptions to understand the impact of reasonable changes in assumptions on the impairment models and conclusions. • reviewing management’s workings for mechanical 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 our internal valuation experts; • checking historical financial information against budget to assess accuracy of the budgeting process and preparation of cash flow forecasts; • checking the consistency of the forecasts used in the impairment review to those prepared for going concern purposes; Key observations: We found the judgements and assumptions adopted by management in the impairment assessment of the carrying value of tangible assets, intangible assets with indefinite lives and other intangibles to be reasonable. 112 112 112 113 113 113 INDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS 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 be the magnitude by which misstatements, including the particular circumstances of their occurrence, when omissions, could influence the economic decisions of evaluating their effect on the financial statements as reasonable users that are taken on the basis of the a 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 Basis for determining materiality Group financial statements Parent Company financial statements 2022 2021 2022 2021 £1,100,000 £1,000,000 £430,000 £620,000 Approximately 5% 5% of loss before 5% of profit before 5% of profit before of profit before tax tax after adjusting tax after adjusting tax after adjusting after adjusting for for exceptional for exceptional for exceptional exceptional items. items. items. items. Rationale for the Adjusted profit Adjusted loss Adjusted profit Adjusted profit benchmark applied before tax is before tax is before tax is before tax is determined to be determined to be determined to be determined to be a stable basis of a stable basis of a stable basis of a stable basis of assessing business assessing business assessing business assessing business performance and performance and performance and performance and is considered to be is considered to be is considered to be is considered to be the most significant the most significant the most significant the most significant determinant of determinant of determinant of determinant of performance for the users performance for the users performance for performance for the users of the the users of the of the financial of the financial financial statements financial statements statements. statements. £825,000 £750,000 £322,000 £465,000 75% of materiality 75% of materiality This was considered appropriate based This was considered appropriate based on audit knowledge of the control on audit knowledge of the control environment, historic misstatement environment and historic misstatement levels, and given the trade of the Group is levels. contained in the Parent Company and one other component which minimises the risk of additional unadjusted misstatements across a number of components. Performance materiality Basis for determining performance materiality component, subsidiary entity Vimto Out of Home. We set materiality for this component at 65% (2021: 62%) of Group materiality based on its size in relation to the Group and our assessment of the risk of material misstatement of the component. Component • 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 materiality was £720,000 (2021: £620,000). In the audit • the Strategic report and the Directors’ report have of the component, we further applied performance been prepared in accordance with applicable legal materiality levels of 75% (2021: 75%) of the component requirements. materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. Reporting threshold We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £22,000 (2021: £20,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. OTHER INFORMATION The Directors are responsible for the other information. The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do 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 Matters on which we are required to report by exception 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: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements are not in agreement with the accounting records and not express any form of assurance conclusion thereon. returns; or Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements 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 material misstatements, we are required to determine • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. RESPONSIBILITIES OF DIRECTORS whether this gives rise to a material misstatement in As explained more fully in the Directors’ the financial statements themselves. If, based on the responsibilities statement, the Directors are work we have performed, we conclude that there is a responsible for the preparation of the financial 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 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. 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. 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 concern and using the going concern basis 114 114 114 115 115 115 INDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS of accounting unless the Directors either intend to Our procedures in response to the above included: team members and remained alert to any indications USE OF OUR REPORT liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE 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. Extent to which the audit was capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non- compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant frameworks which are directly relevant to specific assertions in the financial statements are those that relate to the reporting framework (UK adopted international accounting standards and the Companies Act 2006) and the relevant tax compliance 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, environmental, occupational health and safety and data protection. We discussed the matters above among the audit engagement team and relevant internal specialists including tax and IT specialists and our internal valuation experts regarding non- compliance with laws, regulations and where fraud might occur in the financial statements. • We reviewed the financial statement disclosures, testing to supporting documentation to assess compliance with the provisions with the relevant laws and regulations listed above. We assessed whether any accounting entries and disclosure were required as a consequence of compliance with the Companies Act. • We obtained an understanding of the control environment in monitoring compliance with laws and regulations and enquiring of management, the Audit Committee and those responsible for legal and compliance procedures concerning actual and potential litigation and claims and non compliance with laws and regulations. We corroborated our enquiries through our review of Board minutes, and any correspondence received from regulatory bodies. • We assessed the susceptibility of the financial statements to material misstatement, including fraud and evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements and considered these areas to be management override of controls, manual journal adjustments to revenue and revenue recognition in relation to the cut-off of international sales • We performed audit procedures to address each identified fraud risk. These procedures included but were not limited to: • Testing manual journals posted to revenue accounts back to supporting documentation; • Testing a sample of revenue recognised for international sales either side of the year end to supporting documentation to check recognition in the correct period • In response to risk of management override of controls, testing a sample of journals entries which met a defined risk criteria to supporting documentation and challenging the assumptions made by management in their significant accounting estimates in particular in relation to the estimation of brand support arrangements and impairment of tangible and intangible assets, which are key audit matters. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement of fraud or non-compliance with laws and regulations throughout the audit. This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Our audit procedures were designed to respond Part 16 of the Companies Act 2006. Our audit work to risks of material misstatement in the financial has been undertaken so that we might state to the statements, recognising that the risk of not detecting a Parent Company’s members those matters we are material misstatement due to fraud is higher than the required to state to them in an auditor’s report and risk of not detecting one resulting from error, as fraud for no other purpose. To the fullest extent permitted may involve deliberate concealment by, for example, by law, we do not accept or assume responsibility forgery, misrepresentations or through collusion. to anyone other than the Parent Company and the There are inherent limitations in the audit procedures Parent Company’s members as a body, for our audit performed and the further removed non-compliance work, for this report, or for the opinions we have with laws and regulations is from the events and formed. transactions 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. Stuart Wood (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor, Manchester, UK 28 February 2023 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). OUR ADVISORS AUDITORS BDO LLP, SOLICITORS DLA Piper, 3 Hardman Street, 101 Barbirolli Square, Spinningfields, Manchester, M3 3AT. Manchester, M2 3DL. BANKERS STOCKBROKERS & The Royal Bank of Scotland PLC, NOMINATED ADVISOR 1 Spinningfields Square, Singer Capital Markets, Manchester, M3 3AP. West One Wellington Street, Leeds, LS1 1BA. REGISTRARS Link Group, 10th Floor, Central Square, 29 Wellington Street, Leeds, LS1 4DL. REGISTERED OFFICE Laurel House, Woodlands Park, Ashton Road, Newton-le-Willows, WA12 0HH. REGISTERED NUMBER 00238303. 116 116 116 117 117 117 INDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT - YEAR ENDED 31 DECEMBER 2022 STATEMENT OF FINANCIAL POSITION - YEAR ENDED 31 DECEMBER 2022 2022 2021 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 3 164,926 (93,905) 71,021 (10,677) - - - - 164,926 144,328 (93,905) (79,153) 71,021 (10,677) 65,175 (9,129) - 144,328 - - - (79,153) 65,175 (9,129) (35,742) (11,146) (46,888) (34,124) (39,477) (73,601) 5 6 6 8 24,602 (11,146) 13,456 21,922 (39,477) (17,555) 514 (134) - - 514 (134) 57 (158) - - 57 (158) 24,982 (11,146) 13,836 21,821 (39,477) (17,656) (4,757) 2,556 (2,201) (4,783) 271 (4,512) 20,225 (8,590) 11,635 17,038 (39,206) (22,168) 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 55.38p 55.32p 31.86p 46.15p (60.04p) 31.82p 46.09p (60.04p) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - YEAR ENDED 31 DECEMBER 2022 Profit/(loss) 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 (expense)/income for the year 2022 £’000 2021 £’000 11,635 (22,168) (2,071) 459 (1,612) 4,083 (962) 3,121 Total comprehensive income/(expense) attributable to equity shareholders 10,023 (19,047) 118 118 Assets Non-current assets Property, plant and equipment Investments Intangibles 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 Parent Notes 2022 £’000 2021 £’000 2022 £’000 2021 £’000 11 13 14 26 16 17 18 19 20 19 15 35,988 86,345 14 28 10,958 17,099 - 88 4,125 15,171 10,432 39,561 695 - 5,546 5,276 27,921 9,706 36,124 743 5,755 16,566 88 4,125 26,534 5,868 45,373 708 56,296 56,674 48,248 106,984 103,247 100,197 6,327 16,566 122 5,276 28,291 6,070 40,407 756 38,767 86,000 122,155 131,168 126,731 114,291 30,711 - 30,711 2,038 670 2,708 33,419 88,736 3,697 3,255 1,209 1,280 79,295 88,736 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 75,414 - 75,414 1,553 1,000 2,553 77,967 48,764 3,697 3,255 1,209 2,055 38,548 48,764 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 The Parent Company reported a profit for the year ended 31 December 2022 of £7,245,000 (2021: £6,932,000). The financial statements on pages 118 to 166 were approved by the Board of Directors on 28 February 2023 and were signed on its behalf by: P J Nichols Chairman Registered number 00238303 119 CONSOLIDATED STATEMENT OF CASH FLOWS - YEAR ENDED 31 DECEMBER 2022 PARENT COMPANY STATEMENT OF CASH FLOWS - YEAR ENDED 31 DECEMBER 2022 Notes 2022 £’000 2022 £’000 2021 £’000 2021 £’000 Parent Notes 2022 £’000 2022 £’000 2021 £’000 2021 £’000 11,635 (22,168) Profit for the financial year 7,245 6,932 Cash flows from operating activities Group Cash flows from operating activities Profit/(loss) for the financial year Adjustments for: Depreciation and amortisation Impairment losses on goodwill, intangible and fixed assets Loss on sale of property, plant and equipment Finance income Finance expense Taxation expense recognised in the income statement Increase in inventories Increase in trade and other receivables Increase in trade and other payables 4 6 6 4,521 8,714 186 (514) 134 2,201 (726) (4,100) 2,963 (Decrease)/increase in provisions 20 (4,242) Change in pension obligations and employee benefits Fair value loss/(gain) on derivative financial instruments 22 (920) 662 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 Payment of contingent consideration Net cash used in investing activities Cash flows from financing activities Payment of lease liabilities Purchase of own shares Dividends paid Net cash used in financing activities 514 - (1,245) (71) (995) (5,534) (9,383) 21 24 9 Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 18 4,969 36,244 63 (57) 158 4,512 (3,785) (6,804) 7,429 4,242 (846) (178) 57 2 (1,239) (67) 45,947 23,779 (3,878) 19,901 8,879 20,514 (4,178) 16,336 (802) (1,247) (1,189) (1,217) (6,868) (15,912) (378) 56,674 56,296 (9,274) 9,380 47,294 56,674 Adjustments for: Depreciation and amortisation Loss on sale of property, plant and equipment Finance income Finance expense Taxation expense recognised in the income statement Decrease/(increase) in inventories Increase in trade and other receivables Increase in trade and other payables (Decrease)/increase in provisions Change in pension obligations and employee benefits Fair value loss/(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 1,368 - (514) 106 1,887 202 (5,630) 28,953 (4,242) (920) 662 1,585 46 (57) 126 2,228 (2,544) (4,949) 15,036 4,242 (846) (178) 21,872 29,117 (4,178) 24,939 14,689 21,621 (3,920) 17,701 514 (185) 57 (471) Net cash generated from/(used in) investing activities 329 (414) Cash flows from financing activities Payment of lease liabilities Purchase of own shares Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 18 (870) (5,534) (9,383) 24 9 (1,064) (1,217) (6,868) (15,787) 9,481 38,767 48,248 (9,149) 8,138 30,629 38,767 120 120 121 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - YEAR ENDED 31 DECEMBER 2022 COMPANY STATEMENT OF CHANGES IN EQUITY - YEAR ENDED 31 DECEMBER 2022 Group Called up share capital £’000 Share premium reserve £’000 Capital redemption reserve £’000 Other reserves £’000 Retained earnings £’000 Total equity £’000 Parent 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 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 (6,868) (6,868) Dividends 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 - - - At 1 January 2022 3,697 3,255 1,209 676 Dividends 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 expense Total comprehensive income - - - - - - - - - - - - - - - - - - - - - - - - - - 10 272 (1,217) (1,217) (8,085) (7,803) (22,168) (22,168) 3,121 3,121 (19,047) (19,047) 84,189 (9,383) - - 93,026 (9,383) 5 599 - 5 599 - (5,534) (5,534) Purchase of own shares 604 (14,917) (14,313) - - - 11,635 (1,612) 11,635 (1,612) 10,023 10,023 Total transactions with owners Profit for the year Other comprehensive expense Total comprehensive income 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 Dividends Movement in ESOT Credit to equity for equity- settled share based payments - - - - - - - - - - - - - - - - - - - - - - - - - 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 - - - - - - - - - - - - - - - - - - - - - - - - - 5 599 (9,383) (9,383) - - 5 599 - (5,534) (5,534) 604 (14,917) (14,313) - - - 7,245 7,245 (1,612) (1,612) 5,633 5,633 At 1 January 2022 3,697 3,255 1,209 1,451 47,832 57,444 At 31 December 2022 3,697 3,255 1,209 1,280 79,295 88,736 At 31 December 2022 3,697 3,255 1,209 2,055 38,548 48,764 122 122 123 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 1. REPORTING ENTITY 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 Park, Ashton Road, Newton-le-Willows, WA12 0HH. The consolidated financial statements of the Company as at and for the year ended 31 December 2022 comprise the Company and its subsidiaries (together referred to as the “Group”). The Group is primarily engaged in the supply of soft drinks to the retail, wholesale, catering, 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 provide resilience against these factors and the other principal risks that the Group is exposed to. At the 31 December 2022 the Group had cash and cash equivalents of £56.3m with no external bank borrowings. licensed and leisure industries. On the basis of these reviews, the Directors consider 2. ACCOUNTING POLICIES Basis of preparation The Group’s Consolidated and Parent Company financial statements have been prepared in accordance with UK adopted International Accounting Standards and the requirements of the Companies Act 2006. The accounting policies have been applied consistently by the Group, with those adopted in the previous year. 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 Accounts, the Directors have considered the current financial position of the Group, its principal risks and uncertainties, the potential impact of further Covid-19 restrictions in addition to a continued cost of living crisis. The review performed considers severe but plausible downside scenarios that could reasonably arise within the period. 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 Accounts) and consider it appropriate to adopt the going concern basis in preparing the Group’s Annual Report and Accounts. Use of adjusted measures 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 adjusted profit before tax, which both remove the impact of exceptional items (note 4). The Group also reports EBITDA which measures underlying performance having removed the impact of interest, taxation, depreciation and amortisation from profit after tax. The Group also calculates an adjusted earnings per share, based on the 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 that, due to their nature and size, do not reflect the Group’s underlying The estimated impacts of Covid-19 restrictions are performance. The measures are not comparable to primarily based around our OoH market and the similar measures used by other companies. potential for future lockdowns within the hospitality industry. Our modelling has sensitised trading within Use of estimates and judgements this market to reflect varying degrees of lockdowns with the most severe scenario assuming that some restrictions will return during the remainder of 2023 and the start of 2024. During the year the Group experienced a period of significant inflation and a cost of living crisis against which a number of mitigation actions were introduced. The preparation of financial statements requires management to make estimates, judgements and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Due to the nature of estimation, the actual outcomes may differ from these estimates. These are largely evidenced in the results announced. The following paragraphs detail the key estimates and Our modelling has sensitised the impacts of Russia’s judgements that the Group believes have the most continued invasion of Ukraine, in particular their impact significant effect on the carrying amounts of assets on global supply chains and macroeconomic inflationary factors. and liabilities at the reporting date and within the next financial year. Intangible assets with indefinite lives support campaigns that either span two financial years In the opinion of the Directors, the industry in which the Group operates is stable and there are relatively or where the costs have not been fully settled by the year end date. high barriers to entry. The brands acquired are well Promotions and brand support campaigns comprise: established in their respective sales channels and both have an important role to play in all of the Group’s Long term discounts and rebates routes to market. The brands are also well positioned • Fixed, a defined amount over a period of time to mitigate against the impact of recent sugar levy announcements. The Directors have therefore made a judgement that certain intangible assets relating to brands have indefinite lives. It is expected that these brands will be held and supported for an indefinite period of time and are expected to generate economic benefits. The Group is committed to supporting its brands and invests in significant consumer marketing promotional spend. Should management have judged the intangible assets not to be of indefinite lives, an amortisation charge would be made to the Consolidated Income Statement on an annual basis. Impairment of goodwill and intangible assets with indefinite lives • % of net revenue, a percentage of net revenue, which may have associated hurdle rates Short term promotional discounts Promotional discounts consist of many individual rebates across numerous customers and represent the cost to the Group of short-term deal mechanics. The common deals typically include price reductions for specific SKUs during a promotional period. To provide an amount for these brand support accruals at the end of a period requires a degree of estimation supported by historical data and experience. The accruals are calculated using the expected value approach, however, in most instances, the discounts can be estimated using known facts with a high level of Determining whether goodwill and intangible assets accuracy. with indefinite lives are impaired requires an estimation Defined benefit obligations of the value in use of the cash-generating units to which the assets have been allocated. The value in use calculation requires management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value (see note 12). Customer list intangible assets have finite lives assigned. 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 Such assets are tested for impairment if an impairment uncertainty for the Group. indicator exists. As a result of the impairment review, management have recognised a further impairment charge of £8.7m in the current year, impairing all the remaining intangible assets and a proportion of fixed assets within our OoH business. In 2021, as previously announced, the Group impaired the Goodwill generated from previous OoH acquisitions (2021: £36.2m). The carrying amount of goodwill at the reporting date was £nil (2021: £nil). 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 the Group’s additional tax liability, interest costs and amounts expected to be recovered. Basis of consolidation and goodwill The carrying amount of brands with indefinite lives was £nil (2021: £2.6m). The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn Carrying value of brand support accruals up to 31 December 2022. The Group incurs significant costs in the support and development of the Group’s brands. The majority of costs incurred on these arrangements have been settled at 31 December 2022, however certain judgement is required in determining the level of closing accrual required at a year end for promotions and brand Subsidiaries are entities controlled by the Group. Control exists if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements 124 124 125 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 2. ACCOUNTING POLICIES (CONTINUED) With regard to discounts, rebates, promotional costs Foreign currency transactions Deferred tax of control. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. and brand support costs, consideration is given as to whether a distinct good or service has been received from the goods sold to the customer. Where the payments do not result in the receipt of a distinct good or service, they are treated as a deduction from Intra-Group balances and any unrealised gains and revenue. However, when they do, they are recorded as losses arising from intra-Group transactions are an expense and recognised in administrative expenses. eliminated in preparing the consolidated financial statements. Acquisitions of subsidiaries are dealt with by the For discounts, rebates, promotional costs and brand support costs, accumulated experience is used to estimate and provide for these using the expected value acquisition method. The acquisition method involves method, and revenue is only recognised to the extent the recognition at fair value of all identifiable assets and that it is highly probable that a significant reversal will Transactions in foreign currencies are translated into Deferred tax is recognised using the balance sheet the respective functional currencies of Group entities liability method, with no discounting, providing for at exchange rates at the date of transactions. Monetary temporary differences between the carrying amounts of assets and liabilities denominated in foreign currencies assets and liabilities for financial reporting purposes and at the reporting date are retranslated to the functional the amounts used for taxation purposes. currency at the exchange rate at that date. Deferred tax is not provided on the initial recognition Any exchange differences arising on the settlement of of goodwill, or on the initial recognition of an asset or monetary items or on translating monetary items at liability unless the related transaction is a business rates different from those at which they were initially combination or affects tax or accounting profit. Deferred recorded are recognised in the consolidated income tax is measured at the tax rates that are expected to be statement in the period in which they arise. applied to the temporary differences when they reverse, liabilities at the acquisition date, regardless of whether not occur. The statement of financial position includes Exceptional items or not they were recorded in the financial statements of accruals for claims yet to be received for discounts, the subsidiary prior to acquisition. On initial recognition, rebates and promotional costs. 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 the Group’s accounting policies. Accruals are made for each individual promotion or rebate based on the specific terms and conditions of the customer agreement. Management makes estimates on an ongoing basis, to assess customer performance and sales volume, to calculate total amounts earned The Group has adopted an accounting policy that seeks to highlight significant exceptional items of income and expense within Group results for the year. Exceptional items are those considered to be one off items that are of such significance, by either nature or scale, that separate disclosure is required in the financial statements in order to provide a better understanding provided they are enacted or substantively enacted at the reporting date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Goodwill is stated after separating out identifiable to be recorded as deductions from revenue. In most of the Group’s trading performance. Deferred tax assets and liabilities are offset where there assets. Goodwill represents the excess of the fair value instances, the discount can be estimated using known of the consideration transferred over the fair value facts with a high level of accuracy. Research and Development is a legally enforceable right to set off current tax assets and liabilities and the deferred tax assets and liabilities of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. In Segmental reporting calculating goodwill, the fair value of consideration has An operating segment is a component of the Group been calculated using the cash consideration plus the that engages in business activities from which it may Directors’ best estimate of contingent consideration at earn revenues and incur expenses, including revenues the acquisition date. Revenue recognition and expenses that relate to transactions with any of the Group’s other components and for which discrete financial information is available. In line with market Revenue from the sale of goods is based on the price research and data made available by Nielsen, which specified in the contract, being the invoice price less any documents industry performance in respect of Stills agreed discounts or rebates and excluding VAT and after and Carbonates, management identify both Stills and the deduction of certain promotional and brand support Carbonates as operating segments where operating costs invoiced by customers. Revenue is recognised when control of the goods have been transferred to the buyer. Payment terms vary by customer but never exceed 12 months. The transaction results are reviewed regularly by the Board (as chief operating decision maker) to make decisions about resources to be allocated to the segment and assess its performance. price is therefore not adjusted for the effects of a Segment results that are reported to the Board include significant financing component. 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. 126 126 items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment reporting for the Group is made to the gross profit level for the operating segments but no segment reporting is made for further expenditure or for the assets and liabilities of the Group. The assets and liabilities of the Group are reported as Group totals and no reporting of these balances is recorded at a segment level. As a result, all of the Group’s assets and liabilities are unallocated items and no reconciliation of segment assets to the Group’s total assets is prepared. Research expenditure is recognised in the consolidated relate to income taxes levied by the same taxation income statement in the year in which it is incurred. authority on the same taxable entity. Internal development expenditure is capitalised only if it meets the recognition criteria of IAS 38, Intangible Assets. If the Group cannot distinguish the research phase of an internal project to create an intangible asset from the development phase, the entity treats the expenditure for that project as if it were incurred in the research phase only. Where recognition criteria are met, intangible assets are capitalised and amortised on a straight-line basis over their useful economic lives. All intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. Any impairment losses are recognised immediately in the consolidated income statement. Taxation Income tax expense comprises consolidated current and deferred tax. Income tax expense is recognised in Brands Brands acquired in a business combination are recognised at fair value at the acquisition date. Brands acquired separately through a business combination are assessed at the date of acquisition as to whether they have an indefinite life. The assessment includes whether the brand name will continue to trade and the expected lifetime of the brand. All brands acquired to date have been assessed as having an indefinite life as they are expected to continue to contribute to the long-term future of the Group. The brands are reviewed annually for impairment, being carried at cost less accumulated impairment charges. The fair value of a brand at the date of acquisition is based on the Relief from Royalties method, which is a valuation model based on discounted cash flows. the income statement except to the extent that it relates Customer lists to items recognised in other comprehensive income/ (expense), in which case it is recognised in consolidated other comprehensive income/(expense). Current tax Current tax is the expected tax payable on the taxable Customer lists acquired in a business combination are recognised at fair value at the acquisition date. They are amortised over the useful economic life identified at the date of acquisition with amortisation charges included within administrative expenses. income for the year, using rates which are enacted or Customer lists are amortised between 7 - 15 years. substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. 127 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 2. ACCOUNTING POLICIES (CONTINUED) the unit on a pro-rata basis. Impairment losses are losses using the simplified approach contained within target, are not measurement period adjustments and recognised in the income statement. IFRS 9. Estimated irrecoverable amounts are based on are, therefore, recognised in profit or loss. Reserves Share capital represents the nominal value of equity shares. Goodwill and intangible assets with indefinite lives are reviewed for impairment annually. Share premium represents the excess over nominal Property, plant and equipment value of the fair value of the consideration received for equity shares. Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment Capital redemption reserve represents the reserve losses. Cost includes expenditures that are directly created upon redemption of shares. attributable to the acquisition of the asset. Other reserves incorporate purchase of own shares, The cost of replacing part of an item of property, plant movements in the Group’s ESOT and equity settled and equipment is recognised in the carrying amount share-based payments in respect of Long-Term of the item if it is probable that the future economic Incentive Plans. benefits embodied within the part will flow to the Group historical experience and forward-looking information, together with specific amounts that are not expected to Leased assets be recovered. Individual amounts are written off when All leases are accounted for under IFRS16 by recognising management deems them to be irrecoverable. The a right-of-use asset and a lease liability except for: amount of expected credit losses are updated at each reporting date. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. • Leases of low value assets; and • Leases with a duration of 12 months or less. Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to Amounts owed by Group undertakings are stated after the rate inherent in the lease unless (as is typically the any provision for expected credit loss in line with the case) this is not readily determinable, in which case the three-stage model in IFRS 9. 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 and its cost can be measured reliably. The costs of the For the purpose of the consolidated statement of cash day-to-day servicing of property, plant and equipment flows, cash and cash equivalents comprise deposits with are recognised in the income statement as incurred. banks and bank and cash balances. Retained earnings represents retained earnings. Dividends Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are interim dividends these are recognised once paid. Impairment Depreciation is calculated on a straight line basis to Cash equivalents are short-term, highly liquid element will remain unchanged throughout the lease write down the cost less estimated residual value on investments that are readily convertible to known term. Other variable lease payments are expensed in property, plant and equipment over their estimated amounts of cash and which are subject to an the period to which they relate. approved by the Company’s shareholders. In respect of useful lives. insignificant risk of changes in value. Subsequent to initial measurement lease liabilities 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 comparative periods are as follows: relation to foreign currency forward contracts. They are rate on the balance outstanding and are reduced 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 property, plant and equipment is tested for impairment Plant, machinery, fixtures and fittings 3-10 years Buildings 50 years whenever events or changes in circumstances indicate Material residual value estimates and useful economic that the carrying amount may not be recoverable. lives are updated at least annually. Intangible assets which have indefinite useful lives, including the Group’s acquired brands, are subject to Land is not depreciated. annual impairment testing or more frequent testing if Inventories there are indicators of impairment. Inventories are measured at the lower of cost and net For the purposes of assessing impairment, assets realisable value. The cost of inventories is based on are grouped at the lowest levels for which there are the first-in first-out principle and includes expenditure separately identifiable cash flows (cash-generating incurred in acquiring the inventories and bringing them units). As a result, some assets are tested individually for to their existing location and condition. Net realisable impairment and some are tested at a cash-generating value is the estimated selling price in the ordinary unit (CGU) level. course of business, less the costs of completion and An impairment loss is recognised if the carrying amount selling expenses. of an asset or its CGU exceeds its recoverable amount. Financial assets 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 CGU. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying 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. amount of any goodwill allocated to the units and then Trade receivables are measured at amortised cost using to reduce the carrying amount of the other assets in the effective interest method, less any expected credit 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 depreciated on a straight-line basis over the remaining statement. 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 date) about facts and circumstances that existed at the acquisition date. Changes in the amount of contingent consideration payable that results from events after the term of the lease or over the remaining economic life of 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: if the renegotiation results in one or more • additional assets being leased for an amount commensurate with the standalone price for the acquisition date, such as meeting a revenue or profit additional rights-of-use obtained, the modification 128 128 129 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 2. ACCOUNTING POLICIES (CONTINUED) contributions, which are recognised as an expense in entitled to receive dividends over the relevant holding purchase nor sale of own shares leads to a gain or loss the period that relevant employee services are received. period. being recognised in the consolidated income statement. is accounted for as a separate lease in accordance with the above policy Defined benefit plan • 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 Under the Group’s defined benefit plan, the amount of pension benefit that an employee will receive on retirement is defined by reference to the employee’s length of service and final salary. The legal obligation for any benefits remains with the Group, even if plan assets for funding the defined benefit plan have been set aside. Plan assets may include assets specifically designated to a long-term benefit fund as well as qualifying insurance • if the renegotiation results in a decrease in the policies. 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 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). liability is then further adjusted to ensure Management estimates the DBO annually with the its carrying amount reflects the amount of the assistance of independent actuaries. This is based renegotiated payments over the renegotiated term, on the standard rates of inflation, salary growth and with the modified lease payments discounted at the mortality. Discount factors are determined close to rate applicable on the modification date. The right- each year end by reference to high quality corporate of-use asset is adjusted by the same amount. bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity The Group sometimes negotiates break clauses in its approximating to the terms of the related pension 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 operations for the Group. 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. Share-based payment transactions At 31 December 2022 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 certain that the Group would not exercise its right to Executive share award scheme for certain directors and exercise any right to break the lease. Total lease payments of £774,557 (2021: £1,079,000) are senior executives. All schemes comprise the grant of options under the Group’s share option schemes. potentially avoidable were the Group to exercise break The Group recognises an expense to the income clauses at the earliest opportunity. Post-employment benefit plans The Group provides post-employment benefits through defined contribution and defined benefit plans. Defined contribution plan The Group pays fixed contributions into independent entities in relation to plans and insurances for individual employees. The Group has no legal or constructive obligations to pay contributions in addition to its fixed statement representing the fair value of outstanding equity-settled share-based payment awards to employees which have not vested as at 31 December 2022. Those fair values are charged to the income statement over the relevant vesting period adjusted to reflect actual and expected vesting levels. The Group calculates the fair market value of the options as being based on the market value of a company’s shares at the date of grant adjusted to reflect the fact that an employee is not The total amount to be expensed over the vesting period As at 31 December 2022, the ESOT holds 4,101 shares in is determined with reference to the fair value of options the Company (2021: 4,889 shares). granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included Investments in subsidiaries in the assumptions about the number of options Investments in subsidiaries are shown in the Parent expected to vest. At each reporting date the Group Company statement of financial position at cost less any revises its estimate of the number of options expected provision for impairment. to vest. Standards and interpretations in issue not yet It recognises the impact of revisions to original 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 The following amendments are effective for the period beginning 1 January 2023: Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies • Amendments to IAS 8 - Definition of Accounting Estimates • Amendments to IAS 12 - Deferred Tax Related to Assets and Liabilities arising from a Single Transaction The following amendments are effective for the period beginning 1 January 2024: • Amendments to IFRS 16 - Liability in a Sale and Leaseback • Amendments to IAS 1 - Classification of Liabilities as Current or Non-current • Amendments to IAS 1 - Non-current Liabilities with Covenants 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. The Group does not expect any other standards issued, but not yet effective, to have a material impact on the Group. 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. Provisions and contingent liabilities A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Finance income Finance income comprises interest income on funds invested. Interest income is recognised as it accrues, using the effective interest method. Finance costs Finance costs comprise of interest expenses on leases and defined benefit pension obligations. Interest expenses are recognised as they accrue, using the effective interest method. Government grants Government grants are recognised in profit or loss on a systematic basis over the periods in which the entity recognises expenses for the related costs for which the 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 130 130 131 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 3. SEGMENTAL INFORMATION a. Key operating segments The Board analyses the Group’s internal reports to market research and industry data made available by enable an assessment of performance and allocation of Nielsen. Gross profit is the measure used to assess the resources. The operating segments are based on these performance of each operating segment. reports. The Group’s OoH strategic review is now complete. The Board considers the business from a product Given the differing strategic challenges between our perspective and reviews the Group on the operating Packaged and OoH routes to market, the Group will be segments identified below. There has been no change segmented during FY23 to ensure appropriate strategic to the segments during the year. Based on the nature focus exists for each of its two proposed operating of the products sold by the Group, the types of segments. customers and methods of distribution, management consider reporting operating segments at the Still and Carbonate level to be reasonable, particularly in light of b. Reporting by geographic area Revenue by geographic destination Middle East Africa Rest of the World Total exports United Kingdom 2022 £’000 11,752 18,870 7,350 37,792 126,954 164,926 2022 % 7.1 11.4 4.5 23.0 77.0 100.0 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 Revenue Gross Profit The Group’s business segments operate in the Middle East, Africa, the Rest of the World and the United Kingdom. Revenue from continuing operations arose principally from the provision of goods. Still Carbonate 2022 £’000 78,307 86,619 2021 £’000 72,393 71,935 164,926 144,328 2022 £’000 40,277 30,744 71,021 2021 £’000 37,980 27,195 65,175 There are no sales between the two operating segments and all revenue is earned from external customers. 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. Total assets Depreciation The assets of the Group at 31 December 2022 and The Group’s depreciation charges for the years ended 31 December 2021 are located within the United 31 December 2022 and 31 December 2021 are against Kingdom and Europe. Capital expenditure property, plant and equipment retained within the United Kingdom and Europe. The gross profit of the operating segments is reconciled to profit before taxation as per the consolidated income The capital expenditure of the Group for the years Amortisation 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 Amortisation Impairment losses on goodwill, intangible and fixed assets 2022 £’000 1,245 577 3,881 640 8,714 2021 £’000 1,239 108 4,309 660 36,244 132 132 ended 31 December 2022 and 31 December 2021 was The Group’s amortisation charges for the years ended made within the United Kingdom and Europe. 31 December 2022 and 31 December 2021 are against IFRS 16 additions The IFRS 16 additions of the Group for the years ended 31 December 2022 and 31 December 2021 were made within the United Kingdom and Europe. 4. EXCEPTIONAL ITEMS intangible assets retained within the United Kingdom and Europe. 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: Review of UK packaged supply chain Out of Home Strategic Review Impairment of goodwill, intangible and fixed assets Historic incentive scheme Group Systems Review 2022 £’000 1,464 518 8,714 134 316 2021 £’000 620 - 36,244 2,613 - 11,146 39,477 133 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 Group’s growth plans, and improved efficiency. These fixed assets (£3.9m). In 2021, as previously announced, Short-term lease rental payments The Group has now settled with HMRC the £4.3m tax Loss on sale of property, plant and equipment 4. EXCEPTIONAL ITEMS (CONTINUED) previously is not now likely to be achieved, despite there 2022 Exceptional Items being significant opportunities to enhance net margin through better alignment of our customer and product The Group incurred £11.1m of exceptional costs during mix with our cost base. the year (2021: £39.5m), £8.7m of which is non-cash. The Group’s cost of capital has increased, largely due to Review of UK Packaged Supply Chain macro-economic factors affecting all businesses, from In Q4 2020, the Group commenced a review of its UK operational supply chains. The project has progressed 8.2% to 13.1%. This has resulted in a higher threshold required to support the carrying values of assets. steadily with significant changes implemented, including As a result, management have recognised a further non- the Group entering several new five-year contract cash impairment charge of £8.7m, in the current year, manufacturing and distribution arrangements that impairing all the remaining intangible assets (£4.8m) both built significant additional capacity, in-line with the within our OoH route to market and a proportion of its projects, which completed during 2022, resulted in the Group impaired the Goodwill generated from £1.5m of exceptional costs in the period (2021: £0.6m, previous OoH acquisitions (2021: £36.2m). 2020: £0.3m). Out of Home Strategic Review Historic Incentive Scheme In Q1 2021 the Group commenced a strategic review and interest charges relating to a historic incentive into its OoH route to market, to consider customer scheme and will now commence recovery of debts from and product mix as well as review ways to enhance current and previous management who had indemnified net margin and profitability going forward. The the Company. The Group incurred legal costs in the Group incurred £0.5m of costs in the period to period of £0.1m in relation to the case. prepare its recommendations for implementation. Additional costs will be incurred through 2023 as these Group Systems Review recommendations are implemented. These additional The Group has commenced a project to implement a implementation costs are one-off in nature and will be new enterprise resource planning (ERP) system, which is treated as exceptional. expected to be operational through 2024. Initial review Impairment of intangible and fixed assets The impact of Covid-19 resulted in a difficult period of trade for OoH from 2020 through 2021, with many outlets being closed for a prolonged period of time. Whilst trade within the hospitality industry has costs of £0.3m were incurred in the period. 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. reopened post the pandemic, the impact of the war 2021 Exceptional Items in the Ukraine, and its impact on inflation and cost of living pressures have meant that whilst trade within the hospitality industry initially returned to pre-Covid levels, growth is significantly slower than previously forecast in the short term and saw a significant slowdown in Q4 as inflationary pressures impacted consumers. Certain sectors of the hospitality industry, for example Cinema, Holiday and Theme Parks where our frozen business In the previous year, the Group incurred £39.5m of exceptional costs, £38.9m of which was non-cash. Following the annual impairment review of the Group’s Out of Home cash-generating unit (CGU), the Group incurred a non-cash impairment to Goodwill of £36.2m. Further detail is provided in note 12. operates, have seen significant volume decline all year The Group continued its work on the review of its UK versus pre-pandemic revenues. operational supply chains and, as a result of this work, In line with market expectations, we anticipate that incurred £0.6m of costs in the previous year. growth projections for OoH beyond 2022 will be lower As at 31 December 2021, the Group recognised a net than previously estimated, given the economic outlook liability of £2.6m in relation to the historic incentive and change in consumer patterns. scheme, being a reasonable estimate of the Group’s Whilst cost pressure is expected to be fully recovered within OoH, the gross margin progression anticipated additional tax liability, interest costs and amounts expected to be recovered. 5. OPERATING PROFIT Operating profit is stated after charging/(crediting): 2022 £’000 2021 £’000 Inventory amounts charged to cost of sales 93,905 79,153 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 Charge for equity-settled share-based payments (Gain)/loss on foreign exchange differences Fair value loss/(gain) on derivative financial instruments (note 22) Release of contingent consideration on acquisition Expected credit loss provision (release)/charge (note 17) 162 3,881 3,896 640 349 599 (588) 662 186 3 (365) 110 4,309 - 660 240 272 437 (178) 63 (63) 294 Operating lease rental payments have been included within administrative expenses and represent short-term lease expenses. 6. FINANCE INCOME AND EXPENSE Finance income comprises: Bank interest receivable Net interest income on defined benefit pension scheme surplus Finance income Finance expense comprises: IFRS 16 interest charge Finance expense Notes 2022 £’000 2021 £’000 26 24 409 105 514 (134) (134) 47 10 57 (158) (158) 134 134 135 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 7. DIRECTORS AND EMPLOYEES Group and Parent Company key management personnel compensation a. Average monthly number of persons employed during the year, including Director 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 101. 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 credit 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 2022 £’000 325 282 2022 £’000 13,693 1,813 838 94 599 2021 £’000 308 274 2021 £’000 13,290 1,388 811 69 272 Salary Defined contribution pension costs Social security costs 2022 £’000 1,571 48 175 1,794 2021 £’000 1,849 42 214 2,105 The highest paid director has received £811,000 There is a share-based payment charge of £98,000 in the (2021: £992,000) excluding pension contributions. year (2021: £75,000) in relation to executive matching Benefits are accruing to 2 Directors (2021: 2 Directors) share awards made to 2 Directors. 17,037 15,830 under a defined contribution scheme, the highest paid A Director has made a gain of £nil (2021: £57,000) on the Director has received contributions of £30,000 in the exercise of share options during the year. year (2021: £29,000). Further information regarding Directors’ remuneration Aggregate amounts for loss of office totalled £nil and the Incentive Plan is provided in the Remuneration (2021: £nil). Committee Report on pages 90 to 97. 2022 £’000 13,693 1,813 838 94 599 2021 £’000 13,290 1,388 811 69 272 17,037 15,830 A charge of £599,000 (2021: £272,000) was recognised during the year in relation to benefits accruing under the Group’s Save As You Earn schemes, Long-Term Incentive Plan (LTIP) and Executive share award scheme. 136 136 137 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 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 2022 £’000 4,403 (177) 4,226 (2,072) 47 (2,025) 2021 £’000 3,862 (58) 3,804 675 33 708 Total tax expense in the consolidated income statement 2,201 4,512 The tax expense is wholly in respect of UK taxation. b. Tax reconciliation Profit before taxation Profit before taxation multiplied by the standard rate of corporation tax in the United Kingdom of 19.00% (2021: 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 Impact on deferred tax due to rate change Amounts relating to other comprehensive income 2022 £’000 2021 £’000 13,836 (17,656) 2,629 (3,355) 297 65 38 (130) - (698) - 7,402 142 (70) (25) (13) 441 (10) Total tax expense in the consolidated income statement 2,201 4,512 c. The effective rate of tax on adjusted profit before tax is 19.04% (2021: 21.9%) which is higher than the standard rate of Corporation Tax in the United Kingdom (19.00%). The effective rate of tax on profit before tax is 15.9% (2021: -24.5%) which is lower than this rate. In May 2021, an amendment to the UK Corporation Tax rate was subsequently enacted to increase the rate of tax Interim dividend 12.4p (2021: 9.8p) paid 9 September 2022 Final dividend for 2021 13.3p (2021: 8.8p) paid 5 May 2022 2022 £’000 4,523 4,860 9,383 2021 £’000 3,619 3,249 6,868 The interim dividend for the prior year of £3,619,000 was paid on 10 September 2021. The 2022 final proposed dividend of 15.3p per share has not been accrued as it had not been approved by the year end. 10. EARNINGS PER SHARE Earnings/(loss) per share (basic) Earnings/(loss) per share (diluted) Adjusted earnings per share (basic) - before exceptional items Adjusted earnings per share (diluted) - before exceptional items 2022 2021 31.86p (60.04p) 31.82p (60.04p) 55.38p 55.32p 46.15p 46.09p 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. The weighted average number of ordinary shares is calculated by adjusting the shares in issue at the beginning of the period by the number of shares bought back or issued during the period multiplied by a time-weighting factor. 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. 2022 Weighted average number of shares Earnings £’000 Earnings per share Loss £’000 2021 Weighted average number of shares Loss per share Basic earnings/(loss) per share 11,635 36,522,645 31.86p (22,168) 36,919,085 (60.04p) Dilutive effect of share options 39,639 - Diluted earnings/(loss) per share 11,635 36,562,284 31.82p (22,168) 36,919,085 (60.04p) 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 Group’s operations. It can be reconciled from the basic earnings per share as follows: 2022 Weighted average number of shares Earnings £’000 Earnings per share (Loss)/ Earnings £’000 2021 Weighted average number of shares (Loss)/ Earnings per share from 19% to 25% with effect from 1 April 2023. Deferred tax balances as at 31 December 2022 have been recognised Basic earnings/(loss) per share 11,635 36,522,645 31.86p (22,168) 36,919,085 (60.04p) at 25% (2021: 25%). Exceptional items after taxation 8,590 39,206 d. In addition to the amount charged to the consolidated income statement, a credit of £459,000 (2021: £962,000 charge) has been recognised in other comprehensive income/ (expense), being the movement on deferred taxation Adjusted earnings per share (basic) - before exceptional items 20,225 36,522,645 55.38p 17,038 36,919,085 46.15p relating to retirement benefit obligations and equity-settled share-based payments. Dilutive effect of share options 39,639 48,656 Adjusted earnings per share (diluted) - before exceptional items 20,225 36,562,284 55.32p 17,038 36,967,741 46.09p 138 138 139 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 11. PROPERTY, PLANT AND EQUIPMENT Group Cost At 1 January 2021 Additions Disposals Land and buildings £’000 3,444 - - At 1 January 2022 3,444 Additions Disposals - - At 31 December 2022 3,444 Depreciation At 1 January 2021 Charge for the year On disposals At 1 January 2022 Charge for the year On disposals Impairment (see below) At 31 December 2022 Net book value at 31 December 2022 Net book value at 31 December 2021 454 69 - 523 69 - - 592 2,852 2,921 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 26,727 1,239 (3,191) 24,775 1,245 (599) 25,421 13,188 3,172 (3,126) 13,234 2,886 (413) 3,896 19,603 5,818 11,541 2,977 2,784 35,932 At 1 January 2021 28 - 3,005 114 - 3,119 1,413 684 - 2,097 546 - - 80 - 1,347 (3,191) 2,864 34,088 463 - 1,822 (599) 3,327 35,311 751 384 15,806 4,309 - (3,126) 1,135 16,989 380 - - 3,881 (413) 3,896 2,643 1,515 24,353 476 908 1,812 10,958 1,729 17,099 Additions Disposals At 1 January 2022 Additions At 31 December 2022 Depreciation At 1 January 2021 Charge for the year On disposals At 1 January 2022 Charge for the year At 31 December 2022 Net book value at 31 December 2022 Net book value at 31 December 2021 Group impairment losses of £3,896,000 in the year (2021: £nil) are within the Out of Home route to market. See note 14 for further details on the Group’s impairment review. 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 5,416 472 (242) 5,646 185 5,831 3,921 519 (196) 4,244 445 4,689 1,142 1,402 2,977 1,836 13,673 28 - 3,005 114 3,119 1,413 684 - 2,097 546 2,643 476 908 80 - 580 (242) 1,916 14,011 463 762 2,379 14,773 541 279 - 820 274 1,094 6,329 1,551 (196) 7,684 1,334 9,018 1,285 5,755 1,096 6,327 Land and buildings £’000 3,444 - - 3,444 - 3,444 454 69 - 523 69 592 2,852 2,921 140 140 141 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 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 2021 Impairment (see below) At 1 January 2022 and 31 December 2022 2021 Impairment Review £’000 36,244 (36,244) - An annual impairment review was performed on the goodwill (£36.2m) and intangible assets with indefinite lives (£2.6m), all of which related the Group’s Out of Home Business. Following the review performed the entire goodwill (£36.2m) was impaired. 13. INVESTMENTS: SHARES IN GROUP UNDERTAKINGS Parent Cost and net book amount At 1 January 2021, 1 January 2022 and 31 December 2022 £’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. 142 142 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. 14. INTANGIBLES Group Cost At 1 January 2022 and 31 December 2022 Amortisation At 1 January 2021 Charge for the year At 1 January 2022 Charge for the year Impairment (see note 4) At 31 December 2022 Net book value at 31 December 2022 Net book value at 31 December 2021 Parent Cost At 1 January 2022 and 31 December 2022 Amortisation At 1 January 2021 Charge for the year At 1 January 2022 Charge for the year At 31 December 2022 Net book value at 31 December 2022 Net book value at 31 December 2021 Contractual agreement £’000 Customer list £’000 180 5,521 Brand name £’000 3,889 Computer software £’000 Total £’000 170 9,760 69 36 105 36 39 180 - 75 2,155 590 2,745 570 2,206 5,521 1,316 - 1,316 - 2,573 3,889 14 34 48 34 - 82 3,554 660 4,214 640 4,818 9,672 - - 88 88 2,776 2,573 122 5,546 Brand name £’000 1,316 Computer software £’000 Total £’000 170 1,486 1,316 - 1,316 - 1,316 - - 14 34 48 34 82 88 122 1,330 34 1,364 34 1,398 88 122 143 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 14. INTANGIBLES (CONTINUED) 2022 Impairment Review Intangible assets which have indefinite useful lives, Key assumptions A softening of inflationary pressures and improvement including the Group’s acquired brands, are subject to The calculation of value in use is most sensitive to the in material input prices would lead to an improvement annual impairment testing or more frequent testing if following assumptions: there are indicators of impairment. • Revenue growth Annual impairment reviews were performed on the • Gross margin intangible assets with indefinite lives, all of which relate • Overheads the Group’s OoH route to market. The value in use • Discount rate calculation uses cash flow projections from financial • Growth rate estimates used to extrapolate cash budgets approved by management in addition to annual flows beyond the forecast period growth projections for the next five years and into perpetuity. Revenue growth The impact of Covid-19 resulted in a difficult period of trade for OoH from 2020 through 2021 with many outlets being closed for a prolonged period of time. We exit 2022 with a smaller OoH route to market than anticipated 12 months ago which in turn is significantly smaller than that anticipated pre-pandemic. Whilst trade within the hospitality industry has now The impact of inflation on the UK economy and its opened post the pandemic, the impact of the war in the resulting cost of living pressure for our consumers Ukraine, and its impact on inflation and cost of living have meant that, whilst trade within the hospitality pressures have meant that, whilst trade within the industry initially returned to pre-Covid levels, growth is in the gross margin forecast. An increase of 3.3ppts in the gross margin by the end of the five year forecast period would result in no impairment being required for OoH. Overheads 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. 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 9% at the end of the five-year forecast period would result in no impairment to OoH. hospitality industry initially returned to pre-Covid levels, significantly slower than previously forecast in the short Discount rate growth is significantly slower than previously forecast term and saw a significant slowdown in Q4 2022. Certain in the short term and saw a significant slowdown in Q4 sectors of the hospitality industry, for example Cinema, as inflationary pressures impacted consumers. Certain Holiday and Theme Parks where our frozen business sectors of the hospitality industry, for example Cinema, operates, have seen significant volume decline all year Holiday and Theme Parks where our frozen business versus pre-pandemic revenues. Discount rates represent the current market assessment of the risks specific to the OoH 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 operates, have seen significant volume decline all year versus pre-pandemic revenues. Whilst we do expect growth to return in the medium is based on the specific circumstances of the Group term, the short-term impact of events in recent years and is derived from its weighted average cost of capital Growth projections beyond 2022 are now expected to - the pandemic, cost of living pressures, consumer (WACC). Adjustments to the discount rate are made to be lower than previously estimated given the economic spending habits - is significant for the OoH route to factor in the specific amount and timing of the future tax outlook and change in consumer patterns. market. flows in order to reflect a pre-tax discount rate. Whilst cost pressure is expected to be fully recovered Within the year-end impairment review revenue growth A reduction in the pre-tax discount rate to 8.6% (i.e. within OoH, the gross margin progression anticipated of 2% has been forecast from year five into perpetuity -4.5ppts) would result in no impairment. previously is not now likely to be achieved despite there but before that we see slower growth than anticipated being significant opportunities to enhance net margin previously. Growth rate estimates through better alignment of our customer and product mix with our cost base. A faster rate of recovery would increase the value in use calculation and therefore reduce any impairment noted. The pre-tax discount rate applied to cash projections A year-on-year increase in annual revenue of 3% per is 13.1% (2021: 8.2%) and cash flows beyond the five- year over the five- year period, starting from year one, year period are extrapolated using a 2% growth rate would result in no impairment being required for OoH. (2021: 2%). Based on the review it was concluded that the carrying value of the assets were not supported by Gross margin the value in use calculated. As a result of this analysis, Whilst cost pressure is expected to be fully recovered management have recognised an impairment charge within OoH, the gross margin progression anticipated of £8.7m in the current year, £4.8m in relation to the previously is now unlikely to be achieved despite there intangible assets and £3.9m relating to a proportion being significant opportunities to enhance net margin of the fixed assets. The impairment charge has been through better alignment of our customer and product recognised as an exceptional item within these financial mix with our cost base. statements. 144 144 The long-term growth rate used to extrapolate the period of review is based upon management’s expectations of the OoH CGUs’ ongoing potential and is considered consistent with the drinks hospitality industry as a whole. An increase of 5.0ppts from 2% to 7% growth into perpetuity would be required for there to be no impairment. 145 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2021 15. DEFERRED TAX ASSETS AND LIABILITIES Movement in temporary differences during the year Recognised deferred tax assets and liabilities The UK deferred tax balances are measured at 25% (2021: 25%). Deferred tax assets and liabilities are attributable to the following: 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 Net balance at 1 January 2022 £’000 Arising on business combination £’000 Recognised in income £’000 Recognised in other comprehensive income £’000 Net balance at 31 December 2022 £’000 (832) (1,156) (1,200) 33 (3,155) - - - - - 904 1,323 (210) 9 2,026 - - 459 - 459 72 167 (951) 42 (670) Net balance at 1 January 2021 £’000 Arising on business combination £’000 Recognised in income £’000 Recognised in other comprehensive expense £’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 2022 £’000 Arising on business combination £’000 Recognised in income £’000 Recognised in other comprehensive income £’000 Net balance at 31 December 2022 £’000 (138) 167 (1,200) 33 (1,138) - - - - - (120) - (210) 9 (321) - - 459 - 459 (258) 167 (951) 42 (1,000) Net balance at 1 January 2021 £’000 Arising on business combination £’000 Recognised in income £’000 Recognised in other comprehensive expense £’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) Group Assets Liabilities Net Property, plant and equipment Goodwill and intangibles Employee benefits Provisions 72 167 - 42 281 - - - 33 33 2022 £’000 2021 £’000 2022 £’000 2021 £’000 (832) (1,156) - - (951) (1,200) - - 2022 £’000 72 167 (951) 42 2021 £’000 (832) (1,156) (1,200) 33 (951) (3,188) (670) (3,155) Parent Property, plant and equipment Goodwill and intangibles Employee benefits Provisions Assets Liabilities Net 2022 £’000 - 167 - 42 209 2021 £’000 - 167 - 33 2022 £’000 (258) - 2021 £’000 (138) - (951) (1,200) - - 2022 £’000 (258) 167 (951) 42 2021 £’000 (138) 167 (1,200) 33 200 (1,209) (1,338) (1,000) (1,138) 16. INVENTORIES Finished goods Raw materials Group Parent 2022 £’000 8,997 1,435 10,432 2021 £’000 8,375 1,331 9,706 2022 £’000 5,270 598 5,868 2021 £’000 6,067 3 6,070 At the year-end, the Group provision for the write-down of inventories to net realisable value amounted to £306,000 (2021: £168,000). 146 146 147 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS-YEAR ENDED 31 DECEMBER 2022 17. TRADE AND OTHER RECEIVABLES Trade receivables Group Parent 2022 £’000 2021 £’000 2022 £’000 2021 £’000 35,483 32,584 28,705 25,678 Movements in the expected credit loss allowance are summarised below: Group At 1 January 2022 £’000 Charge in the year £’000 Release in the year £’000 Utilised £’000 At 31 December 2022 £’000 Expected credit loss provision 956 62 (365) (98) 555 Group 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 767 294 (65) (40) 956 Parent At 1 January 2022 £’000 Charge in the year £’000 Release in the year £’000 Utilised £’000 At 31 December 2022 £’000 Expected credit loss provision 204 - (20) - 184 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 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. Less: provision for impairment of trade receivables (555) (956) (204) Trade receivables - net 34,928 31,628 28,501 Amounts owed by Group undertakings Other receivables Derivative financial instruments - forward contracts (note 22) Prepayments - 2,788 - 1,845 - 12,805 2,294 178 2,024 2,345 - 1,722 (204) 25,474 10,087 2,719 178 1,949 39,561 36,124 45,373 40,407 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 £555,000 (2021: £956,000) 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 2022 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 (2021: £nil). The Group's expected credit loss provision was determined as follows: 31 December 2022 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 0.7% 30,390 211 4.1% 3,023 123 0.7% 1,248 9 0.6% 249 2 36.7% 573 210 35,483 555 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% 971 364 32,584 956 148 148 149 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 At 1 January 2022 £’000 Cash flow £’000 At 31 December 2022 £’000 20. PROVISIONS Group At 1 January 2022 £’000 Charge in the year £’000 Release in the year £’000 Utilised £’000 At 31 December 2022 £’000 56,674 (378) 56,296 Historic incentive scheme 4,242 - - (4,242) - Parent At 1 January 2022 £’000 Charge in the year £’000 Release in the year £’000 Utilised £’000 At 31 December 2022 £’000 Historic incentive scheme 4,242 - - (4,242) - The Group has now settled with HMRC the tax and interest charges regarding the historic incentive scheme provided for in the prior year annual report (£4.2m). Recovery of debts from current and previous management who had indemnified the Company has commenced. Included within other receivables is a reimbursement asset in respect of these historic contracts. 21. PRIOR YEAR ACQUISITIONS 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 £71,000 was paid representing the third and final stage of contingent consideration and thus settling this matter. 18. CASH AND CASH EQUIVALENTS Group Cash at bank and in hand Parent Cash at bank and in hand At 1 January 2022 £’000 Cash flow £’000 At 31 December 2022 £’000 38,767 9,481 48,248 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 Derivative financial instruments - forward contracts (note 22) Group Parent 2022 £’000 2021 £’000 2022 £’000 2021 £’000 11,115 9,210 8,925 7,326 - 1,635 18 151 - 794 75 - 50,264 25,548 382 19 151 392 8 - Accruals 17,291 17,843 15,274 16,053 IFRS 16 lease liabilities (note 24) 501 869 399 773 30,711 28,791 75,414 50,100 Non-current liabilities IFRS 16 lease liabilities (note 24) Group Parent 2022 £’000 2,038 2,038 2021 £’000 1,954 1,954 2022 £’000 1,553 1,553 2021 £’000 1,367 1,367 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. 150 150 151 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 22. FINANCIAL INSTRUMENTS Foreign currency sensitivity Exposure to treasury management, liquidity, credit and currency risks arise in the normal course of the Group’s business. Treasury management The Group’s treasury activities are targeted to provide suitable, flexible funding arrangements to satisfy the Group’s requirements. Interest rate and liquidity risk are managed at a Group level. Foreign currency risk is managed, in consultation with Group management, in subsidiaries which are responsible for the majority of purchases. The Group’s policy for investing any surplus cash balances is to place such amounts on deposit. 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% (2021: 5%), then this would have had the following impact: US Dollar £’000 (156) 2022 Euro £’000 (84) Total £’000 (240) US Dollar £’000 (119) 2021 Euro £’000 (161) Total £’000 (280) Liquidity risk Net result for the year 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. If Sterling had weakened against the US Dollar and Euro by 5% (2020: 5%), then this would have had the following impact: Net result for the year US Dollar £’000 172 2022 Euro £’000 93 Total £’000 265 US Dollar £’000 132 2021 Euro £’000 177 Total £’000 309 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. The possibility of a 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 Derivative financial instruments 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 2022 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 2022 £’000 3,267 1,773 5,040 2021 £’000 2,501 3,371 5,872 Derivative financial (liabilities)/assets Foreign currency forward contracts carried at fair value 2022 £’000 (151) 2021 £’000 178 In December 2022, the Group entered into foreign exchange forward contracts to manage the foreign currency risk associated with anticipated cash inflows in 2023. The following table details the foreign currency forward contracts outstanding at the year-end: 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) 5,800 5,000 5,037 4,067 (99) (52) Forward rate 1.1514 1.2293 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 2021. At 31 December 2022, 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. 152 152 153 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 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 Financial assets Trade receivables and other receivables Cash and cash equivalents Total financial assets 2022 £’000 2021 £’000 2022 £’000 2021 £’000 2022 £’000 2021 £’000 2022 £’000 2021 £’000 - - - 178 37,716 32,294 - 56,296 56,674 178 94,012 88,968 - - - 178 43,651 36,652 - 48,248 38,767 178 91,899 75,419 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 Total financial liabilities 2022 £’000 2021 £’000 2022 £’000 3 - 3 67 - 67 11,130 2,539 13,669 12,041 2021 £’000 9,218 2,823 2022 £’000 2021 £’000 2022 £’000 2021 £’000 - - - - - - 59,208 32,882 1,952 2,140 61,160 35,022 The following table sets out the Group contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities: At 31 December 2022 Trade and other payables Total At 31 December 2021 Trade and other payables Total Up to 3 months £’000 11,133 11,133 Up to 3 months £’000 9,285 9,285 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 - - - - - - The contractual maturities of IFRS 16 lease liabilities are disclosed in note 24. 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’s right-of-use assets and lease liabilities to 31 December 2022: Group Right-of-use assets Property £'000 Motor Vehicles £'000 Total £'000 Property £'000 Parent Motor Vehicles £'000 At 1 January 2021 2,033 1,564 3,597 1,295 1,564 Additions Depreciation At 1 January 2022 Additions Depreciation At 31 December 2022 80 (384) 1,729 463 (380) 1,812 28 108 (684) (1,068) 908 114 2,637 577 (546) (926) 476 2,288 80 (279) 1,096 463 (274) 1,285 28 (684) 908 114 (546) 476 Lease liabilities At 1 January 2021 Additions Interest expense Lease payments At 1 January 2022 Additions Interest expense Lease payments Group Property £'000 Motor Vehicles £'000 Total £'000 Property £'000 Parent Motor Vehicles £'000 2,089 1,657 3,746 1,313 1,657 80 89 (391) 1,867 463 90 28 69 108 158 (798) (1,189) 956 114 44 2,823 577 134 (420) (575) (995) 80 57 (266) 1,184 463 62 (296) 1,413 28 69 (798) (1,064) 956 114 44 (575) 539 2,140 577 106 (871) 1,952 At 31 December 2022 2,000 539 2,539 Total £'000 2,859 108 (963) 2,004 577 (820) 1,761 Total £'000 2,970 108 126 154 154 155 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 24. LEASES (CONTINUED) The following table sets out the Group maturities of IFRS 16 lease liabilities based on the contractual The following table reconciles the changes in IFRS 16 liabilities from financing activities during the year to 31 undiscounted cash flows: Group At 31 December 2022 Lease liabilities Parent At 31 December 2022 Lease liabilities Group At 31 December 2021 Lease liabilities Parent At 31 December 2021 Lease liabilities Up to 3 months £’000 229 Up to 3 months £’000 198 Up to 3 months £’000 273 Up to 3 months £’000 242 Between 3 and 12 months £’000 Between 1 and 2 years £’000 Between 2 and 5 years £’000 Over 5 years £’000 570 559 1,118 220 Between 3 and 12 months £’000 Between 1 and 2 years £’000 Between 2 and 5 years £’000 Over 5 years £’000 477 426 720 220 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 December 2022: 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 2,724 3,746 - - 63 (833) (1,189) 158 108 - 1,954 2,823 - (995) - 372 (288) 134 577 - 2,038 2,539 930 (1,064) 126 45 736 773 (871) 106 205 185 398 2,040 2,970 - - 63 (736) (1,064) 126 108 - 1,367 2,140 - (871) - 372 (185) 106 577 - 1,554 1,952 At 1 January 2021 Cash Flows Non-cash flows - interest paid - lease additions - transfers At 1 January 2022 Cash Flows Non-cash flows - interest paid - lease additions - transfers At 31 December 2022 1,022 (1,189) 158 45 833 869 (995) 134 205 288 501 25. RELATED PARTY TRANSACTIONS Parent Company Lease payments incurred for short-term leases not included in the measurement of lease liabilities under IFRS 16 The Parent Company entered into the following transactions with subsidiaries during the year: were as follows: Short-term lease expense 2022 2021 Group £’000 349 Parent £’000 349 Group £’000 240 Parent £’000 240 Sale of goods and services (including recharge of costs) Transaction value Year ended 31 December Balance outstanding as at 31 December 2022 £’000 1,403 2021 £’000 1,039 2022 £’000 (37) 2021 £’000 959 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 £258,000 (2021: £262,000). 156 156 157 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 26. PENSION OBLIGATIONS AND EMPLOYEE BENEFITS Defined benefit obligation 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. 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 £838,000 (2021: £811,000). 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 2022 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 Longevity risk The present value of the defined benefit liability The Group is required to provide benefits for life for the is calculated using a discount rate determined by members of the defined benefit liability. Increases in the reference to market yields of high quality corporate life expectancy of the members will increase the defined bonds. The estimated term of the bonds is consistent benefit liability. with the estimated term of the defined benefit obligation and it is denominated in sterling. A decrease Inflation risk in market yield on high quality corporate bonds will A significant proportion of the defined benefit liability is The details of the Group’s defined benefit obligation are as follows: Opening defined benefit obligation Current service cost (Company only) Interest cost Actual contributions paid by plan participants Experience adjustment Actuarial gains from changes in financial assumptions Actuarial losses/(gains) from changes in demographic assumptions Benefits paid - including insurance premiums Closing defined benefit obligation 31 December 2022 £’000 31 December 2021 £’000 27,620 30,536 25 502 3 320 (8,951) 159 (990) 18,688 26 390 3 - (1,910) (331) (1,094) 27,620 Defined benefit plan assets The reconciliation of the balance of the assets held for the Group’s defined benefit plan is presented below: increase the Group’s defined benefit liability, although linked to inflation. An increase in the inflation rate will Return on plan assets (excluding amounts included in net interest) it is expected that this would be offset partially by an increase the Group’s liability. A portion of the plan assets increase in the fair value of the plan assets. are inflation-linked debt securities, which will mitigate Investment risk The plan assets at 31 December 2022 are predominantly credit, liability driven investments and bonds. 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 2022 and 2021 is shown below. 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 Fair value of plan assets at start of accounting period Interest income 31 December 2022 £’000 31 December 2021 £’000 32,896 607 (10,543) 909 3 (990) (69) 22,813 30,883 400 1,842 905 3 (1,094) (43) 32,896 Present value of funded obligations Fair value of plan assets Surplus in the plan Related deferred tax liability Net surplus recognised 31 December 2022 £’000 31 December 2021 £’000 (18,688) 22,813 4,125 (1,031) 3,094 (27,620) 32,896 5,276 (1,319) 3,957 158 158 The actual return on plan assets was a loss of £9,936,000 (2021: gain of £2,242,000). Plan assets do not comprise any of the Group’s own financial instruments or any assets used by Group companies. The fair value of the scheme assets in each category has been summarised below. The major categories of plan assets measured at fair value are: 31 December 2022 £’000 31 December 2021 £’000 Equities Credit Liability driven investments Absolute return bonds Other, including cash - 13,592 6,749 1,031 166 21,538 3,455 13,664 6,865 7,267 295 31,546 159 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 26. PENSION OBLIGATIONS AND EMPLOYEE BENEFITS (CONTINUED) Defined benefit plan expenses (continued) Defined benefit plan assets (continued) Remeasurements recognised in other comprehensive income/(expense) relating to the Group’s defined With the agreement of Trustees, the Scheme fully disinvested from the L&G Managed Property Fund in October 2021, following a period of high interest rates, to increase liquidity and reduce investment risk to target levels. benefit plan are as follows: Assets included which do not have a quoted market value: Property 31 December 2022 £’000 31 December 2021 £’000 1,275 1,350 The fair value of the property was revalued as at 31 December 2022, 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: Future salary increases Rate of increase in (post 1997) pensions in payment (a) Discount rate at 31 December Expected rate of inflation - RPI 31 December 2022 31 December 2021 3.25% 3.60% 4.75% 3.25% 3.40% 3.40% 1.85% 3.40% 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 (2021: 88 years) and 90 years for women (2021: 90 years). For pensioners currently aged 65, life expectancies have been estimated as 86 years for men (2021: 86 years) and 88 years for women (2021: 89 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 46.3% of salaries. The Company will continue to contribute at this rate pending the results of the next actuarial valuation. The plan is now closed to new entrants. This means that the average age of the membership can be expected to rise which in turn means that the future service cost (as a percentage of scheme members’ pensionable salaries) can be expected to rise. Defined benefit plan expenses Amounts recognised in profit or loss are: Current service cost (Company) Net interest (on net defined benefit asset) Scheme administration expenses Total amount recognised in the Consolidated Income Statement 31 December 2022 £’000 31 December 2021 £’000 25 (105) 69 (11) 26 (10) 43 59 The current cost is included in employee benefits expense and the net interest credit is included within interest receivable. 160 160 Actuarial (losses)/gains on assets Experience adjustment Actuarial gains from changes in financial assumptions Changes in demographic assumptions Total (loss)/gain recognised in other comprehensive income/(expense) 31 December 2022 £’000 31 December 2021 £’000 (10,543) (320) 8,951 (159) (2,071) 1,842 - 1,910 331 4,083 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 £nil to be paid in 2023. The weighted average duration of the defined benefit obligation at 31 December 2022 is 13 years (2021: 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. 31 December 2022 £’000 31 December 2022 % 31 December 2021 £'000 31 December 2021 % Increase in discount rate by 0.5% Increase in price inflation adjustment by 0.5% 1 year increase in life expectancy (1,128) 324 761 -6.04% 1.73% 4.07% (1,985) 646 1,467 -7.00% 2.00% 5.00% 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. 161 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 27. AUDIT EXEMPTION STATEMENT Under section 479A of the Companies Act 2006, the Group is claiming exemption from audit for the subsidiary companies listed below. The parent undertaking, 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 The Buyback was purposed to meet the Group’s average price paid was 1428.18 pence and the total future obligations under its SAYE Option Scheme cost of the Buyback in the period was £5.5m. and/or Long-Term Incentive Plan. The Buyback was completed on 5 April 2022 and was funded from the Group’s existing cash resources. All Ordinary Shares The total number of shares held in Treasury as at 31 December 2022 is 493,150. 31 December 2022 for each company unless otherwise stated). The guarantee is enforceable against the parent repurchased are now held in treasury. The weighted undertaking by any person to whom the subsidiary company is liable in respect of those liabilities. Company Number 29. EMPLOYEE SHARE SCHEMES 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 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 2022 £’000 3,697 2021 £’000 3,697 The share capital of Nichols plc consists of ordinary During 2022, the Group repurchased 385,486 10p shares. All shares are equally eligible to receive Ordinary shares under this authority, which is due dividends and the repayment of capital and represent to expire at the AGM to be held on 26 April 2023. The Group operates three equity-settled share-based payment schemes; a Save As You Earn (SAYE) scheme open to all employees; a Hybrid Incentive Plan for certain Directors and Senior Executives (replacing the previous year’s Long-Term Incentive Plan (LTIP)) 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 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. Awards Share price on grant date £ Expected dividend yield Risk free rate Volatility Fair value per award £ 2019 LTIP 47,245 17.67 1.92% 1.80% 17.70% 16.68 The movement of outstanding LTIP awards during the year is also set out below. Awards outstanding at 1 January 2022 Granted Exercised Lapsed Awards outstanding at 31 December 2022 2019 LTIP 23,352 - - (23,352) - Of the total number of options outstanding at 31 December 2022, nil (2021: nil) had vested and were exercisable. one vote at shareholders’ meetings. The Group, therefore, has an unexpired authority The weighted average remaining life of LTIP awards at 31 December 2022 is nil years. There were no movements in the Group’s authorised and allotted, issued and fully paid share capital for to purchase up to 3,175,391 Ordinary shares with a nominal value of £317,539. The 2019 LTIP award didn’t vest based on performance against the agreed targets between 1 January 2019 and 31 December 2021. the financial years ending 31 December 2022 and 31 On 14 December 2021, the Group announced its December 2021. plans to conduct on-market purchases under a share Hybrid Incentive Plan At the Company’s AGM held on 27 April 2022, 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 buyback programme. This included the intention to During 2021 the Group introduced a Hybrid Incentive Plan to replace the existing LTIP. A combination of repurchase up to 453,486 ordinary shares of 10p each financial and non-financial measures and targets are set annually with outcomes determined by performance in the capital of the Group (the “Ordinary Shares”), against this scorecard. Awards made under the Hybrid Incentive Plan vest provided the participant remains representing up to approximately 1.2 per cent of the under employment within the 2-year vesting period following the award. Awards made under the Hybrid Group’s issued share capital. Incentive plan have a £nil exercise price. shares. 162 162 The weighted average fair value of Hybrid Incentive Plan awards at their grant date in previous years are set out on the next page. The fair value is calculated using the Black-Scholes valuation model. 163 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 29. EMPLOYEE SHARE SCHEMES (CONTINUED) Hybrid Incentive Plan (continued) Awards Share price on grant date £ Expected dividend yield Risk free rate Volatility Fair value per award £ 2021 Hybrid incentive plan 58,550 13.63 1.50% 1.30% 49.10% 13.22 The movement of outstanding Hybrid Incentive Plan awards during the year is also set out below. Awards outstanding at 1 January 2022 Granted Exercised Lapsed Awards outstanding at 31 December 2022 2021 Hybrid incentive plan - 58,550 - (4,173) 54,377 Of the total number of options outstanding at 31 December 2022, nil had vested and were exercisable. The weighted average remaining life of LTIP awards at 31 December 2022 is 1.0 years. 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 opposite. The fair value is calculated using the Black-Scholes valuation model. The movement of outstanding SAYE options during the year is also set out opposite. The weighted average remaining life of SAYE awards at 31 December 2022 is 1.4 years. Volatility has been determined using statistical analysis of the Group’s 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 £12.80. SAYE (CONTINUED) 2017 5 year 2018 5 year 2019 3 year 2019 5 year Options 7,339 4,035 27,789 6,304 2020 3 year 103,095 2020 5 year 2021 3 year 2021 5 year 2022 3 year 2022 5 year 15,014 29,098 5,967 33,545 4,197 Exercise price per option £ Share price on grant date £ Expected dividend yield Risk free rate Volatility Fair value per option £ 14.57 12.25 12.84 12.84 7.93 7.93 10.15 10.15 10.79 10.79 19.20 14.28 16.90 16.90 11.35 11.35 13.95 13.95 13.70 13.70 1.93% 1.87% 1.87% 1.87% 1.87% 1.87% 2.70% 2.70% 1.50% 1.50% 0.51% 1.12% 0.79% 0.91% 0.09% 0.09% 0.19% 0.40% 1.54% 1.58% 21.50% 23.40% 25.50% 25.40% 31.30% 31.30% 44.60% 37.50% 47.66% 41.00% 1.95 2.86 2.29 2.19 3.33 4.14 4.50 4.33 4.76 4.96 2017 5 year 2018 5 year 2019 3 year 2019 5 year 2020 3 year 2020 5 year 2021 3 year 2021 5 year 2022 3 year 2022 5 year Options outstanding at 1 January 2022 Granted Exercised Lapsed Options outstanding at 31 December 2022 1,334 1,882 12,336 2,146 88,176 15,014 28,939 5,967 - - - - - - - - - - 33,545 4,197 - - (1,334) (489) (38) (12,298) - - - - - - - (700) (5,271) - (5,911) (591) (3,726) (2,529) - 1,393 - 1,446 82,905 15,014 23,028 5,376 29,819 1,668 164 164 165 NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2022 UNAUDITED FIVE YEAR SUMMARY - YEAR ENDED 31 DECEMBER 2022 29. EMPLOYEE SHARE SCHEMES (CONTINUED) 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. Revenue Adjusted operating profit Exceptional items Operating profit/(loss) 2022 £’000 2021 £’000 2020 £’000 2019 £’000 2018 £’000 164,926 144,328 118,657 146,985 142,037 24,602 21,922 (11,146) (39,477) 11,654 (5,074) 32,439 31,638 - - 13,456 (17,555) 6,580 32,439 31,638 Awards Share price on grant date Expected dividend yield Risk free rate Volatility Fair value per award £ Net finance income/(expense) 380 (101) (40) (17) 115 Profit/(loss) before taxation 13,836 (17,656) 6,540 32,242 31,753 2020 Executive share awards 17,402 14.08 2.70% -0.07% 42.40% 12.98 Taxation (2,201) (4,512) (1,686) Profit/(loss) after taxation 11,635 (22,168) 4,854 (5,587) 26,835 (6,238) 25,515 Awards outstanding at 1 January 2022 Granted Exercised Lapsed Awards outstanding at 31 December 2022 2020 Executive share awards 17,402 - - - 17,402 The remaining life of Executive share awards at 31 December 2022 is 1.0 years. Volatility has been determined using statistical analysis of the Group’s 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: SAYE Hybrid Incentive Plan Executive share awards Total charge 2022 £’000 194 307 98 599 2021 £’000 197 - 75 272 Dividends paid (9,383) (6,868) (10,338) (14,466) (12,803) Retained earnings movement (4,894) (29,036) (5,484) 12,189 12,712 Earnings/(loss) per share - (basic) 31.86p (60.04p) 13.14p 72.81p 69.23p Earnings/(loss) - (diluted) 31.82p (60.04p) 13.13p 72.77p 69.19p Earnings per share - (basic) before exceptional items Earnings per share - (diluted) before exceptional items 55.38p 46.15p 25.56p 72.81p 69.23p 55.32p 46.09p 25.54p 72.77p 69.19p Dividends paid per share 25.70p 13.3p 28.0p 39.2p 34.7p 166 166 167 NOTICE OF ANNUAL GENERAL MEETING 2023 NOTICE OF ANNUAL GENERAL MEETING 2023 Notice is hereby given that the thirty-first Annual of the next annual general meeting of the 14. That if resolution 12 is passed the Directors immediately preceding the day on which the General Meeting (the ‘AGM’) of Nichols plc (the Company after the passing of this resolution be authorized in addition to any authority purchase is made, and (unless previously ‘Company’) will be held at Nichols plc, Laurel House, or on 26 July 2024 (whichever is the earlier), granted under resolution 13 to allot equity revoked, varied or renewed) this authority shall Woodlands Park, Ashton Road, Newton-le-Willows, save that the Company may make an offer securities (as defined in the Companies Act expire at the conclusion of the next annual Merseyside, WA12 0HH on Wednesday 26 April 2023 at or agreement before this authority expires 2006) for cash under the authority given by general meeting of the Company after 11.00 a.m for the following purposes: which would or might require shares to be that resolution and/or to sell ordinary shares the passing of this resolution or on 26 July To consider and, if thought fit, to pass the following resolutions as ordinary resolutions: allotted or rights to subscribe for or to convert any security into shares to be granted after this authority expires and the Directors may allot held by the Company as treasury shares for 2024 (whichever is the earlier), save that the cash as if section 561 of the Companies Act Company may enter into a contract to purchase 2006 did not apply to any such allotment or Shares before this authority expires under 1. To receive the Company’s annual accounts, shares or grant such rights pursuant to any sale, such authority to be limited to the which such purchase will or may be completed strategic report and directors’ and auditors’ such offer or agreement as if this authority allotment of equity securities or sale of treasury or executed wholly or partly after this authority reports for the year ended 31 December 2022. had not expired. This authority is in shares up to a nominal amount of £364,756.20 expires and may make a purchase of Shares such authority to be used only for the purposes pursuant to any such contract as if this of financing (or refinancing, if the authority authority had not expired. is to be used within 12 months after the original transaction) a transaction which the Board of the Company determines to be either By order of the Board an acquisition or a specified capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this notice; and such authority to expire at the end of the next AGM of the Company (or, if earlier, at the close of business on 26 July 2024 but, in each case, David Rattigan Secretary 28 February 2023 prior to its expiry the Company may make offers, and enter into agreements, which would, or might, require equity securities to be allotted (and treasury shares to be sold) after the authority expires and the Board may allot equity securities (and sell treasury shares) under any such offer or agreement as if the Registered Office, Laurel House, Woodlands Park, Ashton Road, Newton-le-Willows, WA12 0HH. Registered in England and Wales No. 00238303. 2. To declare a final dividend for the year ended 31 December 2022 of 15.3 pence per ordinary share of £0.10 in the capital of the Company, to be paid on 4 May 2023 to shareholders whose substitution for all existing authorities under section 551 of the Act (which, to the extent unused at the date of this resolution, are revoked with immediate effect). names appear on the register of members at To consider and, if thought fit, to pass the following the close of business on 24 March 2023. resolutions as special resolutions: 3. To re-elect John Nichols as a Director of the 13. That, subject to the passing of resolution 12 being passed, the Directors be authorised to allot equity securities (as defined in the Companies Act 2006) for cash under the authority given by that resolution and/or to sell ordinary shares held by the Company as treasury shares for cash as if section 561 of the Companies Act 2006 did not apply to any such allotment or sale, such authority to be limited: (A) to allotments for rights issues and other pre-emptive issues; and Company. 4. To re-elect Andrew Milne as a Director of the Company. 5. To re-elect David Rattigan as a Director of the Company. 6. To re-elect John Gittins, as a Director of the Company. 7. To re-elect Helen Keays, as a Director of the Company. 8. To re-elect James Nichols, as a Director of the Company. 9. To elect Elizabeth McMeikan, as a Director of the Company. 10. To reappoint BDO LLP as auditors of the Company. 11. To authorise the Directors to determine the remuneration of the auditors. 12. That, pursuant to section 551 of the Companies Act 2006 (‘Act’), the Directors be and are generally and unconditionally authorised to allot shares in the Company or to grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal amount of £1,232,292.40 (representing one third of the existing issued ordinary share capital of the Company), provided that, (unless previously revoked, varied or renewed) this authority shall expire at the conclusion (B) to the allotment of equity securities or sale of authority had not expired. treasury shares (otherwise than under paragraph (A) above) up to a nominal amount of £364,756.20 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 2024 (whichever is the earlier), save that the Company may make an offer or agreement before this power expires 15. 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: which would or might require equity securities 15.1 the maximum aggregate number of Shares 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 which may be purchased is 3,647,562: 15.2 the minimum price (excluding expenses) which may be paid for a Share is 10p; and or agreement as if this power had not expired. 15.3 the maximum price (excluding expenses) which 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). 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 168 169 NOTICE OF ANNUAL GENERAL MEETING 2023 NOTICE OF ANNUAL GENERAL MEETING 2023 EXPLANATORY NOTES ON THE RESOLUTIONS to discharge their duties effectively, taking into respect of allotments of shares and other equity authority granted last year and would expire at account their other commitments. securities (and sales of treasury shares for cash) the end of the 2024 AGM, or if earlier, at close of Resolutions 1 to 12 (inclusive) are ordinary resolutions; resolutions 13, 14 and 15 are special Appointment of the auditor resolutions. To be passed, ordinary resolutions require more than 50% of votes cast to be in favour of the resolution whilst special resolutions require at least 75% of the votes cast to be in favour of the resolution. Votes withheld do not count towards the total votes cast for or against a resolution. ORDINARY RESOLUTIONS To receive the Annual Report and Accounts 2022 Resolution 1 is a standard resolution. The Companies Act 2006 requires the Directors to lay The auditor of a company must be appointed or re-appointed at each general meeting at which the accounts are laid before shareholders. Resolution 10 seeks approval to appoint BDO LLP as the Company’s auditor. Remuneration of the auditor Resolution 11 seeks consent for the Directors to determine the remuneration of the auditor. Directors’ authority to allot shares before the Company in a general meeting copies Resolution 12 seeks consent for shareholders to of the Company’s annual accounts, the Directors’ grant the Directors authority to allot shares or report and the auditor’s report on those accounts. grant rights to subscribe for or convert securities The Annual Report and Accounts for the year ended into shares, up to an aggregate nominal value of 31 December 2022 along with a copy of the AGM £1,232,292.40, which is approximately one-third notice will be available online at of the nominal value of the issued ordinary share www.nicholsplc.co.uk Final dividend capital of the Company as at 8 March 2023, being the latest practicable date prior to the publication of this notice. The authority will expire at the In Resolution 2 the Directors are recommending next AGM of the Company or if earlier, at close of the payment of a final dividend of 15.3 pence business on 26 July 2024. The Directors have no per ordinary share in respect of the year ended current intention of exercising such authority and 31 December 2022. If approved at the AGM, the will exercise this power only when they believe dividend will be paid on 4 May 2023 to shareholders that such exercise is in the best interests of the who are on the Register of Members at the close of shareholders. business on 24 March 2023. Election and re-election of directors Dis-application of pre-emption rights Special resolution 13 if passed would grant the In line with the practice adopted by the Company Directors authority to allot securities of the in previous years, all Directors will be standing for Company up to a specified amount in connection election. Resolutions 3 to 8 seek approval for the re- with rights issues without having to obtain prior election of those Directors who were in office during approval from the shareholders on each occasion the year ended 31 December 2022. Resolution 9 and also to allot a certain number of securities deals with the election of Elizabeth McMeikan who for cash without first being required to offer such was appointed as a director of the Company on 1 shares to existing shareholders. The proposed February 2023. Biographical information is provided disapplication of pre-emption rights will mean that on pages 76 to 77 of the Annual Report and the number of Ordinary Shares which may be issued representing no more than an additional 10% of business on 26 July 2024. In reaching a decision to issued ordinary share capital (exclusive of treasury purchase ordinary shares, the Directors will take shares), to be used only in connection with an account of the Company’s cash resources and acquisition or specified capital investment. The capital and the general effect of such purchase on Pre-Emption Group’s Statement of Principles defines the Company’s business. The authority would only ‘specified capital investment’ as meaning one or be exercised by the Directors if they considered more specific capital investment related uses for it to be in the best interests of the shareholders the proceeds of an issuance of equity securities, in generally and if the purchase could be expected to respect of which sufficient information regarding result in an increase in earnings per ordinary share. the effect of the transaction on the Company, the assets that are the subject of the transaction and (where appropriate) the profits attributable to them is made available to shareholders to enable them to reach an assessment of the potential return. Accordingly, and in line with the template resolutions published by the Pre-Emption Group, resolution 14 seeks to authorise the Directors to allot new shares and other equity securities pursuant to the authority given by resolution 12, or sell treasury shares, for cash up to a further nominal amount of £364,756.20, being approximately 10% of the total issued ordinary share capital of the Company as at 8 March 2023, only in connection with an acquisition or specified capital investment which is announced contemporaneously with the allotment, or which has taken place in the preceding six-month period and is disclosed in the announcement of the issue. If the authority given in resolution 14 is used, the Company will publish details of the placing in its next Annual Report. If these resolutions are passed, the authorities will expire at the end of the 2024 AGM or at close of business on 26 July 2024, whichever is the earlier. The Board considers the authorities in resolutions 13 and 14 to be appropriate in order to allow the Company flexibility to finance business opportunities or to conduct a rights issue or other pre-emptive offer without the need to comply with the strict requirements of the statutory pre-emption Accounts for the year ended 31 December 2022 for for cash without first being required to offer such provisions. each of the current directors. shares to existing shareholders will not exceed The Board has no hesitation in recommending the election of the Directors to shareholders. In making these recommendations, the Board confirms that it has given careful consideration to the Board’s 3,647,562 Ordinary Shares, being approximately 10 per cent. of the issued ordinary share capital of the Company as at 8 March 2023, excluding those shares held in treasury. balance of skills, knowledge and experience and The Pre-Emption Group Statement of Principles is satisfied that each of the Directors putting 2022 issued on 4 November 2022 supports the themselves forward for election has sufficient time annual disapplication of pre-emption rights in Authority to purchase own shares Resolution 15 seeks authority for the Company to make market purchases of its own ordinary shares up to a maximum number of 3,647,562 ordinary shares, representing approximately 10% of the issued ordinary share capital at 8 March 2023. The authority requested would replace a similar 170 171 GENERAL NOTES GENERAL NOTES 1. Entitlement to attend and vote • Register your vote online through our The right to vote at the meeting is determined by reference to the register of members. Only those shareholders registered in the register of members of the Company as at close of business on Monday 24 April 2023 (or, if the meeting is adjourned, close of business on the date which is two working 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 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 outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00 – 17:30, Monday to Friday excluding public holidays in England and Wales. All proxy appointments, whether electronic or responsibility of the CREST member concerned hard copy, must be received by the Company’s to take (or, if the CREST members is a CREST registrar no later than 11.00 a.m. on Monday 24 personal member or sponsored member or has April 2023 (or, in the event that the meeting is appointed a voting service provider(s) takes(s)) adjourned, no later than 48 hours (excluding any such action as shall be necessary to ensure that a part of the day that is not a working day) before message is transmitted by means of the CREST the time of any adjourned meeting). system by an particular time. In this connection, 5. CREST members who wish to appoint a proxy or proxies for the meeting (or any adjournment of it) through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST 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. disregarded in determining the rights of any • Link has launched a shareholder app: LinkVote+. CREST personal members or other CREST 7. The Company may treat a CREST Proxy Instruction person to attend or vote (and the number of votes It’s free to download and use and gives they may cast) at the meeting. shareholders the ability to access their 2. Appointment of proxies shareholding record at any time and allows users to submit a proxy appointment quickly and A member is entitled to appoint another person easily online rather than through the post. The as his or her proxy to exercise all or any of his or app is available to download on both the Apple her rights to vote at the meeting. A proxy need App Store and Google Play. not be a member of the Company. A member may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise the rights attached to • CREST members may use the CREST electronic proxy appointment service as detailed in note 7 below. a different share or shares held by him or her. • Proxymity Voting - if you are an institutional To appoint more than one proxy, each different investor you may also be able to appoint a proxy proxy instruction must be received by the electronically via the Proxymity platform, a Company’s registrars at: Link Group, PXS 1, process which has been agreed by the Company Central Square, 29 Wellington Street, Leeds, LS1 and approved by the Registrar. For further 4DL no later than 48 hours before the time information regarding Proxymity, please go to appointed for the meeting (excluding non-working www.proxymity.io. Your proxy must be lodged days). You will need to state clearly the number by 11:00 a.m on Monday 24 April 2023 in order of shares in relation to which the proxy is to be considered valid or, if the meeting is appointed. A failure to specify the number adjourned, by the time which is 48 hours before of shares each proxy appointment relates to the time of the adjourned meeting. Before you or specifying a number which when taken can appoint a proxy via this process you will need together with the number of shares set out in the to have agreed to Proxymity’s associated terms other proxy appointments is in excess of and conditions. It is important that you read these those held by the member, may result in the carefully as you will be bound by them and they proxy appointment being invalid. A proxy may will govern the electronic appointment of your only be appointed in accordance with the proxy. An electronic proxy appointment via the procedures set out in notes 4 to 7 below and the Proxymity platform may be revoked completely notes to the form of proxy. 3. The appointment of a proxy will not preclude a member from attending and voting in person at by sending an authenticated message via the platform instructing the removal of your proxy vote. the meeting if he or she so wishes • 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 sponsored members, and those CREST members as invalid in the circumstances set out in who have appointed a voting service provider(s), Regulation 35(5)(a) of the Uncertificated Securities should refer to their CREST sponsor or voting Regulations 2001. service provider(s), who will be able to take appropriate action on their behalf. 8. Unless otherwise indicated on the Form of Proxy, CREST, Proxymity or any other electronic voting 6. In order for a proxy appointment or instruction instruction, the proxy will vote as they think fit or, made using the CREST service to be valid, at their discretion or withhold from voting. the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & International Limited’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the Company’s Registrars, 9. A shareholder which is a corporation may authorise one or more persons to act as its representative(s) at the meeting. Each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual shareholder, provided that (where there is more than one representative and the vote is otherwise than on a show of hands) they do not do so in relation to the same shares. Link Group (CREST ID RA10) no later than 11.00 10. As at 8 March 2023 (being the last practicable date a.m. on Monday 24 April 2023) (or, if the meeting before the publication of this notice), the is adjourned, no later than 48 hours (excluding Company’s issued share capital consists of any part of the day that is not a working day) 36,968,772 ordinary shares of 10 pence each. before the time of any adjourned meeting). For As the Company holds 493,150 ordinary shares this purpose, the time of receipt will be taken to in treasury, in respect of which it cannot exercise be the time (as determined by the timestamp any votes, the total voting rights in the Company applied to the message by the CREST Applications as at 8 March 2023 are 36,475,622 . Host) from which Link Group 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 & International Limited does not 11. 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. 4. 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: 172 Wellington Street, Leeds, LS1 4DL. 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 173 DIRECTIONS TO THE ANNUAL GENERAL MEETING GENERAL NOTES Car: Train: Bus: Leave the M6 at Junction 23 Newton-le-Willows railway station The nearest bus service to and take the A49 south towards is located 1.3 miles away from Woodlands Park is located on Newton, Woodlands Park is on the Woodlands Park on Southworth Cobden Street, 0.8 miles from left in approximately 0.3 miles. On Road, WA12 9SF. Woodlands Park, operating the entering the estate, Laurel House is accessed from the fourth exit of the roundabout. number 22 service into Newton-le-Willows. FINANCIAL CALENDAR Annual General Meeting Interim Results Announced 26 April 2023 26 July 2023 Laurel House, Woodlands Park, Ashton Road, Newton-Le-Willows, WA12 0HH. 01925 22 22 22 www.nicholsplc.co.uk 174 175 NOTES 176 177 W E M A K E L I F E t a s t e B E T T E R 

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