Impairment overshadows Nichols' results

Nichols (NICL) is on the road to recovery after being scarred by the pandemic, but the company plunged to a loss for the year as it put through £40mn of exceptional charges. This obscured an otherwise positive set of results for the Vimto soft drink producer, as revenue jumped by more than a fifth and the gross margin rose by 3.4 percentage points to 45.2 per cent.

Most of the exceptional charges – £36.2mn – related to the non-cash impairment of Nichols’ out-of-home (OoH) business, with the rest attributable to restructuring and incentive scheme matters. OoH sells in the hospitality, leisure, and catering sectors – which face reduced growth forecasts – and has struggled with closed outlets and restrictions over the course of the pandemic.

Strip the charges out and the results tell a different story. Adjusted operating profit was up 88 per cent to £21.9mn and adjusted profit before tax margin by 5.3 percentage points to 15 per cent.

The top line came in just below 2019. Revenue from still products, driven by the performance of Vimto squash, which outperformed the wider diluting drinks market by 10 per cent, was up by a tenth to £72.4mn. Carbonated revenue rose by more than a third to reach £71.9mn, helped by the reopening of OoH outlets and growth in the African market.

The shares are trading on a consensus 25 times forward earnings, just above the five-year average of 23 times. Analysts expect revenues to hit £157mn and then £164mn for the 2022 and 2023 financial years, respectively, which would surpass pre-pandemic postings. We await management’s strategic review of the OoH division, and to see how the business fares with cost inflation in the coming months, before making any recommendation change. Hold.

Last IC view: Hold, 1,450p, 21 Jul 2021