Lockdown takes fizz out of Vimto maker’s half year figures

Vimto maker Nichols felt the impact of the coronavirus lockdown with a drop in half year revenues and profits, and also today announced the departure of chief executive Marnie Millard.

Andrew Milne, current chief operating officer, will succeed Ms Millard from January 1, 2021.

The Newton-le-Willows-based business experienced a 17.3% fall in interim revenues during the six months to June 30, from £71.6m in 2019 to £59.2m.

The margin in pre-tax profits was wider, with a 78.2% reduction to just £2.9m for the six month period.

However, the soft drinks group announced a 125.8% jump in its interim dividend payment, from 12.4p per share last year to 28.0p for 2020.

This followed the withdrawal of the final dividend (28.0p) for 2019 in March 2020 due to the uncertainties concerning the financial impact of COVID-19.

Alongside the news on Ms Millard’s departure at the end of the year, the group also announced today that family member, James Nichols, will join the board as a non-executive director with immediate effect.

Non-executive chairman, John Nichols, said: “In light of the ongoing impact to the financial results of the group due to the global pandemic, the board remains pleased with the group’s performance.

“Although the immediate future remains uncertain, we are confident in Nichols’ ability to emerge from this period well-placed to continue to deliver the group’s long-term strategic plan.”

He added: “On behalf of the board I would like to thank Marnie for her significant contribution to the group over the last seven years and wish Andrew every success in leading the business during the next phase of its development. Marnie will now commence her handover to ensure a smooth transition.”

Mr Nichols said the strength of the group’s world-famous Vimto brand, robust balance sheet and diversified business model has ensured a resilient cash performance in the period despite the unprecedented trading conditions across its markets.

“We have seen the Vimto brand significantly outperform the market in the UK, deliver good growth in Africa and perform robustly in the Middle East despite the various challenges.”

Cash balances grew strongly to £46.8m, compared with £40.9m last year, as management took prudent steps to conserve cash throughout the second quarter in response to COVID-19.

“Soft-drink maker Nichols’ declaration of a 28p-per-share interim dividend means the Newton-le-Willows firm will become the fourth in the UK to re-join the dividend list, following Focusrite, Palace Capital and Land Securities, having cancelled a previous payment,” said Russ Mould, investment director at Manchester investment platform AJ Bell.

“Nichols scrapped an initially proposed final dividend for 2020 of 28p a share back in March. That move, designed to preserve cash at a time of huge uncertainty, snapped a growth streak in the annual dividend that stretched back to 2006.

“Management is now going to treat 2019 and 2020 as one single period when it comes to assessing the final dividend, which will be based on the overall financial performance over that two-year span.

“Shareholders could, therefore, be in line for a further distribution next Spring alongside the full-year results, even if trading clearly remains tough.”

He added: “Nichols’ profit momentum had already been hit by the impact upon sales of the war in Yemen, the UK’s sugar tax and a Sweetened Beverage Tax in the Middle East before the pandemic provided yet another challenge.

“First-half sales fell by 17% and operating profit by 77% as demand for its fizzy and still drinks were impacted by the closures of bars, pubs and restaurants during lockdowns.

“But careful cost control meant that Nichols still generated cash during the first six months of the year and its net cash pile rose to £46.9m as a result.

“This financial solidity, coupled with a track record of double-digit operating margins and lofty returns on capital during more ‘normal’ economic circumstances, underpin the firm’s ability to start paying dividends once more.

“Were the company to match the first-half 2019 dividend payment of 12.4p a share in the second half, then that would take the total distribution for 2020 to 40.4p, equivalent to a yield of 3.4%.

“That is pretty much in line with the FTSE 100 and Nichols’ net cash balance sheet might offer a little extra reassurance, so at least shareholders in the drinks maker are being paid while they wait to see what will happen next, given that great uncertainties still remain.

“If the pandemic were to spread around Africa that would be another hit to demand for Nichols’ products, while the pace of recovery in developed markets like the UK is difficult to predict, even as pubs and restaurants slowly start to reopen.”