Nichols PLC (LSE:NICL) (Q2 2024) Earnings Call Highlights: Record Vimto Sales and Strategic ...

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Adjusted Profit Before Tax Growth: 18% increase compared to the same period last year.
UK Packaged Business Revenue Growth: 5.3% increase.
Vimto Brand Retail Sales Value: GBP109 million, highest ever for the brand.
Special Dividend: GBP20 million announced.
Interim Dividend: 18.3% increase compared to last year, totaling 14.9p per share.
Revenue: GBP84 million for the half-year.
Gross Margin: Expanded to 44%.
Operating Profit Increase: 14% increase in adjusted operating profits.
Profit Before Tax Margin: Expanded to over 17%.
International Revenue Decline: 6.9% decrease, with specific declines in the Middle East and Africa.
Out-of-Home Business Profitability: Operating margins over 15%, with profits doubling.
Free Cash Flow: GBP9 million generated in the half-year.
Net Cash Position: Improved to GBP70 million.
Exceptional Items: GBP2.7 million related to IT infrastructure investment.

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Release Date: July 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Nichols PLC (LSE:NICL) reported an 18% growth in adjusted profit before tax, driven by strong earnings and cash generation.
The company achieved a 5.3% increase in internal revenue and a 4.9% rise in volume for its UK packaged business, leading to market share gains in squash and carbonates.
Nichols PLC announced a special dividend of GBP20 million and an interim dividend increase of 18%, reflecting strong financial performance.
The company is expanding its international presence, with plans to launch in Malaysia and Sierra Leone, and has set up an office in Senegal to drive market performance.
Nichols PLC is implementing a new SAP IT system to enhance business operations, with expected benefits to be realized from 2026.

Negative Points

International revenue declined by 6.9%, with significant drops in the Middle East and Africa due to shipment timing and strong comparators, respectively.
The out-of-home business saw a decline in revenue as a result of withdrawing from unprofitable accounts, although profitability improved.
The company faces challenges with import duties and tariffs in Africa, impacting cash flow and lead times for distributors.
Nichols PLC is incurring exceptional costs related to its IT infrastructure investment, totaling GBP2.7 million in the current period.
The company is still in the process of executing a buyout transaction for its defined benefit pension scheme, which is a lengthy process.

Q & A Highlights

Q: How do you expect to grow the Vimto brand, or will growth be in other products? A: Andrew Milne, CEO: Growth will predominantly come from the Vimto portfolio through innovation, organic growth, and potential acquisitions. Internationally, growth will focus on organic expansion and innovation in the Middle East, and geographical expansion into markets like Malaysia and Sierra Leone.

Q: Are you not seeing opportunities to expand or acquire to generate a greater return on cash as opposed to special dividends? A: Richard Newman, CFO: The decision to pay special dividends was made after assessing the company's cash requirements for operations, IT investments, and potential acquisitions. While maintaining a reserve for acquisitions, surplus cash was returned to shareholders.

Q: Is the defined benefit pension scheme seeking to complete a full buyout to remove all risk and ongoing running costs from the company? A: Richard Newman, CFO: Yes, the company is considering a buyout transaction for the pension scheme. The funding position has improved, making this a viable option, though it is a lengthy process.

Q: Do you see any opportunities to grow the out-of-home business unit, or is it likely to be considered a mature business? A: Andrew Milne, CEO: The out-of-home business is now more profitable with improved margins. Growth will be targeted and careful, focusing on profitability, while accelerated growth will come from the high-margin asset-light business.

Q: Are there any UK market M&A potentials within the next 12 months, or will the focus be on organic progress of your current UK brands? A: Andrew Milne, CEO: While there are many opportunities, the focus remains on organic growth in both the UK and international packaged businesses. However, the company remains open to potential acquisitions.

Q: Have you considered switching Vimto and Levi energy drinks to smaller cans? Wouldn't this be more responsible as energy drinks have their detractors? A: Andrew Milne, CEO: The target market prefers the 500 ml format. The energy drinks use natural caffeine sources and are low calorie. The company adheres to a voluntary code of conduct, not marketing to children under 16.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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