Nichols (LSE:NICL) — Interim results for the six months ended 30 June 2021

0:02 Good afternoon, ladies and gentlemen, welcome to the NICHOLS PLC Investor Presentation for the Interim Results for the Six Months Ended 06/30/2021. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply click Q and A, type in your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet company dashboard, and you'll be

0:32 notified once they're ready for your review. I'd also like to remind you this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Andrew Mill, CEO and David Rattenking, CFO of NICHOLS PLC. Good afternoon. Thank you very much. Good afternoon, everybody. Welcome to the presentation. And thank you very much for taking the time. I'm sure our busy diaries to to attend the session today. Okay. In terms of in terms of the format and structure for the next hour, I'm going to kick off and give you the key business messages that we would like you to take away from the first half year results and then an overview of the strategies and the drivers that have driven those results. I will then hand you over to David, our CFO, who will take you through the detail of the numbers. And then I will just come back and round up with a quick overview of some priorities for the second half and and then a summary.

1:30 What I do plan to do, though, first is just to give an overview of a little bit of a history of our business. Because I think in terms of the diverse people we've got on the call today, it'd be worth just starting to everyone's in the same place in terms of the history of our business before I go into those key business messages. So please don't read the slide. Just couple of messages. So our business has a long history and heritage all the way back back to nineteen o eight. And the business was founded by a gentleman called John Noel Nichols. And his grandson, John Nichols, is currently our nonexecutive chairman today. And John Earl Nichols was quite an entrepreneur. So there were two insights back in nineteen o eight that were dominating the headlines.

2:16 One was that other than working males, no one was entitled to free hospital treatments. And the second insight taken from that period was particularly in the Lancashire area where John Knowles Nichols lives, there were challenges with alcohol. And as a result of that, there was the rise of the temperance bars where people could go out and enjoy a quiet evening without without alcohol being involved. So John Noel Nichols decided to invent a drink that was like a very early energy drink that was combined and made up of lots of herbs and spices that people in those days used used to buy from hemp chemist shops to to cure ailments as well. And he he designed this drink with a secret recipe that he went around the temperance bars in the evening and sold in to be sold as Vim and tonic.

3:07 And then fast forward to where we are today, the brand has evolved to Vimto. And and the uniqueness of the brand is it still has that secret recipe only known by a few people, and and that stops all our competitors copying the brand. And lots of big customers like Tesco and Aldi have tried to do that. Where we are today then is an aim listed business with a market capitalization of of £500,000,000 and the brand being sold globally, predominantly in The UK, Middle East, and Africa. What we do, very simply, from an overview of the businesses, we have three routes to market. So the first route to market is what we call UK packaged, and that is where we sell all of the drinks you see on the screen there, like squash, cans, ready to drink still products into the major customers in The UK, such as Tesco, Asda, Booker, etcetera.

4:08 It's about 50% of our turnover. And what's really important is we outsource all our production in this area of the business. So it makes our business here very asset light. The second part of our business, which in normal times is worth about 30% of our sales revenue, is what we call our out of home business. And we have a portfolio of brands. Some of them are owned, some licensed, where we go into out of home outlets such as theme parks, cinemas, pubs, nightclubs. And we can offer dispensed products on the gun that you see there, and we who you we have a unique offer that we can sell Coca Cola into pubs. Other than Coca Cola, there's only us that can do that in The UK. We offer Pepsi, we offer Vimto, and we offer Iron Brew, a real unique position.

4:59 We also have a slush business, which we have big brands such as ICEE on license and the Star Slush brand, which we own. And and we're the biggest player in the slush market in The UK. And we also have a partnership and a license with Dow Egg Burt's where we sell coffee in a business to business format. And you can see the type of customers we deal with, people like Buckland's, Merlin, who have outlets like Alton Towers, Cineworld, and Greenpeak King Pub Estate. And then the last part of our business is our international business. It's about 20% of our turnover. The main markets for us are The Middle East, where we've been present for over ninety years, and Africa, where we're in 30 of the 50 countries.

5:45 And that the the route to market there is either a concentrate or an export model. So, again, no manufacturing done by ourselves, which, again, makes this part of our business asset light. It's only as it says on the screen in our out of home business where we have a small manufacturing plant down in Rossignol. And one of the things we're very proud of with the business is this diverse route to market that means our business risk is well spread across different areas, which has served us well in the past and is serving us well today. And just a final slide really on the history. Because we don't have manufacturing, we are mainly a sales and marketing led organization. We have over 320 staff spread around the country, although the hub of our business is in Haydock up in Merseyside where the bulk of our staff work out of our head office.

6:40 Okay. So that's just a bit of background to the business and a bit of context. In terms of the key messages we'd like you to take away from today's announcement, so first and foremost, we're really pleased with today's performance, and we've delivered 14% sales revenue growth at the half year in what we have seen as being tough conditions. So for four months of this year, we've had all our out of home outlets locked down. We've had lots of our people working from home or have actually been on furlough, and that transition has been tough for our people. And we've had lots of logistic challenges, which I'm sure you've read about in the press, both in The UK with driver shortages and internationally with restrictions on containers and shipping restrictions. Across all the routes to market I've talked to you about, we're really pleased that they're all in growth. So our UK Package Division events very tough comparators from last year when the market was locked down and people were stockpiling, we're in 5% growth.

7:39 In out of home, we're just have just come into growth at the half year because we've only traded for two months this year versus three months last year. And the star of the show really has been our international division, over 40% growth, and really pleasingly, accelerated growth in Africa at over 22%. Rest of the world, which is America and Europe, a small base, but over 40% growth. And really importantly, in The Middle East, we are in the second year of markets where the sweetened beverage tax was introduced two years ago. That essentially meant all of our products retail prices increased by 50%. We invested with our partner, Aujian Coca Cola Beverages, to mitigate that tax impact on the retail price.

8:30 So our prices on average only went up by 20%. But our objective there was protect our market share on volume. And two years on as we've come out of that season, the Ramadan season where 80% of our products have sold, our market volumes are flat. So that's really encouraging. Our squash or dilutes business, as it called, in The UK has been our real powerhouse. And only two years ago, we were the third largest player in The UK behind Ribena and Robinson's. We've now overtaken Rybena, and it's a brand value level. There's a £20,000,000 gap between ourselves and them, and we are firmly consolidated as the number two player having taken market share again in the first six months.

9:17 To protect our our market share and our squash supply, we've invested in our operational agility for the next few years. And as a result of that, we'll be moving our squash supply from Princes, who's made the product for over ten years, next year to Refresco. We've been out to tender to mitigate some of the inflationary headwinds we see coming, but also importantly to improve our contingency planning because with Princes, they only produced our squash in one factory. We had a fire two years ago there that caused us problems on supply, whereas Refresco will produce from two factories in their estate that just helps our contingency longer term. As you can see in out of home, we have a really strong branded portfolio, and our customers have really struggled in the last few months with the lockdown.

10:12 In the out of home business, you tend to tender every three years for the business. So it's really important that you stick by your customers and offer strong customer service. So during the pandemic, we've given free stock to our customers where appropriate to to replace out of date stock. We've extended their credit terms to help them. And when we opened in May, we were very flexible with our staff to make sure all the kit we provide them to serve the slush drinks, dispense drinks, coffee drinks within a matter of days were open, ready to go, and they could serve our products on on the first minute that they open their doors. One of our objectives pre pandemic was to come out of the pandemic with a healthy cash position, both for security and to give us firepower for acquisitions in the future. And I'm really pleased to announce today that our net cash position is circa 47,000,000, which is very similar to pre pandemic.

11:06 And we've made really strong progress on one of our key strategic drivers, which is our ESG strategy, and I'll share some more of the headlines with you of that as we go through the presentation. What I'd like to do now is just give you some context of our UK performance by sharing the market update at the half year. The standard in our industry is to look at Nielsen data. It captures it at retail price, so it does differ slightly to our internal sales numbers. And and this captures all the retail grocery numbers at till point. And it captures convenience by data collection, and it doesn't collect discounted data. But it is the industry read that is taken as a standard. So if there's any difference between these numbers and the numbers you've seen in our statement today, that explains why.

11:58 The key headlines I would give you to take away from this quite busy slide would be, at the half year, the market is in value growth at 7.7%. Give you some context, the soft drinks market was in growth at 2.5% at the end of twenty twenty, so you can see the men the momentum in the marketplace. In the winner's box, there's a consistent theme across the subcategories of energy, cola, and flavored carbs who were all seeing strong value growth. And that is they are up against softer comparators from last year. These these brands have lots of space at front of store and grocery that was shut down in q two last year and in the wholesale convenience and independent shops.

12:48 So they're lapping slightly softer comparisons, which is fueling their growth. In the losers box, dilutes, mixes, and lemonade, what you're seeing there is the opposite effect. So these were the three categories that people stockpiled in q two last year when we first went into lockdown. So they're really lapping those those tough numbers. If we compare our business then, and this is at brand value, the key headline I'd ask you to take away is across all three subcategories we operate in. So dilutes or squash, as it's called, flavored carbonates and ready to drink still products. We are in value growth in all three of those markets. And importantly, our value is above our volume, meaning that we're not giving any any margin away as we trade there.

13:40 As I've said, the real star of the show has been dilutes. And as you can see, we've outperformed the market by 8.5 percentage points. We're slightly behind in the other two areas, but that is because we overtrade in wholesale convenience cash and carry. That's been a bit more lumpy to open, and therefore, we will hopefully see the benefit of that in the second half of the year. If we dive then into just what are our big key strategic drivers as a business that we're focused on, well, the first one is more from the core. We believe we have lots of headroom still in our core markets where we've got strong brand equity with good margins. And you can see that hopefully through our performance on squash in The UK and also further afield in places like Africa where we've been established for a number of years already.

14:30 Wherever, whenever is about new channels and new markets. A couple of good examples here is we were recently listed in b p four court motorway stations with our Bimto ready to still drink to 300 outlets, and that is going very well for us in the first half of the year. Equally, we have moved into the Ivory Coast and Mali in Africa. That circa 25,000,000 people in population in the West Of Africa where we're very strong, and we've gone to local production there with different partners that will serve as well in terms of complementing our export business, which is Red Can into the markets. And And we're now in local production, which means a lower retail price for our African consumers, and that's so important from an affordability point of view.

15:19 First for new is about innovation and acquisition. From an innovation point of view, we have rolled out a number of new innovations in The UK and abroad this year that has fueled our growth. And from an acquisition point of view, we've been very active here in the last five years, predominantly in out of home. And with our strong balance sheet, we are very proactive in this space, looking for new brands for The UK, Africa, and Europe that will complement Vimto and a place where you can't take Vimto. Equally, we're not as active in out of home at the moment until we see how the market plays out for the next twelve months. But if we did come across a business that was distressed and we thought we could add value too, we would be open minded. And then happier future for us is around our ESG platform.

16:09 We've made significant progress here, and I will share that detail with you further in the presentation. The key enablers for us we see as a business to give us the platform to deliver our strategic drivers is our people. And again, the resilience of our people has has has been tremendous during the first six months of people have have juggled working from home, and that has shown through. Again, the strength of our brands. We're all about brands as a business. We're not about own label product, which allows us to retain our high margins and our premium pricing models. Partnerships are paramount to us as a business. It's If in The Middle East where we have a ninety year relationship with the Irish and Coca Cola company or closer to home in The UK where we, you know, build build key partnerships with our co packers that are so important to us to maintain continuity of supply.

17:01 And then last but not least, technology. We wouldn't be of doing this, you know, twelve, eighteen months ago. The investments we've made in technology has allowed us to all work from home, but also put more of our business through an online platform, which has been so crucial for us over the last twelve months.

17:21 So a couple of highlights from our UK business this year I'd like to pull out. So you can see in the top left hand box there, our new packaging that we launched in q one across all of our range in The UK and and further afield globally. And the feedback from our consumers and customers has been very strong about the new modern contemporary look it's given us and we'll stand out on shelf.

17:42 We've launched a big new advertising campaign called Find Your Difference that was driving top of mind awareness for our consumers. It's landed very well across TV, social, digital in course two of this year, and their consideration and intent to purchase is up by 10 percentage points versus where it was in previous years. From an innovation point of view, we went into our remix range, which was about going outside of Purple two or three years ago and has fueled a lot of our growth. And again, we've added a Blueberry addition this year to the total market and a cherry variant into an into us to on an exclusive basis this year as part of that Tickle Pink campaign. And by listening to our consumers, we've also fortified our ranges. So we have vitamin c in our products. We've now added vitamin d, which helps boost immunity.

18:37 And that was important to our consumers now that 45 of all our ranges in The UK have added vitamins in them. What you can see from our squash portfolio on the back of all of that now, we had five two purple and three flavors. We've now got two more. So we've got a seven strong lineup that as the number two player in The UK really allows us to attempt to take market share from Robinson's because we've really improved our brand standout and visibility on shelf. We're really pleased in The UK market as well that we spread our risk. So 40% of our business with the big grocery retailers, 30 with discounters, and 30 with cash and carry and convenience. And that means we're not beholden to a Tesco or an Mazda if we fell out with them or got our products delisted.

19:28 And we although we've seen discounts in retail really grow this year, our cash and carry and convenience business will will, on the back of being flat at the half year, will start to motor in half year two. And as I said earlier, after ten years with Princess, we are moving our our squash business to Refresco. And we're also looking at doing a tender on our logistics business at the moment, both to order protect us for some of the headwinds that are coming in this area and also to allow us to drive efficiencies in things like drop loads and the number of stock we put on pallets for etcetera to drive efficiencies for the future.

20:12 In our international business, if we start with The Middle East, 80% of our volume is sold through our glass bottle portfolio during Ramadan as our product is synonymous with the Iftar meal occasion during Ramadan for the 30 evenings. COVID has not impacted the market as strongly this year, so consumers have been out and about in the retail outlets. And you can see that from the image, we've had fantastic marketplace execution, big front of store displays that's really helped drive our performance this year and maintain our volumes to pre sweetened beverage tax levels during the key Ramadan period even though the retail prices on average gone up by 20%.

20:59 In Africa, we've rolled out new branding. We've had a strong integrated marketing campaign, where we now focus across Valentine's, Ramadan, Eid, and then back to school. We've introduced a new flavor, watermelon, to the region this year that's done very well, And we've invested in some more feet on the street in Africa to really help drive that execution. As I mentioned earlier, we've gone to local production in Mali with the Coca Cola bottler and in Ivory Coast with an independent bottler, meaning that in country now, we have our imported Red Can, but also we have smaller pack formats in purple of still and carbonates. And last but last, least off a smaller base. We've seen outstanding execution, particularly in North America, that's seen our Rest of World business nearly double in the first six months versus the previous six months last year.

21:56 In out of home, where we've got a very premium offer and we sell our products through kits such as the slush machines here, here's just a few images of where we've really supported our customers and some of the the parks that are opening on day one with our guys, making sure the machines are working really to offer that customer service to make sure as new tenders come up for contract, we're in prime position there to lock them down for the next three years. And the last slide for myself before I hand over to David to take you through the numbers would just be on ESG. So we call it a happier future across a number of platforms. And the highlights I would pull out for this first six months is we have a lot of legislation coming in soft drinks over the next few years.

22:43 In quarter one, April next year, we have the high fat sugar salt legislation coming in that predominantly says, if your brand does not have has more than 4.5 grams of sugar per 100 mil of product, and you cannot promote on multi buys, so buy one get one freeze or 3.2, and you cannot display your products upfront of store. I'm pleased to say by some outstanding work from our R and D teams, no compromise on taste. We will be HFSS ready, and that will affect our promotional planning as we go forward. As I said, fortification into our products, 45% with added vitamins, which was something about making sure our products are fit for purpose for the future.

23:33 From a plastics point of view, all of our plastic packaging is recyclable. 51% of our PET is recycled across 60% of our volume in The UK, which is our dilute portfolio. And there is a tax on plastic packaging that doesn't have a minimum of 30 rPET in Q1 of next year. And we will meet that threshold across our whole portfolio and in some instances, higher out there on squash. And the final point really in terms of the work we do with our community. So we're very proud of the work we do both in The UK and Africa in supporting young people from tough backgrounds to have a successful future, and we've raised a lot of money over the last few years.

24:26 We will continue to do that, but we're working with the social mobility pledge at the moment, which is headed up by Catherine Greening, who is the ex secretary of state for education. And we will evolve now to not only raising money, but also working with young people with tough backgrounds to help them make the journey from education into their first jobs. Okay. I will now hand over to David who will take you through the detail of the numbers, and then I'll come back at the end after David and just round up and open the floor to questions. Thank you. Hello, everybody, and good afternoon. Just about to talk you through the financials. So in terms of the first half revenue performance, as Andrew has mentioned, we achieved 67,400,000, versus 59,200,000 last year, so 13.8% growth.

25:23 And that strong growth was achieved by the Vinto brand essentially, really powering ahead in The UK and internationally. And that more than offset the the challenges presented by the, you know, the the the the the forced closure of the group's out of home business essentially, through lockdowns from January to April.

25:43 I mean, the gradual reopening of the out of home outlets through quarter two, combined with the continued growth of, the package routes to market, The UK and international areas meant that what was a a pretty strong performance given the circumstances, but a 6% decline in quarter one year on year. In quarter two in itself, we saw 38% growth, and therefore, we're we're pleased with progress to date. When you dig into that a little bit more for the year, that 13.8%, The UK packaged route to market delivered 5% growth, and that was against some really challenging, tough comparatives for last year. The molten discounters, area, alone was up also 5%.

26:36 And when you think to quarter two last year, you know, consumer behaviors going into lockdown, the kind of the panic buying that we saw, empty shelves, etcetera, and a very warm spring. I think that 5% growth in UK packaged is something that we are really pleased about. And, also, we just referenced there that our feel good brand, which we are, you know, seeding into into The UK now, is is progressing well. It's a low base, but it but it is progressing well. In The Middle East, helped by both the reduction in the sweetened beverage tax contribution from ourselves and the timing of containers, we actually saw growth of 97.5%.

27:26 And, critically, in market volumes remained, in line with the pre pandemic levels, sorry, pre pre, sweetened beverage tax introduction levels, and that's gone right through the the pandemic. So we're again, we're we're really pleased with with with that performance. That was the key performance indicator for us in The Middle East that the investment that we would make would actually maintain volumes despite a very sizable increase to the consumer in the market. In Africa, we recorded 22.8% growth with an increase in concentrate mix and significant progress in Mali. And that that Africa performance was achieved despite some limiting factors around container availability.

28:16 Being able to get containers into, our rest of world markets was challenging in the first half. We saw, you know, China come online, kind of lots of containers going across to The US, and therefore containers were limited in in in in in their in their kind of the first half. And, obviously, we had sewers which blocked, and that also created a a real supply challenge. But despite those kind of supply challenges, 22.8% growth in Africa, we we we were delighted with. And rest

28:47 of the world, a similar story, really, 49.3% growth with really strong growth achieved in both The US and Europe. In terms of our income statement, we moved forward 2,100,000 in the first half year, our adjusted PBT level to 8,900,000, and we invested a further 300,000 of exceptional costs associated with our operational change program, which is all about, as Andrew referenced, making sure that we have both a platform for future growth and the agility to be able to manage our costs in a way that, allows us to, to to to manage any headwinds we may see from a inflation point of view.

29:35 Our gross profit grew 5,400,000 in terms of the year on year comparison, and our gross profit percentage was 2.9 percentage points ahead at 44.4%, and that came from 41.5%

29:51 last year. Of this growth, 2,700,000, so about half is volume driven, but particularly that volume in The UK and international package routes to market. And last year, we had some real challenges with the severity and the speed at which lockdown happened, lockdown one, which meant that we had about 700,000 of under recovered costs associated with our manufacturing facility in in Ross On Wye that Andrew described in the introduction earlier. That factory effectively closed overnight almost, for for a couple of months, and those those costs effectively meant that we have to take a challenge. And we also had stock last year as a result of that that we had to write offers, all of the various out of home outlets closed.

30:41 And, thankfully, we've not had that challenge this year because although lockdown happened over the four months, January to April, we largely saw it and planned it differently. And we kept our factory running to make sure that we'd come out of the pandemic or or out of the lockdown with good stocks on the ground, able to make the most of the of of of the spring and summer period, and and that's proved successful. Pleasingly, we've seen 2,000,000 pounds of mix and margin benefits associated with improved concentrate mix in terms of the international business into The Middle East and into Africa. And and also that investment that we've talked about in terms of The Middle East just starting to unwind.

31:28 So our plan, our key performance indicator was to protect the consumer as best we could. It is a premium product in The Middle East, but just to ensure that we've got the right level of investment in the future. So what was a fairly sizable investment last year, we've been able to start to roll that back a little bit this year, which has meant that we've seen some improved margins this this time. Distribution costs increased point 4,000,000 or 12%. Whilst this is largely down to volume, cost pressure is starting to, increase, particularly with regards to those international shipments that we described. And in The UK, there is a real shortage of drivers at the moment and some increasing fuel prices, which have meant that the outlook, that we're we've got, although we'll be able to carry it, we believe, in terms of our forecasts, is more challenging in the second half year.

32:26 Excluding exceptionals, admin costs increased by 2,700,000 in the period versus last year. 1,200,000 of that was associated with increased marketing funds as we had a TV and social media campaign, Find Your Different, which was successfully aired in the first half. The business also had last year some one off benefits that make this year's comparison, a little bit, challenging, one of which was the, deferred contribution deferred consideration, sorry, associated with our acquisition of Noisy Northwest. That gave us a £1,100,000 benefit last year, obviously not gonna be in this year's numbers. And we had some FX exposure point 9,000,000 year on year.

33:15 Sterling and the you know, Sterling against both the euro and the dollar, but sterling strengthening has given us that challenge. But what we are seeing now is that the levels that we're seeing, one fifteen, around about that level for the euro, you know, one one thirty six, one thirty seven for the dollar, that's more akin to what we've been seeing pre Brexit. And therefore, we we we we we would imagine that a a larger chunk of that hit has now gone past us, and we're we're at more normalized levels. Although, clearly, we'll we'll have to see how that plays out. So as the group returns to a period, hopefully, without the restrictions of the pandemic, I think some of the choices that we were able to make last year and some of the investments that we've made, you know, are are are starting to to pay through in this year. And it's it's nice to be able to to report the numbers that we we have. Clearly, there's a lot still to to happen in in terms of the second half year, but we are pleased with the with with with the results, so far.

34:24 In terms of cash performance, one of our big objectives going in as the pandemic really showed itself last year was for us to come out of the pandemic with the same strategic choices that we went into it with. One perhaps benchmark for that would be the cash balance that we have on the balance sheet. At the end of nineteen, we have £40,900,000, and we knew that the pandemic was gonna be a a challenging period for us with, you know, a a third of our business in in out of home and out of home being locked down for many, months of last year and, obviously, this year as well. So we set out a a whole series of initiatives to to try and get the balance right between supporting our customers, supporting our staff to make sure that we came out of the pandemic strong, but also, as I say, our financial strength was intact.

35:26 We saw a fairly significant unwind of working capital last year. As we had lockdowns, that meant we have less stock. It meant that we had less debtors as as sales have not come through. And we knew this year we would need to reinvest back in to working capital. So if you look at this year's performance, you can see a relatively strong EBITDA performance, 11,200,000. That's a couple of million higher than last year. But we've invested, about 4,600,000 back into working capital. And in the second half, we'll see that, continue, as as the out of home, business can returns to more of the levels that we saw pre pandemic. And that kind of free cash flow that we generated in the first half year was largely paid through in the dividend. But if you take the whole period together, which was very much our objective, the £40,900,000 that we started, has ended the half year, eighteen months later, 47.4.

36:31 If we take a few more, million out of that for working capital, then we're really kind of positive that we've achieved that objective, at least so far, in terms of managing, those strategic options. In terms of, dividend, one area that we worked on, through the pandemic was to provide clarity around the dividend policy, and we, moved to a two times cover or 50% of adjusted EPS, in in the in the last set of full year results. And therefore, our dividend payments, in September, for a a record date of the July 30 will be 9.8p per share. A lot of work, as I say, has gone on in terms of trying to manage the surety shore up the balance sheet, really.

37:22 One of our areas was the pension scheme. We had a a fairly high degree of volatility in that in that space in in in in the last couple of years. We've entered our three year valuation period. We have £5,300,000 as a deficit thirty first of March last year. Asset values, for that particular scheme, improved considerably over the last, fifteen, sixteen months. And we, therefore, agreed with the trustees that we would take the opportunity given that we'd now moved into a surplus, a funding of a 107.8% of that debt of of that scheme's liabilities, to derisk.

38:09 And we completed that derisking program in July, and we're delighted with that. It kinda gives us a a real safe, sure track to self sufficiency for the fund and just provides that little bit of

38:23 extra strength in the balance sheet. In terms of outlook, you know, we we set our forecasts and lined them up very much with the UK government road map. And largely speaking, perhaps a little bit slower than originally planned, but largely speaking, that is happening, as as we expected. And therefore, our f y twenty one guidance remains unchanged.

38:48 We are seeing, as we've noted, some inflationary pressure in the medium term. You know, some of it perhaps is structural. Some of it will pass, we believe, and we need to really see how that plays out. But there's no question that moves towards our pet is more expensive than virgin plastic, at least in the short term, ahead of the deposit return scheme creating more material for us to be able to use with RPET. And we know that deposit return scheme will be an investment from a cost point of view in its early years of implementation while it gets up and running. But that process is something that we are mindful of and is very much the reason that we are looking at an operational change program so that we can take more control of those supply chain costs and actually, hopefully, manage

39:41 some of those headwinds appropriately. We have many growth opportunities in The UK and globally. We are investing for that growth as we as we've said. And I think we at this point in in the evolution post the pandemic, we we remain confident on our outlook in terms of where we can go in future years. Back to you, Andrew. Thanks, David. Okay. Just a very quick couple of slides for myself, couple of minutes, then we'll get into the questions. I'm just very conscious of time. So most of the priorities you've seen for half one continue into half two. Couple of additions. So we're really proud that we've just secured the license for the Slush Puppy brand, the biggest global slush brand from a still perspective. We've got a forty year deal to manufacture, distribute, market, and sell that brand, and that will kick off in the second half.

40:33 And to our ICEE portfolio, we're also moving to a full no sugar portfolio with no compromise on taste. Innovation wise, we've got a hot Vimto squash launching in q four, more focused on our no added sugar portfolio in The Middle East and the rollout of the new 500 mil skew to our North American business. A real big focus on investing behind our carbonates business to accelerate growth there like we've seen in squash and lots to do on locking down our operational program. So we're ready for next year to be out of the blocks fast. So to summarize, we're really pleased with the strong diversified business that served us well in the past and will continue in the future and exciting plans for our brands across all geographies.

41:19 As David's pointed out, highly profitable, cash generative, and with a strong balance sheet to give us firepower for the future. ESG will play a key role in our strategic focus going forward and more to come in that space. We really felt we've looked after our people during the pandemic. I'm I'm proud of how we've treated them, and it's great to see people coming back to our offices. And I think the collaboration they get from working next to each other in the offices will will really drive efficiency for us. We've talked about inflation and mitigating those headwinds, and we're really pleased at the half year to say we're very confident with our outlook for 2021, which will be in line with the expectations. Okay. That wraps up the presentation. We're now happy to take questions. Fantastic. Andrew, David, thank you very much indeed for the presentation.

42:05 And ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. To have the team take a few moments to review those investor questions submitted already, I'd like to remind you the recording of this presentation along with the answer to Q and A can be viewed on your Investor Meet company dashboard. I'd also like to remind you your feedback is important to the company. Then immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order that the company can better understand your views and expectations. Andrew, David, we have received a number of questions from investors, and perhaps I could pick up some of these to start off the q and a, then we can pick up anything further as we go through. The first one is is is kind of a a three for one, I guess, but it reads as follows. Acquisitions have been a core element of your growth strategy.

42:51 Will the strategy continue? How do you think about acquisitions from a return IRR, return on invested capital perspective, And what are your purchase price criteria from a multiple payback period perspective? Yeah. Okay. Thank you. If I just take the first bit and then hand over to David for the for the second bit. I think I think the first bit, as as as we said in the presentation, you know, they've been important to us. Going forward, we are very proactive on all fronts on acquisition across our three routes to market. I think our priority at the moment, if we could find a brand that would complement them both in The UK, Africa, or Europe, That will be preferential to us, but it has to be at the right value and things that we can add value to and complement. But we are very active there.

43:38 David? I think from a without without giving the specifics of the individual kind of financial hurdles that we we we we we put a particular project through, I I think the the the the thing to understand about our business is that we are a diversified business, and therefore, that means the the areas that we might consider acquisitions can be quite varied. Our approach to it is essentially to look at the balance that we have in the business, and we we manage both the risk in terms of returns and the potential to power growth. And they are different in in in terms of some of the investments approaches that we we might apply.

44:26 The the the the multiples that will be in play against the different businesses will will vary, and we look very hard at what the synergies are gonna be from any of the particular acquisitions that we are assessing. And, you know, that is about core strengths that we have, areas that we think we can give value that maybe other businesses can't. And the areas that Andrew has described, I think are, you know, all all there for us to consider. In recent years, our our investment approach has tended to be in the outer home space, as we've built that business in terms of balancing our portfolio, and that's given us opportunities then to to integrate and to to move things forward.

45:16 And, you know, The UK branded space is is a different kind of a challenge, but it but, certainly, the the the relationships we have with customers and what we offer and the and the play that presents real synergies. So we're always looking at the dip. There's lots of opportunities for us to consider, and we're looking to see where we can add real value, basically, beyond other suitors. It's a very competitive m and a market, actually. So we've gotta make sure that we understand, and we do have very strict criteria for where we'll deploy that cash because there's plenty of opportunities to not deploy it correctly as well. So we we we we we monitor that very closely, and we have a team that works to constantly assess opportunities as they're arising.

46:02 Fantastic. Thank you very much. And the next question we have here is roughly what percentage of UK non Oh revenues are associated with Ramadan purchases? Yeah. Very little. I mean, our our Ramadan business is mainly in The Middle East and and strong in Africa as well. Probably less than one or 2% in The UK actually purchased the brand for Ramadan because it's it's a different consumption occasion. It's it's a much more sweetened product in The Middle East, and people are using it to break the fast in the evening, whereas our products in The UK are more for everyday consumption and are all no added sugar or low added sugar. That's great. Thank you. I think the next one you've actually touched on a fair bit during the presentation. But if there's anything further you can add is is how have you continued to drive the growth of the Vimto brand in The UK?

46:52 Yeah. I think I think I'll that again, and then it answers one of the questions on the screen as well. But I think it's been a combination of the new packaging rollout. It's been a conversation of investing in our app new advertising campaign. It's about having innovation at the heart of what we do in terms of new flavors and and fortification. And then also, really key one is, you know, the headroom we've got in The UK. We've really driven some strong new distribution in terms of with Alstair extra shelf space, Tesco extra shelf space, and then new accounts such as BP, etcetera. Fantastic. And the next one we've got here, which which products sold particularly well during lockdown? How has this progressed with reopening? Just, I guess, any trends that you've seen come out of that.

47:43 The big trend really was on squash. So as you would expect, when people were at home, they stockpile squash for a number of reasons. One is it's seen as very good value because parents can dilute it. It's seen as healthy because the most of the product is actually water. And yet people stockpile that. And because it's expandable consumption, you know, once it's in the cupboards, kids tend to then drink more of it, and it and it still runs out in the in that week period before they go back shopping. So squash was the big one where we saw the uplifts. Fantastic. And I guess with the reopening of hospitality, how is that out of home picking up? And what trends are you seeing coming through so far? Yeah. Really interesting. So when we opened up in May, I think the the whole nation went a bit mad for a couple of weeks, and then we're desperate to get out, and we had a big upturn.

48:34 I think for a couple of weeks, we had a lot of rain, and it's it's slightly slowed down. But then, really, in the last four to six weeks, we've seen massive momentum on the back of the success of our home nations in the Euros and also this glorious weather we're seeing at the moment. You know, it's not rocket science when the sun shines, soft drink sales rocket. So that's given us really good momentum, particularly in places like our theme parks and in pubs. And we really hope with no other lockdown that will continue with Venom during during the second half. It's great to hear along that continue. The Middle East and Africa region has been a major growth driver outside of the home market for Vimto. What is your perspective on Vimto's market potential for these regions going forward and also expand into some new areas as well? But if you can add anything further there, please. Yeah. I think The Middle East, the brand is is very well established and very well known and synonymous with Ramadan.

49:27 So we've had the impact of the sweetened beverage tax over the last few years. And that has forced us and our partner to really innovate quicker in the market. So we've introduced things like an orange flavored Vimto to the region because the region for a lot of years was very traditional. We've introduced the blue raspberry variants and they've gone very well in different pack sizes. So it's more established, but we do see growth there. But it's more probably single digit growth within that market as we build back. I think Africa, we do see accelerated growth there. So better growth than, you know, the well, similar growth to what we're seeing this year. So stronger growth because, you know, we're in 30 of the 50 countries there. You know, it's tough to grow in the other markets, but we do see that as the the place where we'll have accelerated growth for the next few years.

50:15 That's fantastic. We've covered quite a few questions there, but perhaps if we could just click on that q and a tab. If there are any others, appreciate it. I've got about eight minutes or so left that you could perhaps pick up on and give any further further color to. That'll be great. Yeah. I think I've answered a few. One here where it says, specifically, on the squash business, when do you sell see yourself becoming the market leader? That's a great question. So I suppose just to give some context, the the the squash category in The UK is worth about 500,000,000. There's three big players in it, which is Robinson's who have about a 40% market share. Ourselves as number two, we have about 14% market share, and Ribena having about now seven or 8% market share.

51:02 You've also then got private label, which quite uniquely has about 40% market share sorry, 30 market share and then a few small players. So we are pushing the teams very hard to get to number one spot internally, as you can imagine, and, you know, we are making good ground. However, to move from 13 or 14% up to that 40% against Robinsons who are supported by the bigger Brickley Corporation, And I think it's gonna take a long time to become the market leader, but I'm very confident that we will chip away at their market share quite considerably over the next five years. And there's another question here that said, would you ever enter the alcoholic segment of the market? And will you sorry. And will you be impacted by any of the well broadcasted sugar tax?

51:52 So what I'd say here on on let's start with the sugar tax. So just to be clear on soft drinks, there was a sugar tax levy introduced two three years ago now, back in 2018. And I'm really pleased to say that we were making really good headway before that that all our MPD was on no added sugar, all our advertisements on no added sugar, and we were seeing consumers migrate to our no added sugar as, you know, younger consumers now only tend to consume water in schools, and then that impacts on their behavior out of school. And when the sugar tax levy hit, we were below the levy, so we had no tax impact because all of our products in The UK were either no added sugar or low sugar. And so we were in a very good position. The food strategy that we saw talked about last week in the press was very much aimed at the food and the soft drink industry.

52:47 I think for the food industry, it's very different because they can't reformulate. You know, if you're selling a piece of chocolate, people are buying it for a treat, and it's difficult to reformulate. I think from a soft drink perspective, lots of work has already happened. The prices they were talking about going on on on sugar would have a severe impact. What we can do in the soft drinks industry though is continue to reformulate and take more sugar out. But it is about having a balance because there are some consumers who still want sugar in their products and don't want them all to be full of artificial sweeteners. So there's a real balance there. But lots of our innovation, you know, as we see on things like our feel good brand is, you know, that is sweetened with very low levels of juice. There's no artificial sweeteners or extra sugar in it, and and it only has 20 calories per per can that we serve. So there's lots of work going on in that space.

53:41 Another question here, what percentage of out of home sales are to cinemas? So yeah. So as a reminder, our out of home sales in a normal year are about 30%, three o, of our total business, and cinemas within that 30% are accounted for for about 5% of our sales. We've only really moved into the cinema channel in the last couple of years, so about 5%. What they do though for us, though, it's really good being in the cinemas because traditionally, slush sells when the sun shines. And when the sun doesn't shine, we have no sales. What going into cinemas is allowed is that it it hedges for us. You know, when the sun doesn't shine, people tend to go to the cinema even in the summer, and that means they'll still pick up a slush as kids want that when they're in the cinema chain.

54:32 Let me just work down oh, sorry. Let me just answer the question about the alcoholic market. Sorry. I haven't answered that. I think I think on that one, what I would say is we have a big proportion of our business in The Middle East. And as people be very aware, many people in The Middle East don't consume alcohol. So I think for ourselves, we won't be entering the alcoholic market because of the risk it puts to our Middle East business, but also because we believe we have plenty of headroom both within the soft drinks market and coffee where we operate in out of home for us over the next few years. Can you say a bit more about The US market and how you see that expanding? The The US market for us is is relatively small, and that's because we operate the expat market over there. So it's lots of people from The Middle East or Africa.

55:26 So I think, you know, we've got a really strong partner there, the Zeap Brothers, who operate in the ethnic market based out of Chicago. They've been doing a very good job for us in market execution, but I think that's the market the brand will stay in. It's very tough to become mainstream in The US. And at the moment, we're very much in that in that ethnic and growing our share there and keeping focus there. In your view, what is the major thing that you are doing now but your competitors aren't yet and that enables you to grab more share of throat in the long run? Well, I think a couple of things. I think, you know, as we've talked about, we've talked about our diverse market in The UK, both in out of home and UK, and that diversity expanded across the globe as well. So I think that's a real USP for us is that we've not got all our eggs in one basket, both in The UK and broader field as well, which is really good for us.

56:30 And and I think particularly in our squash market, how we've broken out of just purple into those added flavors to really improve our visibility share of of of voice in store has been important. And we still have a real strong stronghold in the North, but lots of opportunity in the South. So growing with the more southern based retailers such as Tesco, Sainsbury's, Waitrose is something we've been doing, but there's more headroom for us to do that over the last few years. Given that NICL's shares are narrowly traded and often attract a widespread, has the management given any consideration to improve in liquidity, share split, or NICHOLS family releasing more shares to the market?

57:18 David, I don't know if you wanna Yeah. Yeah. Open. Thanks, Andrew. Yeah. So a a couple of things maybe. So we have no plans to to to issue shares or anything of that nature. We are mindful of of of of the circumstances that that are being described there, that, you know, that that there isn't huge liquidity of our stock. Just maybe one point on on on the family shareholding. We we issued an announcement last due July, which it might be worth just just just touching on is that the family owned 34.7 of the shareholding. Obviously, from the days of a 100%, that's a a change over the years. But, you know, it it it is a long term shareholding and and provides a lot of stability to our stock, actually. It provides a lot of very positive input. And and one of the the aspects of it that I think is important from a a governance point of view is to to recognize that what we announced last year was that while the family remained above 30%, that they'd be entitled to two seats on the board as an example.

58:28 We have our current chairman and James NICHOLS who who who who who are on our board at the moment. And and that is the the the arrangements. I I think going forward, we have a strong balance sheet. We are, you know, very much invested in in in in in delivering those shareholder returns in the medium term. There are there are challenges as as you as you as you rightly reference, in terms of, liquidity, but I think that that kind of stability is the balancing point that we we we try and play out, and I hope hope that provides some some some some guidance as to where we are. Thanks, David. I think maybe the last question up here just as we wrap up says, what percentage of Middle East sales are associated with Ramadan?

59:17 And broadly, 80 of the sales in the region are in Ramadan. And by Ramadan, that's the four weeks prior to Ramadan and the four weeks of Ramadan. So it's an eight week period because people purchase before the before the festive season starts there during Ramadan. That's absolutely fantastic. Andrew, David, thank you so much. You've answered every single question that's come through, so you've been extremely kind and generous. And, of course, if there are any further questions that do pop through, the team will be able to review those, and we'll publish those answers on the Investor Meet company platform. Andrew, perhaps before we redirect investors to give you some feedback, perhaps just a final few closing remarks from yourself, please. Yes, no problem. So again, thank you very much for taking the time today to listen to the broadcast.

1:00:02 And thank you for some great questions as well that have come through there. And just to wrap up by saying, as I said at the start, we're really pleased with the results for the first six months of the year. We do believe we've got real momentum now as we go into the second half of the year with lots of exciting plans as well in place. And just to leave you with, as we said, we are very confident in the outlook for the rest of 2021 and that we will deliver on the expectations that we published at the start of this year. Thank you. Fantastic. Thank you so much, Andrew, David. Thank you indeed for updating investors today. Could I please ask investors not to close the session? You'll be automatically redirected to the opportunity to provide your full feedback in order that the management team can better understand your views and expectations.

1:00:48 This will only take a few moments to complete and is greatly valued by the company. On behalf of the management team of NICLLS PLC, we'd like to thank you for attending today's presentation. That now concludes today's session. Thank you very much, and good afternoon.