Diversified soft drinks group Nichols (NICL:AIM) softened 1.7% to £11.8 on Tuesday following news it now expects to see a ‘significant impact’ on this year’s financial performance due to the coronavirus pandemic.
Famed for its iconic Vimto drink, Nichols withdrew guidance for 2020 and cancelled the final dividend in a bid to preserve cash during unprecedented times for the world economy.
PANDEMIC-DRIVEN PROFITS HIT
In today’s brief COVID-19 trading update the Vimto, Feel Good, Sunkist and Starslush brands owner warned of a damaging profits hit triggered by the pandemic and the associated restriction of movement of people worldwide.
Trading in the first two months of 2020 met expectations, but levels of global uncertainty are now hurting Nichols, whose Vimto tipple is popular in the UK and internationally, including Africa and the Middle East, where it enjoys strong demand during Ramadan.
As a result, the Newton-le-willows-headquartered company is ‘not currently able to provide financial guidance for the year ended 31 December 2020’.
CONSERVING CASH
Nichols has long been prized by investors for its strong balance sheet and entered 2020 with more than £40m of cash in the coffers, and no debt. Nevertheless, given the uncertain outlook, its prudent management team has cancelled the 28p final dividend announced on 26 February 2020.
‘This decision will conserve £10.4m of cash over the seasonally critical spring and summer period,’ explained Nichols, whose board will consider the group’s cash position ‘once through this critical trading period’. If it is appropriate, Nichols ‘will reinstate the payment of a dividend’.
One of Nichols’ many strengths is its co-packing and licensing model, which means the business is asset light and cash generative. Yet with management braced for a sustained period of reduced demand, Nichols is taking steps to remove cost, including re-evaluating marketing spend, postponing non-essential recruitment and suspending non-critical capital expenditure.
Non-executive chairman John Nichols is confident the company can navigate the crisis. He commented: ‘With a heritage of 112 years, Nichols has successfully weathered significant challenges and changes across global markets before.
‘Driven by the strength of the group’s brands, robust balance sheet and diversified business model, the board remains absolutely confident in Nichols’ ability to both manage the near term pressures impacting the global economy and emerge from this unprecedented period well-placed to continue to deliver the group’s long-term growth plans.’
