Morning, everybody. Warm welcome to our half-year results presentation. Thank you for taking the time out to either come in person or to dial in this morning. I know it's a very busy morning. Flow today, I'll kick off and do a strategic and operational view of half year one. I'll hand over to Matt, who'll do a deep dive into the numbers, and then I'll come back and just talk about second half and outlook, and then we'll open to Q&A. If we just turn the page to page three, there's kind of six key headlines we'd asked you to take away from today's presentation. First and foremost, we're really pleased to have achieved a strong top line growth of 4.7% sales revenue growth.
In line with the strategic direction of the company, the big accelerator there has been in Africa. We've grown revenue by over 17%, and that's on half one, 17% growth comps from last year as well. We feel we've made really good, strong progress on a number of strategic priorities, which we'll cover throughout the presentation. First half has seen record cash generation. We've now got over GBP 66 million worth of cash. With a strong momentum due to the sun, the World Cup going into half year two , we're confident in full year guidance. On the back of increased earnings and the change in our capital allocation policy, where our ordinary dividend has moved from 2x to 1.5x , really good, strong returns for shareholders from the dividend. If we just turn the page then, a reminder of the strategy.
If we start at the top, as we've outlined, our clear focus is about accelerating the higher margin package business, both in the U.K. and international, and hopefully you can see we've done that through the results this morning. In Out- of-H ome, it's still about simplification and driving bottom line margin progression. Four key drivers that we focus on. The first one we call more from the core. We still believe we've got strong headroom here in the brands we already have, in the categories, in the geographies and channels that we're already in. The second driver we call first for new. It's threefold. Firstly, it's about innovation off the Vimto brand, predominantly in the U.K. Packaged area and the Middle East packaged area.
Continued geographical expansion. Then very targeted acquisition in U.K. Packaged, where we are looking for a brand that can complement Vimto and play in the spaces that where categories are predicted to grow over the next 5- 10 years. Fuel for growth for us is about driving efficiencies, particularly off the back of the SAP implementation last year, and also by leveraging our asset light model. We take those savings and efficiency and reinvest them back into marketing to grow the top line. Happier future is the commitments we have across people, planet, and product, and the commitments that we've got out to 2030 from an ESG point of view. The key foundations in our business is firstly, we're a branded business and will only stay a branded business to allow us to charge premiums and have high margins.
In our asset light business, we pride ourselves on the partnerships we build, none more so than Aujan in the Middle East, where we've been with for over 90 years, and it's proven very important at this important time. The culture in Nichols we're very proud of. We've just come off the engagement survey we do every two years and have scored over 90%. If we flick again then, we start with U.K. Packaged. I'll start by giving some context by what's happening in soft drinks. As a reminder, this is the Nielsen data. This runs to mid-July, so slightly different to our internal revenue numbers, and this is retail sales value. Again, there might be some differences to our internal numbers, but this is the industry benchmark.
I think if you go to the pink bubble on the left-hand side, as you can see, soft drinks is worth over GBP 8 billion in the U.K., and again, has proved very resilient. Year after year, this category grows. You can see there just shy of 6% value growth, volume growth at 3.5%, price there for about 2.5% growth. Few headlines from our point of view, we have grown value again in all of the four subcategories we operate in, which is Squash, ready-to-drink still juice, Flavoured Carbs, and Energy. We've taken market share in Flavoured Carbs, which we're pleased with. That's the first time in a while that we've done that. We've doubled the rate of growth that the category seen in Energy with our 19% versus the market at 10. In ready-to-drink still juices, we've grown slightly behind the market.
That is because we've had a few service issues in Q2 with one of our co-manufacturers. They have now unwound, but if we didn't have that drag, our growth would have been circa 4%-5%. In Squash, we've grown again slightly behind the market, but that is mainly due to private label in the euro discounters that's now picked up in this read. We strategically choose not to play with the euro discounters. If we then flick again to just talk through how we've been driving the growth. I think from a Squash perspective, first and foremost, reminder that we are the number two brand in the U.K. after Robinsons. As you can see on the page there, we now have a very broad portfolio of products.
We have a number of pack sizes, we have a number of flavors, we have a sub-brand called Wonderfuel, we have value packs, and that means that drives greater visibility in retailers and greater availability of our products. This year on our 2 L pack format, which is actually our biggest, we've moved into flavors. We've driven distribution across the big retailers in the U.K. that's really driven weight of purchase. We've done extra value packs, mainly across the high street discounters to drive weight of purchase. With the euro discounters, we don't do permanent listings for strategic regions, but we do special buys, so we go in and out for four weeks at a time. We've driven strong distribution gains both on innovation and our core packs, and that's all been supplemented by a strong media campaign. If we flick over then to Carbonates.
As I said, really pleased to have driven nearly 5% growth in Carbonates and taken market share. We've had a big national distribution campaign in the first half, a van sales campaign in the impulse, and driven 9,000 new distribution points. We've driven listings on our core packs in the grocers and across wholesale. We've had innovation in our Fans' Edition with two new flavors that's driven incrementality. We've launched new bottles in our 500 ml range to give standout on shelf. We've worked with Tesco to do what we call eco clip. That's the pack in the middle there where you've taken all the plastic off and there's just cardboard on the top of that multi-pack, and we've had an exclusive with them in the first half.
If we flick again. Again, we are performing strongly in Energy, continues to be one of the fastest subcategories. We've driven double the growth that the category's seen. That's been through, we've launched into Energy multi-pack, so they're listed at back of store to drive weight of purchase for consumption at home. We're listed in the main retailers. We've launched a new tropical cooler flavor in our singles range to complement both original and zero. We are now listed with Energy across the major retailers and wholesalers in the U.K. Again, we've invested to drive activation in-store to get standout. Again, if we flick to page 11, the beyond the bottle strategy we have, which is about the work we do with both Applied Nutrition and The Hut Group on the Myprotein brand.
As you can see there, we've got a really strong portfolio of products now. Applied Nutrition and Myprotein are the two leading sport nutrition brands. Interestingly, the Myprotein Vimto Clear Whey is their number one selling product, and they're listed in both all traditional retailers we would be in, but also the likes of Holland & Barrett and Superdrug. What we have developed with both partners is a really exciting innovation pipeline that we'll bring to market over the next two years. If we flick to our international business, let's start with Africa. As a reminder, we've grown by 17% on comps of 17%. Just to explain the story in Africa. Broadly in Africa, our Red Can business is worth 70 million liters, and it's about 50% of our business in Africa.
If you look at the opportunity in Africa, we represent with our Red Can about 1.5% of the Flavoured Carbonates market in West Africa. Although we're pleased with the growth, still plenty of exciting headroom to go after. As a reminder, historically, we've produced Red Can in Estrella in Valencia and shipped into country. Due to rising tariffs, and that tying up our distributors' working capital, we've start to migrate production to in Africa with our partner, Millennium, who understand Africa and how to produce there. Phase 1 is now complete, that is out of a big production facility in Senegal, and that is serving six countries in West Africa. That's driven real benefits for us both operationally and from an ESG point of view. We'll come to it later. Phase 2 happens later in the year in Ivory Coast.
What we have seen in half one is similar concentrate shipments on a year-on-year basis because the way they are phased, a lot of the growth in the first half has been driven still on export sales, where it is still coming out of Spain, going into the Ivory Coast. That will change in Q4 this year.
In the Middle East on page 14, against obviously a volatile backdrop in the Middle East, we are really pleased with sales. We are over 6% up. Ramadan has been very strong for us. Again, I know we talk about this year in, year out, but that world-class execution, you can see by the picture there taken from one of our retailers. Volumes up 2.5%, value up 5%, so we have taken market share as the cordial category during Ramadan was up 2%. That market share has been taken across Saudi, UAE, Oman, and Kuwait.
We have also had the successful launch of the fabulous tasting rose cordial that has kind of driven standout in store as well. If we flick again to page 15, probably just to explain to everybody that we have had no disruption to our shipments to the Middle East. You can see here from the map, we go nowhere near the Strait of Hormuz. You can see the ship there goes down through the Suez Canal. We go into Jeddah on the west side of Saudi, and then we truck our concentrate overland into Dammam, where our Aujan factory is based, and produce there. What we have seen is some concentrate move into half one, which explains the delta between where we were at the end of Q1 into Q2. Really pleasingly, Aujan have asked us to move some shipments from Q4 into Q3.
We get them in the bag earlier and have that security of concentrate supply. Clearly, we are staying very close to developments in country. Like I say, no disruption to our supply chain in there during the first half. Out- of- Home on page 17. The strategy there is still simplification and, as we have outlined, low single digit revenue growth is what we have delivered. I think we are now out of lapping the Starslush brand. As we go into half year two , we expect our revenue to go up a notch. If you stripped it out in half year one , the like for likes would have been 5% growth. What we have done in half year one is really focused on premium high footfall food outlets, because that is where either people tend to be driving, so take soft drinks or take family, so take children.
Couple of examples. We have won the Rudy's pizza chain, so that is 39 outlets nationwide. We have also won the Montpeliers group, which have five high footfall food outlets up in and around Edinburgh. What we have seen in the first half is a very strong slate of films that drives our cinema business. Things like "Toy Story 5" are bang on. Into half year two , we have got the "Spider-Man" film as well, which we continue that hope for that momentum to continue. Before I hand over to Matt, I think in summary, really pleased with the numbers, really pleased with the progression we have made from a strategic point of view. I will hand over to Matt, do the numbers, then come back and talk to you about half year two . Matt.
Thank you, Andrew. Pleased to report another period of strong financial delivery for Nichols. We've seen profitable growth, strong cash generation, and increasing shareholder returns. Through the next few slides, I'll take you through how we grew, how that translated into profits, why the earnings quality at Nichols is high, and how that profit converts to cash exceptionally well, why we have the flexibility on balance sheet, and then a little bit on the sort of asset flywheel that we have, and touching then finally on the investment case. There's three messages I would like to leave people with.
It's more around the fact that Nichols consistently delivers against their expectations, that the business model converts profit into cash exceptionally well, and then that the balance sheet just gives us exceptional optionality, whether that be through M&A, dividends or reinvestment, and we'll touch on the capital allocation policy of the group subsequently. If I touch first then on how we delivered that top line revenue growth of 4.7%. That came through growth across all channels, which was perhaps most pleasing. Packaged grew 5.6%. As Andrew's touched on, international was the part that really drove that growth. Africa sales grew 17.5%, predominantly driven by Vimto Red Can, but encouraging for us, that was a 35% two-year growth. We had no impact from the Africa concentrate transition in the half, and therefore, like-for-like growth was the same as reported in that first half.
There will be a delta in the second half, as there was last year, as those shipments ramp up and we bring the Ivory Coast facility online through Millennium. The Middle East grew 6.3%. Rest of the world also grew 2.4%. U.K. Packaged grew 2.3%, and Andrew's touched on the different market performances there. Finally, Out- of- Home up 1.6%, and that's despite the planned exit of Starslush, and as Andrew's touched on, that would have been more like 5% growth without that drag from Starslush, which has now disappeared. If I turn then to profit growth on slide 21. Packaged profit has driven the growth in particular, and we've had disciplined cost control, and that's helped with earnings progression. It left us with an adjusted operating profit that was up 3.7% to GBP 14.1 million.
You can see in here that there is some investment in the central cost areas, that largely coming through planned investment in both people and IT, but that really playing through in the divisions where the margin stepped up from 29.1% in the first half of 2025, up to 30.2% in the first half of 2026. We can see our ERP investment is yielding benefits in the divisional P&Ls as we transition into our benefits realization phase. We remain on track to sort of five to six-year payback for that, and that's really coming through things like distribution savings, where we have managed to consolidate the supply base, take miles off the road in distribution, and that's coming through data transparency that we have as a result of the new ERP platform.
On the next slide 22, I'll talk to how the profit has translated through the different lines of the P&L. It's been a disciplined profit delivery. We've seen strong gross profit growth despite inflationary pressures, the distribution efficiencies that have been funded by our future-facing investment. I touched on those previously. They're coming largely across ERP investment and procurement. Administrative expenses have increased, they're driven by the IT investments we've made and inflationary pressures. Finance income down slightly year-on-year, despite a higher cash balance driven by that lower interest rate environment. That culminates in an adjusted PBT of GBP 15 million. That's up 2.7% year-on-year, the absence of any exceptionals this year means statutory profits are up 32% year-on-year.
Those profits have generated excellent cash for the group. It's a record first-half cash performance, which demonstrates the quality of the Nichols model. We generated operating cash of GBP 22 million in the first half. At year-end, we did have a working capital outflow. We guided at the time to the fact that that would fully reverse, it has fully reversed in the first half, leaving free cash flow generated of GBP 17 million. That remains above the 150% mark, as it was in the first half of last year, leaves us with GBP 66 million of cash on balance sheets, some GBP 10.5 million higher than at year-end. There is significant flexibility there. The next slide is a new one we wanted to introduce, talking to how we compound shareholder value.
If you start at sort of 12 o'clock. on this model, you can see we continue to deliver consistent organic growth within the group, with a particular focus on international. That's driving sustainable margin expansion and high returns on invested capital. ROCE at 28%, that is generated at sort of 150% cash conversion in H1 , giving us consistent strong cash generation, that plays through to us enabling us to reinvest that organically in the business to drive future growth and gives optionality, which I'll touch on on the next slide in terms of capital allocation discipline. In terms of capital allocation, we will first invest in profitable growth within the business, you can see that playing through in many aspects across new product generation and the likes of the new protein drinks. The progressive ordinary dividend is playing through.
We think that is absolutely the right level of cover now at 1.5x . The first half this year is the first time we will pay out on that improved dividend cover. We, once we have dealt with those two things, we'll look at potential M&A. We are staying incredibly disciplined on M&A. It's very easy to do M&A. It's not easy to do the right M&A. I've been focused with the team on making sure we have the right guardrails so that M&A is in the right markets, that any target would be the right target. We are pleased that the pipeline is stronger than it's ever been.
We will only do the right M&A, and if we can't find the right M&A, we will return surplus cash to shareholders, and we are probably going to be at that tipping point come the end of the year. Carrying GBP 66 million on balance sheet is probably a touch higher than we would like in the long term. There will either be some M&A or there will be surplus cash returned to shareholders. That leaves Nichols as an incredibly compelling investment case. We have strong brands, strong cash generation and financial flexibility that supports long-term value creation, and there's five pillars that underpin that. We're in very attractive markets. As Andrew touched on, the soft drinks market in the U.K. continues to grow very well, and we have significant international opportunities for broader distribution and expansion into new geographies in that international platform.
We're generating high returns with around the 30% ROCE, 1.5x dividend cover, giving a strong dividend yield of circa 5%, and that's in the absence of any specials. Strong cash generation and capital optionality with that GBP 66 million on balance sheet and 35% growth in dividends in the first half. To summarize, before I hand back to Andrew for the look forward, we have strong momentum. We're really pleased with the way we have entered Q2. The heat wave has helped give us some extra top-line boost. We're obviously a touch ahead of where we expected to be on profitability at the end of the half. That is in part driven by the Middle East shipments, but also driven by that stronger performance that we have seen in Africa. We have really strong top-line momentum.
The inflationary backdrop is being monitored, but it's also being very effectively managed, and we are fully hedged on all major commodities for the remainder of the financial year. We have a strong balance sheet, a continued focus on cost discipline, and we are well-positioned to create long-term shareholder value, and therefore, expectations for the full year remain prudently unchanged. Andrew?
Great. Thanks, Matt. In terms of the big focuses for the second half, if we start with U.K. Packaged on page 30, and probably just rewind the clock back to our Capital Markets Day in November 2024, and kind of remind you what our strategy was. It was really to improve and increase our portfolio in U.K. Packaged. The reason for that was extensive consumer research said there were kind of three macro consumer trends. One was about health and well-being and this move by people to have this aspiration that health and wellness is a kind of integrated way that people live. People, potentially the Gen Zs, looking for kind of new experiences and willing to invest in new products. Premiumization, generally, people are willing to pay a bit more if it gives you added benefits and functionality.
The three hunting grounds that we were going to focus on was health and wellness, was this next-generation energy or clean energy, which was a growing trend within the Energy category, or this move where younger people and adults are drinking less alcohol and therefore looking for either soft drinks or zero drinks to drink in the evening to unwind. You flick to the next page, the reason this is so important is because by 2030, there's going to be over GBP 2 billion worth of growth coming out of these trends. The six strategic category drivers, of which we believe Vimto can claim three. You start at the first one, of that GBP 2.2 billion, 25% of the growth is due to come out of that kind of health and wellness and functionality. That's GBP 678 million.
You flick the page again, the first thing we've done to try and capitalize on that growth is the launch of the Myprotein Protein Water. The concept here is how do you take functionality, refreshment, and kind of a credible sports nutrition brand and launch it into the marketplace, which is what we've done with this product. Two products, 500 ml, high protein, so it's got 15 g of protein in, and it's Clear Whey, so it's really high-quality protein. It's low calories, so less than 60 Cal per bottle, no sugar. What we've done is combine the Myprotein brand that's got strong equity with then Vimto and our flavor, built on the success we've seen in the powder range. We launched this at the end of September, so we'll go into retailers for Q4.
What we've also done then in two different spaces is developed further products as well that we will bring to market over the next 18 months to two years as well. Hopefully this now complements Vimto in the U.K. and really has us playing in the high-growth categories that can accelerate that top line in U.K. Packaged over the next few years. We turn to the next page, what we've just kicked off in the U.K. is our big master brand marketing campaign. For the last two years, we've had the campaign called Love the Taste, which has driven penetration, increased awareness for the brand, and we've now got a slight build on that. Our campaign is called Love at First Taste, so it's a bit more edgy in terms of what we're going out with. Again, it's focused on penetration.
It's above the line and then through below the line into store. By doing these sort of promotions, you then can drive offtake in the retailers, you get gondola ends, and therefore you get better take-up and better sales. That will run over July and August in the marketplace, which hopefully builds on the momentum we're seeing of the hot weather and the World Cup. The deposit return scheme, which I'm sure you've seen lots of news about in the press. As a reminder, this is due to go live in October 2027. There will be a GBP 0.20 deposit on all plastic and metal containers, 150 ml up to 3 L. You will pay the GBP 0.20 deposit, you will take it back to store, put it into a reverse vendor, and then get a voucher that you can then redeem in that store.
Clearly designed to drive recycling and ultimately cheaper, recycled, better quality PET so we can all work towards 100% recycled plastic in the products. Where we are, Wales have announced that they will appoint Exchange for Change, who've been appointed to run the scheme across England, Scotland, and Northern Ireland. That's really positive news because we wanted one operator. Wales are still going to have glass in the scheme, but we don't do glass, so it doesn't affect us in the U.K. I think what we're going into now is consultation with government to agree the producer fee. This is a fee we will pay to help set up the scheme and get the return on that in reduced cost of plastic in the long term. All soft drinks manufacturers will pay a fee.
We're forecast that the cost for us annually, and they're only a forecast at the moment, would be GBP 2 million, which we will work with our retail partners to pass through. The consultation that ends at the end of August with government will determine that fee and determine whether the fee starts in October 2027 or is delayed to January 2029, and that's what the consultation will decide. If we look then to our international business in the second half, page 36. As I talked about earlier, big tick, Senegal Phase 1 has worked. We're making good progress with our partner Millennium, who are building the factory in the Ivory Coast for us. That is due to go live in Q4, so we will start sending the concentrate shipments in, building the pipeline there.
As you can see, the big focus will be Ivory Coast in Q4, and then there's four other countries that we'll transition. We're already in those countries, but what we will do then is move from export into local production over the next 18 months. That will continue the growth that we're seeing in Africa now over that time period. If you turn to page 37, in the Middle East, we've got some exciting plans in the second half. We've done a lot of consumer research. We're going to change the visual identity of our branding on all of our small packs. You can see the from before and afterwards. This is researched really well, and I hope you agree. I think it looks fabulous in terms of far more modern, far more contemporary, and better stand out on shelf.
What we're also doing is there is a growing 1 L ready-to-drink sharing opportunity, particularly in Saudi. We are launching three new products. You can see there, they're all 1 L ready-to-drinks in original strawberry and blackcurrant. We're launching a cherry variant in our kids' 250 ml pack as well. Just to sum up before questions. Hopefully you can see we're really pleased with the progress half year one , and really strong momentum as we go into half year two. Good progress against lots of our strategic priorities. Focus on cost, good, strong balance sheet, to give us the firepower, and as Matt has alluded to, with the momentum we've got going into half to two confidence about expectations for the full year. Thank you for listening, everybody, and, really happy to take any questions.
Andrew, thank you.
Yeah.
Yeah. Name and phone.
It is Andrew Ford from Peel Hunt. A couple of questions if I can. Firstly, starting with the U.K. I know there were some moving parts between the categories that you reported, but I wondered when you looked through the deck onto more of the theme-based trends, wellness, et cetera, how have the relative contributions of those gone within your existing portfolio? Has there been a standup performance within some of those wellness products?
Yeah
I would be interested to hear that first one.
Yeah. Probably as you can see from what we talked about the Nielsen data, we grew market share at double the rate of Energy. As you know, with our Energy proposition, it is fortified with vitamins, it has got the Vimto taste on, and it is low in calorie. We launch with a point of difference there, which is hopefully accelerating. Within Flavoured Carbonates, we grew, and the driver within both Carbonates and Squash and ready to drinks is more in your no added sugar portfolio than original. This growing trend of people moving away from sugar and calories.
I think what's really important to say though, we don't play at the moment in some of the fastest growing subcategories, such as health and wellness, functionality and water, which is why we've recognized, although we've got headroom here, that accelerated growth will come from this type of product, Myprotein, and also that's where we'll focus all our acquisition focus as well.
Thank you. Next question on Africa. Definitely the standout performance regionally. I just want to understand a little bit more of the moving parts within that.
Yeah
You mentioned Ivory Coast being a sort of a big movement in the first half. I can't remember exactly if I missed it, but you said it, was that just a pull forward in sort of anticipation of the change? How much was Ivory Coast? I guess what is the underlying volume that you're seeing from a consumer side? And then finally on that, going into Phase 2 on a three-year view.
Yeah
What's the expectation for a top line number in that region?
I'll answer some of the questions. Probably worth just reiterating the model, then maybe you answer some of the growth for the long term.
Yeah.
I think as a reminder for people, in one sense, there's three elements to our African business. Historically there was Red Can made in Spain, exported in. We also had then local production of our purple products in glass and PET. The reason cans were exported in, there was minimal production facilities in cans in market. You have those two parts. What we've got on the Red Can side at the moment is probably half the business has transitioned now to be made in Senegal. We send the concentrate straight to Senegal now as opposed to Spain, made there and distributed. In the first half, we've not sent more concentrate this year than we did last year to Senegal because we were pipe filling last year as well. That business is flat.
What we've seen in half year one is growth in that export business in Red Can, still being made in Spain, but going into the Ivory Coast. We've just seen really good growth in that market of export cans. As we go into half year two, Q4, the factory will be built in Ivory Coast. We'll then start selling the concentrate into the Ivory Coast made there, and the same distributor who's buying it from Spain at the moment will drive to the factory gate in the Ivory Coast and buy it there. The advantage for them though is that distributor is not paying the import duties, so they've got more cash to go and buy more stock and distribute it more quickly into the Ivory Coast. Does that make sense? I know it's quite a lot of moving parts.
Yeah.
Yeah. It does.
Follow on question.
Okay.
What then drove that outperformance in, that really good performance in Ivory Coast? Is it the marketing? I know that's not based there.
It's just we've got a really good strong partner there. We invest in marketing, and they match it. They've over invested, and we've matched that as well because they believe in the Vimto brand, and it's just driven really strong growth. I think what the distributor is seeing is wanting to get ahead of the curve, because when he can go and then drive to the factory gate in Q4 and buy more product, he's already building the presence in marketplace. He's getting ahead of the curve to do that.
Availability of product just really helps the local distributors. They know they've got the availability, it's in market, and they can push distribution because they've got more confidence in the supply chain as well, and not as much of their own cash tied up in working capital. In terms of the full year, we would expect the H2 performance for Africa to be comparable to the first half. There will just be a bit more of a drag from the concentrate shift. In the first half, there was the same number of concentrate shipments in the first half as there was in the first half of 2025. With the Ivory Coast coming online, there'll be more concentrate shipments, therefore you'll see more of a delta between reported growth and like for like. We'll disclose those at the full year.
We just haven't now because they're exactly the same in the first half of the year, we expect that double digit to carry on in Africa.
Great. Thank you. I do have more, I won't be greedy at this point.
Anybody else? Karl?
Hi, it's Karl Burns from Berenberg. Just on the THG partnership, obviously you've got those two products.
Yeah.
I think you've said 100 basis points of growth next year potentially could add.
At that order, yeah.
You said obviously there's a bigger pipeline. Does the pipeline depend on the success of those two products, and how big is the potential pipeline?
Yeah. I think the pipeline is in partnership with Myprotein, it's actually in slightly adjacent categories. I won't divulge which categories at the moment from a competitor point of view. I think we're very confident in the products that we're going to launch in the future, and we've had really strong feedback from this. If this was a disaster and didn't work, we'd maybe look at that pipeline. Because they're in slightly different categories, I think we'd still be confident with the propositions we've got.
I think the encouraging bit you do get is what obviously we've been doing is speaking to the major multiples, the sort of distribution points that we know we can hit around the country, and you get a bit of a feel for how well a product's going to do from those first meetings with, say, the buyers at Sainsbury's, your Tescos, your Morrisons, and that's where this product has really resonated. That gives us confidence that it should deliver in the order of 100 basis points of growth next year at a group level.
Just on Africa, the second half, because of the more concentrate, obviously it's higher margin. How's that mix changed? Is it a margin tailwind in the second half from it?
It'll give a bit more of a margin benefit to the point that it'll then take a little bit out of the top line. You're probably talking two to 300 basis points of drag from concentrate shift in the mix. You're just going to see more concentrate, slightly less finished good Red Can coming in from Spain. It will give a bit of a margin benefit as well.
Matt.
Matthew Webb from Investec. First question, can I just make sure I've understood the impact of shipment phasing correctly into the Middle East? I think at Q1 you'd said that you'd expected that to be a drag on H1. As it turns out, it wasn't. Was it actually a benefit? Was it a net benefit in H1 that-
Flat year-over-year.
Well-
You can see in the growth in the Middle East at just over 6%, it would be considerably above that. It's not huge. You can see it's about GBP 1.7 million of sales.
Sure.
It's not massive, but we expected there to be virtually no shipments in the first half of the year.
Yeah.
Obviously what we have seen is continuity in the supply chain in market and growing confidence with our partner, Aujan. That long-established relationship means they've got confidence in the supply chain, and that's why we're shipping some of the product again earlier into Q3 rather than Q4 for Ramadan, because a lot of the product does concentrate around Ramadan.
Yeah.
They want to make sure they've got plenty of time to get it ready for market for the final consumer.
Got it. Would I be right in thinking that the impact in the second half would be broadly neutral then? Because even though it's being brought forward, it's only a few percentage.
It's only for Q4. Ramadan only moves by nine, 10 days a year, so it's not a big movement, but sometimes for us, with the length of the supply chain, it can cause issues across H1, H2 more so than a year end.
We still expect to exit the year in Middle East with middle single digit growth, kind of 5%-6%.
Yeah. Got it. Okay. The second question also on the Middle East. The rose flavor.
Yeah.
How much of an impact has that had? Is that a few percents or not that much or?
What we do when we launch a new flavor, because in Saudi, if you don't sell it during Ramadan, you have to buy it back. That's the way it works with the retailer. What you don't want to do is launch something and get it wrong and then kill your sales. We do that kind of limited launch, and actually, if it goes well, that drives a bit of like, "Oh, where can I get it?
Yeah.
It was quite small. It was a couple of percent probably of the total volume was in rose.
Yeah.
What we will now do, based on the success, is then go bigger with it as for the 2027 season.
Got it. Got it. Then final question. I think you mentioned once or twice reinvesting savings in marketing spend. Forgive me, I can't remember whether you've ever disclosed what your marketing spend is as a percent of sales. No. Okay. I get, yeah, I suspected as much.
It's a big marketing spend. We won't disclose.
Is that trending up a bit at the moment? Is the plan for that to trend up as a percent of sales or-
Yeah
-with sales? How do you feel about that?
Yes. I think over the last two, three, four years, when we launched the new strategy, absolutely we've been focusing our marketing spend in the U.K. on Vimto, both in traditional marketing, but hopefully as you've seen, bringing more innovation to market quicker. That was the strategy. Africa, we are investing more in Africa, we have put some people on the ground in Africa, just a small office in Senegal. Where our distributors will invest, we will invest as well. What we don't do is not invest if the distributor doesn't, because they've not then got skin in the game.
Yeah.
With things like this brand or if we make any acquisitions, obviously we'd put the right levels of marketing in as well.
Yeah. Am I interpreting that correctly that it's something that you would quite like to see that moving up as a percent of sales.
We'd like to see that going up as a percent of sales, providing that we are delivering the right bottom line contribution.
Yeah.
It's about being disciplined through the P&L.
Yeah.
That's the same way as we've used that same approach to make sure we're managing the inflationary pressures that we've seen through the P&L across all lines. Because we were now able to see stronger benefits in distribution costs, it's meant we haven't had to take quite as much as we might have otherwise have had to take in price.
Yeah.
That helps us make sure that the consumer proposition is balanced and considered as well.
Right. That's all from me. Thank you.
There was a question. Was it behind? It was Damian. Was it?
No. Fintan .
Yeah.
Fintan Ryan here from Goodbody.
Hi.
I had two questions from me, please. Firstly, just with regard to your licensing, relationships with both Applied Nutrition and THG so far, can you quantify how much the incremental contribution to your profit that was in H1?
Yeah.
Also just with regard to the sort of the license that you're doing for THG with the protein water.
Yeah
How are the economics work on that particular product or range?
Yeah
would you expect that to be accretive to your U.K. Package margin?
Yeah. Do you want to-
I'll take that. Yeah. We don't disclose how much they are, other than they are meaningful, the contributions that we get through, both the relationships with THG and Applied Nutrition. This product is the complete inverse of the business model that we have on the Myprotein protein powders as an example. When THG sell some Myprotein creatine, for example, we will get a high single-digit rebate commission on that product. It's a THG sale, and we get something that drops through at pretty much 100% margin for Nichols, it's a clip on the product. This is the inverse of that. This is a Nichols sale, it's a Nichols product, THG will get a comparable clip on the sales price. It won't be accretive to our packaged margin proposition. It won't be hugely diluted, it will be slightly dilutive. That's for two reasons.
One, you've got the THG margin clip that needs to be within that. Also, there's a lot of functional benefits and product quality within this product. It is impact whey isolate, it's highest quality that's out there in the market. We've also value engineered the product to get it just right. A normal protein scooper product will give you about 20 g, 22 g of protein. This is 15 g of protein, it also means that we can get it everywhere we want to get it in the retailers, and at 15 g of protein, we can get it into, say, the meal deal with those retailers. It's a bang on the kind of product that's going to be on trend because everyone loves going into the meal deal and seeing just how much money they can save.
This product should play brilliantly to that, but still giving 15 g of protein with great taste.
You could tell Matt came from the THG plc.
Very clear.
Opposition.
Just in terms of the international markets, I appreciate, about sort of 18, 24 months ago, you were talking about Malaysia and sort of your early progress there.
Yeah.
Do you have anything to update there?
I think, look, we always identified it was a long-term play. We are having to invest in both promotions and marketing in the region. The big competitor there is Ribena, and I think I talked about that is great because people understand Squash, and they understand berry squash as well. The buyers in the big retailers in Malaysia wanted a competitor to Ribena. We are pleased with progress, but it is going to be a three to five-year play to establish it, keep investing before we start to really, hopefully make a meaningful contribution to the bottom line.
Darren Shirley from Shore Capital. Sorry, I am new to this story, but there is a number that struck me here in terms of your Flavoured Carbs and volumes down to 13%.
Yeah.
Could you just-
What happened there is, obviously we've taken some inflation this year. We have to think cleverly about how do we pass on price with our retailers. That is generally a combination of three things now. There will be some price. You look at your promotional mechanics. You also look at your mix. What we'd done historically in Carbonates was on our 2 L packs. 2 L fizzy bottles, you'd go down to a GBP 1 on promotion and you'd get really good uplift on volume, and at GBP 1 you could just about make some money on it. We don't have our own manufacturing, so we don't get the overhead recovery some of our competitors do. I'm comfortable with that. I don't want to be in manufacturing.
In terms of where the inflation's gone at the moment, we've come off some of those really sharp deals, so we no longer promote at a GBP 1 on 2 L. It's similar in Squash as well. We no longer go down to a GBP 1 on 1 L. As a result of that, we've lost some volume. What we've done is grown our value. Our mantra generally is value over volume. I don't want to do lots of promotions on 2 L fizzy products where I lose money.
That explains why the wife hasn't been bringing any 2 L.
Hopefully paying a can though.
Yeah.
Yeah.
Damian McNeela at Deutsche Numis. On DRS, have you done any work on price elasticity of demand impact, particularly around multipacks?
Yeah.
Wonder what you're thinking there. Just on the timing of the payment, the producer payment, is that going to be upfront or you're going to have quarterly payments over the course of the year? How's that going to work?
Yeah. The price elasticity, the modeling work is being done by the BSDA, British Soft Drinks Association, they've also looked at what's happened in Southern Ireland, because Southern Ireland has gone in the last couple of years. What you see at first is, and obviously this depends on conditions, weather, you do see a little bit of a volume drop, where the biggest impact is seen is on plain water, where the drag has been on plain water because essentially what a lot of this is about is the government don't want us spending lots of money on water. They want us all using vessels that we refill.
If you walked into a wholesaler or Costco today, you can buy 24 waters broadly for about GBP 0.15, GBP 0.20 a pack, that will double overnight from both a retailer buying it and the wholesaler and consumers. I think on multipacks, it will be more challenging there. All people are looking at the configuration of your multipacks and whether you have slightly smaller multipacks to then keep your retail price the same. The evidence from Ireland is a dip in the first 12 weeks, it comes back apart from water.
What's the magnitude of the dip?
It's between 5% and 7% was the delta downwards across the marketplace. Yeah. On your second question, the consultation at the moment is two options. Either from the 1st of October the producer fee will be paid, or it will be delayed till the 1st of January 2029.
You've got to pay it all in one go at that date-
No.
-a year ahead.
No.
Go on, Matt.
No.
It's to be determined how that will be paid as part of the consultation. That's not been agreed at the moment.
Okay.
There won't be a full year in advance. It'll be staggered payments through the year.
Yeah. Then on M&A, did I mishear or are you looking at M&A outside of the U.K.?
No.
Principally U.K. Principally in the U.K. Yeah. It's what we want to make sure we do. When we're looking at M&A, it's got to be first and foremost in the right markets. We want the right-
When you say markets, you're meaning-
It's more as when.
Subcategories as opposed to-
It's the subcategories.
-geographic markets.
If you looked at the slide Andrew touched on, I think it's slide 31 in the deck, it's really these parts where there's white space.
Yeah
That Nichols doesn't really play in. It's the functional beverages, the adult socializing, where we don't think Vimto can play, there is huge growth forecast in that market, that we correlate with those trends, we think those trends are where the growth is going to be. What we want to do is make sure we have a brand to sit alongside Vimto that can play in those categories. This product can do that, we want a brand that's within our own wheelhouse. We want to make sure we've got the right financial guardrails around that. If we're going to go and buy the right brand, it needs to be one where someone's done the hard yards to make sure they've got it to a sufficient scale that it's got a credible brand.
That therefore we can really expand that through distribution points, that is where we can do that much better if it's in the U.K. then we can play into our distribution network and our operational capability. Equally, we don't want to be looking at something that's not capable of delivering the same margin stack as our existing packaged portfolio. Many acquisition targets won't necessarily be able to do that straight away, we need to have a line of sight that it is going to do that, so that any acquisition is earnings accretive and therefore plays through to being dividend accretive. Anything we do will equally not compromise the dividend policy or dividend payout, so that we are making sure that we're continuing to deliver strong returns for shareholders. It's disciplined markets and the right financial model.
Thank you.
Sahill Shan from Singer Capital here. Most of my questions have been asked. There you go. Three questions from me. Coming back to the U.K., I think, Andrew, you hinted at distribution gains.
Yeah.
Do you want to put a bit more color around where you're winning, where there's probably challenges at the moment, and how the Southeast strategy's playing out? That's the first question.
Absolutely. Our strategy has been over the last few years, we call it Win With the Winners, which links into the kind of march south. Historically, we were stronger with the likes of Asda, Morrisons, and some of the high street discounters that grew up in the Northwest, B&M, Home Bargains, et cetera. Our strategy has been focused on how do you still keep winning there, probably how do you accelerate our growth with the likes of Tesco, Sainsbury's, Waitrose, that's what we've done. We're in strong double-digit growth with Sainsbury's and Tesco. I think everybody knows Asda are having a more challenging time at the moment. That's where the challenges are, really, with some of the northern retailers. I think with the euro discounters, they are growing, they are getting bigger.
Strategically, whilst we've got headroom with the grocers, we don't feel it's right to be permanently listed in the euro discounters, because what tends to happen is they will then copy your brand and sell it at a much lower price. What we do, we do what we call special buys, where you can go in for three or four weeks with a differentiated pack at a price, sell it through, and come back out again.
Thank you. Second question is ERP. Early gains, early wins in the first half. I think distribution gains seeing the-
Yep
-benefits. How should we be thinking about potential gains going forward over the next 12 months or so? Which kind of areas are we looking at?
We're looking at a combination of gross profit wins and distribution cost savings. It's really helping us with our procurement strategy. It's really also helping us with those distribution cost synergies. It all really stems around joined up data and better granularity of data. Previously, we were on a Sage platform that didn't give us that visibility, and when you can combine that with some of the really sharp front end tools that are coming in with things like AI now, you can really push those things together and really supercharge what was previously something we just couldn't get to. It's just given us a really solid base to go forward with.
One of the best examples would be stockholding.
Yeah.
We used to have to keep certain levels of stock in the co-mans or with Great Bear because our systems weren't talking to each other, so we couldn't get visibility, so we didn't want to risk going off sale. At the moment, what we've been able to do this year is reduce our stockholding, still have plenty of cover, but just reduce the stockholding fees that we're paying to the logistics providers.
Got it. Final one from me. Coming back to Africa, great success story and talk around West Africa.
Yeah.
Do you want to give us a bit more insight as to how the other territories have been performing.
Yeah. Within Africa?
Within Africa, yeah.
Yeah. I think obviously, the markets out of Senegal, so the six markets out of Senegal, so it is Guinea-Bissau, Gambia, Mali, and Mauritania. We are getting good growth in all of them. Senegal, though, particularly proving strong within that phase one. As we mentioned, Ivory Coast is absolutely flying with a really, really strong partner. We talked about the launch in Sudan when we were last together. That goes this weekend. It has been a little bit delayed, but they are producing this week in Sudan. We do launch back into Sudan from this weekend. Product is going into the marketplace. We have also had a very strong first half in Algeria as well. We work with the Equatorial Coca-Cola Bottling Company there. They are selling purple product there, so they produce both PET and in glass.
We have invested more, and they have invested more in marketing, good growth in Algeria as well.
Thank you.
Andrew? Go again.
Yeah.
Yeah.
Just one more on M&A. You mentioned, I think you said sort of you had your influence on the guardrails of the acquisition. First of all, what are the key criteria? I know you won't give me sort of explicit, but are you looking at absolute sales? Are you looking at growth rate? Are you looking at sort of optionality for export? What's the sort of the primary one that you will look at? And again, going back to your influence on it, is it widening the scope? Is it moving up a scale? I know you, as I said, won't give me explicit numbers, but just sort of when you mention your influence, what's the direction on that?
The markets are the markets we want to be in, so functional and adult socializing. The guardrails that I've been working on with Andrew are more making sure we're really clear on what criteria does that need to establish. It can't compromise the dividend as an example. Equally, one thing I didn't touch on is we sit with GBP 66 million of cash on balance sheet today. It is more expensive to get the right kind of targets, but what we don't want to be doing is shifting from being in a GBP 66 million cash position to being heavily in debt.
The right kind of target needs to be the right kind of scale so that we could acquire it, but it wouldn't shift us into being 2x levered, for example, because that would be too aggressive a move for the business model. I don't think that's something our shareholders would thank us for. We'd be looking at something that either leaves us net cash or maximum probably 1x leverage would be sort of the way you'd cap at. When you're thinking about what the right revenue, and sort of EBITDA multiples are, that in and of itself kind of caps you at the sort of size of target revenue range you might be looking at. It's just about keeping all of those things roughly in check.
I think the bill for me, Andrew, would be you want something when you're sat in front of a retailer that, A, they know, so it's kind of listed there or known in the marketplace. If you turn up with something they never even heard of, they're not going to think this is going to move the dial. Equally, they buy into the growth. The other thing that will give us then is leverage back on Vimto. When you're just a one-branded company, yes, you get focus, but you got no leverage. Whereas we see other soft drinks companies with more brands, you can leverage the portfolio.
I think playing to Damian's point, part of the reason it will be U.K. is execution of this M&A is absolutely critical, where we're very focused on when it's the right thing, we've got to be able to execute it exceptionally well, and that's just a lot harder to do if it's an international target than if it's a U.K. acquisition where you're therefore a lot closer to the supply chain, and therefore the integration will be much more straightforward, and that's another thing that the ERP platform gives us. It's the capability to integrate things is a lot simpler when you've got a fully functioning SAP platform than when you don't have that kind of rigid, really structured back office functionality.
I think we are going to have to wrap up now. Sorry, I think we're at the hour, and we've got shareholder meetings at 12:15 P.M. Again, thank you very much for coming. Appreciate it. If there's any other questions we've not had a chance to answer, please just email them over to Matt or to Berenberg and Singers, and we'll come back and answer those, obviously, as well. Thanks for your time today, and look forward to catching up soon. Thank you