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CORRECTED-UPDATE 2-Focus on high-margin soft drinks lifts Nichols' profit
July 24, 2014 / 8:10 AM / 3 years ago

CORRECTED-UPDATE 2-Focus on high-margin soft drinks lifts Nichols' profit

(Corrects headline and para 1 to say growth was driven by focus on high-margin products and cost cuts, not fewer promotions. Corrects para 8 to say international sales were hurt by change in delivery timing of Vimto concentrate, not the timing of Ramadan)

By Aastha Agnihotri

July 24 (Reuters) - Soft drink maker Nichols Plc posted an 11 percent rise in first-half pretax profit, helped by a focus on high-margin products and cost cuts.

Nichols, which has been reducing its exposure to the heavily promoted carbonates sector to improve profitability, said adjusted pretax profit rose to 10 million pounds ($17 million) in the six months to June 30 from 9 million pounds a year earlier.

Revenue rose 3 percent to 56.6 million pounds.

“The carbonates category continues to be very competitive as demonstrated by the frequent price promotions by Coke and Pepsi and therefore puts pressure on margins,” Finance Director Tim Croston told Reuters.

The Coca-Cola Co and rival PepsiCo Inc have been struggling with declining soda sales in developed markets as consumers become more health conscious.

“The soft drink industry is notorious for very heavy promotions and discounts ... to some degree Nichols stepped back from some of the deep discounting and promotions,” analyst Nicola Mallard of Investec Securities said.

Mallard rates the stock at “buy” with a 1070 pence target.

International sales, which account for about 21 percent of total sales, fell 12 percent due to a change in the timing of shipments of its Vimto concentrate to the Middle East ahead of Ramadan.

Nichols’ fruit and herb-based drink Vimto has about 80 percent of Middle East sales coming in just three months - the month of Ramadan and the two months prior to the festival.

Nichols, whose bigger rivals in the UK include Britvic Plc and Irn-Bru maker A.G. Barr Plc, said the positive trend seen in the UK in the first half is expected to continue through the second half.

Nichols raised its interim dividend to 7.1 pence per share from 6.32 pence last year.

Shares in the company were up 2.6 percent at 960 pence at 1024 GMT on the London Stock Exchange. ($1 = 0.5873 British pounds) (Editing by Gopakumar Warrier)

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