Nichols may appeal against paying £8M in damages – way beyond precautionary funds it had reserved to cover itself – after being sued by a company in Pakistan.
The High Court awarded Gul Bottlers damages against Nichols of 1.4bn Pakistani Rupees, roughly £8M, and it expects to face additional costs of about £1M–1.5M.
The case is related to a contract the firm, which owns several soft drinks brands, signed with Gul Bottlers to produce and distribute Vimto for the Pakistani market.
In a statement on the legal decision, Nichols stated: “Nichols fundamentally disagrees with the quantum of the award by the High Court and is considering with its professional advisers options for appeal and will provide an update in due course.”
In its preliminary results for the year to December 31, published on March 13 this year, Nichols said it had allowed for an exceptional cost of £2M related to the case.
However, the company stressed the ruling would not hit trading performance or future plans for the business.
“Whilst this is an extremely disappointing outcome, there is no impact on future underlying trading expectations and the payment of this award in no way affects the group’s ability to continue with its strategy to invest in its brands and future growth plans,” it stated. “The group continues to be highly cash generative with a strong balance sheet.”
Interim results for the company’s current financial year are due to be announced on July 24 and Nichols reported good trading for the six month period, in line with management expectations.
Shore Capital analyst Phil Carroll emphasised that Nichols was still a highly cash-generative business, with net cash at the beginning of this financial year of £34M, and the judgment would have little effect on that.
‘Does not impact trading’
“Our view is that the cost of the litigation is one-off in nature and a truly exceptional cost which, as management alluded to, does not impact underlying trading or the longer-term strategy of the company,” said Carroll.
He said he expected Nichols to continue to build on its strong track record of profit growth. He added the lawsuit would not mar its attractiveness as a potential takeover target, because of the commercial potential to develop Vimto.