Annual Report 2019 and Notice of AGM
19 November 2019
UP Global Sourcing Holdings plc
"Ultimate Products" or the "Group" or the "Company"
Posting of Annual Report and Accounts and Notice of Annual General Meeting
Ultimate Products (LSE: UPGS), the owner, manager, designer and developer of an extensive range of value-focused consumer goods brands, announces that, following the release of its final results statement on 5 November 2019, it has today published its Annual Report and Accounts ("the Annual Report") for the year ended 31 July 2019.
The Company also announces that it will hold its Annual General Meeting at 2.00pm on Friday 13 December 2019 at the Company's registered office at Manor Mill, Victoria Street, Chadderton, Oldham, OL9 0DD.
Copies of the Annual Report and the Notice of the 2019 Annual General Meeting are available to view on the Company's website: www.upgs.com. They have also been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm in compliance with paragraph 9.6.1 of the FCA Listing Rules. Copies of these documents, together with a form of proxy for use in connection with the 2019 Annual General Meeting, have been posted or made available to the Company's shareholders.
The final results statement and presentation of 5 November 2019 included a set of condensed financial statements and a fair view of the development and performance of the business and the position of the Company.
The information contained within the final results statement, together with the information set out below, all of which is extracted from the Annual Report for the year ended 31 July 2019, constitute the requirements of the Disclosure and Transparency Rule 6.3.5(2)(b).
This announcement is not a substitute for reading the full Annual Report.
Directors' responsibility statement
The following Directors' responsibility statement is extracted from the Annual Report and Accounts (pages 95 to 96):
The Directors are responsible for ensuring that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.
Directors' responsibilities pursuant to DTR4
The Directors confirm to the best of their knowledge:
· The Group Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union, and Article 4 of the IAS Regulation, and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group.
· The Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and parent company, together with a description of the principal risks and uncertainties that they face.
· They consider the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.
Principal risks and uncertainties
The following description of the principal risks and uncertainties that the Group faces is extracted from the Annual Report and Accounts (pages 22 to 27):
Risk management approach
The Board is responsible for the Group's risk management and internal control systems and for reviewing their effectiveness, supported by the Audit and Risk Committee. We review our business regularly to identify and document key business risks. Once identified, risks are assessed according to the likelihood and impact of the risk occurring and an appropriate mitigating response is determined. This risk mitigation plan is then regularly monitored.
The table below sets out the Group's principal risks as determined by the Board, the gross risk movement from the prior year and the corresponding mitigating actions. This represents the Group's current risk profile and is not intended to be an exhaustive list of all risk and uncertainties that may arise.
Key to Risk Movement
↔ ↑ ↓ NR
No change Increased Decreased New Risk
Macroeconomic trends affecting consumer confidence and reducing consumer non-food spending could affect retail demand. Additionally, an increase in food prices could similarly reduce non-food spending with consumers prioritising food expenditure.
The Group sees the opportunity to increase its market share by developing new customer relationships, particularly internationally via its German showroom and international sales team and from growth in online channels, mitigating the risk from macroeconomic factors affecting the overall market.
The Group's products, being mass-market and value-led, are well-placed in the event of an economic downturn.
The UK's decision to leave the EU and the ongoing uncertainty around the terms of its departure has led to a period of economic and political volatility which, in turn, has contributed to an already challenging retail market. The risk of a 'no deal' Brexit could result in a further weakening of Sterling, putting additional pressure on gross margin and adversely impacting upon consumer demand and trading performance.
The Board continues to monitor developments in this area and assess the potential impact of Brexit on volumes and margin to ensure that the business is well prepared and able to adapt to the eventual outcome.
The Group maintains a foreign exchange hedging policy to mitigate the impact of short-term currency fluctuations. The Group's international growth will also offer economic diversity and some protection against movements in Sterling.
The Group has implemented a range of initiatives to mitigate margin pressures as discussed below.
A tough retail environment and the impact of weakened Sterling (discussed above) could put pressure on gross margin. In addition, increased resource requirements could also put pressure on net margin.
The Group's strategy of international growth, expansion of online channels and increased penetration of UK supermarkets continues to provide greater diversity and a balanced-margin portfolio.
The Group also employs a combination of margin-enhancing initiatives including monitoring profitability of individual product lines, continued product innovation and refreshing product ranges, balanced against the need to ensure that our products remain competitive.
Furthermore, the Group seeks to constantly develop and implement productivity improvements.
A large proportion of the Group's turnover is derived from a small number of customers. Loss of a key customer could have an adverse impact on the Group's turnover and operating profit.
A decline in traditional high-street shopping in favour of online shopping could impact the Group's sales and operating profits.
The Group continues to develop relationships with other existing customers and target new customers, particularly internationally, in order to widen its portfolio and spread risk. In addition, in-store penetration of the Group's brands and products offers some commercial protection against customer loss.
The Group continues to focus on growing online sales in order to provide further diversification from traditional bricks and mortar retailers.
Loss of continuity of supply of goods for resale
A major loss of continuity in the supply of goods for resale could adversely affect the Group's revenue and operating profit.
Heavy reliance on China as a source of products. Any deterioration in, or changes to political, economic or social conditions in China could disrupt the supply of goods or result in higher product cost prices.
The Group maintains close relationships with its suppliers through regular factory visits and interaction with its local teams. Wherever possible, multiple sources of supply are sourced for major products.
The Group closely monitors developments in China and continues to consider and use alternative sources when practicable and viable.
Retention of competitive advantage through innovation
Failure to develop and enhance our product range and ensure that products continue to have resonance with consumers, or lack of awareness of trends and changes in consumer behaviour, could result in loss of our competitive advantage, which could impact on the Group's turnover and margins.
A high level of new product development focus is maintained and monitored by the Board. Buying teams and senior management regularly attend trade shows and carry out store and factory visits to ensure that they are in touch with the latest consumer demands and trends.
Failure to renew or delays in renewing licences for key brands could impact turnover.
Failure to develop or acquire new brands could restrict growth, given the Group's brand-led strategy.
The risk of non-renewal is mitigated by maintaining strong revenues to and good working relationships with licensors. Licences are negotiated for as long as possible and as early as possible, in order to provide greater certainty around future revenues.
The Group continues to develop a 'second tier' of brands and monitors opportunities to acquire new brands.
As the share of landed sales increases due to online growth and increased sales from stock, the Group is likely to experience continued upward pressure on stock levels. Inefficient stock management could result in overstocking, which may adversely affect working capital. Conversely, understocking could limit the Group's ability to take advantage of these opportunities.
Stock levels and purchasing are closely managed, with all purchase orders being reviewed by senior management before being placed.
Stock is categorised between 'free' and (pre) 'sold' to ensure that management focus on higher risk items. 'Free' stock is reviewed at Director level and prompt actions are taken where necessary.
Legal and regulatory
Failure to comply with legal and regulatory requirements, both in the UK and in other countries in which the Group operates, could result in fines or adverse impact on the Group's reputation.
The Board monitors the changing landscape of laws and regulations. New legal and regulatory requirements are discussed by the Audit and Risk Committee whose members contribute insight and experience of such matters. External technical and consulting expertise is sought when required.
The Group has procedures for ensuring ongoing compliance with legal obligations, including external annual audits, and runs a programme of new-starter/ refresher annual training.
Failure to attract and retain high-quality individuals, both in the UK and internationally, could impact on the delivery of the Group's strategies.
The Group's Graduate Development Scheme, along with links to local universities, provides a steady inflow of high-quality staff to support the future growth of the Group, whilst the Group's Senior Management Development Programme, introduced in December 2018, and its Introduction to Leadership course aim to create a succession of employees into senior roles.
A number of steps are taken to encourage the retention of the employees, including the SAYE and PSP share ownership schemes introduced in the year to incentivise its workforce and to further improve retention.
Risk of cybercrime with the potential to cause business interruption, loss of key systems, loss of online sales, theft of data or damage to reputation.
The Group continues to review and invest, where appropriate, in the development and maintenance of our IT infrastructure, systems and security.
An external IT security audit is carried out on an annual basis to ensure that any weaknesses in our systems are identified and can be rectified.
We have in place disaster recovery and business continuity plans.
The Group's operations expose it to a variety of financial risks that include the following:
· price risk
The Group continually monitors the price and availability of materials and labour but the costs of managing the exposure to price risk exceed any potential benefits given the extensive range of products and suppliers.
· foreign currency risk
The Group's exposure to foreign currency risk is partially hedged by virtue of invoicing a proportion of its turnover in US Dollars. In addition, the Group maintains a hedging policy and uses foreign exchange forward contracts to reduce the risk of volatility in revenue and cost of goods.
· credit risk
The Group's sales are primarily made with credit terms, exposing it to the risk of non-payment from customers. The Group has implemented policies that require credit checks on potential customers and the maintenance of appropriate credit limits. The Group maintains a high level of credit insurance on its trade receivables, averaging in excess of 95 % insured over FY 19 with the uninsured accounts closely monitored. Trade receivable balances are vigilantly managed and prompt action taken on overdue accounts.
· liquidity risk
Cash flow requirements are monitored by short and long-term forecasts, with headroom against facility limits and banking covenants assessed regularly.
· Interest rate cash flow risk
The Group's interest bearing liabilities expose it to the financial risks of changes in interest rates. The Group has a policy of maintaining a portion of its banking facilities under the protection of interest rate swaps and caps to ensure the certainty of future interest cash flows.
For more information please contact:
UP Global Sourcing Holdings plc
+44 (0) 161 627 1400
Andrew Gossage, Managing Director
+44 (0) 207 250 1446
Notes to Editors
Ultimate Products is an owner, manager, designer and developer of a series of well-known brands focused on the home, selling to over 300 retailers across 38 countries. It has six product categories: Audio; Heating and Cooling; Housewares; Laundry; Luggage; and Small Domestic Appliances. Its brands include Beldray (laundry, floor care, heating and cooling), Intempo (audio), Salter (kitchenware), Constellation (luggage), and Progress (cookware and bakeware).
The Group's products are sold to a broad cross-section of both large national and international multi-channel retailers as well as smaller national retail chains, incorporating discount retailers, supermarkets, general retailers and online retailers. Its best-selling products include frying pans, mugs and speakers, selling approximately one million of each every year.
Founded in 1997, Ultimate Products is headquartered in Oldham, Greater Manchester, where it has design, sales, marketing, buying, quality assurance, support functions and warehouse facilities across two sites. Manor Mill, the Group's head office, includes a spectacular 20,000 sq ft showroom that showcases each of its brands. In addition, the Group has an office and showroom in Guangzhou, China and in Cologne, Germany.
Ultimate Products' graduate development scheme was launched in 2012 and in 2018 it welcomed its one-hundredth graduate. In total, Ultimate Products now employs over 290 staff.
Please note that Ultimate Products is not the owner of Russell Hobbs or Salter. The company currently has licence agreements in place granting it an exclusive licence to use the "Russell Hobbs" trademark for cookware (NB this does not include Russell Hobbs electrical appliances) and the "Salter" trademark for electrical and cookware (NB this does not include Salter scales).
For further information, please visit www.upgs.com
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