7 November 2017

UP Global Sourcing Holdings plc

"Ultimate Products" or the "Group"

FULL YEAR RESULTS FOR THE YEAR ENDED 31 JULY 2017

A strong performance in a challenging market

Ultimate Products, the owner, manager, designer and developer of an extensive range of value-focused consumer goods brands, announces its full year results for the year ended 31 July 2017. 

Financial Highlights

·     Total revenue increased 39.1 % to £110.0 m (FY 16: £79.0 m);

·     International revenue grew by 48.2 % to £30.4 m, representing 27.7 % of total revenue;

·     Underlying EBITDA* increased 39.9 % to £11.5 m (FY 16: £8.2m);

·     Underlying profit before tax* increased 42.0 % to £10.7 m (FY 16: £7.5 m);

·     Profit before tax increased 18.7 % to £7.4m (FY16: £6.3m);

·     Net debt amounted to £6.0 m (FY 16: £10.0 m), with a net debt / underlying EBITDA ratio* of 0.5 x;

·     Underlying Earnings Per Share* of 10.9 p; and

·     Full year dividend of 5.115 p per share (FY 16: 3.32 p).

*Items marked with an asterisk are non-GAAP measures. Definitions and relevant reconciliations are provided in the "Glossary".

Underlying measures are calculated after adding back exceptional items and share based payment charges as referred to in note 7 of the consolidated financial information below.

Operational Highlights

·     A Premium Listing of the Company on the Main Market of the London Stock Exchange in March;

·     Board substantially strengthened, including the appointment as Chairman of James McCarthy, the former CEO of Poundland Group plc, and two further independent Non-Executive Directors;

·     Refurbishment of new 240,000 sq ft warehouse at Heron Mill in Oldham completed to plan and is now the Group's main distribution facility, creating improved operational efficiencies and significant additional capacity;

·     Significant progress made in Germany, with a number of major retail accounts now open in the country and plans to open a showroom there in CY 18;

·     Highlights of the product portfolio have included the performance of Progress, the cookware and kitchen electrical brand, which is now listed with several retailers including, as of January 2018, a major UK supermarket; and

·     Recruited the 100th graduate to the Group's graduate development scheme.

Commenting on the results, Simon Showman, Chief Executive of Ultimate Products, said:

"I am very proud of what Ultimate Products and its staff have achieved over this reporting period. To deliver this performance whilst at the same time adding a new distribution centre, executing an IPO and maintaining an excellent service to our retailers shows what a high-quality, flexible and resilient business Ultimate Products is.

In the short-term, this flexibility and resilience will be needed as UK retailers and consumers alike adapt to a new and more challenging environment. However, it should also be noted that in a market where people have less money to spend on general merchandise, Ultimate Products provides a compelling proposition to consumers and retailers alike. We therefore continue to see substantial opportunities for the long-term growth and success of Ultimate Products."

For more information, please contact:

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.  Major customers include Action, Aldi, Amazon, Argos, Asda, B&M, Matalan, Morrisons, tofs (The Original Factory Shop), Robert Dyas, Sainsbury's, Tesco and The Range.

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 sqft showroom that showcases each of its brands. In addition, the Group has an office and showroom in Guangzhou, China. In total, Ultimate Products now employs over 200 staff.

For further information, please visit www.upgs.com

BUSINESS REVIEW

Performance

Ultimate Products has delivered a strong financial performance this year, amid a period of significant change for the Group and against a backdrop of continuing economic turbulence. The business, along with many others, faced a number of challenges including significant cost inflation, the devaluation of Sterling against major currencies and the well documented uncertainty around Brexit negotiations following the General Election.

Group revenue rose 39.1 % to £110.0 m (FY 16: £79.0 m), and continued to be driven by three main factors:

1.    growth in sales to discounters in the UK and in Europe (up 64.6 % to £63.8 m);

2.    increased sales to the main UK supermarkets (up 95.0 % to £10.3 m); and

3.    the emergence of online platforms as a new revenue for the business (up 63.6 % to £4.6 m).

Underlying Profit Before Tax* was up 42.0 % to £10.7 m. Gross Margin was down by 1.6 % at 22.3 % as a result of a higher mix of Free on Board ('FOB') business in the year and, for our Landed business, as a result of imported price inflation arising from a weakened Sterling. Despite this, our Underlying EBITDA Margin* held firm at 10.5 % (up 0.1 %). This reflects:

1.    the economies of scale from higher revenues;

2.    an increased proportion of FOB sales (which is less overhead intensive), partially offset by increased sales via online platforms (which is more overhead intensive); and

3.    a more efficient operating model as the focus on the Group's brand portfolio, which has led to an increase in repeat sales and extended product life cycles.

Operational Overview

We have made solid operational progress across the business. The Group has continued to develop and expand the relationships with its core customer base of UK and European discounters. We have also made significant progress in Germany, with a number of major retail accounts opened and plans are well advanced to open a showroom there in CY 18.

Other international developments include a new landed supply arrangement with a major European customer. This allows the Group to expand beyond its current limited product offering with the customer into other product categories, representing an exciting opportunity to continue to grow alongside one of the fastest expanding retailers in Europe, further cementing the Group's position as a key supplier to it.

A particular highlight of the Group's branded product portfolio during the period has been the performance of Progress, the cookware and kitchen electrical brand, which is now listed with several retailers including, as of January 2018, a major UK supermarket.

As noted above, revenue from online channels grew in the year by 63.6 % to £4.6 m and, while still a relatively small proportion of overall revenue at the moment, it is increasing in importance. Online is an exciting and fast growing part of the business and we are optimistic about its future prospects.

We are seeing some cost pressures coming through from China, where the bulk of our product is sourced. This has been caused by the strengthening of the Chinese currency and local regulatory changes. However, we are confident in our ability to effectively manage this because of our experience over many years in that territory and strong local presence through our office in Guangzhou.

Finally, the refurbishment of Ultimate Products' new 240,000 sq ft warehouse at Heron Mill in Oldham has been completed to plan and is now the Group's main distribution facility. The Board anticipates that this will create improved operational efficiencies and significant additional capacity to manage the future growth of the business.

Initial Public Offering

On 6 March 2017, the Group was admitted to the premium segment of the Official List of the Financial Conduct Authority and to trading on the Main Market of the London Stock Exchange plc. This was a significant step forward for the development of the business and a substantial achievement for the management team and staff. We believe that our listed company status provides the right platform for the future growth of the business and further enhances our reputation with customers and supplier partners.

We recognise that the future prospects of the business are reliant on both retaining our very best talent and recruiting new colleagues to the business that have the same potential and attitude as our very best. Accordingly, we are creating development programmes for rising stars and have already put in place various incentive schemes that reward outperformance.

Dividend

The Board is committed to a progressive dividend policy, with an intention to distribute 50 % of the Group's adjusted profit after tax. A final dividend is recommended of 3.495 p per share to give a total dividend of 5.115 p per share for the full year.

The final dividend is payable on 30 January 2018 to shareholders on the register on 5 January 2018.

Board Appointments

The Group's Board has been substantially strengthened through the appointments of James McCarthy as Chairman, Alan Rigby as Senior Independent Non-Executive Director and Robbie Bell as Non-Executive Director.

James McCarthy has over 40 years' experience in the fast-moving retail industry, having previously held the position of Chief Executive Officer of Poundland. He stepped down in September 2016 after a decade-long tenure during which the company's sales grew from £300 m to £1.3 bn per annum, whilst the number of stores increased from 150 to over 900. Prior to joining Poundland, James was Managing Director of Convenience at J Sainsbury plc and was a member of the company's operating, retail and investment boards.

Alan Rigby has spent the majority of his working career at HSBC plc, joining in 1975 and gaining broad experience through a range of management positions, including credit and risk, retail, commercial, large corporate and global banking markets.

Robbie Bell is the Chief Financial Officer of Welcome Break. Prior to that, he was the Chief Financial Officer of Screwfix, a subsidiary of Kingfisher plc. He was previously the UK Finance Director of Travelodge between 2006 and 2008, having started his career at Whitbread plc before moving to Tesco plc.

Graduate & Apprenticeship Schemes

The Group's Graduate Development Scheme continues to be highly successful in recruiting and developing talented graduates, through entry-level positions, across all of our key departments within the UK head office. This year it recruited its 100th graduate and the scheme continues to be the main driver for our recruitment strategies. Over 50 % of the current UK office workers have now come through the scheme.

This year also saw the introduction of an apprenticeship scheme, which provides further opportunities for young, talented individuals to join our dynamic working environment whilst meeting compliance with the government's apprenticeship levy. So far, we have piloted the scheme with two apprentices and links are being formed with local educational establishments in order to develop the scheme further

Outlook & Market Environment

The Group operates primarily in the branded, value-focused consumer goods sector in the UK. Due to ongoing macroeconomic uncertainty and tougher trading conditions, retailers are generally exercising caution with regard to their non-food buying as we head towards the end of the calendar year.

As a result, we are seeing retailers' reluctance to order too far forward and many are placing orders later or buying from stock. The lower volumes available to non-food suppliers and retailers' desire to minimise increases in retail prices is creating an even more competitive environment than normal.

As previously announced, the Board therefore anticipates that revenue growth for FY 18 is unlikely. In addition, approximately £4-5 m of FY 18's revenue will now be recognised in FY 19 as a result of the move from FOB to landed arrangements with a key European customer.

However, Ultimate Products is used to managing such challenging dynamics. Current trading is in line with expectations and the Board remains confident that the business will continue to deliver sustainable, long-term growth.

FINANCIAL REVIEW

Overview

Underlying performance measures exclude the exceptional items and share based payment charges referred to in note 7 to the consolidated financial information and are commented on below.

Revenue

The Group experienced strong revenue growth in FY 17, increasing by 39.1 % to £110.0 m with above double-digit growth in all key product groups and brands. The revenue performance was driven by three main factors: growth in sales to discounters in the UK and in Europe (up 64.6 % to £63.8 m); increased sales from the main UK supermarkets (up 95.0 % to £10.3 m); and the emergence of online platforms as a new revenue for the business (up 63.6 % to £4.6 m).

Focus on international expansion commenced during the second half of FY 17 and has therefore not had a significant impact on the FY 17 results. However, international sales grew by 48.2 % to £30.4 m and now represent 27.7 % of total sales (FY 16: 26.0 %), with UK sales growing by 35.9 % to £79.5 m (FY 16: £58.5 m).

Brands

The Group introduced its strategy to concentrate on offering branded, mass-market and value-led consumer goods in late 2013. Since then, the Group has seen its brands take an increasingly significant share of sales and this pattern continued in FY 17. A summary of the Premier Brands, representing 60.0 % of total revenue (FY 16: 55.4 %) is set out below:

Of particular note in the Premier Brands segment is the addition of Progress, a brand of Lancastrian heritage. Since its acquisition in 2015, the initial focus has been on developing the product range and packaging primarily across the housewares and small domestic appliance product categories. The Directors are excited about the potential for the brand, which now has listings in a number of retailers including a major supermarket from January 2018.

Margins

Gross margin was 160 bps lower than 2016, influenced by two key factors: firstly FOB sales, which typically generate lower gross margin but require lower overheads to serve, increased from 60.2 % of sales to 67.6 % and secondly, gross margin on landed sales, whilst partially protected by existing hedging contracts, were impacted by cost pressures from the fall in the US$ exchange rate with GBP after the Brexit referendum. However, continued operating efficiency benefits and lower overhead growth, supported by the aforementioned lower overhead requirement for FOB, resulted in the Group increasing its underlying EBITDA margin by 10 bps to 10.5 %.

Overheads

Administration expenses excluding exceptional items and share based payment charges, substantially comprising wages and salary costs, increased by £2.5 m (22.6 %) to £13.4 m in FY 17 compared to the 39.1 % increase in revenue. As experienced with the revenue growth in recent years, in FY 17 the Group continued to leverage its overhead resource to absorb growth with less than proportionate cost growth. This was achieved whilst absorbing the incremental impact of a full year's property cost of the new Heron Mill distribution facility (FY 16: 3.5 months) and the addition of plc related costs since the Group's IPO in March.

Over the course of FY 17, the average number of employees increased by 41 (or 22.7 %) of which 17 related to structural changes both in the UK warehouse and in the Far East, where new positions were created to replace third-party costs. Other headcount increases were in the core UK operations and the Group is particularly proud of its Graduate Development Scheme. This is the first port of call for most incremental positions and we are delighted with the progress we have made in developing and promoting staff from within the business, many of whom are recruited from the local Oldham area.

Exceptional Items and share based payment charges

Such costs include the non-recurring costs relating to the IPO of £1.1 m (FY 16: £nil), the legacy shareholder bonuses that ceased to accrue after 31 July 2017, being £2.0 m (FY 16: £1.2m), and the non-cash, share based payment expense relating to the Management Incentive Plan introduced immediately prior to the IPO, being £0.1 m (FY 16: £nil). They have been shown separately in the Income Statement to better reflect the performance of the underlying business.

Interest

At £0.5 m, finance costs were at similar levels to FY 16, although interest paid was significantly lower as FY 16 cash flows included the payment of £2.0 m of accrued interest relating to loan notes that were fully repaid in FY 16.

Taxation

The effective underlying tax rate has reduced from 21.5 % to 21.1 % for FY 17 and this is in line with expectations, given the reduction in the rate of UK corporation tax to 19 % with effect from 1 April 2017.

As explained in note 17 to the consolidated financial information below, the 2014 EMI Scheme share options were exercised immediately prior to the IPO. A statutory corporation tax deduction is created by the exercise of the EMI options, reducing the current and prior year tax liability by a total of £2.1 m. In accordance with IFRS 2, Accounting for Share based Payments, the £2.1 m tax credit has been credited directly to the Statement of Changes in Equity, rather than through the Income Statement. The impact of the deduction has been to reduce the £1.6 m UK corporation tax liability for the year to nil, with a further £0.5 m recoverable against the FY 16 liability previously paid.

Balance Sheet and Cash Flow

The Group's balance sheet strengthened significantly over the year with net assets increasing by £5.6 m to £6.8 m. The key points to note regarding the balance sheet can be summarised as:

·     The increase in non-current assets of £0.7 m was driven by capital expenditure on the refurbishment of Heron Mill (£0.8 m in FY 17), which has now become the Group's main distribution facility.

·     Having over-proportionately increased inventories by 36.4 % in FY 16, the increase in FY 17 was substantially lower than revenue growth at 4.9 %. This also reflects the higher mix of FOB sales, where revenue is recognised as the goods are handed over to the customer in the country of origin without being held in inventories prior to sale.

·     Trade and other receivables reduced by £4.5 m (27.6 %) compared to FY 16, (£4.2 m relating to trade receivables), driven by an exceptionally low level of debtor days at 31 July 2017 of 36, with the comparative 31 July 2016 and 31 July 2015 levels being 52 days and 50 days respectively. The reduction was driven by a favourable customer mix of invoicing at the end of FY 17. This is an exceptional movement that would be expected to reverse in FY 18.

·     Trade and other payables are £3.9 m lower than last year, which included £2.25 m for the interim FY 16 dividend declared but not paid at the end of FY 16. Additionally, trade payables are £1.6 m lower than FY 16, as last year saw a significantly higher increase in inventories just prior to the year end, with a corresponding increase to trade payables.

·     Current tax is a £0.5 m debtor in FY 17 due to the EMI scheme corporation tax credit referred to in the 'taxation' comments above.

The £4.2 m lower trade receivables, commented on earlier, provides a flattering, although exceptional impact on the net cash from operations that would be expected to reverse in FY 18. This favourable reduction, along with lower UK corporation tax payments (due to the EMI Scheme tax credit, creating a cash flow benefit of £0.8 m in FY 17) and a £1.3 m increase in EBITDA, are reflected in the net cash from operations of £9.4 m, which is £5.7 m higher than last year.

After deducting capital expenditure and returning to a normal level of interest payments, with the repayment of the loan notes made in FY 16, free cash flow* amounted to £7.8 m for FY 17. The payment of dividends and minor other items then resulted in a £4.0 m reduction in net debt* to £6.0 m (FY16: £10.0 m), with the net debt/underlying EBITDA ratio reducing 58.3 % to 0.5 x (FY 16: 1.2 x).

Financing and Going Concern

The Group is financed by a suite of trade and revolving credit facilities provided by HSBC Bank plc, further information on which is provided in note 15 to the consolidated financial information below. Over the course of the year, the Group has operated well within the covenants to the banking facilities and has maintained comfortable levels of funding headroom, with headroom at 31 July 2017 in excess of £6 m. The Group's projections show that the Group will be able to operate within its existing banking facilities and covenants. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, as such, has applied the going concern principle in preparing the Annual Report and Financial Statements.

James McCarthy                                              Simon Showman             
Chairman                                                            Chief Executive

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows 

Notes to the Consolidated Financial Information

1.         General Information

UP Global Sourcing Holdings plc ('the Company') and its subsidiaries (together 'the Group') is a supplier of branded, value-for-money household products to global markets.

The Company is a public limited company, which is listed on the London Stock Exchange and incorporated and domiciled in the UK. The address of its registered office is UP Global Sourcing Holdings plc, Manor Mill, Victoria Street, Chadderton, Oldham OL9 0DD UK.

This consolidated financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. On 6 March 2017, the Company was admitted to the premium segment of the Official List of the Financial Conduct Authority and to trading on the main market of the London Stock Exchange.  The Prospectus for the Initial Public Offering contains the audited Historical Financial Information of the Company on pages 84 to 124 (the "Historical Financial Information") presented under International Financial Reporting Standards ("IFRS"). Other than the reclassification referred to in note 8 below, the comparative figures for the financial year ended 31 July 2016 are an extract of the Company's Historical Financial Information for that year. Statutory accounts for the year ended 31 July 2016, prepared under Financial Reporting Standard 102, were approved by the Board of Directors on 31 October 2016 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006. Note 31 of the Historical Financial Information refers to the transition to IFRS from 1 August 2013 and sets out the main items contributing to the change in financial information compared with that reported under UK GAAP as at the transition date.

The statutory accounts for the year ended 31 July 2017 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Auditors have reported on those accounts; their report was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

2.         Basis of Preparation

The consolidated financial information is derived from the Group's consolidated financial statements for the year ended 31 July 2017, have been prepared in accordance with International Financial Reporting Standards (IFRS), as endorsed by the European Union (EU) and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared on the historical cost basis, except for certain financial instruments and share based payments that have been measured at fair value.

Going Concern Basis

The Group meets its day-to-day working capital requirements through its bank facilities. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group's forecasts and projections, taking account of reasonable sensitivities, show that the Group should be able to operate within available facilities. The Group therefore continues to adopt the going concern basis in preparing its consolidated and company Financial Statements.

3.         Accounting Policies

The accounting policies applied are consistent with those of the Historical Financial Information for the year ended 31 July 2016.

4.         Operating Segments

Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board. The Board is responsible for allocating resources and assessing performance of operating segments.

The Directors consider that there are no identifiable business segments that are subject to risks and returns that are different to those of the core business. The information reported to the Directors, for the purposes of resource allocation and assessment of performance, is based wholly upon the overall activities of the Group. The Group has therefore determined that it has only one reportable segment under IFRS 8.

The results and assets for this segment can be determined by reference to the Statement of Comprehensive Income and Statement of Financial Position.

5.         Financial Instruments

The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, cash flow and fair value interest rate risk and price risk), credit risk and liquidity risk.        

The consolidated financial information should be read in conjunction with the Group's Historical Financial Information as they do not include all financial risk management information and disclosures contained within the Historical Financial Information. There have been no changes in the risk management policies since the year end.

6.         Revenue

Geographical Split by Location:

Analysis of Revenue by Brand:

Analysis of Revenue by Major Products:

Analysis of Revenue by Strategic Pillar:

7.         Exceptional items & share based payment charges

Shareholder bonus costs consist of bonus payments based upon certain Group EBITDA performance targets and the cost ceased to accrue after the year ended 31 July 2017.

Initial public offering costs relate entirely to the Group's IPO in the year and therefore are not considered to relate to the Group's underlying performance. The costs incurred comprise principally legal and advisory fees and listing costs.

The share based payment expense relates to the non-cash charge arising on a share option management incentive plan adopted immediately prior to the IPO. The options have been valued using the Monte Carlo option pricing model and are granted with a three-year vesting period and can be exercised up to seven years following the vesting date.

The above items have been shown separately in the Income Statement to better reflect the performance of the underlying business.

8.         Operating Expenses

In the year ended 31 July 2017, the Directors have taken the decision to reclassify to cost of sales, certain costs that had previously been reported as part of both distribution costs and administrative expenses. The Directors believe that the reclassification will better reflect the actual gross margin realised on items sold. The impact on the 2016 year end is the reclassification of £1,194,000 from distribution costs and the reclassification of £556,000 from administrative expenses. The result has been an increase in cost of sales of £1,750,000. This restatement has had no impact upon previously reported profit or equity. 

9.         Taxation

Factors Affecting the Tax Charge

Tax is assessed for the period at a rate different to the UK corporation tax rate for the reasons below:

Included in the tax charge above is a tax credit relating to the exceptional items of £401,000 (2016 - £249,000).

A tax credit of £2,086,000 has been credited direct to reserves in relation to the EMI scheme.

Factors That May Affect Future Tax Charges

Changes to the UK corporation tax rates were announced in the Chancellor's Budget on 8 July 2015. These included reductions to the main rate to reduce the rate to 19 % from 1 April 2017 and to 18 % from 1 April 2020. Further reductions were announced in the Chancellor's Budget on 16 March 2016, including a reduction in the main rate of corporation tax to 17 % from 1 April 2020.

10.       Earnings per Share

Basic earnings per share is calculated by dividing the net income for the period attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period, and uses the number of shares as if they had always been subdivided from £1 shares to 0.25p shares.

Diluted earnings/(losses) per share amounts are calculated by dividing the profit/(loss) attributable to owners of the parent by the weighted average number of ordinary shares in issue during the financial year, adjusted for the effects of potentially dilutive options. The dilutive effect is calculated on the full exercise of all potentially dilutive ordinary share options granted by the Group, including performance-based options which the Group considers to have been earned.

The calculations of earnings per share are based upon the following:

11.       Dividends

The interim dividend declared in the year ended 31 July 2016 was paid in the year ended 31 July 2017. An interim dividend of 1.62 p per share was approved by the board on 27 April 2017 and was paid on 28 July 2017 to shareholders on record as at 7 July 2017.

The Directors have proposed a final dividend of 3.495 p per share in respect of the year ended 31 July 2017. The dividend is due to be payable on 30 January 2018 to shareholders on record at 5 January 2018.

12.       Property, Plant & Equipment

Additions to property, plant and equipment in the year ended 31 July 2017 substantially relate to the refurbishment of Heron Mill, the Group's new warehousing facility.

13.       Trade & Other receivables

The Directors believe that the carrying value of trade and other receivables represents their fair value. Trade and other receivables are denominated in Sterling, US Dollars, Euros and Canadian Dollars. In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the receivable from the date credit was granted up to the reporting date.

14.       Trade & Other payables

The Directors consider that the carrying value of trade and other payables approximates their fair value. Trade and other payables are denominated in both Sterling and US Dollars. UP Global Sourcing Holdings plc has financial risk management policies in place to ensure that all payables are paid within the credit timeframe and no interest has been charged by any suppliers as a result of late payment of invoices during the period.

15.       Borrowings

The Group is funded by external banking facilities provided by HSBC. On 22 July 2016, the Group refinanced and entered into new banking facilities with HSBC. The new facilities run to June 2020, providing the ongoing funding of the Group and comprise a revolving credit facility of £6.2 m, an invoice discounting facility, the limit of which was increased by £2 m on 27 January 2017 to £17 m and an import loan facility, which was increased by £1.75 m to £6.5 m on 22 June 2017. The import loan facility is ancillary to the revolving credit facility, is repayable on demand and subject to annual review.

16.       Financial Instruments

Principal Financial Instruments

The principal financial instruments used by the Group, from which financial instrument risk arises are as follows:

Financial Assets

The Group held the following financial assets at amortised cost:

Financial Liabilities

The Group held the following financial liabilities, classified as other financial liabilities at amortised cost:

Financial Assets/(Liabilities)

The Group held the following financial assets/(liabilities), classified as fair value through profit and loss on initial recognition:

Derivative Financial Instruments - Forward Contracts

The Group mitigates the exchange rate risk for certain foreign currency trade debtors and creditors by entering into forward currency contracts. At 31 July 2017, the outstanding contracts all mature within 12 months of the period end (2016 - 10 months). At 31 July 2017, the Group was committed to buy $11,650,000, to sell $3,500,000, to sell €7,050,000 and to sell CA $nil, paying and receiving respectively a fixed Sterling amount (2016 - to buy $10,000,000, to sell $nil, to sell €850,000 and to sell CA$85,000). The forward currency contracts are measured at fair value using the relevant exchange rates for GBP:USD, GBP:EUR and GBP:CA$. The fair value of the contracts at 31 July 2017 is a liability of £200,000 (2016 - £417,000 asset).

Forward currency contracts are valued using level 2 inputs. The valuations are calculated using the period end forward rates for the relevant currencies, which are observable quoted values at the period end dates. Valuations are determined using the hypothetical derivative method, which values the contracts based upon the changes in the future cash flows, based upon the change in value of the underlying derivative.

All of the forward contracts to buy US Dollars and some of those to sell Euros meet the conditions for hedge accounting, in accordance with the Group's accounting policies.

The fair value of forward contracts that are effective in offsetting the exchange rate risk is a liability of £197,000, which has been recognised in other comprehensive income and will be released to profit or loss at the end of the term of the forward contracts that expire within 12 months. The cash flows in respect of the forward contracts will occur over the course of the 12 months to 31 July 2017.

Derivative Financial Instruments - Interest Rate Swaps

The Group has entered into an interest rate swap to hedge the exposure to interest rate movements on the Group's revolving credit facility. The swap is based upon a principal amount of £2,000,000 until 31 July 2018 and exchanges the exposure to a LIBOR interest rate to a fixed rate of 0.39 %. The fair value of the swap at 31 July 2017 is £nil, (2016 - £7,000 liability).

In addition, the Group has entered into an interest rate swap to hedge the Group's exposure to interest rate movements on the Group's invoice discounting facility. The swap is based upon a principal amount of £1,000,000 until 31 December 2019 and exchanges the exposure to Base Rate interest charges to a fixed rate of 0.31 %. The fair value of the swap at 31 July 2017 is an asset of £4,000 (2016 - £6,000 liability).

Interest rate swaps are valued using level 2 inputs. The valuations are based upon the notional value of the swaps, the current available market borrowing rate and the swapped interest rate. The valuation is based upon the current valuation of the present saving or cost of the future cash flow differences, based upon the difference between the swapped interest rate and the expected interest rate as per the lending agreement.

All interest rate swaps meet the conditions for hedge accounting, in accordance with the Group's accounting policies.

The fair value of variable to fixed interest rate swaps that are effective in offsetting the variable interest rate risk on variable rate debt is an asset of £4,000, which has been recognised in other comprehensive income and will be released to profit or loss over the term of the swap agreements. The agreements expire between 31 July 2018 and 31 July 2019. The cash flows in respect of the swaps occur monthly over the effective lifetime of the swaps.

Derivative Financial Instruments - Interest Rate Caps

Along with the interest rate swaps referred to above, the Group has entered into interest rate cap agreements to protect the exposure to interest rate movements on the Group's banking facilities. The interest rate caps are measured at fair value, being the market value of the cap at the balance sheet date. At 31 July 2017, the Company had entered into an agreement to cap LIBOR interest rates at 1 % until 31 December 2019 on a principal amount of £2,000,000. The fair value of the interest rate cap at 31 July 2017 was an asset of £3,000 (2016 - £6,000 asset).

In addition, at 31 July 2017, the Group has entered into further agreements to cap LIBOR interest rates at 1 % until 31 December 2019 on a principal amount of £2,000,000 and to cap LIBOR interest rates at 2 % on a principal amount of £5,095,000, reducing to £3,080,000 by 31 December 2019. The fair value of the interest rate caps at 31 July 2017 was an asset of £10,000 (2016 - £13,000 asset).

Interest rate caps are valued using level 2 inputs. The valuations are based upon the notional value of the caps, the current available market borrowing rate and the capped interest rate. The valuation is based upon the current valuation of the present saving or cost of the future cash flow differences, based upon the difference between the capped interest rate and the expected interest rate as per the lending agreement.

The following is a reconciliation of the financial instruments to the statement of financial position:

17.       Share Capital

The following movements arose in the Company's share capital during the year ended 31 July 2017:

a)    21,157 options in the UP Global Sourcing Holdings EMI Share Option Plan were exercised and the Company allotted 21,157 B Ordinary shares of £1 each;

b)    The Company converted its 184,267 A ordinary shares of £1 each and its 21,157 B ordinary shares of £1 each to 205,424 £1 Ordinary shares; and

c)    The Company subdivided its 205,424 £1 Ordinary shares into 82,169,600 shares with a nominal value of 0.25 p.

On conclusion of the above, the Company's share capital now comprises 82,169,600 Ordinary shares of 0.25 p each.

18.       Events occurring after the reporting period

Final Dividend Proposed

As disclosed in note 11 above, the Directors have proposed a final dividend of 3.495 p per share in respect of the year ended 31 July 2017. The dividend is due to be payable on 30 January 2018 to shareholders on record at 5 January 2018.

19.       Related Party Transactions

Transactions and Balances with Related Companies and Businesses

There were no outstanding balances with the above related parties at either year end.

Annual General Meeting

The Company's Annual General Meeting will be held at 2.00pm on 15 December 2017 at the Company's registered office, Manor Mill, Victoria Street, Oldham OL9 0DD.

Glossary

The following definitions apply throughout this announcement unless the context requires otherwise:

The Reconciliation of Underlying Performance Measures is set out in the table below.

Reconciliation of Underlying Performance Measures