Notes to the Interim Results 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. This consolidated condensed interim 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"). 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. 2. Basis of preparation This consolidated condensed interim financial information for the six months ended 31 January 2017 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (previously the Financial Services Authority) and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. The consolidated condensed interim financial information should be read in conjunction with the Historical Financial Information for the year ended 31 July 2016, which has been prepared in accordance with IFRSs as adopted by the European Union. 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 condensed interim 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 consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker 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 different to the core business. The information reported to the directors, for the purposes of resource allocation and assessment of performance is based wholly on 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. Principal risks and uncertainties The directors consider that the principal risks and uncertainties which could have a material impact on the Group's performance in the remaining 6 months of the financial year remain substantially the same as those stated within the Group's Historical Financial Information on pages 96-97 and pages 111-113 of the Prospectus for the Initial Public Offering, which is available on our website, www.upgs.com. We do note that the result of the referendum in favour of the UK leaving the European Union and the triggering of Article 50 may have an impact on the Group. We are closely following developments in this area, but we believe that it is still too early to quantify or determine with certainty the impact on the Group of the UK leaving the European Union. We will continue to monitor developments and adapt our strategy as the impact of the UK exit from the European Union becomes clear. The Group has an exposure to US Dollars for the purchase of goods and this is partially hedged by virtue of invoicing a proportion of its turnover in US Dollars. In addition, the Group invoices a proportion of its turnover in Euros and Canadian Dollars and where necessary, the group uses forward currency contracts to further mitigate its foreign currency exposure. 6. 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 condensed interim financial statements 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. 7. Revenue Geographical split by location:
|
Unaudited
6 months ended
31 Jan 2017 £'000 |
Unaudited 6 months ended 31 Jan 2016 £'000 |
Audited Year ended 31 July 2016 £'000 |
United Kingdom Europe USA Rest of the world |
50,073 16,163 422 1,428 |
32,492 7,437 279 1,779 |
58,504 17,259 628 2,637 |
Total |
68,086 |
41,987 |
79,028 |
8. Seasonality of operations Overall the Group's product range is not significantly seasonal, however, retail demand is higher in the Christmas trading period. As a result, it is anticipated that the operating profits for the second half of the year ending 31 July 2017 will be lower than those for the six months ended 31 January 2017. 9. Operating profit
|
Unaudited
6 months ended
31 Jan 2017 £'000 |
Unaudited 6 months ended 31 Jan 2016 £'000 |
Audited Year ended 31 July 2016 £'000 |
The profit is stated after charging expenses as follows: Depreciation of owned property, plant and equipment Loss on disposal of property, plant and equipment Shareholder bonuses |
143 2 1,693 |
131 - 833 |
280 - 1,246 |
|
|
|
|
EBITDA represents profit from operations before depreciation and amortisation. Underlying EBITDA represents EBITDA, as defined above, adjusted for shareholder bonuses which will cease to accrue on conclusion of the current year ending 31 July 2017. The directors use EBITDA and underlying EBITDA as key performance indicators of the Group's business. Shareholder bonuses consist of bonus payments based on achievement of certain Group EBITDA performance targets. The following table sets forth a reconciliation of EBITDA and Underlying EBITDA to profits from operations for the periods indicated.
|
Unaudited
6 months ended
31 Jan 2017 £'000 |
Unaudited 6 months ended 31 Jan 2016 £'000 |
Audited Year ended 31 July 2016 £'000 |
Profit from operations Depreciation Loss on disposal of property plant and equipment |
6,976 143 2 |
4,070 131 - |
6,700 280 - |
EBITDA Shareholder bonuses |
7,121 1,693 |
4,201 833 |
6,980 1,246 |
Underlying EBITDA |
8,814 |
5,034 |
8,226 |
Underlying EBITDA margin |
12.9% |
12.0% |
10.4% |
|
|
|
|
10. Profit before taxation As referred to above in note 9, shareholder bonuses will cease to accrue on conclusion of the current year ending 31 July 2017. The directors also monitor the Group's performance with respect to profit before taxation and underlying profit before taxation. The following table sets forth a reconciliation of profit before taxation and underlying profit before taxation for the periods indicated.
|
Unaudited
6 months ended
31 Jan 2017 £'000 |
Unaudited 6 months ended 31 Jan 2016 £'000 |
Audited Year ended 31 July 2016 £'000 |
Profit before taxation Shareholder bonuses |
6,704 1,693 |
3,886 833 |
6,259 1,246 |
Underlying profit before taxation |
8,397 |
4,719 |
7,505 |
11. Taxation The interim period tax charge is accrued based on the estimated average annual effective income tax rate of 20.9% (six months ended 31 January 2016: 21.1%; year ended 31 July 2016: 21.7%). The Chancellor announced in his Budget on 16 March 2016 that the main rate of corporation tax will be reduced to 19% from 1 April 2017 and 17% from 1 April 2020 and the future current tax charges will reduce accordingly. 12. 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. The calculations of earnings per share and adjusted earnings per share are based on the following with the adjusted weighted average number of shares and profit per share reflecting the subdivision described in note 19:
|
Unaudited
6 months ended
31 Jan 2017 £'000 |
Unaudited 6 months ended 31 Jan 2016 £'000 |
Audited Year ended 31 July 2016 £'000 |
Profit for the period |
5,306 |
3,066 |
4,898 |
|
|
|
|
|
Number |
Number |
Number |
Weighted average number of shares - basic
Weighted average number of shares - adjusted |
184,267 73,706,800 |
185,044 74,017,670 |
184,658 73,863,084 |
|
|
|
|
|
pence |
pence |
pence |
Profit per share - basic and diluted Profit per share - adjusted |
2,812 7.0 |
1,662 4.2 |
2,652 6.6 |
13. Dividends
|
Unaudited
6 months ended
31 Jan 2017 £'000 |
Unaudited 6 months ended 31 Jan 2016 £'000 |
Audited Year ended 31 July 2016 £'000 |
Interim declared Final dividend paid |
- 199 |
- - |
2,250 - |
|
199 |
- |
2,250 |
|
|
|
|
Per share - (unadjusted) |
pence |
pence |
pence |
Interim dividend declared Final dividend paid |
- 108.0 |
- - |
1,221.1 - |
|
108.0 |
- |
1,221.1 |
|
|
|
|
Per share (adjusted to reflect the subdivision described in note 19) |
pence |
pence |
pence |
Interim dividend declared Final dividend paid |
- 0.27 |
- - |
3.05 - |
|
0.27 |
- |
3.05 |
The interim dividend declared in the year ended 31 July 2016 was paid in the 6 months ended 31 January 2017. An interim dividend of 1.62p per share was approved by the board on 27th April 2017 and will be paid on 28th July 2017 to shareholders on record as at 7th July 2017. 14. Property, plant and equipment
|
Unaudited
as at
31 January 2017 £'000 |
Unaudited as at 31 January 2016 £'000 |
Audited as at 31 July 2016 £'000 |
Opening net book value
Additions Disposals
Depreciation |
970 557 (2) (143) |
598 212 - (130) |
598 652 - (280) |
Closing net book value |
1,382 |
680 |
970 |
Additions to property, plant and equipment in the 6 months to 31 January 2017 substantially relate to the refurbishment of Heron Mill, the Group's new warehousing facility. 15. Trade and other receivables
|
Unaudited
as at
31 January 2017 £'000 |
Unaudited as at 31 January 2016 £'000 |
Audited as at 31 July 2016 £'000 |
Trade receivables Other receivables and prepayments |
18,994 1,582 |
11,828 886 |
14,686 1,545 |
|
20,576 |
12,714 |
16,231 |
The directors believe that the carrying value of trade and other receivables represent 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. 16. Trade and other payables
|
Unaudited
as at
31 January 2017 £'000 |
Unaudited as at 31 January 2016 £'000 |
Audited as at 31 July 2016 £'000 |
Trade payables Accruals and deferred income Employee tax and social security Other payables |
8,273 7,533 489 - |
3,909 7,790 611 6 |
7,420 5,670 1,063 2,250 |
|
16,295 |
12,316 |
16,403 |
Trade payables principally consist of amounts outstanding for trade payables and ongoing costs. They are non-interest bearing and are normally settled on 30 to 60 days terms. 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. 17. Borrowings
|
Unaudited
as at
31 January 2017 £'000 |
Unaudited as at 31 January 2016 £'000 |
Audited as at 31 July 2016 £'000 |
Current |
|
|
|
Bank overdraft and invoice discounting Import loans Bank term loan |
4,067 2,155 - |
- 2,154 750 |
3,198 3,976 - |
Less: Unamortised debt issue cost |
6,222 (28) |
2,904 (48) |
7,174 (42) |
|
6,194 |
2,856 |
7,132 |
|
|
|
|
Non-current |
|
|
|
Bank term loan |
- |
1,000 |
- |
Revolving credit facility |
4,227 |
- |
2,959 |
|
4,227 |
1,000 |
2,959 |
Less: Unamortised debt issue cost |
(64) |
- |
(75) |
|
4,163 |
1,000 |
2,884 |
|
|
|
|
Total borrowings |
10,357 |
3,856 |
10,016 |
|
|
|
|
The earliest that lenders of the above borrowings require repayment is as follows: |
|
|
|
In less than one year Between two and five years Less: Unamortised debt issue cost |
6,222 4,227 (92) |
2,904 1,000 (48) |
7,174 2,959 (117) |
|
10,357 |
3,856 |
10,016 |
The Group is funded by external bank facilities provided by HSBC. On 22 July 2016, the Group refinanced and entered into a new banking facility with HSBC. The new facilities run to July 2020 providing the on-going funding of the Group and comprise a revolving credit facility of £6.2m, an import loan facility of £4.75m and an invoice discounting facility, the limit of which was increased by £2m on 27 January 2017 to £17m. 18. Financial instruments a) Principal financial Instruments The principal financial instruments used by the Group, from which financial instrument risk arises are as follows:
|
Unaudited
as at
31 January 2017 £'000 |
Unaudited as at 31 January 2016 £'000 |
Audited as at 31 July 2016 £'000 |
Trade and other receivables |
19,349 |
11,887 |
15,159 |
Trade and other payables |
15,806 |
11,705 |
15,340 |
Borrowings |
10,357 |
3,856 |
10,016 |
Cash and cash equivalents |
119 |
788 |
136 |
b) Financial assets The Group held the following financial assets at amortised cost:
|
Unaudited
as at
31 January 2017 £'000 |
Unaudited as at 31 January 2016 £'000 |
Audited as at 31 July 2016 £'000 |
Cash and cash equivalents Trade receivables |
119 18,994 |
788 11,828 |
136 14,686 |
|
19,113 |
12,616 |
14,822 |
c) Financial liabilities The Group held the following financial liabilities, classified as other financial liabilities at amortised cost:
|
Unaudited
as at
31 January 2017 £'000 |
Unaudited as at 31 January 2016 £'000 |
Audited as at 31 July 2016 £'000 |
Trade payables Loans Other payables |
8,273 10,357 7,533 |
3,909 3,856 7,796 |
7,420 10,016 7,870 |
|
26,163 |
15,561 |
25,306 |
d) Financial assets /(liabilities) The Group held the following financial liabilities, classified as fair value through profit and loss:
|
Unaudited
as at
31 January 2017 £'000 |
Unaudited as at 31 January 2016 £'000 |
Audited as at 31 July 2016 £'000 |
Forward currency contracts Interest rate caps Interest rate swaps |
309 40 6 |
57 2 - |
417 19 (13) |
|
355 |
59 |
423 |
The following is a reconciliation of the financial instruments to the statement of financial position:
|
Unaudited
as at
31 January 2017 £'000 |
Unaudited as at 31 January 2016 £'000 |
Audited as at 31 July 2016 £'000 |
Trade receivables Forward currency contracts Interest rate caps Interest rate swaps Prepayments and other receivables not classified as financial instruments |
18,994 309 40 6 1,227 |
11,828 57 2 - 827 |
14,686 454 19 - 1,072 |
Trade and other receivables (note 15) |
20,576 |
12,714 |
16,231 |
|
Unaudited
as at
31 January 2017 £'000 |
Unaudited as at 31 January 2016 £'000 |
Audited as at 31 July 2016 £'000 |
Trade and other payables held at amortised cost Forward currency contracts Interest rate swaps Employee tax and social security |
15,806 - - 489 |
11,705 - - 611 |
15,290 37 13 1,063 |
Trade and other payables (note 16) |
16,295 |
12,316 |
16,403 |
Derivative financial instruments - Forward currency contracts The Group mitigates the exchange rate risk for certain foreign currency trade debtors and creditors by entering into forward currency contracts. At 31 January 2017, the outstanding contracts all mature within 7 months of the period end (31 January 2016: 7 months; 31 July 2016: 10 months). At 31 January 2017, the Group was committed to buy US$4,000,000, to sell €1,700,000 and to sell CA$225,000, paying and receiving respectively a fixed sterling amount (31 January 2016: to buy $6,100,000, to sell €2,250,000 and to sell CA$80,000; 31 July 2016: to buy US$10,000,000, 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 January 2017 is an asset of £309,000 (31 January 2016: £57,000 asset; 31 July 2016: £417,000 asset). Forward currency contracts are valued using level 2 inputs. The valuations are calculated using the period end exchange 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 on the changes in the future cash flows based on the change in value of the underlying derivative. 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 on 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 January 2017 is £nil, (31 January 2016: £nil, 31 July 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 on 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 January 2017 is an asset of £6,000 (31 January 2016: £nil, 31 July 2016: £6,000 liability). Interest rate swaps are valued using level 2 inputs. The valuations are based on the notional value of the swaps, the current available market borrowing rate and the swapped interest rate. The valuation is based on the current valuation of the present saving or cost of the future cash flow differences based on the difference between the swapped interest rate and the expected interest rate as per the lending agreement. 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 January 2017, the Group 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 January 2017 was an asset of £10,000 (31 January 2016: £nil, 31 July 2016: £6,000 asset). In addition, at 31 January 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 £5,065,000, reducing to £4,045,000 by 31 December 2019. The fair value of the interest rate caps at 31 January 2017 was an asset of £30,000, (31 January 2016: £2,000 asset, 31 July 2016: £13,000 asset). Interest rate caps are valued using level 2 inputs. The valuations are based on the notional value of the caps, the current available market borrowing rate and the capped interest rate. The valuation is based on the current valuation of the present saving or cost of the future cash flow differences based on the difference between the capped interest rate and the expected interest rate as per the lending agreement. 19. Events occurring after the reporting period Initial Public Offering On 6 March 2017, UP Global Sourcing Holdings plc 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. Of the 82,169,600 Ordinary shares in issue immediately prior to the above, 41,084,800 shares were issued to the new shareholders. In advance of and in connection with the admission noted above, on 28 February 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 sub-divided its 205,424 £1 Ordinary shares into 82,169,600 shares with a nominal value of 0.25p. On conclusion of the above the Company's share capital now comprises 82,169,600 Ordinary shares of 0.25p each. Interim dividend As disclosed in note 13, an interim dividend of 1.62p per share will be paid on 28th July 2017. 20. Related party transactions
|
Unaudited
6 months ended
31 Jan 2017 £'000 |
Unaudited 6 months ended 31 Jan 2016 £'000 |
Audited Year ended 31 July 2016 £'000 |
Transactions with related companies and businesses |
|
|
|
Rent paid to Ultimate Apartments pension scheme Rent paid to Heron Mill Limited |
90 121 |
70 - |
160 75 |
|
211 |
70 |
235 |
Statement of Directors' Responsibilities The directors' confirm that these consolidated condensed interim financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, as adopted by the European Union. The interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely: • an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and • material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report. The directors of UP Global Sourcing Holdings plc are listed on page 54 of the Prospectus for the Initial Public Offering, which is available on our website, www.upgs.com. For and on behalf of the board of directors
Andrew Gossage Managing Director 27th April 2017 |
Graham Screawn Finance Director 27th April 2017 |
|