Up Global Regulatory News (UPGS)

6 November 2018

UP Global Sourcing Holdings plc

"Ultimate Products" or the "Group"

FULL YEAR RESULTS FOR THE YEAR ENDED 31 JULY 2018

Performance impacted by a difficult trading environment and a one-off impact of revenue deferral from a major European customer

FY 19 order book ahead of this time last year, with current trading in line with expectations

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 2018.

Financial Highlights

· Total revenue decreased 20.4 % to £87.6 m (FY 17: £110.0 m), driven by a difficult trading environment and a one-off impact of revenue deferral from a major European customer

· Online revenue increased 52.3 % to £7.0 m (FY 17: £4.6 m)

· Gross Margin stable at 22.4 % (FY 17: 22.3 %)

· Underlying EBITDA* decreased 43.8% to £6.5 m (FY 17: £11.5 m)

· Underlying Profit Before Tax* decreased 47.3 % to £5.6 m (FY 17: £10.7 m)

· Profit Before Tax decreased 27 % to £5.4 m (FY 17: £7.4 m)

· Net Debt amounted to £12.8 m (FY 17: £6.0 m), with a net debt/underlying EBITDA ratio* of 2.0x

· Underlying Earnings Per Share down 50.5 % to 5.4 p (FY 17: 10.9 p)

· Full year dividend of 2.72 p per share (FY 17: 5.115 p)

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

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

Operational Highlights

· New landed supply arrangements with a major European retailer further support the Group's position as one of its key suppliers and represent an exciting opportunity to grow alongside one of the continent's fastest expanding retailers

· Good progress in Germany, with a new showroom opened in April 2018 and a number of major retail accounts already open; orders taken to date ahead of management's expectations

· Purchased the Kleeneze brand out of administration in June 2018, and now relaunching it with a range of laundry and floorcare products for sale into retail and via online channels

· Newly refurbished 240,000 sq ft warehouse at Heron Mill in Oldham already improving operational efficiencies, and provides further capacity for future growth

· A further 47 graduates recruited onto the graduate scheme across 18 different entry-level roles and within nine different key departments

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

"This has been a challenging year for Ultimate Products and indeed for the wider general merchandise sector in the UK. Our results reflect a difficult trading environment, but I am proud of the adaptability and resilience that we have shown in navigating our way through it. The performance of our online business and the progress that we are making in Germany have been particular highlights. These are areas for which we continue to see substantial potential and on which we are therefore focusing an increasing amount of time and investment.

Current trading is in line with expectations, and we are pleased to report that our order book for FY19 is ahead of this time last year. While the UK market looks set to remain challenging for the foreseeable future, we continue to look to the longer-term future with confidence given the viability of our strategy, our experience of managing difficult trading conditions, and our strong balance sheet."

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 36 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.

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 a newly established showroom in Cologne, Germany. In total, Ultimate Products now employs over 240 staff.

For further information, please visit www.upgs.com

BUSINESS REVIEW

Strategy

The Group's strategy is to develop and maintain a portfolio of brands focused on the growing market of value-led consumer goods for the home.

Its strategy has four key pillars:

1. growing our business with discount retailers;

2. increasing our penetration in UK supermarkets;

3. expansion via online channels; and

4. international growth.

Performance

Group revenue declined by 20.4 % to £87.6 m (FY 17: £110.0 m), which was mainly driven by a difficult UK trading environment for general merchandise and a one-off impact of revenue deferral from a major European customer as they requested a change in supply arrangements from Free on Board ("FOB") to landed. As landed revenues are recorded as sales later than for FOB, this has led to revenue being deferred and has had a one off impact on FY 18.

Revenue from online channels grew in the year by 52.3 % to £7.0 m, representing 7.9 % of total revenues in FY 18 (FY17: 4.2 %). Whilst 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.

As a result of the lower revenues, Underlying EBITDA was down 43.8 % to £6.5 m and Underlying Profit Before Tax was down 47.3 % to £5.6 m, with Profit Before Tax 27.0 % down to £5.4 m. Gross Margin was steady at 22.4 % (FY 17: 22.3 %).

The tougher trading environment for general merchandise in the UK was mainly caused by wage deflation, which in turn led to pressure on consumers' discretionary spend. As a consequence, non-food sales have declined as consumers prioritised food purchases. The decline in non-food has been particularly apparent in physical stores with the continued transition to online sales.

For retailers, this coincided with a rise in imported cost price caused primarily by a weak Sterling, along with consequential retail price inflation which reduced order volumes. This, along with retailers' desire to minimise increases in retail prices, created an even more competitive trading environment.

Despite the challenges set out above, Gross Margin has remained stable at 22.4 % (FY 17: 22.3 %). This is mainly due to changes in customer mix, ongoing product innovation, the growth in higher margin online business and the Group continuing to effectively manage weaker exchange rates.

Operational Overview

The new landed supply arrangements with a major European retailer, whilst a one-off hit to revenue in FY 18, has further supported the Group's position as one of its key suppliers and represents an exciting opportunity to grow alongside one of the continent's fastest expanding retailers.

We made good progress in Germany where the Group opened its new showroom in April 2018 and where we have already opened a number of major retail accounts, with orders taken to date ahead of management's expectations. We see our base in Cologne as a launch pad not just for Germany, but over time for other territories in Central and Western Europe.

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

In June 2018, the Group purchased the Kleeneze brand out of administration. Kleeneze is a leading cleaning, laundry and homewares brand with a history that goes back almost a century. We are currently in the process of relaunching the brand with a range of laundry and floorcare products for sale into retail and via online channels, complementing the existing offer under our Beldray brand. We are delighted to have added such a well-established and highly-regarded brand to our existing portfolio of British brands. It has an outstanding heritage with a long-standing reputation for value and quality.

The refurbishment of our new 240,000 sq ft warehouse at Heron Mill in Oldham was completed at the end of FY 17 when it became the Group's main distribution centre. During FY 18 Heron Mill delivered improved operational efficiencies, as well as additional capacity to manage the future growth of the business. Heron Mill also includes a dedicated single-pick facility, which has been crucial for underpinning the strong growth of the online business in FY 18 and for expected growth in future years.

Dividends

The Board has established a dividend policy of distributing 50 % of the Group's adjusted profit after tax. A final dividend is recommended of 1.89 p per share to give a total dividend of 2.72 p per share for the full year.

The final dividend is payable on 30 January 2019 to shareholders on the register on 4 January 2019.

Graduate Scheme

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 financial year it recruited a further 47 graduates onto the scheme across 18 different entry-level roles and within 9 different key departments. The scheme continues to be the main driver for our recruitment strategies and next year will see partnerships forming with local universities to promote the scheme further.

Outlook

Whilst trading was very difficult in FY 18, the Group has continued to focus on its four-pillar strategy and on its customer relationships, colleagues, systems and market-leading supply chain. As a result, the Group is now seeing some customers who reduced business in FY 18 - in order to reduce costs and pursue margin - beginning to increase order volumes again with Ultimate Products because of the better service, quality and overall value that it can provide. In addition, the Group's growing focus on its international and online businesses is also delivering some promising results.

As a result, the Group's order book for FY 19 is ahead of this time last year, with international accounting for a larger share. More broadly, current trading is in line with expectations and, while the conditions in the UK look set to remain challenging for the foreseeable future, the positive momentum within the business means that the Group continues to look to the future with confidence.

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 tough UK trading environment for general merchandise and the one-off deferral impact of a major European customer changing supply arrangements from FOB to landed, resulted in a significant decline in revenue for FY 18, reducing by 20.4 % to £87.6 m.

With our largest strategic pillar, discount, impacted by both of the above factors, the decline in revenue was more pronounced at 29.1 %. However, some positive developments arose from the strategy to increase penetration in UK supermarkets, such that the share of sales for this strategic pillar increased 1.6 % to 11.0 %, albeit still down, in absolute terms, against FY 17 by 6.5 %. A more positive step forward was achieved online, where sales grew 52.3 % to £7.0 m; still a relatively small share of sales but one that we expect to continue to grow.

Although international sales declined at a rate similar to the total in FY 18, further analysis indicates that the strategy is beginning to deliver and provide a more diverse revenue base. The January 2018 half-year results reported international share of sales falling from 26.5 % to 19.8 %, significantly impacted by the deferral noted above. However, the second-half share of sales increased to 36.9 %, with growth of 16.4 %, substantially from the German market.

Brands

The Group has continued its strategy to concentrate on offering branded, mass-market and value-led consumer goods and the summary of the Premier Brands, representing 61.5 % of total revenue (FY 17: 60.0 %), is set out below:

In general, the decline in revenue was felt across the brands with the exception of Progress, our Lancastrian heritage brand acquired in July 2015. Having developed the product range and packaging primarily across the cookware and small kitchen electrical product categories, Progress is now gaining traction with listings in the UK and Europe and delivered growth of £2.6 m.

Kleeneze, purchased in June 2018, is a new addition to the brand portfolio with a broad product range being developed for relaunch in Spring/Summer 2019.

Margins

In spite of cost and currency pressures, gross margin remained broadly stable at 22.4 %, 10 bps higher than 2017. Changing customer mix was a key factor to margin development, as this, including the growth of higher margin online sales, mitigated increased costs. Additionally, albeit overlapping with customer mix (online sales are landed), FOB sales, which typically generate a lower gross margin but require lower overheads to serve, reduced from 67.6 % to 52.2 %.

Although revenue declined significantly, overheads, commented on further below, were broadly level, with last year resulting in a fall in the Group's underlying EBITDA margin by 310 bps to 7.4 %.

Overheads

Administration expenses, excluding exceptional items and share-based payment charges, increased by £0.2 m (1.5 %) to £13.6 m in FY 18. Our international growth strategy resulted in increased costs in the year of £0.2 m comprising of increased investment at trade exhibitions in Germany, along with the rental costs of the new showroom in Cologne.

Within overheads, wages and salary costs continue to be the most significant item, accounting for over 60 %. With increased operating efficiency from the investment in the Heron Mill warehouse facility and much reduced performance-related bonuses, wages and salary costs were level with the prior year in spite of increased costs from wage inflation pressures and a full year of a plc board (5 months cost in FY 17). Over the course of FY 18, the average number of employees increased by 10 (or 4.5 %), 8 of which related to structural changes both in the UK warehouse and in the Far East, where new positions had been created to replace third-party costs.

Exceptional Items and Share-based Payment Charges

After incurring exceptional items of £3.1 m in FY 17 (IPO costs of £1.1 m and the legacy shareholder bonuses of £2.0 m that ceased to accrue after 31 July 2017) there were no such costs in FY 18. Non-cash, share-based payment expense, relating to the Management Incentive Plan, introduced immediately prior to the IPO, amounted to £0.2 m (FY 17: £0.1 m). These costs have been shown separately in the Income Statement to better reflect the performance of the underlying business.

Interest

At £0.4 m, finance costs were 17.4 % lower than FY 17 reflecting the lower sales-related working capital levels and, therefore, lower bank debt was seen over a large proportion of the year. Although, as referred to below in the comments on cash flow, and as expected by the Board, working capital and bank debt drawn on the trade facilities increased at the end of the year.

Taxation

The effective underlying tax rate has reduced from 21.1 % to 20.3 % for FY 18 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.

Balance Sheet and Cash Flow

The Group's balance sheet strengthened significantly over the year, with net assets increasing by £2.0 m to £8.7 m. The key points to note regarding the balance sheet can be summarised as:

Overall, working capital increased by £8.3 m in FY 18 with the main components, as referred to above being:

The increase in working capital is the driver of the £2.1 m net cash outflow from operations, flowing through to the £3.2m free cash outflow as set out below.

With dividends paid of £3.6 m (FY 17 final - £2.9 m, FY 18 interim - £0.7 m), net bank debt increased from £6.0 m to £12.8 m, with net senior debt reducing to £1.8 m and the trade facilities comfortably supporting the increased debt thereunder of £11.0 m.

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 23 to the Financial Statements. 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. Headroom at 31 July 2018 was £9.1 m (31 July 2017 - £6.2 m). Conscious of the increased mix of landed sales and associated stock requirement during the year, the Group increased the capacity of its import loan trade facility, funding stock purchases, by £2.2 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 Officer

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 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 England and Wales. The address of its registered office is UP Global Sourcing Holdings plc, Manor Mill, Victoria Street, Chadderton, Oldham OL9 0DD.

This consolidated financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The comparative figures for the financial year ended 31 July 2017 are an extract of the Company's statutory accounts for the year ended 31 July 2017, prepared in accordance with International Financial Reporting Standards (IFRS), approved by the Board of Directors on 6 November 2017 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.

The statutory accounts for the year ended 31 July 2018 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 2018, which 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.

The consolidated financial information and the Group's consolidated Financial Statements are presented in Sterling, generally rounded to the nearest thousand.

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 for at least twelve months from the date of approval of the Group's Financial Statements. The Group therefore continues to adopt the going concern basis in preparing its consolidated and Company Financial Statements.

3. Accounting Policies

With the exception of the new accounting policy for intangible assets noted below, the accounting policies applied are consistent with those of the annual Financial Statements for the year ended 31 July 2017.

Intangible Assets

Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is recognised so as to write off the cost of assets less their residual values over their useful lives on the following bases:

Trademarks - 10 years

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 Income Statement 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 Annual Report for the year ended 31 July 2017, as they do not include all financial risk management information and disclosures contained within the Annual Report. 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:

Included in revenue are sales to customers who individually account for over 10 % of the Group's total sales and in total this amounted to approximately £32,453,000 being 2 customers, (2017 - £50,604,000, being 2 customers).

7. Exceptional Items and 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 previous 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 the Management Incentive Plan ('MIP') 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

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 £nil (2017 - £401,000).

A tax credit of £nil (2017 - £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 16 March 2016, including a reduction in the main rate of corporation tax to 17 % from 1 April 2020. Therefore, the deferred tax asset has been calculated having regard to the corporation tax rate of 17 %.

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 0.25 p shares.

Diluted earnings per share amounts are calculated by dividing the profit 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 2018 of 0.83 p per share was approved by the board on 27 April 2018 and was paid on 27 July 2018 to shareholders on record as at 6 July 2018.

The Directors propose a final dividend of 1.89 p per share in respect of the year ended 31 July 2018. The dividend is due to be paid on 30 January 2019 to shareholders on record at 4 January 2019.

12. Intangible Assets

Intangible asset additions in the year relate to the acquisition of the Kleeneze trademark.

The amortisation charge represents the spreading of the cost over the asset's expected useful life.

13. Property, Plant and Equipment

Included in property, plant and equipment are assets held outside the UK with a carrying amount at 31 July 2018 of £302,000 (2017 - £89,000, 2016 - £97,000).

The depreciation charge for the year has been included in administration expenses in the Income Statement.

14. Trade and 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 a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date.

15. Trade and 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, US Dollars and Euros. 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.

16. Borrowings

The earliest that the lenders of the above borrowings require repayment is as follows:

The Group is funded by external banking facilities provided by HSBC, which run to June 2020 and provide the ongoing funding of the Group. The facilities comprise a revolving credit facility of £6.2 m, an invoice discounting facility of £17 m and an import loan facility, which was increased by £2.2 m to £8.7 m on 11 July 2018. The import loan facility is ancillary to the revolving credit facility, is repayable on demand and subject to annual review.

Reconciliation of liabilities arising from financing activities

17. 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:

Derivative Financial Instruments

The Group held the following derivative financial instruments as 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 2018, the outstanding contracts all mature within 12 months of the period end (2017 - 12 months). At 31 July 2018, the Group was committed to buy US$28,750,000 (2017 - US$11,650,000), to sell US$nil (2017 - US$3,500,000), to sell €12,400,000 (2017 - €7,050,000) and to sell CA$100,000 (2017 - CA$nil), paying and receiving respectively fixed Sterling amounts. The forward currency contracts are measured at fair value using the relevant exchange rates for GBP:USD, GBP:EUR and GBP:CAD. The fair value of the contracts at 31 July 2018 is an asset of £935,000 (2017 - £200,000 liability).

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 an asset of £838,000 (2017 - £197,000 liability), 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 2019.

Derivative Financial Instruments - Interest Rate Swaps and Interest Rate Caps

The Group has entered into interest rate swaps and interest rate caps to protect the exposure to interest rate movements on the various elements of the Group's banking facility. As at 31 July 2018, protection was in place over an aggregate principal of £11,600,000 (2017 - £12,095,000).

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

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

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 £8,000 (2017 - £4,000 asset), 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 December 2019 and 31 December 2021. The cash flows in respect of the swaps occur monthly over the effective lifetime of the swaps.

The fair value of the interest rate caps was an asset of £42,000 (2017 - £13,000 asset).

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

18. Related Party Transactions

Transactions and Balances with Related Companies and Businesses

There were no outstanding balances with related companies or businesses at 31 July 2018 or 31 July 2017.

19. Post Balance Sheet Events

Employee Benefit Trust

On 2 August 2018, the Company established the UP Global Sourcing Employee Benefit Trust ('EBT'). The EBT was established to hold shares for the benefit of the Company's employees and to satisfy the vesting of awards made under the Company's Performance Share Plan ('PSP'). Under the conditions in force as at the date of this report, the Company has control over the EBT and therefore the EBT will be included in future consolidated financial statements of the Group, whilst such conditions prevail.

On 14 August 2018 the EBT acquired 2,011,000 shares for a total cost of £749,308, including the associated acquisition costs. Following the above transaction, the EBT holds 2,011,000 shares, representing 2.45 % of the Company's issued share capital with voting rights.

Final Dividend Proposed

As disclosed in note 11 above, the Directors have proposed a final dividend of 1.89 p per share in respect of the year ended 31 July 2018. The dividend is due to be paid on 30 January 2019 to shareholders on record at 4 January 2019.

ANNUAL GENERAL MEETING

The Company's Annual General Meeting will be held at 2.00pm on 14 December 2018 at the Company's registered office, Manor Mill, Victoria Street, Oldham OL9 0DD.

GLOSSARY

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

Reconciliation of Underlying Performance Measures