Up Global Regulatory News (UPGS)

29 April 2022

UP Global Sourcing Holdings plc

"Ultimate Products" or the "Group"

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JANUARY 2022

A strong performance in a challenging environment

Ultimate Products, the owner of a number of leading homeware brands including Salter (the UK's oldest houseware brand, est.1760) and Beldray (est.1872), announces its interim results for the six months ended 31 January 2022.

Financial Highlights

· Revenue up 13.7 % (or £10.3 m) to £85.7 m (H1 FY 21: £75.4 m), driven by both underlying growth and the acquisition of Salter, the UK's oldest homewares brand

o Existing business (i.e. excluding the Salter acquisition) grew by 2.6 % (or £1.9 m) to £77.3 m (H1 FY 21: £75.4 m), despite the headwinds of COVID-19 and global shipping capacity constraints

o UK and European supermarket customers revenue up 48.5 % (£10.4 m) to £31.8 m (H1 FY 21: £21.4 m), accounting for 37.1 % of Group revenue (H1 FY 21: 28.4 %), making it the largest customer channel, overtaking discounter customers

o International revenue up 22.8 % (£5.4 m) to £29.0 m (H1 FY 21: £23.6 m), with Germany continuing to perform particularly well, up 59.0 % (£4.4 m); strong growth in Rest of World, with revenue up 174.4 % (£1.2 m) to £2.0 m (H1 FY 21 - £0.7 m)

· Underlying EBITDA1 up 28.7 % (£2.5 m) to £11.3 m (H1 FY 21: £8.8 m)

· Underlying profit before taxation2 up 28.6 % (£2.2 m) to £9.9 m (H1 FY 21: £7.7 m)

· Profit before taxation up 36.4% to £9.8m (H1 FY 21: £7.2m)

· Gross margin increased to 24.4 % (H1 FY 21: 22.8 %), driven by the benefits of the Salter acquisition, with the Salter licence royalty now no longer payable and the addition of the higher-margin scales business

· Interim dividend of 2.3 p per share, up 36.1 % (H1 FY 21: 1.69 p), payable on 29 July 2022 to shareholders on the register on 8 July 2022

Operational Highlights

· Acquired Salter, the UK's oldest housewares brand (dating back to 1760), in July 2021; now fully integrated, performing well, and expected to significantly enhance earnings in FY 22

· Improvement in availability and reliability of shipping capacity during CY 22, with normalisation expected to continue

· Petra, the German heritage brand acquired in February 2021, due to be launched with one of Germany's largest hypermarket groups in late 2022 or early 2023, with a substantial initial order received

· Colleagues welcomed into newly refurbished workspace in Manor Mill during September 2021 following £1.6m of investment

· Planned investment in robotics across the entire business to automate hundreds of tasks, with the intention of enhancing operating margins and delivering an even better customer experience

Note:

1. Calculated after adding back share-based payment charges and other non-underlying items as referred to in Note 10.

2. Calculated after adding back share-based payment charges and other non-underlying items as referred to in Note 12.

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

"We are very pleased with these results, which once again demonstrate Ultimate Products' resilience and adaptability when faced with significant headwinds.

The Salter brand has been integrated seamlessly into our business and is performing well. In particular, we are seeing a continuing trend towards consumers buying products that are less energy intensive, such as air fryers as opposed to oil fryers, and mechanical scales rather than battery powered ones.

Looking forward, we expect shipping to continue to normalise as availability and capacity improve. While the increased cost of living inevitably represents a challenging backdrop for any consumer-focused company, we believe that our relentless focus on high quality, value-led products means that we are well placed to successfully navigate our way through the current market conditions. We therefore remain confident in the future prospects for Ultimate Products."

For more information, please contact:

Ultimate Products +44 (0) 161 627 1400

Simon Showman, CEO

Andrew Gossage, Managing Director

Graham Screawn, Finance Director

​

Shore Capital +44 (0) 20 7408 4090

Mark Percy

Malachy McEntyre

James O'Neill

Powerscourt +44 (0) 207 250 1446

Rob Greening

Sam Austrums

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014 WHICH IS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018.

Notes to Editors

Ultimate Products is the owner of a number of leading homeware brands including Salter (the UK's oldest houseware brand, established in 1760) and Beldray (a laundry, floor care, heating and cooling brand that was established in 1872). According to its market research, nearly 80% of UK households own at least one of the Group's products.

Ultimate Products sells to over 300 retailers across 38 countries, and specialises in five product categories: Small Domestic Appliances; Housewares; Laundry; Audio; and Heating and Cooling. Other brands include Progress (cookware and bakeware), Kleeneze (laundry and floorcare), Petra (small domestic appliances) and Intempo (audio).

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 employs over 350 staff, a significant number of whom have joined via the Group's graduate development scheme, and is headquartered in Oldham, Greater Manchester, where it has design, sales, marketing, buying, quality assurance, support functions and warehouse facilities across two sites. Manor Mill, the Group's head office, includes a spectacular 20,000 sq ft showroom that showcases each of its brands. In addition, the Group has an office and showroom in Guangzhou, China and in Cologne, Germany.

Please note that Ultimate Products is not the owner of Russell Hobbs. The company currently has licence agreements in place granting it an exclusive licence to use the "Russell Hobbs" trademark for cookware (NB this does not include Russell Hobbs electrical appliances).

For further information, please visit www.upgs.com

INTERIM STATEMENT

We are pleased to present the Interim Report for the six months ended 31 January 2022, a period when, against the challenging background of the COVID-19 pandemic and the global shipping crisis, the business once again demonstrated its resilience and adaptability.

STRATEGY

Our purpose is to provide beautiful and sustainable products for every home. We do this by designing, sourcing and supplying quality homeware products through our innovative, sustainable and customer-orientated capabilities.

The Group's strategy is to develop its portfolio of brands for mass-market, value-led consumer goods for the home focused on the following channels:-

1. International retailers;

2. Supermarkets;

3. Online platforms; and

4. Discounters

OPERATIONAL REVIEW

Integration of the Salter Acquisition

Salter is the UK's oldest housewares brand, dating back to 1760 when Richard Salter began making the first spring scales in the UK, from the village of Bilston in Staffordshire. Salter has long been the market leader for bathroom and kitchen scales in the UK, with kitchen electrical and cookware sold under the brand by the Group under licence since 2011.

The Salter brand was acquired by the Group in July 2021, right at the end of the FY 21 financial year with the integration largely taking place during the six months ended 31 January 2022 ('H1 FY 22'). This integration took place quickly and efficiently with the acquisition performing well, in line with plan and is expected to significantly enhance earnings in FY 22.

The acquisition of Salter is a significant and exciting moment in the history of Ultimate Products, substantially strengthening our brand portfolio with full ownership now enabling us to drive growth of this brand in a way that we could not have achieved when it was licensed. International represents a particular opportunity given its substantial British heritage credentials.

Shipping Crisis

During calendar year 2021 ('CY 21') and calendar year 2022 ('CY 22'), global shipping capacity was severely constrained because of worldwide port congestion. The drop in capacity caused a substantial increase in the cost of shipping, leading to downward pressure on gross margins, albeit we were able to offset this by actions elsewhere (see below for more commentary).

While shipping remains a challenge for the business, there has been an improvement in availability and reliability during CY 22. We believe that the Group has dealt with the shipping crisis and indeed the wider supply chain crisis much better than its peers. As the situation continues to normalise, we see this providing upside to the business in the medium-term through the reversing of the downward pressure on margins that it represented and the additional revenue opportunities that will arise from improved stock availability.

Petra Brand Update

During CY 21, the Group purchased Petra, the German kitchen electrical brand. Founded in Bavaria in 1968, Petra originally specialised in coffee machines before expanding its range into other kitchen electrical products. Market research shows that it remains well known to German consumers, despite the limited brand investment from its previous owner.

Since the acquisition, Petra has been refreshed with new branding, packaging and a range of kitchen electrical appliances. We are delighted that the brand will be launched with one of Germany's largest hypermarket groups in late 2022 or early 2023, with a substantial initial order received for products including waffle makers, air fryers and multi-meal makers. This exciting development underlines our belief that Petra, with its German heritage and reputation for quality and design, has the potential to be a brand of the scale of Salter or Beldray.

Head Office Investment

Since FY 20, the Group has invested £1.6 m in its Manor Mill head office, to provide additional capacity for future growth and a best-in-class working environment. Our colleagues were welcomed into this new workspace during September 2021. This investment is an important step in the development of our talent, through collaborative working and the interchange of ideas.

Robotics Process Automation

As both a B2C and B2B supplier, our position in the supply chain brings a complexity that must be carefully managed to continue to provide the best service to our customers. We see this complexity as an opportunity as it represents a significant barrier to entry for our competition. We therefore continue to concentrate on developing our systems and processes with a relentless focus on driving productivity through use of automation. The next step in this journey is the investment in robotics across the entire business to automate hundreds of tasks, which we have already identified. This investment has taken the form of modest additional heads into our process team, rather than significant extra capital expenditure. Through this, we expect to see increased productivity and improved accuracy, resulting in enhanced operating margins and an even better customer experience.

TRADING FOR THE PERIOD

Driven by the acquisition of Salter, revenue increased for H1 FY 22 by 13.7 % (£10.3 m) to £85.7 m (H1 FY 21 - £75.4 m). Organically, the existing business (excluding the Salter acquisition), grew by 2.6 % (£1.9 m) to £77.3 m (H1 FY 21 - £75.4 m), despite the headwinds of COVID-19 and the shipping crisis.

International

International revenue was ahead of last year by 22.8 % (£5.4 m) to £29.0 m (H1 FY 21 - £23.6 m), with Germany continuing to perform particularly well, up 59.0 % (£4.4 m). From a low base, we are also seeing strong growth in Rest of World since we appointed our Australian distributor, with revenue up 174.4 % (£1.2 m) to £2.0 m (H1 FY 21 - £0.7 m). The prospects for our international business, which is mainly focused on Europe, remain very encouraging, with Germany representing a particularly exciting opportunity.

Supermarkets

Our brands continued to resonate very well with supermarket customers in both the UK, and increasingly, in Europe which led to further robust growth in H1 FY 22, with revenue up 48.5 % (£10.4 m) to £31.8 m (H1 FY 21 - £21.4 m). The existing business, grew by 35.5 % (£7.6 m) to £29.0 m (H1 FY 21 - £21.4 m). The key contributors to growth in this segment continue to be the Salter, Beldray and Russell Hobbs brands. The supermarket segment accounted for 37.1 % of revenue in the period (H1 FY 21 - 28.4 %) and was the largest individual segment, overtaking discount. This is the continuation of the strong long-term growth and increased revenue share from this channel being driven by improved consumer awareness and perception of our brands, allied with excellent execution and service to the retailer.

Online Platforms

Online grew by 8.8 % (£1.0 m) in the period to £12.8 m (H1 FY 21 - £11.8 m) although, stripping out the Salter acquisition, our existing online business actually shrank by 11.9 % (£1.4 m) to £10.4 m (H1 FY 21 - £11.8 m). As previously highlighted in our FY 21 results, online was adversely affected in H1 FY 22 by the tighter stock availability caused by the disruption to shipping. We see this as a temporary set-back in the rapid and long-standing growth of our online business, with core growth expected to return as the shipping disruption eases and stock availability improves. We continue to target 30 % of overall revenue from online over the medium-term.

Discounters

Sales to discounters fell by 11.5 % (£3.3 m) to £25.1 m (H1 FY 21 - £28.4 m) with the core business falling by 12.6 % (£3.6 m) to £24.8 m (H1 FY 21 - £28.4 m), with UK retailers that remained open during lockdowns, and therefore saw a pandemic-related spike in demand, now moderating their ordering as demand normalises. In addition, account management of certain European discounters, who often prefer to trade face-to-face rather than via video conference, was made more difficult because of the travel restrictions during CY 21. Looking through fluctuations that have been caused by the pandemic, discount remains, we believe, a growth segment within overall retail and we will continue to target it as one of our key growth channels.

Operating Margins

Gross margin increased to 24.4 % (H1 FY 21 - 22.8 %) largely driven by the benefits of the Salter acquisition, with the Salter licence royalty now no longer payable and the addition of the higher-margin scales business. Despite substantially increased shipping costs, core gross margins were steady compared to H1 FY 21, representing a significant recovery on the H2 FY 21 gross margin of 21.4 %. While improved foreign exchange rates have certainly helped in this margin recovery, the actions of the commercial teams including increasing prices, changing the product mix and developing over 1,000 new products per year during CY 20 and CY 21, have also had a significant effect.

Underlying1 administrative expenses increased by 15.5 % (£1.4 m) to £10.6 m (H1 FY 21 - £9.2 m), remaining broadly stable at 12.4 % of revenue (H1 FY 21 - 12.2 %).

The combination of higher revenues, higher gross margin and overheads being broadly stable relative to revenue led to a 28.7 % (£2.5 m) increase in underlying EBITDA1 to £11.3 m (H1 FY 21 - £8.8 m), with underlying EBITDA1 margin improving 1.5 % to 13.1 % (H1 FY 21 - 11.6 %). Underlying profit before taxation2 increased by 28.6 % (£2.2 m) to £9.9 m (H1 FY 21 - £7.7 m).

BALANCE SHEET AND CASH FLOW

Net working capital at 31 January 2022 was £36.3 m, up from £16.9 m at 31 January 2021 - an increase of 115.0 %. Net cash from operations in the period was an outflow of £6.5 m (H1 FY 21 - £6.8 m inflow), as working capital increased over H1 FY 22 with trade receivables up £11.2 m and inventories up £5.4 m over the period.

Increased trade receivables are attributable to higher overall revenues, the later timing of these revenues with December 2021 being a particularly strong month compared to normal, and higher debtor days due to the increased mix of supermarket business, where payment terms are typically longer.

Higher inventories are attributable to the necessary rebuilding of the Group's stock position after being artificially depressed during FY 20 and FY 21 by the accelerated growth of online during lockdown, the strong demand for sales from stock as non-essential retailers reopened and reduced shipping capacity as a result of the CY 21 shipping crisis.

Net bank debt at 31 January 2022 was £30.3 m, up from £18.9 m at 31 July 2021 and £1.5 m at 31 January 2021. The movement since 31 July 2021 is largely explained by the working capital movements referred to above with the movement since 31 January 2021 further explained by the Salter acquisition, with £31.1 m of consideration paid during that period less the net proceeds of £14.4 m from the equity placing that part funded that acquisition.

Shareholders' equity increased to £38.2 m at 31 January 2022, up from £16.0 m at 31 January 2021, an increase of £22.2 m. The main movements in shareholders' equity were:

- an increase of £14.4 m in the share capital and share premium arising from the equity placing during FY 21 to part fund the Salter acquisition;

- an increase in retained earnings of £5.5 m; and

- a £2.0 m movement in the hedging reserve as GBP strengthened against the USD, leading to gains within our forward USD contracts.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE ('ESG')

The Group endeavours to give back to the communities in which it operates, with our activities during the pandemic in support of food banks, the NHS, domestic abuse survivors and young carers being recent examples of this. We also seek to be a responsible and considerate employer through measures including regular colleague engagement, ongoing training and mentoring, support for colleague-led measures, such as the Mental Health Committee and the £1.6 m investment during CY 21 in the new much-improved head office workspace. In addition, we fully comply with the UK Corporate Governance Code and have introduced an effective internal ESG governance structure with the establishment of an ESG Committee. More information on our ESG approach can be found in our FY 21 Annual Report.

We are currently working on our plans for Net Zero and will be setting out our targets and deadlines for this, including Scope 1 and Scope 2 emission targets and solutions to capture scope 3 data, in our FY 22 Annual Report later in CY 22.

DIVIDEND

In line with the Group's dividend policy of 50 % of adjusted profits after tax, the Board has declared an interim dividend of 2.3 p per share, up from 1.69 p last year, an increase of 36.1 %. The interim dividend is payable on 29 July 2022 to shareholders on the register on 8 July 2022, with an ex-dividend date of 7 July 2022.

CURRENT TRADING AND OUTLOOK

The Board anticipates a full year performance in line with current market expectations.

The Group has so far been unimpacted by the recent lockdowns in China, but continues to monitor the situation closely. The Board is confident in the Group's ability to navigate its way through any further lockdowns in the region, having done so successfully at the beginning of the pandemic.

More broadly, the current cost of living crisis, partly arising from the war in Ukraine, together with increased personal taxation and reduced benefits is leading to a general fall in disposable income. The Board believes that the Group is well placed to respond to this given its relentless focus on delivering value to the consumer. We intend to carry on winning market share and through this continue to deliver growth despite the challenging market backdrop.

Note:

3. Calculated after adding back share-based payment charges and other non-underlying items as referred to in Note 10.

4. Calculated after adding back share-based payment charges and other non-underlying items as referred to in Note 12.

Consolidated Condensed Income Statement 

Consolidated Condensed Statement of Comprehensive Income

Consolidated Condensed Statement of Financial Position

Consolidated Condensed Statement of Changes in Equity

Consolidated Condensed Cash Flow Statement