StockMarketWire.com - Ultimate Products warned revenue growth for FY18 is unlikely due to lower consumer confidence.

sales increased by 39.1% to £110m (FY16: £79m), and continued to be driven by three main factors.

These were growth in sales to discounters in the UK and in Europe (up 64.6% to £63.8m); increased sales from the main UK supermarkets (up 95% to £10.3m); and the emergence of online platforms as a new revenue for the business (up 63.6% to £4.6m).

The Board anticipates reporting underlying EBITDA and underlying PBT performances that are above market expectations, mainly driven by higher revenues.

Net debt is anticipated to be lower than previously expected, due mainly to a one-off corporation tax credit of £2.1m received in FY17 relating to the IPO in March, as well as the current customer mix.

OPERATIONAL OVERVIEw

The key recent operational highlight has been the positive reaction that Ultimate Products is experiencing from German retailers to its product proposition.

The Group has already opened a number of major retail accounts there and planning is now well advanced to open a showroom in Germany in early 2018, along with the expansion of the local sales force.

Germany is Europe's largest retail market and, given the Group's promising early progress there and the positive consumer data that is emerging from the region, the Board sees significant potential for long-term growth in this market.

Elsewhere in its international operations, Ultimate Products has received a request from a major European customer to put in place new landed supply arrangements.

As a result, the group has seen the majority of the current Free on Board business with that retailer transferring to these new arrangements.

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 and further cementing the Group's position as a key supplier to it.

However, it should be noted that landed revenues are recorded as sales later than for FOB which in this case will result in approximately £4m - £5m of revenue now being recognised in FY19 rather than FY18.

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.

Finally, the refurbishment of Ultimate Products' new 240,000 square foot 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.

OUTLOOK

The overall trading environment for general merchandise has become tougher, with wage inflation running behind general inflation. Consumers' discretionary spend is under pressure and confidence is therefore lower than it has been for some time, which is inevitably being reflected in purchasing behaviour.

For retailers, this has also coincided with cost price increases in the wake of last year's sterling devaluation. As a result, retailers are generally exercising caution with regard to their non-food buying for Autumn/Winter 2017.

This is manifesting itself in a reluctance to commit to purchasing too far forward, with retailers instead placing orders later or buying from stock.

For Ultimate Products, the fact that this retailer caution is occurring in the seasonally more important first half of the year (in FY17 61.9% of the Group's revenues were generated during this period) represents a significant short-term headwind for the group.

In addition, as outlined above, approximately £4m - £5m of FY18's revenue will now be recognised in FY19 as a result of the move from FOB to landed arrangements with a key European customer.

However, the Group is experienced in managing such dynamics, and its proven strategy of developing and building a portfolio of brands that are focused on mass market, value-led, consumer goods for the home means that the Board remains confident of continuing to deliver growth in the longer term.

The Group intends to announce its full year financial results on 7 November 2017.




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