LPA Group plc

Final Results for the year ended 30 September 2024

LPA Group plc ("LPA", the "Company" or the "Group"), the innovation-led engineering specialist in electronic and electro-mechanical components and systems, is pleased to announce its Final Results for the year ended 30 September 2024.

Final Results key points:

·    Order book reduced  to £25.3m (2023: £31.6m)

·    Order entry at £17.3m (2023: £25.5m)

·    Revenue at £23.5m (2023: £21.7m)

·    Underlying operating loss * of £0.2m (2023: £0.1m)

·    Loss  before tax of £0.6m (2023: profit £0.8m)

·    Basic loss per share of 2.46p (2023: earnings per share of 6.52p)

·    No proposed dividend  (2023: 1p)

·    Net debt at year end of £2.1m (2023: £1.2m)

^* Operating Loss before Share Based Payments, Exceptional Items and in FY 2023 Negative Goodwill.

The year to 30 September 2024, included the following highlights and operational developments.

·    Successful acquisition and integration of Red Box International range of ground power equipment, giving access to new markets including general aviation and B2C sales.

·    Highly successful implementation of new ERP system into both manufacturing sites.

·    Increased revenue from Aviation and Defence to 25% (previously 20% in 2023 and 13% in 2022).

·    Refocussed global market expansion with the first international office set up for the DACH market and reassessing the distributor partner network for new and existing products around the world.

·    And, post year-end, new CEO - started 2 January 2025.

Robert B Horvath - Chairman commented:

"During  the year we started restructuring and resizing the business including making management changes that will make us more agile moving forward. Adjusted profit after tax for FY 2024 is in line with market expectations as confirmed in the Company's year-end trading update announcement of 22 November 2024. We reported an underlying loss before tax of £0.2m, primarily as a result of the slippage of three major contracts which as previously announced will continue to effect the business through 2025. The planned growth thereafter is encouraging.

We have bought three major product lines in the last two years, the most recent announced this week.  Our reasoning remains to get more balance into our factory workload, to increase added value and ultimately improve margin. These will also help to rebalance volumes of activity which have most recently been more skewed towards the second half of the year. Whilst we expect to deliver a much stronger operating performance in the second half of the year compared to the first half in 2025, we should see more even weighting in the years thereafter.

Our order entry remains robust though it will naturally fluctuate as we develop product lines and rebalance away from a high dependency on large projects. Large projects are still targets for us and we secured some good order wins post the year-end. The deep tube programme is a good example where we are supporting the new investment in rolling stock for TfL's Piccadilly Line and we anticipate the opportunity to support other deep tube lines as we move through to 2030. We have invested in our sales teams especially for our new product lines and we will continue to do this with our new power supply acquisition.

On 2 January 2025 I was delighted to welcome our new CEO Dr Philo Daniel-Tran into the business. Philo has a wealth of global experience covering Europe, Asia and beyond and has worked in many of our sectors and more. As I have commented before we must remain alive to global supply chain issues and macro-economic factors as we are a global business selling into many markets around the world including the USA. We will manage growth in line with our capabilities and remain agile and responsive as our management teams know this is our core strength.

Our gearing remains a modest 13.1% (2023: 7.7%) and our net asset value grew. The (closed) defined benefit pension scheme remains in good shape and the impact on our balance sheet of the Trust's investment policy has been positive again this year. The pension retains in a healthy surplus.

We anticipate an overall operating profit in FY 2025 and will look to re-establish our dividend distribution thereafter. The Board has confidence in the prospects for the Group, supported by high quality customers, order book, increasing visibility of sustainable new business and our overall strategy and agility to diversify into other markets and grow."

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Chairman's Statement

Introduction

I am delighted to welcome Philo Daniel-Tran as our new Chief Executive Officer. Philo only joined us on the 2 January 2025 and accordingly it is appropriate that I write the bulk of the commentary in this year's annual report. I should like to thank Gordon Wakeford for his support during the last 6 months as he has undertaken some Executive responsibilities; notably Chairing the Executive Management Board, working with the subsidiary Managing Directors and helping to formulate the Business plans for the current year. Gordon and I are supporting the handover process to Philo as she takes up her responsibilities.

Overview

The Group prides itself in being an innovation led engineering specialist in electric and electromechanical componentry. Much of its expertise also sits in the software skills that underly much of what we do. To be innovative we need to continually re-examine our markets and our customer's needs, we need to be alert to change, and we need to be responsive in recognising the direction of travel vis a vis our existing products. An essential criterion when recruiting our new Chief Executive was to broaden our market penetration and enhance our global customer relationships.

We have great manufacturing expertise in our two major facilities as well as a highly responsive distribution company in Thatcham that imports product from around the world and sells into our customers and others. Our model is founded on engineering skills and manufacturing as well as the use of distribution agreements that we in turn have with partners around the world for our manufactured products. Our business is therefore highly dependent on keeping LPA products at the forefront of our distributors' business plans. In the last year we have invested in our sales force heavily and in our engagements with our distribution network.

The result is an improved business, a steady growth in our new sales lines and a vision for much profitable performance in the future. As I reported during the year we have suffered in our UK market, which represents 59% of what we sell, by slippage in the call off orders particularly in rail. We have major programmes to deliver for TFL on the Central line and the Piccadilly line, major projects on the refurbishment of the interconnector jumpers on the trains and work to do on HS2. All these projects are challenging to plan a business around when the ultimate customers themselves are challenged by their own budget constraints.

We are determined to look at a more product-based business for the aftercare and new projects so that we can keep the manufacturing units busy and the fixed overhead absorbed into profitable work. During the year we acquired Red Box Aviation and in January this year we acquired a power supply business to supplement our own products. We have also reinvested in our Niphan product range. By moving our model to a better balance between product and project business our order books will look different going forward; but our risk profile should improve. We have suffered from orders secured 4 or 5 years ago which are only now coming into manufacture and while we had the ability to index our costs the level of inflation we witnessed since winning this work has impacted gross margins. Our order book at the end of the year is comfortable, replacing most of what has been delivered this year, strengthened by shorter term call off on aftercare product work rather than large new projects.

It is also worth noting that as we plan with confidence for the future we have been looking very hard at our efficiencies and productivity. To compete on a global stage, as we do, we must invest and this year it was in a new ERP system that now serves both of our manufacturing units and will help us control and plan better. It will enable us to look at other ways we can get efficiencies in procurement, contract management and better agility in pricing of subcontract work for new customers. The new ERP system went live on 1 October 2024 and I commend our staff for the work they put in to make this happen whilst still doing their day jobs. Giving our leaders better control of our outputs; to know the cost of every process, to get it right on time first time and to deliver a quality experience to our customers is what a good business does to continuously improve.

LPA Connection Systems based in Saffron Walden has had a good year considering it had over £2m of rail call off orders pushed back to October 2025. It was a blow to their business planning and they have particularly worked hard on their aviation markets to cover a large part of the set back. In the segment information later in this report it is becoming clearer how much good work has gone into rebalancing the business away from rail. The management team at Connection Systems has only been with us for 2 years and I am pleased by the energy, attitudes and cultural shift being made in the business.

LPA Lighting Systems in Normanton has an order book with a number of extant lighting projects that were in development and secured 3 and 4 years ago and in most cases deferred by 24 to 36 months. Our challenge in Normanton is to re market ourselves to our key strengths of electrical engineering, software and systems design. We will seek out other product lines for what is a first-class electronic engineering design and manufacturing facility and part of the reasons for the latest acquisition of power supply inverters is to redesign their boards, enhance the product and to sell into wider markets.

LPA Channel Electric The completion of the executive team during the year has seen the business restored back to its former pre-pandemic level and growing. The prospects for the business are strong in aerospace, defence and for niche industrial products. The business received its AS/EN9120 certification this year.

We have increased our distributor partners across the globe, notably in aviation. Our sales and marketing team continue to be busy at a number of exhibitions in Europe and North America; a good example was a strong presence at GSE Expo in Lisbon this year. We have recently been in India with our distributors there as well as exploring low cost manufacturers for products we could make more efficiently. We also attended Aero Friedrichshafen General Aviation Show in Germany.  There are encouraging conversations with potential partners keen to work on our Red Box products globally.

The Group exports widely and this needs to be reflected in our stakeholder relationships which must be proactive, long term, visible and embedded into our corporate culture. We have stakeholders, in the wider sense, all over the world and key that the exec team visit them and specifically our distributors ensuring that LPA remains integral to their business plans; much of what we do is solutions based and flows from personal interactions.

We are an innovative group and in order to remain so we must continually strive to look for talented people and where possible recruit them, even if it means buying their nascent business opportunities as part of their recruitment. Our innovation committee is developing connections with academia, having already established relationships with universities and colleges, and this will continue. A current opportunity to work with the Institute for Manufacture IfM - a Cambridge University programme, has led to young students working with us on capacitor optimisation to support our aviation business products. Another example is where 15 MPhil Industrial Systems students from the IfM visited Saffron to talk innovation.

Being a small business we strive to get the balance right we are rebasing our reward mechanisms to retain more moderate salaries and to increase the performance related elements in our remuneration packages. We have a programme of recruitment especially of apprentices and young engineers.

Shareholders and Investors

We want to communicate our long-term plans to deliver shareholder value in line with our vision and mission and our continuing commitment to our reputation. Therefore, the Board will continue to meet its key shareholders where possible in person and work closely with its Brokers and advisers to ensure regular and open dialogue.

Dividends and Pension Fund

The planned growth in our revenue will require working capital to fund higher stock levels and increased diversification in our products and solutions. In 2024 we absorbed cash not least because of our small operating loss, some capex and the exceptional items. The Bank facilities were renewed with our Bankers and with profitability returning we will plan for a restoration of some dividend in 2026.

Included in our Balance sheet is an asset representing the actuarial valuation, as at 31 March 2024, and the consequent accounting adjustment, for our (closed) defined benefit pension scheme.  The rebalanced investment portfolio put the scheme in a very strong position, and this is continuing. As I am no longer chairman of the Trustees I can be more objective as your chairman concerning the overall strategy of the scheme on our balance sheet; including the timing of any exit way from the fund and when are we best placed to consider the timing of a buyout process. The government are recognising that there is work to do in this area and a number of discussion documents are out for consultation in the public domain.

Employees

As I emphasise each year our people and our investment in them remains key to our future success.  Their skills alone are not enough without a commitment to the style and corporate values that the Board are committed to promoting. We are working hard on this and I know our new Chief Executive espouses these values. We will see the impact of this in the coming years. The substantial increase by the new Government in National Insurance was not budgeted in the current year and so we will have to carefully ensure that whatever inflation rises were planned can absorb this; the support of the senior management will help us to do this as we move more to a reward-based culture based on results.

We pride ourselves on our engineering skills and our factory operations and are committed to investment to maintain this capability.  We do maintain flexibility through use of agency and temporary contracts, but we have no zero-hour contracts. The general health, and well-being of our employees personally, cannot be underestimated.  Senior management time on people issues, managing our employee numbers and the cost base remains part of the daily routine. Recruiting young people into a traditional engineering business and more importantly its workspace is not easy; therefore, communication with our staff, engagement with their aspirations and progressive investment in their well-being will distinguish us.

We continue our communication programme including a comprehensive newsletter to our employees, this is published twice a year. Induction programmes and the Board's belief in instilling our corporate values and engagement remains a priority.

I should like to thank all our employees, past and present, for their hard work and diligence during 2024 and for their commitment to our future as we start to look ahead at what I hope will be more encouraging times across our worldwide markets.

Board

Board members' biographies and relevant experience are set out within Company Information in the Annual Report which is published on the Group's website www.lpa-group.com.

Philo Daniel (CEO) heads up the Executive Team and together with the Group CFO Stuart Stanyard are part of the group Board Executive Directors. Andrew Jenner, as Senior Independent Director, and Chair of the Audit Committee has been in post throughout the year under review as has Gordon Wakeford who is chairman of our Remuneration Committee.

ESG

We have reported on our Group ESG commitments for a number of years now and we are committed as we move forward to ensuring that we stay in the forefront of best practice for a leading engineering company.  We actively manage our carbon footprint, support greener practices and manage waste in an environmentally transparent way.  We encourage good health and wellbeing in our staff and drive safety, innovation, as well as inclusion and diversity into our day-to-day activities.

Outlook

The Executive team have a clear vision and a solid order book to work with in the current year, the underlying value in the balance sheet is strong. Operating cash flow will need to increase to cope with increased working capital requirements as turnover grows. The Board has a process for looking at identified opportunities and enhancing capability in line with the strategy and it will consider each one on its merits.  The Group has undergone significant change in its leadership and whilst there is a lag in profit impact, there is discernible shift in momentum coming in the next year or so. I am pleased to say that our outlook is strong with a bright future that will be built on our innovation, capability and great customer relationships.

Robert B Horvath

Chairman

Business Model and Strategy

The LPA Group plc is a quoted Small and Medium-sized Enterprise (SME), admitted to trading on the AIM market of the London Stock Exchange, and industry classified in the Electronic and Electrical Equipment FTSE sector.

The Group is an innovation-led engineering specialist in electronic and electro-mechanical components and systems, supplying markets operating within high dependency, hostile and benign environments which focuses on the market segments of rail, rail infrastructure, aviation (aircraft and infrastructure), industrial markets and defence. These are viewed as stable / growth markets both in the UK and globally.  All Group activities serve the same markets (to a greater or lesser extent), have a mutual dependence on transportation (which accounts for more than two thirds of Group turnover), share resource and frequently work on the same projects.

The Group has a reputation for innovation, providing cost effective solutions to customers' problems which aim to improve reliability and reduce maintenance and life cycle costs.  Three distinct sites across the UK are operated, namely:

Group revenues are derived from both large value projects and smaller value routine orders with the route to market a combination of direct and indirect for most products.  Agents and distributors may be used, particularly in overseas markets, although larger projects continue to require direct contact in most cases.

A wide range of leading organisations form our customer base, including: Alstom, Avanti, BAA, BAE Systems, CAF, Compin, CRRC, Downer EDI, First Group, Grammer, Heathrow Airport, Hitachi, ITW GSE, Kinki Sharyo, Knorr Bremse, Leonardo, Omer, Shanghai Pudong Airport, Siemens, SNCF, Stadler, Spirit Aerospace, Taiwan Rolling Stock Company, Transport for London, Unipart Rail and Wabtec.

It is our intention to strengthen the Group's position within the global marketplace by growing our customer base, alongside the addition of new products and the undertaking of selected strategic acquisitions. This is underpinned by our Vision, Mission and Objectives as detailed below and the business planning that we do each year.

Vision, Mission & Objectives (VMO)

Vision

·    To be a market leading electronic / electro-mechanical engineering group, supplying high quality components and systems to customers in safety critical and challenging markets.

Mission

·    Provide sustainable growth and returns to shareholders.

·    Grow organically and by acquisition.

·    Be our customers' first choice for products and services.

·    Be an ethical and responsible employer.

Objectives

·    Promote and build on the history and brand of LPA.

·    Ensure all companies within the Group deliver 'best in class' products and services.

·    Focus on reducing dependency on the transportation market.

·    Continuous innovation and product development.

·    Improved sales channels for export.

·    Targeted acquisitions to bring growth, technology, or access to markets.

·    Work together across the Group and maximise opportunities.

·    Exploit Group capability and technology to create new products and service new markets.

·    Be an employer of choice.

Values and Culture

Investment in our people is paramount to our success and we have created clear communication and development strategies to enhance skills and ensure that we all understand and align to Group values, culture and best practice.  This is supported by the Board and Executive teams and demonstrated by their visibility and accessibility across the Group.

Our core values are promoted throughout the Group. These are set out below and published on our website www.lpa-group.com.

LPA Core Values

·    Leadership - you do not need to be in a position of power to lead in what you do.

·    Passion - love what you do, use it to drive both yourself and the business forward.

·    Accountability -whatever you do, own it and do it well.

·    Continuous Product Improvement - staying ahead of the competition.

·    Personal Growth - always seek to learn and improve.

·    Diversity - everyone deserves a chance and a voice.

·    Fun - yes, it is work, but it does not mean we cannot enjoy it!

·    Innovation - technology is everything to us, look forward and push the boundaries.

·    Integrity - honesty and respect are key to who we are.

·    Teamwork - work with your colleagues not against them.

Financial Review

Set out are the key drivers related to the business performance in the year and position at 30 September 2024, together with explanation of the financial Key Performance Indicators set out later.

2024 Summary

·    Order entry lagged sales at £17.3m (2023: £25.5m) resulting in the order book reducing to £25.3m (2023: £31.6m), a reduction of 19.9%;

·    Revenue of £23.5m up 8.4% (2023: £21.7m) with LPA Connection Systems revenues up £0.2m and LPA Channel Electric revenues up £1.7m, LPA Lighting Systems down £0.1m

·    Added Value reduced by 0.8% at 49.5% (2023: 50.3%) as a result of product mix; and

·    Gross margins 23.3% (2023: 22.6%), was slightly up due to cost control

·    Underlying operating loss of £0.2m (2023: loss of £0.1m)

·    Loss before tax at £0.6m (2023: Profit £0.8m after credit for negative goodwill of £0.9m)

·    Net cash inflow from operating activities £1.3m (2023: £0.3m).

By comparison to 2023, H1 2024 revenues increased by 27.5% to £11.6m (2023: £9.1m), delivering an underlying operating loss of £0.3m (2023: loss of £0.6m). H2 revenues were adversely impacted due to new project delays and delivered revenues of £11.9m (2023: £12.6m), representing a reduction of 5.5% of against H2 2023 sales. This resulted in an H2 underlying profit of £0.1m (2023: profit of £0.5m).

Pre-exceptional distribution costs and administrative expenses increased by 11% to £5.7m (2023: £5.1m).  The main contributors to this were the wider economic cost pressures seen across the industry.  Group employment costs increased by £0.6m to £7.3m (2023: £6.7m).  The increase was primarily due to strengthening management teams at LPA Connection Systems and LPA Channel Electric.

During the year no new share options were awarded to Directors.  The performance hurdles in relation to 125,000 share options issued in 2023 are intended to be adjusted for them to remain attractive.   A total cost of £10k was attributed to these options in the accounts in line with current assumptions and will be recognised over three years (2023: one award at an exercise price of 50p subject to three increasingly targeted performance hurdles which are related to earnings per share and market capitalisation).

Trading Performance

Markets

Aerospace (aircraft) was steady for the period with main manufacture build rates remaining at similar levels to the prior year at 6 aircraft per month.  Aspirations for this programme are for a build rate of 10 aircraft per month by the end of 2027. Similarly, the Airbus A220 programme has delivered 367 aircraft from a firm orderbook of 912 leaving a substantial level of product to fulfil as Airbus increases build rates from 8 aircraft a month to 14. This is a strong indication of work for the supply chain including LPA.

LPA is working closely with the emerging EVTOL markets, we are supporting the delivery of new engineered solutions, focussing on driving down weight as well as increasing power delivery from source to propulsion. Supporting and being 'designed in' to the prototypes will support growth for LPA products in the coming years as they get formally certified and go in to production.

Aerospace (infrastructure) is the bedrock of our growth strategy and has achieved an excellent year. The focus must remain on building the worldwide sales channels and keeping product fresh and innovative. The Red Box acquisition has enabled us to open new market channels and to keep conversations fresh with our distributors and their customers. Overall order entry significantly increasing by 70% and revenues subsequently increasing 57% in the period.  We worked hard to enhance the product range in 2022 and 2023, and this continues to impress our customers and we are openly working in many of the busiest airports around the world. Building on this success our engineers will continue the development of the range and it is envisaged further new products will be released in the coming year. 

In support of this sector the Group participated in a number of key trade shows including GSE Expo show in Lisbon, Aero Friedrichshafen (Europe's biggest general aviation show) and a number of other Expos in support of our distributors including HAL Heli-mART and the Dubai Airport Show.   These activities drive our marketing effort, as well as creating good interest for individual product range, re-confirming our strategic intent for this market segment and its ability to deliver tangible results.

Rail - aftercare has great potential as major newbuild programmes are delayed and impact our production facilities. The "JUMPER" product line acquisition acquired by LPA Connection Systems in 2023 has been smoothly integrated and was planned to deliver significant output through a series of aftercare schedules over the next 4 years. As we announced in 2024 these Schedules were revised substantially for economic reasons and rebased over a longer period. The acquisition has been a success and will prove to be a very valuable product line in the medium to longer term and contribute for many years to come.

The legislation across the EU banning the sale of fluorescent tubes from September 2023 is a strong positive for us, driving much interest in our LED retrofit alternative. A recent win for SNCF is a good example of this. LPA, in preparation for this change, has been active in this area for the last few years and, as such, enjoys good technical experience, active sales channels and a good product offering aimed at serving this new requirement.

The legislation mandating the use of USB-C on all phones and portable devices has also recently been agreed within the EU and UK, with all new devices needing to adhere by the end of 2025.  The Group has been a leader in design and manufacture of USB-A charging solutions across the UK and European rail market and is well placed to serve its customers requirements as they move to update their vehicles in compliance with this new requirement.

As stated previously Newbuild projects in the UK have slowed as we await new funding decisions and subsequent investment. It is pleasing however to see some of the existing project wins finally moving into production and output for 2026 and beyond and we will enjoy revenues from the prestigious Siemens DTUP project initially for Piccadilly Line. The deep tube programme (DTUP) is an important infrastructure programme for London that should extend into new fleets for the Bakerloo and Central lines in the years to come. We are working with the new Alstom TGV M as well as new generation projects across Europe (Avelia Horizon platforms).

Export remains an important part of the Group's business at 41%.   In support of this we continue to build our sales channels globally and recently successfully exhibited at Innotrans Berlin, a flagship event for our marketplace, where we were able to meet most of our existing and as well as potential partners from around the world.

Industrial market progression was mostly achieved through our Niphan range of specialist electrical connectors, with considerable work undertaken to update the approvals of this range and to re-establish contact with historical customers.  As such, the range saw enhanced revenues for the period and further progress is expected as we move forward.  LPA Channel Electric also put in place the first foundations of its entry into the industrial marketplace and will look to enhance this further in the coming year.   Niphan, although a niche range, continues to broaden its applicability to modern engineering projects and has gained approvals in infrastructure that over the coming years are expected to lead to modest increases in volume. This is coupled with costing engineering work in supply chain to support margins & capacity as volumes increase.

Macro-economic factors

During 2024, whilst we saw an improvement in the UK economy, we saw a significant reduction in activity in our main market of Rail evidenced by a reduction in our order intake of 20.9%.  In addition, three major projects across our two main businesses moved to the right. Whilst H1 was not affected by these delays, H2 was heavily impacted.  On the positive side our recent acquisition of Red Box International was successfully integrated into our LPA Connection Systems business and is now starting to meet its potential.

Inflation continues to become less of an issue with efforts to mitigate any increases have been ongoing and where possible fed through to the market.  Added Value reduced slightly during the year and is broadly expected to remain at this level as we move forward.

There has been some improvement in the supply chain and employment markets, although the latter remains tight. 

Exceptional Items and Negative Goodwill

Exceptional items in the year totalled a loss of £0.4m (2023: gain of £0.8m).  Key items comprised:

(i)            Non-recurring costs relating to acquisitions of £0.2m (2023: £nil)

(ii)           Reorganisation costs / staff changes of £0.2m (2023: £nil)

(iii)          Negative goodwill following a fair value adjustment on the acquisition of a product line and associated trade of £nil (2023: £0.9m)

(iv)         Write off of obsolete inventory from discontinued product line of £nil (2023: £0.1m).  

Finance Costs

Within finance costs, the interest on borrowings increased to £0.16m (2023: £0.13m).  The weighted average interest rate increased by 1.2% from 6.1% to 7.3%.  The Group's overdraft facility was utilised three times during the year with an average balance of £100,000. The UK base rate remained relatively stable during the year, reducing once from 5.25% to 5% in August 2024.

Profit Before Tax, Taxation and Earnings Per Share

After net finance income of £0.03m (2023: net income £0.05m) a loss before tax of £0.6m was recorded (2023: profit before tax of £0.8m).  A tax credit of £0.3m (2023: £0.1m) is recognised, reporting a loss after tax of £0.3m (2023: profit after tax £0.9m).  This resulted in a basic loss per share of 2.46p (2023: earnings per share 6.52p).

The average UK corporation tax rate for the year was 25% (2023: 22%).  The main differences to the standard rate of corporation tax are due to losses and R&D tax credits.

Treasury

The Group's treasury policy remained unchanged in the year. 

Balance Sheet

·    Gearing (net debt as a % of total equity) increased to 13.1% (2023: 7.7%) due to the recent acquisition and investment in a new ERP system;

·    Net debt increased by £0.9m to £2.1m (2023: £1.2m);

·    Working capital, as defined as inventory, trade & other receivables less trade & other payables, reduced 7% to £5.3m (2023: £5.7m); and

·    Pension asset surplus recognised increased by 41% to £3.8m (2023: £2.7m).

Shareholders' funds include Investment in Own Shares (Treasury Shares), unchanged at £0.32m, representing ordinary shares held in the Company by the LPA Group Plc Employee Benefit Trust ("EBT").

Intangible assets, which comprise goodwill related to the Group's investment in Excil Electronics Ltd, the fair value of the intellectual property purchased in the year of £0.8m (2023: £1.9m), capitalised development costs and software purchases were £4.3m (2023: £3.2m).  Additions in the year increased to £0.7m (2023: £0.1m), mainly the result of the investment in the new ERP system at the two main sites of £0.6m. After assessment for impairment the goodwill on the Group's investment in Excil Electronics remains unchanged at £1.1m.  Development costs capitalised in the year, representing the continued development of the Group's technologies and new product development ("NPD"), were £0.1m (2023: £0.1m). 

The net book value of property, plant and equipment as at 30 September 2024, including right of use assets, totalled £5.5m (2023: £5.8m), of which property represented £3.7m (2023: £3.8m), plant, equipment and motor vehicles £1.8m (2023: £1.9m).  Additions in the year were slightly down at £0.4m (2023: £0.5m).  Disposals in the year totalled £0.2m with a net book value of £0.1m including right of use lease terminations (2023: £0.9m with a net book value of £nil including right of use lease terminations).  The depreciation charge remained flat at £0.7m (2023: £0.7m).

Net Debt and Financing

The Group's main bank finance is a bank loan drawn down in 2024 at £2.5m and repayable over 5 years.  Repayments are quarterly over the term with a bullet repayment in March 2029 of £2.0m (quarterly repayments calculated at draw down on a 15-year repayment term).  As at 30 September 2024 the amount outstanding was £2.5m (2023: £1.9m).  Interest is payable at base rate plus 2.25%.

Cash Flow

Net cash inflow from operating activities was £1.3m (2023: £0.3m) made up of a trading cash inflow of £0.5m (2023: £0.7m) and a decrease in working capital of £0.7m (2023: increase of £0.4m).  Overall, there was a net reduction in the Group's cash position of £0.5m (2023: £1.0m). 

During the year £0.25m (2023: £0.25m) was spent on the balance of product line acquisition and £0.55m (2023: £nil) was spent on the acquisition of Red Box International with £0.55m deferred consideration split across the next two years. A new ERP system was implemented with capitalised costs of £0.6m (2023: £nil) and went live in October 2024.  These will be depreciated over 5 years starting this financial year. There was no change in capital expenditure outflows on property, plant and equipment £0.2m (2023: £0.2m), excluding the ERP system and assets financed through lease arrangements.  Capitalised development expenditure amounted to £0.1m (2023: £0.1m), primarily further product developments focused on smart lighting and electronic systems, including rail seat electronics.

In the year new leasing arrangements led to right of use additions of £0.2m (2023: £0.3m).  Interest at 5.3% was charged on fixed rate borrowings (2023: 5.3%). Interest on the Group's overdraft facility is payable at base rate plus 2.0%.  The facility was unutilised as at 30 September 2024 and 2023.  The composite interest rate across both borrowings and lease liabilities was 6.4% (2023: 5.6%).

The bank loan was refinanced during the year at £2.5m for a further five-year period on similar terms, a small reduction of £0.1m on the previous loan.  Excluding the repayment of the previous loan, capital loan repayments of £0.2m were made in the year (2023: £0.2m).  Outflows repaying the principal elements of lease liabilities were £0.2m (2023: £0.4m).  Interest payments on borrowings amounted to £0.2m (2023: £0.2m).

Defined Benefit Pension Asset

The LPA Industries Limited Defined Benefit Scheme was part of the ISIO (previously Deloitte Pensions Master Plan) throughout the entire year under review. The costs of running the scheme have been shared between the Company and the scheme.  Costs borne by the Group this year amounted to £0.1m (2023: £0.1m).

A full Actuarial valuation of the Scheme was carried out in March 2024 which indicated the Scheme was at a healthy 133% funding level. The benefit of the change in investment strategy in January 2022, when the Trustees having undertaken a review in 2021 agreed to lock in the gains and de risk the scheme, has been beneficial. The key driver for the then improved funding position has been the higher than assumed returns on the Scheme's assets and the changes in financial conditions which have reduced the liabilities. It is natural for the Scheme's funding level to fluctuate over time reflecting changes in the financial markets.

The Trustees, under advice, did not seek any voluntary employer contributions during the year from the Group (2023: £Nil). The IAS 19 position reflects the impact of rising interest rates on the present value of the liability to pay pensions in the future.

Going Concern

In assessing going concern, the main considerations have been trading, significant project delays and to a lesser extent inflationary pressures.   The Group continues to witness some price pressures from commodities, utilities and wage inflation. These all pose risks to UK manufacturing businesses.

In assessing the Group's going concern the directors also note that (i) despite reporting a small underlying operating loss in the current year,  the Group is expected to return to profitability in 2025; (ii) has in place adequate working capital facilities for its forecast needs and was cash generative on an operational level through the 2024 financial year, with a positive EBITDA and strong cash management; (iii) has a strong  order book with significant further opportunities in its market place; and (iv) has proven adaptable in past periods of adversity, as again proven through the 2024 challenges.  Therefore, the directors believe that it is well placed to manage its business risks successfully.

The directors continue to develop its strong working relationship with its bank that provides for the funding and working capital facilities.  Should there be additional significant delays in our project-based work then there are actions available to management to mitigate any cash need. Note the covenant test was removed for this year end. We expect that if required the bank would remain supportive and a suitable agreement would be reached to provide the Group with sufficient financing. The current loan facility was extended for a further 5 years in March 2024 on the same terms.  

After making enquiries including but not limited to compiling updated forecasts; sensitivities; and expectations, reviewing liabilities and risks and following confirmation of ongoing support from the Group's bank, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

Stuart Stanyard

Chief Financial Officer

Key Performance Indicators

The Group uses the following key performance indicators to assess the progression in its business: factors affecting them are discussed in the Chairman's Statement and the Financial Review.

(1)  As per best practice and a reinvigorated Health and Safety process, a high number of near misses indicates an open culture of reporting possible accidents which can be appropriately actioned.

Consolidated Income Statement

For the year ended 30 September 2024

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2024

Consolidated Balance Sheet

At 30 September 2024

Consolidated Statement of Changes in Equity

For the year ended 30 September 2024

Consolidated Cash Flow Statement

For the year ended 30 September 2024

Consolidated Cash Flow Statement (continued)

For the year ended 30 September 2024

Net Debt

An analysis of the change in net debt is shown below: