Northamber : Full Results For The Year Ended 30th June 2023

REPORT & ACCOUNTS | Full results for the year ended 30th June 2023

CONTENTS

Summary Information	4
Strategic Report:
- Chairman's Statement	5-6
- Strategy and performance	7-12
Report of the Directors	13-16
Report to Shareholders by the Board on Directors' Remuneration	17-18
Corporate Governance	19-26
Statement of Directors' Responsibilities	27
Directors and Advisers	28
Report of the Independent Auditor	29-35
Statement of Comprehensive Income	36
Statements of Changes in Equity	37-38
Statements of Financial Position	39-40
Statements of Cash Flows	41-42
Notes to the Financial Statements	43-67
Notice of Meeting	68-69

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SUMMARY INFORMATION

Northamber plc and its subsidiaries are primarily distributors of computers, peripheral equipment and related services to resellers who then sell on to the general public and corporations - the end users.

The company's shares are listed on AIM, a market operated and regulated by the London Stock Exchange under stock symbol "NAR".

Summary of last five years' trading

			Years ended 30 June
	2023	2022	2021	2020	2019
	£'000	£'000	£'000	£'000	£'000
Revenue	67,149	66,260	60,009	52,835	50,329
(Loss)/Profit before tax	(411)	(447)	385	9,925	(598)
(Loss)/Earnings per share	(1.51)p	(1.64)p	1.24p	31.16p	(2.17)p
Net Assets per share	87.7p	89.8p	92.1p	91.5p	60.8p
Dividends paid per share (net)	0.6 p	0.7 p	0.6p	0.2p	0.2p

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NORTHAMBER PLC

CHAIRMAN'S STATEMENT

Results

Against a challenging backdrop, we are pleased to share that we have continued to grow revenue year on year by £890k from £66.26m to £67.15m whilst also growing gross margins from 12.8% to 13.3%. This served to generate a continued increase in gross margins of £0.43m year on year to £8.91m (5% increase year on year) and reflected our continued focus on evolving our product mix towards higher margin, more technical products through Northamber and AVM.

As mentioned in my last statement, we expanded our Audio Visual (AV) unit into Unified Communications and Collaborations (UC&C) during the first half of the year with a new partnership with Yealink who are a significant brand in the Microsoft Teams Room and Zooms room space. This new partnership allowed us to access a significant new UC&C market for our existing reseller customers as well as bring existing products from our Audio Visual and Infrastructure Solutions business units to a wider market. The addition of ViewSonic in H2 to our Audio Visual Business Unit also helped provide growth opportunities.

Despite sales and gross margin growth for the year, performance in some of our focus areas remained impacted by softer demand due to deferred purchasing decisions by some end users as they chose to defer non essential spend in the face of inflationary pressures and continuing economic uncertainty. Our strategy remains to focus on building the best Proactive, Technical distribution company in our focus technology areas of Audio Visual, Network Security & Infrastructure, Document Management & Peripherals as we remain confident we can deliver significant long term value and growth in these segments for our partners and shareholders.

Inflationary pressures combined with our continued investment in developing the team for our growth ambitions led to distribution costs increasing from £5.6m to £5.9m. Likewise, our administration costs increased from £3.4m to £3.5m due to inflationary pressures. Some of these cost increases we would hope to be non-recurring or reduced moving forward such as an exceptional £110k bad debt write off for the year (up from £62k prior year), £110k for Electricity and Gas (up from £66k prior year and despite the Company installing solar panels at our Swindon Warehouse at the start of the fiscal year) and cost of living pressure on wages (£6.15m up from £5.67m).

It is frustrating that inflationary factors increasing distribution and administration costs have impacted the Group despite Gross Margin growth. The Group remains committed to proactively working to reduce these costs as best it can.

As part of our focus on profitable scalability and efficiency drive, after the period end, the Group implemented a new company wide ERP system at a committed capital investment of £278k. Whilst this new system will cause some initial disruption in H1 FY24 whilst it is rolled out in a phased approach across the half, this new system will allow us to drive a stronger customer experience and better efficiency with automation so we would hope to see a positive impact from this in H2 FY24 and onwards.

The net effect of these results were that Earnings Before Tax Amortisation and Depreciation but After Interest was a modest £3k profit, compared with a loss of £54k the prior year. At an operating level this delivered a loss before tax for the year of £411k versus a loss of £447k last year.

We feel strongly, however, that to drive significant long term profitable growth it is important that we continue to invest for the future, albeit these investments are measured against the ability to generate value.

Financial Position

We remain diligent in managing our balance sheet and were pleased to be able to remain debt free. Cash reserves at year end increased to £5.6 million from £4.7 million at 30 June 2022. This focus on cash levels together with stronger interest rates available

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NORTHAMBER PLC

CHAIRMAN'S STATEMENT (continued)

yielded a benefit of £81k of interest, up from £5k the prior year. We look to balance the value of cash in the bank with the need to provide flexible stock for our partners and consciously review this on an ongoing basis. Tied to this approach, we disposed of an office building in Lightwater in H1 that was no longer core to our operation for a consideration of £1.48 million and moved Audio Visual Material Ltd into a new leased office together with our Audio Visual business unit in Basingstoke.

With Net Assets at £23.9 million, including two unencumbered freehold properties, the Group's overall financial position remains very sound.

Net Assets at 87.7p per share are considerably in excess of the average price of the ordinary shares throughout the period.

Board changes

In July 2022, Peter Dosanjh joined the Board as a director. Peter has over 25 years' experience within B2B AV and IT hardware resellers alongside AV distribution.

Geoff Walters stood down as a non-executive director with effect from 31 December 2022.

Dividend

As in previous years, your Board has had regard to the strength of our debt free, tangible asset strong balance sheet and is proposing the final dividend be 0.3p, at a total cost of £81,695. The dividend will be paid on 19 January 2024 to shareholders on the register as at 15 December 2023.

Staff

Our staff remain a key asset for the business and an area we continue to invest in. The team has continued to work hard to support our partners and each other. Our plans remain to continue to invest in our evolving business model by continuing to invest in building out the best team in the market to achieve our business evolution.

We were pleased to be able to roll out a Company Share Ownership Plan as a long term incentive for all staff in July 2023 (post year end), and see this as a way of rewarding the team who make an impact and drive our results

Outlook

In keeping with prior outlooks that we shared, we remain cautiously optimistic that the investments we have made in supporting our partners will allow us to continue to drive growth of strategic business units. We have yet to fully benefit from these investments, given the ongoing impact of COVID, forex movements and supply chain issues which together with wider economic uncertainty due to rising interest rates, inflation and subsequent cost of living impacts, necessarily mean we must remain cautious about the near term. We do feel strongly, however, that our continued focus on strategic higher margin value categories provides a solid road map for the future with profitable growth opportunities and the ability to unlock long term value for shareholders. The strength of our balance sheet allows us to continue to do what is best for the business strategically and we continue to review organic and non-organic opportunities for growth which meet our strict criteria and add value for our shareholders.

C.M.Thompson

Chairman

15 November 2023

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NORTHAMBER PLC

STRATEGY AND PERFORMANCE

The Directors present their strategic report on the Group for the year ended 30 June 2023.

This report provides an overview of the Group's strategy, its business model and a review of how the Group has performed for the year. It also sets out the principal risks involved in its business and the financial position of the Group at the year end. There are also some comments and observations on the future prospects for the Group.

1. The Group's Strategy

As explained below in the notes on the business model, the Group is not directly involved with the ultimate users of the products it sells. It purchases goods from manufacturers and sells these products to resellers for sale to the ultimate end user.

This being the case requires us to develop strategies with both suppliers and resellers to satisfy the needs of those ultimate users of the products.

Our strategy has always been to assess the requirements of the end users and then source quality products and services from manufacturers and make them available to resellers at the best prices in the most efficient time frame. With an ever changing product range it has also been part of our strategy to support fresh new products which will be attractive to end users.

In addition to the supply of hardware and software products we also ensure that our customers are provided with the technical support either directly or through the suppliers which they may require to effectively use the high tech products we sell, thus ensuring quality of supply and satisfaction to users.

2. The Business Model

The Group has, since its inception, been involved in the distribution of electronics and computer related products. Initially this was predominantly printers but this has been extended over the years to include not only computers themselves but also a wide range of peripheral and ancillary related products including audio visual.

The Group has a two pronged approach in driving the business, being both demand driven and supply driven. The demand drivers are the requirements of our customers where we strive to provide a wide range of products and get them to the customer in the quickest possible time and at acceptable prices. The supply drivers are the requirements of our suppliers - the vendors. Vendors in the main are one of two types, there is the major brand type of supplier who is looking for us to increase its turnover, to physically get products to the customer. The second type of supplier differs only in that they tend to be the smaller producers, who often develop new or innovative products and are looking for a method of reaching an established wide ranging customer base which is beyond their own resources.

Our business model is to satisfy all those wants by providing a marketing and selling operation to optimise the penetration of the products to the customers and a distribution facility which includes warehousing and bulk breaking using sophisticated systems and procedures to achieve a first class delivery service.

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NORTHAMBER PLC

STRATEGY AND PERFORMANCE (continued)

3. Key Performance Indicators (KPI's)

The Group has an extensive management reporting system and uses a wide variety of information in its everyday management of the business. This information is tailored to the various aspects of the business with individual managers being responsible for variances in movements within their particular sphere of operations to the executive management of the company.

The principal KPIs which are used and which have been reported elsewhere in our Annual Report are the following:-

KPI	Format	2022-23	2021-22
Revenue	£m	67.15	66.26
Gross Profit Percentage Margin	%	13.26	12.78
Net Assets per share	Pence	87.7	89.8
Working Capital Ratio *1	Times	2.20	2.59

*1 Working Capital Ratio is calculated by adding Inventory and Net Trade Receivables, divided by Trade Payables

4. Performance Review

For some time the Group has been following a strategy of change away from the basic hardware type products which are in the main physically larger type products with relatively low margin and subject to great price pressure, towards more application intensive type products where there is greater scope for adding value and gaining margin.

However such changes need very careful planning and implementation to minimise the inevitable consequences which usually includes not only significant costs upfront before the benefits of the changes are manifest but also some tail off of some parts of the existing business.

There was a continuation of the move towards consolidation in some parts of the industry, particularly towards the ultimate consumer end of the industry.

5. Financial Review and Position

Revenue increased 1.34% to £67.15 million compared with last year with an increase in gross margin of 5% from £8.47 million to £8.9 million.

Our cash balance at the end of the financial year was £5.5 million increased from £4.7 million.

Some 23.1% of the Net Assets comprise the carrying value of freehold properties, 23.1% cash and the balance working capital. The Net Assets were 87.7p per share (2022: 89.8p per share) which represented more than the average share price in the year.

6. Principal Risks and Uncertainties

Financial Risks

The Group uses various financial instruments, including cash, equity, trade receivables and trade payables in the course of its operations.

The use of these instruments gives rise to risks associated with exchange rate risk, liquidity risk, interest rate risk, credit risk, inventory risk and reputational risk. The Directors review and agree policies to deal with each of these risks as summarised below.

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NORTHAMBER PLC

STRATEGY AND PERFORMANCE (continued)

Exchange Rate Risk

The Group purchases some of its products in foreign currency. Foreign currency purchases are subject to close management supervision. The Directors are informed regularly of the potential impact of exchange rate movements on the business and act to mitigate any adverse movement wherever possible. It is the Group's policy not to speculate in derivative financial instruments in either sterling or foreign currencies, nor to hedge translation or currency exposures.

Liquidity Risk

The Group seeks to manage financial risk of liquidity by ensuring it has sufficient cash resources available to meet foreseeable needs at all times through cash flow forecasting.

Interest Rate Risk

The Group's exposure to interest rate risk is principally with its cash asset.

It is the policy of the Group not to have long term loans or other financial instruments except in particular circumstances and when specifically approved by the Board. There have been no changes in the role of financial instruments during the year.

Credit Risk

Credit risk is deemed a risk due to default in payment. The Group's principal financial assets are cash and trade receivables. The credit risk associated with cash is reduced through ensuring the funds are held with major financial institutions and where possible deposits being split across a number of banks. The credit risk arising from the Group and company's trade receivables is reduced through prescribing credit limits for customers based on a combination of payment history, third party credit references and credit insurance levels. Credit limits are reviewed on a regular basis in conjunction with debt ageing, collection history and credit insurance levels. Given the current economic climate the Group feel it prudent to maintain Credit Insurance.

Inventory Risk

The Group operates in the technology industry and has an inventory risk in that older inventory can decrease in value. The Group mitigates this risk by having strong contracts with suppliers which allow the return and rotation of stock, and by internal control procedures where the ageing of inventory is regularly reviewed and actioned.

Reputational Risk

The Group's reputation is reliant on timely delivery of goods and services according to customer requirements and associated goodwill generated with customers. The principal risk involved is that the warehouse could be destroyed or made inoperable although the cost of such eventuality is of course covered by insurance, including loss of profits cover, but the operation is such that alternative accommodation could quickly be brought into action, or alternatively a warehousing function could be subcontracted at very short notice. Although such an event would have costs attached and would cause some disruption in the business, it would be far from catastrophic.

The existence of the Group's facilities such as the warehouse, the sales staff, the control systems and not least the financial soundness of the company means that we can offer a distribution facility which is quick and efficient, an attraction to both vendors and customers.

Market Risk

The Group is subject to both general market conditions and particularly to those affecting its own particular industry. The Group is a distributor of other businesses' products and is therefore dependent on the suppliers of such products to continue to provide products which are required by the customers of the company, at prices which are acceptable to those customers. This is managed within the Group by being alert to all the movements in the market place relating to both products and suppliers and to negotiating with existing and prospective suppliers for the supply of goods on the best possible terms to enable the company to trade effectively.

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NORTHAMBER PLC

STRATEGY AND PERFORMANCE (continued)

Where products are bought in foreign currency, the Group manages the risk inherent in such currencies by continuously updating its rates of conversion in calculating its costs to ensure prices remain competitive and in order to minimise the currency conversion risk.

The Group recognises the importance of providing additional services to its customers in relation to next day deliveries, credit limits, handling queries efficiently and maintaining a strong relationship with the customer and in this way aims to resist the competitive pressures in the sector.

Other Principal Risks and Uncertainties

Other than the risks stated above, in the opinion of the Directors, the principal operating risks are as stated in the section on Internal Control on page 26. The risks and uncertainties associated with the business model are set out below.

The model depends in part on working closely with the brand names in the industry as it is often the products from these vendors which form the core of the business, and in part on the development of new vendors particularly for the innovative products which are integral to the IT industry. Co-operation with vendors is therefore key and this risk of attrition is addressed by a combination of mutual co-operation with vendors on the range of products being offered, the pricing of those products and the marketing of those products. The company's continual search for new and improved products, particularly in peripherals, from new vendors also improves the range of products we can offer and thereby attract more customers to ourselves which enhances our attraction to the vendors and reduces the risk of loss of vendors.

All systems within the Group, including the control systems, are backed up securely on a regular basis, thus limiting the risk of data loss to a short period. The financial soundness of the Group is a matter which is

constantly in the minds of the senior staff and Directors of the Group. Systems are in place to ensure that any deviation from the norm is immediately brought to the attention of staff and Directors. These systems have a proven history as shown in the strength of the Statement of Financial Position. The Group has sufficient working capital to enable it to meet its requirements.

Inflationary Risk

In line with most businesses, the Group has experienced rising supply prices due to the increases in energy prices and market uncertainty due to interest rate rises and supply chain issues. Whilst the Group will aim to pass on price rises this will cause uncertainty in demand. The Group believes that there is likely to be a slowdown in demand for some of its products but believes that with its diverse range it can mitigate any demand decreases.

7. Future Prospects

The Board's long term approach to investment decisions is well documented and often referenced in these statements. This approach was continued in the last year as we invested significantly in our new focus categories to help drive the business forward. This coupled with other investments in new vendors, customer acquisition and our renewed strategy leave us excited about the revenue and margin opportunities for the coming year.

We see significant potential in both our existing vendors and categories and the new categories we are developing and exploring. We will continue our customer-centric focus and ensuring that our offering and service levels allow our customers to profitably grow their business and consequently grow ours.

8. Events after the reporting period

As per note 20 to the accounts the Company introduced a Company Share Ownership Scheme in July 2023.

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