LPA : 2023 Annual Report & Accounts

LPA GROUP PLC

Annual Report & Accounts 2023

LPA Group Plc

Manufacturing the future

LPA GROUP

Is an innovation-led engineering specialist in electronic and electro-mechanical components and systems

Employs approximately 140 people at three locations in the UK

Is focused on rail, aviation, defence, infrastructure and industrial markets

Has developed a successful export capability and global distribution network. Around a third of turnover is exported to over 50 countries

Is known for innovating cost-effective engineering solutions in hostile and challenging applications, to improve product reliability, reduce maintenance and life cycle costs

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

Financial & Operational Highlights

For the Year ended 30 September 2023

	2023	2022
	£000	£000
Order Entry	25,511	19,689
Order Book	31,561	27,762
Revenue	21,712	19,325
Underlying Operating Loss*	(69)	(226)
Share Based Payments, Negative Goodwill and Exceptional Items	776	1,310
Profit before Tax	759	1,074
Basic Earnings Per Share	6.52p	8.99p
Proposed Dividend	1p	-
Gearing **	7.7%	3.5%

• Operating Profit before Share Based Payments, Negative Goodwill and Exceptional Items
  ** Net Debt as a % of Total Equity

Through the year to 30 September 2023, the year included the following highlights and operational developments.

Successful acquisition and integration of competitor's range of inter-car jumper products. This gives access to approximately 2,000 vehicles across the UK where we can now offer product support.

Strong order entry leading to a year end record orderbook of £31.6m.

Continued expansion of sales partner network around the world.

Continued development of standard products across the Group to reduce dependence on large projects.

First sales from LPA Lighting Systems to aviation sector with USB charging products designed and supplied to prototype build.

ANNUAL REPORT & ACCOUNTS 2023

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Contents

FINANCIAL & OPERATIONAL HIGHLIGHTS	1
STRATEGIC REPORT	5
Chairman's Statement	5
Business Model and Strategy	8
Environmental, Social and Governance	10
Chief Executive Officer's Review	12
Financial Review	16
Principal Risks and Uncertainties	20
Key Performance Indicators	22

BOARD REPORTS	23
Audit Committee Report	24
Remuneration Report	25
Corporate Governance Report	28
Directors' Report	35
COMPANY INFORMATION	39
GROUP FINANCIAL STATEMENTS	41
Independent Auditor's Report to the Members of LPA Group plc	42
Consolidated Income Statement	50
Consolidated Statement of Comprehensive Income	51
Consolidated Balance Sheet	52
Consolidated Statement of Changes in Equity	53
Consolidated Cash Flow Statement	54
Notes to the Financial Statements	56
COMPANY FINANCIAL STATEMENTS	91
Company Balance Sheet	92
Company Statement of Changes in Equity	93
Company Notes to the Financial Statements	94
OTHER INFORMATION	103
Alternative Performance Measures Glossary	105
NOTICE OF MEETING	106
LPA GROUP PLC - FORM OF PROXY	111

ANNUAL REPORT & ACCOUNTS 2023

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STRATEGIC REPORT

Chairman's Statement

Overview

We have witnessed a much improved business, a growth in our sales line and a return to profitability in the last

6 months of the year. The individual business plans for the members of the Group are beginning to deliver on the Group's strategy. We have long recognised our need to broaden our offering as some of our operations have become too reliant on a few large customers. We have ended the year with a strong order book replacing most of what has been delivered this year, strengthened by aftercare work rather than large new projects.

LPA Connection Systems set out to have a more transformative year. Now, with its stronger focus on the aftercare market and at the same time further investment in aviation products, the strategy is starting to bear fruit. It is looking for additional markets and products away from rail that it can make and deliver to build resilience into its overhead recovery, an example of this being our recently announced entry into the battery charging market for the aviation industry.

LPA Lighting Systems will deliver over the next

18 months a lot of the extant projects that were in development, and in some cases deferred. Our challenge thereafter is to ensure we seek out other product lines for what is a first class electronic engineering design and manufacturing facility.

The completion of the executive team at LPA Channel Electric has been a welcome shift for this business as its order book increases to previous levels, and the prospects for the business are back to better than pre-pandemic levels. We are consciously looking for further opportunities in aerospace, defence and niche industrial products.

As I reported last year, we have had a very good response to our customer and relationship management programmes and the signing up of new distributor partners across the globe. Our sales and marketing team have been busy at a number of exhibitions in Europe and North America; a good example was a strong presence at Inter Airport in Munich this year.

We have recently attended AusRail Plus in Australia and International Ground Support Expo in the US. This is leading to discussions with potential partners to make and deliver products for them in the UK.

Our new Group CFO, Stuart Stanyard, joined the Board in Spring and we continue to recruit heavily into our Sales teams and into engineering competency generally. 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. Our innovation committee is developing connections with academia, having already established relationships with universities and colleges, and this will continue.

To get the balance right we will rebase our reward mechanisms to retain more moderate salaries and to increase the performance related element of our remuneration packages.

As an innovation-led engineering specialist in electronic and electro-mechanical components and systems

we will continue to invest in our capabilities. We have a programme of recruitment especially of apprentices and young engineers. Operationally, the manufacturing facilities remain first class but we need to be more agile as the Group expands and grows. We will need to react even quicker to the data flows from the manufacturing processes to be able to improve productivity in every sense. We have begun an investment in a new enterprise resource planning tool ("ERP") to give 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. To compete on a global stage, as we do, we must invest in continuous improvement.

ANNUAL REPORT & ACCOUNTS 2023

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STRATEGIC REPORT | CHAIRMAN'S STATEMENT

The sale of some surplus land in 2022 gave us plenty of working capital to carry us through what we knew would be a difficult 18 months of trading. It also enabled us to do a small acquisition during the year that we announced in March 2023. As our turnover grows we will need working capital to fund higher stock levels and debtors and we planned for this. The Bank facilities have been renewed with our Bankers and with planned profitability I am pleased to be able to report that we will pay a dividend this year and restore our policy of paying dividends going forward.

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.

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

LPA Group Board

corporate culture. We have stakeholders, in the wider sense, all over the world and it is heartening that the exec team are now able to visit them and travel freely; much of what we do is solutions based and flows from personal interactions.

Dividends and Pension Fund

A small final dividend of 1p per share (2022: nil) has been declared for the year ended 2023. The Board believes in a progressive dividend so will endeavour to set a reasonable expectation of growth over the coming years.

Included in our Balance sheet is an asset representing the actuarial valuation, as at 31 March 2023, and the consequent accounting adjustment, for our (closed) defined benefit pension scheme. I originally took over as Chair of the scheme in the short term whilst we transferred to new Managers, refocused our investment policies and endeavoured to maintain our surplus.

This ensured our CEO could stay focused on the core business. The rebalanced investment portfolio has put the scheme in a very strong position and I intend to step down as Chair leaving it to our Group CFO to govern the

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day to day running of the scheme. This will allow

me to 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.

Employees

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 still have some work to do but our more recently appointed subsidiary directors are clearly committed to these values and we will see the impact of this in the coming years.

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 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 2023 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 on pages 36-37 of the Annual Report and are published on the Group's website www.lpa-group.com.

Paul Curtis (CEO) heads up the Executive Team and he and our recently appointed Group CFO Stuart Stanyard comprise 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.

STRATEGIC REPORT | CHAIRMAN'S STATEMENT

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 an even stronger order book to work with than last year, a solid balance sheet with renewed facilities in place, positive operating cash flow and a clear vision. 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 recently, and whilst there is a slight lag in seeing measurable profit impact, there is discernible shift in momentum. I am pleased to say that our outlook is now stronger with a bright future that will be built on our innovation, capability and great customer relationships.

Robert B Horvath

Chairman

24 January 2024

ANNUAL REPORT & ACCOUNTS 2023

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STRATEGIC REPORT

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:

LPA operations	Market segment	Products, solutions, and technologies
LPA Connection Systems	Electro-mechanical systems	•	Hybrid / battery control boxes and
Light & Power House	A designer and manufacturer	•	systems
Shire Hill	of electro-mechanical systems	Control panels & boxes
Saffron Walden	and components to the rail,	•	Enclosures, fabrications, laser cut, form
CB11 3AQ, UK	rail infrastructure, aerospace		& weld
Tel: [phone]	infrastructure and industrial	• Rail, aircraft, ship & industrial connectors
markets.
[e-mail]	•	Shore supply systems
		• Transport turnkey engineering and
			manufacturing services
LPA Channel Electric	Engineered component	•	Circuit breakers
Bath Road	distribution	•	Connectors
Thatcham	High value, high level service	•	Fans & motors
Berkshire	distributor and added value	•	Relays & contactors
RG18 3ST, UK	solutions provider to the rail,
•	Switches
Tel: [phone]	aerospace, aircraft and defence
markets.	•	USB charging units
[e-mail]
LPA Lighting Systems	LED lighting and electronic	•	Electronic control systems
LPA House	systems	•	Electronic monitoring systems
Ripley Drive	A designer and manufacturer	•	Fluorescent lamp inverters
Normanton	of LED lighting and electronic	•	Complete rolling stock interior lighting
West Yorkshire	systems which serve the rail and		systems
WF6 1QT, UK	other high reliability markets.	•	Rolling stock interior and exterior door
Tel: [phone]			status indication systems
[e-mail]		• Rolling stock seat electronics solutions

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