Final Results
Leeds Group PLC
10 December 2002
Issued on behalf of Leeds Group plc
Date: Tuesday, 10 December 2002
Embargoed: 7.00am
Leeds Group plc
Preliminary Results for the year ended 30 September 2002
• Significant progress in delivering strategy as withdrawal from all UK
textile operations completed
• Leeds Leasing profit before tax increased by 15%, exceeding £1m for the
first time.
• Group loss before tax and exceptional items reduced to £0.3m (2001: £0.6m)
• Exceptional items of £6.3m (2001: £14.6m) lead to Group pre-tax loss of
£6.6m (2001: loss £15.2m)
• Debt of textile businesses reduced to £1.5m (2001: £12.4m)
'During the year, the Group has made substantial progress towards delivering its
declared strategy of withdrawal from textile manufacturing operations in order
to focus on its successful UK finance leasing operation. '
'In the current year, we expect Leeds Leasing to continue recent trends and
increase the value of new business financed. '
'The consolidated business of Hemmers-Itex is trading profitably and already
benefiting from cost reductions and lower levels of working capital employed. '
'The markets in which Nemesis operates remain challenging, and we continue to
monitor the cost base closely as we seek a satisfactory exit from this
business.'
Bill Cran, Chairman
FULL STATEMENTS ATTACHED
Enquiries:
Leeds Group plc Citigate Dewe Rogerson Ltd
Malcolm Wilson, Group Managing Director Fiona Tooley
Today: 07801 224618 Tel: 0121 455 8370 or 07785 703523
Thereafter: 0113 391 9000
Dawn Bowler, Group Finance Director
Tel: 0113 391 9000
-2-
Leeds Group plc
Preliminary Results
STATEMENT BY THE CHAIRMAN, BILL CRAN
Strategy
During the year, the Group has made substantial progress towards delivering its
declared strategy of withdrawal from textile manufacturing operations in order
to focus on its successful UK finance leasing operation. The sale in the year of
the UK Dyeing Division, Sharps Fabric Printers and all four surplus freehold
properties has completed the textile divestment programme in the UK. In April
2002, we announced our intent to close Itex, the Dutch fabric import and
distribution business based in Brummen, and to supply the Itex customer base
from our Hemmers business in nearby Nordhorn. This German subsidiary has now
been re-named Hemmers-Itex, and we expect synergistic cost savings to benefit
its results in the current year.
Results
In my first statement to shareholders since being appointed Chairman in February
of this year, I am pleased to report that, although the year ended 30 September
2002 was a difficult one, there have been improvements across the business.
The Group loss before tax and exceptional items was reduced from £0.6m in 2001
to £0.3m. The losses on the sale of the UK Dyeing Division and Sharps Fabric
Printers together with the closure costs of Itex in Holland resulted in
exceptional costs of £6.3m (2001: £14.6m), and after accounting for exceptional
items, the pre-tax loss for the year was £6.6m (2001: £15.2m). During the year,
we reduced indebtedness in our textile businesses to £1.5m (2001: £12.4m).
Trading results for our continuing businesses were mixed. Leeds Leasing made
further satisfactory progress. Pre-tax profit grew by 15%, exceeding £1m for the
first time. There was an increase of 11% in the lease book which was almost
wholly funded through cash generation; bank debt increased modestly to £13.7m
(2001: £13.3m). Operating profit before exceptional items in Hemmers-Itex fell
by 5% in the light of a 15% reduction in sales reflecting the difficult
retailing environment, especially in Germany. In addition, in response to the
unacceptable bad debt losses of previous years, we implemented a policy of
supplying only to customers where we were able to obtain credit insurance. The
operating loss before exceptional items at Nemesis increased by £0.6m to £0.7m
as a consequence of a reduction in turnover of £2.8m (18%), in response to which
we reduced employment levels by 17%.
We have made significant progress towards our goal of resuming dividends and
returning surplus cash to shareholders. Following the divestment of all textile
manufacturing businesses other than Nemesis, within the much reduced net debt of
£1.5m that remains in our textile operations at 30 September 2002 there was a
Sterling cash surplus of £8.1m. However, it remains the case that, for practical
purposes, we shall need to have divested Nemesis before beginning the process of
capital reconstruction necessary to achieve our goal. To resolve this issue
remains our top priority for the short term.
People
As a consequence of the restructuring of recent years, we have three continuing
businesses. Leeds Leasing, Hemmers-Itex and Nemesis are each managed by strong
boards of directors, which include members of the main board. During the year,
we took steps to reduce the level of Head Office costs, and full time employees
have been reduced to a number appropriate for the reduced size of the Group as a
whole. It has been a testing year for all concerned and my thanks go to our
staff for their hard work during the year.
On behalf of the Board, I would also like to congratulate Malcolm Wilson and
Dawn Bowler who were promoted to Managing Director and Finance Director
respectively in September 2002.
-3-
Leeds Group plc
Preliminary Results
Prospects
In the current year, we expect Leeds Leasing to continue recent trends and
increase the value of new business financed, and we have in place sufficient
bank facilities, without recourse to the parent company, to fund this
anticipated growth. Profit growth is likely to be restricted by the need to
absorb more costs previously borne by Group Head Office.
The consolidated business of Hemmers-Itex is trading profitably and already
benefiting from cost reductions and lower levels of working capital employed.
The sale of the freehold property in Holland previously occupied by Itex was
completed in November and the proceeds will contribute to what we anticipate to
be a year of strong cash generation.
In the first two months of the current year, Nemesis has traded profitably and
although early indications are that sales for the year will be stronger than
last year, the continuing seasonal nature of this business would lead us to
expect, at this stage, that Nemesis could make a small full year loss. The
markets in which Nemesis operates remain challenging, and we continue to monitor
the cost base closely as we seek a satisfactory exit from this business.
-4-
Leeds Group plc
Preliminary Results
OPERATING AND FINANCIAL REVIEW
Group sales
Turnover for the year was £33.5m, and the reduction from last year's level of
£56.2m reflects the absence of sales from the UK Printing Division, divested in
the summer 2001, and only 15 weeks sales from UK Dyeing Division, which was sold
in January 2002. An analysis of sales by segment shows:
Translation Increase/
2001 Differences (Decrease) 2002
£000 £000 £000 £000
Leeds Leasing
Gross rentals 9,985 - 2,568 12,553
Depreciation of leased assets (6,975) - (1,944) (8,919)
Leasing turnover 3,010 - 624 3,634
Hemmers-Itex 14,969 216 (2,451) 12,734
Nemesis 15,760 228 (3,027) 12,961
Continuing operations 33,739 444 (4,854) 29,329
Discontinued in 2001 9,354 - (9,354) -
Discontinued in 2002 13,137 - (8,993) 4,144
Group sales 56,230 444 (23,201) 33,473
Group operating profit
An analysis by segment of operating profit/(loss) before exceptional items
shows:
Translation Increase/
2001 Differences (Decrease) 2002
£000 £000 £000 £000
1,683 - 208 1,891
Leeds Leasing
Hemmers-Itex 601 9 (40) 570
Nemesis (51) (1) (644) (696)
Unallocated central costs (753) - (172) (925)
Continuing operations 1,480 8 (648) 840
Discontinued in 2001 (2,528) - 2,528 -
Discontinued in 2002 2,052 - (1,887) 165
Group operating profit before exceptional items 1,004 8 (7) 1,005
Leeds Leasing
Leeds Leasing enjoyed another satisfactory year of growth, establishing a new
record level of pre-tax profit for the third successive year. New business
financed, whether taken onto our own book or brokered, increased by 13%, gross
revenue (turnover) increased by 21% and pre-tax profit grew by 15%. The lease
book at the year end stood at £18.3m, 11% higher than 2001. Although the
majority of new business was written in the traditional core sectors of
catering, leisure and hospitality, we wrote an encouraging level of business in
newer sectors, such as machine tools, and made progress towards introducing our
business model to other sectors as well.
-5-
Leeds Group plc
Preliminary Results
Leeds Leasing (contd)
The management team was further strengthened in the year by the appointment of
David Eyre as Head of Risk, an area where, after a long career in finance
leasing, he has gained considerable experience. In the current year, we also
intend to improve the functionality of our IT and information systems to provide
a more modern platform for the information and control environment that will
support further growth in the future.
As a sales-aid leasing Company, our success is linked to that of the suppliers
of capital goods from whom we receive referrals. We believe we have already
partnered with quality suppliers and continue to add to this list where we see
growth prospects that are sound. Adequate bank funding, without recourse to the
parent company, is in place to finance our growth plans. Although profit growth
in the current year will be held back by the need to absorb more costs
previously borne by the Group Head Office, the outlook for the future remains
encouraging.
Hemmers-Itex
Sales by the Dutch-based Itex fell by 29%, principally due to the ease with
which its larger customers are now able to source directly and more
cost-effectively from the Far East, and to our change in internal policy that
requires credit insurance to be available for all deliveries. At Hemmers, sales
were just 4% below the previous year despite the adverse conditions affecting
the German retail sector. Overall, sales for Hemmers-Itex fell by 15% but the
rate of gross margin was maintained and reduced overheads, particularly bad debt
expense, restricted the reduction in operating profit before exceptional costs
to 5%.
During the year, we obtained the consent of the court to our plan to close Itex,
and agreed with the workforce a social plan under which deliveries from the
Dutch warehouse ceased at the end of November 2002. An exceptional cost of £1.1m
is included in respect of this closure to cover redundancy costs and asset
write-downs.
In the current year, with all warehousing and customer deliveries handled at
Hemmers, we expect the reduced overheads to be reflected in increased
profitability. It is important to retain as much of the Itex customer base as
possible and, to that end, the Company retains a dedicated sales team in
Holland. The Navision integrated business software successfully implemented in
2002 creates the information and control environment in which we expect not only
to be able to manage the greater throughput in Germany, but to achieve further
stock reductions.
Nemesis
2002 proved to be the most disappointing year for Nemesis since it was acquired
by the Group in 1996. Following very low levels of demand in the garden
furniture season, first half sales were down by 25% on the previous year and
although sales in the second half were only 2% down on 2001, the sales reduction
of £2.8m in the year as a whole led inevitably to a large operating loss of
£0.7m (2001: loss £0.1m). The adverse profit impact of reduced sales was
partially offset by reduced overheads: although administrative expenses have
increased in 2002 by £227,000, the 2001 comparative figure included one-off
currency gains and profits on asset sales together amounting to £294,000.
Exceptional restructuring costs of £0.2m were incurred in the year, chiefly in
respect of reduced employment levels. Incoming orders and sales in the first two
months of the current financial year, the size of the order book compared with
last year, and the reduced cost base make it likely that 2003 would not see
losses at Nemesis of the magnitude of 2002. Nevertheless, we have concluded that
the best interests of shareholders will be served by a rapid sale of Nemesis,
and this is our greatest priority in the months ahead.
-6-
Leeds Group plc
Preliminary Results
Exceptional items
The exceptional costs of £6.3m relate to group restructuring and are described
in note 2. The loss on sale of textile businesses of £5.3m includes £3.9m of
recycled goodwill written back to reserves on the disposal of the UK Dyeing
Division. Taking account of this goodwill, and of the exceptional tax credit of
£0.6m, the net impact of exceptional items on shareholders' funds is restricted
to £1.8m.
During the year, net cash receipts relating to the restructuring undertaken in
the last two years amounted to £8.8m. In November 2002, the cash cost of
restructuring Hemmers-Itex was more than recovered by the sale for £0.6m of a
freehold property in Holland.
Net interest expense
The Group net interest charge is analysed as follows:
2002 2001
£000 £000
872 796
Leeds Leasing
Textile operations 446 810
Group total 1,318 1,606
The interest cost of Leeds Leasing is expected to grow in line with the further
expansion of the lease book and its associated debt. The reduction in interest
incurred in textile operations reflects the fall in textile related debt in the
year from £12.4m to £1.5m.
Taxation
The tax credit for the year reflects tax recoverable in the UK and Holland due
to the cessation of trade in Leeds Dyers Ltd and Itex, and a deferred tax asset
in Leeds Leasing recognised in line with the requirements of FRS 19. The
profits of Leeds Leasing have been fully relieved by Group losses for the last
two years, during which time first year allowances were not claimed in order to
maximise the use of group relief. The tax value of these deferred capital
allowances is such that the tax charge for Leeds Leasing in the next two years
is expected to consist entirely of the reversal of the deferred tax asset
recognised this year, with no cash tax becoming payable.
Dividend
As a result of the exceptional losses on disposal of the remainder of the
Group's UK textile interests, the deficit on distributable reserves increased to
£6.5m during the year and in these circumstances it is not possible to resume
dividend payments. Immediately upon divesting Nemesis it will be possible to
carry out the scheme of capital reconstruction that is required to permit
dividends to be paid and surplus cash being returned to shareholders in the
future.
Trading Outlook
The current year has begun in a satisfactory manner at Leeds Leasing and at
Hemmers-Itex, and we confidently expect both of these businesses to make further
progress in the remainder of the year.
At Nemesis, early order intake and sales volumes are ahead of last year, and the
order book is substantially fuller. Nevertheless, we do not believe that the
level of sales in the full year will be sufficient to generate a level of
operating profit that would justify retaining Nemesis within the Group, and
therefore we are taking steps to divest the business over the following months.
-7-
Leeds Group plc
Preliminary Results
Fixed assets
Fixed asset additions in the year amounted to less than £0.4m, and future
capital expenditure will continue to be restricted to essential items required
to maintain production capacity. Tangible fixed assets in the Balance Sheet fell
during the year from £16.1m to £5.9m, reflecting the completion of the UK
textile divestment programme. Following the sale in November 2002 of the Dutch
property formerly occupied by Itex, the Group has no material fixed assets other
than those at Nemesis, which comprise a freehold property (£3.1m) and plant and
machinery (£1.8m).
Working capital
Significant reductions were achieved during the year in Hemmers-Itex (17%) and
Nemesis (32%), which are analysed as follows:
Hemmers-Itex Nemesis
£000 £000
710 919
Stock
Trade debtors 522 581
Other 149 36
Total working capital reduction 1,381 1,536
These working capital reductions reflect reduced activity levels as well as
management actions to reduce investment in working capital. At Hemmers-Itex, we
believe that stock can safely be reduced further. In the case of Nemesis, the
working capital reduction meant that the large loss sustained did not lead to an
increase in debt, although it is doubtful whether further material working
capital reductions can be made to fund any further losses.
Exchange exposure
It is not the Group's policy to hedge the translation of profits or losses of
its European subsidiaries, nor to hedge their balance sheets except to the
extent it is possible to match their net assets with debt denominated in Euros.
Transactional exposures arise in European subsidiaries where loomstate cloth or
printed fabric is sold, principally in Euros, having first been purchased in US
Dollars. The impact of exchange rate changes is minimised by the Group's policy
requiring forward exchange contracts to match sales and purchases denominated in
a currency foreign to the subsidiary.
-8-
Leeds Group plc
Preliminary Results
Debt profile
The borrowings policy of the Group continues to be to match its funding
requirement in a cost- effective fashion with an appropriate combination of
short and medium term debt. The Group's net debt of £15.2m at 30 September may
be analysed as follows:
Textile operations Total Leasing
Denominated in textiles Denominated in Total
Euro Sterling debt Sterling Group
£000 £000 £000 £000 £000
(454) (8,081) (8,535) - (8,535)
Cash
Overdrafts 5,354 - 5,354 1,664 7,018
Total on demand 4,900 (8,081) (3,181) 1,664 (1,517)
Fixed rate loans due:
within one year 3,662 - 3,662 6,561 10,223
after more than one year 1,028 - 1,028 5,461 6,489
Total 9,590 (8,081) 1,509 13,686 15,195
Bank borrowings in Hemmers-Itex and Nemesis are unsecured, but are covered by
parent company guarantees. Leeds Leasing debt consists primarily of block
discounting lines with a number of banks under which fixed interest debt is
raised with an amortising profile matching that of the block of lease agreements
on which the debt is secured, and borrowings of £12.0m are secured in this
fashion. Of the debt of £13.7m at 30 September 2002, £3.2m was covered by parent
company guarantees. Since that date, the parent company has been released from
the guarantees in respect of further borrowings amounting to £1.5m. As at 9
December 2002, the aggregate borrowings facilities negotiated by Leeds Leasing,
without recourse to the parent company, amounts to £17.8m.
Capital gearing
The Group's gearing at 30 September 2002 is analysed between leasing and textile
activities as follows:
2002 2001
Leasing Textiles Group Leasing Textiles Group
£000 £000 £000 £000 £000 £000
Shareholders' funds 4,732 17,206 21,938 3,034 20,828 23,862
Net debt 13,686 1,509 15,195 13,336 12,360 25,696
Gearing 289% 9% 69% 440% 59% 108%
The Directors consider the gearing in Leeds Leasing to be modest in comparison
with the norm in the sector and is well within the limits imposed by banking
covenants. The amortising debt structure provides a suitable hedge against
interest rate risk.
Malcolm Wilson Dawn Bowler
Managing Director Finance Director
-9-
Leeds Group plc
Preliminary Results
Consolidated Profit And Loss Account
for the year ended 30 September 2002
2002 2001
Continuing Discontinued Continuing Discontinued Restated
operations operations Total operations operations Total
£000 £000 £000 £000 £000 £000
Turnover 29,329 4,144 33,473 33,739 22,491 56,230
Cost of sales (21,803) (3,135) (24,938) (25,774) (18,913) (44,687)
Gross profit 7,526 1,009 8,535 7,965 3,578 11,543
Distribution costs (1,075) (83) (1,158) (1,284) (472) (1,756)
Administrative expenses (6,931) (761) (7,692) (8,567) (3,953) (12,520)
Operating profit/(loss) before
exceptional items 840 165 1,005 1,480 (476) 1,004
Exceptional items (1,320) - (1,320) (3,366) (371) (3,737)
Operating (loss)/profit (480) 165 (315) (1,886) (847) (2,733)
Profit on sale of land and - 295 295 - 1,185 1,185
buildings
Loss on sale or termination of
a business operation - (5,275) (5,275) - (12,057) (12,057)
Loss before interest (480) (4,815) (5,295) (1,886) (11,719) (13,605)
Interest receivable and similar income 198 78
Interest payable and similar charges (1,516) (1,684)
Net interest payable (1,318) (1,606)
Loss on ordinary activities before (6,613) (15,211)
taxation
Tax credit on loss on ordinary 710 3,320
activities
Loss on ordinary activities after
taxation for the financial year
(5,903) (11,891)
Equity dividends paid and proposed - (366)
Unrecovered loss for the financial year (5,903) (12,257)
(Loss)/earnings per share
before exceptional items (0.7)p 0.7p
exceptional items (15.5)p (33.2)p
after exceptional items (16.2)p (32.5)p
Dividend per share - 1.0p
Consolidated Statement of Total Recognised Gains And Losses
Restated
2002 2001
£000 £000
Loss for the financial year (5,903) (11,891)
Foreign currency translation differences 91 217
Total recognised losses relating to the financial year (5,812) (11,674)
Comparative figures have been restated to reflect the adoption of FRS 19 on
deferred taxation. A prior year adjustment of £798,000 has therefore been made.
-10-
Leeds Group plc
Preliminary Results
Consolidated Balance Sheet
at 30 September 2002
Group Company
Restated
2002 2001 2002 2001
£000 £000 £000 £000
Fixed assets
Intangible assets 1,053 1,123 - -
Tangible assets 5,894 16,074 42 -
Investments - - 4,342 5,741
6,947 17,197 4,384 5,741
Current assets
Stocks 7,235 10,109 - -
Debtors 11,169 14,920 14,694 18,170
Deferred taxation 1,050 742 75 -
Finance lease debtors 18,335 16,702 - -
Total debtors 30,554 32,364 14,769 18,170
Cash at bank and in hand 8,535 215 1 1
46,324 42,688 14,770 18,171
Creditors: amounts falling due
within one year (24,844) (26,639) (641) (839)
Net current assets 21,480 16,049 14,129 17,332
Of which:
due within one year 8,820 5,501 14,054 17,332
debtors due after more than one year 12,660 10,548 75 -
Total assets less current liabilities 28,427 33,246 18,513 23,073
Creditors: amounts falling due
after more than one year (6,489) (9,277) - -
Accruals and deferred income - (107) - -
Net assets 21,938 23,862 18,513 23,073
Capital and reserves
Called up equity share capital 9,150 9,150 9,150 9,150
Share premium account 15,832 15,832 15,832 15,832
Profit and loss account (3,044) (1,120) (6,469) (1,909)
Equity shareholders' funds 21,938 23,862 18,513 23,073
Reconciliation of movements in shareholders' funds
Result for the year (5,903) (11,891) (4,560) (13,861)
Dividends paid - (366) - (366)
Goodwill written back 3,888 5,173 - -
Exchange differences 91 217 - -
Net transfer from shareholders' funds (1,924) (6,867) (4,560) (14,227)
Shareholders funds' at the beginning of the year 23,862 30,729 23,073 37,300
Shareholders funds' at the end of the year 21,938 23,862 18,513 23,073
-11-
Leeds Group plc
Preliminary Results
Consolidated Cash Flow Statement
for the year ended 30 September 2002
2002 2001
£000 £000
Cash inflow/(outflow) from operating activities 3,148 (2,786)
Return on investments and servicing of finance (1,318) (1,606)
Taxation (385) 126
Capital expenditure and financial investment 4,604 (434)
Acquisitions and disposals 4,625 943
Equity dividends paid - (1,098)
Cash inflow/(outflow) before financing 10,674 (4,855)
Financing (2,635) 3,213
Increase/(decrease) in cash in the year 8,039 (1,642)
Reconciliation of Net Cash Flow to Movement in Net Debt
2002 2001
£000 £000
Increase/(decrease) in cash in the year 8,039 (1,642)
Net cash inflow/(outflow) from debt and lease financing 2,635 (3,213)
Change in net debt resulting from cash flows 10,674 (4,855)
Translation difference (173) (399)
Movement in net debt 10,501 (5,254)
Net debt at beginning of the year (25,696) (20,442)
Net debt at end of the year (15,195) (25,696)
Reconciliation of operating profit to operating cash flows
2002 2001
£000 £000
Operating loss (315) (2,733)
Depreciation and amortisation of fixed assets 856 2,196
Impairment of tangible fixed assets and goodwill, and other assets
written off 294 3,366
Amortisation of goodwill 86 69
Grants received - 62
Loss/(profit) on sale of tangible fixed assets 86 (86)
Decrease in stocks 1,822 1,056
Decrease in debtors 3,062 1,711
Decrease in creditors (1,110) (3,174)
Increase in finance lease debtors (1,633) (4,349)
3,148 (1,882)
Expenditure relating to exceptional items:
Redundancy costs - (568)
Other costs - (336)
- (904)
Net cash inflow/(outflow) from operating activities 3,148 (2,786)
-12-
Leeds Group plc
Preliminary Results
Notes
1. The Directors do not recommend the payment of a dividend.
2. Exceptional items of £6.3m were charged in the year in respect of:
£m
Hemmers-Itex consolidation 1.1
Nemesis 0.2
1.3
Sale of land and buildings (0.3)
Sale of UK textile businesses 5.3
6.3
3. Comparative figures have been restated to reflect the adoption of FRS 19 on
deferred taxation. A prior year adjustment of £798,000 has therefore been
made.
4. The financial information set out on pages 9 to 11 does not constitute the
Company's statutory accounts for the year ended 30 September 2002 or the
year ended 30 September 2001 but is derived from those accounts.
5. Statutory accounts for the year ended 30 September 2001 have been delivered
to the Registrar of Companies, and those for the year ended 30 September
2002 will be delivered following the Company's Annual General Meeting.
The auditors have reported on those accounts: their reports were
unqualified and did not contain statements under section 237(2) or (3) of
the Companies Act 1985.
6. Full accounts will be sent to shareholders in December 2002. Further
copies will then be available from the Company's Registered Office,
Schofield House, Gateway Drive, Yeadon, Leeds, LS19 7XY, or from the
Group's website, www.leedsgroup.plc.uk.
7. The Annual General Meeting will be held at the offices of KPMG Audit Plc,
1 The Embankment, Neville Street, Leeds, LS1 4DW on 17 March 2003 at
9.30am.
This information is provided by RNS
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