Final Results
Leeds Group PLC
20 December 2005
Issued on behalf of Leeds Group plc
Date: Tuesday, 20 December 2005
IMMEDIATE RELEASE
LEEDS GROUP plc
Preliminary Results for the year ended 30 September 2005
• Group profit before tax and exceptional items was £800,000 (2004:
£399,000).
• After an exceptional profit of £135,000 on the sale of a business
operation, profit before tax was £935,000 (2004: loss £1,632,000) and earnings
per share were 1.9 pence (2004: loss 6.2 pence).
• Leeds Leasing returned to profitability, and was sold to Bibby Asset
Finance Limited on 31 October 2005 for a consideration of £3,700,000 plus the
repayment of Group loans of £1,350,000.
• Hemmers-Itex, after a disappointing first half, matched last year's
profitability in the second half-year.
• Following the sale of Leeds Leasing, Hemmers-Itex is the Group's sole
trading subsidiary and cash reserves in the Parent Company amount to
approximately £5.5m, equivalent to 15 pence per share.
'Hemmers-Itex is now the Group's sole trading operation, and the new financial
year has begun well with results to date showing a continuation of the strong
sales and incoming orders experienced in the second half of last year.'
'The Board will now examine the wide range of available options to explore how
best to create shareholder value from the cash and other resources at its
disposal.'
Vin Murria, Chairman
FULL STATEMENTS ATTACHED
Enquiries:
Leeds Group plc Citigate Dewe Rogerson
Malcolm Wilson, Group Managing Director Fiona Tooley
Tel: 0113 391 9000 Tel: 0121 455 8370 or 07785 703523
-2-
Leeds Group plc
Preliminary Results
STATEMENT BY THE CHAIRMAN, VIN MURRIA
Results
The Group's trading performance improved in 2005. Sales in the period amounted
to £17,188,000 (2004: £16,514,000) and profit before tax and exceptional items
was £800,000 (2004: £399,000). After an exceptional profit of £135,000 on the
sale of a business operation, profit before tax was £935,000 (2004: loss
£1,632,000) and earnings per share were 1.9 pence (2004: loss 6.2 pence).
These satisfactory results reflect the return to profitability in Leeds Leasing,
where default levels were much reduced and where new business financed increased
by 16%. Leasing profit before tax and exceptional items amounted to £462,000
(2004: loss £61,000). After a strong second half to the year, Hemmers-Itex, the
successful German-based fabric trading business, produced a full year profit
before tax of £573,000 (2004: £882,000). The reduction in profitability relates
chiefly to the costs of changing agents and successfully relocating our
multi-site activities in Nordhorn to a single facility.
Strategic Developments
Following shareholder approval at the Extraordinary General Meeting on 31
October 2005, the Group completed the sale of Leeds Leasing to Bibby Asset
Finance Limited for a consideration of £3,700,000 plus the repayment of Group
loans of £1,350,000.
Dividend
In view of the current low level of distributable reserves, the Directors do not
propose a dividend for the year under review. Although a loss of approximately
£830,000 on the disposal of Leeds Leasing will arise in the consolidated
accounts for the year ending 30 September 2006, the Parent Company will record a
profit on disposal of approximately £3,450,000 which will substantially improve
the distributable reserves position, and the Board will take that into account
in determining future dividend policy. In the meantime, at the forthcoming
Annual General Meeting, the Board will seek the renewal of its authority to buy
back the Group's shares for the benefit of shareholders. During the year under
review the Group acquired 450,000 shares under this authority.
Directors and Employees
Carol Roberts resigned from the Board on 31 October 2005 in order to continue as
Managing Director of Leeds Leasing after its sale. In view of the reduced scale
of activities, Malcolm Wilson will not be seeking re-election at the forthcoming
Annual General Meeting, although I am pleased that he has agreed to remain in a
part-time capacity to act as Company Secretary and to manage our Head Office. On
behalf of the Board, I thank both Carol and Malcolm for their commitment and
valuable contributions over the last few years of considerable restructuring and
change.
Outlook
Hemmers-Itex is now the Group's sole trading operation, and the new financial
year has begun well with results to date showing a continuation of the strong
sales and incoming orders experienced in the second half of last year. Following
the sale of Leeds Leasing, cash balances in the UK currently amount to
approximately £5,500,000, equivalent to 15 pence per share. The Board will now
examine the wide range of available options to explore how best to create
shareholder value from the cash and other resources at its disposal, keeping
shareholders informed of developments as and when appropriate.
Vin Murria
Chairman
19 December 2005
-3-
Leeds Group plc
Preliminary Results
OPERATING AND FINANCIAL REVIEW
Group result
Group turnover in the year amounted to £17,188,000 (2004: £16,514,000) with
Leeds Leasing and Hemmers-Itex achieving growth of 8% and 3% respectively.
Group profit before tax and exceptional items was £800,000, double the £399,000
reported in the previous financial year. Performance by sector is discussed
below.
The tax charge in the year of £236,000 relates exclusively to our German
operations, as no tax charge arose on UK activities.
Earnings per share before exceptional items were 1.5 pence (2004: loss 0.6
pence).
Divisional performance
Leeds Leasing
After the last two years in which default problems led to losses, it has been
encouraging to record a significant turnaround in Leeds Leasing's performance.
Although the principal cause of the improvement was an altogether better default
experience, greater volumes, increased fee income and control of overhead costs
also contributed. Profit before tax and exceptional items was £462,000 (2004:
loss £61,000).
The total value of new business financed under lease or hire purchase agreements
grew by 16% to £13,118,000. Within this, there was a move away from asset or
customer categories where default experience has in recent times been
unsatisfactory towards higher quality business, notably in the franchised fast
food sector and in commercial asset finance. Yields in these sectors are
typically lower than our traditional markets, but carry a much reduced risk
profile.
On 31 October 2005, one month after the end of the financial year under review,
the Group completed the sale of Leeds Leasing to Bibby Asset Finance Limited in
a deal that realised £5,050,000 including the repayment of a Group loan of
£1,350,000. Leeds Group plc will record a profit on disposal of some £3,450,000
that will flow into distributable reserves in the financial year ending 30
September 2006. In the Consolidated Group Accounts, the sale gave rise to a loss
on disposal of approximately £830,000, which will be recognised in the accounts
for the year ending 30 September 2006.
Hemmers-Itex
After a disappointing first half-year, the performance of our fabric wholesaling
business in Germany rebounded strongly in the second half. Taking account of the
fact that the newly established KMT business in Cologne had contributed only
from February 2004, like for like sales in the first half of the year were down
by 10%, and consequently profits were depressed. Second half sales and profits,
however, matched the impressive levels of the previous year.
The fact that Easter fell so early in 2005 considerably reduced the length of
the carnival season, which remains very popular in Europe. Sales of carnival
fabrics, which can account for as much as 25% of first half turnover, were
considerably down in 2005. In contrast, sales throughout the year were boosted
by the successful launch of our range of Disney fabrics, which contributed a
little over £500,000 to turnover. For the current year, new designs are in
production incorporating images from the new Disney films to be released in
2006.
continued...
-4-
Leeds Group plc
Preliminary Results
Our traditional customers are retailers who tend to buy from Hemmers-Itex in
short lengths of about 12 metres, double folded onto a cardboard core to form a
'coupon'. Retailers have reported difficult trading conditions in recent times,
and we have responded by increasingly focusing sales efforts towards the garment
manufacturing sector, where sales typically will be of fabric in the form in
which it is imported, which is to say on rolls of between 60 to 80 metres. It is
a measure of the success of this strategy that sales of fabric on rolls rose in
2005 by 7%, more than offsetting the reduction of 6% in sales on coupons.
Another interesting development as we seek new sales opportunities was the
decision to exhibit as a supplier at a Chinese fair. Our fashion collection
comprises fabrics bought from many different manufacturers, and we shall be
interested to discover the level of interest that could exist amongst Chinese
and other Asian customers who would otherwise need to source fabrics
individually. At the same time, we continue to strive for growth in Europe and
have appointed new agents in France and certain Eastern European markets during
the year. The cost of making these changes was approximately £200,000.
In July 2005, Hemmers-Itex completed its relocation from three warehouses in
Nordhorn to a single, larger facility that can handle the 50% growth in volume
throughput that has arisen since 2000. As well as giving management much greater
ability to control daily operations, the new facility offers retail customers an
excellent and popular new showroom in which they can select their purchases in
the manner of a supermarket.
Although it is of course early days, we are pleased that the current financial
year has opened strongly with sales in October and November 20% ahead of last
year and with an order book that, at this stage of the year, is fuller than it
has ever been.
Head Office costs
The table below illustrates the continuing downward trend in head office costs.
2005 2004 2003
£000 £000 £000
Head office expenses 373 545 556
Exchange loss/(gain) 2 56 (112)
-----------------------
Administrative expenses 375 601 444
Interest income (140) (179) (369)
-----------------------
Net head office costs before exceptional items and tax 235 422 75
Exceptional items (note 2) (135) 1,431 77
-----------------------
Net head office costs before tax 100 1,853 152
-----------------------
Textile manufacturing
Following the Group's withdrawal from textile manufacturing, there remained two
outstanding matters with potential impact on future results. Both of these are
now effectively resolved.
continued...
-5-
Leeds Group plc
Preliminary Results
The receipt of £135,000 from the shareholders of Langholm Dyeing Company
Limited, a debt for which full provision had been made, represents the final
element of the proceeds of the sale of the former UK Dyeing Division in January
2002, and is reported as an exceptional item.
Secondly, the agreement covering the sale of the Strines Textiles site in June
2002 provides for overage payments to a maximum of £1,450,000 depending on the
number of acres for which the purchaser achieves planning consents in the
fifteen years following completion. An initial planning application was rejected
in the face of opposition from Local Authority planners and the local residents
group, and a subsequent appeal at a public enquiry in early 2004 was also
unsuccessful. Consequently, the purchaser submitted a planning application of
reduced scope, which had the support of local planners and residents and for
which consent was given in March 2005. These plans envisage residential
development of fewer acres than are necessary to lead to overage payments to the
Group. Although the purchaser has subsequently submitted for approval certain
modifications to the plans, these do not contemplate a larger development and it
appears most unlikely that a development on the scale required to result in
further income to the Group will ever be possible.
Fixed assets
Capital additions in the year amounted to £134,000 (2004: £180,000) and related
chiefly to expenditure connected with the relocation of Hemmers-Itex. Tangible
fixed assets in the Balance Sheet amount to £449,000 (2004: £561,000). There
were no capital commitments at the year-end, and no material capital projects
are contemplated for the current financial year.
Working capital
At constant exchange rates, working capital increased during the year by
£432,000, exclusively in our overseas operations. Trade debtors increased
reflecting sales in August and September that were 12% higher than in the
previous year, while stocks are higher reflecting a considerably stronger order
book.
Debt profile
The funding 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 at 30 September 2005 can be analysed as follows:
Holding Leeds Hemmers- Total
Companies Leasing Itex Group
£000 £000 £000 £000
Cash (731) - (25) (756)
Overdrafts - 132 584 716
--------------------------------------------------
Total on demand (731) 132 559 (40)
Fixed rate loans due:
within one year - 7,129 1,842 8,971
after more than one year - 7,451 - 7,451
--------------------------------------------------
Net external debt (731) 14,712 2,401 16,382
--------------------------------------------------
continued...
-6-
Leeds Group plc
Preliminary Results
Bank debt in the subsidiaries is without recourse to the Parent Company and, in
the case of Hemmers-Itex, it is unsecured. Leeds Leasing's loans consist of
block discounting lines 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. This debt structure provides an effective hedge against
interest rate risk. The Leeds Leasing debt formed part of the net assets sold on
31 October 2005, and the elimination of this debt and the net sale proceeds
resulted in the Group moving on that date to a net cash position in excess of
£3,000,000.
Capital gearing
The Group's capital gearing may be presented as follows:
Total Leeds Group
Group Leasing Excl Leasing
£000 £000 £000
Net assets 11,644 4,313 7,331
---------- --------- ---------
Net external debt 16,382 14,712 1,670
Net internal debt - 1,350 (1,350)
---------- --------- ---------
Total debt 16,382 16,062 320
---------- --------- ---------
Capital gearing
Net external debt : net assets 141% 341% 23%
Total debt : net assets 141% 372% 4%
The Board considers that the gearing in Leeds Leasing is comfortably within the
limits imposed by banking covenants whilst also modest in comparison with the
norm in the sector.
Exchange exposure
It is the Group's policy not to hedge the translation of profits or losses of
its German subsidiary, nor to hedge its Balance Sheet except to the extent it is
possible to match net assets with debt denominated in Euros. Transactional
exposures arise in Hemmers-Itex where printed cloth purchased mainly in US
dollars is subsequently sold at prices denominated in Euros. The impact of
exchange rate changes is minimised by the Group's policy that requires forward
exchange contracts to be used where a product is purchased in a currency other
than in Euros.
Malcolm Wilson
Group Managing & Finance Director
19 December 2005
-7-
Leeds Group plc
Preliminary Results
Consolidated Profit and Loss Account
for the year ended 30 September 2005
2005 2004
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
£000 £000 £000 £000 £000 £'000
Turnover 14,113 3,075 17,188 13,665 2,849 16,514
Cost of sales (10,483) (287) (10,770) (10,194) (318) (10,512)
----------------------------------------------------------------------
Gross profit 3,630 2,788 6,418 3,471 2,531 6,002
Distribution costs (937) - (937) (648) - (648)
Administrative
expenses (2,327) (1,402) (3,729) (2,383) (2,367) (4,750)
----------------------------------------------------------------------
Operating profit before
exceptional
items 366 1,386 1,752 440 764 1,204
Exceptional
items - - - - (600) (600)
-----------------------------------------------------------------------
Operating profit 366 1,386 1,752 440 164 604
Exceptional
profit/(loss)
on sale of a
business
operation 135 - 135 (1,431) - (1,431)
------------------------------------------------------------------------
Profit/(loss)
before interest 501 1,386 1,887 (991) 164 (827)
------------------------------------------------------------------------
Interest
receivable and
similar income 32 88
Interest
payable and
similar
charges (984) (893)
------- ------
Net interest
payable (952) (805)
------- ------
Profit/(loss) on ordinary
activities before
taxation 935 (1,632)
Taxation on
profit or loss
on ordinary
activities (236) (630)
------- ------
Profit/(loss) for the
financial year 699 (2,262)
------- ------
Basic and diluted earnings/(loss) per share
before exceptional items 1.5p (0.6)p
exceptional items 0.4p (5.6)p
------- ------
after exceptional items 1.9p (6.2)p
------- ------
Consolidated Statement of Recognised Gains and Losses
for the year ended 30 September 2005
2005 2004
£000 £000
Profit/(loss) for the
financial year 699 (2,262)
Foreign currency translation differences (25) (110)
------- ------
Total recognised profit/(loss)
relating to the financial year 674 (2,372)
------- ------
-8-
Leeds Group plc
Preliminary Results
Balance Sheets
at 30 September 2005
Group Company
2005 2004 2005 2004
Fixed assets
Intangible assets 853 951 - -
Tangible assets 449 561 - -
Investments - - 3,731 3,731
---------------------------------------
1,302 1,512 3,731 3,773
---------------------------------------
Current assets
Stocks 4,170 3,868 - -
---------------------------------------
Debtors 5,062 4,865 1,857 1,716
Deferred taxation 875 875 75 75
Finance lease debtors 20,606 18,328 - -
---------------------------------------
Total debtors 26,543 24,068 1,932 1,791
Cash at bank and in hand 756 1,186 730 1,111
---------------------------------------
31,469 29,122 2,662 2,902
Creditors: amounts falling due (13,676) (13,353) (1,289) (1,305)
within one year
---------------------------------------
Net current assets 17,793 15,769 1,373 1,597
---------------------------------------
Of which:
---------------------------------------
due within one year 4,708 3,970 1,298 1,522
due after more than one year 13,085 11,799 75 75
---------------------------------------
---------------------------------------
Total assets less current
liabilities 19,095 17,281 5,104 5,328
Creditors: amounts falling due (7,451) (6,250) - -
after more than one year
---------------------------------------
Net assets 11,644 11,031 5,104 5,328
---------------------------------------
Capital and reserves
Called up equity share capital 4,392 4,392 4,392 4,392
Reserves 7,252 6,639 712 936
---------------------------------------
Equity shareholders' funds 11,644 11,031 5,104 5,328
---------------------------------------
Reconciliation of movements in equity shareholders' funds
Profit/(loss) loss for the financial
year 699 (2,262) (163) (1,811)
Purchase of own shares (61) - (61) -
Foreign currency translation
differences (25) (110) - -
---------------------------------------
Net transfer to/(from) equity
shareholders' funds 613 (2,372) (224) (1,811)
Opening equity shareholders' funds 11,031 13,403 5,328 7,139
---------------------------------------
Closing equity shareholders' funds 11,644 11,031 5,104 5,328
---------------------------------------
-9-
Leeds Group plc
Preliminary Results
Consolidated Cash Flow Statement
for the year ended 30 September 2005
2005 2004
£000 £000
Cash inflow from operating activities (626) 503
Return on investments and servicing of finance (952) (805)
Taxation (266) 18
Capital expenditure and financial investment (129) (177)
Acquisitions and disposals 135 -
----------------------
Cash outflow before financing (1,838) (461)
Financing 1,279 1,383
----------------------
(Decrease)/increase in cash in the year (559) 922
----------------------
Reconciliation of Net Cash Flow to Movement in Net Debt
2005 2004
£000 £000
(Decrease)/increase in cash in the year (559) 922
Net increase in loans and hire purchase commitments (1,340) (1,383)
---------------------
Change in net debt resulting from cash flows (1,899) (461)
Foreign currency translation difference 11 28
---------------------
Movement in net debt (1,888) (433)
Net debt at beginning of the year (14,494) (14,061)
---------------------
Net debt at end of the year (16,382) (14,494)
---------------------
Reconciliation of Operating Profit to Operating Cash Flows
2005 2004
£000 £000
Operating profit 1,752 604
Depreciation of fixed assets 235 193
Amortisation of goodwill 93 93
Loss on sale of tangible fixed assets 4 -
Increase in stocks (321) (131)
Increase in debtors (215) (13)
Increase in creditors 104 71
Increase in finance lease debtors (2,278) (314)
---------------------
Net cash (outflow)/inflow from operating activities (626) 503
---------------------
-10-
Leeds Group plc
Preliminary Results
Notes
1. The Directors do not recommend the payment of a dividend.
2. Exceptional items
2005
Langholm Dyeing Company Limited
Under the terms on which the Group sold a loan note to the Directors of Langholm
Dyeing Company Limited in December 2004 (see below) further payments of £50,000
remained due from the Directors of Langholm on each of the first three
anniversaries of the sale. The Group had, on grounds of prudence, retained a
full provision against this debt, which was discharged in full in May 2005 by a
single payment of £135,000. The Group remains entitled to participate to a
maximum of £375,000 in the proceeds of any sale of the Langholm business before
December 2008.
2004
Leeds Leasing plc
During 2004, following the introduction of new leasing software, the Directors
reviewed the basis on which bad debt provisions in Leeds Leasing plc were
calculated. From the date of this review, specific provisions have been made
against the Company's exposure to arrears cases with the percentage provided in
each case increasing with the number of payments in arrears. The effect of
adopting the new methodology was to increase the bad debt provision by £600,000,
which was reported as an exceptional item within operating profit.
Langholm Dyeing Company Limited
In February 2002 the Group sold its UK Dyeing Division to Langholm Dyeing
Company Limited ('Langholm'), a company established and owned by the Division's
management team, on terms that included deferred consideration in the form of an
interest bearing loan note of £1,550,000. The Group accounts for that year
included an exceptional loss on disposal of £5,275,000. During 2004 Langholm
experienced difficult trading conditions, and payments of interest to the Group
on the loan note were suspended by Langholm's bank, under the terms of the
inter-creditor agreement signed by the Group at the time of the divestment. It
became clear that it would not be possible for Langholm to pay accrued interest
in the foreseeable future, or to make the quarterly capital repayments that were
scheduled to begin in February 2005. In December 2004 the Group sold the loan
note to the Directors of Langholm for an initial cash payment of £155,000 as
part of a capital reconstruction and re-financing scheme to strengthen
Langholm's trading position. The exceptional loss of £1,431,000 on sale or
termination of a business charged in 2004 represents the aggregate of principal
and accrued interest due in respect of the loan note, as reduced by the initial
sale proceeds of £155,000.
3. The financial information set out on pages 7 to 9 does not constitute the
Company's statutory accounts for the year ended 30 September 2005 or the year
ended 30 September 2004 but is derived from those accounts.
4. Statutory accounts for the year ended 30 September 2004 have been delivered
to the Registrar of Companies, and those for the year ended 30 September 2005
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.
5. The Annual Report, giving notice of the Annual General Meeting, will be sent
to shareholders shortly. Further copies will 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.
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