Final Results

Leeds Group PLC 31 January 2007 Issued on behalf of Leeds Group plc Date Wednesday, 31 January 2007 IMMEDIATE RELEASE LEEDS GROUP plc Preliminary Results for the year ended 30 September 2006 - Group profit before tax and exceptional items was Â£743,000 (2005: Â£800,000). - After an exceptional loss of Â£838,000 on the sale of Leeds Leasing, Group loss before tax was Â£95,000 (2005: profit Â£935,000). - Hemmers-Itex generated sales of Â£16.3 million and profit before tax of Â£712,000 - increases over 2005 of 16% and 24% respectively. - Further reductions of Â£104,000 in unallocated Central Costs. - Share buy-back programme continued, with additional purchases of 1,390,000 shares at a cost of Â£289,000. - Earnings per share from Continuing Operations were 1.0 pence (2005: 0.3 pence). - No dividend proposed while Board continues search for suitable investment opportunities. 'Hemmers-Itex has widened its customer base to include manufacturers of ready-made items as well as fabric retailers. Sales grew by 16%, and this additional volume contributed to pre-tax profit of Â£712,000 which was 24% higher than in 2005' '...the Board continues to work to identify suitable acquisitions that can strengthen the Group while creating and enhancing shareholder value.' Vin Murria, Chairman FULL STATEMENTS ATTACHED Enquiries: Leeds Group plc Citigate Dewe Rogerson Malcolm Wilson, Company Secretary Fiona Tooley Tel: 0113 391 9000 or 07801 224618 Tel: 0121 455 8370 or 07785 703523 Ewen Wigley, Director Tel: 07815 134466 Leeds Group plc Preliminary Results STATEMENT BY THE CHAIRMAN, VIN MURRIA Results The Group's trading performance in 2006 was satisfactory. Group profit before tax and exceptional items was Â£743,000 (2005: Â£800,000) with improved profitability in our continuing operations and further reductions in Central Costs just failing to offset the reduction of Â£441,000 in profit from Leeds Leasing following its sale on October 31 2005. Hemmers-Itex has widened its customer base to include manufacturers of ready-made items as well as fabric retailers. Sales grew by 16%, and this additional volume contributed to pre-tax profit of Â£712,000 which was 24% higher than in 2005. After the exceptional loss of Â£838,000 on disposal of Leeds Leasing, Group loss before tax was Â£95,000 (2005: profit Â£935,000). 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 Â£3,700,000 plus the repayment of Group loans of Â£1,350,000. This transaction has substantially strengthened the Group's Balance Sheet: net proceeds and debt sold with the business amounted to Â£19,572,000, which had the effect of transforming the Group from a position of indebtedness to one of having net cash resources. We have applied Â£289,000 during the year to continued purchases of Group shares, bringing to 1,840,000 the total shares held in treasury, equal to 5% of the issued share capital. Subject to shareholder approval at the forthcoming AGM, the Company intends to continue this programme whenever opportunities arise to make purchases for the benefit of shareholders at a price below net asset value. Dividend In view of the post-tax loss of Â£447,000 in the year, the Directors do not propose a dividend. Future dividend policy will be determined in the light of profitability and, in the short-term, the cost of investment opportunities that we are working to identify. Directors and Employees During the year, Carol Roberts and Malcolm Wilson resigned from the Board. The disposal programme that had begun when I joined the Board in 2002 is now complete, and the Group's activities have been redirected from manufacturing to trading. With increasing commitments elsewhere, I have judged it right to step down and leave the Company at the conclusion of the forthcoming AGM. At that time, Ewen Wigley will succeed me as Chairman and it is the intention of the Board to appoint Peter Gyllenhammar, a major shareholder in the Group, as a Director. On behalf of shareholders I should like to thank the management and staff of Hemmers-Itex for their efforts during the year, in which the volume of fabric sales grew by 16% to almost 11 million metres. Outlook The new financial year has begun with strong sales at Hemmers-Itex. The Group Balance Sheet contains cash of nearly Â£5 million, and the Board continues to work to identify suitable acquisitions that can strengthen the Group while creating and enhancing shareholder value. Vin Murria Chairman 31 January 2007 Leeds Group plc Preliminary Results OPERATING AND FINANCIAL REVIEW Group Result Group turnover in the year was Â£16,575,000 (2005: Â£17,188,000). The reduction of Â£613,000 from the previous year is the net of turnover reduced by Â£2,820,000 in Leeds Leasing, which was sold in October 2005, and increased sales of Â£2,207,000 (16%) generated by the Group's continuing business, Hemmers-Itex. Group profit before tax and exceptional items was Â£743,000 (2005: Â£800,000) as the absence of profit from Leeds Leasing for 11 months of the year was not quite offset by the increased profitability of Hemmers-Itex, further reductions in Central Costs, and interest income on the proceeds of the divestment. There was an exceptional loss on the disposal of Leeds Leasing of Â£838,000 and this was approximately equal to the deferred tax asset recognised in the completion accounts. After charging this exceptional loss, the loss before tax for the year was Â£95,000 (2005: profit Â£935,000). The tax charge in the year was Â£352,000 (2005: Â£236,000) and included UK deferred tax of Â£75,000 that no longer appears recoverable in the near future. The German tax charge of Â£273,000 included a prior year charge of Â£32,000 following a tax audit covering the years from 2000 to 2003. Earnings per share from continuing operations before exceptional items were 1.0 pence (2005: 0.3 pence). Hemmers-Itex This German-based subsidiary is engaged in the import, warehousing and wholesaling of fabrics. This business enjoyed a year of impressive growth in both volumes and profits. Sales grew by 16% to almost 11 million linear metres of fabric, and by a similar percentage to Â£16,320,000. This was achieved despite depressed market conditions, which have been affecting our traditional customer base of fabric retailers. A feature of the year was a further increase in sales to manufacturers of ready-made items of apparel and household goods, a market that we identified a few years ago as important to future growth. The changing nature of our customer base requires changes to our sales structure. During the year we strengthened our sales force, as well as the team of agents generating sales on our behalf throughout Europe. During the current year we shall discontinue our sales lorries that have served our German retailer customer base for many years, switching to a highly mobile sales force that will be able to display the entire collection and offer guaranteed delivery in 24 hours. Gross profit grew by 4% to Â£3,774,000. The rate of gross margin declined a little from 25.7% in 2005 to 23.1% in 2006 reflecting the increasing significance of the ready-made sector in our sales. Despite the sales growth, overheads fell by Â£31,000 from the level of 2005, when approximately Â£200,000 had been spent on restructuring our team of agents in France and certain Eastern European markets. In the current year we shall achieve operational efficiencies by consolidating onto our principal facility at Nordhorn the warehousing and distribution activities of our KMT operation currently located in Cologne. In view of the increased exposure to newer market sectors, where customer delivery and quality expectations are higher, the Directors have implemented a more robust stock provisioning methodology whose impact on profits in the year was approximately Â£130,000. The net result of increased gross profit and reduced overhead was an increase in pre-tax profit of 24% to Â£712,000. The current financial year has begun well, with sales after three months in line with last year. Leeds Leasing The sale of Leeds Leasing to Bibby Asset Finance Limited was completed on 31 October 2005, and accordingly only the pre-tax profit of Â£21,000 earned in October 2005 is included in the Group profit and loss account for the year ended 30 September 2006. There was a loss on disposal, after transaction costs, of Â£838,000 but a positive impact on the Group's cash position of Â£19,572,000 as follows: Â£000 Consideration for sale 3,700 Repayment of parent company loan 1,350 Bank overdraft disposed of 155 Bank debt and HP commitments disposed of 14,571 Transaction costs (204) ------- 19,572 ------- Head office costs The table below illustrates the continuing downward trend in Head office costs. 2006 2005 2004 2003 Â£000 Â£000 Â£000 Â£000 Head office expenses 262 373 545 556 Exchange loss/(gain) 9 2 56 (112) ---------------------------------- Administrative expenses 271 375 601 444 Interest income (281) (140) (179) (369) ---------------------------------- Net Head office (income)/costs before exceptional items and tax (10) 235 422 75 Exceptional items (note 2) - (135) 1,431 77 ---------------------------------- Net head office (income)/costs before tax (10) 100 1,853 152 ---------------------------------- Further reductions can be expected in the current year which will feel the full year benefit of cost savings achieved in 2006 as well as further economies made since the year-end. Textile manufacturing The withdrawal from textile manufacture is now complete, with very few issues remaining outstanding. The Langholm Dyeing business was sold to its management in February 2002, and the Group remains entitled to participate to a maximum of Â£375,000 in the proceeds of any onward sale completed before December 2008. The Group owns the freehold title to a plot of land of approximately 5 acres adjacent to the site of the former Scott & Rhodes factory in Yeadon, and during the year an attempt to include this land within the green belt was successfully resisted. More recently, a public enquiry was held to deal with an attempt to have the land registered as a town or village green, the outcome of which is expected in the Spring of 2007. The Directors are of the opinion that, in its current use, the value of the land is negligible. Fixed assets Capital additions in the year amounted to Â£42,000 (2005: Â£134,000). Tangible fixed assets in the Balance Sheet amount to Â£245,000 (2005: Â£449,000). 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 Â£587,000 of which Â£407,000 reflects higher stockholding in Hemmers-Itex made necessary by increased sales volumes and the need to offer to customers guaranteed 24-hour delivery of samples and sales goods. Leeds Group plc Preliminary Results Debt Profile The funding policy of the Group continues to be to match its funding requirement in trading subsidiaries in a cost-effective fashion with an appropriate combination of short and medium-term debt. The Group's net cash balances at 30 September 2006 can be analysed as follows: Holding Hemmers- Total Companies Itex Group Â£000 Â£000 Â£000 Cash (4,682) (24) (4,706) Overdrafts - 228 228 ----------------------------------- Total on demand (4,682) 204 (4,478) Fixed rate loans due within one year - 1,695 1,695 ----------------------------------- Net cash balances (4,682) 1,899 (2,783) ----------------------------------- Bank debt in the subsidiaries is unsecured and without recourse to the Parent Company. Ewen Wigley Director 31 January 2007 Leeds Group plc Preliminary Results Consolidated Profit and Loss Account for the year ended 30 September 2006 Continuing 2006 Total Continuing 2005 Total operations Discontinued Â£000 operations Discontinued Â£000 Â£000 operations Â£000 operations Â£000 Â£000 Turnover 16,320 255 16,575 14,113 3,075 17,188 Cost of sales (12,546) (24) (12,570) (10,483) (287) (10,770) ----------------------------------------------------------------------- Gross profit 3,774 231 4,005 3,630 2,788 6,418 Distribution costs (874) - (874) (937) - (937) Administrative expenses (2,255) (125) (2,380) (2,327) (1,402) (3,729) ----------------------------------------------------------------------- Operating profit 645 106 751 366 1,386 1,752 Exceptional (loss)/profit on sale of a business operation - (838) (838) 135 - 135 ----------------------------------------------------------------------- Profit/(Loss) before interest 645 (732) (87) 501 1,386 1,887 ----------------------- ----------------------- Interest receivable and similar income 207 32 Interest payable and similar charges (215) (984) ------- ------ (Loss)/profit on ordinary activities before taxation (95) 935 Taxation on (loss)/profit on ordinary activities (352) (236) ------- ------ (Loss)/profit for the financial year (447) 699 ------- ------ Basic and diluted earnings/(loss) per share: From continuing and discontinued activities before exceptional items 1.1p 1.5p exceptional items (2.4)p 0.4p ------- ------ after exceptional items (1.3)p 1.9p ------- ------ From continuing activities before exceptional items 1.0p 0.3p exceptional items - 0.4p ------- ------ after exceptional items 1.0p 0.7p ------- ------ Consolidated Statement of Recognised Gains and Losses for the year ended 30 September 2006 2006 2005 Â£000 Â£000 (Loss)/profit for the financial year (447) 699 Foreign currency translation differences (33) (25) ------- ------ Total recognised (loss)/profit relating to the financial year (480) 674 ------- ------ Leeds Group plc Preliminary Results Balance Sheets at 30 September 2006 Group Company 2006 2005 2006 2005 Fixed assets Intangible assets 757 853 - - Tangible assets 245 449 2 - Investments - - 3,681 3,731 --------------------------------------- 1,002 1,302 3,683 3,731 --------------------------------------- Current assets Stocks 4,552 4,170 - - --------------------------------------- Debtors 3,990 5,062 883 1,857 Deferred taxation - 875 - 75 Finance lease debtors - 20,606 - - --------------------------------------- Total debtors 3,990 26,543 883 1,932 Cash at bank and in hand 4,706 756 4,682 730 --------------------------------------- 13,248 31,469 5,565 2,662 Creditors: amounts falling due (3,375) (13,676) (1,136) (1,289) within one year --------------------------------------- Net current assets 9,873 17,793 4,429 1,373 --------------------------------------- Of which: --------------------------------------- due within one year 9,873 4,708 4,429 1,298 due after more than one year - 13,085 - 75 --------------------------------------- --------------------------------------- Total assets less current liabilities 10,875 19,095 8,112 5,104 Creditors: amounts falling due - (7,451) - - after more than one year --------------------------------------- Net assets 10,875 11,644 8,112 5,104 --------------------------------------- Capital and reserves Called up equity share capital 4,392 4,392 4,392 4,392 Profit & loss account 6,483 7,252 3,720 712 --------------------------------------- Equity shareholders' funds 10,875 11,644 8,112 5,104 --------------------------------------- Reconciliation of movements in equity shareholders' funds (Loss)/profit for the financial year (447) 699 3,297 (163) Purchase of own shares (289) (61) (289) (61) Foreign currency translation differences (33) (25) - - --------------------------------------- Net transfer (from)/to equity shareholders' funds (769) 613 3,008 (224) Opening equity shareholders' funds 11,644 11,031 5,104 5,328 --------------------------------------- Closing equity shareholders' funds 10,875 11,644 8,112 5,104 --------------------------------------- Leeds Group plc Preliminary Results Consolidated Cash Flow Statement for the year ended 30 September 2006 2006 2005 Â£000 Â£000 Cash inflow/(outflow) from operating activities 324 (626) Return on investments and servicing of finance (8) (952) Taxation (431) (266) Capital expenditure and financial investment (18) (129) Acquisitions and disposals 5,001 135 --------------------- Cash inflow/(outflow) before financing 4,868 (1,838) Financing (435) 1,279 --------------------- Increase/(decrease) in cash in the year 4,433 (559) --------------------- Reconciliation of Net Cash Flow to Movement in Net Debt 2006 2005 Â£000 Â£000 Increase/(decrease) in cash in the year 4,433 (559) Net decrease/(increase) in loans and hire purchase commitments 146 (1,340) --------------------- Change in net debt resulting from cash flows 4,579 (1,899) Net debt disposed of with subsidiary 14,571 - Foreign currency translation difference 15 11 --------------------- Movement in net debt 19,165 (1,888) Net debt at beginning of the year (16,382) (14,494) --------------------- Net cash/(net debt) at end of the year 2,783 (16,382) --------------------- Reconciliation of Operating Profit to Operating Cash Flows 2006 2005 Â£000 Â£000 Operating profit 751 1,752 Depreciation of fixed assets 103 235 Amortisation of goodwill 91 93 (Profit)/loss on sale of tangible fixed assets (4) 4 Increase in stocks (407) (321) Decrease/(increase) in debtors 136 (215) (Decrease)/increase in creditors (316) 104 Increase in finance lease debtors (30) (2,278) -------------------- Net cash inflow/(outflow) from operating activities 324 (626) -------------------- Leeds Group plc Preliminary Results Notes 1. The Directors do not recommend the payment of a dividend. 2. Exceptional items 2006 Sale of Leeds Leasing On 31 October 2005 Leeds Leasing was sold to Bibby Asset Finance Limited. The book value of the assets and liabilities disposed of are summarised in the following table: Â£000 Tangible fixed assets 121 Current assets: Finance lease debtors 20,636 Other debtors 911 Deferred tax 800 Creditors (2,058) Hire purchase commitments (11) Bank overdrafts (155) Bank loans (14,560) Parent company loan (1,350) --------- Net assets 4,334 Consideration (3,700) --------- Loss on sale before disposal costs 634 Disposal costs 204 --------- Exceptional loss on sale of a business operation 838 --------- Analysis of net cash flow Â£000 Consideration 3,700 Repayment of parent company loan 1,350 Bank overdrafts disposed of 155 Disposal costs (204) --------- 5,001 Bank loans disposed of 14,560 Hire purchase commitments disposed of 11 --------- 19,572 --------- 2005 Langholm Dyeing Co. Limited In 2002, the Group sold its UK Dyeing Division to Langholm Dyeing Co. Ltd ('Langholm'), a company established and owned by the Division's management. The consideration consisted of Â£4,450,000 in cash and deferred consideration of Â£1,550,000 in the form of a loan note. Subsequently, under the terms on which the Group sold the loan note to the Directors of Langholm in December 2004, further payments of Â£50,000 remained due from the Directors of Langholm on each of the first three anniversaries of the sale. On grounds of prudence, the Group retained a full provision against this debt, which was discharged in full in May 2005 by a single payment of Â£135,000. This receipt was included in the profit & loss account for that year as an exceptional profit on sale of a business operation. The Group remains entitled to participate to a maximum of Â£375,000 in the proceeds of any sale of Langholm or its business before December 2008. 3. The financial information set out on pages 6 to 8 does not constitute the Company's statutory accounts for the year ended 30 September 2006 or the year ended 30 September 2005 but is derived from those accounts. 4. Statutory accounts for the year ended 30 September 2005 have been delivered to the Registrar of Companies, and those for the year ended 30 September 2006 will be delivered following the Company's Annual General Meeting. KPMG Audit Plc reported on the 2005 accounts while BDO Stoy Hayward LLP have reported on the 2006 accounts: their respective reports were unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report, 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. This information is provided by RNS The company news service from the London Stock Exchange

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