Leeds Group Regulatory News (LDSG)

20 Dec 2005 10:38

Leeds Group PLC20 December 2005 Issued on behalf of Leeds Group plcDate: 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 financialyear has begun well with results to date showing a continuation of the strongsales and incoming orders experienced in the second half of last year." "The Board will now examine the wide range of available options to explore howbest to create shareholder value from the cash and other resources at itsdisposal." Vin Murria, Chairman FULL STATEMENTS ATTACHEDEnquiries:Leeds Group plc Citigate Dewe RogersonMalcolm Wilson, Group Managing Director Fiona TooleyTel: 0113 391 9000 Tel: 0121 455 8370 or 07785 703523 -2- Leeds Group plc Preliminary Results STATEMENT BY THE CHAIRMAN, VIN MURRIA ResultsThe Group's trading performance improved in 2005. Sales in the period amountedto £17,188,000 (2004: £16,514,000) and profit before tax and exceptional itemswas £800,000 (2004: £399,000). After an exceptional profit of £135,000 on thesale 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 increasedby 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, thesuccessful German-based fabric trading business, produced a full year profitbefore tax of £573,000 (2004: £882,000). The reduction in profitability relateschiefly to the costs of changing agents and successfully relocating ourmulti-site activities in Nordhorn to a single facility. Strategic DevelopmentsFollowing shareholder approval at the Extraordinary General Meeting on 31October 2005, the Group completed the sale of Leeds Leasing to Bibby AssetFinance Limited for a consideration of £3,700,000 plus the repayment of Grouploans of £1,350,000. DividendIn view of the current low level of distributable reserves, the Directors do notpropose a dividend for the year under review. Although a loss of approximately£830,000 on the disposal of Leeds Leasing will arise in the consolidatedaccounts for the year ending 30 September 2006, the Parent Company will record aprofit on disposal of approximately £3,450,000 which will substantially improvethe distributable reserves position, and the Board will take that into accountin determining future dividend policy. In the meantime, at the forthcomingAnnual General Meeting, the Board will seek the renewal of its authority to buyback the Group's shares for the benefit of shareholders. During the year underreview the Group acquired 450,000 shares under this authority. Directors and EmployeesCarol Roberts resigned from the Board on 31 October 2005 in order to continue asManaging Director of Leeds Leasing after its sale. In view of the reduced scaleof activities, Malcolm Wilson will not be seeking re-election at the forthcomingAnnual General Meeting, although I am pleased that he has agreed to remain in apart-time capacity to act as Company Secretary and to manage our Head Office. Onbehalf of the Board, I thank both Carol and Malcolm for their commitment andvaluable contributions over the last few years of considerable restructuring andchange. OutlookHemmers-Itex is now the Group's sole trading operation, and the new financialyear has begun well with results to date showing a continuation of the strongsales and incoming orders experienced in the second half of last year. Followingthe sale of Leeds Leasing, cash balances in the UK currently amount toapproximately £5,500,000, equivalent to 15 pence per share. The Board will nowexamine the wide range of available options to explore how best to createshareholder value from the cash and other resources at its disposal, keepingshareholders informed of developments as and when appropriate. Vin MurriaChairman19 December 2005 -3- Leeds Group plc Preliminary Results OPERATING AND FINANCIAL REVIEW Group resultGroup turnover in the year amounted to £17,188,000 (2004: £16,514,000) withLeeds Leasing and Hemmers-Itex achieving growth of 8% and 3% respectively. Group profit before tax and exceptional items was £800,000, double the £399,000reported in the previous financial year. Performance by sector is discussedbelow. The tax charge in the year of £236,000 relates exclusively to our Germanoperations, as no tax charge arose on UK activities. Earnings per share before exceptional items were 1.5 pence (2004: loss 0.6pence). Divisional performanceLeeds LeasingAfter the last two years in which default problems led to losses, it has beenencouraging to record a significant turnaround in Leeds Leasing's performance.Although the principal cause of the improvement was an altogether better defaultexperience, greater volumes, increased fee income and control of overhead costsalso 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 agreementsgrew by 16% to £13,118,000. Within this, there was a move away from asset orcustomer categories where default experience has in recent times beenunsatisfactory towards higher quality business, notably in the franchised fastfood sector and in commercial asset finance. Yields in these sectors aretypically lower than our traditional markets, but carry a much reduced riskprofile. 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 ina 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 £3,450,000that will flow into distributable reserves in the financial year ending 30September 2006. In the Consolidated Group Accounts, the sale gave rise to a losson disposal of approximately £830,000, which will be recognised in the accountsfor the year ending 30 September 2006. Hemmers-ItexAfter a disappointing first half-year, the performance of our fabric wholesalingbusiness in Germany rebounded strongly in the second half. Taking account of thefact that the newly established KMT business in Cologne had contributed onlyfrom February 2004, like for like sales in the first half of the year were downby 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 ofthe carnival season, which remains very popular in Europe. Sales of carnivalfabrics, which can account for as much as 25% of first half turnover, wereconsiderably down in 2005. In contrast, sales throughout the year were boostedby the successful launch of our range of Disney fabrics, which contributed alittle over £500,000 to turnover. For the current year, new designs are inproduction incorporating images from the new Disney films to be released in2006. continued... -4- Leeds Group plc Preliminary Results Our traditional customers are retailers who tend to buy from Hemmers-Itex inshort 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 garmentmanufacturing sector, where sales typically will be of fabric in the form inwhich it is imported, which is to say on rolls of between 60 to 80 metres. It isa measure of the success of this strategy that sales of fabric on rolls rose in2005 by 7%, more than offsetting the reduction of 6% in sales on coupons. Another interesting development as we seek new sales opportunities was thedecision to exhibit as a supplier at a Chinese fair. Our fashion collectioncomprises fabrics bought from many different manufacturers, and we shall beinterested to discover the level of interest that could exist amongst Chineseand other Asian customers who would otherwise need to source fabricsindividually. At the same time, we continue to strive for growth in Europe andhave appointed new agents in France and certain Eastern European markets duringthe year. The cost of making these changes was approximately £200,000. In July 2005, Hemmers-Itex completed its relocation from three warehouses inNordhorn to a single, larger facility that can handle the 50% growth in volumethroughput that has arisen since 2000. As well as giving management much greaterability to control daily operations, the new facility offers retail customers anexcellent and popular new showroom in which they can select their purchases inthe manner of a supermarket. Although it is of course early days, we are pleased that the current financialyear has opened strongly with sales in October and November 20% ahead of lastyear and with an order book that, at this stage of the year, is fuller than ithas ever been. Head Office costsThe table below illustrates the continuing downward trend in head office costs. 2005 2004 2003 £000 £000 £000 Head office expenses 373 545 556Exchange loss/(gain) 2 56 (112) -----------------------Administrative expenses 375 601 444Interest income (140) (179) (369) -----------------------Net head office costs before exceptional items and tax 235 422 75Exceptional items (note 2) (135) 1,431 77 -----------------------Net head office costs before tax 100 1,853 152 ----------------------- Textile manufacturingFollowing the Group's withdrawal from textile manufacturing, there remained twooutstanding matters with potential impact on future results. Both of these arenow effectively resolved. continued... -5- Leeds Group plc Preliminary Results The receipt of £135,000 from the shareholders of Langholm Dyeing CompanyLimited, a debt for which full provision had been made, represents the finalelement of the proceeds of the sale of the former UK Dyeing Division in January2002, and is reported as an exceptional item. Secondly, the agreement covering the sale of the Strines Textiles site in June2002 provides for overage payments to a maximum of £1,450,000 depending on thenumber of acres for which the purchaser achieves planning consents in thefifteen years following completion. An initial planning application was rejectedin the face of opposition from Local Authority planners and the local residentsgroup, and a subsequent appeal at a public enquiry in early 2004 was alsounsuccessful. Consequently, the purchaser submitted a planning application ofreduced scope, which had the support of local planners and residents and forwhich consent was given in March 2005. These plans envisage residentialdevelopment of fewer acres than are necessary to lead to overage payments to theGroup. Although the purchaser has subsequently submitted for approval certainmodifications to the plans, these do not contemplate a larger development and itappears most unlikely that a development on the scale required to result infurther income to the Group will ever be possible. Fixed assetsCapital additions in the year amounted to £134,000 (2004: £180,000) and relatedchiefly to expenditure connected with the relocation of Hemmers-Itex. Tangiblefixed assets in the Balance Sheet amount to £449,000 (2004: £561,000). Therewere no capital commitments at the year-end, and no material capital projectsare contemplated for the current financial year. Working capitalAt constant exchange rates, working capital increased during the year by£432,000, exclusively in our overseas operations. Trade debtors increasedreflecting sales in August and September that were 12% higher than in theprevious year, while stocks are higher reflecting a considerably stronger orderbook. Debt profileThe funding policy of the Group continues to be to match its funding requirementin a cost-effective fashion with an appropriate combination of short and mediumterm 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, inthe case of Hemmers-Itex, it is unsecured. Leeds Leasing's loans consist ofblock discounting lines under which fixed interest debt is raised with anamortising profile matching that of the block of lease agreements on which thedebt is secured. This debt structure provides an effective hedge againstinterest rate risk. The Leeds Leasing debt formed part of the net assets sold on31 October 2005, and the elimination of this debt and the net sale proceedsresulted in the Group moving on that date to a net cash position in excess of£3,000,000. Capital gearingThe 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 gearingNet 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 thelimits imposed by banking covenants whilst also modest in comparison with thenorm in the sector. Exchange exposureIt is the Group's policy not to hedge the translation of profits or losses ofits German subsidiary, nor to hedge its Balance Sheet except to the extent it ispossible to match net assets with debt denominated in Euros. Transactionalexposures arise in Hemmers-Itex where printed cloth purchased mainly in USdollars is subsequently sold at prices denominated in Euros. The impact ofexchange rate changes is minimised by the Group's policy that requires forwardexchange contracts to be used where a product is purchased in a currency otherthan in Euros. Malcolm WilsonGroup Managing & Finance Director19 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) Administrativeexpenses (2,327) (1,402) (3,729) (2,383) (2,367) (4,750) ---------------------------------------------------------------------- Operating profit beforeexceptionalitems 366 1,386 1,752 440 764 1,204 Exceptionalitems - - - - (600) (600) ----------------------------------------------------------------------- Operating profit 366 1,386 1,752 440 164 604 Exceptionalprofit/(loss)on sale of abusinessoperation 135 - 135 (1,431) - (1,431) ------------------------------------------------------------------------ Profit/(loss)before interest 501 1,386 1,887 (991) 164 (827) ------------------------------------------------------------------------Interestreceivable andsimilar income 32 88 Interestpayable andsimilarcharges (984) (893) ------- ------ Net interestpayable (952) (805) ------- ------ Profit/(loss) on ordinaryactivities beforetaxation 935 (1,632) Taxation onprofit or losson ordinaryactivities (236) (630) ------- ------Profit/(loss) for thefinancial 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 Lossesfor the year ended 30 September 2005 2005 2004 £000 £000Profit/(loss) for thefinancial 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 Sheetsat 30 September 2005 Group Company 2005 2004 2005 2004Fixed assetsIntangible assets 853 951 - -Tangible assets 449 561 - -Investments - - 3,731 3,731 --------------------------------------- 1,302 1,512 3,731 3,773 ---------------------------------------Current assetsStocks 4,170 3,868 - - ---------------------------------------Debtors 5,062 4,865 1,857 1,716Deferred taxation 875 875 75 75Finance lease debtors 20,606 18,328 - - ---------------------------------------Total debtors 26,543 24,068 1,932 1,791Cash 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 currentliabilities 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 reservesCalled up equity share capital 4,392 4,392 4,392 4,392Reserves 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 financialyear 699 (2,262) (163) (1,811) Purchase of own shares (61) - (61) - Foreign currency translationdifferences (25) (110) - - ---------------------------------------Net transfer to/(from) equityshareholders' 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 Statementfor 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) 922Net 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 604Depreciation of fixed assets 235 193Amortisation of goodwill 93 93Loss on sale of tangible fixed assets 4 -Increase in stocks (321) (131)Increase in debtors (215) (13)Increase in creditors 104 71Increase in finance lease debtors (2,278) (314) ---------------------Net cash (outflow)/inflow from operating activities (626) 503 --------------------- -10- Leeds Group plc Preliminary ResultsNotes1. The Directors do not recommend the payment of a dividend. 2. Exceptional items2005Langholm Dyeing Company LimitedUnder the terms on which the Group sold a loan note to the Directors of LangholmDyeing Company Limited in December 2004 (see below) further payments of £50,000remained due from the Directors of Langholm on each of the first threeanniversaries of the sale. The Group had, on grounds of prudence, retained afull provision against this debt, which was discharged in full in May 2005 by asingle payment of £135,000. The Group remains entitled to participate to amaximum of £375,000 in the proceeds of any sale of the Langholm business beforeDecember 2008. 2004Leeds Leasing plcDuring 2004, following the introduction of new leasing software, the Directorsreviewed the basis on which bad debt provisions in Leeds Leasing plc werecalculated. From the date of this review, specific provisions have been madeagainst the Company's exposure to arrears cases with the percentage provided ineach case increasing with the number of payments in arrears. The effect ofadopting 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 LimitedIn February 2002 the Group sold its UK Dyeing Division to Langholm DyeingCompany Limited ("Langholm"), a company established and owned by the Division'smanagement team, on terms that included deferred consideration in the form of aninterest bearing loan note of £1,550,000. The Group accounts for that yearincluded an exceptional loss on disposal of £5,275,000. During 2004 Langholmexperienced difficult trading conditions, and payments of interest to the Groupon the loan note were suspended by Langholm's bank, under the terms of theinter-creditor agreement signed by the Group at the time of the divestment. Itbecame clear that it would not be possible for Langholm to pay accrued interestin the foreseeable future, or to make the quarterly capital repayments that werescheduled to begin in February 2005. In December 2004 the Group sold the loannote to the Directors of Langholm for an initial cash payment of £155,000 aspart of a capital reconstruction and re-financing scheme to strengthenLangholm's trading position. The exceptional loss of £1,431,000 on sale ortermination of a business charged in 2004 represents the aggregate of principaland accrued interest due in respect of the loan note, as reduced by the initialsale proceeds of £155,000. 3. The financial information set out on pages 7 to 9 does not constitute theCompany's statutory accounts for the year ended 30 September 2005 or the yearended 30 September 2004 but is derived from those accounts. 4. Statutory accounts for the year ended 30 September 2004 have been deliveredto the Registrar of Companies, and those for the year ended 30 September 2005will be delivered following the Company's Annual General Meeting. The auditorshave reported on those accounts: their reports were unqualified and did notcontain 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 sentto shareholders shortly. Further copies will be available from the Company'sRegistered Office, Schofield House, Gateway Drive, Yeadon, Leeds, LS19 7XY, orfrom the Group's website, www.leedsgroup.plc.uk. This information is provided by RNS The company news service from the London Stock Exchange