Leeds Group Regulatory News (LDSG)

17 Feb 2005 12:40

Leeds Group PLC17 February 2005 Issued by Citigate Dewe Rogerson on behalf of Leeds Group plcDate: Thursday, 17 February 2005 IMMEDIATE RELEASE LEEDS GROUP plc Specialists in UK business finance leasing, and imported textiles Preliminary Results for the year ended 30 September 2004 •Group profit before tax and exceptional items for continuing businesses was £0.4m(2003: £1.1m) •Exceptional items of £2.0m (2003: £13.5m) lead to Group pre-tax loss of £1.6m(2003: loss £12.1m) •Disappointing result for Leeds Leasing - loss before tax of £0.7m (2003: loss £0.05m)after charging exceptional items of £0.6m (2003: £0.6m) •Strong performance by Hemmers-Itex, with pre-tax profit up by 45% to £0.9m. New subsidiary also established in Cologne "The outlook for the current year appears more promising than 2004 proved tobe." "Overall, the Group's profitability in the first quarter of this new financialyear is in line with our budgets and we expect a satisfactory outcome for theyear." Vin Murria, Chairman FULL STATEMENTS ATTACHED Enquiries: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 ResultsIn what proved to be a year of change, the profit before tax and exceptionalitems from the continuing businesses amounted to £399,000 (2003: £1,088,000). These results reflect the benefit of a strong performance from Hemmers-Itex,where profit growth of 45% was achieved. Leeds Leasing, however, produced adisappointing loss before tax and exceptional items of £61,000 (2003: profit£555,000). Exceptional items during the period under review amounted to £2,031,000, ofwhich £1,431,000 related to provisions made against deferred consideration froma prior year divestment and £600,000 to a change in the methodology used tocalculate bad debt provisioning at Leeds Leasing. After these exceptional items,the loss before tax was £1,632,000 (2003: loss £12,107,000). Directors and EmployeesThe year saw several changes to the Board. In April 2004 Bill Cran, having beenChairman since February 2002, stood down to pursue an interest in acquiringLeeds Leasing. In September 2004, after eight years with the Group as FinancialController and more recently as Finance Director, Dawn Bowler resigned toconcentrate full time on a business she had acquired. On behalf of the Company,I would like thank them both for their contributions. In September 2004, we welcomed to the Executive Board Carol Roberts who hadjoined us in June 2004 as Managing Director of Leeds Leasing. At the same time,Johan Claesson, a major shareholder, and Ewen Wigley joined the Board asNon-Executive Directors. In April 2004, we announced that we were in discussions with third parties whichmight have led to the sale of the Group's two businesses, and although we alsoannounced last September that all such discussions had been terminated, ouremployees spent much of the year under considerable uncertainty. To a degree,that uncertainty persists since we continue to believe that, subject torealising appropriate value for shareholders, the future for our businessescould be best as parts of larger organisations. I thank all our employees in theUK, Germany and Holland who have worked so hard this past year in uncertaincircumstances. OutlookThe outlook for the current year appears more promising than 2004 proved to be.Although first quarter performance at Hemmers-Itex was held back by thecontinuing weakness in German consumer confidence, Leeds Leasing has made asatisfactory start to the year, having taken the necessary steps last year toaddress older arrears cases. Overall, the Group's profitability in the first quarter of this new financialyear is in line with our budgets and we expect a satisfactory outcome for theyear. Vin MurriaChairman17 February 2005 -3- Leeds Group plc Preliminary Results OPERATING AND FINANCIAL REVIEW Group resultTurnover from the continuing businesses amounted to £16.5m (2003: £16.9m)reflecting a reduction of £0.5m in gross earnings from finance leases which waspartially offset by sales growth of £0.1m at Hemmers-Itex. Group profit from the continuing businesses before tax and exceptional items was£399,000, (2003: £1,088,000). Total profit before tax and exceptional items in2003 amounted to £1,402,000 and included £314,000 attributable to the Italiansubsidiary Nemesis SpA in the period prior to its disposal in March 2003. The tax charge of £630,000 comprises current tax of £360,000 charged in Germany,a UK current tax credit of £100,000 relating to prior years, and a UK deferredtax charge in Leeds Leasing amounting to £370,000. This reduces the deferred taxasset recognised in the Group Balance Sheet to £875,000. The total deferred taxasset attributable to Leeds Leasing amounts to £1,643,000 and although, inaccordance with FRS 19, it is not recognised fully in the Balance Sheet it doesmean that, at currently projected levels of profitability, no UK current taxcharge will arise for several years. Moreover, the deferred tax asset arises notfrom past losses, but from the fact that Leeds Leasing has deferred claims forcapital allowances for each of the last four years. These allowances can beclaimed at any time, to create tax losses that could be surrendered as grouprelief to other subsidiaries. The loss per share, before exceptional items, was 0.6 pence (2003: earnings 3.1pence). After exceptional costs, the loss per share was 6.2 pence (2003: loss33.3 pence). No dividend is proposed in respect of the year ended 30 September2004. Divisional performance Leeds LeasingThe financial year under review proved very difficult for Leeds Leasing onseveral fronts. New business written was 3% below the comparable period at £11,287,000 (2003:£11,651,000). Many of the sole traders or partnerships that might previouslyhave been part of our customer base appear to be making use of the cheaper,alternative funding opportunities that are available from, for example,supermarket chains. Also, we have continued to experience a high level ofcustomer default, much of which was concentrated in the tenanted pubs sector.Despite this, we have made in-roads into newer markets, most notably commercialasset finance. Yields in these markets are lower than in our core markets, butequally they carry a lower level of associated risk. Although overhead costs were reduced marginally in the year, the impact of lowervolumes, reduced yield and high default resulted in a loss before tax andexceptional items of £61,000 (2003: profit £555,000). continued... -4- During the year under review, Leeds Leasing underwent a change of leadership.John Blanchflower resigned as Managing Director to pursue an opportunity on thesales side elsewhere in the leasing industry and Carol Roberts was appointed inJune 2004. Carol has extensive experience in all aspects of leasing gained withmajor players in the industry over many years. In particular, she brings toLeeds Leasing a large network of broker contacts through which we intend to growour commercial asset finance business. Following her appointment, Carol reviewed the basis on which bad debt provisionswere calculated. As a result of this review, we have moved to a basis by whichspecific provisions are made against the Company's exposure to arrears caseswith the percentage provided in each case increasing with the number of paymentsin arrears. The effect of adopting the new methodology has been to increase thebad debt provision by £600,000, and this has been reported as an exceptionalitem within operating profit. The Directors believe the bad debt provision at September 2004 fully addressesLeeds Leasing's exposure to the sectors and asset categories where it hasexperienced problems in recent years. It is now eighteen months since weoverhauled our underwriting procedures generally and, in particular, ceased towrite any business that relied on supplier recourse agreements. We havedramatically reduced our activities in the areas where problems have arisen, andthe arrears statistics relating to business written over the last eighteenmonths are altogether more encouraging. Leeds Leasing remains a leading funder in the catering, hospitality and leisuresector, continuing to work closely with trade associations and individual assetsuppliers. Our new lease management system has overcome teething problems toprovide a solid information base for decision making. The new and very experienced management team are committed to achievingprofitable growth by expanding activity in the newer, lower risk sectors and bya more aggressive approach to risk management. Leeds Leasing has begun the new financial year well, with volumes and profitsexceeding our internal budgets. We shall need to put in place additionalborrowings facilities to achieve the full extent of our planned growth thisyear, and we feel the recent results are likely to provide the additionalconfidence for that to be achieved. Hemmers-Itex2004 was a year of further improvement for Hemmers-Itex, which is the Group'sremaining textile business, selling fabric throughout Europe which has beenmainly imported from the Far East. In the previous financial year, the Dutch based Itex was closed, since when wehave supplied all the division's customers from the Hemmers facility located atNordhorn, Germany. The synergistic benefits of this rationalisation continue tobe felt, as the division achieved a 45% increase in pre-tax profit on sales thatwere virtually unchanged from last year's levels. Profitability was assisted by the weakness of the US dollar which helped tooffset the lack of consumer confidence that has continued to depress the Germanretail sector, which accounts for approximately 50% of the division's sales. In February 2004, Hemmers-Itex acquired the trade, stock and certain fixedassets of a former customer and established KMT, a small operation based inCologne. This move not only protects the Hemmers-Itex sales base, but also, forthe first time, takes the business into the higher quality fabric market. continued... -5- Hemmers-Itex will shortly launch its new range of fabrics printed with Disneydesigns under an exclusive licence and advance orders reflect a considerableinterest among our customers. During Spring 2005, we will be relocating the Nordhorn operations from 3separate warehouses in Nordhorn to a single facility, and we expect the costs ofthis relocation to be recovered within a short time from operating efficiencies. We continue to seek additional opportunities to expand in other Europeanmarkets. Recently, we have not only appointed new agents to cover EasternEurope, we have also increased the number of Trade Fairs at which we exhibit. Despite the strong focus of this business, the underlying weakness in Germanretailing leads us to believe that trading conditions in 2005 will prove moredemanding than in 2004, and therefore, it would not be realistic to expect anincrease in profits in the current financial year. Head Office CostsThe table below analyses the Head Office costs for the last two years. Thestrengthening of Sterling during 2004 resulted in exchange losses of £56,000although progressive repayments by Hemmers-Itex of their shareholder loan havereduced future currency exposures. The reduction in interest income results from lower cash balances following thespecial capital payment totalling £4.75m made to shareholders in August 2003. 2004 2003 £000 £000 Head Office expenses 545 556Exchange loss / (gain) 56 (112) ---------------------- 601 444Interest income (179) (369) ----------------------Net head office costs before exceptional items and tax 422 75Exceptional items (note 2) 1,431 77 ----------------------Net Head Office costs before tax 1,853 152 ====================== Textile ManufacturingFollowing the various transactions by which the Group withdrew from textilemanufacturing there remained two outstanding matters with potentiallysignificant impact on future results. The position on these has becomeconsiderably clearer during the year. Firstly, it has been necessary to makeprovision against the bulk of the deferred consideration of £1,550,000outstanding in connection with the sale of the UK Dyeing Division in February2002, and this is dealt with in more detail in Note 2 to this PreliminaryAnnouncement. continued... -6- 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 theextent to which the purchaser achieves planning consents in the fifteen yearsfollowing completion. An initial planning application was rejected in the faceof opposition from Local Authority planners and the local residents group, and asubsequent appeal at a public enquiry in early 2004 was also unsuccessful.Consequently, the purchaser has submitted a planning application of reducedscope, which has the support of local planners and residents. It is unlikelythat we shall know before Summer 2005 whether this application will succeed butit is known that, while the application calls for the development of more acresthan the minimum required by our sale agreement of June 2002, it is not ofsufficient scale to trigger payments of overage. Fixed assetsCapital additions in the year amounted to £180,000, of which £109,000 related toassets acquired by Hemmers-Itex in connection with establishing the new KMTsubsidiary. Elsewhere in the Group, expenditure has been restricted to essentialreplacements. Tangible fixed assets in the Balance Sheet amount to £561,000, andno material capital expenditure projects are contemplated for the current year. Working capitalWorking capital fell during the year by 5% to £23,582,000. The working capitalof Leeds Leasing was little changed, and consists predominantly of the leasebook, which at the year-end stood at £18,328,000. It is our aim to increase thebook during the course of the current year, although such growth will only bepermitted if new business matches our underwriting criteria. Working capitalincreased in Hemmers-Itex as a result of setting up the KMT operation, but thiswas more than offset by the reduction in the holding Company's working capitalcaused by the provision set up against the deferred consideration receivable inconnection with the sale of the UK Dyeing Division. Debt ProfileThe borrowings policy of the Group continues to be to match its fundingrequirement in a cost effective fashion with an appropriate combination of shortand medium term debt. The Group's net debt at 30 September 2004 may be analysedas follows: Holding Leeds Hemmers- Total Companies Leasing Itex Group £000 £000 £000 £000 Cash (1,112) - (74) (1,186)Overdrafts - 348 240 588 -----------------------------------------------------Total on demand (1,112) 348 166 (598)Fixed rate loans due:within one year - 6,820 2,022 8,842after more than one year - 6,250 - 6,250 -----------------------------------------------------Net external debt (1,112) 13,418 2,188 14,494 ----------------------------------------------------- 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. continued... -7- Capital gearingThe Group's capital gearing may be presented as follows: Total Leeds Group Group Leasing Excl Leasing £000 £000 £000 Net assets 11,031 3,851 7,180 ---------------------------------------------Net external debt 14,494 13,418 1,076Net internal debt - 850 (850) ---------------------------------------------Total debt 14,494 14,268 226 ---------------------------------------------Capital gearingNet external debt: net assets 131% 348% 15%Total debt: net assets 131% 371% 3% The Board considers 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 Director17 February 2005 -8- Leeds Group plc Preliminary Results Consolidated Profit and Loss Accountfor the year ended 30 September 2004 2004 2003 Continuing Continuing Discontinued operations operations operations Total £000 £000 £000 £000 Turnover 16,514 16,903 8,194 25,097Cost of sales (10,512) (10,422) (6,697) (17,119) --------- -------------------------------------Gross profit 6,002 6,481 1,497 7,978Distribution costs (648) (670) (309) (979)Administrative expenses (4,750) (4,693) (744) (5,437) --------- -------------------------------------Operating profit beforeexceptional items 1,204 1,795 444 2,239Exceptional items (600) (677) - (677) --------- ------------------------------------- Operating profit 604 1,118 444 1,562 Exceptional item - loss onsale or terminationof a business operation (1,431) - (12,832) (12,832) --------- -------------------------------------(Loss)/profit beforeinterest (827) 1,118 (12,388) (11,270) --------------------------- -------- ---------Interest receivable andsimilar income 88 281 Interest payable andsimilar charges (893) (1,118) -------- ---------Net interest payable (805) (837) -------- ---------Loss on ordinary activitiesbefore taxation (1,632) (12,107) Tax charge on loss onordinary activities (630) (81) -------- ---------Unrecovered loss for thefinancial year (2,262) (12,188) -------- ---------(Loss)/earnings per share before exceptional items (0.6)p 3.1p exceptional items (5.6)p (36.4)p -------- --------- after exceptional items (6.2)p (33.3)p -------- ---------Consolidated Statement of Recognised Gains and Losses 2004 2003 £000 £000 Loss for the financial year (2,262) (12,188) Foreign currencytranslation (110) 536differences Total recognised lossesrelating -------- ---------to the financial year (2,372) (11,652) -------- --------- -9- Leeds Group plc Preliminary Results Balance Sheetsat 30 September 2004 Group Company 2004 2003 2004 2003 £000 £000 £000 £000Fixed assetsIntangible assets 951 1,067 - -Tangible assets 561 582 - 42Investments - - 3,731 3,731 --------------------------------------- 1,512 1,649 3,731 3,773 ---------------------------------------Current assetsStocks 3,868 3,820 - - ---------------------------------------Debtors 4,865 6,350 1,716 4,368Deferred taxation 875 1,245 75 75Finance lease debtors 18,328 18,014 - - ---------------------------------------Total debtors 24,068 25,609 1,791 4,443Cash at bank and in hand 1,186 529 1,111 159 --------------------------------------- 29,122 29,958 2,902 4,602 Creditors: amounts falling due (13,353) (12,591) (1,305) (1,236)within one year ---------------------------------------Net current assets 15,769 17,367 1,597 3,366 ---------------------------------------Of which: due within one year 3,970 4,691 1,522 3,291 due after more than one year 11,799 12,676 75 75 ---------------------------------------Total assets less current liabilities 17,281 19,016 5,328 7,139 Creditors: amounts falling due (6,250) (5,613) - -after more than one year ---------------------------------------Net assets 11,031 13,403 5,328 7,139 ---------------------------------------Capital and reservesCalled up equity share capital 4,392 4,392 4,392 4,392Profit and loss account 6,639 9,011 936 2,747 ---------------------------------------Equity shareholders' funds 11,031 13,403 5,328 7,139 --------------------------------------- Reconciliation of movements in shareholders' funds Unrecovered loss for the financialyear (2,262) (12,188) (1,811) (6,127) Special capital payment - (4,758) - (4,758) Goodwill written back - 7,875 - - Foreign currency translationdifferences (110) 536 - (489) ---------------------------------------Net transfer from shareholders' funds (2,372) (8,535) (1,811) (11,374)Opening shareholders' funds 13,403 21,938 7,139 18,513 ---------------------------------------Closing shareholders' funds 11,031 13,403 5,328 7,139 --------------------------------------- -10- Leeds Group plc Preliminary Results Consolidated Cash Flow Statementfor the year ended 30 September 2004 2004 2003 £000 £000 Cash inflow from operating activities 503 1,505 Return on investments and servicing of finance (805) (837) Taxation 18 708 Capital expenditure and financial investment (177) 293 Acquisitions and disposals - (500) ----------------------Cash (outflow)/inflow before financing (461) 1,169 Special capital payment - (4,758) Financing 1,383 (1,643) ----------------------Increase/(decrease) in cash in the year 922 (5,232) ---------------------- Reconciliation of Net Cash Flow to Movement in Net Debt 2004 2003 £000 £000 Increase/(decrease) in cash in the year 922 (5,232) Net cash (outflow)/inflow from debt and lease financing (1,383) 1,643 ---------------------Change in net debt resulting from cash flows (461) (3,589) Net debt disposed of with subsidiary - 5,408 Foreign currency translation difference 28 (685) ---------------------Movement in net debt (433) 1,134 Net debt at beginning of the year (14,061) (15,195) ---------------------Net debt at end of the year (14,494) (14,061) --------------------- Reconciliation of operating profit to operating cash flows 2004 2003 £000 £000 Operating profit 604 1,562 Depreciation of fixed assets 193 312 Amortisation of goodwill 93 106Loss on sale of tangible fixed assets - 4 (Increase)/decrease in stocks (131) 1,427 Increase in debtors (13) (1,315) Increase/(decrease) in creditors 71 (912) (Increase)/decrease in finance lease debtors (314) 321 ----------------------Net cash inflow from operating activities 503 1,505 ---------------------- -11- Leeds Group plc Preliminary Results Notes1. The Directors do not recommend the payment of a dividend. 2. Exceptional itemsDuring the year, following the introduction of new leasing software, theDirectors reviewed the basis on which bad debt provisions in Leeds Leasing plcare calculated. As a result of this review, specific provisions are now 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 has been reported as an exceptional item within operating profit. In 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. Further payments of £50,000 are due from theDirectors of Langholm on each of the first three anniversaries of the sale ofthe loan note, although the Group has, on grounds of prudence, retained a fullprovision against these sums. In addition, the Group will be entitled toparticipate to a maximum of £375,000 in the proceeds of any sale of the Langholmbusiness before December 2008. The exceptional loss of £1,431,000 on sale ortermination of a business charged in these accounts represents the aggregate ofprincipal and accrued interest due in respect of the loan note, as reduced bythe initial sale proceeds of £155,000. 3. The financial information set out on pages 8 to 10 does not constitute theCompany's statutory accounts for the year ended 30 September 2004 or the yearended 30 September 2003 but is derived from those accounts. 4. Statutory accounts for the year ended 30 September 2003 have been deliveredto the Registrar of Companies, and those for the year ended 30 September 2004will 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