Final Results

Issued on behalf of Leeds Group plc

Date: 31 July 2017

Leeds Group Financial Highlights

q Leeds Group profit before tax £1,448,000 (2016: £1,507,000).

q Leeds Group sales revenue increased by 13.2% to £41,053,000 (2016: £36,272,000).

q The weakness of sterling during the year has had a material impact on the Group's results. An unrealised gain of £310k has been recognised in the accounts and the net assets increased by £1,707,000 since last year end, because of this.

q Capital expenditure in the year £2,280,000 (2016: £4,156,000) partly on the acquisition of a German warehouse which had previously been rented.

q Leeds Group finished the year with bank debt net of cash £5,520,000 (2016: £2,646,000).

q Leeds Group net asset value per share (excluding treasury shares) 66.9p (2016: 56.5p).

q Earnings per Leeds Group share 4.1 pence (2016: 3.8 pence).

q In view of the recent investments, the Directors do not propose a dividend.

Chairman's Statement

I am pleased to present the results for the year ended 31 May 2017.

Results

The Group achieved sales for the year of £41,053,000 (2016: £36,272,000) and made a profit after tax of £1,114,000 (2016: £1,039,000). The weakness of sterling during the year has had a material impact upon the Group's results. Sales growth of 13.2% comprises a fall of 1.1% in sales at constant exchange rates, disguised by the translation effect of weaker sterling, which increased reported sales by 14.3%. In addition there has been a gain of £310,000 in the value of the Euro denominated parent company loan to Hemmers.

Similarly the translation effect has increased net assets by £1,707,000 since last year end. Net assets at 31 May 2017 increased to £18,302,000 (2016: £15,512,000) and the value per share was 66.9p (2016: 56.5p). Following capital expenditure of £2,280,000 in the year (2016: £4,156,000), partly on the acquisition of a warehouse in Germany adjacent to the existing facilities which had previously been rented, the Group closed the year with net bank debt of £5,520,000 (2016:£2,646,000).

Hemmers-Itex Textil Import Export GmbH ("Hemmers")

Fabric sales for the year at Hemmers, Leeds Group's principal trading company, in Euro terms remained at a similar level to last year €44,182,000 (2016: €44,295,000). Growth was achieved in the retail and garment manufacturing sectors but this was offset by reduced sales in the wholesale sector. In sterling terms, however the revenue increased by 14.6% to £37,544,000 (2016: £32,775,000) as a result of the weakened sterling.

Further investment in warehousing and equipment was made during the year €2,660,000 (£2,260,000). This together with the capital expansion last year has enabled the management to establish the infrastructure required to achieve growth and efficiencies in the forthcoming year. However, with the restructuring and additional cost base this had led to a pre-tax profit in the current year of £1,045,000 (2016: £1,309,000).

The KMR joint venture continues to trade in line with expectations. Sales were 40% higher than the last year and new shops were opened in Berlin, Leipzig and Chemnitz. However, the investment in new shops and the implementation of new business software across all the shops has resulted in a pre tax profit which is lower than last year.

Chinoh-Tex, the Hemmers subsidiary based in Shanghai, achieved external sales revenue of £3,499,000 (2016: £3,497,000) and pre-tax profit of £47,000 (2016: £267,000) with the reduction in profit due to increased infrastructure and administrative costs. Though small Chinoh-Tex also provides valuable assistance to its European parent in terms of purchasing, quality inspection and bulk shipping of material bought in China.

Dividend

Leeds Group has made further investment in the Nordhorn facility this year. Therefore, as last year, the Directors do not propose a dividend. In the opinion of the Board, this maximises the long-term value of the Group to the benefit of all shareholders.

Employees

On behalf of shareholders, I thank the management and staff of Hemmers, Chinoh-Tex and KMR for their continued hard work and commitment that has produced such a highly satisfactory result.

Outlook

We continue to believe potential growth opportunities exist for Hemmers in both their traditional wholesale business, and the domestic retail business in which we have invested more recently.

At this early point in the current financial year, sales have been broadly in line with the expectations of the Board.

Jan G Holmstrom

Chairman

28 July 2017

Strategic Report

Business review

The Companies Act 2006 requires the directors to set out in this report a fair review of the business of the Group during the year ended 31 May 2017, including an analysis of the position of the Group at the end of the year and a description of the principal risks and uncertainties facing the Group. This information includes a discussion of the Key Performance Indicators used by the directors to monitor the business which are:

Group result

Group revenue in the year was £41,053,000 (2016: £36,272,000), and pre-tax profit was £1,448,000 (2016: £1,507,000). Sterling is considerably weaker at 31 May 2017 than last year. The closing rate is 12.05% weaker against the Euro than had been the case a year earlier; its average rate for the year as a whole was also weaker by 12.93%. Thus group revenue is £5,195,000 higher than it would have been had the results of the overseas subsidiaries been translated at last year's average rates.

The parent company has granted a loan denominated in Euros to its subsidiary Hemmers and, as sterling has weakened during the financial year, an unrealised gain has arisen in the Parent Company and the Group accounts of £310,000 (2016: £100,000).

The tax charge in the year was £334,000 including a deferred tax charge of £13,000 relating to temporary differences on financial derivatives. Earnings per share were 4.1p (2016: 3.8p).

Hemmers Europe

This German-based business is engaged in the import, warehousing and wholesaling of fabrics.

Fabric sales for the year at Hemmers, Leeds Group's principal trading company, in Euro terms remained at a similar level to last year €44,182,000 (2016: €44,295,000). Growth was achieved in the retail and garment manufacturing sectors but this was offset by reduced sales in the wholesale sector. In sterling terms, however the revenue increased by 14.6% to £37,544,000 (2016: £32,775,000) as a result of the weakened sterling.

Gross margins reduced slightly to 20.8% (2016: 21.5%). Overhead expenditure in local currency increased by 7.3% as a result of increased infrastructure and administration costs. Pre-tax profit for the year was €1,191,000 (2016: €1,705,000).

In December 2014 Hemmers acquired a 50% interest in Stoff-Ideen-KMR GmbH ("KMR"), a chain of retail fabric and haberdashery stores, at a cost of €500,000. KMR is operated as a joint venture and in May 2015 each of the two joint venture partners subscribed for additional capital of €250,000. During this year an additional investment of €80,000 (£68,000) was made by both joint venture partners bringing the total investment by Hemmers to €830,000 (£723,000). The Group's share of the post-tax income of KMR in the year was £33,000 (2016: £51,000).

During the year Hemmers purchased a warehouse adjacent to the existing warehouse and office facility that it had previously been renting. The previous warehouse extension has now been be completed with all the additional machinery installed in order to increase the double folding capacity to meet the customer requirement to double-fold our fabrics before sale. This will eliminate the need to outsource this work in the forthcoming year.

Largely as a result of this investment programme, the Hemmers bank debt, net of cash, increased in the year to £6,619,000 (2016: £3,647,000). This bank debt is secured on the assets of Hemmers.

Hemmers has developed a new 3 year plan 2017 - 2020 with focus on growing the business both domestically and internationally with maintained margins.

Hemmers China

Chinoh-Tex is a textile trading subsidiary of Hemmers. It is based in Shanghai and has been trading for eight years. It purchases fabric from Chinese suppliers and in 2017 sold to customers in 32 countries. 31% of sales were made to EU countries (2016: 40%) with the reduction caused chiefly by certain European customers being supplied from Hemmers rather than from Chinoh-Tex, who compensated for this by doubling their sales in China.

External sales revenue remained at a similar value £3,499,000 (2016: £3,487,000), a small fall in volumes was offset by translation gains, and gross margin also remained at a similar percentage 18% (2016: 18%). Overhead spending increased to £662,000 (2016: £484,000) due to administrative and infrastructure costs and therefore the pre-tax profit has reduced to £47,000 (2016: £267,000).

Chinoh-Tex also provides valuable assistance to its European parent with the purchasing, inspection and shipping of material. Internal sales revenue, based on arms length prices, amounted to £511,000 (2016: £622,000).

Holding Company's Costs

The holding company generated net income in the year as follows:

Fixed Assets

Capital additions in the year amounted to £2,280,000 (2016:£4,156,000) and included expenditure of £846,000 in respect of the purchase of a warehouse adjacent to the existing facilities in Nordhorn which had previously been rented. The net book amount of tangible fixed assets in the Consolidated Statement of Financial Position is £8,452,000 (2016: £5,864,000).

Working Capital

Working capital which comprises inventories, trade and other receivables, and trade and other payables increased in the year by £1,007,000 (2016: £127,000).

Net Asset Value

Net assets increased in the year by £2,790,000 as follows:

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 longer-term debt. The warehouse constructed in 2008 in Germany is financed by a 20-year loan at a fixed interest rate of 4.07%. Property investments in the year have been financed partly from cash generated in the year, but principally from loans at fixed interest rates between 1.05% and 3.40%. Working capital finance, when required, is via short term loans of three months currently attracting interest at approximately 1.25%.

Bank debt in the subsidiaries is secured by charges on inventories, receivables and property and is without recourse to the Parent Company.

Principal risks and uncertainties

Following the UK referendum result in favour of leaving the European Union ("EU"), the economic environment has become much more uncertain. However, the business of Leeds Group is conducted entirely by subsidiaries incorporated in Germany or China, and their exports to the UK account for approximately 3% of Group revenue. For this reason, the Directors do not believe that a material risk to Leeds Group will arise from the terms on which the UK will, in the future, have access to EU markets, and vice versa.

Of greater risk is the possibility of reduced demand owing to falling consumer confidence, although the business has proved robust in earlier recessions with some evidence that reduced consumer spending on ready-made apparel or furnishings generates increased demand for Hemmers fabrics that customers use to make equivalent goods in the home.

The currency markets in particular dislike the current air of uncertainty, and sterling immediately lost ground on news of the referendum result. This benefits Leeds Group since, as the pound weakens, the value of the revenues, profits and net assets of foreign subsidiaries is increased in sterling terms. This effect has been seen in this year's trading and statement of financial position.

Most fabric purchased by Hemmers is paid for in US dollars, while the Euro is the principal currency in which Hemmers sells its product. Thus the Euro/dollar rate is of greater significance to Leeds Group than the strength of sterling. We shall continue to manage this transactional currency risk by a combination of forward exchange contracts with reputable banks and sales price increases where necessary.

Fire risk is mitigated by insurance, including consequential loss insurance to cover the loss of business opportunity while replacement stocks are obtained. There is an adequate disaster recovery programme in place with regard to essential computer systems. The commercial risks of operating in the highly competitive European fabric market are limited by the fact that Hemmers has a wide range of suppliers, and no customer accounts for more than 5% of revenues.

Jan G Holmstrom

Chairman

28 July 2017

Consolidated Statement of Comprehensive Income

The results shown in the consolidated statement of comprehensive income derive wholly from continuing operations. There is no tax effect relating to other comprehensive income for the year.

Amounts included in other comprehensive income may be reclassified subsequently as profit or loss.

Earnings per share attributable to

the equity holders of the Company

Consolidated Statement of Financial Position

The financial statements were approved and authorised for issue by the Board of directors on 28 July 2017 and were signed on behalf of the Board by:-

Jan G Holmstrom

Chairman

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

The following describes the nature and purpose of each reserve within equity:

Notes

1. This preliminary announcement has been prepared using the recognition and measurement principles of IFRS as adopted by the European Union.

2. The Directors do not recommend the payment of a dividend. (2016: £nil)

3. Earnings per share

4. The financial information set out above does not constitute the company's statutory accounts for 2017 or 2016.

Statutory accounts for the years ended 31 May 2017 and 31 May 2016 have been reported on by the Independent Auditors. 

The Independent Auditors' Report on the Annual Report and Financial Statements for both 2017 and 2016 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

5. Statutory accounts for the year ended 31 May 2016 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 May 2017 will be delivered to the Registrar in due course. 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, Old Mills, Whitehall Grove, Drighlington, Bradford, BD11 1BY or from the Group's website, www.leedsgroup.plc.uk

6 Segmental information

Analysis of revenue by destination