LEEDS GROUP PLC

Earnings Release • Jul 31, 2017

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RNS Number : 5038M

Leeds Group PLC

31 July 2017

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.

Enquiries:
Leeds Group plc	Cairn Financial Advisers plc
Jan Holmstrom, Chairman  Tel: 0046 708 111 360	Tony Rawlinson Tel: 020 7213 0880
Dawn Henderson, Company Secretary Tel: 07747 777055	Liam Murray      Tel: 020 7213 0880

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:

·      Sales volumes and revenue	·     profit before tax
·      gross profit margin	·     earnings per share
·      operating overheads and central costs	·     working capital levels

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:

	Year ended 31 May 2017   £000	Year ended 31 May 2016   £000
Holding company's costs net of interest receivable	(10)	(73)
Exchange gain on Group loan	310	100
Net holding company's income	300	27

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:

	Net assets £000	Per share pence
At 31 May 2016	15,512	56.7
Profit after tax	1,114	4.1
Purchase of own shares for treasury (cost)	(31)	(0.1)
Translation differences	1,707	6.2
At 31 May 2017	18,302	66.9

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

for the year ended 31 May 2017

	Year ended 31 May 2017   £000	Year ended 31 May 2016   £000
Revenue	41,053	36,272
Cost of sales	(32,468)	(28,563)
Gross profit	8,585	7,709
Distribution costs	(2,610)	(2,216)
Administrative expenses	(4,398)	(3,949)
## Profit from operations	1,577	1,544
Finance expense	(163)	(92)
Finance income	1	4
Share of post-tax profit of joint venture	33	51
Profit before tax	1,448	1,507
Tax expense	(334)	(468)
## Profit for the year attributable to the equity holders of the Parent Company	1,114	1,039
Other comprehensive income
## Translation differences on foreign operations	1,707	693
Other comprehensive income for the year	1,707	693
Total comprehensive income for the year attributable to the equity holders of the Parent Company	2,821	1,732

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

	Note	Year ended 31 May 2017	Year ended 31 May 2016
Basic and diluted earnings per share (pence)	3	4.1p	3.8p

Consolidated Statement of Financial Position

at 31 May 2017

Company number 00067863	31 May 2017 £000		31 May 2016                          £000
Assets
Non-current assets
Property, plant and equipment	8,452		5,864
Goodwill	1,055		855
Investment in joint venture	832		640
Total non-current assets	10,339		7,359
Current assets
Inventories	10,123		7,765
Trade and other receivables	6,753		5,779
Corporation tax recoverable	313		-
Cash and cash equivalents	1,567		1,612
Total current assets	18,756		15,156
Total assets	29,095		22,515
Liabilities
Non-current liabilities
Loans and borrowings	(3,984)		(3,843)
Deferred tax	(275)		(230)
Total non-current liabilities	(4,259)		(4,073)
Current liabilities
Trade and other payables	(3,383)		(2,283)
Loans and borrowings	(3,103)		(415)
Derivative financial liability	(48)		(40)
Corporation tax liability	-		(192)
Total current liabilities	(6,534)		(2,930)
Total liabilities	(10,793)		(7,003)
TOTAL NET ASSETS	18,302		15,512

Capital and reserves attributable to equity holders of the Company
Share capital	3,792		3,792
Capital redemption reserve	600		600
Treasury share reserve	(798)		(767)
Foreign exchange reserve	2,349		642
Retained earnings	12,359		11,245
TOTAL EQUITY	18,302		15,512

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

for the year ended 31 May 2017

	Year ended 31 May 2017   £000		Year ended 31 May 2016   £000
Cash flows from operating activities
Profit for the year	1,114		1,039
Adjustments for:
Depreciation	531		300
Amortisation of intangible assets	4		-
Finance expense	163		92
Finance income	(1)		(4)
Movement in fair value of derivative	4		99
Loss on sale of property, plant and equipment	3		1
Share of post-tax profit of joint venture	(33)		(51)
Income tax expense	334		468
Cash flows from operating activities before changes in working capital and provisions	2,119		1,944
(Increase) in inventories	(1,271)		(44)
(Increase)/decrease in trade and other receivables	(211)		538
Increase/(decrease) in trade and other payables	475		(621)
Cash generated from operating activities	1,112		1,817
Income taxes paid	(838)		(613)
Net cash flows from operating activities	274		1,204
Investing activities
Purchase of property, plant and equipment	(2,280)		(4,156)
Sale of property, plant and equipment	(84)		-
Increase in joint venture investment	(68)		-
Bank interest received	2		4
Net cash used in investing activities	(2,430)		(4,152)
Financing activities
Purchase of treasury shares	(31)		(42)
Bank borrowings drawn down	2,191		2,640
Bank interest paid	(163)		(92)
Net cash generated in financing activities	1,997		2,506
Net (decrease) in cash and cash equivalents	(159)		(442)
Translation gain on cash and cash equivalents	114		27
Cash and cash equivalents at the beginning of the year	1,612		2,027
Cash and cash equivalents at the end of the year	1,567		1,612

Consolidated Statement of Changes in Equity

for the year ended 31 May 2017

	Share capital £000	Capital redemption reserve £000	Treasury share reserve £000	Foreign exchange reserve         £000	Retained earnings £000	Total equity £000
At 31 May 2015	3,792	600	(725)	(51)	10,206	13,822
Profit for the year	-	-	-	-	1,039	1,039
Other comprehensive income	-	-	-	693	-	693
Total comprehensive income	-	-	-	693	1,039	1,732
Transaction with Shareholders: Purchase of treasury shares	-	-	(42)	-	-	(42)
At 31 May 2016	3,792	600	(767)	642	11,245	15,512
Profit for the year	-	-	-	-	1,114	1,114
Other comprehensive income	-	-	-	1,707	-	1,707
Total comprehensive income	-	-	-	1,707	1,114	2,821
Transaction with Shareholders: Purchase of treasury shares	-	-	(31)	-	-	(31)
At 31 May 2017	3,792	600	(798)	2,349	12,359	18,302

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

Reserve	## Description and purpose
Share capital	The nominal value of issued ordinary shares in the Company.
Capital redemption reserve	Amounts transferred from share capital on redemption of issued shares.
Treasury share reserve	Cost of own shares held in treasury.
Foreign exchange reserve	Gains/losses arising on retranslation of the net assets of overseas operations into sterling.
Retained earnings	Cumulative net gains/losses recognised in the consolidated statement of comprehensive income after deducting the cost of cancelled treasury shares.

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

Since there are no outstanding share options, there is no difference between basic and diluted earnings per share.	Year ended 31 May 2017	Year ended 31 May 2016
Numerator
Profit for the year from continuing operations, being the earnings used in earnings per share	£1,114,000	£1,039,000
Denominator
Weighted average number of shares used in earnings per share (excluding treasury shares)	27,422,227	27,506,459
Basic and diluted earnings per share	4.1p	3.8p

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

						IFRS adjustments
Year ended 31 May 2017	Hemmers Europe       £000	Hemmers China £000	Inter segmental £000	Total Hemmers £000	Holding companies £000	Financial derivatives £000	Goodwill         £000	Group total £000
External revenue	37,554	3,499	-	41,053	-	-	-	41,053
Inter-segmental revenue	5	511	(516)	-	-	-	-	-
Cost of sales	(29,739)	(3,301)	528	(32,512)	-	44	-	(32,468)
Gross profit	7,820	709	12	8,541	-	44	-	8,585
Distribution costs	(2,309)	(301)	-	(2,610)	-	-	-	(2,610)
Admin expenses	(4,123)	(361)	-	(4,484)	86	-	-	(4,398)
Profit from operations	1,388	47	12	1,447	86	44	-	1,577
Finance expense	(163)	-	-	(163)	-	-	-	(163)
Finance income	-	-	-	-	1	-	-	1
Internal interest	(213)	-	-	(213)	213	-	-	-
Share of JV profit	33	-	-	33	-	-	-	33
Profit before tax	1,045	47	12	1,104	300	44	-	1,448

						IFRS adjustments
At 31 May 2017	Hemmers Europe       £000	Hemmers China £000	Inter segmental £000	Total Hemmers £000	Holding companies £000	Financial derivatives £000	Goodwill         £000	Group total £000
Total assets	26,137	1,727	(24)	27,840	283	-	972	29,095
Total liabilities	(12,722)	(621)	-	(13,343)	2,825	-	(275)	(10,793)
Net assets	13,415	1,106	(24)	14,497	3,108	-	697	18,302

						IFRS adjustments
Year ended 31 May 2016	Hemmers Europe       £000	Hemmers China £000	Inter segmental £000	Total Hemmers £000	Holding companies £000	Financial derivatives £000	Goodwill         £000	Group total £000
External revenue	32,775	3,497	-	36,272	-	-	-	36,272
Inter-segmental revenue	10	622	(632)	-	-	-	-	-
Cost of sales	(25,731)	(3,368)	635	(28,464)	-	(99)	-	(28,563)
Gross profit	7,054	751	3	7,808	-	(99)	-	7,709
Distribution costs	(1,964)	(252)	-	(2,216)	-	-	-	(2,216)
Admin expenses	(3,582)	(232)	-	(3,814)	(135)	-	-	(3,949)
Profit from operations	1,508	267	3	1,778	(135)	(99)	-	1,544
Finance expense	(92)	-	-	(92)	-	-	-	(92)
Finance income	-	-	-	-	4	-	-	4
Internal interest	(158)	-	-	(158)	158	-	-	-
Share of JV profit	51	-	-	51	-	-	-	51
Profit before tax	1,309	267	3	1,579	27	(99)	-	1,507

						IFRS adjustments
At 31 May 2016	Hemmers Europe       £000	Hemmers China £000	Inter segmental £000	Total Hemmers £000	Holding companies £000	Financial derivatives £000	Goodwill         £000	Group total £000
Total assets	19,488	1,633	(32)	21,089	571	-	855	22,515
Total liabilities	(8,371)	(630)	-	(9,001)	2,268	(40)	(230)	(7,003)
Net assets	11,117	1,003	(32)	12,088	2,839	(40)	625	15,512

Analysis of revenue by destination

	Year ended 31 May 2017			Year ended 31 May 2016
	Hemmers Europe £000	Hemmers China £000	Group total £000	Hemmers Europe £000	Hemmers China £000	Group total £000
UK	1,071	162	1,233	1,205	100	1,305
Germany	23,816	42	23,858	22,088	71	22,159
Rest of EU	10,119	867	10,986	7,762	1,230	8,992
Total EU	35,006	1,071	36,077	31,055	1,401	32,456
Rest of Europe	2,005	257	2,262	1,186	335	1,521
Total Europe	37,011	1,328	38,339	32,241	1,736	33,977
North America	225	235	460	187	580	767
Asia	100	1,480	1,580	140	831	971
Oceania	118	239	357	80	301	381
South America	99	183	282	108	19	127
Africa	1	34	35	19	30	49
Total revenue	37,544	3,499	41,053	32,775	3,497	36,272

This information is provided by RNS

The company news service from the London Stock Exchange

END

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