LEEDS GROUP PLC

Earnings Release • Jan 28, 2019

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RNS Number : 2006O

Leeds Group PLC

28 January 2019

Leeds Group plc

("Leeds Group" or the "the Group")

Interim Results for the six months ended 30 November 2018

Leeds Group is pleased to report the Company's interim results for the six months ended 30 November 2018.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 (MAR) and has been arranged for release by Jan G Holmstrom, Chairman.

Enquiries:

Leeds Group plc                                                    Cairn Financial Advisers LLP

Dawn Henderson - 07747 777055                        Tony Rawlinson / Liam Murray - 020 7213 0880

Chairman's Statement

The business of the Group is that of a wholesaler and retailer of fabrics and haberdashery and is conducted by its German trading subsidiary Hemmers/Itex Textil Import Export GmbH ("Hemmers"), Stoff-Ideen-KMR GmbH ("KMR"), a subsidiary of Hemmers based in Germany and by Chinoh-Tex Limited ("Chinoh-Tex''), a subsidiary of Hemmers based in Shanghai. These trading companies sell both basic commodity fabrics and also fabrics from their own fashion collections. Approximately 70% of sales are to retailers, with the remaining sales activities divided between the wholesale and garment manufacturing sectors.

The Group achieved sales in the period of £21,880,000 (2017: £22,180,000).  Market conditions have been challenging with increased competition in a reduced market place.  However, despite the reduction in turnover, the Group made a profit after tax of £939,000 (2017:  £404,000).  Earnings per share were 3.4 pence (2017: 1.5 pence).

Sales at Hemmers decreased to €19,718,000 (2017: €23,087,000) mainly due to decreased demand in its main markets.  However, profit before interest remained at a similar level as last year at €1,041,000 (2017: €1,043,000). Profit levels have been maintained by an ongoing cost cutting exercise to reduce fixed overheads and improve efficiencies. This will continue in to the second half of the year with the objective of ensuring that profitability is maintained at a similar level to last year.

On 5th July 2018, Hemmers became 100% owners of KMR following the buyout of our Joint Venture partner. The consideration was £444,000 partly paid in cash £222,000 and the balance being three shops valued at £222,000. The accounting effect of both transactions resulted in a gain on sale of the joint venture of £118,000 and negative goodwill arising on consolidation of £380,000 both of which have been credited to the profit and loss account.  KMR will be consolidated as a subsidiary company in the Group for eleven months of this financial year.  Sales at KMR decreased slightly to €4,904,000 (2017: €5,334,000) as the retail sector saw reduced demand in particular through the hot summer months. Thus, there was an operating loss for KMR in the first half year of €315,000 (2017: loss of €126,000). The loss is expected to be reduced for the full financial year due to reduced costs in the second half of the year.

Chinoh-Tex, the subsidiary of Hemmers which is based in Shanghai, achieved external sales revenue of €1,938,000 (2017: €2,134,000). Despite the reduced turnover, Chinoh-Tex achieved a pre-tax profit of €144,000 (2017: loss of €32,000).  Although trading has been somewhat difficult, the infrastructure and administrative costs were reduced last year to align to the expected reduction in demand and this has continued into this financial year.

Group net debt was £6,830,000 at 30 November 2018 (30 November 2017: £6,347,000; 31 May 2018: £4,485,000). The increase in this financial period is due to the purchase of the shares in KMR and consolidating debt in the KMR balance sheet.

The Board continues to believe that the result for the full year will be at a higher level to last year despite the challenging market conditions.  The Group have implemented a number of cost reduction and efficiency plans throughout to ensure cost bases are reduced in accordance to the current market conditions to ensure the companies remain profitable.

I would like to offer thanks to our employees throughout the Group for their continued hard work and support.

Jan G Holmstrom,

Chairman

28 January 2019

Unaudited Consolidated Statement of Comprehensive Income

for the 6 months ended 30 November 2018

	6 months to 30 November 2018 £000	6 months to 30 November 2017 £000	Year to 31 May 2018 £000
Revenue	21,880	22,180	41,538
Cost of sales	(16,440)	(17,320)	(32,526)
Gross profit	5,440	4,860	9,012
Distribution costs	(1,776)	(1,413)	(2,722)
Administrative expenses	(2,881)	(2,684)	(5,188)
Other income	15	-	50
## Profit from operations	798	763	1,152
Finance expense	(92)	(88)	(160)
Share of post-tax loss of joint venture	(34)	(47)	(107)
Gain on termination of joint venture	118	-	-
Negative goodwill arising from acquisition	380	-	-
Profit before tax	1,170	628	885
Tax expense	(231)	(224)	(340)
## Profit for the period attributable to the equity holders of the Parent Company	939	404	545
Other comprehensive income:
Translation differences on foreign operations	95	143	141
Other comprehensive income for the period	95	143	141
## Total comprehensive income for the period attributable to the equity holders of the Company	1,034	547	686

The results shown in the income statement derive wholly from continuing operations. 

There is no tax effect relating to other comprehensive income.

Earnings per share for profit attributable to the equity holders of the Company

	6 months to 30 November 2018	6 months to 30 November 2017	Year to 31 May 2018
Basic and diluted (pence)	3.4p	1.5p	2.0p

Unaudited Consolidated Statement of Financial Position

at 30 November 2018

	As at 30 November 2018 £000	As at 30 November 2017 £000	As at 31 May 2018 £000
Assets
Non-current assets
Property, plant and equipment	8,872	8,470	7,755
Investment property	560	-	564
Intangible assets	1,291	1,068	1,057
Investment in joint venture	-	795	734
Total non-current assets	10,723	10,333	10,110
Current assets
Inventories	13,266	10,948	9,621
Trade and other receivables	6,168	6,820	6,252
Corporation tax recoverable	569	245	386
Derivative financial asset	27	4	-
Cash and cash equivalents	1,139	1,286	572
Total current assets	21,169	19,303	16,831
Total assets	31,892	29,636	26,941
Liabilities
Non-current liabilities
Loans and borrowings	(4,402)	(3,885)	(3,708)
Deferred tax	(279)	(280)	(277)
Total non-current liabilities	(4,681)	(4,165)	(3,985)
Current liabilities
Trade and other payables	(3,631)	(2,874)	(2,619)
Loans and borrowings	(3,567)	(3,748)	(1,349)
Total current liabilities	(7,198)	(6,622)	(3,968)
Total liabilities	(11,879)	(10,787)	(7,953)
TOTAL NET ASSETS	20,013	18,849	18,988

Capital and reserves attributable to equity holders of the company
Share capital	3,792	3,792	3,792
Capital redemption reserve	600	600	600
Treasury share reserve	(807)	(798)	(798)
Foreign exchange reserve	2,585	2,492	2,490
Retained earnings	13,843	12,763	12,904
TOTAL EQUITY	20,013	18,849	18,988

Unaudited Consolidated Cash Flow Statement

for the 6 months ended 30 November 2018

	6 months to 30 November 2018 £000	6 months to 30 November 2017 £000	Year to 31 May 2018 £000
Cash flows from operating activities
Profit for the period	939	404	545
Adjustments for:
Depreciation of property, plant and equipment	393	331	586
Depreciation of investment property	9	-	19
Amortisation of intangible assets	10	-	6
Finance expense	92	88	160
Movement in derivative financial assets	(28)	(52)	(48)
Share of post-tax loss of joint venture	34	47	107
Gain on termination of joint venture	(118)	-	-
Negative goodwill arising from acquisition	(380)	-	-
Income tax expense	231	224	340
Cash flows from operating activities before changes in working capital and provisions	1,182	1,042	1,715
(Increase)/decrease in inventories	(761)	(716)	597
Decrease/(increase) in trade and other receivables	194	(6)	583
(Decrease) in trade and other payables	(536)	(572)	(835)
Cash generated/(used) by operating activities	79	(252)	2,060
Income taxes paid	(276)	(152)	(411)
Net cash flows (to)/from operating activities	(197)	(404)	1,649
Investing activities
Purchase of property, plant and equipment	(123)	(251)	(400)
Purchase of subsidiary net of debt	(1,865)	-	-
Net cash used in investing activities	(1,988)	(251)	(400)
Financing activities
Purchase of treasury shares	(9)	-	-
Net drawdown/(repayment) of bank borrowings	2,868	464	(2,102)
Bank interest paid	(92)	(88)	(160)
Net cash generated/(used) by financing activities	2,767	376	(2,262)
Net increase/(decrease) in cash and cash equivalents	582	(279)	(1,013)
Translation (loss)/gain on cash and cash equivalents	(15)	(2)	18
Cash and cash equivalents at beginning of the period	572	1,567	1,567
Cash and cash equivalents at end of the period	1,139	1,286	572

Unaudited Consolidated Statement of Changes in Equity

for the six months ended 30 November 2018

	Share capital £000	Capital redemption reserve £000	Treasury share reserve £000	Foreign exchange reserve         £000	Retained earnings £000	Total equity £000
At 1 June 2018	3,792	600	(798)	2,490	12,904	18,988
Profit for the period	-	-	-	-	939	939
Other comprehensive income	-	-	-	95	-	95
Transaction with shareholders:
Purchase of treasury shares	-	-	(9)	-	-	(9)
At 30 November 2018	3,792	600	(807)	2,585	13,843	20,013

	Share capital £000	Capital redemption reserve £000	Treasury share reserve £000	Foreign exchange reserve         £000	Retained earnings £000	Total equity £000
At 1 June 2017	3,792	600	(798)	2,349	12,359	18,302
Profit for the period	-	-	-	-	404	404
Other comprehensive income	-	-	-	143	-	143
At 30 November 2017	3,792	600	(798)	2,492	12,763	18,849

	Share capital £000	Capital redemption reserve £000	Treasury share reserve £000	Foreign exchange reserve         £000	Retained earnings £000	Total equity £000
At 1 June 2017	3,792	600	(798)	2,349	12,359	18,302
Profit for the year	-	-	-	-	545	545
Other comprehensive income	-	-	-	141	-	141
At 31 May 2018	3,792	600	(798)	2,349	12,904	18,988

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

Reserve	Description and purpose
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 to the Interim Results

for the six months ended 30 November 2018

1.   The financial information in this report does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The interim results for the six months ended 30 November 2018 and 30 November 2017 are unaudited. The interim financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations as endorsed by the European Union. The same accounting policies, presentation and methods of computation have been followed in the preparation of these results as were applied in the Company's latest annual audited financial statements.

The directors have adopted the following accounting standards which became effective for periods beginning on or after 1 January 2018:

IFRS 9 (Financial instruments)

IFRS 15 (Revenue from contracts with customers)

There has been no financial impact of these accounting standards and therefore the 2017 comparative figures have not been restated.

The directors will adopt the following forthcoming accounting standard which becomes effective for periods beginning on or after 1 January 2019:

IFRS 16 (Leases)

Under IFRS 16, the Group will be required to recognise a right-of-use asset and a lease liability for future lease commitments (excluding low value leases and leases less than 12 months) on the consolidated balance sheet and replace straight line operating lease rental charges with depreciation of right-to-use assets and an interest charge on the lease liabilities in the consolidated income statement. The directors are currently evaluating the impact of applying this new standard and any changes, as a result of this new standard, will impact the comparative results shown in the 31 May 2020 financial statements.

The financial information for the year ended 31 May 2018 does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for the year ended 31 May 2018 have been filed with the Registrar of Companies.  The Independent Auditor's Report on the Annual Report and Financial Statements for the year ended 31 May 2018 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.

2.  Ordinary shares of 12 pence each used in the calculation of earnings per share:

	6 months to 30 November 2018	6 months to 30 November 2017	Year to 31 May 2018
	27,340,679	27,350,843	27,350,843

3.  Reconciliation of movements in net bank debt

	6 months to 30 November 2018 £000	6 months to 30 November 2017 £000	Year to 31 May 2018 £000
Increase/(decrease) in cash & cash equivalents	582	(279)	(1,013)
Translation (loss)/gain on cash and cash equivalents	(15)	(2)	18
(Increase)/decrease in loans	(2,868)	(464)	2,102
Translation loss on loans	(44)	(82)	(72)
Net cash (outflow)/inflow	(2,345)	(827)	1,035
Net bank debt at beginning of period	(4,485)	(5,520)	(5,520)
Net bank debt at end of period	(6,830)	(6,347)	(4,485)

4.  Analysis of net bank debt

	6 months to 30 November 2018 £000	6 months to 30 November 2017 £000	Year to 31 May 2018 £000
Cash	1,139	1,286	572
Loans repayable in less than one year	(4,420)	(3,748)	(1,349)
Loans repayable in more than one year	(3,549)	(3,885)	(3,708)
Net bank debt at end of period	(6,830)	(6,347)	(4,485)

5.  Segmental information

	6 months to 30 November 2018 £000	6 months to 30 November 2017 £000	Year to 31 May 2018 £000
External revenue
Hemmers Europe	16,640	20,501	38,299
Hemmers China	1,583	1,679	3,239
KMR	3,657	-	-
Total Group external revenue	21,880	22,180	41,538

	6 months to 30 November 2018 £000	6 months to 30 November 2017 £000	Year to 31 May 2018 £000
Profit before tax
Hemmers Europe (local GAAP)	747	722	1,123
KMR	(233)	-	-
Share of post-tax loss of JV	(34)	(47)	(107)
IFRS adjustment - financial derivatives	28	4	-
Hemmers Europe (IFRS)	508	679	1,016
Hemmers China	128	(29)	(86)
Unrealised profit in stock	16	-	(13)
Holding company	20	(22)	(32)
Gain on termination of joint venture	118	-	-
Negative goodwill arising from acquisition	380	-	-
Group profit before tax	1,170	628	885

	6 months to 30 November 2018 £000	6 months to 30 November 2017 £000	Year to 31 May 2018 £000
Net assets
Hemmers Europe (local GAAP)	13,426	14,024	14,197
KMR	1,743	-	-
IFRS adjustment - financial derivatives	27	3	-
IFRS adjustment - goodwill amortisation	709	705	703
Hemmers Europe (IFRS)	15,905	14,732	14,900
Hemmers China	1,130	1,056	1,049
Unrealised profit in stock	(21)	(25)	(37)
Holding company	2,999	3,086	3,076
Group net assets	20,013	18,849	18,988

6.  Acquisition of KMR

On 5th July 2018 Hemmers became 100% owners of KMR following the buyout of our joint venture partner. The consideration was €500,000 (£444,000) comprising €250,000 (£222,000) paid in cash and the balance being three shops at a value of €250,000 (£222,000). Hemmers invested a further €370,000 (£329,000) in the company during the period. KMR is a retailer of fabric and haberdashery, operating shops located throughout Germany.

The joint venture investment was accounted for in the consolidated financial statements of Leeds Group using the equity accounting method and at 30 June 2018, was held at a cost of €796,000 (£707,000).

The directors continue to assess the acquisition accounting entries and the below represents provisional figures, which will be finalised during the remainder of the measurement period.

Accounting for the step acquisition of KMR requires the directors to fair value the original 50% joint venture investment, with the resulting gain credited to the profit and loss as follows:

	€000	£000
As at 30 June 2018:
Fair value share of original joint venture	929	825
Carrying value of investment in consolidated financial statements	796	707
Gain on fair valuing of joint venture investment	133	118

Upon obtaining 100% control of the KMR entity, the cost of the investment for the purposes of determining the goodwill is calculated as follows:

	€000	£000
Fair value share of original 50% joint venture	929	825
Fair value of the consideration paid to obtain control	500	444
Cost of investment	1,429	1,269

The net assets of the newly acquired subsidiary are as follows:

	€000	£000
Fair value of net assets as at 30 June 2018:
Fixed assets	1,745	1,549
Stock	3,436	3,050
Cash	259	230
Debtors	335	297
Creditors	(1,731)	(1,537)
Loans	(2,186)	(1,940)
Fair value of assets acquired	1,858	1,649

The directors consider that the book values of the new assets acquired approximate to the fair value of the new assets and that there are no separately identifiable intangible assets.

Goodwill on consolidation is calculated as follows:

	€000	€000
Cost of investment	1,429	1,269
Fair value of net assets acquired	1,858	1,649
Negative goodwill arising on consolidation	429	380

This negative goodwill is credited to the profit and loss account.

The cash flow effect of the step acquisition is as follows:

	€000	£000
Cash	335	297
Further cash investment	370	329
Loans	(2,186)	(1,940)
Net debt	(1,481)	(1,314)
Cost of purchase	(1,080)	(959)
Further cash investment	(370)	(329)
Total investment	(1,450)	(1,288)
Net cash effect	(2,931)	(2,602)

The amounts of revenue and profit before tax included in the consolidated statement of comprehensive income in respect of KMR's trading since the acquisition date are shown in note 5.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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