LEEDS GROUP PLC

Annual Report • Aug 18, 2014

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RNS Number : 2517P

Leeds Group PLC

18 August 2014

18 August 2014

Leeds Group plc

("the Group")

Final Results

Financial Highlights

q Profit before tax increased to £1,611,000 (2013: £1,440,000 before an impairment charge of £745,000 against available-for-sale investments).

q Sales volumes increased to 14.5 million metres (2013: 13.2 million metres).

q Hemmers Europe sales increased to £31,378,000 (2013: £28,209,000) and pre-tax profit increased to £1,478,000 (2013: £1,056,000).

q ChinohTex external sales were slightly down at £2,832,000 (2013: £2,931,000) and pre-tax profit reduced to £129,000 (2013: £261,000).

q Opening net bank debt of £390,000 was eliminated, and the Group finished the year with net cash of £915,000.

q Net asset value per share (excluding treasury shares) increased to 50.7 pence (2013: 49.1 pence).

q Earnings per share were 3.9 pence (2013:  1.0 p).

q No dividend proposed while Board continues search for suitable investment opportunities.

Enquiries:
Leeds Group plc	Cairn Financial Advisers LLP
Kathryn Davenport, Chairman  Tel: 01132859020	Tony Rawlinson Tel: 020 7148 7900
Malcolm Wilson, Company Secretary Tel: 07801224618

Chairman's Statement

I am pleased to present the results of the year ended 31 May 2014.

Results

In the year ended 31 May 2014 the Group made a profit after tax of £1,079,000 (2013: £283,000).  Comparable pre-tax profit increased by 11.9% to £1,611,000 (2013: £1,440,000, before an impairment charge of £745,000 against available-for-sale investments.)

Net asset value per share at 31 May 2014 was 50.7p (2013: 49.1p), and earnings per share for the year were 3.9p (2013:1.0p). 

Net debt of £390,000 at 31 May 2013 was transformed in the year to net cash of £915,000.

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

Total fabric sales in the year by Hemmers Europe increased by 9% to 12.8 million linear metres (2013: 11.7 million) and revenue was £31,378,000 (2013: £28,209,000). This volume growth was responsible for a significant increase in the rate and amount of gross profit. Overhead expenditure growth was below the rate of sales growth, and profit before tax grew by 40% to £1,478,000 (2013: £1,056,000).  This excellent trading performance, coupled with continuing focus on working capital control, enabled bank debt in Hemmers to be reduced in the year from £1,825,000 to £446,000.

ChinohTex, the Hemmers subsidiary based in Shanghai, produced satisfactory results in the first half of the year, achieving significant volume growth thanks to sales of £531,000 (2013: £10,000) to a single customer in Mexico. Although these sales were at a low margin, they allowed the subsidiary to match the profit performance of the previous year. However, sales fell away sharply after the Chinese New Year in February, and margins were under constant pressure. For the year as a whole, sales volumes were 1.7 million linear metres (2013: 1.5 million), sales revenue was £2,832,000 (2013: £2,931,000) and pre-tax profit was £129,000 (2013: £261,000). ChinohTex continues to provide valuable assistance to its European parent in terms of purchasing, inspection and shipping of material.

Dividend

It remains the intention of the Board to seek further opportunities to maximise the long-term value of the Group to the benefit of all shareholders by identifying appropriate investments in businesses where they have relevant expertise and which may not necessarily be operating in the textile industry. In the light of such policy, the Directors do not propose a dividend.

Employees

On behalf of shareholders, I thank the management and staff of Hemmers and ChinohTex for their continued hard work and commitment that has resulted such a highly satisfactory result.

Outlook

In the current year we have identified potential growth opportunities for Hemmers, and shall be increasing our focus on the European garment manufacturers and the market for accessories to be sold by our customers in retail outlets. We also intend in the year to provide customers of ChinohTex the opportunity to buy on-line.

Sales in the first two months of the current financial year have been in line with the expectations of the Board.

Board composition

I have decided not to seek re-appointment at the next Annual General Meeting of the Company. My board colleagues, with the help of the Company's Nominated Adviser, are actively seeking an individual to join the board as an independent Non-executive director and a further announcement will be made in due course when such an appointment is made.

Kathryn Davenport

Chairman

18 August 2014

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 2014, 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:

·      revenue	·     profit after tax
·      gross profit margin	·     earnings per share
·      fabric sales volumes, measured in linear metres	·     working capital levels
·      operating overheads and central costs	·     borrowing requirements
·      profit before tax

Group result

Group revenue in the year was £34,210,000 (2013: £31,140,000), an increase of 9.9%. Of this, 8.1% reflected sales growth achieved by the subsidiaries in terms of their local currencies, and 1.8% was attributable to the translation effect as the average rate used to translate those sales to sterling was lower than in 2013. Paradoxically, the value of sterling at 31 May 2014 was 5.1% greater than at last year-end, giving rise to the negative translation difference on opening net assets of £631,000 disclosed in other comprehensive income. Since 31 May 2014 sterling has continued to appreciate.

Group profit before tax was £1,611,000 (2013: £695,000). Profits last year were adversely affected by an impairment charge of £745,000 relating to the Group's investment in Dawson International Limited. The impairment charge of £745,000 was not tax-deductible and was equal to 2.7p per share.

The tax charge in the year was £532,000 of which £32,000 was deferred tax relating to temporary differences on goodwill. Earnings per share were 3.9p (2013: 1.0p).

Hemmers Europe

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

Sales volumes increased in the year by 9% to 12.8 million linear metres as a result of the success of measures mentioned last year in the Chairman's statement. The growth was achieved predominantly in the retail sector following the appointment of two new sales people to cover Germany and Holland, and intensive sales activity and support and service given to key customers. Pre-tax profit in the year increased by 40% to £1,478,000 (£1,056,000) and the increased volume was the major cause of this impressive result.

In Euro terms, average sales and cost prices were virtually unchanged from the previous year. Greater contribution from higher volumes combined with no growth in absorbed overhead led to an increase in the rate of gross profit to 23.06% (2013: 21.66%).

As ever, our German management team maintained close control of overhead expenditure that, in Euro terms, increased by 6.3% as a result of the sales volume increases and modest cost inflation. Bank debt was reduced in the year to £446,000 (2013: £1,825,000) and has now fallen in the past three years by €3.6 million (£2.9 million).

Hemmers China

Chinoh-Tex is a textile trading company based in Shanghai and has been trading for six years. It purchases fabric from Chinese suppliers and in 2014 sold to customers in 26 countries.

2014 was a year of mixed fortunes for Chinoh-Tex. In the first half, metres sold were 48% higher than in the corresponding period of 2013 thanks to successfully winning orders of over 400,000 metres in Mexico, albeit at low margins. This enabled Chinoh-Tex to match the profits earned in the first half of 2013, despite additional overhead incurred to support anticipated volume growth. But in the second half of the year sales volumes took several months to recover from the lows of the Chinese New Year and a small loss was incurred.

The effects of the low margin sales to Mexico and a high proportion of intercompany sales to Hemmers Europe saw gross margin fall to 19.1% (2013: 23.2%). Overhead costs were little changed from last year and profit before tax was £129,000 (2013:  £261,000). Importantly, Chinoh-Tex continues to give valuable assistance to its European parent with the purchasing, inspection and shipping of material.

Strategic Report (continued)

Holding Companies' Costs

Costs of the holding companies in the year, net of interest receivable, amounted to £102,000 (2013: £733,000) as follows:

	Year ended 31 May 2014   £000	Year ended 31 May 2013 £000
Holding companies' costs net of interest receivable	61	20
Impairment of available-for-sale investment	-	745
Exchange loss/(gain)	41	(32)
Net holding companies costs	102	733

Fixed Assets

Capital additions in the year amounted to £221,000 (2013: 209,000). The net book amount of tangible fixed assets in the Consolidated Statement of Financial Position is £1,900,000 (2013: £2,004,000).

Working Capital

Working capital comprises inventories, trade and other receivables, and trade and other payables and increased marginally in the year by £140,000. This increase of 1.2% is significantly lower than the rate of increase in sales volumes and revenue. The directors anticipate that working capital will now rise to its annual peak over the next few months.

Net Asset Value

Net assets increased in the year by £448,000 as follows:

	Net assets £000	Per share pence
At 31 May 2013	13,580	49.1
Profit after tax	1,079	3.9
Translation differences	(631)	(2.3)
At 31 May 2014	14,028	50.7

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%.  Working capital finance, when required, is via short term loans of three months currently attracting interest at approximately 1.5%.

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.

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. The Directors therefore consider the principal operating risks of operating in this market to be the financial risks identified in note 3 to the financial statements.

Kathryn Davenport

Chairman

18 August 2014

Consolidated Statement of Comprehensive Income

for the year ended 31 May 2014

		Audited Year ended 31 May 2014   £000	Audited Year ended 31 May 2013   £000
Revenue		34,210	31,140
Cost of sales		(26,440)	(24,350)
Gross profit		7,770	6,790
Distribution costs		(2,303)	(2,043)
Administrative expenses		(3,785)	(3,224)
Impairment of available-for-sale investment		-	(745)
## Profit from operations		1,682	778
Finance expense		(81)	(95)
Finance income		10	12
Profit before tax		1,611	695
Tax expense		(532)	(412)
## Profit for the year attributable to the equity holders of the Parent Company		1,079	283
Other comprehensive income
## Translation differences on foreign operations		(631)	698
Other comprehensive income for the year		(631)	698
Total comprehensive income for the year attributable to the equity holders of the Parent Company		448	981

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.

Earnings per share for profit attributable

to the equity holders of the Company

	Note	Audited Year ended 31 May 2014   £000	Audited Year ended 31 May 2013   £000
Basic and diluted (pence)	3	3.9p	1.0p

Consolidated Statement of Financial Position

at 31 May 2014

	Note	Audited 31 May 2014 £000	Audited 31 May 2013 £000
Assets
Non-current assets
Property, plant and equipment		1,900	2,004
Goodwill		908	955
Total non-current assets		2,808	2,959
Current assets
Inventories		7,050	6,551
Trade and other receivables		6,097	6,920
Cash and cash equivalents		1,772	2,334
Total current assets		14,919	15,805
Total assets		17,727	18,764
Liabilities
Non-current liabilities
Loans and borrowings		(813)	(1,829)
Deferred tax		(239)	(219)
Total non-current liabilities		(1,052)	(2,048)
Current liabilities
Trade and other payables		(2,062)	(1,979)
Loans and borrowings		(44)	(895)
Corporation tax liability		(541)	(262)
Total current liabilities		(2,647)	(3,136)
Total liabilities		(3,699)	(5,184)
TOTAL NET ASSETS	6	14,028	13,580

Capital and reserves attributable to equity holders of the Company
Share capital		3,792	3,792
Capital redemption reserve		600	600
Treasury share reserve		(681)	(681)
Foreign exchange reserve		1,164	1,795
Retained earnings		9,153	8,074
TOTAL EQUITY		14,028	13,580

Consolidated Cash Flow Statement

for the year ended 31 May 2014

		Audited Year ended 31 May 2013   £000	Audited Year ended 31 May 2013   £000
Cash flows from operating activities
Profit for the year		1,079	283
Adjustments for:
Depreciation		223	215
Impairment of available-for-sale investment		-	745
Finance expense		81	95
Finance income		(10)	(12)
Profit on sale of property, plant and equipment		(1)	(1)
Income tax expense		532	412
Cash flows from operating activities before changes in working capital and provisions		1,904	1,737
(Increase)/decrease in inventories		(849)	268
Decrease in trade and other receivables		453	190
Increase/(decrease) in trade and other payables		256	(511)
Cash generated from operating activities		1,764	1,684
Income taxes paid		(199)	(334)
Net cash flows from operating activities		1,565	1,350
Investing activities
Purchase of property, plant and equipment		(221)	(209)
Sale of property, plant and equipment		3	2
Bank interest received		10	12
Net cash used in investing activities		(208)	(195)
Financing activities
Purchase of treasury shares		-	(23)
Repayment of bank borrowings		(1,786)	(724)
Bank interest paid		(81)	(95)
Net cash used in financing activities		(1,867)	(842)
Net (decrease)/increase in cash and cash equivalents		(510)	313
Translation (loss)/gain on cash and cash equivalents		(52)	54
Cash and cash equivalents at beginning of the year		2,334	1,967
Cash and cash equivalents at end of the year		1,772	2,334

Analysis of Net Debt
Cash and cash equivalents		1,772	2,334
Non-current loans and borrowings		(813)	(1,829)
Current loans and borrowings		(44)	(895)
Net cash/(net debt) at 31 May		915	(390)

Consolidated Statement of Changes in Equity

for the year ended 31 May 2013

	Share capital £000	Capital redemption reserve £000	Treasury share reserve £000	Foreign exchange reserve         £000	Retained earnings £000	Total equity £000
At 31 May 2012	3,792	600	(658)	1,097	7,791	12,622
Profit for the year	-	-	-	-	283	283
Other comprehensive income*	-	-	-	698	-	698
Purchase of treasury shares	-	-	(23)	-	-	(23)
At 31 May 2013	3,792	600	(681)	1,795	8,074	13,580
Profit for the year	-	-	-	-	1,079	1,079
Other comprehensive income*	-	-	-	(631)	-	(631)
At 31 May 2014	3,792	600	(681)	1,164	9,153	14,028

* The components of other comprehensive income are disclosed as part of the consolidated statement of comprehensive income.

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

Leeds Group plc

Preliminary Results

Notes

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

2.            The Directors do not recommend the payment of a dividend.

3.                 Earnings per share

	Year ended 31 May 2013	Year ended 31 May 2012
Numerator
Profit for the year from continuing operations, being the earnings used in basic and diluted earnings per share	£1,079,000	£283,000
Denominator
Weighted average number of shares used in basic and diluted earnings per share (excluding treasury shares)	27,674,342	27,775,274
Basic and diluted earnings per share	3.9p	1.0p

4.                 The financial information set out above does not constitute the company's statutory accounts for 2014 or 2013.

Statutory accounts for the years ended 31 May 2014 and 31 May 2013 have been reported on by the Independent Auditors. 

The Independent Auditors' Report on the Annual Report and Financial Statements for both 2014 and 2013 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 2013 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 May 2014 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

Notes (continued)

6              Segmental information

						IFRS adjustment
Year ended 31 May 2014	Hemmers Europe       £000	Hemmers China £000	Inter segmental £000	Total Hemmers £000	Holding companies £000	Goodwill amortisation         £000	Group total £000
External revenue	31,378	2,832	-	34,210	-	-	34,210
Inter-segmental revenue	-	904	(904)	-	-	-	-
Cost of sales	(24,142)	(3,194)	896	(26,440)	-	-	(26,440)
Gross profit	7,236	542	(8)	7,770	-	-	7,770
Distribution costs	(2,130)	(173)	-	(2,303)	-	-	(2,303)
Admin expenses	(3,390)	(240)	-	(3,630)	(269)	114	(3,785)
Profit from operations	1,716	129	(8)	1,837	(269)	114	1,682
Finance expense	(81)	-	-	(81)	-	-	(81)
Finance income	-	-	-	-	10	-	10
Internal interest	(157)	-	-	(157)	157	-	-
Profit before tax	1,478	129	(8)	1,599	(102)	114	1,611

						IFRS adjustment
At 31 May 2014	Hemmers Europe       £000	Hemmers China £000	Inter segmental £000	Total Hemmers £000	Holding companies £000	Goodwill amortisation         £000	Group total £000
Property, plant & equipment	1,822	78	-	1,900	-	-	1,900
Goodwill	62	-	-	62	-	846	908
Inventories	6,945	139	(34)	7,050	-	-	7,050
Trade receivables	4,709	245	-	4,954	1	-	4,955
Other receivables	705	421	-	1,126	16	-	1,142
Cash & equivalents	411	178	-	589	1,183	-	1,772
Total assets	14,654	1,061	(34)	15,681	1,200	846	17,727
Group loans & current accounts	(1,895)	(179)	-	(2,074)	2,074	-	-
Non-current liabilities	(813)	-	-	(813)	-	(239)	(1,052)
Trade payables	(1,045)	(239)	-	(1,284)	-	-	(1,284)
Other payables	(599)	(128)	-	(727)	(51)	-	(778)
Corporation tax	(528)	-	-	(528)	(13)	-	(541)
Loans & borrowings	(44)	-	-	(44)	-	-	(44)
Total liabilities	(4,924)	(546)	-	(5,470)	2,010	(239)	(3,699)
Net assets	9,730	515	(34)	10,211	3,210	607	14,028

Notes (continued)

6              Segmental information (continued)

						IFRS adjustment
Year ended 31 May 2013	Hemmers Europe       £000	Hemmers China £000	Inter segmental £000	Total Hemmers £000	Holding companies £000	Goodwill amortisation         £000	Group total £000
External revenue	28,209	2,931	-	31,140	-	-	31,140
Inter-segmental revenue	-	638	(638)	-	-	-	-
Cost of sales	(22,100)	(2,890)	640	(24,350)	-	-	(24,350)
Gross profit	6,109	679	2	6,790	-	-	6,790
Distribution costs	(1,859)	(184)	-	(2,043)	-	-	(2,043)
Admin expenses	(2,949)	(234)	-	(3,183)	(150)	109	(3,224)
Impairment of a-f-s investment	-	-	-	-	(745)	-	(745)
Profit from operations	1,301	261	2	1,564	(895)	109	778
Finance expense	(95)	-	-	(95)	-	-	(95)
Finance income	-	-	-	-	12	-	12
Internal interest	(150)	-	-	(150)	150	-	-
Profit before tax	1,056	261	2	1,319	(733)	109	695

						IFRS adjustment
At 31 May 2013	Hemmers Europe       £000	Hemmers China £000	Inter segmental £000	Total Hemmers £000	Holding companies £000	Goodwill amortisation         £000	Group total £000
Property, plant & equipment	1,994	10	-	2,004	-	-	2,004
Goodwill	182	-	-	182	-	773	955
Inventories	6,491	87	(27)	6,551	-	-	6,551
Trade receivables	5,113	323	-	5,436	-	-	5,436
Other receivables	1,006	460	-	1,466	18	-	1,484
Cash & equivalents	899	173	-	1,072	1,262	-	2,334
Total assets	15,685	1,053	(27)	16,711	1,280	773	18,764
Group loans & current accounts	(2,046)	(124)	-	(2,170)	2,170	-	-
Non-current liabilities	(1,829)	-	-	(1,829)	-	(219)	(2,048)
Trade payables	(881)	(306)	-	(1,187)	-	-	(1,187)
Other payables	(618)	(121)	-	(739)	(53)	-	(792)
Corporation tax	(251)	(11)	-	(262)	-	-	(262)
Loans & borrowings	(895)	-	-	(895)	-	-	(895)
Total liabilities	(6,520)	(562)	-	(7,082)	2,117	(219)	(5,184)
Net assets	9,165	491	(27)	9,629	3,397	554	13,580

Notes (continued)

6              Segmental information (continued) - Analysis of revenue by destination

	Year ended 31 May 2014			Year ended 31 May 2013
	Hemmers Europe £000	Hemmers China £000	Group total £000	Hemmers Europe £000	Hemmers China £000	Group total £000
Germany	19,228	328	19,556	16,788	459	17,247
France	1,592	234	1,826	1,283	133	1,416
Netherlands	1,686	-	1,686	1,735	-	1,735
Spain	857	369	1,226	923	321	1,244
Austria	899	52	951	730	91	821
Sweden	635	-	635	644	2	646
Switzerland	571	-	571	581	6	587
Serbia	567	-	567	482	-	482
Mexico	2	531	533	1	10	11
Belgium	507	-	507	425	-	425
Denmark	463	-	463	543	-	543
Bulgaria	90	235	325	25	235	260
Croatia	313	-	313	323	-	323
Greece	285	-	285	208	-	208
Portugal	280	-	280	273	-	273
USA	93	177	270	85	691	776
Finland	255	-	255	322	-	322
Australia	106	146	252	48	101	149
China	25	227	252	16	167	183
Czech Republic	196	-	196	195	-	195
Estonia	192	-	192	76	-	76
40 other countries	1,193	370	1,563	1,157	482	1,639
	30,035	2,669	32,704	26,863	2,698	29,561
UK	1,343	163	1,506	1,346	233	1,579
Total revenue	31,378	2,832	34,210	28,209	2,931	31,140

Other information

	Year ended 31 May 2014			Year ended 31 May 2013
	Hemmers Europe £000	Hemmers China £000	Group total £000	Hemmers Europe £000	Hemmers China £000	Group total £000
Additions to property, plant & equipment	141	80	221	208	1	209
Depreciation	216	7	223	207	8	215

This information is provided by RNS

The company news service from the London Stock Exchange

END

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