Final Results

Leeds Group PLC 12 December 2000 Leeds Group plc Preliminary Results for the year ended 30 September 2000 Leeds Group Reports Growth in Turnover & Profit 2000 1999 Turnover £64.5m £61.1m Profit before exceptional items £3.2m £2.9m Exceptional items (£6.9m) (£7.6m) Loss after exceptional items (£3.7m) (£4.7m) Earnings/(loss) per share before exceptional items 5.2p 4.7p exceptional items (16.8p) (18.7p) _______ _______ after exceptional items (11.6p) (14.0p) ====== ====== Total dividend per share 3.0p 3.0p * Record levels of new business written by Leeds Leasing at 2.2 times the previous year with real prospects of further growth in 2001. * Solid performance from European import and distribution businesses - further synergies expected through sourcing logistics and marketing. * Creditable performance from UK Dyeing - the strategic shift towards technical dyeing paid off as demand remained buoyant with profitability improving year-on-year. * UK Printing remained difficult with volumes and prices affected by imports. Consolidation of Calprina & Strines provides better prospects going forward. Walsden & Sharps operations performed to plan. * New management team delivered solid result at Nemesis. * Exceptional items in the year related to restructuring within the UK textile companies and disposals of Dutch subsidiaries. 'The core businesses are now well positioned to continue to grow over the next year and beyond. This provides a platform from which the Group can complete the necessary repositioning of its traditional manufacturing businesses.' 'The emphasis in the UK economy is shifting from the manufacturing to the services sector, so I expect Leeds Leasing to become our principal growth engine. The Board is considering carefully how this can be developed for the benefit of shareholders.' Chris J Marsden Chief Executive FULL STATEMENT BELOW ENQUIRIES Chris J Marsden, Chief Executive Fiona Tooley Leeds Group plc Citigate Dewe Rogerson Today: 020 7282 8000 Today: 020 7282 8000 Thereafter: 01943 876222 Thereafter: 0121 631 2299 Mobile: 07787 956106 Mobile: 07785 703523 -2- Leeds Group plc Preliminary Results for the year ended 30 September 2000 STATEMENT BY THE CHAIRMAN, ROBERT WADE In the past year much has been achieved in delivering our plans to restore Group profitability. The final result shows a profit before tax and exceptional items of £3,154,000, some 9% higher than last year, and I am satisfied that the ground has been prepared for further progress in the coming year and beyond. In his Chief Executive's report, Chris Marsden describes the achievements of the year in detail and it is now possible to see more clearly how we can continue to transfer resources from under-performing businesses to those activities where we are confident of profitable growth. Our strategy is to maintain significant investment in our rapidly growing leasing company, to enhance the scope of our European import and distribution business and to reposition the textile divisions to our perception of future demand. Leeds Leasing achieved impressive growth in new business and profit and we have ambitious plans for this company. Since the financing of leasing is inevitably distinct from that of a manufacturing company, and now that Leeds Leasing has become a significant part of the Group's business, you will see that more detailed information is provided on this subsidiary within the financial review. The sale of two of our subsidiaries in Holland has raised cash where there was little prospect of restoring an adequate return. The acquisition of Hemmers in Northern Germany has added significant potential to our import and distribution business and the reorganisation of the UK textile divisions has already released valuable properties for sale. The Board recommends a final dividend of 2.0 pence to be paid on 23 January 2001 making a maintained total of 3.0 pence per share. The textile environment throughout Europe continues to be challenging but I have no doubt that we have evolved the appropriate strategy to meet these conditions and allow us to extract the maximum value from our textile assets which remain some of the most successful in Europe. The emphasis in the UK economy is shifting from the manufacturing to the service sector, so I expect Leeds Leasing to become our principal engine of growth. The Board is considering carefully how this can be developed for the benefit of shareholders. I am confident that the coming year will start to show the benefit of the tough decisions that have been taken and the enhanced potential of our restructured Group. -3- Leeds Group plc Preliminary Results for the year ended 30 September 2000 OPERATING REVIEW BY THE CHIEF EXECUTIVE, CHRIS MARSDEN The past year has been one of considerable progress for the Group with a significant number of planned changes being made, changes deemed necessary to restore Group profitability. Overall performance has been encouraging particularly in those businesses that form the core of the recovery strategy, for example Leeds Leasing. However, trading conditions have remained difficult in the traditional textile sectors and although significant headway has been made in restructuring, there remains the continuing challenge of repositioning the manufacturing businesses to best meet the needs of our customers in what is a rapidly changing trading environment. As a result of these changes, we are now in a much stronger strategic position with less dependence on the traditional sectors historically associated with the Group. This, together with the inherent strengths and capabilities of our management and workforce, justifies real optimism for the future. UK Dyeing UK Dyeing produced a highly creditable performance in a market that has seen its share of problems over the past year. Our strategic shift away from apparel towards technical dyeing has paid dividends in that demand from the latter sector remained relatively buoyant with profitability improving year on year. However, the continued decline in demand from apparel customers resulted in the reluctant decision to close the Colourflex facility and concentrate all package yarn dyeing activities on Langholm. The Group has, as a result, strengthened its competitive position with a manufacturing facility that has the required combination of technical breadth and capability together with the appropriate cost base. Langholm now has the potential to be the key player in this market. The investment in Schofield Cloth Finishers announced last year has been completed with pleasing results. Early signs are promising particularly from the Scottish market with further growth opportunities available as the business develops. UK Printing UK Printing provided the greatest challenge and disappointment during the past year. Firstly, the market remained extremely difficult with volumes and prices under continued pressure from imports. Secondly, the consolidation of the Calprina business (acquired October 1999) on to Strines was to be hindered by unforeseen transition difficulties that persisted throughout the second half of the year. All of the issues involved are now being systematically addressed and the prospects for the year ahead look considerably better for this operation. Walsden once again delivered a performance in line with expectations retaining a strong customer base and market share. Export successes offset some of the trading difficulties in the domestic market and whilst margins continue to be eroded, they were not affected to the same extent as in the previous year. Sharps produced another good result on the back of excellent customer service and the established flexible, responsive approach to a broad spread of domestic markets. CLG (Holding) BV In December 1999 the Group acquired the Hemmers business, a textile import and distribution company based in Germany, to complement the activities of its Itex division. Hemmers delivered an excellent performance in its first year within the Group, fully meeting our profit expectations. Itex produced another solid result in the face of adverse exchange rates and a somewhat volatile supply-side market. Given the ongoing trend for imported goods, the outlook continues to be promising with obvious synergies in sourcing, marketing and logistics between the two import and distribution companies still to be exploited over the next 12 - 18 months. continued... -4- The Campo and Panhuizen businesses in CLG were successfully divested in May 2000 and October 2000 respectively. Neither were core to Group strategy and it was felt that they would be best positioned for the future under private ownership. Nemesis As with the UK, the printing market in mainland Europe remained under relentless pressure from imported product. Margins were also affected by a weak Euro, which adversely impacted on imported raw material costs. Despite this, Nemesis produced another profitable performance. The changes in management announced last year have been successful and further investment has been made in additional three metre wide printing capacity as the demand for this type of product continues to increase. This, together with the ongoing developments of new and improved routes to market, should enable Nemesis to exploit its inherent strengths including world class manufacturing capabilities and low cost base. Leasing In my operating review last year, I referred to the intent of the Board to pursue a policy of controlled growth in our leasing business. Led by John Blanchflower, who was appointed as Managing Director in October 1999, Leeds Leasing achieved that growth, writing record levels of new business in the year, more than double their previous best achieved in 1999. As a result, operating profits increased by 68% with real prospects for further growth in 2001. Although substantial progress was achieved in penetrating the new target sectors of education and studio audio equipment, most of the growth was achieved in the traditional areas of hospitality and leisure. Success for a sales aid leasing company depends on forging strong relationships with suppliers of quality capital goods. During the year Leeds Leasing added to their supplier base by concluding agreements with several of the biggest and best-known players in their market, and developed close associations with many of the key industry trade organisations. This step change in the scale of leasing activities was achieved without an increase in the overall numbers employed. Credit appraisal and underwriting controls have been improved, so that the default ratio has been further reduced from the low levels of prior years. Financial management was strengthened by the appointment in August of Robin Thornton, a chartered accountant with 14 years of experience within the financial services sector. He was appointed as Finance Director on 11 December 2000. To finance the current lease book and to provide the funding for the growth planned for the current year, block discounting facilities have been negotiated with a number of banks and these are described more fully in the Financial Review. Market research indicates significant potential for continued expansion in the niche markets in which Leeds Leasing specialises. With funding secured, and a dedicated team committed to further profitable growth, the prospects for the current year appear excellent. Outlook The core businesses within the Group are now well positioned to continue to grow over the next year and beyond. This provides a platform of profitability from which the Group can complete the necessary repositioning of its traditional manufacturing businesses. I believe that this will deliver enhanced profitability for the future. My management team and I remain fully committed to achieving this on behalf of our shareholders. -5- Leeds Group plc Preliminary Results for the year ended 30 September 2000 FINANCIAL REVIEW BY THE FINANCE DIRECTOR, MALCOLM WILSON Group Profit and Loss Account Group turnover for the year of £64.5m represents an increase of £3.4m (6%) over the previous year despite the adverse translation impact of £2.3m arising from the continued appreciation of sterling against the Euro. Thus at constant exchange rates sales growth was £5.7m, or 10%. As the significance of Leeds Leasing's results grows in the context of the Group as a whole, it is increasingly necessary to examine separately the performance in our textile and leasing businesses. The results of these quite distinct activities are summarised below: 2000 1999 Total Textiles Leasing Total Textiles Leasing £000 £000 £000 £000 £000 £000 Sales 64,538 62,278 2,260 61,057 59,343 1,714 Cost of sales 49,169 49,169 - 46,997 46,997 - -------- -------- ------- -------- -------- ------- Gross margin 15,369 13,109 2,260 14,060 12,346 1,714 Distribution 1,863 1,863 - 1,158 1,158 - costs Administrative 9,646 8,599 1,047 9,388 8,397 991 expenses ------- ------- ------- ------- ------- ------ Operating 3,860 2,647 1,213 3,514 2,791 723 profit before exceptionals ==== ==== ==== ==== ==== === Profitability from Textiles The turnover of the textile businesses increased, on a constant exchange rate basis, by £5.3m (9%) from £57.0m to £62.3m. Calprina and Hemmers, the businesses acquired in the year, contributed respectively £2.1m and £6.1m to that growth, although these positive changes were partially offset by a reduction in sales of £1.3m from Campo and Panhuizen, businesses divested in May 2000 and October 2000 respectively, and by a fall of £1.6m (10%) in sales achieved by the UK textile printing division. Profit margins were either better or in line with expectations in textile businesses other than UK Printing, where it has taken longer than expected to rationalise Calprina onto the Strines site. Profitability from Leasing Turnover from Leeds Leasing included in the Group total amounted to £2.3m (1999 : £1.7m). After an interest charge of £440,000, profit before taxation in Leeds Leasing was £773,000, which represents a return of 46% on closing shareholders' funds of £1,672,000 invested in that business. It is particularly pleasing that such strong growth has been achieved without sacrificing yields, with minimal increase in the overhead cost base, and with a reduction in default costs from an already impressively low level. Closing lease debtors at September 2000, at almost twice the level of 1999, form a solid base for profits in the current year. Net Interest Expense The net interest expense for the Group increased from £631,000 in 1999 to £706,000. Group interest cover, before exceptional items, was 5.5 (1999 : 5.7). Exceptional Items Exceptional items totalling £6.9m were charged in the year, and these are explained in detail in note 2. Included in this total is £2.3m of goodwill already previously written off to reserves when the Dutch businesses were acquired and so, after taking into account £0.7m of attributable tax, the actual impact on reserves of these costs has been £3.9m. Before taking into account taxation, the cash cost of these exceptional items will be £2.8m, of which £2.1m was paid in the year and £0.7m will be paid in the current year. continued... -6- Taxation, Earnings and Dividend Before exceptional items, the effective tax rate was 39.3% (1999 : 39.8%), basic earnings per share were 5.2p (1999 : 4.7p), and the unchanged total dividend of 3p per share was covered 1.7 times (1999 : 1.6 times). Fixed Asset Additions Additions to fixed assets in the year were £3.6m (1999 : £2.6m), of which £1.9m was invested at Strines on the project to relocate the Calprina business including a computer controlled colour kitchen to mix and dispense printing dyestuffs. Other significant investment took place at Schofield Cloth Finishers (£0.5m), where new piece dyeing and volume finishing facilities have recently been commissioned, and at Nemesis (£0.5m) where a project to install a new line capable of printing 3 metre wide cloth was commenced in August, with a total expected cost of £0.9m Taking into account debt assumed on acquisition, the group's purchase of Calprina and Hemmers resulted in an increase of £3.9m in debt, while the sale of Campo realised £2.0m. Working Capital The level of working capital increased by £4.2m in the year as below: £000 Increase in Stocks 4,658 Debtors 1,883 Creditors (2,384) -------- Total working capital increase 4,157 ===== Growth in stocks has occurred chiefly in the Group's European subsidiaries and although stock levels need to be relatively high in September ahead of the busy months leading to Christmas, it is recognised that current levels are excessive and appropriate plans to effect reductions are in place. Since the Calprina assets acquired by the group in October 1999 included no trade debtors, the £0.5m of year-end debtors in that business appears within the increase of £1.8m shown above. Otherwise debtor growth was in line with increased turnover in the final quarter of the year. Goodwill Intangible fixed assets of £1.15m represents the goodwill arising on the acquisition last December of Hemmers, and will be amortised over fifteen years in line with German practice. Debt profile The borrowings policy of the Group continues to be aimed at matching its funding requirement in a cost effective fashion with a judicious combination of short and medium term debt. continued... -7- The Group's net debt of £20.4m at 30 September 2000 may be analysed by business activity and by maturity as below: Group Total UK Continental Total Leasing Textiles Textiles Textiles £000 £000 £000 £000 £000 Floating rate 6,382 1,153 5,229 - 5,229 overdraft Floating rate 554 - 554 554 - loan notes Fixed rate loans 15,220 8,461 6,759 - 6,759 -------- ------- -------- ----- -------- Gross debt 22,156 9,614 12,542 554 11,988 Cash (1,714) - (1,714) (271) (1,443) -------- -------- -------- ----- -------- Net debt 20,442 9,614 10,828 283 10,545 ===== ===== ===== === ===== Repayment profile On demand 5,222 1,153 4,069 283 3,786 Less than one 7,764 4,186 3,578 - 3,578 year Between 1 - 2 4,176 3,558 618 - 618 years Between 2 - 5 3,280 717 2,563 - 2,563 years ---------- -------- -------- ----- -------- Net debt 20,442 9,614 10,828 283 10,545 ====== ===== ===== === ===== Weighted average rate of fixed 6.3% 7.9% 5.2% - 5.2% interest loans Debt in the Continental Textiles businesses is denominated either in Euros, or in currencies with a fixed Euro parity. The maturity profile of this debt and its split between fixed and variable rates is regularly reviewed. Leeds Leasing's borrowings consist primarily of block discounting lines with a total of six banks, under which fixed interest debt is raised with an amortising repayment profile matching that of the block of lease agreements upon which the debt is secured. Net Debt and Capital Gearing Net debt and capital gearing increased during the year as analysed below : Total Textiles Leasing £000 £000 £000 Debt at 30 September 1999 7,503 5,488 2,015 Internal dividend paid - (2,000) 2,000 Increase in the year 13,672 8,073 5,599 Translation differences (733) (733) - -------- -------- ------- Debt at 30 September 2000 20,442 10,828 9,614 ===== ===== ==== Shareholders' funds At 30 September 1999 35,148 31,933 3,215 Internal dividend paid - 2,000 (2,000) Result for year (5,322) (5,779) 457 Goodwill written back 2,266 2,266 - Translation differences (930) (930) - --------- ---------- ------- At 30 September 2000 31,162 29,490 1,672 ===== ====== ==== Gearing at 30 September 1999 21.3% 17.2% 62.7% Gearing at 30 September 2000 65.6% 36.7% 575.0% continued... -8- The directors plan to reduce the debt of the textile businesses through (a) profitability enhanced by the exceptional restructuring costs and recent capital expenditure, (b) the sale of freehold properties made surplus by that restructuring, and (c) working capital reductions. The Group's increased gearing ratio clearly reflects the increased activity levels of Leeds Leasing and the directors anticipate that the levels of new business written, and associated debt, will continue to rise. To maximise shareholder return, growth will be funded as far as possible by debt, subject to relevant covenants to lenders, which include a maximum gearing of 800%. This amortising debt structure provides a suitable hedge against variations in base rates, and the headroom in existing facilities is more than sufficient to fund the growth anticipated in the current year. Exchange exposure It is not Group policy to hedge the translation of profits earned in overseas subsidiaries, nor to hedge their balance sheet except to the extent it is possible to match their net assets with foreign currency debt. Transactional exposures arise in the European subsidiaries where loomstate or printed cloth is purchased in US Dollars for re-sale chiefly in European currencies. A weakened Euro will therefore lead to reduced margins unless it proves possible to negotiate reduced input or increased output prices. The impact of exchange rate changes on financial assets and liabilities is minimised by the Group's policy requiring forward exchange contracts to match sales and purchases denominated in foreign currency. -9- Consolidated Profit And Loss Account for the year ended 30 September 2000 Twelve months to Twelve months to 30 September 2000 30 September 1999 £000 £000 Turnover from continuing activities Existing activities 52,887 55,975 Acquisitions 8,214 - Divested businesses 3,257 5,082 _______ _______ 64,538 61,057 Cost of sales (49,169) (46,997) Gross profit 15,369 14,060 Distribution costs (1,863) (1,158) Administrative expenses (15,264) (15,585) Operating profit/(loss) Existing activities 2,979 3,815 Acquisitions 848 - Divested businesses 33 (301) _______ _______ 3,860 3,514 Exceptional items (5,618) (6,197) _______ _______ (1,758) (2,683) Loss on sale or termination of a (1,236) (1,384) business operation _______ _______ Loss before interest (2,994) (4,067) Interest receivable and similar 202 58 income Interest payable and similar (908) (689) charges _______ ______ Net interest payable (706) (631) _______ _______ Loss on ordinary activities (3,700) (4,698) before taxation Taxation (524) (440) _______ _______ Loss on ordinary activities (4,224) (5,138) after taxation for the financial year Dividends (1,098) (1,098) _______ _______ Transfer from reserves (5,322) (6,236) ====== ====== Earnings/(loss) per share before exceptional items 5.2p 4.7p exceptional items (16.8p) (18.7p) _______ _______ after exceptional items (11.6p) (14.0p) ====== ====== Fully diluted loss per share (11.5p) (14.0p) ====== ====== Dividend per share 3.0p 3.0p Consolidated Statement Of Total Recognised Gains And Losses 2000 1999 £000 £000 Loss for the financial year (4,224) (5,138) Foreign currency translation differences (930) (844) _____ _____ Total recognised gains and losses relating to the year (5,154) (5,982) ===== ===== -10- Consolidated Balance Sheet at 30 September 2000 Group Company 2000 1999 2000 1999 £000 £000 £000 £000 Fixed assets Intangible assets 1,150 - - - Tangible assets 24,512 27,243 - - Investments - - 18,875 17,905 ______ ______ _______ ______ 25,662 27,243 18,875 17,905 ______ ______ ______ ______ Current assets Stocks 12,773 6,965 - - Debtors 16,972 15,575 19,712 19,730 Finance lease debtors 12,352 6,329 - - Total debtors 29,324 21,904 19,712 19,730 Cash at bank and in hand 1,714 2,809 50 58 ______ ______ _______ _______ 43,811 31,678 19,762 19,788 Creditors: amounts falling due within one year (28,979) (16,524) (1,337) (1,380) _______ ______ _______ _______ Net current assets 14,832 15,154 18,425 18,408 Of which: due within one year 7,736 12,163 18,425 18,408 debtors due after more than 7,096 2,991 - - one year _______ ______ _______ _______ Total assets less current 40,494 42,397 37,300 36,313 liabilities Creditors: amounts falling due after more than one year (7,456) (5,489) - - Provisions for liabilities (1,820) (1,740) - - and charges Accruals and deferred income (56) (20) - - _______ ______ _______ _______ Net assets 31,162 35,148 37,300 36,313 ====== ===== ====== ====== Capital and reserves Called up share capital 9,150 9,150 9,150 9,150 Share premium account 15,832 15,832 15,832 15,832 Profit and loss account 6,180 10,166 12,318 11,331 _______ ______ _______ _______ Equity shareholders' funds 31,162 35,148 37,300 36,313 ====== ===== ====== ====== -11- Consolidated Cash Flow Statement for the year ended 30 September 2000 2000 1999 £000 £000 Cash (outflow)/ inflow from operating activities (6,604) 11,193 Return on investments and servicing of finance (670) (642) Taxation (16) (1,660) Capital expenditure (3,371) (2,963) Acquisitions and disposals (834) - Equity dividends paid (1,098) (2,050) _______ ______ Cash (outflow)/inflow before financing (12,593) 3,878 Financing 7,618 2,920 _______ ______ (Decrease)/increase in cash in the year (4,975) 6,798 ====== ===== Reconciliation Of Net Cash Flow To Movement In Net Debt 2000 1999 £000 £000 (Decrease)/increase in cash in the period (4,975) 6,798 Cash outflow from increase in debt and lease (7,618) (2,920) financing _______ ______ Change in net debt resulting from cash flows (12,593) 3,878 Translation difference 733 654 Loan taken over on acquisition (1,079) - _______ ______ Movement in net debt (12,939) 4,532 Net debt at beginning of the year (7,503) (12,035) _______ _______ Net debt at end of the year (20,442) (7,503) ====== ====== -12- Notes A final dividend of 2.0p per share is proposed, making a total of 3.0p for the year (1999: 3.0p). If approved, this will be paid on 23 January 2001 to shareholders on the Register on 22 December 2000. 2. Exceptional items of £6.85m were charged in the year in respect of: £m Operating exceptional items Restructuring of printing division 1.87 Restructuring of dyeing division 1.84 Sale of Panhuizen 1.91 ------ 5.62 Non-operating exceptional items Sale of Campo 1.23 ------ 6.85 ====== 3. The financial information set out on pages 9 to 11 does not constitute the Company's statutory accounts for the year ended 30 September 2000 or the year ended 30 September 1999 but is derived from those accounts. 4. Statutory accounts for the year ended 30 September 1999 have been delivered to the Registrar of Companies, and those for the year ended 30 September 2000 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts and their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. 5. Full Accounts will be sent to shareholders on 24 December 2000. Further copies will then be available from the Company's Registered Office at Carter House, Guiseley, Leeds, LS20 8NH. 6. The Annual General Meeting will be held at the Jarvis Parkway Hotel & Country Club on the 22 January 2001 at 12 noon.

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