Final Results

Leeds Group PLC 21 December 2001 Issued on behalf of Leeds Group plc Date: Friday, 21 December 2001 Embargoed: 7.00am Leeds Group plc Preliminary Results for the year ended 30 September 2001 Strategy continues to move away from textile manufacturing and concentrate on the growth of financial services in Leeds Leasing + Profit before tax pre-exceptionals on continuing business £2.158m Leeds Leasing contributing £887,000 + Substantial progress made at Leeds Leasing Lease book increased by 35% with profitability improvement of 15% + Exceptional items of £14.6m including restructuring, the closure of UK Printing Division and impairment of Nemesis assets + Proposed sale of UK Dyeing Division for £6m will substantially complete the move away from UK textile manufacturing + Continued realisation of surplus properties and UK printing assets and the proposed sale of UK Dyeing Division will reduce gearing dramatically in the near future + Restructure of Group Board to reflect new direction 'The implementation of the Group's new strategy will continue to reduce our exposure to textile manufacturing, thus placing the Group in a more sustainable and profitable environment. Leeds Leasing is a strong, well managed business with inherent development opportunities which will be exploited for the benefit of our shareholders. Whilst the change in emphasis from textile manufacturing to financial services is not without its challenges, my management team and I remain confident that this is the correct strategy and one which we remain fully committed to deliver.' Chris Marsden, Chief Executive FULL STATEMENTS ATTACHED Enquiries: Chris J Marsden, Chief Executive Malcolm Wilson, Group Finance Director Fiona Tooley Leeds Group plc Citigate Dewe Rogerson Ltd Tel: 0113 391 9000 Tel: 0121 455 8370 or 07785 703523 -2- Leeds Group plc Preliminary Results STATEMENT BY THE CHAIRMAN, ROBERT WADE The last twelve months have been some of the most eventful in our history. A year ago, the Board concluded that it was no longer in shareholders' interests to continue, as a public company, to manufacture textiles in Europe. We believed that several subsidiaries could continue under private ownership, but we could no longer justify re-investment against an increasingly uncertain outlook. Accordingly, we determined to realise our textile investments as opportunities arose, and to concentrate in future on our growing financial services division, Leeds Leasing plc. This strategy has the full support of our major shareholders. You will see from the Group's accounts that the continuing businesses made a profit before tax and exceptional items of £2.158m, to which Leeds Leasing contributed £887,000. A detailed review of our financial performance during the last year is included in the Chief Executive's and Finance Director's reports. Shareholders are now asked to approve the sale of the UK Dyeing Division for £ 6.0m, of which full details are included in our Circular being sent to shareholders. Subject to approval at the EGM on 16 January 2002, we shall have completed the sale or closure of all our UK textile interests apart from our smallest printing subsidiary where sale negotiations are continuing. This will release a total of six freehold properties, of which the first was sold in September for £1.75m. We hope to exchange contracts shortly for a further four properties which, if completed, will realise in the region of £4.5m. Where appropriate, the Company has retained the right to benefit from subsequent development. Following the sale last year of our two plants in Holland, the Board is taking steps to reorganise our remaining continental interests to optimise their value and realise cash. Shareholders will appreciate that there are few buyers for textile companies, or even their machinery, and we have where possible given the first opportunity to the management. The costs of closure, the difference between the proceeds of realisation and the value as a going concern, and the obligation to account for goodwill previously written off, have resulted in substantial costs in our profit & loss account. The write down of the investment in our continental subsidiaries and the consequent reduction in distributable reserves prevent the Board from recommending a final dividend. However, we plan to seek Court consent to a reconstruction of the Company's share capital, which will allow us to repay capital to shareholders once our bank debt is reduced. At this stage, I cannot confirm when this will be complete, nor how much we will ultimately be able to repay to shareholders. However, the Board is confident that the new financial services company which will result, will have a strong position in a niche market, with real prospects of growth and with a balance sheet appropriate to sustain this. In view of these changes, the Company requires new skills from its Board of Directors, and we propose three new non-executive appointments who will bring appropriate experience to the Board. I am delighted that Mr Bill Cran, who is Chairman of Headway plc and was formerly Chairman of Birkby plc, has agreed to join the Board. Bill's wide experience of corporate transactions, property and in particular finance leasing, will be of great benefit to the Group's new direction. We also propose for election as a director Mrs Vin Murria, a specialist in corporate finance and senior manager of Union plc, a company associated with one of our major shareholders. The third appointment who will be the new Chairman will be proposed with the appropriate notice for shareholders to be able to approve at our Annual General Meeting, to be held on 11 February 2002, at which time Donald Macpherson and I will stand down. Donald has been a director since January 1986, and his advice during a period of considerable change has been enormously valuable. I would also like to thank sincerely my former colleagues Jim Kidd and Jeff Beardsley. Jim resigned from the Board when the branches in his division were sold or closed, and Jeff has resigned pending shareholder approval for the sale of the UK Dyeing Division. I wish them both every success in their new positions. continued... -3- After spending my career helping to build one of the more successful textile companies in Europe, it is inevitably disappointing to concentrate my last year on dismantling this. However, times change and I firmly believe that our change in emphasis from textiles to financial services is in the best interests of shareholders. -4- Leeds Group plc Preliminary Results OPERATING REVIEW BY THE CHIEF EXECUTIVE, CHRIS MARSDEN The past year has been very challenging for the Group as we commenced the implementation of the first phase of our new strategy, against a backdrop of testing trading conditions. As the Chairman has stated in his report, this new strategy focuses on exiting textile manufacturing activities, as and when opportunities arise, and concentrating on the growth of financial services in the form of Leeds Leasing. This strategy has proved to be increasingly necessary in light of a relentless deterioration in the textile sectors in which we operate, which has adversely affected the financial performance of all our textile manufacturing activities. UK Printing was particularly hard hit in that customer demand fell substantially and without warning in the early part of the year, resulting in the closure/sale of our two major UK printing operations, in order to minimise losses within the Group as a whole. The remaining textile businesses, however, have performed relatively well, considering the prevailing market conditions. UK Dyeing benefited from recent restructuring activities and all other businesses minimised the potential damage by gaining advantage from individual improvement initiatives. Leeds Leasing produced another excellent year of progress with new business written and profitability at new record levels. UK Textiles UK Dyeing UK Dyeing once again produced a solid performance in a market that has experienced many difficulties throughout the past twelve months with announcements of closures, particularly in the Yorkshire trade, being commonplace throughout the summer period. The consolidation of all our package yarn dyeing activities onto Langholm provided benefits which offset the decline in demand experienced throughout the year. Langholm retains a strong position in this sector based on its renowned technical capability and customer service which, together with the manufacturing efficiency improvements afforded through consolidation, reinforces its position as one of the key players in the industry. Schofields produced another satisfactory result, being less dependent on the Yorkshire trade and with demand from its Scottish customers holding up well. Further growth opportunities are already identified and these will be pursued actively. In line with the Group's stated strategy, it is now our intention to divest the UK Dyeing division to its management team, subject to shareholder approval. We believe that both Langholm and Schofields are well positioned to continue under private ownership in the future. UK Printing UK Printing proved to be the biggest disappointment throughout the year, with both Walsden and Strines dramatically affected by a sharp and unexpected decline in demand during the first few months of 2001. After evaluating all options, and with no prospect of any improvement in market conditions, the Board took the decision to exit both businesses to minimise the adverse financial impact on Group profitability. Strines was sold to Walker Greenbank and, in the absence of a suitable buyer, the Walsden operation was closed in July. The remaining assets from both transactions, including properties, are currently being realised, a process that should be completed in the first half of 2002. Sharps once again produced another robust result, reinforcing its strong market position and reputation. Negotiations continue for the sale of this business. continued.... -5- Nemesis Nemesis, along with its competitors, experienced a much more difficult market situation than normal during the past year. The spring weather, which is so critical to demand for garden furniture, was particularly poor and the market never recovered for the season. As a result, the strong performance of the first half of the year was almost fully offset by the harsh market conditions experienced in the second. The strategy of developing business in new market areas continues with some success, particularly in the bedding and furnishing segments where the recent investment in wide-width printing capacity has been essential. This has limited the damage inflicted from a less than satisfactory garden furniture sector. However, in light of a troubled start to the new season the business is now faced with a challenging situation. CLG (Holding) BV Hemmers, our textile import and distribution business based in Germany, delivered a satisfactory performance considering the difficulties experienced in the German economy over the past year. Itex, our distribution business based in Holland, suffered a reduction in margin, and hence profitability, as a result of volatile purchase prices, bad debt experience, and the increase in larger wholesale customers dealing directly with suppliers in the Far East. The outlook for imported goods remains promising, and synergies between these two operating units will continue to be exploited over the next twelve months, which provides confidence for the future. Leeds Leasing Leeds Leasing produced another year of substantial progress combined with controlled growth, despite a general downturn across the industry sectors in which it operates. The lease book increased by 35% whilst profitability improved by 15%. Once again, most of the growth was achieved in our established sectors of leisure and hospitality. However, the new target areas of education and studio /audio also made a significant contribution. Critical key supplier relationships continued to be reinforced throughout the year, with those already in place growing from strength to strength. A number of new partnerships have been established, including key franchise relationships in the food sector, and these will be further developed for the future. Funding arrangements are already in place to finance the growth planned for the coming year, and these are described more fully in the Financial Review. We firmly believe that there is the scope for continued expansion at Leeds Leasing within the niche sectors in which it operates, and the continued success in the past year has reinforced the foundation on which we can build for the future. Outlook The implementation of the Group's new strategy will continue to reduce our exposure to textile manufacturing, thus placing the Group in a more sustainable and profitable environment. Leeds Leasing is a strong, well managed business with inherent development opportunities which will be exploited for the benefit of our shareholders. Whilst the change in emphasis from textile manufacturing to financial services is not without its challenges, my management team and I remain confident that this is the correct strategy and one which we remain fully committed to deliver. -6 - Leeds Group plc Preliminary Results FINANCIAL REVIEW BY THE FINANCE DIRECTOR, MALCOLM WILSON Group sales Group turnover for the year was £56.2m, and the reduction of 13% from last year's level of £64.5m reflects the absence of sales from the Dutch businesses Campo and Panhuizen, sold in April and October 2000 respectively. In addition, the reduced level of sales achieved in the former UK Printing Division where Strines was sold in June 2001 and Walsden closed a month later. An analysis by segment of sales shows: Translation Increase / 2001 2000 Differences (Decrease) £000 £000 £000 £000 UK Textiles 14,142 - (1,005) 13,137 Nemesis 16,027 605 (872) 15,760 Distribution 12,989 494 1,485 14,968 Continuing textiles 43,158 1,099 (392) 43,865 Leasing 2,260 - 751 3,011 Continuing operations 45,418 1,099 359 46,876 Discontinued in 2000 3,257 124 (3,381) - Discontinued in 2001 15,863 18 (6,527) 9,354 Group sales 64,538 1,241 (9,549) 56,230 The sales reduction in UK Textiles arose in the Scottish-based businesses where, although Schofield Cloth Finishers recorded encouraging sales growth of 21% following the commissioning of the piece dyeing facility, package dyeing sales at Langholm fell sharply in the second half by 12%, partly as a result of the closure of some customers' operations. Similarly, despite achieving first-half sales equal to last year's, turnover for the second half year at the Italian subsidiary Nemesis fell sharply by 52% in local currency terms. Sales in the Import and Distribution business grew by 11% in local currency terms with the benefit of a full year's sales at the German subsidiary Hemmers (2000: 9 months) partially offset by a reduction of 11% in the turnover of Itex, based in Holland. Group operating profit An analysis by segment of operating profit/(loss) before exceptional items shows: Translation Increase / 2001 2000 Differences (Decrease) £000 £000 £000 £000 UK Textiles 1,943 - (170) 1,773 Nemesis 876 33 (960) (51) Distribution 1,496 57 (952) 601 Central costs (112) - (130) (242) Continuing textiles 4,203 90 (2,212) 2,081 Leasing 1,213 - 470 1,683 Continuing operations 5,416 90 (1,742) 3,764 Discontinued in 2000 33 1 (34) - Discontinued in 2001 (1,589) - (1,171) (2,760) Group operating profit/(loss) 3,860 91 (2,947) 1,004 before exceptional items continued... -7- Group operating profit It is a measure of the prevailing market conditions that all of the Group's textile businesses suffered a reduction in profitability from last year. Textile operations in the UK were less affected, with the sales reduction being largely compensated for by the cost efficiencies achieved by the successful transfer of the former Colourflex business from Yorkshire to Scotland. In the European operations a combination of reduced sales, highly competitive sales pricing pressure, the high cost of dollar denominated imports as a result of continued Euro weakness, and, in the case of Itex, bad debt of £0.3m all conspired to produce a significant downturn in profitability. In contrast, the performance of Leeds Leasing surpassed the record levels set in the previous year, and is summarised below: 2001 2000 Growth £000 £000 Gross rentals 9,985 7,234 38% Depreciation of leased assets (6,975) (4,974) Gross revenue (Turnover) 3,010 2,260 33% Overheads (1,327) (1,047) Operating profit 1,683 1,213 39% Interest (796) (440) Profit before tax 887 773 15% Tax (group relieved in 2001 and adjusted in 2000) 179 (316) Profit after tax 1,066 457 Profitability in the current year will benefit from a lease book of £16.7m at September 2001, which represents growth of 35% from September 2000 and 164% from September 1999. Exceptional items Exceptional costs in the year amounted to £14.61m and are explained in detail in note 2. Included in this total is £5.17m of goodwill previously written off to reserves on the acquisition of Strines and Walsden so that, after taking account of the tax impact of £2.47m, the impact of the exceptional items on shareholders' funds is £6.97m. Before taking into account taxation, the cash costs of these exceptional items will be £1.74m, of which £1.05m was paid in the year and £0.69m will be paid in the current year. Interest Net interest expense for the Group increased in the year from £0.7m to £1.6m. The interest expense of Leeds Leasing is expected to continue to grow with the continued expansion of the lease book and its associated debt. However, the level of debt, and therefore interest, in the textile operations is planned to fall sharply with the proceeds of the proposed sale of the UK Dyeing businesses and the continued realisation of properties and of the assets of the former UK Printing Division. Taxation A tax credit of £2.1m arose as a result of the large exceptional costs recognised in the year. The exceptional costs included an impairment provision of £3.4m relating to the fixed assets of Nemesis, in accordance with the requirements of FRS 11. This has eliminated the previous excess of accounts value over tax written down value and has permitted the release of £1.8m of deferred tax. continued... -8- Dividend As a consequence of the poor trading results of the textile subsidiaries and the unpromising outlook in the textile sector, it has been necessary not only to provide for fixed asset impairment at Nemesis, but also to provide within the books of the parent company against the carrying value of its investments in the subsidiaries. As a result, there is a deficit of £1.9m on the profit and loss account of the parent company, and it is not possible, in these circumstances, to pay a dividend or to return capital to shareholders without the approval of the High Court to a scheme of capital reconstruction. The Board intends to obtain court consent as soon as possible, but this will take time primarily because of the amount of outstanding contingent liabilities arising from parental guarantees given in relation to the bank borrowings of the subsidiaries. The directors are convinced that the sale of the UK Dyeing businesses is essential to permit the reduction of debt in the European subsidiaries to non-recourse levels. This is a precondition for High Court approval. Fixed assets Fixed asset additions in the year amounted to £3.0m, chiefly in relation to the relocation of the former Colourflex business and the completion of the project to install additional wide-width printing capacity at Nemesis. £2.8m was realised from the sale of fixed assets, principally those from the former Walsden business and the Colourflex site which was sold in September 2001. The directors anticipate the further realisation in the current year of assets formerly used in UK Printing following the sale of Strines and the closure of Walsden as below: £m Freehold properties (initial consideration) 2.8 Receivable from Walker Greenbank PLC in relation to the sale of Strines 1.2 Plant and machinery 0.6 Net current assets 0.3 4.9 In addition to the initial consideration for the freehold properties, the draft sale agreement provides for a maximum further payment of £1.75m depending on the extent to which planning consents are obtained. The Scott & Rhodes business was closed in December 1998, and a planning application relating to its Leeds site is due to be heard in January 2002. If this is successful the sale will realise £1.8m after expenses. Exchange exposure It is not the policy of the Group to hedge the translation of the profits or losses of the 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 exposure arises in those subsidiaries where loomstate or printed cloth sold principally in European currencies is first purchased in US dollars. 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. continued... -9- Debt profile The borrowings policy of the Group continues to be to match its funding requirement in a cost effective fashion with an appropriate combination of short and medium term debt. The Group's net debt of £25.7m at 30 September 2001 may be analysed by business activity and by maturity as below: UK Continental Total Total Leasing Textiles Textiles Textiles Group £000 £000 £000 £000 £000 Floating rate overdraft - 4,937 4,937 1,731 6,668 Floating rate loan notes 486 - 486 - 486 Fixed rate loans - 7,152 7,152 11,605 18,757 Cash (33) (182) (215) - (215) Net debt 453 11,907 12,360 13,336 25,696 Repayment profile On demand 453 4,755 5,208 1,731 6,939 Due within one year - 2,729 2,729 6,751 9,480 Due after more than one year - 4,423 4,423 4,854 9,277 Net debt 453 11,907 12,360 13,336 25,696 Debt in the European subsidiaries 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 floating rates is regularly reviewed. Leeds Leasing's debt consists primarily of block discounting lines with a number of banks under which fixed interest debt is raised with an amortising profile matching that of the block of lease agreements on which the debt is secured. Other than £9.1m of Leeds Leasing debt that was secured in this way at 30 September 2001, Group borrowing is unsecured. Capital Gearing The Group's gearing at 30 September may be analysed between textile and leasing activities as below: 2001 2000 Textiles Group Textiles Group Leasing Leasing £000 £000 £000 £000 £000 £000 Shareholders' funds 20,326 2,738 23,064 29,490 1,672 31,162 Net debt 12,360 13,336 25,696 10,828 9,614 20,442 Gearing 61% 487% 111% 37% 575% 66% The directors consider that the gearing level in Leeds Leasing is modest in comparison with the norm for that sector, and certainly it is well within the 800% level contained in certain of its loan covenants. The amortising debt structure provides a suitable hedge against interest rate risk, and adequate headroom in facilities exists to fund the growth of the lease book anticipated in the current year. For the reasons set out above, the level of textile debt and gearing is expected to fall significantly in the near future on receipt of the proceeds from the sale of assets from UK Printing, and from the proposed sale of UK Dyeing. continued..... -10- Leeds Group plc Preliminary Results Consolidated Profit And Loss Account for the year ended 30 September 2001 2001 2000 Continuing Discontinued Continuing Discontinued operations Operations Total operations operations Total £000 £000 £000 £000 £000 £000 Turnover 46,876 9,354 56,230 45,418 19,120 64,538 Cost of sales (34,813) (9,874) (44,687) (32,461) (16,708)(49,169) Gross profit/ 12,063 (520) 11,543 12,957 2,412 15,369 (loss) Distribution (1,527) (229) (1,756) (1,338) (525) (1,863) costs Administrative (10,509) (2,011) (12,520) (8,043) (7,221)(15,264) expenses Operating profit/(loss) 3,764 (2,760) 1,004 5,416 (1,556) 3,860 before exceptional items Exceptional (3,737) - (3,737) (1,840) (3,778) (5,618) items (note 2) Operating 27 (2,760) (2,733) 3,576 (5,334) (1,758) profit/(loss) Profit on sale of land and 1,185 - 1,185 - - - buildings (note 2) Loss on sale or termination of - (12,057) (12,057) - (1,236) (1,236) a business operation (note 2) Profit/(loss) 1,212 (14,817) (13,605) 3,576 (6,570) (2,994) before interest Interest receivable and 78 202 similar income Interest payable and (1,684) (908) similar charges Net interest (1,606) (706) payable Loss on ordinary (15,211) (3,700) activities before taxation Tax credit/ (charge) on 2,089 (524) loss on ordinary activities Loss on ordinary activities after taxation (13,122) (4,224) for the financial year Equity dividends paid (366) (1,098) and proposed Unrecovered loss for the (13,488) (5,322) financial year Earnings/(loss) per share before (2.7)p 5.2p exceptional items exceptional (33.2)p (16.8)p items after (35.9)p (11.6)p exceptional items Dividend per share 1.0p 3.0p Consolidated Statement of Total Recognised Gains And Losses 2001 2000 £000 £000 Loss for the financial year (13,122) (4,224) Foreign currency translation differences 217 (930) Total recognised losses relating to the (12,905) (5,154) financial year -11- Leeds Group plc Preliminary Results Consolidated Balance Sheet at 30 September 2001 Group Company 2001 2000 2001 2000 £000 £000 £000 £000 Fixed assets Intangible assets 1,123 1,150 - - Tangible assets 16,074 24,512 - - Investments - - 5,741 18,875 17,197 25,662 5,741 18,875 Current assets Stocks 10,109 12,773 - - Debtors 14,920 16,972 18,170 19,712 Finance lease debtors 16,702 12,352 - - Total debtors 31,622 29,324 18,170 19,712 Cash at bank and in hand 215 1,714 1 50 41,946 43,811 18,171 19,762 Creditors: amounts falling due within one (26,639) (28,979) (839) (1,337) year Net current assets 15,307 14,832 17,332 18,425 Of which: debtors due within one year 5,501 7,736 17,332 18,425 debtors due after more than one year 9,806 7,096 - - Total assets less current liabilities 32,504 40,494 23,073 37,300 Creditors: amounts falling due after (9,277) (7,456) - - more than one year Provisions for liabilities and charges (56) (1,820) - - Accruals and deferred income (107) (56) - - Net assets 23,064 31,162 23,073 37,300 Capital and reserves Called up equity 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 (1,918) 6,180 (1,909) 12,318 Equity shareholders' funds 23,064 31,162 23,073 37,300 -12- Leeds Group plc Preliminary Results Consolidated Cash Flow Statement for the year ended 30 September 2001 2001 2000 £000 £000 Cash outflow from operating activities (2,786) (6,604) Return on investments and servicing of finance (1,606) (670) Taxation 126 (16) Capital expenditure and financial investment (434) (3,371) Acquisitions and disposals 943 (834) Equity dividends paid (1,098) (1,098) Cash outflow before financing (4,855) (12,593) Financing 3,213 7,618 Decrease in cash in the year (1,642) (4,975) Reconciliation of Net Cash Flow to Movement in Net Debt 2001 2000 £000 £000 Decrease in cash in the year (1,642) (4,975) Net cash outflow from debt and lease financing (3,213) (7,618) Change in net debt resulting from cash flows (4,855) (12,593) Translation difference (399) 733 Loan taken over on acquisition - (1,079) Movement in net debt (5,254) (12,939) Net debt at beginning of the year (20,442) (7,503) Net debt at end of the year (25,696) (20,442) -13- Leeds Group plc Preliminary Results Notes 1. An interim dividend of 1.0p was paid on 3 July 2001. The directors do not recommend the payment of a final dividend. 2. Exceptional items of £14.6m were charged in the year in respect of: £m Restructuring of UK Dyeing Division 0.3 Impairment of Nemesis fixed assets 3.4 3.7 Sale of Land and Buildings (1.2) Closure of UK Printing Division 12.1 14.6 3. The financial information set out on pages 10 to 12 does not constitute the Company's statutory accounts for the year ended 30 September 2001 or the year ended 30 September 2000 but is derived from those accounts. 4. Statutory accounts for the year ended 30 September 2000 have been delivered to the Registrar of Companies, and those for the year ended 30 September 2001 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts: 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 in January 2002. Further copies will then be available from the Company's Registered Office, Schofield House, Gateway Drive, Yeadon, Leeds, LS19 7XY. 6. The Annual General Meeting will be held at the Jarvis Parkway Hotel & Country Club, Otley Road, Leeds, LS16 8AG on 11 February 2002 at 12 noon. 7. Should shareholders require assistance in relation to the completion of the Form of Proxy, please contact the helpline on 0845 203 2015.

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