Final Results
Leeds Group PLC
17 February 2005
Issued by Citigate Dewe Rogerson on behalf of Leeds Group plc
Date: Thursday, 17 February 2005
IMMEDIATE RELEASE
LEEDS GROUP plc
Specialists in UK business finance leasing, and imported textiles
Preliminary Results for the year ended 30 September 2004
•Group profit before tax and exceptional items for continuing businesses
was £0.4m(2003: £1.1m)
•Exceptional items of £2.0m (2003: £13.5m) lead to Group pre-tax loss of
£1.6m(2003: loss £12.1m)
•Disappointing result for Leeds Leasing - loss before tax of £0.7m (2003:
loss £0.05m)after charging exceptional items of £0.6m (2003: £0.6m)
•Strong performance by Hemmers-Itex, with pre-tax profit up by 45% to
£0.9m. New subsidiary also established in Cologne
'The outlook for the current year appears more promising than 2004 proved to
be.'
'Overall, the Group's profitability in the first quarter of this new financial
year is in line with our budgets and we expect a satisfactory outcome for the
year.'
Vin Murria, Chairman
FULL STATEMENTS ATTACHED
Enquiries:
Leeds Group plc Citigate Dewe Rogerson
Malcolm Wilson, Group Managing Director Fiona Tooley
Tel: 0113 391 9000 Tel: 0121 455 8370 or 07785 703523
-2-
Leeds Group plc
Preliminary Results
STATEMENT BY THE CHAIRMAN, VIN MURRIA
Results
In what proved to be a year of change, the profit before tax and exceptional
items from the continuing businesses amounted to £399,000 (2003: £1,088,000).
These results reflect the benefit of a strong performance from Hemmers-Itex,
where profit growth of 45% was achieved. Leeds Leasing, however, produced a
disappointing loss before tax and exceptional items of £61,000 (2003: profit
£555,000).
Exceptional items during the period under review amounted to £2,031,000, of
which £1,431,000 related to provisions made against deferred consideration from
a prior year divestment and £600,000 to a change in the methodology used to
calculate bad debt provisioning at Leeds Leasing. After these exceptional items,
the loss before tax was £1,632,000 (2003: loss £12,107,000).
Directors and Employees
The year saw several changes to the Board. In April 2004 Bill Cran, having been
Chairman since February 2002, stood down to pursue an interest in acquiring
Leeds Leasing. In September 2004, after eight years with the Group as Financial
Controller and more recently as Finance Director, Dawn Bowler resigned to
concentrate full time on a business she had acquired. On behalf of the Company,
I would like thank them both for their contributions.
In September 2004, we welcomed to the Executive Board Carol Roberts who had
joined us in June 2004 as Managing Director of Leeds Leasing. At the same time,
Johan Claesson, a major shareholder, and Ewen Wigley joined the Board as
Non-Executive Directors.
In April 2004, we announced that we were in discussions with third parties which
might have led to the sale of the Group's two businesses, and although we also
announced last September that all such discussions had been terminated, our
employees spent much of the year under considerable uncertainty. To a degree,
that uncertainty persists since we continue to believe that, subject to
realising appropriate value for shareholders, the future for our businesses
could be best as parts of larger organisations. I thank all our employees in the
UK, Germany and Holland who have worked so hard this past year in uncertain
circumstances.
Outlook
The outlook for the current year appears more promising than 2004 proved to be.
Although first quarter performance at Hemmers-Itex was held back by the
continuing weakness in German consumer confidence, Leeds Leasing has made a
satisfactory start to the year, having taken the necessary steps last year to
address older arrears cases.
Overall, the Group's profitability in the first quarter of this new financial
year is in line with our budgets and we expect a satisfactory outcome for the
year.
Vin Murria
Chairman
17 February 2005
-3-
Leeds Group plc
Preliminary Results
OPERATING AND FINANCIAL REVIEW
Group result
Turnover from the continuing businesses amounted to £16.5m (2003: £16.9m)
reflecting a reduction of £0.5m in gross earnings from finance leases which was
partially offset by sales growth of £0.1m at Hemmers-Itex.
Group profit from the continuing businesses before tax and exceptional items was
£399,000, (2003: £1,088,000). Total profit before tax and exceptional items in
2003 amounted to £1,402,000 and included £314,000 attributable to the Italian
subsidiary Nemesis SpA in the period prior to its disposal in March 2003.
The tax charge of £630,000 comprises current tax of £360,000 charged in Germany,
a UK current tax credit of £100,000 relating to prior years, and a UK deferred
tax charge in Leeds Leasing amounting to £370,000. This reduces the deferred tax
asset recognised in the Group Balance Sheet to £875,000. The total deferred tax
asset attributable to Leeds Leasing amounts to £1,643,000 and although, in
accordance with FRS 19, it is not recognised fully in the Balance Sheet it does
mean that, at currently projected levels of profitability, no UK current tax
charge will arise for several years. Moreover, the deferred tax asset arises not
from past losses, but from the fact that Leeds Leasing has deferred claims for
capital allowances for each of the last four years. These allowances can be
claimed at any time, to create tax losses that could be surrendered as group
relief to other subsidiaries.
The loss per share, before exceptional items, was 0.6 pence (2003: earnings 3.1
pence). After exceptional costs, the loss per share was 6.2 pence (2003: loss
33.3 pence). No dividend is proposed in respect of the year ended 30 September
2004.
Divisional performance
Leeds Leasing
The financial year under review proved very difficult for Leeds Leasing on
several fronts.
New business written was 3% below the comparable period at £11,287,000 (2003:
£11,651,000). Many of the sole traders or partnerships that might previously
have been part of our customer base appear to be making use of the cheaper,
alternative funding opportunities that are available from, for example,
supermarket chains. Also, we have continued to experience a high level of
customer default, much of which was concentrated in the tenanted pubs sector.
Despite this, we have made in-roads into newer markets, most notably commercial
asset finance. Yields in these markets are lower than in our core markets, but
equally they carry a lower level of associated risk.
Although overhead costs were reduced marginally in the year, the impact of lower
volumes, reduced yield and high default resulted in a loss before tax and
exceptional items of £61,000 (2003: profit £555,000).
continued...
-4-
During the year under review, Leeds Leasing underwent a change of leadership.
John Blanchflower resigned as Managing Director to pursue an opportunity on the
sales side elsewhere in the leasing industry and Carol Roberts was appointed in
June 2004. Carol has extensive experience in all aspects of leasing gained with
major players in the industry over many years. In particular, she brings to
Leeds Leasing a large network of broker contacts through which we intend to grow
our commercial asset finance business.
Following her appointment, Carol reviewed the basis on which bad debt provisions
were calculated. As a result of this review, we have moved to a basis by which
specific provisions are made against the Company's exposure to arrears cases
with the percentage provided in each case increasing with the number of payments
in arrears. The effect of adopting the new methodology has been to increase the
bad debt provision by £600,000, and this has been reported as an exceptional
item within operating profit.
The Directors believe the bad debt provision at September 2004 fully addresses
Leeds Leasing's exposure to the sectors and asset categories where it has
experienced problems in recent years. It is now eighteen months since we
overhauled our underwriting procedures generally and, in particular, ceased to
write any business that relied on supplier recourse agreements. We have
dramatically reduced our activities in the areas where problems have arisen, and
the arrears statistics relating to business written over the last eighteen
months are altogether more encouraging.
Leeds Leasing remains a leading funder in the catering, hospitality and leisure
sector, continuing to work closely with trade associations and individual asset
suppliers. Our new lease management system has overcome teething problems to
provide a solid information base for decision making.
The new and very experienced management team are committed to achieving
profitable growth by expanding activity in the newer, lower risk sectors and by
a more aggressive approach to risk management.
Leeds Leasing has begun the new financial year well, with volumes and profits
exceeding our internal budgets. We shall need to put in place additional
borrowings facilities to achieve the full extent of our planned growth this
year, and we feel the recent results are likely to provide the additional
confidence for that to be achieved.
Hemmers-Itex
2004 was a year of further improvement for Hemmers-Itex, which is the Group's
remaining textile business, selling fabric throughout Europe which has been
mainly imported from the Far East.
In the previous financial year, the Dutch based Itex was closed, since when we
have supplied all the division's customers from the Hemmers facility located at
Nordhorn, Germany. The synergistic benefits of this rationalisation continue to
be felt, as the division achieved a 45% increase in pre-tax profit on sales that
were virtually unchanged from last year's levels.
Profitability was assisted by the weakness of the US dollar which helped to
offset the lack of consumer confidence that has continued to depress the German
retail sector, which accounts for approximately 50% of the division's sales.
In February 2004, Hemmers-Itex acquired the trade, stock and certain fixed
assets of a former customer and established KMT, a small operation based in
Cologne. This move not only protects the Hemmers-Itex sales base, but also, for
the first time, takes the business into the higher quality fabric market.
continued...
-5-
Hemmers-Itex will shortly launch its new range of fabrics printed with Disney
designs under an exclusive licence and advance orders reflect a considerable
interest among our customers.
During Spring 2005, we will be relocating the Nordhorn operations from 3
separate warehouses in Nordhorn to a single facility, and we expect the costs of
this relocation to be recovered within a short time from operating efficiencies.
We continue to seek additional opportunities to expand in other European
markets. Recently, we have not only appointed new agents to cover Eastern
Europe, we have also increased the number of Trade Fairs at which we exhibit.
Despite the strong focus of this business, the underlying weakness in German
retailing leads us to believe that trading conditions in 2005 will prove more
demanding than in 2004, and therefore, it would not be realistic to expect an
increase in profits in the current financial year.
Head Office Costs
The table below analyses the Head Office costs for the last two years. The
strengthening of Sterling during 2004 resulted in exchange losses of £56,000
although progressive repayments by Hemmers-Itex of their shareholder loan have
reduced future currency exposures.
The reduction in interest income results from lower cash balances following the
special capital payment totalling £4.75m made to shareholders in August 2003.
2004 2003
£000 £000
Head Office expenses 545 556
Exchange loss / (gain) 56 (112)
----------------------
601 444
Interest income (179) (369)
----------------------
Net head office costs before exceptional items and tax 422 75
Exceptional items (note 2) 1,431 77
----------------------
Net Head Office costs before tax 1,853 152
======================
Textile Manufacturing
Following the various transactions by which the Group withdrew from textile
manufacturing there remained two outstanding matters with potentially
significant impact on future results. The position on these has become
considerably clearer during the year. Firstly, it has been necessary to make
provision against the bulk of the deferred consideration of £1,550,000
outstanding in connection with the sale of the UK Dyeing Division in February
2002, and this is dealt with in more detail in Note 2 to this Preliminary
Announcement.
continued...
-6-
Secondly, the agreement covering the sale of the Strines Textiles site in June
2002 provides for overage payments to a maximum of £1,450,000 depending on the
extent to which the purchaser achieves planning consents in the fifteen years
following completion. An initial planning application was rejected in the face
of opposition from Local Authority planners and the local residents group, and a
subsequent appeal at a public enquiry in early 2004 was also unsuccessful.
Consequently, the purchaser has submitted a planning application of reduced
scope, which has the support of local planners and residents. It is unlikely
that we shall know before Summer 2005 whether this application will succeed but
it is known that, while the application calls for the development of more acres
than the minimum required by our sale agreement of June 2002, it is not of
sufficient scale to trigger payments of overage.
Fixed assets
Capital additions in the year amounted to £180,000, of which £109,000 related to
assets acquired by Hemmers-Itex in connection with establishing the new KMT
subsidiary.
Elsewhere in the Group, expenditure has been restricted to essential
replacements. Tangible fixed assets in the Balance Sheet amount to £561,000, and
no material capital expenditure projects are contemplated for the current year.
Working capital
Working capital fell during the year by 5% to £23,582,000. The working capital
of Leeds Leasing was little changed, and consists predominantly of the lease
book, which at the year-end stood at £18,328,000. It is our aim to increase the
book during the course of the current year, although such growth will only be
permitted if new business matches our underwriting criteria. Working capital
increased in Hemmers-Itex as a result of setting up the KMT operation, but this
was more than offset by the reduction in the holding Company's working capital
caused by the provision set up against the deferred consideration receivable in
connection with the sale of the UK Dyeing Division.
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 at 30 September 2004 may be analysed
as follows:
Holding Leeds Hemmers- Total
Companies Leasing Itex Group
£000 £000 £000 £000
Cash (1,112) - (74) (1,186)
Overdrafts - 348 240 588
-----------------------------------------------------
Total on demand (1,112) 348 166 (598)
Fixed rate loans due:
within one year - 6,820 2,022 8,842
after more than one year - 6,250 - 6,250
-----------------------------------------------------
Net external debt (1,112) 13,418 2,188 14,494
-----------------------------------------------------
Bank debt in the subsidiaries is without recourse to the Parent Company and, in
the case of Hemmers-Itex, it is unsecured. Leeds Leasing's loans consist of
block discounting lines 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. This debt structure provides an effective hedge against
interest rate risk.
continued...
-7-
Capital gearing
The Group's capital gearing may be presented as follows:
Total Leeds Group
Group Leasing Excl Leasing
£000 £000 £000
Net assets 11,031 3,851 7,180
---------------------------------------------
Net external debt 14,494 13,418 1,076
Net internal debt - 850 (850)
---------------------------------------------
Total debt 14,494 14,268 226
---------------------------------------------
Capital gearing
Net external debt: net assets 131% 348% 15%
Total debt: net assets 131% 371% 3%
The Board considers the gearing in Leeds Leasing is comfortably within the
limits imposed by banking covenants whilst also modest in comparison with the
norm in the sector.
Exchange Exposure
It is the Group's policy not to hedge the translation of profits or losses of
its German subsidiary, nor to hedge its Balance Sheet except to the extent it is
possible to match net assets with debt denominated in Euros. Transactional
exposures arise in Hemmers-Itex where printed cloth purchased mainly in US
dollars is subsequently sold at prices denominated in Euros. The impact of
exchange rate changes is minimised by the Group's policy that requires forward
exchange contracts to be used where a product is purchased in a currency other
than in Euros.
Malcolm Wilson
Group Managing & Finance Director
17 February 2005
-8-
Leeds Group plc
Preliminary Results
Consolidated Profit and Loss Account
for the year ended 30 September 2004
2004 2003
Continuing Continuing Discontinued
operations operations operations Total
£000 £000 £000 £000
Turnover 16,514 16,903 8,194 25,097
Cost of sales (10,512) (10,422) (6,697) (17,119)
--------- -------------------------------------
Gross profit 6,002 6,481 1,497 7,978
Distribution costs (648) (670) (309) (979)
Administrative expenses (4,750) (4,693) (744) (5,437)
--------- -------------------------------------
Operating profit before
exceptional items 1,204 1,795 444 2,239
Exceptional items (600) (677) - (677)
--------- -------------------------------------
Operating profit 604 1,118 444 1,562
Exceptional item - loss on
sale or termination
of a business operation (1,431) - (12,832) (12,832)
--------- -------------------------------------
(Loss)/profit before
interest (827) 1,118 (12,388) (11,270)
---------------------------
-------- ---------
Interest receivable and
similar income 88 281
Interest payable and
similar charges (893) (1,118)
-------- ---------
Net interest payable (805) (837)
-------- ---------
Loss on ordinary activities
before taxation (1,632) (12,107)
Tax charge on loss on
ordinary activities (630) (81)
-------- ---------
Unrecovered loss for the
financial year (2,262) (12,188)
-------- ---------
(Loss)/earnings per share
before exceptional items (0.6)p 3.1p
exceptional items (5.6)p (36.4)p
-------- ---------
after exceptional items (6.2)p (33.3)p
-------- ---------
Consolidated Statement of Recognised Gains and Losses
2004 2003
£000 £000
Loss for the financial year (2,262) (12,188)
Foreign currency
translation (110) 536
differences
Total recognised losses
relating -------- ---------
to the financial year (2,372) (11,652)
-------- ---------
-9-
Leeds Group plc
Preliminary Results
Balance Sheets
at 30 September 2004
Group Company
2004 2003 2004 2003
£000 £000 £000 £000
Fixed assets
Intangible assets 951 1,067 - -
Tangible assets 561 582 - 42
Investments - - 3,731 3,731
---------------------------------------
1,512 1,649 3,731 3,773
---------------------------------------
Current assets
Stocks 3,868 3,820 - -
---------------------------------------
Debtors 4,865 6,350 1,716 4,368
Deferred taxation 875 1,245 75 75
Finance lease debtors 18,328 18,014 - -
---------------------------------------
Total debtors 24,068 25,609 1,791 4,443
Cash at bank and in hand 1,186 529 1,111 159
---------------------------------------
29,122 29,958 2,902 4,602
Creditors: amounts falling due (13,353) (12,591) (1,305) (1,236)
within one year
---------------------------------------
Net current assets 15,769 17,367 1,597 3,366
---------------------------------------
Of which:
due within one year 3,970 4,691 1,522 3,291
due after more than one year 11,799 12,676 75 75
---------------------------------------
Total assets less current liabilities 17,281 19,016 5,328 7,139
Creditors: amounts falling due (6,250) (5,613) - -
after more than one year
---------------------------------------
Net assets 11,031 13,403 5,328 7,139
---------------------------------------
Capital and reserves
Called up equity share capital 4,392 4,392 4,392 4,392
Profit and loss account 6,639 9,011 936 2,747
---------------------------------------
Equity shareholders' funds 11,031 13,403 5,328 7,139
---------------------------------------
Reconciliation of movements in shareholders' funds
Unrecovered loss for the financial
year (2,262) (12,188) (1,811) (6,127)
Special capital payment - (4,758) - (4,758)
Goodwill written back - 7,875 - -
Foreign currency translation
differences (110) 536 - (489)
---------------------------------------
Net transfer from shareholders' funds (2,372) (8,535) (1,811) (11,374)
Opening shareholders' funds 13,403 21,938 7,139 18,513
---------------------------------------
Closing shareholders' funds 11,031 13,403 5,328 7,139
---------------------------------------
-10-
Leeds Group plc
Preliminary Results
Consolidated Cash Flow Statement
for the year ended 30 September 2004 2004 2003
£000 £000
Cash inflow from operating activities 503 1,505
Return on investments and servicing of finance (805) (837)
Taxation 18 708
Capital expenditure and financial investment (177) 293
Acquisitions and disposals - (500)
----------------------
Cash (outflow)/inflow before financing (461) 1,169
Special capital payment - (4,758)
Financing 1,383 (1,643)
----------------------
Increase/(decrease) in cash in the year 922 (5,232)
----------------------
Reconciliation of Net Cash Flow to Movement in Net Debt
2004 2003
£000 £000
Increase/(decrease) in cash in the year 922 (5,232)
Net cash (outflow)/inflow from debt and lease financing (1,383) 1,643
---------------------
Change in net debt resulting from cash flows (461) (3,589)
Net debt disposed of with subsidiary - 5,408
Foreign currency translation difference 28 (685)
---------------------
Movement in net debt (433) 1,134
Net debt at beginning of the year (14,061) (15,195)
---------------------
Net debt at end of the year (14,494) (14,061)
---------------------
Reconciliation of operating profit to operating cash flows
2004 2003
£000 £000
Operating profit 604 1,562
Depreciation of fixed assets 193 312
Amortisation of goodwill 93 106
Loss on sale of tangible fixed assets - 4
(Increase)/decrease in stocks (131) 1,427
Increase in debtors (13) (1,315)
Increase/(decrease) in creditors 71 (912)
(Increase)/decrease in finance lease debtors (314) 321
----------------------
Net cash inflow from operating activities 503 1,505
----------------------
-11-
Leeds Group plc
Preliminary Results
Notes
1. The Directors do not recommend the payment of a dividend.
2. Exceptional items
During the year, following the introduction of new leasing software, the
Directors reviewed the basis on which bad debt provisions in Leeds Leasing plc
are calculated. As a result of this review, specific provisions are now made
against the Company's exposure to arrears cases with the percentage provided in
each case increasing with the number of payments in arrears. The effect of
adopting the new methodology was to increase the bad debt provision by £600,000,
which has been reported as an exceptional item within operating profit.
In February 2002 the Group sold its UK Dyeing Division to Langholm Dyeing
Company Limited ('Langholm'), a company established and owned by the Division's
management team, on terms that included deferred consideration in the form of an
interest bearing loan note of £1,550,000. The Group accounts for that year
included an exceptional loss on disposal of £5,275,000. During 2004 Langholm
experienced difficult trading conditions, and payments of interest to the Group
on the loan note were suspended by Langholm's bank, under the terms of the
inter-creditor agreement signed by the Group at the time of the divestment. It
became clear that it would not be possible for Langholm to pay accrued interest
in the foreseeable future, or to make the quarterly capital repayments that were
scheduled to begin in February 2005. In December 2004 the Group sold the loan
note to the Directors of Langholm for an initial cash payment of £155,000 as
part of a capital reconstruction and re-financing scheme to strengthen
Langholm's trading position. Further payments of £50,000 are due from the
Directors of Langholm on each of the first three anniversaries of the sale of
the loan note, although the Group has, on grounds of prudence, retained a full
provision against these sums. In addition, the Group will be entitled to
participate to a maximum of £375,000 in the proceeds of any sale of the Langholm
business before December 2008. The exceptional loss of £1,431,000 on sale or
termination of a business charged in these accounts represents the aggregate of
principal and accrued interest due in respect of the loan note, as reduced by
the initial sale proceeds of £155,000.
3. The financial information set out on pages 8 to 10 does not constitute the
Company's statutory accounts for the year ended 30 September 2004 or the year
ended 30 September 2003 but is derived from those accounts.
4. Statutory accounts for the year ended 30 September 2003 have been delivered
to the Registrar of Companies, and those for the year ended 30 September 2004
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. 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, Schofield House, Gateway Drive, Yeadon, Leeds, LS19 7XY, or
from the Group's website, www.leedsgroup.plc.uk.
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