Half-year Report

Leeds

28/01/2019 07:00

RNS Number : 2006O

Leeds Group PLC

28 January 2019

 

Leeds Group plc

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

Interim Results for the six months ended 30 November 2018

 

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

 

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

 

Enquiries:

Leeds Group plc                                                    Cairn Financial Advisers LLP

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

 

 

Chairman's Statement

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Jan G Holmstrom,

Chairman

28 January 2019

 

 

Unaudited Consolidated Statement of Comprehensive Income

for the 6 months ended 30 November 2018

 

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

 

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

 

There is no tax effect relating to other comprehensive income.

 

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

 

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

 

 

 

 

 

 

 

Unaudited Consolidated Statement of Financial Position

at 30 November 2018

 

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

 

 

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

 

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Cash Flow Statement

for the 6 months ended 30 November 2018

 

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

 

 

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Statement of Changes in Equity

for the six months ended 30 November 2018

 

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

 

 

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

 

 

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

 

 

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

 

Reserve
Description and purpose
Capital redemption reserve
Amounts transferred from share capital on redemption of issued shares
Treasury share reserve
Cost of own shares held in treasury
Foreign exchange reserve
Gains/(losses) arising on retranslation of the net assets of overseas operations into sterling
Retained earnings
Cumulative net gains/(losses) recognised in the consolidated statement of comprehensive income after deducting the cost of cancelled treasury shares


 

 

 

                                                                                 

 

 

 

Notes to the Interim Results

for the six months ended 30 November 2018

 

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

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

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

IFRS 9 (Financial instruments)

IFRS 15 (Revenue from contracts with customers)

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

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

IFRS 16 (Leases)

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

The financial information for the year ended 31 May 2018 does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for the year ended 31 May 2018 have been filed with the Registrar of Companies.  The Independent Auditor's Report on the Annual Report and Financial Statements for the year ended 31 May 2018 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

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

 

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

 

3.  Reconciliation of movements in net bank debt

 

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

 

4.  Analysis of net bank debt

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

 

5.  Segmental information

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

 

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

 

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

 

 

 

 

 

6.  Acquisition of KMR

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Goodwill on consolidation is calculated as follows:

 

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

 

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

 

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

 

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

 

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

 

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END

 

 

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