REG - Leeds Group PLC - Final Results
Leeds Group plc (''Leeds Group'')
Financial Highlights
12 months ended 31 May 2018
q Leeds Group profit before tax £885,000 (2017: £1,448,000).
q Leeds Group sales revenue increased by 1% to £41,538,000 (2017: £41,053,000).
q Leeds Group finished the financial year with bank debt net of cash £4,485,000 (2017: £5,520,000).
q Leeds Group net asset value per share (excluding treasury shares) 69.4p (2017: 66.9p).
q Earnings per Leeds Group share 2.0p (2017: 4.1p).
q The Directors do not propose a dividend in 2018 (2017: nil).
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
Jan Holmstrom, Chairman Tel: 0046 708 111 360
Tony Rawlinson Tel: 020 7213 0880
Dawn Henderson, Company Secretary Tel: 07747 777055
Liam Murray
Chairman's Statement
I am pleased to present the results for the year ended 31 May 2018.
Results
The Group achieved sales for the year of £41,538,000 (2017: £41,053,000). Trading conditions have been difficult with increased competition and pressure on margins and although sales are slightly higher than last year the Group made a reduced profit after tax of £545,000 (2017: £1,114,000). Last year the Euro denominated Parent Company loan to its German subsidiary resulted in a currency gain of £310,000 whereas this year there was a £49,000 currency loss.
Net assets at 31 May 2018 increased by £686,000 to £18,988,000 (2017: £18,302,000) and thus the value per share increased slightly to 69.4p (2017: 66.9p). Net bank debt decreased by £1,035,000 to £4,485,000 (2017: £5,520,000).
Hemmers-Itex Textil Import Export GmbH ("Hemmers")
Fabric sales for the year at Hemmers, Leeds Group's principal trading company, are in Euro terms slightly lower than last year at €43,342,000 (2017: €44,182,000). In sterling terms, the revenue increased slightly to £38,299,000 (2017: £37,544,000) as a result of the weakening of sterling. The pre-tax profit in the current year of £1,123,000 (2017: £1,012,000) was higher than last year. Trading conditions continued to be challenging and so a strategic review coupled with a comprehensive cost review was undertaken during the year to ensure increased profitability for Hemmers in the coming year.
Chinoh Tex Ltd ("Chinoh-Tex")
Chinoh-Tex, the Hemmers subsidiary based in Shanghai, achieved external sales revenue of £3,239,000 (2017: £3,499,000). However, due to reduced gross margins, there was a pre-tax loss of £86,000 for the year (2017: profit £47,0000. Steps have been taken to reduce infrastructure and administrative costs to ensure profitability in the future. Chinoh-Tex continues to provide valuable assistance to its European parent in terms of purchasing, quality inspection and bulk shipping of fabrics bought in China.
Stoff-Ideen-KMR GmbH ("KMR")
KMR's operating performance has been unsatisfactory which resulted in Hemmers incorporating a loss for its 50% shareholding in KMR of £107,000 (2017: profit £33,000). On the 5 July 2018, Leeds Group announced that it had reached an agreement to terminate the joint venture arrangement with KMR acquiring and cancelling the 50% shareholding of our partner. Hemmers will retain its shareholding in KMR and thus become the sole owner. The directors of Leeds Group believe that it is in the best interest of the Group to take full control of KMR going forward.
Dividend
The Directors do not propose a dividend considering the reduced trading result.
Employees
On behalf of shareholders, I want to thank the management and staff of Hemmers, Chinoh-Tex and KMR.
Outlook
The Board considers there are still potential growth opportunities for Hemmers, Chinoh-Tex and KMR despite a competitive environment and given the steps taken to improve efficiencies, the directors believe that we are well placed to return to previous profit levels for the Group.
At this early point in the current financial year, sales and profit are in line with the expectations of the Board.
Jan G Holmstrom
Chairman
9 August 2018
Strategic Report
Business review
The Companies Act 2006 requires the directors to set out in this report a fair review of the business of the Group during the year ended 31 May 2018, including an analysis of the position of the Group at the end of the year and a description of the principal risks and uncertainties facing the Group. This information includes a discussion of the Key Performance Indicators used by the directors to monitor the business which are:
· Sales volumes and revenue
· profit before tax
· gross profit margin
· earnings per share
· operating overheads and central costs
· working capital levels
Group result
Group revenue in the year was £41,538,000 (2017: £41,053,000), and pre-tax profit was £885,000 (2017: £1,448,000). The trading profit for Hemmers improved this year, however, there were trading losses in Chinoh-Tex and KMR. The main reason for the reduction in profit this year compared to last year is due to the exchange differences arising from retranslation of the intercompany loan between Hemmers and the Parent Company. The Parent Company has previously granted a loan denominated in Euros to its subsidiary Hemmers and, as sterling has weakened during the financial year, an unrealised loss has arisen in the Parent Company and the Group accounts of £49,000 (2017: gain £310,000).
The tax charge in the year was £340,000 (2017: £334,000). Earnings per share were 2.0p (2017: 4.1p).
Hemmers Europe
This German-based business is engaged in the import, warehousing and wholesaling of fabrics.
Fabric sales for the year at Hemmers, Leeds Group's principal trading company, in Euro terms are slightly lower than last year at €43,342,000 (2017: €44,182,000). In sterling terms, however, the revenue increased slightly to £38,299,000 (2017: £37,544,000) as a result of the weakening of sterling. The pre-tax profit increased in the year to £1,123,000 (2017: €1,078,000). This was due to an increase in gross margins to 22.1% (2017: 20.8%). Overhead expenditure in local currency increased by 3.1% as a result of increased wages and administration costs. A strategic review coupled with a comprehensive cost review was undertaken during the year to ensure the cost base for Hemmers is aligned to the business activity thus producing increased profitability for Hemmers in the coming year.
In 2014, Hemmers acquired a 50% interest in KMR, a chain of retail fabric and haberdashery stores, at a cost of £383,000. In 2015 and 2017 each of the two joint venture partners subscribed for additional capital. KMR is operated as a joint venture. Since the investment KMR has operated profitability, however, this year the Group's share of the post-tax loss of KMR in the year was £107,000 (2017: profit £33,000). As detailed in the Chairman's statement, since the year end KMR has become a wholly owned subsidiary within the Group.
Hemmers bank debt, net of cash, decreased in the year to £4,963,000 (2017: £6,619,000). This bank debt is secured on the assets of Hemmers.
Hemmers is working to focus on growing its business both domestically and internationally in both its wholesale and retail markets. The strategic review together with increased synergies with KMR is expected to increase profitability for Hemmers and KMR in the coming year.
Hemmers China
Chinoh-Tex is a textile trading subsidiary of Hemmers. It is based in Shanghai and has been trading for ten years. It purchases fabric from Chinese suppliers and in 2018 sold to customers in 26 countries. 43% of sales were made to EU countries (2017: 31).
External sales revenue was slightly lower this year £3,239,000 (2017: £3,499,000), with a small fall in volumes, however gross margins were reduced to 15% (2017: 18%). Whilst overhead spending remained at similar levels to last year £650,000 (2017: £662,000) due to the reduced gross profit margins, Chinoh-Tex's result for the year was a pre-tax loss of £86,000 (2017: profit £47,000). A review has been undertaken to ensure the cost base is appropriate for the level of business activity and therefore a return to profitability is expected in the current financial year.
Chinoh-Tex provides valuable assistance to its European parent with the purchasing, inspection and shipping of material. Internal sales revenue, based on arms-length prices, amounted to £557,000 (2017: £511,000). This relationship will be developed and improve profitability for both businesses.
Parent Company's Costs
The Parent Company's net cost in the year was as follows:
Year ended
31 May 2018
£000
Year ended
31 May 2017
£000
Parent Company's costs net of interest receivable
17
(10)
Exchange (loss)/gain on Group loan
(49)
310
Net Parent Company's (cost)/income
(32)
300
The Parent Company has previously granted a loan denominated in Euros to its subsidiary Hemmers and, as sterling has weakened during the financial year, an unrealised loss has arisen in the Parent Company and the Group accounts of £49,000 (2017: gain £310,000). Other costs increased as a result of the Parent Company de-registering for UK VAT.
Fixed Assets
Capital additions in the year amounted to £400,000 (2017: £2,280,000). The net book amount of tangible fixed assets in the Consolidated Statement of Financial Position is £8,319,000 (2017: £8,452,000).
During the financial year 2017, a subsidiary of the Group acquired a property which was presented within property, plant and equipment in the Consolidated Statement of Financial Position. Although part of the property is occupied by the subsidiary company, part of the property is rented out externally. Under International Financial Reporting Standards, it is therefore more appropriate to present part of the value of this property as investment property. A prior year adjustment has been made to reclassify £565,000 within non-current assets from property, plant and equipment to investment property. Investment property is accounted for using the depreciated cost method, as such this adjustment has no effect on profit, net assets, net debt or EPS in the prior year.
Working Capital
Working capital which comprises inventories, trade and other receivables, and trade and other payables decreased in the year by £345,000 (2017: increased £1,007,000). There were no major changes to the working capital requirements for the Group during the year.
Net Asset Value
Net assets increased in the year by £686,000 as follows:
Net assets
£000
Per share
pence
At 31 May 2017
18,302
66.9
Profit after tax
545
2.0
Translation differences
141
0.5
At 31 May 2018
18,988
69.4
Debt Profile
The funding policy of the Group continues to be to match its funding requirement in trading subsidiaries in a cost-effective fashion with an appropriate combination of short and longer-term debt. Property investments have been financed partly by long term loans of fixed interest rates between 1.5% and 4.07%. Working capital finance, when required, is via short term loans of three months currently attracting interest at approximately 2.5%.
Bank debt in the subsidiaries is secured by charges on inventories, receivables and property and is without recourse to the Parent Company.
Principal risks and uncertainties
Following the UK referendum result in favour of leaving the European Union ("EU"), the economic environment has become much more uncertain. However, the business of Leeds Group is conducted entirely by subsidiaries incorporated in Germany or China, and their exports to the UK account for approximately 3% of Group revenue. For this reason, the Directors do not believe that a material risk to Leeds Group will arise from the terms on which the UK will, in the future, have access to EU markets, and vice versa. Leeds Group do have loans denominated in euros which do carry a currency risk and may be affected by Brexit, however, the directors do not believe the impact would have a material effect on the Group's results as the subsidiary trades in Euros the directors consider this provides a natural hedge.
Of greater risk is the possibility of reduced demand owing to falling consumer confidence, although the business has proved robust in earlier recessions with some evidence that reduced consumer spending on ready-made apparel or furnishings generates increased demand for Hemmers fabrics that customers use to make equivalent goods in the home.
The currency markets in particular dislike the current air of uncertainty surrounding the current negotiations with regard to the UK leaving the EU and sterling has continued to weaken since the UK announced it was leaving the UK. This benefits Leeds Group since, as the pound weakens, the value of the revenues, profits and net assets of foreign subsidiaries are increased in sterling terms. This effect has been seen in both this year's and last year's trading and Statement of Financial Position.
Most fabric purchased by Hemmers is paid for in US dollars, while the Euro is the principal currency in which Hemmers sells its product. Thus the Euro/dollar rate is of greater significance to Leeds Group than the strength of sterling. We shall continue to manage this transactional currency risk by a combination of forward exchange contracts with reputable banks and sales price increases where necessary.
Fire risk is mitigated by insurance, including consequential loss insurance to cover the loss of business opportunity while replacement stocks are obtained. There is an adequate disaster recovery programme in place with regard to essential computer systems. The commercial risks of operating in the highly competitive European fabric market are limited by the fact that Hemmers has a wide range of suppliers, and no customer accounts for more than 5% of revenues.
Jan G Holmstrom
Chairman
9 August 2018
Consolidated Statement of Comprehensive Income
for the year ended 31 May 2018
Year ended
31 May 2018
£000
Year ended
31 May 2017
£000
Revenue
41,538
41,053
Cost of sales
(32,526)
(32,468)
Gross profit
9,012
8,585
Distribution costs
(2,722)
(2,610)
Administrative expenses
(5,188)
(4,398)
Other income
50
-
Profit from operations
1,152
1,577
Finance expense
(160)
(163)
Finance income
-
1
Share of post-tax (loss)/profit of joint venture
(107)
33
Profit before tax
885
1,448
Tax expense
(340)
(334)
Profit for the year attributable to the equity holders of the Parent Company
545
1,114
Other comprehensive income
Translation differences on foreign operations
141
1,707
Other comprehensive income for the year
141
1,707
Total comprehensive income for the year attributable to the equity holders of the Parent Company
686
2,821
The results shown in the consolidated statement of comprehensive income derive wholly from continuing operations. There is no tax effect relating to other comprehensive income for the year.
Amounts included in other comprehensive income may be reclassified subsequently as profit or loss.
Earnings per share attributable to the equity holders of the Company
Note
Year ended
31 May 2018
Year ended
31 May 2017
Basic and diluted earnings per share (pence)
3
2.0p
4.1p
Consolidated Statement of Financial Position
at 31 May 2018
Company number 00067863
31 May 2018
£000
Restated
31 May 2017
£000
Assets
Non-current assets
Property, plant and equipment
7,755
7,872
Investment property
564
580
Goodwill
1,057
1,055
Investment in joint venture
734
832
Total non-current assets
10,110
10,339
Current assets
Inventories
9,621
10,123
Trade and other receivables
6,252
6,753
Corporation tax recoverable
386
313
Cash and cash equivalents
572
1,567
Total current assets
16,831
18,756
Total assets
26,941
29,095
Liabilities
Non-current liabilities
Loans and borrowings
(3,708)
(3,984)
Deferred tax
(277)
(275)
Total non-current liabilities
(3,985)
(4,259)
Current liabilities
Trade and other payables
(2,619)
(3,383)
Loans and borrowings
(1,349)
(3,103)
Derivative financial liability
-
(48)
Total current liabilities
(3,968)
(6,534)
Total liabilities
(7,953)
(10,793)
TOTAL NET ASSETS
18,988
18,302
Capital and reserves attributable to
equity holders of the Company
Share capital
3,792
3,792
Capital redemption reserve
600
600
Treasury share reserve
(798)
(798)
Foreign exchange reserve
2,490
2,349
Retained earnings
12,904
12,359
TOTAL EQUITY
18,988
18,302
The financial statements were approved and authorised for issue by the Board of directors on 9 August 2018 and were signed on behalf of the Board by:-
Jan G Holmstrom
Chairman
Consolidated Cash Flow Statement
for the year ended 31 May 2018
Year ended
31 May 2018
£000
Year ended
31 May 2017
£000
Cash flows from operating activities
Profit for the year
545
1,114
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of investment property
586
19
531
-
Amortisation of intangible assets
6
4
Finance expense
160
163
Finance income
-
(1)
Movement in fair value of derivative
(48)
4
Loss on sale of property, plant and equipment
-
3
Share of post-tax loss/(profit) of joint venture
107
(33)
Income tax expense
340
334
Cash flows from operating activities before
changes in working capital and provisions
1,715
2,119
Decrease/(increase) in inventories
597
(1,271)
Decrease/(increase) in trade and other receivables
583
(211)
(Decrease)/increase in trade and other payables
(835)
475
Cash generated from operating activities
2,060
1,112
Income taxes paid
(411)
(838)
Net cash flows from operating activities
1,649
274
Investing activities
Purchase of property, plant and equipment
(400)
(1,715)
Purchase of investment property
-
(565)
Sale of property, plant and equipment
-
(83)
Increase in joint venture investment
-
(68)
Bank interest received
-
1
Net cash used in investing activities
(400)
(2,430)
Financing activities
Purchase of treasury shares
-
(31)
Bank borrowings drawn down
(2,102)
2,191
Bank interest paid
(160)
(163)
Net cash (used)/ generated in financing activities
(2,262)
1,997
Net decrease in cash and cash equivalents
(1,013)
(159)
Translation gain on cash and cash equivalents
18
114
Cash and cash equivalents at the beginning of the year
1,567
1,612
Cash and cash equivalents at the end of the year
572
1,567
Consolidated Statement of Changes in Equity
for the year ended 31 May 2018
Share capital
£000
Capital redemption reserve
£000
Treasury share reserve
£000
Foreign exchange reserve
£000
Retained earnings
£000
Total equity
£000
At 31 May 2016
3,792
600
(767)
642
11,245
15,512
Profit for the year
-
-
-
-
1,114
1,114
Other comprehensive income
-
-
-
1,707
-
1,707
Total comprehensive income
-
-
-
1,707
1,114
2,821
Transaction with Shareholders:
Purchase of treasury shares
-
-
(31)
-
-
(31)
At 31 May 2017
3,792
600
(798)
2,349
12,359
18,302
Profit for the year
-
-
-
-
545
545
Other comprehensive income
-
-
-
141
-
141
Total comprehensive income
-
-
-
141
545
686
At 31 May 2018
3,792
600
(798)
2,490
12,904
18,988
The following describes the nature and purpose of each reserve within equity:
Reserve
Description and purpose
Share capital
The nominal value of issued ordinary shares in the Company.
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
1. This preliminary announcement has been prepared using the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union.
2. The Directors do not recommend the payment of a dividend in 2018 (2017: £nil).
3. Earnings per share
Since there are no outstanding share options, there is no difference between basic and diluted earnings per share.
Year ended
31 May 2018
Year ended
31 May 2017
Numerator
Profit for the year from continuing operations, being the earnings used in earnings per share
£545,000
£1,114,000
Denominator
Weighted average number of shares used in earnings per share (excluding treasury shares)
27,350,843
27,422,227
Basic and diluted earnings per share
2.0p
4.1p
4. During the financial year 2017, a subsidiary of the Group acquired a property which was presented within property, plant and equipment in the Consolidated Statement of Financial Position. Although part of the property is occupied by the subsidiary company, part of the property is rented out externally. Under International Financial Reporting Standards, it is therefore more appropriate to present part of the value of this property as investment property. A prior year adjustment has been made to reclassify £565,000 within non-current assets from property, plant and equipment to investment property. Investment property is accounted for using the depreciated cost method, as such this adjustment has no effect on profit, net assets, net debt or EPS in the prior year.
5. The financial information set out above does not constitute the company's statutory accounts for 2018 or 2017.
Statutory accounts for the years ended 31 May 2018 and 31 May 2017 have been reported on by the Independent Auditors.
The Independent Auditor's Report on the Annual Report and Financial Statements for both 2018 and 2017 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.
. Statutory accounts for the year ended 31 May 2017 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 May 2018 will be delivered to the Registrar in due course. The Annual Report, giving notice of the Annual General Meeting, will be sent to shareholders shortly. Further copies will be available from the Company's Registered Office, Old Mills, Whitehall Grove, Drighlington, Bradford, BD11 1BY or from the Group's website, www.leedsgroup.plc.uk.
6. Segmental information
IFRS adjustments
Year ended
31 May 2018
Hemmers Europe
£000
Hemmers China
£000
Inter segmental
£000
Total Hemmers
£000
Parent Company
£000
Financial derivatives
£000
Goodwill
£000
Total
Group
£000
External revenue
38,299
3,239
-
41,538
-
-
-
41,538
Inter-segmental revenue
1
556
(557)
-
-
-
-
-
Cost of sales
(29,839)
(3,231)
544
(32,526)
-
-
-
(32,526)
Gross profit/(loss)
8,461
564
(13)
9,012
-
-
-
9,012
Distribution costs
(2,460)
(262)
-
(2,722)
-
-
-
(2,722)
Admin expenses
(4,530)
(388)
-
(4,918)
(270)
-
-
(5,188)
Other income
50
-
-
50
-
-
-
50
Profit from operations
1,521
(86)
(13)
1,422
(270)
-
-
1,152
Finance expense
(160)
-
-
(160)
-
-
-
(160)
Internal interest
(238)
-
-
(238)
238
-
-
-
Share of JV loss
(107)
-
-
(107)
-
-
-
(107)
Profit/(loss) before tax
1,016
(86)
(13)
917
(32)
-
-
885
IFRS adjustments
At 31 May 2018
Hemmers Europe
£000
Hemmers China
£000
Inter segmental
£000
Total Hemmers
£000
Parent Company
£000
Financial derivatives
£000
Goodwill
£000
Total
Group
£000
Total assets
24,386
1,463
(37)
25,812
149
-
980
26,941
Total liabilities
(10,189)
(414)
-
(10,603)
2,927
-
(277)
(7,953)
Total net assets
14,197
1,049
(37)
15,209
3,076
-
703
18,988
IFRS adjustments
Year ended
31 May 2017
Hemmers Europe
£000
Hemmers China
£000
Inter segmental
£000
Total Hemmers
£000
Parent Company
£000
Financial derivatives
£000
Goodwill
£000
Total
Group
£000
External revenue
37,554
3,499
-
41,053
-
-
-
41,053
Inter-segmental revenue
5
511
(516)
-
-
-
-
-
Cost of sales
(29,739)
(3,301)
528
(32,512)
-
44
-
(32,468)
Gross profit
7,820
709
12
8,541
-
44
-
8,585
Distribution costs
(2,309)
(301)
-
(2,610)
-
-
-
(2,610)
Admin expenses
(4,123)
(361)
-
(4,484)
86
-
-
(4,398)
Profit from operations
1,388
47
12
1,447
86
44
-
1,577
Finance expense
(163)
-
-
(163)
-
-
-
(163)
Finance income
-
-
-
-
1
-
-
1
Internal interest
(213)
-
-
(213)
213
-
-
-
Share of JV profit
33
-
-
33
-
-
-
33
Profit before tax
1,045
47
12
1,104
300
44
-
1,448
IFRS adjustments
At 31 May 2017
Hemmers Europe
£000
Hemmers China
£000
Inter segmental
£000
Total Hemmers
£000
Parent Company
£000
Financial derivatives
£000
Goodwill
£000
Total
Group
£000
Total assets
26,137
1,727
(24)
27,840
283
-
972
29,095
Total liabilities
(12,722)
(621)
-
(13,343)
2,825
-
(275)
(10,793)
Total net assets
13,415
1,106
(24)
14,497
3,108
-
697
18,302
Analysis of revenue by destination
Year ended 31 May 2018
Year ended 31 May 2017
Hemmers
Europe
£000
Hemmers
China
£000
Total
Group
£000
Hemmers
Europe
£000
Hemmers
China
£000
Total
Group
£000
UK
1,250
115
1,365
1,071
162
1,233
Germany
22,555
855
23,410
23,816
42
23,858
Rest of EU
11,486
413
11,899
10,119
867
10,986
Total EU
35,291
1,383
36,674
35,006
1,071
36,077
Rest of Europe
2,182
416
2,598
2,005
257
2,262
Total Europe
37,473
1,799
39,272
37,011
1,328
38,339
North America
272
440
712
225
235
460
Asia
91
272
363
100
1,480
1,580
Oceania
339
617
956
118
239
357
South America
123
109
232
99
183
282
Africa
1
2
3
1
34
35
Total revenue
38,299
3,239
41,538
37,544
3,499
41,053
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