Date: 24 October 2023

Leeds Group plc

("Leeds Group" or "the Group")

Final Results for the year ended 31 May 2023

and Notice of AGM

Leeds Group announces its audited final results of the Group for the year to 31 May 2023 and that its Annual General Meeting will be held at 2.15pm on 22 November 2023 at the Radisson Blu Hotel, Chicago Avenue, Manchester Airport, M30 3RA.

Strategic Report

Chairman's Statement

It has been yet another challenging year for the Group.

The textile markets in Germany and other European countries have, over the past few years been negatively affected by the Covid-19 pandemic and the consequences of the Russian armed aggression in Ukraine.  Both situations severely affected consumer confidence which has now been further impacted by high inflation and increased interest rates. Margins are low at the commodity end of the market and it is clear that the market as a whole would benefit from some degree of consolidation. Against this background, Group trading has continued to struggle.

As previously communicated it became clear to Hemmers management last autumn, that its retail subsidiary KMR could not continue to operate and Hemmers' management made the decision to place it into an insolvency process, which was accepted by the German Courts on 7 October 2022.  The insolvency process is ongoing. Full control passed to the insolvency administrator on 1 January 2023 and at that point KMR ceased to be a subsidiary within the Group. However, Hemmers are still exposed to a loan guarantee in relation to KMR and this has been provided for in the financial statements.

The Group's focus is now solely to return Hemmers to profitability. Hemmers management will continue to assess the cost base to make sure it aligns with the reduced sales levels and look to make efficiencies wherever they can to ensure Hemmers is as competitive as it can be in the marketplace. The Directors will continue to look at all options available to the Group to maximise shareholder value.

Finance and Operating Review

Group highlights

·      Group revenue for all operations in the year was £27,817,000 (2022: £29,590,000). 

·      Group operating loss was £509,000 (2022: loss £2,990,000 which included an impairment charge of £1,662,000).

·      The interest charge was £384,000 (2022: £255,000) reflecting higher interest rates.

·      Group loss before tax was £893,000 (2022: loss £3,245,000).                                                                                 

·      The tax credit in the year was £53,000 (2022: charge £4,000). 

·      Total loss per share was 3.1p (2022: loss per share 11.9p).

Hemmers 

Hemmers is an international business engaged in designing, importing, warehousing, and wholesaling of fabrics from its base in Germany.  The markets in Germany and other European countries have over the past few years been affected by the Covid-19 pandemic and the conflict in Ukraine and more recently by high inflation and high interest rates. Management have made significant reductions in the cost base and will continue to align costs with sales levels and look to make efficiencies wherever they can to ensure Hemmers is as competitive as it can be in the marketplace.

External sales increased slightly in the year to £24,290,000 (2022: £23,998,000).  The gross contribution percentage increased to 35% (2022: 34%) and the gross profit increased to £5,156,000 (2022: £4,440,000).  Hemmers reported a loss before interest of £248,000 (2022: loss £415,000) after exceptional consultancy charges of £403.000. External interest has increased to £337,000 (2022: £162,000) due to increased interest rates.

Hemmers bank debt, net of cash, increased in the year to £6,046,000 (2022: £5,643,000).  The bank debt is secured on the assets of Hemmers.

KMR

On 7 October 2022, the German Courts accepted Hemmers' management decision to place its subsidiary KMR into an insolvency process.  As a result of the insolvency, an impairment charge of £1,662,000 was recognised in last year's accounts with the assets relating to the KMR retail shops being written down to a £nil net book value. Full control passed to the insolvency administrator on 1 January 2023 and at that point KMR ceased to be a subsidiary within the Group. The results for KMR are only consolidated for the 7 months to 31 December 2022 and are reported as a discontinued operation in these financial statements.

The loss for the 7-month period before interest for the year was £32,000 (2022: loss £2,277,000 for 12 months) and the loss after interest was £79,000 (2022: loss £2,370,000). During the year, KMR's freehold property was sold for £521,000 realising a profit on sale of £139,000. The Group made a net gain of £138,000 on the transfer of its assets to the insolvency administrator.

Fixed Assets

The net book amount of tangible fixed assets is £6,487,000 (2022: £7,335,000). Capital additions in the year amounted to £51,000 (2022: £447,000). During the year, KMR's freehold property was sold for £521,000 realising a profit on sale of £139,000.

The net book value of right-to-use assets is £207,000 (2022: £170,000). These relate to car leases, of which there were £142,000 additions during the year (2022: £45,000).

Working Capital and Cash Flow

Net debt decreased from £6,381,000 to £5,812,000 in the year. Net cash generated in the year at average exchange rates was £1,892,000 (2022: used £344,000). Working capital, which comprises inventories, trade and other receivables and trade and other payables, decreased in the year by £2,239,000 (2022: increased by £1,139,000) mainly due to lower levels of stock as there was no KMR stock this year. Loan repayments of £539,000 (2022: £708,000) have been made this year. There were no new loans taken out in the year (2022: £2,835,000).

Lease liability repayments (including interest) of £698,000 (2022: £1,059,000) were made in the year.

The Group continues to carefully monitor its working capital requirements to ensure it operates within its current banking facilities.

Net Asset Value

Net assets decreased in the year by £738,000 as follows:

Debt Profile

The funding policy of the Group continues to match its funding requirements in a cost-effective fashion with an appropriate combination of short and longer-term debt. Property investments have been financed by long term loans at fixed interest rates between 1.05% and 1.65%.  Working capital finance, when required, is via short term loans of three months currently attracting interest at rates of between 1.5% and 3%.  Bank debt in the subsidiary is secured by charges on inventories, receivables and property and is without recourse to the Parent Company.

Principal risks and uncertainties

The Board has identified the main categories of business risk in relation to the Group's strategic aims and objectives, and has considered reasonable steps to prevent, mitigate and manage these risks.  The principal risks identified are as follows:

Funding risk

The Group has a combination of short-term borrowing facilities and longer-term loan agreements secured on Group assets. The Group remains dependent upon the support of these funders and there is a risk that failure in a company to meet banking covenants could have implications for the Group. Borrowing facilities are monitored regularly and the facilities agreed are more than needed for the Group's requirements.  The Group has close working relationships with their current funders but believe alternative banking funders could be secured if required.

Hemmers has a maximum working capital facility of ?11m, restricted to the borrowing base which is calculated as 70% of eligible inventory and 80% of eligible debtors. In the financial year 2023, this resulted in average availability of ?8.4m (2022: ?7.7m) with a range of ?7.2m to ?10.0m (2022: ?6.5m to ?8.8m) and minimum headroom of ?1.0m (2022: ?3.2m) in the year. In the forecast period to 31 May 2025, the estimated availability range is ?7m to ?8.8m and the minimum headroom ?0.3m. The facility is committed until 31 May 2024. Hemmers also has another working capital facility of ?1m secured on working capital which was fully drawn at the year end. The facilities are uncommitted, but the bank is obliged to give reasonable notice of any change.

The Directors consider that there will be sufficient headroom available within the Hemmers working capital facility and, therefore, the Directors are of the opinion that it is appropriate to apply the going concern basis of preparation to the financial statements.

However, the Directors acknowledge that the volatile global situation could have an impact on the future trading result of Hemmers and in turn could affect the ability of the Group to meet its forecasts and therefore comply with banking covenants in downside scenarios. In addition, the Group has borrowing facilities which are due for renewal within one year of the date of approval of these financial statements, which the Group relies on to operate as a going concern. The Directors will look to renew the existing facilities when they are due for renewal, although acknowledge the conditions noted above give rise to a material uncertainty around the going concern of the Group.

Market risk

There is always the ongoing threat of reduced market demand.  This has been seen this year and the Group continues to strive to combat the reduced demand by looking at other markets both domestically and internationally and looking at expanding its product ranges.  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.

Foreign exchange risk

Most fabric purchased by Hemmers is paid for in US dollars, while the Euro is the principal currency in which Hemmers sells its product. The Euro/dollar rate is of greater significance to Leeds Group than the strength of Sterling. The Hemmers' management continue to manage this transactional currency risk by a combination of forward exchange contracts with reputable banks and sales price increases where necessary.

Audit Opinion

As set out in note 7 of this announcement below, the Independent Auditor's Report on the Annual Report and Financial Statements for the year ended 31 May 2023 was qualified on the basis that they were unable to obtain sufficient audit evidence in respect of the subsidiary KMR and its performance, as stated within the Consolidated Statement of Comprehensive Income under discontinued operations. Except for the qualification noted above the Independent Auditor's Report on the Annual Report and Financial Statements for the year ended 31 May 2023 did not contain a statement under section 498(2) of the Companies Act 2006 or section 498(3).

In auditing the financial statements for the year ended 31 May 2023, the Group Auditors have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, the Independent Auditor's Report draws attention to note 2 in the Group financial statements (note 1 of this announcement below) which states that the Group and Parent Company incurred substantial losses during the year and that the Group and Parent Company's operational existence is dependent on the continued support from the Group's bank facilities and the eventual return to profitability. The impact of this gives rise to a material uncertainty around the going concern of the Group. The auditor's opinion is unqualified and not modified in respect of this matter.

The strategic report was approved by the Board of Directors on 23 October 2023 and signed on its behalf by:

Jan G Holmstrom

Non-Executive Chairman

Consolidated Statement of Comprehensive Income

for the year ended 31 May 2023

There is no tax effect relating to other comprehensive income/(loss) for the year. Amounts included in other comprehensive income/(loss) may be reclassified subsequently as profit or loss.

Loss per share attributable to the equity holders of the Company

Consolidated Statement of Financial Position

at 31 May 2023

The financial statements were approved and authorised for issue by the Board of Directors on 23 October 2023 and were signed on behalf of the Board by:-

Jan G Holmstrom

Non-Executive Chairman

Consolidated Cash Flow Statement

for the year ended 31 May 2023

Consolidated Statement of Changes in Equity

for the year ended 31 May 2023

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

Notes

1.      Basis of preparation

The Group financial statements have been properly prepared using the recognition and measurement principles of United Kingdom adopted International Financial Reporting Standards ("UK adopted IFRS").

Going Concern

When considering its opinion about the application of the going concern basis of preparation of the financial statements the Directors have given due consideration to:

·    The performance of the Group in the last financial year and the robustness of forecasts for the next 24 months, which return the Group to profit.

·    The financing facilities available to the Group and the circumstances in which these could be limited or withdrawn.

Financial performance and forecasts

Forecasts have been prepared for the 24-month period to May 2025 which indicate a return to modest profit over that period. The Company has sensitised these forecasts for a reduction in revenues for Hemmers and the banking facilities remain adequate.  The Directors are of the opinion that this is a reasonable worst case, and the currently available facilities would be sufficient in this scenario. 

For purposes of the going concern assessment, the Group make estimates of likely future cash flows which are based on assumptions given the uncertainties involved. The key assumptions include (i) No significant deterioration in general market conditions; (ii) No significant customer loss; (iii) No significant increase in raw material prices (iii) Continued support of lenders. These assumptions are made by management based on recent performance, external forecasts and management's knowledge and expertise of the cashflow drivers. Management continually monitors the Group's cash balances and forecasts cash flows, including stress testing in respect of the timing of those cash flows.

Financing facilities

The operating business of the Group, Hemmers which is located in Germany.  The Parent Company, which has no borrowing facilities, is located in the UK.  Hemmers has four sources of funding:

·    Term loans which have funded property purchases. These are repayable in instalments over the term as detailed in note 6. They are secured over the associated properties and that security could be called in the event that the business defaulted on repayment.

·    A maximum working capital facility of ?11m, restricted to the borrowing base which is calculated as 70% of eligible inventory and 80% of eligible debtors. In the financial year 2023, this resulted in average availability of ?8.4m (2022: ?7.7m) with a range of ?7.2m to ?10.0m (2022: ?6.5m to ?8.8m) and minimum headroom of ?1.0m (2022: ?3.2m) in the year. In the forecast period to 31 May 2025, the estimated availability range is ?7m to ?8.8m and the minimum headroom ?0.3m. The covenants on this facility are an equity ratio which must exceed 50% of gross assets at the financial year end and profit for the previous six months to exceed ?121,000.  At 31 May 2023, the ratio was 52% and the previous six months profit was ?347,000. The facility is committed until 31 May 2024.

·    A further working capital facility of ?1m secured on working capital which was fully drawn at the year end. The facilities are uncommitted, but the bank is obliged to give reasonable notice of any change.

·    A ?3m Parent Company loan which is currently subordinated to the working capital facility.

The Directors consider there will be sufficient headroom available in the Hemmers working capital facility and, therefore, the Directors are of the opinion that it is appropriate to apply the going concern basis of preparation to the financial statements. 

However, the Directors acknowledge that the volatile global situation could have an impact on the future trading result of Hemmers and in turn could affect the ability of the Group to meet its forecasts and therefore comply with banking covenants in downside scenarios. In addition, the Group has borrowing facilities which are due for renewal within one year of the date of approval of these financial statements, which the Group relies on to operate as a going concern. The Directors will look to renew the existing facilities when they are due for renewal, although acknowledge the conditions noted above give rise to a material uncertainty around the going concern of the Group.

2.      Dividends

The Directors do not recommend the payment of a dividend in 2023 (2022: £nil).

3.      Loss per share

Since there are no outstanding share options, there is no difference between basic and diluted earnings per share.

4.      Discontinued operations

On 7 October 2022, the German Courts accepted Hemmers' management decision to place its subsidiary KMR into an insolvency process.  The insolvency process is ongoing although full control passed to the insolvency administrator on 1 January 2023 and at that point KMR ceased to be a subsidiary within the Group. The gain has arisen due to the assets being transferred to the insolvency administrator and any IFRS adjustments reversed. There was no tax impact on the gain which arose on transfer.

5.      Segmental information

6.      Loans and borrowings

The book value of loans and borrowings are as follows:

Current loans and borrowings

At 31 May 2023 current loans and borrowings of £5,502,000 (2022: £5,671,000) comprise short term loans of £5,201,000 (2022: £5,373,000) and instalments due on long term loans detailed below of £301,000 (2022: £298,000). The interest rate on the short-term loans ranges from 1.5% to 3% (2022: 1.25% to 3%) and these loans are secured on working capital of Hemmers. The short-term loans are drawn down by Hemmers against short-term borrowing facilities of up to a maximum of £10.3m (?12m). At 31 May 2023, the total borrowing facility available totalled £7.1m (?8.2m) of which £5.2m (?6m) has been utilised including any overdrafts, therefore the headroom within the facility was £1.9m (?2.2m). Neither the Parent Company nor its subsidiary Hemmers have any other borrowing facilities. The bank borrowing facilities are reviewed annually every May and remain in place for Hemmers for the forthcoming year.

Non-current loans and borrowings  

Non-current loans were drawn down in 2016 and 2017 to finance developments at the Hemmers warehouses in Nordhorn.

The Group's loans and borrowings are within the accounts of Hemmers. They are denominated in Euros, and their principal terms are as follows:

7.            Other information

The financial information in this financial results announcement has been prepared by the Directors using the recognition and measurement principles of United Kingdom adopted International Financial Reporting Standards ("UK adopted IFRS"). The financial information for the year ended 31 May 2023 does not constitute the statutory accounts of the Company for 2022 and 2023 but are extracted from the audited accounts.

The statutory accounts for the year ended 31 May 2023 and 31 May 2022 have been reported on by MHA, Statutory Auditor. The Independent Auditor's Report on the Annual Report and Financial Statements for 2023 is qualified and for 2022 unqualified and did not draw attention to any matters by way of emphasis. Both the Financial Statements for 2023 and 2022 did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. The Independent Auditor's Report on the Annual Report and Financial Statements for the year ended 31 May 2023 was qualified on the basis that they were unable to obtain sufficient audit evidence in respect of the subsidiary KMR and its performance, as stated within the Consolidated Statement of Comprehensive Income under discontinued operations. Except for the qualification noted above the Independent Auditor's Report on the Annual Report and Financial Statements for the year ended 31 May 2023 did not contain a statement under section 498(2) of the Companies Act 2006 or section 498(3).

In auditing the financial statements for the year ended 31 May 2023, the Group Auditors have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, the Independent Auditor's Report draws attention to note 2 in the Group financial statements (note 1 above) which states that the Group and Parent Company incurred substantial losses during the year and that the Group and Parent Company's operational existence is dependent on the continued support from the Group's bank facilities and the eventual return to profitability. The impact of this gives rise to a material uncertainty around the going concern of the Group. The auditor's opinion is unqualified and not modified in respect of this matter. An extract from the Independent Auditor's Report is set out below:

We draw your attention to note 2 in the financial statements which states that the Group and Parent Company incurred substantial losses during the year and that the Group and Parent Company's operational existence is dependent on the continued support from the Group's bank facilities and the eventual return to profitability.

The impact of this together with other matters set out in the note, indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter. In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors' assessment of the Group and Parent Company's ability to continue to adopt the going concern basis of accounting included:

Our evaluation of the Directors' assessment of the Group's and the Parent Company's ability to continue to adopt the going concern basis of accounting included:

·      The consideration of inherent risks to the Group's operations and specifically its business model.

·      The evaluation of how those risks might impact on the Group's available financial resources.

·      Review of the mathematical accuracy of the cashflow forecast model prepared by management and corroboration of key data inputs to supporting documentation for consistency of assumptions used with our knowledge obtained during the audit.

·      Challenging management for reasonableness of assumptions in respect of the timing and quantum of cash receipts and payments included in the cash flow model.

·      Holding discussions with management regarding future financing plans, corroborating these where necessary and assessing the impact on the cash flow forecast.

·      Review of the Group's external debt exposure to determine if any future repayments have been included within the Group's cash flow projections.

·      Holding discussions with management and completing reviews of any events after the reporting period to identify if these may impact on the Group's ability to continue as a going concern.

                The statutory accounts for the year ended 31 May 2022 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 May 2023 will be delivered to the Registrar of Companies following the Annual General Meeting. The Annual Report and Financial Statements giving notice of the 2023 Annual General Meeting, have been today published on the Group's website at www.leedsgroup.plc.uk and have been sent to those shareholders who have elected to receive a hard copy of the Annual Report and Financial Statements by the post.

                The Annual General Meeting will be held at 2.15pm on 22 November 2023 at the Radisson Blu Hotel, Chicago Avenue, Manchester Airport, M30 3RA.

This announcement contains inside information for the purposes of the UK Market Abuse Regulation and has been arranged for release by Jan G Holmstrom, Non-Executive Chairman. The Directors of the Company are responsible for the release of this announcement. 

Enquiries:

Leeds Group plc                                                             Cairn Financial Advisers LLP (nominated adviser)

Dawn Henderson - 01937 547877                                  Liam Murray/Sandy Jamieson - 020 7213 0880

Note:

Certain statements made in this announcement are forward-looking statements. These forward-looking statements are not historical facts but rather are based on the Company's current expectations, estimates, and projections about its industry; its beliefs; and assumptions. Words such as 'anticipates,' 'expects,' 'intends,' 'plans,' 'believes,' 'seeks,' 'estimates,' and similar expressions are intended to identify forward-looking statements. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors, some of which are beyond the Company's control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The Company cautions security holders and prospective security holders not to place undue reliance on these forward-looking statements, which reflect the view of the Company only as of the date of this announcement. The forward-looking statements made in this announcement relate only to events as of the date on which the statements are made. The Company will not undertake any obligation to release publicly any revisions or updates to these forward-looking statements to reflect events, circumstances, or unanticipated events occurring after the date of this announcement except as required by law or by any appropriate regulatory authority.