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. This information is provided by RNS The company news service from the London Stock Exchange