Leeds Group PLC 20 December 2005 Issued on behalf of Leeds Group plc Date: Tuesday, 20 December 2005 IMMEDIATE RELEASE LEEDS GROUP plc Preliminary Results for the year ended 30 September 2005 • Group profit before tax and exceptional items was £800,000 (2004: £399,000). • After an exceptional profit of £135,000 on the sale of a business operation, profit before tax was £935,000 (2004: loss £1,632,000) and earnings per share were 1.9 pence (2004: loss 6.2 pence). • Leeds Leasing returned to profitability, and was sold to Bibby Asset Finance Limited on 31 October 2005 for a consideration of £3,700,000 plus the repayment of Group loans of £1,350,000. • Hemmers-Itex, after a disappointing first half, matched last year's profitability in the second half-year. • Following the sale of Leeds Leasing, Hemmers-Itex is the Group's sole trading subsidiary and cash reserves in the Parent Company amount to approximately £5.5m, equivalent to 15 pence per share. "Hemmers-Itex is now the Group's sole trading operation, and the new financial year has begun well with results to date showing a continuation of the strong sales and incoming orders experienced in the second half of last year." "The Board will now examine the wide range of available options to explore how best to create shareholder value from the cash and other resources at its disposal." 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 The Group's trading performance improved in 2005. Sales in the period amounted to £17,188,000 (2004: £16,514,000) and profit before tax and exceptional items was £800,000 (2004: £399,000). After an exceptional profit of £135,000 on the sale of a business operation, profit before tax was £935,000 (2004: loss £1,632,000) and earnings per share were 1.9 pence (2004: loss 6.2 pence). These satisfactory results reflect the return to profitability in Leeds Leasing, where default levels were much reduced and where new business financed increased by 16%. Leasing profit before tax and exceptional items amounted to £462,000 (2004: loss £61,000). After a strong second half to the year, Hemmers-Itex, the successful German-based fabric trading business, produced a full year profit before tax of £573,000 (2004: £882,000). The reduction in profitability relates chiefly to the costs of changing agents and successfully relocating our multi-site activities in Nordhorn to a single facility. Strategic Developments Following shareholder approval at the Extraordinary General Meeting on 31 October 2005, the Group completed the sale of Leeds Leasing to Bibby Asset Finance Limited for a consideration of £3,700,000 plus the repayment of Group loans of £1,350,000. Dividend In view of the current low level of distributable reserves, the Directors do not propose a dividend for the year under review. Although a loss of approximately £830,000 on the disposal of Leeds Leasing will arise in the consolidated accounts for the year ending 30 September 2006, the Parent Company will record a profit on disposal of approximately £3,450,000 which will substantially improve the distributable reserves position, and the Board will take that into account in determining future dividend policy. In the meantime, at the forthcoming Annual General Meeting, the Board will seek the renewal of its authority to buy back the Group's shares for the benefit of shareholders. During the year under review the Group acquired 450,000 shares under this authority. Directors and Employees Carol Roberts resigned from the Board on 31 October 2005 in order to continue as Managing Director of Leeds Leasing after its sale. In view of the reduced scale of activities, Malcolm Wilson will not be seeking re-election at the forthcoming Annual General Meeting, although I am pleased that he has agreed to remain in a part-time capacity to act as Company Secretary and to manage our Head Office. On behalf of the Board, I thank both Carol and Malcolm for their commitment and valuable contributions over the last few years of considerable restructuring and change. Outlook Hemmers-Itex is now the Group's sole trading operation, and the new financial year has begun well with results to date showing a continuation of the strong sales and incoming orders experienced in the second half of last year. Following the sale of Leeds Leasing, cash balances in the UK currently amount to approximately £5,500,000, equivalent to 15 pence per share. The Board will now examine the wide range of available options to explore how best to create shareholder value from the cash and other resources at its disposal, keeping shareholders informed of developments as and when appropriate. Vin Murria Chairman 19 December 2005 -3- Leeds Group plc Preliminary Results OPERATING AND FINANCIAL REVIEW Group result Group turnover in the year amounted to £17,188,000 (2004: £16,514,000) with Leeds Leasing and Hemmers-Itex achieving growth of 8% and 3% respectively. Group profit before tax and exceptional items was £800,000, double the £399,000 reported in the previous financial year. Performance by sector is discussed below. The tax charge in the year of £236,000 relates exclusively to our German operations, as no tax charge arose on UK activities. Earnings per share before exceptional items were 1.5 pence (2004: loss 0.6 pence). Divisional performance Leeds Leasing After the last two years in which default problems led to losses, it has been encouraging to record a significant turnaround in Leeds Leasing's performance. Although the principal cause of the improvement was an altogether better default experience, greater volumes, increased fee income and control of overhead costs also contributed. Profit before tax and exceptional items was £462,000 (2004: loss £61,000). The total value of new business financed under lease or hire purchase agreements grew by 16% to £13,118,000. Within this, there was a move away from asset or customer categories where default experience has in recent times been unsatisfactory towards higher quality business, notably in the franchised fast food sector and in commercial asset finance. Yields in these sectors are typically lower than our traditional markets, but carry a much reduced risk profile. On 31 October 2005, one month after the end of the financial year under review, the Group completed the sale of Leeds Leasing to Bibby Asset Finance Limited in a deal that realised £5,050,000 including the repayment of a Group loan of £1,350,000. Leeds Group plc will record a profit on disposal of some £3,450,000 that will flow into distributable reserves in the financial year ending 30 September 2006. In the Consolidated Group Accounts, the sale gave rise to a loss on disposal of approximately £830,000, which will be recognised in the accounts for the year ending 30 September 2006. Hemmers-Itex After a disappointing first half-year, the performance of our fabric wholesaling business in Germany rebounded strongly in the second half. Taking account of the fact that the newly established KMT business in Cologne had contributed only from February 2004, like for like sales in the first half of the year were down by 10%, and consequently profits were depressed. Second half sales and profits, however, matched the impressive levels of the previous year. The fact that Easter fell so early in 2005 considerably reduced the length of the carnival season, which remains very popular in Europe. Sales of carnival fabrics, which can account for as much as 25% of first half turnover, were considerably down in 2005. In contrast, sales throughout the year were boosted by the successful launch of our range of Disney fabrics, which contributed a little over £500,000 to turnover. For the current year, new designs are in production incorporating images from the new Disney films to be released in 2006. continued... -4- Leeds Group plc Preliminary Results Our traditional customers are retailers who tend to buy from Hemmers-Itex in short lengths of about 12 metres, double folded onto a cardboard core to form a "coupon". Retailers have reported difficult trading conditions in recent times, and we have responded by increasingly focusing sales efforts towards the garment manufacturing sector, where sales typically will be of fabric in the form in which it is imported, which is to say on rolls of between 60 to 80 metres. It is a measure of the success of this strategy that sales of fabric on rolls rose in 2005 by 7%, more than offsetting the reduction of 6% in sales on coupons. Another interesting development as we seek new sales opportunities was the decision to exhibit as a supplier at a Chinese fair. Our fashion collection comprises fabrics bought from many different manufacturers, and we shall be interested to discover the level of interest that could exist amongst Chinese and other Asian customers who would otherwise need to source fabrics individually. At the same time, we continue to strive for growth in Europe and have appointed new agents in France and certain Eastern European markets during the year. The cost of making these changes was approximately £200,000. In July 2005, Hemmers-Itex completed its relocation from three warehouses in Nordhorn to a single, larger facility that can handle the 50% growth in volume throughput that has arisen since 2000. As well as giving management much greater ability to control daily operations, the new facility offers retail customers an excellent and popular new showroom in which they can select their purchases in the manner of a supermarket. Although it is of course early days, we are pleased that the current financial year has opened strongly with sales in October and November 20% ahead of last year and with an order book that, at this stage of the year, is fuller than it has ever been. Head Office costs The table below illustrates the continuing downward trend in head office costs. 2005 2004 2003 £000 £000 £000 Head office expenses 373 545 556 Exchange loss/(gain) 2 56 (112) ----------------------- Administrative expenses 375 601 444 Interest income (140) (179) (369) ----------------------- Net head office costs before exceptional items and tax 235 422 75 Exceptional items (note 2) (135) 1,431 77 ----------------------- Net head office costs before tax 100 1,853 152 ----------------------- Textile manufacturing Following the Group's withdrawal from textile manufacturing, there remained two outstanding matters with potential impact on future results. Both of these are now effectively resolved. continued... -5- Leeds Group plc Preliminary Results The receipt of £135,000 from the shareholders of Langholm Dyeing Company Limited, a debt for which full provision had been made, represents the final element of the proceeds of the sale of the former UK Dyeing Division in January 2002, and is reported as an exceptional item. 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 number of acres for 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 submitted a planning application of reduced scope, which had the support of local planners and residents and for which consent was given in March 2005. These plans envisage residential development of fewer acres than are necessary to lead to overage payments to the Group. Although the purchaser has subsequently submitted for approval certain modifications to the plans, these do not contemplate a larger development and it appears most unlikely that a development on the scale required to result in further income to the Group will ever be possible. Fixed assets Capital additions in the year amounted to £134,000 (2004: £180,000) and related chiefly to expenditure connected with the relocation of Hemmers-Itex. Tangible fixed assets in the Balance Sheet amount to £449,000 (2004: £561,000). There were no capital commitments at the year-end, and no material capital projects are contemplated for the current financial year. Working capital At constant exchange rates, working capital increased during the year by £432,000, exclusively in our overseas operations. Trade debtors increased reflecting sales in August and September that were 12% higher than in the previous year, while stocks are higher reflecting a considerably stronger order book. Debt profile The funding 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 2005 can be analysed as follows: Holding Leeds Hemmers- Total Companies Leasing Itex Group £000 £000 £000 £000 Cash (731) - (25) (756) Overdrafts - 132 584 716 -------------------------------------------------- Total on demand (731) 132 559 (40) Fixed rate loans due: within one year - 7,129 1,842 8,971 after more than one year - 7,451 - 7,451 -------------------------------------------------- Net external debt (731) 14,712 2,401 16,382 -------------------------------------------------- continued... -6- Leeds Group plc Preliminary Results 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. The Leeds Leasing debt formed part of the net assets sold on 31 October 2005, and the elimination of this debt and the net sale proceeds resulted in the Group moving on that date to a net cash position in excess of £3,000,000. Capital gearing The Group's capital gearing may be presented as follows: Total Leeds Group Group Leasing Excl Leasing £000 £000 £000 Net assets 11,644 4,313 7,331 ---------- --------- --------- Net external debt 16,382 14,712 1,670 Net internal debt - 1,350 (1,350) ---------- --------- --------- Total debt 16,382 16,062 320 ---------- --------- --------- Capital gearing Net external debt : net assets 141% 341% 23% Total debt : net assets 141% 372% 4% The Board considers that 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 19 December 2005 -7- Leeds Group plc Preliminary Results Consolidated Profit and Loss Account for the year ended 30 September 2005 2005 2004 Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total £000 £000 £000 £000 £000 £'000 Turnover 14,113 3,075 17,188 13,665 2,849 16,514 Cost of sales (10,483) (287) (10,770) (10,194) (318) (10,512) ---------------------------------------------------------------------- Gross profit 3,630 2,788 6,418 3,471 2,531 6,002 Distribution costs (937) - (937) (648) - (648) Administrative expenses (2,327) (1,402) (3,729) (2,383) (2,367) (4,750) ---------------------------------------------------------------------- Operating profit before exceptional items 366 1,386 1,752 440 764 1,204 Exceptional items - - - - (600) (600) ----------------------------------------------------------------------- Operating profit 366 1,386 1,752 440 164 604 Exceptional profit/(loss) on sale of a business operation 135 - 135 (1,431) - (1,431) ------------------------------------------------------------------------ Profit/(loss) before interest 501 1,386 1,887 (991) 164 (827) ------------------------------------------------------------------------ Interest receivable and similar income 32 88 Interest payable and similar charges (984) (893) ------- ------ Net interest payable (952) (805) ------- ------ Profit/(loss) on ordinary activities before taxation 935 (1,632) Taxation on profit or loss on ordinary activities (236) (630) ------- ------ Profit/(loss) for the financial year 699 (2,262) ------- ------ Basic and diluted earnings/(loss) per share before exceptional items 1.5p (0.6)p exceptional items 0.4p (5.6)p ------- ------ after exceptional items 1.9p (6.2)p ------- ------ Consolidated Statement of Recognised Gains and Losses for the year ended 30 September 2005 2005 2004 £000 £000 Profit/(loss) for the financial year 699 (2,262) Foreign currency translation differences (25) (110) ------- ------ Total recognised profit/(loss) relating to the financial year 674 (2,372) ------- ------ -8- Leeds Group plc Preliminary Results Balance Sheets at 30 September 2005 Group Company 2005 2004 2005 2004 Fixed assets Intangible assets 853 951 - - Tangible assets 449 561 - - Investments - - 3,731 3,731 --------------------------------------- 1,302 1,512 3,731 3,773 --------------------------------------- Current assets Stocks 4,170 3,868 - - --------------------------------------- Debtors 5,062 4,865 1,857 1,716 Deferred taxation 875 875 75 75 Finance lease debtors 20,606 18,328 - - --------------------------------------- Total debtors 26,543 24,068 1,932 1,791 Cash at bank and in hand 756 1,186 730 1,111 --------------------------------------- 31,469 29,122 2,662 2,902 Creditors: amounts falling due (13,676) (13,353) (1,289) (1,305) within one year --------------------------------------- Net current assets 17,793 15,769 1,373 1,597 --------------------------------------- Of which: --------------------------------------- due within one year 4,708 3,970 1,298 1,522 due after more than one year 13,085 11,799 75 75 --------------------------------------- --------------------------------------- Total assets less current liabilities 19,095 17,281 5,104 5,328 Creditors: amounts falling due (7,451) (6,250) - - after more than one year --------------------------------------- Net assets 11,644 11,031 5,104 5,328 --------------------------------------- Capital and reserves Called up equity share capital 4,392 4,392 4,392 4,392 Reserves 7,252 6,639 712 936 --------------------------------------- Equity shareholders' funds 11,644 11,031 5,104 5,328 --------------------------------------- Reconciliation of movements in equity shareholders' funds Profit/(loss) loss for the financial year 699 (2,262) (163) (1,811) Purchase of own shares (61) - (61) - Foreign currency translation differences (25) (110) - - --------------------------------------- Net transfer to/(from) equity shareholders' funds 613 (2,372) (224) (1,811) Opening equity shareholders' funds 11,031 13,403 5,328 7,139 --------------------------------------- Closing equity shareholders' funds 11,644 11,031 5,104 5,328 --------------------------------------- -9- Leeds Group plc Preliminary Results Consolidated Cash Flow Statement for the year ended 30 September 2005 2005 2004 £000 £000 Cash inflow from operating activities (626) 503 Return on investments and servicing of finance (952) (805) Taxation (266) 18 Capital expenditure and financial investment (129) (177) Acquisitions and disposals 135 - ---------------------- Cash outflow before financing (1,838) (461) Financing 1,279 1,383 ---------------------- (Decrease)/increase in cash in the year (559) 922 ---------------------- Reconciliation of Net Cash Flow to Movement in Net Debt 2005 2004 £000 £000 (Decrease)/increase in cash in the year (559) 922 Net increase in loans and hire purchase commitments (1,340) (1,383) --------------------- Change in net debt resulting from cash flows (1,899) (461) Foreign currency translation difference 11 28 --------------------- Movement in net debt (1,888) (433) Net debt at beginning of the year (14,494) (14,061) --------------------- Net debt at end of the year (16,382) (14,494) --------------------- Reconciliation of Operating Profit to Operating Cash Flows 2005 2004 £000 £000 Operating profit 1,752 604 Depreciation of fixed assets 235 193 Amortisation of goodwill 93 93 Loss on sale of tangible fixed assets 4 - Increase in stocks (321) (131) Increase in debtors (215) (13) Increase in creditors 104 71 Increase in finance lease debtors (2,278) (314) --------------------- Net cash (outflow)/inflow from operating activities (626) 503 --------------------- -10- Leeds Group plc Preliminary Results Notes 1. The Directors do not recommend the payment of a dividend. 2. Exceptional items 2005 Langholm Dyeing Company Limited Under the terms on which the Group sold a loan note to the Directors of Langholm Dyeing Company Limited in December 2004 (see below) further payments of £50,000 remained due from the Directors of Langholm on each of the first three anniversaries of the sale. The Group had, on grounds of prudence, retained a full provision against this debt, which was discharged in full in May 2005 by a single payment of £135,000. The Group remains entitled to participate to a maximum of £375,000 in the proceeds of any sale of the Langholm business before December 2008. 2004 Leeds Leasing plc During 2004, following the introduction of new leasing software, the Directors reviewed the basis on which bad debt provisions in Leeds Leasing plc were calculated. From the date of this review, specific provisions have been 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 was reported as an exceptional item within operating profit. Langholm Dyeing Company Limited 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. The exceptional loss of £1,431,000 on sale or termination of a business charged in 2004 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 7 to 9 does not constitute the Company's statutory accounts for the year ended 30 September 2005 or the year ended 30 September 2004 but is derived from those accounts. 4. Statutory accounts for the year ended 30 September 2004 have been delivered to the Registrar of Companies, and those for the year ended 30 September 2005 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