Leeds : 31 July 2017 - Final results

Issued on behalf of Leeds Group plc Embargoed: 7.00am Date: 31 July 2017

Leeds Group Financial Highlights

 Leeds Group profit before tax £1,448,000 (2016: £1,507,000).

• Leeds Group sales revenue increased by 13.2% to £41,053,000 (2016:

  £36,272,000).

• The weakness of sterling during the year has had a material impact on the Group's results. An unrealised gain of £310k has been recognised in the accounts and the net assets increased by £1,707,000 since last year end, because of this.

• Capital expenditure in the year £2,280,000 (2016: £4,156,000) partly on the acquisition of a German warehouse which had previously been rented.

• Leeds Group finished the year with bank debt net of cash £5,520,000

  (2016: £2,646,000).

• Leeds Group net asset value per share (excluding treasury shares) 66.9p

  (2016: 56.5p).

• Earnings per Leeds Group share 4.1 pence (2016: 3.8 pence).

• In view of the recent investments, the Directors do not propose a dividend.

Enquiries:
Leeds Group plc	Cairn Financial Advisers plc
Jan Holmstrom, Chairman Tel: [phone]	Tony Rawlinson Tel: [phone]
Dawn Henderson, Company Secretary Tel: [phone]	Liam Murray Tel: [phone]

Chairman's Statement

I am pleased to present the results for the year ended 31 May 2017.

Results

The Group achieved sales for the year of £41,053,000 (2016: £36,272,000) and made a profit after tax of

£1,114,000 (2016: £1,039,000). The weakness of sterling during the year has had a material impact upon the Group's results. Sales growth of 13.2% comprises a fall of 1.1% in sales at constant exchange rates, disguised by the translation effect of weaker sterling, which increased reported sales by 14.3%. In addition there has been a gain of £310,000 in the value of the Euro denominated parent company loan to Hemmers.

Similarly the translation effect has increased net assets by £1,707,000 since last year end. Net assets at 31 May 2017 increased to £18,302,000 (2016: £15,512,000) and the value per share was 66.9p (2016: 56.5p). Following capital expenditure of £2,280,000 in the year (2016: £4,156,000), partly on the acquisition of a warehouse in Germany adjacent to the existing facilities which had previously been rented, the Group closed the year with net bank debt of £5,520,000 (2016:£2,646,000).

Hemmers-Itex Textil Import Export GmbH ("Hemmers")

Fabric sales for the year at Hemmers, Leeds Group's principal trading company, in Euro terms remained at a similar level to last year €44,182,000 (2016: €44,295,000). Growth was achieved in the retail and garment manufacturing sectors but this was offset by reduced sales in the wholesale sector. In sterling terms, however the revenue increased by 14.6% to £37,544,000 (2016: £32,775,000) as a result of the weakened sterling.

Further investment in warehousing and equipment was made during the year €2,660,000 (£2,260,000). This together with the capital expansion last year has enabled the management to establish the infrastructure required to achieve growth and efficiencies in the forthcoming year. However, with the restructuring and additional cost base this had led to a pre-tax profit in the current year of £1,045,000 (2016: £1,309,000).

The KMR joint venture continues to trade in line with expectations. Sales were 40% higher than the last year and new shops were opened in Berlin, Leipzig and Chemnitz. However, the investment in new shops and the implementation of new business software across all the shops has resulted in a pre tax profit which is lower than last year.

Chinoh-Tex, the Hemmers subsidiary based in Shanghai, achieved external sales revenue of £3,499,000 (2016:

£3,497,000) and pre-tax profit of £47,000 (2016: £267,000) with the reduction in profit due to increased infrastructure and administrative costs. Though small Chinoh-Tex also provides valuable assistance to its European parent in terms of purchasing, quality inspection and bulk shipping of material bought in China.

Dividend

Leeds Group has made further investment in the Nordhorn facility this year. Therefore, as last year, the Directors do not propose a dividend. In the opinion of the Board, this maximises the long-term value of the Group to the benefit of all shareholders.

Employees

On behalf of shareholders, I thank the management and staff of Hemmers, Chinoh-Tex and KMR for their continued hard work and commitment that has produced such a highly satisfactory result.

Outlook

We continue to believe potential growth opportunities exist for Hemmers in both their traditional wholesale business, and the domestic retail business in which we have invested more recently.

At this early point in the current financial year, sales have been broadly in line with the expectations of the Board.

Jan G Holmstrom

Chairman 28 July 2017

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 2017, 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 £41,053,000 (2016: £36,272,000), and pre-tax profit was £1,448,000 (2016:

£1,507,000). Sterling is considerably weaker at 31 May 2017 than last year. The closing rate is 12.05% weaker against the Euro than had been the case a year earlier; its average rate for the year as a whole was also weaker by 12.93%. Thus group revenue is £5,195,000 higher than it would have been had the results of the overseas subsidiaries been translated at last year's average rates.

The parent company has granted a loan denominated in Euros to its subsidiary Hemmers and, as sterling has weakened during the financial year, an unrealised gain has arisen in the Parent Company and the Group accounts of £310,000 (2016: £100,000).

The tax charge in the year was £334,000 including a deferred tax charge of £13,000 relating to temporary differences on financial derivatives. Earnings per share were 4.1p (2016: 3.8p).

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 remained at a similar level to last year €44,182,000 (2016: €44,295,000). Growth was achieved in the retail and garment manufacturing sectors but this was offset by reduced sales in the wholesale sector. In sterling terms, however the revenue increased by 14.6% to £37,544,000 (2016: £32,775,000) as a result of the weakened sterling.

Gross margins reduced slightly to 20.8% (2016: 21.5%). Overhead expenditure in local currency increased by 7.3% as a result of increased infrastructure and administration costs. Pre-tax profit for the year was €1,191,000 (2016: €1,705,000).

In December 2014 Hemmers acquired a 50% interest in Stoff-Ideen-KMR GmbH ("KMR"), a chain of retail fabric and haberdashery stores, at a cost of €500,000. KMR is operated as a joint venture and in May 2015 each of the two joint venture partners subscribed for additional capital of €250,000. During this year an additional investment of €80,000 (£68,000) was made by both joint venture partners bringing the total investment by Hemmers to €830,000 (£723,000). The Group's share of the post-tax income of KMR in the year was £33,000 (2016: £51,000).

During the year Hemmers purchased a warehouse adjacent to the existing warehouse and office facility that it had previously been renting. The previous warehouse extension has now been be completed with all the additional machinery installed in order to increase the double folding capacity to meet the customer requirement to double-fold our fabrics before sale. This will eliminate the need to outsource this work in the forthcoming year.

Largely as a result of this investment programme, the Hemmers bank debt, net of cash, increased in the year to

£6,619,000 (2016: £3,647,000). This bank debt is secured on the assets of Hemmers.

Hemmers has developed a new 3 year plan 2017 - 2020 with focus on growing the business both domestically and internationally with maintained margins.

Strategic Report (continued)

Hemmers China

Chinoh-Tex is a textile trading subsidiary of Hemmers. It is based in Shanghai and has been trading for eight years. It purchases fabric from Chinese suppliers and in 2017 sold to customers in 32 countries. 31% of sales were made to EU countries (2016: 40%) with the reduction caused chiefly by certain European customers being supplied from Hemmers rather than from Chinoh-Tex, who compensated for this by doubling their sales in China.

External sales revenue remained at a similar value £3,499,000 (2016: £3,487,000), a small fall in volumes was offset by translation gains, and gross margin also remained at a similar percentage 18% (2016: 18%). Overhead spending increased to £662,000 (2016: £484,000) due to administrative and infrastructure costs and therefore the pre-tax profit has reduced to £47,000 (2016: £267,000).

Chinoh-Tex also 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 £511,000 (2016:

£622,000).

Holding Company's Costs

Year ended 31 May 2017 £000	Year ended 31 May 2016 £000
Holding company's costs net of interest receivable	(10)	(73)
Exchange gain on Group loan	310	100
Net holding company's income	300	27

The holding company generated net income in the year as follows:

Fixed Assets

Capital additions in the year amounted to £2,280,000 (2016:£4,156,000) and included expenditure of £846,000 in respect of the purchase of a warehouse adjacent to the existing facilities in Nordhorn which had previously been rented. The net book amount of tangible fixed assets in the Consolidated Statement of Financial Position is

£8,452,000 (2016: £5,864,000).

Working Capital

Working capital which comprises inventories, trade and other receivables, and trade and other payables increased in the year by £1,007,000 (2016: £127,000).

Net Asset Value

Net assets £000	Per share pence
At 31 May 2016	15,512	56.7
Profit after tax	1,114	4.1
Purchase of own shares for treasury (cost)	(31)	(0.1)
Translation differences	1,707	6.2
At 31 May 2017	18,302	66.9

Net assets increased in the year by £2,790,000 as follows: