Leeds Group plc
Annual Report 2020

Plain-text annual report

LEEDS GROUP PLC Annual Report andAccounts 2020 Contents SGroup Information and Advisors SStrategic Reports Chairman’s Statement Finance and Operating Review Governance Board of Directors Chairman’s Corporate Government Statement Corporate Governance Report Directors’ Report FFinancial Statements Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Company Statement of Financial Position (prepared under FRS 101 "Reduced Disclosure Framework") Company Statement of Changes in Equity Notes to the Financial Statements of the Company Five Year Summary of Results and Capital Employed Notice of Annual General Meeting 1 2 3 7 8 9 18 22 27 28 29 29 31 59 60 61 64 65 Group Information and Advisers Subsidiary Companies Wholly owned subsidiary companies of Leeds Group plc (‘‘Leeds Group’’ or ‘‘the Group’’): Hemmers-Itex Textil Import Export GmbH ‘‘Hemmers’’ Twentestrasse 1 48527 Nordhorn Germany Leeds Property GmbH ‘‘Leeds Properties’’ Twentestrasse 1 48527 Nordhorn Germany Director during the year Jörg Hemmers Director during the year Jörg Hemmers Principal activity Import, sale & distribution of fabric Principal activity Property investment Wholly owned subsidiary companies of Hemmers: Stoff-Ideen-KMR GmbH ‘‘KMR’’ Twentestrasse 1 48527 Nordhorn Germany Director during the year Jörg Hemmers Principal activity Retail textile trading * Liquidated prior to the year end Group Advisers Chinoh-Tex Ltd* ‘‘Chinoh-Tex’’ F2, Building1, 111 Shennan Road Xinzhuang Industry Area 201108 Shanghai China Director during the year Jörg Hemmers Principal activity Textile trading Solicitors Financial Advisers Auditors Cairn Financial Advisers LLP 62-63 Cheapside London EC2V 6AX BDO LLP 29 Wellington Street Leeds LS1 4DL Walker Morris LLP 33 Wellington Street Leeds LS1 4DL Registrars* Link Asset Services (Holdings Limited) The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Principal Bankers Lloyds Banking Group 1 Lovell Park Road Leeds LS1 1 NS * Calls to the Link shareholder helpline 0871 664 0300 cost 12p per minute plus your phone company's access charge. If you are outside the United Kingdom, please call +44 371 664 0300. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 9.00 am – 5.30 pm, Monday to Friday excluding public holidays in England and Wales. 1 Chairman’s Statement It has been a difficult year for the Group. Trading conditions have been challenging within both the wholesale and retail textile markets due to increased competition and pressure on prices. In addition, the Covid-19 pandemic affected trading for the last three months of the financial year. As previously communicated on 31 March 2020, the Directors have implemented a number of cost cutting measures, identified through a strategic review undertaken last year, to refocus on our core business and ensure that the Group has the appropriate infrastructure and cost base aligned to its sales levels. In last summer’s strategic review of the Chinoh-Tex Ltd (‘Chinoh-Tex’) business, it was concluded that the company was not generating adequate profits and was no longer needed to support our procurement activities in China. Therefore, a decision was taken in October 2019 to cease operations and close the company. Chinoh-Tex ceased trading in November 2019 and the costs of closure have been included in the results for this year. The company was formally liquidated prior to the year end. Both Hemmers-Itex Textil Import Export GmbH (‘Hemmers’) and Stoff-Ideen-KMR GmbH (‘KMR’) businesses were considerably restricted from March 2020 when the German government imposed a country wide lockdown in response to the Covid-19 pandemic. Hemmer’s wholesale business was affected by the imposed lockdown and KMR’s retail shops were closed from mid-March to mid-April 2020. Both businesses suffered significant sales reductions in the final three months of the year, the effect of which could only be partly offset by the mitigating actions taken by management and by government financial aid. Thus, both companies have experienced significant losses in the financial year to 31 May 2020. Even though the Covid-19 situation is still impacting the marketplace, sales levels for Hemmers and KMR in the first few months of the new financial year have been better than expected. However, there is a risk that there may be further local or country wide restrictions which would again affect trading. The impact of Covid-19 on the Group is detailed further in the Finance and Operating Review and Directors’ Report. The Directors are confident that both businesses are better prepared to mitigate this risk and should benefit again from any government financial support. The Directors believe that the Group is now leaner and has a stronger management team with a revised customer focused strategy. The group’s global wholesale business and retail trading in Germany should now be in a better position to return to acceptable levels of profit in future years, provided there is a return to normal trading conditions in the near future. On behalf of shareholders, I want to thank the management and staff of Hemmers and KMR who have all continued with their best efforts to work through difficult and challenging times. Jan G Holmstrom Non-Executive Chairman 21 October 2020 2 Finance and Operating Review 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 2020, 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 gross profit margin operating overheads and central costs • • • profit before tax earnings per share working capital levels Group result Group revenue for the continuing operations in the year was £35,067,000 (2019: £38,905,000). Market conditions for both trading subsidiaries have been challenging and Hemmers has faced intense competition both domestically and internationally. The consequences of the Covid-19 pandemic affected both Hemmers and KMR severely in the last three months of the financial year. Although the German government provided financial support, the reduced sales figures did not produce enough contribution to cover the fixed overheads and therefore both Hemmers and KMR made losses for the year. Thus, the Group’s operating loss from continuing activities was £1,756,000 (2019: loss £1,053,000). With the implementation of IFRS 16 with regard to accounting for leases, the Group has recognised all long-term leases in the financial statements this year as right-of-use assets. The effect of this change in accounting has been that long-term lease payments of £915,000 which would have previously been charged to the profit and loss account have been removed and replaced by an additional depreciation charge of £865,000. There has also been an additional interest charge of £86,000. The net effect of the implementation is a charge of £36,000. The Group loss before tax from continuing activities was therefore £2,016,000 (2019: loss £1,281,000). The result for last year included an impairment charge of £982,000 relating to the goodwill which arose on the acquisition of Hemmers in 1999. The tax charge in the year was £6,000 (2019: £41,000). The total loss per share was 8.6p (2019: 4.7p). Hemmers-Itex Hemmers is a global business engaged in designing, importing, warehousing and wholesaling of fabrics from Germany. Sales for the year were significantly lower than last year at £27,060,000 (2019: £30,939,000). The market in Germany has fallen considerably during the year and Hemmers has also been under increased price pressure from competitors. Sales fell in the last three months of the year due to the effect of the Covid-19 pandemic. A strategic sales review coupled with a comprehensive cost review was undertaken during the financial year to ensure the cost base for Hemmers is aligned to the current market conditions. The gross contribution percentage decreased to 31% (2019: 36%) due to the pressure on pricing through competition and that, together with the lower level of sales volume, has resulted in a fall in gross contribution. Because of the fall in contribution, it was not sufficient to meet the fixed overheads despite continued reduction in staff and wage costs and therefore, the company produced a loss excluding the share of the joint venture of £1,593,000 (2019: profit £239,000). Hemmers is now focused on growing its business domestically and internationally in its wholesale markets with a more customer focused sales strategy. We are confident that Hemmers will be in a much better position to compete in the global marketplace next year to regain lost market share. Hemmers bank debt, net of cash, decreased in the year to £3,184,000 (2019: £4,197,000). This was due mainly to the sale of a warehouse in Nordhorn for £744,000. The bank debt is secured on the assets of Hemmers. 3 Finance and Operating Review (continued) KMR KMR is a retail business trading in Germany. Sales were lower than last year at £8,007,000 (2019: £8,656,000), although within the group accounts only eleven trading months were included last year as KMR became a subsidiary in July 2019, previously it had been included in the accounts as a joint venture. The gross contribution percentage increased slightly to 53% (2019: 50%). However, KMR was affected by the closure of all its retail shops for the last three months of the year from March 2020 due to the effect of the Covid-19 pandemic. This lower level of trading, despite financial support from the German government, has resulted in a loss for the year of £331,000 (2019: loss £554,000). Improved working efficiencies have been implemented during the year including the introduction of new working patterns resulting in reduced cost base. This should eliminate the losses going forward and provide a better foundation for better results in the coming years. KMR bank debt, net of cash, decreased in the year to £979,000 (2019: £1,738,000). This was due mainly to the sale of land in Nürnberg for £552,000. The bank debt is secured on the assets of KMR. Chinoh-Tex Chinoh-Tex, the Chinese subsidiary of Hemmers, was not generating adequate profits despite actions taken to reduce costs and, therefore, a decision was taken during the year to close the company. The costs of closure have been included in the loss of £332,000 for the year (2019: profit £31,000). The company was formally liquidated prior to the year end. Fixed Assets The net book amount of tangible fixed assets in the Consolidated Statement of Financial Position is £8,183,000 (2019: £8,534,000). In accordance with the newly introduced IFRS 16 with regard to accounting for leases, right-of-use assets with a net book value of £3,067,000 have been introduced in the accounts as fixed assets this year in addition to finance leases of £29,000 already reflected in the financial statements in previous years. Capital additions in the year amounted to £560,000 (2019: £550,000) and additional right-of-use leases of £258,000 included in the accounts. Two properties, included in the financial statements partly as fixed assets and partly as investment properties, were sold during this year for sales proceeds of £1,296,000. These were included in the total sales proceeds of £1,317,000 from the sale of assets realising a profit of £32,000. Working Capital and Cash Flow Net cash generated in the year was £34,000 (2019: £497,000), despite the loss produced in the year of £2,354,000. Although the loss includes a depreciation and amortisation charge of £1,618,000. During the year, cash has been generated from the sale of assets amounting to £1,317,000 with capital expenditure of £560,000. Working capital, which comprises inventories, trade and other receivables and trade and other payables, decreased in the year by £2,738,000 (2019: £1,031,000). Stock and debtor levels were lower at 31 May 2019 due to the reduced trading in March to May as a result of the effects of the Covid-19 pandemic on trading. Loan repayments of £2,378,000 have been made this year to reduce the total Group borrowing and lease liability repayments of £926,000 have been 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 £2,158,000 as follows: At 31 May 2019 (Loss) after tax (including discontinued operations) Translation differences At 31 May 2020 4 Net assets £000 17,741 (2,354) 196 15,583 Per share pence 64.9 (8.6) 0.7 57.0 Finance and Operating Review (continued) 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 at fixed interest rates between 1.05% and 4.07%. Working capital finance, when required, is via short term loans of three months currently attracting interest at rates of between 1.25% and 3%. 196Bank debt in the subsidiaries is secured by charges on inventories, receivables and property and is without recourse to the Parent Company. Impairment reviews In accordance with IAS 36, annual impairment reviews are carried out for each cash-generating unit to which goodwill is allocated. An impairment loss of £982,000 was recognised in the last financial period in respect of the goodwill which arose on the acquisition of Hemmers in 1999. Following the implementation of IFRS16, the right-of-use assets are now considered part of the cash generating units. Although annual impairment reviews are not required on tangible assets, management have performed an impairment review on these assets due to historic trading losses and the effects of the Covid-19 pandemic. Impairment tests have been performed by assessing relevant cash flows of each cash generating unit and assessing this against the value of assets relating to that specific cash generating unit. Following this review, no impairment charge has been recognised during this financial year. 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. 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 for example introducing home furnishing products. 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. Covid-19 During the year, the global Covid-19 situation which resulted in lockdowns across the world, has affected both businesses. This affected the last three months of the year, March to May. KMR whose main business is retail shops was required to close all its shops from mid-March to mid-April. The financial impact on all businesses was partly mitigated by financial support from the German government. Financial support was provided to cover the wages of staff unable to work due to the country wide lockdown. There is a risk that if infections of Covid-19 are not controlled that a further country wide or local lockdown will be required. It is expected that in this event, Government support would again be provided, and the management have looked at further measures to mitigate the risk having experienced the first wave of the pandemic. 5 Finance and Operating Review (continued) Principal risks and uncertainties (continued) Brexit Following the UK’s decision to leave the European Union (“EU”) by 31 December 2020, the economic environment is still uncertain. This uncertainty continues as the UK looks to secure an acceptable deal to leave the EU. The threat of no deal creates more uncertainty. However, the business of Leeds Group is conducted entirely by subsidiaries incorporated in Germany, and their exports to the UK account for approximately 3% only 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 has a loan denominated in euros which does 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 and the Directors consider this provides a natural hedge. The currency markets dislike the current air of uncertainty surrounding the current negotiations with regard to the UK leaving the EU and sterling has weakened since the UK announced it was leaving the EU. 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 accounts with translation gains in the Statement of Financial Position of £196,000 (2019: £55,000). Section 172 Report Leeds Group is committed to acting ethically and with integrity throughout all its business dealings and relationships. It is important to the company and its subsidiaries that trusted business relationships are established and maintained with key stakeholders, customers and suppliers and that it invests in and supports all its employees equally. The Directors have always acted in accordance with their lawful duties, which includes their duty to act in good faith to promote the success of the Group for the benefits of its shareholders, having regard to its stakeholders and matters set out in Section 172 (1) of the Companies Act 2006. Section 172 considerations are embedded throughout the decision making of the Board. Issues, factors and risks which the Directors have considered when discharging their duty under section 172 (1) are further detailed in the Chairman’s Statement, Directors’ Report and Corporate Governance Report contained within these report and accounts. During the year, as detailed in the Chairman’s Statement, the Directors took the decision to close Chinoh-Tex after consultation with the employees affected and the closure was overseen by Jörg Hemmers, one of the Directors. He also ensured the completion of the two property sales transacted in the year. The sale of the warehouse in Nordhorn was agreed as Hemmers no longer required the warehouse space and external rentals could not be secured, therefore the decision was taken to sell as it would also release cash to pay down the group debt. As part of the acquisition of KMR in 2019, it had been agreed to sell the land at Nurnberg, adjacent to one of the KMR shops as it was a development opportunity as part of the acquisition of the company. The Directors are now looking to focus on developing the Hemmers and KMR businesses. The two major shareholders are represented as non-executive members on the Board. The Board recognises the importance of effective and transparent dialogue with shareholders and ensuring that non-management shareholders understand and support the Group’s strategy and objectives. The Board meet quarterly on as formal basis, and ad hoc, as necessary, throughout the year. The Board is more than happy to engage with shareholders at any time and answer questions they may have. The AGM is a formal meeting at which to have this dialogue. The Board looks to ensure the systems, processes and controls established to manage its businesses to the highest standards. The supply chain is an integral part of trading business and it is of paramount importance that best practice in terms of anti-bribery and modern slavery are adhered to. All employees have therefore completed training to ensure this is in place. The Board receives updates from the management team at Hemmers as to the relationships with key customers and suppliers. Hemmers management regularly engage in dialogue with key suppliers and customers. All operational staff are based in Germany, based either at Nordhorn or work within one of the KMR retail shops. Regular dialogue is maintained with all staff and meetings are held regularly to ensure staff understand the strategy and positions of the businesses. Staff are encouraged to discuss any concerns or issues they may have with their line manager or Hemmers management are always available to meet staff if necessary. Jan G Holmstrom Chairman 21 October 2020 6 Board of Directors Jan G Holmstrom (Non-Executive Chairman) (Age 67) Jan has worked in the financial services sector during his entire career and has a wealth of experience working internationally e.g. in the UK, Hong Kong and Sweden. Jan is Non-Executive Chairman of Johnson and Starley Limited, Combat Heating Solutions Limited, Dravo Limited and a Non-Executive Director of International Fibres Group (Holdings) Limited, UIM Property Limited and Browallia Holdings Limited. Jan joined the Board of Leeds Group in November 2011 and was appointed Chairman in October 2014. Jörg Hemmers (Executive Director) (Age 53) Jörg has worked his whole life in the wholesale and retail textile business. He was one of the first in the trade to realise the potential of sourcing products from China. Leeds Group acquired the Hemmers wholesale operation in 1999 and appointed Jörg as Managing Director. Amongst his achievements is the successful integration in 2003 of Leeds Group’s Itex business, based in Holland, to create Hemmers-Itex Textil Import Export GmbH. Jörg joined the Board of Leeds Group in March 2015. Johan Claesson (Non-Executive Director) (Age 69) Johan has been a major shareholder in Leeds Group since 1999, and has extensive business interests, both private and in the public arena. Johan is CEO of Catella AB, a public listed company and Chairman of Claesson & Anderzén, a private property company. Johan is also a Non-Executive Director of K3 Business Technology Group plc (specialising in business software). Johan joined the Board of Leeds Group in September 2004. David Cooper (Independent Non-Executive Director) (Age 62) David is a chartered accountant and member of the Institute of Chartered Accountants of Scotland. Previously David was Group Finance Director and Company Secretary of AIM-listed Dawson International PLC, gaining over 25 years’ experience in the global textiles industry. He is now Finance Manager and Company Secretary of Xelect Limited which supplies genetic consultancy services to the aquaculture sector. David joined the Board of Leeds Group in October 2014. David remains an independent director as he has no business relationship with any other directors or shareholders in Leeds Group. 7 Chairman’s Corporate Governance Statement As Chairman of the Board my role is to develop the strategy for the Company together with the Board of Directors, monitor the ongoing performance of the companies within the Group to ensure that they are meeting our requirements and identify potential acquisitions targets. In addition, my role also encompasses overseeing the functioning of the Board and its effectiveness, also to ensure sound corporate governance practices are followed. All the Directors believe strongly in the importance of good corporate governance for the creation of shareholder value over the medium to long term and to engender trust and support amongst the Group’s wider stakeholders. In accordance with the changes to AIM Rule 26 the Company is now applying the revised Quoted Companies Alliance (‘QCA’) Corporate Governance Code (‘QCA Code’) published in April 2018. I work with key executives throughout the organisation to instil good corporate governance practices in accordance with the QCA Code. The Board monitors our corporate governance practices and will always implement improvements which further enhance performance and/or benefit stakeholders. Jan G Holmstrom Non-Executive Chairman 21 October 2020 8 Corporate Governance Report The Board recognises its responsibility for the proper management of the Company and is committed to maintaining a high standard of corporate governance which is appropriate to the size of the Company and the interests of its shareholders. The Board considers it appropriate to adopt the principles of the Corporate Governance Code for Small and Medium Sized Companies issued by the Quoted Companies Alliance (“the QCA Code”) published in April 2018. Below we set out the extent of compliance with the ten principles of the QCA Code. Where there are any areas of non-compliance, the steps taken or intended to take to move to full compliance are explained: Extent of compliance Fully compliant 1 Principle Establish a strategy and business model which promotes long-term value for shareholders Fully compliant 2 Seek to understand and meet shareholder needs and expectations Application The Company’s strategy is shaped by the executive Board and is set out in the Annual Report and on the ‘About Leeds Group PLC’ website page. The company’s shares are traded on the AIM market of the London Stock Exchange. The Group is a textiles business which designs, sources, and sells fabric. It sources mainly from the Far East and sells mainly to the European market into three channels: Retail, Wholesale and Garment Manufacturing. To service these markets, the Group has invested significantly in recent years in warehousing and distribution facilities and into double folding plant and machinery to provide a complete, rapid response, in-house service. The Board believes that these investments promote long term value for shareholders. The strategic reports as presented by the Directors in the Annual Report, further explains the Company’s business model and strategy. The reports also include the key performance indicators used by the Board to monitor business performance and the risks and uncertainties facing the business and how these are addressed. The Board is committed to communicating openly with shareholders to ensure that its strategy and performance are clearly understood. The Board communicates with shareholders through the Annual Report and the Interim Statement, trading and other announcement made on RNS and at the Annual General Meeting (‘AGM’) where the Board encourages investors to participate. The Company also maintains a website https://www.leedsgroup.plc.uk which contains information on the Group’s business, corporate information and specific disclosures required under AIM Rules and the QCA Code. In this way the Directors have developed a good understanding of the needs and expectations of all elements of the Company’s shareholder base. There have been no significant votes against resolutions at previous AGMs. As the companies within the Group expand, we continually review the risks and uncertainties facing the Group to ensure we identify any new key risks and how we implement appropriate action to manage these risks. 9 Corporate Governance Report (continued) 3 4 Take into account wider stakeholder and social responsibilities and their implications for long-term success Embed effective risk management, considering both opportunities and threats, throughout the organisation Fully compliant The Board recognises its responsibility under UK law to promote the success of the Group for the benefit of its stakeholders and understands that the business has a responsibility towards its stakeholders including shareholders, employees, customers, suppliers, regulators and to the local community. The Board sets standards across the Group and monitors these at regular Board meetings. The Board is very conscious that the tone and culture it sets impacts all aspects of the Group and the way employees behave and operate. The Board encourages open dialogue and commitment to providing the best service possible to the Group’s customers and considerate interactions with suppliers. The Company monitors feedback from all its stakeholders as reported by the Group companies and the Board uses this to develop future policy. Being a participant in the textile industry, the Board is keenly aware of environmental and labour considerations and is actively working to ensure that it is at the forefront of meeting the standard expected over the coming years. Fully compliant The Board has an active program of working with all the Group companies to assist with achieving goals and to discuss and resolve any issues that arise. The Board is responsible for the Group’s system of internal controls and for reviewing its effectiveness. The system is designed to manage, rather than eliminate, the risk of failure to achieve the Group’s strategic objectives and can only provide reasonable but not absolute assurance against material misstatement or loss. The Board monitors financial controls through the setting and approval of annual budgets throughout the Group and the regular review of monthly management accounts which are produced within three weeks of the month end. Each Group company has defined authorisation levels for expenditure, the placing of orders and signing authorities. The daily cash movements of the Group companies are reconciled and monitored by their finance departments. The Group’s cash flow is monitored by the Board. Each year on behalf of the Board, the Company Secretary attends audit review meetings at which the auditors present their findings including a comprehensive review of risks/potential risks which cover both financial and non-financial issues potentially affecting a Group company. Group Board meetings are held in Germany at least twice a year which include a meeting with the Hemmers senior management team. 10 Corporate Governance Report (continued) 5 Maintain the Board as a well- functioning, balanced team led by the chair Fully compliant The purpose of the Board is to ensure that the business is managed for the long- term benefit of all shareholders, whilst at the same time having regard for all stakeholders. The Board has a formal schedule of matters reserved for its decisions as set out in Principle 10 below. There are at least four full Board meetings spread across each year which tie in as far as possible with the Group’s financial reporting calendar. At least two meetings will be based at Hemmers. Additional meetings are held as required. The full Board is responsible and accountable to the shareholders for the management and success of the Group and to provide effective controls to assess and manage risks in the Company. The Board currently comprises the Non-Executive Chairman, two other Non- Executive Directors, one of whom is an independent non-executive director and one executive director who is managing director of the main operating business, Hemmers. The Non-Executive Directors are considered to be independent of the management. However, the Non-Executive Chairman and one other Non- Executive Director are representatives of significant shareholders and so do not meet the definition of Independent Non-Executive Director. Each is aware of his statutory responsibilities to act in the interests of all shareholders and they consider their interests to be aligned to promote the long- term success of the company. Thus, the Board only has one Independent Non-Executive Director rather than two as recommended by the QCA code. The Directors believe that the current Board structure has the necessary range of skills, objectivity and diversity to manage what is a simple structure business and that to increase the number of Independent Non-Executive Directors would add cost rather than benefit. The Board continually keeps this position under review and has identified triggers that it believes would lead to additional appointments. These include proposed diversification into new business areas; a significant acquisition; significant organic growth into new territories. The Board has established procedures to identify and monitor potential or actual conflicts of interest. The Board is supported by the Audit, Remuneration and Nominations Committees, each of which has access to information, resources and advice that it deems necessary, at the Company’s cost, to enable the committee to discharge its duties. The Committees’ Terms on Reference are posted on the AIM rule 26 page of Company’s website. 11 Corporate Governance Report (continued) 5 Maintain the Board as a well- functioning, balanced team led by the chair The Remuneration Committee comprises the Non-Executive Directors and is chaired by the Chairman. The Remuneration Committee reviews and if appropriate sanctions remuneration proposals made by the executive Directors. No director is permitted to participate in discussions or decisions concerning his own remuneration. The Remuneration Committee meets as and when necessary. The Nominations Committee comprises all members of the Board and is chaired by the Chairman. The Nomination Committee reviews and, if appropriate, approves recommendations for the appointment of additional Directors or replacement of current Directors and for succession planning for the Company. The Board and its Committees receive appropriate and timely information and minutes are kept of all relevant committee meeting matters. Any director can challenge proposals with decisions being taken after discussion. Any director can ask for a concern to be formally noted. Specific actions arising from meetings are agreed by the Board or relevant committee and then followed up by management. Directors have access to advice or services needed to enable them to carry out their roles and duties. In 2019/20 all Directors attended the two Board meetings and six telephone meetings. In 2019/20 all non-executive Directors attended the two audit committee meetings and the one remuneration committee meeting. All Directors are subject to reappointment by shareholders at the first Annual General Meeting following their appointment and thereafter by rotation. The Directors spend such time as is necessary to ensure that their roles and duties are carried out effectively. 12 Corporate Governance Report (continued) 6 Ensure that between them the Directors have the necessary up- to-date experience, skills and capabilities Fully compliant The skills and experience of the Board are set out in their biographical details included within the Directors’ Report of the Company’s Annual Report. The experience and knowledge of each of the Directors gives them the ability to constructively challenge strategy and to scrutinise performance. The Board comprises Directors with a range of different skills including business and financial experience, IT experience and corporate finance experience. All the Directors have considerable experience within the textile and leather industry and therefore are well placed to offer challenge to the Executive Director and Senior management of the textile trading companies. In addition, the Company’s Non-Executive Directors have held senior executive positions for a number of years in UK plc companies and therefore are fully aware of their corporate responsibilities and the need to ensure compliance with the AIM regulatory requirements. The Directors of the Company and their responsibilities on the Board are: Role of the Non-Executive Chairman – Jan Holmstrom: The Non-Executive Chairman has overall responsibility for corporate governance and in promoting high standards throughout the Company. As well as leading and chairing the Board, the Non-Executive Chairman’s responsibilities are: • Committees are properly structured and operate with appropriate terms of reference; • The Company has a coherent strategy and sets objectives against this; and • There is effective communication between the Company and its shareholders. Jan Holmstrom has held a number of positions as Chairman of private and plc companies and has considerable textile and corporate finance experience. Role of the Group Finance Manager and Company Secretary – Dawn Henderson: The roles of Group Finance Manager and Company Secretary are combined. The Board acknowledges the QCA guidelines on this matter and consider the joint roles appropriate for the Company’s size. The Group Finance Manager is responsible for providing financial oversight of the Group, preparing the accounts, monitoring the performance of the Group companies and reporting on financial matters to the Board. Providing financial input on acquisitions. The Company Secretary is responsible for providing clear and timely information flow to the Board and its Committees and supports the Board on matters of corporate governance and risk. The Company Secretary has direct access to the Chairman on matters of Corporate Governance. Dawn Henderson is a qualified Chartered Accountant who qualified with KPMG in 1988. She has held various Finance Director and Company Secretary roles both within the private and plc environment. 13 Corporate Governance Report (continued) 6 Ensure that between them the Directors have the necessary up- to-date experience, skills and capabilities Fully compliant Role of the Independent Non-Executive Director – David Cooper: The role of the Independent Non-Executive Director is to contribute independent thinking and judgement through the application of their external experience and knowledge, scrutinise the performance of the Executive Director, provide constructive challenge and ensure that the Company is operating within the governance and risk framework approved by the Board. David Cooper is a qualified Chartered Accountant with considerable corporate and accounting experience and has also worked in the textile industry for many years. Role of the Non-Executive Director – Johan Claesson: The role of the Non-Executive Director is to scrutinise the performance of the Executive Director, provide constructive challenge and ensure that the Company is operating within the governance and risk framework approved by the Board. Johan Claesson has held a number of positions as Non-Executive Director of private and plc companies and has also worked in the textile industry for many years. He also has considerable experience in the IT and property. Each director is responsible for maintaining the level of skill set required by the role and this is achieved by continuing professional education, technical updates from professional bodies and advisors and an active role assisting the existing Group companies. Whenever required the Directors seek legal, regulatory and audit advice from external advisors. The Board is well placed to implement the Company’s strategy 7 8 Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement Promote a corporate culture that is based on ethical values and behaviours. Partially compliant There is no formal performance evaluation process in place currently. The Directors will consider what performance evaluation framework is required for the Group. Responsibility for succession planning lies with the Nomination Committee. The Committee is satisfied that the Board has the skills it presently requires. The Board has considered the critical functions within each of the businesses to ensure adequate cover exists for each position which would enable contingency and succession to be managed in an appropriate timescale. Fully compliant The Board recognises that its decisions will impact the corporate culture of the Group as a whole and that this will affect the performance of the business. The Board is also very conscious that the tone and culture that it sets will greatly impact all aspects of the Group and the way employees behave and operate. The importance of sound ethical values and behaviours is crucial to the ability of the Group to successfully achieve its corporate objectives. Senior management regularly visit group companies and employees are invited to other group company offices. The Board has regular interaction with Group company employees and monitors corporate culture in this way. Additionally, it ensures its sound ethical practices and behaviours are deployed at Group company meetings. 14 Corporate Governance Report (continued) 9 Maintain Governance structures and processes that are fit for purpose and support good decision making by the Board 10 Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders Fully compliant The roles and responsibilities of each Director are set out in the response to Principle 6. The terms of reference of the Board committees are set out in response to Principle 5. There are a wide range of matters reserved for the Board. These include strategy, finance, corporate governance, approval of significant capital expenditure, appointment of key personnel and compliance with legal and regulatory requirements. The Company’s governance framework is reviewed to maintain the highest levels of business performance. Fully compliant The Board recognises that meaningful engagement with its shareholders is integral to the continued success of the Group. The Board are kept informed of the views of the shareholders through reports from the Independent Non- Executive Director and Company Secretary. The Board believes that the Annual Report, and the Interim Report published at the half-year, play an important part in presenting all shareholders with an assessment of the Group’s position and prospects. All reports and press releases are published on the Group’s website. The Annual General Meeting is the principal opportunity for private shareholders to meet and discuss the Group’s business with the Directors. There is an open question and answer session during which shareholders may ask questions both about the resolutions being proposed and the business in general. The Directors are also available after the meeting for an informal discussion with shareholders. The Committees of the Board have not published committee reports. They will consider whether to do so in the future. The Board is supported by the Audit and Remuneration Committees, each of which has access to information, resources and advice that it deems necessary, at the company’s cost, to enable the Committee to discharge its duties. These duties are set out in the Terms of Reference which are available on the website. The Audit Committee The Audit Committee has met with the external auditors during the year to monitor progress and discuss any issues arising. The Remuneration Committee The Remuneration Committee reviews and determines on behalf of the Board and shareholders of the Company the pay, benefits and other terms of service of the executive Directors of the Company and the broad pay strategy with respect to senior Company employees. Remuneration Policy The objective of the Company’s remuneration policy is to develop remuneration packages which motivate Directors and support the business objectives in the short, medium and long term; to align the interests of executive Directors with the interests of long term shareholders; encourage executives to operate within the risk parameters set by the Board and ensure that the company can recruit and retain high quality executives through packages which are fair and attractive but not excessive. 15 Corporate Governance Report (continued) 10 Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders Matters reserved for the Board 1. Management structure and appointments • Senior management responsibilities • Board and other senior management appointments or removals • Board and senior management succession, training, development and appraisal • Appointment or removal of Company Secretary • Appointment or removal of internal auditor • Remuneration, contracts, grants of options and incentive arrangements for senior management • Delegation of the board’s powers • Agreeing membership and terms of reference of board committees and task forces • Establishment of managerial authority limits for smaller transactions • Matters referred to the board by the board committees 2. Strategic/Policy considerations Business strategy • • Diversification/retrenchment policy • Specific risk management policies including insurance, hedging, borrowing limits and corporate security • Agreement of codes of ethics and business practices • • Annual assessment of significant risks and effectiveness of internal Receipt and review of regular reports on internal controls controls Calling of shareholders’ meetings • • Avoidance of wrongful or fraudulent trading 3. Transactions • Acquisitions and disposals of subsidiaries or other assets over, say • • 5% of net assets/profits Investment and other capital projects over a similar level Substantial commitments including: i. Pension funding ii. Contracts in excess of one year’s duration iii. Giving securities over significant Company assets (including mortgages and charges over the Company’s property) Contracts not in the ordinary course of business • • Actions or transactions where there may be doubt over property • Approval of certain announcements, prospectuses, circulars and similar documents • Disclosure of Directors’ interests • Transactions with Directors or other related parties 16 Corporate Governance Report (continued) Matters reserved for the Board (continued) 4. Finance • • Raising new capital and confirmation of major financing facilities Treasury policies including foreign currency and interest rate exposure • Discussion of any proposed qualification to the accounts • Final approval of annual and interim reports and accounts and accounting policies • Appointment/proposal of auditors • Charitable and political donations • Approval and recommendation of dividends • Approval before each year starts of operating budgets for the year and periodic review during the year 5. General • Governance of company pension schemes and appointment of company nominees as trustee • Allotment, calls or forfeiture of shares Notices of all general meetings are contained within the Annual Accounts. These are included on the Company’s website in the Documents and Notifications section. There have been no significant votes against any resolution proposed at a general meeting in the past 5 years. Significant means more than 20% of those who voted, voting against a resolution. 10 Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders Jan G Holmstrom Non-Executive Chairman 21 October 2020 17 Directors’ Report The Directors present their annual report and the audited financial statements for the year ended 31 May 2020. Principal activities Leeds Group plc has been established for more than a century and is incorporated in England and Wales under Company Number 67863. Its principal country of operation is Germany. For most of its history, the Group has been mainly engaged in textile processing, specialising in fabric printing and yarn dyeing, and by 1996 had manufacturing operations in UK, Holland and Italy. In recent years, the European textile manufacturing industry has contracted, with an ever-increasing proportion of European textile consumption being sourced from the low wage economies of the Far East. In response, Leeds Group has ceased all manufacturing activities and is today totally focused on the import and sale throughout the world of fabric imported chiefly from the Far East. Leeds Group’s trading operations are conducted by Hemmers. Hemmers is based in Nordhorn, Germany and has a German subsidiary, KMR based in Nordhorn. The Chinese subsidiary, Chinoh-Tex based in Shanghai was liquidated during the year. Results and dividend The Consolidated statement of comprehensive income for the year is set out on page 27. Given the results of the financial year, the Directors do not recommend the payment of a dividend in 2020 (2019: £nil). Directors and Directors’ interests The Directors who held office during the year were Mr Johan Claesson, Mr David Cooper, Mr Jörg Hemmers and Mr Jan Holmstrom and their remuneration for the year is set out in note 6 to the financial statements. The Directors retiring by rotation are Johan Claesson and Jan Holmstrom who, being eligible, offer themselves for re- appointment at the forthcoming Annual General Meeting. The Directors who held office at the end of the year had the following interests in the ordinary share capital of the Company: Number of shares Interest at end of year Beneficial Non-beneficial Interest at beginning of year Beneficial Non-beneficial 7,978,050 - - - - - - - 7,978,050 - - - - - - - Johan Claesson David Cooper Jörg Hemmers Jan Holmstrom There are no outstanding share options granted to Directors or employees of the Company. No changes in Directors’ share interests or share options have taken place between the end of the year and 21 October 2020. Substantial shareholdings The following shareholders held interests of 3% or more of the issued share capital of the Company as at 21 October 2020: % of issued share capital % of issued share capital excluding shares held in treasury Mr Johan Claesson and associates Mr Peter Gyllenhammar and associates Sunningdale Investments Ltd 29.20 24.64 10.31 25.25 21.31 8.91 18 Directors’ Report (continued) Directors’ and officers’ liability insurance The Group maintains Directors’ and officers’ liability insurance that gives appropriate cover for any legal actions brought against its Directors or senior managers. This policy remained in force on the date on which the financial statements of the Group were approved by the Board. Political and charitable contributions The Group made no political contributions, nor any donations to UK charities in the years ended 31 May 2020 and 31 May 2019. Leeds Group plc Ordinary shares of 12 pence each The market value of Leeds Group shares between 1 June 2019 and 31 May 2020 ranged between 7.5p and 21.5p. The average market value for the year was 16.7p, and at 31 May 2020 the market value was 10p (31 May 2019: 21p). Employees The Directors acknowledge that the employees of the Group are key to the success of the business. Employment policies are in place to ensure there is adequate training and development plans in place for all employees aligned to personal appraisal schemes. The Directors encourage management feedback at all levels and seek to ensure employees are informed on all matters affecting them through regular management and departmental meetings. It is the Group’s policy to give fair and full consideration to all applications for employment having regard to their aptitudes and abilities including disabled employees. Should an employee become disabled, the Group would, where practicable, seek to continue and arrange appropriate training. Emissions Quoted companies of any size are required to report under the Streamlined Energy and Carbon reporting unless exemptions apply. If a UK Group and its UK subsidiaries do not consume more than 40,000 kWh of energy in a reporting period, the Group is deemed to be a low energy user and is exempt from reporting. The group has not consumed more than 40,000 kWh during the year to 31st May 2020 and is, therefore, exempt from reporting. Financial risk management policies The Group’s activities are exposed to a variety of financial risks which are set out in note 4 to the consolidated financial statements. Future developments The Group is focused on developing and improving the Hemmers and KMR businesses, bringing economies of scale within the two companies. 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 impact of the Covid-19 pandemic on the business, its suppliers and its customers. • The financing facilities available to the Group and the circumstances in which these could be limited or withdrawn. Financial performance and forecasts Having been consistently profitable the Group has been loss making in each of the last two years. • • In the year to 31 May 2019, the Group reported a pre-tax loss from continuing operations of £1.3m after writing off goodwill of £1.0m. In the year to 31 May 2020, the Group reported a pre-tax loss from continuing operations of £2.0m. Approximately £1.0m of this loss arose in the final quarter which was significantly impacted by the Covid- 19 restrictions discussed below. To address the poor underlying performance the Directors and management restructured the business in the first half of the year to focus on profitable business streams and reduce its operating costs. Restructuring costs of £0.4m were incurred in the financial year which will benefit results going forward. Although loss making, the business was cash generative in the year with net debt reducing by £2.4m, of which £1.3m resulted from the sale of investment properties. 19 Directors’ Report (continued) Going Concern (continued) Forecasts have been prepared for the 24-month period to 31 May 2022 which indicate a return to modest profit over that period. These forecasts have been prepared in the knowledge of current Covid-19 conditions and assume that there is no protracted period of total lockdown. At the end of the first quarter of the current financial year sales and profit were ahead of forecast. The company has sensitised these forecasts for a reduction in revenues of 10% at both Hemmers and KMR in the forecast period and an additional net €1 million profit reduction from a second period of lockdown. The Directors are of the opinion that this is a reasonable worst case, and the currently available facilities would be sufficient in this scenario. Covid-19 Impact Both Hemmers and KMR are located in Germany which has responded well to the outbreak. KMR was most directly impacted by the measures put in place with all stores closed from the mid-March to the mid-April. Since reopening, the stores have performed ahead of both last year and forecast. Hemmers saw significantly reduced demand during March and April but like KMR, has traded strongly in the first quarter of the current year, ahead of last year and forecast. Both businesses have been supported by the government employment scheme which reimburses the company for payments to employees for any short time working. This scheme remains available through the forecast period. In addition, KMR has negotiated rent reductions for its shops in the current financial year which are reflected in the forecasts. There has been no significant impact on our suppliers, most of whom are based in China and Turkey. There has been no significant impact on our customers. While there is clearly uncertainty about the future course of the pandemic, the Directors consider that with ongoing government support it is well placed to trade through reasonably foreseeable scenarios. Financing facilities The operating businesses of the group are Hemmers and KMR, both located in Germany. The Parent Company, which has no borrowing facilities, is located in the UK. Hemmers has four sources of funding: a) Term loans which have funded property purchases. These are repayable in instalments over the term as detailed in note 23. They are secured over the associated properties and that security could be called in the event that the business defaulted on repayment. b) 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 2019/20 this resulted in average availability of €8.8m with a range of €8.0m to €9.0m and minimum headroom of €4.7m in the year. In the forecast period to 31 May 2022, the estimated availability range is €7.3m to €9.0m and the minimum headroom €3.9m. The only covenant on this facility is an equity ratio which must exceed 30% of gross assets at the financial year end. At 31 May 2020 the ratio was higher than 61%. The facility is uncommitted, but the bank is obliged to give reasonable notice of any change. c) An additional working capital facility of €0.5m. d) A €3m Parent Company loan which is currently subordinated to the working capital facility. KMR has a fixed working capital facility of €1.5m which was fully drawn at the year end. The covenants on this facility are (i) an equity ratio which must exceed 35% of gross assets at the financial year end and (ii) the ratio of working capital/bank facility should be a minimum 1.5x. At 31 May 2020 these ratios were 39.5% and 1.58. The facility is uncommitted, but the bank is obliged to give reasonable notice of any change. Considering the progress made to restructure the Group, the trading results in the first quarter of the current financial year, the likely ongoing impact of the Covid-19 pandemic and the headroom available on the Hemmers working capital facility, the Directors are of the opinion that it is appropriate to apply the going concern basis of preparation to the financial statements. 20 Directors’ Report (continued) Directors’ responsibilities The Directors are responsible for preparing the annual report and the Group and Parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that year. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • • state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company, and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The Directors are responsible for ensuring that the annual report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein. Auditors All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Group’s auditors for the purposes of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware. In accordance with Section 489 of the Companies Act 2006, Resolution 4 is to be proposed at the forthcoming Annual General Meeting for the re-appointment of BDO LLP as auditors of the Company, to hold office from the conclusion of the meeting until the conclusion of the next annual general meeting of the Company at which the accounts are laid. By Order of the Board Dawn Henderson Company Secretary 21 October 2020 Craven House 14 – 18 York Road Wetherby Leeds, LS22 6SL 21 Independent Auditor’s Report to the Shareholders of Leeds Group plc Opinion We have audited the financial statements of Leeds Group plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 May 2020 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Cash Flow Statement, Consolidated Statement of Changes in Equity, Company Statement of Financial Position, Company Statement of Changes in Equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). In our opinion: • • • • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 May 2020 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s or the Parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 22 Independent Auditor’s Report to the Shareholders of Leeds Group plc (continued) Key audit matters (continued) Key audit matter How our audit addressed the key audit matter Carrying amount of inventories As detailed in note 19 of the consolidated financial statements, the Group has £10.2m (2019: £11.8m) of inventories at the year end. Given the nature of the business, these inventories include items which may be held in stock for a significant period before being sold. This creates a risk that certain items of inventory may not sell at prices above cost. As detailed in note 3 of the Group financial statements, management therefore make an assessment of the estimated provision required to write down inventory to net realisable value. For both trading subsidiaries, management calculates an inventory provision in respect of slow moving items. They identify these items based on stock turnover seen in the current year, and apply provisioning rates, based on turnover rates. Given the significant value of inventories on the Group statement of financial position, and the estimation in valuation, we identified this as a key audit matter. Going concern In the latter stages of the financial year, the Covid-19 pandemic had a significant impact throughout Europe, including Germany, the location of the primary trading entities of the Group. As a result of local government action, the operations of both trading subsidiaries were temporarily closed and the Group’s trading subsidiaries took advantage of the available local government assistance schemes. Management (including the Directors and Audit Committee) have invested significant time to consider the potential implications of the ongoing pandemic on the Group’s going concern assessment. We reviewed the mechanics of management’s provisioning calculation and confirmed that the calculation remained consistent with the previous year and in accordance with the requirements of the applicable accounting standards. Based on our knowledge of the business and discussions with management we considered whether there were any changes to the nature of the business or potential impacts of Covid-19 that would render the provisioning policies no longer appropriate. We tested the integrity of management’s provision calculations by agreeing the stock turnover categorisation for each item on a sample basis to sales data in the year, and reperforming the provisioning calculation by turnover band to ensure this was accurate. To gain assurance over the reasonableness of provisioning rates used by management, we performed a retrospective review of prior year inventory items sold at below cost to confirm that the methodology adopted yielded an adequate provision. For a sample of stock items, we reviewed the post year-end sales prices achieved to assess the net realisable value of the inventory and the adequacy of the provisions estimated by management. Key observations: Based on the procedures performed we found management’s inventory provision assumptions and applications thereof to be appropriate. We have obtained and reviewed management’s forecasts for the period to 31 March 2022. Our specific procedures included the following: We checked the outcome of covenant tests during the year and assessed whether it is still appropriate to classify amounts due to the bank as non-current liabilities. We further considered the Group’s ability to meet its loan covenants over the forecast period under management’s base case and downside sensitivities. We challenged management’s assumptions used in the forecast period by considering available evidence, including the ability to grow revenue, improve gross profit margin and manage costs within the Group. 23 Independent Auditor’s Report to the Shareholders of Leeds Group plc (continued) Key audit matter How our audit addressed the key audit matter Going concern (continued) Given the fundamental nature of the going concern assumption to the financial statements, and the level of judgement required on the part of the directors, we considered this to be a key audit matter. We considered the reasonableness of these assumptions in the context of the trading performance of the Group in the period between the statement of financial position date and the approval of the financial statements. We considered the latest position in relation to banking arrangements, the maturity profile of the debt, and forecast covenant compliance and considered the reasonableness of management’s assumptions of ongoing access to financing facilities. We discussed with management the impact of the Covid-19 pandemic on the Group, specifically in relation to the ability to generate the expected future revenues as set out in their forecasts, and mitigating actions that could be taken. We reviewed the disclosures made both in the front-end statements of the Annual Report and in note 2 to the financial statements. We assessed whether these adequately and completely disclose the basis of the judgements taken and the view formed by management with respect to the going concern basis of preparation. Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effects on the financial statements as a whole. The materiality for the Group financial statements as a whole was set at £180,000 (2019: £125,000). This was determined with reference to a benchmark of revenue, of which this represents 0.5% (2019: 0.3%), which, in light of the losses achieved in the current year, we consider to be one of the principal considerations for members of the Parent Company in assessing the financial performance of the Group. The materiality for the Parent Company financial statements was set at £60,000 (2019: £50,000). This was determined with reference to a benchmark of 0.9% of net assets (2019: 0.8%), which we consider to be the principal consideration for members of the Parent Company. Component materiality for the subsidiaries considered significant components was set at between £80,000 and £170,000 (2019: between £65,000 and £110,000). Performance materiality has been set at 70% (2019: 75%) of the above materiality figures. This has been assessed on criteria such as historic adjustment levels, complexity and controls. We agreed with the Audit Committee that we would report to the Committee all individual audit differences in excess of £8,000 (2019: £5,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. 24 Independent Auditor’s Report to the Shareholders of Leeds Group plc (continued) An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements at the Group level. This includes certain risks that arise in subsidiaries but have a potentially material impact at Group level. There are five components within the Group, including the Parent Company. The Parent Company was subject to a full scope audit by the Group audit team. The two significant components, based in Germany, were subject to full scope audits by a local BDO member firm acting as component auditor. This work was subject to a high level of involvement from the Group engagement team, including most notably risk identification, setting of materiality and audit response. The Group team was involved in these audits from planning through to completion, through engagement with both component management and the component audit team at various virtual meetings and through remote review of component auditor files. For the remaining non-significant components, the Group engagement team performed analytical review procedures, in tandem with limited audit procedures on any significant transactions. Other information The directors are responsible for the other information. The other information comprises the information included in the Annual Report and Accounts, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. 25 Independent Auditor’s Report to the Shareholders of Leeds Group plc (continued) Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 21, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Mark Langford (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor Leeds, United Kingdom 21 October 2020 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 26 Consolidated Statement of Comprehensive Income for the year ended 31 May 2020 Note Year ended 31 May 2020 £000 Year ended 31 May 2019 £000 7 5 5 9 10 8 Continuing operations Revenue Cost of sales Gross profit Distribution costs Impairment of goodwill Administrative expenses Administrative costs Other income (Loss) from operations Finance expense Share of post-tax (loss) of joint venture (Loss) before tax Tax charge (Loss) from continuing operations Discontinued operations (Loss)/profit from discontinued operations (Loss) for the year attributable to the equity holders of the Parent Company Other comprehensive income Translation differences on foreign operations Total comprehensive loss for the year attributable to the equity holders of the Parent Company 35,067 (29,039) 38,905 (30,365) 6,028 (2,876) - (4,908) (4,908) - (1,756) (260) - (2,016) (6) (2,022) 8,540 (3,229) (982) (5,393) (6,375) 11 (1,053) (194) (34) (1,281) (41) (1,322) (332) 29 (2,354) (1,293) 196 55 (2,158) (1,238) 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. (Loss) per share attributable to the equity holders of the Company Note Year ended 31 May 2020 Year ended 31 May 2019 Basic and diluted total (loss) per share (pence) Basic and diluted (loss) from continuing operations per share (pence) 11 11 (8.6)p (7.4)p (4.7)p (4.8)p The notes on pages 31 to 58 form part of these financial statements. 27 Consolidated Statement of Financial Position at 31 May 2020 Note 31 May 2020 £000 31 May 2019 £000 Assets Non-current assets Property, plant and equipment Right-of-use assets Investment property Intangible assets Total non-current assets Current assets Inventories Trade and other receivables Tax recoverable Cash and cash equivalents Total current assets Total assets Liabilities Non-current liabilities Loans and borrowings Lease liabilities Total non-current liabilities Current liabilities Trade and other payables Loans and borrowings Lease liabilities Provisions Total current liabilities Total liabilities TOTAL NET ASSETS Capital and reserves attributable to equity holders of the Company Share capital Capital redemption reserve Treasury share reserve Foreign exchange reserve Retained earnings TOTAL EQUITY 13 14 15 16 19 20 21 23 24 22 23 24 26 27 27 27 8,183 2,374 - 67 10,624 10,188 3,464 206 1,104 14,962 25,586 (1,950) (1,478) (3,428) (2,877) (2,671) (927) (100) (6,575) (10,003) 8,534 - 1,009 72 9,615 11,760 4,382 733 1,065 17,940 27,555 (2,289) - (2,289) (2,770) (4,655) - (100) (7,525) (9,814) 15,583 17,741 3,792 600 (807) 2,741 9,257 15,583 3,792 600 (807) 2,545 11,611 17,741 The financial statements on pages 27 to 30 were approved and authorised for issue by the Board of Directors on 21 October 2020 and were signed on behalf of the Board by: - Jan G Holmstrom Chairman The notes on pages 31 to 58 form part of these financial statements. 28 Consolidated Cash Flow Statement for the year ended 31 May 2020 Cash flows from operating activities (Loss) for the year Adjustments for: Depreciation of property, plant and equipment Depreciation of right-of-use assets Depreciation of investment property Amortisation of intangible assets Finance expense – interest on bank loans Finance expense – interest lease liabilities Impairment of goodwill Net goodwill arising on acquisition Gain on sale of property, plant and equipment Share of post-tax loss of joint venture Tax charge Cash flows (to)/from operating activities before changes in working capital and provisions Decrease in inventories Decrease in trade and other receivables Increase in trade and other payables Cash generated from operating activities Tax received/(paid) Net cash flows from operating activities Investing activities Purchase of property, plant and equipment Purchase of subsidiary net of cash Proceeds from the sale of fixed assets Net cash generated/(used) in investing activities Financing activities Purchase of treasury shares Bank borrowings repaid Bank borrowings drawn down Repayment of principal on lease liabilities Repayment of interest on lease liabilities Bank interest paid Net cash (used) in financing activities Net increase in cash and cash equivalents Translation gain/(loss) on cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Note Year ended 31 May 2020 £000 Year ended 31 May 2019 £000 (2,354) (1,293) 13 14 15 16 9 9 5 5 5 18 10 19 20 22 13 27 23 23 24 24 9 21 21 723 876 13 6 174 86 - - (32) - 6 (502) 1,735 965 38 2,236 519 2,755 (560) - 1,317 757 - (2,378) - (840) (86) (174) (3,478) 34 5 1,065 1,104 668 - 16 7 194 - 982 (7) (5) 34 43 639 441 140 450 1,670 (430) 1,240 (550) 75 6 (469) (9) (1,358) 1,287 - (194) (274) 497 (4) 572 1,065 The notes on pages 31 to 58 form part of these financial statements. 29 Consolidated Statement of Changes in Equity for the year ended 31 May 2020 Share capital £000 Capital redemption reserve £000 Treasury share reserve £000 Foreign exchange reserve £000 Retained earnings £000 Total equity £000 At 31 May 2018 3,792 600 (798) 2,490 12,904 18,988 (Loss) for the year Other comprehensive income Total comprehensive income/(loss) Transaction with Shareholders: Purchase of treasury shares - - - - - - - - - - - - (1,293) (1,293) 55 - 55 55 (1,293) (1,238) (9) - - (9) At 31 May 2019 3,792 600 (807) 2,545 11,611 17,741 (Loss) for the year Other comprehensive income Total comprehensive income/(loss) - - - - - - - - - - (2,354) (2,354) 196 - 196 196 (2,354) (2,158) At 31 May 2020 3,792 600 (807) 2,741 9,257 15,583 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. The notes on pages 31 to 58 form part of these financial statements. 30 Notes forming part of the financial statements for the year ended 31 May 2020 1 General information Leeds Group plc is an AIM listed public company, limited by shares and incorporated in England and Wales under the Companies Act and its number is 00067863. The address of the registered office is Craven House, 14-18 York Road, Leeds, Wetherby, LS22 6SL. 2 Accounting policies Basis of preparation The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The policies have been consistently applied to all the periods presented, unless otherwise stated. The financial statements have been prepared under the historical cost convention subject to fair valuing of financial instruments. These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRS"), and with the Companies Act 2006 applicable to companies reporting under IFRS. Subsidiaries Subsidiaries are entities controlled by the Group. Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences to the date on which control ceases. All intercompany transactions, balances, income and expenses between Group companies are eliminated on consolidation. Business combinations The acquisition method is used to account for all acquisitions. The cost of an acquisition is measured at the fair values at the date of acquisition, which is the date on which control is transferred to the Group. The consideration is calculated as the sum of the fair value of assets transferred and liabilities incurred. The Group measures goodwill at the acquisition date as: • • • the fair value of the consideration transferred; plus the recognised amount of any non-controlling interest of the acquiree: less the net recognised amount of separately identifiable assets acquired, and liabilities assumed, measured at their fair value. When the excess is negative, a bargain price is recognised immediately in the profit and loss account. Transaction costs that the Group incurs in connection with a business combination are expensed as incurred. 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 impact of the Covid-19 pandemic on the business, its suppliers and its customers. • The financing facilities available to the Group and the circumstances in which these could be limited or withdrawn. 31 Notes forming part of the financial statements for the year ended 31 May 2020 2 Accounting policies (continued) Going Concern (continued) Financial performance and forecasts Having been consistently profitable the Group has been loss making in each of the last two years. • • In the year to 31 May 2019, the Group reported a pre-tax loss from continuing operations of £1.3m after writing off goodwill of £1.0m. In the year to 31 May 2020, the Group reported a pre-tax loss from continuing operations of £2.0m. Approximately £1.0m of this loss arose in the final quarter which was significantly impacted by the Covid-19 restrictions discussed below. To address the poor underlying performance the Directors and management restructured the business in the first half of the year to focus on profitable business streams and reduce its operating costs. Restructuring costs of £0.4m were incurred in the financial year which will benefit results going forward. Although loss making, the business was cash generative in the year with net debt reducing by £2.4m, of which £1.3m resulted from the sale of investment properties. Forecasts have been prepared for the 24-month period to May 2022 which indicate a return to modest profit over that period. These forecasts have been prepared in the knowledge of current Covid-19 conditions and assume that there is no protracted period of total lockdown. At the end of the first quarter of the current financial year sales and profit were ahead of forecast. The company has sensitised these forecasts for a reduction in revenues of 10% at both Hemmers and KMR in the forecast period and an additional net €1 million profit reduction from a second period of lockdown. The Directors are of the opinion that this is a reasonable worst case, and the currently available facilities would be sufficient in this scenario. Covid-19 Impact Both Hemmers and KMR are located in Germany which has responded well to the outbreak. KMR was most directly impacted by the measures put in place with all stores closed from the mid-March to the mid-April. Since reopening, the stores have performed ahead of both last year and forecast. Hemmers saw significantly reduced demand during March and April but like KMR, has traded strongly in the first quarter of the current year, ahead of last year and forecast. Both businesses have been supported by the government employment scheme which reimburses the company for payments to employees for any short time working. This scheme remains available through the forecast period. In addition, KMR has negotiated rent reductions for its shops in the current financial year which are reflected in the forecasts. There has been no significant impact on our suppliers, most of whom are based in China and Turkey. There has been no significant impact on our customers. While there is clearly uncertainty about the future course of the pandemic, the Directors consider that with ongoing government support it is well placed to trade through reasonably foreseeable scenarios. 32 Notes forming part of the financial statements for the year ended 31 May 2020 2 Accounting policies (continued) Financing facilities The operating businesses of the group are Hemmers and KMR, both 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 23. 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 2019/20 this resulted in average availability of €8.8m with a range of €8.0m to €9.0m and minimum headroom of €4.7m in the year. In the forecast period to 31 May 2022, the estimated availability range is €7.3m to €9.0m and the minimum headroom €3.9m. The only covenant on this facility is an equity ratio which must exceed 30% of gross assets at the financial year end. At 31 May 2020 the ratio was higher than 61%. The facility is uncommitted, but the bank is obliged to give reasonable notice of any change. • A further working capital facility of €0.5m. • A €3m Parent Company loan which is currently subordinated to the working capital facility. KMR has a fixed working capital facility of €1.5m which was fully drawn at the year end. The covenants on this facility are (i) an equity ratio which must exceed 35% of gross assets at the financial year end and (ii) the ratio of working capital/bank facility should be a minimum 1.5x. At 31 May 2020 these ratios were 39.5% and 1.58. The facility is uncommitted, but the bank is obliged to give reasonable notice of any change. Considering the progress made to restructure the Group, the trading results in the first quarter of the current financial year, the likely ongoing impact of the Covid-19 pandemic and the headroom available on the Hemmers working capital facility, the Directors are of the opinion that it is appropriate to apply the going concern basis of preparation to the financial statements. Changes in accounting policies The Directors have adopted the following accounting standards which became effective for periods beginning on or after 1 January 2019: IFRS 16, ‘Leases’ is effective for periods beginning on or after 1 January 2019. The impact of the new standard has brought operating lease arrangements on the balance sheet, with the right of use asset and corresponding financial liability recognised on transition. Within the income statement rental expense has been replaced by depreciation and interest expenses. This has resulted in an increase in depreciation and finance costs. The Group has significant operating lease commitments and therefore the adoption of the standard has had a material impact on the Financial Statements of the Group. The Directors have applied the modified retrospective approach and therefore at the date of initial application an amount equal to the lease liability, using appropriate incremental borrowing rates, has been recognised as a right-of-use asset. The weighted average incremental borrowing rate of 3% has been used at the date of initial application. This has been calculated as the net present value of the remaining lease payments. There has been no impact on the opening reserves on the date of the initial application and in using the modified retrospective approach, the comparative figures for last year have not been restated. The portfolio of leases consists of vehicle leases and property leases. For short-term leases, the Directors have decided to apply the exemptions not to recognise those leases as a right-of-use asset and a lease liability. The effect of adopting IFRS 16 resulted in the recognition of right-of-use assets and lease liabilities of £3,067,000 as at 1 June 2019. Instead of recognising operating lease expenses for its operating leases, the Group has recognised interest on its lease liabilities and depreciation on its right-of-use assets. The overall impact on the financial results to 31 May 2020 has resulted in an additional charge to the profit and loss of £36,000. 33 Notes forming part of the financial statements for the year ended 31 May 2020 2 Accounting policies (continued) Changes in accounting policies (continued) There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods but not yet issued. These standards do not impact the Group and will not impact the presentation of the financial statements in future reporting periods. Revenue Revenue comprises the fair value of the consideration received or receivable for the sale of goods and is shown net of Value Added Tax. The sale of goods is recognised at the point of acceptance by the customer this reflecting fulfilment of the sole performance obligation to the customer. Contracts with wholesale customers are typically fixed price based on agreed amounts and invoiced upon despatch of the goods in line with the standard terms and conditions of the Group. The Group’s standard payment terms are between 30 and 60 days following the date of invoice. Contracts with retail customers are based on a fixed price at the point of sale. There are no long-term or financing arrangements in place across the Group. The Group is assessed operationally and financially under two revenue streams wholesale and retail revenue as detailed above. The Directors do not therefore consider there to be a lower relevant level of revenue disclosure than that disclosed the segmental analysis in note 7. There are no material concentrations of revenue by customers. Exceptional items The Group seeks to highlight certain items as exceptional operating income or costs. These are considered exceptional due to their size or nature and may include items such as restructuring costs, material profit or loss on the sale of fixed assets, impairment of assets or gains or losses arising on the acquisition or disposal of subsidiaries or joint ventures. Management believe that separate disclosure of these type of items is relevant to understanding the Group’s underlying financial performance Segmental reporting The Board considers that the Group’s business comprises two operating segments, Hemmers and KMR. The remainder of Group activities comprise holding companies. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker who is identified as the Board of Directors which is responsible for allocating resources, assessing performance of the operating segments and making strategic decisions. Dividends Interim dividends are recognised when paid and final dividends are recognised when approved by the shareholders at the AGM. Goodwill Goodwill arising an acquisition of subsidiary undertakings, representing the excess of the fair value of the consideration given over the fair value of identifiable assets and liabilities acquired, is capitalised as an intangible asset. On capitalisation the goodwill is allocated to a specific cash generating unit to which it relates. The goodwill is tested for impairment on an annual basis at the end of the financial year by reference to the cash generating unit and is carried at cost less accumulated impairment losses. Any impairment is recognised immediately in the profit and loss account and is not subsequently reversed. Other intangible assets Intangible assets purchased separately, such as trademarks, are capitalised at cost and amortised on a straight- line basis. This is charged to operating expenses over the asset’s useful of 20 years. Property, plant and equipment Other than freehold land, all items of property, plant and equipment are carried at cost less accumulated depreciation and any recognised impairment loss. Freehold land is not depreciated. Depreciation is provided on all other items of property, plant and equipment to write off the carrying value of items on a straight-line basis over their expected useful economic lives as follows: Land and buildings Plant and equipment 8 - 33 years 5 - 15 years 34 Notes forming part of the financial statements for the year ended 31 May 2020 2 Accounting policies (continued) Investment property The Group applies the cost model to investment property. Investment property comprises property held by the Group not occupied by its trading subsidiaries for the purpose of earning rental income to cover costs. Investment property is stated at depreciated cost. Depreciation is provided on the property to write off the carrying value on a straight-line basis over the expected useful life of 33 years. Freehold land held as an investment is not depreciated. Impairment of non-current assets At each financial year end, the Group assesses whether there is an indication that is its assets have been impaired. If there is an indication that its assets have been impaired, the recoverable amount is determined to determine the extent of the impairment. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash generating unit to which it relates is determined. The recoverable amount is defined as the higher of the fair value less costs to sell and value in use at that date. Value in use is calculated as the expected future cash flows discounted on a pre-tax basis, using a pre- tax discount rate that reflects the current market assessments of the time value of money and the risks specific to that assets or cash generating unit. If the recoverable amount of the asset is less than the carrying value, the carrying value is reduced to its recoverable amount, that reduction is recognised as an impairment loss. An impairment loss relating to an asset carried at cost less accumulated depreciation or amortisation is recognised immediately in the profit and loss account. If an impairment loss subsequently reverses, the carrying value of the asset is increased to the revised recoverable amount but limited to the carrying value that would have been determined had no impairment been recognised in prior years. A reversal of an impairment loss is recognised in the profit and loss account. Leases The Group has adopted IFRS 16 using the modified retrospective approach, with recognition of transitional adjustments on 1 June 2019, without restatement of comparative figures. Lease liabilities are measured at the present value of the contractual payments due to the lessor over the determined lease term, with the discount rate applied being the incremental borrowing rate of the group. The incremental borrowing rate has been determined with the use of existing ability of the group to obtain finance on similar security. Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for: • • • lease payments made at or before commencement of the lease; initial direct costs incurred; and the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset. On initial recognition, the carrying value of the lease liability also includes: • • • amounts expected to be payable under any residual value guarantee; the exercise price of any purchase option granted in favour of the group if it is reasonably certain to exercise that option; and any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised. Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset. All leases are accounted for by recognising a right-of-use asset and a lease liability except for: • • Leases of low value assets; and Leases with a duration of 12 months or less. Payments made under these leases are charged to profit and loss on a straight-line basis over the lease term. 35 Notes forming part of the financial statements for the year ended 31 May 2020 2 Accounting policies (continued) Inventories Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Weighted average cost is used to determine the cost of ordinarily interchangeable items. Deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of financial position differs from its tax base, except for differences arising on: • • • the initial recognition of goodwill; the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the date of the statement of financial position and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: • • the same taxable Group company; or different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Taxation The charge for taxation is based on the results for the year and takes into account deferred taxation. Retirement benefits The Group operates a defined contribution pension scheme for its UK employees, and contributions are charged to the consolidated statement of comprehensive income in the period to which they relate. The Group does not operate a pension schemes in Germany where pension arrangements are provided by the state. Foreign currency The consolidated financial statements are presented in sterling, which is the functional currency of the Parent Company and the presentational currency of the Group. Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the date of the statement of financial position. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated statement of comprehensive income. On consolidation, the results of overseas operations are translated into Sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the date of the statement of financial position. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the "foreign exchange reserve"). Exchange differences recognised in the income statement of Group entities' separate financial statements on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified to the foreign exchange reserve on consolidation. 36 Notes forming part of the financial statements for the year ended 31 May 2020 2 Accounting policies (continued) Financial assets and liabilities IFRS 9’Financial Instruments’ outlines the principles an entity must apply to measure and recognise financial assets and liabilities. The Group recognises financial assets and liabilities when it becomes a party to the terms of the contract, which is the settlement date. Financial assets Financial assets that are held to collect are categorised as amortised cost under IFRS 9. This includes the Group’s trade and other receivables and cash and cash equivalents. The measurement of these financial assets held at amortised cost remains unchanged since the introduction of IFRS 9. Trade receivables Trade receivables that do not contain a significant financing component and are recognised initially at fair value and thereafter at amortised cost less provision for impairment. Impairment provisions for current and non-current trade receivables are recognised based on a simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process, the probability of the non-payment of the trade receivable is assessed. This probability is then multiplied by the amount of the gross trade receivables to determine the expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within administration cost in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collected, the gross carrying value is written off against the associated provision. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and on short term deposit, together with other short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of change in value. Financial liabilities The classification and measurement of financial liabilities in accordance with IFRS 9 remains largely unchanged. All financial liabilities are measured at amortised cost and include trade and other payables and bank borrowings. Trade and other payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate. Borrowings Borrowings, which comprise bank loans are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method. Fees paid on the arrangement of the loan facilities and revolving credit facilities are recognised as transaction costs over the life of the agreement. Share capital The Group’s ordinary shares are classified as equity instruments. Treasury shares Consideration paid/(received) for the purchase/(sale) of treasury shares is recognised directly in equity. The cost of treasury shares held is presented as a separate component of equity (the "treasury share reserve"). Any excess of the consideration received on the sale of treasury shares over the weighted average cost of the shares sold is credited to the share premium account. 37 Notes forming part of the financial statements for the year ended 31 May 2020 2 Accounting policies (continued) Provisions Provisions are recognised for liabilities of uncertain timing or amount that have arisen as a result of past transactions and are discounted at a pre-tax rate reflecting current market assessments of the time value of money and the risks specific to the liability. Where a customer has the right to return goods the Group estimates the return rate based on past experience with similar sales and recognises revenue on this transaction with a corresponding provision against revenue for estimated returns. 3 Critical accounting estimates and judgements The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: (i) Impairment of intangible assets The Group is required to test, on an annual basis, whether goodwill has suffered any impairment loss. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate to calculate the present value of the cash flows. A goodwill provision, once made, may not be reversed. (ii) Useful lives of property, plant and equipment Property, plant and equipment are depreciated over their useful lives. Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the consolidated statement of comprehensive income in specific periods. The values of fixed asset are shown in note 13. (iii) Impairment of right-of-use assets The values of right-of-use assets are shown in note 14. Impairment tests have been performed by assessing relevant cash flows of each cash generating unit and assessing this against the value of assets relating to that specific cash generating unit. (iv) Inventory The Company reviews the net realisable value of, and demand for, its inventory on a regular basis to provide assurance that recorded inventory is stated at the lower of cost or net realisable value. Factors that could impact estimated demand and selling prices include competitor actions, supplier prices and economic trends. The values of stock are shown in note 19. A 1% increase in the inventory provision would equate to approx. £110,000. (v) Right-to-use assets The Group has entered into a number of leases that contain 12 month rolling contracts. At the end of the period, both the lessee and the lessor have the right to terminate the lease without the consent of the other party. There is inherent judgement required in determining the enforceable period of these leases in determining whether they result in short term leases and therefore being able to apply the i short term lease exemptions. In determining the incremental borrowing rate used in IFRS 16 lease calculations, there is inherent estimation required to ensure that the incremental borrowing rate suffices that of similar security. The method of determining the incremental borrowing rate of the Group looks at the existing facility arrangements and historic ability of the Group to borrow at this level. 38 Notes forming part of the financial statements for the year ended 31 May 2020 4 Financial instruments - risk management The Group is exposed through its operations to the following financial risks: • Credit risk • Liquidity risk • Market risk in the form of foreign exchange risk In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. The following describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. During the year, the Group’s current bank debt reduced from £4,655,000 to £2,671,000 and the non-current bank debt decreased from £2,289,000 to £1,950,000. Principal financial instruments The principal financial instruments used by the Group, giving rise to financial instrument risk, are as follows: • Trade receivables • Cash at bank • Bank overdrafts • Trade payables • Fixed rate bank loans • Forward currency contracts The Group had no forward contracts at either 31 May 2019 or 2020. All other financial assets and financial liabilities are measured at amortised cost. General objectives, policies and processes The Directors have overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, they have delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Hemmers management team and, to the limited extent that risk arises in the UK, to the company secretary. The Board receives monthly reports through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering into contracts. A credit policy has been established under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from senior management. These limits are reviewed quarterly. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group on a prepayment basis. Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with minimum rating “A” are accepted. The Directors monitor the utilisation of the credit limits regularly and at the reporting date do not expect losses from non-performance by the counterparties to exceed amounts that have been provided. Details of the provisions held against trade receivables are given in note 25 to the financial statements. 39 Notes forming part of the financial statements for the year ended 31 May 2020 4 Financial instruments - risk management (continued) Liquidity risk Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Board monitors and manages the Group’s net indebtedness by reference to cash flow forecasts prepared in their functional currencies by subsidiary companies. These forecasts are regularly updated, allowing the Board to ensure that the Group will always be able to meet its liabilities when they become due by maintaining adequate cash balances and committed loan facilities. The Group also seeks to reduce liquidity risk by fixing interest rates (and hence cash flows) on a portion of its long-term borrowings. This is further discussed in the ‘interest rate risk’ section above. Market risk Market risk arises from the Group’s use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk). (i) Cash flow interest rate risk The Group manages its cash flow interest rate risk by borrowing at fixed interest rates wherever possible. Working capital is financed by short or medium-term bank debt at fixed rates, leaving a small residual overdraft at variable rates. The borrowings of overseas subsidiaries are denominated in Euros, their functional currency, to avoid those subsidiaries being exposed to unnecessary foreign exchange risk. Bank borrowings or cash deposits of the Parent Company are denominated in Sterling. (ii) Foreign exchange risk The Group has operations located in Germany whose functional currencies are the Euro. Foreign exchange risk arises when these entities enter into transactions denominated in a currency other than their functional currency, which almost invariably involves sales or purchases denominated in US Dollars. It is Group policy that Euro/US Dollar exposures should be commercially hedged locally by entering into forward contracts with reputable banks wherever appropriate. There are no forward contracts outstanding at either year end. At the date of the consolidated statement of financial position, a 10% strengthening of Sterling against the Euro, all other variables held constant, would have resulted in an estimated decrease of £1,126,000 in the reported net asset value of the Group. A 10% weakening of Sterling against the Euro at the date of the statement of financial position, on the same basis, would have resulted in an estimated increase of £1,438,000 in the reported net asset value of the Group. Capital policy The Group’s capital comprises equity as shown in the Consolidated Statement of Financial Position plus net debt. The Board’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain a capital structure that optimises the cost of capital. In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, sell assets or reduce debts. 40 Notes forming part of the financial statements for the year ended 31 May 2020 5 Operating (loss) Operating (loss) is stated after charging: Auditor’s fees Statutory audit services - Audit of the Parent Company and the consolidated accounts - Audit of subsidiary companies Non-audit related services - Bank compliance Total auditor’s fees Staff costs Depreciation - Property, plant and equipment - Right-of-use assets - Investment property Amortisation Impairment of goodwill Operating leases Short term lease expense Operating lease income - Property Gain on disposal of property, plant and equipment Year ended 31 May 2020 Year ended 31 May 2019 £000 £000 70 47 3 120 8,480 723 876 13 6 - - 341 - 32 34 60 3 97 8,788 668 - 16 7 982 1,337 - 11 5 6 Staff costs The average monthly number of persons employed in the year by the Group (including Directors) was as follows: Management Sales and customer service Warehousing Administration Group total 2020 2019 8 8 226 247 63 71 46 52 343 378 Staff costs, including Directors, comprise Year ended 31 May 2020 Year ended 31 May 2019 Wages, salaries and Directors’ fees Defined contribution pension cost Employer’s national insurance contributions and similar taxes Total staff costs £000 7,107 1 1,372 8,480 £000 7,353 1 1,434 8,788 41 Notes forming part of the financial statements for the year ended 31 May 2020 6 Staff costs (continued) Included in employer’s national insurance contributions and similar taxes are the amounts paid by Hemmers to fund employees’ pension entitlements provided by the German state. Executive director Jörg Hemmers Non - executive Directors Johan Claesson David Cooper Jan G Holmstrom Salary & Fees Taxes Year ended 31 May Year ended 31 May £000 £000 2020 £000 2019 £000 219 19 15 31 284 11 230 - - - 19 15 31 11 295 258 20 15 31 324 Jörg Hemmers is Managing Director of Hemmers, a wholly owned subsidiary of Leeds Group, and based in Germany. No recharge of his salary is made to the Parent Company. The fees relating to Johan Claesson and Jan Holmstrom are paid, respectively, to Johan & Marianne Claesson Aktiebolag and Somerset Aktiebolag who invoice the Company for the services of these Directors. Their costs include VAT unrecoverable in the UK. Outstanding share options granted to employees or Directors at 31 May 2020 were nil (2019: nil). Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, and comprise the Directors of the Group listed on page 7. Salary and fees Bonuses Employer’s national insurance contributions and similar taxes Total remuneration of key management personnel 7 Segmental information Year ended 31 May 2020 Year ended 31 May 2019 £000 284 - 11 295 £000 290 21 13 324 The Group’s trading businesses are now Hemmers, and its trading subsidiary KMR. Hemmers is incorporated in Germany and is engaged in the import and distribution of fabric from its principal place of business in Nordhorn, Germany. KMR is also incorporated in Germany and is a retailer of fabric and haberdashery, operating leased shops in various German cities. Hemmers liquidated its Chinese subsidiary, Chinoh-Tex, in 2020 and that has been treated as a discontinued activity. The chief operating decision maker is the Board, which considers that the Hemmers business comprises two operating segments, namely Hemmers and KMR. These two segments report to the Board under local GAAP, and the adjustments required to permit the Group to report under IFRS are made centrally. The Parent Company is not in itself an operating segment, but its net costs are shown in order that the segmental information presented to the Board can be reconciled to the Consolidated Statement of Comprehensive Income. 42 Notes forming part of the financial statements for the year ended 31 May 2020 7 Segmental information (continued) The following tables set out a segmental analysis of the Group’s operations. Year ended 31 May 2020 Hemmers KMR £000 £000 Inter segmental £000 Parent Company £000 Continuing operations £000 Discontinued operations £000 Total Group £000 External revenue Inter-segmental revenue Cost of sales 27,060 1,563 8,007 5 (24,468) (5,930) - (1,681) 1,472 - - - 35,067 (113) (28,926) Gross profit/(loss) Distribution costs Admin expenses Other income Operating (loss) Finance expense Internal interest 4,155 2,082 (1,628) (1,312) (988) (3,913) - 88 (1,298) (147) (148) (218) (113) - (Loss) before tax (1,593) (331) (209) 64 233 (88) - - - - - - (240) - (240) - 148 6,028 (2,876) (4,908) - (1,756) (260) - 488 113 (697) (96) (51) (185) - (332) - - 35,555 - (29,623) 5,932 (2,927) (5,093) - (2,088) (260) - (92) (2,016) (332) (2,348) At 31 May 2020 Hemmers KMR £000 £000 Inter segmental £000 Parent Company £000 Continuing operations £000 Discontinued operations £000 Total Group £000 Total assets 16,998 5,745 (218) 3,061 25,586 Total liabilities (5,769) (4,151) - (83) (10,003) Total net assets 11,229 1,594 (218) 2,978 15,583 - - - 25,586 (10,003) 15,583 Year ended 31 May 2019 Hemmers KMR £000 £000 Inter segmental £000 Parent Company £000 Continuing operations £000 Discontinued operations £000 Total Group £000 External revenue Inter-segmental revenue Cost of sales 30,939 1,852 7,966 - (25,911) (6,092) - (2,056) 1,842 - - - 38,905 (204) (30,161) 2,366 204 (2,093) 41,271 - (32,254) Gross profit/(loss) Distribution costs Admin expenses Other income 6,880 1,874 (2,027) (1,202) (4,231) (1,119) - 11 Operating profit/(loss) Finance expense Internal interest Share of JV (loss) 633 (155) (239) (34) (447) (39) - - (214) - 193 - (21) - - - - - (1,218) - (1,218) - 239 - 8,540 (3,229) (6,375) 11 (1,053) (194) - (34) 477 (195) (251) - 31 - - - 9,017 (3,424) (6,626) 11 (1,022) (194) - (34) Profit/(loss) before tax 205 (486) (21) (979) (1,281) 31 (1,250) 43 Notes forming part of the financial statements for the year ended 31 May 2020 7 Segmental information (continued) At 31 May 2019 Hemmers KMR £000 £000 Inter segmental £000 Parent Company £000 Continuing operations £000 Discontinued operations £000 Total Group £000 Total assets 22,330 4,609 (331) 109 26,717 838 27,555 Total liabilities (10,130) (2,450) - 2,961 (9,619) (195) (9,814) Total net assets 12,200 2,159 (331) 3,070 17,098 643 17,741 Disaggregation of revenue is shown by destination as follows: 31 May 2020 £000 31 May 2019 £000 Germany Austria UK Holland France Rest of EU Total EU Switzerland Rest of Europe Total Europe North America Asia Oceania South America Africa Total revenue Non-current assets are all derived in Germany. Other information: Year ended 31 May 2020 Hemmers KMR £000 £000 Discontinued activities £000 Group £000 25,207 1,496 1,170 1,164 744 3,505 33,286 1,367 483 35,136 89 13 244 21 - 27,053 1,643 1,403 1,362 1,245 4,798 37,504 1,308 977 39,789 334 173 775 143 57 35,503 41,271 Hemmers KMR Year ended 31 May 2019 Discontinued activities £000 £000 £000 Group £000 Additions Property, plant & equipment Right-of-use assets Depreciation Property, plant & equipment Right-of-use assets Investment property Amortisation Intangible assets 556 4 105 153 - - 560 258 466 84 - - - - 550 - 543 179 1 723 513 131 24 668 112 764 13 6 - - - - - 876 13 6 - 16 7 - - - - - - - 16 7 44 Notes forming part of the financial statements for the year ended 31 May 2020 8 Discontinued operation Chinoh-Tex was liquidated prior to the year end. The losses associated with the closure have been included in the profit and loss account for the year and are as follows: Turnover Cost of sales Gross (loss) Distribution costs Admin expenses Operating (loss) Year ended 31 May 2020 £000 601 (697) (96) (51) (185) (332) Included above is an amount of £25,000 which relates to the write off debtors which could not be recovered at the date of liquidation. 9 Finance expense Year ended 31 May 2020 Year ended 31 May 2019 £000 £000 86 174 260 - 194 194 Year ended 31 May 2020 Year ended 31 May 2019 £000 £000 6 - 6 - 6 - 6 164 157 321 (278) 43 (2) 41 Finance expense Interest paid on lease liabilities Interest paid on bank overdrafts and loans Finance expense recognised in comprehensive income 10 Tax charge Current tax charge Tax of overseas operations on profit/(losses) for the year Adjustments for under provision in prior years Total current tax charge Deferred tax (credit) for the year Total tax charge Tax charge on discontinued operations Tax charge on continuing operations 45 Notes forming part of the financial statements for the year ended 31 May 2020 10 Tax charge (continued) The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the UK applied to the profit for the year are as follows: Year ended 31 May 2020 Year ended 31 May 2019 £000 £000 (Loss) before taxation from all operations (2,348) (1,250) Expected tax charge based on the standard rate of corporation tax in the UK of 19% (2019:19%) Expenses not deductible for tax purposes Unrelieved losses Utilisation of past losses Adjustments for under provision in prior years Different tax rates applied in overseas jurisdictions Total tax charge (446) 62 378 - - 12 6 (238) 17 104 (3) 157 6 43 The Group has UK capital losses carried forward of £13m and unrelieved UK trading losses of £1m. No recognition has been made of deferred tax assets in respect of these losses carried forward as the Directors believe it unlikely that there will be sufficient profits to reverse these differences in the foreseeable future. 11 (Loss) per share and Net asset per share (Loss) per share Numerator Total (loss) for the year Denominator Weighted average number of shares (excluding treasury shares) Year ended 31 May 2020 Year ended 31 May 2019 £(2,354,000) £(1,293,000) 27,320,843 27,330,788 Basic and diluted (loss) per share (8.6)p (4.7)p Numerator (Loss)/profit for the year from continuing operations Denominator Weighted average number of shares (excluding treasury shares) £(2,0222,000) £(1,322,000) 27,320,843 27,330,788 Basic and diluted (loss)/profit from continuing operations per share (7.4)p (4.8)p Numerator (Loss)/profit for the year from discontinued operations Denominator Weighted average number of shares (excluding treasury shares) £(332,000) £29,000 27,320,843 27,330,788 Basic and diluted (loss)/profit from discontinued operations per share (1.2)p 0.1p Since there are no outstanding share options, there is no difference between basic and diluted earnings per share. 46 Notes forming part of the financial statements for the year ended 31 May 2020 11 (Loss) per share and Net asset per share (continued) Net assets per share Numerator Net assets Denominator Number of shares (excluding treasury shares) Net assets per share 12 Dividend Year ended 31 May 2020 Year ended 31 May 2019 £15,583,000 £17,741,000 27,320,843 27,320,843 57.0p 64.9p The Directors have not proposed a dividend in respect of the year ended 31 May 2020 nor for the year ended 31 May 2019. 13 Property, plant and equipment Cost Balance at 31 May 2018 Acquisition of subsidiary Additions Disposals Effect of movements in foreign exchange rates Balance at 31 May 2019 Additions Disposals Transferred to right-of use assets Effect of movements in foreign exchange rates Balance at 31 May 2020 Accumulated depreciation Balance at 31 May 2018 Depreciation charge for the year Disposals Effect of movements in foreign exchange rates Balance at 31 May 2019 Depreciation charge for the year Disposals Transferred to right-of use assets Effect of movements in foreign exchange rates Freehold land and buildings £000 Plant and equipment £000 Total £000 8,022 2,983 11,005 406 31 - 50 8,509 28 (295) - 145 8,387 443 519 (78) 17 849 550 (78) 67 3,884 12,393 532 (296) (63) 81 560 (591) (63) 226 4,138 12,525 1,188 2,062 3,250 261 - 5 1,454 261 (18) - 33 407 (77) 13 2,405 462 (274) (34) 53 Balance at 31 May 2020 1,730 2,612 Net book amount At 31 May 2018 At 31 May 2019 At 31 May 2020 6,834 7,055 6,657 921 1,479 1,526 47 668 (77) 18 3,859 723 (292) (34) 86 4,342 7,755 8,534 8,183 Notes forming part of the financial statements for the year ended 31 May 2020 14 Right-of-use assets Cost Introduced at 1 June 2019 Transferred from other assets Additions Modification Effect of movements in foreign exchange rates Balance at 31 May 2020 Accumulated depreciation Transferred from other assets Depreciation charge for the year Effect of movements in foreign exchange rates Balance at 31 May 2020 Net book amount At 31 May 2020 15 Investment properties Cost Balance at 31 May 2018 Effect of movements in foreign exchange rates Acquisition of subsidiary Balance at 31 May 2019 Disposal Effect of movements in foreign exchange rates Balance at 31 May 2020 Accumulated depreciation Balance at 31 May 2018 Depreciation charge for the year Effect of movements in foreign exchange rates Balance at 31 May 2019 Depreciation charge for the year Disposal Balance at 31 May 2020 Net book amount At 31 May 2018 At 31 May 2019 At 31 May 2020 48 Leasehold land and buildings £000 Plant and equipment £000 2,873 - 153 (138) 52 2,940 - 762 21 783 194 63 105 - 6 368 34 114 3 151 Total £000 3,067 63 258 (138) 58 3,308 34 876 24 934 2,157 217 2,374 Freehold land and buildings £000 583 4 458 1,045 (1,036) (9) - 19 16 1 36 13 (49) - 564 1,009 - Notes forming part of the financial statements for the year ended 31 May 2020 16 Intangible assets Balance at 31 May 2018 Amortisation Impairment loss Effect of movements in foreign exchange rates Balance at 31 May 2019 Amortisation Effect of movements in foreign exchange rates Balance at 31 May 2020 Goodwill £000 Trademarks £000 980 - (982) 2 - - - - 77 (7) - 2 72 (6) 1 67 Total £000 1,057 (7) (982) 4 72 (6) 1 67 Goodwill of £982,000 which arose in 1999 on the acquisition of the cash-generating unit Hemmers was deemed to be fully impaired in the last financial year. 17 Subsidiaries The subsidiaries of Leeds Group which have been included in these consolidated statements, are as follows: Name Country of incorporation Nature of business * Hemmers-Itex Textil Import Export GmbH. * Leeds Property GmbH. ** KMR GmbH. Germany Germany Germany Import, sale, and distribution of textiles Property investment Retail trading * Wholly owned subsidiaries of Leeds Group. ** Wholly owned subsidiaries of Hemmers. The registered addresses of these subsidiaries are shown on page 1. 18 Investment in joint venture At 31 May 2018 Share of post-tax (loss) for year ended 31 May 2019 Effect of movements in foreign exchange rates Sale of joint venture At 31 May 2019 and 2020 19 Inventories Total gross value of goods and goods for resale Less provision Finished goods and goods for resale 31 May £000 734 (34) (3) (697) - 31 May 2020 £000 31 May 2019 £000 10,970 (782) 10,188 12,580 (820) 11,760 The amount of inventories recognised as an expense during the year was £23,973,000 (2019: £26,618,000). 49 Notes forming part of the financial statements for the year ended 31 May 2020 20 Trade and other receivables Trade receivables Other receivables Prepayments Total trade and other receivables 31 May 2020 £000 31 May 2019 £000 2,765 544 155 3,464 3,445 762 175 4,382 All amounts are anticipated to be receivable in the short term. The carrying value of trade receivables is considered to be a reasonable approximation of fair value. 21 Cash and cash equivalents 31 May 2020 £000 31 May 2019 £000 Cash on demand or on short-term deposit 1,104 1,065 Cash held by the Parent Company is deposited with Bank of Scotland, earning interest at variable rates. Cash held by subsidiaries is the excess of property related loans drawn down over amounts spent to date and working capital required. In the opinion of the Directors, the carrying value of cash and cash equivalents approximates to its fair value. 22 Trade and other payables Trade payables Other tax and social security taxes Accruals Other payables Total trade and other payables 31 May 2020 £000 31 May 2019 £000 1,378 303 675 521 2,877 1,641 66 374 689 2,770 All amounts are anticipated to be payable in the short term. The carrying values are considered to be a reasonable approximation of fair value. 23 Borrowings The book value of loans and borrowings are as follows: Current Secured bank loans Non - current Secured bank loans Total loans and borrowings 31 May 2020 £000 31 May 2019 £000 2,671 1,950 4,621 4,655 2,289 6,944 The carrying values are considered to be a reasonable approximation of fair value. 50 Notes forming part of the financial statements for the year ended 31 May 2020 23 Borrowings (continued) Current loans and borrowings At 31 May 2020 current loans and borrowings of £2,671,000 (2019: £4,655,000) comprise short term loans of £2,290,000 and instalments due on long term loans detailed below of £381,000. The interest rate on the short- term loans range from 1.25% to 3% (2019: 1.25% to 2.5%) and these loans are secured on the inventories and trade receivables of Hemmers and KMR. The short-term loans are drawn down by Hemmers against short term borrowing facilities of €11.5m and by KMR against short term borrowing facilities of €1.5m. Neither the Parent Company nor any of its subsidiaries other than Hemmers and KMR have borrowing facilities. The bank facilities are reviewed annually and are now in place for the forthcoming year. Non-current loans and borrowings A non-current loan was drawn down in 2007 from Kreissparkasse to finance the freehold extension of the warehouse in Nordhorn. In 2016 and 2017 further loans were drawn down to finance developments at Nordhorn. The Group’s loans and borrowings are within the accounts of Hemmers and KMR. They are denominated in Euros, and their principal terms are as follows: Amounts outstanding at 31 May 2020 were: Repayment profile Final repayment date 31 May 2020 £000 31 May 2019 £000 Fixed interest rate 4.07% 1.65% 1.05% Loan 1 Loan 2 Loan 3 Non-current loans Equal monthly instalments Equal quarterly instalments Equal quarterly instalments March 2026 September 2027 September 2025 436 1,124 390 1,950 493 1,350 446 2,289 31 May 2020 £000 31 May 2019 £000 6,944 5,057 - - (2,378) 55 1,932 1,287 (1,358) 26 4,621 6,944 The changes in liabilities arising from financing activities were: At the start of the year Cash items Borrowings acquired Borrowings drawn down Borrowings repaid Exchange At the end of the year The changes in lease liabilities are shown in note 24. 51 Notes forming part of the financial statements for the year ended 31 May 2020 24 Lease liabilities All leases are accounted for by recognising a right-of-use asset and a lease liability except for: • • Leases of low value assets; and Leases with a duration of 12 months or less. Payments made under these leases are charged to profit and loss on a straight-line basis over the lease term. The lease liabilities recognised in the financial statements include 10 retail store leases located in Germany and 21 motor vehicle leases, all of which are subject to fixed payments. The book value of lease liabilities are as follows: Current Secured lease liabilities Non - current Secured lease liabilities Total lease liabilities 31 May 2020 £000 927 1,478 2,405 The majority of the retail stores are leased over a 12-month period and have, therefore, been accounted for by recognising a right-of-use asset and a lease liability. Some stores are on 12 month rolling contracts and management have considered IFRS 16 requirements and IFRIC agenda decision on the assessment of a lease term regarding cancellable and renewable leases. These contracts ultimately have a termination option at the end of the existing lease that both the lessor and lessee can exercise without the express permission or consent of the other party, and without a significant penalty of termination in which case, management have taken the decision that this is the enforceable period of the lease and those that have a lease term of less than 12 months have had the practical expedient of short term lease accounting applied. The lease liability is calculated as the present value of payments over the lease term, discounted at an incremental borrowing rate to the Group. The Group has applied a practical expedient to apply a single discount rate to a portfolio of leases of similar characteristics. The incremental borrowing rate is determined by utilising existing facility agreements and the historic ability of the group to lend against a portfolio of assets of similar security to the portfolio of leases. A number of stores have also had rent negotiations during the year due directly to the Covid-19 situation. Management have been able to renegotiate rent reductions for a number of store leases. The rent reductions continue to the end of the term of the leases but have not fundamentally changed the nature or scope of the lease other than an agreed reduction in rental payments. In May 2020, the IASB issued an amendment to IFRS 16 which provides lessees with an immediate relief from the requirement to assess whether Covid-19 related rent concessions are a lease modification. Unfortunately, the group's rent concession agreements fail this relief test as it did not satisfy the criteria for being Covid-19 related rent concessions because all the concessions extend past June 2021. As such, the rent reductions agreed are accounted for as a lease modification on the date of agreement of the reduction not the date of reduced payments. On the date of deemed modification agreement, the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount. There is no P&L impact on modification, other than the future reduction of both interest and depreciation. A small portion of stores have been modified post year end the impact is not material to disclose the value as a post balance sheet event. 52 Notes forming part of the financial statements for the year ended 31 May 2020 24 Lease liabilities (continued) At 31 May 2020, the lease liabilities are shown as follows: Up to 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years The movement in the lease liability is as follows: Land and buildings £000 Motor vehicles £000 Right-of-use leases introduced at 1 June 2019 (note 14) Right-of-use lease transferred at 1 June 2019 2,873 - 194 24 Lease liability as at 1 June 2019 Right-of-use lease additions (note 14) Interest expenses (note 9) Lease payments Modifications Foreign exchange movements 2,873 153 78 (807) (138) 31 218 105 8 (119) - 3 At the end of the year 2,190 215 31 May 2020 £000 927 636 678 163 2,405 Total £000 3,067 24 3,091 258 86 (926) (138) 34 2,405 The following table reconciles the minimum lease commitments disclosed in the Group's financial statements as at 31 May 2019 to the amount of lease liabilities recognised on 1 June 2019: Minimum operating lease commitment at 31 May 2019 (note 28) Short-term leases not recognised under IFRS 16 Effect of termination options/extensions/term judgements Undiscounted lease payments Discount effect using the incremental borrowing rate at 1 June 2019 Lease liabilities for leases classified as operating type under IAS 17 Leases previously classified as finance type under IAS 17 Lease liability as at 1 June 2019 1 June 2019 £000 3,633 (330) 183 3,487 (419) 3,067 24 3,091 53 Notes forming part of the financial statements for the year ended 31 May 2020 25 Financial instruments The financial assets of the Group are categorised as follows: At amortised cost Trade receivables Cash and cash equivalents The financial liabilities of the Group are categorised as follows: At amortised cost Trade payables Accruals Other payables Current bank borrowings Non-current bank borrowings Current lease liabilities Non-current lease liabilities Financial risk management Overview 31 May 2020 £000 31 May 2019 £000 2,765 1,104 3,869 3,445 1,065 4,510 31 May 2020 £000 31 May 2019 £000 1,378 675 521 2,671 1,950 927 1,478 9,600 1,641 374 689 4,655 2,289 - - 9,648 The Group is exposed through its operations to the following financial risks: • Credit risk • Market risk in the form of foreign exchange risk • Liquidity risk In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. The Group’s risk management is coordinated by the Directors who focus on securing the Group’s short to medium-term cash flow through regular review of all the operating activities of each of the businesses. The most significant financial risks to which the Group is exposed are described as follows: Credit risk The Group’s exposure to credit risk is limited to the carrying amount of financial assets recognised at the balance sheet date as follows: Trade receivables 31 May 2020 £000 31 May 2019 £000 2,765 3,445 The Group has adopted the IFRS 9 simplified approach to measuring expected credit losses using expected loss rates and a provision matrix. The provision matrix is based on the Group’s historical default rates over the expected life of the trade receivables adjusted for forward looking estimates. 54 Notes forming part of the financial statements for the year ended 31 May 2020 25 Financial instruments (continued) Credit risk (continued) At 31 May 2020 £465,000 (2019: £1,234,000) of the Group’s trade receivables were past due. An expected loss provision of £260,000 (2019: £728,000) is held to mitigate the exposure to bad and doubtful debts. The ageing of the Group’s trade receivables is as follows: Overdue up to 3 months Overdue by 3 to 6 months Overdue by 6 to 12 months Overdue by more than 12 months Total past due trade receivables Total receivables not yet past due Total gross receivables Expected credit loss Total trade receivables (note 20) 31 May 2020 £000 31 May 2019 £000 268 47 - 150 465 2,560 3,025 (260) 2,765 410 78 45 701 1,234 2,939 4,173 (728) 3,445 The ageing profile above is the profile used by management to review debts however it is the expected credit loss model which is used to calculate the provision. The expected loss provision for trade receivables is as follows: As at 31 May 2020 Overdue up to 3 months Overdue by 3 to 6 months Overdue by 6 to 12 months Overdue by more than 12 months 31 May 2020 £000 Not due Expected loss rate 3% Gross carrying amount 2,562 10% 266 Loss provision (78) (27) Net carrying value 2,484 239 10% 0% 100% 47 - 150 3,025 (5) 42 - - (150) (260) - 2,765 As at 31 May 2019 Overdue up to 3 months Overdue by 3 to 6 months Overdue by 6 to 12 months Overdue by more than 12 months 31 May 2019 £000 Not due Expected loss rate 1% Gross carrying amount 2,939 3% 410 Loss provision (29) (16) Net carrying value 2,910 394 7% 10% 96% 78 45 701 4,173 (5) 73 (5) 40 (673) (728) 28 3,445 The situation with regard to the Covid-19 pandemic has not significantly affected the expected credit model as a large proportion of the debts are covered by debt insurance which has mitigated this risk. 55 Notes forming part of the financial statements for the year ended 31 May 2020 25 Financial instruments (continued) Credit risk (continued) A reconciliation of the movement in the impairment loss for trade receivables is shown below: Expected credit loss provision at start of period Amount charged Amount utilised Effect of movements in foreign exchange rates Expected credit loss provision at end of period Foreign currency 31 May 2020 £000 31 May 2019 £000 728 61 (542) 13 260 708 35 (19) 4 728 The carrying values of the Group’s trade and other receivables are denominated in the following currencies: Euro Chinese Yuan US Dollar Sterling Total trade and other receivables 31 May 2020 £000 31 May 2019 £000 2,629 - 76 60 2,765 3,799 184 340 59 4,382 The carrying values of the Group’s trade and other payables are denominated in the following currencies: Euro Chinese Yuan US Dollar Sterling Total trade and other payables All the groups external loans are denominated in Euros. 31 May 2020 £000 31 May 2019 £000 2,355 - 439 83 2,877 2,150 195 364 61 2,770 56 Notes forming part of the financial statements for the year ended 31 May 2020 25 Financial instruments (continued) Liquidity risk The Group manages its liquidity needs very carefully on a short and medium terms basis. Longer term needs are monitored as part of the Group’s budgetary process. The Group’s financial liabilities have contractual maturities which are summarised below: As at 31 May 2020 Amounts due in Less than 1 year £000 2 to 5 years £000 After 5 years £000 Trade payables Accruals Other payables Current bank borrowings Non-current bank borrowings Current lease liabilities Non - current lease liabilities 1,378 675 521 2,671 - 927 - - - - - 1,950 - 1,315 - - - - - - 163 As at 31 May 2019 Amount due in 2 to 5 years £000 Less than 1 year £000 Total £000 1,641 374 689 4,655 - - - - - - - 2,289 - - 1,641 374 689 4,655 2,289 - - Total £000 1,378 675 521 2,671 1,950 927 1,478 Net carrying value 6,172 3,265 163 9,600 7,359 2,289 9,648 26 Provisions Provision as at 31 May 2019 and 2020 Tax £000 100 A provision was made in 2019 for additional tax which may fall due following a prior year tax assessment in Germany. 57 Notes forming part of the financial statements for the year ended 31 May 2020 27 Share capital Issued and fully paid 2020 Number 2020 £000 2019 Number At beginning and end of the year 31,600,000 3,792 31,600,000 2019 £000 3,792 At 31 May 2020, no options over ordinary shares of the Company were outstanding (2019: nil). The are no rights, preferences or restrictions attached to the ordinary shares. The Group has made purchases of its own ordinary shares of 12 pence each to be held in treasury as follows: Shares purchased as at 31 May 2018 Shares purchased in the year Shares purchased as at 31 May 2019 and 2020 Number of shares 9,247,760 30,000 9,277,760 Cost £000 1,847 9 1,856 Shares cancelled as at 31 May 2019 and 2020 (4,998,603) (1,049) Shares held in treasury at 31 May 2019 and 2020 4,279,157 807 The cost of cancelled shares has been calculated on a “first in, first out” basis, and the nominal value of cancelled shares (£599,832) is shown in the consolidated statement of financial position as the capital redemption reserve, a component of equity. The cost of shares held in treasury is shown in the consolidated statement of financial position as the treasury share reserve, again as a component of equity. 28 Leases The Group holds operating leases in respect of retail stores and motor vehicles used in Germany. The total future values of minimum lease payments in respect of all operating leases are due as follows: Not later than one year Later than one year and not later than five years Total future values of minimum lease payments 29 Commitments 31 May 2019 £000 1,229 2,504 3,633 At 31 May 2020, there were £110,000 capital commitments authorised and committed (2019: £353,000). There were no amounts authorised but not committed (2019: £nil). 30 Related party transactions Whilst KMR was a joint venture in 2019, the Company paid £15,000 in respect of warehouse rent and management fees to Hemmers during the year. The Directors consider that this transaction was made on an arm’s length basis. 58 Company Statement of Financial Position at 31 May 2020 Prepared under FRS 101 "Reduced Disclosure Framework" Company number 00067863 Note 31 May 2020 £000 31 May 2019 £000 Assets Non-current assets Investments in subsidiary undertakings Amounts receivable from subsidiary undertakings Total non-current assets Current assets Trade and other receivables Cash at bank and in hand Liabilities Current liabilities Trade and other payables Total current assets TOTAL NET ASSETS Capital and reserves Share capital Capital redemption reserve Treasury share reserve Retained earnings TOTAL EQUITY 4 5 5 6 7 3,370 2,699 6,069 13 349 362 (83) 279 6,348 3,792 600 (807) 2,763 6,348 3,370 3,022 6,392 15 94 109 (61) 48 6,440 3,792 600 (807) 2,855 6,440 The loss of the company for the year was £92,000 (2019: profit £3,000). The financial statements on pages 59 to 60 were approved and authorised for issue by the Board of Directors on 21 October 2020 and were signed on behalf of the Board by: - Jan G Holmstrom Chairman The notes on pages 61 to 63 form part of these financial statements. 59 Company Statement of Changes in Equity for the year ended 31 May 2020 At 31 May 2018 Profit for the year Transaction with Shareholders: Purchase of treasury shares At 31 May 2019 (Loss) for the year Share capital £000 Capital redemption reserve £000 Treasury share reserve £000 Retained earnings Total equity £000 £000 3,792 600 (798) 2,852 6,446 - - - - - (9) 3 - 3 (9) 3,792 600 (807) 2,855 6,440 - - - (92) (92) At 31 May 2020 3,792 600 (807) 2,763 6,348 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. Retained earnings Cumulative net gains/(losses) recognised in the Company’s profit and loss account after deducting the cost of cancelled treasury shares. The notes on pages 61 to 63 form part of these financial statements. 60 Notes forming part of the financial statements of the Company for the year ended 31 May 2020 1 Accounting policies Basis of preparation These financial statements have been prepared in accordance with FRS 100 and FRS 101, and the Company takes advantage of all of the available disclosure exemptions permitted by FRS 101 in the financial statements, the most significant of which are summarised below. • certain disclosures regarding the company's capital; • certain disclosures regarding financial instruments; • a statement of cash flows; • the effect of future accounting standards not yet adopted; • the disclosure of the remuneration of key management personnel; and • disclosure of related party transactions with other wholly owned members of Leeds Group. Investments Investments in subsidiary undertakings are stated at cost less any impairment for permanent diminution in value. Impairment of intercompany receivables At each financial year end, the Company assesses whether there is an indication that is its assets have been impaired. If there is an indication that its assets have been impaired, the recoverable amount is assessed to determine the extent of the impairment. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash generating unit to which it relates is determined. The recoverable amount is defined as the higher of the fair value less costs to sell and value in use at that date. Value in use is calculated as the expected future cash flows discounted on a pre-tax basis, using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to that assets or cash generating unit. If the recoverable amount of the asset is less than the carrying value, the carrying value is reduced to its recoverable amount, that reduction is recognised as an impairment loss. An impairment loss relating to an asset carried at cost less accumulated depreciation or amortisation is recognised immediately in the profit and loss account. If an impairment loss subsequently reverses, the carrying value of the asset is increased to the revised recoverable amount but limited to the carrying value that would have been determined had no impairment been recognised in prior years. A reversal of an impairment loss is recognised in the profit and loss account. Financial assets and liabilities IFRS 9’Financial Instruments’ outlines the principles an entity must apply to measure and recognise financial assts and liabilities. The Group recognises financial assets and liabilities when it becomes a party to the terms of the contract, which is the settlement date. Financial assets Financial assets that are held to collect are categorised as amortised cost under IFRS 9. This includes the Group’s trade and other receivables and cash and cash equivalents. The measurement of these financial assets held at amortised cost remains unchanged since the introduction of IFRS 9. Amounts receivable from subsidiary undertakings Amounts receivable from subsidiary undertakings are initially measured at fair value and subsequently measured at amortised cost. Impairment provisions are recognised based on the general approach within IFRS 9, which requires an assessment of whether there has been a significant increase in credit risk since initial recognition of the facility. The requirement for a provision is assessed based on 12-month expected credit losses, or lifetime credit losses, as appropriate. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and on short term deposit, together with other short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of change in value. 61 Notes forming part of the financial statements of the Company for the year ended 31 May 2020 1 Accounting policies (continued) Financial liabilities The classification and measurement of financial liabilities in accordance with IFRS 9 remains largely unchanged. All financial liabilities are measured at amortised cost and include trade and other payables and bank borrowings. Trade and other payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate. Foreign Currency The financial statements are presented in UK pounds sterling, which is the company's functional currency. Transactions entered into by the Company in a currency other than sterling are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss. Dividends Interim dividends are recognised when paid and final dividends are recognised when approved by the shareholders at the AGM. 2 Statement of Comprehensive Income A separate statement of comprehensive income for the Company is not presented, in accordance with Section 408 of the Companies Act 2006. The loss for the year for the Company dealt with in the consolidated financial statements of the Company was £92,000 (2019: profit £3,000). The remuneration of the Auditors is disclosed in note 5 to the consolidated financial statements. 3 Staff costs The average number of persons employed in the year by the Company (including Directors) was 4 (2019: 4). Staff costs, including Directors, comprise Wages and salaries Defined contribution pension cost Employer’s national insurance contributions and similar taxes Total staff costs Year ended 31 May 2020 Year ended 31 May 2019 £000 £000 108 1 2 111 108 1 3 112 The remuneration of the Directors is disclosed in note 6 to the consolidated financial statements. Outstanding share options granted to employees or Directors at 31 May 2020 were nil (2019: nil). 4 Investments in subsidiary undertakings At 31 May 2020 and 31 May 2019 Cost £000 3,370 Accumulated impairment £000 Net carrying amount £000 - 3,370 Details of subsidiary undertakings are given on the Group Information page 1 and in note 17 to the consolidated financial statements. 62 Notes forming part of the financial statements of the Company for the year ended 31 May 2020 5 Trade and other receivables Prepayments and accrued income Amounts receivable from subsidiary undertakings Total trade and other receivables 31 May 2020 £000 31 May 2019 £000 13 2,699 2,712 15 3,022 3,037 No impairment loss was recognised in the year in respect of amounts receivable from subsidiary undertakings. (2019: £nil). The amounts receivable from subsidiary undertaking relates to long term loans with details as follows: Fixed Interest Rate Repayment Profile 31 May 2020 £000 31 May 2019 £000 Loan 1 Loan 2 8% 8% Repayable on demand Repayable on demand 2,699 - 2,650 372 6 Trade and other payables Accruals and deferred income Total trade and other payables 7 Share capital Issued and fully paid 31 May 2020 £000 31 May 2019 £000 83 83 2020 Number 2020 £000 2019 Number 61 61 2019 £000 3,792 At beginning and end of the year 31,600,000 3,792 31,600,000 At 31 May 2020, no options over ordinary shares of the Company were outstanding (2019: nil). Details of the shares held in treasury are disclosed in note 27 to the consolidated financial statements. 8 Commitments There were no contracted capital commitments for the Company in either period. 63 Five Year Summary of Results and Capital Employed Year ended 31 May 2020 £000 Year ended 31 May 2019 £000 Year ended 31 May 2018 £000 Year ended 31 May 2017 £000 Year ended 31 May 2016 £000 35,555 (29,623) 41,271 (32,254) 41,538 (32,526) 41,053 (32,468) 36,272 (28,563) 5,932 (8,020) 9,017 (9,057) 9,012 (7,860) 8,585 (7,008) 7,709 (6,165) Results Revenue Cost of sales Gross profit Operating expenses (Loss)/profit from operations (excluding impairment charges) Net finance expense Share of post-tax (loss)/profit of joint venture Impairment of goodwill (2,088) (260) - - (40) (194) (34) (982) (Loss)/profit before tax Tax charge (2,348) (6) (1,250) (43) 1,152 (160) (107) - 885 (340) 1,577 (162) 1,544 (88) 33 - 51 - 1,448 (334) 1,507 (468) (Loss)/profit after tax (2,354) (1,293) 545 1,114 1,039 Assets Non-current assets Current assets 10,624 14,962 9,615 17,940 10,110 16,831 10,339 18,756 7,359 15,156 Total assets 25,586 27,555 26,941 29,095 22,515 Non-current liabilities Current liabilities (3,428) (6,575) (2,289) (7,525) (3,985) (3,968) (4,259) (6,534) (4,073) (2,930) Total liabilities (10,003) (9,814) (7,953) (10,793) (7,003) Total net assets 15,583 17,741 18,988 18,302 15,512 Financed by Total equity Key Statistics 15,583 17,741 18,988 18,302 15,512 Basic and diluted (loss)/earnings per share (8.6p) (4.7p) 2.0p 4.1p 3.8p Net assets per share 57.0p 64.9p 69.4p 66.9p 56.5p 64 Notice of Annual General Meeting The one hundred and twentieth annual general meeting of the Leeds Group plc (the Company) will be held at 12 noon on 23 November 2020 for the following purposes: To consider and, if thought fit, pass the following resolutions which will be proposed as ordinary resolutions: 1. 2. 3. 4. 5. To receive the report of the Directors, the financial statements for the year ended 31 May 2020 and the report of the auditors thereon. To re-appoint Mr Johan Claesson as a director. To re-appoint Mr Jan Holmstrom as a director. To re-appoint BDO LLP as auditors of the Company from the conclusion of this meeting until the conclusion of the next general meeting at which the financial statements are laid before the Company. To authorise the Directors to fix the auditor's remuneration. Special business To consider and, if thought fit, pass the following resolutions, of which resolution 6 will be proposed as an ordinary resolution and resolution 7 will be proposed as a special resolution: 6. 7. That, the Directors of the Company ("Directors") be and hereby are generally and unconditionally authorised for the purposes of section 551 of the Companies Act 2006 (the "Act") to exercise all powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company ("Rights") up to an aggregate nominal amount of £1,093,000 (being approximately one third of the existing issued share capital of the Company). The authority conferred by this resolution shall expire on the conclusion of the next annual general meeting of the Company held after the passing of this resolution or the date which falls 15 months from the date of passing of this resolution (whichever shall first occur), except that the Company may, before such expiry, make an offer or agreement which would or might require shares to be allotted or Rights to be granted after such expiry, and the Directors may allot shares and grant Rights in pursuance of such offer or agreement notwithstanding that the authority conferred by this resolution has expired. This authority is in substitution for all previous authorities granted to the Directors to allot shares and grant Rights, but without prejudice to the allotment of shares or grant of Rights already made or to be made pursuant to such authorities. That, subject to the passing of resolution 6, the Directors of the Company ("Directors") be and hereby are empowered pursuant to sections 570 and 573 of the Companies Act 2006 (the "Act") to allot equity securities (within the meaning of section 560 of the Act) wholly for cash pursuant to the authority conferred by resolution 6 or where the allotment constitutes an allotment of equity securities by virtue of section 560(3) of the Act as if section 561 of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities: 7.1 in connection with an offer of such securities by way of a rights issue, open offer or other pre-emptive issue or offer to holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings of such shares, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements, treasury shares, record dates or any legal, regulatory or practical problems under the laws of any territory, or the requirements of any recognised regulatory body or stock exchange in any territory or any other matter whatever; and 7.2 otherwise than pursuant to sub-paragraph 7.1, up to an aggregate nominal amount of £189,000 (being approximately 5 per cent. of the existing issued share capital of the Company. 65 Notice of Annual General Meeting (continued) Special business (continued) The powers conferred by this resolution shall expire on the conclusion of the next annual general meeting of the Company held after the passing of this resolution or the date which falls 15 months from the date of passing of this resolution (whichever shall first occur), except that the Company may, before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred by this resolution has expired. For the purpose of this resolution 7: a) b) references to an "allotment of equity securities" shall include a sale of treasury shares; and the nominal amount of any securities shall be taken to be, in the case of rights to subscribe for or convert any securities into shares of the Company, the nominal amount of such shares which may be allotted pursuant to such rights. By Order of the Board Dawn Henderson Company Secretary Craven House 14-18 York Road Wetherby Leeds LS22 6SL 21 October 2020 66 Notice of Annual General Meeting (continued) Notes 1. 2. 3. 4. 5. 6. Shareholders of the Company are entitled to attend, speak and vote, either in person or by proxy, at general meetings of the Company. However, in light of the UK Government’s current guidance on public gatherings due to the Covid-19 pandemic, for this year's annual general meeting, the Board has concluded that shareholders cannot be permitted to attend the annual general meeting in person and so it will take place as a closed meeting. The annual general meeting will be held by electronic means. It is strongly advised that shareholders appoint the Chairman of the annual general meeting as their proxy to vote in accordance with their instructions. This the formal notification to members of the annual general meeting, its date and time, and the matters to be considered. If you are in doubt as to what action to take you should consult an independent adviser. Resolutions 1 to 6 (inclusive) will be proposed as ordinary resolutions. A simple majority (being more than 50 per cent.) of votes cast must be in favour of each such resolution in order for it to be passed. Resolution 7 will be proposed as a special resolution. A special resolution requires 75 per cent. or more of votes cast to be in favour of the resolution in order for it to be passed. Resolutions 6 and 7 are items of special business. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001 (as amended), only those shareholders registered in the register of members of the Company at 8.30pm on 19 November 2020 as holders of ordinary shares of 12p each in the capital of the Company shall be entitled to vote at the meeting in respect of the number of shares registered in their name at that time. Changes to entries in the register of members of the Company after that time shall be disregarded in determining the rights of any person to vote at the meeting. A member entitled to vote may appoint a proxy to attend, speak and to vote in his or her stead. A member may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member. A proxy need not be a member of the Company but will need to participate in the annual general meeting in order to represent the member. Members are strongly urged to register their votes in advance by appointing the Chairman of the annual general meeting as their proxy (and not any other person). It is not recommended that any other person is appointed as a proxy as they will not be able to attend the annual general meeting and the vote will not be counted. A member can vote either by logging on to www.signalshares.com and following the instructions; in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the procedures set out in note 6; or by requesting a hard copy form of proxy directly from the registrars, Link Asset Services on Tel: 0371 664 0300 or email Link at shareholderenquiries@linkgroup.co.uk. To submit a proxy electronically using the link www.signalshares.com you will need to log into your Signal Shares account, or register if you have not previously done so. To register you will need your Investor Code which is detailed on your share certificate. need help with voting online, please contact our Registrar, Link Asset Services, on Tel: 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales. During this challenging time, extra pressure is being put on telephone services and it may just take a little longer to get through than normal. Or email Link at shareholderenquiries@linkgroup.co.uk. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the annual general meeting (and any adjournment of it) by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed (a) voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. 67 Notice of Annual General Meeting (continued) Notes (continued) In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message ("CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear UK & Ireland Limited's ("Euroclear") specifications, and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the Company's agent (ID RA10) by 12 noon on 19 November 2020. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the Company's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001 (as amended). In the case of joint holders, where more than one of the joint holders’ purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior). To be valid, the form of proxy and any power of attorney or the authority under which it is signed (or a notarially certified copy of it) must be completed and submitted electronically using the Signal Shares system; CREST system; or lodged at the Registrars of the Company, Link Asset Services, FREEPOST SAS, 34 Beckenham Road, Beckenham, BR3 9ZA not later than 12 noon on 19 November 2020. Completion and return of a form of proxy would not ordinarily preclude a member from subsequently attending and voting at the meeting. However, as the annual general meeting is being held as a closed meeting, this year members will not be able to attend. To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off time for receipt of proxy appointments (see note 8 above) also applies in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. Where you have appointed a proxy using a hard-copy proxy form and would like to change the instructions using another hard-copy proxy form, please contact Link Asset Services, FREEPOST SAS, 34 Beckenham Road, Beckenham, BR3 9ZA. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. In order to revoke a proxy instruction, you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to Link Asset Services. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice. The revocation notice must be received by Link Asset Services at FREEPOST SAS, 34 Beckenham Road, Beckenham, BR3 9ZA no later than 12 noon on 19 November 2020. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to paragraph 8 above, your proxy appointment will remain valid. 68 7. 8. 9. 10. 11. Notice of Annual General Meeting (continued) Notes (continued) 12. As at 21 October 2020 (being the last practicable business day prior to the publication of this notice) the Company’s issued share capital consisted of 31,600,000 ordinary shares of 12 pence each, with one voting right per share. There are 4,279,157 shares held in treasury, representing approximately 13.45 per cent of the total issued share capital. Thus, the total voting rights in the Company as at 21 October 2020 are 27,320,843. A member may not use any electronic address (within the meaning of section 333(4) of the Act) provided in this notice of meeting (or in any related or accompanying document, including the form of proxy) to communicate with the Company for any purposes other than those expressly stated. Explanation of resolutions Resolution number 1 The Directors must present to shareholders the report of the Directors and the financial statements for the year ended 31 May 2020. That report and those financial statements, and the report of the Company's auditors on those financial statements, are set out on pages 1 to 63 of this document. Resolution numbers 2 and 3 At each annual general meeting, one third of the Directors of the Company for the time being (other than those appointed since the last annual general meeting) are required to retire. If the number of relevant Directors is not a multiple of three, the number nearest to but not less than one third of the Directors are required to retire. Any retiring director is eligible for re-appointment. At this annual general meeting, Mr Johan Claesson and Mr Jan Holmstrom are the Directors subject to retirement by rotation. Resolutions 2 and 3 propose the re-appointment of Mr Claesson and Mr Holmstrom, respectively. Resolution number 4 The auditors of the Company must be re-appointed at each meeting at which the financial statements are presented. Resolution 4 proposes the re-appointment of BDO LLP, who have indicated their willingness to be so re-appointed. Resolution number 5 Resolution 5 follows past practice in giving the Directors authority to agree the auditor’s remuneration. Resolution number 6 The Directors are seeking authority to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company ("Rights") up to an aggregate nominal amount of £1,093,000 being an amount representing approximately 33 per cent of the Company's current issued share capital (excluding treasury shares). It is not the Directors' current intention to allot shares or to grant Rights pursuant to this resolution. This authority expires at the conclusion of the next annual general meeting of the Company or 15 months from the date of passing of the resolution, whichever is the earlier and is in substitution for, all existing like authorities. Resolution number 7 This resolution disapplies the statutory pre-emption rights which would otherwise apply on an issue of shares for cash and is limited to allotments in connection with a rights issue or other pre-emptive offer where the securities attributable to the interests of all shareholders are proportionate (as nearly as may be) to the number of shares held and otherwise up to a further nominal amount of £189,000, being approximately 5 per cent of the Company's current issued share capital (including treasury shares). This disapplication of the statutory pre-emption rights expires at the conclusion of the next annual general meeting of the Company or 15 months from the date of passing of the resolution, whichever is the earlier. This authority also covers the sale of treasury shares for cash. It is the Company's intention to adhere to the provisions in the Pre-Emption Group's Statement of Principles regarding cumulative usage of authorities within a three-year rolling period where the principles provide that usage in excess of 7.5 per cent should not take place without prior consultation with shareholders. 69 LEEDS GROUP PLC Registered in England and Wales Registered Number 00067863 Registered Office Craven House 14 - 18 York Road Wetherby Leeds LS22 6SL Tel: 01937 547877 Email: admin@leedsgroup.plc.uk Website: www.leedsgroup.plc.uk 

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