Leeds Group plc
Annual Report 2022

Plain-text annual report

LEEDS GROUP PLC Annual Report and Accounts 2022 Contents Group Information and Advisors Strategic Report Chairman’s Statement Finance and Operating Review Governance Board of Directors Chairman’s Corporate Government Statement Corporate Governance Report Directors’ Report Independent Auditor’s Report FFinancial Statements 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 Appendix 1 - Five Year Summary of Results and Capital Employed Notice of Annual General Meeting 1 2 2 3 7 8 9 18 22 29 30 31 32 33 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 Dormant (Liquidation finalised 14 September 2022) 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 Group Advisers Solicitors Financial Advisers Auditors Walker Morris LLP 33 Wellington Street Leeds LS1 4DL Cairn Financial Advisers LLP Ninth Floor 107 Cheapside London EC2V 6DN MHA MacIntyre Hudson Sixth Floor 2 London Wall Place London EC2Y 5AU Registrars* Principal Bankers Link Group Tenth Floor Central Square 29 Wellington Street Leeds LS1 4DL Lloyds Bank 1 Lovell Park Road Leeds LS1 1 NS * Calls to the Link Group shareholder helpline 0871 664 0300 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. Or you can contact them by e mail shareholderenquiries@linkgroup.co.uk. 1 Strategic Report Chairman’s Statement It has been another challenging year for the Group. In our interim report, we announced that the Covid-19 pandemic had continued to impact the Group’s trading activities in the first half of the year. Despite the easing of the Covid-19 restrictions in the second half of the year, the conflict in Ukraine has had a major impact in both the global marketplace and in particular the local German economy further affecting consumer confidence. The wholesale trading in Hemmers and the retail chain business KMR were, therefore, considerably affected in the last three months of the financial year. With the conflict in Ukraine continuing, the uncertainty in the global markets remains and the impact on the German economy has continued. We have reviewed all options available to both Hemmers and KMR to meet these ongoing challenges. Following an independent review, it was determined that the KMR business was not viable. On 7 October 2022, the German Courts accepted Hemmers’ management decision to place its subsidiary KMR into an insolvency process. We are now completely focused on ensuring the core Hemmers business returns to profitability. A detailed restructuring plan has been put in place which has the support of the Group’s lenders. Sales demand has improved, and the focus is to increase sales within the wholesale markets. The Directors believe that the outlook for the Company is positive, and the measures taken will ensure Hemmers can operate efficiently and look to increase their market share both in Germany and other European markets. On behalf of shareholders, I want to thank all the management and staff within the Group who have all continued with their best efforts to work through difficult and challenging times. 2 Strategic Report (continued) 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 2022, 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 • • • loss before tax earnings per share working capital levels Group result Group revenue for the continuing operations in the year was £29,590,000 (2021: £33,013,000). The effects of the Covid-19 pandemic have affected both Hemmers and KMR again this year although to a lesser effect than 2021. The German government did not provide the same levels of financial support as they did in 2021 as there were only local restrictions imposed rather than country-wide lockdowns. Thus, the Group received government assistance of £119,000 in the year as compared to £966,000 received in 2021. The Group has also been affected by the conflict in Ukraine during the year. The reduced sales figures for the Group have not generated enough contribution to cover the fixed overheads and both Hemmers and KMR have, therefore, made losses after interest for this financial year. After the year end, management decided to place KMR into an insolvency process. As a result of the insolvency, KMR will only generate future losses and therefore, an impairment charge of £1,662,000 has been recognised in this year’s accounts with the assets relating to the KMR retail shops being written down to a £nil net book value. The Group’s operating loss was £2,990,000 (2021: loss £280,000) and the Group’s loss before tax was £3,245,000 (2021: loss £508,000). The tax charge in the year was £4,000 (2021: credit £42,000). The tax charge relates to the planned liquidation of Leeds Properties GmbH, which has been dormant for the last year. In Germany, tax losses can only be carried back against profits made in the previous two years so there is no relief for the current year losses in both Hemmers and KMR. The total loss per share was 11.9p (2021: loss per share 1.7p). Hemmers Hemmers is a global business engaged in designing, importing, warehousing and wholesaling of fabrics from Germany. The market in Germany has been affected by the ongoing Covid-19 pandemic and the current conflict in Ukraine. Consumer confidence is low which has again reduced demand. External sales for the year were therefore lower than last year at £23,998,000 (2021: £27,669,000). The gross contribution percentage increased to 34% (2021: 30%) as prices have been increased to mitigate the fall in sales volumes. However, with the decrease in sales levels, the gross profit has fallen to £4,440,000 (2021: £4,580,000). Fixed overheads have increased in the year due to increased salary costs and computer depreciation with reduced government financial assistance of £119,000 (2021: £274,000) thus Hemmers produced a loss before interest of £415,000 (2021: profit £330,000). Hemmers is completely focused on growing its business domestically and internationally in its wholesale markets with a more customer focused sales strategy. Our aim is for Hemmers to continue to compete in the global marketplace gaining further market share and, therefore, returning to profitability after interest. Hemmers bank debt, net of cash, increased in the year to £5,643,000 (2021: £3,558,000) with the reduced level of sales resulting in higher stock levels. The bank debt is secured on the assets of Hemmers. 3 Strategic Report (continued) Finance and Operating Review (continued) Business review (continued) KMR KMR is a retail trading business in Germany. KMR was badly affected by the Covid-19 pandemic in 2021 resulting in the closure of all its retail shops during countrywide lockdowns. In 2022, various local restrictions were imposed by the German government, but to a lesser extent than 2021. Therefore, the impact of the Covid-19 pandemic on KMR was lower than 2021. Sales were slightly higher than last year at £5,592,000 (2021: £5,344,000). The gross contribution percentage decreased slightly to 53.5% (2021: 56%). Last year KMR received financial support from the German government amounting to £692,000 as a result of the lockdowns, however, this year KMR has received no financial support. As a result of the insolvency process after the year end, KMR will only generate future losses and therefore, an impairment provision of £1,662,000 has been made in relation to the assets of KMR. This has resulted in a loss before interest for the year of £2,277,000 (2021: loss £211,000) and a loss after interest of £2,370,000 (2021: loss £311,000). KMR bank debt, net of cash, increased in the year to £1,017,000 (2021: £749,000). Fixed Assets The net book amount of tangible fixed assets is £7,335,000 (2021: £7,750,000). Capital additions in the year amounted to £447,000 (2021: £562,000). The net book value of right-to-use assets is £170,000 (2021: £2,453,000). These relate to car leases, of which there were £45,000 additions during the year (2021: £184,000). As a result of the decision by management to place KMR into insolvency post year end (see note 26), KMR will only generate future losses and therefore, an impairment charge of £1,662,000 (2021: £333,000) has been recognised in this financial year relating to right-of-use assets £1,620,000 and leasehold improvements £42,000. Thus, all the KMR assets relating to leasehold shops have been written down to £nil in the year. Working Capital and Cash Flow Net debt increased from £3,952,000 to £6,381,000 in the year. Net cash used in the year at average exchange rates was £344,000 (2021: used £610,000). Working capital, which comprises inventories, trade and other receivables and trade and other payables, increased in the year by £1,139,000 (2021: increased by £452,000) mainly due to increased stock levels as a result of the reduced demand in the last three months of the financial year. Loan repayments of £708,000 (2021: £771,000) have been made this year. New loans taken out in the year £2,835,000 (2021: £787,000) relating to short term debt. This has arisen due to the reduced trading and increased stock levels. Lease liability repayments (including interest) of £1,059,000 (2021: £1,059,000) 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 £3,384,000 as follows: At 31 May 2021 Loss after tax Translation differences At 31 May 2022 Net assets £000 14,561 (3,249) (135) 11,177 Per share pence 53.3 (11.9) (0.5) 40.9 4 Strategic Report (continued) Finance and Operating Review (continued) Business review (continued) Debt Profile The funding policy of the Group continues 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 by long term loans at fixed interest rates between 1.05% and 1.65%. Working capital finance, when required, is via short term loans of three months currently attracting interest at rates of between 1.5% and 3%. Bank debt in the subsidiaries is secured by charges on inventories, receivables and property and is without recourse to the Parent Company. Principal risks and uncertainties The Board has identified the main categories of business risk in relation to the Group’s strategic aims and objectives, and has considered reasonable steps to prevent, mitigate and manage these risks. The principal risks identified are as follows: Funding risk The Group has a combination of short-term borrowing facilities and longer-term loan agreements secured on Group assets. The Group remains dependent upon the support of these funders and there is a risk that failure in a company to meet banking covenants could have implications for the Group. Borrowing facilities are monitored regularly and the facilities agreed are more than needed for the Group’s requirements. The Group has close working relationships with their current funders but believe alternative banking funders could be secured if required. Hemmers has a maximum working capital facility of €11m, restricted to the borrowing base which is calculated as 70% of eligible inventory and 80% of eligible debtors. In the financial year 2022, this resulted in average availability of €7.8m (2021: €7.7m) with a range of €6.5m to €8.8m (2021: €6.9m to €8.3m) and minimum headroom of €3.2m (2021: €4.5m) in the year. In the forecast period to 31 May 2024, the estimated availability range is €7.9m to €9.4m and the minimum headroom €2.4m. 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 2022, the ratio was 51% (2021: 60%). The facility is uncommitted, but the bank is obliged to give reasonable notice of any change. Hemmers also has another working capital facility of €1m secured on working capital which was fully drawn at the year end. The facilities are uncommitted, but the bank is obliged to give reasonable notice of any change. KMR has a fixed working capital loan facility of €1m which was fully drawn at the year end and a €0.5m bank overdraft facility secured on working capital, of which €0.4m was utilised as at 31 May 2022. The covenants on these facilities 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 2022, these ratios were 30.2% (2021: 55.5%) and 1.36 (2021: 1.54). The overdraft facility has now been withdrawn and the overdraft repaid. Considering the trading results in the first half of the current financial year and the decision to put KMR into insolvency, the Directors consider there will be sufficient headroom available on the Hemmers working capital facility and, therefore, the Directors are of the opinion that it is appropriate to apply the going concern basis of preparation to the financial statements. Market risk There is always the ongoing threat of reduced market demand. This has been seen this year and the Group continues to strive to combat the reduced demand by looking at other markets both domestically and internationally and looking at expanding its product ranges. The commercial risks of operating in the highly competitive European fabric market are limited by the fact that Hemmers has a wide range of suppliers, and no customer accounts for more than 5% of revenues. Foreign exchange risk Most fabric purchased by Hemmers is paid for in US dollars, while the Euro is the principal currency in which Hemmers sells its product. The Euro/dollar rate is of greater significance to Leeds Group than the strength of Sterling. The Hemmers’ management continue to manage this transactional currency risk by a combination of forward exchange contracts with reputable banks and sales price increases where necessary. 5 Strategic Report (continued) Finance and Operating Review (continued) Principal risks and uncertainties Ukraine conflict The Russian invasion of Ukraine has had a huge impact on global economies with prices increasing especially utility prices. This has in turn had an effect on consumer confidence which has resulted in reduced demand in the KMR retail shops and therefore, the decision was taken to place KMR into insolvency post year end (see note 26). 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. The Directors are acutely aware that the recent performance of the Company has been unsatisfactory with four consecutive loss-making years. The past two years have been especially challenging with the global Covid-19 pandemic now compounded by the ongoing Ukraine conflict which have affected the German economy with retail sales demand reducing considerably. A strategy of the Company has been to grow Hemmers’ retail subsidiary KMR, which was expected to generate profit in its own right, provide pull through profit for Hemmers and provide a platform for the Hemmers product ranges. Recent events have impacted this strategy and following an independent review, a decision was made in October 2022 to put KMR into insolvency. As detailed in the Chairman’s Statement, the Directors are now focused on developing the core Hemmers business and returning it to acceptable levels of profitability. The Directors are of the opinion that this provides the best prospects for the shareholders and all stakeholders associated with the Company. Hemmers’ bankers, who are a key stakeholder, are supportive of this strategy. 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. The strategic report was approved by the Board of Directors on 7 November 2022 and signed on its behalf by: Jan G Holmstrom Non-Executive Chairman 6 Board of Directors Jan G Holmstrom (Non-Executive Chairman) (Age 69) 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 55) 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 71) 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 the Chairman of Catella AB, a public listed company and Chairman of Claesson & Anderzén, a private property company. Johan joined the Board of Leeds Group in September 2004. David Cooper (Independent Non-Executive Director) (Age 64) 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 2020. 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 7 November 2022 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 2020. 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 usually held in Germany at least twice a year which include the Hemmers senior management team. However, due to the Covid-19 pandemic and the resulting travel restrictions, meetings were held via the internet last year and some meetings have been held via the internet this year also. 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 (continued) 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 2021/22, there were 3 internet Board meetings and 2 other Board meetings which were attended by all Directors. There was 2 further internet Board Meeting where all directors did not attend. In 2021/22 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 (continued) 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 behaviors 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 behaviors 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 (continued) 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 arrangements for senior management incentive • 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 (continued) Jan G Holmstrom Non-Executive Chairman 7 November 2022 17 Directors’ Report The Directors present their annual report and the audited financial statements for the year ended 31 May 2022. Principal activities Leeds Group plc has been established for more than a century and is incorporated in England and Wales under Company Number 0067863. 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. Results and dividend The consolidated statement of comprehensive income for the year is set out on page 29. Given the results of the financial year, the Directors do not recommend the payment of a dividend in 2022 (2021: £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 Mr Johan Claesson and Mr 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 7 November 2022. Substantial shareholdings The following shareholders held interests of 3% or more of the issued share capital of the Company as at 7 November 2022: % of issued share capital Mr Johan Claesson and associates Mr Peter Gyllenhammar and associates Sunningdale Investments Ltd 29.20 24.64 10.31 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 2022 and 31 May 2021. Leeds Group plc Ordinary shares of 12 pence each The market value of Leeds Group shares between 1 June 2021 and 31 May 2022 ranged between 14p and 31p. The average market value for the year was 23p, and as at 31 May 2022 the market value was 16p (31 May 2021: 28p). 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 and large unquoted companies are required to report under the Streamlined Energy and Carbon reporting unless exemptions apply. The UK operations do not consume more than 40,000kWh of energy in a reporting period granting them low energy status, and the overseas subsidiaries are incorporated in Germany and therefore are exempt from disclosure. Furthermore, as an unquoted group, the Group and Company does not meet the definition of large in current and prior periods and therefore is exempt from Streamlined Energy and Carbon 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 Following an independent review in September 2022, it was determined that the KMR business was not viable. On 7 October 2022, the German Courts accepted Hemmers management decision to place KMR into an insolvency process. The strategy of the Group is focused on returning Hemmers to profitability. 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 ongoing Ukraine conflict 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 Forecasts have been prepared for the 24-month period to May 2024 which indicate a return to modest profit over that period as result of cost reductions. These forecasts have been prepared in the knowledge of current Ukraine conflict conditions. At the end of the first half of the current financial year sales and profit were in line with forecast. The Company has sensitised these forecasts for a reduction in revenues for Hemmers and the banking facilities remain adequate. The Directors are of the opinion that this is a reasonable worst case, and the currently available facilities would be sufficient in this scenario. 19 Directors’ Report (continued) Going Concern (continued) Ukraine conflict The Russian invasion of Ukraine has had a huge impact on global economies with prices increasing especially utility prices. This has in turn had an effect on consumer confidence which has resulted in reduced demand in the KMR retail shops and therefore, the decision was taken to place KMR into insolvency post year end. 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 20. 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 2022, this resulted in average availability of €7.8m (2021: €7.7m) with a range of €6.5m to €8.8m (2021: €6.9m to €8.3m) and minimum headroom of €3.2m (2021: €4.5m) in the year. In the forecast period to 31 May 2024, the estimated availability range is €7.9m to €9.4m and the minimum headroom €2.4m. 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 2022, the ratio was 51% (2021: 60%). The facility is uncommitted, but the bank is obliged to give reasonable notice of any change. • A further working capital facility of €1m secured on working capital which was fully drawn at the year end. The facilities are uncommitted, but the bank is obliged to give reasonable notice of any change. • A €3m Parent Company loan which is currently subordinated to the working capital facility. KMR has a fixed working capital loan facility of €1m which was fully drawn at the year end and a €0.5m bank overdraft facility secured on working capital, of which €0.4m was utilised as at 31 May 2022. The covenants on these facilities 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 2022, these ratios were 30.2% (2021: 55.5%) and 1.36 (2021: 1.54). The overdraft facility has now been withdrawn and the overdraft repaid. Considering the trading results in the first half of the current financial year and the decision to put KMR into insolvency, the Directors consider there will be sufficient headroom available on the Hemmers working capital facility and, therefore, the Directors are of the opinion that it is appropriate to apply the going concern basis of preparation to the financial statements. 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 UK adopted International Financial Reporting Standards (‘UK adopted IFRS’) and in accordance with the Companies Act 2006. 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 Parent 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 properly prepared in accordance with UK adopted International Financial Reporting Standards in conformity with the Companies Act 2006, subject to any material departures disclosed and explained in the financial statements, including FRS101 Reduced Disclosure Framework: 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 MHA McIntyre Hudson as auditors of the Company following their appointment during the year by the Directors, 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. The Directors’ report was approved by the Board on 7 November and signed on its behalf by: Dawn Henderson Company Secretary Craven House 14 – 18 York Road Wetherby Leeds, LS22 6SL 21 Independent Auditor’s Report to the Shareholders of Leeds Group plc For the purpose of this report, the terms “we” and “our” denote MHA MacIntyre Hudson in relation to UK legal, professional and regulatory responsibilities and reporting obligations to the members of Leeds Group Plc. For the purposes of the table that sets out the key audit matters and how our audit addressed the key audit matters, the terms “we” and “our” refer to MHA MacIntyre Hudson. The Group financial statements, as defined below, consolidate the accounts of Leeds Group Plc and its subsidiaries (the “Group”). The “Parent Company” is defined as Leeds Group Plc. The relevant legislation governing the Parent Company is the United Kingdom Companies Act 2006 (“Companies Act 2006”). Opinion We have audited the financial statements, for the year ended 31 May 2022, which comprise: • • • • • • • • the consolidated statement of comprehensive income; the consolidated statement of financial position; the consolidated cash flow statement; the consolidated statement of changes in equity; the notes to the consolidated financial statements 1 to 26 including significant accounting policies; the Company statement of financial position; the Company statement of changes in equity; the notes to the Company financial statements 1 to 9 including significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK adopted International Financial Reporting standards and in accordance with the Companies Act 2006. 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 the Parent Company’s affairs as at 31 May 2022 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with UK adopted International Financial Reporting Standards (UK adopted IFRS) and in accordance with the Companies Act 2006; the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; the Group and Parent Company 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 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. 22 Independent Auditor’s Report to the Shareholders of Leeds Group plc (continued) Material uncertainty related to going concern We draw your attention to note 2 in the financial statements which states that the Group and Parent Company incurred substantial losses during the year and that the Group and Parent Company’s operational existence is dependent on the continued support from the Group’s bank facilities and the eventual return to profitability. The impact of this together with other matters set out in the note, indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and Parent Company’s ability to continue to adopt the going concern basis of accounting included: • The consideration of inherent risks to the Group’s operations and specifically its business model. • The evaluation of how those risks might impact on the Group’s available financial resources. • Review of the mathematical accuracy of the cashflow forecast model prepared by management and corroboration of key data inputs to supporting documentation for consistency of assumptions used with our knowledge obtained during the audit. • Challenging management’s assumptions in respect of the timing and quantum of cash receipts and payments included in the cash flow model to ensure these are reasonable. • Where additional resources may be required the reasonableness and practicality of the assumptions made by the Directors when assessing the probability and likelihood of those resources becoming available. • Holding discussions with management regarding future financing plans, corroborating these where necessary and assessing the impact on the cash flow forecast. • Evaluating the accuracy of historical forecasts against actual results to ascertain the accuracy of management’s forecasts. • Review of correspondence and documentation from the Group’s finance provider to ascertain their intent to maintain the current facilities. • Review of the independent report prepared by the Group’s insolvency practitioner to determine the future implications on the Group’s operations. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 23 Independent Auditor’s Report to the Shareholders of Leeds Group plc (continued) Overview of our audit approach Materiality The overall materiality that we used for the Group financial statements was £147,900 (2021: £165,000), which was determined as 0.5% of revenue (2021: 0.5% of revenue). Scope The overall materiality for the Parent Company financial statements was £30,900 (2021: £70,000), which was determined as 0.5% of gross assets (2021: 1.1% of net assets). Performance materiality was set at 70% (2020: 70%) of materiality for both the Group and Parent. 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. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the directors that may have represented a risk of material misstatement. The Group consists of four components, including the Parent Company. The Parent Company was subject to a full scope audit by the Group audit team. The two other significant components based in Germany were also subject to full scope audits, completed by our local BTI member firm acting as the component auditor. Material subsidiaries were determined based on: 1) financial significance of the component to the Group as a whole, and 2) assessment of the risk of material misstatements applicable to each component. Our audit scope results in all major operations of the Group being subject to audit work. Key audit matters In addition to the matters described in the Basis for Opinion section, we have determined the matters described below to be the key audit matters to be communicated in our report: • Inventory Valuation 24 Independent Auditor’s Report to the Shareholders of Leeds Group plc (continued) 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, that we identified. These matters included 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. We have determined the matters described below to be the Key Audit Matters to be communicated in our report. Inventory Valuation Key audit matter description The inventory held by the Group is a key and material area to the financial statements and accounts for a large amount of the Group’s current assets. Due to the nature of the Group’s operations, the inventory balance is inherently linked to both the purchases and the sales cycles. How the scope of our audit responded to the key audit matter Typically, items of inventory can be held for significant periods of time before eventually being sold. Therefore, there is the risk that various items of inventory may be held at an amount which is above its net realisable value. Management undertake a detailed assessment of any estimated provision required in order to write down inventory to the appropriate net realisable value. This judgement is detailed within Note 3 of the financial statements. We consider inventory to be a key audit matter due to its significant importance to the Group’s operations and the level of management estimation included with the final valuation. Our audit work included, but was not restricted to the following: • We obtained management’s provision calculation and ensured that the calculation had been prepared in line with the requirements of the applicable accounting standards and was mathematically correct. • We reviewed the inventory listing and inventory physically present in the warehouses for any slow-moving or obsolete stock items which require write off or provisioning. • We attended the year end inventory counts including sample testing of inventory items recorded on inventory count sheets to physical stock location in the warehouses and vice versa. • We performed a reconciliation between the inventory report and the statement of financial position amount including discussions with management regarding any discrepancies. • We performed substantive testing for a sample of inventory items held at the year end to the original purchase invoice and also to post year-end sales to ensure inventory is held at the lower of cost and net realisable value in the accounts. • We substantively tested goods in transit to supporting documentation and the appropriate despatch and delivery notes to ensure they were accounted for in the correct period. Key observations Based on the procedures undertaken, no issues were identified with management’s inventory provision nor the valuation of inventory. 25 Independent Auditor’s Report to the Shareholders of Leeds Group plc (continued) Our application of materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Our definition of materiality considers the value of error or omission on the financial statements that, individually or in aggregate, would change or influence the economic decision of a reasonably knowledgeable user of those financial statements. 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 effect on the financial statements as a whole. Materiality is used in planning the scope of our work, executing that work and evaluating the results. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall materiality How we determined it Rationale for the benchmark applied Group financial statements Parent Company financial statements £147,900 (2021: £165,000) £30,900 (2021: £70,000) 0.5% of revenue (2021: 0.5% of revenue) 0.5% of gross assets (2021: 1.1% of net assets) We consider revenue to be the main measure by which the users of the financial statements assess the financial performance and success of the Group. Therefore, we consider this to be the most for Group benchmark appropriate materiality. The Parent Company is largely a holding company incurring limited costs and therefore gross assets has been considered the most appropriate benchmark for materiality. Performance materiality is the application of materiality at the individual account or balance level, set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Group and the Parent Company performance materiality was set at 70% (2021: 70%) of Group and Parent Company materiality respectively for the 2022 audit. In determining performance materiality, we considered our understanding of the entity, including the quality of the control environment and whether we were able to rely on controls, and the nature, volume and size of uncorrected misstatements in the previous period. We agreed with management that we would report to them all audit differences in excess of £7,395 (2021: £6,600) for the Group and £1,545 (2021: £3,500) for the Company as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to management on disclosure matters that we identified when assessing the overall presentation of the financial statements. 26 Independent Auditor’s Report to the Shareholders of Leeds Group plc (continued) Overview of the scope of our audit The Group consists of 4 components, which are based in both the UK and Germany, audited by the Group audit team and component auditors locally. The coverage achieved by our audit procedures was: Full scope audit Analytical Procedures Total Number of components 3 1 4 Revenue Total assets Profit before tax 100% 0% 100% 100% 0% 100% 100% 0% 100% Other Information The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon. The Directors are responsible for the other information contained within the annual report. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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 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, or returns adequate for our audit have not been received from branches not visited by us; or • the 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. Responsibilities of the Directors As explained more fully in the Directors’ responsibilities statement, as 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. 27 Independent Auditor’s Report to the Shareholders of Leeds Group plc (continued) 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. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation. The specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud is detailed below: • Enquiry of management to identify any instances of non-compliance with laws and regulations. • Enquiry of management around actual and potential litigation and claims. • Enquiry of management to identify any instances of known or suspected instances of fraud. • Discussing among the engagement team regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. • Reviewing minutes of meetings of those charged with governance. • Performing audit work over the risk of management override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business, and reviewing accounting estimates for bias. • Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations. • Challenging assumptions and judgements made by management in their significant accounting estimates, in particular with respect to provisions for claims incurred but not reported. 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 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 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 Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Andrew Moyser FCA FCCA (Senior Statutory Auditor) For and on behalf of MHA MacIntyre Hudson, Statutory Auditor London 7 November 2022 28 Consolidated Statement of Comprehensive Income for the year ended 31 May 2022 Note Year ended 31 May 2022 Continuing operations Revenue Cost of sales Gross profit Distribution costs Impairment of assets Administrative costs Total administrative costs Other income Loss from operations Finance expense Loss before tax Tax (charge)/credit Loss for the year attributable to the equity holders of the Parent Company Other comprehensive loss Translation differences on foreign operations Total comprehensive loss for the year attributable to the equity holders of the Parent Company 7 5 5 5 8 9 £000 29,590 (24,121) 5,469 (2,483) (1,662) (4,461) (6,123) 147 (2,990) (255) (3,245) (4) (3,249) (135) Year ended 31 May 2021 £000 33,013 (26,700) 6,313 (2,647) (333) (4,579) (4,912) 966 (280) (228) (508) 42 (466) (556) (3,384) (1,022) 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 2022 Year ended 31 May 2021 Basic and diluted total loss per share (pence) 10 11.9p 1.7p The notes on pages 33 to 58 form part of these financial statements. 29 Consolidated Statement of Financial Position at 31 May 2022 Company number 00067863 Assets Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Total non-current assets Current assets Inventories Trade and other receivables Tax recoverable Cash on demand or on short term deposit 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 Foreign exchange reserve Retained earnings TOTAL EQUITY Note 31 May 2022 £000 31 May 2021 £000 12 13 14 16 17 18 20 21 19 20 21 23 24 24 7,335 170 52 7,557 11,994 2,864 13 471 15,342 22,899 (836) (1,165) (2,001) (3,065) (5,671) (885) (100) (9,721) (11,722) 7,750 2,453 58 10,261 10,287 2,867 136 670 13,960 24,221 (1,498) (1,856) (3,354) (2,265) (2,926) (1,015) (100) (6,306) (9,660) 11,177 14,561 3,279 1,113 2,050 4,735 3,279 1,113 2,185 7,984 11,177 14,561 The financial statements on pages 29 to 32 were approved and authorised for issue by the Board of Directors on 7 November 2022 and were signed on behalf of the Board by: - Jan G Holmstrom Non-Executive Chairman The notes on pages 33 to 58 form part of these financial statements. 30 Consolidated Cash Flow Statement for the year ended 31 May 2022 Note Year ended 31 May 2022 £000 Cash flows from operating activities Loss for the year Adjustments for: Government assistance credit Depreciation of property, plant and equipment Impairment of property, plant and equipment Depreciation of right-of-use assets Impairment of right-of-use assets Amortisation of intangible assets Finance expense – interest on bank loans Finance expense – interest lease liabilities Gain on sale of property, plant and equipment Tax charge/(credit) Cash from operating activities before changes in working capital and provisions Increase in inventories (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Cash (used in)/generated from operating activities Tax received Net cash flows (used in)/generated from operating activities Investing activities Purchase of property, plant and equipment Proceeds from the sale of fixed assets Net cash used in investing activities Financing activities Bank borrowings drawn Bank borrowings repaid Repayment of principal on lease liabilities Repayment of interest on lease liabilities Bank interest paid Government assistance received Net cash generated from/(used in) financing activities Net decrease in cash and cash equivalents Translation 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 Cash on demand or on short term deposit Bank overdrafts Cash and cash equivalents at the end of the year 5 12 12 13 13 14 8 8 5 9 16 17 19 12 20 20 21 21 8 5 18 18 18 19 The notes on pages 33 to 58 form part of these financial statements. 31 (3,249) (119) 735 42 827 1,620 5 179 76 - 4 120 (1,818) (43) 722 (1,019) 114 (905) (447) - (447) 2,835 (708) (983) (76) (179) 119 1,008 (344) (2) 472 126 471 (345) 126 Year ended 31 May 2021 £000 (466) (966) 624 - 1,062 333 6 154 74 (14) (42) 765 (571) 718 (599) 313 110 423 (562) 21 (541) 787 (771) (985) (74) (154) 705 (492) (610) (22) 1,104 472 670 (198) 472 Consolidated Statement of Changes in Equity for the year ended 31 May 2022 Share capital £000 3,792 (513) - - - 600 513 - - - 3,279 1,113 - - - - - - At 31 May 2020 Cancellation of treasury shares Loss for the year Other comprehensive loss Total comprehensive loss At 31 May 2021 Loss for the year Other comprehensive loss Total comprehensive loss At 31 May 2022 3,279 1,113 Capital redemption reserve £000 Treasury share reserve £000 Foreign exchange reserve £000 Retained earnings £000 Total equity £000 (807) 2,741 9,257 15,583 807 - - - - - - - - - - (807) - (466) (466) (556) - (556) (556) (466) (1,022) 2,185 7,984 14,561 - (3,249) (3,249) (135) - (135) (135) (3,249) (3,384) 2,050 4,735 11,177 The following describes the nature and purpose of each reserve within equity: Reserve Share capital Description and purpose 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 33 to 58 form part of these financial statements. 32 Notes forming part of the financial statements for the year ended 31 May 2022 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. The subsidiaries of the Group are set out on page 1 Group Information, the Directors Report and note 15. 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. The Group financial statements have been properly prepared in accordance with UK adopted International Financial Reporting Standards (UK adopted IFRS) and in accordance with the Companies Act 2006. 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 consolidated statement of comprehensive income. 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 to 31 May 2022, 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. • Any downside sensitivities including the impact of the Covid-19 pandemic and Ukraine conflict 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. 33 Notes forming part of the financial statements for the year ended 31 May 2022 2 Accounting policies (continued) Going Concern (continued) Financial performance and forecasts Forecasts have been prepared for the 24-month period to May 2024 which indicate a return to modest profit over that period due to cost reductions. These forecasts have been prepared in the knowledge of current conflict in Ukraine conditions. At the end of the first half of the current financial year sales and profit were in line with forecast. The Company has sensitised these forecasts for a reduction in revenues for Hemmers and the banking facilities remain adequate. The Directors are of the opinion that this is a reasonable worst case, and the currently available facilities would be sufficient in this scenario. Ukraine conflict The Russian invasion of Ukraine has had a huge impact on global economies with prices increasing especially utility prices. This has in turn had an effect on consumer confidence which has resulted in reduced demand in both Hemmers wholesale markets and the KMR retail shops. Management are working to mitigate these effects. 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 20. 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 2022, this resulted in average availability of €7.8m (2021: €7.7m) with a range of €6.5m to €8.8m (2021: €6.9m to €8.3m) and minimum headroom of €3.2m (2021: €4.5m) in the year. In the forecast period to 31 May 2024, the estimated availability range is €7.9m to €9.4m and the minimum headroom €2.4m. 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 2022, the ratio was 51% (2021: 60%). The facility is uncommitted, but the bank is obliged to give reasonable notice of any change. • A further working capital facility of €1m secured on working capital which was fully drawn at the year end. The facilities are uncommitted, but the bank is obliged to give reasonable notice of any change • A €3m Parent Company loan which is currently subordinated to the working capital facility. KMR has a fixed working capital loan facility of €1m which was fully drawn at the year end and a €0.5m bank overdraft facility secured on working capital, of which €0.4m was utilised as at 31 May 2022. The covenants on these facilities 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 2022, these ratios were 30.2% (2021: 55.5%) and 1.36 (2021: 1.54). The overdraft facility has now been withdrawn and the overdraft repaid. Considering the trading results in the first half of the financial year to 31 May 2023 and the decision to put KMR into insolvency, the Directors consider there will be sufficient headroom available in the Hemmers working capital facility and, therefore, the Directors are of the opinion that it is appropriate to apply the going concern basis of preparation to the financial statements. However, the Directors acknowledge that the volatile global situation could have an impact on the future trading result of Hemmers and in turn could affect the ability of the Group to meet its forecasts. This therefore gives rise to a material uncertainty around the going concern of the Group. 34 Notes forming part of the financial statements for the year ended 31 May 2022 2 Accounting policies (continued) Changes in accounting policies The following standards will be effective for financial years beginning on or after 1 January 2023. • Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current (issued January 2020) The amendments clarify that the classification of a liability as current or non-current is based only on rights existing at the end of the reporting period and the classification is not affected by expectations about whether rights to settle or defer a liability will be exercised. Further, the amendments clarify that the settlement of a liability refers to the transfer of cash, equity instruments, other assets, or services to the counterparty. This amendment only affects presentation. • Amendments to IAS 16 Property, Plant and Equipment (issued in May 2020) The amendments require any proceeds from selling items produced (and related production costs) in the course of bringing an item property, plant and equipment into operation to be recognised in profit or loss clarifying that such items are not reflected in the cost of the asset. • Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets (issued in May 2020) The amendments clarify that the cost of fulfilling a contract are costs that relate directly to that contract. Such costs can be the incremental costs of fulfilling that contract or an allocation of other costs directly related to fulfilling that contract. • Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (issued in August 2020) The amendments are aimed at helping companies to provide investors with useful information about the effects of the reform of interest rate benchmarks on those companies’ financial statements. The amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform. The Phase 2 amendments relate to: • changes to contractual cash flows - a company will not have to derecognise or adjust the carrying amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate; • hedge accounting - a company will not have to discontinue its hedge accounting solely because it makes changes required by the reform, if the hedge meets other hedge accounting criteria; and • disclosures - a company is required to disclose information about new risks arising from the reform and how it manages the transition to alternative benchmark rates. The Group does not expect these amendments will have a material impact on its financial statements. 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. Revenue 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. Dividends Interim dividends are recognised when paid and final dividends are recognised when approved by the shareholders at the AGM. 35 Notes forming part of the financial statements for the year ended 31 May 2022 2 Accounting policies (continued) 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. Government grants The Group was eligible for two types of grant provided by the German government in response to the global Covid-19 pandemic. One related to income provided to support the payroll of the employees in both Hemmers and KMR. The other related to compensation paid/receivable to KMR and Hemmers for the reduction in turnover experienced as result of the pandemic together with additional allowances for the part recovery of lost margin on certain seasonal products that were not able to be sold due to the trading interruption of certain lockdowns. Both sources of grant have been shown as other income rather than reducing the related expense or increasing the turnover figures. Goodwill Goodwill arising on 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 consolidated statement of comprehensive income 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 Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted where appropriate. Any gain or loss on disposal of property, plant and equipment is recognised in the consolidated statement of comprehensive income. 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 consolidated statement of comprehensive income. 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 consolidated statement of comprehensive income. 36 Notes forming part of the financial statements for the year ended 31 May 2022 2 Accounting policies (continued) Leases The Group has adopted IFRS 16 using the modified retrospective approach, with recognition of transitional adjustments on 1 June 2020, 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. Payments made under these leases are charged to profit and loss on a straight-line basis over the lease term. A number of shops had rent negotiations during this year and the previous year due to the Covid-19 pandemic. 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 failed this relief test in the 2020 accounts as it did not satisfy the criteria for being Covid-19 related rent concessions because all the concessions extended past June 2021. In March 2021, the IASB issued a further amendment to IFRS16 to further extend the time limit for this criteria out to June 2021 to reflect the prolonged impact of Covid-19. The original practical expedient as of May 2021 was an optional relief, but nonetheless, the Group did not have any rent concessions that satisfied the amendment criteria and as a result the extension to the practical expedient does not have any effect on the Group’s financial statements. No retrospective alteration was required to this practical expedient as the Gdid not apply the original amendment. As such, the rent reductions agreed continue to be 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. For those short-term reductions which in substance reflect partial forgiveness of a lease liability for a temporary period within a year, IFRS 9 derecognition principles have been followed, reflecting the reduced liability within profit or loss at the period in which the reduction occurred. 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. 37 Notes forming part of the financial statements for the year ended 31 May 2022 2 Accounting policies (continued) 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 Taxation comprises current and deferred tax. It is recognized in profit or loss except to the extent it relates to a business combination or items directly in equity or other comprehensive income (IAS12:58). Employee 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 scheme 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. 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 consolidated statement of comprehensive income 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. 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. 38 Notes forming part of the financial statements for the year ended 31 May 2022 2 Accounting policies (continued) 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 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. Current borrowings are secured against working capital rather than being a factored agreement that relinquishes control of the assets to the bank. 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. 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. 39 Notes forming part of the financial statements for the year ended 31 May 2022 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. Key areas of estimation uncertainty 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 cash generating units A cash generating unit is defined by IAS36 as the smallest identifiable group of assets that generates cash flows that are largely independent of the cash inflows from other assets, or group of assets. As such, each store in KMR represents its own cash generating unit. Following the implementation of IFRS16, the right-of-use assets relating to KMR’s retail shops are now considered part of the cash generating units. Other immaterial assets are allocated to each store to consider the wider asset portfolio of each store, where right-of-use assets remain the only material in scope assets to consider in impairment testing. Although annual impairment reviews are not required on tangible assets, management have performed an impairment review on these assets every year due to the historic trading losses and the effects of the Covid-19 pandemic and Ukraine conflict. Impairment tests are usually 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 to consider recoverable amounts. In order to conduct this review, trading and cash flows forecasts per each retail shop have been considered as well as considerations regarding managements intention and judgments around the remaining length of leases in order to determine value in use calculations. This year due to the decision by management to place KMR into insolvency post year end (see note 26), KMR will not generate any future profit and therefore, an impairment charge of £1,662,000 has been recognised in this financial year relating right-of-use assets and any leasehold improvements. Thus, all the KMR assets have been written down to £nil. (ii) 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 16. A 1% increase in the inventory provision would equate to approx. £128,000. In 2021, stock provisions were made against certain seasonal stock lines due to the Company missing much of its seasonal spring trading as a result of the Covid lockdowns in Germany. A detailed review of the seasonal products which were impacted by this was carried out in order to determine the amount of the stock provision required. The Company was able to make a claim for government assistance for these losses and this income has been recognised in the accounts see note 5. 40 Notes forming part of the financial statements for the year ended 31 May 2022 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 loan debt increased from £2,926,000 to £5,671,000 and the non- current bank debt decreased from £1,498,000 to £836,000. 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 2021 or 2022. 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. 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. 41 Notes forming part of the financial statements for the year ended 31 May 2022 4 Financial instruments - risk management (continued) 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 22 to the financial statements. 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 £953,000 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 £1,163,000 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. 42 Notes forming part of the financial statements for the year ended 31 May 2022 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 Impairment - Property, plant and equipment - Right-of-use assets Amortisation of trademarks Short term lease expense Gain on disposal of property, plant and equipment Other income: Government grants relating to Covid-19 pandemic: Employee related grant received Grant received as compensation for reduced trading Total government grant received Grant to be received as compensation for reduced trading Total government grants Other income Total other income Year ended 31 May 2022 Year ended 31 May 2021 £000 £000 75 52 4 131 6,984 735 827 42 1,620 5 - - - 119 119 - 119 28 147 79 59 4 142 6,785 624 1,062 - 333 6 56 (14) 170 535 705 261 966 - 966 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 2022 2021 7 8 189 204 51 50 39 41 286 303 Staff costs, including Directors, comprise Year ended 31 May 2022 Year ended 31 May 2021 Wages, salaries and Directors’ fees Defined contribution pension cost Employer’s national insurance contributions and similar taxes Total staff costs 43 £000 5,824 1 1,159 6,984 £000 5,506 1 1,278 6,785 Notes forming part of the financial statements for the year ended 31 May 2022 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. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the subsidiary companies and the Group. The remuneration of key personnel are as follows: Salary and fees Employer’s national insurance contributions and similar taxes Total remuneration of key management personnel Year ended 31 May 2022 Year ended 31 May 2021 £000 629 52 681 £000 286 14 300 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 and Somerset AB who invoice the Company for the services of these Directors. Directors’ remuneration is as follows: Executive director Jörg Hemmers Non - executive Directors Johan Claesson David Cooper Jan G Holmstrom Salary & Fees £000 Taxes Year ended 31 May £000 2022 £000 Salary & Fees £000 Taxes Year ended 31 May £000 2021 £000 216 14 230 226 14 240 15 15 25 - - - 15 15 25 17 15 28 - - - 17 15 28 271 14 285 286 14 300 Outstanding share options granted to employees or Directors at 31 May 2022 were nil (2021: nil). 7 Segmental information 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. 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. 44 Notes forming part of the financial statements for the year ended 31 May 2022 7 Segmental information (continued) The following tables set out a segmental analysis of the Group’s operations. Year ended 31 May 2022 Hemmers KMR £000 £000 Inter segmental £000 Parent Company £000 Total Group £000 External revenue Inter-segmental revenue Cost of sales 23,998 1,069 (20,627) 5,592 - (4,551) - (1,069) 1,057 - - - Gross profit/(loss) Distribution costs Admin expenses Other income Operating loss Finance expense Internal interest Loss before tax At 31 May 2022 Total assets Total liabilities Total net assets Year ended 31 May 2021 External revenue Inter-segmental revenue Cost of sales Gross profit/(loss) Distribution costs Admin expenses Other income Operating profit/(loss) Finance expense Internal interest 29,590 - (24,121) 5,469 (2,483) (6,123) 147 (2,990) (255) - 4,440 (1,401) (3,763) 309 1,041 (1,082) (2,268) 32 (12) - 194 (194) - - (286) - (415) (162) (204) (2,277) (93) - (12) - - (286) - 204 (781) (2,370) (12) (82) (3,245) Hemmers KMR £000 £000 Adj £000 Parent Company £000 Total Group £000 17,392 (8,091) 2,819 (3,540) (123) - 2,811 (91) 22,899 (11,722) 9,301 (721) (123) 2,720 11,177 Hemmers KMR £000 £000 Inter segmental £000 Parent Company £000 Total Group £000 27,669 1,071 (24,160) 5,344 1 (3,602) - (1,072) 1,062 - - - 33,013 - (26,700) 4,580 1,743 (1,499) (1,148) (3,212) (1,498) 692 461 (10) - 187 (187) - - (389) - 6,313 (2,647) (4,912) 966 330 (211) (128) (100) (213) - (10) - - (389) - 213 (280) (228) - Loss before tax (11) (311) (10) (176) (508) 45 Notes forming part of the financial statements for the year ended 31 May 2022 7 Segmental information (continued) At 31 May 2021 Total assets Total liabilities Total net assets Hemmers KMR £000 £000 Adj £000 Parent Company £000 Total Group £000 15,803 (5,589) 5,688 (3,969) (174) - 2,904 (102) 24,221 (9,660) 10,214 1,719 (174) 2,802 14,561 Disaggregation of revenue is shown by destination as follows: Germany Holland Austria France Rest of EU Total EU Switzerland UK Rest of Europe Total Europe Asia North America Oceania Total revenue 31 May 2022 £000 31 May 2021 £000 19,346 1,227 917 891 3,956 26,337 1,524 1,169 363 29,393 104 47 46 29,590 22,345 1,006 1,203 835 3,749 29,138 1,709 1,421 373 32,641 10 16 346 33,013 Non-current assets are all derived in Germany. Other information: Year ended 31 May 2022 Year ended 31 May 2021 Additions Property, plant & equipment Right-of-use assets Depreciation Property, plant & equipment Right-of-use assets Impairment Property, plant & equipment Right-of-use assets Amortisation Intangible assets Hemmers £000 447 45 689 706 - - 5 KMR £000 - 182 Group £000 Hemmers £000 KMR £000 Group £000 447 227 554 184 8 566 562 750 46 121 735 827 503 142 121 920 624 1,062 42 1,620 42 1,620 - 5 - - 6 - 333 - 333 - 6 46 Notes forming part of the financial statements for the year ended 31 May 2022 8 Finance expense Finance expense Interest paid on lease liabilities Interest paid on bank overdrafts and loans Finance expense recognised in comprehensive income 9 Tax charge/(credit) Current tax charge/(credit) Tax of overseas operations on losses for the year Adjustments for over provision in prior years Tax charge/(credit) Year ended 31 May 2022 Year ended 31 May 2021 £000 £000 76 179 255 74 154 228 Year ended 31 May 2022 Year ended 31 May 2021 £000 £000 4 - 4 - (42) (42) The Group has UK capital losses carried forward of £13m and unrelieved UK trading losses of £1.4m. 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. The reasons for the difference between the actual tax charge/(credit) for the year and the standard rate of corporation tax in the UK applied to the profit for the year are as follows: Loss before taxation from all operations Expected tax credit based on the standard rate of corporation tax in the UK of 19% (2021:19%) Expenses not deductible for tax purposes Unrelieved losses Total tax charge/(credit) 10 Loss per share and Net asset per share Loss per share Numerator Total loss for the year Denominator Weighted average number of shares Year ended 31 May 2022 Year ended 31 May 2021 £000 (3,245) (617) 605 16 4 £000 (508) (97) 22 33 (42) Year ended 31 May 2022 Year ended 31 May 2021 £3,249,000 £466,000 27,320,843 27,320,843 Basic and diluted loss per share 11.9p 1.7p Since there are no outstanding share options, there is no difference between basic and diluted earnings per share. 47 Notes forming part of the financial statements for the year ended 31 May 2022 10 Loss per share and Net asset per share (continued) Net assets per share Numerator Net assets Denominator Number of shares Net assets per share 11 Dividend Year ended 31 May 2022 Year ended 31 May 2021 £11,177,000 £14,561,000 27,320,843 27,320,843 40.9p 53.3p The Directors have not proposed a dividend in respect of the year ended 31 May 2022 or 31 May 2021. 12 Property, plant and equipment Freehold land and buildings £000 Plant and equipment £000 Cost Balance at 31 May 2020 Additions Disposals Effect of movements in foreign exchange rates Balance at 31 May 2021 Additions Disposals Effect of movements in foreign exchange rates Balance at 31 May 2022 Accumulated depreciation Balance at 31 May 2020 Depreciation charge for the year Disposals Effect of movements in foreign exchange rates Balance at 31 May 2021 Depreciation charge for the year Impairment Disposals Effect of movements in foreign exchange rates Balance at 31 May 2022 Net book amount At 31 May 2020 At 31 May 2021 At 31 May 2022 Any loans secured on these assets are set out on note 20. 48 8,387 69 - (375) 8,081 3 (16) (87) 7,981 1,730 261 - (85) 1,906 240 - (16) (20) 2,110 6,657 6,175 5,871 4,138 493 (293) (208) 4,130 444 (366) (49) 4,159 2,612 363 (286) (134) 2,555 495 42 (366) (31) 2,695 1,526 1,575 1,464 Total £000 12,525 562 (293) (583) 12,211 447 (382) (136) 12,140 4,342 624 (286) (219) 4,461 735 42 (382) (51) 4,805 8,183 7,750 7,335 Notes forming part of the financial statements for the year ended 31 May 2022 13 Right-of-use assets Leasehold land and buildings £000 Plant and equipment £000 2,940 566 836 - (175) 4,167 182 (34) - (46) 4,269 783 920 333 - (74) 1,962 706 1,620 - (19) 4,269 2,157 2,205 - 368 184 - (75) (20) 457 45 - (116) (6) 380 151 142 - (75) (9) 209 121 - (116) (4) 210 217 248 170 Cost Balance at 31 May 2020 Additions Modification Disposals Effect of movements in foreign exchange rates Balance at 31 May 2021 Additions Modification Disposals Effect of movements in foreign exchange rates Balance at 31 May 2022 Accumulated depreciation Balance at 31 May 2020 Depreciation charge for the year Impairment Disposals Effect of movements in foreign exchange rates Balance at 31 May 2021 Depreciation charge for the year Impairment Disposals Effect of movements in foreign exchange rates Balance at 31 May 2022 Net book amount At 31 May 2020 At 31 May 2021 At 31 May 2022 14 Intangible assets Balance at 31 May 2020 Amortisation Effect of movements in foreign exchange rates Balance at 31 May 2021 Amortisation Effect of movements in foreign exchange rates Balance at 31 May 2022 49 Total £000 3,308 750 836 (75) (195) 4,624 227 (34) (116) (52) 4,649 934 1,062 333 (75) (83) 2,171 827 1,620 (116) (23) 4,479 2,374 2,453 170 Trademarks £000 67 (6) (3) 58 (5) (1) 52 Notes forming part of the financial statements for the year ended 31 May 2022 15 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. Germany Germany ** KMR GmbH. Germany Import, sale, and distribution of textiles Dormant (liquidation finalised 14 September 2022) Retail trading * Wholly owned subsidiaries of Leeds Group. ** Wholly owned subsidiaries of Hemmers. The registered addresses of these subsidiaries are shown on page 1. 16 Inventories Total gross value of goods and goods for resale Less provision Finished goods and goods for resale 31 May 2022 £000 31 May 2021 £000 12,785 (791) 11,994 11,195 (908) 10,287 The amount of inventories recognised as an expense during the year was £19,255,000 (2021: £22,312,000). 17 Trade and other receivables Trade receivables Other receivables Prepayments Total trade and other receivables 31 May 2022 £000 31 May 2021 £000 2,160 557 147 2,864 1,969 766 132 2,867 Last year within other receivables there was an amount of £261,000 relating to government assistance not yet received regarding compensation for reduced trading during the reporting period and this income was recovered within 12 months. 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. 18 Cash on demand or on short term deposit Total cash on demand or on short term deposit 471 670 Cash held by the Parent Company is deposited with Bank of Scotland, earning interest at variable rates. In the opinion of the Directors, the carrying value of cash and cash equivalents approximates to its fair value. 31 May 2022 £000 31 May 2021 £000 50 Notes forming part of the financial statements for the year ended 31 May 2022 19 Trade and other payables Bank overdrafts Trade payables Other tax and social security taxes Accruals Other payables Total trade and other payables 31 May 2022 £000 31 May 2021 £000 345 1,823 362 398 137 3,065 198 1,350 179 453 85 2,265 All amounts are anticipated to be payable in the short term. The carrying values are considered to be a reasonable approximation of fair value. 20 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 2022 £000 31 May 2021 £000 5,671 836 6,507 2,926 1,498 4,424 The carrying values are considered to be a reasonable approximation of fair value. Current loans and borrowings At 31 May 2022 current loans and borrowings of £5,671,000 (2021: £2,926,000) comprise short term loans of £5,373,000 (2021: £2,562,000) and instalments due on long term loans detailed below of £298,000 (2021: £364,000). The interest rate on the short-term loans range from 1.5% to 3% (2021: 1.25% to 3%) and these loans are secured on working capital of Hemmers and KMR. The short-term loans are drawn down by Hemmers against short-term borrowing facilities of up to a maximum of £10.2m (€12m) and by KMR against short-term borrowing facilities of £0.9m (€1m). KMR also has an overdraft facility of £0.4m (€0.5m) which has now been repaid. At 31 May 2022, the total borrowing facility available totalled £9.2m (€10.9m) of which £5.7m (€6.7m) has been utilised including any overdrafts, therefore the headroom within the facility was £3.5m (€4.1m). Neither the Parent Company nor any of its subsidiaries other than Hemmers and KMR have borrowing facilities. The bank borrowing facilities are reviewed annually every May and remain in place for Hemmers for the forthcoming year. Non-current loans and borrowings 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. They are denominated in Euros, and their principal terms are as follows: Fixed Interest rate Repayment profile Final repayment date 31 May 2022 £000 31 May 2021 £000 Loan 1 Loan 2 Loan 3 4.07% 1.65% 1.05% Equal monthly instalments Equal quarterly instalments Equal quarterly instalments March 2026 September 2027 September 2025 Non-current loans - 590 246 836 353 835 310 1,498 51 Notes forming part of the financial statements for the year ended 31 May 2022 20 Borrowings (continued) The changes in liabilities arising from financing activities were: At the start of the year Cash items Borrowings drawn Borrowings repaid Exchange At the end of the year The changes in lease liabilities are shown in note 21. 21 Lease liabilities 31 May 2022 £000 31 May 2021 £000 4,424 2,835 (708) (44) 6,507 4,621 787 (771) (213) 4,424 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 17 retail store leases located in Germany and 18 motor vehicle leases, all of which are subject to fixed payments. During the year, 1 retail store lease was not renewed, 9 car leases finished and 3 new car leases were taken out. The book value of lease liabilities are as follows: Current Secured lease liabilities Non - current Secured lease liabilities Total lease liabilities 31 May 2022 £000 31 May 2021 £000 885 1,165 2,050 1,015 1,856 2,871 The majority of the retail shops 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 shops 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 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. However, following discussions with landlords regarding rental concessions and future rentals of shops, management know they will now renew these leases and they have now been recognised as right-to -use assets with the corresponding lease liability. 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. 52 Notes forming part of the financial statements for the year ended 31 May 2022 21 Lease liabilities (continued) Management have been able to renegotiate rent reductions for some of the store leases during the year due to the continued effects of Covid-19. 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 2021, 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 failed this relief test in the 2021 accounts as it did not satisfy the criteria for being Covid-19 related rent concessions because all the concessions extended past June 2022. In March 2022, the IASB issued a further amendment to IFRS16 to further extend the time limit for this criteria out to June 2022 to reflect the prolonged impact of Covid-19. The original practical expedient as of May 2021 was an optional relief, but nonetheless, the Group did not have any rent concessions that satisfied the amendment criteria and as a result the extension to the practical expedient does not have any effect on the Group’s financial statements. No retrospective alteration is required to this practical expedient as the Group did not apply the original amendment. As such, the rent reductions agreed continue to be 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 profit and loss impact on modification, other than the future reduction of both interest and depreciation. At 31 May 2022, the lease liabilities are shown as follows: 31 May 2022 £000 31 May 2021 £000 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: 885 400 610 155 2,050 Land and buildings £000 Motor vehicles £000 1,015 791 547 518 2,871 Total £000 2,871 227 76 (1,059) (34) (31) 248 45 7 (126) - (3) 171 2,050 At the start of the year Right-of-use lease additions (note 13) Interest expenses (note 8) Lease payments Modifications (note 13) Foreign exchange movements At the end of the year 2,623 182 69 (933) (34) (28) 1,879 53 Notes forming part of the financial statements for the year ended 31 May 2022 22 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 Bank overdrafts Trade payables Accruals Other payables Current bank borrowings Non-current bank borrowings Current lease liabilities Non-current lease liabilities Financial risk management 31 May 2022 £000 31 May 2021 £000 2,160 471 2,631 1,969 670 2,639 31 May 2022 £000 31 May 2021 £000 345 1,823 398 137 5,671 836 885 1,165 11,260 198 1,350 453 85 2,926 1,498 1,015 1,856 9,381 Overview 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 2022 £000 31 May 2021 £000 2,160 1,969 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 2022 22 Financial instruments (continued) Credit risk (continued) At 31 May 2022 £366,000 (2021: £334,000) of the Group’s trade receivables were past due. An expected loss provision of £139,000 (2021: £106,000) 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 17) 31 May 2022 £000 31 May 2021 £000 238 37 26 65 366 1,933 2,299 (139) 2,160 278 4 1 51 334 1,741 2,075 (106) 1,969 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 2022 Overdue up to 3 months Overdue by 3 to 6 months Overdue by 6 to 12 months Overdue by more than 12 months Total £000 Not due Expected loss rate 0% Gross carrying amount 1,933 5% 238 100% 100% 100% 37 26 Loss provision - (11) (37) (26) 65 (65) 2,299 (139) Net carrying value 1,933 227 - - - 2,160 As at 31 May 2021 Overdue up to 3 months Overdue by 3 to 6 months Overdue by 6 to 12 months Overdue by more than 12 months Total £000 Not due Expected loss rate 2% Gross carrying amount 1,741 5% 278 100% 100% 100% 4 1 Loss provision (36) (14) (4) (1) 51 (51) 2,075 (106) Net carrying value 1,705 264 - - - 1,969 The situation with regard to the Covid-19 pandemic or the Ukraine conflict 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 2022 22 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 released Amount utilised Effect of movements in foreign exchange rates Expected credit loss provision at end of period 31 May 2022 £000 31 May 2021 £000 106 36 - (2) (1) 139 260 - (113) (28) (13) 106 Foreign currency The carrying values of the Group’s trade and other receivables are denominated in the following currencies: Euro US Dollar Sterling Total trade and other receivables 31 May 2022 £000 31 May 2021 £000 2,832 16 16 2,864 2,814 17 36 2,867 The carrying values of the Group’s trade and other payables are denominated in the following currencies: Euro US Dollar Sterling Total trade and other payables All the Group’s external loans are denominated in Euros. 31 May 2022 £000 31 May 2021 £000 2,244 386 90 2,720 1,194 969 102 2,265 56 Notes forming part of the financial statements for the year ended 31 May 2022 22 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 2022 Amounts due in After 2 to 5 5 years years £000 £000 Less than 1 year £000 Less than 1 year £000 Total £000 As at 31 May 2021 Amount due in After 5 years £000 2 to 5 years £000 Total £000 Bank overdrafts Trade payables Accruals Other payables Current bank borrowings Non-current bank borrowings Current lease liabilities Non - current lease liabilities 345 1,823 398 137 5,671 - - - - - - 885 836 - - - - - - - - 345 1,823 398 137 198 1,350 453 85 5,671 2,926 - - - - - 836 885 - 1,015 1,498 - - - - - - - - 198 1,350 453 85 2,926 1,498 1,015 - 1,010 155 1,165 - 1,338 518 1,856 Net carrying value 9,259 1,846 155 11,260 6,027 2,836 518 9,381 23 Provisions Provision as at 31 May 2021 and 2022 Tax £000 100 A provision was made in 2020 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 2022 24 Share capital Issued and fully paid At beginning of the period Cancellation of treasury shares 2022 Number 27,320,843 - 2022 £000 3,279 - 2021 Number 31,600,000 (4,279,157) At end of period 27,320,843 3,279 27,320,843 2021 £000 3,792 (513) 3,279 At 31 May 2022, no options over ordinary shares of the Company were outstanding (2021: 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 which were held in treasury and then cancelled as follows: Shares held in treasury as at 31 May 2020 Shares cancelled in 2021 Shares held in treasury as at 31 May 2021 and 2022 Number of shares 4,279,157 (4,279,157) - Cost £000 807 (807) - The cost of these cancelled shares has been calculated on a “first in, first out” basis, and the nominal value of the cancelled shares at 12p each was £513,499. The total nominal value of shares cancelled is £1,113,331. This is shown in the consolidated statement of financial position as a capital redemption reserve, a component of equity. 25 Commitments At 31 May 2022, there were no capital commitments authorised and committed (2021: £nil). There were no amounts authorised but not committed (2021: £nil). 26 Post Balance Sheet Events Sale of property On 4 October 2022, the freehold property held by KMR was sold for €600,000 (£510,000). The net book value as at 31 May 2022 was €440,000 (£374,000). KMR Since the year end, the conflict in Ukraine remains and the uncertainty in global markets continues. The impact on the German economy has deepened and this has affected consumer confidence in Germany. KMR has seen reduced sales demand and has continued to make losses despite cost cutting measures. Following an independent review undertaken in September 2022, management have decided that the KMR business is not viable. On 6 October 2022, KMR was placed into an insolvency process which was accepted by the German courts on 7 October 2022. As the KMR business will not generate any future profit, the right-to-use assets and any leasehold improvements have been impaired in these financial statements with a provision of £1,662,000. Thus, all assets relating to the leased retail shops have been written down to a £nil valuation. The right-to-use lease liability of £1,879,000 remains in these accounts but the full liability may not be payable. 58 Company Statement of Financial Position at 31 May 2022 Prepared under FRS 101 "Reduced Disclosure Framework" Company number 00067863 Note 31 May 2022 £000 31 May 2021 £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 Retained earnings TOTAL EQUITY 4 5 6 7 8 3,370 2,550 5,920 16 245 261 (91) 170 6,090 3,279 1,113 1,698 6,090 3,370 2,578 5,948 15 311 326 (102) 224 6,172 3,279 1,113 1,780 6,172 The loss of the Company for the year was £82,000 (2021: loss £176,000). The financial statements on pages 59 to 60 were approved and authorised for issue by the Board of Directors on 7 November 2022 and were signed on behalf of the Board by: - Jan G Holmstrom Non-Executive 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 2022 At 31 May 2020 Share capital £000 3,792 Capital redemption reserve £000 Treasury share reserve £000 Retained earnings Total equity £000 £000 600 (807) 2,763 6,348 Cancellation of treasury shares (513) 513 807 (807) - Loss for the year - - At 31 May 2021 3,279 1,113 Loss for the year - - At 31 May 2022 3,279 1,113 - - - - (176) (176) 1,780 6,172 (82) (82) 1,698 6,090 The following describes the nature and purpose of each reserve within equity: Reserve Share capital Description and purpose 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 statement of comprehensive income 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 2022 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 statement of comprehensive income. 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 statement of comprehensive income. 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 2022 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 the statement of comprehensive income. 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 £82,000 (2021: loss £176,000). 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 (2021: 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 2022 Year ended 31 May 2021 £000 £000 91 1 1 93 98 1 1 100 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 2022 were nil (2021: nil). 4 Investments in subsidiary undertakings At 31 May 2021 and 2022 Cost and Carrying value £000 3,370 Details of subsidiary undertakings are given on the Group Information page 1 and in note 15 to the consolidated financial statements. 62 Notes forming part of the financial statements of the Company for the year ended 31 May 2022 5 Amounts receivable from subsidiary undertakings 31 May 2022 £000 31 May 2021 £000 Total amounts receivable from subsidiary undertakings 2,550 2,578 No impairment loss was recognised in the year in respect of amounts receivable from subsidiary undertakings. (2021: £nil). The amounts receivable from subsidiary undertaking relates to long term loans with details as follows: Fixed Interest Rate Repayment Profile 31 May 2022 £000 31 May 2021 £000 Loan 1 8% Repayable on demand 2,550 2,578 Although these balances are repayable on demand, the expectation of recoverability of these balances is in nature and substance more of a longer-term funding arrangement, in which the Company does not require payment immediately. As such, this is presented as a non-current asset. 6 Trade and other receivables 31 May 2022 £000 31 May 2021 £000 Total trade and other receivables 16 15 7 Trade and other payables Accruals and deferred income Total trade and other payables 8 Share capital Issued and fully paid At beginning of the period Cancellation of treasury shares 31 May 2022 £000 31 May 2021 £000 91 91 2022 Number 27,320,843 - 2022 £000 3,279 - 2021 Number 31,600,000 (4,279,157) 102 102 2021 £000 3,792 (513) 3,279 At end of period 27,320,843 3,279 27,320,843 At 31 May 2022, no options over ordinary shares of the Company were outstanding (2021: £nil). Details of the purchases and cancellation of the shares held in treasury are disclosed in note 24 to the consolidated financial statements. 9 Commitments There were no contracted capital commitments for the Company in either period. End of the financial statements. 63 Appendix 1 - Five Year Summary of Results and Capital Employed Year ended 31 May 2022 £000 Year ended 31 May 2021 £000 Year ended 31 May 2020 £000 Year ended 31 May 2019 £000 Year ended 31 May 2018 £000 29,590 (24,121) 33,013 (26,700) 35,555 (29,623) 41,271 (32,254) 41,538 (32,526) 5,469 (6,944) 147 6,313 (7,226) 966 5,932 (8,020) - 9,017 (9,057) - 9,012 (7,860) - (1,328) (255) - (1,662) - (3,245) (4) 53 (228) - (333) - (508) 42 (2,088) (260) - - - (40) (194) (34) - (982) (2,348) (6) (1,250) (43) 1,152 (160) (107) - - 885 (340) Results Revenue Cost of sales Gross profit Operating expenses Other income (Loss)/profit from operations (excluding impairment of goodwill and assets) Net finance expense Share of post-tax loss of joint venture Impairment of assets Impairment of goodwill (Loss)/profit before tax Tax (charge)/credit (Loss)/profit after tax (3,249) (466) (2,354) (1,293) 545 Assets Non-current assets Current assets Total assets 7,557 15,342 10,261 13,960 10,624 14,962 9,615 17,940 10,110 16,831 22,899 24,221 25,586 27,555 26,941 Non-current liabilities Current liabilities (2,001) (9,721) (3,354) (6,306) (3,428) (6,575) (2,289) (7,525) (3,985) (3,968) Total liabilities (11,722) (9,660) (10,003) (9,814) (7,953) Total net assets 11,177 14,561 15,583 17,741 18,988 Financed by Total equity Key Statistics 11,177 14,561 15,583 17,741 18,988 Basic and diluted (loss)/earnings per share (11.9p) (1.7p) (8.6p) (4.7p) 2.0p Net assets per share 40.9p 53.3p 57.0p 64.9p 69.4p 64 Notice of Annual General Meeting The one hundred and twenty second annual general meeting of the Leeds Group plc (the Company) will be held at 12 noon on 30 November 2022 at the Radisson Blu Hotel, Chicago Avenue, Manchester Airport, M30 3RA 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. To receive the report of the Directors, the financial statements for the year ended 31 May 2022 and the report of the auditors thereon. To re-appoint Mr Jan Holmstrom as a director. To re-appoint Mr Johann Claesson as a director. To re-appoint MHA MacIntryre Hudson 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. 5. 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 £164,000 (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) references to an "allotment of equity securities" shall include a sale of treasury shares; and b) 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 7 November 2022 66 Notice of Annual General Meeting (continued) Notes 1. Shareholders of the Company are entitled to attend, speak and vote, either in person or by proxy, at general meetings of the Company. 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. 2. 3. 4. 5. 6. 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 29 November 2022 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 Group 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. Or email Link Group 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 Group. 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 28 November 2022. 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 Group, Central Square, 29 Wellington Street, Leeds, LS1 4DL not later than 12 noon on 28 November 2022. 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 Group, Central Square, 29 Wellington Street, Leeds, LS1 4DL. 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 Group. 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 Group at Central Square, 29 Wellington Street, Leeds, LS1 4DL no later than 12 noon on 28 November 2022. 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. 7. 8. 9. 10. 68 Notice of Annual General Meeting (continued) Notes (continued) 11. As at 7 November 2022 (being the last practicable business day prior to the publication of this notice) the Company’s issued share capital consisted of 27,320,843 ordinary shares of 12 pence each, with one voting right per share. 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 2022. 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 Jan Holmstrom and Mr Johann Claesson are the Directors subject to retirement by rotation. Resolutions 2 and 3 propose the re-appointment of Mr Holmstrom and Mr Claesson, 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 MHA MacIntyre Hudson following their appointment during the year by the Directors, they 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 £164,000, 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 70 

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