Leeds : Annual Report 2022

Contents

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.

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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:

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.

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