Final Results

Dinkie Heel PLC
13 June 2003

Chairman's statement (extract)


Strategic review



Against a sharply worsening trading climate, the company has vigorously pursued
its key strategic objective for the toecap business: the orderly run-down of
manufacturing in the UK, and build-up of production in Botswana.



Progress in Botswana has been slower than expected, requiring both additional
finance and technical support. To manage the financial impact the company has
introduced a new shareholder into the Botswana company and reduced its own stake
in the company to one third. Dinkie retains ownership of all the manufacturing
assets. To protect customer deliveries, the final decision to close production
in Bristol was made in January 2003 and production finished in April 2003.



Presently the Board has decided to restrict the continuation of the toecap
business in the UK to a stockholding, marketing and technical support operation
based solely on supply from Botswana. The Bristol premises are for sale and
suitable arrangements are being sought in the area to accommodate the much
reduced operation.



The Board decided to move responsibility for the Phillips Rubber business to
Davies Odell in Rushden from 1 January 2003 and the move was completed
efficiently during April.



Prospects



Toecap demand remains satisfactory but ability to satisfy that demand and return
to profitability will be restricted in the short term by the production
capability and cash flow requirements of Botswana. The losses in the UK toecap
business have reduced sharply with the diminishing scale of the operation.  Once
the premises have been sold the associated fixed overheads will also cease.



Phillips Rubber supplies from South Africa are now adequate and the exceptional
airfreight costs associated with the initial manufacturing problems have ceased.
The business, whose markets are largely in the UK, is now stable. The
re-building of customer confidence will take some time.



At Davies Odell the development costs of 'softer' cow mats and of Forcefield
branded protective undergarments did hold back the results for 2002 but have
provided a stronger base for 2003. For the division the year has begun
satisfactorily, with profitability ahead of last year at the same stage.



Financial results



Turnover for the year was £6,909,000 (2001, £9,341,000) and the operating loss
before exceptional items was £881,000 (2001, £328,000). After exceptional items
of £691,000 (2001, £1,055,000) the operating loss from continuing operations was
£1,572,000 (2001, £1,383,000). Interest payable was £178,000 and a research and
development tax credit of £10,000 was received. The loss for the financial year
totalled £1,740,000 (2001, £1,561,000). The basic loss per share was 11.78p
(2001, 10.57p).



Net cash outflow from operating activities was £229,000 (2001, £222,000) but was
more than compensated by the sale proceeds of the Manchester premises of
£674,000. Net debt was reduced by £111,000 to £2,653,000.



The segmental analysis attached and my review of the year give further
information about the performance of each of the company's two divisions.



Review of the year



Davies Odell sales were 8.2% lower at £4,317,000 (2001, £4,703,000). Matting
sales were £1,322,000 (2001, £1,659,000) but would have been similar to the
previous year had it not been for a change in sales procedure to a commission
only basis in one important export market. Sales of body armour products were 2%
lower at £921,000 and sales to the footwear trade were 1% lower at £2,074,000.
The divisional operating profit reduced to £244,000 (2001, £422,000) as a
result, almost equally, of reduced margin in the footwear trade and increased
overheads including continuing body armour development expenditure.



Dinkie-Phillips sales suffered from both the repercussions of the
re-organisation and sharply increased global competition. Toecap sales volume
fell 43% in the year and Phillips sales were 55% lower. The costs of airfreight
of products from overseas for Phillips was £180,000 and this charge directly
affected margins on sales.  Overheads were considerably reduced, although
insurance costs which increased by £40,000 were a notable exception, and labour
costs were 26% lower. Overall the division recorded an operating loss before
exceptional items of £928,000 (2001, £554,000).



The company reduced its working capital requirements in the year by £792,000,
this reduction being split equally between the divisions. In the Dinkie-Phillips
business the reduction reflected the level of activity. In the Davies Odell
business however the reduction is the result of a determined effort to reduce
both debtors and stock. After restructuring costs the net cash outflow from
operating activities for the year was £229,000 (2001, £222,000).



Exceptional items



Sale of the Manchester freehold property was completed in July 2002 realising a
profit of £574,000.



The strategic direction of the company requires a charge for reorganisation
costs in the year of £618,000. Of this sum £136,000 relates to termination
payments to employees, £178,000 is the reduction to net realisable value of toe
cap stock and £148,000 represents the provision made in this year against the
costs of establishing the toe cap production facility in Botswana. Costs of
freighting machinery to Botswana were £62,000. Consultants' fees and other costs
relating to all of these changes amounted to £94,000.



The board has again considered the carrying value of the Dinkie-Phillips plant
and machinery in the light of the performance of the division and its further
restructuring and has decided to make a further impairment provision of
£647,000.



Dividends



To achieve a successful reorganisation and return the company to healthy profit
requires the conservation of cash. In these circumstances the board is unable to
recommend a dividend for the year (2001, nil).



Funding: the creation of Loan Notes, issue of share warrants, increase in
nominal share capital and power to issue shares



Throughout these developments the company has retained the support of its
bankers but the bank has, in turn, required the company to look to its own
resources to raise additional funds. I have explained below the various methods
that the Board has used in order to finance its reorganisation needs.



In December 2002 the company created 400,000 10 per cent Secured Loan Notes of
£1 each repayable on 18 December 2003. It issued within the financial year 2002
Loan Notes totalling £105,000 and a further £102,500 of Loan Notes were issued
in January 2003. At that time these funds, all subscribed by the directors and
their immediate families, were vital in enabling the business to continue
trading but it was also clear that to execute its plans the company would need
further funds later in 2003.  The company will seek the formal approval of
shareholders for the Loan Note Instrument at the annual general meeting.



The company has in June 2003 received funding from new investors in respect of
Loan Notes totalling £162,500 and expects to issue the remaining £30,000 of Loan
Notes to the same investors. It has also agreed a related benefit equivalent to
an element of convertibility for these Loan funds. Once the arrangements are
concluded warrants to subscribe for 800,000 shares on 18 December 2003 at 5p per
share will be given to the investors and, subject to the passing of resolutions
to be put to the annual general meeting, the company intends to issue further
share warrants to the same investors for 700,000 shares also at 5p.



The board has also taken advantage of the powers given to it to issue shares for
cash. In June 2003 it issued 736,056 ordinary shares at 5p each, realising
almost £37,000 and intends to issue a further 200,000 shares to realise a
further £10,000.



The board considers that these arrangements are necessary to enable the
reorganisation of the company to proceed and thereby to return it to profit.
These arrangements taken together require your board to seek to increase the
nominal share capital of the company.



The directors cannot issue new shares in the company nor can they issue them
other than in strict proportion to existing holdings unless in each case the
shareholders in general meeting give their permission. Your directors seek the
powers to issue the whole of the un-issued share capital in the current
exceptional circumstances. Other than as described above and to satisfy existing
share options they have no present intention of issuing shares, but consider
that such powers could be helpful and would not be excessive in view of the size
of the company and the restrictive nature of taking the powers for a lesser
amount.



Richard Organ
Chairman

                                Dinkie Heel plc
                            Profit and Loss Account
                          Year ended 31 December 2002

                                                                                       2002            2001
                                                                                      £'000           £'000

Turnover from continuing operations                                                   6,909           9,341
Cost of sales                                                                       (7,024)         (8,938)
Gross (loss)/profit                                                                   (115)             403
Net operating expenses (including exceptional items)                                (1,457)         (1,786)
Operating loss before exceptional items                                               (881)           (328)
Exceptional items
Profit on sale of property held for resale                                              574               -
Restructuring costs                                                                   (618)           (352)
Goodwill impairment provision                                                             -           (403)
Plant & Machinery impairment provision                                                (647)           (300)
Operating loss from continuing operations                                           (1,572)         (1,383)
Interest payable                                                                      (178)           (178)
Loss on ordinary activities before taxation                                         (1,750)         (1,561)
Taxation                                                                                 10               -
Loss for the financial year                                                         (1,740)         (1,561)
Dividends                                                                                 -               -
Loss for the year set against reserves                                              (1,740)         (1,561)

Loss per share - basic and diluted                                                 (11.78p)        (10.57p)

The company has no recognised gains or losses other than the loss for the
financial year as set out above



                                Dinkie Heel plc
                                 Balance Sheet
                                31 December 2002


                                                                                       2002           2001
                                                                                       £'000          £'000
                            Net assets employed

Fixed Assets
Intangible assets                                                                         39             41
Tangible assets                                                                        1,427          2,310
Investment in associate                                                                    -             74
                                                                                       1,466          2,425
Current assets:
Stocks                                                                                   848          1,218
Debtors                                                                                1,039          1,652
Property held for resale                                                                   -            100
Cash at bank and in hand                                                                  17             17
                                                                                       1,904          2,987

Creditors: amounts falling due within one year                                       (2,775)        (3,059)

Net current liabilities                                                                (871)           (72)
Total assets less current liabilities                                                    595          2,353
Creditors: amounts falling due after more than one year                                (764)          (782)

Provisions for liabilities and charges                                                     -              -

Net (liabilities)/assets                                                               (169)          1,571

Capital and reserves

Called up share capital                                                                  738            738
Share premium                                                                            715            715
Revaluation reserve                                                                      513            520
Profit and loss account                                                              (2,135)          (402)
Total equity shareholders' funds                                                       (169)          1,571



                                Dinkie Heel plc
                              Cash Flow Statement
                          Year ended 31 December 2002


                                                                                          2002           2001
                                                                                         £'000          £'000
Reconciliation of operating loss to net cash outflow from operating activities

Operating loss                                                                         (1,572)        (1,383)
Depreciation and amortisation charges                                                      330            418
Profit on sale of property held for resale                                               (574)
Impairment provisions                                                                      647            703
Associate, provision for costs of establishment                                            148             25
Decrease in stocks                                                                         370            228
Decrease in debtors                                                                        613             99
Decrease in creditors                                                                    (191)          (312)
Net cash outflow from operating activities                                               (229)          (222)

Cash Flow Statement
Net cash outflow from operating activities                                               (229)          (222)
Returns on investments and servicing of finance                                          (178)          (178)
Taxation                                                                                    10              -
Capital expenditure and financial investment                                               582           (87)
Acquisitions                                                                              (74)           (99)
                                                                                           111          (586)
Financing                                                                                   98           (23)
Increase/(decrease) in cash                                                                209          (609)

Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the period                                                  209          (609)
Cash (increase)/reduction from change in debt                                             (98)             23
Change in net debt                                                                         111          (586)
Net debt at 1 January 2002                                                             (2,764)        (2,178)
Net debt at 31 December 2002                                                           (2,653)        (2,764)



Note 1


Basis of preparing the financial statements - going concern


The company meets its long term and short term working capital requirements from
a combination of bank loan and bank overdraft and working capital facilities and
Loan Notes. At 31 December 2002 the company had the following borrowings:


Bank overdraft and working capital facilities                                         £1,747,000
Bank loan                                                                               £818,000
Loan Notes 2003                                                                         £105,000



The terms of these borrowings are shown in the accounts. The overdraft bank
borrowings are repayable on demand and the bank loan has a scheduled repayment
plan. The Loan Notes are repayable on 18 December 2003. The company projections
require part to be refinanced at that date and the directors believe that this
will be achieved.


The ability of the company to manage within its facilities is dependent on
generating sufficient profits and cash flows from its future operations. The
company is currently in the process of implementing a detailed restructuring
program of its Bristol operations. The plan involves closure of production and
sale of the premises in Bristol and continued development of outsourced toe cap
production in an associated undertaking in Botswana. The directors believe that
these are the steps necessary to return the company to profitability.



The directors have prepared detailed profit and loss and cash flow forecasts and
projections that include the planned restructuring for the period to 31 December
2004. Included in these projections are the post balance sheet events of which
more information is given in the accounts.



Based on these forecasts the principal lender has offered to renew and enhance
the company's facilities. The facilities consist of bank overdraft and working
capital facilities to a maximum of £2,325,000 and a capital holiday on the bank
loan of £818,000 until October 2003. The bank overdraft facilities may be
withdrawn at any time and are due for review in October 2003. The directors have
accepted these facilities.



The directors believe that they will be able to achieve the forecasts, operate
within the new facilities and refinance the required element of the Loan Notes
and therefore believe it appropriate to prepare the accounts on a going concern
basis. There can be no certainty about this. The directors have reduced the
carrying value of the assets of the company at 31 December 2002 by an impairment
provision of £647,000. The financial statements do not include any further
adjustments that might prove necessary were the forecasts not to be achieved,
the support of the company's principal lender be withdrawn or the company be
unable to refinance the required element of the Loan Notes.




Note 2.

Turnover and segmental analysis



The United Kingdom is the source of turnover and operating profit and the
principal location of the net assets of the company. The directors consider that
the company operates in two business segments serving various markets. Turnover,
loss on ordinary activities before taxation and net assets are analysed as
follows:





Segment of activity:                             Dinkie - Phillips     Davies Odell          Company
                                                   2002       2001     2002     2001       2002      2001
                                                  £'000      £'000    £'000    £'000      £'000     £'000

Turnover                                          2,592      4,638    4,317    4,703      6,909     9,341

Operating (loss)/profit
  before exceptional items                        (928)      (554)      244      422      (684)     (132)
Exceptional items                                 (691)    (1,055)        -        -      (691)   (1,055)
Operating (loss)/profit
  before Group costs                            (1,619)    (1,609)      244      422    (1,375)   (1,187)
Group costs                                                                               (197)     (196)
Operating loss                                                                          (1,572)   (1,383)
Interest payable                                                                          (178)     (178)
Company loss before taxation                                                            (1,750)   (1,561)

Net assets                                        1,401      2,926    1,083    1,409      2,484     4,335

Unallocated net debt                                                                    (2,653)   (2,764)

Total net (liabilities)/assets                                                            (169)     1,571

Geographical analysis of turnover:
United Kingdom                                                                            4,534     5,571
Rest of Europe                                                                              773       889
The Americas                                                                                443       914
Australasia                                                                                  46        56
Far East                                                                                    800     1,180
Africa                                                                                      313       731

Total turnover                                                                            6,909     9,341




Notes:

1.        The Annual Report and Financial Statements will be sent to all
shareholders. Further copies will be available to the public from the Company
Secretary at the Company's registered office, St Ivel Way, Warmley, Bristol BS30
8TY.



2.        The basic loss per share is calculated on losses of £1,740,000 (2001,
£1,561,000) and on 14,770,000 (2001, 14,770,000) ordinary shares. As losses have
been incurred in each year the exercise of options would not have been dilutive
and accordingly basic and diluted earnings per share are the same.



3.        The abridged Accounts for the year ended 31 December 2002 and 2001 do
not constitute statutory accounts and are an extract from the Company's
statutory accounts on which the auditors give an unqualified opinion.




For further information contact:
Ken Rees, Winningtons                         0117 317 9477, mobile [phone]
Geoff Martin, Dinkie Heel                     0117 961 3163
John Wakefield, Rowan Dartington              0117 933 0020




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