Final Results
Pittards PLC
06 March 2003
PITTARDS PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2002
Pittards plc produces technically advanced leather for many of the world's
leading brands of gloves, shoes, luxury leathergoods and sports equipment.
6 March 2003
Summary
Year ended Year ended
31 December 2002 31 December 2001
(restated)
Turnover £78.9m £83.0m
Percentage export 84% 81%
Profit (loss) before exceptional costs £2.0m (£1.5m)
Profit (loss) before tax £2.0m (£2.6m)
Earnings (loss) per share 5.4p (10.4p)
Ordinary dividends 2.85p 2.60p
Net assets per share 90p 89p
Gearing 32% 27%
• Profit of £2.0m represents further progress in recovery from an
exceptionally difficult 2001 (BSE in Europe, foot and mouth)
• Volume of finished leather sold up 5%, largely due to important new
business gains.
• A record 84% of turnover exported. (HSBC Exporter of the Year for
2002).
• Dividend for the year increased by 9.6% to 2.85p.
Robert Tomkinson, Chairman of Pittards, commented:
' I am pleased to report further progress in the second half of 2002, and a
profit for the year of £2m. We are continuing to broaden the product and
customer base of our business thus reducing our dependence on any single market
segment raw material type or currency. We are investing in new product and
market development, and in plant and equipment which will help us to reduce lead
times and costs. Looking forward, against a background of generally unsettled
economic and political conditions, we expect to make progress, albeit modest,
this year '
For further information, please contact:
John Pittard - Group Managing Director
John Buckley - Group Financial Director
Pittards plc Tel: 01935 474321
Preliminary results for the year ended 31 December 2002
Chairman's Statement
In my statement covering the first six months trading I said that the interim
profit represented the first stage of our recovery from an exceptionally
difficult 2001, and that we expected to make further progress in the second half
of the year. I am pleased to report that the Group achieved a profit before tax
of £2.0m for the year ended 31 December 2002, which compares to a profit at the
interim stage of £0.7m, and a loss of £2.6m, after exceptional costs of £1.1m,
for the previous year.
2001 was one of the most difficult years in the Company's history. BSE in
Europe and foot and mouth disease in the UK disrupted the supply of hides and
skins for much of the year, and demand for leather slumped in the final quarter
as confidence fell in the aftermath of September 11. In contrast, 2002 was a
relatively stable year with a gradual and progressive improvement in volumes,
sales and profits throughout the period. Turnover for the year was £78.9m, 5%
less than the £83.0m in 2001, but with sales in the second half more than 12%
ahead of the corresponding period of the previous year. The reduction in
overall turnover masks an underlying increase of 5% in the volume of finished
leather sold by the Glove Leather and Shoe and Leathergoods Divisions in the
year and is primarily attributable to the closure of one of the two production
units in the Raw Materials Division at the end of 2001. A record 84% of
turnover was shipped to customers outside the United Kingdom, compared to 81% in
2001.
The action taken to reduce our costs towards the end of 2001 contributed to the
recovery in operating profits to £2.4m from the prior year's loss of £2.1m,
despite the downward pressure on prices from international consumer markets.
After interest costs of £0.4m (2001 - £0.5m), corporation tax of £0.7m (2001 -
tax credit £0.7m), and preference dividends of £0.3m, earnings were £1.1m (2001
- loss £2.2m) representing 5.4p per share. (2001 - loss per share 10.4p).
Your Board is recommending a maintained final dividend of 1.85p which, together
with the increased interim dividend makes a total of 2.85p (2001 - 2.60p) for
the year, an increase of 9.6%. If approved at the Annual General Meeting the
final dividend will be paid on 9 May 2003 to shareholders on the register at the
close of business on 11 April 2003. (Ex dividend date - 9 April 2003).
We have adopted FRS 19, the accounting standard for deferred taxation, this
year. As a result the profit for the current period has decreased by £0.2m and
net assets as at 31 December 2001 have been restated, and reduced by £0.6m, from
£22.6m to £22.0m.
Net assets as at 31 December 2002 were £22.6m equivalent to 90p per ordinary
share. Total borrowings were £7.1m (2001 - £6.1m). The increase is
attributable mainly to rising working capital needs as activity levels have
increased, and to capital expenditure. This represents year end gearing of 32%.
(2001 - 27%)
The Glove Leather Division made a strong recovery in 2002 from the
disappointments of the previous year with sales turnover up by 8% in terms of
value, and by 10% in volume. Sales of leather for sports gloves bounced back
strongly from the depressed levels of the previous year as a result both of
increased sales to existing customers, and of new programmes with new customers.
By way of contrast, dress glove leather sales slipped back from the relatively
buoyant levels of early 2001, partly as a result of some carry over of stock at
retail from the previous season, resulting from the mild winter.
The cost and availability of hair sheepskins, the Glove Leather Division's
principal raw material, were more stable in 2002 as normality returned to the
market following the disruptions of the previous year.
In the Shoe & Leathergoods Division, the volume of finished leather sold was
slightly higher than in 2001, although sales turnover for the year as a whole
was down by 8% in 2002, in terms of value. This reflects the fall in hide
prices following the peaks reached in the previous year when demand for leather
in the first half was initially exceptionally strong, notwithstanding the
outbreak of foot and mouth disease early in the year until sales volumes fell
dramatically in the aftermath of September 11. Virtually all major customers
were affected. As in the Glove Leather Division, the recovery in 2002 has been
led by increased demand from the sports sector, from both existing and new
customers. We also experienced strong and steady growth in demand for our
leather for luxury leathergoods, helped by the introduction of a range of
organic leathers. Demand for the Division's upper leathers for casual footwear
reflected the generally weak retail sales during the year in this segment of the
market.
Supplies of cattle hides, the Division's main raw material, which come mainly
from the UK meat industry, have continued to improve since the end of the foot
and mouth outbreak. Leather prices have reduced in line with the lower cost of
hides, and the Division's contribution to group profit in the year was similar
to that in the previous year.
The Raw Materials Division's facility at Kinghorn, Fife was closed in December
2001. Sheepskin production has been consolidated at the Division's other
Scottish factory at Langholm. Discussions are continuing with local planners in
Fife which should lead to the redevelopment of approximately 10 acres of the 25
acre Kinghorn site, forty minutes from the centre of Edinburgh and with a book
value of £0.3m, for housing. Once outline planning consent has been obtained we
intend to market the property. The ongoing costs associated with maintaining
the security of the Kinghorn site and pursuing its redevelopment were expensed
in the period.
The reduced availability and quality of UK sheepskins as a consequence of last
year's foot and mouth outbreak, coupled with relatively strong demand for double
face (wool-on) material, pushed skin prices to a level which made fellmongering
(the Raw Materials Division's principal activity) uneconomic. Consequently the
Division incurred a small operating loss.
During the year, we undertook a review of how we could continue to provide
appropriate pension benefits for our employees at a cost to the Group similar to
that of the final salary scheme, whilst reducing our exposure to the potentially
volatile impact on the value of the scheme when calculated in accordance with
FRS 17. The review was completed in June and, after consultation with the
trustees of the scheme, and with our employees, we made a number of changes to
the Group's pension arrangements. The final salary pension scheme was closed to
new entrants with effect from 30 September 2002. A defined contribution scheme
was introduced from 1 October which is offered to new employees and is optional
for current members of the Pittards Pension Scheme. Members of the final salary
scheme ceased to accrue final salary benefit for future service with effect from
30 September 2002 and, from 1 October, joined either a career average earnings
plan, or, at their option, the defined contribution scheme. The costs of the
new arrangements are similar to the cost of the final salary pension scheme, but
as a consequence of these changes, there is a reduction in the pension scheme's
liabilities, calculated in accordance with FRS 17. The date on which full
adoption of FRS 17 (or the equivalent international accounting standard) becomes
mandatory has been deferred until 2005. Companies will then be required to
reflect any defined benefit pension scheme deficits on the balance sheet. Any
deficit will affect both distributable reserves and gearing levels. It is too
early to say whether or not this will have an effect on future dividend policy.
The net pension liability of the Group as at 31 December 2002 calculated in
accordance with FRS 17 is £10.5m (2001 - £6.6m).
A full actuarial assessment of the pension scheme is due to be carried out as at
6 April 2003. In view of the fall in investment values since the last
assessment at 6 April 2000, this is likely to lead to a substantial increase in
company contributions to the scheme.
In September 2002 we issued our second Environmental Report which describes the
environmental effects of our business and the progress we are making in
addressing environmental issues for our different stakeholders. Like the first
Report, issued in 2000, it was extremely well received by our customers,
investors and other stakeholders in our business. You can view or download a
copy of the report on our web-site (www.pittardsleather.com) or, if you prefer,
you can obtain a copy by forwarding your details to the Company Secretary, at
the registered office.
We generally welcome the Higgs Report on Corporate Governance and will be
reviewing it in detail to see how it will affect our Board practices. However,
we do believe that certain of its recommendations are unduly onerous for a small
public company like ourselves.
During the year, the Company issued 266,186 new ordinary shares pursuant to the
exercise, by employees, of share options granted in 1999 under the savings
related share option scheme.
Although this year has not been subject to the exceptional problems of 2001, our
staff have had to work equally hard to recover the sales and profitability of
the Group. This high level of effort has been spread throughout all functions
within Pittards and without the dedication of our employees we would not have
won the HSBC Exporter of the Year award in 2002. I thank them.
We observed a gradual decline in business confidence in most of our markets
around the world towards the end of last year as the prospect of renewed
conflict in the Middle East loomed larger. This has carried over into the
current period, and all three of our divisions have had a generally quiet start
to the year. Global economic activity looks fragile, and whilst the growing
strength of the euro should create opportunities for us, further weakening of
the dollar against sterling would be a cause for concern.
Against this background we are continuing to broaden the product and customer
base of our business thus reducing our dependence on any single market segment,
raw material type or currency. We are investing in new product and market
development, and in plant and equipment which, together with other initiatives,
will help us to reduce our lead times and our costs.
We believe this to be an appropriate response for our business in these
generally unsettled economic and political conditions. Accordingly, we expect
to continue to make progress, albeit modest, this year.
Robert Tomkinson
Chairman
6 March 2003
PITTARDS plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 2002
Year ended Year ended
31 December 31 December
2002 2001
Note £'000 £'000
(restated)
Turnover 78,887 83,035
Cost of sales (66,296) (73,769)
Gross profit 12,591 9,266
Distribution costs (4,765) (4,826)
Administrative expenses (5,433) (6,546)
Operating profit (loss) 2,393 (2,106)
Interest payable (386) (484)
Profit (loss) on ordinary activities before
taxation 2,007 (2,590)
Taxation (609) 678
Profit (loss) on ordinary activities after
taxation 1,398 (1,912)
Dividends - equity and non-equity 2 (883) (837)
Transfer to reserves 515 (2,749)
Earnings (loss) per share - basic 3 5.4p (10.4p)
- diluted 3 5.4p (10.4p)
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 31 December 2002
Year ended Year ended
31 December 31 December
2002 2001
£'000 £'000
(restated)
Profit (loss) on ordinary activities after taxation 1,398 (1,912)
Prior year adjustment (see note 1) (621) -
Total recognised gains & losses since last annual report 777 (1,912)
CONSOLIDATED BALANCE SHEET
as at 31 December 2002
31 December 31 December
2002 2001
£'000 £'000
(restated)
Fixed assets
Tangible fixed assets 17,056 16,825
Investments 399 -
17,455 16,825
Current assets
Stocks 13,620 11,242
Debtors 10,741 7,887
Investments - 363
Cash at bank & in hand 22 24
24,383 19,516
Creditors - amounts falling
due within one year
Bank loans & overdrafts (6,768) (6,114)
Trade creditors (7,198) (4,123)
Other creditors (3,504)
(4,189)
(13,741)
(18,155)
Net current assets 6,228 5,775
Total assets less current
Liabilities 23,683 22,600
Creditors - amounts falling due
after more than one year (230) -
Provisions for liabilities & charges (857) (621)
22,596 21,979
Capital & Reserves
Called up share capital 8,218 8,151
Reserves 14,378 13,828
Shareholders' funds (including £2,701,500
attributable to non-equity interests) 22,596 21,979
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2002
Year ended Year ended
31 December 2002 31 December 2001
£'000 £'000 £'000 £'000
Net cash inflow from operating activities 2,229 2,595
Returns on investments and servicing
of finance
Interest paid (377) (495)
Preference dividends paid (256) (270)
Net cash outflow from returns on investments and (633) (765)
servicing of finance
Taxation
UK corporation tax paid (13) -
Net cash outflow from taxation (13) -
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,805) (988)
Purchase of matching shares under Restricted Share Plan (10) (94)
Sale of tangible fixed assets 134 50
Net cash outflow from capital expenditure and (1,681) (1,032)
financial investment
Acquisitions and disposals
Purchase of minority shares in subsidiary - (10)
Net cash outflow from acquisitions and disposals - (10)
Equity dividends paid (622) (753)
Net cash (outflow) inflow before financing (720) 35
Financing
Issue of shares on exercise of options 102 -
Repurchase of preference shares - (291)
Capital element of finance lease rental repayments (38) -
Net cash inflow (outflow) from financing 64 (291)
Decrease in cash (656) (256)
Notes
1. The figures for the year ended 31 December 2002 are unaudited and do not
constitute full accounts within the meaning of Section 240 of the Companies Act
1985. The figures for the year ended 31 December 2001, set out above, are
extracted from the full accounts for that year with the exception of a
restatement relating to a change in accounting policy following the adoption of
the new accounting standard on deferred tax. Details of this change in
accounting policy are set out below. A full Report and Accounts for 2001,
including an unqualified report from the auditors, has been filed with the
Registrar of Companies.
FRS 19 (Deferred Tax) has been adopted in the current year. FRS 19 requires
that deferred tax be recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date. Previously deferred tax
was provided for on a partial provision basis, whereby provision was made on all
timing differences to the extent that they were expected to reverse in the
future without being replaced.
This change in accounting policy has resulted in a prior year adjustment. The
profit for the year has been reduced by £236,000 (2001 £660,000 credit).
Opening net assets have reduced by £621,000 from £22,600,000 to £21,979,000.
Prior year comparatives have been restated accordingly.
2. Dividends
2002 2001
£'000 £'000
Equity:
Ordinary interim - 1.00p per share (2001 - 0.75p) 218 164
Ordinary final proposed - 1.85p per share (2001 - 1.85p) 408 403
Total ordinary for year 2.85p per share (2001 - 2.60p) 626 567
Non-equity:
Preference paid 30 June and 31 December 257 270
883 837
3. Earnings per ordinary share
Basic earnings per ordinary share are based on the profit on ordinary activities
after taxation and preference dividends of £1,141,000 (2001 - loss £2,182,000)
and 20,943,000 (2001 - 20,980,000) ordinary shares, being the weighted average
number of ordinary shares in issue during the year after excluding the shares
owned by the Pittards Employee Share Ownership Trust.
In 2002, the number of dilutive potential ordinary shares were 15,000 relating
to employee share options. This gives a total weighted average number of
ordinary shares for the purpose of calculating the diluted earnings per ordinary
share for 2002 of 20,958,000.
In 2001 the loss attributable to ordinary shareholders and weighted average
number of ordinary shares for the purpose of calculating the diluted earnings
per ordinary share are identical to those used for basic earnings per ordinary
share. This is because the exercise of share options would have the effect of
reducing the loss per ordinary share and is therefore not dilutive under the
terms of FRS 14.
4. Notes to the statement of cashflows
RECONCILIATION OF OPERATING PROFIT (LOSS) TO NET CASH FLOWS 2002 2001
FROM OPERATING ACTIVITIES
£'000 £'000
Operating profit (loss) 2,393 (2,106)
Depreciation charges 1,564 1,677
Amortisation of shares under restricted share 92 (151)
plan
Amounts written off current asset investment (118) 78
Profit on sale of tangible fixed assets (107) (35)
(Increase) decrease in stocks (2,037) 2,419
(Increase) decrease in debtors (2,854) 3,199
Increase (decrease) in creditors 3,296 (2,486)
Net cash inflow from operating activities 2,229 2,595
Copies of the 2002 Annual Report and Accounts will be posted to shareholders in
early April. Further copies may be obtained by contacting the Company Secretary
at Pittards plc, Sherborne Road, Yeovil, Somerset, BA21 5BA. The annual general
meeting is to be held at the registered office on 30 April 2003.
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