Final Results

Pittards PLC 11 March 2004 Pittards plc Sherborne Road, Yeovil, Somerset, England, BA21 5BA Telephone: +44(0)1935 474321 Facsimile: +44(0)1935 431820 NEWS RELEASE http://www.pittardsleather.com E-mail: pittardsenquire@pittards.com Pittards plc produces technically advanced leather for many of the world's leading brands of gloves, shoes, luxury leathergoods and sports equipment. 11 March 2004 PITTARDS plc Results for the year ended 31 December 2003 Summary Year ended Year ended 31 December 2003 31 December 2002 Turnover £85.4m £78.9m Percentage export 86% 84% Operating profit before pension costs £3.6m £3.7m Pension costs £2.1m £1.3m Operating profit £1.5m £2.4m Profit before tax £1.0m £2.0m Earnings per share 2.1p 5.4p Ordinary dividend 1.5p 2.85p Assets per share 90p 90p • Turnover up by 8%; volume of finished leather sold up by 12.5%. • Export sales increased to 86% of turnover. • Sales to the Far East up by 33% over the last two years. • Operating profit down by 37.5% after £0.8m increase in pension costs. Robert Tomkinson, Chairman of Pittards, commented: 'The general deterioration in trading conditions in the second half of last year and the weakness of the dollar have continued into the early part of 2004. An improvement in our performance, in the short term, will come primarily from higher volumes, better operating efficiency and higher dollar prices, albeit in a fiercely competitive market. For the longer term, we are continuing to invest in product and market development, in more efficient and productive plant and in value adding systems. This will enable us to meet the needs of our established customers, the international brands, and also those of the rapidly developing emergent brands in South East Asia. Nevertheless the unstable global economic climate and the increased volatility of exchange rates indicate that the current year will be challenging for us, particularly in the first half.' For further information, please contact: John Pittard - Group Managing Director John Buckley - Group Financial Director Pittards plc Tel: 01935 474321 Chairman's Statement There was a general deterioration in trading conditions in the second half, as a consequence of which we have been unable to maintain the progress we achieved in each of the three preceding reporting periods. The operating profit for the year ended 31 December 2003, before pension costs, was £3.6m (2002 - £3.7m). Pension costs in the year (on the basis of the applicable accounting standard, SSAP 24) increased by 60% to £2.1m (2002 - £1.3m). The operating profit after pension costs was £1.5m (2002 - £2.4m) - 37% lower than last year, and after higher interest costs of £0.5m (2002 - £0.4m) the profit before tax was £1.0m, (2002 - £2.0m). This is in line with market expectations. In my interim statement, in which we reported pre-tax profits for the first half of the year of £0.8m (2002 - £0.7m), I said that global economic activity continued to look fragile. I commented that whilst we were quite busy in each of our three divisions, we were aware that many in our industry were operating well below capacity and that this was putting great pressure on volumes and prices. This pressure continued throughout the second half and was felt most keenly in the Glove Leather Division, where sales volumes fell well short of the levels achieved in the first half. Furthermore, with approximately 40% of our total sales denominated in US dollars, and a further proportion being indirectly dollar related, the effect of the rapid depreciation of that currency towards the end of the year was to erode margins generally across the Group. We have taken action to reduce our costs and, where possible, to increase our dollar prices to compensate. The underlying volume of finished leather sold by the Group in the year grew by 12.5%, but in sterling value terms this netted down to an increase of 8% - to £85.4m (2002 - £78.9m) as a result of mix and currency. A record 86% of turnover was shipped to customers outside the United Kingdom, compared with 84% in 2002. The migration of glove and shoe manufacturing to South East Asia is continuing. Our sales to that region have increased by 33% over the last two years with much of that growth coming from sales to manufacturers of shoes for affluent consumers in their domestic markets. Dividend Conscious of the need to conserve our cash resources to meet the current demands of the business, the Board is recommending a reduced final dividend 0.5p (2002 - 1.85p). Together with the interim dividend, this makes a total of 1.5p (2002 - 2.85p) for the year, and is covered 1.4 times by earnings per share. If approved at the Annual General Meeting the final dividend will be paid on 7 May 2004 to shareholders on the register at the close of business on 13 April 2004 (ex dividend date 7 April 2004). As regards future dividend policy, there remains some uncertainty concerning the impact on distributable reserves arising from the adoption of International Accounting Standards in 2005. Net assets and borrowings Net assets, as at 31 December 2003, were £22.6m; equivalent to 90p per ordinary share. Total borrowings rose to £10.3m (2002 - £7.1m) as a result of a reduction in the net cash inflow from operations and an increase in capital expenditure. The lower level of cash generated from operations, compared with 2002, was due primarily to the increase in pension contributions, and an unseasonal spike in working capital at the end of the year. Capital expenditure in the year includes substantial expenditure on new machinery to improve productivity and the project to implement an enterprise resource planning (ERP) computer system, which we began in the middle of 2003. The project is costing in excess of £1m and will be funded by a five year term loan. We expect to complete the implementation during the first half of the current year and to start to benefit from enhanced planning and resource allocation decisions during the second half. Year end gearing was 45% (2002 - 32%). Glove Leather Division After a strong start to the year with an increase in sales volume of 8% in the first half, the Glove Leather Division's sales fell back in the second, to finish the year less than 2% ahead. Overall volumes sold to the dress glove and sports glove sectors were similar year on year and useful platforms for sales into China and Russia were established. There was a significant increase in sales to the military and service sectors based on our new technologies of CIG (custom image generation) and increased abrasion resistance. The Division exports almost 95% of its production and the vast majority is sold in US dollars. Whilst it has a natural hedge against approximately 50% of its dollar sales from its raw material purchases which are also in dollars, the value of the Division's dollar sales was eroded by the 12% fall in the dollar/ sterling exchange rate over the course of the year. Despite the 1.7% increase in sales volume overall, revenue fell by 5.3% - the implicit 7% fall in prices being primarily attributable to the relative weakness of the dollar in 2003. Shoe & Leathergoods Division In contrast to the Glove Leather Division, the Shoe & Leathergoods Division achieved a significant improvement in its contribution to Group operating profits in the second half of the year, from sales similar to those of the first six months. The impact of dollar weakness was less marked in this Division as the majority of its sales are denominated in euros and sterling. Finished leather sales grew by 22% in volume terms compared with the previous year, with volume gains in each of the Division's three main categories of business. Sales of upper leather for manufacturers of casual footwear grew as a result of strong demand from Korean and Taiwanese brands for their domestic markets. Sports footwear leather sales benefited from some strategically important programmes, particularly in the first half, whilst business with the leading brands of luxury leathergoods was again strong. Raw Materials Division The Raw Materials Division, the smallest of our three Divisions, encountered tough trading conditions in the second half. The procurement of adequate quantities of skins for fellmongering became more difficult as a result of strong demand for UK sheepskins from overseas 'wool-on' tanners. The Division made a small loss in the year, following a profitable first half performance. We still await the determination of our application for outline planning permission for the development of approximately 10 acres of the Division's former factory site in Kinghorn, Fife. The application is for residential development in conformity with the Local Plan. We intend to market the site to achieve a sale within the next 12 months. Pension Scheme The final salary pension scheme was closed on 30 September, 2002. The triennial valuation of the Closed Scheme required by its trust deed was carried out by the scheme actuary as at 6 April 2003. This revealed a deficit of £19.7m compared with a deficit of £2.1m at the time of the previous valuation as at 6 April 2000. The contributions included in the accounts for 2003 are in accordance with the scheme actuary's recommendation for an appropriate level of funding on an ongoing basis. The scheme actuary also valued the Scheme as at 6 April 2003 on an MFR basis. This revealed a funding level of 72% compared to 98% as at 6 April 2000. Under the current MFR regulations, we are required to achieve 100% funding within ten years, and 90% funding within three years. The scheme actuary has calculated that contributions at the rate he has recommended on an ongoing basis will be sufficient to achieve 100% funding on an MFR basis within ten years, but will not be sufficient to achieve 90% funding within three years. In order to conserve its cash resources, the Company is proposing to cover the shortfall in funding by granting to the Trustees of the Pension Scheme a charge over one of its freehold properties. The property is currently charged to the Bank but the Bank has indicated its agreement in principle to the Company's proposal, as have the Trustees of the Pension Scheme. From 1 October 2002, members of the Closed Scheme joined either a Career Average Earnings Plan or, at their option, a Defined Contributions Scheme. The costs of the new arrangements are similar to the costs of the Closed Scheme, before amortisation of the deficit. We are currently taking what steps we can to manage the Scheme liabilities through changes to benefits, and by increasing members' contributions. Employees I must pay tribute to the dedication and enthusiasm of all our employees in these very difficult times, in particular to our purchasing teams and to our sales force who travel very extensively across the world visiting our international customers and suppliers. This support is much appreciated by the Board. Prospects The difficult trading conditions and the weakness of the dollar have continued into the early part of 2004. Some of our customers have been destocking in response to lower demand and this has resulted in some short time working. Although we have made a disappointing start to the year, with all three of our operating divisions currently trading at a loss, the order book is recovering steadily from a low point reached in November last year. In the short term, an improvement in our performance will come primarily from higher volumes, increases in operating efficiency and higher dollar prices, albeit in a fiercely competitive market. For the longer term, we are continuing to invest in product and market development, in more efficient and productive plant and in value adding systems. This will enable us to continue to meet the needs of our established customers, the international brands, and also those of the rapidly developing emergent brands in South East Asia. Nevertheless, the unstable global economic climate and the increased volatility of exchange rates indicate that the current year will be challenging for us, particularly in the first half. Robert Tomkinson Chairman 11 March 2004 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 December 2003 Year ended Year ended 31 December 31 December 2003 2002 Note £'000 £'000 Turnover 85,429 78,887 Cost of sales (71,523) (66,296) Gross profit 13,906 12,591 Distribution costs (6,056) (4,765) Administrative expenses (6,340) (5,433) Operating profit 1,510 2,393 Interest payable (486) (386) Profit on ordinary activities before taxation 1,024 2,007 Taxation (323) (609) Profit on ordinary activities after taxation 701 1,398 Dividends - equity and 2 (588) (883) non-equity Transfer to reserves 113 515 Earnings per share - basic 3 2.1p 5.4p - diluted 3 2.0p 5.4p a) There were no discontinued activities in 2003 or 2002. Accordingly the above results relate to continuing operations. b) There was no difference between the profit on ordinary activities after taxation and the total recognised gains relating to the year. Accordingly no separate statement of total recognised gains and losses has been prepared. CONSOLIDATED BALANCE SHEET as at 31 December 2003 31 December 31 December 2003 2002 £'000 £'000 Fixed assets Tangible fixed assets 17984 17056 Investments 342 399 18,326 17,455 Current assets Stocks 14,209 13,620 Debtors 9,941 10,741 Cash at bank & in hand 22 22 24,172 24,383 Creditors - amounts falling due within one year Bank loans & overdrafts (9,937) (6,768) Trade creditors (5,270) (7,198) Other creditors (3,126) (4,189) (18,333) (18,155) Net current assets 5,839 6,228 Total assets less current liabilities 24,165 23,683 Provisions for liabilities & charges (1,180) (857) Creditors - amounts falling due after more than one year (262) (230) 22,723 22,596 Capital & reserves Called up share capital 8,227 8,218 Reserves 14,496 14,378 Shareholders' funds (including £2,701,500 attributable to non-equity interests) 22,723 22,596 CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2003 Year ended Year ended 31 December 2003 31 December 2002 Note £'000 £'000 £'000 £'000 Net cash inflow from operating activities 4 1,212 2,229 Returns on investments and servicing of finance Interest paid (478) (377) Preference dividends paid (257) (256) Net cash outflow from returns on investments and servicing of (735) (633) finance Taxation UK corporation tax paid (454) (13) Overseas tax paid - - Net cash outflow from taxation (454) (13) Capital expenditure and financial investment Purchase of tangible fixed assets (2,425) (1,805) Purchase of matching shares under restricted share plan (35) (10) Sale of tangible fixed assets 14 134 Net cash outflow from capital expenditure and financial investment (2,446) (1,681) Acquisitions and disposals Purchase of minority shares in subsidiary - - Net cash outflow from acquisitions and disposals - - Equity dividends paid (629) (622) Net cash outflow before financing (3,052) (720) Financing Issue of shares on exercise of options 14 102 Capital element of finance lease rental repayments (131) (38) Net cash (outflow) inflow from financing (117) 64 Decrease in cash (3,169) (656) Reconciliation of net cash flow to movement in net debt Decrease in cash (3,169) (656) Capital element of finance lease rentals and hire purchase repayments 131 38 Change in net debt (3,038) (618) New finance lease arrangements and hire purchase contracts (204) (358) Movement in net debt (3,242) (976) Net debt at 1 January (7,066) (6,090) Net debt at 31 December resulting from cash flows (10,308) (7,066) Notes 1. The figures for the year ended 31 December 2003 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 2002, set out above, are extracted from the full accounts for that year. A full Report and Accounts for 2002 including an unqualified report from the auditors, has been filed with the Registrar of Companies. 2. Dividends 2003 2002 £'000 £'000 Equity: Ordinary interim - 1.00p per share (2002 - 1.00p) 221 218 Ordinary final proposed - 0.50p per share (2002 - 1.85p) 110 408 Total ordinary for year 1.50p per share (2002 - 2.85p) 331 626 Non-equity: Preference paid 30 June and 31 December 257 257 588 883 3. Earnings per ordinary share Basic earnings per ordinary share are based on the profit on ordinary activities after taxation and preference dividends of £444,000 (2002 - £1,141,000) and 21,194,000 (2002 - 20,943,000) 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 2003, the number of dilutive potential ordinary shares was 25,000 (2002 - 15,000) relating to employee share options, and 453,000 relating to employee long term incentive plans. This gives a total weighted average number of ordinary shares for the purpose of calculating the diluted earnings per ordinary share for 2003 of 21,672,000 (2002 - 20,958,000) 4. Notes to the statement of cash flows RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOWS FROM OPERATING ACTIVITIES 2003 2002 £'000 £'000 Operating profit 1,510 2,393 Depreciation charges 1,684 1,564 Amortisation of shares under restricted share plan 92 92 Amounts written back to current asset investments - (118) Loss (profit) on sale of tangible fixed assets 3 (107) Increase in stock (589) (2,037) Decrease (increase) in debtors 893 (2,854) (Decrease) increase in creditors (2,381) 3,296 Net cash inflow from operating activities 1,212 2,229 5. Copies of the 2003 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 5 May 2004. This information is provided by RNS The company news service from the London Stock Exchange

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