Final Results

Pittards PLC 07 March 2007 Pittards plc Sherborne Road, Yeovil, Somerset, England, BA21 5BA Telephone: +44(0)1935 474321 Facsimile: +44(0)1935 431820 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. 7 March 2007 Unaudited results for the year ended 31 December 2006 Summary Year ended Year ended 31 December 2006 31 December 2005 £m £m Turnover 40.2 62.1 ______ ______ Percentage export 90% 90% Operating loss before exceptional items (0.5) (2.5) Write back of deficit on Group pension schemes 26.9 - Profit on disposal of fixed assets 0.8 2.2 Fundamental reorganisation 0.3 (7.9) ______ ______ Profit (loss) on ordinary activities before interest 27.5 (8.2) Bank interest (0.6) (0.8) Interest on pension liabilities (0.3) (1.4) ______ ______ Profit (loss) on ordinary activities before tax 26.6 (10.4) ______ ______ Net assets before pension scheme liability 4.5 8.3 Pension scheme liability - (32.9) ______ ______ Net liabilities after pension scheme liability 4.5 (24.5) ______ ______ Stephen Boyd, Chairman of Pittards, commented: '2006 has been a year of exceptional events which has transformed the prospects for the business. - ends - For further information, please contact: Stephen Boyd, Chairman Pittards plc Tel: 01935 474321 Lindsey Blackford, Group Financial Director Pittards plc Tel: 1935 474321 Barrie Newton Corporate Synergy Plc Tel: 01225 424666 John Wakefield Corporate Synergy Plc Tel: 0117 933 0020 Preliminary announcement of results for the year ended 31 December 2006 Chairman's statement 2006 has been a year of exceptional events which has transformed the prospects for the business. During the year the operational structure of the business has been radically altered with the closure of the Leeds site, the transfer of part of that production capability to Yeovil, the establishment of a sub-contractor relationship with Teh Chang providing off-shore manufacturing capability in Taiwan and the advancement of the management contract in Ethiopia. These are all steps in the process to change the strategic direction of the Company from a UK leather manufacturer to a worldwide knowledge based brand with major influence over the key market supply chains. The financial position of the Group has also been improved by restructuring the balance sheet with new capital raised and financial commitments reduced. As previously reported, the Company entered into an agreement with the Board of the Pension Protection Fund (PPF) and the Trustees of the pension schemes (Trustees) to resolve the deficit on the pension schemes, which at the end of 2005 was £32.9m on a FRS17 basis. This necessitated the Company going through the formal procedure of a Company Voluntary Arrangement (CVA) and raising new capital. Full details were set out in note 30 to the 2005 Annual Report and Accounts and the arrangements were approved by creditors and shareholders at meetings in April and May of 2006. At the beginning of the year the Group had net liabilities of £24.5m, including net debt of £7.4m. The agreement with the Trustees and the PPF, whilst crystallising some obligations into a formal loan, eliminated the deficit on the pension scheme, and resulted in an exceptional profit of £26.9m in the year. In addition, the sale of the Leeds site in June raised £6.3m which was applied to reduce bank borrowings. As a result, at the end of the year the Group's balance sheet showed net assets of £4.5m and net debt of £5.0m. Cash and credit facilities remained tight throughout the year. The impact of the inclusion of the pension deficit in the 2005 Annual Accounts, the CVA and related uncertainties that followed through the second quarter of 2006 is still being felt in the Group's credit rating. Operating profit has been depressed by the need to focus on cash flow at the expense of margin throughout the year. The operating loss for the year from trading activities was £0.5m, of which £0.4m was reported for the six months to 30 June in the interim accounts. This compares to a loss of £2.5m for 2005 and £4.0m for 2004. After taking account of the exceptional gains of £26.9m on the resolution of the pension deficit, £0.8m on the sale of the Leeds site and £0.2m on the release of excess provisions for the reorganisation of the UK activities, the profit on ordinary activities before interest was £27.5m (2005 - loss of £8.2m). After bank interest of £0.6m (2005 - £0.8m) and net interest on pension scheme liabilities to date of closure of £0.3m (2005 - £1.4m) the profit on ordinary activities before tax was £26.6m (2005 - loss of £10.4m). Group turnover for the year was £40.2m, a significant reduction on the previous year's £62.1m. This was a result of the strategic decision to cease production at our Leeds site. There were two main factors: historically the business had purchased raw hides directly from the abattoirs, part processed them all and sold away those surplus to finished leather requirements. With the move of bovine production to Yeovil, material is now purchased part processed, rather than as raw hides, eliminating the need to sell off hides unsuitable for our production. Secondly, transfers to either Yeovil or Teh Chang are focused on core production of fashion leisurewear shoe leathers, sport shoes and specific leathergoods products. The volume of glove leather sold increased by 13%, but the average selling price of this leather was 2% down on the previous year. The increased volume was largely in the dress glove market, where new strategic business was acquired at aggressive prices. Prices in sports glove leather, the majority of our glove sales, held up well despite downward market pressure and the continuing weakness of the US dollar. The profitability of the operations during the year was inevitably impacted by disruption caused by the significant physical changes that were taking place, both at Leeds and Yeovil and the need to work within tight cash constraints with limited credit. The Leeds site continued to make and sell finished leather through to October 2006, although production levels decreased significantly in the latter months as activities were wound down, machinery began to be moved and the clean-up process started. The final handover of the Leeds factory took place just before Christmas. In Yeovil there was a major reorganisation of the production areas to accommodate the bovine machinery. With the exception of the central dye-shop, there were changes in virtually all sections. Production was maintained throughout this complex operation, but inevitably productivity was affected while employees learned the necessary skills to deal with the new raw material and processes involved. The numbers employed in Yeovil are not significantly different from 2005, despite the incorporation of the bovine activity and the additional volumes produced. Significant quantities of skins were imported from Ethiopia by air rather than sea to reduce stock. This provided the desired improvement in cash flow, but had a negative impact on the operating profitability due to the increased cost of airfreight. Production through Teh Chang in Taiwan developed in the second half of the year with sales approaching 0.5m square feet. This activity services the leisure footwear market previously supplied from Leeds and is well placed to develop much further in 2007. Progress continues to be made in managing Ethiopia Tannery Share Company (ETSC) in Ethiopia. We have worked with the local team to reorganise the factory layout, improving the workflow and making room for new machinery arriving around the year end. New incentive schemes for the workforce have been introduced into certain areas of the process, which are having the desired impact on productivity. In the six months to December 2006, turnover was 8% up on the budget agreed with the Ethiopian government who own the tannery, and the profitability was also improved. The plan for 2007 is to bring the quality of their finished leather to world class standards, thus opening up a range of opportunities for ETSC and Pittards. Much research and development effort during the year has been focused on re-engineering processes to transfer production to different environments and on different raw materials. However, we have maintained our product developments, for which we are renowned throughout the leather industry. This comes from our world class marketing skills as well as product design.We have very considerably strengthened the R&D team in Yeovil with staff recruited during the year. There are some exciting new leathers in prospect in both our traditional markets and elsewhere, which will be launched in 2007. Whilst 2006 has been a year of restructuring and consolidation, we continue to look for opportunities to advance the strategy. Discussions continue with other potential partners in Ethiopia and other Asian and African countries, with a view to increasing the influence of Pittards throughout the leather industry. In the short to medium term the continuing weakness of the US dollar remains a threat and the credit issues are only easing slowly. 2006 saw a great deal of achievement in setting the Group on a fresh path. There is still much work to be done to realise the potential of the strategy, but the development of Pittards as a market leader of the leather industry remains on course. S.D.BOYD 7 March 2007 PITTARDS plc CONSOLIDATED PROFIT AND LOSS ACCOUNT - UNAUDITED for the year ended 31 December 2006 2006 2005 Trading Exceptional Total (a) below Note £'000 £'000 £'000 £'000 Turnover 40,172 - 40,172 62,089 Cost of sales (34,866) - (34,866) (55,211) ______________________________ _______ Gross profit 5,306 - 5,306 6,878 Distribution costs (2,610) - (2,610) (4,221) Administrative expenses (3,523) 26,913 23,390 (5,324) Other operating income 369 - 369 133 ______________________________ _______ Operating (loss) profit (458) 26,913 26,455 (2,534) ____________________ Profit on disposal of fixed assets 770 2,218 Fundamental reorganisation 250 (7,860) _______ _______ Profit (loss) on ordinary activities before interest 27,475 (8,176) Bank and other interest charges (628) (804) Net interest on pension scheme liabilities (238) (1,424) _______ _______ Profit (loss) on ordinary activities before taxation 26,609 (10,404) Taxation (13) (7) _______ _______ Profit (loss) on ordinary activities after taxation 26,596 (10,411) ======= ======= Earnings (loss) per share - basic and diluted 2 18.3p (50.4p) _____________________________________________________________________________________________ There were no discontinued activities in 2006 or 2005. Accordingly the results relate to continuing activites (a) The exceptional profit relates to the write back (after costs) of the deficit on the Group's pension schemes following agreement with its Trustees and the Pension Protection Fund. Full details are set out in Note 30 to the 2005 annual report and accounts PITTARDS plc CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS & LOSSES- UNAUDITED for the year ended 31 December 2006 2006 2005 £'000 £'000 Profit (loss) for period 26,596 (10,411) Actuarial loss recognised on the pension scheme - (2,712) _______ _______ Total recognised profits (losses) 26,596 (13,123) ======= ======= PITTARDS plc CONSOLIDATED STATEMENT OF MOVEMENT ON SHAREHOLDERS' FUNDS- UNAUDITED for the year ended 31 December 2006 2006 2005 £'000 £'000 At 1 January (24,530) (11,407) Total recognised profits (losses) 26,596 (13,123) Net proceeds on issue of shares 2,420 - _______ _______ At end of period 4,486 (24,530) ======= ======= PITTARDS plc CONSOLIDATED BALANCE SHEET- UNAUDITED as at 31 December 2006 2006 2005 Note £'000 £'000 Fixed assets Tangible fixed assets 6,235 12,482 ___________ __________ Current assets Stocks 6,086 7,251 Debtors 3,509 5,378 Cash at bank and in hand 21 27 ___________ __________ 9,616 12,656 ___________ __________ Creditors - amounts falling due within one year Bank loans and overdrafts (971) (6,221) Trade creditors (3,137) (3,663) Other creditors (3,733) (2,517) ___________ __________ (7,841) (12,401) ___________ __________ Net current assets 1,775 255 ___________ __________ Total assets less current liabilities 8,010 12,737 Creditors - amounts falling due after more than one year (3,004) (1,100) Provisions for liabilities and charges (520) (3,306) ___________ __________ Net assets before pension scheme liability 4,486 8,331 Pension scheme liability - (32,861) ___________ __________ Net assets (liabilities) after pension scheme liability 4,486 (24,530) =========== ========== Capital and reserves Called up share capital 4 2,233 8,227 Share premium account 4,214 3,659 Capital redemption reserve 8,158 299 Revaluation reserve 2,335 4,348 Capital reserve 6,475 6,475 Profit and loss account (18,434) (47,043) Own shares (495) (495) ___________ __________ Shareholders' funds 4,486 (24,530) =========== ========== PITTARDS plc CONSOLIDATED STATEMENT OF CASH FLOWS- UNAUDITED for the year ended 31 December 2006 2006 2005 Note £'000 £'000 £'000 £'000 Net cash (outflow) inflow from operating activities 3 (2,433) 2,304 Returns on investments and servicing of finance Interest paid (629) (894) ______ ______ Net cash outflow from returns on investments and servicing of finance (629) (894) Taxation Overseas tax paid (11) - UK corporation tax received - 127 ______ ______ Net cash (outflow) inflow from taxation (11) 127 Capital expenditure and financial investment Purchase of tangible fixed assets (550) (290) Sale of assets held for resale - 3,000 Sale of tangible fixed assets 6,830 13 ______ ______ Net cash inflow (outflow) from capital expenditure and financial investment 6,280 2,723 ______ ______ Net cash inflow before financing 3,207 4,260 Financing Proceeds of share issue 2,420 - Repayment of bank loans (230) (3,511) Repayment of loan from Trustees of pension schemes (300) - New loans received 300 Capital element of finance lease rentals and hire purchase repayments (135) (195) ______ ______ Net cash inflow (outflow) from financing 2,055 (3,706) ______ ______ Increase in cash 5,262 554 ====== ======= RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT for the year ended 31 December 2006 2006 2005 £'000 £'000 Increase in cash 5,262 554 Repayment of bank loans 230 3,511 Repayment of loan from Trustees of pension schemes (300) - Capital element of finance lease rentals and hire purchase repayments 135 195 New loans received (300) - ______ _______ Change in net debt arising from cash flows 5,627 4,260 Conversion of pension deficit to loan (3,175) - ______ _______ Movement in net debt 2,452 4,260 Net debt at 1 January (7,419) (11,679) ______ _______ Net debt at 31 December (4,967) (7,419) ====== ======= Notes 1. The figures for the year ended 31 December 2006 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 2005, set out above, are extracted from the full accounts for that year. A full Report and Accounts for 2005 including an unqualified report from the auditors, has been filed with the Registrar of Companies. 2. Earnings (loss) per ordinary share 2006 2005 £'000 £'000 Profit (loss) from continuing operations after tax 26,596 (10,411) Less: preference share dividends ((a) below) - (257) ____________ ___________ Profit (loss) from continuing operations attributable to ordinary shareholders 26,596 (10,668) ____________ ___________ (a) There is no preference share dividend accrued in the earnings calculation in 2006 as the preference shares were converted to ordinary shares on 19 May 2006 Weighted average number of ordinary shares in issue (excluding the shares owned by the Pittards Employee Share Ownership Trust) 2006 2005 '000's '000's Basic 145,484 21,156 _________ ________ The total number of ordinary shares in issue at 1 January 2006 was 22,102,365. On 19 May 2006 the number of ordinary shares in issue became 223,244,477 following the capital reorganisation. In 2006 and 2005 the weighted average number of ordinary shares for the purpose of calculating the diluted earnings per ordinary share is identical to that used for basic earnings per ordinary shares. Basic and diluted earnings (loss) per ordinary share 2006 2005 Earnings (loss) from continuing operations 18.3p (50.4p) _________ ________ 3. Note to the statement of cashflows Reconciliation of operating profit (loss) to net cash flows from operating activities 2006 2005 £'000 £'000 Operating profit (loss) 26,456 (2,534) Depreciation charges 741 2,010 Defined benefit cost less contribution paid (29,924) (1,016) (Profit) loss on sale of tangible fixed assets (200) 5 Increase in assets held for resale - (34) Provision utilised (1,650) - Decrease in stocks 1,165 1,920 Decrease in debtors 3,142 3,537 Decrease in creditors (1,163) (1,584) _________ ________ Net cash (outflow) inflow from operating activities (2,433) 2,304 _________ ________ 4. Share capital Ordinary New ordinary Preference Deferred Total shares (25p) shares (1p) shares ordinary shares £'000 £'000 £'000 £'000 £'000 At 1 January 2006 5,526 - 2,701 - 8,227 Conversion of ordinary shares to new ordinary shares (5,526) 221 - 5,305 - Conversion of preference shares to ordinary shares - 147 (2,701) 2,554 - Issue of new ordinary shares - 1,865 - - 1,865 Redemption of deferred ordinary shares - - - (7,859) (7,859) ___________________________________________________________ At 31 December 2006 - 2,233 - - 2,233 ___________________________________________________________ Full details of the capital reorganisation set out above are given in Note 30 of the 2005 Annual Report and Accounts. 5. Copies of the 2006 Annual Report and Accounts will be posted to shareholders in 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 2 May 2007. This information is provided by RNS The company news service from the London Stock Exchange

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