Interim Results

Pittards PLC 31 August 2005 Pittards plc produces technically advanced leather for many of the world's leading brands of gloves, shoes, luxury leathergoods and sports equipment. 31 August 2005 Interim results for the six months ended 30 June 2005 Chairman's Interim Statement The strategy change for the Company, started just nine months ago, is progressing well. The contract we have been awarded to manage Ethiopia's largest tannery forms part of our drive to make our expanded operations internationally competitive, whilst building on Pittards' pre-eminent position as a supplier of high performance leather to the world's leading brands of gloves, shoes, leathergoods and sports equipment. This programme will only start to show through to profits in 2006. This year's trading is about rebuilding our sales, reducing our UK cost base and, most importantly, generating cash to reduce our bank borrowings. The accompanying financial statements for the six months ended 30 June 2005 reflect the full adoption of FRS17, the accounting standard for retirement benefits. The results for 2004 have been restated to accord with this change in accounting policy. The operating loss for the period was Â£0.4m, which compares with a similar loss in the first half of 2004, and a loss of Â£3.5m in the six months ended 31 December 2004. After bank interest of Â£0.3m (2004 - Â£0.3m) and net finance charges relating to the pension scheme of Â£0.7m (2004 - Â£0.7m) the loss on ordinary activities before taxation was Â£1.4m (2004 - Â£1.4m). This compares with a loss of Â£4.6m in the six months ended 31 December 2004. Turnover for the continuing activities was Â£32.3m, almost 90% of which was to customers outside the United Kingdom. This was up by 7.7% in comparison with sales by the continuing activities for the equivalent period of 2004, and by 13.5% against the second half. The turnover in 2004 includes that derived from the trading of UK sheepskin pelts - an activity from which we withdrew in October last year. Net assets, before taking account of the deficit on the pension scheme, were Â£17.0m as at 30 June 2005 (31 December 2004 - Â£18.3m restated). Total borrowings were Â£11.1m, down from Â£11.7m at the end of last year, with gearing at 65% (31 December 2004 - 64%) before taking account of the pension scheme deficit. The deficit on the pension scheme, calculated in accordance with FRS17, has increased from Â£29.7m at 31 December 2004, to Â£34.4m. Scheme assets increased from Â£48.6m to Â£51.0m, but the liabilities increased from Â£78.3m to Â£85.4m largely as a result of the fall in corporate bond yields from 5.8% to 5.4%. The effect of the implementation of FRS17, and the inclusion of the long term potential pension liabilities on the balance sheet, is to create net liabilities of Â£17.3m compared with net liabilities of Â£6.9m at the end of 2004 (as restated), and to eliminate the Company's distributable reserves. In accordance with the provisions of Section 263 of the Companies Act 1985, dividends can only be made from a company's accumulated realised profits. As a consequence of having no distributable reserves in its balance sheet, the Company will effectively be prevented from paying dividends to ordinary shareholders and to preference shareholders until such time that distributable reserves are restored. The directors are currently unable to foresee when the payment of dividends to either preference shareholders or ordinary shareholders may be resumed. Section 142 of the Companies Act 1985 requires the directors to convene a general meeting of the Company if they become aware that the consolidated net assets of the Company are less than half of the nominal value of its called up share capital. As at 30 June 2005, the consolidated net liabilities of the Company were Â£17.3m compared with the nominal value of its share capital of Â£8.2m. The obligation to convene a general meeting under Section 142 arises as a result of the implementation of FRS17, the potential effect of which on net assets has been commented on in our last four Report & Accounts. The matter was also discussed at our AGM in May this year. Nevertheless, the directors are obliged under Section 142 to give notice that they are convening an extraordinary general meeting of the Company to be held at the registered office at Sherborne Road, Yeovil at noon on Thursday 22 September for the purpose of considering whether any, and if so what, steps should be taken to deal with the situation. Pittards Yeovil (formerly the Glove Leather Division) returned a profit in the first half of 2005 with sales up by 21% on the second half of last year, albeit 11% down on the first six months of 2004. Sales of leather for sports gloves - particularly for golf - were strong. The average number employed at Yeovil in the first half of 2005 was 257, down by 13% from the equivalent period of 2004. In August 2005, the Division was awarded a contract by the Privatisation & Public Enterprises Supervising Authority of Ethiopia to manage Ethiopia Tannery Share Company ('ETSC'), the largest of the state owned tanneries in that country. ETSC is a major supplier of hair sheepskins to Pittards Yeovil for the production of gloving leather. As indicated in the Chairman's statement in the 2004 Report & Accounts, we are carrying out progressively more of our initial processing closer to source. The principal objective of the contract, which is for five years, is to increase ETSC's value added production and export revenues through the provision of procurement, technical, managerial, selling, training and marketing expertise, and the development and implementation of managerial systems. Pittards will be remunerated through a management fee, profit share and a royalty in respect of a brand licence and technology transfer. The contract provides Pittards and ETSC with expanded market and product opportunities across a range of leathers for gloves, shoes and leathergoods. Pittards Leeds (formerly the Shoe and Leathergoods Division) achieved similar sales of finished leather in the period as in the second half of 2004 in terms of both volume and value, although lower on both counts than the first half. Sales of leather for sports and leisure footwear were ahead of both the first and second halves of last year. These gains, however, were offset by a drop in sales of leather for luxury leathergoods, which was largely the result of difficulties we are encountering in sourcing sufficient quantities of hides of the right quality. These sourcing issues had an adverse impact on margins in the Division and despite the cost savings achieved, the operating loss for the period was greater than for the first six months of last year, although less than the loss incurred in the second half. Outline planning consent was granted in July 2005 for residential development on approximately 10 acres of our 25 acre former factory site at Kinghorn, Fife. Conditional contracts for the sale of the site for a price of Â£3.15m (book value - Â£0.8m) were exchanged on 24 December 2004. Completion is conditional upon the purchaser being satisfied with the outline consent and attendant conditions. When received, the proceeds of sale will be applied in the reduction of bank borrowings. Allowing for the fact that there are fewer working weeks in the period, we are expecting sales to be similar in the second half to the first. In common with most manufacturers in this country, we are experiencing higher chemical, fuel, power and waste treatment costs which are eroding the benefits of the cost savings we have achieved over the last twelve months. With these and other pressures on our margins it is unlikely that we will show much improvement in the second half on our performance in the first six months. Stephen Boyd Chairman 31 August 2005 PITTARDS plc -------------- CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED) for the six months ended 30 June 2005 Year ended Six months Six months 31 December ended 30 June ended 30 June 2004 2005 2004 restated restated Â£'000 Note Â£'000 Â£'000 73,154 Turnover 32,341 38,528 ---------- --------- --------- Operating loss on ordinary (3,959) activities before (400) (418) ---------- interest --------- --------- (672) Bank and other interest (340) (280) charges (1,417) Net interest on pension scheme (712) (709) ---------- liabilities --------- --------- (2,089) Total finance charges (1,052) (989) ---------- --------- --------- ---------- --------- --------- Loss on ordinary (6,048) activities before (1,452) (1,407) taxation 1,349 Taxation - 310 ---------- --------- --------- Loss on ordinary (4,699) activities after (1,452) (1,097) ---------- taxation --------- --------- Dividends 257 Preference - 129 - Ordinary - - ---------- --------- --------- 257 - 129 ---------- --------- --------- (4,956) Transferred from (1,452) (1,226) ---------- reserves --------- --------- Loss per share 1 (23.4) - Basic (7.5) (5.8) (23.4) - Diluted (7.5) (5.8) PITTARDS plc -------------- CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS & LOSSES (UNAUDITED) for the six months ended 30 June 2005 Year ended Six months Six months ended ended 2004 30 June 2005 30 June 2004 Â£'000 Note Â£'000 Â£'000 Restated Restated (4,699) Loss for period (1,452) (1,097) (670) Actuarial (loss)gain on pension (4,478) 45 scheme -------- ---------- --------- (5,369) Total recognised losses (5,930) (1,052) -------- relating to the period --------- Prior year adjustment - 4 (29,370) FRS17 ---------- Total recognised losses (35,300) since last annual report ---------- PITTARDS plc -------------- CONSOLIDATED STATEMENT OF MOVEMENT ON SHAREHOLDERS FUNDS (UNAUDITED) for the six months ended 30 June 2005 Year ended Six months Six months ended ended 2004 30 June 2005 30 June 2004 Â£'000 Â£'000 Â£'000 22,381 At 1 January as previously 17,963 22,381 reported (28,152) Prior year adjustment 4 (29,370) (28,152) -------- ---------- --------- (5,771) At 1 January as restated (11,407) (5,771) (5,369) Total recognised losses (5,930) (1,052) (257) Dividends - (129) (15) Cost of own shares - (15) purchased 5 Share based expense recognised in - 95 the profit & loss account -------- ---------- --------- (11,407) At end of period (17,337) (6,872) -------- ---------- --------- PITTARDS plc --------------- CONSOLIDATED BALANCE SHEET (UNAUDITED) as at 30 June 2005 31 December 30 June 30 June 2004 2005 2004 restated restated Â£'000 Â£'000 Â£'000 Fixed assets 17,774 Tangible 16,973 18,373 -------- -------- -------- Current assets 748 Assets held for resale 789 536 10,171 Stocks 10,636 12,964 9,029 Debtors 7,952 10,338 23 Cash at bank & in hand 29 25 -------- -------- -------- 19,971 19,406 23,863 -------- -------- -------- Creditors - Amounts falling due within one year (7,163) Bank loans & overdrafts (7,034) (7,140) (4,509) Trade creditors (5,802) (5,528) (3,386) Other creditors (2,568) (3,358) -------- -------- -------- (15,058) (15,404) (16,026) -------- -------- -------- 4,913 Net current assets 4,002 7,837 -------- -------- -------- 22,687 Total assets less current liabilities 20,975 26,210 Creditors - Amounts falling (4,353) due after more than one year (3,947) (3,781) - Provisions for liabilities and charges - (870) -------- -------- -------- 18,334 Net assets before pension scheme 17,028 21,559 liability (29,741) Pension scheme liability (34,365) (28,431) -------- -------- -------- (11,407) Net liabilities after pension scheme (17,337) (6,872) -------- liability -------- -------- Capital & Reserves 8,227 Called up share capital 8,227 8,227 (495) Investment in own shares (495) (405) (19,139) Reserves (25,069) (14,694) -------- -------- -------- (11,407) Shareholders' funds (17,337) (6,872) -------- -------- -------- PITTARDS plc -------------- CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) for the six months ended 30 June 2005 Year ended Six months ended Six months ended 31 December 2004 30 June 2005 30 June 2004 Restated Restated Â£'000 Â£'000 Note Â£'000 Â£'000 Â£'000 Â£'000 1,210 Net cash 2 1,127 1,235 inflow from operating activities Returns on investments and servicing of finance (613) Interest (448) (274) paid (257) Preference - (129) ------ dividends paid ------ ------ (870) Net cash outflow from (448) (403) returns on investments and servicing of finance Taxation 135 UK 127 (93) corporation tax received (paid) ------ ------ ------ 135 Net cash 127 (93) inflow (outflow) from taxation Capital expenditure and financial investment (1,281) Purchase of (268) (1,255) tangible fixed assets 170 Sale of 44 11 ------ tangible fixed assets ------ ------ (1,111) Net cash outflow from (224) (1,244) capital expenditure and financial investment (110) Equity - (110) dividends paid ------- -------- ------ (746) Net cash 582 (615) inflow (outflow) before financing Financing (15) Purchase of - (15) matching shares under Restricted Share Plan 4,499 New bank - 3,500 loans (101) Repayment of (83) - bank loans (243) Capital (106) (70) ------ element of finance lease rental repayments ------ ------ 4,140 Net cash (outflow) (189) 3,415 ------- inflow from financing -------- ------ 3,394 Increase in 393 2,800 ------- cash -------- ------ RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (UNAUDITED) Year ended Six months Six months ended ended 31 December 30 June 30 June 2004 2005 2004 Â£'000 Â£'000 Â£'000 3,394 Increase in 393 2,800 cash 243 Capital element of 106 70 finance lease rental repayments 101 Repayment of 83 - bank loans (4,499) New bank - (3,500) loans ------- -------- ------ (761) Change in net debt 582 (630) arising from cash flows (610) New hire - (120) purchase contracts ------- -------- ------ (1,371) Movement in 582 (750) net debt (10,308) Net debt at (11,679) (10,308) beginning of period ------- -------- ------ (11,679) Net debt at (11,097) (11,058) ======= end of ======== ====== period Notes 1. Loss per ordinary share Year ended Six months Six months ended ended 31 December 30 June 2005 30 June 2004 2004 Restated Â£'000 Restated Â£'000 Â£'000 (4,699) Loss on ordinary activities after (1,452) (1,097) taxation (257) Preference dividend (129) (129) ------- ------- ------- (4,956) Loss (1,581) (1,226) --------- --------- --------- Weighted average number of ordinary shares in issue (excluding the shares owned by the Pittards employee share ownership trust) '000's '000's '000's -------- -------- 21,156 Basic 21,152 21,185 -------- -------- -------- 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 share. This is because the exercise of share options and vesting of conditional shares under the Restricted Share Plan would have the effect of reducing the loss per ordinary share and is therefore not dilutive under the terms of FRS22. 2. Reconciliation of operating loss to net cash flows from operating activities: Year ended Six months Six months ended ended 31 December 30 June 30 June 2004 2005 2004 Restated Restated Â£'000 Â£'000 Â£'000 (3,959) Operating loss (400) (418) 1,787 Depreciation charges 1,020 986 5 Amortisation of matching RSP shares - 95 144 Loss (profit) on sale of tangible fixed 5 (11) assets (534) Defined benefit operating profit charge (566) (421) less contributions paid (267) Increase in assets held for resale (41) (55) 3,557 (Increase) decrease in stocks (465) 764 946 Decrease (increase) in debtors 1,006 (291) (469) Increase (decrease) in creditors 568 586 --------- ----------- ----------- 1,210 Net cash inflow from operating 1,127 1,235 --------- activities ----------- ----------- 3. The financial information contained in this interim statement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the full preceding year is based on the statutory accounts for the financial year ended 31 December 2004. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. 4. The interim financial information has been prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 31 December 2004, with the exception of the adoption of FRS17 'Retirement Benefits'. This requires that for the defined benefit schemes the amounts charged to operating profit are the current service costs and gains or losses on settlements and curtailments. Past service costs are recognised immediately in the profit and loss account if the benefits have vested. If the benefits have not vested immediately, the costs are recognised over the period until vesting occurs. The interest cost and the expected return on assets are shown as a net amount of other finance costs or credits adjacent to interest. Actuarial gains and losses are recognised in the statement of total recognised gains and losses. Defined benefit schemes are funded, with the assets of the scheme held separately from those of the Group, in separate trustee administered funds. Pension scheme assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term to the scheme liabilities. The actuarial valuations are obtained at least triennially and are updated at each balance sheet date. The resulting defined benefit asset or liability is presented separately on the face of the balance sheet. For defined contribution schemes the amount charged to the profit and loss account in respect of pension costs and other post-retirement benefits is the contribution payable in the period. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet A prior year adjustment has been made to reflect this change. The operating loss in the current half year has been reduced by Â£300,000 (2004 year - Â£869,000, 2004 half year - Â£479,000). The loss on ordinary activities before taxation in the current year has been increased by Â£412,000 (2004 year - Â£548,000, 2004 half year - Â£230,000). Opening net assets have been reduced by Â£29,370,000 from Â£17,963,000 to net liabilities of Â£11,407,000. Prior year comparatives have been restated accordingly. 5. The report containing the interim financial information is to be sent direct to shareholders. Copies of the report are available to the public from the registered office of Pittards plc. The address of the registered office is : Pittards plc, Sherborne Road, Yeovil, Somerset, BA21 5BA. This information is provided by RNS The company news service from the London Stock Exchange

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