PTD.L Regulatory News (PTD)

30 Aug 2007 07:00

Pittards PLC30 August 2007 Pittards plc produces technically advanced leather for many of the world'sleading brands of gloves, shoes, luxury leathergoods and sports equipment. PITTARDS PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 Chairman's Interim Statement In the first half of 2007 we have concentrated on incorporating the bovineactivity formerly carried out in our Leeds factory into the Yeovil site and thishas now been successfully integrated. In Ethiopia, Ethiopia Share TanneryCompany's (ETSC) turnover has increased by 23% over their previous financialyear on a business that exports more than 80% of its sales. The subcontractorrelationship with Teh Chang in Taiwan which services the leisure footwear markethas also progressed with sales for the first half totalling over a millionsquare feet. The accompanying financial statements for the six months ended 30 June 2007 havebeen prepared for the first time in accordance with International FinancialReporting Standards as now required for AIM listed companies, and a fullreconciliation of the impact of these changes (including restatement of theprior period) is attached to these results as an appendix. However, as we donot intend to change the way we manage our business in order to addressaccounting issues I will continue to comment on a UK GAAP basis for the timebeing. In our business the differences under IFRS arise almost exclusively fromthe treatment of foreign exchange contracts (called derivative financialinstruments under IFRS). This is because there are timing differences betweenthe way we hedge account for foreign currency under UK GAAP and the requirementsof IFRS which will lead to greater volatility in results between accountingperiods. On a UK GAAP basis the Company achieved an operating profit of £0.058m in thefirst half of 2007, which compares to an operating loss of £0.402m in the firsthalf of 2006, and follows an operating loss of £0.056m in the second half of2006. After bank interest of £0.3m (2006 - £0.351m) the loss on ordinaryactivities before taxation was £0.242m (2006 £0.991m loss before extraordinaryitems). Under IFRS accounting rules the operating profit of £0.058m becomes a loss of£0.419m because gains on derivative financial instruments used to hedge 2007foreign currency exposures have been accounted for in 2006 in accordance withIAS 39. Turnover for the six months was £16.6m (IFRS £15.9m) which compares to £22.3m inthe first half of 2006 and £17.9m in the second half of 2006 which stillincluded some Leeds production. A record 91% of this was sold to customersoutside the UK (2006 - 90%). Within the Leeds turnover a significant proportionof sales derived from the selling of wet blue hides from their tanning business,whereas, as previously reported bovine production in Yeovil is based on hidesbought part processed (wet blue) which more closely match our finished leatherrequirements. Sales of glove leather reduced by 8% in volume in the period due to lower demandfor dress gloves following the mild winter. However other sales held up well.Revenue was adversely impacted by the weaker dollar which reduced average pricesby over 5%, We have had some more military contracts placed in the last fewweeks and sports glove leather sales remain steady. Sales of bovine leather represented 23% of turnover in the first half year andreflect the superb team effort made to bring bovine production to Yeovil. Salesof saddlery and lifestyle leathers have picked up in the second quarter whilstsales of leather for sports footwear were particularly strong, exceedingforecast, and are expected to remain so in the second half. Production at Teh Chang in Taiwan totalled over 1m square feet in the first halfand we will continue to develop this strategic partnership.. Our management contract to run ETSC has almost completed its second year. Thesignificant capital investment programme is well under way with the majority ofthe equipment now installed or on site. Following the establishment of crustproduction some finished leathers are now being produced. The Government backedscheme has now allowed early retirement for a significant proportion of theworkforce which will improve profitability as the operation becomes morestreamlined and focussed. Our strategy continues to explore global manufacturing opportunities which wouldenable the expansion of our business. This includes the evaluation of a varietyof other raw materials to support the development of new market sectors. Net assets at 30 June 2007 were £4.238m (£4.248m under IFRS) compared to £4.819min 2006. On 29 June 2007 the Company exchanged contracts to sell and lease backthe Yeovil factory for a sale price of £3.1m: the transaction was completed inJuly. The lease is for a term of 10 years at an annual rental of £254,000painitially following a six month rent free period. The proceeds of the sale,which realised a profit over net book value of £0.49m before costs, have beenapplied to repay the loan plus accrued interest due to the trustees of thePittards pension schemes and secured over the Yeovil property as part of theagreement reached with the Pension Protection Fund in 2006. The sale andleaseback transaction will improve cashflow by c.£0.5m pa over the next fewyears, thus improving working capital within the business. Total borrowings were £6.085m at 30 June however this includes £2.875m due onthe Trustees' loan which was repaid on 20 July 2007 on completion of thetransaction, which has significantly improved the Company's gearing. During this period we have continued to settle phased closure costs for theLeeds factory carried forward from 2006. As we announced in May, Lindsey Blackford stepped down from the board on 1 June2007 and was replaced by Jill Williams as Finance Director from that date. Our order book remains steady but the dollar weakness which has further worsenedthroughout the first half is impacting adversely on profitability. We continueto reduce costs wherever we can and our strategy to move production to lowercost manufacturing areas continues. We remain cautious about the outlook for the second half of 2007 in the light ofthe dollar's weakness. SD Boyd - Chairman For further information, please contact:Stephen Boyd - Chairman - Tel: 07768 443195Jill Williams - Finance Director - Tel: 01935 474321 Blue Oar Securities PlcMike Coe, Director, Corporate Finance - Tel: 0117 933 0020 CONSOLIDATED INCOME STATEMENT (UNAUDITED)for the six months ended 30 June 2007 Year ended 31 Six months December 2006 ended 30 June (restated) Six months 2006 ended 30 June (restated) 2007 Note £'000 £'000 £'000 39,444 Revenue 15,945 22,220 (34,866) Cost of sales (14,335) (19,440) 4,578 Gross profit 1,610 2,780 (2,610) Distribution costs (1,047) (1,477) (3,523) Administrative expenses (1,346) (2,000) 1,801 Gain on derivatives 91 677 (212) Gain (loss) on foreign currency translation 72 (54) 369 Other operating income 201 185 403 (Loss) profit from trading activities (419) 111 770 Disposal of items of property, plant and - 770 equipment Restructuring activities and reversal of provisions 250 for any such costs - 250 26,913 Exceptional gain on write back of pension deficit - 26,913 28,336 (Loss) profit from operations (419) 28,044 (628) Bank and other interest charges (300) (351) (238) Net interest on pension scheme liabilities - (238) 27,470 (Loss) profit on continuing operations before (719) 27,455 taxation (13) Taxation (6) (13) 27,457 (Loss) profit on continuing operations after (725) 27,442 taxation 18.9 Earnings (loss) per share Basic 1 (0.3) 40.5 18.9 Diluted 1 (0.3) 40.5 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)for the six months ended 30 June 2007 31 December 30 June 30 June2006 (restated) £'000 2007 2006 (restated) Note £'000 £'000 (24,530) Total equity at beginning of period (as 4,486 (24,530) previously stated) (374) Impact of transition to IFRS 3 487 (374) (24,904) Total equity at beginning of period (restated) 4,973 (24,904) 27,457 Profit for the period (725) 27,442 2,420 Net proceeds of share issue - 2,420 4,973 Total equity at end of period 4,248 4,958 CONSOLIDATED BALANCE SHEET (UNAUDITED)as at 30 June 2007 31 December 30 June 20062006 (restated) 30 June 2007 (restated) £'000 £'000 £'000 Non-current assets 5,744 Plant, property and equipment 2,787 5,458 491 Software intangibles 442 541 6,235 3,229 5,999 Current assets 6,086 Inventories 5,960 5,991 3,509 Trade and other receivables 4,360 5,009 21 Cash and cash equivalents 24 84 438 Derivative financial instruments 91 102 - Assets held for sale 2,610 - 10,054 13,045 11,186 Current liabilities (726) Bank overdrafts (2,020) - (245) Bank loans (254) (236) (3,137) Trade payables (3,087) (3,298) (2,671) Other payables (2,686) (2,666) (113) Obligations under finance leases and hire purchase (87) (125) arrangements (900) Other loans (700) (600) (520) Provisions (143) (1,815) (8,312) (8,977) (8,740) 1,742 Current assets less current liabilities 4,068 2,446 7,977 Total assets less current liabilities 7,297 8,445 Non-current liabilities (412) Bank loans (280) (538) (317) Obligations under finance leases and hire purchase (194) (374) arrangements (2,275) Other loans (2,575) (2,575) (3,004) (3,049) (3,487) 4,973 Net assets 4,248 4,958 Equity 2,233 Called up share capital 2,233 2,233 4,214 Share premium account 4,214 4,214 8,158 Capital redemption reserve 8,158 8,158 2,335 Revaluation reserve 2,324 4,293 6,475 Capital reserve 6,475 6,475 (17,947) Profit and loss account (18,661) (19,920) (495) Investment in own shares (495) (495) 4,973 4,248 4,958 CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)for the six months ended 30 June 2007 Year ended 31 December 2006 Six months Six months ended ended 30 (restated) 30 June June 2006 2007 (restated) £'000 Note £'000 £'000 (2,911) Net cash from operating activities 2 (1,463) (2,579) Investing activities 6,830 Proceeds on disposal of property, plant and 344 6,412 equipment (550) Purchases of property, plant and equipment (72) (6) 6,280 Net cash from investing activities 272 6,406 Financing activities (230) Repayments of bank loans (123) (113) (300) Repayments of loan from Trustees of pension - - scheme Repayments of obligations under finance leases (135) and hire purchase arrangements (149) (66) 2,420 Net proceeds on issue of shares - 2,420 300 New other loans 100 - 2,055 Net cash (used in) from financing activities (172) 2,241 5,424 Net (decrease) increase in cash and cash (1,363) 6,068 equivalents (5,967) Cash and cash equivalents at beginning of period (705) (5,967) (162) Effect of foreign exchange rates 72 (17) (705) Cash and cash equivalents at end of period (1,996) 84 NOTES (unaudited) 1. Earnings (loss) per ordinary share Year ended 31 Six months December Six months ended 30 June 2006 ended 30 June 2006 (restated) 2007 (restated) £'000 £'000 £'000 27,457 (Loss) profit on ordinary activities after taxation (725) 27,442 Weighted average number of ordinary share in issue (excluding the shares owned by the Pittards employee share ownership trust) '000 '000 '000 145,484 Basic 222,294 67,825 The weighted average number of ordinary shares for the purpose of calculatingthe diluted earns per ordinary share is identical to that used for basicearnings per ordinary share. There is no dilution in 2007 and in 2006 theexercise of share options and vesting of conditional shares under the RestrictedShare Plan would have the effect of reducing the loss per ordinary share and istherefore not dilutive under the terms of FRS22. 2. Reconciliation of cash flows from operating activities: £'000 £'000 £'000 27,470 Net (loss) profit before taxation (719) 27,455 Adjustments for: 741 Depreciation 443 432 969 Foreign exchange loss 366 36 (1,801) Gain on derivatives (91) (677) 628 Bank and other interest charges 300 351 238 Net interest on pension scheme liabilities - 238 (1,050) Profit on sale of property, plant and equipment (43) (773) (29,924) Defined benefit cost less contributions paid - (29,924) (1,820) Decrease in provision (377) (972) (4,549) Net loss before changes in working capital (121) (3,834) 1,165 Decrease in inventories 126 1,260 2,142 (Increase) decrease in trade and other receivables (1,137) 774 (1,029) Decrease in trade and other payables (159) (441) (2,271) Cash absorbed by operations (1,291) (2,241) (629) Interest paid (168) (338) (11) Income taxes paid (4) - (2,911) Net cash from operating activities (1,463) (2,579) 3. The financial information contained in this interim statement hasnot been audited or reviewed by the Company's auditors and does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. Thefinancial information for the full preceding year is extracted from thestatutory accounts for the financial year ended 31 December 2006 amended for theimpact of the adoption of International Financial Reporting Standards (IFRS).Those accounts, upon which the auditors issued an unqualified opinion, have beendelivered to the Registrar of Companies. Details of the impact of the adoptionof IFRS is set out in Appendix 1 of this announcement. 4. Pittards plc is a public limited company incorporated in the United Kingdom under the Companies Act 1985. The Company is domiciled in the United Kingdom and its ordinary shares are traded on the Alternative Investment Market ("AIM"). This interim report is the Group's first set of financial statements prepared inaccordance with International Financial Reporting Standards (IFRS) andInternational Financial Reporting Committee ("IFRC") interpretations that areexpected to be applicable to the consolidated financial statements for the yearending 31 December 2007. These standards remain subject to ongoing amendment and/ or interpretation and are therefore still subject to change. Accordingly,information contained in these interim financial statements may need updatingfor subsequent amendments to IFRS required for first time adoption or for newstandards issued post balance sheet date. The basis of preparation and accounting policies followed in this interim reportdiffer from those set out in the Annual Report and Accounts for the year ended31 December 2006 which were prepared in accordance with United Kingdomaccounting standards (UK GAAP). A summary of the significant accountingpolicies used in the preparation of this interim report under IFRS is providedbelow, however this does not include accounting policies which are not currentlyexpected to change on transition from UK GAAP. As permitted this interim report has been prepared in accordance with UK AIMlisting rules and not in accordance with IAS 34 "Interim Financial Reporting"therefore it is not fully in compliance with IFRS. (a) Basis of preparation of the financial statements The consolidated financial statements have been prepared in accordance with IFRSincluding standards and interpretations issued by the International AccountingStandards Board, as adopted by the European Union. They have been prepared usingthe historical cost convention except for the revaluation of certain propertiesand financial instruments. The principal accounting policies are set out below. The preparation of the financial statements requires management to makeestimates and assumptions that affect the reported amounts of revenues,expenses, assets and liabilities, and the disclosure of contingent liabilitiesat the date of the financial statements. If in the future such estimates andassumptions which are based on management's best judgement at the date of thefinancial statements, deviate from the actual circumstances, the originalestimates and assumptions will be modified as appropriate in the year in whichthe circumstances change. Where necessary, the comparatives have beenreclassified or extended from the previously reported results to take intoaccount presentational changes. (b) First time adoption of International Financial Reporting Standards IFRS 1, 'First-time adoption of International Financial Reporting Standards'sets out the procedures that the Group must follow when it adopts IFRS for thefirst time as the basis for preparing its consolidated financial statements.The Group is required to establish its IFRS accounting policies as at 31December 2007 and, in general, apply those retrospectively to determine the IFRSopening balance sheet at its date of transition, 1 January 2006. Certain optional exemptions to this general principle are available under IFRS 1and the significant first time adoption choices made by the Group are asfollows: • Business combinations completed prior to 1 January 2006 have not been restated under IFRS 3 'Business combinations'; • The opening fair values of fixed assets have been deemed to be their accounting values as at 1 January 2006, after reviewing for impairment as appropriate; • Cumulative translation differences for all foreign operations have been set to zero as at 1 January 2006 (rather than calculate the cumulative translation differences for each foreign operation as if IAS 21 'The Effects of Changes in Foreign Exchange Rates' had always applied); • All cumulative actuarial gains and losses in relation to post employment defined benefit schemes are recognised at the date of transition. In addition, actuarial gains and losses are recognised in full in the period in which they occur, through the statement of recognised gains and losses. (c) Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries) made up to31 December each year. Control is achieved where the Company has the power togovern the financial and operating policies of an investee entity so as toobtain benefits from its activities. The trading results of subsidiaries acquired or disposed of during the year areincluded in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate. All intra-group transactions, balances, income and expenditure are eliminated onconsolidation. (d) Non-current assets held for sale Non-current assets (and disposal groups) classified as held for sale aremeasured at the lower of carrying amount and fair value less cost to sell. Theyare classified as held for sale if their carrying amount will be recoveredthrough a sale transaction rather than through continuing use. This conditionis regarded as met only when the sale is highly probable and the asset (ordisposal group) is available for immediate sale in its present condition.Management must be committed to the sale which should be expected to qualify forrecognition as a complete sale within one year from the date of classification. (e) Goodwill Goodwill arising on consolidation is recorded as an intangible asset and is thesurplus of the cost of acquisition over the Group's interest in the fair valueof identifiable net assets acquired. Goodwill is reviewed annually forimpairment. Any impairment identified as a result of the review is charged inthe income statement. On disposal of a subsidiary, associate or jointly controlled entity, theattributable amount of goodwill is included in the determination of the profitor loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS's hasbeen written off directly to reserves in accordance with the exemption permittedunder previous UK GAAP for acquisitions prior to 1998. (f) Foreign currency translation Transactions in foreign currencies are recorded at the rate ruling at the dateof the transaction. Monetary assets and liabilities denominated in foreigncurrencies are retranslated at the rate of exchange ruling at the balance sheetdate. All differences are taken to income statement. (g) Intangible assets other than goodwill An intangible asset, which is an identifiable non-monetary asset withoutphysical substance, is recognised to the extent that it is probable that theexpected future economic benefits attributable to the asset will flow to theGroup and that its cost can be measured reliably. The asset is deemed to beidentifiable when it is separable or when it arises from contractual or otherlegal rights. Computer software that is not integral to an item of property, plant andequipment is recognised separately as an intangible asset and is carried at costless accumulated amortisation and accumulated impairment losses. Costs includesoftware licences and consulting costs attributable to the development, designand implementation of the computer software. Amortisation is calculated usingthe straight-line method so as to charge the cost of the computer software tothe income statement over its estimated useful life (1-7 years). Expenditure on research activities is recognised as an expense in the period inwhich it is incurred. Development expenditure is capitalised as an intangible asset only if thefollowing conditions are met: • an asset is created that can be identified;• it is probable that the asset created will generate future economic benefit;• the development cost of the asset can be measured reliably. Development expenditure thus capitalised is amortised on a straight-line basisover its useful life. Where the criteria are not met, development expenditureis recognised as an expense in the income statement. (h) Leased assets Assets held under finance leases, which are leases where substantially all therisks and rewards of ownership of the asset have been transferred to the Group,are capitalised in the balance sheet and depreciated over the shorter of thelease term or their useful lives. The asset is recorded at the lower of itsfair value and the present value of the minimum lease payments at the inceptionof the lease. The capital elements of future obligations under finance leasesare included in liabilities in the balance sheet and analysed between currentand non-current amounts. The interest elements of future obligations underfinance leases are charged to the income statement over the periods of theleases and represent a constant proportion of the balance of capital repaymentsoutstanding in accordance with the effective interest rate method. Leases where the lessor retains substantially all the risks and rewards ofownership are classified as operating leases. The cost of operating leases (netof any incentives received from the lessor) is charged to the income statementon a straight line basis over the periods of the leases. (i) Impairment of long-term assets When the recoverable amount of an asset, being the higher of its net sellingprice and its value in use, is less than its carrying amount, then the carryingamount is reduced to its recoverable value. This reduction is reported in theincome statement as an impairment loss. Value in use is calculated usingestimated cash flows. These are discounted using an appropriate long-termpre-tax interest rate. When an impairment arises, the useful life of the assetin question is reviewed and, if necessary, the future depreciation/amortisationcharge is accelerated. (j) Taxes Income taxes include all taxes based upon the taxable profits of the company.Other taxes not based on income, such as property and capital taxes, areincluded within operating expenses or financial expenses according to theirnature. Deferred income tax is provided, using the liability method, on temporarydifferences between the tax bases of assets and liabilities and their carryingamounts, in the financial statements. Deferred income tax assets relating tothe carry-forward of unused tax losses are recognised to the extent that it isprobable that future taxable profit will be available against which the unusedtax losses can be utilised. Current and deferred income tax assets and liabilities are offset when theincome taxes are levied by the same taxation authority and when there is alegally enforceable right to offset them. (k) Retirement benefit costs The Group operated two pension schemes until closure of the schemes on 21 March2006. Under the defined benefit schemes the amounts charged to operating profit arethe current service costs and gains or losses on settlements and curtailments.Past service costs are recognised immediately in the income statement if thebenefits have vested. If the benefits have not vested immediately, the costsare recognised over the period until vesting occurs. The interest cost and theexpected return on assets are shown as a net amount of other finance costs orcredits adjacent to interest. Actuarial gains and losses are recognised outsideprofit or loss and are presented in the statement of total recognised income andexpense. Defined benefit schemes are funded, with the assets of the scheme heldseparately from those of the Group, in separate trustee administered funds.Pension scheme assets are measured at fair value and liabilities are measured onan actuarial basis using the projected unit method and discounted at a rateequivalent to the current rate of return on a high quality corporate bond ofequivalent currency and term to the scheme liabilities. The actuarialvaluations are obtained at least triennially and are updated at each balancesheet date. The resulting defined benefit asset or liability is presentedseparately on the face of the balance sheet. For defined contribution schemes the amount charged to the income statement inrespect of pension costs and other post-retirement benefits is the contributionpayable in the period. Differences between contributions payable in the yearand contributions actually paid are shown as either accruals or prepayments inthe balance sheet. (l) Provisions Provisions are recognised where a legal or constructive obligation has beenincurred which will probably lead to an outflow of resources that can bereasonably estimated. Provisions are recorded for the estimated ultimateliability that is expected to arise, taking into account the time value ofmoney. A contingent liability is disclosed where the existence of theobligations will only be confirmed by future events, or where the amount of theobligation cannot be measured with reasonable reliability. (m) Fair values Fair value is the amount for which a financial asset, liability or instrumentcould be exchanged between knowledgeable and willing parties in an arm's lengthtransaction. It is determined by reference to quoted market prices adjusted forestimated transaction costs that would be incurred in an actual transaction, orby the use of established estimation techniques. The fair values at the balancesheet date are approximately in line with their reported carrying values unlessspecifically mentioned in the notes to the financial statements. (n) Financial instruments Financial assets and financial liabilities are recognised in the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Trade receivables Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and othershort-term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of change in value. Investments Investments are recognised and derecognised on a trade date where a purchase orsale of an investment is under a contract whose terms require delivery of theinvestment within the timeframe established by the market concerned, and areinitially measured at cost, including transaction costs. Investments areclassified as either held-for-trading or available-for-sale, and are measured atsubsequent reporting dates at their fair value. Where securities are held fortrading purposes, gains and losses arising from changes in fair value areincluded in net profit or loss for the period. For available-for-saleinvestments, gains and losses arising from changes in fair value are recogniseddirectly in equity, until the security is disposed of or is determined to beimpaired, at which time the cumulative gain or loss previously recognised inequity is included in the profit or loss for the period. Financial liability and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the group afterdeducting all of its liabilities. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption, are accounted for on an accrual basis and are addedto the carrying amount of the instrument to the extent that they are not settledin the period in which they arise. Derivative financial instruments The company uses derivative financial instruments such as foreign currencycontracts to hedge its risks associated with foreign currency fluctuations. All derivative financial instruments are initially measured at fair value on thecontract date and are also measured at fair value at subsequent reporting dates.Derivatives are carried as assets when the fair value is positive and asliabilities when the fair value is negative. The fair value of forward currencycontracts is calculated by reference to current forward exchange rates forcontracts with similar maturity profiles. For those derivatives designated as hedges and for which hedge accounting isdesired, the hedging relationship is documented at its inception. Thisdocumentation identifies the hedging instrument, the hedged item or transaction,the nature of the risk being hedged and how effectiveness will be measuredthroughout its duration. Such hedges are expected at inception to be highlyeffective. Forward currency contract hedge relationships are classified as cash flow hedgeswhere the derivative financial instruments hedge the currency risk of futurehighly probable inventory sales. Changes in the fair value of derivativefinancial instruments that are designated and effective as hedges of future cashflows are recognised directly in equity and the ineffective portion isrecognised immediately in the income statement. Amounts taken to equity aretransferred to the income statement when the hedged transaction affects profitor loss, such as when a forecast sale occurs. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in the income statement as theyarise. 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. Appendix 1 Transition to International Financial Reporting Standards Introduction Shares in Pittards plc are quoted on the Alternative Investment Market (AIM).It is therefore required to report its consolidated financial statements inaccordance with International Accounting Standards (IFRS) for its accountingperiods commencing on or after 1 January 2007. Individual company financialstatements will continue to be reported under UK GAAP. In order to comply with this requirement Pittards plc has published its InterimReport for the period to 30 June 2007 on the basis of IFRS, including therestatement of the June 2006 and December 2006 comparative information. In sodoing it has applied the requirements of IFRS 1 'First time adoption of IFRS'. The purpose of this report is to advise on the impact of the initial transitionbalance sheet adjustments, the restatement of the 2006 published financialinformation (both annual and interim) and the interim results to 30 June 2007.Although we have discussed the identified adjustments with our auditors thenumbers in this report are unaudited and may be subject to revision when theaudited financial statements for the year ended 31 December 2007 are published. Whilst the implementation of IFRS changes the accounting treatment of certainitems, we do not intend to change the way that we manage the risks of thebusiness in order to address particular accounting issues. This is particularlyrelevant in the case of the management of foreign currency risks, where we willcontinue to adopt a policy of hedging on our net exposure to each currency on amacro basis, even though this does not qualify for the hedge accountingtreatment available under IAS 39 (Financial Instruments: Recognition andmeasurement). As a result, there will be significant volatility in our reportedresults caused by the impact of fair valuing our forward currency cover. Summary of impacts on the financial statements Summary of impact on (loss) profit before tax Year ended Six months ended 31.12.06 30.06.07 30.06.06 £'000's £'000's £'000's 26,609 UK GAAP (242) 26,942 (940) IAS 21 (hedge accounting) (568) (164) 1,801 IAS 39 (fair value of forward foreign exchange contracts) 91 677 27,470 IFRS (unaudited) (719) 27,455 Summary of impact on net assets 01.01.06 31.12.06 30.06.07 30.06.06 £'000's £'000's £'000's £'000's (24,530) 4,486 UK GAAP 4,238 4,819 - (374) Opening adjustments 487 (374) 182 (133) IAS 21 (hedge accounting) (130) (145) (556) 994 IAS 39 (fair value forward currency contracts) (347) 658 (24,904) 4,973 IFRS (unaudited) 4,248 4,958 Transitional arrangements Under the provisions of IFRS 1 'First time adoption of IFRS', specificexemptions are either mandatory or permitted in certain areas. Pittards hastaken advantage of the following options: • Business combinations completed prior to 1 January 2006 have not been restated under IFRS 3 'Business combinations' • The opening fair values of fixed assets have been deemed to be their accounting values as at 1 January 2006, after reviewing for impairment as appropriate • Cumulative translation differences for all foreign operations have been set to zero as at 1 January 2006 (rather than calculate the cumulative translation differences for each foreign operation as if IAS 21 'The Effects of Changes in Foreign Exchange Rates' had always applied) • All cumulative actuarial gains and losses in relation to post employment defined benefit schemes are recognised at the date of transition. In addition, actuarial gains and losses are recognised in full in the period in which they occur, through the statement of recognised gains and losses. Reclassification and presentational changes The presentational formats of IFRS financial statements differ from those underUK GAAP in a number of areas. The majority of changes relate to detaileddisclosure in the notes to the accounts and are therefore not dealt with in thisreport. There are a limited number that affect the presentation of the primaryfinancial statements: • The structure and descriptions on the face of the primary statements have been changed. A restatement of the UK GAAP balance sheet and P&L account to reflect the format changes are shown in the attached IFRS reconciliations. • The capitalised costs of software previously shown within tangible fixed assets are now shown in a separate line as 'Software intangibles'. • Provisions for reorganisation are now shown within current liabilities Detailed changes impacting on published results IAS 19 'Employee benefits' At 1 January 2006, Pittards operated a defined benefit pension scheme. Under UKGAAP it had already fully adopted FRS 17 into its accounts. There is verylittle difference between the provisions of IAS19 and FRS17 in respect of postretirement benefits and as such conversion will have very little impact. The only significant change is that IAS 19 requires the assets of the scheme tobe valued at bid price as opposed to mid-market price, as required by FRS 17.This has the effect of slightly reducing the value of the assets within thescheme. The Pittards scheme was closed on 21 March 2006 and responsibility forthe deficit passed to the Pension Protection Fund. This resulted in anexceptional gain in the profit and loss account for both the 6 months to June2006 and the year to December 2006 of £26.9m. In this context any amendment tothe opening asset value of the scheme by applying the valuation rules of IAS 19would not be material in the context of the income statement for 2006 and wouldhave no impact on the balance sheet for 2006. No adjustment has therefore beenmade in respect of this on conversion to IFRS. IAS 21 'The Effect of Changes in Foreign Exchange Rates' Under UK GAAP, the provisions of SSAP20 applicable to foreign currencytransactions provided a more relaxed regime for adoption of hedge accounting.It allowed transactions and current assets and liabilities denominated in aforeign currency to be translated to the reporting currency at an applicableforward currency contract rate as an alternative to the spot rate applicable tothe day of the transaction or the balance sheet date. Under IAS 21 all transactions and balances denominated in foreign currency mustbe converted to the reporting currency at the applicable spot rate. In the yearto 31 December 2006, £728k of revenue has been reclassified as a foreignexchange gain on retranslation of sales to the rate applicable on the day of thetransaction. In the six months to 30 June 2007 this was £640k (2006 - £110k) In addition, foreign currency gains and losses previously carried in the balancesheet under the less restrictive hedge accounting treatment (see IAS 39 below)have been taken to reserves, increasing net assets at 31 December 2006 by £49kand reducing profit and loss before taxation for the year then ended by £940k.At 30 June 2007 this was a reduction to net assets of £81k (2006 - increase of£37k) and a reduction to P&L of £568k (2006 - £164k) IAS 38 'Intangible assets' Under UK GAAP an entity may elect to capitalise development costs when certainconditions are met. Pittards opted to write off all costs as incurred. Under IFRS development costs must be capitalised and the asset amortised overits estimated useful life if the criteria have been met. All materialdevelopment projects have been reviewed in line with the criteria. There wereno specific identifiable projects for which the criteria were met andconsequently no adjustment is reflected on conversion to IFRS. IAS 39 'Financial Instruments: Recognition and Measurement' Under UK GAAP, derivative financial instruments are not recognised on the faceof the balance sheet, although valuations and other key information are shown inthe notes to the accounts under FRS 13. IAS 39 requires that all suchinstruments are recognised at fair value on the balance sheet and, unlesscertain specific criteria are met, that movements in the fair values of theseinstruments are recorded through the income statement. Pittards manages its net exposure to foreign currency through forward foreignexchange contracts, which fall under the definition of derivative financialinstruments. This macro approach to managing the economic risks associated withforeign currency fluctuations does not permit the adoption of hedge accounting. This move away from hedge accounting on adoption of IFRS will inevitably lead tosignificant volatility in the income statement. In order to provide clarity onthe underlying profitability and earnings of the Group it is planned that aseparate reconciliation to a hedge accounted result will be presented within theannual report and accounts. The impact of the implementation of IAS 39 is to increase profit before tax forthe year to 31 December 2006 by £1,801k and to increase net assets at 31December 2006 by £438k. In the six months to 30 June 2007 this was £91k (2006 -£677k) and £91k (2006 - £102k) respectively Summary of reconciliations Set out below are the following reconciliations of UK GAAP to IFRS: • Consolidated balance sheet at 31 December 2005 • Consolidated income statement for the year ended 31 December 2006 • Consolidated balance sheet at 31 December 2006 • Consolidated income statement for the year ended 30 June 2006 • Consolidated balance sheet at 30 June 2006 • Consolidated income statement for the year ended 30 June 2007 • Consolidated balance sheet at 30 June 2007 Consolidated balance sheetas at 31 December 2005 UK GAAP under IFRS Fair value Hedge Unaudited presentation derivatives accounting IFRS £'000 £'000 £'000 £'000Non-current assetsProperty, plant and equipment 11,892 11,892Software intangibles 590 590 12,482 - - 12,482 Current assetsInventories 7,251 7,251Trade and other receivables 5,378 5,378Cash and cash equivalents 27 27Derivative financial instruments - - - 12,656 - - 12,656 Current liabilitiesBank overdrafts (5,994) (5,994)Bank loans (227) (227)Trade payables (3,663) (3,663)Other payables (2,392) 182 (2,210)Obligations under finance leases (125) (125)Other loans - -Provisions (3,306) (3,306)Derivative financial instruments - (556) (556) (15,707) (556) 182 (16,081) Current assets less current liabilities (3,051) (556) 182 (3,425) Total assets less current liabilities 9,431 (556) 182 9,057 Non-current liabilitiesBank loans (660) (660)Retirement benefit obligation (32,861) (32,861)Obligations under finance leases (440) (440)Other loans - - (33,961) - - (33,961) Net liabilities (24,530) (556) 182 (24,904) EquityShare capital 8,227 8,227Share premium account 3,659 3,659Capital redemption reserve 299 299Revaluation reserve 4,348 4,348Capital reserve 6,475 6,475Retained earnings (47,043) (556) 182 (47,417)Own shares (495) (495) (24,530) (556) 182 (24,904) Consolidated income statementfor the year ended 31 December 2006 UK GAAP under IFRS Fair value Hedge Unaudited presentation derivatives accounting IFRS £'000 £'000 £'000 £'000 Revenue 40,172 (728) 39,444Cost of sales (34,866) (34,866) Gross profit 5,306 - (728) 4,578 Distribution costs (2,610) (2,610)Administrative expenses (3,523) (3,523)Gain on derivatives - 1,801 1,801Loss on foreign currency translation - (212) (212)Other operating income 369 369Loss from trading activities (458) 1,801 (940) 403 Disposal of items of property, plant and equipment 770 770Restructuring activities and reversal of provisions for any such costs 250 250Exceptional gain on write back of pension deficit 26,913 26,913 Profit from operations 27,475 1,801 (940) 28,336 Bank and other interest charges (628) (628)Net interest on pension scheme liabilities (238) (238) Profit on continuing operations before taxation 26,609 1,801 (940) 27,470 Taxation - current tax (13) (13) Profit on continuing operations after taxation 26,596 1,801 (940) 27,457 Earnings per share - basic and diluted 18.3p 18.9p Consolidated balance sheetas at 31 December 2006 UK GAAP under IFRS Fair value Hedge Unaudited presentation derivatives accounting IFRS £'000 £'000 £'000 £'000Non-current assetsProperty, plant and equipment 5,744 5,744Software intangibles 491 491 6,235 - - 6,235 Current assetsInventories 6,086 6,086Trade and other receivables 3,509 3,509Cash and cash equivalents 21 21Derivative financial instruments - 438 438 9,616 438 - 10,054 Current liabilitiesBank overdrafts (726) (726)Bank loans (245) (245)Trade payables (3,137) (3,137)Other payables (2,720) 49 (2,671)Obligations under finance leases (113) (113)Other loans (900) (900)Provisions (520) (520)Derivative financial instruments - - (8,361) - 49 (8,312) Current assets less current liabilities 1,255 438 49 1,742 Total assets less current liabilities 7,490 438 49 7,977 Non-current liabilitiesBank loans (412) (412)Retirement benefit obligation - -Obligations under finance leases (317) (317)Other loans (2,275) (2,275) (3,004) - - (3,004) Net assets 4,486 438 49 4,973EquityShare capital 2,233 2,233Share premium account 4,214 4,214Capital redemption reserve 8,158 8,158Revaluation reserve 2,335 2,335Capital reserve 6,475 6,475Retained earnings (18,434) 438 49 (17,947)Own shares (495) (495) 4,486 438 49 4,973 Consolidated income statementfor the six months ended 30 June 2006 UK GAAP under IFRS Fair value Hedge presentation derivatives accounting £'000 £'000 £'000 £'000Revenue 22,330 (110) 22,220Cost of sales (19,440) (19,440) Gross profit 2,890 - (110) 2,780 Distribution costs (1,477) (1,477)Administrative expenses (2,000) (2,000)Gain on derivatives - 677 677Loss on foreign currency translation - (54) (54)Other operating income 185 185Loss from trading activities (402) 677 (164) 111 Disposal of items of property, plant and equipment 770 770Restructuring activities and reversal of provisions for any such costs 250 250Exceptional gain on write back of pension deficit 26,913 26,913 Profit from operations 27,531 677 (164) 28,044 Bank and other interest charges (351) (351)Net interest on pension scheme liabilities (238) (238) Profit on continuing operations before taxation 26,942 677 (164) 27,455 Taxation - current tax (13) (13) Profit on continuing operations after taxation 26,929 677 (164) 27,442 Earnings per share - basic and diluted 39.7p 40.5p Consolidated balance sheetas at 30 June 2006 UK GAAP under IFRS Fair value Hedge Unaudited presentation derivatives accounting IFRS £'000 £'000 £'000 £'000 Non-current assetsProperty, plant and equipment 5,458 5,458Software intangibles 541 541 5,999 - - 5,999 Current assetsInventories 5,991 5,991Trade and other receivables 5,009 5,009Cash and cash equivalents 84 84Derivative financial instruments - 102 102 11,084 102 - 11,186 Current liabilitiesBank overdrafts - -Bank loans (236) (236)Trade payables (3,298) (3,298)Other payables (2,703) 37 (2,666)Obligations under finance leases (125) (125)Other loans (600) (600)Provisions (1,815) (1,815)Derivative financial instruments - - (8,777) - 37 (8,740) Current assets less current liabilities 2,307 102 37 2,446 Total assets less current liabilities 8,306 102 37 8,445 Non-current liabilitiesBank loans (538) (538)Retirement benefit obligation - -Obligations under finance leases (374) (374)Other loans (2,575) (2,575) (3,487) - - (3,487) Net assets 4,819 102 37 4,958EquityShare capital 2,233 2,233Share premium account 4,214 4,214Capital redemption reserve 8,158 8,158Revaluation reserve 4,293 4,293Capital reserve 6,475 6,475Retained earnings (20,059) 102 37 (19,920)Own shares (495) (495) 4,819 102 37 4,958 Consolidated income statementfor the six months ended 30 June 2007 UK GAAP under IFRS Fair value Hedge Unaudited presentation derivatives accounting IFRS £'000 £'000 £'000 £'000 Revenue 16,585 (640) 15,945Cost of sales (14,335) (14,335) Gross profit 2,250 - (640) 1,610 Distribution costs (1,047) (1,047)Administrative expenses (1,346) (1,346)Gain on derivatives - 91 91Gain (loss) on foreign currency translation - 72 72Other operating income 201 201Loss from trading activities 58 91 (568) (419) Disposal of items of property, plant and equipment - -Restructuring activities and reversal of provisions - -for any such costsExceptional gain on write back of pension deficit - - Profit from operations 58 91 (568) (419) Bank and other interest charges (300) (300)Net interest on pension scheme liabilities - - Profit on continuing operations before taxation (242) 91 (568) (719) Taxation - current tax (6) (6) Profit on continuing operations after taxation (248) 91 (568) (725) Earnings per share - basic and diluted (0.1p) (0.3p) Consolidated balance sheetas at 30 June 2007 UK GAAP under IFRS Fair value Hedge Unaudited presentation derivatives accounting IFRS £'000 £'000 £'000 £'000 Non-current assetsProperty, plant and equipment 2,787 2,787Software intangibles 442 442 3,229 - - 3,229 Current assetsInventories 5,960 5,960Trade and other receivables 4,441 (81) 4,360Cash and cash equivalents 24 24Derivative financial instruments - 91 91Assets held for sale 2,610 2,610 13,035 91 (81) 13,045 Current liabilitiesBank overdrafts (2,020) (2,020)Bank loans (254) (254)Trade payables (3,087) (3,087)Other payables (2,686) (2,686)Obligations under finance leases (87) (87)Other loans (700) (700)Provisions (143) (143)Derivative financial instruments - - (8,977) - - (8,977) Current assets less current liabilities 4,058 91 (81) 4,068 Total assets less current liabilities 7,287 91 (81) 7,297 Non-current liabilitiesBank loans (280) (280)Retirement benefit obligation - -Obligations under finance leases (194) (194)Other loans (2,575) (2,575) (3,049) - - (3,049) Net assets 4,238 91 (81) 4,248 EquityShare capital 2,233 2,233Share premium account 4,214 4,214Capital redemption reserve 8,158 8,158Revaluation reserve 2,323 2,323Capital reserve 6,475 6,475Retained earnings (18,670) 91 (81) (18,660)Own shares (495) (495) 4,238 91 (81) 4,248 This information is provided by RNS The company news service from the London Stock Exchange