19 Mar 2009 07:00
Pittards plc
18 March 2009
Preliminary announcement of results for the year ended 31 December 2008
Summary
| Year ended 31 December 2008 | Year ended 31 December 2007 | |||||
| £m | £m | |||||
| Revenue | 26.4 | 28.9 | ||||
| Percentage export | 91% | 90% | ||||
| Operating profit (loss) before exceptional items and (loss) gain on derivatives | 1.3 | (1.9) | ||||
| Exceptional items | 0.1 | 0.1 | ||||
| (Loss) gain on derivatives | (1.5) | 0.1 | ||||
| Operating loss on ordinary activities before finance costs | (0.1) | (1.7) | ||||
| Finance costs | (0.3) | (0.5) | ||||
| Loss on ordinary activities before tax | (0.4) | (2.2) | ||||
| Net assets | 1.9 | 2.8 | ||||
Stephen Boyd, Chairman of Pittards, commented:
"I am pleased to report that the outturn for 2008 was much better than 2007 as the strategy we put in place in recent years is now coming to fruition. We have continued to reduce our UK cost base and have been assisted by the rapid weakening of sterling in the final quarter of the year."
- ends -
For further information, please contact:
Stephen Boyd, Chairman Pittards plc Tel: 01935 474321
Reg Hankey, CEO Pittards plc Tel: 01935 474321
Jill Williams, Finance Director Pittards plc Tel: 01935 474321
Andrew Raca Blue Oar Securities Tel: 02074484400
Preliminary announcement of results
for the year ended 31 December 2008
Chairman's statement
I am pleased to report that the outturn for 2008 was much better than 2007 as the strategy we put in place in recent years is now coming to fruition. We have continued to reduce our UK cost base and have been assisted by the rapid weakening of sterling in the final quarter of the year.
The Group achieved an operating profit before exceptional items of £1.355m (2007 - £1.911m loss). After recognising the loss on foreign exchange contracts which had been taken out earlier in the year to try to protect the Group against any further weakening in the US dollar, this was reduced to a small operating loss of £0.071m (2007 - £1.719m loss). After bank interest of £0.296m (2007 - £0.466m) the loss before taxation was £0.367m (2007 - £2.185m).
Revenue amounted to £26.387m, lower than the £28.853m in 2007 due mainly to lower sales in the casual footwear sector and in the sports glove sector. Sales were spread evenly across the first and second half of the year although the strengthening dollar increased the resultant sterling revenue. Export sales made up 91% of revenue.
Sales of dress glove leathers held up well in the year with strong demand from our major customers as the colder weather started early in the season in both Europe and the USA. Sales of military leathers were stable and we continue to bid for new contracts as and when tenders arise. Sports glove sales were generally lower with the baseball sector particularly affected.
Bovine leather sales were lower than last year in total, but new linings products designed and manufactured in Ethiopia enabled us to rebuild some customer relationships. In addition the Innovation team have developed a new range of leathers for leathergoods.
The transfer of some lower priced leathers to ETSC, the tannery which we manage in Ethiopia, has continued steadily and they now take some glove and shoe leathers to the finished stage at a lower cost. This makes us more able to compete with global competitors and we have increased our market share in some sectors.
The ETSC business continues to operate profitably following the logistical and manufacturing improvements which we have introduced since taking on the management contract in late 2005. The Ethiopian government have recently introduced strict tariffs aimed at discouraging the export of raw and wet blue skins and hides. We expect that this will bring further opportunities for ETSC as, unlike many other tanneries, it has the capacity to process skins and hides through to finished leathers in volume. The tariffs should also lead to better availability of material as more skins should stay in the country for processing there.
Production at our Taiwanese subcontracting partner was significantly reduced over 2007. There were major changes in Chinese duty drawback procedures which appear to have unsettled the shoemaking supply chain. Additionally the impact of the global credit crunch on major footwear brands has caused them to order more cautiously and to reduce their stock levels.
The Pittards Shop, our retail venture opened in Spring last year at the Yeovil site, is developing well as a new income stream and continues to broaden the range of products it offers. This is an important development for Pittards because for the first time we are making and selling our own branded products direct to the consumer. We have also added a distributorship for Tandy leathercraft products to the hide and skin store. The Pittards website (www.pittardsleather.co.uk) now enables us to sell leather and leathergoods online as well as face to face.
To complement this in November we took the opportunity to purchase a small business called Daines & Hathaway, which has been manufacturing quality leathergoods in the Walsall area since 1922. There are many synergies between Pittards and Daines & Hathaway in terms of brand integrity, quality and heritage. We believe there are strong opportunities to leverage the Daines & Hathaway brand both with premium UK retail customers and the export market.
In January 2008 we signed a joint venture to form Pittards Global Sourcing Private Limited Company in Ethiopia in order to produce and source quality leather garments and other leathergoods in a low cost environment. Work has now commenced on building new premises for this venture on the outskirts of Addis Ababa, and our Pittards Ethiopian office will be housed in the same building in due course.
Net assets at the year end were £1.885m, compared to £2.808m in 2007. The main reason for the reduction is the write down of the derivative financial instruments to fair value in accordance with IFRS rules. These were forward foreign exchange contracts taken out in late summer 2008 to protect the value of dollar orders with our major US customers, before the sudden and significant strengthening of the US dollar between September and December 2008. These contracts are maturing month by month and will all be complete by May 2009.
Net borrowings at the year end were £3.5m, similar to 2007, despite the Group having continued to pay off loans and obligations which related to the Leeds factory which closed in 2006, and despite the tightening credit crunch which led to some loss of credit cover. The Company's bankers remain supportive of the Company's strategy and have kept facilities for 2009 in place at the same level as for 2008.
Our employees are loyal and flexible and we very much value their continued commitment to the business.
As described above, the board has sought new income streams to diversify our position within the leather industry and to restore profitability. Looking forward, our collaborative alliance within the aviation and other seating markets is yielding progress and we plan to build on this in 2009. We are developing the relationship with our Taiwanese partner, Teh Chang, to produce a range of leathers aimed at the premium Chinese domestic market. This range will be launched at the Hong Kong trade fair in April.
The current turbulent economic climate is unprecedented, and it is therefore very difficult to predict how 2009 will turn out for the Company. The stronger US dollar will be an advantage to us. We are working closely with our customers and are responding quickly and creatively to any changes in their requirements. In this recessionary climate we anticipate volumes will be compromised to some extent. We remain committed to reducing costs in all areas of the business and improving efficiencies whilst maintaining the high levels of innovation, quality and performance for which Pittards leathers are renowned.
SD Boyd - Chairman
18 March 2009
PITTARDS plc
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2008
| 2008 £'000 | 2007 £'000 | |||
| Revenue | 26,387 | 28,853 | ||
| Cost of sales | (21,948) | (26,439) | ||
| Gross profit | 4,439 | 2,414 | ||
| Distribution costs | (1,754) | (2,108) | ||
| Administrative expenses | (2,088) | (2,753) | ||
| Gain on foreign currency translation | 360 | 160 | ||
| Other operating income | 398 | 376 | ||
| Operating profit (loss) before exceptional items | 1,355 | (1,911) | ||
| Exceptional items | ||||
| - Profit on sale of property | - | 428 | ||
| - Provision for fundamental reorganisation | - | (300) | ||
| - Excess of the acquirer's interest in the net fair value of acquiree's identifiable net assets over cost | 93 | - | ||
| Operating profit (loss) after exceptional items | 1,448 | (1,783) | ||
| (Loss) gain on derivatives classified as fair value through income statement | (1,519) | 64 | ||
| Operating loss before finance costs | (71) | (1,719) | ||
| Finance costs | (296) | (466) | ||
| Loss before taxation | (367) | (2,185) | ||
| Taxation | (13) | - | ||
| Loss for the year | (380) | (2,185) | ||
| Attributable to: | ||||
| Equity shareholders of the parent company | - | - | ||
| Loss per share attributable to equity shareholders of the parent company - basic & diluted |
| (0.17p) | (0.98p) | |
There were no discontinued operations in 2008 or 2007. Accordingly the results relate to continuing operations.
PITTARDS plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2008
| 2008 | 2007 | |||
| £'000 | £'000 | |||
| Total equity at beginning of year | 2,808 | 4,486 | ||
| Loss for the year | (380) | (2,185) | ||
| Issue of warrants | - | 20 | ||
| Currency translation differences | (1,140) | 1,040 | ||
| Fair value gains (losses) net of tax on financial instruments | 573 | (553) | ||
| Total equity at end of year attributable to the equity shareholders of the parent | 1,861 | 2,808 | ||
| Minority interest | 24 | - | ||
| Total equity at end of year | 1,885 | 2,808 |
PITTARDS plc
CONSOLIDATED BALANCE SHEET
As at 31 December 2008
| 2008 | 2007 | ||||
| £'000 | £'000 | ||||
| ASSETS | |||||
| Non-current assets | |||||
| Property, plant and equipment | 2,149 | 2,481 | |||
| Intangible assets | 294 | 367 | |||
| Total non-current assets | 2,443 | 2,848 | |||
| Current assets | |||||
| Inventories | 4,409 | 5,654 | |||
| Trade and other receivables | 3,602 | 2,909 | |||
| Cash & cash equivalents | 77 | 13 | |||
| Total current assets | 8,088 | 8,576 | |||
| Total assets | 10,531 | 11,424 | |||
| LIABILITIES | |||||
| Current liabilities | |||||
| Trade and other payables | (4,131) | (4,758) | |||
| Interest bearing loans & borrowings | (3,450) | (3,187) | |||
| Derivative financial instruments | (995) | (51) | |||
| Provisions | - | (326) | |||
| Total current liabilities | (8,576) | (8,322) | |||
| Non-current liabilities | |||||
| Interest bearing loans & borrowings | (70) | (294) | |||
| Total non-current liabilities | (70) | (294) | |||
| Total liabilities | (8,646) | (8,616) | |||
| Net assets | 1,885 | 2,808 | |||
| EQUITY | |||||
| Called up share capital | 2,233 | 2,233 | |||
| Share premium account | 4,214 | 4,214 | |||
| Capital redemption reserve | 8,158 | 8,158 | |||
| Capital reserve | 6,475 | 6,475 | |||
| Shares held by ESOP | (495) | (495) | |||
| Retained earnings | (18,724) | (17,777) | |||
| Total equity attributable to equity shareholders of the parent | 1,861 | 2,808 | |||
| Minority interest | 24 | - | |||
| TOTAL EQUITY | 1,885 | 2,808 | |||
PITTARDS plc
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2008
| 2008 | 2007 | |||
| Note | £'000 | £'000 | ||
| Cash flows from operating activities | ||||
| Cash generated from (used in) operations | 4 | 784 | (1,187) | |
| Tax paid | (9) | - | ||
| Interest paid | (276) | (466) | ||
| Net cash generated from (used in) operating activities | 499 | (1,653) | ||
| Cash flows from investing activities | ||||
| Proceeds on disposal of property, plant and equipment | 17 | 3,170 | ||
| Purchases of property, plant and equipment | (165) | (108) | ||
| Deferred payment on investment in a subsidiary | 25 | - | ||
| Net cash (used in) generated from investing activities | (123) | 3,062 | ||
| Cash flows from financing activities | ||||
| Repayment of bank loans | (265) | (251) | ||
| Repayment of Pension Trustees' loan | - | (2,875) | ||
| Repayment of obligations under finance leases and hire purchase obligations | (82) | (195) | ||
| New loans raised | - | 200 | ||
| Net cash used in financing activities | (347) | (3,121) | ||
| Increase (decrease) in cash & cash equivalents | 29 | (1,712) | ||
| Cash and cash equivalents at beginning of the year | (2,326) | (705) | ||
| Exchange (losses) gains on cash and cash equivalents | (351) | 91 | ||
| Cash and cash equivalents at end of the year | (2,648) | (2,326) |
Notes
The financial information set out in this Preliminary Results Announcement, which has been extracted from the audited Report and financial statements, does not constitute the Group's statutory accounts for the year ended 31 December 2008 or 31 December 2007 within the meaning of section 240 of the Companies Act 1985. The report of the auditors on the Report and financial statements for the year ended 31 December 2008, which is not qualified, includes an Emphasis of Matter paragraph in relation to the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.
The Group meets its day to day working capital requirements mainly through an overdraft facility which is due for renewal on 31 December 2009. The current economic conditions create uncertainty particularly over (a) the level of demand for the Group's products; (b) the exchange rate between sterling and the US dollar and thus the consequence for the cost of the Group's raw materials; and (c) the availability of bank finance in the foreseeable future. However any increase in the cost of raw materials due to the US dollar would create a corresponding and larger increase in revenue for the Group. The Group entered into a number of forward foreign exchange contracts in the year to try to mitigate against the exposure to currency gains or losses. In particular a number of contracts were taken out in late summer 2008 to protect the value of dollar orders with major US customers before the sudden strengthening of the US dollar between September and December 2008. In accordance with the requirements of IFRS these derivative financial instruments were written down to fair value at the year end which resulted in a loss on derivatives of £1.519m which is disclosed as an exceptional item in the income statement. Contracts to buy $7.2m remained open at the year end - over 50% of these by value have subsequently matured resulting in a net loss of £0.069m. No new forward contracts have been entered into since the year end.
The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facility. The Group will open renewal negotiations with the bank in due course and has at this stage not sought any written commitment that the facility will be renewed past 31 December 2009, in line with normal practice.
The auditor's report did not contain statements under Section 237(2) or (3) of the Companies Act 1985 for the years ended 31 December 2007 and 2008. A full Report and Accounts for 2007 including an unqualified report from the auditors, has been filed with the Registrar of Companies.
This preliminary announcement was approved by the board of directors and authorized for issue on 18 March 2009.
Notes - continued
2. Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (together "IFRS") as endorsed by the European Union.
These financial statements are presented in sterling as that is the currency of the primary economic environment in which the Group operates.
The information in this preliminary statement has been extracted from the audited financial statements for the year ended 31 December 2008 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with the International Financial Reporting Standards ('IFRS').
3. Loss per ordinary share
| | 2008 | 2007 |
| | £’000 | £’000 |
| Analysis of the loss in the year | | |
| Loss from continuing operations attributable to ordinary shareholders | (380) | (2,185) |
| Weighted average number of ordinary shares in issue (excluding the shares owned by the Pittards Employee Share Ownership Trust) | '000's | '000's |
| Basic | 222,294 | 222,294 |
| | | |
| In 2008 and 2007 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. | | |
| | | |
| Basic and diluted loss per ordinary share from continuing operations | (0.17p) | (0.98p) |
4. Note to the statement of cashflows
| 2008 | 2007 | |
| £'000 | £'000 | |
| Loss before taxation | (367) | (2,185) |
| Adjustments for: | ||
| Depreciation of property, plant and equipment | 496 | 651 |
| Amortisation of intangible assets | 73 | 125 |
| Profit on sale of property, plant and equipment | (17) | (450) |
| Loss/ (gain) on derivatives | 1,519 | (64) |
| Foreign exchange (gain)/loss | (791) | 462 |
| Bank and other interest charges | 254 | 466 |
| Issue of warrants | - | 20 |
| Provision movement | (326) | (194) |
| Operating cash flows before movement in working capital | 841 | (1,169) |
| Working capital: | ||
| decrease in inventories | 1,245 | 432 |
| (increase)/decrease in receivables | (1,042) | 600 |
| decrease in payables | (260) | (1,050) |
| Cash generated by (used in) operations | 784 | (1,187) |
Notes - continued
5. Copies of the 2008 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 13 May 2009.