PTD.L Regulatory News (PTD)

21 Mar 2006 12:00

Pittards PLC21 March 2006 Pittards plc Pittards plc produces technically advanced leather for many of the world'sleading brands of gloves, shoes, luxury leathergoods and sports equipment. Preliminary announcement of unaudited results for the year ended 31 December2005 Summary Year ended Year ended 31 December 2005 31 December 2004 restated £m £mTurnover 62.1 73.2Percentage export 90% 87%Operating loss (2.5) (4.0)Profit on disposal of fixed assets 2.2 -Costs of fundamental reorganization (7.9) -Loss on ordinary activities before interest (8.2) (4.0)Bank interest (0.8) (0.7)Interest on pension liabilities (1.4) (1.4)Loss on ordinary activities before tax (10.4) (6.1) Net assets before pension scheme liability 8.3 18.3Pension scheme liability (32.9) (29.7)Net liabilities after pension scheme liability (24.5) (11.4) • Restoration of profitable trading: Fundamental reorganization under way including closure of Leeds factory and relocation of its activities to Yeovil and overseas. • Pension scheme deficit of £32.9m being addressed - Company intends to enter into a Company Voluntary Arrangement (CVA) - Trading in shares suspended. • Conditional agreement reached with Pension Protection Fund (PPF) acting as contingent creditor to the pension schemes - Company pays £1.6m lump sum into pension schemes - Company allocates 18.5% of enlarged share capital to PPF - Pension schemes hold security over Yeovil factory - Pension schemes to apply for entry into the PPF • Reorganisation of Share capital to include an equity fundraising of £2m. Stephen Boyd, Chairman of Pittards, commented: "The proposed CVA will allow the business and the Company to continue withoutany interruption. All external creditors other than the pension fund will bepaid in full and shareholders will have a continuing, albeit diluted, stake inthe Company. With the ongoing support of our customers, suppliers, employees,funders and investors, I am confident that Pittards will continue to produceworld class leather for the benefit of all its stakeholders". - ends - For further information, please contact:Stephen Boyd - ChairmanJohn Buckley - Group Financial DirectorPittards plc - Tel: 01935 474321 Preliminary announcement of unaudited results for the year ended 31 December 2005 Chairman's Statement The last eighteen months have been extremely challenging as we have sought toadapt our business model to deal appropriately with the highly competitiveinternational markets in which we operate. We have had to seek an alternativestrategy to that of wholly UK-based manufacture, where the costs of regulation,employee benefits - particularly pensions - and latterly energy and waste, havespiralled upwards in a market where global overcapacity and a weaker dollar areforcing our net sterling prices down. Our response has been to develop acapability of resourcing Pittards branded and quality assured leathers fromoutside the UK, whilst painfully but necessarily reducing and consolidating ourmanufacturing capacity within the UK. 2005 has been a year of transition whichhas borne many of the costs of change but with the benefits still to come. The accompanying financial statements for the year ended 31 December 2005reflect the full adoption of FRS 17, the accounting standard for retirementbenefits. The results for 2004 have been restated to accord with this change inaccounting policy. The operating loss for the year was £2.5m which compares with a loss of £4.0m in2004. After taking account of an exceptional gain of £2.2m from the sale inOctober of a property in Kinghorn, Fife, and the exceptional costs of afundamental reorganisation of £7.9m, including provisions for the closure of themanufacturing facility in Leeds, the loss on ordinary activities before interestwas £8.2m (2004 - £4.0m). After bank interest of £0.8m (2004 - £0.7m) and netinterest on pension scheme liabilities of £1.4m (2004 - £1.4m) the loss onordinary activities before tax was £10.4m (2004 - £6.0m). Turnover for the continuing activities was £62.1m, over 90% of which was tocustomers outside the United Kingdom. This was up by 6.2% in comparison withsales by the same activities in 2004, although the total turnover for that yearof £73.2m includes £14.7m derived from the trading of sheepskins pelts - anactivity from which we withdrew in October 2004. Sales of glove leather were virtually the same as the previous year in terms ofvolume, but the overall value was down by 2.5%, reflecting competitive pricingpressures. Technically advanced leather for sports gloves represented 60% ofPittards Yeovil's business in 2005. Sales were up by 7% in volume terms, and 3%in value compared with the previous year. Competition in the dress glovesector, where the emphasis is on price and aesthetics, continues to be fierce;our sales to this sector were down by 20%. This is one of the areas where wewill restore our international competitiveness through manufacturing offshore. The numbers employed and the related employment costs at Yeovil were down by 7%year on year which helped mitigate the rising costs of energy, fuel and wastedisposal. Progress has been made at the Ethiopia Tannery Share Company ("ETSC") under ourmanagement. We were awarded the management contract in August 2005 andencouraging advances have been achieved in the quality and efficiency ofproduction in a relatively short time. We are remunerated under the contract byway of a management fee, profit share and royalty in respect of a brand licenceand technology transfer. The contract, which is initially for five years, provides both Pittards and ETSCwith expanded market and product opportunities across a range of leathers forgloves, shoes and leathergoods. The Leeds operation achieved similar sales volumes of finished leather in 2005to the previous year, but the value fell by 6% due to reduced sales ofleathergoods leather in the mix. Sales of shoe upper leather for leisurefootwear and sports shoes were up by 6% in volume and value. However, althoughsales held up reasonably well in the second half, the trading losses incurredwere even greater than those of the first half as problems with raw materialsourcing were compounded by increases in energy and waste treatment costs.Pressures on working capital increased following the publication of our interimaccounts, including the impact of FRS 17, in September, causing margins to besacrificed in the interests of cash flow. We announced at the beginning of December that we were reviewing ourmanufacturing resources and, after consultation, we have concluded thatmanufacturing bovine leathers at our factory in Leeds is not viable. We havebegun the process of transferring production of our shoe and leathergoodsleathers to our Yeovil and Ethiopian facilities, and to a sub-contractor inAsia. Production at the factory in Leeds will cease during the second half ofthis year. Provision has been made for the substantial costs of closure inthese accounts. The elimination of the heavy fixed costs associated with theLeeds operation will further improve our international competitiveness. Therelease and sale of the site will significantly reduce our borrowings. Net assets of the Group at 31 December 2005 were £8.3m after taking account ofthe fundamental reorganisation, but before the deficit on the pension scheme.The equivalent figure for 2004 was £18.3m. Total borrowings at the end of 2005were £7.4m, down by £4.3m from the beginning of the year due to the tightmanagement of working capital and the net proceeds of £3m from the Kinghornproperty. The deficit on the pension schemes calculated in accordance with FRS 17,increased from £29.7m at 31 December 2004 to £32.9m. Although scheme assetsincreased from £48.6m to £57.5m as stock markets continue their recovery, theliabilities increased from £78.4m to £90.4m largely as a result of the fall incorporate bond yields from 5.8% to 5.2%. After taking account of the pensionscheme liability the Company had net liabilities of £24.5m as at 31 December2005 and no distributable reserves. The Company is therefore currently unableto pay dividends to ordinary shareholders and to preference shareholders. As required by the Companies Act, an Extraordinary General Meeting was held on22 September 2005 to consider the steps that should be taken to remedy thesituation whereby shareholders' funds represent less than half the paid up sharecapital of the Company. The Directors now propose a Voluntary Arrangement under Part 1 of the InsolvencyAct 1986, the purpose of which is to restore the Company to solvency. The termsof the Arrangement have been approved by authorised representatives of thePension Protection Fund (PPF). The Pensions Regulator has agreed to clearancein principle. It is expected that the pension schemes will meet the criteriafor entry to the PPF introduced by the Pensions Act 2004, which will, within thelimits of the schemes, enable members' benefits to be protected to the extentprovided under PPF rules. In addition to approval by the requisite majorities of shareholders andcreditors, the Arrangement also requires certain obligations to the Trustees andthe PPF to be fulfilled. These obligations include the payment of £1.6m to theTrustees, the granting of enhanced security over the freehold property at Yeoviloccupied by the Company and the allocation to the scheme Trustees of 18.5% ofthe enlarged share capital of the Company, following a reorganisation of theexisting ordinary and preference shares. Whilst the reorganisation of the share capital, which includes an equityfundraising of £2m, will result in a significant dilution of existingshareholdings, the Directors firmly believe that the Arrangement represents thebest option for the Company and all its stakeholders, including suppliers,customers, employees, lenders and shareholders. The Directors have anobligation to address the balance sheet insolvency of the Company: theArrangement will restore the Company to solvency and assist in securing its longterm future for the benefit of all its stakeholders. Pending the approval ofcreditors and shareholders to the CVA and related proposals, the Company hastoday requested the London Stock Exchange to suspend dealings in the Company'sexisting issued Ordinary and Preference shares on AIM. Documentation givingcreditors and shareholders details of the CVA is being sent out today and afurther circular to convene the meetings necessary for shareholders to approvethe share capital reorganisation and new equity investment will be despatched assoon as possible. Our strategy continues to concentrate on markets and products where, benefitingfrom its brand and innovation, Pittards can command premium pricing and exploitits intellectual property by developing relationships, both on and offshore,with licensing and management agreements. This started in August 2005 with the 5 year contract to manage Ethiopia Tannery,the largest tannery in Ethiopia, which is engaged in processing sheep, goatskinsand cattle hides. Pittards is providing skills through the contract in theareas of procurement, technical processing, training, management systems,selling and marketing expertise, as well as its brand name which gives assuranceand cachet to the worldwide customer base. We intend to develop further contracts with a view to moving commodity businessoffshore to low cost manufacturing locations. This will allow Pittards tobroaden sales with existing and leading customers. We will consolidate ourremaining UK production of premium products and our research and developmentcapability into a single base in Yeovil. Once the transfer from Leeds to Yeovil and overseas is complete, the Leeds sitewill be closed and sold, releasing vital cash and significantly improving ourborrowing position. It is anticipated this exercise will be completed during2006. We will now be able to build on our brand, innovation, and commercial skills,with the benefit of cost competitive manufacturing. This will enable us tobroaden our product offering to our customers, in a profitable and cashgenerative way. Stephen BoydChairman PITTARDS plc CONSOLIDATED PROFIT AND LOSS ACCOUNT - UNAUDITEDfor the year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004 Restated Note £'000 £'000 Turnover 62,089 73,154Cost of sales (55,211) (64,955) Gross profit 6,878 8,199 Distribution costs (4,221) (5,383)Administrative expenses (5,191) (6,775) Operating loss (2,534) (3,959) Profit on disposal of fixed assets 2,218 -Costs of fundamental reorganisation (7,860) - Loss on ordinary activitiesbefore interest (8,176) (3,959) Bank and other interest charges (804) (672)Net interest on pension scheme liabilities (1,424) (1,417) Loss on ordinary activities beforetaxation (10,404) (6,048) Taxation (7) 1,349 Loss on ordinary activities aftertaxation (10,411) (4,699) Dividends 2 - (257) Transfer from reserves (10,411) (4,956) Loss per share - basic 3 (50.4p) (23.4p) - diluted 3 (50.4p) (23.4p)Loss per share - continuing operations (50.4p) (14.8p) There were no discontinued operations in 2005. Details of discontinued operations in 2004 are shown in Note 4 PITTARDS plc CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS & LOSSES - UNAUDITEDfor the year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004 Note Restated £'000 £'000 Loss for period (10,411) (4,699)Actuarial loss recognised on the pension scheme (2,712) (670) Total recognised losses relating to the period (13,123) (5,369) Prior year adjustment - FRS17 1 (29,370) Total recognised losses since last annual report (42,493) CONSOLIDATED STATEMENT OF MOVEMENT ON SHAREHOLDERS FUNDS - UNAUDITEDfor the year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004 Restated £'000 £'000 At 1 January as previously reported 17,963 22,381Prior year adjustment - FRS17 1 (29,370) (28,152)At 1 January as restated (11,407) (5,771)Total recognised losses (13,123) (5,369)Dividends - (257)Cost of own shares purchased - (15)Share based expense recognised in the profit & loss - 5account At end of period (24,530) (11,407) PITTARDS plc CONSOLIDATED BALANCE SHEET - UNAUDITEDas at 31 December 2005 31 December 31 December 2005 2004 Restated £'000 £'000 Fixed assetsTangible fixed assets 12,482 17,774 Current assetsAssets held for resale - 748Stocks 7,251 10,171Debtors 5,378 9,029Cash at bank & in hand 27 23 12,656 19,971 Creditors - amounts fallingdue within one yearBank loans & overdrafts (6,221) (7,163)Trade creditors (3,663) (4,509)Other creditors (2,517) (3,386) (12,401) (15,058) Net current assets 255 4,913 Total assets less current liabilities 12,737 22,687 Creditors - amounts falling dueafter more than one year (1,100) (4,353) Provisions for liabilities & charges (3,306) - Net assets before pension scheme liability 8,331 18,334 Pension scheme liability (32,861) (29,741) Net liabilities after pension scheme liability (24,530) (11,407) Capital & ReservesCalled up share capital 8,227 8,227Reserves (32,262) (19,139)Own shares (495) (495)Shareholders' funds (24,530) (11,407) PITTARDS plc CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITEDfor the year ended 31 December 2005 Year ended Year ended 31 December 2005 31 December 2004 Restated Note £'000 £'000 £'000 £'000 Net cash inflow from operating activities 5 2,304 1,210 Returns on investments and servicingof financeInterest paid (894) (613)Preference dividends paid - (257)Net cash outflow from returns on investments (894) (870)and servicing of finance TaxationUK corporation tax received 127 135 Net cash inflow from taxation 127 135 Capital expenditure and financial investmentPurchase of tangible fixed assets (290) (1,281)Sale of assets held for resale 3,000 -Sale of tangible fixed assets 13 170Net cash inflow (outflow) from capital 2,723 (1,111)expenditure and financial investment Equity dividends paid - (110) Net cash inflow (outflow) before financing 4,260 (746)FinancingPurchase of matching shares under Restricted - (15)Share PlanNew bank loans - 4,499Repayment of bank loans (3,511) (101)Capital element of finance lease rental (195) (243)repaymentsNet cash (outflow) inflow from financing (3,706) 4,140 Increase in cash 554 3,394 Reconciliation of net cashflow to movement in net debtIncrease in cash 554 3,394Repayment of bank loans 3,511 101Capital element of finance lease rentals and hire 195 243purchase repaymentsNew bank loans - (4,499)Change in net debt resulting from cash flows 4,260 (761)New finance lease arrangements and hire purchase contracts - (610)Movement in net debt 4,260 (1,371)Net debt at 1 January (11,679) (10,308)Net debt at 31 December (7,419) (11,679) Notes 1. The figures for the year ended 31 December 2005 are unaudited and do not constitute full accounts within the meaning of Section 240 of the Companies Act 1985. The audit report on the full financial statements has not yet been signed. The figures for the year ended 31 December 2004, set out above, are extracted from the full accounts for that year with the exception of a restatement relating to the change in accounting policy set out below. A full Report and Accounts for 2004 including an unqualified report from the auditors, has been filed with the Registrar of Companies. In preparing the financial statements for the current year the Group has fully adopted FRS17 'Retirement Benefits'. In prior years only the disclosures required by FRS 17 had been provided. 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. A prior year adjustment has been made to reflect this change. The operating loss in the current year has been reduced by £577,000 (2004 - £869,000). The loss on ordinary activities before taxation in the current year has been increased by £847,000 (2004 - £548,000).). The Group's opening net assets have been reduced by £29,370,000 from £17,963,000 to net liabilities of £11,407,000. The Company's opening net assets have been reduced by £29,370,000 from £18,930,000 to net liabilities of £10,440,000. Prior year comparatives have been restated accordingly. 2. Dividends 2005 2004 £'000 £'000 Preference paid 30 June and 31 December - 257 3. Loss per ordinary share Restated £'000 £'000Loss from continuing operations after tax (10,411) (2,878)Less: preference share dividends (257) (257)Loss from continuing operations attributable to ordinary shareholders (10,668) (3,135)Loss from discontinued operations attributed to ordinary shareholders - (1,821)Loss attributable to ordinary share holders (10,668) (4,956) Weighted average number of ordinary shares in issue (excluding the shares 2005 2004owned by the Pittards Employee Share Ownership Trust) '000's '000'sBasic 21,152 21,156 In 2005 and 2004 the weighted average number of ordinary shares for the purposeof calculating the diluted earnings per ordinary share are identical to thoseused for basic earnings per ordinary share. This is because the exercise ofshare options would have the effect of reducing the loss per ordinary share andis therefore not dilutive under the terms of FRS22. Basic and diluted loss per ordinary share 2005 2004 RestatedLoss from continuing operations 50.4p 14.8pLoss from discontinued operations - 8.6pLoss 50.4p 23.4p 4. Analysis of 2004 Operating profit (restated) Continuing Operations Discontinued Trading Exceptional Total Operations Total (a) below (b) belowTurnover 58,478 - 58,478 14,676 73,154Cost of sales (50,252) - (50,252) (14,703) (64,955)Gross profit (loss) 8,226 - 8,226 (27) 8,199Distribution costs (4,810) - (4,810) (573) (5,383)Administration expenses (5,039) (802) (5,841) (934) (6,775)Operating loss (1,623) (802) (2,425) (1,534) (3,959) (a) Continuing operations - exceptional relates to redundancy and otherrelated costs of reorganising the continuing operations of the business (b) Discontinued operations comprise the results of the Raw Materials Division 5. Note to the statement of cashflows Reconciliation of operating loss to net cash flows from operating activities 2005 2004 Restated £'000 £'000Operating loss (2,534) (3,959)Depreciation charges 2,010 1,787Share based expense - 5Defined benefit cost less contribution paid (1,016) (534)Loss on sale of tangible fixed assets 5 144Increase in assets held for resale (34) (267)Decrease in stocks 1,920 3,557Decrease in debtors 3,537 946Decrease in creditors (1,584) (469)Net cash inflow from operating activities 2,304 1,210 This information is provided by RNS The company news service from the London Stock Exchange