Final Results
Pittards PLC
6 March 2002
PITTARDS PLC
PRELIMINARY ANNOUNCEMENT OF RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2001
Pittards plc produces technically advanced leather for many of the world's
leading brands of gloves, shoes, luxury leathergoods and sports equipment.
6 March 2002
Results for the year ended 31 December 2001
Summary
Year ended Year ended 31
31 December 2001 December 2000
Turnover £83.0m £81.2m
Percentage export 81% 75%
(Loss) profit before exceptional costs and taxation (£1.5m) £3.0m
(Loss) earnings per share (13.5p) 12.7p
Ordinary dividend 2.6p 3.8p
Net assets per share 91p 107p
Gearing 27% 22%
Robert Tomkinson, Chairman of Pittards, commented:
'2001 was one of the most challenging years your Company has faced in its 175
year history. In the first eight months of the year the challenge was to
maintain our service to our customers when supplies of hides and skins were
severely disrupted by BSE in Europe and foot and mouth disease (FMD) in the UK.
In the last third of the year, the challenge was to manage our production
capacity and costs following the sharp drop in demand in the aftermath of the
September 11 terrorist attacks in the United States.
As a result of management action, some of it painful, the Group has entered the
current year with lower costs, more efficient production facilities, a range of
innovative, technically advanced leathers and a broad international customer
base. Turnover and orders in the first two months of the year are comfortably
ahead of sales in the last two months of 2001 and are both on an upward trend.
We believe we are well placed to operate profitably in the current market, and
will benefit from any recovery in global demand.'
- ends -
For further information, please contact:
John Pittard - Group Managing Director
John Buckley - Group Financial Director
Pittards plc Tel: 01935 474321
CHAIRMAN'S STATEMENT
2001 was one of the most challenging years your Company has faced in its 175
year history. In the first eight months of the year the challenge was to
maintain our service to our customers when supplies of hides and skins were
severely disrupted by the measures taken by respective governments to deal with
BSE in Europe and, subsequently, foot and mouth disease (FMD) in the UK. In the
last third of the year, the challenge was to manage our production capacity and
costs following the sharp drop in demand in the aftermath of the September 11
terrorist attacks in the United States.
Results
Sales turnover for the year was £83.0m - 2% higher than in the previous year. A
record 81% of sales were outside the United Kingdom. I warned in the Trading
Statement I made in November, that demand from virtually all our markets fell
sharply in the aftermath of the terrorist attacks on America in September. In
the event, turnover in the second half of the year was 16% lower than in the
first. Many customers cited cancellations and rescheduling of orders by their
retail customers, especially those in the United States. The effect of this
substantial reduction in the volume of our business was that the Company
incurred a loss before exceptional costs of £1.539m for the year as a whole,
after having made a small profit of £0.079m in the first half of the year. We
have taken vigorous action to reduce our costs appropriately. The sheepskin and
hide processing facility at Kinghorn in Scotland (part of the Raw Materials
Division) was closed at the beginning of December at a cost of £1.051m. This
has been shown in the accompanying accounts as an exceptional reorganisation
cost. In the second half of the year, employment in the group has been sadly
but necessarily reduced by more than 100 - approximately 12% of the numbers
employed in the first half.
There was a small corporation tax credit in the year of £0.018m (2000 charge -
£0.020m). After preference dividends, there was a loss of 13.5p per ordinary
share (2000 - earnings per share of 12.7p).
Balance Sheet
Net assets at the end of the year were £22.6m, equivalent to 91p per ordinary
share (2000 - £26.3m and 107p). In spite of the trading loss and reorganisation
costs incurred in the year, the rise in borrowings was contained to only £0.2m
through the careful management of working capital. At £6.1m borrowings
represent 27% of shareholders' funds.
Glove Leather Division
The Glove Leather Division had a difficult year. Turnover was down 4% on the
previous year, but the underlying volume was down by 9%. Demand from the sports
and service sectors was well below the previous year as the economic slowdown in
many of our markets gained momentum. Sales of dress glove leather, where the
emphasis is on aesthetics rather than performance, were very strong for most of
the year, but tailed off sharply in the final quarter due to the September 11
effect, and to some unseasonally mild weather in the United States.
The Division had to contend with very high raw material prices and unreliable
supplies throughout the year. Strong interest in hairsheep skins, the principal
raw material of the Glove Leather Division, from garment leather tanners, caused
prices to rise steeply towards the end of 2000. Prices continued to rise
throughout the first three quarters of 2001, before levelling off in the fourth.
Some suppliers were unable or reluctant to fulfil their contractual
obligations in the rising market, and this caused interruptions to supply and
additional costs. The high cost of raw materials, and the sharp drop in sales
after September 11 pushed the Division into loss in the second half after
breaking even in the first. The Division's commitment to developing long term
relationships with its customers limited its ability to pass on the full effect
of cost increases in the short term. Management have responded by reducing
costs. The numbers employed have been cut by 5% and all costs and expenses are
being tightly controlled. Through training, the Division is further developing
its multi-skilled workforce, thus improving its flexibility, whilst through
capital investment and manufacturing initiatives it is improving its
productivity.
Shoe & Leathergoods Division
Sales turnover for the year in the Shoe & Leathergoods Division was virtually
unchanged from the previous year, having been 16% ahead in the first half of the
year. The slow-down in demand from the predominantly US based sports equipment
brands which had been a feature of the first half extended to our mainly
European customers for footwear and leathergoods leathers in the period after
September 11. Consequently the Division suffered a substantial dip in sales in
the fourth quarter.
The Division sources most of its raw material (cattle hides) from the UK meat
industry. As reported at the interim stage, there was huge disruption to the
supply of hides caused by the outbreak of FMD in February. In order to meet the
needs of its customers the Division had to supplement the reduced supply of UK
hides by importing more from the US and Northern Europe - all at significantly
increased cost.
The supply of hides improved in the second half as FMD was brought under
control. Margins recovered and helped to soften the impact of the reduction in
sales volumes in the fourth quarter. By actively managing the key variables in
its costs, the Division's profit in the second half was only slightly less than
that achieved in the first.
Raw Materials Division
The Raw Materials Division is the smallest of our three divisions. It earned a
modest profit in the first half. In the second half the availability of
sheepskins was much reduced as a result of the contiguous cull and other FMD
control measures taken in the spring and summer. In the period following
September 11, orders for sheepskin pelts from garment leather tanners virtually
dried up and it became impossible to operate both the Division's factories
profitably. We took the decision in November to close the sheepskin and hide
processing facility at Kinghorn in Scotland. Sheepskin production has been
consolidated at the Division's other Scottish factory at Langholm, whilst
Kinghorn's hide processing activities have been transferred to the Shoe and
Leathergoods Division's factory in Leeds. Redundancy and other closure costs at
Kinghorn amounted to £1.051m and are shown as exceptional reorganisation costs
in these accounts. Approximately 10 acres of the 25 acre Kinghorn site have
been allocated for residential development in the finalised draft of the
Kirkcaldy Area Local Plan published in June 2001.
Preference shares
In November 2001, the Company purchased at par 290,000 of its own cumulative 9
1/2% preference shares of £1 each for cancellation. This was under the
authority granted by shareholders at the Annual General Meeting held on 2 May
2001.
Employees
We continue to encourage our employees to have an interest in the shares of the
Company through employee share schemes and incentive share schemes. At 31
December 2001, the employee share ownership trust held 973,087 (4.5%) of shares
in the Company on behalf of the employees.
In a year in which trading has been so difficult, the effort by all employees to
keep the business running on an efficient basis has been outstanding. I would
like to personally thank all members of the Pittard Group for their dedication.
Pension Scheme
The Group operates a defined benefit pension scheme. The cost of funding such
schemes has been growing in recent years following the introduction of limited
indexation of benefits, and in particular the removal in 1997 of the Advanced
Corporation Tax credit on dividend income previously received by pension funds.
Two successive years of negative returns from equities have also seriously
impacted on the assets of the scheme.
A new standard for accounting for retirement benefits, FRS 17, is being
implemented progressively over three years, starting in the year ended 31
December 2001. Full implementation will be in the year ending 31 December 2003
when companies will be required to reflect any defined benefit pension scheme
surpluses or deficits (as calculated under the standard) on the balance sheet.
Any deficit will affect both distributable reserves and gearing levels. It is
too early to say whether or not this will have an effect on future dividend
policy.
The net pension liability of the Group as at 31 December 2001, calculated in
accordance with FRS 17, is £6.6m; the deficit disclosed at the last full
actuarial valuation of the scheme (6 April 2000) was £2.1m, representing 4% of
scheme liabilities on an MFR basis.
Like many other organisations that operate defined benefit schemes, we are
reviewing various options with regard to future pension provision in the Group.
In particular, we are examining how we can continue to provide appropriate
pension benefits for our employees at a cost to the Group similar to that of the
present scheme, whilst reducing our exposure to the potentially volatile impact
on the balance sheet of FRS 17. We expect to complete this review by the end
of June 2002.
Dividend and prospects
At the half year we reduced our interim dividend by 30%. In view of the loss in
the second half, and the need to conserve cash, but also recognising an
improvement in trading conditions so far in the current financial year, the
Directors are recommending a similarly reduced final dividend of 1.85p (2000 -
2.7p). This makes a total dividend for the year of 2.6p (2000 - 3.8p). If
approved at the Annual General Meeting, the final dividend will be paid on 10
May 2002 to shareholders on the register at the close of business on 12 April
2002.
As a result of management action, some of it painful, the Group has entered the
current year with lower costs, more efficient production facilities, a range of
innovative, technically advanced leathers and a broad international customer
base. Turnover and orders in the first two months of the year are comfortably
ahead of sales in the last two months of 2001 and are both on an upward trend.
We believe we are well placed to operate profitably in the current market, and
will benefit from any recovery in global demand.
ROBERT C TOMKINSON
Chairman
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 2001
Year ended
Year ended 31 December 2001 31
Trading Exceptional Total December
costs 2000
Note £'000 £'000 £'000 £'000
(a) below
Turnover 83,035 - 83,035 81,195
Cost of sales (73,769) - (73,769) (67,694)
Gross profit 9,266 - 9,266 13,501
Distribution costs (4,826) - (4,826) (4,466)
Administrative expenses (5,495) (1,051) (6,546) (5,542)
Operating (loss) profit (1,055) (1,051) (2,106) 3,493
Interest payable (484) (490)
(Loss) profit on ordinary
activities before
taxation (2,590) 3,003
Taxation 18 (20)
(Loss) profit on ordinary
activities after taxation (2,572) 2,983
Dividends - equity and 2
non-equity (837) (1,113)
Transfer (from) to
reserves (3,409) 1,870
(Loss) earnings per share
- basic 3 (13.5p) 12.7p
- diluted 3 (13.5p) 12.6p
(a) Exceptional costs relate to the reorganisation of the Raw Materials
Division, including the cost of closure of the operating facility at Kinghorn,
Fife.
There were no discontinued activities in 2000 or 2001. Accordingly the above
results relate entirely to continuing activities.
CONSOLIDATED BALANCE SHEET
as at 31 December 2001
31 31
December December
2001 2000
£'000 £'000
Fixed assets
Tangible fixed assets 16,825 17,529
Current assets
Stocks 11,242 13,661
Debtors 7,887 11,086
Investments 363 196
Cash at bank & in hand 24 32
19,516 24,975
Creditors - amounts falling
due within one year
Bank loans & overdrafts (6,114) (5,866)
Trade creditors (4,123) (6,283)
Other creditors (3,504) (4,045)
(13,741) (16,194)
Net current assets 5,775 8,781
22,600 26,310
Capital & Reserves
Called up share capital 8,151 8,441
Reserves 14,449 17,848
Shareholders' funds (including £2,701,500
(2000 - £2,991,500) attributable to non-equity interests) 22,600 26,289
Minority interest - 21
22,600 26,310
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2001
Year Year
ended 31 ended 31
December December
2001 2000
Note £'000 £'000
Net cash inflow from operating activities 4 2,595 2,195
Returns on investments and servicing of finance
Interest paid (495) (484)
Preference dividends paid (270) (284)
Net cash outflow from returns on investments and (765) (768)
servicing of finance
Capital expenditure and financial investment
Purchase of tangible fixed assets (988) (1,217)
Purchase of matching shares under Restricted Share (94) (285)
Plan
Sale of tangible fixed assets 50 16
Net cash outflow from capital expenditure and (1,032) (1,486)
financial investment
Acquisitions and disposals
Purchase of shares in subsidiary (10) -
Net cash outflow from acquisitions and disposals (10) -
Equity dividends paid (753) (807)
Net cash inflow (outflow) before financing 35 (866)
Financing
Repurchase of preference shares (291) (9)
Issue of new shares - 1
Financing (291) (8)
Decrease in cash (256) (874)
NOTES:
1. The figures for the year ended 31 December 2001 are unaudited and do not
constitute full accounts within the meaning of Section 240 of the Companies Act
1985. The figures for the year ended 31 December 2000, set out above, are
extracted from the full accounts for that year. A full Report and Accounts for
2000, including an unqualified report from the auditors, has been filed with the
Registrar of Companies.
2. Dividends
2001 2000
£'000 £'000
Equity:
Ordinary interim - 0.75p per share (2000 - 1.1p) 164 240
Ordinary final proposed - 1.85p per share (2000 - 2.7p) 403 589
Total ordinary for year - 2.60p per share (2000 - 3.8p) 567 829
Non-equity:
Preference paid 30 June and 31 December 270 284
837 1,113
3. Earnings per ordinary share
Basic earnings per ordinary share are based on the loss on ordinary activities
after taxation and preference dividends of £2,842,000 (2000 - profit £2,699,000)
and 20,980,155 (2000 - 21,295,914) ordinary shares, being the weighted average
number of ordinary shares in issue during the year after excluding the shares
owned by the Pittards Employee Share Ownership Trust.
In 2001 the loss attributable to ordinary shareholders and weighted average
number of ordinary shares for the purpose of calculating the diluted earnings
per ordinary share are identical to those used for basic earnings per ordinary
share. This is because the exercise of share options would have the effect of
reducing the loss per ordinary share and is therefore not dilutive under the
terms of FRS 14.
4. Notes to the cashflow statement
RECONCILIATION OF OPERATING (LOSS) PROFIT TO NET CASH FLOWS FROM 2001 2000
OPERATING ACTIVITIES
£'000 £'000
Operating (loss) profit (2,106) 3,493
Depreciation charges 1,677 1,538
Amortisation of shares under restricted share plan (151) 103
Amounts written off current asset investment 78 -
Profit on sale of tangible fixed assets (35) (16)
Decrease (increase) in stocks 2,419 (831)
Decrease (increase) in debtors 3,199 (3,059)
(Decrease) increase in creditors (2,486) 967
Net cash inflow from operating activities 2,595 2,195
5. Copies of the 2001 Annual Report and Accounts will be posted to
shareholders in early 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 1 May 2002.
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