Suspension, Prelims and CVA
Pittards PLC
21 March 2006
Pittards plc
Pittards plc produces technically advanced leather for many of the world's
leading brands of gloves, shoes, luxury leathergoods and sports equipment.
Preliminary announcement of unaudited results for the year ended 31 December
2005
Summary
Year ended Year ended
31 December 2005 31 December 2004
restated
£m £m
Turnover 62.1 73.2
Percentage 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 18.3
Pension 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 without
any interruption. All external creditors other than the pension fund will be
paid in full and shareholders will have a continuing, albeit diluted, stake in
the Company. With the ongoing support of our customers, suppliers, employees,
funders and investors, I am confident that Pittards will continue to produce
world class leather for the benefit of all its stakeholders'.
- ends -
For further information, please contact:
Stephen Boyd - Chairman
John Buckley - Group Financial Director
Pittards 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 to
adapt our business model to deal appropriately with the highly competitive
international markets in which we operate. We have had to seek an alternative
strategy to that of wholly UK-based manufacture, where the costs of regulation,
employee benefits - particularly pensions - and latterly energy and waste, have
spiralled upwards in a market where global overcapacity and a weaker dollar are
forcing our net sterling prices down. Our response has been to develop a
capability of resourcing Pittards branded and quality assured leathers from
outside the UK, whilst painfully but necessarily reducing and consolidating our
manufacturing capacity within the UK. 2005 has been a year of transition which
has borne many of the costs of change but with the benefits still to come.
The accompanying financial statements for the year ended 31 December 2005
reflect the full adoption of FRS 17, the accounting standard for retirement
benefits. The results for 2004 have been restated to accord with this change in
accounting policy.
The operating loss for the year was £2.5m which compares with a loss of £4.0m in
2004. After taking account of an exceptional gain of £2.2m from the sale in
October of a property in Kinghorn, Fife, and the exceptional costs of a
fundamental reorganisation of £7.9m, including provisions for the closure of the
manufacturing facility in Leeds, the loss on ordinary activities before interest
was £8.2m (2004 - £4.0m). After bank interest of £0.8m (2004 - £0.7m) and net
interest on pension scheme liabilities of £1.4m (2004 - £1.4m) the loss on
ordinary activities before tax was £10.4m (2004 - £6.0m).
Turnover for the continuing activities was £62.1m, over 90% of which was to
customers outside the United Kingdom. This was up by 6.2% in comparison with
sales by the same activities in 2004, although the total turnover for that year
of £73.2m includes £14.7m derived from the trading of sheepskins pelts - an
activity from which we withdrew in October 2004.
Sales of glove leather were virtually the same as the previous year in terms of
volume, but the overall value was down by 2.5%, reflecting competitive pricing
pressures. Technically advanced leather for sports gloves represented 60% of
Pittards 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 glove
sector, 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 we
will 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 waste
disposal.
Progress has been made at the Ethiopia Tannery Share Company ('ETSC') under our
management. We were awarded the management contract in August 2005 and
encouraging advances have been achieved in the quality and efficiency of
production in a relatively short time. We are remunerated under the contract by
way of a management fee, profit share and royalty in respect of a brand licence
and technology transfer.
The contract, which is initially for five years, provides both Pittards and ETSC
with expanded market and product opportunities across a range of leathers for
gloves, shoes and leathergoods.
The Leeds operation achieved similar sales volumes of finished leather in 2005
to the previous year, but the value fell by 6% due to reduced sales of
leathergoods leather in the mix. Sales of shoe upper leather for leisure
footwear and sports shoes were up by 6% in volume and value. However, although
sales held up reasonably well in the second half, the trading losses incurred
were even greater than those of the first half as problems with raw material
sourcing were compounded by increases in energy and waste treatment costs.
Pressures on working capital increased following the publication of our interim
accounts, including the impact of FRS 17, in September, causing margins to be
sacrificed in the interests of cash flow.
We announced at the beginning of December that we were reviewing our
manufacturing resources and, after consultation, we have concluded that
manufacturing bovine leathers at our factory in Leeds is not viable. We have
begun the process of transferring production of our shoe and leathergoods
leathers to our Yeovil and Ethiopian facilities, and to a sub-contractor in
Asia. Production at the factory in Leeds will cease during the second half of
this year. Provision has been made for the substantial costs of closure in
these accounts. The elimination of the heavy fixed costs associated with the
Leeds operation will further improve our international competitiveness. The
release 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 of
the fundamental reorganisation, but before the deficit on the pension scheme.
The equivalent figure for 2004 was £18.3m. Total borrowings at the end of 2005
were £7.4m, down by £4.3m from the beginning of the year due to the tight
management of working capital and the net proceeds of £3m from the Kinghorn
property.
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 assets
increased from £48.6m to £57.5m as stock markets continue their recovery, the
liabilities increased from £78.4m to £90.4m largely as a result of the fall in
corporate bond yields from 5.8% to 5.2%. After taking account of the pension
scheme liability the Company had net liabilities of £24.5m as at 31 December
2005 and no distributable reserves. The Company is therefore currently unable
to pay dividends to ordinary shareholders and to preference shareholders.
As required by the Companies Act, an Extraordinary General Meeting was held on
22 September 2005 to consider the steps that should be taken to remedy the
situation whereby shareholders' funds represent less than half the paid up share
capital of the Company.
The Directors now propose a Voluntary Arrangement under Part 1 of the Insolvency
Act 1986, the purpose of which is to restore the Company to solvency. The terms
of the Arrangement have been approved by authorised representatives of the
Pension Protection Fund (PPF). The Pensions Regulator has agreed to clearance
in principle. It is expected that the pension schemes will meet the criteria
for entry to the PPF introduced by the Pensions Act 2004, which will, within the
limits of the schemes, enable members' benefits to be protected to the extent
provided under PPF rules.
In addition to approval by the requisite majorities of shareholders and
creditors, the Arrangement also requires certain obligations to the Trustees and
the PPF to be fulfilled. These obligations include the payment of £1.6m to the
Trustees, the granting of enhanced security over the freehold property at Yeovil
occupied by the Company and the allocation to the scheme Trustees of 18.5% of
the enlarged share capital of the Company, following a reorganisation of the
existing ordinary and preference shares.
Whilst the reorganisation of the share capital, which includes an equity
fundraising of £2m, will result in a significant dilution of existing
shareholdings, the Directors firmly believe that the Arrangement represents the
best option for the Company and all its stakeholders, including suppliers,
customers, employees, lenders and shareholders. The Directors have an
obligation to address the balance sheet insolvency of the Company: the
Arrangement will restore the Company to solvency and assist in securing its long
term future for the benefit of all its stakeholders. Pending the approval of
creditors and shareholders to the CVA and related proposals, the Company has
today requested the London Stock Exchange to suspend dealings in the Company's
existing issued Ordinary and Preference shares on AIM. Documentation giving
creditors and shareholders details of the CVA is being sent out today and a
further circular to convene the meetings necessary for shareholders to approve
the share capital reorganisation and new equity investment will be despatched as
soon as possible.
Our strategy continues to concentrate on markets and products where, benefiting
from its brand and innovation, Pittards can command premium pricing and exploit
its 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, goatskins
and cattle hides. Pittards is providing skills through the contract in the
areas of procurement, technical processing, training, management systems,
selling and marketing expertise, as well as its brand name which gives assurance
and cachet to the worldwide customer base.
We intend to develop further contracts with a view to moving commodity business
offshore to low cost manufacturing locations. This will allow Pittards to
broaden sales with existing and leading customers. We will consolidate our
remaining UK production of premium products and our research and development
capability into a single base in Yeovil.
Once the transfer from Leeds to Yeovil and overseas is complete, the Leeds site
will be closed and sold, releasing vital cash and significantly improving our
borrowing position. It is anticipated this exercise will be completed during
2006.
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 to
broaden our product offering to our customers, in a profitable and cash
generative way.
Stephen Boyd
Chairman
PITTARDS plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT - UNAUDITED
for the year ended 31 December 2005
Year ended Year ended
31 December 31 December
2005 2004
Restated
Note £'000 £'000
Turnover 62,089 73,154
Cost 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 activities
before 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 before
taxation (10,404) (6,048)
Taxation (7) 1,349
Loss on ordinary activities after
taxation (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 - UNAUDITED
for 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 - UNAUDITED
for 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 22,381
Prior 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 - 5
account
At end of period (24,530) (11,407)
PITTARDS plc
CONSOLIDATED BALANCE SHEET - UNAUDITED
as at 31 December 2005
31 December 31 December
2005 2004
Restated
£'000 £'000
Fixed assets
Tangible fixed assets 12,482 17,774
Current assets
Assets held for resale - 748
Stocks 7,251 10,171
Debtors 5,378 9,029
Cash at bank & in hand 27 23
12,656 19,971
Creditors - amounts falling
due within one year
Bank 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 due
after 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 & Reserves
Called up share capital 8,227 8,227
Reserves (32,262) (19,139)
Own shares (495) (495)
Shareholders' funds (24,530) (11,407)
PITTARDS plc
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
for 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 servicing
of finance
Interest paid (894) (613)
Preference dividends paid - (257)
Net cash outflow from returns on investments (894) (870)
and servicing of finance
Taxation
UK corporation tax received 127 135
Net cash inflow from taxation 127 135
Capital expenditure and financial investment
Purchase of tangible fixed assets (290) (1,281)
Sale of assets held for resale 3,000 -
Sale of tangible fixed assets 13 170
Net 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)
Financing
Purchase of matching shares under Restricted - (15)
Share Plan
New bank loans - 4,499
Repayment of bank loans (3,511) (101)
Capital element of finance lease rental (195) (243)
repayments
Net cash (outflow) inflow from financing (3,706) 4,140
Increase in cash 554 3,394
Reconciliation of net cashflow to movement in net debt
Increase in cash 554 3,394
Repayment of bank loans 3,511 101
Capital element of finance lease rentals and hire 195 243
purchase repayments
New 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 £'000
Loss 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 2004
owned by the Pittards Employee Share Ownership Trust) '000's '000's
Basic 21,152 21,156
In 2005 and 2004 the 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 FRS22.
Basic and diluted loss per ordinary share 2005 2004
Restated
Loss from continuing operations 50.4p 14.8p
Loss from discontinued operations - 8.6p
Loss 50.4p 23.4p
4. Analysis of 2004 Operating profit (restated)
Continuing Operations Discontinued
Trading Exceptional Total Operations Total
(a) below (b) below
Turnover 58,478 - 58,478 14,676 73,154
Cost of sales (50,252) - (50,252) (14,703) (64,955)
Gross profit (loss) 8,226 - 8,226 (27) 8,199
Distribution 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 other
related 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 £'000
Operating loss (2,534) (3,959)
Depreciation charges 2,010 1,787
Share based expense - 5
Defined benefit cost less contribution paid (1,016) (534)
Loss on sale of tangible fixed assets 5 144
Increase in assets held for resale (34) (267)
Decrease in stocks 1,920 3,557
Decrease in debtors 3,537 946
Decrease in creditors (1,584) (469)
Net cash inflow from operating activities 2,304 1,210
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