Final Results

RNS Number : 7372U

Pittards PLC

02 April 2019

 

2 April 2019

PITTARDS PLC

("Pittards" or "the Group")

Full Year Results for the year ended 31 December 2018

Pittards plc, the specialist producer of technically advanced leather and luxury goods for retailers, manufacturers and distributors today announces its results for the year ended 31 December 2018.

Year ended 31 December 2018:

·      Revenue £28.5m (2017: £30.3m)

·      Profit before tax £0.4m (2017: £0.4m)

·      EBITDA £1.8m (2017: £1.6m)

·      Net assets £18.5m (2017: £19.8m)

·      Net debt £7.7m (2017: £8.0m)

·      New foothold in automotive and airline markets

·      Progression of footwear manufacturing in Ethiopia.

Stephen Yapp, Chairman commented: "Good progress has already been made in implementing the Group's stated objectives. Whilst the Group must be mindful of the unpredictable global economic situation, in several respects the Group has entered 2019 well positioned for growth with clear priorities, a stable financial base with available banking facility headroom of £5.5m and a positive outlook about our near-term opportunities."

For further information, please contact:

Pittards plc	www.pittards.com
Stephen Yapp, Chairman Reg Hankey, CEO Richard Briere, CFO	[phone]
WH Ireland Limited	www.whirelandcb.com
Mike Coe, Chris Savidge	[phone]

This announcement includes inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 and is disclosed in accordance with the Company's obligations under Article 17 of those regulations.

CHAIRMAN'S STATEMENT

for the year ended 31 December 2018

"It has been a year of solid achievement where the Group has delivered stable results, established the pillars for growth and made strategically important inroads." 

At the beginning of 2018, the Group established its strategic vision for the business and unveiled its priorities; to deliver an excellent service to its core customers whilst targeting the interiors and performance footwear markets. This will create a more balanced business and product portfolio that builds upon the strengths of its customer base, expertise in leather innovation and focuses the business on areas which will most enhance financial performance. Further details of current opportunities and the strategically important progress made are outlined by the CEO, Reg Hankey, in his review.

Throughout the year, the number of global uncertainties and challenges has not reduced, and it is against this backdrop that the business delivered results for 2018 in line with market expectations. To achieve this in a year of transition and investment to strengthen its people, technology and manufacturing capabilities, reflects the quality and hard work of the staff throughout the business.

As previously announced, Matthew O'Rourke left the company at the end of the year after two and a half years of service and we wish him well for the future. Subsequently, Richard Briere was welcomed to the Board as CFO on 19 March 2019, bringing with him experience from both manufacturing and distribution industries.

Good progress has already been made in implementing the Group's stated objectives. Whilst the Group must be mindful of the unpredictable global economic situation, in several respects the Group has entered 2019 well positioned for growth, with clear priorities, a stable financial base with available headroom of £5.5m, and a positive outlook about its near-term opportunities.

The Group's optimism for the future is supported by new business opportunities that are now beyond the bulk sampling stage, with new customers in both its existing and target markets.

CHIEF EXECUTIVE's STATEMENT

for the year ended 31 December 2018

2018 was a year of strategic progress and steady financial performance.  The Group has had a productive year supporting its existing customer base, mainly focused upon balance sheet management and progressing its pipeline of innovative products to new markets.

Highlights - Year ended 31 December 2018:

·      Revenue £28.5m (2017: £30.3m)

·      Profit before tax £0.4m (2017: £0.4m)

·      EBITDA £1.8m, (2017: £1.6m)

·      Net assets £18.5m (2017: £19.8m)

·      Net debt £7.7m (2017: £8.0m)

·      New foothold in automotive and airline markets

·      Progression of footwear manufacturing in Ethiopia.

Financial review

Despite reduced revenue at £28.5m (2017: £30.3m), the Group has improved gross profit to £7.2m (2017: £7.1m).

The global economic climate was subdued during 2018 with overall weaker demand. In particular, demand for shoe leather was lower reflecting global trends in this market. The Group remained focused on the gross margin where lower raw material prices were favourable, improving gross margin to 25% (2017: 23%).

EBITDA increased to £1.8m (2017: £1.6m) resulting in a profit before tax of £0.4m (2017: £0.4m).  Net assets decreased to £18.5m (2017: £19.8m).  Net debt was lower at £7.7m (2017: £8.0m). The Group's banking facilities have been renewed and give headroom of £5.5m, adequate for the Group's medium-term growth objectives.

The Group has taken the prudent view in line with IAS 12 'Income Taxes' to eliminate the deferred tax asset of £1.9m in the year.  This has no effect on the operating performance, cash, debt or the Group's outlook, which remains unchanged.  This now leaves the Group's net asset value per share fully covered by tangible assets at 133.59p (2017: 142.30p).

The tax charge for the year of £2.3m includes £1.9m relating to a deferred tax charge which was written down to meet the IAS12 requirement and £0.3m relating to Ethiopian tax on profits relating to prior year; both are one time in nature.  The Group expects a more normalised split of profits between the UK and Ethiopia in 2019 and retains taxable losses in the UK of £11.2m to utilise in future periods.

Overall inventory levels have increased to £16.3m (2017: £15.3m), with the increase in raw materials of £2.4m being partially offset by a £1.6m reduction in work in progress and finished goods.  The increase in raw material stocks is largely a result of two factors which fall outside the Group's core stock holding; these factors being the strategic purchase of raw materials, mainly chemicals from Europe ahead of Brexit, along with additional stock items to support the Group's new shoe production line.  The Group continues to make progress in reducing the levels of some of the more difficult stocks, in particular sheepskins, and this continues to remain a key focus.

One of the Group's key financial measures is Return on Capital Employed. This has increased in 2018 to 5.2% (2017: 4.1%) and the Group's near-term objective is to deliver returns above its estimated Weighted Average Cost of Capital of approximately 7%. 

Market view

The overall global economic climate remains complex. There continues to be speculation around the impact of Brexit and general trading conditions in Europe.  The economic implications resulting from the impact of Brexit are largely beyond the control of the Group, however, the Group will continue to review the impact of Brexit with key suppliers, stakeholders and professional advisors. The uncertainty regarding the trading relationship between the US and China has a greater impact on the global leather industry.

As a predominantly global export business, the Group's trade is clearly affected by these macro-economic trends. Such a period of uncertainty also presents opportunities for the Company as pricing pressures on raw materials are subdued and more customers are seeking innovation, supply chain integrity and trusted relationships as brands seek to capture the millennial customer, more than 70% of whom would be happy to pay extra for sustainable products.  23.3bn square feet of leather is sold globally of which 4% is glove leather, 47% is footwear leather and 27% is automotive and furniture leather. 

The Group anticipates these trends will continue into 2019.

Operations

During the year, the Group has continued to build on its capacity and capabilities to both meet the demands of its new markets and deliver against its objectives.  This has seen a targeted capital investment, a devolved management structure, with two divisions - the UK and Ethiopia - with their own operational and financial accountability and the strengthening of the senior management team through the recruitment of a UK Sales Director and a Technical Director, who are based at the UK operations in Yeovil.  

Strategic progress

Pittards remains one of the oldest manufacturers of high quality and performance leathers with a diverse customer base of premium brands across its core markets of shoe, gloving and leather goods. Delivering on the expectations of the Group's core customers in performance gloves and footwear, from both divisions, remains a key focus and the Group will continue to enhance its offering to ensure it meets their needs.  Alongside this, and as already communicated, the Group intends to leverage its heritage, competitive advantage and expertise to broaden the business into new products and markets to maximise its growth. 

The Group's strategy recognises that most of its current, core customers operate in niche market sectors and the Group has long established excellent relationships within these sectors. The Group's established customer base is very important for its long-term success, but its growth opportunities are limited in these niche markets. In order to build medium and long-term growth into the business, the Group needs to develop into new market sectors. The Group's growth strategy for the UK business is predominantly targeted upon increasing leather sales, both to the whole hide interiors markets, embracing automotive, airline and others, together with a new emphasis upon larger shoe leather brands.

In the UK, the business has now started to supply the automotive and airline markets with initial production beyond the sampling stage.  Inevitably, the business will need to build on this foundation into higher volumes, but the Group now believes it has a clearly established foothold in this new market sector where leather use is forecast to continue to grow at a Compound Annual Growth Rate of 6.5%, to a value of $46.3 billion by 2022. The investment of a whole-hide shaving machine means the Group's whole hide production volume capabilities are secure.

The Group's commitment to remain at the forefront of leather innovation will help the business deliver against customer requirements and is evidenced by the progression and increase of its pipeline for other potential customers in the UK.

Additionally, in the UK, the Company is sampling new products into some new large shoe brands, although the global market is weak in this area, the Company does anticipate making further progress in the near-term. 

For the Ethiopian business, the strategy is to focus on the development of finished product manufacture, in particular shoes and gloves. The division has increased its manufacturing capabilities for footwear by investing in people and machinery. Consequently, the division has expanded its product offering and volumes and become established as a reliable resource for these finished products. This strategically significant development further diversifies the business model with customers including Soul of Africa, Vivo Barefoot, and in 2019 another niche brand is planned.

In addition to the investment in shoe machinery at Pittards Products Manufacturing (PPM), the Group has also added new tanning drums and fleshing machines to Ethiopia Tannery Share Company (ETSC) to upgrade its capacity.  Together with the purchase of the whole-hide shaving machine, the Group has invested £0.6m this year.  The Group is continuing to invest in machinery in the first half of 2019, with the purchase of a whole-hide splitting machine, two measuring machines and a wet blue shaving machine underway for ETSC. 

Summary

It has taken time to build the platform to implement the Group's vision for the business in parallel with servicing its core customers. This was a year of progress and whilst there is much more ahead of the Group, it has started to demonstrate its ability to differentiate its customer-focused model to provide a more balanced portfolio, deliver growth and remain a world class provider of leather and finished leather products. 

CONSOLIDATED INCOME STATEMENT

for the YEAR ENDED 31 DECEMBER 2018

		2018	2017
Continuing operations	Note	£'000	£'000
Revenue		28,469	30,287
Cost of sales		(21,318)	(23,194)
Gross profit		7,151	7,093
Distribution costs		(2,209)	(2,443)
Administrative expenses		(3,950)	(3,716)
Profit from operations before finance costs		992	934
Finance costs		(647)	(521)
Finance income		9	-
Profit before taxation		354	413
Taxation		(2,283)	84
(Loss)/profit for the year after taxation		(1,929)	497
Earnings per share
Basic	2	(13.91p)	3.58p
Diluted	2	(13.76p)	3.49p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 DECEMBER 2018

	2018	2017
	£'000	£'000
(Loss)/profit for the year after taxation	(1,929)	497
Other comprehensive income/(expense) Items that will not be reclassified to profit or loss
Revaluation of land and buildings	219	171
Revaluation of land and buildings - unrealised exchange gain/(loss)	49	(625)
	268	(454)
Items that may be subsequently reclassified to profit or loss
Unrealised exchange gain/(loss) on translation of overseas subsidiaries	389	(1,655)
Fair value losses on foreign currency cash flow hedges	(52)	-
	337	(1,655)
Other comprehensive income/(loss)	605	(2,109)
Total comprehensive loss for the year	(1,324)	(1,612)

CONSOLIDATED statement of Changes in equity

for the year ended 31 DECEMBER 2018

	Share Capital	Share premium	Capital reserve	Shares held by ESOP	Share based payment reserve	Cash flow hedge reserve	Translation reserve	Revaluation reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2017	6,944	2,984	6,475	(495)	29	-	(1,865)	2,267	4,935	21,274
Comprehensive income/(expense) for the year:
Profit for the year after taxation	-	-	-	-	-	-	-	-	497	497
Other comprehensive income/(loss):
Gain on revaluation of buildings	-	-	-	-	-	-	-	171	-	171
Unrealised exchange loss on translation of foreign subsidiaries	-	-	-	-	-	-	(1,655)	(625)	-	(2,280)
Total other comprehensive loss	-	-	-	-	-	-	(1,655)	(454)	-	(2,109)
Total comprehensive (loss)/income for the year	-	-	-	-	-	-	(1,655)	(454)	497	(1,612)
Share-based payment expense	-	-	-	-	102	-	-	-	-	102
At I January 2018 (as previously published)	6,944	2,984	6,475	(495)	131	-	(3,520)	1,813	5,432	19,764
Impact of the adoption of new standards	-	-	-	-	-	-	-	-	(26)	(26)
At 1 January 2018 (restated)	6,944	2,984	6,475	(495)	131	-	(3,520)	1,813	5,406	19,738
Comprehensive income for the year:
Loss for the year after taxation	-	-	-	-	-	-	-	-	(1,929)	(1,929)
Other comprehensive income/(expense):
Gain on revaluation of buildings	-	-	-	-	-	-	-	219	-	219
Unrealised exchange gain on translation of foreign subsidiaries	-	-	-	-	-	-	389	49	-	438
Fair value losses on foreign currency cash flow hedges	-	-	-	-	-	(52)	-	-	-	(52)
Total other comprehensive income	-	-	-	-	-	(52)	389	268	-	605
Total comprehensive income/(loss) for the year	-	-	-	-	-	(52)	389	268	(1,929)	(1,324)
Share-based payment expense	-	-	-	-	72	-	-	-	43	115
At 31 December 2018	6,944	2,984	6,475	(495)	203	(52)	(3,131)	2,081	3,520	18,529

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2018

	2018	2017
	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	11,006	10,778
Intangible assets	147	209
Deferred income tax asset	-	1,901
Total non-current assets	11,153	12,888
Current assets
Inventories	16,306	15,332
Trade and other receivables	3,306	3,991
Cash and cash equivalents	598	327
Current income tax recoverable	-	41
Total current assets	20,210	19,691
Total assets	31,363	32,579
Liabilities
Current liabilities
Trade and other payables	(4,350)	(4,358)
Interest bearing loans, borrowings and overdrafts	(7,756)	(5,641)
Total current liabilities	(12,106)	(9,999)
Non-current liabilities
Deferred income tax liability	(162)	(140)
Interest bearing loans, borrowings and overdrafts	(566)	(2,676)
Total non-current liabilities	(728)	(2,816)
Total liabilities	(12,834)	(12,815)
Net assets	18,529	19,764
Equity
Share capital	6,944	6,944
Share premium	2,984	2,984
Capital reserve	6,475	6,475
Shares held by ESOP	(495)	(495)
Share based payment reserve	203	131
Cash flow hedge reserve	(52)	-
Translation reserve	(3,131)	(3,520)
Revaluation reserve	2,081	1,813
Retained earnings	3,520	5,432
Total equity	18,529	19,764

STATEMENT of cash flows

for the year ended 31 DECEMBER 2018

		2018	2017
	Note	£'000	£'000
Cash flows from operating activities
Cash generated from/(used in) operations	3	1,583	2,299
Tax paid		(11)	(48)
Interest paid		(634)	(516)
Net cash generated from operating activities		938	1,735
Cash flows from investing activities
Purchases of property, plant and equipment		(588)	(696)
Purchases of intangible assets		-	(2)
Net cash used in investing activities		(588)	(698)
Cash flows from financing activities
Proceeds from borrowings		-	1,096
Repayment of bank loans		(1,304)	(1,072)
New finance lease obligations		41	-
Repayment of obligations under finance leases		(85)	(84)
Net cash used in financing activities		(1,348)	(60)
(Decrease)/increase in cash and cash equivalents		(998)	977
Cash and cash equivalents at beginning of the year		(2,698)	(3,738)
Exchange gains on cash and cash equivalents		1	63
Cash and cash equivalents at the end of the year		(3,695)	(2,698)

NOTES TO THE FINAnCIAL STATEMENTS for the year ended 31 DECEMBER 2018

1.     Basis of preparation

The consolidated financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards ("IFRS") including International Accounting Standards ("IAS") and IFRS Interpretations Committee ("IFRS IC") interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under accounting standards as adopted for use in the EU.

The information in this preliminary statement has been extracted from the audited financial statements for the years ended 31 December 2018 and 2017 and as such, does not constitute statutory accounts within the meaning of s434 of the Companies Act 2006. A full annual report for the year ended 31 December 2018 on which the auditor has issued an unqualified audit report, has been delivered to the Registrar of Companies. The Group's annual report for 2018, on which the auditors have issued an unqualified audit report, will be delivered to the Registrar of Companies in due course. No statement has been made by the auditor under Section 498(2) or (3) of the Companies Act 2006 in respect of either of these sets of accounts.

The preliminary announcement was approved by the board of directors and authorised for issue on 1 April 2019.

2.     Earnings per ordinary share

	2018	2017
	£'000	£'000
Analysis of the profit in the year:
(Loss)/profit for the year	(1,929)	497
Weighted average number of ordinary shares in issue (excluding the shares owned by Pittards Employee Share Ownership Trust)	'000s	'000s
Basic	13,870	13,870
Diluted	14,023	14,224
Basic earnings per ordinary 50p share	(13.91p)	3.58p
Diluted earnings per ordinary 50p share	(13.76p)	3.49p

3.     Cash generated from operations

	2018	2017
	£'000	£'000
Profit before taxation	354	413
Adjustments for:
Depreciation of property, plant and equipment	705	604
Amortisation	62	36
Bank and other interest charges	638	521
Share-based payment expense	115	102
Other non-cash items in Income Statement	194	(133)
Operating cash flows before movement in working capital	2,068	1,543
Movements in working capital (excluding exchange differences on consolidation):
Increase in inventories	(710)	(749)
Decrease/(increase) in receivables	792	(47)
(Decrease)/increase in payables	(567)	1,552
Cash generated from operations	1,583	2,299

4.     Taxation

In accordance with the requirements of IAS12, the directors considered the potential utilisation of the deferred tax asset and have taken a prudent view to derecognise the deferred tax asset of £1.901m.  This has no effect on the Group's operating performance, cash, debt or the Group's outlook, which remains unchanged.

5.     Additional information

Copies of the 2018 Annual Report will be posted to shareholders in April and will be available on the company's website at www.pittards.com. 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 15 May 2019 at 12pm.

 

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