Interim Results
Pittards PLC
04 September 2003
Pittards plc produces technically advanced leather for many of the world's
leading brands of gloves, shoes, luxury leathergoods and sports equipment.
4 September 2003
Interim Results for the six months ended 30 June 2003
Summary
Year ended Six months ended Six months ended
31 December 2002 30 June 2003 30 June 2002
£78.9m Turnover £43.5m £36.2m
84% Percentage export 86% 83%
£3.7m Operating profit before pension costs £2.3m £1.6m
£1.3m Pension costs £1.2m £0.7m
£2.4m Operating profit £1.1m £0.9m
£2.0m Profit before taxation £0.8m £0.7m
5.4p Earnings per share 1.9p 1.9p
2.85p Ordinary dividend 1.0p 1.0p
90p Assets per share 91p 89p
• Overall sales up by 20%; export sales up by 26% to a record 86% of
turnover.
• Operating profit up by 16%, after a 72% increase in pension costs.
• Profit before tax up by 10%
• Interim dividend maintained at 1.0p.
Robert Tomkinson, Chairman of Pittards, commented:
'I am pleased to report that we have continued to make progress in the first
half of 2003. This has been a period of generally unsettled economic and
political conditions, overshadowed by the conflict in Iraq. Against this
background, we have achieved a 20% increase in our sales turnover, and a 10%
increase in our profit before tax. However, whilst we have been quite busy in
the first half, many in our industry have been operating well below capacity and
this is putting great pressure on volumes and prices. In the prevailing fragile
economic conditions and with the substantial increase in our pension costs, it
is unlikely that we will be able to match in the second half, the progress we
have made in the first.'
For further information, please contact:
John Pittard - Group Managing Director
John Buckley - Group Financial Director
Pittards plc
Tel: 01935 474321
Chairman's interim statement
The first half of 2003 has been a period of generally unsettled economic and
political conditions, overshadowed by the conflict in Iraq. Against this
background, I am pleased to report that, after a generally quiet start, we have
continued to make progress so far this year. The operating profit for the six
months ended 30 June 2003, before pension costs, was £2.3m (2002 - £1.6m) - 40%
higher than last year. Pension costs in the period (on the basis of the
applicable accounting standard, SSAP24) increased by 72% to £1.2m (2002 -
£0.7m). The operating profit, after pension costs, was £1.1m,(2002 - £0.9m)
16% higher than last year. After higher interest costs of £0.3m (2002 - £0.2m)
the profit before tax was £0.8m, 10% higher than last year. After tax of £0.3m
and preference dividends of £0.1m earnings were £0.4m, equivalent to 1.9p per
ordinary share. The board has declared an interim dividend of 1.0p per share
(2002 - 1.0p) which is almost twice covered by earnings. This will be paid on 3
November 2003 to shareholders on the register on 3 October 2003 (ex dividend
date 1 October 2003).
In my statement in the 2002 Annual Report and Accounts, I advised shareholders
that the triennial actuarial valuation of the pension scheme, as at 6 April
2003, was likely to lead to a substantial increase in company contributions to
the Scheme. The valuation is expected to be completed towards the end of this
year, but the increase in pension costs in the period is based on preliminary
discussions with the Scheme actuary.
Our investment in product and market development has contributed to a 20%
advance in turnover to £43.5m (2002 - £36.2m) and an increase in the underlying
volume of finished leather sold of 23%. Sales to customers outside the United
Kingdom represented a record 86.4% of total sales. Those to US dollar based
markets increased by 27% year on year, and those to Europe by 26%.
Net assets were £22.8m as at 30 June 2003, equivalent to 91p per ordinary share.
Bank borrowings were £9.6m (2002 - £7.6m) at the balance sheet date, and were
higher throughout the period in comparison to last year. This is reflected in
the substantial increase in interest costs. The higher borrowings were
attributable to the increased working capital requirement during the first half.
This was partly as a consequence of the increased activity, and partly as a
result of strategic stocks of raw material built up in the Glove Leather
Division. The Division procures much of its raw material - hair sheepskins -
from the African continent, and from the East coast in particular. Many of
these skins are shipped through the Suez Canal. In order to safeguard the
Division's continuity of supply against the threat of disruption from a more
widespread conflict in the Middle East, it was considered prudent to carry
approximately £1m of additional raw material stocks on a temporary basis, during
the period the threat persisted. Stock levels are expected to have reverted to
their normal level by the end of September.
The Glove Leather Division performed strongly with an overall increase in sales
volume of 8%, and an improvement in operating margins from the depressed level
of a year ago. Most of the Division's sales and virtually all its raw material
purchases are denominated in US dollars. Consequently the Division has a
degree of insulation from the generally unhelpful impact of the weaker dollar on
its operating margin.
Sales of high performance leather for sport, military and service gloves were
good as a result of new product introductions and customer gains. In contrast,
sales of leather for dress gloves were somewhat disappointing compared to last
year, as fashion for the season favoured gloves from knitted or fabric
materials, rather than leather.
The volume of finished leather sold by the Shoe & Leathergoods Division in the
first half of 2003 was 37% up on the equivalent period of 2002, but the
contribution to group operating profit was lower than last year. Unlike the
Glove Leather Division, the Shoe & Leathergoods Division sources most of its raw
material - cattle hide - within the UK. It does not, therefore, have the
natural hedge against its dollar receivables that its sister division has.
Additionally, customer resistance to price increases in a competitive
international market limited the division's capacity to raise its dollar prices
in the short term.
Sales of upper leather for sports footwear more than doubled in the period,
helped by strategically important programmes aimed primarily at the US market.
Unfortunately, the weaker dollar and higher than projected hide prices
materially eroded the margins on these programmes. The volume of upper leather
sold to manufacturers of casual footwear also advanced with sales to Korean and
Taiwanese brands, for their respective domestic markets, achieving the strongest
growth. This is part of our strategy to recognise the importance of emerging
premium brands in Asia. The volume of sales of leather for luxury leathergoods
grew by 22% compared to the first half of last year, as a result of increasing
business with existing customers, and new business with new customers.
The Raw Materials Division, the smallest of our three Divisions, achieved an
improvement in profitability in the first half of 2003, on sales turnover almost
40% ahead of the corresponding period last year. However, tougher trading
conditions are expected in the second half as we move into the 'wool-on' season
for UK sheepskins, when the procurement of adequate quantities of skins suitable
for fellmongering becomes more difficult.
An application for outline planning permission to develop approximately 10 acres
of the Division's former factory site in Kinghorn for housing was submitted in
August. If approved, it is proposed to market the site in the Autumn, with a
view to completing the sale during 2004. It is planned to apply the proceeds to
the reduction of borrowings and the likely deficit in the pension scheme.
At the beginning of May, after an extensive evaluation period, the group
embarked on the implementation of an enterprise resource planning (ERP) computer
system. The business case for the system is strong. The project is costing in
excess of £1m and is being funded by a five year term loan. Implementation will
be completed during the first half of next year and the payback from enhanced
planning and resource allocation decisions, should start to accrue from that
point.
We were gratified to be named Innovator of the Year for 2003 in the Royal Bank
of Scotland and Sunday Times Business of the Year Awards in April. We view it
as recognition of the efforts from all our employees in turning what is one of
the world's oldest materials into a modern, versatile, high performance product.
Global economic activity continues to look fragile to us. Whereas we have been
quite busy in each of our three divisions during the first half, many in our
industry have been operating well below capacity, putting great pressure on
volumes and prices. In the prevailing conditions, and taking account of the
substantial increase in our pension costs, we are unlikely to match in the
second half the progress we have made in the first.
R C Tomkinson
Chairman
4 September 2003
PITTARDS plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)
for the six months ended 30 June 2003
Year ended Six months Six months
31 December ended 30 June ended 30 June
2002 2003 2002
£'000 Note £'000 £'000
78,887 Turnover 43,545 36,247
3,720 Operating profit before pension 2,261 1,616
cost
(1,327) Pension cost (1,196) (696)
2,393 Operating profit 1,065 920
Profit on ordinary
2,393 activities before interest 1,065 920
(386) Net interest payable (248) (177)
Profit on ordinary
2,007 activities before taxation 817 743
(609) Taxation (284) (223)
Profit on ordinary
1,398 activities after taxation 533 520
Dividends
257 Preference 128 128
626 Ordinary 222 218
883 350 346
515 Retained profit 183 174
Earnings per share 1
5.4p - basic 1.9p 1.9p
5.4p - diluted 1.9p 1.9p
There were no discontinued activities in 2003 or 2002. The results relate
entirely to continuing operations
There were no recognised gains or losses other than those reflected in the
profit & loss account
PITTARDS plc
CONSOLIDATED BALANCE SHEET (UNAUDITED)
as at 30 June 2003
31 December 30 June 30 June
2002 2003 2002
£'000 £'000 £'000
Fixed assets
17,056 Tangible 16,911 17,100
399 Investments 340 -
17,455 17,251 17,100
Current assets
13,620 Stocks 14,984 12,427
10,741 Debtors 12,703 10,009
- Investments - 327
22 Cash at bank & in hand 24 21
24,383 27,711 22,784
Creditors - Amounts falling
due within one year
(6,768) Bank loans & overdrafts (9,577) (7,551)
(7,198) Trade creditors (7,190) (5,482)
(4,189) Other creditors (4,238) (3,990)
(18,155) (21,005) (17,023)
6,228 Net current assets 6,706 5,761
23,683 Total assets less current liabilities 23,957 22,861
Creditors - Amounts falling
(230) due after more than one year (318) (87)
(857) Provisions for liabilities and charges (845) (621)
22,596 22,794 22,153
Capital & Reserves
8,218 Called up share capital 8,228 8,151
14,378 Reserves 14,566 14,002
22,596 Shareholders' funds 22,794 22,153
PITTARDS plc
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
for the six months ended 30 June 2003
Six months Six months
Year ended ended ended
31 December 30 June 30 June
2002 2003 2002
Note
£'000 £'000 £'000 £'000 £'000 £'000
2,229 Net cash (outflow) inflow from operating activities 2 (1,552) 156
Returns on investments and servicing of finance
(377) Interest paid (129) (172)
(256) Preference dividends paid (128) (128)
(633) Net cash outflow from returns on investments and (257) (300)
servicing of finance
Taxation
(13) UK corporation tax received (paid) 9 (14)
(13) Net cash inflow (outflow) from taxation 9 (14)
Capital expenditure and financial investment
(1,805) Purchase of tangible fixed assets (516) (942)
(10) Purchase of matching shares under Restricted Share Plan (52) (15)
134 Sale of tangible fixed assets 17 86
(1,681) Net cash outflow from capital expenditure and financial (551) (871)
investment
(622) Equity dividends paid (409) (403)
(720) Net cash outflow before financing (2,760) (1,432)
Financing
102 Issue of shares on exercise of options 15 -
(38) Capital element of finance lease rental repayments (62) (8)
64 Net cash (outflow) inflow from financing (47) (8)
(656) Decrease in cash (2,807) (1,440)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
(656) Decrease in cash (2,807) (1,440)
38 Capital element of finance lease rental 62 8
repayments
(618) Change in net debt arising from cash flows (2,745) (1,432)
New finance lease arrangements and hire
purchase contracts
(358) (204) (115)
(976) Movement in net debt (2,949) (1,547)
(6,090) Net debt at beginning of period (7,066) (6,090)
(7,066) Net debt at end of period (10,015) (7,637)
NOTES
Six months ended Six months ended
30 June 30 June
2003 2002
1. Earnings per ordinary share £'000 £'000
Profit on ordinary activities after taxation 533 520
Preference dividends (128) (128)
Earnings 405 392
Weighted average number of ordinary shares in '000 '000
issue
(excluding the shares owned by the Pittards
employee share ownership trust)
Basic 21,217 20,931
Dilutive potential ordinary shares:
Employee share options - 130
Conditional shares under Restricted 453 -
Share Plan
21,670 21,061
2. Reconciliation of operating profit to net cash flows from
operating activities:
Year ended Six months Six months
31 December ended ended
2002 30 June 2003 30 June 2002
£'000 £'000 £'000
2,393 Operating profit 1,065 920
1,564 Depreciation charges 848 766
92 Amortisation of shares under RSP 111 46
Amounts written back to current
asset investments
(118) - -
Profit on sale of tangible fixed
assets
(107) - (70)
(2,037) Increase in stocks (1,364) (1,185)
(2,854) (Increase) decrease in debtors (1,962) (2,111)
3,296 (Decrease) increase in creditors (250) 1,790
Net cash (outflow) inflow from
operating activities
2,229 (1,552) 156
3. The financial information contained in this interim statement does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985. The financial information for
the full preceding year is based on the statutory accounts for the financial year ended 31
December 2002. Those accounts, upon which the auditors issued an unqualified opinion, have
been delivered to the Registrar of Companies.
4. The interim financial information has been prepared on the basis of the accounting policies
set out in the Group's statutory accounts for the year ended 31 December 2002.
5. The report containing the interim financial information is to be sent direct to shareholders.
Copies of the report are available to the public from the registered office of Pittards plc.
The address of the registered office is: Pittards plc, Sherborne Road, Yeovil, Somerset, BA21
5BA.
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