REG - Pittards PLC - Interim Results
Pittards plc
("Pittards", the "Group" or the "Company" )
Interim results for the six months ended 30 June 2020
Pittards plc, the specialist producer of technically advanced leather and luxury leather goods for retailers, manufacturers and distributors, today announces its results for the six months ended 30 June 2020.
Key financials
· Revenue for the first half £6.6m (H1 2019: £12.1m)
· EBITDA negative £1.3m (H1 2019: £1.2m positive)
· Loss before tax amounted to £2.3m (H1 2019: £0.2m profit)
· Net assets were £14.6m (31 December 2019: £17.9m)
· Gross margin was 17.1% (31 December 2019: 29.7%)
· Group cash facilities headroom of £2.5m (£2.7m: 2019) including CBILS completed July 2020
Stephen Yapp, Chairman, said: -
"Despite the disruption of the first half, we enter the second half with renewed confidence and stability and with positive and improving cash flows. Our strategy to enlarge our portfolio of markets, products, improve quality of margin and lower our cost base, is showing clear signs of delivering benefits to the business. Over 14% of sales in the first half compared to 1.5% in H1 2019 were from our new target markets, and overall sales have consistently risen from May through to August. We are well positioned to deliver positive operational cashflow in the second half together with a reduction in net debt compared to the half year."
Further enquiries:
Pittards plc
Stephen Yapp - Chairman
Reg Hankey - Chief Executive
Richard Briere - Group Finance Director
01527 830 630
WH Ireland (Nominated Adviser and Broker)
Mike Coe / Chris Savidge (Corporate Finance)
Jasper Berry (Corporate Broking)
0207 220 1666
CEO report
The impact of the global pandemic had a material effect on our business in the first half, adversely affecting our short-term sales revenue across our entire business. Over 90% of our sales are exported, which exposes us to global demand, logistics and supply chain effects. In response to this challenging environment we put together a programme of change which prioritised the safety of our people, customers, and cash. Our cash strategy has delivered improvements in the areas of inventory, working capital and cost control.
Key financials
· Revenue for the first half £6.6m (H1 2019: £12.1m)
· EBITDA negative £1.3m (H1 2019: £1.2m positive)
· Loss before tax amounted to £2.3m (H1 2019: £0.2m profit)
· Net assets were £14.6m (31 December 2019: £17.9m)
· Gross margin was 17.1% (31 December 2019: 29.7%)
· Group cash facilities headroom of £2.5m (£2.7m: 2019) including CBILS completed July 2020
Operational and strategic update
The global nature of our business with over 90% of Group sales outside of Europe and our core customer base having a higher dependency on manufacturing facilities in South East Asia, exposed us earlier to the turbulence brought about by the pandemic than a UK centric business. As early as January activity was not following an expected pattern and slowed from then on. This slow down affected both our UK and Ethiopian businesses.
The lockdowns that followed around the world impacted on consumer confidence and had a significant effect on first half operations. The peak of our lockdown period was during April when we furloughed 122 out of 175 total UK staff. There was no furlough scheme in Ethiopia, although there were some measures available to address cost in accordance with Ethiopian labour laws.
Sales in the first half to our core customers were 62% down on the equivalent period last year, with the US market particularly hard hit as the first half unfolded. Our factories, both in UK and Ethiopia, remained open and delivered product to certain customers who are key suppliers to COVID19 response services both in the UK and overseas to ensure supplies were maintained. We switched our finished goods manufacturing facilities to produce both face masks and bags for scrubs.
The easing of lockdown restrictions between June and August created a period of greater stability which resulted in a significant increase in sales into our growth customers, in particular automotive, shoe and speciality consumer goods. With a more diversified portfolio, the shape of the business continues to improve despite the impact of the COVID19 lockdown, which has obscured the progress the Group is making.
In our markets the aviation market has been hardest hit with sales yet to recover. We are making progress in the automotive market and although some customers closed temporarily in the first half, we have seen sales growth in the second half to date. Military and support services sales also showed some recovery leading into the second half.
Between June and August sales into our new target markets accounted for 26% of sales, compared to 14% in the first half. We have also seen some positive order trends in golf, defence, cycling and speciality endurance gloves and indeed sports in general, as our core existing customers show signs of recovery, with sales orders up since the half year.
We have continued to work on developing our innovation product portfolio, including our new Tri Protex antimicrobial leather and a further product line for fire-retardant leather in to Rail applications, for which trials are ongoing.
Financial update
Severe disruption due to COVID19 dominated the first half, with significantly reduced activity and production volumes falling far below normal levels. In response, we have been recalibrating our business, including a re-shaping of the cost base which is expected to be finalised before the end of the year.
The loss before tax in the first half amounted to £2.3m loss (2019: £0.2m profit), which was entirely due to reduction in volumes although the impact was partially offset by cost reductions.
Gross margins fell to 17.1% (H1 2019: 29.7%). However, pure variable material margins continued to improve due to a better mix of business and lower input costs. We have recalibrated our capacity for new volumes and aim to achieve improved reported margins in the second half of 2020, this has already been visible in both July and August, with gross variable margins also improving.
We have reduced Group headcount from 1740 at the beginning of 2019, to 1052 as at 30 June 2020, whilst preserving our capacity to respond to an increased level of demand as markets recover. This has been facilitated by the investment in automation in recent years, new technology, people, and more flexible working arrangements.
Administrative costs fell during the period helped by all Directors and senior staff participating in a salary sacrifice arrangement. We continue to hedge the US dollar to balance currency risks. Currency losses in the period were £0.4m with a corresponding gain within revenue.
At the period end net assets fell to £14.6m (December 2019: £17.5m). Net debt was up by £1.4m to £11.3m (£9.9m: 31 December 2019) with most of the increase occurring during the period to April. Net debt has since reduced and at the end of August stood at £10.9m.
During the first half the Group refinanced the UK mortgage with Lloyds, which was previously £1.20m to £1.75m. It also secured a new £1m CBILS (Coronavirus Business Interruption Loan) loan, repayable over six years. This was agreed in June and formally signed and drawn down in July. Our cash headroom has been maintained at similar levels to December 2019, at £2.5m (2019: £2.6m). The profile of our debt has improved as long-term debt has increased to £2.0m from £0.4m at the last year end.
Overall stock has been reduced by £0.5m to £16.8m at the half year. This reduction has continued into the second half with inventory falling at the end of August falling to £16.3m. Our supplier average payment days fell to 57 days at the end of June (H1 2019: 59 days), assisting our supply chain management. Our customer average days to pay rose to 69 days (H1 2019: 55 days). The increase in debtor days was mostly due to a change in mix of customers. Over 80% of customer accounts are still credit insured.
During the UK national lockdown, we furloughed 122 staff, but this number fell consistently from May to stand at 27 staff at the end of September. In what has been a successful programme, we sought to bring staff back as soon as we could. The furlough scheme enabled the business to both preserve jobs and recalibrate its cost base, creating the time and space to reshape our approach to the new norm. The impact of furlough payments on our second half profitability and cashflow will be limited.
Outlook
There are clear signs of a modest recovery in our sales revenue during Q3, along with a progressively improving order book. We are cautiously optimistic that the positive trend since May will continue for the remainder of the year, however, it remains too early to judge the sustainability and scale of further recovery.
Our management of cash in the first half and our success in putting in place a new working model, which is sustainable at much reduced volumes, will benefit the second half. Both July and August have traded with positive cashflow and EBITDA.
Our Ethiopian business shows increased activity in the finished product side and has recovered some ground from earlier in the year, with an encouraging order bank to fulfil in the second half. We have been changing our approach to our traditional tanning business, however because the restrictions of COVID19 were applied much later in the year, there remains work to recalibrate our Ethiopian tanning business to profitability, and good progress has been made.
We are mindful of the continued threat of COVID19 restrictions to business operations. In response to the evolving uncertainty in March, a going concern statement was issued in our 2019 annual report. Given the performance this year, and following a recovery in performance as restrictions eased, the Directors do not believe there are any new circumstances that cast any further doubt on the Group's ability to continue as a going concern.
We currently see more opportunity than risk in the new normal that is emerging. We are encouraged by the cash generation since the half year and the corresponding reduction in net debt. We anticipate a more agile, cash generative business model, as we head towards the end of the year.
Consolidated Income Statement
Six months ended
Six months ended
Year ended
for the six months ended 30 June 2020
30/06/2020
30/06/2019
31/12/2019
Unaudited
Unaudited
Audited
Note
£'000
£'000
£'000
Revenue
6,627
12,132
22,301
Cost of sales
(5,495)
(8,528)
(15,404)
Gross profit
1,132
3,604
6,897
Distribution costs
(882)
(1,119)
(2,264)
Currency (losses) / gains
(356)
9
92
Administrative expenses
(1,884)
(1,984)
(3,548)
(Loss)/profit before operations and finance costs
(1,990)
510
1,177
Finance costs
(262)
(286)
(598)
(Loss)/profit before taxation
(2,252)
224
579
Taxation
3
(114)
(53)
(173)
(Loss)/profit after taxation
(2,366)
171
406
Earnings per share
2
Basic
(17.06p)
1.23p
2.93p
Diluted
(17.06p)
1.22p
2.90p
Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2020
Six months ended
Six months ended
Year ended
30/06/2020
30/06/2019
31/12/2019
Unaudited
Unaudited
Audited
£'000
£'000
£'000
(Loss)/profit for the period after taxation
(2,366)
171
406
Other comprehensive (expense)/income
Revaluation of land and buildings
-
-
139
Revaluation of land and buildings - unrealised exchange (loss)
(58)
(47)
(406)
(58)
(47)
(267)
Unrealised exchange (loss) on translation of overseas subsidiaries
(96)
(164)
(931)
Fair value (losses) on foreign currency cash flow hedges
(481)
(19)
339
(577)
(183)
(592)
Other comprehensive (loss)
(635)
(230)
(859)
Total comprehensive (loss) for the period
(3,001)
(59)
(453)
Consolidated balance sheet
Six months ended
Six months ended
Year ended
as at 30 June 2020
30/06/2020
30/06/2019
31/12/2019
Unaudited
Unaudited
Audited
Note
£'000
£'000
£'000
Assets
Non-current assets
Property, plant and equipment
9,929
10,970
10,240
Intangible assets
81
121
114
Deferred income tax asset
3
100
-
100
Total non-current assets
10,110
11,091
10,454
Current assets
Inventories
16,877
16,749
17,341
Trade and other receivables
2,843
4,695
3,462
Cash and cash equivalents
99
367
180
Total current assets
19,819
21,811
20,983
Total assets
29,929
32,902
31,437
Liabilities
Current liabilities
Trade and other payables
3,302
4,069
3,430
Interest bearing loans, borrowings and overdrafts
9,345
8,491
9,381
Total current liabilities
12,647
12,560
12,811
Non-current liabilities
Deferred income tax liability
3
709
697
730
Interest bearing loans, borrowings and overdrafts
2,015
1,781
376
Total non-current liabilities
2,724
2,478
1,106
Total liabilities
15,371
15,038
13,917
Net assets
14,558
17,864
17,520
Equity
Share capital
6,944
6,944
6,944
Share premium
2,984
2,984
2,984
Capital reserve
6,475
6,475
6,475
Shares held by ESOP
(495)
(495)
(495)
Share based payment reserve
334
245
295
Cash flow hedge reserve
(194)
(71)
287
Translation reserve
(4,158)
(3,295)
(4,062)
Revaluation reserve
1,108
1,386
1,166
Retained earnings
1,560
3,691
3,926
Total equity
14,558
17,864
17,520
Consolidated Statement of Changes in Equity
for the six months ended 30 June 2020
Note
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
As at 01/01/2019
6
6,944
2,984
6,475
(495)
203
(52)
(3,131)
1,433
3,520
17,881
Comprehensive income/(loss) for the period:
Profit for the period after taxation
-
-
-
-
-
-
-
-
171
171
Other comprehensive income/(loss):
Unrealised exchange gain/(loss) on translation of foreign subsidiaries
-
-
-
-
-
-
(164)
(47)
-
(211)
Fair value losses on foreign currency cash flow hedges
-
-
-
-
-
(19)
-
-
-
(19)
Total other comprehensive income/(loss)
-
-
-
-
-
(19)
(164)
(47)
-
(230)
Total comprehensive income/(loss) for the year
-
-
-
-
-
(19)
(164)
(47)
171
(59)
Share-based payment expense
-
-
-
-
42
-
-
-
-
42
As at 30 June 2019
6,944
2,984
6,475
(495)
245
(71)
(3,295)
1,386
3,691
17,864
Comprehensive income/(loss) for the period:
Profit for the period after taxation
-
-
-
-
-
-
-
-
235
235
Other comprehensive income/(loss):
Gain on the revaluation of buildings
-
-
-
-
-
-
-
139
-
139
Unrealised exchange gain/(loss) on translation of foreign subsidiaries
-
-
-
-
-
-
(767)
(359)
-
(1,126)
Fair value losses on foreign currency cash flow hedges
-
-
-
-
-
358
-
-
-
358
Total other comprehensive income/(loss)
-
-
-
-
-
358
(767)
(220)
-
(629)
Total comprehensive (loss) for the year
-
-
-
-
-
358
(767)
(220)
235
(394)
Share-based payment expense
-
-
-
-
50
-
-
-
-
50
As at 31 December 2019
6,944
2,984
6,475
(495)
295
287
(4,062)
1,166
3,926
17,520
Comprehensive income/(loss) for the year:
Loss for the period after taxation
-
-
-
-
-
-
-
-
(2,366)
(2,366)
Other comprehensive income/(loss):
Gain on the revaluation of buildings
-
-
-
-
-
-
-
-
-
-
Unrealised exchange gain/(loss) on translation of foreign subsidiaries
-
-
-
-
-
-
(96)
(58)
-
(154)
Fair value losses on foreign currency cash flow hedges
-
-
-
-
-
(481)
-
-
-
(481)
Total other comprehensive income/(loss)
-
-
-
-
-
(481)
(96)
(58)
-
(635)
Total comprehensive income/(loss) for the period
-
-
-
-
-
(481)
(96)
(58)
(2,366)
(3,001)
Share-based payment expense
-
-
-
-
39
-
-
-
-
39
As at 30 June 2020
6,944
2,984
6,475
(495)
334
(194)
(4,158)
1,108
1,560
14,558
Statement of cashflows
Six months ended
Six months ended
Year ended
for the period ended 30 June 2020
30/06/2020
30/06/2019
31/12/2019
Unaudited
Unaudited
Audited
Note
£'000
£'000
£'000
Cash flows from operating activities
Cash (used in)/generated from operations
5
(558)
(814)
(492)
Tax (paid)
(154)
(350)
(466)
Interest (paid)
(238)
(254)
(566)
Net cash (used in) / generated from operating activities
(950)
(1,418)
(1,524)
Cash flows from investing activities
Purchases of property, plant and equipment
(141)
(491)
(635)
Purchases of intangible assets
-
-
(30)
Net cash (used) in investing activities
(141)
(491)
(665)
Cash flows from financing activities
Proceeds from borrowings
1,750
809
804
Repayment of bank loans
(1,170)
(472)
(1,061)
New finance lease obligations
-
200
200
Repayment of obligations under finance leases
(65)
(90)
(171)
Net cash generated / (used) in financing activities
515
447
(228)
(Decrease) in cash and cash equivalents
(576)
(1,462)
(2,417)
Cash and cash equivalents at beginning of period
(6,131)
(3,695)
(3,695)
Exchange gains on cash and cash equivalents
106
(3)
(19)
Cash and cash equivalents at end of period
(6,601)
(5,160)
(6,131)
Note 1 - Basis of preparation
The financial information set out in the interim statements for the six months ended 30 June 2020 and the comparative figures are unaudited and do not constitute statutory accounts as defined in section 434 of the Companies Act 2006. As permitted, this interim report has been prepared in accordance with UK AIM listing rules and not in accordance with IAS 34 Interim Financial Reporting, therefore it is not fully in compliance with International Financial Reporting Standards (IFRS).
The financial information for the full preceding year is extracted from the statutory accounts for the financial year ended 31 December 2019. Those accounts, upon which the auditor issued an unqualified opinion, have been delivered to the Registrar of Companies. The auditor’s report did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
These financial statements are presented in sterling, being the functional currency of the primary economic environment in which the Group operates.
Note 2 - Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year excluding the shares owned by the Pittards employee share ownership trust.
a) Basic earnings per share
Six months ended
Six months ended
Year ended
30/06/20
30/06/19
31/12/19
Earnings per share
Unaudited
Unaudited
Audited
Basic
(17.06p)
1.23p
2.93p
Weighted average number of ordinary shares in issue
13,870,000
13,870,000
13,870,000
b) Diluted earnings per share
Six months ended
Six months ended
Year ended
30/06/20
30/06/19
31/12/19
Earnings per share
Unaudited
Unaudited
Audited
Diluted
(17.06p)
1.22p
2.89p
Weighted average number of ordinary shares in issue
14,001,000
14,025,000
14,025,000
Note 3 - Taxation
Six months ended
Six months ended
Year ended
30/06/20
30/06/19
31/12/19
Unaudited
Unaudited
Audited
Analysis of the charge in the period
The charge based on the profit for the period comprises:
Corporation tax on profit for the year
-
-
200
Foreign tax on profit for the period
114
90
41
Foreign tax related to prior years
-
75
144
Total current tax
114
165
385
Deferred tax
Origination and reversal of temporary differences
-
(112)
(212)
Total deferred tax
-
(112)
(212)
Income tax charge
114
53
173
Note 4 - Deferred taxation
Six months ended
Six months ended
Year ended
30/06/20
30/06/19
31/12/19
Unaudited
Unaudited
Audited
Deferred tax asset
100
-
100
Deferred tax (liabilities)
(709)
(697)
(730)
Deferred tax (liabilities) - net
(609)
(697)
(630)
Note 5 - (Cash Used) / Generated in operations
Six months ended
Six months ended
Year ended
30/06/2020
30/06/2019
31/12/2019
Unaudited
Unaudited
Audited
£'000
£'000
£'000
(Loss)/ profit before taxation
(2,252)
224
579
Adjustments for:
Depreciation of property, plant and equipment
337
357
780
Amortisation of intangibles
38
26
63
Bank and other interest charges
262
286
596
Share based payment expense
39
42
92
Other non-cash items in Income Statement
319
165
(275)
Operating cash flows before movement in working capital
(1,257)
1,100
1,835
Movements in working capital (excluding exchange differences on consolidation):
-
Decrease / (Increase) in inventories
240
(581)
(1,980)
Reduction / (Increase) in receivables
784
(1,377)
(383)
(Reduction) / Increase in payables
(325)
44
36
Cash (used) in operations
(558)
(814)
(492)
Note 6 - Prior year restatement reported in 2019 accounts
Deferred tax, amounting to £0.648m, in relation to the temporary timing difference caused by the revaluation of buildings in Ethiopia, was previously not recognised from the net assets of the group at 1 January 2018. As a result, the opening reserves at 1 January 2018 have been restated along with the deferred tax provision. There has been no impact on the previously reported consolidated income statement. This was corrected in the 2019 Annual Report and there have been no subsequent prior year restatements.
Note 7 - Availability of interim report
The interim report will be available at the Groups website, at www.pittards.com, in accordance with AIM rule 20.
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