A N N UA L R EP O RT 2018
PITTARDS IS A GLOBAL BRAND
SUPPLYING PREMIUM LEATHER AND
LEATHER PRODUCTS, WORKING WITH
LEADING INTERNATIONAL BRANDS,
RETAILERS AND MANUFACTURERS.
01 Chairman’s statement
25 Consolidated statement of
03 Chief Executive’s statement
07 Directors, officers and advisers
08 Strategic report
10 Corporate governance report
15 Directors’ report
18 Statement of directors’
responsibilities in respect of
the financial statements
19 Independent auditor’s report
24 Consolidated income statement
and consolidated statement of
comprehensive income
changes in equity
26 Company statement of changes
in equity
27 Balance sheets
28 Statements of cash flows
29 Notes to the consolidated
accounts
55 Five year review
55 Financial calendar
56 Notice of Annual General
Meeting
2018 ANNUAL REPORT PIT TARDS PLC
01
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 banking
facility 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 the bulk sampling
stage, with new customers in both its
existing and target markets.
Stephen Yapp
Chairman
1 April 2019
Results in brief
Revenue
Gross profit
Gross profit margin
Profit before taxation
EBITDA
Net assets
Inventory
Net debt
Gearing
Basic earnings per share
Net assets per share
Strategic and operational highlights
– New foothold in automotive and airline markets
– Progression of footwear manufacturing in Ethiopia
2018
£’m
28.5
7.2
25%
0.4
1.8
18.5
16.3
7.7
42%
2017
£’m
30.3
7.1
23%
0.4
1.6
19.8
15.3
8.0
40%
(13.91p)
3.58p
133.59p
142.30p
Company Number 102384
02
PIT TARDS PLC 2018 ANNUAL REPORT
2018 ANNUAL REPORT PIT TARDS PLC
03
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 6.2% (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 –
FootJoy continues to lead the US Golf market for
both gloving and footwear and 2018 saw the
launch of the new StaSof glove featuring next-
generation Pittards leather technology.
Pictured: leading Tour player Adam Scott.
Profit before tax
£0.4 million
(2017: £0.4 million)
EBITDA
£1.8million
(2017: £1.6 million)
0 4
PIT TARDS PLC 2018 ANNUAL REPORT
CHIEF EXECUTIVE’S STATEMENT
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 of 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 leathergoods. 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.
At the 2019 Geneva Motorshow, the Morgan
Motor Company unveiled its new Plus Six model.
Described as the ‘most dynamically capable
Morgan ever produced’, the performance leather
for the interior will be manufactured by Pittards.
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.
Following the recent period of
restructuring and recruitment, senior
management was further strengthened
with hires including a UK Sales Director
and a Technical Director, who will also be
based at the UK operations in Yeovil. The
Company now considers it has the people
in place to deliver against its objectives.
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.
Reg Hankey
Chief Executive Officer
1 April 2019
Net debt
£7.7million
(2017: £8.0 million)
Net assets
£18.5million
(2017: £19.8 million)
Revenue outside the UK
90%(2017: 91%)
2018 ANNUAL REPORT PIT TARDS PLC
05
0 6
PIT TARDS PLC 2018 ANNUAL REPORT
Clockwise from top left.
Ocean lifestyle brand Olukai creates comfort
casual footwear. This concept sandal
showcases a Pittards innovation that allows the
creation of intricate contrast surface patterns,
meeting the brand’s demand for performance
combined with standout style.
Developed for the military, loved by fashion.
Pittards’ highly specified camouflage leathers
translate technology into street appeal. Seen
here on the Clarks x END collaboration of its
famous Wallabee boot.
‘Ridiculously comfortable’ Samuel Hubbard shoes
are designed in the USA and crafted in Portugal.
Utilising Pittards classic water resistant leathers
allows the brand to engineer protection from the
elements into its everyday styles.
2018 ANNUAL REPORT PIT TARDS PLC
07
DIRECTORS, OFFICERS
AND ADVISERS
R Briere Secretary
Richard Briere (45) joined the Group as Chief
Financial Officer and Company Secretary on
19 March 2019. Richard has broad experience
across the manufacturing and distribution
industries.
M O’Rourke ACMA
Matthew O’Rourke (49) joined the Group as
Chief Financial Officer and Company Secretary
in June 2016. He left the company on
31 December 2018.
A Member of the Audit Committee
B Member of the Remuneration Committee
C Member of the Nominations Committee
Registered Office Sherborne Road, Yeovil,
Somerset BA21 5BA
Company Number 102384
Broker WH Ireland, 4 Colston Avenue,
Bristol BS1 4ST
Nominated Adviser WH Ireland, 4 Colston
Avenue, Bristol BS1 4ST
Independent Auditors
PricewaterhouseCoopers LLP, Chartered
Accountants & Statutory Auditors, 2 Glass
Wharf, Bristol BS2 0FR
Bankers Lloyds Bank plc, Canons House,
Canons Way, Bristol BS99 7LB
Registrars Link Asset Services, The Registry,
34 Beckenham Road, Beckenham, Kent
BR3 4TU
S Yapp FCMA MBA, Chairman, non-executive B C
Stephen Yapp (61) joined the Group in June
2015 and was appointed as Chairman in May
2016. Stephen has 25 years’ experience as a
director of public and private companies over
the course of his career. He is also a director
of Downing Strategic Micro-Cap Investment
Trust Plc, as well as a number of private
companies, having held similar roles in other
listed companies over recent years. Stephen
is also a Fellow Chartered Management
Accountant and holds an MBA.
G P Davis FCA, non-executive A B
Godfrey Davis (70) joined the Group in
February 2014. He is non-executive Chairman
of Mulberry Group plc. He also holds several
other directorships, including Hestercombe
Gardens Ltd and King’s Schools (Taunton) Ltd.
Godfrey is an experienced leader of private
and publicly owned entities and has a strong
understanding of the UK AIM market. He has
a deep knowledge of the leather goods sector
accumulated over many years’ experience in
the industry.
L M Cretton BA Hons, non-executive A B
Louise Cretton (62) rejoined the Group in
August 2015 having served for twelve years
until 2013 and was subsequently appointed
as Audit Committee Chair. She is a director
of Market Evaluer LLC and serves as a non-
executive director of Croydon Health Services,
where she chairs the Finance and Performance
Committee. Louise has extensive experience
in international quantitative and qualitative
research, brand engineering, strategic
development and planning.
R H Hankey BSc, FSLTC, LCGI, FCMI, CDipAF C
Reg Hankey (63) was appointed to the Board
in January 1998 having joined the Group as
Technical Director of the Yeovil Division in
1990. He was appointed Chief Executive on
19 July 2007. He is also a director and past
President of UK Leather Federation (formerly
BLC Research), additionally he has Chaired
LIAC for the University of Northampton for
over 20 years. Reg is also a founding member
of the global Leather Naturally campaign.
0 8
PIT TARDS PLC 2018 ANNUAL REPORT
STRATEGIC REPORT
for the year ended 31 December 2018
Principal activities
The principal activities of the Group are
the design, procurement and production
of technically advanced leather for
manufacturers and distributors of shoes,
gloves, luxury leathergoods, interiors,
sports equipment and the retail of leather
and leathergoods. The principal activities
of its subsidiaries are the production of
leather, leathergoods, gloves and shoes.
Business review
Financial results
Overall, the Group’s financial performance
has remained steady in 2018, during a
year where global demand has been
challenging. Although this has impacted
revenue, with a 6% decrease noted, the
Group has achieved a gross profit ahead
of 2017. Gross margin has improved 2% in
the year to 25%, reflecting the benefit of
lower raw material prices.
The Group’s cost percentage has
increased to 22% (2017: 20%) as a
result of additional strategic costs to
support the development of new business
opportunities. The Group has made some
targeted investments in people to support
its future growth aspirations, however,
in addition, the Group has incurred some
restructuring costs as it reshapes the
business to support the future strategy.
Administration costs also include share-
based incentive schemes at a cost of £0.1m.
Profit before tax for the year was £0.4m
which is consistent with 2017.
Performance remains highly sensitive to
small changes in volume, demonstrating
the importance of strong relationships
with the Group’s existing customers
and the need to acquire new customers
in the Group’s target markets. This will
be delivered through the Group’s key
strengths of heritage, integrity, quality and
innovation. The Group has made further
progress on this, as disclosed in the Chief
Executive’s Statement on page 3.
Year end position
Net assets have decreased from £19.8m
to £18.5m. Stock has increased in the
year to £16.3m, as a result of increases in
chemicals and raw material stock holdings
for finished goods manufacturing in
Ethiopia. The Group has made progress
in reducing some of its older, low end
problem stock, which is predominantly
skins, and this will remain a key focus for
the Group.
Total net debt (including obligations,
finance leases and overdrafts) decreased
by £0.3m during the year, bringing the
Group’s gearing ratio to 42%, which is
ahead of its target level of 50%. Free cash
flow remains positive at £0.4m (2017:
£1.0m), impacted by working capital
movements.
Business environment
The leather industry is a global business,
wherever countries have meat and
dairy industries, hides and skins will be
produced as by-products. Group policy is
to only process hides and skins that are a
by-product of these industries.
The Group operates in the UK, where it
sources most of its hides, and in Ethiopia,
where it sources local hairsheep skins, goat
skins and hides. The Group exports on
average around 90% of its production into
most areas of the world.
Environmental matters
Pittards takes the responsibility of
protecting the environment extremely
seriously and whilst producing some
of the finest leathers in the world, it
also maximises the use of sustainable
technology and processes during
manufacturing.
Having recently attained a bronze
medal rating against Leather Working
Group standards in the Environmental
Stewardship Audit, The Group maintains
an ISO14001:2015 certified environmental
management system and continues making
improvements with the introduction of the
latest technological developments, both in
house and with its partners in industry.
The Group is committed to continually
preserving the environment through
amending processes and investing in new
technology and plant at the operational
level to reduce its environmental impact
across all its sites in the UK and Ethiopia.
Anti-bribery and corruption
Pittards is committed to conducting its
business affairs so as to ensure that it
does not engage in or facilitate any form
of bribery or corruption in any parts of
its supply chain or other stakeholder
interactions. Expected standards of
behaviour are outlined in the anti-bribery
and corruption policy, which also provides
guidance on the giving and receiving of
gifts and hospitality.
Strategy
The Group remains committed to
optimising and growing its existing core
business of gloves and performance
footwear where the fundamentals
of integrity, service, innovation and
reputation are the foundations of its
customer relationships.
In addition, the Group has identified two
new target markets, whole hide interiors
and large shoe brands, which are within
the hide sector. The hide business stock
typically turns faster than skins, and
therefore will result in a more balanced
product portfolio, alongside a reduction in
inventory days of sale.
Further details of the Group’s strategic
objectives and their implementation to
date are covered in both the Chairman’s
Statement on page 1 and the Chief
Executive’s Statement on page 3.
Principal risks and uncertainties
Risk management is an important part of
the management process throughout the
Group, with regular reviews of the key risks
identified and the adequacy of the controls
in place to mitigate the risks. The current
risks considered to be key to the Group are
as follows:
2018 ANNUAL REPORT PIT TARDS PLC
09
have excellent working relationships with
its banking partners in both the UK and
Ethiopia and has sufficient facility levels to
meet its planned requirements.
Through its activities, the Group is exposed
to a variety of financial risks; market
(including currency, price and interest rate),
liquidity and credit which are discussed in
Note 26.
Key performance indicators
The following key performance indicators
are considered by the Board to be the
most effective for achieving its business
objectives:
• Revenue
The Group’s revenue is £28.5m, behind
the £30.3m in the prior year, however, this
remains a key driver for the business.
• Profit before tax
The Group’s profit before tax is consistent
with the prior year at £0.4m.
• EBITDA
The Group’s EBITDA is £1.8m, ahead of the
£1.6m achieved in 2017.
• Return on Capital Employed
The Group’s return on capital employed
is at 5.2% (2017: 4.1%). This is below
the Group’s weighted average cost of
capital which the Group is addressing in its
strategic and operational plans.
• Inventory days of sale
Stock turn in 2018 has declined to 279
days, from 241 days in 2017.
• Gearing
The Group’s gearing has increased to
42% (2017: 40%), remaining ahead of the
target level of 50%.
• Borrowings
The Group monitors its bank balances
against facilities daily and prepares weekly,
monthly and annual cashflow forecasts to
ensure that it has sufficient funds to run
the business.
This report was approved by the board on
1 April 2019 and signed on its behalf by:
Reg Hankey
Chief Executive Officer
1 April 2019
• Currency
The Group is subject to the current volatility
in the currency markets, particularly US
dollar, Ethiopian Birr and Euro. The Group
manages its exposure by maintaining a
natural hedge where possible for US dollar
and Euro and sells any surplus US dollars
when the rate is favourable. Additionally,
in 2018, the Group has entered into
foreign forward currency contracts to
hedge against movements in the US
dollar, adopting a new cash flow hedging
strategy, in response to the anticipated
continued volatile currency markets. The
Group is now more forward protected than
historically, and will continue to review it’s
strategy in this area.
• Political
The political environment in Ethiopia
has been notably more stable in 2018 as
the new Prime Minister establishes his
office and new strategy for the evolving
democracy. Opportunities for further
economic developments are growing,
however the new administration is still
in its infancy. The Group continues to
mitigate this risk through its ability to dual
supply from the UK.
In the UK, there continue to be
uncertainties regarding the country’s future
relationship with the European Union. The
Group’s exposure to Europe is largely supply
driven, with some of its key purchases
derived from Europe. The Group continues
to monitor this situation and the effects
that Brexit could have on the business.
• Supply
The availability of quality raw materials.
This is paramount to the business; the
Group owns Ethiopia Tannery Share
Company (which is a main supplier of
Ethiopian skins) and has strong relationships
with other major suppliers of skins and hides
in Ethiopia, the UK and around the world.
• Energy
Continuing escalation in energy and
environmental costs. The Group uses
industry experts to obtain the best
energy rates available and continuous
improvements are sought in reducing
waste of all kinds from the business.
• Working capital
The availability of working capital to
finance its operations. The Group actively
monitors its liquidity position to ensure it
has sufficient available funds and working
capital to operate and meet its planned
commitments. The Group continues to
Tanning Drums, Ethiopia
The new tanning drums in the hide section of
Ethiopia Tannery.
Fleshing Machine, Ethiopia
Pickle fleshing machine for sheepskin production
in Ethiopia Tannery.
Vac Dryer, Ethiopia
New vacuum dryer for sheepskin production in
Ethiopia Tannery.
Whole Hide Shaver, Yeovil
A new shaving machine to support whole hide
capacity in Yeovil Tannery.
10
PIT TARDS PLC 2018 ANNUAL REPORT
CORPORATE GOVERNANCE REPORT
for the year ended 31 December 2018
Contemporary luxury lifestyle brand Hill &
Friends is working in partnership with Pittards
to ensure all of its bags are made in the UK,
commencing with Spring / Summer 2019
production.
Pittards Ethiopia has established skills in
hand stitched footwear that will be extended
into the newly developed NTOTO brand for
distribution and sale in the local market. The
launch style has been designed to be versatile
across a range of stock materials.
Statement of Corporate Governance
As the Chairman, I recognise the
importance of high standards of Corporate
Governance and am pleased to report
below on how the Board of Pittards
maintains its governance framework.
The Group is led and controlled by the
Board who are responsible for approving
Group policy and strategy for the benefit
of its shareholders in accordance with
their fiduciary and statutory duties. The
Board comprises two executive members
and three non-executive directors, the
biographies of the directors are on
page 7. These show the range of business
and financial experience on which the
Board can call.
Chairman and Chief Executive
The Chairman, Stephen Yapp, is responsible
for the leadership of the Board and
ensuring its effectiveness. The Chairman
is considered independent by the Board.
Reg Hankey, Chief Executive, manages the
Group and has the prime role, with the
assistance of the Board, of developing and
implementing business strategy.
Non-Executives
The Non-Executive Directors, under the
leadership of the Chairman, undertake
detailed examination and discussion of
the strategies proposed by the Executive
Directors, to ensure that decisions are
in the best, long-term interests of the
shareholders and take proper account
of the interests of the Group’s other
stakeholders. The Non-Executive Directors
bring independent judgement and scrutiny
to the decisions taken by the Board. They
monitor the success of management in
delivering the agreed strategy within the
risk appetite and control framework set by
the Board. Their views are actively sought
when developing proposals on strategy
and in discussions in meetings.
The QCA guidelines acknowledge that
for growing companies it may not be
possible for boards to meet the definition
of “independence” for Non-Executive
Directors, however it sets out that it is
important for the board to foster an
attitude of independence of character
and judgement. The Board is mindful of
the threat to independence and actively
manages the potential risk to ensure
that the Non-Executives provide the
independent, constructive challenge to
help develop the Board’s proposals on
strategy. The Non-Executive Directors
are considered to be independent by the
Board.
The Senior Independent Director, Godfrey
Davis, offers a sounding board for the
Chairman and serves as an intermediary
for other directors and shareholders when
necessary.
All Directors have access to the advice
and services of the Company Secretary,
who is responsible for ensuring that
Board procedures, applicable rules and
regulations are observed.
In the furtherance of their duties on
behalf of the Group, the Directors also
have access to independent professional
advice at the expense of the Group. During
the year, the Chair of the Remuneration
Committee sought external tax advice on
long-term incentive schemes.
The Chairman ensures that the Board
meet regularly throughout the year, with
additional ad hoc meetings and calls being
held as required. The Chairman ensures
that meetings of Non-Executive Directors
without the Executive Directors are held.
Communication with Shareholders
The Board attaches great importance to
providing shareholders with clear and
transparent information on the Group’s
activities, strategies and financial position,
in addition to having regard to its
obligations as a quoted public company
and the AIM rules.
The Group holds meetings with significant
shareholders on a regular basis and
regards the Annual Report and Annual
General Meeting as a good opportunity to
communicate directly with shareholders
which allow them to participate by
2018 ANNUAL REPORT PIT TARDS PLC
11
12
PIT TARDS PLC 2018 ANNUAL REPORT
CORPORATE GOVERNANCE REPORT
submitting questions at the Annual
General Meeting.
The Group lists contact details on its website
should shareholders wish to communicate
with the Board. All announcements and
results, including those released via RNS, are
available on the Group’s website.
Committees
The Board has three standing committees:
the Audit Committee, the Remuneration
Committee and the Nomination
Committee. The Terms of Reference for
each of the Committees are available on
the Group’s website.
Audit Committee
The Audit Committee currently consists
of two Non-Executive Directors who
formally met twice during the year under
the Chairmanship of Louise Cretton. Whilst
Louise Cretton has been a member of the
board for more than sixteen years (non-
consecutively), the Board nevertheless
considers that Louise Cretton fulfils the
roles of Audit Chair and Non-Executive
Director with independence of character
and judgement and has concluded that
it is appropriate to retain the experience,
corporate memory and knowledge of the
business possessed by Louise Cretton in
her role as Chair of the Audit Committee.
The Chief Financial Officer and the external
auditors attend meetings of the Audit
Committee by invitation. The Committee
may also hold separate meetings with the
external auditors as appropriate.
The Audit Committee duties include
monitoring internal controls throughout
the Group, approving the Group’s
accounting policies and reviewing the
Group’s interim results and full year
statements before submission to the full
board. The Audit Committee also reviews
the risk register and risk appetite of the
Group and monitors the independence of
the external auditors.
The Audit Committee acts to ensure that
the financial performance of the Group
is properly recorded and monitored, and
in fulfilling its role, it meets annually with
the auditors and reviews the external audit
report.
During the course of this year, the Audit
Committee reviewed the Terms of
Reference for the committee. In between
the formal meetings, the Chair had
discussions with the audit partner at PwC
to discuss issues on mutual performance
and planning. Particular attention has been
given to financial resource and the audit
in Ethiopia this year. In addition, there has
also been a focus on stock identification
and measurement.
The contents of the meetings are recorded
in the minutes which are then circulated
to the committee, by the Chair, for review
before being issued. The Chair reports
on the full agenda and discussions to the
Board.
Remuneration Committee
The Remuneration Committee consists
of the three Non-Executive Directors
and meets at least once a year under the
Chairmanship of Godfrey Davis.
The purpose of the Committee is to review
the performance of the full-time Executive
Directors and to set the scale and structure
of their remuneration and the basis of
their service agreements with due regards
to the interests of the shareholders.
In fulfilling this responsibility, the
Remuneration Committee is responsible
for setting salaries, incentives and other
benefit arrangements of Executive
Directors. The Remuneration Committee
also advises the Board on the remuneration
policy for senior Executives and may invite
participation in the Company’s long-term
incentive share scheme.
During the course of this year, the
Committee reviewed, in detail, the
remuneration of the directors and senior
employees, including the setting and
measurement of annual bonus and long-
term incentive targets. In between formal
meetings, the Chair has taken external
advice on long-term incentives, which
are an area of focus as the business
invests in developing and incentivising its
management team.
The contents of the meetings are recorded
in the minutes which are circulated to the
Committee by the Chair for review before
being issued. The Chair reports on the full
agenda and discussions of the Board.
Nominations Committee
The Nominations Committee consists of
one executive and one Non-Executive
Director and is chaired by Stephen Yapp.
The Nominations Committee did not meet
during this year.
The Nominations Committee is responsible
for evaluating the Board and determining
the skills and characteristics that are needed
in new board candidates when required.
Internal Controls
The Board is responsible for the Group’s
system of internal controls and for
reviewing its effectiveness. Such a system
is designed to manage rather than
eliminate the risk of failure to achieve
business objectives and can only provide
reasonable and not absolute assurance
against material misstatement or loss.
A risk register is maintained by the Group
containing both potential financial and
non-financial risks which may impact the
business. The Board confirms that there
are ongoing processes for identifying,
evaluating and mitigating the significant
risks faced by the Group. The Group’s
internal financial control and monitoring
procedures include:
• Clear responsibility on the part of
line and financial management for
the maintenance of good financial
controls and the production of accurate
and timely financial management
information; The control of key financial
risks through appropriate authorisation
levels and segregation of accounting
duties;
• Detailed budgeting and reporting of
trading results, balance sheets and
cash flows, with regular review by
management of variances from budget;
2018 ANNUAL REPORT PIT TARDS PLC
13
• Reporting on any non-compliance
with internal financial controls and
procedures; and
• Audit Committee review reports issued
by the external auditors and present
to the board via the Chair of the Audit
Committee.
The Group does not have an Internal Audit
function as the Board considers that the
size and nature of the business does not
currently require it. The Audit Committee,
on behalf of the Board, review reports
from the external auditors together
with management’s response regarding
proposed actions. In this manner, the Board
comment on internal controls, as directed
by the Executive Directors, and they
also make independent enquires on the
function and scope of the controls. These
discussions are recorded in minutes and
actions, where necessary, are agreed.
Embed effective risk management,
considering both opportunities and
threats, throughout the organisation
The Board is responsible for risk
management and maintaining an
appropriate system of internal controls to
safeguard the shareholders’ investment
and Group assets. The Directors continue
to review the financial reporting
procedures and internal controls of the
Group companies to ensure they are robust
enough to deliver timely, detailed reporting
that will allow accurate monitoring of the
Group’s performance.
The Board receives regular feedback from
the Audit Committee on any internal
control issues raised by its external auditors.
In the context of the Group’s overall
strategy, the Board undertakes risk
assessment as well as the review of internal
controls. The Group has established a
risk register which involves risks being
identified, recorded, monitored and
addressed at division and Group level and
subject to regular review. A top-down risk
review is combined with a complimentary
bottom-up approach to ensure that risks
are fully considered.
The Board determines the extent and
nature of the risks it is prepared to take to
achieve the Group’s strategic objectives.
The Board has overall responsibility for the
Group’s risk appetite.
The significant areas of risk and
judgement in relation to the Group’s
financial statements for the year ended
31 December 2018, as discussed at the
Audit Committee, are as follows:
• Revenue recognition
As with most companies, there is a risk
that in order to achieve planned results,
revenue may not be recognised in
accordance with the Group’s policy. The
systems of internal control deployed within
the Group are designed to mitigate this
risk and the adequacy and effectiveness
of these controls is regularly reviewed by
management.
• Inventory valuation
Inventory remains a significant item in
the Group’s balance sheet and a key area
of estimation and judgment. Inventory
policies are reviewed on a regular basis,
with provisions made where required to
ensure that the inventory is held at an
appropriate value.
Maintain the Board as a well-
functioning, balanced team led by
the Chair
The Board normally meets six times per year
in person to review and discuss strategy,
financial results, business planning, sales,
operations and HR matters. The Director’s
are required to invest the necessary time to
execute their role properly.
Directors’ attendance at Board and
Committee meetings during the year was
as follows:
Board
Meetings
Audit
Committee
Remuneration
Committee
Nominations
Committee
Dircetors’ attendance
Attended
Eligible
Attended
Eligible
Attended
Eligible
Attended
Eligible
R Briere1
L Cretton
G Davis
R Hankey
M O’Rourke 2 (resigned 31 Dec 2018)
S Yapp
1
6
6
6
6
6
1
6
6
6
6
6
–
2
2
–
–
–
–
2
2
–
–
–
–
1
1
–
–
1
–
1
1
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
1. R Briere joined the Board as Chief Financial Officer on 19 March 2019 and attended his first board meeting on 20 March 2019.
2. The Chief Financial Officer attends audit committee meetings by invitation which are not included in the above attendance.
14
PIT TARDS PLC 2018 ANNUAL REPORT
CORPORATE GOVERNANCE REPORT
Evaluate board performance based on
clear and relevant objectives, seeking
continuous improvement
The Company undertakes regular
monitoring of personal and corporate
performance using agreed key performance
indicators and detailed financial reports.
Responsibility for assessing and monitoring
the performance of the Executive Directors
lies with the independent Non-Executive
Directors. Key performance indicators are
detailed on page 9.
The performance of individual Executive
Directors is reviewed not less than once a
year by the Remuneration Committee and
has both formal and informal mechanisms
for evaluating and giving feedback on an
ad-hoc basis.
All Directors have the opportunity to
undertake relevant training and attend
relevant seminars and forums.
The Board is confident that all of its
members have the knowledge, ability
and experience to perform the functions
required of a director of an AIMS listed
company.
Promote a corporate culture that
is based on ethical values and
behaviours
The Board is committed to embodying and
promoting a corporate culture of excellent
service delivery across the Group, whereby
a customer need can be fulfilled whilst
maintaining the Group’s margins. It has
endorsed various policies to achieve this,
which also require ethical behaviour of
staff and relevant counterparties.
Operating in a fragmented global
industry, the Group’s marketing strategy
is to be selective and targeted towards
trade shows, events and through social
media. The Group is proud of its existing
long-term customer relationships and
will continue to invest in those as well as
potential new customers. Staff throughout
the business are regularly updated on key
developments both formally and informally
and staff feedback is always encouraged.
Communicate how the Company
is governed and is performing
by maintaining a dialogue with
shareholders and other relevant
stakeholders
The Board recognises the importance of
providing shareholders with clear and
transparent information on any group
activities, strategy and financial position.
The Board encourages engagement
with all shareholders, including two-
way communications with institutional
investors, analysts and private investors.
The Board holds regular meetings with
the larger shareholders and considers it
has successfully created an open channel
of communication for specific concerns,
questions or updates facilitated by regular
meetings, site visits and ad hoc telephone
calls as appropriate with the Chairman,
the Chief Executive and the Chief
Financial Officer.
Risk Management and Internal Controls
are discussed throughout the Corporate
Governance report.
Historic reports and accounts, along with
all notices and circulars for the last five
years, are available on the Group’s website.
Stephen Yapp
Chairman
1 April 2019
Zero waste
Pittards Work Glove manufacturing delivered
over one million pairs in 2018. The Chevron
Glove is a partner to that production,
designed to use the smaller pieces left after
the original style is cut, working towards a
zero waste position.
2018 ANNUAL REPORT PIT TARDS PLC
15
DIRECTORS’ REPORT
for the year ended 31 December 2018
The directors submit their report together
with the audited consolidated financial
statements of the Group and the Company
for the year ended 31 December 2018
Brexit
The uncertainty of Brexit is discussed in the
Chief Executive’s statement on page 3.
Principal activities
The principal activities of the Group are
the design, procurement and production
of technically advanced leather for
manufacturers and distributors of shoes,
gloves, luxury leathergoods, interiors,
sports equipment and the retail of leather
and leathergoods. The principal activities
of its subsidiaries are the production of
leather, leathergoods, gloves and shoes.
Future developments
The Group will continue to look for new
opportunities to develop the Pittards brand
and build on its relationships across the
supply chain. It will seek to maximise the
benefits from owning facilities in Ethiopia
and manufacturing both leather and
finished leather products in a lower cost
environment.
Dividends and reserves
No interim dividend was paid in respect
of 2018 (2017: £nil) and the directors are
not recommending the payment of a final
dividend (2017: £nil). The Board continue
to believe that the payment of dividends
is important and therefore intends, when
appropriate, to return to the dividend
paying list. Whereas this is the Board’s
intention, payment of a dividend in any
future financial year is not guaranteed
and will be subject to the company having
sufficient distributable reserves at such
time to do so.
Going concern
After making enquiries and taking into
consideration the factors described in Note
1(b) to the accounts, the directors have
a reasonable expectation that the Group
and Company have adequate resources to
continue in operation for the foreseeable
future. For this reason, they continue to
adopt the going concern basis in preparing
the financial statements.
Research and development
The Group recognises the importance
of continuous product and process
development in maintaining its reputation
for innovative high performance leathers.
It works closely with both customers and
suppliers to develop clearly differentiated
products using advanced technology.
It uses trend information from designers
in order to reflect current trends in
more fashion orientated products, holds
consumer focus groups and attends
relevant trade shows to better understand
its potential consumers.
Treasury policies
The Group finances its activities with a
combination of bank loans, overdrafts,
finance leases and hire purchase contracts,
as disclosed in Note 26. Other financial
assets and liabilities, such as trade
receivables and trade payables, arise directly
from the Group’s operating activities. The
Group has traded in financial instruments
during the year.
Overall, some 80% of Group revenue
is in US dollars, 12% in Sterling, 4% in
Ethiopian Birr and 4% in Euros. Where
possible, a natural hedge is maintained
against the Group’s currency exposure.
During 2018, a review of the Group’s
foreign currency risk management policy
has been performed, resulting in the
adoption of a cash flow hedging strategy
with the use of forward foreign currency
contracts for US dollars. Given current
currency market conditions, Group policy
is to hold a contract position covering 6
months, in order to protect future cash
flows and reduce the level of uncertainty.
This time frame is considered appropriate
for the cost base of the business to be
amended, should a significant, prolonged
shift in exchange rates be noted. The
Group will continue to review this
strategy considering the continued Brexit
uncertainties, with the potential to extend
this period out further.
The Group’s principal borrowings are in
Sterling, US dollars and Ethiopian Birr (for
Ethiopia Tannery Share Company (ETSC),
Pittards Product Manufacturing Share
Company (PPM) and Pittards Global Sourcing
Private Limited Company (GS)) which are
used to manage timing differences in cash
flows arising from trading activities as set
out in Note 26. The debt is a combination of
variable and fixed rate.
The Group’s objective is to maintain a
balance between continuity of funding and
flexibility through the use of overdrafts, bank
loans and finance leases, with short and
medium term variable rate debt favoured. No
specific policy exists with regard to liquidity.
Transactions with customers are either credit
insured or under confirmed letters of credit.
Where these terms are not possible goods
will not be released without payment in
advance of despatch, unless the Group sets
an internal credit limit based on its previous
experience of the customer or external credit
rating agencies.
Group policies also restrict the
counterparties with which funds may be
invested, to those approved by the Board.
As with all companies that operate in
this sector, the Group has significant
exposure to changes in raw material
prices for hides and skins which are a
by-product of the meat and dairy industry.
The Group manages its risk in this area
by using industry wide information on
pricing, working closely with its suppliers
and committing to purchase on the basis
of anticipated and actual forward sales
orders. The ownership of ETSC enables this
risk in respect of Ethiopian skins and hides
to be managed more closely, with greater
market information.
Creditor payment policy
The Group does not follow a particular
code for the payment of suppliers. It is the
Group’s policy in respect of major suppliers
to settle terms of payment when the terms
of each transaction are agreed, to ensure
the supplier is made aware of the terms
of payment and to abide by the terms of
16
PIT TARDS PLC 2018 ANNUAL REPORT
DIRECTORS’ REPORT
Long-term partner Franklin specifies Pittards’
performance sport leathers with grip
technology into its batting gloves. Pittards
is proud to see them worn by World Series
winners, Boston Red Sox.
payment. For small local suppliers the policy
is to pay within 45 days of invoice and for
other suppliers to pay within 60 days. Trade
payables at the year end represented 33
days’ purchases (2017: 42 days).
Equal opportunities
Pittards is committed to ensuring that
colleagues are treated equally, regardless
of gender, sexual orientation, religion or
belief, age, mental status, social class,
colour, race, ethnic origin, creed, disability,
political or philosophical beliefs, or marital
or civil partnership status.
Through the Group’s equal opportunities
policy, it aims to create an environment
that offers all colleagues the chance to
use their skills and talent. Decisions on
recruitment, training, promotion and
employment conditions are based solely on
objective, job-related criteria, and personal
competence and performance.
The Group seeks wherever possible to make
reasonable adjustments to ensure that a
colleague who becomes disabled during the
course of his or her employment is able to
continue working effectively.
The Group is confident that all employees,
regardless of gender, are paid equally
for doing equivalent jobs across the
business and have an equal opportunity
to participate in and earn incentives.
The current recruitment, progression,
performance, reward and benefit policies
and practices are not gender biased and the
business will continue to monitor them to
ensure they remain fair and equitable.
Pittards is committed to ensuring that
the rights of all individuals are respected
throughout the business and its supply
chain.
Employee consultation and
involvement
The Group places great importance on
the involvement of its employees and has
continued its previous practice of keeping
them informed on matters affecting them
2018 ANNUAL REPORT PIT TARDS PLC
17
Holding of 50p shares
2,902,592
2,370,000
2,240,000
790,747
528,457
500,000
433,333
425,000
% Holding
20.90%
17.06%
16.13%
5.69%
3.80%
3.60%
3.12%
3.06%
At end of year
At beginning of year or
date of appointment (if later)
Fully paid
50p shares
–
14,203
87,567
240,033
99,111
Share options
–
–
–
–
–
Fully paid
50p shares
–
12,000
72,667
240,033
60,231
Share options
–
–
–
155,945
47,337
Substantial interests
Downing LLP
Artemis Investment Management LLP
John A Rendell
Pension Protection Fund
Ruffer Investment Management
Rath Dhu Ltd
Denton & Co Trustees Limited
Armstrong Investments Ltd
Dircetors’ interests
R Briere
LM Cretton
GP Davis
RH Hankey
S Yapp
A special resolution (number 7) will be
proposed to enable the Company to make
market purchases of its own shares.
The authority for all the above resolutions
expires on the date falling 15 months
after the passing of the resolutions or the
conclusion of the Annual General Meeting
in 2020 (whichever is earlier).
Independent auditors
A resolution to re-appoint
PricewaterhouseCoopers LLP as the
Company’s auditors will be proposed at
the forthcoming Annual General Meeting.
This report was approved by the Board on
1 April 2019 and signed on its behalf by:
Reg Hankey
Chief Executive Officer
1 April 2019
as employees and on the various factors
affecting the performance of the Group,
through special briefing meetings.
Substantial interests
In addition to those disclosed under
directors’ interests, the Company has been
notified of the interests under section 793
Companies Act 2006 as at 1 April 2019
shown in the table below. No significant
movements impacting the profile of the key
shareholders have been noted since
31 December 2018.
Directors
The persons named on page 7 are the
directors during the year and up to the
date of approval of the Annual Report.
R H Hankey and G Davis retire by rotation
and offer themselves for re-election.
R Briere was appointed a director in March
2019 and offers himself for election at the
forthcoming AGM. M O’Rourke stepped
down as a director on 31 December 2018.
Directors’ interests
The directors at the end of the year
and their interests in the shares of the
Company were as shown in the table
below. No changes took place in the
interests of directors in the shares of the
Company between 31 December 2018 and
1 April 2019.
The share options included in the previous
table relate to the 2015 Long Term
Incentive Plan (LTIP), which lapsed during
2018. On 26 September 2016, an LTIP
was granted to all Board directors detailed
below. The vesting period is four years
and is dependent upon the attainment
of a minimum specific share price at the
exercise date. The directors are entitled to
shares based on the excess value generated
at the exercise date, with the total value
generated split based on the following
percentages:
LM Cretton
GP Davis
RH Hankey
S Yapp
% entitlement
5%
5%
40%
30%
Matthew O’Rourke resigned from the Board
during the year (effective 31 December
2018), with a fully paid up shareholding of
8,606 shares. His entitlement to the 2016
LTIP was forfeited on leaving the company.
Compensation for loss of office is disclosed
in Note 6.
Annual General Meeting
An ordinary resolution (number 6) will
be proposed to enable the Company to
issue and allot shares up to an aggregate
nominal value of £694,434.
18
PIT TARDS PLC 2018 ANNUAL REPORT
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN
RESPECT OF THE FINANCIAL STATEMENTS
for the year ended 31 December 2018
The directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable law and
regulation.
Each of the directors, whose names and functions are listed in
Directors and officers section on page 7 confirm that, to the best
of their knowledge:
• the parent company financial statements, which have been
prepared in accordance with IFRSs as adopted by the European
Union, give a true and fair view of the assets, liabilities, financial
position and loss of the company;
• the group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give
a true and fair view of the assets, liabilities, financial position
and profit of the group; and
• the Annual Report includes a fair review of the development
and performance of the business and the position of the
group and parent company, together with a description of the
principal risks and uncertainties that it faces.
In the case of each director in office at the date the Directors’
Report is approved:
• so far as the director is aware, there is no relevant audit
information of which the group and parent company’s auditors
are unaware; and
• they have taken all the steps that they ought to have taken as
a director in order to make themselves aware of any relevant
audit information and to establish that the group and parent
company’s auditors are aware of that information.
On behalf of the Board:
Reg Hankey
Chief Executive Officer
1 April 2019
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and parent company financial statements
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union. Under company law
the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of
affairs of the group and parent company and of the profit or loss
of the group and parent company for that period. In preparing the
financial statements, the directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable IFRSs as adopted by the European
Union have been followed for the group financial statements
and IFRSs as adopted by the European Union have been
followed for the company financial statements, subject to any
material departures disclosed and explained in the financial
statements;
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and parent
company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group and
parent company’s transactions and disclose with reasonable
accuracy at any time the financial position of the group and parent
company and enable them to ensure that the financial statements
comply with the Companies Act 2006 and, as regards the group
financial statements, Article 4 of the IAS Regulation.
The directors are also responsible for safeguarding the assets of
the group and parent company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity
of the parent company’s website. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The directors consider that the annual report, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the group and parent
company’s performance, business model and strategy.
2018 ANNUAL REPORT PIT TARDS PLC
19
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF PITTARDS PLC
Report on the audit of the financial statements
Opinion
In our opinion, Pittards plc’s group financial statements and parent company financial statements (the “financial statements”):
• give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2018 and of the group’s
loss and the group’s and the parent company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European
Union and, as regards the parent company’s financial statements, as applied in accordance with the provisions of the Companies Act
2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report 2018 (the “Annual Report”), which comprise: the group
and company balance sheets as at 31 December 2018; the consolidated income statement and consolidated statement of comprehensive
income, the group and company statements of cash flows, and the consolidated and company statements of changes in equity for the
year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of
our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
Our audit approach
Overview
Materiality
Audit scope
• Overall group materiality: £284,700 (2017: £302,900), based on 1% of total revenue.
• Overall parent company materiality: £251,500 (2017: £268,700), based on 1% of total
revenue.
• Pittards plc is based in the United Kingdom and Ethiopia. There are two legal entities located in
the United Kingdom and three further entities in Ethiopia, these are split into a UK division and
Ethiopian division for internal reporting purposes.
• We performed full scope audits on the four significant reporting units (the UK entities, Pittards
plc and Pittards Garnar Services Limited were audited by PwC LLP, the significant Ethiopian
entities, Pittards Products Manufacturing Share Company and Ethiopia Tannery Share
Company were audited by the Ethiopian component auditor HST Consulting).
• The entities where either PwC LLP or HST Consulting performed full scope audits accounted
Key audit
matters
for 99.9% of group revenue
.
• Deferred tax assets (Group and parent).
Inventory valuation (Group and parent).
•
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates
that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed
the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
20
PIT TARDS PLC 2018 ANNUAL REPORT
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PITTARDS PLC
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Deferred tax assets
Group and parent
Deferred tax is a key audit matter because Pittards plc held a
large deferred tax asset in respect of losses incurred within
the UK.
There is significant judgement as to whether this asset should
be continued to be recognised, and if so at what amount
since under accounting standards a deferred tax asset should
only be recognised to the extent it is ‘highly probable’ that
sufficient taxable profits will be available in the future for it to
be utilised. Given recent trading results consideration needs to
be given as to the appropriateness of continuing to recognise
this asset.
See notes 1 and 2b to the financial statements for the
directors’ disclosures of the related accounting policies and
judgements for deferred tax and note 19.
Inventory valuation
Group and parent
Accounting standards require that inventory is held at the
lower of cost and net realisable value as required in IAS 2.
Pittards plc holds inventory in the United Kingdom and
Ethiopia, the valuation of inventory across the group is
considered a key audit matter due to the level of inventory
held (compared to turnover), the low demand for certain
inventory lines and the Company’s complex cost absorption
system and the risk that the inventory is valued too high. We
assessed that the valuation could be too high if production
costs were over absorbed or if the inventory provision was
understated.
Inventory is valued to incorporate raw material costs plus
an allocation of production overheads. An adjustment is
considered at the year-end to ensure that the quantum of
production overheads included in closing inventory fairly
We discussed forecast trading expectations and the current
position of bulk sampling and any confirmed orders with
new customers. We assessed the sensitivity of these forecasts
and expectations of profitability and the range of possible
outcomes in the future.
We looked back on the accuracy of management’s forecasts
of performance in previous years to provide insight into the
reliability of management’s forecasts to assess the future
expected utilisation of the deferred tax asset.
Due to the time taken for product development and refining
bulk sampling processes whilst the pipeline is encouraging,
the previously forecast profits have not been realised. The
company believe these new customers will generate sufficient
taxable profits to utilise the deferred tax asset in the future
but as orders have not been confirmed and based on historic
performance and lead time with new customers they have
agreed that this is not highly probably and the deferred tax
asset should not be recognised.
This is an area of judgement but based on the current position
of the company, it was agreed that it is no longer highly
probable that sufficient future taxable profits will be made to
continue to justify the carrying value of this asset and therefore
the deferred tax asset has been derecognised in the year.
For the UK inventory costing, we tested the assumptions and
methodology used in the absorption of appropriate indirect
costs and confirmed for a sample of items to supporting
documentation that the correct absorption rates were used in
the inventory valuation.
We tested amounts of costs absorbed into closing inventory to
ensure this is appropriate based on actual production costs and
levels of production.
For Ethiopian inventory costing, the valuation of inventory was
tested by re-computing the costs and tracing them to a sample
of purchase invoices.
In addition a sample of material costs and direct production
overheads were traced to invoices and the basis of allocating
these overheads to individual inventory types was agreed.
To assess the appropriateness of the closing inventory provision,
we tested a sample of inventory items to ensure that they were
recognised at the lower of cost and net realisable value
2018 ANNUAL REPORT PIT TARDS PLC
21
Key audit matter
How our audit addressed the key audit matter
Inventory valuation continued
reflects an appropriate allocation of actual production
overhead costs incurred. The basis of allocation is subject to
some judgement.
Due to the nature of the inventory, there is judgement as
to the level of any provision to ensure that inventory is not
valued in excess of its net realisable value. The inventory
typically has a long life but may be impaired if high levels of
inventory are held which are in excess of historic demand
levels or if inventory is the wrong size or quality for key
customer requirements impacting the demand for the
inventory held.
See notes 1 and 2a to the financial statements for the
directors’ disclosures of the related accounting policies and
judgements for inventory and note 13.
by tracing the product back to the most recent sales invoice to
support the valuation of the inventory provisions recognised.
We tested management’s methodology for calculating the
provision for inventory by confirming that for the written down
value of specific inventory lines was lower than the selling price
achieved in the past three years. We obtained analysis of the
stock movements of the individual items to assess the demand
and frequency of the sales.
We agreed that the provision methodology is in line with the
requirements of IAS 2 and has been applied consistently with
the prior year.
No material issues were noted.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the group and the parent company, the accounting processes and controls, and the
industry in which they operate.
The Group is structured into two operating segments- UK and Ethiopia. Underpinning these operating segments are five reporting units
(excluding dormant entities).
Our audit approach was based on auditing the financially significant reporting units underpinning the two operating segments. We
consider there to be four financially significant reporting units- Pittards plc, Pittards Garnar Services, Pittards Products Manufacturing
Share Company and Ethiopia Tannery Share Company.
Pittards plc and Pittards Garnar Services were audited by the UK Group team with Pittards Products Manufacturing Share Company and
Ethiopia Tannery Share Company being audited by HST Consulting as a component auditor operating under our instruction. Audit work
was performed over the consolidation process at a consolidated Group level.
Where the work was performed by the component auditor, we determined the level of involvement we needed to have in their audit
work to be able to conclude whether sufficient audit evidence has been obtained as a basis for our opinion on the Group financial
statements as a whole. As part of our planning and year-end procedures, we held discussions with HST Consulting and we reviewed
their audit working papers in Ethiopia and attended the local clearance meeting with management.
The reporting units where we performed full scope audit work accounted for 99.9% of group revenue and profit before tax.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our
audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
22
PIT TARDS PLC 2018 ANNUAL REPORT
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PITTARDS PLC
Materiality continued
Group financial statements
Parent company financial statements
Overall materiality
£284,700 (2017: £302,900).
£251,500 (2017: £268,700).
How we determined it
1% of total revenue
1% of total revenue
Rationale for benchmark applied
Based on the benchmarks used in the
annual report and our assessment
of the company operating in a low
margin industry, revenue is the primary
measure used by the shareholders
in assessing the performance of the
group, and is a generally accepted
auditing benchmark.
Based on the benchmarks used in the
annual report and our assessment
of the company operating in a low
margin industry, revenue is the primary
measure used by the shareholders
in assessing the performance of the
group, and is a generally accepted
auditing benchmark.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range
of materiality allocated across components was between £7,600 and £251,500. Certain components were audited to a local statutory
audit materiality that was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £14,235 (Group
audit) (2017: £15,100) and £12,575 (Parent company audit) (2017: £13,436) as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
ISAs (UK) require us to report to you when:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about
the group’s and parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve
months from the date when the financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s and parent
company’s ability to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the
European Union, are not clear, and it is difficult to evaluate all of the potential implications on the group’s trade, customers, suppliers and
the wider economy.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any
form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required
to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement
of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report
certain opinions and matters as described below.
2018 ANNUAL REPORT PIT TARDS PLC
23
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’
Report for the year ended 31 December 2018 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of directors’ responsibilities in respect of the financial statements set out on page 17, the
directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being
satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative
but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the parent company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Heather Ancient (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Bristol
1 April 2019
24
PIT TARDS PLC 2018 ANNUAL REPORT
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2018
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Profit from operations before finance costs
Finance costs
Finance income
Profit before taxation
Taxation
(Loss)/profit for the year after taxation
Earnings per share
Basic
Diluted
Note
3
8
8
4
9
10
10
2018
£’000
28,469
(21,318)
7,151
(2,209)
(3,950)
992
(647)
9
354
(2,283)
(1,929)
2017
£’000
30,287
(23,194)
7,093
(2,443)
(3,716)
934
(521)
–
413
84
497
(13.91p)
(13.76p)
3.58p
3.49p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
(Loss)/profit for the year after taxation
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss
Revaluation of land and buildings
Revaluation of land and buildings – unrealised exchange gain/(loss)
Items that may be subsequently reclassified to profit or loss
Unrealised exchange gain/(loss) on translation of overseas subsidiaries
Fair value losses on foreign currency cash flow hedges
Other comprehensive income/(loss)
Total comprehensive loss for the year
The accompanying notes on pages 29 to 54 form an integral part of the Financial Statements.
Note
11
2018
£’000
(1,929)
219
49
268
389
(52)
337
605
(1,324)
2017
£’000
497
171
(625)
(454)
(1,655)
–
(1,655)
(2,109)
(1,612)
2018 ANNUAL REPORT PIT TARDS PLC
25
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Share
capital
£’000
Share
premium
£’000
Capital
reserve
£’000
Shares held
by ESOP
£’000
Note
Share-
based
payment
reserve
£’000
Cash flow
hedge
reserve
£’000
Translation
reserve
£’000
Revaluation
reserve
£’000
Retained
earnings
£’000
Total
equity
£’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
Other comprehensive income/(loss):
Gain on the revaluation of buildings
11
Unrealised exchange loss on translation of
foreign subsidiaries
Total other comprehensive loss
Total comprehensive loss for the year
Share-based payment expense
At 1 January 2018 (as previously published)
Impact of the adoption of new standards
7
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,944
2,984
6,475
(495)
–
–
–
–
At 1 January 2018 (restated)
6,944
2,984
6,475
(495)
Comprehensive income for the year:
Loss for the year after taxation
Other comprehensive income/(expense):
Gain on the revaluation of buildings
11
Unrealised exchange gain on translation of
foreign subsidiaries
Fair value losses on foreign currency cash
flow hedges
Total other comprehensive loss
Total comprehensive income/(loss) for
the year
Share-based payment expense
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2018
6,944
2,984
6,475
(495)
–
–
–
–
–
102
131
–
131
–
–
–
–
–
–
72
203
–
–
–
–
–
–
–
–
–
–
–
–
(52)
(52)
(52)
–
–
–
–
497
497
171
(1,655)
(625)
(1,655)
(1,655)
–
(454)
(454)
–
–
–
–
171
(2,280)
(2,109)
497
(1,612)
–
102
(3,520)
1,813
5,432
19,764
–
–
(26)
(26)
(3,520)
1,813
5,406
19,738
–
–
389
–
389
389
–
–
(1,929)
(1,929)
219
49
–
268
–
–
–
–
219
438
(52)
605
268
(1,929)
(1,324)
–
43
115
(52)
(3,131)
2,081
3,520
18,529
26
PIT TARDS PLC 2018 ANNUAL REPORT
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Note
Share
capital
£’000
Share
premium
£’000
Shares held
by ESOP
£’000
Share-
based
payment
reserve
£’000
Cash flow
hedge
reserve
£’000
At 1 January 2017
Comprehensive loss for the year:
Loss for the year after taxation
Total comprehensive loss for the year
Share-based payment expense
6,944
2,984
(495)
29
–
–
–
–
–
–
–
–
–
At 1 January 2018 (as previously published)
6,944
2,984
(495)
Impact of the adoption of new standards
1
–
–
–
At 1 January 2018 (restated)
Comprehensive loss for the year:
Loss for the year after taxation
Other comprehensive loss
Fair value losses on foreign currency cash flow hedges
Total comprehensive loss for the year
Share-based payment expense
At 31 December 2018
6,944
2,984
(495)
–
–
–
–
–
–
–
–
–
–
–
–
6,944
2,984
(495)
Retained
earnings
£’000
Total
equity
£’000
9,536
18,998
(450)
(450)
–
(450)
(450)
102
9,086
18,650
(26)
(26)
9,060
18,624
(2,452)
(2,452)
–
–
–
–
–
–
–
–
(52)
(52)
–
(52)
–
–
43
(52)
(52)
115
6,651
16,235
–
–
102
131
–
131
–
–
–
72
203
BALANCE SHEETS
as at 31 December 2018
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiary undertakings
Deferred income tax asset
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current income tax recoverable
Total current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Interest bearing loans, borrowings and overdrafts
Total current liabilities
Non-current liabilities
Deferred income tax liability
Interest bearing loans, borrowings and overdrafts
Total non-current liabilities
Total liabilities
Net assets
EQUITY
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
2018 ANNUAL REPORT PIT TARDS PLC
27
Group
2018
£’000
2017
£’000
Company
2018
£’000
Note
10,778
5,622
11
12
27
19
13
14
14
15
16
19
17
20
21
21
21
21
21
21
21
21
11,006
147
–
–
11,153
16,306
3,306
598
–
20,210
31,363
(4,350)
(7,756)
(12,106)
(162)
(566)
(728)
(12,834)
18,529
6,944
2,984
6,475
(495)
203
(52)
(3,131)
2,081
3,520
18,529
209
–
1,901
12,888
15,332
3,991
327
41
19,691
32,579
(4,358)
(5,641)
(9,999)
(140)
(2,676)
(2,816)
(12,815)
19,764
6,944
2,984
6,475
(495)
131
–
(3,520)
1,813
5,432
19,764
2017
£’000
5,697
209
378
1,901
8,185
9,156
8,934
32
–
18,122
26,307
(2,923)
(3,141)
(6,064)
(69)
(1,524)
(1,593)
(7,657)
18,650
6,944
2,984
–
(495)
131
–
–
–
147
378
–
6,147
9,861
8,294
17
–
18,172
24,319
(2,568)
(5,299)
(7,867)
(112)
(105)
(217)
(8,084)
16,235
6,944
2,984
–
(495)
203
(52)
–
–
6,651
16,235
9,086
18,650
In accordance with the exemptions given by section 408 of the Companies Act 2006, the Company has not presented its own Statement
of Comprehensive Income or Income Statement. The Company achieved a loss of £2.452m (2017: £0.450m).
The financial statements on pages 24 to 54 were approved and authorised for issue by the Board of directors on 1 April 2019 and signed
on its behalf by:
Reg Hankey
Chief Executive
Company Number 102384
28
PIT TARDS PLC 2018 ANNUAL REPORT
STATEMENTS OF CASH FLOWS
for the year ended 31 December 2018
Cash flows from operating activities
Cash generated from/(used in) operations
Tax paid
Interest paid
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of bank loans
New finance lease obligations
Group
2018
£’000
Note
22
1,583
2017
£’000
2,299
(48)
(516)
1,735
(696)
(2)
(698)
1,096
(1,072)
–
(84)
(60)
977
Company
2018
£’000
(311)
–
(194)
(505)
(249)
–
(249)
–
(210)
41
(85)
(254)
(1,008)
2017
£’000
1,285
–
(179)
1,106
(68)
(2)
(70)
–
(210)
–
(84)
(294)
742
(11)
(634)
938
(588)
–
(588)
–
(1,304)
41
(85)
(1,348)
(998)
Repayment of obligations under finance leases
Net cash used in financing activities
24
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
(2,698)
(3,738)
(2,821)
(3,563)
Exchange gains on cash and cash equivalents
1
63
–
–
Cash and cash equivalents at end of the year
23
(3,695)
(2,698)
(3,829)
(2,821)
2018 ANNUAL REPORT PIT TARDS PLC
29
NOTES TO THE CONSOLIDATED ACCOUNTS
1. Statement of accounting policies
General information
Pittards plc is a public limited company incorporated and domiciled under the Companies Act 2006 in England, United Kingdom and is
quoted on the Alternative Investment Market (AIM). The address of the registered office is given on page 7. The nature of the Group’s
operations and its principal activities are set out in the Strategic report on page 8.
(a) Basis of preparation
The consolidated financial statements have been prepared 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
consolidated financial statements for the years ended 31 December 2018 and 31 December 2017 have been prepared under the
historical cost convention, as modified by the revaluation of land and buildings.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a high degree
of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are
disclosed in Note 2.
The Company only disclosures have been prepared in accordance with the above.
The accounting policies outlined below have been consistently applied across all companies within the Group.
(b) Going concern
The Group and Company meet their day-to-day working capital requirements through their bank facilities. The Group and Company’s
forecasts and projections, taking account of reasonably possible changes in trading performance, show that they should be able to
operate within the level of its current facilities. The Directors are reviewing the basis of the loan covenant going forwards and are
confident that on the existing covenant basis, the Company will comply with the covenant. The banking relationship with Lloyds Bank
remains strong and facilities have been renewed for 2019. After making enquiries, the directors have a reasonable expectation that
the Group and the Company have adequate resources to continue in operation for the foreseeable future. The Group and Company
therefore continues to adopt the going concern basis in preparing its consolidated financial statements. Further information on the
Group’s borrowings is given in Note 26.
(c) New and amended standards
The following standards and amendments apply for the first time in the current financial year:
• IFRS 15 Revenue from contracts with customers
• IFRS 9 Financial Instruments
• Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions
• IFRIC 22 Foreign Currency Transactions and Advance Consideration
The Group has adopted IFRS 9 and IFRS 15 from 1 January 2018. The modified retrospective approach has been applied in both
instances, with an adjustment made to opening retained earnings to reflect the brought forward position at the start of the year.
Under IFRS 9, the impairment of financial assets is now provided for on an expected loss basis, rather than incurred loss. The impact of
this is to increase the accounts receivable provisions by £0.017m as at 1 January 2018.
Following the adoption of IFRS 15, any variable consideration, such as early payment discount, is considered as part of the initial
recognition of revenue for the transaction and therefore shown as a reduction in total revenue, rather than a separate cost disclosed
within distribution costs. An opening provision against accounts receivable in relation to variable consideration as at 1 January 2018 of
£0.009m has been recognised.
The adoption of all other standards and amendments has had a limited impact on the financial statements in the current year.
At the date of approval of these financial statements the following revised standards, amended standards and interpretations were in
issue, but not yet effective and have not been early adopted in these financial statements:
• IFRS 16 Leases
• Amendments to IFRS 3 Business Combinations
• Amendments to IFRS 9 Financial Instruments
• Amendments to IAS 12 Income Taxes
• Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors.
30
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
1. Statement of accounting policies (continued)
(c) New and amended standards (continued)
The adoption of IFRS 16 Leases requires a lease liability and right of use asset to be recognised for all leased assets, except for short term
contracts or low value items. The adjustment for these items as at 1 January 2019 is anticipated to be £0.208m. This will increase the net
debt position. This standard will also impact the classification of items in the income statement going forwards, with the cost now shown
as depreciation and interest, rather than through the associated expense line (rental currently categorised based on the nature of the
leased item), impacting EBITDA measures.
The directors expect that the adoption of the other standards and interpretations will have no material impact on the financial statements
of the Group.
(d) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and
operating policies of an investee entity so as to obtain benefits from its activities.
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a
shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable
or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date
on which control is transferred to the Group.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Company’s equity therein. Non-
controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling
interest’s share of changes in equity since the date of the combination. Losses applicable to the non-controlling interest in excess of the
non-controlling interest in the subsidiary’s equity are allocated against the interests of the Company except to the extent that the non-
controlling interest has a binding obligation and is able to make an additional investment to cover the losses.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. Acquisition costs are expensed as
incurred. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued, and liabilities incurred or
assumed at the date of exchange. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination
are initially measured at fair value at the acquisition date irrespective of the extent of any non-controlling interest. Where necessary,
adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other
members of the Group.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest
over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the
subsidiary acquired, the difference is recognised in profit or loss as a gain on purchase.
All intra-group transactions, balances, income and expenditure are eliminated on consolidation.
(e) Revenue recognition
Revenue is measured at fair value of the consideration received or receivable and represents amounts receivable for goods and services
provided in the normal course of business, net of discounts, value added tax and other sales related taxes. Revenue is also shown net of
prompt payment discount included within the customer terms. Revenue is recognised to the extent that the performance obligations have
been met and the revenue can be reliably measured.
– Sales of goods
Revenue from the sale of skins, hides and retail leather goods is recognised when the performance obligations have been met and the
amount of revenue can be measured reliably, usually on despatch.
– Sales of services
Where services are provided, revenue is recognised on an accruals basis in the accounting period in which the service is rendered.
(f) Finance income
Finance income comprises of interest receivable in respect of overdue debtors.
(g) Finance expenses
Finance expenses comprise interest payable on interest-bearing loans and borrowings. Finance expenses are recognised using the
effective interest method.
(h) Foreign currency translation
These financial statements are presented in sterling as that is considered to be the currency of the primary economic environment in
2018 ANNUAL REPORT PIT TARDS PLC
31
which the Company operates. This decision was based on the fact that sterling is the currency in which management reporting and
decision making is based.
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in sterling
which is the Company’s functional and the Group’s presentational currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions or valuation where items are re-measured, except where foreign currency has been hedged. Foreign exchange gains and
losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the income statement as gain or loss on foreign exchange.
Foreign exchange gains and losses that relate to borrowings, and cash and cash equivalents are presented in the income statement within
administrative expenses (Note 4).
On consolidation, the assets and liabilities of the Group’s overseas operations are translated into the Group’s presentational currency at
exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year.
Exchange differences arising, if any, are recognised in other comprehensive income and transferred to the Group’s translation reserve.
(i) Exceptional items
Items that are material in size, unusual and one-off in nature are presented as exceptional items in the Income Statement. The directors
are of the opinion that the separate disclosure of such items provides helpful information about the Group’s underlying business
performance.
(j) Intangible assets
An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable
that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. The
asset is deemed to be identifiable when it is separable or when it arises from contractual or other legal rights.
Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset and is
carried at cost less accumulated amortisation and accumulated impairment losses. Costs include software licences and consulting costs
attributable to the development, design and implementation of the computer software. Amortisation is calculated using the straight-line
method so as to charge the cost of the computer software to the Income Statement over its estimated useful life (up to 7 years). Costs
associated with the development of the Group’s website are also recognised as intangible assets and carried at cost less accumulated
amortisation.
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
(k) Property, plant and equipment
Property, plant and equipment (other than land and buildings) are stated at cost less accumulated depreciation and any recognised
impairment loss. Property, plant and equipment are initially recorded at cost of purchase or construction. Cost includes expenditure that is
directly attributable to the acquisition of the items. Depreciation is charged (excluding land) to write off the cost or valuation of assets on
a straight-line basis over their estimated useful lives, as follows:
Land and buildings
Plant, machinery and motor vehicles
2%
6-33%
The Group revaluation policy is to perform a formal revaluation every 5 years, with director assessment in the intervening period, except
where a material movement in property valuations is expected. In the UK, the Board performed an assessment of the property valuation
as at 31 December 2018 and concluded that the net book value remains in line with fair value (the current market value) therefore
no adjustment has been made. In December 2016, a formal assessment was performed by an independent RICS Registered Valuer.
Buildings in Ethiopia were revalued at December 2018 and December 2017 based on the fair value (their depreciated replacement cost) as
determined by an independent licensed loss assessor qualified to value buildings in Ethiopia. The increase in value has been reflected via a
revaluation of land and buildings in other comprehensive income. No depreciation has been charged on the building being constructed by
GS in Ethiopia as it remains under construction.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate
that the carrying value may not be recoverable. The gain or loss arising on the disposal or retirement of an asset is determined as the
difference between the sale proceeds and the carrying amount of the asset and is recognised in income.
The residual values and useful lives of assets are reviewed annually and adjusted when appropriate.
32
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
1. Statement of accounting policies (continued)
(l) Leased assets
Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership of the asset have been
transferred to the Group, are capitalised in the balance sheet and depreciated over the shorter of the lease term or their useful lives. The
asset is recorded at the lower of its fair value and the present value of the minimum lease payments at the inception of the lease. The
capital elements of future obligations under finance leases are included in liabilities in the balance sheet and analysed between current
and non-current amounts. The interest elements of future obligations under finance leases are charged to the Income Statement over
the periods of the leases and represent a constant proportion of the balance of capital repayments outstanding in accordance with the
effective interest rate method.
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. The cost of operating
leases (net of any incentives received from the lessor) is charged to the Income Statement on a straight line basis over the periods of the
leases.
(m) Inventories
Inventories are stated at the lower of cost or net realisable value. Cost is determined on a first in first out (FIFO) basis. Net realisable value
is the estimated selling price less all costs to be incurred. Raw materials are valued according to the cost of the materials purchased plus
any direct transport costs. Work in progress (WIP) is valued as the cost of raw materials plus an appropriate proportion of production
overheads. Finished goods are valued as the cost of raw materials plus full absorption of production overheads based on normal
operating capacity.
Inventory held at ETSC is stated at the lower of cost and net realisable value but cost is determined on an average cost basis. An
impairment reserve to reflect the directors’ best estimates of the difference between FIFO and average was established on acquisition.
The directors have satisfied themselves that there was no material difference between FIFO and average. Inventories include goods in
transit from the suppliers to the Group’s factory where ownership has effectively passed to the Group.
Provision is made against slow moving and obsolete inventory to ensure the value at which inventory is held in the balance sheet is
reflective of anticipated future sales patterns. Provision is made having regard to the saleability and condition of inventory.
(n) Current and deferred income tax
Current tax is the expected tax payable or receivable on the taxable income for the year, on the basis of tax laws enacted or substantively
enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years, in the countries where the Company
and its subsidiaries operate and generate taxable income.
Deferred tax is provided in full using the liability method on temporary differences between the tax basis of assets and liabilities and their
carrying amounts in the financial statements. A deferred tax asset is only recognised to the extent it is probable that sufficient taxable
profits will be available in the future for it to be utilised.
Deferred tax is determined using the tax rates that have been enacted or substantively enacted at the balance sheet date and are
expected to apply when the deferred tax asset or liability is realised or settled.
Tax is recognised in the Income Statement, except where it relates to items recognised in other comprehensive income or directly in
equity, in which case it is recognised in other comprehensive income or equity.
(o) Retirement benefit costs
An Auto Enrolment scheme was introduced in May 2014 under which matching contributions are made by the employer in line with
scheme rules. Pension contributions are made for employees in Ethiopia under the Ethiopian Social Security Agency scheme.
(p) Provisions
Provisions are recognised where a legal or constructive obligation has been incurred which will probably lead to an outflow of resources
that can be reasonably estimated. Provisions are recorded for the estimated ultimate liability that is expected to arise, taking into account
the time value of money. A contingent liability is disclosed where the existence of the obligations will only be confirmed by future events,
or where the amount of the obligation cannot be measured with reasonable reliability.
(q) Financial instruments
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
– Investment
Where the investing entity does not exercise significant influence or control over the other entity, its investment is recorded initially at cost
and then at fair value through profit and loss.
2018 ANNUAL REPORT PIT TARDS PLC
33
– Trade and other receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect
all amounts due according to the original terms of receivables. Following the adoption of IFRS9 in the year, additional provisions are held
on an expected credit loss basis against debt that is more than 90 days old. The amount of the provision is recognised in the Income
Statement in Distribution costs.
– Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost.
– Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits that are readily convertible to a known amount of cash and are
subject to an insignificant risk of change in value. For the purpose of the cash flow statement, cash and cash equivalents includes bank
overdrafts.
– Bank borrowings
Interest-bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption, are accounted for on an accruals basis and are added to the carrying amount of the
instrument to the extent that they are not settled in the period in which they arise.
– Derivative financial instruments and hedging activities
The Group uses derivative financial instruments to reduce exposure to foreign currency risk, by hedging against highly probable forecast
cash flows. The instruments are initially recognised at fair value on the date on which a derivative contract is entered in to and then
subsequently remeasured at fair value.
The Group recognises the effective part of any gain or loss on the derivative financial instrument in equity. Any ineffective portion is
recognised immediately in the income statement, if the underlying relationship cannot be rebalanced. The amounts accumulated in equity
are reclassified to the income statement when the hedged item is recognised, or the hedging relationship ends.
(r) Share-based payments
Equity settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date, using an
appropriate valuation model. Details regarding the determination of the fair value of equity settled share-based transactions, including all
key assumptions, are set out in Note 7.
The fair value determined is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the shares that
will eventually vest, with a corresponding increase in equity. For share schemes held with non-market performance and service conditions,
the Group assess its estimate of the number of equity instruments expected to vest at the end of each reporting period. Any revision to
the original estimate, is recognised in the Income Statement, with a corresponding adjustment to equity.
(s) Employee share ownership trust
The assets of the employee share ownership trust are fully consolidated within the accounts of the Group. Shares held in the Trust are
deducted from shareholders’ funds and are stated at cost. The shares were originally bought to reflect potential awards with a previous
bonus scheme which is no longer in existence.
(t) Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The
chief operating decision maker has been identified as the Board of Pittards plc which makes strategic decisions.
(u) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in
equity as a deduction, net of tax, from the proceeds.
34
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
2. Critical judgements and estimation uncertainty
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount
of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the date of the financial statements. If in the
future such estimates and assumptions, which are based on management’s best judgement at the date of preparation of the financial
statements, deviate from actual circumstances, the original estimates and assumptions will be modified as appropriate in the year in
which circumstances change.
(a) Inventory valuation
The calculation of WIP and finished goods inventory value requires an estimate of the total production cost and an estimate of production
levels in order to determine the value of direct costs to absorb into inventory on an ongoing basis. Variations in production levels will
impact the value of direct costs not absorbed into inventory. Estimates are revised periodically through the year to ensure that absorption
of labour and overheads is materially correct as at the end of the year.
The Group reviews its inventory on a regular basis and, where appropriate, makes provisions for slow moving and obsolete inventory
based on estimates of future sales activity. The estimates of the future sales activity will be based on both historical experience and
expected outcomes based on knowledge of the markets in which the Group operates as well as strategic assessments of potential new
markets. Market performance is reviewed periodically throughout the year and the impact on the provision assessed.
(b) Recognition of deferred tax asset
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will
be available in the future against which the reversal of temporary differences can be deducted. Where the temporary differences are
related to losses, the availability of the losses to offset against forecast taxable profits is also considered. Recognition therefore involves
judgement regarding the future financial performance of the entity in which the deferred tax asset has been recognised, which is based
on current forecasts. The rate at which the asset unwinds will vary with the profitability of the entity.
(c) Property valuations
The Group policy is to perform a formal revaluation every 5 years, with a director assessment in the intervening period. In performing
this assessment, the directors of the Group perform a localised market review assessing similar marketed properties, in comparison to
the previous formal valuation to ensure they remain consistent. If a material difference in the property valuation is expected, a formal
revaluation will be undertaken.
3. Business segments information
Management has determined the operating segments based on the reports reviewed by the Board that are used to make strategic
and operational decisions. The Board consider the business in terms of two divisions: UK and Ethiopia. The consolidation adjustment
represents those adjustments required to prepare the group accounts.
2018
Revenue from customers
Revenue from other sources – rental income
Inter-segmental trading
Gross profit1
(Loss)/profit before tax
Assets
Liabilities
UK
Division
£’000
25,736
12
Ethiopia
Division
£’000
12,223
–
(1,469)
(8,033)
24,279
4,796
(180)
36,215
(18,826)
4,190
3,114
534
14,349
(8,185)
Consolidation
adjustment
£’000
–
–
–
–
–
–
Total
£’000
37,959
12
(9,502)
28,469
7,910
354
(19,201)
31,363
14,177
(12,834)
2018 ANNUAL REPORT PIT TARDS PLC
35
2017
Revenue
Revenue from other sources – rental income
Inter-segmental trading
Gross profit1
(Loss)/profit before tax
Assets
Liabilities
UK
Division
£’000
Ethiopia
Division
£’000
Consolidation
adjustment
£’000
27,569
11,227
12
(1,564)
26,017
5,003
(381)
–
(6,957)
4,270
2,799
794
–
–
–
–
–
–
37,638
15,264
(18,074)
(10,159)
(20,323)
15,418
Total
£’000
38,796
12
(8,521)
30,287
7,802
413
32,579
(12,815)
1. Included in inter-segmental trading in the UK is a balance of £0.759m (2017: £0.709m) relating to group recharges, for which there is no cost of sale. Costs associated with this revenue
are included within administration costs.
All revenue from contracts with customers is recognised at the point in time that the invoice is raised. Rental income is recognised over
the period in which the service is performed.
Geographical analysis of revenue (based on the customer’s country of domicile):
2018
UK
Europe
North America
Far East and Rest of the World
2017
UK
Europe
North America
Far East and Rest of the World
UK
Division
£’000
2,665
1,713
389
19,512
24,279
UK
Division
£’000
2,479
1,732
1,038
20,768
26,017
Ethiopia
Division
£’000
204
–
2,953
1,033
4,190
Ethiopia
Division
£’000
99
2
3,221
948
4,270
Total
£’000
2,869
1,713
3,342
20,545
28,469
Total
£’000
2,578
1,734
4,259
21,716
30,287
Revenues of approximately £5.315m (2017: £4.650m) within the UK segment are derived from one customer. Revenues of approximately
£6.174m (2017: £9.322m) within the UK segment are derived from another customer. Both customers’ revenues fall within the Far East
and Rest of the World geographical segment.
36
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
4. Profit before taxation
The following items have been included in arriving at profit before taxation:
Depreciation of property, plant and equipment (Note 11)
Amortisation of intangible assets (Note 12)
Operating lease rentals recognised as an expense
Staff costs (Note 5)
Employee benefit expense (life and health insurances)
Research and development expenditure
Net loss/(gain) on foreign currency translation
Auditors’ remuneration
The analysis of fees payable to the Company’s auditors is as follows:
Fees payable to the Company’s auditors in respect of the audit of the parent company and
consolidated financial statements
Fees payable to the Company’s auditors in respect of the audit of subsidiaries
Total audit fees
No non-audit fees were paid during the year.
2018
£’000
705
62
119
8,222
112
74
71
2017
restated
£’000
604
36
115
8,378
113
85
(282)
2018
£’000
2017
£’000
53
6
59
50
6
56
5. Staff costs
The average number of employees of the Group and Company (including directors), on an average monthly basis was:
Production
Sales, distribution and administration
Directors
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
Compensation for loss of office
Group
Company
2018
No.
1,307
380
5
1,692
£’000
7,260
545
246
171
2017
No.
1,380
261
6
1,647
£’000
7,380
563
236
199
2018
No.
141
43
5
189
£’000
5,704
545
103
171
2017
No.
147
48
6
201
£’000
5,923
563
86
199
8,222
8,378
6,523
6,771
2018 ANNUAL REPORT PIT TARDS PLC
37
6. Directors’ remuneration
Executive
RH Hankey
M O’Rourke
Non-executive
LM Cretton
GP Davis
J Williams
S Yapp
Salary
& fees
£’000
Profit
related
bonus
£’000
Compensation
for loss of
office
£’000
Benefits
£’000
Pension
contributions
£’000
205
125
39
39
–
120
528
–
–
–
–
–
–
–
–
111
–
–
–
–
111
5
3
–
–
–
1
9
10
6
–
–
–
–
16
2018
Total
£’000
220
245
39
39
–
121
664
2017
Total
£’000
215
128
39
39
42
121
584
Benefits received consist of health insurance and life assurance. The values of the benefits are based on the taxable value.
The Company matches employee pension contributions up to a maximum of 5% of basic salary for directors and key management.
Details of options granted to directors are provided in the Directors’ report on page 15. No options were exercised during the year.
Key management compensation
Key management represents the directors of the Internal Executive Board, this does not include the Executive Directors outlined above.
The compensation paid or payable to key management for employee services is shown below:
Salaries, bonus and other short-term benefits
Pension contributions
Compensation for loss of office
Total
2018
£’000
495
19
–
514
2017
£’000
524
21
21
566
21,949 options remain outstanding for key management personnel in relation to 2017 Save As You Earn scheme. All options relating to
the 2015 LTIP lapsed during the year (2017: 109,104).
7. Share options
2017 Save As You Earn Scheme (SAYE)
On 16 May 2017, a Save As You Earn (SAYE) share option scheme was granted to employees. The options under the SAYE scheme are
exercisable on 1 July 2020.
Details of the share-based payment cost recognised during the year are:
At 1 January
Share-based payment expense
At 31 December
2018
£’000
10
20
30
2017
£’000
–
10
10
This charge has been included within administration expenses.
All outstanding share options are measured in accordance with IFRS at their market-based measure at the grant date. Options were priced
using the Black-Scholes option pricing model.
Expected volatility is based on the historical share price volatility over the past three years.
38
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
7. Share options (continued)
The assumptions used in the model are detailed below:
Grant date
Share price at grant date
Exercise price
Vesting period
Expected volatility
Risk-free rate
Dividend yield
Details of the SAYE share options extant during the year are:
Outstanding at the beginning of the year
Granted during the year
Lapsed during the year
Outstanding at the end of the year
16/05/2017
86.0p
65.6p
3.0 years
31.0%
0.2%
0%
2018
2017
No. of
options
Exercise price
(pence)
180,908
–
(26,337)
154,571
65.6
–
65.6
65.6
No. of
options
–
187,493
(6,585)
180,908
Exercise price
(pence)
–
65.6
65.6
65.6
2016 Long Term Incentive Plan (LTIP)
On 26 September 2016, a Long Term Incentive Plan (LTIP) was granted to certain members of the Board, as per the Director’s report on
page 15. The vesting period is four years and is dependent upon the attainment of a minimum specific share price at the exercise date.
The directors are entitled to shares to the value of specific percentages granted, based on the excess value generated at the exercise date.
Details of the share-based payment costs recognised during the year are:
At 1 January
Share-based payment expense
Reversal of expense following forfeiture of entitlement
At 31 December
2018
£’000
121
95
(43)
173
2017
£’000
29
92
–
121
The share-based payment charge has been included within administration expenses.
Matthew O’Rourke forfeited his entitlement to his percentage share in the 2016 LTIP on leaving the company on 31 December 2018. The
percentage cost recognised to date has been reversed via an adjustment to retained earnings.
The charge equates to the fair value of the award and has been calculated using the Monte-Carlo model. The assumptions used in the
model are detailed below:
Grant date
Share price at grant date
Exercise price
Vesting period
Expected volatility
Risk-free rate
Dividend yield
26/09/2016
94.5p
£1
3.8 years
39.5%
0.1%
–
2018 ANNUAL REPORT PIT TARDS PLC
39
2015 Long Term Incentive Plan (LTIP)
Share options were granted to directors and key managers as part of the 2015 Long Term Incentive Plan (LTIP) established on 12 May
2015. The vesting period was three years and dependent upon attainment of certain performance conditions, comprising achievement
of Group revenue growth and EBIT growth.
Details of the share awards extant during the year are:
Outstanding at the beginning of the year
Granted during the year
Lapsed during the year
Outstanding at the end of the year
2018
2017
No. of
options
Weighted average
exercise price (pence)
No. of
options
Weighted average
exercise price (pence)
349,721
–
(349,721)
–
–
–
–
–
434,186
–
(84,465)
349,721
–
–
–
–
The options under the 2015 LTIP lapsed during the year, with no awards made. The performance conditions required were not achieved
and therefore no charge has been recognised during the year (2017: £nil).
8. Finance costs and income
(a) Finance costs
Interest on bank loans and overdrafts
Interest on obligations under finance leases and hire purchase contracts
Interest on historic foreign tax charge
(b) Finance income
Interest on bank accounts
9. Taxation
(a) Analysis of the charge/(credit) in the year
The charge based on the profit for the year comprises:
Corporation tax on profit for the year
Foreign tax on profit for the year
Foreign tax related to prior years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Impact of change in UK tax rate
Derecognition of deferred tax asset
Total deferred taxation
Income tax charge/(credit)
2018
£’000
604
9
34
647
2017
£’000
507
14
–
521
9
–
2018
£’000
2017
£’000
263
89
10
362
26
(6)
1,901
1,921
2,283
–
32
–
32
(128)
12
–
(116)
(84)
4 0
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
9. Taxation (continued)
The Company’s profits for the year are taxed at the standard rate of corporation tax in the UK of 19% (2017: 19.25%) and Ethiopia of
30% (2017: 30%). The tax assessed in each year differs from the standard rate of corporation tax for the relevant year. The differences
are explained below:
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 ISA12, and
£0.1m 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.
(b) Factors affecting the charge for the year
Profit on ordinary activities before tax
Tax calculated at domestic tax rates applicable to profits in the respective countries
Income not subject to tax
Foreign tax related to prior years1
Expenses not deductible for tax purposes2
Allowable tax deductions3
Profits/(losses) generated
Foreign tax paid
Double tax relief
Utilisation of losses
Impact of change in UK tax rate
Derecognition of deferred tax asset
Total tax charge/(credit) for the year (Note 9(a))
2018
£’000
354
220
(4)
10
334
(181)
9
89
(57)
(32)
(6)
1,901
2,283
2017
£’000
413
274
(295)
–
174
(145)
(104)
32
(32)
–
12
–
(84)
1. Foreign tax in prior years relates to a historic tax charge imposed on ETSC.
2. Expenses not deductible for tax purposes largely relate to depreciation, for which capital allowances are received.
3. Allowable tax deductions relate to capital allowances received.
(c) Factors that may affect future tax charges
The Finance Act 2016 which was enacted on 15 September 2016 included legislation to reduce the main rate of corporation tax to 17%
from 1 April 2020. All UK deferred tax assets have been measured using the rate in place at the time they expect to be realised or settled.
10. Earnings per ordinary share
Analysis of the profit in the year:
(Loss)/profit for the year
Weighted average number of ordinary shares in issue (excluding the shares owned
by the Pittards Employee Share Ownership Trust)
Basic
Diluted
Basic earnings per ordinary 50p share
Diluted earnings per ordinary 50p share
2018
£’000
2017
£’000
(1,929)
497
’000s
13,870
14,023
(13.91p)
(13.76p)
’000s
13,870
14,224
3.58p
3.49p
2018 ANNUAL REPORT PIT TARDS PLC
41
11. Property, plant and equipment
Group
Company
Plant,
machinery
and
motor
vehicles
£’000
Land and
buildings
£’000
Asset under
construction
£’000
Total
£’000
Land and
buildings
£’000
Plant,
machinery
and
motor
vehicles
£’000
Asset under
construction
£’000
Total
£’000
Cost or valuation
At 1 January 2017
Exchange differences
Additions
Disposals
Revaluation of property
At 1 January 2018
Exchange differences
Additions
Revaluation of property
At 31 December 2018
Accumulated depreciation
At 1 January 2017
Exchange differences
Charge for year
Disposals
Revaluation of property
At 1 January 2018
Exchange differences
Charge for year
Revaluation of property
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
7,549
18,616
672
26,837
3,902
12,859
(941)
(1,477)
(173)
(2,591)
28
–
86
660
(4)
–
6,722
17,795
69
18
115
120
436
–
6,924
18,351
64
–
127
–
(75)
14,667
(1,000)
477
(4)
–
116
14,140
–
135
(83)
76
570
–
168
14,786
8
–
10
517
13
134
21
685
–
–
–
–
–
–
–
–
–
–
696
(4)
96
–
–
–
–
–
68
(4)
–
25,034
3,902
12,923
202
588
136
–
1
–
–
122
–
–
–
–
–
–
–
–
126
–
16,761
68
(4)
–
16,825
–
249
–
25,960
3,903
13,045
126
17,074
14,731
(1,000)
604
(4)
(75)
63
–
52
–
–
10,752
–
265
(4)
–
14,256
115
11,013
76
705
(83)
–
52
–
–
272
–
14,954
167
11,285
–
–
–
–
–
–
–
–
–
–
10,815
–
317
(4)
–
11,128
–
324
–
11,452
6,756
6,606
3,565
3,655
685
517
11,006
10,778
3,736
3,787
1,760
1,910
126
–
5,622
5,697
Depreciation of £0.612m (2017: £0.520m) has been charged to cost of sales, £0.065m (2017: £0.056m) to administrative expenses and
£0.028m (2017: £0.028m) to distribution expenses in the Income Statement.
Included in the Group’s and Company’s plant, machinery and motor vehicles are leased assets and assets being acquired under hire
purchase agreements with a net book value of £0.389m (2017: £0.413m).
Land and buildings include an amount of £0.550m (2017: £0.516m) in respect of work commenced on the building for Pittards Global
Sourcing Private Limited Company. As this building is under construction no depreciation has been charged.
The Group’s buildings in Ethiopia were revalued to fair value as at 31 December 2018. Fair value was determined by Getachew Tesfaye,
licensed loss assessor, who is an independent valuer. The fair value of the UK site was assessed by the Board, in line with the Group
revaluation policy. No change in fair value was noted.
If buildings across the Group were stated on historic cost basis the net book value would be £4.191m (2017: £4.275m).
42
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
12. Intangible assets
Cost
At 1 January 2017
Additions
At 1 January 2018
Additions
At 31 December 2018
Accumulated amortisation
At 1 January 2017
Charge for year
At 1 January 2018
Charge for year
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
Group
Computer
software
£’000
Website
£’000
109
2
111
–
111
15
16
31
16
47
64
80
1,781
–
1,781
–
1,781
1,632
20
1,652
46
1,698
83
129
Total
£’000
1,890
2
1,892
–
1,892
1,647
36
1,683
62
1,745
147
209
Company
Computer
software
£’000
Website
£’000
109
2
111
–
111
15
16
31
16
47
64
80
1,774
–
1,774
–
1,774
1,625
20
1,645
46
1,691
83
129
Amortisation of £0.062m (2017: £0.036m) has been charged to administrative expenses in the Income Statement.
13. Inventories
Raw materials
Work in progress
Finished goods
Group
Company
2018
£’000
6,473
4,274
5,559
2017
£’000
4,031
5,575
5,726
16,306
15,332
2018
£’000
4,135
1,123
4,603
9,861
Total
£’000
1,883
2
1,885
–
1,885
1,640
36
1,676
62
1,738
147
209
2017
£’000
2,307
2,164
4,685
9,156
During the year £0.143m in respect of stock provision movement was credited to the income statement (2017 £0.528m) as part of cost
of sales.
The movement in exceptional provision is as follows :
As at 1 January 2018
Utilisation
Charge
As at 31 December 2018
Group
£’000
1,715
(194)
227
1,748
Company
£’000
1,296
(167)
227
1,356
Since the exceptional stock provision was recognised in 2016, the provision has been incorporated into the normal provisioning
methodology applied by the Group and the Company each year.
2018 ANNUAL REPORT PIT TARDS PLC
43
Inventory charged to the Income Statement during the year as part of cost of sales totalled £11.981m (2017 £13.113m). Raw materials
include £1.494m of goods in transit at the year end (2017 £0.415m).
14. Current financial assets
Trade and other receivables
Trade receivables
Less provision for impairment of trade receivables
Trade receivables net
Other receivables
Prepayments and accrued income
Amounts owed by Group undertakings
Movement on the provision for impairment of trade receivables
was as follows:
As at 1 January
Impact of the adoption of new standards (Note 1)
Increase in provision for receivables impairment
Receivables written off during the year as uncollectable
As at 31 December
Group
Company
2018
£’000
3,141
(804)
2,337
401
568
–
2017
£’000
3,630
(675)
2,955
815
221
–
3,306
3,991
675
26
113
(10)
804
506
–
197
(28)
675
2018
£’000
2,630
(801)
1,829
108
182
6,175
8,294
656
26
129
(10)
801
The table below shows an analysis of the ageing of trade receivables which are past due but not impaired.
Up to 60 days
60-90 days
More than 90 days
Group
Company
2018
£’000
442
31
223
696
2017
£’000
544
95
411
1,050
2018
£’000
415
16
107
538
2017
£’000
2,978
(656)
2,322
51
236
6,325
8,934
506
–
178
(28)
656
2017
£’000
476
93
175
744
There are £1.533m (2017: £1.033m) of trade receivables which are not due and not impaired as at 31 December 2018. There are no
concerns regarding the recoverability of these amounts.
As at 31 December the provision against trade receivables was £0.804m (2017: £0.675m) for the Group and £0.801m (2017: £0.656m)
for the Company. The ageing of the receivables impaired against which part provisions have been made is as follows:
Not overdue
Up to 60 days
60-90 days
More than 90 days
Group
Company
2018
£’000
252
272
31
357
912
2017
£’000
284
237
7
344
872
2018
£’000
252
272
31
351
906
2017
£’000
284
237
7
306
834
4 4
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
14. Current financial assets (continued)
Provisions against trade receivables not overdue represent credit note provisions. Part provisions have been made against some
significantly overdue balances based on a recoverability assessment considering credit insurance held and ongoing discussions with
customers. Following the adoption of IFRS 9 in the year, additional provisions are held on an expected credit loss basis against debt that
is more than 90 days old. The directors consider that the carrying amounts of trade and other receivables approximate to their fair value
and that the above unprovided elements are recoverable.
An analysis of the currencies in which trade receivables are held is shown in Note 26 (c).
Cash and cash equivalents
Cash and cash equivalents
Group
Company
2018
£’000
598
2017
£’000
327
2018
£’000
17
2017
£’000
32
Credit risk
The Group’s credit risk is attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for
impaired receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience,
is evidence of a reduction in the recoverability of the cash flows. Additionally, following the adoption of IFRS 9, an additional allowance
is made in respect of expected credit loss, which is calculated based on historical data trends, and an assessment of the current and
future market conditions. Where possible, the Group mitigates its credit risk by using credit insurance policies to insure its credit sales.
Provision is also made for any customer claims or allowances where a credit note has yet to be issued. The Group does not hold any
collateral as security. However, the Group has traded with a high proportion of its customers for several years and is experienced in
managing this risk, resulting in low levels of impairment.
15. Trade and other payables
Trade payables
Corporation tax payable
Other taxes and social security costs
Accruals and deferred income
Other payables
Financial derivatives
Amounts owed to Group undertakings
Group
Company
Note
26
2018
£’000
2,320
262
212
1,092
412
52
–
2017
£’000
3,127
–
201
673
357
–
–
2018
£’000
1,394
–
148
853
68
52
53
4,350
4,358
2,568
2017
£’000
2,115
–
153
451
72
–
132
2,923
The directors consider that the carrying amounts of trade and other payables approximate to their fair value.
2018 ANNUAL REPORT PIT TARDS PLC
45
16. Interest-bearing loans, borrowings and overdrafts – current
Unsecured:
Loans
Secured:
Overdrafts
Loans
Obligations under finance leases
Group
Company
2018
£’000
2017
£’000
2018
£’000
2017
£’000
–
51
–
–
4,293
3,375
88
7,756
3,025
2,487
78
5,641
3,846
1,365
88
5,299
2,853
210
78
3,141
During 2018, the Company was granted an additional £1.500m extension to the Lloyds Bank overdraft facility in the UK. ETSC were
granted an additional £0.304m headroom within their revolving credit facility with Awash International Bank.
Lloyds Bank waived a technical covenant breach relating to early payment of debt in the Ethiopian division. Despite the waiver, it was
necessary to reclassify the loan as payable on demand, however, the bank have confirmed that they will preserve the duration of the loan
and review the appropriateness of the covenant in light of the debt repayment. The Group has headroom within the current facilities to
redeem the mortgage.
During 2017, ETSC were granted a £1.082m revolving credit facility with Awash International Bank. This facility renews annually, has
an interest rate of 9.5% and is secured against the assets of ETSC. PPM were also granted an overdraft facility of £0.189m with Awash
International Bank. This facility renews annually, has an interest rate of 9.5% and is secured against the assets of PPM.
17. Interest-bearing loans, borrowings and overdrafts – non-current
Secured:
Loans
Obligations under finance leases
Repayable as follows:
Group
Company
2018
£’000
461
105
566
2017
£’000
2,517
159
2,676
2018
£’000
–
105
105
2017
£’000
1,365
159
1,524
Between one and five years by instalments
566
2,676
105
1,524
During 2017, the loan previously held by PPM with the Development Bank of Ethiopia was renegotiated and moved to Awash
International Bank. This loan has been taken for a period of 3 years at an interest rate of 9.5% and is secured against the assets of PPM.
The individual loans held by ETSC with Commercial Bank of Ethiopia were also consolidated into one loan, which has been taken for a
period of 3 years at an interest rate of 11.5% and is secured against the assets of ETSC. The interest rate for all loans held in Ethiopia was
increased by 2% during 2017 following a rate change by the Ethiopian government.
In the UK in 2017, the mortgage term was renegotiated, with a repayment term of 3 years at an interest rate of 2.25% over LIBOR.
The fair value of the Group’s loan and overdraft facilities is materially the same as book value, and the secured facilities are supported by
fixed and floating charges over the assets of the Group, principally property, plant and equipment, inventory and receivables. Obligations
under finance leases are secured by the related asset.
4 6
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
18. Obligations under leases
Operating lease agreements where the Group is lessee
The Group has entered into commercial leases on certain properties, plant and machinery. Future aggregate minimum rentals payable
under non-cancellable operating leases are as follows:
Not later than one year
After one year but not more than five years
Group
Company
2018
£’000
104
156
260
2017
restated
£’000
110
258
368
2018
£’000
64
76
140
2017
£’000
71
141
212
The Group uses finance leases to acquire plant and machinery. Future minimum lease payments under finance leases and hire purchase
contracts are as follows:
Future minimum payments due:
Not later than one year
After one year but not more than five years
Less finance charges allocated to future periods
Present value of minimum lease payments
The present value of minimum lease payments is analysed as follows:
Not later than one year
After one year but not more than five years
Group
Company
2018
£’000
2017
£’000
2018
£’000
2017
£’000
96
104
200
(7)
193
88
105
193
86
166
252
(15)
237
78
159
237
96
104
200
(7)
193
88
105
193
86
166
252
(15)
237
78
159
237
All lease obligations are denominated in sterling. The fair value of the Group’s lease obligations approximates their carrying amount.
19. Deferred 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.
In 2017, the Group has recognised deferred tax assets in respect of temporary differences and losses of £1.761m.
Deferred tax asset
Deferred tax liability
Deferred tax assets (net)
Group
Company
2018
£’000
–
(162)
(162)
2017
£’000
1,901
(140)
1,761
2018
£’000
–
(112)
(112)
2017
£’000
1,901
(69)
1,832
2018 ANNUAL REPORT PIT TARDS PLC
47
Group
Company
2018
£’000
1,761
(1,921)
(2)
(162)
2017
£’000
1,617
116
28
1,761
2018
£’000
1,832
(1,832)
–
–
Group and Company
Tax losses
£’000
Other timing
difference
£’000
1,794
81
1,875
(1,875)
–
6
20
26
(26)
–
2017
£’000
1,741
91
–
1,832
Total
£’000
1,800
101
1,901
(1,901)
–
The movement on the net deferred tax account during the year is as follows:
At 1 January
Income Statement (debit)/credit
Exchange differences
At 31 December
(a) Deferred tax assets
The analysis of the deferred tax asset is as follows:
Recognised
At 1 January 2017
Income Statement credit
At 1 January 2018
Income Statement debit
At 31 December 2018
The Group has unrecognised deferred tax assets of £0.065m. The Company has no unrecognised deferred tax assets.
(b) Deferred tax liabilities
The Group deferred tax liability of £0.162m (2017: £0.140m) and Company deferred tax liability of £0.112m (2017: £0.069m) represent
temporary timing differences.
20. Share capital
Issued and fully paid
At 31 December
Number of ordinary shares of 50p each
At 31 December
The Company has one class of ordinary shares which carry no right to fixed income.
2018
£’000
2017
£’000
6,944
6,944
2018
Shares
2017
Shares
13,888,690
13,888,690
4 8
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
21. Reserves
The share premium account represents the difference between the issue price and the nominal value of shares issued.
The capital reserve relates to goodwill arising on previous acquisitions written off directly to reserves.
The Pittards Employee Share Ownership Trust holds Pittards plc ordinary shares to meet potential obligations under the restricted share
plan scheme. Shares are held in trust until such time as they may be transferred to employees in accordance with the terms of the
scheme. There are no further awards in the scheme which could vest in the participants. At 31 December 2018, the trust held a total of
19,026 50p shares (2017: 19,026) with a market value at that date of £13,604 (2017: £16,933).
The share-based payment reserve represents the fair value of the entitlement to shares awarded under the 2017 SAYE scheme and 2016
Long Term Incentive Plan. See note 7 for further details.
The cash flow hedge reserve represents the fair value of forward currency contracts held under hedge accounting at the end of the year.
See note 26 for further details.
The translation reserve represents the cumulative net unrealised exchange loss arising from the translation of overseas subsidiaries.
The revaluation reserve represents the revaluation of the buildings at ETSC, PPM and GS undertaken annually.
The retained earnings reserve represents the cumulative net gains and losses recognised in the consolidated statement of
comprehensive income.
22. Cash generated from/(used in) operations
Group
Company
Profit/(loss) before taxation
Adjustments for:
Depreciation of property, plant and equipment
Amortisation
Bank and other interest charges
Share-based payment expense
Other non-cash items in Income Statement
2018
£’000
354
705
62
638
115
194
2017
£’000
413
604
36
521
102
(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
Decrease/(increase) in receivables
Decrease/(increase) in payables
Cash generated from/(used in) operations
(710)
792
(567)
1,583
(749)
(47)
1,552
2,299
2018
£’000
(476)
324
62
198
115
–
223
(705)
614
(443)
(311)
2017
£’000
(541)
317
36
184
102
–
98
(324)
1,472
39
1,285
2018 ANNUAL REPORT PIT TARDS PLC
49
As at
1 January
2018
£’000
327
(3,025)
(2,698)
As at
1 January
2018
£’000
32
(2,853)
(2,821)
Cash flow
£’000
264
(1,262)
(998)
Cash flow
£’000
(15)
(993)
(1,008)
Exchange
movements
£’000
As at
31 December
2018
£’000
7
(6)
1
598
(4,293)
(3,695)
Exchange
movements
£’000
As at
31 December
2018
£’000
–
–
–
17
(3,846)
(3,829)
23. Analysis of the changes in cash and cash equivalents
Group
Cash at bank and in hand
Bank overdraft
Company
Cash at bank and in hand
Bank overdraft
24. Analysis of the changes in liabilities from financing activities
Group
Long term borrowings
Short term borrowings
Lease liabilities
Company
Long term borrowings
Short term borrowings
Lease liabilities
As at
1 January
2018
£’000
2,517
2,538
237
5,292
As at
1 January
2018
£’000
1,365
210
237
1,812
Loan
repayments
£’000
New loans
£’000
Term
renegotiations
£’000
Exchange
movements
£’000
(930)
(374)
(85)
(1,389)
–
–
41
41
(1,155)
1,155
–
–
30
56
–
86
Loan
repayments
£’000
£’000
New loans
Term
renegotiations
£’000
Exchange
movements
£’000
(210)
–
(85)
(295)
–
–
41
41
(1,155)
1,155
–
–
–
–
–
–
As at
31 December
2018
£’000
462
3,375
193
4,030
As at
31 December
2018
£’000
–
1,365
193
1,558
The mortgage has been reclassified from long term borrowing in to short term borrowing due to a technical covenant breach. Further
detail is provided in note 16.
25. Related party transactions
(a) Related party trading
Group
The following transactions with related parties took place during the year:
Transactions with related parties
Purchases from related parties
Group
2018
£’000
18
2017
£’000
17
50
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
25. Related party transactions (continued)
Purchases and sales are disclosed from entities where a member of the Board holds a further directorship. Purchases and sales are made
on normal commercial terms and conditions.
Payments made to directors as part of their standard emoluments package are separately disclosed within the Directors’ Remuneration
note on page 37.
Year end balances arising from purchases
Payables to related parties
Company
The following transactions with other Group undertakings took place during the year:
Transactions with subsidiaries
Purchases from subsidiaries
Sales to subsidiaries
Group
2018
£’000
9
2017
£’000
–
Company
2018
£’000
8,032
710
2017
£’000
6,957
854
Pittards plc holds intercompany balances with various subsidiary companies and settles expenses on behalf of these companies which are
charged to the intercompany accounts.
There are no provisions for impaired debts relating to the amount of outstanding intercompany balances.
Amounts due from subsidiaries
Pittard Garnar Services Limited
Ethiopia Tannery Share Company
Pittards Global Sourcing Private Limited Company
Pittards Products Manufacturing Share Company
Amounts due to subsidiaries
Pittards Group Limited
Ethiopia Tannery Share Company
Pittards Global Sourcing Private Limited Company
Note
Company
2018
£’000
5,117
739
2
317
14
6,175
(30)
–
(23)
(53)
15
2017
£’000
4,433
1,412
2
478
6,325
(30)
(80)
(22)
(132)
(b) Transactions with directors
Disclosures required under IAS24 regarding remuneration of key management personnel are covered by the Directors’ remuneration
disclosure in Note 6 and interests in shares are disclosed in the Directors’ report.
2018 ANNUAL REPORT PIT TARDS PLC
51
26. Financial instruments
(a) Financial risk factors
The Group’s activities expose it to a variety of financial risks; market (including currency, price and interest rate), liquidity and credit.
The Group’s overall risk management systems seek to minimise potential adverse effects on the Group’s financial performance. The
Company’s financial risk factors are considered to be consistent with those of the Group so are not presented separately.
The board of directors has approved policies for the management of the risks identified.
– Currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with
respect to US dollar, Euro and Ethiopian Birr. Approximately 90% (2017: 91%) of the Group’s revenue is from sales outside the UK, with
some 80% (2017: 82%) in US dollars. US dollar based raw material purchases amounted to 31% in 2017 (2017: 35%).
Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign
operations. Where possible, a natural hedge is maintained against the Group’s currency exposure, however, during 2018, forward
foreign currency contracts have additionally been entered into to manage the US dollar foreign exchange risk. Hedge accounting has
been applied to these contracts. See the Treasury policy in the Directors’ report on page 15 for further details.
– Price risk
Price risk includes the variability in the purchase price of hides and skins which are internationally traded commodities with no futures
markets. The Group addresses this by buying forward to match anticipated revenues. This risk was reduced by the purchase of ETSC
which buys a substantial proportion of the skins sourced in Ethiopia.
– Interest rate risk
The Group mitigates its exposure to interest rate fluctuations by using fixed rates where possible. Management would consider taking
out an interest rate cap if this was felt to be beneficial.
– Liquidity risk
Borrowing facilities are monitored against the Group’s forecast requirements and it is the Group’s policy to mitigate risk by staggering
the maturity of borrowings and by maintaining undrawn committed facilities, using overdrafts and medium term loans. Regular cash
flow forecasts are prepared to assess the adequacy of undrawn facilities and appropriate action taken to improve cash flow where
necessary.
– Credit risk
The Group is exposed to credit risk to the extent of non-payment by its customers. The Group utilises credit insurance policies to mitigate
its risk from its trading exposure or seeks secure terms or payment in advance.
(b) Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement
and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity
instrument are disclosed in Note 1 to the financial statements.
(c) Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise.
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as
follows:
US dollar
Euro
Ethiopian Birr
Other
GBP
Total
Assets
Liabilities
Cash
2018
£’000
2,178
208
495
19
2,900
525
3,425
2017
£’000
2,604
155
1,128
29
3,916
492
4,408
2018
£’000
(32)
(262)
2017
£’000
(130)
(512)
(4,337)
(4,776)
(1)
(4,632)
(2,924)
(7,556)
–
(5,418)
(3,461)
(8,879)
2018
£’000
(873)
2017
£’000
646
(2,529)
(2,762)
310
85
(3,007)
(512)
(3,519)
25
163
(1,928)
(869)
(2,797)
52
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
26. Financial instruments (continued)
(d) Foreign currency sensitivity
As 80% (2017: 82%) of the Group’s revenue is in US dollars, the sensitivity analysis is only on the US dollar impact. The following
table details the Group’s sensitivity to a 10% increase in pounds sterling against the US dollar. 10% is considered to be a reasonable
movement and also enables the users of the accounts to calculate other percentage movements. The sensitivity analysis of the Group’s
exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the
financial year and held constant throughout. A positive number indicates an increase in profit or loss and other equity where pounds
sterling decrease against the respective currency.
Loss1
Group
2018
£’000
2017
£’000
(1,884)
(2,003)
1. This is mainly attributable to the exposure on revenue and outstanding US dollars receivables, payables and cash at the year end in the Group.
(e) Forward foreign exchange contracts
It is the policy of the Group to sell surplus dollars and to enter into forward foreign exchange contracts to manage the risk associated
with anticipated foreign currency sales and purchase transactions, when this is felt appropriate. In 2018 the Group has entered into
forward foreign currency contracts to manage the US dollar foreign exchange risk, hedging against forecast cash flows to the extent that
those cash flows are deemed highly probable. The Group currently holds contracts to cover the first 6 months of 2019 net sales, with
expiration dates to 30 August 2019.
The notional value of open forward foreign currency contracts as at 31 December 2018 was £4.6039m (2017: £nil). The net fair value
loss on open contracts held in the cash flow hedge reserve at 31 December 2018 were £0.052m. This will be recycled to the income
statement within interest over the next 6 months.
(f) Liquidity and interest rate risk
i) Interest rate risk management
The Group is exposed to interest rate risk as it borrows funds at both fixed and variable interest rates. The risk is managed by borrowing
where appropriate on fixed interest rates.
ii) Interest rate sensitivity
The sensitivity analysis has been determined on the exposure to interest rates at the reporting date and the stipulated change taking
place at the beginning of the financial year and held constant throughout. 50 basis points has been applied in the sensitivity analysis as
this is considered to be an indicative movement for the analysis of interest rate risk. At the reporting date, if interest rates had been 50
basis points higher and all other variables were held constant, the Group’s net profit would decrease by £0.053m (2017: £0.050m). This
is attributable to the Group’s exposure to interest rates on its variable borrowings.
iii) Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board, which has built an appropriate liquidity risk management
framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The
Group manages liquidity risk by maintaining adequate banking and borrowing facilities by continuously monitoring forecast with actual
cash flows and matching profiles of financial assets and liabilities.
iv) Liquidity and interest risk tables
The interest rate profile of the non-derivative financial liabilities of the Group and its contractual maturity as at 31 December 2018 and at
31 December 2017 are as follows:
As at 31 December 2018
Fixed rate
Obligations under finance leases
Variable rate
Bank overdrafts and loans
Trade and other payables
Less than
3 months
£’000
3 months to
1 year
£’000
–
5,563
3,127
–
–
–
Group
1-2
years
£’000
159
2,765
–
2-5
years
£’000
Over
5 years
£’000
34
–
–
–
–
–
Total
£’000
193
8,328
3,127
2018 ANNUAL REPORT PIT TARDS PLC
53
As at December 2017 restated1
Fixed rate
Obligations under finance leases
Variable rate
Bank overdrafts and loans
Trade and other payables
Less than
3 months
£’000
3 months to
1 year
£’000
2
4,676
3,484
1
–
–
Group
1-2
years
£’000
–
–
–
2-5
years
£’000
234
3,781
–
1. 2017 numbers have been restated to include interest.
The Group has the following undrawn borrowing facilities:
Variable rate
Expiring within one year
Expiring beyond one year
Over
5 years
£’000
–
–
–
Group
2018
£’000
4,849
–
4,849
Total
£’000
237
8,457
3,484
2017
£’000
3,907
–
3,907
The facilities expiring within one year are subject to review at various dates in 2019 however, Lloyds have confirmed their commitment to
the business and renewal of the facilities for 2019.
(g) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares
or sell assets to reduce debt.
Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt
divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the
consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance
sheet.
During 2018, the Group’s strategy was to maintain the gearing ratio at an acceptable level, which is considered to be between 10% and
50%. The gearing ratios at 31 December 2018 and 2017 were as follows:
Total borrowings
Less cash at bank and in hand
Net debt
Total equity
Gearing ratio
Group
2018
£’000
8,322
(598)
7,724
18,529
41.7%
2017
£’000
8,317
(327)
7,990
19,764
40.4%
54
PIT TARDS PLC 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED ACCOUNTS
27. Investments
At 1 January and 31 December
Company
2018
£’000
378
2017
£’000
378
The subsidiary undertakings whose results or financial position affect the figures in the consolidated financial statements are:
Pittards Group Limited
Pittard Garnar Services Limited
Principal activities
Dormant
Country of incorporation
Functional currency
United Kingdom
£ sterling
Consultancy and other related services
to the leather industry
United Kingdom
£ sterling
Daines & Hathaway Limited
Dormant
United Kingdom
£ sterling
Pittards Global Sourcing Private
Limited Company
Production of quality leather garments
Ethiopia
Ethiopia Tannery Share Company
Leather production
Pittards Products Manufacturing
Share Company
Production of quality leather gloves and
leathergoods
Ethiopia
Ethiopia
Ethiopian Birr
Ethiopian Birr
Ethiopian Birr
The registered office for all UK incorporated entities is Sherborne Road, Yeovil, Somerset BA21 5BA. The registered offices of the
Ethiopian entities are as follows:
Pittards Global Sourcing Private Limited Company
Nefas Silk Laphto Sub City, Saris Industry Zone, Addis Ababa,
Ethiopia
Ethiopia Tannery Share Company
P.O. Box 5628, Kirkos Sub City, Kebele 16, Addis Ababa, Ethiopia
Pittards Products Manufacturing Share Company
Nefas Silk Laphto Sub City, Saris Industry Zone, Addis Ababa,
Ethiopia
Pittards plc holds directly or indirectly all the issued ordinary share capital and voting rights of its principal trading subsidiary undertakings.
The directors believe that the carrying value of the Group’s investments is supported by their underlying net assets.
2018 ANNUAL REPORT PIT TARDS PLC
55
FIVE YEAR REVIEW
Revenue
Percentage sold outside UK
Profit/(loss) from operations before finance costs
Profit/(loss) on ordinary activities before taxation
Profit/(loss) on ordinary activities after taxation
Net assets
Inventory
Inventory days of sale
Net debt
Gearing
2018
£’000
28,469
90%
992
354
(1,929)
18,529
16,306
279
7,724
42%
Earnings/(loss) per 50p ordinary share (restated from 1p share)
(13.91p)
Dividends per ordinary share
–
FINANCIAL CALENDAR
Annual General Meeting
Announcement of half year results for 2019
Announcement of 2019 results
2017
£’000
30,287
91%
934
413
497
19,764
15,332
241
7,990
40%
3.58p
–
2016
£’000
27,009
92%
(3,591)
(4,071)
(4,146)
21,274
17,353
308
10,109
48%
(29.89p)
–
2015
£’000
30,523
90%
1,115
655
471
24,150
18,872
288
6,458
27%
3.98p
–
2014
£’000
34,729
91%
1,971
1,589
1,110
18,136
17,796
235
7,601
42%
12.06p
–
15 May 2019
September 2019
March 2020
56
PIT TARDS PLC 2018 ANNUAL REPORT
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the 110th Annual General Meeting
(“AGM”) of Pittards Plc (the “Company”) will be held at the
Company’s registered office situated at Sherborne Road, Yeovil,
Somerset, BA21 5BA at 12 noon on 15 May 2019 to consider and, if
thought fit, pass the resolutions set out in this Notice.
All of the resolutions in this Notice, apart from Resolution 7, are
proposed as ordinary resolutions. Resolution 7 is proposed as a special
resolution.
Ordinary Resolutions
1 To receive the annual statement of accounts of the Company for
the year ended 31 December 2018, and the directors’ and auditors’
reports thereon.
2. To re-elect Reg Hankey as a director of the Company, who is
retiring by rotation.
3. To re-elect Godfrey Davis as a director of the Company, who is
retiring by rotation.
4. To appoint Richard Briere as a director of the Company.
5. To re-appoint PricewaterhouseCoopers LLP as the Company’s
auditors and to authorise the directors to determine their
remuneration.
6. That the directors of the Company (“Directors”) be and are
hereby unconditionally authorised pursuant to section 551 of the
Companies Act 2006 (the “Act”) to exercise all powers of the
Company to allot equity securities (as defined in section 560 of the
Act) up to an aggregate nominal value of £694,434 (in substitution
for, and to the exclusion of, all previous allotment authorities
granted prior to the date of this resolution) to such persons, and
at such time and on such terms, as they think proper during the
period commencing on the date of the passing of this resolution
and expiring on the date falling 15 months after the passing of this
resolution or the conclusion of the next Annual General Meeting of
the Company (whichever is the earlier) unless previously revoked,
varied or extended by the Company in general meeting; and the
Company be and is hereby authorised to make, prior to the expiry
of such period, any offer or agreement which would or might
require equity securities to be allotted after the expiry of said
period and the Directors may allot equity securities in pursuance of
any such an offer or agreement notwithstanding the expiry of the
authority given by this resolution.
Special Business
7. That the Company be and is hereby granted general and
unconditional authority, for the purposes of section 701 of the
Companies Act 2006 (the “Act”) to make one or more market
purchases (as defined in section 693(4) of the Act) of any of its
ordinary shares of 50 pence each (“Ordinary Shares”) on such
terms and in such manner as the directors of the Company may
from time to time determine, provided that the authority conferred
by this resolution shall:
(a) be limited to a maximum number of 1,388,869 Ordinary Shares
to be purchased (being 10% of the Company’s Ordinary Shares
in issue as at the date of this resolution);
(b) not permit the price (exclusive of expenses) which may be paid
per Ordinary Share to be more than 5% above the average
middle market quotation for an Ordinary Share (as derived
from the London Stock Exchange Daily Official List) for the five
business’ days immediately preceding the day on which such
Ordinary Share(s) are contracted to be purchased, or to be less
than 50p per Ordinary Share, and
(c) expire on the date falling 15 months after the passing of
this resolution or the conclusion of the next Annual General
Meeting of the Company (whichever is the earlier), but during
this period the Company may enter into a contract to purchase
Ordinary Shares, which would, or might, be completed or
executed wholly or partly after the authority ends and the
Company may purchase Ordinary Shares pursuant to any such
contract as if such authority had not ended.
By order of the Board
Reg Hankey
Chief Executive and Company Secretary
Pittards plc
Sherborne Road
Yeovil
Somerset
BA21 5BA
Date: 1 April 2019
2018 ANNUAL REPORT PIT TARDS PLC
57
Notes
1. Voting at the AGM will take place by means of a show of hands, unless a poll
is demanded in accordance with the Company’s articles of association.
2. A member entitled to attend and vote at the AGM may appoint one or more
proxies to exercise all or any of the member’s rights to attend, speak and vote
at the AGM. A proxy need not be a member of the Company but must attend
the AGM for the member’s vote to be counted. A proxy shall, unless directed
otherwise by the appointing member, vote or abstain from voting as the proxy
sees fit at the AGM.
3. A proxy may only be appointed by a member using the procedures set out in
these notes to the Notice of AGM and the notes to the Form of Proxy for the
AGM. To be effective, the proxy vote must be submitted at www.signalshares.
com so as to have been received by the Company’s Registrars, Link Asset
Services, not less than 48 hours before the time appointed for the AGM, or
any adjournment thereof (excluding weekends and public holidays). To register,
members will need their Investor Code. Alternatively, a member may request a
Form of Proxy in paper form from the Company’s Registrars, Link Asset Services,
on 0871 664 0300 (calls cost 12p per minute plus your operator’s network
access charge). If you are outside the United Kingdom, please call +44 371 664
0300 (calls will be charged at the applicable international rate). Lines are open
between 9.00 a.m. to 5.30 p.m., Monday to Friday, excluding public holidays in
England and Wales.
4. Pursuant to Regulation 41(1) of the Uncertificated Securities Regulations
2001 (as amended), only those members entered on the Company’s register
of members at close of business on 13 May 2019 (“the “Specified Time”) (or, if
the AGM is adjourned to a time more than 48 hours after the Specified Time,
at close of business on the business day which is two days’ prior to the time of
the adjourned meeting) shall be entitled to attend and vote or to appoint one
or more proxies to vote on their behalf at the AGM in respect of the number of
ordinary shares registered in their name at that time. If the AGM is adjourned
to a time not more than 48 hours after the Specified Time, that time will also
apply for the purpose of determining the entitlement of members to attend and
vote (and for the purposes of determining the number of votes they may cast)
at the adjourned meeting. Changes to the register of members of the Company
after the relevant deadline shall be disregarded in determining the rights of any
person to attend and vote at the AGM.
5. If a member appoints more than one proxy to attend the AGM, each proxy
must be appointed to exercise the rights attached to a different share(s) held by
the member. If a member wishes to appoint more than one proxy they may do
so at www.signalshares.com or by a paper Form of Proxy available on request
from the Company’s Registrars, Link Asset Services, as set out in Note 3 above.
The appointment of a proxy shall not preclude a member from attending and
voting in person at the AGM, or at any adjournment thereof. If a member has
appointed a proxy but decides to attend the AGM, such proxy will not be able
to attend, speak or vote at the AGM on the member’s behalf.
6. Any power of attorney (duly certified) or other authority under which a Form
of Proxy is submitted, and any Form of Proxy completed in paper form, must
be returned to the Company’s Registrars, Link Asset Services, by post to PXS1,
34 Beckenham Road, Beckenham, Kent, BR3 4ZF, so as to arrive not less than
48 hours before the time appointed for the AGM or any adjournment thereof
(excluding weekends and public holidays).
7. Subject to Note 5, if more than one valid proxy appointment is submitted by
a member, the appointment received last before the latest time for receipt of
proxies will take precedence.
8. CREST members who wish to appoint a proxy or proxies through the
CREST electronic proxy appointment service may do so for the AGM and any
adjournment(s) thereof by using the procedures described in the CREST Manual.
CREST personal members or other CREST sponsored members, and those CREST
members who have appointed a voting service provider(s), should refer to
their CREST sponsor or voting service provider(s), who will be able to take the
appropriate action on their behalf.
9. In order for a proxy appointment or instruction made using the CREST service
to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must
be properly authenticated in accordance with Euroclear UK & Ireland Limited’s
specifications and must contain the information required for such instruction,
as described in the CREST Manual (available via www.euroclear.com/CREST).
The message, regardless of whether it constitutes the appointment of a proxy
or is an amendment to an instruction given to a previously appointed proxy,
must, in order to be valid, be transmitted so as to be received by the Company’s
agent (ID: RA10) by the latest time(s) for receipt of proxy appointments
specified in Note 3 above. For this purpose, the time of receipt will be taken to
be the time (as determined by the time stamp applied to the message by the
CREST Application Host) from which the issuer’s agent is able to retrieve the
message by enquiry to CREST in the manner prescribed by CREST. After this
time, any change of instructions to proxies appointed through CREST should be
communicated to the appointee through other means.
10. CREST members and, where applicable, their CREST sponsors or voting
service providers should note that Euroclear UK & Ireland Limited does not make
available special procedures in CREST for any particular messages. Normal system
timings and limitations will therefore apply in relation to the input of CREST
Proxy Instructions. It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member or sponsored member or
has appointed a voting service provider(s), to procure that his CREST sponsor or
voting service provider(s) take(s)) such action as shall be necessary to ensure that
a message is transmitted by means of the CREST system by any particular time.
In this connection, CREST members and, where applicable, their CREST sponsors
or voting service providers are referred, in particular, to those sections of the
CREST Manual concerning practical limitations of the CREST system and timings
(www.euroclear.com/CREST).
11. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001 (as amended).
12. A member wishing to revoke his or her proxy appointment should do so by
sending a notice to that effect to the Company’s Registrars, Link Asset Services,
PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF or electronically by
means of the facilities described in Notes 3 and 9 above. The revocation notice
must be received by the Company’s Registrars, Link Asset Services, by the time
limit set out in Note 3. Any revocation notice received after this time will not
have effect.
13. Any corporation which is a member of the Company can appoint one or
more corporate representatives who may exercise on its behalf all of its powers
as a member provided that they do not do so in relation to the same shares.
14. The Company’s register of directors’ holdings and copies of directors’
contracts of service will be available for inspection at the registered office of the
Company during usual business hours from the date of this Notice until the date
of the AGM, and from at least fifteen minutes prior to commencement, and
until the conclusion, of the AGM.
15. Members who have general queries about the AGM should contact the
Company Secretary at the Company’s registered address set out above. No other
methods of communication will be accepted. Any electronic address provided
either in this Notice of AGM, or in any related documents, may not be used to
communicate with the Company for any purposes other than those expressly
stated.
16. In the case of joint holders, where more than one of the joint holders
purports to appoint a proxy, only the appointment submitted by the
most senior holder will be accepted. Seniority is determined by the
order in which the names of the joint holders appear in the register of
members of the Company in respect of the joint holders (the first named
being the most senior).
A L S O AVA I L A B L E O N L I N E
pittards.com/about/investors