1999 by jizhen1947


									Pittards plc Annual Report & Accounts   1999
                                                     Cover image: Pittards Soccer Lite leather is

                                                     a strong lightweight leather developed

                                                     exclusively for Puma. It is incorporated in

                                                     the Respira – a new style soccer shoe

                                                     launched by Puma in September, 1999.


2    Chairman’s statement                       28   Consolidated profit and loss account

7    Operational and financial review           29   Consolidated statement of recognised gains
                                                     and losses
16   Directors, officers and advisers
                                                29   Reconciliation of group shareholders’ funds
18   Directors’ report
                                                30   Balance sheets
21   Report on directors’ remuneration
                                                31   Consolidated statement of cash flows
24   Corporate governance
                                                32   Notes to the accounts
26   Statement of directors’ responsibilities
     in relation to financial statements        44   Five year review

27   Report of the auditors                     45   Financial calendar

                                                45   Analysis of shareholders
                                         Pittards plc Annual Report & Accounts 1999      1

Pittards aims to be the preferred supplier of high performance leather
to the world’s leading brands of gloves, shoes, luxury leathergoods and
sports equipment.

We seek to achieve this aim by offering innovative leathers which are
differentiated from competing products by their performance properties,
quality and consistency and which are backed by the highest standards
of customer service.

Results in brief

                                                           1999)             1998)
                                                            £’m)              £’m)

Turnover)                                                  62.1)             74.3)

Operating profit                                            2.2)                  1.0)
Interest – net                                              (0.4)             (0.9)

Profit before taxation                                      1.8)              0.1)

Net bank borrowings                                         5.0)              5.0)
Shareholders’ funds                                        24.4)             23.7)

Per ordinary share:                                             Pence per share

Earnings                                                    6.8)              (0.5)
Dividends                                                   3.6)              3.5)
Net assets                                                 98.3)             95.2)
2     Pittards plc Annual Report & Accounts 1999                                                                                                                                 Pittards plc Annual Report & Accounts 1999                3

    Chairman’s statement

                                                               were over 50% higher in the second six months           gearing, by strict management of costs and by             Stephen Johnson (42) was appointed Chief Executive
                                                               than in the first, this achievement was masked by       continuous improvements in manufacturing                  Designate of the Shoe & Leathergoods Division on
                                                               a small, seasonal second half loss in the Raw           efficiency. Now that the destocking phase is behind       1 January 2000. On 3 April, he will take over the
                                                               Materials Division.                                     us, demand for our golf glove leather has been            Divisional Chief Executive’s role from Tony Marriott,
                                                                                                                       steadily rebuilding. In addition, a number of             and will join the Group board. Steve has 20 years
                                                               After interest costs of £0.47m (1998 – £0.93m), a
                                                                                                                       innovative products have recently been introduced         experience of the leather and closely related
                                                               negligible tax charge (1998 – credit of £0.10m) and
                                                                                                                       for both the sports and service markets which will        industries and has been Technical Director of the
                                                               preference dividends, earnings per share were 6.8p
                                                                                                                       help to broaden further the scope of the division’s       Glove Leather Division since July 1998. Tony will be
                                                               (1998 – loss 0.5p). The board is recommending a
                                                                                                                       business and lessen its dependence on any one             retiring from the board on 4 July 2000. He joined
                                                               final dividend of 2.6p, (1998 – 2.5p), making a total
                                                                                                                       segment of the market.                                    the Group as Technical Director in 1978, becoming
    Robert Tomkinson         Chairman                          for the year of 3.6p (1998 – 3.5p) – an increase of
                                                                                                                                                                                 Chief Executive of the Glove Leather Division in
                                                               2.9%. The proposed dividend is covered 1.9 times        The recovery of the Shoe & Leathergoods Division
                                                                                                                                                                                 1990, before moving to the Shoe & Leathergoods
                                                               by earnings. If approved at the Annual General          gathered pace during the year. Finished leather sales
                                                                                                                                                                                 Division in late 1997. He has approached each role
                                                               Meeting the final dividend will be paid on 12 May       volume grew by 15% compared to the previous
                                                                                                                                                                                 with energy, enthusiasm, and commitment. We will
    The Company has continued to make steady                   2000 to shareholders on the register at the close of    year. Sales of leather to leading European
                                                                                                                                                                                 miss him and, in particular, his lively contribution to
    progress since its return to profitability in the second   business on 14 April 2000.                              manufacturers of casual footwear and of luxury
                                                                                                                                                                                 our deliberations. We wish him a long and happy
    half of 1998. Profit before tax for the year ended                                                                 leathergoods increased substantially, despite the
                                                               Our balance sheet has grown stronger during 1999.                                                                 retirement.
    31 December 1999 was £1.759m and compares to                                                                       strength of sterling relative to the euro. Margins also
                                                               Net assets have risen to £24.47m – equivalent to
    a profit of £0.085m for the previous year.                                                                         advanced appreciably as the productivity and              The remuneration committee believes that
                                                               98p per ordinary share (1998 – £23.76m and 95p) –
                                                                                                                       efficiency gains of the previous year were sustained      participation in incentive plans that focus on both
    In my interim statement I said that market                 and borrowings have fallen slightly to £4.96m,
                                                                                                                       as production levels rose. With additional resources      the short and long term are an important feature of
    conditions in the first six months of the year had         (1998 – £5.03m) representing 20% of shareholders’
                                                                                                                       allocated to innovation and product development,          the remuneration of directors and other senior
    been generally unhelpful, and that world demand            funds (1998 – 21%). Cash flow in the year was
                                                                                                                       the division is producing the kind of exciting and        executives. The Restricted Share Plan has been in
    for leather in the sport and leisure sectors had been      broadly neutral. Funds generated from profitable
                                                                                                                       radical new products that are critical to the future      operation for three years. Details of awards made in
    depressed. Since then, although conditions generally       trading were offset by higher working capital needs
                                                                                                                       growth of the business. The recovery in the               1999 are shown in the table on page 22.
    have changed little, and despite the persistent            flowing from the increasing volume of business, and
                                                                                                                       performance and prospects of the division has been
    strength of sterling, demand for our products has          rising raw material prices in the manufacturing                                                                   Having reviewed the structure of incentives and the
                                                                                                                       due, in no small measure, to strong leadership and
    increased in many of the sectors we serve. Group           divisions.                                                                                                        need to focus all directors and executives on the
                                                                                                                       to the co-ordinated efforts of all involved, whether
    turnover in the second half was 6% higher than in                                                                                                                            longer term performance of the Company, the
                                                               This has been a challenging year for the Glove          in sales and marketing, new product development or
    the first six months and amounted to £62.12m for                                                                                                                             Remuneration Committee is proposing amendments
                                                               Leather Division. A phase of destocking by              manufacturing.
    the year as a whole (1998 – £74.32m). The                                                                                                                                    to the Restricted Share Plan. This will enable them
                                                               manufacturers of golf gloves – the largest single
    reduction in annual turnover of 16% was in part                                                                    The Raw Materials Division traded very profitably in      to make conditional awards of shares every year in
                                                               segment of the division’s business – led to a
    due to lower underlying sheepskin prices in the Raw                                                                the first half, a period during which the price of        addition to awards reflecting annual bonus
                                                               temporary reduction of more than a third in its sales
    Materials Division for much of the year, but was                                                                   sheepskins remained low. The increasing popularity        payments. The awards will only vest if the
                                                               of golf glove leather. The impact was most severe in
    mainly the result of destocking by certain customers                                                               of nappa leather garments coupled with the                performance conditions set at the date of grant are
                                                               the second and third quarters. Management
    of the Glove Leather Division during the second and                                                                seasonal demand for raw sheepskins from European          achieved. I have set out full details of the proposed
                                                               responded vigorously to this challenge and, in a
    third quarters. The lower turnover was more than                                                                   manufacturers of double face (wool-on) garment            changes in a separate letter which accompanies this
                                                               difficult market place, achieved highly creditable
    offset by the reduction in the cost of sales.                                                                      leathers, helped to prompt a sharp rise in sheepskin      Report and Accounts.
                                                               growth of 18% in the volume of sales of other
                                                                                                                       prices in the third quarter, squeezing margins in a
    Operating profits for the year were £2.232m                sports leathers and of dress, public service and
                                                                                                                       fiercely competitive market. The division resumed
    compared to £1.016m in 1998. As between the two            military leathers. The impact on margins of an
                                                                                                                       profitable trading when the seasonal demand for
    halves, Group profits were virtually unchanged.            overall reduction in sales volume of 13% was
                                                                                                                       double face abated towards the end of the year, but
    Although profits in the two manufacturing divisions        cushioned by measures taken to reduce operational
                                                                                                                       overall, a small loss was incurred for the second half.
4     Pittards plc Annual Report & Accounts 1999

    Chairman’s statement

    The contribution of our employees remains a key         During 1999, the Group has achieved an improved
    factor in the maintenance and development of our        performance in challenging circumstances. This
    business. We are pleased that significant numbers       could not have come to pass without the dedication
    already have an interest in the shares of the           and hard work of each of our employees; I would
    Company through the employee share schemes.             like to thank them all.
    We are keen to develop the employee share
                                                            Despite the continuing strength of sterling, we go
    ownership base and new share scheme proposals
                                                            into 2000 with improving order books for the first
    will be put to the Annual General Meeting.
                                                            few months of the year, helped by exciting new
    Shareholders will be asked at the Annual General        products to supplement our existing range. The
    Meeting to approve the replacement of the               business remains sensitive to uncertainties such as
    Company’s existing Articles of Association, which       exchange rates, raw material prices and the state of
    were adopted in 1962, with new Articles. The new        the global economy. Assuming that the current level
    Articles reflect both changes in the law since 1962     of demand continues, we expect to make further
    and current requirements of the Listing Rules of        progress this year.
    the London Stock Exchange, and the Company has
    taken this opportunity to clarify and expand on
    existing wording to facilitate various administrative
    matters. More details on the changes are shown in
    the letter which accompanies this Report and

                                                            Robert C Tomkinson

                                                                  The Pittards ‘Digital’ leather which features

                                                                  on the contact areas of the Hein Gericke

                                                                  motor-cycle glove combines grip with

                                                                  dexterity and perspiration resistance with

                                                            Pittards plc Annual Report & Accounts 1999              7

Operational and financial review

                                                                           The Franklin baseball batters

                                                                           glove features Pittards Microshield

                                                                           antibacterial technology and

                                                                           Armortan™ abrasion resistance.

Pittards produces high performance leather. It aims         growth in virtually all the other segments of the
to be the supplier of first choice to the world’s           division’s business. Sales of golf glove leather over
leading brands of gloves, shoes, luxury leathergoods        the last few years have been very strong, but began
and sports equipment by offering innovative leathers        to slow towards the end of 1998. Early in 1999, it
which are differentiated from competing products by         became clear that the major brands in the sector
their performance properties, quality and consistency,      had stocks of gloves well above the level required to
and which are backed by the highest standards of            service a golf market which was growing more
customer service.                                           slowly than anticipated, particularly in the US.
                                                            A phase of destocking followed, which had its most
The Group operates through three Divisions – Glove
                                                            damaging impact on the division’s sales volumes
Leather, Shoe & Leathergoods and Raw Materials.
                                                            during the second quarter. The gradual recovery of
Each division is focused on a small number of
                                                            business in the latter part of the year was helped by
market segments, and raw material types. Working
                                                            a new golf glove programme with Mizuno in Europe
in long term developmental partnerships with other
                                                            and in Asia. It should be boosted further by the
supply chain members – international brands, their
                                                            launch in 2000 by FootJoy, the market leader, of a
manufacturers, and key suppliers of hides, skins,
                                                            number of new golf gloves featuring innovative
chemicals and other goods and services – the
                                                            leathers developed by the division.
divisions seek to maximise added value through a
continual quest to produce products better, faster          Elsewhere in the sports sector, sales were reasonably
and at lower cost.                                          good, especially to Franklin of WR100 digital leather
                                                            featuring abrasion-resistant Armortan for their top
Glove Leather Division                                      of range baseball batters gloves, and to Nike of
                                                            leather for American football. Sales of leather for
Approximately two thirds of the leather produced at
                                                            outdoor activities to brand leaders such as Marmot,
the division’s factory in Yeovil, Somerset is for gloves
                                                            and to ski brands such as Kombi and Hotfingers
used in sports such as golf, baseball and American
                                                            continued to grow. New business was developed in
football. The remaining one third is primarily for
                                                            cycling with Cannondale, in motor cycling with Hein
dress, military and public service gloves.
                                                            Gericke, and, through the introduction of Firebloc
Almost 90% of production is exported. The majority          flame retardant leather, in motor racing with
of sales, and virtually all purchases of hair sheepskins,   Simpson in the US.
the principal raw material, are denominated in US
                                                            Dress glove business was good, though margins
dollars. This provides some protection from exchange
                                                            suffered as a result of the strength of sterling,
rate fluctuations.
                                                            particularly in relation to the euro. Growth was
The two main features of the year were the                  achieved in the Italian market with a new Extrasoft
temporary fall in sales of golf glove leather, and the      product, and in Eastern Europe with manufacturers
8     Pittards plc Annual Report & Accounts 1999

    Operational and financial review

    making for leading brands such as Dents, Coach and       Shoe & Leathergoods Division
    Roeckl. The division exhibited for the second time at
                                                             Leather for sports and leisure shoe uppers accounts
    the All China Leather Exhibition, and sales grew
                                                             for about 70% of the division’s production. Most of
    further to that country’s manufacturers of gloves
                                                             the remainder is high specification leather for luxury
    both for re-export and for its domestic market.
                                                             leathergoods, plus a small specialist range of leather
    There was strong demand for the division’s military      for saddlery.
    and public service leathers during the year.
                                                             Almost 60% of sales are exported, the majority
    Significant volumes of leather were procured by the
                                                             being denominated in US dollars, though a
    UK, Canadian and French defence ministries for
                                                             substantial proportion are in sterling. Approximately
    military gloves. Meanwhile, orders are beginning to
                                                             80% of the cattle hides purchased are from UK
    flow for Firebloc flame-retardant leather for fire
                                                             sources, and thus there are fewer opportunities to
    fighting services both in the UK and overseas.
                                                             directly hedge currency exposures than in the Glove
    Innovation and product development are key to the        Leather Division.
    future growth and prosperity of the business.
                                                             Management changes, cost reductions, efficiency
    Throughout the year there was a steady stream of
                                                             improvements and the gradual rebuilding of sales
    product performance enhancements in durability
                                                             volumes restored the division’s profitability in the
    and water repellency. New product introductions in
                                                             second half of 1998. This recovery has continued
    2000 will include White Graphite sports leather,
                                                             into 1999 with finished leather volumes up by 15%
    Teflon dress glove leather and Armortan abrasion-
                                                             on the previous year, despite the generally poor
    resistant leather for baseball.
                                                             global demand for shoe leather.
    The availability of hair sheepskins from Africa was
                                                             The sports footwear market was flat, but the
    reasonable, but prices firmed up during the year
                                                             division’s sales to key high performance leather
    whilst the quality of skins generally continued to
                                                             customers such as FootJoy and Puma held up
    decline, largely as a result of parasite damage. The
                                                             extremely well. FootJoy continued to increase its
    division is co-sponsoring a project to raise awareness
                                                             already dominant market share in golf shoes, helped
    of the problem, and to seek practical and economic
                                                             by the higher specification waterproof DryJoy shoes
    responses to it, while the overseas technical
                                                             for which the division supplies the total leather
    development team continues to work with suppliers
                                                             system. The introduction of new lighter weight,
    to improve the quality and consistency of the initial
                                                             higher strength leathers into the Puma range of
    processing of raw material.
                                                             soccer shoes helped consolidate its strong position in
    Substantial benefits for both the business and the       that market.
    employees have flowed from the ‘20 Keys’ initiative
    – a continuous improvement methodology – which
    is entering its fourth year.

                                                                   Pittards supplies the total leather system

                                                                   for FootJoy’s waterproof DryJoy and DryIce

                                                                   golf shoes.
                                                          Pittards plc Annual Report & Accounts 1999                   11

Operational and financial review

                                                                Innovative Pittards footwear leathers bring

                                                                high performance sport characteristics to

                                                                the designer casual category.

Elsewhere in the sports sector, sales of premium          The development of new and innovative products is
quality multi-coloured cross training shoe leathers to    key to the future growth of the business. Two years
New Balance were stable. The entry during the year        ago, the approach to product development was
into the inflatables market with Spalding’s               re-appraised, additional resources were made
all-weather American football has provided useful         available and an innovations team was established.
additional volume, and is being extended to               More than 20% of the sales revenue forecast for the
basketball and beach volleyball.                          year 2000 is expected to come from new products.

Sales of footwear leathers have been strongly             The supply of hides has been reasonably good
boosted by a large number of innovative products          during the year, but prices became firmer latterly.
which bring high performance sport characteristics        The division seeks regular supplies of hides from
to current fashions in the designer casual category.      reliable, long term partners in the UK, the US and in
Griggs Group, makers of Doc Martens shoes,                Europe, and is constantly evaluating other sources
increased their requirement for the division’s leathers   further afield.
in a number of areas, including Defender waterproof
leather for service footwear.                             Raw Materials Division

The division is exploring ways of continuing to           The division procures wool sheepskins and cattle
service its customers as they increase overseas           hides from UK abattoirs and produces wet salted,
resourcing. This will involve sending Pittards quality    pickled and wet blue sheepskins and wet salted and
assured crust leather from the UK to be finished          wet blue hides, for sale to leather producers
overseas with technical back-up from the division.        worldwide. Processing is carried out in two factories
The leather will then be made up into shoes               (fellmongeries) in Langholm and Kinghorn, Scotland.
overseas and re-exported back to Europe, North            Trading is on a back-to-back basis with customers
America or Japan.                                         whose business record is satisfactory and for whom
                                                          adequate credit cover can be obtained.
There was strong growth in the sales of
leathergoods leather during the year, particularly to     For much of the first half, sheepskin prices
Louis Vuitton as demand for its products continues        remained at the very low levels to which they had
to grow and as the division meets a growing               fallen at the end of 1998. Demand for pickled pelts
proportion of its leather requirements.                   began to pick up in the second quarter, particularly
                                                          from the Far East, as nappa leather garments were
The volume of business for watchstraps declined
                                                          prominently featured in many leading fashion
as the fashion end of the market moved away from
                                                          collections and were specially promoted in multiple
leather as the favoured material. The division’s
                                                          retail outlets. Since the latter end of the third quarter,
market share of saddlery had another year of
                                                          demand from Italy, traditionally one of the division’s
steady growth.
12     Pittards plc Annual Report & Accounts 1999

     Operational and financial review

     main markets for pickled sheepskins, has been              • communicate openly on the nature of our
     growing strongly. However, the seasonal interest in           activities and report progress on environmental
     raw UK sheepskins from overseas manufacturers of              plans and performance
     double face (wool-on) garments, albeit much
                                                                • organise activities and operations in such a way
     reduced from previous years, was sufficient to push
                                                                   that environmental impacts are assessed and
     prices to a level where margins on pelts were
     squeezed for much of the third quarter. As the
     interest in double face fell away towards the end of       • aim to minimise waste through the careful use of
     the year, the division resumed profitable trading.            all materials, supplies and energy

     Early in the year both factories adopted a new and         • use renewable or recyclable materials and
     improved process. This has been well received by              components in operations, where possible
     customers and has helped to increase demand for
                                                                • maintain a research and development activity,
     the division’s products.
                                                                   aimed at more efficient and more environmentally
     Towards the end of the year, the division’s hide              acceptable technology
     operation was rationalised. The Group now takes
                                                                • include environmental considerations in all
     fresh unprocessed hides from Scotland directly into
                                                                   investment decisions.
     the Shoe & Leathergoods Division factory in Leeds,
     whilst a facility for processing wet blue hides for sale   Each division has its own environmental
     to third parties has been re-introduced at Kinghorn.       management system and major common initiatives
     This step has encouraged both divisions to develop         are taken by a cross-divisional technical team to
     further their wet blue hide businesses.                    ensure co-ordinated action and the exchange of
                                                                experience and best practice. During the year the
     Environmental Management                                   environmental management systems in the Shoe &
                                                                Leathergoods Division, and at the Langholm
     The environmental policy of the Group is to:
                                                                operation in the Raw Materials Division, were
     • meet and strive to better relevant environmental         accredited to the international standard ISO 14001
        standards and legislation                               by the British Standards Institute. The Glove Leather
                                                                Division achieved accreditation in 1997. The
     • annually review environmental objectives and
                                                                Kinghorn operation is aiming to implement
        targets with a view to continually improving the
                                                                ISO 14001 by the end of the current year.
        Group’s environmental performance

     • use only those hides and skins which are by-
        products of the meat, dairy and wool industries

                                                                      Saddles developed for international event

                                                                      rider Ian Stark with the 2000 Olympics in

                                                                      mind incorporate Pittards waterproof

                                                                      leather, and have all the substance but half

                                                                      the weight of an ordinary saddle.
14     Pittards plc Annual Report & Accounts 1999                                                                                                                                                        Pittards plc Annual Report & Accounts 1999                    15

     Operational and financial review

     Financial Review                                            Geographic spread of sales (£m)                                             the end of the year, and raw material prices rising,        Dividends per share (pence)
                                                                                                                                             working capital absorbed a further £1.597m of cash,
     Turnover for the year was £62.1m compared with
                                                                                                                                             whereas in the reverse set of circumstances in 1998
     £74.3m in 1998. The reduction in turnover of                       1999                                      62.1                                                                                       1999     1.00        2.60
                                                                                                                                             £3.104m was released. Capital expenditure was
     £12.2m arose in the Glove Leather and Raw                          1998                                             74.3                                                                                1998    1.00         2.50
                                                                                                                                             modest at £0.497m (1998 – £0.890m) and was
     Materials Divisions, but for different reasons.
                                                                        1997                                                         101.6   again well within the depreciation charge.                      1997    1.00         2.50
     Destocking in the golf sector accounted for a drop
     of £6.9m in sales of glove leather, whereas low                                                                                         The Group’s principal financial instruments, other
                                                                   Far East & rest of the world       North America         Europe     UK
     sheepskin prices were the major factor in a £7.5m                                                                                       than derivatives, comprise bank loans and                      Interim dividend   Final dividend

     reduction in Raw Materials Division turnover. In                                                                                        overdrafts, preference shares, finance and operating
     terms of volume, glove leather sales were 13% less                                                                                      leases, and cash. The main purpose of these
                                                                 Operating profit (£m)                                                                                                                   Shareholders’ funds (£m)
     than in 1998, whereas Shoe & Leathergoods Division                                                                                      instruments is to raise finance for the Group’s
     sales grew by about 9%. Raw Materials Division                                                                                          operations. Various other financial instruments such                                                            Gearing

     volumes were similar to the previous year. Increased               1999                        2.2                                      as trade debtors and trade creditors arise directly             1999        5.0                         24.5
     orders from some Group customers towards the end                   1998                1.0                                              from operations.                                                1998        5.0                        23.8
     of the year appeared at odds with the generally
                                                                        1997                                2.9                              Derivative transactions (interest rate caps and                 1997              10.4                  24.6     42%
     depressed international market for leather, and the
                                                                                                                                             forward currency contracts) are entered into for the
     strength of sterling.
                                                                    First half      Second half
                                                                                                                                             purpose of managing interest rate and currency risks           Bank borrowings
     Markets outside the UK accounted for 67% of sales                                                                                       arising from the Group’s operations and its sources
     (1998 – 65%) of which approximately two thirds                                                                                          of finance. It is Group policy, and has been
     were to the Far East and North America and were             Profit before tax (£m)                                                      throughout the period under review, that no trading         Net assets per share (pence)
     mainly denominated in US dollars. Approximately                                                                                         in financial instruments shall be undertaken.
     30% of the hides and skins purchased by the Group
                                                                        1999                  1.8                                            The main risks arising from the Group’s financial               1999                                 98.4
     during the year were bought in dollars, and were
                                                                 1998                 0.1                                                    instruments are interest rate risk, liquidity risk and          1998                                 95.2
     hedged against dollar receipts. Excess dollar
                                                                                                                                             foreign currency risk. The board reviews and agrees
     receivables, and all transactions creating currency                1997                          2.6                                                                                                    1997                                 99.3
                                                                                                                                             policies for managing each of these risks and they
     cash flows are hedged by using currency accounts,
                                                                                                                                             are summarised below. These policies have remained
     forward contracts and, where appropriate, options.            First half      Second half
                                                                                                                                             unchanged throughout the period.
     The operating profit for the year was £2.2m (1998 –
                                                                                                                                             The Group’s principal borrowings are in pounds
     £1.0m) with approximately £1.1m arising in each
                                                                                                                                             sterling, although foreign currency borrowings are
     half of the year. The two manufacturing divisions’
                                                                                                                                             used to manage timing differences in cash flows
     second half profits were more than 50% up on the
                                                                 The profit before tax was £1.758m compared to                               arising from trading activities. The debt is all floating   Group would take advantage of medium-term fixed
     first half. Raw Materials Division made all its profit in
                                                                 £0.085m in the previous year. There was a                                   rate. The Group’s policy is to use interest rate caps       rate borrowings if there were compelling commercial
     the first half of the year. Margins improved, despite
                                                                 negligible tax charge (1998 – tax credit £0.099m).                          to manage exposure to significant fluctuations in           reasons to do so.
     the upward trend in hide and skin prices, as a result
                                                                 The tax losses available to carry forward against                           interest rates when it believes that the risk justifies
     of efficiency improvements and cost control. Overall,                                                                                                                                               The Group has transactional currency exposures,
                                                                 future profits are approximately £3.756m.                                   the cost. At the year end no interest rate cap was
     the average number employed in the Group in 1999                                                                                                                                                    which arise from sales or purchases by operating
                                                                                                                                             in place.
     was 799, 45 fewer than the previous year. Interest          The Group generated £0.073m cash in the year                                                                                            units in currencies other than sterling. Forward
     costs were £0.473m, almost half those of the                (1998 – £5.549m) and the net debt reduced from                              The Group’s objective is to maintain a balance              currency contracts and options are used to hedge
     previous year (£0.931m) due to lower average                £5.031m to £4.958m – 20.3% of shareholders’                                 between continuity of funding and flexibility through       net exposures to foreign currency fluctuations as
     borrowings during the year and lower interest rates.        funds. Cash generated from operations, and before                           the use of overdrafts, bank loans and finance leases;       they arise. No material foreign currency exposure
     An 8% LIBOR cap covering approximately £5m of               working capital movements, was £3.727m (1998 –                              no specific policy exists with regard to liquidity.         arises from overseas investments.
     borrowings expired midway through the year.                 £2.495m). With activity levels increasing towards                           Short-term, floating rate debt is favoured, but the
16     Pittards plc Annual Report & Accounts 1999                                                                                                                                                                   Pittards plc Annual Report & Accounts 1999               17

     Directors                                                                                                                                                                                                 Officers and advisers
                                                                                                                                                                                                               Company secretary

 †* § R C Tomkinson      MA, FCA, FCT Chairman, non-executive          *§ J W W Pittard     Managing Director                                J H Buckley     LLB, FCA, MCT                                     Mrs J Williams      LLB, ACA

     Robert Tomkinson (58) joined the Group as a non executive            John Pittard (55) joined the Pittard Group in 1963. He was         John Buckley (52) was appointed Group Financial Director on       Jill Williams (42) joined the Group as Finance and Planning
     director in July 1997 and was appointed Chairman in October          appointed Group Managing Director in 1980. He is a non-            joining the Group in 1986 from a similar role in the food         Manager in 1989. She was appointed Company Secretary
     1997 following his retirement as Group Finance Director of           executive director of the Shoe and Allied Trades Research          industry. He is non-executive Chairman of Vistarama Balloon       in 1991.
     Electrocomponents. He is a non-executive Deputy Chairman of          Association and a member of the South West Regional Council        Systems International and is a member of the South West
     Jardine Lloyd Thompson Group, a non-executive director of            of the CBI.                                                        Regional Advisory Group of the London Stock Exchange.
     UGC (The Unipart Group of Companies) and Chairman of the
     Council of the University of Buckingham.

                                                                                                                                                                                                               Registered office
                                                                                                                                                                                                               Sherborne Road, Yeovil, Somerset BA21 5BA

                                                                                                                                                                                                               Rowan Dartington & Co Ltd, Colston Tower,
                                                                                                                                                                                                               Colston Street, Bristol, BS1 4RD

                                                                                                                                                                                                               Financial advisers
                                                                                                                                                                                                               SBC Warburg Dillon Read, 2 Finsbury Avenue,
                                                                                                                                                                                                               London EC2M 2PA

     R H Hankey      FSLTC, LCGI, FI Mgt., CDip AF                        S R Johnson     BA, FSLTC                                          A G Marriott     PhD, MSc, GPRI                                   Auditors
                                                                                                                                                                                                               Ernst & Young, Becket House, 1 Lambeth Palace Road,
     Reg Hankey (44) was appointed Chief Executive of the Glove           Steve Johnson (43) will become Chief Executive of the Shoe         Tony Marriott (59) steps down as Chief Executive of the Shoe
                                                                                                                                                                                                               London SE1 7EU
     Leather Division in December 1997, and joined the board in           & Leathergoods Division and join the board on 3 April 2000.        & Leathergoods Division on 3 April 2000, and retires from the
     January 1998. He joined the Glove Leather Division as                He joined the Group in July 1998 as Technical Director of the      Group Board on 4 July 2000. He joined the Group in 1978,          Registrars
     Technical Director in 1990 from a similar position within the        Glove Leather Division, after 20 years experience within the       and was appointed to the board in 1990 as Chief Executive of      Northern Registrars, Northern House, Woodsome Park,
     leather industry. He is a non-executive director of the British      leather industry. On 1 January 2000 he was appointed Chief         the Glove Leather Division, transferring to his present role in   Fenay Bridge, Huddersfield HD8 0LA
     Leather Confederation and a governor of Yeovil College.              Executive (Designate) of the Shoe & Leathergoods Division.         December 1997. He is a Past President and a non-executive
                                                                                                                                             director of the British Leather Confederation.

                                                                                                                                                                                                               †   Member of the audit committee
                                                                                                                                                                                                               *   Member of the remuneration committee
                                                                                                                                                                                                               §   Member of the nomination committee

     R Paisley                                                         †* E D B Tebbs     MA, MIEE, FBCS, FRSA, CEng non-executive        †* Mrs G L Thwaites       BA non-executive

     Robert Paisley (59) is Chief Executive of the Raw Materials          David Tebbs (61) joined the Group as a non-executive               Gill Thwaites (40) joined the Group as a non-executive
     Division, and was appointed to the board in May 1997.                director in May 1998 and is now its senior independent             director in May 1998. After working at director level in
     He joined the Group in 1959.                                         director. He is Chairman of Druid Group, holds several non-        several leading advertising agencies she set up her own
                                                                          executive directorships and is a former director of the BIS        consultancy specialising in strategic marketing and brand
                                                                          Group. As principal of David Tebbs Associates he works             development for blue chip companies.
                                                                          closely with clients to help their strategic development.
18     Pittards plc Annual Report & Accounts 1999                                                                                                                                                           Annual Report & Accounts 1999 Pittards plc              19

     Directors’ report                                                                                                            Directors’ report

     The directors submit their report together with the audited financial statements for the year ended 31 December 1999.        Directors
                                                                                                                                  The persons named on pages 16 and 17, are the present directors except for S R Johnson who will be appointed a
     Principal activities                                                                                                         director on 3 April 2000, and will offer himself for election at the forthcoming Annual General Meeting. A G Marriott
     The principal activities of the Group are the production of technically advanced leather for sale to manufacturers and       and R Paisley retire by rotation and offer themselves for re-election. A G Marriott will retire from the board on
     distributors of shoes, gloves, luxury leathergoods and sports equipment and the trading of hides and skins.                  4 July 2000.

     Results and dividends                                                                                                        Directors’ interests
     Group results are summarised in the consolidated profit and loss account on page 28. For a review of operations and          The directors at the end of the year and their interests in the shares of the Company were:
     future developments, see pages 7 to 15.
                                                                                                                                                                                          AT END OF YEAR                            AT BEGINNING OF YEAR
                                                                                                                                                                                       Ordinary Shares of 25p                       Ordinary Shares of 25p
     An interim ordinary dividend of 1.0p has been paid in respect of 1999 (1998 – 1.0p per share). The directors recommend
     that a final ordinary dividend of 2.6p per share (1998 – 2.5p per share) amounting to £567,000 (1998 – £545,000) be                                                                            Non-                                         Non-
                                                                                                                                                                                 Beneficial    beneficial                     Beneficial    beneficial
     paid which, after preference dividends of £285,000 leaves a profit of £688,000 to be transferred to reserves. Subject to                                                    fully paid    fully paid    Options          fully paid    fully paid    Options
     approval at the Annual General Meeting, the final dividend will be paid on 12 May 2000 to shareholders on the register
     at close of business on 14 April 2000.                                                                                       J H Buckley                                   53,345                 –    35,000            51,536            200      35,000
                                                                                                                                  R H Hankey                                    38,950                 –    30,000            35,000                –    30,000
     Research and development                                                                                                     A G Marriott                                  16,734                 –    50,000            16,734                –    50,000
     The Group recognises the importance of continuous product and process development in maintaining its reputation for          R Paisley                                     12,192                 –    35,000            12,015                –    35,000
     innovative high performance leathers. It works closely with both customers and suppliers to develop clearly differentiated   J W W Pittard                                381,390        849,197       65,000           405,696       849,197       65,000
     products using advanced technology.                                                                                          E D B Tebbs                                   10,000                 –          –           10,000                –           –
                                                                                                                                  G L Thwaites                                           –             –          –                   –             –           –
                                                                                                                                  R C Tomkinson                                 20,000                 –          –           20,000                –           –
     Substantial interests
     In addition to those disclosed under directors’ interests, the Company has been notified of the following interests under
                                                                                                                                  No changes took place in the interests of directors in the shares of the Company between 31 December 1999 and
     section 211 Companies Act 1985 as at 8 March 2000:
                                                                                                                                  8 March 2000, except that Mrs G L Thwaites was gifted 5,714 ordinary shares on 27 January 2000 by a family member,
                                                                                                                                  in whose shares she was not deemed to be beneficially interested, for nil consideration. Details of directors’ interests in
     BFS Small Companies Dividend Trust plc                                                   2,000,000    (9.18%)
                                                                                                                                  the Restricted Share Plan and the savings related share option schemes can be found on pages 22 and 23 respectively.
     Fidelity Recovery Trust                                                                  2,119,800    (9.72%)

                                                                                                                                  Annual General Meeting
     Creditor payment policy                                                                                                      An ordinary resolution (number 7) will be proposed enabling the directors to allot the whole of the unissued share
     The Group does not follow a particular code for the payment of suppliers. It is the Group’s policy in respect of major
                                                                                                                                  capital of £1,425,591 (representing approximately 26% of the issued ordinary share capital) during the next five years.
     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 payment. For small local suppliers the policy is to pay           A special resolution (number 8) will be proposed which will enable the directors to make rights issues, and to allot
     within 45 days of invoice and for other suppliers to pay within 60 days. Trade creditors at the year end represented         unissued shares for cash otherwise than to existing shareholders up to a nominal amount of £272,470 (being 5 per cent
     57 days’ purchases.                                                                                                          of the Company’s current issued share capital) as permitted by the London Stock Exchange regulations and Investment
                                                                                                                                  Protection Committee guidelines until the 2001 Annual General Meeting. Other than the allotment of ordinary shares
     Charitable donations                                                                                                         under the terms of the Group’s various employee share option schemes, the directors have no present intention of
     During the financial year the Group made contributions to United Kingdom charitable organisations of £10,331.                exercising the authority to allot further relevant securities.
     No political donations were made during the year.
                                                                                                                                  Year 2000 issues
     Employment of disabled persons                                                                                               A project team was formed in November 1997 to address the issues raised for the business and its systems as the year
     Every consideration is given to the employment, training and career development of the disabled and those who have           changed from 1999 to 2000.
     become disabled during employment, having regard to their particular aptitudes and abilities.
                                                                                                                                  The project team, which was sponsored by the board, developed a plan to ensure that all significant risks had been
                                                                                                                                  addressed well in advance of critical dates with minimum disruption to the business. In the execution of the plan, priority
     Employee consultation                                                                                                        was given to those systems having the most significant potential to impact on the business financially or on its ability to
     The Group recognises the need for good communications with employees and places great importance on employee
                                                                                                                                  service its customers.
     involvement. Joint consultative committees have been active for many years and management training lays emphasis on
     the skills and attitudes required for clear communications and consultation.

     Matters of particular interest or importance are communicated to all employees through special briefing meetings.
20     Pittards plc Annual Report & Accounts 1999                                                                                                                                                            Annual Report & Accounts 1999 Pittards plc               21

     Directors’ report                                                                                                               Report on directors’ remuneration

     In addition to its internal focus, the plan also included consideration of the potential impact on the business of failures     The remuneration committee which is composed of the non-executive directors and the group managing director, makes
     by suppliers and customers to address year 2000 issues. Written assurances were sought where appropriate.                       recommendations to the board on the remuneration of executive directors and senior executives of the Company. The
                                                                                                                                     group managing director is not present when his own salary is being discussed. The remuneration of non-executive
     No significant problems have been encountered since the millennium date change and the project team has been
                                                                                                                                     directors is determined by the full board.
     disbanded. While the directors recognise that there is still a risk of issues arising from the date change causing disruption
     to the business, they do not believe this risk to be significant.
                                                                                                                                     The salaries of executive directors are determined after a review, normally carried out annually, of the performance of the
                                                                                                                                     individual. The committee seeks to reward directors competitively and on the broad principle that their remuneration
     Ernst & Young have expressed their willingness to continue in office and a resolution for their re-appointment will be
                                                                                                                                     package should be based around the median remuneration and benefits enjoyed by senior managers of manufacturing
     proposed at the forthcoming Annual General Meeting.
                                                                                                                                     businesses of comparable size. For guidance the committee uses specific job matched remuneration surveys published by
                                                                                                                                     employee benefit consultants.
     By order of the board
     J Williams, Secretary
     8 March 2000
                                                                                                                                     The executive directors participate in the Pittards senior executive reward plan. The plan is administered by the
                                                                                                                                     remuneration committee and is made up of two parts: the Pittards senior executive bonus plan and the Pittards
                                                                                                                                     restricted share plan. The senior executive bonus plan is linked to formulae based on divisional and group pre-tax profit,
                                                                                                                                     return on capital, wages, and turnover.

                                                                                                                                     The participants’ bonus is divided into three parts. Two thirds of the bonus is paid in cash with the participants’ March
                                                                                                                                     salary. The remaining third of the bonus will be paid in the form of awarded shares through the restricted share plan.
                                                                                                                                     The participant will receive further shares (‘matching shares’) to match the shares he is paid as part of his bonus, again
                                                                                                                                     through the restricted share plan. These matching shares will usually be given on a two for one basis.

                                                                                                                                     The money that is to be used to purchase Pittards plc shares under the restricted share plan is paid to the trustees of
                                                                                                                                     the Pittards employee share ownership trust. The trustee holds the shares for a restricted period of up to five years.
                                                                                                                                     The number of shares which actually vest is determined by the Company’s performance during the restricted period.
                                                                                                                                     Matching shares will only vest if the following performance conditions determined by the committee are satisfied:

                                                                                                                                     • the Company’s earnings per share must increase by at least 10% per annum compound over the restricted period; and
                                                                                                                                     • the Company’s return on assets must have reached at least 15% in one year of the restricted period; and
                                                                                                                                     • the Company’s total net cash flow over the restricted period must be positive.

                                                                                                                                     The relevant figures included in the report and accounts for each year will be used to determine whether the
                                                                                                                                     performance conditions have been achieved.

                                                                                                                                     If the first condition set out above has not been satisfied at the end of the restricted period, the restricted period will be
                                                                                                                                     extended for up to two more years. If that performance condition has not been satisfied by the end of the fifth year
                                                                                                                                     after the shares were awarded the matching shares will lapse and will be forfeit. The awarded shares will vest with the
                                                                                                                                     participant at the end of the restricted period.
22     Pittards plc Annual Report & Accounts 1999                                                                                                                                                                                                      Annual Report & Accounts 1999 Pittards plc                23

     Report on directors’ remuneration                                                                                                                                           Report on directors’ remuneration

     The interests of the executive directors in the Pittards senior executive reward plan in 1999 were as follows:                                                              The pension entitlement shown is that which would be paid annually on retirement based on service to the end of the
                                                                                                                                                                                 year or date of resignation. The increase in accrued pension during the year excludes any increase for inflation. The
                                          As at         Granted during            Vested during                   As at
                                    1 Jan 1999                the year                 the year            31 Dec 1999                           Vesting Period                  transfer value has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11 less
                                                                                                                                                                                 directors’ contributions.
                                 No. of shares            No. of shares           No. of shares           No. of shares                      From                          To
     J H Buckley                    22,910                      986                             –             23,896               July     2000                 July   2004
     R H Hankey                          –                   11,458                             –             11,458              June      2002                June    2004     Share options
     A G Marriott                   13,469                        –                             –             13,469              June      2000                June    2002     Executive directors and other senior executives throughout the Group hold options under the Pittards senior executive
     R Paisley                           –                      354                             –                354               July     2002                 July   2004     share option scheme established in May 1986. Invitations to subscribe for options are made at the discretion of the
     J W W Pittard                  31,269                    1,388                             –             32,657              June      2000              August    2004     remuneration committee and are intended to encourage wider share ownership amongst employees. No invitations were
                                                                                                                                                                                 issued to directors during the year. The Pittards senior executive share option scheme came to an end in May 1996.
     The awards under the Pittards senior executive reward plan were made by the remuneration committee, in respect of
     1999, at their meeting on 6 March 2000. The amounts awarded under the bonus scheme, and due for payment at the                                                              Executive directors and employees throughout the Group hold options under the savings related share option scheme
     end of March 2000, and the amounts to be paid over to the trustees of the Pittards employee share ownership trust for                                                       established in June 1997. The options may be exercised wholly or in part after three years from the date of joining the
     the purchase of awarded shares and matching shares under the restricted share plan are included below:                                                                      scheme.

     Directors’ remuneration                                                                                                                                                     Share options granted to executive directors under the schemes are summarised below:
                                                                    Salary                               Annual            Deferred                   1999               1998
                                                                                                                                                                                                                                                                               Number of            Number of
                                                                  and fees           Benefits             bonus             bonus*                    Total              Total
                                                                                                                                                                                                                      Exercise         Exercisable         Exercisable         options at           options at
                                                                  £’000             £’000               £’000              £’000                £’000                   £’000                                            price               from                   to         31 Dec 99            31 Dec 98
                                                                                                                                                                                 J H Buckley                            61p         10.05.1994         10.05.2001               35,000               35,000
     J H Buckley                                                     75                   8                  9                   4                     96                 79
                                                                                                                                                                                 J H Buckley                            82p         01.07.2000         01.01.2001                    –                2,853
     R H Hankey                                                      70                  10                  3                   2                     85                 72
                                                                                                                                                                                 J H Buckley                            38p         01.12.2002         01.06.2003                2,549                    –
     A G Marriott                                                    97                   1                 18                   –                    116                 96
                                                                                                                                                                                 R H Hankey                             61p         10.05.1994         10.05.2001               10,000               10,000
     R Paisley                                                       71                   5                 12                   6                     94                 73
                                                                                                                                                                                 R H Hankey                             62p         12.04.1999         12.04.2006               20,000               20,000
     J W W Pittard                                                  106                  11                 12                   6                    135                109
                                                                                                                                                                                 R H Hankey                             38p         01.12.2002         01.06.2003                2,549                    –
                                                                                                                                                                                 A G Marriott                           61p         10.05.1994         10.05.2001               50,000               50,000
                                                                                                                                                                                 A G Marriott                           82p         01.07.2000         01.01.2001                2,853                2,853
     E D B Tebbs                                                      18                   –                  –                  –                     18                 11
                                                                                                                                                                                 R Paisley                              62p         12.04.1999         12.04.2006               35,000               35,000
     G L Thwaites                                                     18                   –                  –                  –                     18                 11
                                                                                                                                                                                 R Paisley                              82p         01.07.2000         01.01.2001                2,853                2,853
     R C Tomkinson                                                    51                   –                  –                  –                     51                 50
                                                                                                                                                                                 R Paisley                              38p         01.12.2002         01.06.2003                2,549                    –
                                                                                                                                                      613                501     J W W Pittard                          61p         10.05.1994         10.05.2001               65,000               65,000

     Remuneration of directors employed by the Group during 1998 but not 1999                                                                            –                  7
                                                                                                                                                                                 The mid market price of the shares at 31 December 1999 was 45.5p and the range during the year was 22.5p to 52.5p.
     Total                                                                                                                                            613                508
                                                                                                                                                                                 Share options were granted under the savings related share option scheme on 12 October 1999 at 38p per share.
     * The deferred bonus will be paid in the form of awarded shares, together with matching shares on a two for one basis made under the terms of the plan.                     No options were exercised by directors during the year, however some options granted under the savings related share
                                                                                                                                                                                 option scheme in 1997 were allowed to lapse. There have been no movements in directors’ options since the year end.
     Directors’ pensions
     Pension benefits earned by directors during the year and the accumulated total accrued pension at 31 December 1999                                                          Service agreements
     were as follows:                                                                                                                                                            J H Buckley, R H Hankey and J W W Pittard hold service contracts requiring two years’ notice of termination. There are
                                                                                    Increase in           Transfer value              Total accrued             Total accrued    no current plans to reduce the notice period as it is in line with the market, and the Company applies the principle of
                                                                               accrued pension               of increase              pension 1999              pension 1998
                                                                                                                                                                                 mitigation to any payment of compensation on termination.
                                                                                       £’000                      £’000                    £’000                        £’000
     J H Buckley                                                                           3                         14                       32                           29
                                                                                                                                                                                 On behalf of the board
     R H Hankey                                                                            3                         13                       10                            7
                                                                                                                                                                                 R C Tomkinson
     A G Marriott                                                                          7                         79                       42                           35
     R Paisley                                                                             3                          8                       36                           33    Chairman of the remuneration committee
     J W W Pittard                                                                         4                         12                       52                           48    8 March 2000
24     Pittards plc Annual Report & Accounts 1999                                                                                                                                                            Annual Report & Accounts 1999 Pittards plc          25

     Corporate governance                                                                                                           Corporate governance

     The board supports the principles of corporate governance set out in the combined code prepared by the Hampel                  auditors and on their remuneration both for audit and non-audit work, and discusses the nature, scope and results of
     Committee.                                                                                                                     the audit with external auditors. The audit committee keeps under review the cost effectiveness and the independence
                                                                                                                                    and objectivity of the external and internal auditors.
     The Company has been in full compliance with the provisions set out in Section 1 of the code throughout the year
     except where noted below.                                                                                                      All members of the board, including the members of the committees of the board, are normally available to answer
                                                                                                                                    questions from shareholders at the AGM. Details of resolutions to be proposed at the Annual General Meeting on
                                                                                                                                    2 May 2000 can be found in the notice of the meeting. The operating and financial review on pages 7 to 15 includes
                                                                                                                                    a detailed review of the business and future developments.
     The board currently comprises five executive and three independent non-executive directors (including the chairman,
     Robert Tomkinson, who is responsible for running the board and David Tebbs who is the senior independent director).            Internal control
     It carries ultimate responsibility for the conduct of the business. The current directors and Mr SR Johnson who will be        The Group has adopted the transitional approach for the Combined Code set out in the letter from the London Stock
     appointed a director on 3 April 2000 are listed on pages 16 and 17 together with brief details of their background.            Exchange to listed companies at the end of September 1999.
     These details demonstrate a range of experience and, in the case of the non-executive directors, independence to bring
     to the board’s deliberations on issues such as strategy, performance, resources and standards of conduct. An appropriate       Wider aspects of internal control
     induction and development programme is devised for all new appointments to the board.                                          The board expects to have the procedures necessary to implement ‘Internal Control : Guidance for Directors on the
                                                                                                                                    Combined Code’ (the Turnbull report) in place by May 2000. These procedures include holding a risk management
     As noted in the report on directors’ remuneration, the Company does not comply with the provision of the combined
                                                                                                                                    workshop attended by executive board members and then discussed by the full board, which identifies and prioritises
     code which recommends that directors’ contract periods should be set at one year or less.
                                                                                                                                    the key risks for the Group and determines a control strategy for each one. The risk and the related internal control
     The combined code’s provision which recommends that all directors should be subject to re-election at least every three        strategies will be reviewed at least annually by the full board, and the effectiveness of the procedures will be tested on
     years is complied with except in the case of the managing director, in accordance with the Company’s Articles of               a cyclical basis as part of the internal audit programmes.
     Association. The Company will ask shareholders at the AGM to approve the amendment of its Articles to ensure future
     compliance with the combined code.                                                                                             Internal financial control
                                                                                                                                    The board of directors is responsible for the Group’s system of internal financial control. By their nature such control
     The board has a formal schedule of matters specifically referred to it for decision. All directors have access to the advice
                                                                                                                                    systems can only provide reasonable, but not absolute, assurance against material misstatement or loss. An
     and services of the company secretary, Jill Williams, who is responsible to the board for ensuring that it follows
                                                                                                                                    organisational structure has been established with clear operating procedures, lines of responsibility and delegated
     established board procedures and complies with applicable regulations. The appointment and removal of the company
                                                                                                                                    authority. In particular, there are established procedures for:
     secretary is a matter for the board as a whole.

     Regular meetings of the board take place every two months to review trading performance and funding, to monitor                • business planning and budgeting and for monitoring performance against budget
     strategy and also to receive regular and ad-hoc reports and presentations. To enable the board to discharge its duties, all    • capital investment including appraisal, authorisation, monitoring and post investment review
     directors receive appropriate and timely information. The company secretary distributes briefing papers to all directors in    • financial reporting and variance analysis.
     advance of board meetings. Directors have the facility to take independent professional advice should they wish to do          The board meets regularly and considers these areas, together with other significant business risks and issues.
                                                                                                                                    The operation of the system of internal financial control is monitored in a number of ways:
     Committees of the board
                                                                                                                                    • a programme of procedural tests is carried out by internal audit, involving at least one set of tests in at least one
     The board has appointed an audit committee, a remuneration committee and a nomination committee each with a
                                                                                                                                       operating unit of each division during the course of a year. A full report is made by the internal auditor on each
     formal constitution. The three non-executive directors of the Company are members of the audit and remuneration
                                                                                                                                       operating unit tested, to the audit committee
     committees. Membership of the committees is set out on pages 16 and 17. John Pittard, group managing director, is a
                                                                                                                                    • signed representations are provided to the audit committee by senior management in each unit concerning the
     member of the remuneration committee and, with Robert Tomkinson, Chairman, a member of the nomination
                                                                                                                                       operation of internal financial controls within their area of responsibility
     committee. The non-executive directors, who represent a majority on the remuneration committee and one of whom
     must be the chairman of the committee, benefit from the advice of the group managing director concerning the other
                                                                                                                                    • consideration is given to the matters raised in the external auditor’s report to the board.
     executive directors. Recommendations on remuneration are made by those members of the committee who do not                     The board has reviewed the effectiveness of the systems of internal financial control in operation during the financial
     benefit personally from their proposals. The group managing director is not present when his own salary is being               year through the monitoring processes set out above.
     discussed. Accordingly, the Company has been unable to comply with the provision of the combined code which
     recommends that the remuneration committee is comprised only of non-executive directors. Further details of the                Going concern
     Company’s policies on remuneration, service contracts and compensation payments are given in the report on directors’          After making appropriate enquiries, the directors have a reasonable expectation that the Group has adequate resources
     remuneration on pages 21 to 23.                                                                                                to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going
                                                                                                                                    concern basis in preparing the financial statements.
     The audit committee is responsible for reviewing a wide range of matters including the half year and annual financial
     statements before their submission to the board and monitoring the controls which are in force to ensure the integrity of
     the information reported to the shareholders. The audit committee advises the board on the appointment of external
26     Pittards plc Annual Report & Accounts 1999                                                                                                                                                          Annual Report & Accounts 1999 Pittards plc           27

     Statement of directors’ responsibilities in relation to financial statements                                                  Report of the auditors to the members of Pittards plc

     The following statement, which should be read in conjunction with the auditors’ statement of auditors’ responsibilities       We have audited the financial statements on pages 28 to 43, which have been prepared under the historical cost
     set out on page 27, is made with a view to distinguishing for shareholders the respective responsibilities of the directors   convention as modified by the revaluation of freehold property and the accounting policies set out on pages 32 and 33.
     and of the auditors in relation to the financial statements.
                                                                                                                                   Respective responsibilities of directors and auditors
     The directors are required by the Companies Act 1985 to prepare financial statements for each financial year which give
                                                                                                                                   The directors are responsible for preparing the annual report. As described on page 26, this includes responsibility for
     a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the
                                                                                                                                   preparing the financial statements in accordance with applicable United Kingdom law and accounting standards. This
     profit or loss for the financial year.
                                                                                                                                   responsibility also includes selecting accounting policies and then applying them consistently, and although the directors
     Following discussions with the auditors, the directors consider that in preparing the financial statements (on pages 28 to    have discussed the appropriateness of the accounting policies with us, it is solely their responsibility to select the
     43), which are on the going concern basis, the Company has used appropriate accounting policies, consistently applied         accounting policies to be applied in the preparation of the financial statements. Our responsibilities, as independent
     and supported by reasonable and prudent judgements and estimates, and that all applicable accounting standards have           auditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the London
     been followed.                                                                                                                Stock Exchange and by our profession’s ethical guidance.

     The directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonable       We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared
     accuracy the financial position of the Company and which enable them to ensure that the financial statements comply           in accordance with the Companies Act. We also report to you if, in our opinion, the directors’ report is not consistent
     with the Companies Act 1985.                                                                                                  with the financial statements, if the Company has not kept proper accounting records, if we have not received all the
                                                                                                                                   information and explanations we require for our audit, or if the information specified by law or the Listing Rules
     The directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of
                                                                                                                                   regarding directors’ remuneration and transactions with the Company is not disclosed.
     the Group and to prevent and detect fraud and other irregularities.
                                                                                                                                   We review whether the corporate governance statement on pages 24 and 25 reflects the Company’s compliance with
                                                                                                                                   the seven provisions of the Combined Code specified for our review by the Stock Exchange, and we report if it does not.
                                                                                                                                   We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form
                                                                                                                                   an opinion on the effectiveness of either the Company’s corporate governance procedures or its risk and control

                                                                                                                                   We read the other information contained in the annual report, including the corporate governance statement, and
                                                                                                                                   consider whether it is consistent with the audited financial statements. We consider the implications for our report if we
                                                                                                                                   become aware of any apparent misstatements or material inconsistencies with the financial statements.

                                                                                                                                   Basis of audit opinion
                                                                                                                                   We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes
                                                                                                                                   examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also
                                                                                                                                   includes an assessment of the significant estimates and judgements made by the directors in the preparation of the
                                                                                                                                   financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently
                                                                                                                                   applied and adequately disclosed.

                                                                                                                                   We planned and performed our audit so as to obtain all the information and explanations which we considered
                                                                                                                                   necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are
                                                                                                                                   free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also
                                                                                                                                   evaluated the overall adequacy of the presentation of information in the financial statements.

                                                                                                                                   In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group
                                                                                                                                   as at 31 December 1999 and of the profit of the Group for the year then ended and have been properly prepared in
                                                                                                                                   accordance with the Companies Act 1985.

                                                                                                                                   Ernst & Young
                                                                                                                                   Registered Auditor, London
                                                                                                                                   8 March 2000
28     Pittards plc Annual Report & Accounts 1999                                                                                                                                                         Annual Report & Accounts 1999 Pittards plc     29

     Consolidated profit and loss account                                                                                          Consolidated statement of total recognised gains and losses
     for the year ended 31 December 1999                                                                                           for the year ended 31 December 1999

                                                                                                          1999)         1998)                                                                                                        1999)      1998)
                                                                                              Note        £’000)        £’000)                                                                                                      £’000)      £’000)

     Turnover                                                                                  2,3      62,115)       74,320)      Profit on ordinary activities after taxation                                                     1,758)       184)
                                                                                                                                   Exchange difference on retranslation of net assets of subsidiary undertakings                       (2)         (3)
     Cost of sales                                                                                      (51,312)      (64,262)
                                                                                                                                   Total recognised gains relating to the year                                                      1,756)       187)
     Gross profit                                                                                       10,803)       10,058)

     Distribution costs                                                                                  (3,724)       (3,628)
     Administrative expenses                                                                             (4,847)       (5,414)
                                                                                                                                   Reconciliation of group shareholders’ funds
                                                                                                                                   for the year ended 31 December 1999
     Operating profit                                                                            4        2,232)        1,016)
                                                                                                                                                                                                                                     1999)      1998)
     Interest payable                                                                            5         (473)         (931)                                                                                                      £’000)      £’000)

                                                                                                                                   Total recognised gains                                                                           1,756)       187)
     Profit on ordinary activities
                                                                                                                                   Dividends                                                                                       (1,070)     (1,048)
     before taxation                                                                                      1,759)             85)
     Taxation                                                                                    7           (1)             99)
                                                                                                                                   Total movements during the year                                                                    688)       (861)
                                                                                                                                   Shareholders’ funds at 1 January                                                                23,741)     24,602)
     Profit on ordinary activities
     after taxation                                                                                       1,758)         184)
                                                                                                                                   Shareholders’ funds at 31 December                                                              24,427)     23,741)
     Dividends – equity and non-equity                                                           8       (1,070)       (1,048)

                                                                                                                                   The notes on pages 32 to 43 form part of these financial statements.
     Transfer to (from) reserves                                                                            688)         (864)

     Earnings (loss) per share (basic and diluted)                                               9         6.8p)        (0.5p)

     There were no discontinued activities in 1999 or 1998. Accordingly the above results relate to continuing operations.

     A statement of the movement on reserves can be found in note 20.

     The notes on pages 32 to 43 form part of these financial statements.
30     Pittards plc Annual Report & Accounts 1999                                                                                                                                                    Annual Report & Accounts 1999 Pittards plc     31

     Balance sheets                                                                                                           Consolidated statement of cash flows
     as at 31 December 1999                                                                                                   for the year ended 31 December 1999

                                                                                         Group                 Company                                                                                                          1999)      1998)
                                                                                                                                                                                                                      Note     £’000)      £’000)
                                                                                      1999)       1998)     1999)     1998)
                                                                            Note     £’000)      £’000)    £’000)    £’000)   Net cash inflow from operating activities                                                21a     2,130)      5,599)
     Fixed assets
     Tangible fixed assets                                                    10   17,850)    18,869)         25)       38)   Returns on investments and servicing of finance
     Investments in subsidiary undertakings                                   11        –)         –)      3,368)    3,368)   Interest paid                                                                                     (441)       (934)
                                                                                                                              Interest element of finance lease rental repayments                                                 (9)        (21)
                                                                                   17,850)    18,869)      3,393)    3,406)   Preference dividends paid                                                                         (285)       (285)

     Current assets                                                                                                           Net cash outflow from returns on investments and servicing of finance                             (735)     (1,240)
     Stocks                                                                   12   12,830)    12,229)          –)        –)
     Debtors                                                                  13    8,027)     7,153)     16,649)   16,734)   Taxation
     Investments                                                              14       14)        23)         14)       23)   UK corporation tax paid                                                                            (91)       (261)
     Cash at bank and in hand                                                          22)        57)         12)       15)   Overseas tax paid                                                                                   (1)          –)

                                                                                   20,893)    19,462)     16,675)   16,772)   Tax paid                                                                                           (92)       (261)

     Creditors – amounts falling due within one year                                                                          Capital expenditure and financial investment
     Bank loans and overdrafts                                                15    (4,982)    (3,596)    (4,982)   (3,596)   Purchase of matching shares under restricted share plan                                            (16)         (9)
     Trade creditors                                                                (5,676)    (5,930)         –)      (14)   Purchase of tangible fixed assets                                                                 (497)       (890)
     Other creditors                                                          16    (3,637)    (3,595)    (1,572)   (1,616)   Sale of tangible fixed assets                                                                       46)      3,113)

                                                                                                                              Net cash (outflow) inflow from capital expenditure and financial investment                       (467)      2,214)
                                                                                   (14,295)   (13,121)    (6,554)   (5,226)
                                                                                                                              Equity dividends paid                                                                             (763)       (763)
     Net current assets                                                              6,598)      6,341)   10,121)   11,546)
                                                                                                                              Net cash inflow before financing                                                                    73)      5,549)

     Total assets less current liabilities                                         24,448)    25,210)     13,514)   14,952)   Financing
     Creditors – amounts falling due after more than one year                 17        –)    (1,448)          –)   (1,448)   Repayment of term loans                                                                         (4,198)     (1,502)
                                                                                                                              Capital element of finance lease rental repayments                                                 (44)       (102)
                                                                                   24,448)    23,762)     13,514)   13,504)
                                                                                                                              Net cash outflow from financing                                                                 (4,242)     (1,604)
     Capital and reserves
     Called up share capital                                                  19     8,449)      8,449)    8,449)    8,449)   (Decrease) increase in cash                                                                     (4,169))     3,945)
     Share premium account                                                    20     3,619)      3,619)    3,619)    3,619)
     Revaluation reserve                                                      20     4,903)      4,972)        –)        –)   Reconciliation of net cashflow to movement in net debt
     Capital reserve                                                          20     6,464)      6,464)        –)        –)   (Decrease) increase in cash                                                                     (4,169)      3,945)
     Profit and loss account                                                  20       992)        237)    1,446)    1,436)   Repayment of term loans                                                                          4,198)      1,502)
                                                                                                                              Capital element of finance lease rental repayments                                                  44)        102)
     Shareholders’ funds (including £3,000,000 attributable
     to non-equity interests)                                                      24,427)    23,741)     13,514)   13,504)   Movement in net debt resulting from cash flows                                           21b        73)      5,549)
     Minority interest – non-equity                                                    21)        21)          –)        –)   Exchange difference                                                                      21b        (2)          3)

                                                                                   24,448)    23,762)     13,514)   13,504)   Movement in net debt                                                                                71)      5,552)
                                                                                                                              Net debt at 1 January                                                                    21b    (5,031)    (10,583)
     The notes on pages 32 to 43 form part of these financial statements.
     Approved by the board of directors on 8 March 2000.                                                                      Net debt at 31 December                                                                  21b    (4,960)     (5,031)
     J H Buckley
                                                                                                                              The notes on pages 32 to 43 form part of these financial statements.
     Group Financial Director
32     Pittards plc Annual Report & Accounts 1999                                                                                                                                                                     Annual Report & Accounts 1999 Pittards plc          33

     Notes to the accounts                                                                                                                 Notes to the accounts

1    Accounting policies                                                                                                                   • forward exchange contracts are used to hedge foreign currency exposures arising on anticipated sales and purchases
                                                                                                                                              in foreign currencies. These forward contracts are revalued to the rates of exchange at the balance sheet date and
     (a) Accounting convention
                                                                                                                                              any aggregate gains and losses arising on revaluation are included in ‘Other debtors/creditors’. At maturity, or when
     The financial statements are prepared under the historical cost convention modified by the revaluation of freehold
                                                                                                                                              the contract ceases to be a hedge, gains or losses, after taking account of gains and losses arising on hedging
     property and in accordance with applicable accounting standards.
                                                                                                                                              activities, are taken to the profit and loss account.
     (b) Basis of consolidation
     The Group financial statements consolidate the accounts of Pittards plc and all its subsidiary undertakings made up to                • interest rate caps are used to hedge the Group’s exposure to interest rate fluctuations. Premiums are recognised in
     31 December each year. No profit and loss account is presented for Pittards plc as provided by S.230 of the Companies                    the Group’s balance sheet as a prepayment and are amortised over the period of the cap.
     Act 1985.
                                                                                                                                           (i) Foreign currency
     (c) Goodwill                                                                                                                          Transactions in foreign currency are recorded at the rate ruling at the date of the transaction or at the contracted rate if
     Goodwill represents the excess of the cost of the investment in subsidiary undertakings over the fair value of their net              the transaction is covered by a forward foreign currency contract. Monetary assets and liabilities denominated in foreign
     separable assets on acquisition. Prior to 31 December 1997 goodwill was charged directly to reserves on acquisition.                  currencies are retranslated at the rate of exchange ruling at the balance sheet date or, if appropriate, at the forward
     Goodwill previously eliminated against reserves has not been re-instated on implementation of FRS10.                                  contract rate. Differences, after taking account of gains and losses arising on hedging activities, are taken to the profit
                                                                                                                                           and loss account.
     Positive goodwill arising on acquisition since 1 January 1998 is capitalised, classified as an asset on the balance sheet
     and amortised on a straight line basis over its useful economic life up to a presumed maximum of 20 years. It is reviewed             (j) Leasing and hire purchase commitments
     for impairment at the end of the first full financial year following the acquisition and in other periods if events or                Assets obtained under finance leases and hire purchase contracts are capitalised in the balance sheet and depreciated
     changes in circumstances indicate that the carrying value may not be recoverable.                                                     over their useful lives.

     If a subsidiary, associate or business is subsequently sold or closed, any goodwill arising on acquisition that was written           The interest element of the rental obligation is charged to the profit and loss account over the period of the lease and
     off to reserves or that has not been amortised through the profit and loss account is taken into account in determining               represents a constant proportion of the balance of capital repayments outstanding.
     the profit or loss on sale or closure.
                                                                                                                                           Rentals paid under operating leases are charged to income on a straight line basis over the term of the lease.
     (d) Depreciation
                                                                                                                                           (k) Pensions
     Depreciation of tangible fixed assets is provided at the following annual rates, based on cost or valuation less estimated
                                                                                                                                           The expected cost of the Group’s pension schemes is charged to the profit and loss account over the service lives of the
     residual value based on prices prevailing at the date of acquisition or revaluation, to write off each asset evenly over the
                                                                                                                                           relevant employees.
     term of its useful life.

     Freehold buildings                                                                                                  1.25 – 2%     2   Turnover
     Plant, machinery and motor vehicles                                                                                  10 – 25%         Turnover represents the amount derived from the provision of goods and services which fall within the Group’s ordinary
     No depreciation is provided in respect of freehold land.                                                                              activities stated net of value added tax.

     The carrying values of tangible fixed assets are reviewed for impairment in periods if events or changes in circumstances
     indicate the carrying value may not be recoverable.                                                                               3   Analysis of turnover                                                                                    1999)          1998)
                                                                                                                                                                                                                                                   £’000)        £’000)
     (e) Stocks and work in progress
                                                                                                                                           Turnover, all of which is derived from the Group’s principal activities,
     Stocks and work in progress are valued at the lower of cost and net realisable value. Raw materials are valued at
     purchase cost on a first in first out basis or at net realisable value if lower. The cost of certain stages of work in progress       analysed by geographical market:
     and finished goods is calculated by reference to selling price, less the appropriate margin for profit and the costs of                   United Kingdom                                                                                    20,644)        25,775)
     selling expenses, administrative expenses and process costs to completion.                                                                Other EC                                                                                          14,144)        13,780)
                                                                                                                                               Other Europe                                                                                        1,208)        3,887)
     (f) Research and development
                                                                                                                                               North America                                                                                       4,347)        3,904)
     Research and development expenditure is written off as incurred, except that development expenditure incurred on a
     specific project is carried forward when its future recoverability can be foreseen with reasonable assurance. Any                         Asia and other                                                                                    21,772)        26,974)
     expenditure carried forward is amortised in line with anticipated sales from the related project.
                                                                                                                                                                                                                                                 62,115)        74,320)
     (g) Deferred taxation
     Deferred taxation is provided on the liability method on all timing differences to the extent that they are expected to
     reverse in the future without being replaced, calculated at the rate at which it is estimated that tax will be payable.

     (h) Financial instruments
     The Group uses financial instruments, in particular forward currency contracts, to manage the financial risks associated
     with its underlying business activities and the financing of the activities. The Group does not undertake any trading
     activity in financial instruments. A discussion of how the Group manages its financial risks is included in the Operational
     and Financial Review on pages 14 and 15. Financial instruments are accounted for as follows:
34     Pittards plc Annual Report & Accounts 1999                                                                                                                                                           Annual Report & Accounts 1999 Pittards plc                35

     Notes to the accounts                                                                                                             Notes to the accounts

4    Operating profit                                                                                     1999)           1998)    7   Taxation                                                                                             1999)         1998)
                                                                                                         £’000)           £’000)                                                                                                            £’000)        £’000)

     This is stated after charging (crediting):                                                                                        The charge based on the profit for the year comprises:
     Auditors’ remuneration                                                                                                            UK corporation tax                                                                                       –)               –)
         – audit services                                                                                    79)             78)       Deferred taxation                                                                                        –)         (225)
         – non-audit services                                                                                20)             23)       Overseas taxation                                                                                        1)               –)
     Depreciation of owned assets                                                                        1,461)           1,412)       Irrecoverable advance corporation tax                                                                    –)             126)
     Depreciation of assets held under finance leases and hire purchase contracts                            55)             73)
     Profit on sale of fixed assets                                                                         (46)            (25)                                                                                                                1)             (99)
     Operating lease rentals                                                                               255)            271)
     Research and development expenditure                                                                  595)            518)        The current year UK corporation tax charge has been reduced to nil due to the availability of brought forward losses.

5    Interest payable                                                                                    £’000)           £’000)   8   Dividends                                                                                            £’000)        £’000)

     Bank loans and overdrafts                                                                             464)            758)        Equity interest:
     Finance lease charges                                                                                    9)             21)       Ordinary interim paid 1.0p per share (1998 – 1.0p)                                                     218)             218)
     Other                                                                                                    –)           152)        Ordinary final proposed 2.6p per share (1998 – 2.5p)                                                   567)             545)

                                                                                                           473)            931)                                                                                                               785)             763)

                                                                                                                                       Non-equity interest:
6    Employees                                                                                             Number of employees)
                                                                                                                                       Preference payable 30 June and 31 December                                                             285)             285)
     The average number of persons, including directors,
     employed during the year is analysed as follows:                                                                                                                                                                                       1,070)        1,048)
     Production                                                                                            695)            736)
     Sales and distribution                                                                                  29)             29)   9   Earnings (loss) per ordinary share
     Administration / directors                                                                              75)             79)                                                                                                            £’000)        £’000)

                                                                                                                                       Profit on ordinary activities after taxation                                                         1,758)             184)
                                                                                                           799)            844)
                                                                                                                                       Preference dividends                                                                                  (285)         (285)

     Costs in respect of these employees:                                                                £’000)           £’000)
                                                                                                                                       Earnings (loss)                                                                                      1,473)         (101)
     Wages and salaries                                                                                 14,590)        14,548)
     Social security costs                                                                               1,112)           1,155)       Weighted average number of ordinary shares in issue                                                   ’000)         ’000)
     Other pension costs                                                                                 1,063)           1,045)
                                                                                                                                       Basic                                                                                              21,798)       21,798)
                                                                                                                                       Dilutive potential ordinary shares:
                                                                                                        16,765)        16,748)
                                                                                                                                           employee share options                                                                              21)               –)

     Details of directors’ remuneration for each director, long term incentive payments, pension entitlements and share
                                                                                                                                       Diluted                                                                                            21,819)       21,798)
     options are included on pages 21 to 23.
36     Pittards plc Annual Report & Accounts 1999                                                                                                                                                                          Annual Report & Accounts 1999 Pittards plc                 37

     Notes to the accounts                                                                                                                      Notes to the accounts

10   Tangible fixed assets                                                                        Group                  Company           11   Investments in subsidiary undertakings                                                                        1999)          1998)

                                                                              Freehold)            Plant)                        Plant)         Cost                                                                                                          £’000)         £’000)
                                                                                land &)     machinery &)                  machinery &)
                                                                                                                                                At 1 January                                                                                                  6,290)         6,290)
                                                                              buildings)   motor vehicles)      Total)   motor vehicles)

     Cost or valuation                                                         £’000)            £’000)       £’000)           £’000)           Disposal                                                                                                        (82)             –)

     At 1 January 1999                                                        10,419)          21,052)       31,471)             773)           At 31 December                                                                                                6,208)         6,290)
     Additions                                                                       7)            490)        497)                11)
     Disposals                                                                       –)           (186)        (186)                (4)
                                                                                                                                                At 1 January                                                                                                  2,922)         2,922)
     At 31 December 1999                                                      10,426)          21,356)       31,782)             780)
                                                                                                                                                Disposal                                                                                                        (82)             –)

                                                                                                                                                At 31 December                                                                                                2,840)         2,922)
     At 1 January 1999                                                           681)          11,921)       12,602)             735)
     Charge for year                                                             140)            1,376)       1,516)               24)
                                                                                                                                                Net book value                                                                                                3,368)         3,368)
     Disposals                                                                       –)           (186)        (186)                (4)

                                                                                                                                                The principal trading subsidiary undertakings are as follows:
     At 31 December 1999                                                         821)          13,111)       13,932)             755)
                                                                                                                                                                                                        Principal activities

     Net book value                                                                                                                             Directly owned:
     At 31 December 1999                                                       9,605)            8,245)      17,850)               25)          Pittards Group Limited                                  Leather production, fellmongering and hides and skins trading

                                                                                                                                                Owned through subsidiary undertaking:
     At 31 December 1998                                                       9,738)            9,131)      18,869)               38)          Booth & Co (International) Limited                      Trading in hides and skins
                                                                                                                                                    (formerly Booth & Co (England) Limited)
     Group                                                                                                    1999)             1998)
     The amounts shown at cost or valuation of tangible fixed assets comprise:                                £’000)           £’000)           Pittards plc holds either directly or indirectly all the issued share capital and voting rights of its principal trading
                                                                                                                                                subsidiary undertakings.
     Cost                                                                                                    24,694)         24,383)
     Valuation                                                                                                7,088)           7,088)
                                                                                                                                           12   Stocks                                                                                                        1999)          1998)
                                                                                                                                                                                                                                                              £’000)         £’000)
                                                                                                             31,782)         31,471)
                                                                                                                                                Raw material and sundry stocks                                                                                3,946)         3,993)
     The majority of the Group’s properties were professionally valued as at 31 December 1990 at their open market value                        Work in progress                                                                                              6,342)         5,528)
     for existing use by King Sturge & Co, Chartered Surveyors. The directors are advised that there is no material difference                  Finished goods                                                                                                2,542)         2,708)
     between these values and the current open market value for existing use. The historical cost of freehold properties
     included at valuation is as follows:                                                                                                                                                                                                                    12,830)        12,229)
                                                                                                              £’000)           £’000)

     Cost                                                                                                     4,772)           4,765)           The replacement cost of stocks is not considered to be materially different to the balance sheet value.
     Depreciation                                                                                              (709)            (638)
                                                                                                                                           13   Debtors                                                                                      Group                     Company
                                                                                                              4,063)           4,127)                                                                                                  1999)         1998)      1999)        1998)
                                                                                                                                                                                                                                      £’000)       £’000)       £’000)       £’000)
     Included in plant and machinery are leased assets and assets being acquired under hire purchase agreements with a net
     book value of £39,000 (1998 – £94,000).                                                                                                    Trade debtors                                                                         7,011)       6,071)              –)        –)
                                                                                                                                                Other debtors                                                                            586)         763)        109)        264)
                                                                                                                                                Prepayments and accrued income                                                           430)         319)         26)           –)
                                                                                                                                                Amounts owed by Group undertakings                                                         –)           –)     16,514)      16,470)

                                                                                                                                                                                                                                       8,027       7,153)      16,649)      16,734)
38     Pittards plc Annual Report & Accounts 1999                                                                                                                                                                      Annual Report & Accounts 1999 Pittards plc                      39

     Notes to the accounts                                                                                                                 Notes to the accounts

14   Investments                                                                             Group                   Company          18   Provisions for liabilities and charges

                                                                                        1999)        1998)      1999)      1998)           Deferred taxation
                                                                                       £’000)      £’000)      £’000)      £’000)
                                                                                                                                           Deferred taxation is made up as follows:                        Group                        Group                    Company
     Own shares (held under restricted share plan)                                         14)         23)          14)         23)                                                                        Provided                 Not provided                 Not provided

     The Pittards employee share ownership trust holds Pittards plc ordinary shares to meet potential obligations under the                                                                         1999)             1998)       1999)         1998)          1999)       1998)
     restricted share plan scheme. Shares are held in trust until such time as they may be transferred to employees in                                                                              £’000)            £’000)      £’000)        £’000)        £’000)      £’000)
     accordance with the terms of the scheme, details of which are given on page 21.                                                       Capital allowances in advance of depreciation                  –)              –)      2,101)        2,004)          (22)            (25)
     The Group recognises the cost of the scheme through an annual amortisation charge based on management’s estimate                      Revaluation surplus and rolled over gains                      –)              –)      1,471)        1,390)            –)              –)
     of the likely level of vesting of shares, apportioned over the period of service to which the award relates.                          Taxation losses                                                –)              –)     (1,184)      (1,549)          (334)        (327)
                                                                                                                                           Other timing differences                                       –)              –)       (157)           (166)       (181)        (217)
     At 31 December 1999 the trust held a total of 172,872 shares (1998 – 101,472) with a market value at that date of
     £79,000 (1998 – £33,000).
                                                                                                                                                                                                          –)              –)      2,231)        1,679)         (537)        (569)
                                                                                                                                           Less: advance corporation tax                                  –)              –)       (442)      (2,268)             –)      (1,546)
15   Bank loans and overdrafts

     The bank loans and overdrafts are secured by way of a fixed and floating charge over the assets of the Company and its                                                                               –)              –)      1,789)           (589)       (537)      (2,115)
     principal trading subsidiary undertakings. The Company has cross guarantee arrangements in respect of bank lending
     with certain of its subsidiary undertakings.                                                                                     19   Share capital                                                                                                      1999 and 1998

16   Other creditors                                                                         Group                   Company               Authorised:                                                                                                      Number         £’000

                                                                                        1999)        1998)      1999)      1998)           Non-equity interests – cumulative preference shares (9.5%) of £1 each                                           3,000,000       3,000

                                                                                       £’000)      £’000)      £’000)      £’000)          Equity interests – ordinary shares of 25p each                                                              27,500,000          6,875

     Advance corporation tax                                                                –)         91)            –)         –)                                                                                                                                        9,875
     Taxation and social security                                                        562)         536)          183)       206)
     Accruals                                                                          1,778)      1,599)           196)       146)                                                                                              1999              1998       1999          1998
     Other creditors                                                                     730)         780)          626)       675)                                                                                            Number        Number           £’000        £’000
     Proposed dividends                                                                  567)         545)          567)       545)        Allotted, called up and fully paid:
     Obligations under finance leases and hire purchase contracts                           –)         44)            –)        44)        Non-equity interests – cumulative preference shares (9.5%) of £1 each           3,000,000       3,000,000          3,000        3,000
                                                                                                                                           Equity interests – ordinary shares of 25p each                                 21,797,638 21,797,638               5,449        5,449
                                                                                       3,637)      3,595)      1,572)      1,616)

                                                                                                                                                                                                                                                              8,449        8,449

17   Creditors – amounts falling due after more than one year                          £’000)      £’000)      £’000)      £’000)
                                                                                                                                           The preference shares are non-voting unless their dividend is more than six months in arrears. On a winding-up they
     Bank loans                                                                             –)     1,448)             –)   1,448)          rank in priority to the ordinary shares and are entitled to repayment at par plus a premium which is calculated as the
                                                                                                                                           greater of (i) 5p and (ii) a sum equal to the excess over par of the average daily market valuation during the preceding
     The terms of repayment of the above loans are:                                                                                        six months.
     Between one and two years                                                              –)     1,448)             –)   1,448)
                                                                                                                                           The Company has granted options to certain directors and senior executives, of which the following remain exercisable:

                                                                                                                                           Number of ordinary shares of 25p each                 Exercise price                      Exercise period

                                                                                                                                           205,000                                               61p                                   10 May 1994 to 10 May 2001
                                                                                                                                           265,000                                               62p                                   12 April 1999 to 12 April 2006
40     Pittards plc Annual Report & Accounts 1999                                                                                                                                                                       Annual Report & Accounts 1999 Pittards plc                      41

     Notes to the accounts                                                                                                                       Notes to the accounts

19   Share capital (continued)                                                                                                              21   Notes to the cashflow statement (continued)

     On 13 June 1997 the Company granted options to employees under the savings related share option scheme over                                 (b) Analysis of changes in net debt
                                                                                                                                                                                                                            At 1 January)      Cash)   Exchange)      At 31 December)
     510,582 ordinary shares of 25p each, at 82p per share, of which 248,536 remain exercisable. On 12 October 1999 the                                                                                                            1999)      flows)   difference)              1999)
     Company granted options to employees under the savings related share option scheme over 492,325 ordinary shares of                                                                                                         £’000)      £’000)      £’000)               £’000)
     25p each, at 38p per share, all of which remain exercisable. These options may be exercised wholly or in part after three                   Cash in hand and at bank                                                           57)        (33)           (2)                22)
     years from the date of an employee joining the scheme.                                                                                      Overdraft                                                                        (846)     (4,136)            –)           (4,982)
                                                                                                                                                 Debt due within one year                                                      (2,750)      2,750)             –)                 –)
20   Reserves                                                                                                                                    Debt due after more than one year                                             (1,448)      1,448)             –)                 –)
                                                                               Share)                                 Profit)                    Finance leases                                                                    (44)        44)             –)                 –)
                                                                            premium)    Revaluation)   Capital)       & loss)
                                                                             account)       reserve)   reserve)     account)       Total)

     Group                                                                  £’000)         £’000)      £’000)       £’000)       £’000)                                                                                        (5,031)         73)            (2)           (4,960)

     At 1 January 1999                                                      3,619)         4,972)      6,464)         237)      15,292)
                                                                                                                                                 (c) Cash flows relating to non-operating exceptional items
     Exchange difference on retranslation of subsidiary undertakings              –)             –)         –)           (2)        (2)
                                                                                                                                                 Capital expenditure and financial investment cash flows include £nil from the sale of tangible fixed assets (1998 –
     Reserve transfer                                                             –)          (69)          –)          69)           –)
                                                                                                                                                 £2,850,000). The 1998 cash flow relates entirely to property disposed of in 1997.
     Retained profit for the year                                                 –)             –)         –)        688)        688)

                                                                                                                                            22   Pension arrangements
     At 31 December 1999                                                    3,619)         4,903)      6,464)         992)      15,978)
                                                                                                                                                 The Group operates a defined benefit pension scheme, whose assets are held in a separate trustee administered fund.

     Company                                                                                                                                     The total pension cost for the Group was £1,063,000 (1998 – £1,045,000). This has been assessed in accordance with
                                                                                                                                                 the advice of a qualified actuary using the projected unit method. The scheme is subject to triennial valuations. The
     At 1 January 1999                                                      3,619)               –)         –)      1,436)       5,055)
                                                                                                                                                 latest actuarial assessment of the scheme was made on 6 April 1997. The assumptions which have the most significant
     Retained profit for the year                                                 –)             –)         –)          10)         10)
                                                                                                                                                 effect on the results of the valuation are those relating to the rate of return on investments and rates of increase in
                                                                                                                                                 salaries and pensions. It was assumed that the investment return would be 9% per annum and that salary increases
     At 31 December 1999                                                    3,619)               –)         –)      1,446)       5,065)
                                                                                                                                                 would average 7% per annum. Pensions have been assumed to increase at the rate of 5% on the excess over the
                                                                                                                                                 guaranteed minimum pension. Dividend income for the equity portion of the portfolio has been assumed to increase at
     The profit for the year dealt with in the accounts of the parent company amounts to £1,080,000 (1998 – £1,728,000).
                                                                                                                                                 4.5% per annum.
     The cumulative amount of goodwill written off at 31 December 1999 is £93,000 (1998 – £93,000) in respect of
                                                                                                                                                 At the date of the latest actuarial valuation, the market value of the assets was £35,772,000 and the scheme had an
     subsidiary undertakings still within the Group. No disclosure is being made for the cumulative goodwill written off in
                                                                                                                                                 estimated surplus of £162,000. The actuarial value of the assets was sufficient to cover 100% of the value of the
     respect of undertakings acquired prior to 1 January 1989 because, in the opinion of the directors, the information
                                                                                                                                                 benefits that had accrued to members.
     cannot be obtained without unreasonable expense.
                                                                                                                                                 At 31 December 1999 there was a creditor in the balance sheet of £603,000 (1998 – £658,000)
21   Notes to the cashflow statement                                                                               1999           1998
                                                                                                                  £’000          £’000      23   Financial commitments                                                                                                Group

     (a) Reconciliation of operating profit to net cash inflow from operating activities                                                         Authorised future capital expenditure amounted to:                                                          1999             1998
     Operating profit                                                                                             2,232)         1,016)                                                                                                                     £’000             £’000
     Depreciation charges                                                                                         1,516)         1,485)
                                                                                                                                                 Contracted                                                                                                    161                 –
     Amortisation of matching shares under restricted share plan                                                    25)             19)
     Profit on sale of tangible fixed assets                                                                        (46)           (25)
                                                                                                                                                 The annual commitment under non-cancellable operating leases, was as follows:
     (Increase) decrease in stocks                                                                                 (601)         2,449)
                                                                                                                                                 Leases expiring:
     (Increase) decrease in debtors                                                                                (886)         2,214)
                                                                                                                                                    within one year                                                                                              16              29
     Decrease in creditors                                                                                         (110)        (1,559)
                                                                                                                                                    between two and five years                                                                                 207              198

     Net cash inflow from operating activities                                                                    2,130)         5,599)
                                                                                                                                                                                                                                                               223              227

                                                                                                                                                 All of the above relates to plant and machinery.
42     Pittards plc Annual Report & Accounts 1999                                                                                                                                                                           Annual Report & Accounts 1999 Pittards plc               43

     Notes to the accounts                                                                                                                            Notes to the accounts

24   Derivatives and other financial instruments                                                                                                 24   Derivatives and other financial instruments (continued)

     An explanation of the Group’s objectives, policies and strategies for the role of derivatives and other financial                                Borrowing facilities
     instruments in creating and changing the risks of the Group in its activities can be found on pages 14 and 15. As
                                                                                                                                                      The Group has excess on demand overdraft facilities available at 31 December, as follows:                         1999)
     permitted by FRS13, short term debtors and creditors have been excluded from the disclosures other than the currency
     and hedging disclosures. The disclosures take into account forward currency contracts, currency options and underlying
     currency transactions which they are designed to hedge. As permitted under the transitional rules of FRS13, comparative                          Expiring in one year or less                                                                                     3,236)
     figures have not been shown.
                                                                                                                                                      Fair values of financial assets and financial liabilities                                         Book value)   Fair value)
     Interest rate risk profile of financial liabilities                                                     1999                                                                                                                                          1999)        1999)
                                                                                 Total          Fixed rate financial          Floating rate
                                                                                                                                                                                                                                                          £’000)       £’000)
                                                                                                           liabilities   financial liabilities
                                                                                                                                                      Primary financial instruments:
                                                                              £’000                         £’000                   £’000
                                                                                                                                                      Short term borrowings                                                                               (4,982)     (4,982)
     Sterling                                                                 6,039                         3,000                   3,039             Non-equity shares                                                                                   (3,000)     (3,075)
     US dollar                                                                1,426                                 –               1,426             Cash at bank and in hand                                                                                22)            22)
     Euro                                                                       513                                 –                  513
     Other                                                                          4                               –                      4          Derivative financial instruments held to hedge currency
                                                                                                                                                      exposure on expected future sales and purchases:
                                                                              7,982                         3,000                   4,982             Forward currency contracts                                                                                 –           48)

     Fixed rate financial liabilities represent £3,000,000 of irredeemable preference shares, with a fixed coupon of 9.5%.                            Market values have been used to determine the fair value of forward currency contracts and listed shares.
     The floating rate financial liabilities comprise bank loans and overdrafts that bear interest at rates based on the lending
     bank’s base rate. At 31 December 1999 the Group has no interest rate caps in place.                                                              Hedges

     The Group has no financial assets apart from cash at bank and in hand which does not earn interest.                                              The Group’s policy is to hedge transactional currency exposures and currency exposures on future expected sales and
                                                                                                                                                      purchases. Gains and losses on instruments used for hedging are not recognised until the exposure that is being hedged
     Currency exposures                                                                                                                               is itself recognised. Unrecognised gains and losses on financial instruments used for hedging are as follows:

     As explained on pages 14 and 15, the Group’s objective is to hedge completely all known currency exposures arising
                                                                                                                                                                                                                                             Gains)         Losses)         Total)
     from trading activities. After taking into account the effect of forward currency contracts entered into to manage these
                                                                                                                                                                                                                                           £’000)         £’000)       £’000)
     exposures the Group has no transactional exposures that give rise to net currency gains and losses to be recognised in
                                                                                                                                                      Gains and losses unrecognised at 31 December 1999                                       51)              (3)           48)
     the profit and loss account. As at 31 December, the Group also held open various forward foreign currency contracts
                                                                                                                                                      Gains and losses deferred at 31 December 1999                                           60)            (96)           (36)
     taken out to hedge expected future currency sales and purchases.

                                                                                                                                                                                                                                             111)            (99)           12)
     Maturity of financial liabilities

     The maturity profile of the Group’s financial liabilities at 31 December was as follows:                                        1999             of which:
                                                                                                                                    £’000             Gains and losses expected to be recognised in the profit
                                                                                                                                                      and loss account in 2000                                                               111)            (99)           12)
     Due in one year or on demand                                                                                                   4,982
     Due in more than five years                                                                                                    3,000
                                                                                                                                                      Gains and losses included in the profit and loss account
                                                                                                                                                      that arose in previous years                                                            22)           (132)        (110)
44     Pittards plc Annual Report & Accounts 1999                                                                                                                                                                Annual Report & Accounts 1999 Pittards plc                                  45

     Five year review                                                                                           Financial calendar

     Year ended 31 December                                 1999)     1998)      1997)      1996)      1995)    Annual General Meeting                                                                                                                                    2 May 2000

                                                            £’000)    £’000)     £’000)     £’000)     £’000)
                                                                                                                Payment of final dividend for 1999 to shareholders registered on 14 April 2000
                                                                                                                (ex dividend date 10 April 2000)                                                                                                                        12 May 2000
         Continuing operations                             62,115)   74,320)   101,573)   109,063)   103,009)
                                                                                                                Announcement of half year results for 2000                                                                                                         September 2000
         Discontinued operations                                –)        –)         –)         –)     6,954)

                                                                                                                Payment of interim dividend for 2000 to shareholders registered on 6 October 2000
     Total                                                 62,115)   74,320)   101,573)   109,063)   109,963)   (ex dividend date 2 October 2000)                                                                                                                6 November 2000

     Percentage outside United Kingdom                      67%)      65%)        61%)       61%)       51%)    Announcement of 2000 results                                                                                                                              March 2001

     Profit(loss) on ordinary activities before interest

         Continuing operations                              2,232)    1,016)     3,768)     4,687)     3,185)

         Discontinued operations                                –)        –)         –)         –)    (2,281)

                                                                                                                Analysis of shareholders
     Total                                                  2,232)    1,016)     3,768)     4,687)       904)
                                                                                                                as at 31 December 1999

     Profit(loss) on ordinary activities before taxation    1,759)       85)     2,631)     3,633)      (522)
                                                                                                                                                                                                                         Number of                              Number of
     Profit(loss) on ordinary activities after taxation     1,758)     184)      2,331)     3,159)      (592)                                                                                                              holders            % held            shares held         % held

                                                                                                                Ordinary shares
         Preference                                          285)      285)        285)       285)       285)   Individuals                                                                                                 1,868            97.70         12,608,155              57.84
         Ordinary                                            785)      763)        763)       707)       325)   Trust and investment companies                                                                                  18             0.94          5,962,760             27.36
                                                                                                                Banks and nominee companies                                                                                       8            0.42             734,678              3.37
     Shareholders’ funds                                   24,427)   23,741)    24,602)    23,305)    21,192)
                                                                                                                Pension funds                                                                                                   15             0.78          2,415,545             11.08
     Earnings(loss) per ordinary share                       6.8p)    (0.5p)      9.4p)     13.3p      (4.0p)   Insurance companies                                                                                               3            0.16               76,500             0.35
     Dividends per ordinary share                            3.6p)     3.5p)      3.5p)     3.25p)      1.5p)
                                                                                                                                                                                                                            1,912          100.00           21,797,638           100.00

                                                                                                                Size of holding
                                                                                                                Up to 999 shares                                                                                              691            36.14              272,910              1.25
                                                                                                                1,000 to 9,999 shares                                                                                         972            50.84           2,923,745             13.41
                                                                                                                10,000 to 49,999                                                                                              183              9.57          3,243,778             14.88
                                                                                                                50,000 shares and over                                                                                          66             3.45        15,357,205              70.46

                                                                                                                                                                                                                            1,912          100.00           21,797,638           100.00

                                                                                                                Designed and produced by Robson Dowry Associates Limited. Printed in England by Hampton Printing (Bristol) Limited.

                                                                                                                In keeping with Pittards’ environmental policy this report has been printed on Consort Royal era Silk, which is an environmentally responsible paper using at least fifty

                                                                                                                per cent recycled fibre. All the virgin pulp is obtained from farmed forests using crop replantation procedures. No elemental chlorine is used in the bleaching process

                                                                                                                and the paper manufacturing has been managed to minimise the emission of pollutants.
                                     Pittards plc Annual Report and Accounts 1999

Pittards plc
Sherborne Road
Yeovil, Somerset
BA21 5BA England

Telephone +44 (0)1935 474321
Group Facsimile +44 (0)1935 427145
Email pittardsenquire@pittards.com
Website www.pittardsleather.com

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