Tough times for Pittards but leather firm looks to new markets

today Mar 21, 2017
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Pittards, the UK-based maker of technically advanced leather and luxury leathergoods, endured a tough 2016 that saw a new management team drafted in, a writedown and strategy changes, all resulting in a pre-tax loss of £4.1m.

Pittards has had a tough year but its margins have risen - DR

But the firm is not taking things lying down and is looking at new markets, with hopes for expansion in interiors and general footwear.

The company, which makes products for sale to retailers, manufacturers and distributors, said the year to December 31 saw revenue down to £27m from £30.5m, with pre-tax profit of £0.2m on an underlying basis. The total full-year loss before tax was £4.1m, down from a pre-tax profit of £0.7m a year ago, skewed by an exceptional stock writedown of £4.3m.

So what went wrong and what are the prospects for 2017? The company said the global leather market “continues to be challenging for companies looking for growth against a backdrop of significant global change and weak consumer demand.”

Demand in the firm’s core markets of shoe, sport and dress gloves was depressed and Pittards said that after four years of contraction, “the dress glove market has rebalanced at this lower level.”

Overall the group had a difficult year financially with depressed leather volumes and a number of non-recurring items. Revenue was down 11% due to reduced demand and the impact on its Ethiopian business of political disruption. But the political environment in Ethiopia has stabilised and its manufacturing production capabilities there “are now returning to more normal levels.”

The board conducted a detailed review of its stock holding and took the £4.3m provision reducing year-end stock to £17.4m. It said it did this due to the impact of currency translation, slow moving stock “and the potential strategic shift in the business moving towards a higher proportion of hide relative to skins business.” The provision related to low-end dress and sport glove leather, with a writedown of £1.3m in the UK and £3m in Ethiopia.

So was there any good news? Well, the gross margin continued to improve at 24% pre-provision (in 2015 it was 22%) reflecting favourable currency improvements that were mainly US dollar-related.

And encouragingly, it also said it is beginning to see some signs that growth may return in some of its other markets during the latter part of 2017.

Clearly there is work to be done to get back on track and Pittards has taken some extreme measures. It pulled in a new management team last year that was completed in Q4 and the group's structure has been simplified into two divisions - UK and Ethiopia. The focus during 2017 will be to develop and implement a range of “key financial measures which both reflect the individual trading environments and deliver returns above the cost of capital.”

The company also said that in line with an intention to broaden its market base, it is reviewing additional potential markets. “Initial findings have identified both the interiors and general footwear markets as having the characteristics our capabilities can best leverage,” it said Tuesday.

Chairman Stephen Yapp said Pittards is “putting in place the necessary pillars that will strengthen [our] position as a leading performance-leather expert, supported by scalable manufacturing operations and a highly capable management team.

“We are beginning to experience a more positive demand environment for leather. Together with the actions being identified and taken, the board believes we will start to see a benefit in the latter part of 2017 and that the prospects for the future are promising."

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