For the first time financial statements for the six months ended 30 June, 2007, have been prepared in accordance with International Financial Reporting Standards which is now required for AIM listed companies. The differences under IFRS arise almost exclusively from the treatment of foreign exchange contracts (called derivative financial instruments under IFRS). Under the previously used UK GAAP system the company achieved an operating profit of £0.058 million in the first half of 2007, which compares to an operating loss of £0.402 million in the first half of 2006, and follows an operating loss of £0.056 million in the second half of 2006. After bank interest of £0.3 million (2006 £0.351 million) the loss on ordinary activities before taxation was £0.242 million (2006 £0.991 million loss before extraordinary items).&rtreturn;Turnover for the six months was £16.6 million (IFRS £15.9 million) which compares to £22.3 million in the first half of 2006 and £17.9 million in the second half of 2006 which still included some Leeds production. A record 91% of this was sold to customers outside the UK (2006 90%). Within the Leeds turnover a significant proportion of sales derived from the selling of wet-blue hides, whereas bovine production in Yeovil is based on hides bought part processed (wet-blue) which more closely match their finished leather requirements.&rtreturn;Sales of glove leather reduced by 8% in volume in the period due to lower demand for dress gloves following the mild winter. However other sales held up well. Revenue was adversely impacted by the weaker dollar which reduced average prices by over 5%. Recently some more military contracts were placed and sports glove leather sales remain steady. &rtreturn;Sales of bovine leather represented 23% of turnover in the first half year and reflect the superb team effort made to bring bovine production to Yeovil. Sales of saddlery and lifestyle leathers have picked up in the second quarter whilst sales of leather for sports footwear were particularly strong, exceeding forecast, and are expected to remain so in the second half. Production at Teh Chang in Taiwan totalled over one million square feet in the first half and this strategic partnership will continue to be developed. &rtreturn;The management contract to run ETSC has almost completed its second year. The significant capital investment programme is well under way with the majority of the equipment now installed or on site. Following the establishment of crust production some finished leathers are now being produced. The government backed scheme has now allowed early retirement for a significant proportion of the workforce which will improve profitability as the operation becomes more streamlined and focused.&rtreturn;The strategy is to continue exploring global manufacturing opportunities which would enable the expansion of the business. This includes the evaluation of a variety of other raw materials to support the development of new market sectors. &rtreturn;Net assets at June 30, 2007, were £4.238 million (£4.248 million under IFRS) compared to £4.819 million in 2006. On June 29, 2007, the company exchanged contracts to sell and lease back the Yeovil factory for a sale price of £3.1 million; the transaction was completed in July. The lease is for a term of ten years at an annual rental of £254,000pa initially following a six month rent free period.

The proceeds of the sale, which realised a profit over net book value of £0.49 million before costs, have been applied to repay the loan plus accrued interest due to the trustees of the Pittards pension schemes and secured over the Yeovil property as part of the agreement reached with the Pension Protection Fund in 2006. The sale and leaseback transaction will improve cash flow by c.£0.5 million pa over the next few years, thus improving working capital within the business.&rtreturn;Total borrowings were £6.085 million at June 30. However, this includes £2.875 million due on the Trustees’ loan which was repaid on July 20, 2007, on completion of the transaction, which has significantly improved the company’s gearing. &rtreturn;During this period Pittards continued to settle phased closure costs for the Leeds factory carried forward from 2006.&rtreturn;The order book remains steady but the dollar weakness which has further worsened throughout the first half is impacting adversely on profitability. The company are continuing to reduce costs wherever they can and their strategy to move production to lower cost manufacturing areas continues.