Interim Results
Churchill China PLC
31 August 2006
For Immediate Release 31 August 2006
CHURCHILL CHINA PLC
INTERIM RESULTS
for the six months ended 30 June 2006
Churchill China plc, is pleased to announce its interim results for the six
months ended 30 June 2006.
Key Points:
• Sales of £21.9m (2005: £22.3m)
• Improved contribution and lower cost base generate profit improvement
• Profit before exceptional items and taxation £0.9m (2005: £0.6m)
• Strong cash generation
• Net exceptional gains of £2.7m - disposal of Alexander site, pensions credit
and impairment of Whieldon Road site
• Profit before taxation £3.6m (2005: £0.6m)
• Adjusted earnings per share before exceptional items 6.3p (2005: 4.0p)
• Earnings per share 23.5p (2005: 4.0p)
• Interim dividend increased to 3.9p per ordinary share (2005: 3.7p)
Stephen Roper, Chairman, said:
'This improved result builds on the momentum established in 2005 reflecting the
successful implementation of our new business model in Retail markets and
continued efficiencies within our cost base. We remain confident that we will
meet full year expectations.'
For further information, please contact:
Stephen Roper, Chairman Today on: 020 7466 5000
Churchill China Plc Thereafter on: 01782 577566
Tim Anderson/Lisa Baderoon/Rebecca Skye Dietrich Tel No: 020 7466 5000
Buchanan Communications
CHAIRMAN'S STATEMENT
Introduction
In the first half of 2006 the Group achieved a profit before exceptional items
and taxation of £0.9m (2005: £0.6m) on sales of £21.9m (2005: £22.3m). This
improved result builds on the momentum established in 2005 reflecting the
successful implementation of our new business model in Retail markets and
continued efficiencies within our cost base. Profit before taxation was £3.6m
(2005: £0.6m), a very substantial increase reflecting exceptional profits from
property disposals and pensions benefits.
Sales to Hospitality customers were at the same level as last year in what has
been a generally static market. Growth in target export markets was offset by
lower sales in certain European markets. Successful new product innovation,
unrivalled service and the development of new geographic markets remain the key
strategies for our Hospitality business.
Sales of our Retail products were slightly lower than the corresponding period
last year as increased amounts of business were transferred successfully to the
new direct shipment model. Listings in major international store groups have
improved. Whilst absolute sales values were down the Group achieved a higher
market share in volume terms and improved the contribution from these sales.
As in previous years cash generation was strong. This has allowed us to support
further investments in our business and to address the deficit within our main
pension scheme, without compromising our ability to provide an attractive return
to shareholders.
As we have previously indicated our UK cost base remains affected by higher
energy costs and further rises are expected later in the year. We have initiated
a number of changes to our operations, both to reduce energy consumption and to
generate other efficiencies, which should reduce, in part, the negative impact
of cost rises on forward profit growth.
Financial Overview
In the six months to 30 June 2006 Group sales were £21.9m (2005: £22.3m). Profit
before exceptional items and taxation was £0.9m (2005: £0.6m). This increase
continues the progress made in the second half of 2005 and reflects the
successful implementation of our new business model in Retail markets and
continued efficiencies within our cost base.
The Group has delivered strong operating cash generation through the period of
£1.7m (2005: £0.9m) before one off pension payments. This was achieved through a
combination of improved profitability and continued control of working capital.
There was little effect on overall cash balances from exceptional items as
receipts from property disposals were matched by a one-off payment into the
Group's defined benefit pension scheme. Cash balances improved from £2.6m at the
end of 2005 to a figure of £3.6m at 30 June 2006.
The results for the period include a number of exceptional items resulting in a
net benefit to profit before taxation of £2.7m (2005: nil). As disclosed in our
full year results for 2005, in January 2006 we disposed of the Alexander
Pottery, Cobridge. Gross proceeds of the sale were £3.0m and an exceptional gain
of £1.9m has been included in profit in the period to 30 June 2006.
Additionally, the cessation of future accrual to the Group's defined benefit
pension scheme on 31 March 2006 has led to a one off adjustment in relation to
the curtailment of future benefits. This amount of £1.1m (2005: nil) has been
treated as exceptional given its size. The consolidation of activities from our
Whieldon Road site has necessitated a reduction in the carrying value of certain
plant and machinery at that location, a charge of £0.3m has been made against
profits
The additional contributions made into the Group's defined benefit scheme and
the cessation of future accrual have significantly reduced the Group's
liability in respect of its net pensions deficit to £2.9m (2005: £6.7m). In the
short term the deficit has also benefitted from a higher discount rate attaching
to liabilities. The Board now believes that the pension deficit is at a
manageable level which for the foreseeable future may be addressed without
significant additional funding.
Adjusted earnings per share were 6.3p (2005: 4.0p). Basic earnings per share
were 23.5p (2005: 4.0p).
Dividend
The Board is pleased to announce that the interim dividend will be increased to
3.9p per 10p ordinary share (2005: 3.7p) reflecting strong cash generation and
improved profitability.
The proposed dividend will be paid on 4 October 2006 to shareholders on the
register on 8 September 2006.
Operating Review
Sales
Sales of Hospitality products were £12.5m (2005: £12.5m). The new products added
to the Alchemy range have allowed us to extend our premium customer base, which
will help ensure the continued growth of the brand. Value added products in the
Churchill vitrified range have performed well, partly at the expense of our
classic lines. We have commenced a programme of upgrading and updating our
offering in this area. We continue to make good progress in target export
markets and in major national accounts in the UK.
Our revised proposition to the Retail market, emphasising direct shipments to
major customers continues to be well received. Whilst this model leads to lower
absolute sales values, it allows cost and risk levels to be reduced. Although
sales volumes rose, overall values contracted to £9.4m (2005: £9.8m).
Contribution levels from these sales increased and we have further reduced
stocks in this area. This improvement has been facilitated by an extension of
our activities in Shanghai. Our team's ability to supply quality, well designed,
branded and bespoke product has secured additional listings with major
international retailers
Manufacturing and Operations
Against a background of increased input prices, particularly in relation to
energy costs, we have aggressively managed our overall cost base. A number of
significant benefits have been generated from investment and site consolidation
projects completed in 2005 and earlier this year. We have experienced
substantial increases in energy costs and expect further rises in the second
half of the year before a more stable position emerges in 2007. A number of
actions have been identified which will enable us to manage our power
consumption more effectively. Over the next year increasing amounts of Alchemy
production will move from our Whieldon Road site to our main unit at Marlborough
Pottery, which will lead to more efficient production.
Following completion of our new warehouse, all logistics are now based in
efficient facilities at Marlborough. We have made further progress in reducing
underlying stock levels, both through the increase in direct shipment to
customers and also following the implementation of improved demand forecasting
systems. At the half year end Group stock levels were £9.1m, some £2.4m lower
than the corresponding period in 2005.
We have a continuing programme of operational performance improvement and expect
to realise further benefits from projects scheduled for completion in the second
half of the year.
Prospects
Following the successful implementation of our new business model in respect of
Retail market sales, we are confident that we will continue to deliver improved
performance in this area through higher volumes and contribution. As ever in
Hospitality markets, sales levels in the final quarter of the year will be
critical to achieving our targets. We remain confident that we will meet full
year expectations.
Stephen Roper
Chairman
31 August 2006
Consolidated profit and loss account
for the six months ended 30 June 2006
Unaudited Six months Unaudited Six months Audited Twelve months
to 30 June 2006 to 30 June 2005 to 31 December 2005
As restated As restated
Before Exceptional Total Total Before Exceptional Total
exceptional items exceptional items
items items
Note £000 £000 £000 £000 £000 £000 £000
Turnover 1 21,878 21,878 22,330 46,399 - 46,399
Operating profit 2 813 784 1,597 681 2,696 - 2,696
Share of operating profit
of associate net of
impairment - - - 1 -21 - -21
Profit on disposal of
fixed asset 3 - 1,876 1,876 - - 269 269
Net interest receivable/
(payable) 4 140 - 140 -80 -114 - -114
Profit on ordinary
activities before 953 2,660 3,613 602 2,561 269 2,830
taxation
Tax on profit on ordinary
activities -276 -785 -1,061 -170 -645 493 -152
Profit on ordinary
activities after taxation 677 1,875 2,552 432 1,916 762 2,678
Dividends 5 -793 -792 -1,194
Retained profit for
the period 1,759 -360 1,484
Pence Pence per share Pence
per per
share share
Basic earnings per
ordinary share 23.5 4.0 24.7
Diluted basic earnings
per ordinary share 23.4 4.0 24.6
2005 comparatives have been restated to reflect the adoption of FRS 20 'Share
based payments' (see note 10).
Consolidated balance sheet
As at 30 June 2006
Unaudited 30 Unaudited 30 Audited 31
June 2006 June 2005 December 2005
As restated As restated
£000 £000 £000
Fixed Assets
Intangible Assets 45 70 56
Tangible Assets 10,890 13,487 11,485
Investments 821 847 825
11,756 14,404 12,366
Current assets
Stocks 9,059 11,529 8,646
Debtors: amounts falling due after one year 608 - -
Debtors: amounts falling due within one year 9,216 8,815 10,537
Investments and other assets for sale - - 1,022
Cash at bank and in hand 3,583 45 2,629
22,466 20,389 22,834
Creditors: amounts falling due within one year -6,322 -6,843 -6,268
Net current assets 16,144 13,546 16,566
Total assets less current liabilities 27,900 27,950 28,932
Creditors: amounts falling due after one year -11 -85 -16
Provisions for liabilities and changes -58 - -6
Pension liability -2,871 -6,747 -6,464
Net assets 24,960 21,118 22,446
Capital and reserves
Called up share capital 1,086 1,086 1,086
Share premium account 2,207 2,207 2,207
Revaluation reserve 1,281 1,294 1,287
Other reserves 270 263 266
Profit and loss account 20,116 16,268 17,600
Equity shareholders' funds 24,960 21,118 22,446
2005 comparatives have been restated to reflect the adoption of FRS 20 'Share
based payments' (see note 10).
Consolidated cash flow statement
For the six months ended 30 June 2006
Unaudited Six Unaudited Six Audited Twelve
months to 30 June months to 30 June months to 31
2006 2005 December 2005
£000 £000 £000
Net cash (outflow)/ inflow from operating -1,129 898 4,105
activities (reconciliation to operating profit
- note 7)
Net interest received 121 26 67
Taxation 62 -84 -368
Capital expenditure and financial investment
Purchase of tangible fixed assets -309 -1,913 -2,380
Sale of tangible fixed assets 3,009 19 1,287
Net cash inflow/(outflow) for capital 2,700 -1,894 -1,093
expenditure and financial investment
Equity dividends paid -793 -792 -1,194
Financing
Issue of ordinary shares 0 99 99
Payment of principal under finance leases -5 - -6
Net cash (outflow)/inflow from financing -5 99 93
Increase/(decrease) in net cash 956 -1,747 1,610
1. Analysis of turnover
The Directors consider that the Group's activities are a single class of
business.
Unaudited Six Unaudited Six Audited Twelve
months to 30 June months to 30 June months to 31
2006 2005 December 2005
£000 £000 £000
Geographic Turnover
United Kingdom 14,149 14,678 30,953
Rest of Europe 4,672 5,100 9,549
North America 2,272 1,729 4,208
Australasia 368 242 575
Far East 128 82 197
Other 289 499 917
21,878 22,330 46,399
2. Exceptional Items
Unaudited Six Unaudited Six Audited Twelve
months to 30 June months to 30 June months to 31
2006 2005 December 2005
£000 £000 £000
Restructuring costs -366 - -
Curtailment benefit - defined benefit 1,150 - -
pension scheme
784 - -
A charge of £235,000 (2005: £nil, 31 December 2005: £nil) has been included in
the taxation charge in relation to the exceptional items.
3. Profit on disposal of fixed assets
Unaudited Six months Unaudited Six months Audited Twelve
to 30 June 2006 to 30 June 2005 months to 31
December 2005
£000 £000 £000
Profit on disposal of fixed assets 1,876 - 269
The profit on disposal recognised in 2006 is in relation to the sale of the
Alexander Pottery, Cobridge in January 2006. A taxation charge of £550,000 has
been charged in the Group's overall tax charge in respect of this disposal. Net
receipts of £2,980,000 were received in respect of this disposal during the
period.
The profit on disposal recognised in 2005 is in relation to the sale of the
Anchor Pottery, Longton in October 2005. A taxation charge of £57,000 was
accrued in the Group's overall tax charge in respect of this disposal. Net
receipts of £1,166,000 were received in respect of this disposal during 2005.
4. Net interest receivable/(payable)
Unaudited Six months Unaudited Six months Audited Twelve
to 30 June 2006 to 30 June 2005 months to 31
December 2005
£000 £000 £000
Other interest receivable 121 26 13
Share of interest receivable of associated 5 4 8
company
Net finance credit/(charge): pensions 14 -110 -189
Income from fixed asset investment - - 54
140 -80 -114
5. Dividend
Unaudited Six months Unaudited Six months Audited Twelve
to 30 June 2006 to 30 June 2005 months to 31
December 2005
£000 £000 £000
Final dividend 2004 - 792 792
Interim dividend 2005 - - 402
Final dividend 2005 793 - -
793 792 1,194
The proposed dividend, which has not been provided for, has been calculated in
10,862,126 shares being those in issue at 30 June 2006 qualifying for the
dividend and at a rate of 3.9p per 10p ordinary share. The dividend will be paid
on 4 October 2006 to shareholders on the register on 8 September 2006.
6. Earnings per share
Basic earnings per ordinary share is based on the profit on ordinary activities
after taxation and on 10,862,126 (2005: 10,838,940) ordinary shares, being the
weighted average number of ordinary shares in issue during the period.
Adjusted earnings per ordinary share is based on the profit on ordinary
activities after taxation and adjusted to take into account exceptional items,
the profit on disposal of fixed assets and the recognition of a deferred tax
asset.
Unaudited Six months Unaudited Six months Audited Twelve
to 30 June 2006 to 30 June 2005 pence months to 31
pence per share per share December 2005
pence per share
As restated
As restated
£000 £000 £000
Basic earnings per share 23.5 4.0 24.7
Adjustments:
Exceptional items -5.0 - -
Profit on disposal of fixed assets -12.2 - -2.0
Recognition of deferred tax asset - - -5.1
Adjusted earnings per share 6.3 4.0 17.6
Diluted basic earnings per ordinary share is based on the profit on ordinary
activities after taxation and on 10,898,293 (2005: 10,888,030) ordinary shares,
being the weighted average number of ordinary shares in issue during the year of
10,862,126 (2005: 10,838,940) increased by 36,167 (2005: 49,090) shares, being
the weighted average number of ordinary shares which would have been issued if
the outstanding options to acquire shares in the Group had been exercised at the
average price during the year.
Diluted adjusted earnings per ordinary share is based on the profit on ordinary
activities after taxation and adjusted to take into account exceptional items,
the profit on disposal of fixed assets and the recognition of a deferred tax
asset.
Unaudited Unaudited Audited Twelve
months to 31
Six months to 30 Six months to 30 June December 2005
June 2006 pence per 2006 pence per share
share
pence per share
£000 £000 £000
Diluted basic earnings per share 23.4 4.0 24.6
Adjustments:
Exceptional items -5.0 - -
Profit on disposal of fixed assets -12.2 - -2.0
Recognition of deferred tax asset - - -5.1
Adjusted earnings per share 6.2 4.0 17.5
7. Reconciliation of operating profit to net cash (outflow)/inflow from
operating activities
Unaudited Six months Unaudited Six months Audited Twelve
to 30 June 2006 to 30 June 2005 months to 31
December 2005
£000 £000 £000
Operating profit 1,597 681 2,696
Depreciation 573 540 1,007
Impairment of tangible fixed assets 308 - -
-exceptional
Profit on sale of assets -8 - -53
Goodwill amortisation 11 14 28
Pensions adjustment - exceptional -1,150 - -
Charge for share based payments 4 3 7
Increase/(decrease) in stocks -413 -1,537 1,346
Decrease in debtors 1,007 2,047 838
Decrease in creditors -310 -807 -492
Increase/(decrease) in provisions 52 -43 -72
Net inflow before additional pensions 1,671 898 5,305
contributions
Additional pensions contributions -2,800 - -1,200
Net (outflow)/inflow from continuing -1,129 898 4,105
operating activities
8. Reconciliation of increase in net funds to movement in net cash
Unaudited Unaudited Audited Twelve
months to 31
Six months to 30 Six months to 30 June December 2005
June 2006 2005
£000 £000 £000
Increase/(decrease) in cash during the 956 -1,747 1,610
period
Cash outflow from decrease in debt and lease 5 - 6
financing
Movement in net funds during the period 961 -1,747 1,616
resulting from cash flows
New finance leases - - -44
Currency movements -2 3 7
Net funds at the start of the period 2,591 1,012 1,012
Net funds at the end of the period 3,550 -732 2,591
9. Statement of total recognised gains and losses
Unaudited Unaudited Audited Twelve
months to 31
Six months to 30 Six months to 30 June December 2005
June 2006 2005
£000 £000 £000
As restated As restated
Profit for the period 2,552 432 2,678
Currency translation differences -2 3 7
Actuarial gain on defined benefit pension 1,075 1,798 1,051
scheme
Related deferred tax -322 -539 -315
Total recognised gains and losses for the 3,303 1,694 3,421
period
Prior period adjustment (see note 10) -13
Total gains and losses recognised since the 3,290
last Annual Report
10. Prior period adjustments
The Group has applied FRS 20 'Share based payment'. This reporting standard
requires the restatement of previously reported results.
Additional costs have been charged to the profit and loss account is as follows:
Unaudited Unaudited Audited Twelve
months to 31
Six months to 30 Six months to 30 June December 2005
June 2006 2005
£000 £000 £000
Staff Costs 4 3 7
Net reduction in profit before taxation for 4 3 7
the period
In addition the Group's balance sheet has been adjusted to reflect FRS 20
Profit and loss account Other reserves
As at 1 January 2006 as previously stated 17,613 253
Prior period adjustment -13 13
As at 1 January 2006 as restated 17,600 266
Retained profit for the period 1,759 -
Actuarial gain on defined benefit pension scheme 753 -
Net exchange adjustments -2 -
Share based payment charge for the period 4
Transfer from revaluation reserve 6 -
20,116 270
11. Financial Information
(a) The interim financial statement has been prepared in accordance with the
accounting policies set out in the Annual Report for the year ended 31 December
2005, with the exception that the Group has adopted the provisions of Financial
Reporting Standards 20 'Share based payment'.
(b) The interim financial statement was approved by the board on 30 August
2006. Neither the interim financial statement nor comparative information for
the six months ended 30 June 2005 have been audited or reviewed.
(c) The interim financial statement set out above does not constitute
statutory accounts as defined by the Companies Act 1985. Statutory accounts for
the year ended 31 December 2005, including an unqualified audit report which did
not contain statements under Section 237 (2) or (3) of the Companies Act 1985
have been filed with the Registrar of Companies
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