INTERIM RESULTS

RNS Number : 6557R

Churchill China PLC

26 August 2010

 



For immediate release

26 AUGUST 2010

CHURCHILL CHINA plc

INTERIM RESULTS

For the six months ended 30 June 2010

Churchill China plc, the manufacturer and global distributor of ceramic tableware and household products to hospitality and retail markets, is pleased to announce its interim results for the six months ended 30 June 2010.

Key Points:

Ø Group revenue for the six months to 30 June 2010 was £20.2m (2009: £19.7m). 

Ø Profit before tax increased by 50% to £0.6m (2009: £0.4m)

Ø Basic earnings per share increased by 61% to 4.2p (2009: 2.6p)

Ø Operating cash generation was £0.6m (2009: £0.8m)

Ø Cash  balances of £5.7m (June 2009: £5.8m)

Ø Interim dividend maintained at 4.8p

On prospects Jonathan Sparey, Chairman said: "We are improving the quality of earnings in the Churchill China business and are confident this will translate into enhanced profitability and shareholder value creation, despite the uncertain current economic outlook."

For further information, please contact:

Churchill China plc	Today on: 020 7466 5000
Andrew Roper/David Taylor	thereafter on: 01782 577566
Buchanan Communications	Tel No: 020 7466 5000
Tim Anderson/Lisa Baderoon
Brewin Dolphin Investment Banking	Tel No: 0845 270 8610
Andrew Emmott

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that in the first half of the year, the Group's overall performance was slightly ahead of expectations.  Our profitability in the first six months reflected a much improved performance in our Hospitality division compared to the first half of 2009 with strong sales growth and a pronounced increase in end user demand although this was partially offset by a disappointing performance in our Retail business. Group profit before tax increased by 50% to £0.6m reflecting the improved quality of earnings.  We remain on track to deliver the expected profitability for the full year, which as usual is weighted heavily to the second half.

Financial Review

Group revenue for the six months to 30 June 2010 was £20.2m, up 3% against the first half of last year (2009: £19.7m). 

Group operating profit was £0.6m (2009: £0.4m) which reflected improvement in sales to our Hospitality customers.  This was partially offset by a weaker performance in our Retail business which was adversely affected by a sharp reduction in sales to volume channels. 

Pre-tax profit increased by 50% to £0.6m (2009: £0.4m) reflecting the improved operating performance but a lower return from our cash balances as low interest rates continued.

Earnings per share increased by 61% to 4.2p (2009: 2.6p).

Operating cash generation was £0.6m (2009: £0.8m) as the Group expanded the levels of working capital employed in the business, particularly through increased stock levels, to support sales growth. Overall cash balances remained at a healthy £5.7m (June 2009: £5.8m) after dividend payments of £1.0m (2009: £1.0m) and capital expenditure of £0.7m (2009: £1.5m) the majority on a new fast fire kiln.

Dividend

The Board is recommending a maintained interim dividend of 4.8p per share (2009: 4.8p per share) which will be paid on 6 October 2010 to shareholders on the register on 10 September 2010.

Hospitality

Sales to our Hospitality customers increased by 18% to £13.1m (2009: £11.2m) reflecting a pronounced improvement in underlying demand in the UK and a partial recovery in European and North American markets.  As a result, contribution from the division increased to £1.8m (2009: £1.0m).

UK sales were £8.3m (2009: £7.2m) up 15%.  After the de-stocking process evident during 2008 and 2009, our UK hotel, restaurant and pub customers have experienced a considerable improvement in their business activity giving them confidence to build stock, invest in their businesses and undertake new refurbishment programmes.  The Churchill sales and marketing team have been working closely with our key hospitality customers to capitalise upon the increasing spend per head and tailor attractive tabletop offerings.  We continue to innovate and extend our product offerings to compliment our customers' aspirational new concepts and refreshed menus.  We are also working more closely with key UK distributors ensuring that they take full advantage of our market leading service proposition.

Export sales were up 22% to £4.9m (2009: £4.0m) in line with economic recovery in European and North American markets. All of our export markets showed a steady improvement and I am pleased to report that our sales performance in Spain has picked up despite the continued weakness of the economy.

The improved demand profile across all of our markets and major hospitality segments provides considerable confidence in the quality of the business justifying our strategy of sustained investment in new product development and increased sales and marketing support.  In this context it is pleasing to note that our stylish fine china "Ambience" range has been very well received in the 4 and 5 star dining sector and compliments our high end Riedel glass offering to those customers

Retail

Sales to our Retail customers at £7.1m were well down on the uncharacteristically strong 2009 first half when sales of £8.5m were generated following a good performance in UK volume channels.  Contribution from the division reflected this effect decreasing from £0.8m in 2009 to £0.1m in the period. The 2010 result reflects a reversal of activity in UK volume channels where we sell bespoke low margin products to volume outlets such as supermarket chains.  We had planned a reduction of activity in this channel but sales decreased at a faster rate than anticipated.

By contrast, our sales to middle market customers including department store chains and independent retailers continued to improve and the sales of licensed and branded product are at higher margins than own label volume business.  However, the increase in middle market activity only partially offset the effect of lower sales in volume channels.

We have also made headway in export markets where sales moved forward well, again in our target sectors.

Our Retail management team are continuing to drive the migration of our Retail business away from mass market own label product to a sustainable mid market position supported by a high quality product portfolio.  To this end, we have been successful in obtaining new listings for a wide range of new branded merchandise and expect to see the benefit translated into sales by early 2011.  Overall, our sales of licensed mugs, dinnerware and giftware remain strong and are an integral part of our core business plan. 

As mentioned in previous statements, the key to our medium term Retail strategy is the delivery of innovative designs, attractive merchandising and a portfolio of high quality brands. We continue to receive excellent feedback from licensors and retail customers on these attributes.

Prospects

We are on track to deliver the revenue and profitability objectives we have set ourselves for 2010. Our Hospitality business continues to outperform expectations although the rate of growth in the second half is unlikely to be as strong as the first half. Demand in both UK and overseas markets continues to hold up relatively well. 

We anticipate that conditions for our Retail business will remain relatively challenging in the second half and it is receiving careful management attention.  The migration from low margin own label product to a strongly branded, product led, business is a multi-year process and we will continue to make progress in this regard.  Listings obtained for the final quarter of 2010 are far more positive than for the first three quarters of the year. 

We are improving the quality of earnings in the Churchill China business and are confident this will translate into enhanced profitability and shareholder value creation, despite the uncertain current economic outlook.

Jonathan Sparey

Chairman

26 August 2010

Churchill China plc

Consolidated Income Statement

For the six months ended 30 June 2010

		Unaudited		Unaudited		Audited
		Six months to 30 June 2010 £000		Six months to 30 June 2009 £000		Twelve months to 31 December 2009                      £000
	Note
Revenue		20,213		19,667			41,705
Operating profit	1	616		408			2,288
Share of results of associated company		68		(14)			(18)
Finance income	2	15		70			119
Finance cost	2	(75)		(60)			(320)
Profit before income tax		624		404			2,069
Income tax expense	3	(164)		(121)			(513)
Profit for the period		460		283			1,556
		Pence per share		Pence per share			Pence per share
Basic earnings per ordinary share	4	4.2		2.6			14.3
Diluted basic earnings per ordinary share	4	4.2		2.6			14.2

All the above figures relate to continuing operations

Churchill China plc

Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2010

						Audited
		Unaudited		Unaudited		Twelve months to
		Six months to 30 June 2010 £000		Six months to 30 June 2009 £000		31 December 2009                  £000
Net of tax
Actuarial loss on retirement benefit obligations		-		-			(4,136)
Exchange differences		9		(18)			(14)
Other		-		-			2
Net profit/ (loss) recognised directly in equity		9		(18)			(4,148)
Profit for the year		460		283			1,556
Total comprehensive income/ (expense) for the period		469		265			(2,592)
Attributable to:
Equity holders of the parent		469		265			(2,592)
All the above figures relate to continuing operations

Churchill China plc

Consolidated Balance Sheets

as at 30 June 2010

	Unaudited		Unaudited		Audited
	30 June		30 June		31 December
	2010		2009		2009
	£000		£000		£000
Assets
Non Current Assets
Property, plant and equipment	14,298		14,690		14,299
Intangible assets	401		387		498
Investment in associates	793		729		725
Deferred income tax assets	2,116		572		2,163
	17,608		16,378		17,685
Current Assets
Inventories	7,579		8,555		7,142
Trade and other receivables	8,847		7,374		9,031
Cash and cash equivalents	5,720		5,826		6,882
	22,146		21,755		23,055
Assets for sale	662		-		662
	22,808		21,755		23,717
Total Assets	40,416		38,133		41,402
Liabilities
Current Liabilities
Trade and other payables	(6,561)		(6,140)		(6,907)
Current income tax liabilities	(579)		(489)		(574)
	(7,140)		- (6,629)		(7,481)
Non current Liabilities
Retirement benefit obligations	(7,537)		(1,974)		(7,709)
Deferred income tax liabilities	(1,692)		(1,645)		(1,676)
Total non current liabilities	(9,229)		(3,619)		(9,385)
Total liabilities	(16,369)		(10,248)		(16,866)
Net Assets	24,047		27,885		24,536
Capital and reserves attributable to equity holders of the Company
Issued share capital	1,096		1,095		1,095
Share premium account	2,348		2,332		2,332
Treasury shares	(109)		(138)		(117)
Retained earnings	19,450		23,372		19,992
Other reserves	1,262		1,224		1,234
	24,047		27,885		24,536

Churchill China plc

Consolidated Statement of Changes in Equity

As at 30 June 2010

	Retained earnings £000		Share capital £000		Share premium £000		Treasury shares £000		Other reserves £000		Total £000
Balance at 1 January 2009	24,086		1,095		2,332		(138)		1,236		28,611
Comprehensive income
Profit for the period	283										283
Other comprehensive income
Depreciation transfer - gross	6								(6)		-
Depreciation transfer - tax									1		1
Actuarial losses - net											-
Currency translation									(18)		(18)
Total comprehensive income	289		0		0		0		(23)		266
Transactions with owners
Dividends	(1,003)										(1,003)
Share based payment									11		11
Treasury shares
Total transactions with owners	(1,003)		0		0		0		11		(992)
Balance at 30 June 2009	23,372		1,095		2,332		(138)		1,224		27,885
Comprehensive income
Profit for the period	1,273										1,273
Other comprehensive income
Depreciation transfer-gross	6								(6)		-
Depreciation transfer - tax	0								1		1
Actuarial losses - net	(4,136)										(4,136)
Currency translation									4		4
Total comprehensive income	(2,857)		0		0		0		(1)		(2,858)
Transactions with owners
Dividends	(523)										(523)
Share based payments									11		11
Treasury shares							21				21
Total transactions with owners	(523)		0		0		21		11		(491)
Balance at 31 December 2009	19,992		1,095		2,332		(117)		1,234		24,536
Comprehensive income
Profit for the period	460										460
Other comprehensive income
Depreciation transfer - gross	6								(6)		-
Depreciation transfer - tax	(4)								4		-
Actuarial losses - net											-
Currency translation									9		9
Total Comprehensive income	462		0		0		0		7		469
Transactions with owners
Dividends	(1,004)								21		(1,004)
Share based payment											21
Issue of ordinary shares			1		16						17
Treasury shares							8				8
Total transactions with owners	(1,004)		1		16		8		21		(958)
Balance at 30 June 2010	19,450		1,096		2,348		(109)		1,262		24,047

Churchill China plc

Statement of Cash Flows

for the six months ended 30 June 2010

	Unaudited		Unaudited		Audited
	Six months to		Six months to		Tweleve months to
	30 June 2010		30 June 2009		31 December 2009
	£000		£000		£000
Cash generated from operating activities
Cash generated from operations	644		803		3,439
Interest received	15		70		119
Income tax paid	(96)		(304)		(559)
Net cash from operating activities	563		569		2,999
Investing activities
Purchases of property, plant and equipment	(770)		(1,490)		(2,196)
Proceeds on disposal of property, plant and equipment	64		13		42
Purchases of intangible assets	(40)		-		(194)
Net cash used in investing activities	(746)		(1,477)		(2,348)
Financing activities
Issue of ordinary shares	67		-		21
Purchase of treasury shares	(42)		-		-
Dividends paid	(1,004)		(1,003)		(1,526)
Net cash used in financing activities	(979)		(1,003)		(1,505)
Net decrease in cash and cash equivalents	(1,162)		(1,911)		(854)
Cash and cash equivalents at the beginning of the year	6,882		7,738		7,738
Exchange losses on cash and cash equivalents	-		(1)		(2)
Cash and cash equivalents at the end of the year	5,720		5,826		6,882

1. Segmental analysis

For the six months ended 30 June 2010

	Hospitality		Retail		Unallocated		Total
	£000		£000		£000		£000
6 months to 30 June 2010
Revenue	13,107		7,106		-		20,213
Contribution to group overheads excluding depreciation	2,216		225		(1,099)		1,342
Depreciation	(456)		(97)		(173)		(726)
Operating profit	1,760		128		(1,272)		616
Share of results of associated company					68		68
Finance income					15		15
Finance costs					(75)		(75)
Profit before income tax					(1,264)		624
Income tax expense							(164)
Profit for the period							460
6 months to 30 June 2009
Revenue	11,141		8,526		-		19,667
Contribution to group overheads excluding depreciation	1,405		905		(1,212)		1,098
Depreciation	(437)		(93)		(160)		(690)
Operating profit	968		812		(1,372)		408
Share of results of associated company					(14)		(14)
Finance income					70		70
Finance costs					(60)		(60)
Profit before income tax					(1,376)		404
Income tax expense							(121)
Profit for the period							283
12 months to 31 December 2009
Revenue	24,554		17,151		-		41,705
Contribution to group overheads excluding depreciation	4,183		1,911		(2,410)		3,684
Depreciation	(894)		(185)		(317)		(1,396)
Operating profit	3,289		1,726		(2,727)		2,288
Share of results of associated company					(18)		(18)
Finance income					119		119
Finance costs					(320)		(320)
Profit before income tax					(2,946)		2,069
Income tax expense							(513)
Profit for the period							1,556

2. Finance income and costs

	Unaudited		Unaudited		Audited
	Six months to		Six months to		Twelve months to
	30 June 2010		30 June 2009		31 December 2009
	£000		£000		£000
Finance Income
Other interest receivable	15		70		119
Finance income	15		70		119
Finance costs
Net finance cost: pensions	(75)		(60)		(320)
Finance costs	(75)		(60)		(320)

The net finance cost arising from pension schemes is a non cash item.

3. Income tax expense

	Unaudited		Unaudited		Audited
	Six months to		Six months to		Twelve months to
	30 June 2010		30 June 2009		31 December 2009
	£000		£000		£000
Current tax	101		102		444
Deferred tax	63		19		69
Income tax expense	164		121		513

 4. Earnings per ordinary share

Basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,935,017 (2009: 10,902,476) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

Diluted basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,965,940 (2009:10,917,916) ordinary shares being the weighted average number of ordinary shares in issue during the year of 10,935,017 (2009: 10,902,476) increased by 30,923 (2009: 15,400) 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 period.

5. Reconciliation of operating profit to net cash inflow from continuing activities

	Unaudited		Unaudited		Audited
	Six months to		Six months to		Twelve months to
	30 June 2010		30 June 2009		31 December 2009
	£000		£000		£000
Cash flow from operating activities
Operating profit	616		408		2,288
Adjustments for
Depreciation	726		690		1,396
Profit on disposal of property, plant and equipment	(3)		(4)		(14)
Charge for share based payment	21		11		22
Decrease in retirement benefit obligations	(248)		(141)		(410)
Changes in working capital:
Inventory	(436)		(78)		1,335
Trade and other receivables	197		1,237		(415)
Trade and other payables	(229)		(1,320)		(763)
Cash generated from operations	644		803		3,439

6. Basis of preparation and accounting policies

The interim financial information for the period to 30 June 2010 has not been audited or reviewed and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Company's statutory accounts for the year ended 31 December 2009, prepared in accordance with accounting standards adopted for use in the European Union (International Financial Reporting Standards - IFRS), have been delivered to the Registrar of Companies; the report of the auditors on these accounts was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

The interim financial statements have been prepared in accordance with IFRS as adopted by the European Union, IFRIC interpretations and the Companies Act 1985 / 2006 applicable to companies reporting under IFRS, under the historical cost convention as modified by the revaluation of land and buildings, available for sale financial assets, and financial assets and liabilities (including derivative instruments) at fair value through the profit and loss account. The interim financial information has been prepared using the same accounting policies, presentation and methods of computation as were applied in the Group's last audited financial statements.

 

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