Interim Results
Churchill China PLC
22 March 2005
For Immediate Release 22 March 2005
CHURCHILL CHINA PLC
PRELIMINARY RESULTS
for the year ended 31 December 2004
Churchill China plc, is pleased to announce its preliminary results for the year
ended 31 December 2004.
Key Points:
• Sales of £49.0m (2003: £49.5m)
• Pre-tax profits before exceptionals items of £3.2m (2003: £2.8m)
• Pre-tax profits after exceptionals items of £2.3m (2003: £1.2m)
• Adjusted earnings per share of 20.9p (2003: 18.2p)
• Earnings per share of 15.4p (2003: 5.7p)
• Full year dividend increased 10% to 11p (2003: 10p)
• Continued progress in development of hospitality sales
• Strong growth in sales of outsourced product for the retail sector
Stephen Roper, Chairman, said:
'2004 has been a year of success and consolidation. Current trading since the
year end indicates that sales to hospitality customers in the first half match
the same high level achieved in 2004. We look forward to further profitable
growth in the year ahead.'
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
Buchanan Communications Limited Tel No: 020 7466 5000
CHAIRMAN'S STATEMENT
In the year to 31 December 2004 I am pleased to report a 14% improvement in
profit before exceptional items and taxation to £3.2m (2003 - £2.8m). However,
this successful performance fell short of our earlier expectations, constrained
by a disappointing final quarter sales to our retail customers. Profit after
exceptional items but before taxation improved to £2.3m (2003: £1.2m)
An encouraging trend has been the sustained increase in sales of hospitality
products encompassing international hotels, restaurants and pubs, both in the
U.K. and overseas with particular success in the U.S.A. and southern Europe.
Following a 17% sales growth in the first half year, we experienced a more
modest growth of 7% as anticipated in the second half, a period typically
characterised by our customers' replacement programmes rather than new
installations.
A particular noteworthy achievement has been the high level of demand for our
premium brand Alchemy, allowing us to compete effectively in the four star plus
international market.
Whilst overall sales to retail customers declined as a consequence of the
planned reduction in levels of manufacturing, in line with our objectives, we
achieved further strong growth in our outsourced activities with sales amounting
to £18.0m (2003 - £13.7m). In 2005 sales in this sector will be virtually all
sourced from third parties, so allowing us to be highly competitive in all areas
of the volume and middle markets.
FINANCIAL PERFORMANCE
Group sales in the year were £49.0m (2003: £49.5m). Despite the slight fall in
sales overall operating margins before exceptional costs rose to 6.1%. This
margin achievement is the highest margin delivered since 1997, reflecting
continued reduction in our cost base which remains a key objective for the
Group. This margin improvement contributed to the growth in profit before tax
and exceptional items which rose from £2.8m to £3.2m, an increase of 14%. Profit
after exceptional items but before tax was £2.3m (2003 £1.2m).
Adjusted earnings per share (before exceptional items) rose 14% from 18.2p to
20.9p. Basic earnings per share for the year were 15.2p (2003: 5.7p).
The decision to transfer further UK manufacturing capacity from retail to
hospitality markets led to exceptional restructuring costs of £0.9m. Of this
figure £0.2m was in respect of redundancy costs and the remaining £0.7m related
to the non-cash write down of stocks associated with UK production.
Operating cash generation at £1.6m (2003: £2.9m) was, as anticipated, lower than
previous years and was principally affected by the need to increase stocks of
hospitality products to meet higher demand levels and to support the
introduction of new product ranges. Stocks increased by £0.9m during the year.
Capital expenditure also increased during the year to £1.9m (2003: £1.2m) as the
new warehousing project, designed to replace old facilities and improve customer
service and operating costs was commenced. This expenditure was offset by the
receipt of the proceeds relating to the disposal of part of the Anchor site in
Longton. Overall cash balances fell from £1.7m to £1.0m.
DIVIDEND
Given the increase in profitability of the business and the successful
restructuring of the manufacturing base, the Board is pleased to announce that
it is recommending a 9% increase in the final dividend of 0.6p to 7.3p per
share. The total dividend for the year of 11p (2003: 10p) is covered 1.9 times
by adjusted earnings per share.
OPERATING REVIEW
Sales
Sales of hospitality products were £26.0m (2003: £23.3m). 2004 saw good results
in both home and export markets, with growth of 9% and 17% respectively, and a
total of 11% across all markets. A strong feature was the success in the first
half of the year in winning an unusually high number of new customer
installations particularly in the hotel and contract catering markets. A major
part of this success was attributable to the continued development and
introduction of new and innovative products in both our Churchill and Alchemy
brands.
To further enhance growth in export sales we have continued the process of
strengthening our sales team by recruiting additional personnel in our key
markets. Particularly noteworthy is the strong progress achieved in North
America and in Southern Europe where we are enjoying the rewards of steady
investment over several years
These initiatives and our commitment to customer service give us confidence that
we will improve on 2004's performance during the year as a whole. Sales in the
first half are expected to match the high levels achieved in 2004 with a return
to growth in the second half of the year.
Sales of retail products were £23.0m (2003: £26.2m). As anticipated, total sales
in 2004 declined following the reduction in UK manufacturing towards the end of
2003. The residue of UK manufacturing still proved difficult to sell at
acceptable prices, particularly in the last quarter of 2004. Listings were
reduced in European hypermarkets and volume accounts in North America. As a
consequence of this underperformance, combined with the increased demand for
manufacturing capacity for hospitality products, the Board announced the
effective cessation of UK retail manufacturing in December 2004.
As expected we achieved further growth in outsourced products with sales of
£18.0m (2003: £13.7m), an increase of 31%. An important part of our strategy is
the continued development of long term relationships with key overseas suppliers
and this has progressed well in the year.
The success in sourcing overseas products has enabled the UK sales team to
penetrate further key distribution channels and product categories and thus gain
additional listings. We achieved growth in supermarkets and department stores
with premium coffee mugs, dinnerware and glassware products all performing well,
particularly through supermarkets, department stores and independent retailers.
Further progress was seen in the continued focus on closer relationships with
key customers and the building of category leadership status. As a result sales
to our top ten customers have increased by 6% over 2003.
Manufacturing and Operations
Last year I reported on the successful transformation of manufacturing
facilities within the Group. However, competitive challenges do not stand still.
The sustained growth in hospitality products and the move to retail products
being wholly sourced, influenced the Board to accelerate further manufacturing
changes in late 2004, giving rise to exceptional costs in the year under review.
This results in the Group concentrating future manufacturing solely for
hospitality products predominantly at the Marlborough Works but with manufacture
of the Alchemy product continuing at our Whieldon Road site. Further changes are
planned in the period to September 2005 with the transfer of our hospitality
dish-making unit to the Marlborough Works. The benefit of these changes will be
to increase efficiency and to maintain service levels to underpin our objectives
of achieving sustained performance improvements and profit growth. The
consolidation of the Anchor dish cell will not result in any significant cost.
The construction of the £3m new Group warehouse, which is important in
reinforcing our commitment to provide an exemplary standard of customer service,
remains on target with commissioning scheduled for the third quarter of 2005
PROSPECTS
Current trading indicates that sales to hospitality customers in the first half
year are expected to match the same high level achieved in 2004, with growth in
the second half of 2005.
New product launches to the hospitality market will take place throughout the
year with a strong bias towards the Alchemy range. Our most significant
introduction for the year took place in February with the launch of 'Jardin', an
embossed variation of the original Alchemy range, launched three years ago.
Initial response from target customers in all our markets has been very
positive.
Retail sales of outsourced products should again show substantial growth but in
total sales are likely to be marginally reduced following the transfer of retail
manufacturing capacity to hospitality customers production. Sales in the UK for
both the volume and middle market customers are again anticipated to show
positive growth with a large increase in new product listings.
Cost reduction and efficiency improvements will be progressive throughout the
year, falling principally in the second half of the year. The main constituents
will be savings arising from the commissioning of the new warehouse in the third
quarter of 2005 and the consolidation of the remaining small unit at Anchor
Pottery into our main Marlborough facility.
The vitality of the Churchill business and our ability to meet the challenges
raised by rapidly changing markets is dependent on the continued commitment of
our employees. I thank them for their efforts. We look forward to further
profitable growth in the year ahead.
Stephen Roper
Chairman
21 March 2005
Consolidated profit and loss account
for the twelve months ended 31 December 2004
2004 2004 2004 2003 2003 2003
Before Before
exceptional Exceptional Total exceptional Exceptional Total
items items items items
Note £000 £000 £000 £000 £000 £000
Turnover 1 48,972 - 48,972 49,474 - 49,474
Operating profit / 2 2,996 (866) 2,130 2,727 (1,289) 1,438
(loss)
Share of operating profit of
associate
net of impairment 100 - 100 29 (350) (321)
Profit on disposal of 3 - 19 19 - 18 18
fixed asset
Net interest 74 - 74 27 - 27
receivable
Profit / (loss) on
ordinary
activities before 3,170 (847) 2,323 2,783 (1,621) 1,162
taxation
Tax on profit on ordinary (925) 254 (671) (843) 290 (553)
activities
Profit / (loss) on ordinary
activities
after taxation 2,245 (593) 1,652 1,940 (1,331) 609
Dividends 4 (1,187) (1,070)
Retained profit / (loss) for the period 465 (461)
Pence per Pence per
share share
Earnings per ordinary
share
Basic 5 15.4 5.7
Adjusted 5 20.9 18.2
Diluted earnings per
ordinary share
Basic 5 15.2 5.7
Adjusted 5 20.7 18.1
Consolidated balance sheet
as at 31 December 2004
2004 2003
£000 £000
Fixed assets
Intangible Assets 84 130
Tangible assets 12,133 11,443
Investments 840 761
13,057 12,334
Current assets
Stocks 9,992 9,144
Debtors: amounts falling due within one year 10,862 11,008
Investments and assets for sale 0 1,050
Cash at bank and in hand 1,012 1,717
21,866 22,919
Creditors:
amounts falling due within one year (7,524) (8,408)
Net current assets 14,342 14,511
Total assets less current liabilities 27,399 26,845
Provisions for liabilities and charges (104) (122)
Net assets 27,295 26,723
Capital and reserves
Called up share capital 1,079 1,070
Share premium account 2,115 2,013
Revaluation reserve 1,299 1,392
Other reserves 253 253
Profit and loss account 22,549 21,995
Equity shareholders' funds 27,295 26,723
Consolidated cash flow statement
for the twelve months ended 31 December 2004
2004 2003
£000 £000
Net cash inflow from operating activities 1,575 2,924
(reconciliation to operating profit - note 6)
Returns on investments and servicing of finance
Net interest received 69 25
Taxation (620) (731)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,888) (1,231)
Sale of tangible fixed assets 1,174 69
Net cash outflow for capital expenditure and
financial investment (714) (1,162)
Equity dividends paid (1,116) (992)
Financing
Issue of ordinary shares 111 50
Payment of principal under finance leases (6) (13)
Net cash inflow from financing 105 37
(Decrease) / increase in net cash (701) 101
1. Analysis of turnover
The Directors consider that the Group's activities are a single class of
business.
2004 2003
£000 £000
Geographic Turnover
United Kingdom 31,459 30,697
Rest of Europe 10,102 10,821
North America 5,369 6,051
Australasia 877 916
Far East 263 346
Other 902 643
48,972 49,474
2. Exceptional Items
Costs arising from the restructuring of manufacturing operations have been
treated as exceptional and have been charged in arriving at the operating profit
for the year. These exceptional costs comprise:
2004 2003
£000 £000
Restructuring costs 192 972
Impairment of tangible fixed assets - 103
Write down of stocks and work in progress 674 214
866 1,289
Impairment of investments - 350
866 1,639
A credit of £254,000 (2002: £290,000) has been included in the corporation tax
charge in relation to the exceptional items.
The cash outflow in relation to exceptional items in the period was £114,000
(2003:£850,000)
3. Profit on disposal of fixed assets
2004 2003
£000 £000
Profit on disposal of fixed assets 19 18
The profit on disposal of fixed assets represents the release of an accrual for
costs not incurred in respect of the 2001 disposal of surplus land.
4. Dividend
The Directors have declared or now recommend payment of the following dividends
in respect of the year ended 31 December 2004
2004 2003
£000 £000
Ordinary dividend
Interim paid 3.7p (2002: 3.3p) per 10p ordinary share 399 353
Final proposed 7.3p (2002: 6.7p) per 10p ordinary share 788 717
1,187 1,070
The proposed dividend has been calculated on 10,794,126 shares being those in
issue at 31 December 2004 qualifying for the dividend. The dividend will be paid
on 26 May 2005 to shareholders on the register on 1 April 2005
5. Earnings per ordinary share
Basic earnings per ordinary share is based on the profit on ordinary activities
after taxation and on 10,761,642 (2003: 10,668,539) ordinary shares, being the
weighted average number of ordinary shares in issue during the year.
Adjusted earnings per ordinary share is based on the profit on ordinary
activities after taxation and adjusted to take into account exceptional items
and profit on disposal of fixed assets
2004 2003
pence per pence per
Share share
Basic earnings per share 15.4 5.7
Adjustments :
Exceptional items 5.6 12.6
Profit on disposal of fixed assets (0.1) (0.1)
Adjusted earnings per share 20.9 18.2
Diluted basic earnings per ordinary share is based on the profit on ordinary
activities after taxation and on 10,838,761 (2003: 10,697,321) ordinary shares,
being the weighted average number of ordinary shares in issue during the year of
10,761,642 (2003:10,668,539) increased by 77,119 (2003:28,782) 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
and profit on disposal of fixed assets
2004 2003
pence per pence per
share Share
Diluted basic earnings per share 15.2 5.7
Adjustments :
Exceptional items 5.6 12.6
Profit on disposal of fixed assets (0.1) (0.2)
Diluted adjusted earnings per share 20.7 18.1
6. Reconciliation of operating profit to net cash inflow from operating
activities
2004 2003
£000 £000
Continuing operating activities
Operating profit before exceptional costs 2,996 2,727
Exceptional costs (866) (1,289)
Operating profit 2,130 1,438
Depreciation 1,124 1,612
Impairment of tangible fixed assets-exceptional 0 103
(Profit) / loss on sale of assets (31) 28
Goodwill amortisation 46 46
(Increase) / decrease in stocks (848) 218
Decrease in debtors 146 280
Decrease in creditors (948) (923)
(Decrease) / increase in provisions (44) 122
Net inflow from continuing operating activities 1,575 2,924
7. Reconciliation of decrease in net cash to movement in net funds
2004 2003
£000 £000
Decrease / (increase) in cash during the period (701) 101
Cash outflow from decrease in debt and lease
financing 6 13
Movement in net funds during the period resulting
from (695) 114
cash flows
Currency movements (4) (4)
Net cash at the start of the period 1,711 1,601
Net cash at the end of the period 1,012 1,711
8. Statement of total recognised gains and losses
2004 2003
£000 £000
Profit for the period 1,652 609
Unrealised reduction on impairment of properties - (690)
Currency translation differences (4) (3)
1,648 (84)
9. Financial Information
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2004. Statutory accounts for
the year ended 31 December 2004, which include an unqualified audit opinion will
be delivered to the Registrar of Companies following the Company's Annual
General Meeting on 18 May 2005
This information is provided by RNS
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