Final Results
Churchill China PLC
20 March 2003
For Immediate Release 20 March 2003
CHURCHILL CHINA PLC
PRELIMINARY RESULTS
for the year ended 31 December 2002
Churchill China plc, is pleased to announce its preliminary results for the year
ended 31 December 2002.
Key Points:
• Sales of £50.9m (2001: £52m)
• Pre-tax profits before exceptional items of £2.0m (2001: £3.0m)
• Pre-tax profits after exceptional items of £1.8m (2001: £3.4m)
• Adjusted earnings per share of 15.0p (2001: 20.1p)
• Earnings per share of 13.4p (2001: 23.3p)
• Full year dividend maintained at 9p per ordinary share
• Strong operating cash generation of £2m
• Restructuring programme underway
Stephen Roper, Chairman, said:
'I am pleased to report that we have met our expectations for the year, despite
difficult market conditions. And while sales fell in the first half, we
experienced a return to growth in the second half. Churchill is currently
profitable and cash generative and we look forward to a successful 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
Buchanan Communications Limited Tel No: 020 7466 5000
Churchill China
Chairman's Statement
I am pleased to report that we have met our revised performance expectations and
that the Churchill Group achieved anticipated profit before taxation. The
successful Dining Out division, which services hotels, restaurants and pubs
recorded a further year of growth. Set against this, our Dining In division,
which supplies international retail markets, continued to be affected by
unfavourable market conditions and overseas competition.
Group sales fell by 2% in the year to £50.9m (2001:£52.0m), with the marked fall
in the first half year, (when sales were down by 9%) being largely offset by a
return to growth in the second half. Profit before exceptional items and tax was
£2.0m (2001: £3.0m) with the majority of the fall again being attributable to
the first half year. After exceptional items profit before taxation was £1.8m
(2001: £3.4m).
Dining Out's performance remained strong in a challenging trading environment.
Turnover, despite a flat market, grew by £1.1m (5.0%) reflecting an increase in
UK sales and growth in a number of our key export markets. Alchemy, our premium
product which took Churchill into four star hotels and restaurants for the first
time last year continues to make excellent progress. It is also leading our
expansion in the US, a market we feel has considerable potential for our Dining
Out product range. A new version and an extended range of Alchemy is currently
under development which will introduce innovative shapes to the collection. This
product has transformed our offering to important segments of the US market and
international hotel groups, and Churchill has committed additional sales and
marketing resources to support these opportunities.
The underperformance of the Dining In division has been of concern throughout
the year and is the continued focus of corrective action. Historically, Dining
In delivered a strong and consistent performance with almost 60% of sales in
exports, the majority to mainland Europe. This performance has been eroded by a
combination of the high level of sterling and more importantly ever increasing
competition from low cost overseas manufacturers. Our response has been to
concentrate on a number of strategic objectives. Specifically our manufacturing
in the UK will be progressively targeted at the premium market. In addition we
will build on our major international retail relationships through a 'One Stop
Shop' approach to provide a comprehensive range of products and price points in
ceramics and housewares. We will continue to develop our design, logistics and
technical functions to encompass an international base of preferred suppliers.
Progress to date against these objectives has been encouraging and over the last
three years we have developed strong relationships with major retailers both in
the UK and export markets. Our strategic alliances with overseas partners have
enabled us to build sales of houseware products over a three year period.
Turnover in 2002 in this area was in excess of £10m giving a solid contribution
to Group profitability. In addition we have achieved profitable progress with
our Queens and James Sadler brands. Conversely over the same period the business
climate for European manufacturers serving volume markets has become
increasingly competitive and this had an adverse effect on Group profitability.
During 2002 we reduced staffing levels by approximately 15% and adjusted our
capacity and cost base to meet more closely demand. We will continue to align
our output levels to match customer requirements.
Action is now being taken to reduce output levels of volume tableware, to
increase sales of housewares products and to increase our capacity to
manufacture vitrified product for the Dining Out division. It is anticipated
that this process of change will be completed by the end of 2003, however these
actions will incur one off exceptional costs during the year. By 2004 we are
confident that Group performance will fully reflect the strength of Dining Out
without a detrimental contribution from Dining In. Churchill is committed to a
UK manufacturing base combining premium dinnerware for retail alongside our
major volumes of hotelware for the Dining Out division.
Financial Performance
Group turnover decreased to £50.9m (2001 : £52.0m). Both home sales and exports
fell by approximately 2%. Profit before exceptional items and taxation was £2.0m
(2001 : £3.0m). Exceptional costs of £0.3m were incurred in the year arising
from the restructuring of certain manufacturing operations partially offset by
£0.1m of profit arising from the disposal of fixed assets. (2001: Exceptional
profit on disposal of fixed assets £0.3m). Profit after exceptional items but
before taxation was £1.8m (2001: £3.4m)
Adjusted earnings per share (before exceptional items) fell by 25% to 15.0p per
share (2001 : 20.1p). Basic earnings per share for the year was 13.4p (2001:
23.3p). Cash generation from operating activities continues to be healthy.
£2.0m was generated during the year despite continued investment in working
capital associated with the development of our housewares business and the
strong sales performance in the second half year. Capital expenditure of £1.3m
was targeted on efficiencies within manufacturing and the expansion of
warehousing capacity. After the payment of taxation and dividends, net cash
decreased to £1.6m (2001 : £2.1m).
Dividend
Despite lower profitability in 2002 the Board intends to maintain the dividend
at the same level as 2001. This dividend is still covered 1.5 times by profit
after exceptional items and taxation and is supported by, our strong, ungeared,
balance sheet (net asset value per share 261p), the healthy cash generative
nature of the business and its prospects. In view of these strengths the Board
is recommending a final dividend of 6p (2001: 6p) per share bringing the total
dividend for the year to 9p (2001: 9p) per share.
Prospects
Current trading for both divisions in the year to date remains in line with our
performance targets. For the year as a whole Dining Out is anticipated to show
further growth in core markets. Dining In should see an improved performance at
the operating level on the back of advances in the premium dinnerware and
housewares sectors.
The restructuring programme within the Dining In division is being carried out
with the benefit of a strong trading and financial base, but will lead to a
number of exceptional costs being incurred during 2003 as we move to change and
improve the business. Potential inefficiencies arising from these changes may
constrain operating performance in the first half year, but for the year as a
whole we anticipate significant progress.
Churchill is profitable and cash generative. It has a highly experienced and
talented team throughout the business from the shop floor to international
sales. It is this team which provides customers with exemplary service and is
committed to deliver improved returns to shareholders. I would like to thank
all employees for their hard work over the year.
Move to AIM (the 'Alternative Investment Market')
The Board has for some time been considering the merits of transferring the
Company's listing on the Official List of the UK Listing Authority to the
Alternative Investment Market (AIM) of the London Stock Exchange.
AIM is now established as the dominant market for smaller and growing companies.
It has been highly successful attracting both new companies to the stock market
and transfers from the Official List. As a dedicated market for smaller
companies it provides a higher profile for the businesses traded on it and cost
savings for both companies and their investors. Currently there are also
significant tax advantages available to both new and existing shareholders.
After careful review the Board has concluded that AIM is the most appropriate
market for the Company given its size and shareholder base, and that it is in
the interests of shareholders as a whole that the Company's listing moves to
AIM. Accordingly the Company has today announced its intention to apply for
admission to AIM and the cancellation of its existing listing on the Official
List. If our application is successful, trading is expected to commence on AIM
on 22 April 2003. Williams de Broe plc has been appointed as the Company's
Nominated Adviser and will continue to act as its stockbrokers.
Operating Review
Dining Out
Sales grew by 5% to £22.4m (2001: £21.3m) in a year when demand in most markets
remained flat. In the UK we maintained our brand leadership position. We
remain particularly strong in the pub sector and are extending our market share
in the contract catering, restaurant and hotel sectors. In the US a slow first
half was followed by a strong performance in the second half supported by the
introduction of our new Alchemy china and increased investment in sales and
marketing resource. All our key European markets demonstrated growth in 2002.
Across the Dining Out business we have invested in a larger sales force,
developed our products and continued the closest possible relationship with our
clients. In the key areas of technical performance, twenty four hour delivery
and new product innovation we believe Churchill are the UK market leaders.
Alchemy is leading our expansion both at home and internationally. The success
in its first year has been very encouraging and much more is expected in 2003
and 2004.
Dining In
Sales fell by 7% in the year to £28.5m (2001 £30.7m). Turnover in 2001 had been
inflated by non recurring sub contract business and relatively high sales to
continuity programme customers. Sales in the second half of 2002 were marginally
above the comparable period in 2001 reflecting successful new listings. Over
the year as a whole growth in our target sectors, notably in the US, was offset
by continued pressure in volume European markets.
With our One Stop Shop strategy for housewares, the Churchill brand has gained
listings with key accounts both at home and abroad. The premium James Sadler
and Queens brands had a particularly successful year by working in association
with partners including Jeff Banks, Cath Kidston, the Royal Horticultural
Society and Historic Royal Palaces. These partnerships will enable us to both
improve our performance in the short term and to build our longer term market
positions. It is products and brands like these which will ensure Churchill's
long term success in the Dining In market.
Stephen Roper
Chairman
20 March 2003
Consolidated profit and loss account
for the year ended 31 December 2002
Before
exceptional Exceptional
items items Total Total
2002 2002 2002 2001
as restated
Note £000 £000 £000 £000
Turnover - 1
continuing operations 50,904 - 50,904 51,985
Operating profit - 2
continuing operations 1,971 -338 1,633 2,813
Share of operating profit of
associate net of impairment 30 - 30 124
Profit on disposal of fixed assets 3 - 75 75 337
Interest receivable 42 - 42 104
Profit on ordinary activities
before taxation 2,043 -263 1,780 3,378
Tax on profit on ordinary activities -441 89 -352 -895
Profit on ordinary activities
after taxation 1,602 -174 1,428 2,483
Dividends 4 -959 -958
Retained profit for the year 469 1,525
Pence per Pence per Pence per
share share share
Earnings per ordinary share
Basic 5 13.4p 23.3p
Adjusted 5 15.0p 20.1p
Diluted earnings per ordinary share
Basic 5 13.4p 23.1p
Adjusted 5 15.0p 19.9p
Consolidated balance sheet
as at 31 December 2002
2001
2002 as restated
£000 £000
Fixed assets
Intangible assets 176 222
Tangible assets 13,750 14,767
Investments 1,099 1,092
15,025 16,081
Current assets
Stocks 9,362 8,459
Debtors: amounts falling due within one year 11,288 10,060
Cash at bank and in hand 1,620 2,167
22,270 20,686
Creditors: amounts falling due within one year -9,430 -9,232
Net current assets 12,840 11,454
Total assets less current liabilities 27,865 27,535
Creditors: amounts falling due after one year -6 -19
Provisions for liabilities and charges -32 -166
Net assets 27,827 27,350
Capital and reserves
Called up share capital 1,066 1,065
Share premium account 1,967 1,960
Revaluation reserve 2,100 2,122
Other reserves 253 253
Profit and loss account 22,441 21,950
Equity shareholders' funds 27,827 27,350
Consolidated cash flow statement
for the year ended 31 December 2002
2002 2001
£000 £000
Net cash flow from continuing operating activities 2,027 3,670
(reconciliation to operating profit - note 6)
Returns on investments and servicing of finance
Interest received 44 109
Net cash inflow from returns on investments and
servicing of finance 44 109
Taxation
UK corporation tax paid -507 -814
Capital expenditure and financial investment
Purchase of tangible fixed assets -1,258 -2,011
Sale of tangible fixed assets 112 972
Purchase of investments 0 -18
Net cash outflow from capital expenditure and
financial investment -1,146 -1,057
Equity dividends paid -959 -852
Financing
Issue of ordinary shares 8 0
Payment of principal under finance leases -13 -13
Net cash outflow from financing -5 -13
(Decrease)/Increase in net cash -546 1,043
Notes to financial information:
1. Turnover analysis
The Directors consider that the Group's activities are a single class of
business. However for additional shareholder information turnover is analysed
as follows
2002 2001
£000 £000
Analysis by market sector
Dining Out 22,397 21,323
Dining In 28,507 30,662
50,904 51,985
Analysis by geographic market
United Kingdom 31,265 32,027
Rest of Europe 10,689 10,732
North America 6,648 6,704
Australasia 1,203 1,271
Far East 233 535
Other 866 716
50,904 51,985
2. Exceptional items
2002 2001
£000 £000
Restructuring costs 296 -
Write down of tangible fixed assets 42 -
338 -
Costs arising from the restructuring of certain manufacturing operations and the
write down of tangible fixed assets have been treated as exceptional and have
been charged in arriving at the operating profit for the year. A credit of
£89,000 has been included in the corporation tax charge in relation to the
exceptional items.
3. Profit on disposal of fixed assets
2002 2001
£000 £000
Profit on disposal of fixed assets 75 337
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. Dividends
The Directors have declared or now recommend payment of the following dividends
in respect of the year ended 31 December 2002:
2002 2001
£000 £000
Ordinary dividend
Interim paid 3.0p (2001: 3.0p) per 10p ordinary share 320 319
Final proposed 6.0p (2001: 6.0p) per
10p ordinary share 639 639
959 958
The final dividend will be paid on 23 May 2003 to those shareholders on the
register at 28 March 2003
5. Earnings per ordinary share
Basic earnings per ordinary share is based on the profit on ordinary activities
after taxation and on 10,656,780(2001: 10,649,876) 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.
2001
2002 as restated
pence per pence per
share share
Basic earnings per share 13.4 23.3
Adjustments :
Exceptional items 2.3
Profit on disposal of fixed assets -0.7 -3.2
Adjusted earnings per share 15.0 20.1
Diluted basic earnings per ordinary share is based on the profit on ordinary
activities after taxation and on 10,700,732(2001: 10,738,683) ordinary shares,
being the weighted average number of ordinary shares in issue during the year of
10,656,780(2001: 10,649,876) increased by 43,952 (2001: 88,807) 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.
Earnings per ordinary share (continued)
2001
2002 as restated
pence per pence per
share share
Diluted basic earnings per share 13.4 23.1
Adjustments :
Exceptional items 2.3 -3.2
Profit on disposal of fixed assets -0.7
Diluted adjusted earnings per share 15.0 19.9
6. Reconciliation of operating profit to net cash inflow from operating
activities
2002 2001
£000 £000
Continuing operating activities
Operating profit 1,633 2,813
Depreciation on tangible fixed assets 2,030 2,053
Impairment of tangible fixed assets 42
(Profit)/loss on sale of assets -27 16
Goodwill amortisation 46 46
Increase in stocks -903 -1,410
(Increase)/decrease in debtors -1,228 572
Increase/(decrease) in creditors 434 -412
Decrease in provisions 0 -8
Net inflow from continuing operating activities 2,027 3,670
7. Reconciliation of net cash flow to movement in net cash
2002 2001
£000 £000
(Decrease)/Increase in cash during the year -546 1,043
Cash outflow from decrease in debt and lease financing 13 13
Movement in net cash resulting from cash flows
and movement in net cash in the year -533 1,056
Exchange adjustment -1
Net cash at the start of the period 2,135 1,079
Net cash at the end of the period 1,601 2,135
8. Statement of total recognised gains and losses
2002 2001
£000 £000
Profit for the financial year 1,428 2,483
Currency translation differences -1 0
Total recognised gains and losses for the year 1,427 2,483
Prior year adjustment -166 0
Total gains and losses recognised since last annual report 1,261 2,483
During the year the Group has adopted new accounting standard FRS 19 - Deferred
Taxation. As a result a prior year adjustment has arisen of £166,000. The effect
of this change has created an additional tax credit in the period of £134,000
(2001: £26,000).
9. Financial Information
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2002. Statutory accounts for
2002 which includes an unqualified audit opinion will be delivered to the
Registrar of Companies following the Company's Annual General Meeting on 14 May
2003.
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