Final Results - Year Ended 31 December 1999

Churchill China PLC 16 March 2000 MEETINGS AT BUCHANAN COMMUNICATIONS AT 10.00 AM AND 11.15am PRELIMINARY RESULTS for the twelve months ended 31st December 1999 Churchill China plc, is pleased to announce its results for the twelve months ended 31st December 1999. Key Points: * Restructuring completed * Return to profit in second half * Turnover of £45.6m (1998: £50.8m) * Pre-tax loss before exceptional items of £0.5m (1998 profit: £1.3m) * Net exceptional costs £4.0m (1998 income: £0.1m) * Adjusted loss per share of 3.7p (1998: earnings 8.3p) * Balance sheet remains strong * Net asset value £2.34 per share Stephen Roper, Chairman, said: '1999 was a hard year for Churchill with factory closures and a substantial reduction in manpower. Behind these highly visible changes has been a profound change within the Company which has turned our approach from being a manufacturer aiming to sell to two distinct markets into a focused supplier to a carefully nurtured customer base. It is this change in culture which gives me confidence for the future. I would like to thank employees and shareholders for their understanding and support during the past year. We approach the coming year with a new sense of purpose and direction.' For further information, please contact: Stephen Roper, Chairman Today on: 0171 466 5000 Churchill China plc thereafter on: 01782 577566 Tim Anderson Lisa Baderoon Buchanan Communications ' Tel No: 0171 466 5000 CHAIRMAN'S STATEMENT We enter the new Millennium at Churchill with a very different culture from that which existed throughout most of the 1990s. Our strategic objectives have redefined our role from that simply of manufacturer to a comprehensive provider of tabletop products, delivering excellence through design, quality and customer service. The difficult decisions made in the first half of 1999 reduced our Dining In manufacturing volumes and have prioritised the need to improve margins, whilst at the same time accelerating the switch in production facilities from Dining In to the growing Dining Out division. Flexibility is becoming a key issue in this process. Flexibility is also reflected in outsourcing, which expands our range and increases our competitiveness. Lastly, flexibility is seen in our new products launched last year, which are direct responses to customer ideas, particularly from chefs. I am pleased to confirm that the Group returned to profit in the second half of 1999 and most importantly began to demonstrate how we will deliver profitable growth. The Dining Out division demonstrated a return to growth as a result of increased focus and resource. We expect Dining In to show an improving performance as the new year progresses. Financial Performance In the year to 31st December turnover fell to £45.6m from £50.8m, following the reduction in capacity announced at the half year. Profit before exceptional items and taxation fell from £1.3m to a loss of £0.5m. Adjusted earnings per share fell from 8.3p to a loss of 3.7p per share. Net exceptional costs of £4.0m (1998 income : £0.1m) were incurred giving a total loss before taxation of £4.5m. Due to the loss for the year the Directors believe it is not appropriate to recommend a final dividend. The Directors intend to re-establish payment of a dividend at the earliest opportunity. Cash generation from operating activities was positive at £0.8m after exceptional cash costs of £1.0m. After outflows in respect of financing, taxation and capital expenditure, cash balances fell by £0.4m. Overall debt at the year end was £1.6m (1998 : £1.1m), a reduction from the figure of £2.3m at the half year. The Group's gearing at 6% remains low. Operating profit before exceptional items and taxation in the second half of 1999 was £1.0m (1998 second half : £0.3m), reflecting an improved performance particularly from the Dining Out division. During the year the Group restructured its Dining In operation to address the losses in that division. Costs incurred in respect of this programme were £4.1m of which £2.7m was in relation to the write-down of buildings, plant and machinery, £0.3m for provisions against excess and obsolete stock and £1.1m of restructuring and redundancy costs. The cash effect of this restructuring was £1.0m in the year. The restructuring reduced volume capacity in the Dining In division by approximately 25% and involved the closure of one factory within the Group and a considerable reduction in activity levels at another. Overhead costs have been reduced to reflect lower levels of activity in this division. Overview More reflective of the current health and prospects of the Group is the trend of second half against the first and the trading performance in the first quarter of 2000. All point to a robust Group which has come through a massive change in culture and business philosophy. That is not to say that market conditions are any easier. Sales to our European markets will yet again be affected by the latest bout of weakness in the Euro, and whilst capacity has been lost in Stoke, over capacity remains within Europe as a whole. Our sound financial base has enabled the business to make radical changes in our approach to the market place. We have always been a low cost producer dedicated to automation and innovation. The large capital investment in previous years across all functions of the business has underpinned this position. In 1999 our capital investment was £1.1m which was primarily directed to customer support systems. Furthermore, over the last six months we have substantially increased our marketing and sales resource in both divisions. For Dining Out this will continue to underwrite the sales growth in key targeted markets. At the same time our developing relationships over the last 18 months with major end-users such as hotel groups and breweries have had a very profound effect on new product development. The success of New Horizons launched in January 1999, followed by Snack Attack and the Mediterranean range have more than fulfilled our expectations, both in the UK and overseas. Additional new products are planned for this year to keep us at the leading edge of the growing eating- out business. The strengthening of our Dining In sales and marketing team will bring a comprehensive focus in the UK to providing major retailers with a 'One Stop Shop' in ceramics. Manufacturing, as well as outsourcing from overseas are now enabling us to offer the customer a very much wider variety of product, design and price points. Bone china, earthenware, stoneware and porcelain in a range of prices will greatly strengthen our position as a supplier to the larger UK retailers. With our reduced manufacturing base for Dining In we shall concentrate our exports away from low priced contemporary products to higher value classical and traditional English designs. To achieve our goals in both divisions we have already extended our design department, not only in-house, but through outside influence in order to cover a very much larger product portfolio. National and international trade fairs during the last two months have seen a strong endorsement of our new product portfolios in Dining In and Dining Out. The introduction of new ranges from overseas will raise Churchill's position in the market place. Our design, logistics and technical abilities will all add value to the products we source, and the package we offer to customers. I regret to report that our Senior Non-Executive, Derek Mapp, will not be seeking re-election at the Annual General Meeting in May. Derek's outside commitments have grown considerably during the last 12 months, including his recent appointment as Chairman of the East Midlands Development Agency. The Board join me in thanking Derek for his energetic and valuable contribution to the Group over the last two years and wish him every success for the future. We intend to appoint a further new non- executive director during the next two months. Prospects Dining Out looks set to continue its solid growth, building on its strong market position and close customer relationships. The Group's performance is always second half biased and this will again be reflected in 2000. The financial recovery in Dining In is expected to continue through 2000 and beyond. We will continue to be innovative in our designs in order to meet the needs of new and developing markets such as coffee shops and ethnic restaurants. 1999 was a hard year for Churchill with factory closures and a substantial reduction in manpower. Behind these highly visible events has been a profound change within the Group which has turned our approach from being a manufacturer aiming to sell to two distinct markets into a focused supplier to a carefully nurtured customer base. It is this change in culture which gives me confidence for the future. I would like to thank employees and shareholders for their understanding and support during the past year. We approach the coming year with a new sense of purpose and direction. Dining Out Turnover increased by 8% to £20.0m and operating profit rose to £3.2m from £1.8m in 1998. Operating margins were 16%, compared to 10% in 1998. The second half performance was outstanding as a consequence of both increased sales and a strong manufacturing performance. Manufacturing yields have continued to improve throughout the year as a consequence of increased focus by the new management team. This process has been aided by targeted capital expenditure. In the UK, greater resources were invested in sales and marketing to strengthen our relationships with major accounts such as restaurant and pub chains. This has been one of the drivers behind our product development. Snack Attack is the best example. It is a range of entirely new shaped dishes designed for small portions of food such as crudities, tapas or chips and crisps. The bright colours and different shapes can be mixed to provide a flexible and lively combination. New Horizons had its first full year of sales in 1999 which proved to be a record for any new product. Its radical new design including bright colours caught the imagination of the market. In January this year we launched the Voyager range which, like Snack Attack, has been developed in close consultation with chefs and as with Snack Attack, is highly versatile. Voyager fulfils the needs of almost all the ethnic markets. Together our new products reflect an energetic stream of ideas which respond to needs and trends. Exports showed a healthy growth of 9% but reflected a mixed picture in different parts of the world. Our key target market of the US grew by 70% and we continue to apply additional resource to develop this market. Our strategy of flexible production in both divisions will provide increased capacity for the growing Dining Out business with limited capital expenditure. Overall, Dining Out remains highly successful and, I believe, we have taken important action to accelerate that success this year and indeed over the longer term. Dining In Turnover fell 21% to £25.6m (1998 : £32.3m) as we reduced production in June 1999 to bring it in line with demand. The loss in the first half was £2.2m before exceptional items, falling to £1.4m in the second six months, again before exceptional items, thus resulting in an overall operating loss of £3.6m before exceptional items for the year. The radical actions taken in 1999 were a consequence of over-capacity in the European ceramics industry as related to the retail market, lifestyle changes in the home and the sustained strength of sterling. These factors have only served to focus our Dining In strategies to the reality of the market place in the UK and overseas. During 1999 the sales and marketing team was restructured and strengthened to deliver two key strategies. Firstly to provide a 'One Stop Shop' for major retailers in the UK and secondly to develop our export sales of classical and traditional English designs at the higher value end of the market Through a combination of our own manufactured products and outsourcing from overseas we can now offer the larger retailers a complete portfolio of ceramics covering bone china, earthenware, stoneware and porcelain and a much wider choice of price points. This 'One Stop Shop' approach particularly in the UK is already raising the importance of Churchill as a key supplier and will mean that we can compete profitably and effectively in different price sectors. On the second strategy, whilst a proportion of our export sales have always included a level of classical and traditional English designs, we will now apply a much stronger emphasis in this area. The reduced Dining In production volumes will benefit from this specialisation through higher unit values. Buyer reaction at recent trade fairs in the UK and overseas to both the strategies and the actual products has been very positive. The Dining In division has endured considerable change over the last 12 months and I would particularly like to thank everyone for the excellent way in which they have responded since the difficult decisions which took place in June 1999. Throughout the last 12 months our investment in training to provide quality and increased flexibility has remained paramount. It is these strengths which will underwrite our recovery during the coming year. Stephen Roper Chairman Financial Highlights Before Exceptio- Exceptio- Total nal nal items Items 1999 1999 1999 1998 £000 £000 £000 £000 Results Turnover - continuing operations 45,577 - 45,577 50,767 Operating (loss)/profit - continuing operations (433) (4,085) (4,518) 1,188 Share of operating profit of associate 76 - 76 116 Interest receivable - - - 91 Interest payable and similar charges (154) - (154) (48) ----- ----- ----- ----- (Loss)/profit on ordinary activities before profit on disposal of fixed assets, income from fixed asset investment and exceptional items (511) (4,085) (4,596) 1,347 Profit on disposal of fixed assets - - - 115 Income from fixed asset investment - 65 65 6 ----- ----- ----- ----- (Loss)/profit on ordinary activities before taxation (511) (4,020) (4,531) 1,468 ====== ====== ====== ====== Dividends - - - 319 ----- ----- ----- ----- Key Ratios Operating margin (0.1)% 2.3% Basic (loss)/earnings per share (38.7)p 9.4p Adjusted (loss)/earnings per share (3,7)p 8.3p Diluted basic (loss)/earnings per share (38.7)p 9.4p Diluted adjusted (loss)/earnings per share (3.7)p 8.3p Dividends per share - 3.0p Consolidated Profit and Loss Account for the year ended 31 December 1999 Before Exceptio- Exceptio- Total nal nal items Items 1999 1999 1999 1998 Note £000 £000 £000 £000 Turnover 1 45,577 - 45,577 50,767 ====== ====== ====== ======= Operating 1,5 (433) (4,085) (4,518) 1,188 (loss)/profit ====== ====== Share of operating profit of associate 76 116 Profit on disposal of fixed assets 0 115 Income from fixed asset investments 65 6 Interest receivable 0 91 Interest payable and similar charges (154) (48) ------ ------ (Loss)/profit on ordinary activities before taxation (4,531) 1,468 Tax credit/(charge) on (loss)/profit on ordinary activities 405 (468) ------ ------ (Loss)/profit on ordinary activities after taxation (4,126) 1,000 Dividends 2 0 (319) ------ ------ Retained (loss)/profit for the year (4,126) (681) ====== ====== Pence Pence per per share share Earnings per ordinary share Basic 3 (38.7)p 9.4p Adjusted 3 (3.7)p 8.3p Diluted earnings per ordinary share Basic 3 (38.7)p 9.4p Adjusted 3 (3.7)p 8.3p Consolidated Balance Sheet As at 31 December 1999 1999 1998 £000 £000 Fixed assets Intangible assets 188 310 Tangible assets 16,744 22,311 Investments 890 832 ----- ----- 17,822 23,453 Current assets Stocks 6,156 6,052 Debtors: amounts falling due within one year 9,951 9,967 Cash at bank and in hand 8 10 ----- ----- 16,115 16,029 Creditors : amounts falling due within one year (8,664) (9,276) ----- ----- Net current assets 7,451 6,753 ----- ----- Total assets less current liabilities 25,273 30,206 Creditors : amounts falling due after one year (45) - Provisions for liabilities and charges (318) (253) ----- ----- Net assets 24,910 29,953 ====== ====== Capital and reserves Called up share capital 1,065 1,065 Share premium account 1,960 1,960 Revaluation reserve 2,255 3,201 Other reserves 253 253 Profit and loss account 19,377 23,474 ----- ----- Equity shareholders' funds 24,910 29,953 ====== ====== Consolidated Cash Flow Statement for the year ended 31 December 1999 1999 1998 £000 £000 Net cash inflow from continuing 836 3,847 operating activities (reconciliation to operating profit - note 4) Returns on investments and servicing of finance Interest received 0 91 Interest paid (133) (31) Dividend received from other investments 65 6 ----- ----- Returns on investment and servicing of finance (68) 66 ----- ----- Taxation UK corporation tax paid (209) (1,772) ----- ----- Capital expenditure and financial investment Purchase of tangible fixed assets (1,023) (4,672) Sale of tangible fixed assets 68 283 ----- ----- Net cash outflow from capital expenditure and financial investment (955) (4,389) ----- ----- Acquisitions Purchase of business 0 (562) ----- ----- Equity dividends paid 0 (1,319) ----- ----- Financing Repayment of loan 0 (48) Issue of ordinary shares 0 40 Payment of principal under finance leases (8) (2) ----- ----- Net cash outflow from financing (8) (10) ----- ----- Decrease in net cash (404) (4,139) ====== ====== Notes to the Financials 1. Segmental analysis by class of business The analysis by class of business of the Group's turnover and operating profit is set out below. Before exceptio- Exceptio- Total Total nal nal items Items 1999 1999 1998 1998 £000 £000 £000 £000 Turnover Class of business Dining Out 19,972 0 19,972 18,459 Dining In 25,605 0 25,605 32,308 ------ ------ ------ ------ 45,577 0 45,577 50,767 ====== ====== ====== ====== Operating (loss)/profit Class of business Dining Out 3,194 0 3,194 1,779 Dining In (3,627) (4,085) (7,712) (591) ------ ------ ------ ------ Total operating (loss)/profit (433) (4,085) (4,518) 1,188 ====== ====== Share of operating profit of associate 76 116 Profit on disposal of fixed assets 0 115 Income from fixed asset investments 65 6 Interest receivable 0 91 Interest payable and similar charges (154) (48) ----- ----- (Loss)/profit before taxation (4,531) 1,468 ====== ====== 2. Dividend The directors do not propose a final dividend for the year ended 31 December 1999. 3. (Loss)/earnings per ordinary share Basic earnings per ordinary share is based on the (loss)/profit on ordinary activities after taxation and on 10,649,876 (1998: 10,645,258) ordinary shares, being the weighted average number of ordinary shares in issue during the year. Adjusted earnings per ordinary share is based on the (loss)/profit on ordinary activities after taxation and adjusted to take into account income from fixed assets investment, profit on disposal of fixed assets and exceptional items. 1999 1998 Pence per Pence per share share Basic (loss)/earnings per ordinary share (38.7) 9.4 Adjustments: Profit on disposal of fixed assets - (1.1) Income from fixed asset investment (0.6) - Exceptional items 35.6 - ------ ----- Adjusted (loss)/earnings per share (3.7) 8.3 ====== ====== Diluted basic (loss)/ earnings per ordinary share is based on the (loss)/ profit on ordinary activities after taxation and on 10,649,876 (1998: 10,645,258) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,649,876 (1998 : 10,645,258) increased by nil (1998: nil) 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 share price during the year. Diluted adjusted (loss)/earnings per ordinary share is based on the (loss)/profit on ordinary activities after taxation and adjusted to take in account income from fixed asset investment, profit on disposal of fixed assets and exceptional items. 1999 1998 Pence per Pence per share share Diluted basic (loss)/earnings per ordinary share (38.7) 9.4 Adjustments Profit on disposal of fixed assets - (1.1) Income from fixed asset investment (0.6) - Exceptional items 35.6 ------ ------ Diluted adjusted (loss)/earnings per share (3.7) 8.3 ====== ====== 4. Reconciliation of operating (loss)/profit to net cash inflow from continuing operating activities 1999 1998 £'000 £'000 Continuing operating activities Operating (loss)/profit (4,518) 1,188 Depreciation on tangible fixed assets 2,784 2,954 Impairment of tangible fixed assets 2,729 - - exceptional Loss/(gain) on sale of tangible fixed assets 33 (9) Goodwill amortisation 122 14 Increase in stock (104) (806) Decrease in debtors 540 793 Decrease in creditors (815) (287) Increase in provisions and liabilities 65 - ----- ----- Net inflow from continuing operating activities 836 3,847 ====== ====== Net cash inflow from continuing operating activities is stated after an outflow of £977,000 (1998 : nil) in respect of the restructuring programme. 5. Exceptional item Costs arising from the restructuring of the Group's manufacturing operations and resulting impairment to fixed assets have been treated as exceptional and have been charged in arriving at the operating loss for the year. These exceptional costs comprise: 1999 1998 £'000 £'000 Impairment to fixed assets 2,729 - Redundant and obsolete stock 288 - Restructuring costs 1,068 - ----- ----- 4,085 - ====== ====== The impairment to fixed assets represents a reduction in the carrying value of certain manufacturing plants within the Group's Dining In division. As a result of continuing operating losses within the division and in accordance with the provisions of FRS 11 'Impairment of Fixed Assets and Goodwill' the Directors consider that there has been a permanent diminution in the realisable value of buildings, plant and machinery and fixtures and fittings at those manufacturing plants. Furthermore, there is no reasonable exception of future net cashflow or economic return form those plants over their remaining useful lives. The resulting diminution in value of £2,729,000 has been taken in the profit and loss account. In addition to the above charge, a further element of the impairment of fixed assets of £917,000 has been charged directly against revaluation reserves. A credit of £289,000 has been included in the corporation tax credit for the year in relation to the exceptional item. 6. Year 2000 No significant Year 2000 problems have been encountered over the Millennium period, or in the period up to the date of this announcement with either the Group's own operating systems or trading relationships with third parties. 7. Financial Information The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 1999. Statutory accounts for 1999 will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 17 May 2000.

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