Interim Results

RNS Number : 5964C

Churchill China PLC

03 September 2008

 



For Immediate Release

3 September 2008

CHURCHILL CHINA plc

INTERIM RESULTS

For the six months ended 30 June 2008

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 2008.

KEY POINTS

• Sales revenue £20.3m (2007: £22.2m)

• Profit before exceptional items and taxation £1.2m (2007: £1.4m)

• Profit before tax after exceptional items £1.2m (2007: £1.4m)

• Operating profit £0.8m (2007: £1.0m)

• Earnings per share 8.3p (2007: 8.4p)

• Interim dividend increased by 6% to 4.8p (2007: 4.5p)

• Cash £8.4m (June 2007: £8.5m, December 2007: £11.4m)

Commenting on the results, Jonathan Sparey, Chairman said:

'I am pleased to report that in the first 6 months of 2008 Churchill China has performed in line with market expectations with sales and underlying profitability at a creditable level.

We maintain high service levels to our customers and are continuing to invest in business optimisation and growth whilst keeping careful control of costs. ' 

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/Rebecca Skye Dietrich
Brewin Dolphin Investment Banking	Tel No: 0845 270 8610
Andrew Emmott

CHAIRMAN'S STATEMENT

I am pleased to report that in the first six months of 2008 Churchill China has performed in line with market expectations with sales and underlying profitability at a creditable level.

We continue to enact our core strategies whilst being mindful of the need to make short term tactical adjustments to our business plans in response to generally more difficult market conditions. We maintain high service levels to our customers and continue to invest in business optimisation and growth whilst keeping careful control of costs.

FINANCIAL REVIEW

Group revenue for the six months to 30 June 2008 was £20.3m, down £1.9m against the exceptionally strong performance in the first half of last year (2007: £22.2m). Margins have remained at reasonable levels with material and energy cost increases being offset by currency benefits in European markets and efficiencies within our operations. Group operating profit was £0.8m (2007: £1.0m) reflecting both the effect of lower sales to Hospitality customers and a stronger performance in Retail. Pre tax profit was, as anticipated earlier in the year, 10% below the corresponding period in 2007 at £1.2m (£2007: £1.4m).

Adjusted earnings per share were 8.3p (2007: 8.4p).

Operating cash net utilisation was £0.8m (2007: £3.2m cash generation) as stock and other working capital levels increased by somewhat higher than normal levels for the first half of the year. We have continued to implement the investment plans outlined last year and this has resulted in higher capital expenditure of £1.2m (2007: £0.4m). After increased dividend payments and a limited purchase of shares under our share buy back programme, overall cash balances remained at a healthy £8.4m. Our strong net asset position allows us to continue to invest for the longer term and our capital spend will increase in the second half of the year. 

DIVIDEND

The Board is committed to a policy of increasing shareholder value through progressive dividend growth and is pleased to declare an interim dividend of 4.8p, up 6% on the 4.5p paid in 2007, reflecting our confidence in the underlying quality of our business. The dividend will be paid on 6 October 2008  to shareholders on the register on 12 September 2008.

OPERATIONAL REVIEW

Hospitality

Sales to our Hospitality customers were broadly in line with expectations at £12.4m (2007 £13.6m), returning to long term trend levels after the exceptional uplift of 2007.  In the first half of 2007 Churchill benefited from circa £1m of significant major installations in the UK and Europe. It would seem that the capital spending cycle has returned to the more normal levels of 2006 and before.

It is pleasing to note that despite the economic slow down in the UK, there is little current evidence of any major decline in the number of consumers eating out, although there is some indication of them trading down. UK consumers are continuing to dine out on a regular basis as an intrinsic part of their leisure activity but they appear to limiting be their expenditure per outing. 

The resilience of Churchill's core business is underpinned by close relationships with a wide range of end user customer groups including leading pub and restaurant companies who continue to report increased food revenues. These long term relationships generate recurring revenue for Churchill through the regular replacement of dinnerware that is in constant use. 

We have maintained our position as the number one ceramics supplier to the UK despite increased competition particularly from low price, technically inferior imported porcelain. Our main customer base, the professional end users, place high value on our product innovation, exemplary service and the cost in use benefits of Churchill's ranges.

Export sales were £4.6m (2007:£5.2m) with the majority of the reduction again being due to lower new installation business and the effects of a reduction of activity levels in North America. We remain optimistic about the opportunities available to us and we continue to invest in marketing, new product development and manpower. 

We are also very pleased to have been appointed the distributor for Riedel glassware for the UK hospitality market.  Riedel is the world's leading wine glass company with an exceptional reputation for quality and we look forward to a close partnership.  

Manufacturing, Logistics and Technical

It is most encouraging to report that all Churchill's manufacturing has now been fully and successfully consolidated into one site. The manufacture of our prestige Alchemy range has been transferred and we are realising benefits from a streamlined production layout incorporating a new fast fire, energy efficient kiln. Construction of a high bay storage facility has now commenced and will be complete by April 2009 with the resulting cost savings on interworks transport.  The Whieldon Road facility will become surplus to requirements once the new warehouse is complete.

Retail

Sales for the first half of 2008 were in line with expectations at £7.9m (2007 £8.6m) reflecting the strategic objective to increase higher margin sales to the middle market (up 18%) and a reduction in lower margin business. 

Licensed product is an established feature of both the Churchill and Queens collections. Our presentation and interpretation of designs by Disney, Sanderson, RHS, Cath Kidston, Jeff Banks, Alex Clark, together with branding and artwork is of key importance to our customers.

Major retailers place high value on our ability to provide excellent service levels and we are deepening our relationships with a number of these accounts. The quantity and quality of the retail product offering and the listings achieved are very encouraging, particularly with department store and major independent retailers.

Overseas suppliers

The strategy of sharing our technical expertise with our overseas supplier base has mitigated some of the effects of US dollar price inflation. There have been substantial cost pressures on our Far Eastern and Colombian suppliers, principally as a result of energy, wage and raw material inflation, and of course the impact of currency fluctuations. Churchill is continuing to use its ceramic expertise, experienced buying teams and long term relationships to ensure continuity of supply at appropriate prices.  

PROSPECTS

The outlook for our business in the light of the latest economic projections is reasonable but difficult to predict. Churchill has a market leading position with many pub companies, restaurants and other hospitality customers. This allows us to capture a broad base of recurring hospitality revenues although there are likely to be fewer new installation contracts available. Weakening consumer spending is creating pressure on our retail customers meaning good product listings may not convert to revenues but our mid market retail activity continues to grow encouragingly.  

Taking this into account we currently anticipate earnings for the full year to be in line with the Board's expectations, but given the seasonal bias of our business towards the final quarter of the year, there remains some uncertainty about the full year outcome. 

Jonathan Sparey

Chairman

3 September 2008

Churchill China plc

Consolidated Income Statement

for the six months ended 30 June 2008

		Unaudited		Unaudited			Audited
		Six months to		Six months to			Twelve months to
		30 June 2008		30 June 2007			31 December 2007
						Before
	Note	Total		Total		exceptional	Exceptional	Total
						items	items
		£000		£000		£000	£000	£000
Revenue		20,307		22,218		46,930	-	46,930
Operating Profit before exceptional items	1	818		1,034		3,230	-	3,230
Exceptional items	2	-		-		-	798	798
Operating profit		818		1,034		3,230	798	4,028
Share of results of associated company		40		39		120	-	120
Finance income / cost	3	359		288		694	-	694
Profit before Income Tax		1,217		1,361		4,044	798	4,842
Income Tax expense	4	(306)		(441)		(1,147)		(1,147)
Profit for the period		911		920		2,897	798	3,695
Attributable to:
Equity holders of the parent		911		920		2,897	798	3,695
		Pence per		Pence per				Pence per
		share		share				share
Basic earnings per ordinary share	5	8.3		8.4				33.8
Diluted basic earnings per ordinary share	5	8.3		8.4				33.7
All the above figures relate to continuing operations

Churchill China plc 

Consolidated Balance Sheets 

as at 30 June 2008

		Unaudited		Unaudited		Audited
		30 June		30 June		31 December
		2008		2007		2007
		£000		£000		£000
Assets
Non Current Assets
Property, plant and equipment		11,402		10,503		10,813
Intangible assets		39		38		34
Investment in associates		854		836		814
Available for sale financial assets		-		22		-
Deferred income tax assets		257		848		318
		12,552		12,247		11,979
Current Assets
Inventories		8,675		6,969		6,660
Trade and other receivables		8,573		9,157		9,606
Cash and cash equivalents		8,378		8,539		11,440
		25,626		24,665		27,706
Total Assets		38,178		36,912		39,685
Liabilities
Current liabilities
Trade and other payables		(6,638)		(6,990)		(7,779)
Current income tax liabilities		(549)		(414)		(493)
		(7,187)		(7,404)		-8,272
Non current liabilities
Retirement benefit obligations		(896)		(3,748)		(1,090)
Deferred income tax liabilities		(586)				(592)
Total non current liabilities		(1,482)		(3,748)		(1,682)
Total liabilities		(8,669)		(11,152)		(9,954)
Net Assets		29,509		25,760		29,731
Capital and reserves attributable to equity holders of the Company
Issued share capital		1,095		1,094		1,095
Share premium account		2,332		2,329		2,332
Treasury shares		(138)		-		-
Retained earnings		25,033		21,183		25,124
Other reserves		1,187		1,154		1,180
		29,509		25,760		29,731

Churchill China plc

Statement of recognised income and expense

for the six months ended 30 June 2008

			Unaudited		Unaudited		Audited
			Six months to		Six months to		Twelve months to
			30 June 2008		30 June 2007		31 December 2007
			£000		£000		£000
Net of tax
Actuarial gain on retirement benefit obligations			-		-		1,655
Currency translation differences			-		-		3
Impact of change in UK tax rate on deferred tax			-		-		26
Net income recognised directly in equity			-		-		1,684
Profit for the period			911		920		3,695
Total recognised income for the period			911		920		5,379
Attributable to
Equity holders of the company			911		920		5,379

Churchill China plc

Cash Flow Statement

for the six months ended 30 June 2008

		Unaudited			Unaudited				Audited
		Six months to			Six months to				Twelve months to
		30 June 2008			30 June 2007				31 December 2007
		£000			£000				£000
Cash (used by) / generated from operations		(826)			3,120				6,307
Interest received		285			208				491
Interest paid		-			-				(14)
Income tax paid		(195)			(22)				(225)
Net cash (used by) / from operating activities		(736)			3,306				6,559
Investing activities
Purchases of property, plant and equipment		(1,230)		(371)					(1,413)
Proceeds on disposal of property, plant and equipment		66			25		1,107
Purchases of intangible assets		(17)	(15)			(25)
Dividends received		-			-				103
Net cash used in investing activities		(1,181)	(361)					(228)
Financing activities
Issue of ordinary shares		9			67				71
Purchase of treasury shares		(147)			-				-
Dividends paid		(1,007)			(883)				(1,375)
Net cash used in financing activities		(1,145)	(816)					(1,304)
Net (decrease) / increase in cash and cash equivalents		(3,062)			2,129				5,027
Cash and cash equivalents at the beginning of the year		11,440			6,410				6,410
Exchange gains on cash and cash
equivalents		-			-				3
Cash and cash equivalents at the end of the year		8,378			8,539				11,440

1. Segmental analysis 

for the six months ended 30 June 2008

			Hospitality	Retail	Unallocated	Total
			£000	£000	£000	£000
6 months to 30 June 2008
Revenue			12,449	7,858	-	20,307
Contribution to group overheads			1,764	451	-	2,215
Group overheads			-	-	(1,397)	(1,397)
Operating profit			1,764	451	(1,397)	818
Share of results of associated company					40	40
Finance income / cost					359	359
Profit before income tax					(998)	(1,217)
Income tax expense						(306)
Profit for the period						911
6 months to 30 June 2007
Revenue			13,642	8,576	-	22,218
Contribution to group overheads			2,222	156	-	2,378
Group overheads			-	-	(1,344)	(1,344)
Operating profit			2,222	156	(1,344)	1,034
Share of results of associated company					39	39
Finance income / cost					288	288
Profit before income tax					(1,017)	1,361
Income tax expense						(441)
Profit for the period						920
12 months to 31 December 2007
Revenue			28,576	18,354	-	46,930
Contribution to group overheads			4,909	1,112	-	6,021
Group overheads			-	-	(2,791)	(2,791)
Exceptional items			-	-	798	798
Operating profit			4,909	1,112	(1,993)	4,028
Share of results of associated company					120	120
Finance income / cost					716	716
Profit before income tax					(1,157)	4,864
Income tax expense						(1,150)
Profit for the period						3,714

2. Exceptional Items

As stated in the Group's accounting policies the Directors regard certain material items as exceptional. The analysis of exceptional items is as follows.

	Unaudited		Unaudited		Audited
	Six months to		Six months to		Twelve months to
	30 June 2008		30 June 2007		31 December 2007
	£000		£000		£000
Profit on disposal of property, plant and equipment	-		-		798

The profit on disposal recognised in 2007 is in relation to the sale of surplus land at Sandyford in November 2007. A taxation charge of £nil was charged in the Group's overall tax charge in 2007 in respect of this disposal. Net receipts of £1,042, 000 were received in respect of this disposal during 2007.

3. Finance income / (costs)

		Unaudited		Unaudited		Audited
		Six months to		Six months to		Twelve months to
		30 June 2008		30 June 2007		31 December 2007
		£000		£000		£000
Other interest receivable		285		208		491
Net finance credit: pensions		74		80		239
Finance income		359		288		730
Other interest		-		-		(14)
Impairment of available for sale financial asset		-		-		(22)
Finance costs		-		-		(36)
Finance income / (costs)		359		288		694

4. Income tax expense

		Unaudited		Unaudited		Audited
		Six months to		Six months to		Twelve months to
		30 June 2008		30 June 2007		31 December 2007
		£000		£000		£000
Current taxation		251		246		528
Deferred taxation		55		195		619
Income tax expense		306		441		1,147

5. Earnings per ordinary share

Basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,945,524 (2007: 10,919,771) 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 the exceptional profit on disposal of fixed assets

		Unaudited		Unaudited		Audited
		Six months to		Six months to		Twelve months to
		30 June 2008		30 June 2007		31 December 2007
		pence per		pence per		pence per
		share		share		share
Basic earnings per share		8.3		8.4		33.8
Adjustments :
Profit on disposal of property, plant and equipment		-		-		(7.3)
Adjusted earnings per share		8.3		8.4		26.5

Diluted basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 11,009,079 (2007: 10,986,179) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,945,524

(2007:10,919,771) increased by 63,555 (2007:66,408) 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 the exceptional profit on disposal of fixed assets

		Unaudited		Unaudited		Audited
		Six months to		Six months to		Twelve months to
		30 June 2008		30 June 2007		31 December 2007
		pence per		pence per		pence per
		share		share		share
Diluted basic earnings per share		8.3		8.4		33.6
Adjustments :
Profit on disposal of property, plant and equipment		-		-		(7.3)
Diluted adjusted earnings per share		8.3		8.4		26.3

6. Reconciliation of operating profit to cash generated from operations

		Unaudited		Unaudited		Audited
		Six months to		Six months to		Twelve months to
		30 June 2008		30 June 2007		31 December 2007
		£000		£000		£000
Cash (used by) / generated from operations
Operating profit		818		1,034		4,028
Adjustments for
Depreciation		607		556		1,002
Profit on disposal of property, plant and equipment		(20)		(7)		(719)
Share based payment		12		3		3
Decrease in retirement benefit obligations		(120)		(120)		(240)
Changes in working capital
Inventory		(2,015)		(112)		197
Trade and other receivables		1,033		954		505
Trade and other payables		(1,141)		812		1,531
Cash (used by) / generated from operations		(826)		3,120		6,307

7. Reconciliation of movements in shareholder's equity

	Unaudited		Unaudited		Audited
	Six months to		Six months to		Twelve months to
	30 June 2008		30 June 2007		31 December 2007
	£000		£000		£000
Opening balance	29,731		25,653		25,653
Profit for the period	911		920		3,695
Other recognised income and expenditure	-		-		1,684
Dividends paid	(1,007)		(883)		(1,375)
Shares issued	9		67		71
Purchase of treasury shares	(147)		-		-
Increase in share based payment reserve	12		3		3
	29,509		25,760		29,731

8. Basis of preparation and accounting policies

The interim financial statements for the period to 30 June 2008 have not been audited or reviewed and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The Company's statutory accounts for the year ended 31 December 2007, 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 237 (2) or (3) of the Companies Act 1985.

The interim financial statements have been prepared in accordance with IFRS as adopted by the European Union, IFRIC interpretations and the Companies Act 1985 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 same accounting policies, presentation and methods of computation are followed in the interim financial statements as were applied in the Group's last audited financial statements.

 

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