Interim Results

RNS Number : 0773Y

Churchill China PLC

27 August 2009

 



For Immediate Release

27 August 2009

CHURCHILL CHINA plc

INTERIM RESULTS

For the six months ended 30 June 2009

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 2009.

KEY POINTS

• Sales revenue of £19.7m (2008: £20.3m)

• Profit before exceptional items and taxation £0.4m (2008: £1.2m)

• Operating profit £0.4m (2008: £0.8m)

• Earnings per share 2.6p (2008: 8.3p)

• Interim dividend 4.8p (2008: 4.8p)

• Cash £5.8m (2008:£8.4m)

Commenting on the results, Jonathan Sparey, Chairman said:

'I am pleased to report that the Group's overall performance in the first half of the year has been in line with expectations for the half year to 30 June 2009. We remain on track to deliver expected profitability for the full year, which is, as normal, weighted heavily to the stronger second half. Whilst being cautious in relation to the impact of continued economic uncertainty in the short term, we remain confident in our business model, overall strategy and ability to create shareholder value.'

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

Introduction

I am pleased to report that in the first half of the year the Group's overall performance has been in line with expectations for the half year to 30 June 2009. Churchill's profitability was lower than the corresponding period last year principally as a function of lower sales to our Hospitality customers, reflecting weak economic conditions, but revenue growth to Retail customers was well ahead of last year. We remain on track to deliver expected profitability for the full year, which is, as normal, weighted heavily to the stronger second half.

Financial review 

Group revenue for the six months to 30 June 2009 was £19.7m, down 3% against the first half of last year (2008: £20.3m). The performance of our businesses has remained at reasonable levels with a contribution before central overheads of £1.8m compared to £2.2m in 2008. 

Group operating profit was £0.4m (2008: £0.8m) which principally reflected the impact of lower sales to Hospitality customers. In addition, Group margins were affected by a lower contribution from manufactured product as we switched the production of sourced lines to the UK to allow us to optimise our inventory and cash position. This was partially offset by a stronger performance in the Retail business.

Pre tax profit was well below the corresponding period last year at £0.4m (2008: £1.2m) reflecting the lower operating profit and the absence of a decent return on our cash balances. Last year we enjoyed £0.4m of finance and other income in the first half.

Adjusted earnings per share were 2.6p (2008: 8.3p).

Operating cash generation was good at £0.8m (2008: negative £0.8m) as stock levels were held constant despite lower sales, and working capital was tightly controlled.

Overall cash balances remained at a healthy £5.8m after dividend payments of £1.0m (2008: £1.0m) and capital expenditure of £1.5m (2008: £1.2m) mainly in respect of our now completed new warehouse.

Dividend 

The Board is recommending an unchanged dividend of 4.8p per share. The generation of long term returns to shareholders remains a key priority. We have enjoyed good underlying cash generation as a function of tight working capital management and cost control and have a strong, ungeared balance sheet. The dividend will be paid on 5 October 2009 to shareholders on the register on 11 September 2009.

Hospitality 

Sales to our Hospitality customers were £11.2m (2008: £12.5m) reflecting a general softening of demand in several markets given prevailing economic conditions. As a result the net contribution was lower at £1.0m (2008: £1.8m).

UK sales were £7.2m (2008:£7.9m) down 9%. Nearly all the sales shortfall in the UK was attributable to a very poor performance in the month of June which has not been repeated in subsequent months. A major UK distributor ceased trading in the second quarter, the ripple effect of which stimulated a wave of destocking and working capital reduction. 

In the market as a whole there is evidence that whilst the number of people eating out has been relatively stable, there has been a reduction in spend per head and a general trading down with considerable promotional activity by our customers. This trend may be short lived but it has been pronounced in recent months.

Export sales were down 14% at £4.0m (2008: £4.6m). Churchill is fortunate to benefit from recurring replacement business but any down turn in new installations will affect sales in all markets especially those countries where Churchill is a relatively new entrant. As yet there is little sign of recovery in the Spanish economy where we have a leading position and our sales were 22% below 2008 levels. 

We believe that despite sluggish export markets, there are several opportunities to grow sales across a variety of sectors. We continue to invest heavily in new product and market development. 

Distributors and end users, who are now more focussed on the minimisation of working capital, place high value on Churchill's unrivalled service and performance in use and we believe this places us in a strong position when demand recovers.

Retail 

Sales to our Retail customers improved by 9% to £8.5m (2008: £7.9m) reflecting a good performance in UK volume channels as well as increased activity with middle market customers. Contribution before group overheads almost doubled to £0.8m (2008: £0.4m).

The quality, versatility and design content of our mug portfolio, in particular, has established Churchill as the market leader in this sector; demand for Cath Kidston and Alex Clark mugs has been particularly strong. Our partnership with Disney also enables us to sell to a wide range of outlets not necessarily associated with homewares. 

The major new initiative of 2009 has been the launch of ranges for Jamie Oliver. We have concentrated on product and customer development since we won the licence. The revenue that this has generated in the first half has been minimal, however we anticipate good sales in the second half of 2009 and should achieve our revenue objectives in 2010. New product ranges have been well received by major retailers. 

A plethora of innovative surface and shape designs, attractive merchandising and a cross section of brands have been key to sales growth and this creativity in our approach to the Retail market will be sustained. Licensors and customers increasingly appreciate Churchill's long term commitment to service, innovation and in-house technical expertise. 

Management changes

We have recently implemented a number of important changes to responsibilities of the senior executives reporting to Andrew Roper, CEO. David O'Connor, previously MD of the Retail business and in charge of logistics, has assumed responsibility as MD of the Hospitality business. Iain Hicks has broadened his responsibilities to cover logistics, sourcing and IT. David Taylor has been appointed MD of the Retail business, working closely with the Retail Sales and Marketing Director, whilst retaining his role as Finance Director. They are all highly experienced executives and their changed responsibilities, which have been under consideration for some time, are designed to optimise the effectiveness of the senior management team.

Prospects 

Current trading in both divisions remains in line with our performance targets. The outlook for our Hospitality business can be characterised as steady with recent signs of improvement. It is difficult to judge whether we will experience the sales uplift that normally occurs in the final quarter, although that is our current expectation.

We anticipate that our Retail business will continue to gain momentum through the next few months, supported by new ranges, new licences and new listings but progress will be more significant in 2010 as the full impact of the Jamie Oliver and other new marketing activities is felt. 

Whilst being cautious in relation to the impact of continued economic uncertainty in the short term, we remain confident in our business model, overall strategy and ability to create shareholder value.

Jonathan Sparey

Chairman

26 August 2009

Churchill China plc

Consolidated Statement of Comprehensive Income 

for the year ended 30 June 2009

									Audited
				Unaudited		Unaudited			Twelve months to
				Six months to		Six months to			31 December 2008
				30 June 2009		30 June 2008			Before
									Exceptional	Exceptional
	Note			Total		Total			items	Items			Total
				£000		£000			£000	£000			£000
Revenue				19,667		20,307			41,969	-			41,969
Operating profit	1			408		818			2,804	-			2,804
Share of results of associated company				(14)		40			(71)	-			(71)
Net finance income	2			10		359			629	-			629
Profit before income tax				404		1,217			3,362	-			3,362
Income tax expense	3			(121)		(306)			(938)	(919)			(1,857)
Profit for the period				283		911			2,424	(919)			1,505
Other comprehensive income/(expense)
Actuarial loss on retirement benefit obligations				-		-			(1,022)	-			(1,022)
Exchange differences				(18)		-			43	-			43
Other comprehensive income/(expense) for the period				(18)		-			(979)	0			(979)
Total comprehensive income / (expense) for the period				265		911			1,445	-919			526
Attributable to:				265		911			1,445	-919			526
Equity holders of the parent
All the above figures relate to continuing operations
			Pence per			Pence per							Pence
			Share			Share							Per share
Basic earnings per ordinary share	4		2.6			8.3							13.8
Diluted basic earnings per ordinary share		4	2.6			8.3							13.7

  Churchill China plc

Consolidated Balance Sheets

As at 30 June 2009

	Unaudited	Unaudited	Audited
	30 June	30 June	31 December
	2009	2008	2008
	£000	£000	£000
Assets
Non Current Assets
Property, plant and equipment	14,690	11,402	13,889
Intangible assets	387	39	397
Investment in associates	729	854	743
Deferred income tax assets	572	257	586
	16,378	12,552	15,615
Current Assets
Inventories	8,555	8,675	8,477
Trade and other receivables	7,374	8,573	8,631
Cash and cash equivalents	5,826	8,378	7,738
	21,755	25,626	24,846
Total Assets	38,133	38,178	40,461
Liabilities
Current Liabilities
Trade and other payables	(6,140)	(6,638)	(7,466)
Current income tax liabilities	(489)	(549)	(689)
	(6,629)	(7,187)	(8,155)
Non current Liabilities
Deferred income tax liabilities	(1,974)	(896)	(2,055)
Retirement benefit obligations	(1,645)	(586)	(1,640)
Total non current liabilities	(3,619)	(1,482)	(3,695)
Total liabilities	(10,248)	(8,669)	(11,850)
Net Assets	27,885	29,509	28,611
Capital and reserves attributable to equity holders of the Company
Issued share capital	1,095	1,095	1,095
Share premium account	2,332	2,332	2,332
Treasury shares	(138)	(138)	(138)
Retained earnings	23,372	25,033	24,086
Other reserves	1,224	1,187	1,236
	27,885	29,509	28,611

  Churchill China plc

Statement of Cash Flows

for the six months ended 30 June 2009

	Unaudited	Unaudited	Audited
	Six months to	Six months to	Tweleve months to
	30 June 2009	30 June 2008	31 December 2008
	£000	£000	£000
Cash generated from / (used by) operations
Interest received	803	(826)	2,502
Interest paid	70	285	444
Income tax paid	-	-	(29)
	(304)	(195)	(483)
Net cash from / (used by) operating activities	569	(736)	2,434
Investing activities
Purchases of property, plant and equipment	(1,490)	(1,230)	(4,199)
Proceeds on disposal of property, plant and equipment	13	66	107
Purchases of intangible assets	-	(17)	(382)
Net cash used in investing activities	(1,477)	(1,181)	(4,474)
Financing activities
Issue of ordinary shares	-	9	22
Purchase of treasury shares	-	(147)	(160)
Dividends paid	(1,003)	(1,007)	(1,531)
Net cash used in financing activities	(1,003)	(1,145)	(1,669)
Net decrease in cash and cash equivalents	(1,911)	(3,062)	(3,709)
Cash and cash equivalents at the beginning of the year	7,738	11,440	11,440
Exchange (losses) / gains on cash and cash equivalents	(1)	-	7
Cash and cash equivalents at the end of the year	5,826	8,378	7,738

  1. Segmental analysis

For the six months ended 30 June 2009

	Hospitality	Retail	Unallocated	Total
	£000	£000	£000	£000
6 months to 30 June 2009
Revenue	11,141	8,526	-	19,667
Contribution to group overheads	968	812	-	1,780
Group overheads	-	-	(1,372)	(1,372)
Operating profit	968	812	(1,372)	408
Share of results of associate company			(14)	(14)
Net finance income			10	10
Profit before income tax			(1,376)	404
Income tax expense				(121)
Profit for the period				283
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 associate company			40	40
Net finance income			359	359
Profit before income tax			(998)	1,217
Income tax expense				(306)
Profit for the period				911
12 months to 31 December 2008
Revenue	24,952	17,017	-	41,969
Contribution to group overheads	3,668	1,709	-	5,377
Group overheads	-	-	(2,573)	(2,573)
Operating profit	3,668	1,709	(2,573)	2,804
Share of results of associated company			(71)	(71)
Net finance income			629	629
Profit before income tax			(2,015)	3,362
Income tax expense				(1,857)
Profit for the period				1,505

  2. Finance income and costs

	Unaudited	Unaudited	Audited
	Six months to	Six months to	Twelve months to
	30 June 2009	30 June 2008	31 December 2008
	£000	£000	£000
Other interest receivable	70	285	444
Net finance (cost) / credit pensions	(60)	74	214
Finance income	10	359	658
Other interest	-	-	(29)
Finance costs	-	-	(29)
Net finance income	10	359	629

The net finance (cost) / credit 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 2009	30 June 2008	31 December 2008
	£000	£000	£000
Current tax	102	251	680
Deferred tax	19	55	258
Deferred tax - exceptional	-	-	919
Income tax expense	121	306	1,857

During 2008, the UK tax regime in relation to Industrial Buildings Allowances (IBAs) was changed following the enactment of certain provisions contained in the Finance Act 2008. As a result IBAs will be phased out in the period 2008 to 2011. The Group provided £nil (2008 full year: £919,000) for the deferred tax liability arising from this change and the charge was  treated as exceptional. There was no cash outflow in relation to this change in the year.

4. Earnings per ordinary share

Basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,902,476 (2008: 10,945,524) 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 profit on disposal of fixed assets. 

	Unaudited	Unaudited	Audited
	Six months to	Year to	Twelve months to
	30 June	31 December	31 December
	2009	2008	2008
	Pence per	Pence per	Pence per
	share	share	share
Basic earnings per share	2.6	8.3	13.8
Adjustments:
Deferred taxation - industrial buildings allowance	-	-	8.4
Adjusted earnings per share	2.6	8.3	22.2

Diluted basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,917,916 (2008: 11,009,079) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,902,476 (2008: 10,945,524) increased by 15,440 (2008: 63,555) 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. 

Diluted adjusted earnings per ordinary share is based on the profit on ordinary activities after taxation and adjusted to take into account exceptional profit on disposal of fixed assets. 

	Unaudited	Unaudited	Audited
	Six months to	Six months to	Twelve months to
	30 June 2009	31 December	31 December 2008
	Pence per	Pence per	Pence per
	share	share	share
Basic earnings per share	2.6	8.3	13.7
Adjustments:
Deferred taxation - industrial buildings allowance	-	-	8.4
Diluted adjusted earnings per share	2.6	8.3	22.1

5. Reconciliation of operating profit to cash generated from / (used by) operations

	Unaudited	Unaudited	Audited
	Six months to	Six months to	Twelve months to
	30 June 2009	30 June 2008	31 December 2008
	£000	£000	£000
Cash generated from operations
Operating profit	408	818	2,804
Adjustments for
Depreciation	690	607	1,070
Profit on disposal of property, plant and equipment	(4)	(20)	(35)
Charge for share based payment	11	12	23
Decrease in retirement benefit obligations	(141)	(120)	(240)
Changes in working capital:
Inventory	(78)	(2,015)	(1,817)
Trade and other receivables	1,237	1,033	1,021
Trade and other payables	(1,320)	(1,141)	(324)
Cash generated from / (used by) operations	803	(826)	2,502

  6. Basis of preparation and accounting policies

The interim financial information for the period to 30 June 2009 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 2008, 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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