Preliminary Results

RNS Number : 8688D

Churchill China PLC

30 March 2011

 



For Immediate Release

30 March 2011

PRELIMINARY RESULTS

for the year ended 31 December 2010

Churchill China plc, the manufacturer and global distributor of ceramic tableware and household goods to  hospitality and retail markets, is pleased to announce its preliminary results for the year ended 31 December 2010.

Key Points:

Ø Group turnover £43.7m (2009: £41.7m)

Ø Operating profit £2.3m (2009: £2.3m)

Ø Profit before tax  £2.3m (2008: £2.1m)

Ø Basic earnings per share  15.8p (2009: 14.3p)

Ø Year end net cash £4.4m (2008: £6.9m)

Ø Final dividend 9.2p (2009: 9.2p) Total dividend 14.0p (2009: 14.0p)

Ø Compound return in excess of 16% per annum delivered to shareholders over last 5 years

Ø Strong Hospitality sales performance in UK and export markets

Jonathan Sparey, Chairman said:

"We are confident that our long term strategy of investment in all aspects of our Hospitality business will continue to deliver results, driving an expected increase in market share in the UK, a continued recovery in European accounts and contributing to an improved performance in 2011."

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
Brewin Dolphin Limited	Tel No: 0845 213 4729
Mark Brady

CHAIRMAN'S STATEMENT

INTRODUCTION

I am pleased to report that Churchill China made steady progress in 2010 with a clear recovery from the previous year.  In particular, sales and profitability in our core Hospitality business recovered strongly from 2009 levels although this was offset by a materially weaker contribution from our Retail business.  Our consolidated Group revenues were up 5% against last year and pre-tax profits were up 11% at £2.3m despite negligible financial income from our average circa £5m cash balances.  The second half of 2010 again contributed almost 75% of the Group's operating profitability and the new financial year has started positively.

FINANCIAL REVIEW

Group revenues increased by 5% to £43.7m (2009: £41.7m) reflecting increased demand from our Hospitality customers in the UK and abroad, partially offset by weaker demand from our Retail customers worldwide. 

Group operating profit was flat at £2.3m (2009: £2.3m) but pre-tax profit was almost 11% higher at £2.3m (2009: £2.1m). 

Overall margins were slightly lower than 2009 reflecting both higher production costs incurred in meeting demand and building inventory levels in anticipation of future sales within our Hospitality business, together with a more competitive Retail environment.

Financial income improved from 2009's figure although net interest receipts remain constrained by poor returns on invested cash. We again had a notional charge of £0.2m (2009: £0.3m) arising from our pension fund as a result of low discount rates.

Earnings per share increased by 10% to 15.8p (2009: 14.3p)

We continue to generate an acceptable level of cash from operations although this was reduced in 2010 compared to the previous year. Over the medium term we continue to generate cash in line with our operating profit. Cash balances were £4.4m (2009: £6.9m) reflecting an expansion of working capital, particularly inventories, which increased from £7.1m to £8.2m principally to support demand growth in our Hospitality business. In addition, recoverables increased by £0.9m at the year end, a position which has subsequently reversed.  We incurred capital expenditure of £1.6m (2009: £2.4m) as we continued to invest selectively in our UK manufacturing base to improve efficiency and increase operational flexibility.

The deficit in our defined benefit scheme reduced to more manageable levels as higher investment returns continued through the year and assumptions in relation to long term inflation rates moderated.

DIVIDEND AND SHAREHOLDER RETURN

Having seen a modest recovery in 2010 we are confident of further progress and the Board is therefore pleased to recommend a final dividend of 9.2p per share.  Together with the interim dividend paid last October, this gives a total dividend declared in respect of 2010 of 14.0p compared to 14.0p per share in 2009.

We have continued to generate long term shareholder returns from both capital appreciation and dividend income and are pleased that we have delivered a compound total return to shareholders in excess of 16% p.a. over the last five years.

OPERATIONAL REVIEW

Hospitality

Demand from our Hospitality customers was strong throughout 2010, with sales for the year 11% ahead at £27.4m (2009: £24.6m).  The net contribution to group increased from £3.3m to £4.1m as a direct result of the improved sales levels.

Our position in the UK, where Churchill is the clear market leader, continued to strengthen and we increased sales during the year to £17.3m (2009: £16.3m).  Underlying demand from a broad spectrum of customers had started to improve in the second half of 2009 and this trend continued in robust fashion on a month by month basis right up to the end of November 2010. As is well documented, bad weather  affected travel, hospitality and retail activity in December across much of the UK and sales in this key period for our Dining Out business were materially impacted by the conditions. Our restaurant, hotel and pub customers, in the habit of taking advantage of Churchill's superb service, tend to place orders for their ceramics at the last minute.

Export sales improved sharply by 23% to £10.1m (2009: £8.2m) reflecting a strong recovery in our performance in many key overseas markets, including continental Europe and North America.  During 2010 the Churchill export sales team won a number of major contracts for several prestige new sporting venues and conference centres in the Middle East and Eire. We believe that our design capability and breadth of product range played a key role in securing this business.

Investment in new product development coupled with continued expansion of our sales and marketing capabilities will continue to be allocated to markets and sectors where we believe Churchill sales have the potential to grow in the long term.

The new "Profile" range was launched in January 2010 and has proved to be very popular across a wide range of customers and countries.  Profile combines the high performance characteristics of our "Super Vitrified" range but is lighter and more fashionable.

In December 2010 we commissioned a new showroom at the Business Design Centre Islington.  Already a great success with end users and distributors alike, this facility enables us to improve our coverage of the all important London market and has the show space required to display our entire ceramic offering alongside the prestige Riedel glassware range which is targeted at premium hotels and restaurants.

Retail 

Sales to our Retail customers worldwide were down by just under 5% at £16.3m (£17.1m).The pace of the decline in sales of bespoke own label products, mainly to our major UK supermarket customers, was materially faster than we had expected. In addition, margins were adversely impacted by higher input prices from overseas suppliers. As a result there was a sharp decline in the Retail division's net contribution to Group central costs from £1.7m to £0.7m as we were unable to create suitable replacement activity in the period.

The disappointing Retail performance has stimulated a thorough review of our activity in this sector and we have taken prompt action to both reduce our cost base and refocus our business.  As a result of aggressive price pressures in volume channels, we are withdrawing from bespoke lines when margins are unsustainable.  All our attention is now concentrated on the sale of branded and licensed ranges at margins that are sustainable in the medium and long term. In this respect it is pleasing to note that the decline in sales through volume accounts was nearly offset by the continued improvement in our sales to the middle market where we continue to perform well with brand licenses including Cath Kidston, Jamie Oliver, Disney and Alex Clark.

We will be reducing inventory levels throughout 2011 and continuing to reshape the business around a profitable core of activity where we have a value proposition that customers are willing to pay for.

Operations

2010 was a challenging year for the Manufacturing and Operations team at Churchill.

We completed the £1m installation of the energy efficient Eisenmann kiln complete with its robotic handling and placing devices. Churchill are industry leaders in firing technology and currently once fire 5.5m cups, mugs and bowls per annum. Consumers are increasingly aware of carbon footprint issues and we are working continuously to lower our energy consumption.

Our new fully integrated computer system became fully operational in April. Our objective is to make full use of its potential to gain benefit across a wide range of business activities especially those that are market, customer and cost related.

Our all important service levels were maintained but at the cost of some manufacturing inefficiencies as Hospitality rose above expected levels.  Operational efficiency has now recovered and we have begun to reduce costs in this area

Our sourcing team has done well to manage our supply base despite inflationary and labour issues created by strong GDP growth particularly in China. We do not expect this situation to ease in the short to medium term.


People

We have some great people whose enthusiasm, ideas and effort are fundamental to Churchill's success in a complex and challenging environment. At one end of the spectrum we have a highly active graduate recruitment scheme which has brought into our business a valuable injection of talent and energy to compliment the considerable experience of more senior executives. In particular I would like to highlight Derek Stevenson who has now been with the company for 50 years.

On a separate note, I am particularly pleased to welcome Alan McWalter (appointed in January 2011) to the Board as a non - executive director who brings extensive marketing and retail experience to the company.

Outlook

We are confident that our long term strategy of investment in all aspects of our Hospitality business will continue to deliver results, driving an expected increase in market share in the UK, a continued recovery in European accounts and contributing to an improved performance in 2011.

We have identified a number specific projects in manufacturing to that will improve production efficiency and give us the technical ability to sustain our new product development programme and support the increasing demands for operational flexibility imposed by the marketplace.

There are opportunities to expand both our Hospitality ceramic and non ceramic product offering to meet new demand. Our Retail business will continue to be reshaped during this year as we seek to restore performance to acceptable levels

Our markets will continue to provide challenges, however our long term business plan, strong balance sheet and record of cash generation will allow us to both invest in our business and maintain an attractive return to shareholders. I am confident that Churchill will continue to deliver enhanced shareholder value in 2011 and beyond.

Jonathan Sparey

Chairman

Churchill China plc

Consolidated Income Statement

for the year ended 31 December 2010

							Audited  Year to				Audited  Year to
							31 December 2010				31 December  2009
					Note							Total
								£000				£000
Revenue								43,746				41,705
Operating profit					2			2,287				2,288
Share of results of associate company								162				(18)
Finance income					3			41				119
Finance costs					3			(176)				(320)
Profit before income tax								2,314				2,069
Income tax expense					4			(583)				(513)
Profit for the year								1,731				1,556
Attributable to:
Equity holders of the Company								1,731				1,556
								Pence per share				Pence per share
Basic earnings per ordinary share					5			15.8				14.3
Diluted basic earnings per ordinary share					5			15.8				14.2

 All the above figures relate to continuing operations

Churchill China plc

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2010

		Audited Year to		Audited Year to
		31 December 2010		31 December 2009
		Total		Total
		£000		£000
Other comprehensive income:
Actuarial gain/ (loss) on defined benefit obligations		1,894		(4,136)
Currency translation differences		7		(14)
Other		-		2
Other comprehensive income for the year		1,901		(4,148)
Profit for the year		1,731		1,556
Total comprehensive income / (expense) for the year		3,632		(2,592)
Attributable to:
Equity holders of the Company		3,632		(2,592)

Churchill China plc

Consolidated Balance Sheet

As at 31 December 2010

	Audited		Audited
	31 December		31 December
	2010		2009
	£000		£000
Assets
Non Current Assets
Property, plant and equipment	15,030		14,299
Intangible assets	368		498
Investment in associates	887		725
Deferred income tax assets	1,266		2,163
	17,551		17,685
Current Assets
Inventories	8,197		7,142
Trade and other receivables	9,963		9,031
Cash and cash equivalents	4,442		6,882
	22,602		23,055
Assets held for sale	-		662
	22,602		23,717
Total assets	40,153		41,402
Liabilities
Current liabilities
Trade and other payables	(6,735)		(6,907)
Current income tax liabilities	(501)		(574)
	(7,236)		(7,481)
Non current liabilities
Deferred income tax liabilities	(1,678)		(1,676)
Retirement benefit obligations	(4,670)		(7,709)
Total non current liabilities	(6,248)		(9,385)
Total liabilities	(13,584)		(16,866)
Net Assets	26,569		24,536
Capital and reserves
Issued share capital	1,096		1,095
Share premium account	2,348		2,332
Treasury shares	(91)		(117)
Other reserves	1.202		1,234
Retained earnings	22,014		19,992
Total shareholders' funds	26,569		24,536

Churchill China plc

Consolidated Statement of Changes in Equity
as at 31 December 2010

	Retained earnings	Share capital	Share premium	Treasury shares	Other Reserves	Total
	£000	£000	£000	£000	£000	£000
Balance at 1 January 2009	24,086	1,095	2,332	(138)	1,236	28,611
Comprehensive Income:
Profit for the year	1,556	-	-	-	-	1,556
Other comprehensive income:		-	-	-	-
Depreciation transfer - gross	12	-	-	-	(12)	-
Depreciation transfer - tax		-	-	-	2	2
Actuarial losses - net of tax	(4,136)	-	-	-	-	(4,136)
Currency translation		-	-	-	(14)	(14)
Total comprehensive expense	(2,568)	-	-	-	(24)	(2,592)
Transactions with owners
Dividends	(1,526)	-	-	-	-	(1,526)
Share based payment	-	-	-	-	22	22
Treasury shares	-	-	-	-	-	21
	-	-	-	21	-	-
Total transactions with owners	(1,526)	-	-	21	22	(1,483)
Balance at 1 January 2010	19,992	1,095	2,332	(117)	1,234	24,536
Comprehensive Income:
Profit for the year	1,731	-	-	-	-	1,731
Other comprehensive income:
Depreciation transfer - gross	12	-	-	-	(12)	-
Depreciation transfer - tax	(18)	-	-	-	18	-
Actuarial gains - net of tax	1,894	-	-	-	-	1,894
Currency translation	-	-	-	-	7	7
Total comprehensive income	3,619	-	-	-	13	3,632
Transactions with owners
Dividends	(1,529)	-	-	-	-	(1,529)
Proceeds of share issue	-	1	16	-	-	17
Share based payment	-	-	-	-	(45)	(45)
Treasury shares	(68)	-	-	26	-	(42)
Total transactions with owners	(1,597)	1	16	26	(45)	(1,599)
Balance at 31 December 2010	22,014	1,096	2,348	(91)	1,202	26,569

Churchill China plc

Consolidated Cash Flow Statement

for the year ended 31 December 2010

			Audited		Audited
			Year to		Year to
			31 December		31 December
			2010		2009
	Note		£000		£000
Cash generated from operations	6		1,092		3,439
Interest received			41		119
Interest paid			(20)		-
Income tax paid			(564)		(559)
Net cash generated from operating activities			549		2,999
Investing activities
Purchases of property, plant and equipment			(1,507)		(2,196)
Proceeds on disposal of property, plant and equipment			129		42
Purchases of intangible assets			(58)		(194)
Net Cash used in Investing activities			(1,436)		(2,348)
Financing activities
Issue of ordinary shares			67		21
Purchase of treasury shares			(91)		-
Dividends paid			(1,529)		(1,526)
Net cash used in financing activities			(1,553)		(1,505)
Net decrease in cash and cash equivalents			(2,440)		(854)
Cash and cash equivalents at the beginning of the year			6,882		7,738
Exchange losses on cash and cash equivalents			-		(2)
Cash and cash equivalents at the end of the year			4,442		6,882

1. Basis of preparation

The financial information included in the preliminary announcement does not constitute the statutory accounts of the Group for the years ended 31 December 2010 and 2009 but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified and (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union (IFRSs as adopted by the EU), IFRIC interpretations and the Companies Acts 1985/2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, available for sale financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

The preliminary financial statements for the year to 31 December 2010 have been prepared in accordance with the accounting policies stated in the Group's financial statements for the year ended December 2009.

2. Segmental analysis

for the year ended 31 December 2010

	Hospitality		Retail		Unallocated		Total
	£000		£000		£000		£000
2010	27,398		16,348		-		43,746
Revenue
Contribution to group overheads excluding depreciation	4,914		1,060		(2,157)		3,817
Depreciation	(859)		(305)		(366)		(1,530)
Operating profit	4,055		755		(2,523)		2,287
Share of results of associate company							162
Finance income							41
Finance cost							(176)
Profit before income tax							2,314
2009
Revenue	24,554		17,151		-		41,705
Contribution to group overheads excluding depreciation	4,183		1,911		(2,410)		3,684
Depreciation	(894)		(185)		(317)		(1,396)
Operating profit	3,289		1,726		(2,727)		2,288
Share of results of associate company							(18)
Finance income							119
Finance cost							(320)
Profit before income tax							2,069

3. Finance (costs)/income

	Audited		Audited
	Year to		Year to
	31 December		31 December
	2010		2009
	£000		£000
Interest income on cash and cash equivalents	41		119
Other interest payable	(20)		-
Interest on pension scheme	(156)		(320)
Finance cost	(135)		(201)

4. Income tax expense

	Audited		Audited
	Year to		Year to
	31 December		31 December
	2010		2009
	£000		£000
Current taxation	490		444
Deferred taxation	93		69
Income tax expense	583		513

5. Earnings per ordinary share

Basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,934,092 (2009: 10,904,065) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

	Audited		Audited
	Year to		Year to
	31 December		31 December
	2010		2009
	pence per		pence per
	share		share
Basic earnings per share	15.8		14.3

Diluted basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,964, 639 (2009:10,934,139) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,934,092 (2009:10,904,065) increased by 30,547 (2009: 30,074) 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.

	Audited		Audited
	Year to		Year to
	31 December		31 December
	2010		2009
	pence per		pence per
	Share		share
Diluted basic earnings per share	15.8		14.2

6. Reconciliation of operating profit to cash generated from operations

	Audited		Audited
	Year to		Year to
	31 December		31 December
	2010		2009
	£000		£000
Cash generated from operations
Operating profit	2,287		2,288
Adjustments for
Depreciation and amortisation	1,530		1,396
Profit on disposal of property, plant and equipment	(12)		(14)
Share based payment	(45)		22
Difference between pension service cost and contributions	(495)		(410)
Changes in working capital:
Inventory	(1,055)		1,396
Trade and other receivables	(922)		(415)
Trade and other payables	(196)		(763)
Net cash inflow from operations	1,092		3,439

7. Dividend

The final dividend, which has not been provided for, has been calculated on 10,925,976 ordinary shares, being those in issue at 31 December 2010 qualifying for dividend and at a rate of 9.2p per 10p ordinary share. The dividend will be paid, subject to approval at the Company's Annual General Meeting, on 26 May 2011 to shareholders on the register on 26 April 2011.

The total dividend paid and proposed in respect of the year was 14.0p (2009: 14.0p) per 10p ordinary share with a total amount payable of £1,529,000 (2009: £1,526,000).

 

END

 

 

FR PGUAWWUPGGMB