Last checked at 3 Sep 2008 07:00
| 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.