Churchill China Regulatory News (CHH)

3 Sep 2008 07:00



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. " 

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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

Churchill China plc 

Consolidated Balance Sheets 

as at 30 June 2008

Churchill China plc

Statement of recognised income and expense

for the six months ended 30 June 2008

Churchill China plc

Cash Flow Statement

for the six months ended 30 June 2008

1. Segmental analysis 

for the six months ended 30 June 2008

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.

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)

4. Income tax expense

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

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

6. Reconciliation of operating profit to cash generated from operations

7. Reconciliation of movements in shareholder's equity

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.