Churchill China Regulatory News (CHH)

31 Aug 2005 07:00

Churchill China PLC31 August 2005 For Immediate Release 31 August 2005 CHURCHILL CHINA PLC INTERIM RESULTS for the six months ended 30 June 2005 Churchill China plc, is pleased to announce its results for the six months ended30 June 2005. Key Points: • Sales of £22.3m (2004: £23.7m)• Profit before taxation £0.6m (2004: £1.3m)• Adjusted earnings per share before exceptional items were 4.0p (2004: 8.7p)• Earnings per share 4.0p (2004: 8.7p)• Interim dividend maintained at 3.7p per ordinary share (2004: 3.7p) Stephen Roper, Chairman, said: "Churchill demonstrated a strong performance in sales to hospitality customers,particularly with our Alchemy range to the 4 and 5 star market. The benefit ofcost reductions in the second half of the year together with stronger profit andcash generation enable the to Board feel confident of meeting expectations forthe full year." For further information, please contact: Stephen Roper, Chairman Today on: 020 7466 5000Churchill China Plc Thereafter on: 01782 577566 Tim Anderson/Lisa Baderoon/Rebecca Skye Dietrich Tel No: 020 7466 5000Buchanan Communications CHAIRMAN'S STATEMENT Introduction In the six months to 30 June 2005 the Group achieved sales of £22.3m (2004:£23.7m). Profit before taxation was £0.6m (2004: £1.3m). Overall trading inthis period of the year was in line with the revised position indicated withinour AGM statement in May. The Group continued its strong performance in sales to hospitality customers,particularly with our Alchemy range to the 4 and 5 star market. We will continueto pursue our successful strategy of increasing sales through both geographicexpansion and new product development. We have targeted a number of markets forfurther investment and several new product launches are planned for the secondhalf of the year. We anticipate further growth in sales in the second half ofthe year, which is normally a more active trading period. Sales to retail customers did not meet expectations. Our performance in what hasfor several years been a very competitive market was further affected by aweakening in demand from key accounts in the US and Europe. Sourced product hasreduced cost and made Churchill more competitive, but extended supply linesdemand larger stocks which create a greater business risk. This is mostsignificant at the low value, high volume end of the market. We have modifiedour approach to this market to introduce a low cost, lower risk strategy, whichwill result in a greater proportion of sales being shipped directly from ouroverseas suppliers to both our UK and overseas customer base. To facilitate thischange in approach, we have established an office in Shanghai. As we have previously indicated our UK cost base continues to be impacted byhigher costs in a number of areas including gas and pensions. Set against this,cost saving initiatives arising from consolidation of dish production andinvestment in new warehousing will begin to benefit profit in the second half ofthe year, slightly ahead of schedule. These actions combined with increasedmanufacturing efficiencies and cost reductions should limit the negative effecton profitability going forward. Financial Overview In the 6 months to 30 June 2005 the Group turnover was £22.3m (2004: £23.7m). Operating profit was £0.6m (2004: £1.3m), which was achieved after redundancycosts of £0.2m. Adjusted earnings per share were 4.0p (2004: 8.7p). Basic earnings per sharewere 4.0p(2004: 8.7p). Operating cash generation in the first half year was £0.9m (2004: £1.0m) afteran outflow of £1.5m in respect of increased stock. The higher level of stock isto support both the continuing rise of sourced sales and new and planned productintroductions in the hospitality market. After taking account of increased capital expenditure of £1.9m, mainlyattributable to the completion of our new warehouse facility, the Group'soverdraft at 30 June 2005 was £0.7m (2004 - cash balance of £2.5m). The Group'scash generation tends to be stronger in the second half, and we anticipate bothworking capital requirements and our capital expenditure programme will be muchreduced in the remainder of the year. We continue to progress our programme of disposal of surplus assets. The Group's financial statements have been restated to reflect the introductionof FRS 17 Retirement Benefits and FRS 21 Events after the balance sheet date.Further details of the effect of these changes are given later in this reportand in the notes to the interim financial statements. The Group is not requiredto adopt International Financial Reporting Standards until 2007. Dividend The Board is pleased to announce that the interim dividend will be maintained at3.7p per share (2004: 3.7p) reflecting cash generation and prudent cost control. The proposed dividend will be paid on 5 October 2005 to shareholders on theregister on 9 September 2005. FRS 17 The introduction of FRS 17 "Retirement Benefits" has required the deficit on theGroup's defined benefit pension scheme to be brought onto the Group's balancesheet. This has resulted in a reduction to net assets of £6.7m as at 30 June2005 (December 2004: £8.0m). The charge to the Group's profit and loss accountincreased as a result of the introduction of the new standard. Whilst thedeficit is clearly a significant figure it does not affect either our ability todeclare and pay dividends in the normal course of business or our bankingarrangements. The Group's defined benefit pension scheme has been closed to newentrants since 1999. The Board are considering a number of measures to reducethis deficit. Operating Review Sales Sales of hospitality products were £12.5m (2004: £12.3m) reflecting flat demandin most major markets. We had anticipated difficulty in making ground againstwhat was a record first half in 2004 and we are pleased with the progress made.There was growth in the US and key accounts in the UK where we continue to winmarket share. Our premium Alchemy brand continues to perform very well withsales increasing by 65% on a like for like basis. New product launches areplanned during the second half of the year. With product innovation and new introductions Churchill has again demonstratedthe Group's ability to increase its share of key hospitality markets, despitegenerally flat conditions world-wide during the first half of 2005. Sales to our retail customers were £9.8m (2004: £11.4m), primarily reflectinglower than expected trading in the volume UK high street sector as well as apoor performance in the USA and Europe. By contrast sales to the middle marketdemonstrated positive growth. Some contraction in retail sales was anticipated following the final closure ofUK manufacturing facilities at the end of 2004. The period under reviewtherefore completes the switch to sourcing from third party suppliers. Manufacturing and Operations We now have a highly automated factory undertaking the majority of the Group'smanufacturing requirements. We have achieved substantial cost savings andefficiency benefits. However, our cost base will be affected by the continuingrise in energy prices, but we expect these to be largely offset by rigorous costcontrols in our manufacturing operations. Our new warehouse was completed ahead of schedule and to budget and willgenerate savings in excess of the original £0.4m annual target. Theconsolidation of production from the Anchor Dish Cell to our two remainingproduction units has also been completed and will facilitate cost savings ofapproximately £0.3m on an annual basis. In addition to these two initiatives wehave commenced a series of cost reduction measures which will reduce costs by atleast £0.7m annually. Prospects Sales of our hospitality products during the second half are generallycharacterised by the seasonal move towards replacements rather than newinstallations as hotels, pubs and restaurants gear up for the busy Christmasperiod. We expect to gain volume growth from new key accounts both in the UKand US through our existing Alchemy range and new product launches. Weanticipate somewhat higher sales growth than the first half. We also expect thattrading conditions in the retail market will remain difficult and have adjustedour strategy and operations accordingly. With the benefit of cost reductions which will begin to benefit our performancein the second half year coupled with stronger profit and cash generation theBoard feel confident of meeting expectations for the full year. Stephen RoperChairman31 August 2005 Consolidated profit and loss accountfor the six months ended 30 June 2005 Unaudited Six Unaudited Six Audited Twelve months to 31 December months to 30 months to 30 June 2004 As restated June 2005 2004 As restated Total Total Before Exceptional Total exeptional items items Note £000 £000 £000 £000 £000 Turnover 1 22,330 23,707 48,972 - 48,972 Operating profit/(loss) 2 684 1,332 3,220 (866) 2,354 Share of operating 1 9 100 - 100profit of associate netof impairment Profit on disposal of 3 - - - 19 19fixed asset Net interest payable 4 (80) (25) (44) - (44) Profit/(loss) on 605 1,316 3,276 (847) 2,429ordinary activitiesbefore taxation Tax on profit/(loss) on (170) (380) (957) 254 (703)ordinary activities Profit/(loss) on 435 936 2,319 (593) 1,726ordinary activitiesafter taxation Dividends 5 (792) (717) (1,117) (Loss)/retained profit (357) 219 609for the period Pence per share Pence per share Pence per shareBasic earnings per 6 4.0 8.7 16.0ordinary share Diluted basic earnings 6 4.0 8.7 15.9per ordinary share Consolidated balance sheetas at 30 June 2005 Unaudited 30 June Unaudited 30 June 2004 Audited 31 December 2005 2004 As restated As restated £000 £000 £000 Fixed assetsIntangible Assets 70 107 84Tangible assets 13,487 11,328 12,133Investments 847 756 840 14,404 12,191 13,057 Current assetsStocks 11,529 10,102 9,992Debtors: amounts falling 8,815 9,514 10,862due within one yearCash at bank and in hand 45 2,500 1,012 20,389 22,116 21,866 Creditors: amounts falling (6,843) (6,584) (6,736)due within one year Net current assets 13,546 15,532 15,130 Total assets less current 27,950 27,723 28,187liabilities Provisions for liabilities (85) - (104)and charges Pension liability (6,747) (5,284) (7,970) Net assets 21,118 22,439 20,113 Capital and reservesCalled up share capital 1,086 1,078 1,079Share premium account 2,207 2,104 2,115Revaluation reserve 1,294 1,304 1,299Other reserves 253 253 253Profit and loss account 16,278 17,700 15,367 Equity shareholders' funds 21,118 22,439 20,113 Consolidated cash flow statementfor the six months ended 30 June 2005 Unaudited Unaudited Audited Six months to Six months to Twelve months to 31 30 June 2005 30 June 2004 December 2004 £000 £000 £000 Net cash inflow from operating 898 965 1,575activities (reconciliation tooperating profit - note 7) Returns on investments andservicing of financeNet interest received 26 40 69 Taxation (84) (129) (620) Capital expenditure andfinancial investmentPurchase of tangible fixed (1,913) (540) (1,888)assetsSale of tangible fixed assets 19 1,071 1,174 Net cash (outflow)/inflow for (1,894) 531 (714)capital expenditure andfinancial investment Equity dividends paid (792) (717) (1,116) FinancingIssue of ordinary shares 99 99 111Payment of principal under 0 (6) (6)finance leases Net cash inflow from financing 99 93 105 (Decrease)/increase in net cash (1,747) 783 (701) 1. Analysis of turnover The Directors consider that the Group's activities are a single class ofbusiness. Unaudited Unaudited Audited Six months to Six months to Twelve months to 31 30 June 2005 30 June 2004 December 2004 £000 £000 £000 Geographic TurnoverUnited Kingdom 14,678 14,213 31,459Rest of Europe 5,100 5,476 10,102North America 1,729 2,896 5,369Australasia 242 460 877Far East 82 194 263Other 499 468 902 22,330 23,707 48,972 2. Exceptional Items Costs arising from the restructuring of manufacturing operations in 2004 weretreated as exceptional and were charged in arriving at the operating profit forthe year. These exceptional costs comprised: Unaudited Unaudited Audited Six months to Six months to Twelve months to 31 30 June 2005 30 June 2004 December 2004 £000 £000 £000 Restructuring costs - - 192Write down of stocks and - - 674work in progress - - 866 A credit of £254,000 was included in the corporation tax charge for the twelvemonths ended 31 December 2004 in relation to the exceptional items. 3. Profit on disposal of fixed assets Unaudited Unaudited Audited Six months to Six months to Twelve months to 31 30 June 2005 30 June 2004 December 2004 £000 £000 £000 Profit on disposal of fixed - - 19assets The profit on disposal of fixed assets in 2004 represents the release of anaccrual for costs not incurred in respect of the 2001 disposal of surplus land. 4. Net interest payable Unaudited Unaudited Audited Six months to Six months to Twelve months to 30 June 2005 30 June 2004 31 December 2004 £000 £000 £000 Other interest receivable/(payable) 26 43 70Interest payable on finance leases - (1) (1)Share of interest receivable of 4 1 5associated companyNet finance cost: pensions (110) (68) (118) (80) (25) (44) 5. Dividend Unaudited Unaudited Audited Six months to Six months to Twelve months to 30 June 2005 30 June 2004 31 December 2004 As restated As restated £000 £000 £000 Final dividend 2003,declared March 2004 - 717 717 Interim dividend 2004,declared August 2004 - - 400 Final dividend 2004,declared March 2005 792 - - 792 717 1,117 6. Earnings per ordinary share Basic earnings per ordinary share is based on the profit on ordinary activitiesafter taxation and on 10,838,940 (2004: 10,731,877) ordinary shares, being theweighted average number of ordinary shares in issue during the year. Adjusted earnings per ordinary share is based on the profit on ordinaryactivities after taxation and adjusted to take into account exceptional itemsand profit on disposal of fixed assets Unaudited Unaudited Audited Six months to Six months to Twelve months to 30 June 2005 30 June 2004 31 December 2004 pence per share pence per share pence per share As restated As restated Basic earnings per share 4.0 8.7 16.0Adjustment: Exceptional items - - 5.6 Profit on disposal of fixed - - (0.1)assets Adjusted earnings per share 4.0 8.7 21.5 Diluted basic earnings per ordinary share is based on the profit on ordinaryactivities after taxation and on 10,888,030 (2004: 10,800,070) ordinary shares,being the weighted average number of ordinary shares in issue during the year of10,838,940 (2004: 10,731,877) increased by 49,090 (2004: 68,193) shares, beingthe weighted average number of ordinary shares which would have been issued ifthe outstanding options to acquire shares in the Group had been exercised at theaverage price during the year. Diluted adjusted earnings per ordinary share is based on the profit on ordinaryactivities after taxation and adjusted to take into account exceptional itemsand profit on disposal of fixed assets Unaudited Unaudited Audited Six months to Six months to Twelve months to 30 June 2005 30 June 2004 31 December 2004 pence per share pence per share pence per share As restated As restated Diluted basic earnings per share 4.0 8.7 15.9Adjustment: Exceptional items - - 5.6 Profit on disposal of fixed - - (0.1)assets Diluted adjusted earnings per share 4.0 8.7 21.4 7. Reconciliation of operating profit to net cash inflow from operatingactivities Unaudited Unaudited Audited Six months to Six months to Twelve months to 30 June 2005 30 June 2004 31 December 2004 £000 £000 £000 Continuing operating activitiesOperating profit before exceptional 684 1,332 3,220costsExceptional costs - - (866) Operating profit 684 1,332 2,354Depreciation 540 614 1,124Loss/(profit) on sale of assets 0 21 (31)Goodwill amortisation 14 23 46Increase in stocks (1,537) (958) (848)Decrease in debtors 2,047 1,494 146Decrease in creditors (807) (1,439) (1,172)Decrease in provisions (43) (122) (44) Net inflow from continuing 898 965 1,575operating activities 8. Reconciliation of decrease in net cash to movement in net (debt)/cash Unaudited Unaudited Audited Six months to Six months to Twelve months to 30 June 2005 30 June 2004 31 December 2004 £000 £000 £000 (Decrease)/increase in cash during (1,747) 783 -701the period Cash outflow from decrease in debt 0 6 6and lease financing Movement in net cash during the (1,747) 789 (695)period resulting from cash flows Currency movements 3 - (4) Net cash at the start of the period 1,012 1,711 1,711 Net (debt)/cash at the end of the (732) 2,500 1,012period 9. Statement of total recognised gains and losses Unaudited Unaudited Audited Six months to Six months to Twelve months to 30 June 2005 30 June 2004 31 December 2004 £000 £000 £000 As restated As restated Profit for the period 435 936 1,726Currency translation differences 3 - (4)Actuarial gain/(loss) on defined 1,798 291 (3,601)benefit pension schemeRelated deferred tax (539) (87) 1,080 Total recognised gains and losses 1,697 1,140 (799)for the period Prior period adjustment (note 10) (7,970) - - Total gains and losses recognised (6,273) 1,140 (799)since the last Annual Report 10. Prior period adjustments The Group has applied FRS 17 "Retirement benefits" and FRS 21 "Events after thebalance sheet date". Both these reporting standards require the restatement ofpreviously reported result. FRS 17 Retirement benefits The effect on the profit and loss account is as follows: Unaudited Unaudited Audited Six months to Six months to Twelve months to 30 June 2005 30 June 2004 31 December 2004 £000 £000 £000 FRS 17 Retirement benefits Amount (charged)/credited to operating profitCurrent service cost less curtailments (486) (472) (948)Contributions 545 591 1,172 Net increase to operating profit 59 119 224 Amount charged to other finance costsExpected return on pension scheme assets 621 562 1,160Interest on pension scheme liabilities (731) (630) (1,278) Net financing cost (110) (68) (118) Net (reduction) / increase in reported profit (51) 51 106before taxation in the period In addition the Group's balance sheet has been adjusted to reflect FRS 17pension liabilities: Unaudited Unaudited Audited 30 June 2005 30 June 2004 31 December 2004 £000 £000 £000 Market value of scheme assets 18,149 15,654 17,088Present value of scheme liabilities (27,788) (23,203) (28,474) Deficit in scheme assets (9,639) (7,549) (11,386)Related deferred tax asset 2,892 2,265 3,416 Net liability (6,747) (5,284) (7,970) FRS 21 Events after the balance sheet date Under the terms of this reporting standard dividends which have been declaredafter the balance sheet date are not recognised as a liability at that date.Adjustments have therefore been made for the following provisions for dividends. Unaudited Unaudited Audited 30 June 2005 30 June 2004 31 December 2004 £000 £000 £000 Dividend provided at the balance sheet date 400 399 788 The effect on the profit and loss account is as follows: Unaudited Unaudited Audited 30 June 2005 30 June 2004 31 December 2004 £000 £000 £000 Dividend previously charged to profit andloss in the period 400 399 1,187 Dividend charged to profit and loss under FRS21 (792) (717) (1,117) Net (reduction) / increase to retained profitin the period (392) (318) 70 The effect on retained earnings as previously reported of the above prior yearadjustments is as follows: Unaudited Audited 30 June 2004 31 December 2004 £000 £000 Profit and loss account as previously reported 22,585 22,549 Pension liability (5,284) (7,970) Dividends 399 788 Profit and loss account as restated 17,700 15,367 11. Financial Information (a) The interim financial statement has been prepared in accordance with theaccounting policies set out in the Annual Report for the year ended 31 December2004, with the exception that the Group has adopted the provisions of FinancialReporting Standards 17 "Retirement benefits" and 21 "Events after the balancesheet date". Comparative data for the six months to 30 June 2004 and twelvemonths to 31 December 2004 has been restated in accordance with these standards.The Group has also adopted FRS 22 "Earnings per share" and FRS 25 "FinancialInstruments: Presentation and disclosure" (paragraphs 15-50 only). No amendmentsto previously reported data have arisen from the adoption of these standards. (b) The interim financial statement was approved by the Board on 30 August2005. Neither the interim financial statement nor comparative information forthe six months ended 30 June 2004 have been audited or reviewed. (c) The interim financial statement set out above does not constitutestatutory accounts as defined by the Companies Act 1985. Statutory accounts forthe year ended 31 December 2004, including an unqualified audit report which didnot contain statements under Section 237 (2) or (3) of the Companies Act 1985have been filed with the Registrar of Companies. This information is provided by RNS The company news service from the London Stock Exchange