Churchill China Regulatory News (CHH)

30 Aug 2007 07:01

Churchill China PLC30 August 2007 For Immediate Release 30 August 2007 CHURCHILL CHINA plc INTERIM RESULTS For the six months ended 30 June 2007 Churchill China plc, the manufacturer and global distributor of ceramictableware and household products to hospitality and retail markets, is pleasedto announce its interim results for the six months ended 30 June 2007. KEY POINTS • Operating profit before exceptional items up 25% to £1.0m (2006: £0.8m) • Profit before exceptional items and taxation £1.4m up 42% (2006: £1.0m) • Operating profit after exceptional items £1.0m (2006: £3.5m) • Profit before tax after exceptional items £1.4m (2006: £3.6m, including £2.6m of exceptional items) • Adjusted earnings per share before exceptional items 8.4p up 33% (2006: 6.3p) • Basic earnings per share 8.4p (2006: 23.5p) • Proposed interim dividend increased by 15% to 4.5p (2006: 3.9p) • Cash increased by £2.1m to £8.5m • Sales revenue up 6% to £22.2m (2006: £20.9m) • Strong growth in hospitality markets • Steady performance in retail operations Commenting on the results, Jonathan Sparey, Chairman said: "Churchill has achieved a strong performance so far this year and is making goodprogress in meeting our medium term strategic objectives. As a result, webelieve we are well placed to exceed current market expectations for our fullyear to 31 December 2007 although the rate of growth in the second half islikely to be lower than the first. We look forward to delivering continuedgrowth for shareholders." For further information, please contact: Churchill China plc Tel No: 01782 577566 Andrew Roper/David Taylor Buchanan Communications Tel No: 020 7466 5000 Tim Anderson/Lisa Baderoon/Rebecca Skye Dietrich Brewin Dolphin Securities Tel No: 0121 236 7000 Ian Stanway CHAIRMAN'S STATEMENT I am pleased to report a strong improvement in our performance in the half yearto 30 June 2007, in which we have continued successfully to implement ourstrategy of growing market share in our hospitality business both in the UK andabroad and improve the quality and value-added nature of our retail offering. Financial Review Group revenue for the six months to 30 June 2007 increased by 6.5% to £22.2m(2006: £20.9m). Group operating profit before exceptional items increased by 25%to £1.0m and our profit before exceptional items and taxation improved by over40% to £1.4m (2006: £1.0m). Profit after exceptional items but before taxationwas £1.4m (2006 £3.6m).In the first half of 2006 there was an exceptional gainof £2.6m relating to disposal of property and pension changes. Adjusted earnings per share have increased by 33% to 8.4p (2006: 6.3p). Basicearnings per share were 8.4p (2006: 23.5p). Cash generated from operations was £3.1m, arising from both improvedprofitability and continued effective control of working capital. Overall cashbalances increased from the position at 31 December 2006 by £2.1m to £8.5m. Ourbalance sheet remains strong, with net assets of £25.8m. Dividend In the light of this continuing progress and strong first half performance, theBoard is pleased to declare an increase of 15% in the interim dividend to 4.5pper share (2006: 3.9p). This increase reflects both the Board's commitment to aprogressive dividend policy and our confidence in our ability to maintain ourlong term progress. The interim dividend will be paid on 3 October 2007 toshareholders on the register on 7 September 2007. Accounting policies These are the Group's first results to be presented under IFRS and comparativefigures have been restated to reflect these changes. There has been nosignificant impact on reported profit figures from the new standards. Provisionhas been made for deferred taxation on previous revaluation gains. Revenue figures have also been restated, without any impact on profit, toreflect a change in the classification of certain rebates given to customers.The rebates, which were previously treated as costs, are now accounted for as adeduction from disclosed revenues. Full details of the effects of the above changes on the Group's financialstatements are shown later in this report in "Transition statements" Business review The financial results reflect strong performance throughout the Group, mostnotably within the hospitality business. Sales to our Hospitality customers grew by 16% to £13.6m (2006: £11.8m) ourstrongest revenue growth for some years. This continues the buoyant trendevident in the second half of last year. Good hotel occupancy, a continuingtrend amongst the UK population to eat out (continuing to follow the US trend ofeating out as a key component of our leisure activities), clear evidence of acapital investment cycle amongst some of our key accounts and the introductionof non-smoking legislation have underpinned this activity. Our increasedinvestment in new product development, introducing innovative and distinctiveproduct has also supported our growth. These drivers of our performance shouldbe sustained. Churchill has been able to maintain and develop its position as the marketleader in the UK whilst also delivering sales growth in Europe and the USA andother key export markets such as the Middle East. Sales to our Retail customers at £8.6m (2006: £9.1m) were slightly ahead of ourexpectations, and reflected a planned exit from certain lower margin business inparticular. Our licensed product ranges have performed well. We have transformedour retail proposition in recent years and are now able to provide solutions toour customers that add demonstrable value over a conventional sourcing businessthrough sophisticated logistics, enhanced design capabilities and rapid newproduct innovation. These attributes have been recognised by our key retailcustomers and are contributing to important new listings and growth in keyaccounts. Manufacturing Within our manufacturing operations, we have changed our working methods andproduct flows to partially mitigate the effect of substantial price rises inenergy costs. We have continued to invest in new equipment both to manage ourcost base and to develop our technical capabilities. We are planning a number offurther investments targetting improved efficiencies within our manufacturingunits, increasing the flexibility of our processes and facilitating theproduction of new products. Our technical team are at the forefront of business development and also ensurewe meet increasing technical requirements. We believe our manufacturingperformance establishes best practice standards within the UK industry. Outsourcing In addition to delivering design, quality and service, Churchill has theexpertise to offer our global customer base assurance with regard to technicaland ethical issues. There is escalating cost pressure from suppliers facing withdrawal of exportsubsidies, energy and wage inflation and currency fluctuation. The effect of US$price increases on the combined business is broadly neutral, we anticipate thatthere will be an effect on consumer pricing. People The complexity and scale of the Group requires that we bring high quality talentinto the business in a highly competitive marketplace. I am pleased to reportthat our graduate recruitment and multi-skilling policy continues to bear fruit.We are also actively recruiting experienced talent into sales and marketing,production, IT and other functions where our growth and strategy requires it,often from outside the pottery industry. There is a genuine spirit of energy andcommitment by all of the operating management and employees of the business forChurchill to grow and prosper. Our performance to date and sound strategy givesconfidence for the future and the Board is very grateful to everyone in thebusiness who has made these results possible. This is my first Chairman's statement and I am delighted to welcome JonathanMorgan to the Board as a non-executive director. He has considerable experienceand insight gained in senior positions in the unquoted investment industry bothin the UK and abroad and I am sure he will provide us with valuable counsel. Aswe previously reported, Stephen Roper stepped down as Chairman at the last AGMbut we are delighted to have retained his services as President of our USbusiness working on a part time basis with the hospitality management team andfocusing on accelerating the growth of our US hotel and restaurant accounts. Outlook Assuming a reasonably steady economic outlook, sustained customer investment insome of our key hospitality markets and recognising the good autumn listingsprofile for our retail business, there is every prospect that trading conditionswill continue to be favourable for the Group. We are actively reviewing ourinvestment strategy both with regard to our manufacturing footprint and marketpresence. Given our strong performance so far this year, we believe we are well placed toexceed current market expectations for Churchill for the full year 2007,although we do not expect the rate of growth in the second half to match therobust rate achieved in the first half. We look forward to delivering continuedgrowth for shareholders. Jonathan Sparey Chairman 30 August 2007 Churchill China plc Consolidated Income Statement for the six months ended 30 June 2007 Unaudited Unaudited Unaudited Six months to Six months to Twelve months to 30 June 2007 30 June 2006 31 December 2006 As restated As restated Before Before Total Exceptional Exceptional Exceptional Exceptional Items Items Total Items Items Total £000 £000 £000 £000 £000 £000 £000 Revenue 22,218 20,867 - 20,867 45,930 - 45,930 ========= ======== ======== ======= ======== ======== ======== Operatingprofitbeforeexceptional 1,034 828 - 828 2,795 - 2,795itemsExceptionalitems - - 2,660 2,660 - 2,660 2,660 --------- -------- -------- ------- -------- -------- -------- Operatingprofit afterexceptionalitems 1,034 828 2,660 3,488 2,795 2,660 5,455 Share ofresults ofassociatecompany 39 (4) - (4) (7) - (7)Finance 288 135 135 294 294Income --------- -------- -------- ------- -------- -------- -------- Profitbefore 1,361 959 2,660 3,619 3,082 2,660 5,742Income Tax Income Taxexpense (441) (266) (785) (1,051) (846) (785) (1,631) --------- -------- -------- ------- -------- -------- -------- Profit forthe period 920 693 1,875 2,568 2,236 1,875 4,111 ========= ======== ======== ======= ======== ======== ======== Attributableto:Equity holders 920 693 1,875 2,568 2,236 1,875 4,111of the parent ========= ======== ======== ======= ======== ======== ======== Pence per share Pence per share Pence per share Basic earningper ordinary share 8.4 23.5 37.7 Diluted basicearnings per ordinaryshare 8.4 23.5 37.7 All the above figures relate to continuing operations.Restated to reflect the adoption of IFRS. Churchill China plcConsolidated Balance Sheetas at 30 June 2007 Unaudited Unaudited Unaudited 30 June 30 June 31 December 2007 2006 2006 As restated As restated £000 £000 £000AssetsNon Current AssetsProperty, plant andequipment 10,503 10,791 10,693Intangible assets 38 40 35Investment associates 836 799 797Available for sale financial assets 22 22 22Deferred income tax assets 848 1,576 1,043 ------------ ----------- ------------ 12,247 13,228 12,590 ------------ ----------- ------------ Current AssetsInventories 6,969 9,059 6,857Trade and other receivables 9,157 9,095 10,111Cash and cash equivalents 8,539 3,583 6,410 ------------ ----------- ------------ 24,665 21,737 23,378 ------------ ----------- ------------ Total Assets 36,912 34,965 35,968 ============ =========== ============ LiabilitiesCurrent liabilitiesTrade and other payables (6,990) (5,904) (6,177)Current income tax liabilities (414) (508) (190) ------------ ----------- ------------ (7,404) (6,412) (6,367) ------------ ----------- ------------ Non current liabilitiesRetirement benefit obligations (3,748) (4,102) (3,948) ------------ ----------- ------------Total non current liabilities (3,748) (4,102) (3,948) ------------ ----------- ------------ Total liabilities (11,152) (10,514) (10,315) ============ =========== ============ Net Assets 25,760 24,451 25,653 ============ =========== ============ Capital and reservesattributable to equity holdersof the CompanyIssued share capital 1,094 1,086 1,090Share premium account 2,329 2,207 2,266Retained earnings 21,183 19,993 21,140Other reserves 1,154 1,165 1,157 ------------ ----------- ------------ 25,760 24,451 25,653 ============ =========== ============ Restated to reflect the adoption of IFRS. Churchill China plcStatement of recognised income and expensefor the six months ended 30 June 2007 Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated £000 £000 £000Net of taxActuarial gain on retirementbenefit obligations - 753 777Currency translationdifferences - (2) (10) ------------ ----------- ------------ Net income recogniseddirectly in equity - 751 767Profit for the year 920 2,568 4,111 ------------ ----------- ------------ Total recognised income forthe period 920 3,319 4,878 ------------ ----------- ------------ Attributable toEquity holders of the company 920 3,319 4,878 ============ =========== ============ Churchill China plcCash Flow Statementfor the six months ended 30 June 2007 Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated £000 £000 £000 Cash generated fromoperations 3,120 (1,134) 2,886Interest received 208 121 69Income tax (paid)/received (22) 62 (316) ----------- ----------- ------------Net cash from operatingactivities 3,306 (951) 2,639 ----------- ----------- ------------ Investing activitiesPurchases of property, plantand equipment (371) (307) (736)Proceeds on disposal ofproperty, plant and equipment 25 3,009 3,053Purchases of intangibleassets (15) (2) (11) ----------- ----------- ------------Net cash used in investingactivities (361) 2,700 2,306 ----------- ----------- ------------ Financing activitiesIssue of ordinary shares 67 - 63Dividends paid (883) (793) (1,217) ----------- ----------- ------------Net cash used in financingactivities (816) (793) (1,154) ----------- ----------- ------------ Net increase in cash and cashequivalents 2,129 956 3,791 Cash and cash equivalents atthe beginning of the year 6,410 2,629 2,629 Exchange losses on cash andcash equivalents 0 (2) (10) ----------- ----------- ------------Cash and cash equivalents atthe end of the year 8,539 3,583 6,410 ----------- ----------- ------------ 1. Basis of preparation The interim financial statements for the period to 30 June 2007 have not beenaudited or reviewed and do not constitute statutory accounts within the meaningof Section 240 of the Companies Act 1985. The Company's statutory accounts forthe year ended 31 December 2006, prepared under UK Generally Accepted AccountingPrinciples (UK GAAP) have been delivered to the Registrar of Companies. Thereport of the Auditors included in these statutory accounts was not qualifiedand did not contain a statement under Section 237 (2) or (3) of the CompaniesAct 1985. Prior to the 1 January 2007, the Group was required to prepare its consolidatedfinancial statements under UK GAAP. For the year ending 31 December 2007 theGroup is required to prepare its annual consolidated financial statements inaccordance with accounting standards adopted for use in the European Union(International Financial Reporting standards (IFRS)). The financial statements for the year to 31 December 2006 were audited. Therestatement of these figures to reflect the introduction of IFRS has not yetbeen subject to audit and as such comparative figures for that period aredisclosed as unaudited. The interim financial statements for the six months to 30 June 2007 have beenprepared in accordance with the accounting policies set out below, taking intoaccount the requirements and options set out in IFRS 1 "First time adoption ofInternational Financial Reporting Standards". In preparing these interimfinancial statements the Board has not sought to implement the early adoption ofIAS 34 "Interim financial reporting". The Group has not sought to adopt the IAS1 transitional guidance on business combinations and cumulative translationaldifferences retrospectively. Additionally the Group has not sought to adopt theguidance on business combinations and cumulative translational differencesretrospectively. The transition date for the Group's application of IFRS is 1January 2006 and comparative figures for 30 June 2006 and 31 December 2006 havebeen restated to reflect IFRS. Reconciliations of the income statement andbalance sheet from those previously reported under UK GAAP to the restated IFRSfigures are given later in this report. The interim financial statements have been prepared on the historic cost basisas modified by the revaluation of certain land and buildings and available forsale financial assets and financial liabilities (including derivative financialinstruments) at fair value through profit or loss. 2. Exceptional Items As stated in the Group's accounting policies the Directors regard certainmaterial items as exceptional. The analysis of exceptional items is as follows. Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated £000 £000 £000 Restructuring costs - (366) (366)Curtailment benefit - definedbenefit pension scheme - 1,150 1,150Profit on disposal of plant,property and equipment - 1,876 1,876 ----------- ----------- ------------ - 2,660 2,660 ----------- ----------- ------------ A charge of £nil (2006: £235,000) has been included in the taxation charge inrelation to the exceptional restructuring costs and curtailment benefit. The profit on disposal recognised in 2006 is in relation to the sale of theAlexander Pottery, Cobridge in January 2006, a taxation charge of £550,000 hadbeen charged in the Group's overall tax charge in 2006 in respect of thisdisposal. Net receipts of £2,898,000 were received in respect of this disposalduring 2006. 3. Finance income Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated £000 £000 £000 Other interest receivable 208 121 230Net finance credit /(charge): pensions 80 14 64 ----------- ----------- ------------ 288 135 294 ----------- ----------- ------------ 4. Income tax expense Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated £000 £000 £000 Current taxation 246 129 187Deferred taxation 195 922 1,444 ----------- ----------- ------------ 441 1,051 1,631 ----------- ----------- ------------ 5. Earnings per ordinary share Basic earnings per ordinary share is based on the profit for the period and on10,919,771 (June 2006: 10,862,126, December 2006: 10,867,167) 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 for the period andadjusted to take into account exceptional items. Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 Pence per share Pence per share Pence per share Basic earningsper share 8.4 23.5 37.7Adjustments: Restructuring costs - 2.4 2.4 Profit on disposal of - (12.2) (12.2) property, plant and equipment Curtailment of pension benefits - (7.4) (7.4) ----------- ----------- ------------Adjusted earnings per share 8.4 6.3 20.5 =========== =========== ============ Diluted basic earnings per ordinary share is based on the profit for the periodand on 10,986,179 (June 2006: 10,898,293; December 2006: 10,910,580) ordinaryshares, being the weighted average number of ordinary shares in issue during theyear of 10,919,771 (June 2006: 10,862,126; December 2006: 10,867,167) increasedby 66,408 (June 2006: 36,167; December 2006: 43,413) shares, being the weightedaverage number of ordinary shares which would have been issued if theoutstanding 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 for theperiod and adjusted to take into account exceptional items. Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 Pence per share Pence per share Pence per share £000 £000 £000 Diluted basicearnings pershare 8.4 23.5 37.7Adjustments: Restructuring costs - 2.4 2.4 Profit on disposal of - (12.2) (12.2) property, plant and equipment Curtailment of pension benefits - (7.4) (7.4) ----------- ----------- ------------Diluted adjusted earnings per share 8.4 6.3 20.5 =========== =========== ============ 6. Reconciliation of profit before tax to cash generated from operations Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated £000 £000 £000 Cash generated from operations Profit before income tax 1,361 3,619 5,742Adjustments for:Depreciation 556 873 1,297Profit on disposal ofproperty, plant and equipment (7) (1,884) (1,892)Share based payments 3 4 8Finance income (208) (121) (69)Decrease in retirementbenefit obligations (200) (1,164) (1,214)Share of (profit) / loss ofassociated company (39) 4 7Changes in working capital:Inventory (112) (413) 1,789Trade and other receivables 954 1,007 (9)Trade and other payables 812 (165) 190 ---------- ----------- ------------Cash generated fromoperations before additionalpension payments 3,120 1,760 5,849Additional cash contributionsto the pension scheme - (2,894) (2,963) ---------- ----------- ------------ Cash generated from operations 3,120 (1,134) 2,886 ---------- ----------- ------------ 7. Reconciliation of movements in shareholders' equity Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated £000 £000 £000 Opening balance aspreviously reported 26,155 22,446 22,446 Adjustments on adoption ofIFRS from 1 January 2006 (502) (525) (525) ---------- ----------- ------------ Opening balance as restated 25,653 21,921 21,921 Total recognised income andexpense for the period 920 3,319 4,878 Dividends paid (883) (793) (1,217) Shares issued 67 - 63 Increase in share basedpayment reserve 3 4 8 ---------- ----------- ------------ 25,760 24,451 25,653 ---------- ----------- ------------ Significant changes to disclosure - segmental analysis The Company has considered the segmentation of the business under the guidancein IAS 14 and considers the business should be disclosed in two primarysegments, hospitality and retail. Additional disclosure will be made detailingthe trading performance and assets of each of these segments. This informationhas not been included in these interim financial statements but will be includedin the financial statements at 31 December 2007. Accounting policies The accounting policies set out below and used in the preparation of the interimfinancial statements represent the principal policies expected to apply to thepreparation of the financial statements for the year ending 31 December 2007. Basis of consolidation The consolidated financial statements of Churchill China plc include the resultsof the Company, its subsidiaries and associates. The financial statements of each undertaking are prepared in the Group areprepared to the balance sheet date. Subsidiaries accounting policies areamended, where necessary, to ensure consistency with the accounting policiesadopted by the Group. Intra group transactions are eliminated on consolidation. Segment Reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. Income and expenditure arising directlyfrom a business segment are identified to that segment. Income and expenditurearising from central operations which relate to the Group as a whole or cannotreasonably be allocated between segments are not identified to a specificsegment. Revenue Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts, rebates and sales relatedtaxes. Sales of goods are recognised when goods have been delivered and title inthose goods has passed. Rebates are recognised at their anticipated level assoon as any liability is expected to arise. Interest income is recognised on a time basis by reference to the principaloutstanding and at the effective interest rate applicable. Dividend income is recognised when the Group's right to receive payment has beenestablished. Leases Management review all new leases and classify them as operating or financeleases in accordance with the guidance in the standard. Lease payments madeunder operating leases are charged to income on a straight line basis over theterm of the lease. Operating profit and exceptional items Operating profit is stated both before and after the effect of exceptional itemsbut before the Group's share of results in associate company, impairment ofinvestment in associate company, finance income and costs and taxation. The Group has adopted a columnar income statement format which seeks tohighlight significant items within the Group results for the period. Such itemsare considered by the Directors to be exceptional in size and nature rather thanbeing representative of the underlying trading of the Group, and may includesuch items as restructuring costs, material impairments of non current assets,material profits and losses on the disposal of property, plant and equipment andmaterial increases or reductions in pension scheme costs. The Directors applyjudgement in assessing the particular items, which by virtue of their size andnature are separately disclosed in the income statement and notes to thefinancial statements as "Exceptional items". The Directors believe that theseparate disclosure of these items is relevant in understanding the Group'sfinancial performance. Retirement benefit costs The Group operates a defined benefit pension scheme and defined contributionpension schemes. The defined benefit scheme is valued every three years by a professionallyqualified independent actuary. In intervening years the actuary reviews thecontinuing appropriateness of the valuation. Schemes liabilities are measuredusing the projected unit method. The assets of the scheme are held separatelyfrom those of the Group and are measured at fair value. The accrual of furtherbenefits under the scheme ceased on 31 March 2006. The regular service cost of providing retirement benefits to employees duringthe year, together with the cost of any benefits relating to past service andany benefits arising from curtailments, is charged or credited to operatingprofit in the year. These costs are included within staff costs. A credit representing the expected return on the assets of the scheme during theyear is included within finance income / cost. This is based on the market valueof the assets of the scheme. A charge representing the expected increase in thepresent value of the liabilities in the scheme is included within finance income/ cost. This arises from the liabilities of the scheme being one year closer topayment. The difference between the market value of assets and the present valueof accrued pension liabilities is shown as an asset or liability in the balancesheet. Differences between actual and expected return on assets during the year arerecognised in the statement of recognised income and expense in the year,together with differences arising from changes in assumptions. Costs associated with defined contribution schemes represent contributionspayable by the Group during the year. Share based payments Where share options have been issued to employees, the fair value of options atthe date of grant is charged to the profit and loss account over the period overwhich the options are expected to vest. The number of ordinary shares expectedto vest at each balance sheet date are adjusted to reflect non market vestingconditions such that the total charge recognised over the vesting periodreflects the number of options that ultimately vest. Market vesting conditionsare reflected within the fair value of the options granted. If the terms andconditions attaching to options are amended before the options vest any changein the fair value of the options is charged to the profit and loss account overthe remaining period to the vesting date. National insurance contributions payable by the Company in relation tounapproved share option schemes are provided for on the difference between theshare price at the balance sheet date and the exercise price of the option wherethe share price is higher than the exercise price. Foreign currencies The individual financial statements of each Group company are presented in thecurrency of the primary economic environment in which the company operates (itsfunctional currency). For the purpose of the consolidated financial statementsthe results of each entity are expressed in sterling, which is the functionalcurrency of the Group and is the presentation currency for the consolidatedfinancial statements. Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at year end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement, exceptwhen deferred in equity as qualifying cash flow hedges and qualifying netinvestment hedges. Non monetary items that are measured in terms of historicalcost in a foreign currency are not retranslated. For the purpose of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations are translated at exchange ratesprevailing on the balance sheet date. Income and expense items are translated ataverage exchange rates for the period. Exchange differences arising, if any, aredealt with through reserves. In order to manage its exposure to certain foreign exchange risks, the Groupenters into forward currency contracts (see "Derivative financial instruments"below). Derivative financial instruments The Group's operations expose it to the financial risks of changes in exchangerates. The Group uses forward currency contracts to mitigate this exposure. TheGroup does not use derivative financial instruments for speculative purposes.Changes in the fair value of derivative financial instruments are recognisedimmediately in the income statement as soon as they arise. Gains and losses onall derivatives held at fair value outstanding at a balance sheet date arerecognised in the income statement to that balance sheet date. Taxation Income tax expense represents the sum of the tax current tax and deferred tax. Current tax is based on the taxable profit for the year. The Group's liabilityfor current tax is calculated using tax rates that have been enacted orsubstantively enacted by the balance sheet date. Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated financial statements. However,deferred income tax is not accounted for, if it arises from the initialrecognition of an asset or liability in a transaction other than a businesscombination that at the time of the transaction there is no effect on eitheraccounting or taxable profit or loss. The Group's liability for deferred tax iscalculated using tax rates that have been enacted or substantively enacted bythe balance sheet date or are expected to apply when the related deferred incometax asset is realised or deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Deferred tax assets and liabilities are not discounted. Deferred tax assets andliabilities may be set off against each other provided there is a legal right todo so and it is managements' intention to do so. Property, plant and equipment Property, plant and equipment is shown at cost, net of depreciation, as adjustedfor the revaluation of certain land and buildings. Depreciation is calculated so as to write off the cost, less any provision forimpairment, of plant, property and equipment, less their estimated residualvalues over the expected useful economic lives of the assets concerned. Theprincipal annual rates used for this purpose are: %Freehold buildings 2 on cost or valuationPlant and machinery 10-25 on costMotor vehicles 25 on reducing net book valueFixtures and fittings 25-33 on cost Freehold land is not depreciated. Intangible assets Intangible assets (computer software) are shown at cost net of depreciation.Depreciation is calculated so as to write off the cost, less any provision forimpairment, of intangible assets, less their estimated residual values over theexpected useful economic lives of the assets concerned. The principal annualrate used for this purpose is: %Computer software 33 on cost Investment in associate An associate is defined as an entity which the Group is in a position toexercise significant influence over, taking part in, but not controlling, thefinancial and operational management of the entity. The Group's share of post acquisition profits less losses of the associate, isincluded in the consolidated profit and loss account, and the Group's share ofits net assets after any impairment to the carrying value of those assets isincluded in the consolidated balance sheet, using the equity method ofaccounting. These amounts are taken from the latest financial statements of theundertaking concerned, which has the same accounting reference date as theGroup. Since the accounting policies of the associate do not necessarily conformin all respects to those of the Group, adjustments are made on consolidationwhere the amounts involved are material to the Group. Impairment of non financial assets At each reporting date the Directors assess whether an asset may be impaired. Ifany such indicator exists the Group tests for impairment by estimating therecoverable amount of the asset. If the recoverable amount is less than thecarrying value of an asset an impairment loss is required. In addition to this,assets with indefinite lives are tested for impairment at least annually. Available for sale financial assets Available for sale financial assets are non derivatives that are eitherdesignated in this category or not classified to any of the other financialasset categories. They are included in non current assets unless the Directorsintend to dispose of the investment within twelve months of the balance sheetdate. Inventories Inventories are stated at the lower of cost and net realisable value. Cost isdetermined on a first in first out basis and includes, where appropriate, directmaterials, direct labour, overheads incurred in bringing inventories to theirpresent location and condition and transport and handling costs. Net realisablevalue is the estimated selling cost less all further costs to sale. Provision ismade where necessary for obsolete, slow moving and defective inventories. Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment is established where there isobjective evidence that the Group will not be able to collect all amounts dueaccording to the original terms of the receivables. The amount of the provisionis the difference between the asset's carrying amount and the present value ofestimated future cash flows, discounted at the original effective interest rate. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held on call withbanks, other short term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Bank overdrafts are shown withinborrowings in current liabilities on the balance sheet. Non current assets held for sale Non current assets are classified as being held for sale where their value isexpected to be recovered through disposal rather than continuing usage withinthe business. This is generally held to be where there is a high probability ofsale in the near future. Management must be committed to sale which should beexpected to be completed to qualify for recognition as a completed sale withinone year from the date of classification. Provisions Provisions are recognised when (i) the Group has a present legal or constructiveobligation as a result of past events, (ii) it is probable that an outflow ofresources will be required to settle the obligation and (iii) the amount hasbeen reliably estimated. The Directors estimate the amount of provisionsrequired to settle any obligation at the balance sheet date. Provisions arediscounted to their present value where the effect would be material. Churchill China plcIFRS Transition StatementsIncome Statements As IAS 21 Total previously IAS 38 IAS 19 Foreign IAS 12 Other transition Restated reported IAS 18 intangible IAS 36 IAS 17 Employee exchange Deferred IAS Effect to under (UK GAAP) Revenue assets Goodwill Leases Benefits rates tax adjustments IFRS IFRS 6 months to 30 June £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £0002006 Revenue 21,878 (1,011) (1,011) 20,867 ========================================================================================================Operating Profit before exceptional items 813 11 4 0 15 828 Exceptional items 784 1,876 1,876 2,660 -------------------------------------------------------------------------------------------------------- Operating profit after exceptional items 1,597 11 4 1,876 1,891 3,488 Share of results of associated company (4) (4) (4) Profit on disposal of property, plant and equipment 1,876 (1,876) (1,876) 0 Finance 140 (5) (5) 135Income -------------------------------------------------------------------------------------------------------- Profit before Income Tax 3,613 0 0 11 4 0 0 0 (9) 6 3,619 Income Tax expense (1,061) (1) 2 9 10 (1,051) -------------------------------------------------------------------------------------------------------- Profit for the period 2,552 0 0 11 3 0 0 2 0 16 2,568 ======================================================================================================== Attributable to: Equity holders of the parent 2,552 0 0 11 3 0 0 2 0 16 2,568 ======================================================================================================== As IAS 21 Total previously IAS 38 IAS 19 Foreign IAS 12 Other transition Restated reported IAS 18 Intangible IAS 22 IAS 17 Employee exchange Deferred IAS Effect to under (UK GAAP) Revenue assets Goodwill Leases Benefits rates tax adjustments IFRS IFRS Year to 31 December £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £0002006 Revenue 47,757 (1,827) (1,827) 45,930 ========================================================================================================Operating Profit before exceptional items 2,777 22 (5) 1 18 2,795 Exceptional items 784 1,876 1,876 2,660 --------------------------------------------------------------------------------------------------------Operating profit after exceptional items 3,561 22 (5) 1 1,876 1,894 5,455 Share of results of associated company 5 (12) (12) (7) Profit on disposal of property, plant and equipment 1,876 (1,876) (1,876) 0 Finance Income 305 (11) (11) 294 -------------------------------------------------------------------------------------------------------- Profit before 5,747 0 0 22 (5) 1 0 0 (23) (5) 5,742Income Tax Income Tax expense (1,659) 1 4 23 28 (1,631) -------------------------------------------------------------------------------------------------------- Profit for the 4,088 0 0 22 (4) 1 0 4 0 23 4,111period ========================================================================================================Attributable to: Equity holders 4,088 0 0 22 (4) 1 0 4 0 23 4,111of the parent ======================================================================================================== Churchill China plc IFRS Transition Statements Balance Sheets As IAS 18 IAS 38 IAS 36 IAS 17 IAS 19 IAS 21 IAS 12 Other IAS Total Restated previously transition under reported effect to (UK GAAP) Revenue Intangible Goodwill Leases Employee Foreign Deferred adjustments IFRS IFRS assets Benefits Exchange tax Rates 31 December 2005 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Non Current Assets Plant, Property and Equipment 11,485 (53) (68) (121) 11,364Goodwill and intangible Assets 56 53 (56) (3) 53Investment in 803 0 803Associates Available for sale 22 0 22financial assets Deferred income tax assets (386) 3,206 2,820 2,820 -------------------------------------------------------------------------------------------------------- 12,366 0 0 (56) (68) 0 0 (386) 3,206 2,696 15,062 --------------------------------------------------------------------------------------------------------Current Assets Inventories 8,646 0 8,646Trade and other receivables 10,537 (435) (435) 10,102Cash and cash 2,629 0 2,629equivalents -------------------------------------------------------------------------------------------------------- 21,812 0 0 0 0 0 0 0 (435) (435) 21,377Non current assets held for sale 1,022 0 1,022 -------------------------------------------------------------------------------------------------------- Current 22,834 0 0 0 0 0 0 0 (435) (435) 22,399Assets -------------------------------------------------------------------------------------------------------- Total Assets 35,200 0 0 (56) (68) 0 0 (386) 2,771 2,261 37,461 ========================================================================================================Current liabilities Trade and other (5,928) (53) (53) (5,981)payables Current income tax (318) 0 (318)liabilities Hire (22) 22 22 0purchase Provisions for other liabilities (6) 0 (6)and charges -------------------------------------------------------------------------------------------------------- (6,274) 0 0 0 22 (53) 0 0 0 (31) (6,305) --------------------------------------------------------------------------------------------------------Non current liabilities Hire (16) 16 16 0purchase Retirement benefit obligations (6,464) (2,771) (2,771) (9,235) --------------------------------------------------------------------------------------------------------Total non current liabilities (6,480) 0 0 0 16 0 0 0 (2,771) (2.755) (9,235) --------------------------------------------------------------------------------------------------------Total liabilities (12,754) 0 0 0 38 (53) 0 0 (2,771) (2,786) (15,540) ========================================================================================================Net Assets 22,446 0 0 (56) (30) (53) 0 (386) 0 (525) 21,921 ========================================================================================================Capital and reserves attributable to equity holders in Company Issued share capital 1,086 0 1,086Share premium 2,207 0 2,207account Retained earnings 17,600 (56) (30) (53) (139) 17,461Other 1,553 (386) (386) 1,167reserves -------------------------------------------------------------------------------------------------------- 22,446 0 0 (56) (30) (53) 0 (386) 0 (525) 21,921 ======================================================================================================== Churchill China plc IFRS Transition Statements Balance Sheets As IAS 18 IAS 38 IAS 36 IAS 17 IAS 19 IAS 21 IAS 12 Other IAS Total Restated previously transition under reported effect to (UK GAAP) Revenue Intangible Goodwill Leases Employee Foreign Deferred adjustments IFRS IFRS assets Benefits Exchange tax Rates 30 June 2006 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Non Current Assets Property, plant and Equipment 10,890 (40) (59) (99) 10,791Goodwill and intangible Assets 45 40 (45) (5) 40Investment in 799 0 799Associates Available for sale 22 0 22financial assets Deferred income tax assets (384) 1,960 1,576 1,576 -------------------------------------------------------------------------------------------------------- 11,756 0 0 (45) (59) 0 0 (384) 1,960 1,472 13,228 --------------------------------------------------------------------------------------------------------Current Assets Inventories 9,059 9,059Trade and other receivables 9,824 (729) (729) 9,095Cash and cash 3,583 3,583equivalents -------------------------------------------------------------------------------------------------------- 22,466 0 0 0 0 0 0 0 (729) (729) 21,737Non current assets held for sale Current 22,466 0 0 0 0 0 0 0 (729) (729) 21,737Assets -------------------------------------------------------------------------------------------------------- Total Assets 34,222 0 0 (45) (59) 0 0 (384) 1,231 743 34,965 ========================================================================================================Current liabilities Trade and other (5,793) (53) (53) (5,846)payables Current income tax (507) (1) (1) (508)liabilities Hire (22) 22 22 0purchase Provisions for other liabilities (58) 0 (58)and charges -------------------------------------------------------------------------------------------------------- (6,380) 0 0 0 21 (53) 0 0 0 (32) (6,412) --------------------------------------------------------------------------------------------------------Non current liabilities Hire (11) 11 11 0purchase Retirement benefit obligations (2,871) (1,231) (1,231) (4,102) --------------------------------------------------------------------------------------------------------Total non current liabilities (2,882) 0 0 0 11 0 0 0 (1,231) (1,220) (4,102) --------------------------------------------------------------------------------------------------------Total liabilities (9,262) 0 0 0 32 (53) 0 0 (1,231) (1,252) (10,514) ========================================================================================================Net Assets 24,960 0 0 (45) (27) (53) 0 (384) 0 (509) 24,451 ========================================================================================================Capital and reserves attributable to equity holders in Company Issued share capital 1,086 0 1,086Share premium 2,207 0 2,207account Retained earnings 20,116 0 (45) (27) (53) 2 (123) 19,993Other 1,551 (2) (384) (386) 1,165reserves -------------------------------------------------------------------------------------------------------- 24,960 0 0 (45) (27) (53) 0 (384) 0 (509) 24,451 ======================================================================================================== Churchill China plc IFRS Transition Statements Balance Sheets As IAS 18 IAS 38 IAS 36 IAS 17 IAS 19 IAS 21 IAS 12 Other IAS Total Restated previously transition under reported effect to (UK GAAP) Revenue Intangible Goodwill Leases Employee Foreign Deferred adjustments IFRS IFRS assets Benefits Exchange tax Rates 31 December 2006 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Non Current Assets Property, plant and equipment 10,779 (35) (51) (86) 10,693Goodwill and intangible Assets 34 35 (34) 1 35Investment in 797 0 797Associates Available for sale 22 0 22financial assets Deferred income tax assets (382) 1,425 1,043 1,043 -------------------------------------------------------------------------------------------------------- 11,632 0 0 (34) (51) 0 0 (382) 1,425 958 12,590 --------------------------------------------------------------------------------------------------------Current Assets Inventories 6,857 0 6,857Trade and other receivables 10,412 (301) (301) 10,111Cash and cash 6,410 0 6,410equivalents -------------------------------------------------------------------------------------------------------- 23,378 0 0 0 0 0 0 0 (301) (301) 23,378Non current assets held for sale 0 Current 23,679 0 0 0 0 0 0 0 (301) (301) 23,378Assets -------------------------------------------------------------------------------------------------------- Total Assets 35,311 0 0 (34) (51) 0 0 (382) 1,124 657 35,968 ========================================================================================================Current liabilities Trade and other (6,125) (52) (52) (6,177)payables Current income tax (191) 1 1 (190)liabilities Hire (16) 16 16 0purchase Provisions for other liabilities 0 0and charges -------------------------------------------------------------------------------------------------------- (6,332) 0 0 0 17 (52) 0 0 0 (35) (6,367) --------------------------------------------------------------------------------------------------------Non current liabilities Hire 0 0purchase Retirement benefit obligations (2,764) (1,184) (1,184) (3,948)Deferred income tax liabilities (60) 60 60 0 --------------------------------------------------------------------------------------------------------Total non current liabilities (2,824) 0 0 0 0 0 0 0 (1,124) (1,124) (3,948) --------------------------------------------------------------------------------------------------------Total liabilities (9,156) 0 0 0 17 (52) 0 0 (1,124) (1,159) (10,315) ========================================================================================================Net Assets 26,155 0 0 (34) (34) (52) 0 (382) 0 (502) 25,653 ======================================================================================================== Capital and reserves attributable to equity holders in Company Issued share capital 1,090 0 1,090Share premium 2,266 0 2,266account Retained earnings 21,250 (34) (34) (52) 10 (110) 21,140Other 1,549 (10) (382) (392) 1,157reserves -------------------------------------------------------------------------------------------------------- 26,155 0 0 (34) (34) (52) 0 (382) 0 (502) 25,653 ======================================================================================================== Explanatory notes to the adjustments from UK GAAP to IFRS Revenue Previously, Churchill China plc disclosed the cost of annual retrospectiverebates and discounts paid to customers on achievement of revenue and certainother contractual targets as a cost of sale. Following consideration of theterms of the individual contractual arrangements, these retrospective rebatesand discounts are now classified as a reduction to gross revenue, with no changeto profit before tax in the year. Intangible assets Previously, computer software assets were carried in fixtures and fittingswithin Fixed Assets. Under IAS 38, computer software is now classed as anintangible asset. Goodwill Previously, the goodwill acquired on the acquisition of Wren Giftware wasamortised over a twenty year life. Under IAS 36, acquired goodwill is subject toan annual impairment test. Following the application of this impairment test ithas been calculated that as at 31 December 2005 there was no remaining value tothe goodwill acquired. Leases Previously, a lease relating to computer hardware was classed as a financeleases. Under IAS 17, this lease has been reclassified as an operating lease. Employee Benefits Previously, the Group provided for short term employee benefits in relation tounused holiday pay for weekly paid employees, but did not provide for thatassociated with monthly paid employees. Under IAS 19, the Group has provided forliabilities associated with monthly paid employees in addition to provisions forweekly paid employees. Foreign Exchange rates Previously, the Group wrote off translation differences on the consolidation ofits US subsidiary to the profit and loss account. Under IAS 21, thesedifferences must now be written off to a separate currency reserve. The Grouphas taken the transitional exemption under IFRS 1 to restate these differencesfrom 1 January 2006. Valuation of Properties and Deferred Tax Freehold land and buildings were last revalued in 1992. On the introduction ofFRS 15 the Group opted to treat freehold property at cost and the earliervaluation, as modified by subsequent additions and disposals, was classed asdeemed cost. Deferred tax was not provided as it was believed that any suchliability would not crystallise. Under IFRS the Group will adopt the deemed costbasis for land and buildings. Under IAS 12 deferred tax is provided on thepotential taxable gain on the sale of the land at its revalued level and on thedifference between the net book value and tax value of buildings. No credit hasbeen taken for available capital losses as it is not probable that they willcrystallise. Other IAS adjustments The disclosure of the exceptional profit on disposal of property, plant andequipment in the comparative 2006 results was treated under UK GAAP as a lineitem below operating profit. This has been amended to reflect IFRS requirementsand is now treated as an operating exceptional item. This reclassification doesnot affect reported profits in the period. Previously, the Group disclosed its share of the operating profit, interestreceived and tax of the results of its associated company Furlong Mills Limitedseparately on the face of the profit and loss account. Under IAS 1 theseseparate elements are now disclosed as a single figure "Share of results ofassociated company" in the income statement. Previously, the Group disclosed deferred tax assets and liabilities withincurrent assets, provisions for liabilities and charges and on a netted off basisagainst related pension scheme liabilities. Under IAS 12 deferred tax isclassified as non current on a classified balance sheet. This information is provided by RNS The company news service from the London Stock Exchange