Churchill China Regulatory News (CHH)

22 Mar 2005 07:03

Churchill China PLC22 March 2005 For Immediate Release 22 March 2005 CHURCHILL CHINA PLC PRELIMINARY RESULTS for the year ended 31 December 2004 Churchill China plc, is pleased to announce its preliminary results for the yearended 31 December 2004. Key Points: • Sales of £49.0m (2003: £49.5m) • Pre-tax profits before exceptionals items of £3.2m (2003: £2.8m) • Pre-tax profits after exceptionals items of £2.3m (2003: £1.2m) • Adjusted earnings per share of 20.9p (2003: 18.2p) • Earnings per share of 15.4p (2003: 5.7p) • Full year dividend increased 10% to 11p (2003: 10p) • Continued progress in development of hospitality sales • Strong growth in sales of outsourced product for the retail sector Stephen Roper, Chairman, said: "2004 has been a year of success and consolidation. Current trading since theyear end indicates that sales to hospitality customers in the first half matchthe same high level achieved in 2004. We look forward to further profitablegrowth in the year ahead." 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 DietrichBuchanan Communications Limited Tel No: 020 7466 5000 CHAIRMAN'S STATEMENT In the year to 31 December 2004 I am pleased to report a 14% improvement inprofit before exceptional items and taxation to £3.2m (2003 - £2.8m). However,this successful performance fell short of our earlier expectations, constrainedby a disappointing final quarter sales to our retail customers. Profit afterexceptional items but before taxation improved to £2.3m (2003: £1.2m) An encouraging trend has been the sustained increase in sales of hospitalityproducts encompassing international hotels, restaurants and pubs, both in theU.K. and overseas with particular success in the U.S.A. and southern Europe.Following a 17% sales growth in the first half year, we experienced a moremodest growth of 7% as anticipated in the second half, a period typicallycharacterised by our customers' replacement programmes rather than newinstallations. A particular noteworthy achievement has been the high level of demand for ourpremium brand Alchemy, allowing us to compete effectively in the four star plusinternational market. Whilst overall sales to retail customers declined as a consequence of theplanned reduction in levels of manufacturing, in line with our objectives, weachieved further strong growth in our outsourced activities with sales amountingto £18.0m (2003 - £13.7m). In 2005 sales in this sector will be virtually allsourced from third parties, so allowing us to be highly competitive in all areasof the volume and middle markets. FINANCIAL PERFORMANCE Group sales in the year were £49.0m (2003: £49.5m). Despite the slight fall insales overall operating margins before exceptional costs rose to 6.1%. Thismargin achievement is the highest margin delivered since 1997, reflectingcontinued reduction in our cost base which remains a key objective for theGroup. This margin improvement contributed to the growth in profit before taxand exceptional items which rose from £2.8m to £3.2m, an increase of 14%. Profitafter exceptional items but before tax was £2.3m (2003 £1.2m). Adjusted earnings per share (before exceptional items) rose 14% from 18.2p to20.9p. Basic earnings per share for the year were 15.2p (2003: 5.7p). The decision to transfer further UK manufacturing capacity from retail tohospitality markets led to exceptional restructuring costs of £0.9m. Of thisfigure £0.2m was in respect of redundancy costs and the remaining £0.7m relatedto the non-cash write down of stocks associated with UK production. Operating cash generation at £1.6m (2003: £2.9m) was, as anticipated, lower thanprevious years and was principally affected by the need to increase stocks ofhospitality products to meet higher demand levels and to support theintroduction of new product ranges. Stocks increased by £0.9m during the year.Capital expenditure also increased during the year to £1.9m (2003: £1.2m) as thenew warehousing project, designed to replace old facilities and improve customerservice and operating costs was commenced. This expenditure was offset by thereceipt of the proceeds relating to the disposal of part of the Anchor site inLongton. Overall cash balances fell from £1.7m to £1.0m. DIVIDEND Given the increase in profitability of the business and the successfulrestructuring of the manufacturing base, the Board is pleased to announce thatit is recommending a 9% increase in the final dividend of 0.6p to 7.3p pershare. The total dividend for the year of 11p (2003: 10p) is covered 1.9 timesby adjusted earnings per share. OPERATING REVIEW Sales Sales of hospitality products were £26.0m (2003: £23.3m). 2004 saw good resultsin both home and export markets, with growth of 9% and 17% respectively, and atotal of 11% across all markets. A strong feature was the success in the firsthalf of the year in winning an unusually high number of new customerinstallations particularly in the hotel and contract catering markets. A majorpart of this success was attributable to the continued development andintroduction of new and innovative products in both our Churchill and Alchemybrands. To further enhance growth in export sales we have continued the process ofstrengthening our sales team by recruiting additional personnel in our keymarkets. Particularly noteworthy is the strong progress achieved in NorthAmerica and in Southern Europe where we are enjoying the rewards of steadyinvestment over several years These initiatives and our commitment to customer service give us confidence thatwe will improve on 2004's performance during the year as a whole. Sales in thefirst half are expected to match the high levels achieved in 2004 with a returnto growth in the second half of the year. Sales of retail products were £23.0m (2003: £26.2m). As anticipated, total salesin 2004 declined following the reduction in UK manufacturing towards the end of2003. The residue of UK manufacturing still proved difficult to sell atacceptable prices, particularly in the last quarter of 2004. Listings werereduced in European hypermarkets and volume accounts in North America. As aconsequence of this underperformance, combined with the increased demand formanufacturing capacity for hospitality products, the Board announced theeffective cessation of UK retail manufacturing in December 2004. As expected we achieved further growth in outsourced products with sales of£18.0m (2003: £13.7m), an increase of 31%. An important part of our strategy isthe continued development of long term relationships with key overseas suppliersand this has progressed well in the year. The success in sourcing overseas products has enabled the UK sales team topenetrate further key distribution channels and product categories and thus gainadditional listings. We achieved growth in supermarkets and department storeswith premium coffee mugs, dinnerware and glassware products all performing well,particularly through supermarkets, department stores and independent retailers. Further progress was seen in the continued focus on closer relationships withkey customers and the building of category leadership status. As a result salesto our top ten customers have increased by 6% over 2003. Manufacturing and Operations Last year I reported on the successful transformation of manufacturingfacilities within the Group. However, competitive challenges do not stand still.The sustained growth in hospitality products and the move to retail productsbeing wholly sourced, influenced the Board to accelerate further manufacturingchanges in late 2004, giving rise to exceptional costs in the year under review.This results in the Group concentrating future manufacturing solely forhospitality products predominantly at the Marlborough Works but with manufactureof the Alchemy product continuing at our Whieldon Road site. Further changes areplanned in the period to September 2005 with the transfer of our hospitalitydish-making unit to the Marlborough Works. The benefit of these changes will beto increase efficiency and to maintain service levels to underpin our objectivesof achieving sustained performance improvements and profit growth. Theconsolidation of the Anchor dish cell will not result in any significant cost. The construction of the £3m new Group warehouse, which is important inreinforcing our commitment to provide an exemplary standard of customer service,remains on target with commissioning scheduled for the third quarter of 2005 PROSPECTS Current trading indicates that sales to hospitality customers in the first halfyear are expected to match the same high level achieved in 2004, with growth inthe second half of 2005. New product launches to the hospitality market will take place throughout theyear with a strong bias towards the Alchemy range. Our most significantintroduction for the year took place in February with the launch of "Jardin", anembossed variation of the original Alchemy range, launched three years ago.Initial response from target customers in all our markets has been verypositive. Retail sales of outsourced products should again show substantial growth but intotal sales are likely to be marginally reduced following the transfer of retailmanufacturing capacity to hospitality customers production. Sales in the UK forboth the volume and middle market customers are again anticipated to showpositive growth with a large increase in new product listings. Cost reduction and efficiency improvements will be progressive throughout theyear, falling principally in the second half of the year. The main constituentswill be savings arising from the commissioning of the new warehouse in the thirdquarter of 2005 and the consolidation of the remaining small unit at AnchorPottery into our main Marlborough facility. The vitality of the Churchill business and our ability to meet the challengesraised by rapidly changing markets is dependent on the continued commitment ofour employees. I thank them for their efforts. We look forward to furtherprofitable growth in the year ahead. Stephen Roper Chairman 21 March 2005 Consolidated profit and loss account for the twelve months ended 31 December 2004 2004 2004 2004 2003 2003 2003 Before Before exceptional Exceptional Total exceptional Exceptional Total items items items items Note £000 £000 £000 £000 £000 £000 Turnover 1 48,972 - 48,972 49,474 - 49,474 Operating profit / 2 2,996 (866) 2,130 2,727 (1,289) 1,438(loss) Share of operating profit ofassociatenet of impairment 100 - 100 29 (350) (321) Profit on disposal of 3 - 19 19 - 18 18fixed asset Net interest 74 - 74 27 - 27receivable Profit / (loss) onordinaryactivities before 3,170 (847) 2,323 2,783 (1,621) 1,162taxation Tax on profit on ordinary (925) 254 (671) (843) 290 (553)activities Profit / (loss) on ordinaryactivitiesafter taxation 2,245 (593) 1,652 1,940 (1,331) 609 Dividends 4 (1,187) (1,070) Retained profit / (loss) for the period 465 (461) Pence per Pence per share shareEarnings per ordinaryshareBasic 5 15.4 5.7Adjusted 5 20.9 18.2 Diluted earnings perordinary shareBasic 5 15.2 5.7Adjusted 5 20.7 18.1 Consolidated balance sheet as at 31 December 2004 2004 2003 £000 £000 Fixed assetsIntangible Assets 84 130Tangible assets 12,133 11,443Investments 840 761 13,057 12,334 Current assetsStocks 9,992 9,144Debtors: amounts falling due within one year 10,862 11,008Investments and assets for sale 0 1,050Cash at bank and in hand 1,012 1,717 21,866 22,919 Creditors:amounts falling due within one year (7,524) (8,408) Net current assets 14,342 14,511 Total assets less current liabilities 27,399 26,845 Provisions for liabilities and charges (104) (122) Net assets 27,295 26,723 Capital and reservesCalled up share capital 1,079 1,070Share premium account 2,115 2,013Revaluation reserve 1,299 1,392Other reserves 253 253Profit and loss account 22,549 21,995 Equity shareholders' funds 27,295 26,723 Consolidated cash flow statement for the twelve months ended 31 December 2004 2004 2003 £000 £000 Net cash inflow from operating activities 1,575 2,924(reconciliation to operating profit - note 6) Returns on investments and servicing of financeNet interest received 69 25 Taxation (620) (731) Capital expenditure and financial investmentPurchase of tangible fixed assets (1,888) (1,231)Sale of tangible fixed assets 1,174 69 Net cash outflow for capital expenditure andfinancial investment (714) (1,162) Equity dividends paid (1,116) (992) FinancingIssue of ordinary shares 111 50Payment of principal under finance leases (6) (13) Net cash inflow from financing 105 37 (Decrease) / increase in net cash (701) 101 1. Analysis of turnover The Directors consider that the Group's activities are a single class ofbusiness. 2004 2003 £000 £000Geographic TurnoverUnited Kingdom 31,459 30,697Rest of Europe 10,102 10,821North America 5,369 6,051Australasia 877 916Far East 263 346Other 902 643 48,972 49,474 2. Exceptional Items Costs arising from the restructuring of manufacturing operations have beentreated as exceptional and have been charged in arriving at the operating profitfor the year. These exceptional costs comprise: 2004 2003 £000 £000 Restructuring costs 192 972Impairment of tangible fixed assets - 103Write down of stocks and work in progress 674 214 866 1,289Impairment of investments - 350 866 1,639 A credit of £254,000 (2002: £290,000) has been included in the corporation taxcharge in relation to the exceptional items. The cash outflow in relation to exceptional items in the period was £114,000(2003:£850,000) 3. Profit on disposal of fixed assets 2004 2003 £000 £000 Profit on disposal of fixed assets 19 18 The profit on disposal of fixed assets represents the release of an accrual forcosts not incurred in respect of the 2001 disposal of surplus land. 4. Dividend The Directors have declared or now recommend payment of the following dividendsin respect of the year ended 31 December 2004 2004 2003 £000 £000Ordinary dividendInterim paid 3.7p (2002: 3.3p) per 10p ordinary share 399 353Final proposed 7.3p (2002: 6.7p) per 10p ordinary share 788 717 1,187 1,070 The proposed dividend has been calculated on 10,794,126 shares being those inissue at 31 December 2004 qualifying for the dividend. The dividend will be paidon 26 May 2005 to shareholders on the register on 1 April 2005 5. Earnings per ordinary share Basic earnings per ordinary share is based on the profit on ordinary activitiesafter taxation and on 10,761,642 (2003: 10,668,539) 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 2004 2003 pence per pence per Share share Basic earnings per share 15.4 5.7Adjustments : Exceptional items 5.6 12.6 Profit on disposal of fixed assets (0.1) (0.1) Adjusted earnings per share 20.9 18.2 Diluted basic earnings per ordinary share is based on the profit on ordinaryactivities after taxation and on 10,838,761 (2003: 10,697,321) ordinary shares,being the weighted average number of ordinary shares in issue during the year of10,761,642 (2003:10,668,539) increased by 77,119 (2003:28,782) shares, being theweighted average 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 on ordinaryactivities after taxation and adjusted to take into account exceptional itemsand profit on disposal of fixed assets 2004 2003 pence per pence per share Share Diluted basic earnings per share 15.2 5.7Adjustments : Exceptional items 5.6 12.6 Profit on disposal of fixed assets (0.1) (0.2) Diluted adjusted earnings per share 20.7 18.1 6. Reconciliation of operating profit to net cash inflow from operatingactivities 2004 2003 £000 £000 Continuing operating activitiesOperating profit before exceptional costs 2,996 2,727Exceptional costs (866) (1,289) Operating profit 2,130 1,438Depreciation 1,124 1,612Impairment of tangible fixed assets-exceptional 0 103(Profit) / loss on sale of assets (31) 28Goodwill amortisation 46 46(Increase) / decrease in stocks (848) 218Decrease in debtors 146 280Decrease in creditors (948) (923)(Decrease) / increase in provisions (44) 122 Net inflow from continuing operating activities 1,575 2,924 7. Reconciliation of decrease in net cash to movement in net funds 2004 2003 £000 £000 Decrease / (increase) in cash during the period (701) 101 Cash outflow from decrease in debt and leasefinancing 6 13 Movement in net funds during the period resultingfrom (695) 114 cash flows Currency movements (4) (4) Net cash at the start of the period 1,711 1,601 Net cash at the end of the period 1,012 1,711 8. Statement of total recognised gains and losses 2004 2003 £000 £000 Profit for the period 1,652 609Unrealised reduction on impairment of properties - (690)Currency translation differences (4) (3) 1,648 (84) 9. Financial Information The financial information set out above does not constitute the Company'sstatutory accounts for the year ended 31 December 2004. Statutory accounts forthe year ended 31 December 2004, which include an unqualified audit opinion willbe delivered to the Registrar of Companies following the Company's AnnualGeneral Meeting on 18 May 2005 This information is provided by RNS The company news service from the London Stock Exchange