Last checked at 27 Aug 2009 07:00
| For Immediate Release | 27 August 2009 |
CHURCHILL CHINA plc
INTERIM RESULTS
For the six months ended 30 June 2009
Churchill China plc, the manufacturer and global distributor of ceramic tableware and household products to hospitality and retail markets, is pleased to announce its interim results for the six months ended 30 June 2009.
KEY POINTS
Sales revenue of £19.7m (2008: £20.3m)
Profit before exceptional items and taxation £0.4m (2008: £1.2m)
Operating profit £0.4m (2008: £0.8m)
Earnings per share 2.6p (2008: 8.3p)
Interim dividend 4.8p (2008: 4.8p)
Cash £5.8m (2008:£8.4m)
Commenting on the results, Jonathan Sparey, Chairman said:
"I am pleased to report that the Group's overall performance in the first half of the year has been in line with expectations for the half year to 30 June 2009. We remain on track to deliver expected profitability for the full year, which is, as normal, weighted heavily to the stronger second half. Whilst being cautious in relation to the impact of continued economic uncertainty in the short term, we remain confident in our business model, overall strategy and ability to create shareholder value."
For further information, please contact:
| Churchill China plc | Today on: 020 7466 5000 |
| Andrew Roper/David Taylor | thereafter on: 01782 577566 |
| Buchanan Communications | Tel No: 020 7466 5000 |
| Tim Anderson/Lisa Baderoon/Rebecca Skye Dietrich | |
| Brewin Dolphin Investment Banking | Tel No: 0845 270 8610 |
| Andrew Emmott |
Chairman's Statement
Introduction
I am pleased to report that in the first half of the year the Group's overall performance has been in line with expectations for the half year to 30 June 2009. Churchill's profitability was lower than the corresponding period last year principally as a function of lower sales to our Hospitality customers, reflecting weak economic conditions, but revenue growth to Retail customers was well ahead of last year. We remain on track to deliver expected profitability for the full year, which is, as normal, weighted heavily to the stronger second half.
Financial review
Group revenue for the six months to 30 June 2009 was £19.7m, down 3% against the first half of last year (2008: £20.3m). The performance of our businesses has remained at reasonable levels with a contribution before central overheads of £1.8m compared to £2.2m in 2008.
Group operating profit was £0.4m (2008: £0.8m) which principally reflected the impact of lower sales to Hospitality customers. In addition, Group margins were affected by a lower contribution from manufactured product as we switched the production of sourced lines to the UK to allow us to optimise our inventory and cash position. This was partially offset by a stronger performance in the Retail business.
Pre tax profit was well below the corresponding period last year at £0.4m (2008: £1.2m) reflecting the lower operating profit and the absence of a decent return on our cash balances. Last year we enjoyed £0.4m of finance and other income in the first half.
Adjusted earnings per share were 2.6p (2008: 8.3p).
Operating cash generation was good at £0.8m (2008: negative £0.8m) as stock levels were held constant despite lower sales, and working capital was tightly controlled.
Overall cash balances remained at a healthy £5.8m after dividend payments of £1.0m (2008: £1.0m) and capital expenditure of £1.5m (2008: £1.2m) mainly in respect of our now completed new warehouse.
Dividend
The Board is recommending an unchanged dividend of 4.8p per share. The generation of long term returns to shareholders remains a key priority. We have enjoyed good underlying cash generation as a function of tight working capital management and cost control and have a strong, ungeared balance sheet. The dividend will be paid on 5 October 2009 to shareholders on the register on 11 September 2009.
Hospitality
Sales to our Hospitality customers were £11.2m (2008: £12.5m) reflecting a general softening of demand in several markets given prevailing economic conditions. As a result the net contribution was lower at £1.0m (2008: £1.8m).
UK sales were £7.2m (2008:£7.9m) down 9%. Nearly all the sales shortfall in the UK was attributable to a very poor performance in the month of June which has not been repeated in subsequent months. A major UK distributor ceased trading in the second quarter, the ripple effect of which stimulated a wave of destocking and working capital reduction.
In the market as a whole there is evidence that whilst the number of people eating out has been relatively stable, there has been a reduction in spend per head and a general trading down with considerable promotional activity by our customers. This trend may be short lived but it has been pronounced in recent months.
Export sales were down 14% at £4.0m (2008: £4.6m). Churchill is fortunate to benefit from recurring replacement business but any down turn in new installations will affect sales in all markets especially those countries where Churchill is a relatively new entrant. As yet there is little sign of recovery in the Spanish economy where we have a leading position and our sales were 22% below 2008 levels.
We believe that despite sluggish export markets, there are several opportunities to grow sales across a variety of sectors. We continue to invest heavily in new product and market development.
Distributors and end users, who are now more focussed on the minimisation of working capital, place high value on Churchill's unrivalled service and performance in use and we believe this places us in a strong position when demand recovers.
Retail
Sales to our Retail customers improved by 9% to £8.5m (2008: £7.9m) reflecting a good performance in UK volume channels as well as increased activity with middle market customers. Contribution before group overheads almost doubled to £0.8m (2008: £0.4m).
The quality, versatility and design content of our mug portfolio, in particular, has established Churchill as the market leader in this sector; demand for Cath Kidston and Alex Clark mugs has been particularly strong. Our partnership with Disney also enables us to sell to a wide range of outlets not necessarily associated with homewares.
The major new initiative of 2009 has been the launch of ranges for Jamie Oliver. We have concentrated on product and customer development since we won the licence. The revenue that this has generated in the first half has been minimal, however we anticipate good sales in the second half of 2009 and should achieve our revenue objectives in 2010. New product ranges have been well received by major retailers.
A plethora of innovative surface and shape designs, attractive merchandising and a cross section of brands have been key to sales growth and this creativity in our approach to the Retail market will be sustained. Licensors and customers increasingly appreciate Churchill's long term commitment to service, innovation and in-house technical expertise.
Management changes
We have recently implemented a number of important changes to responsibilities of the senior executives reporting to Andrew Roper, CEO. David O'Connor, previously MD of the Retail business and in charge of logistics, has assumed responsibility as MD of the Hospitality business. Iain Hicks has broadened his responsibilities to cover logistics, sourcing and IT. David Taylor has been appointed MD of the Retail business, working closely with the Retail Sales and Marketing Director, whilst retaining his role as Finance Director. They are all highly experienced executives and their changed responsibilities, which have been under consideration for some time, are designed to optimise the effectiveness of the senior management team.
Prospects
Current trading in both divisions remains in line with our performance targets. The outlook for our Hospitality business can be characterised as steady with recent signs of improvement. It is difficult to judge whether we will experience the sales uplift that normally occurs in the final quarter, although that is our current expectation.
We anticipate that our Retail business will continue to gain momentum through the next few months, supported by new ranges, new licences and new listings but progress will be more significant in 2010 as the full impact of the Jamie Oliver and other new marketing activities is felt.
Whilst being cautious in relation to the impact of continued economic uncertainty in the short term, we remain confident in our business model, overall strategy and ability to create shareholder value.
Jonathan Sparey
Chairman
26 August 2009
Churchill China plc
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2009
| Audited | ||||||||||||||
| Unaudited | Unaudited | Twelve months to | ||||||||||||
| Six months to | Six months to | 31 December 2008 | ||||||||||||
| 30 June 2009 | 30 June 2008 | Before | ||||||||||||
| Exceptional | Exceptional | |||||||||||||
| Note | Total | Total | items | Items | Total | |||||||||
| £000 | £000 | £000 | £000 | £000 | ||||||||||
| Revenue | 19,667 | 20,307 | 41,969 | - | 41,969 | |||||||||
| Operating profit | 1 | 408 | 818 | 2,804 | - | 2,804 | ||||||||
| Share of results of associated company | (14) | 40 | (71) | - | (71) | |||||||||
| Net finance income | 2 | 10 | 359 | 629 | - | 629 | ||||||||
| Profit before income tax | 404 | 1,217 | 3,362 | - | 3,362 | |||||||||
| Income tax expense | 3 | (121) | (306) | (938) | (919) | (1,857) | ||||||||
| Profit for the period | 283 | 911 | 2,424 | (919) | 1,505 | |||||||||
| Other comprehensive income/(expense) | ||||||||||||||
| Actuarial loss on retirement benefit obligations | - | - | (1,022) | - | (1,022) | |||||||||
| Exchange differences | (18) | - | 43 | - | 43 | |||||||||
| Other comprehensive income/(expense) for the period | (18) | - | (979) | 0 | (979) | |||||||||
| Total comprehensive income / (expense) for the period | 265 | 911 | 1,445 | -919 | 526 | |||||||||
| Attributable to: | 265 | 911 | 1,445 | -919 | 526 | |||||||||
| Equity holders of the parent | ||||||||||||||
| All the above figures relate to continuing operations | ||||||||||||||
| Pence per | Pence per | Pence | ||||||||||||
| Share | Share | Per share | ||||||||||||
| Basic earnings per ordinary share | 4 | 2.6 | 8.3 | 13.8 | ||||||||||
| Diluted basic earnings per ordinary share | 4 | 2.6 | 8.3 | 13.7 | ||||||||||
Churchill China plc
Consolidated Balance Sheets
As at 30 June 2009
| Unaudited | Unaudited | Audited | |
| 30 June | 30 June | 31 December | |
| 2009 | 2008 | 2008 | |
| £000 | £000 | £000 | |
| Assets | |||
| Non Current Assets | |||
| Property, plant and equipment | 14,690 | 11,402 | 13,889 |
| Intangible assets | 387 | 39 | 397 |
| Investment in associates | 729 | 854 | 743 |
| Deferred income tax assets | 572 | 257 | 586 |
| 16,378 | 12,552 | 15,615 | |
| Current Assets | |||
| Inventories | 8,555 | 8,675 | 8,477 |
| Trade and other receivables | 7,374 | 8,573 | 8,631 |
| Cash and cash equivalents | 5,826 | 8,378 | 7,738 |
| 21,755 | 25,626 | 24,846 | |
| Total Assets | 38,133 | 38,178 | 40,461 |
| Liabilities | |||
| Current Liabilities | |||
| Trade and other payables | (6,140) | (6,638) | (7,466) |
| Current income tax liabilities | (489) | (549) | (689) |
| (6,629) | (7,187) | (8,155) | |
| Non current Liabilities | |||
| Deferred income tax liabilities | (1,974) | (896) | (2,055) |
| Retirement benefit obligations | (1,645) | (586) | (1,640) |
| Total non current liabilities | (3,619) | (1,482) | (3,695) |
| Total liabilities | (10,248) | (8,669) | (11,850) |
| Net Assets | 27,885 | 29,509 | 28,611 |
| Capital and reserves attributable to equity holders of the Company | |||
| Issued share capital | 1,095 | 1,095 | 1,095 |
| Share premium account | 2,332 | 2,332 | 2,332 |
| Treasury shares | (138) | (138) | (138) |
| Retained earnings | 23,372 | 25,033 | 24,086 |
| Other reserves | 1,224 | 1,187 | 1,236 |
| 27,885 | 29,509 | 28,611 |
Churchill China plc
Statement of Cash Flows
for the six months ended 30 June 2009
| Unaudited | Unaudited | Audited | |
| Six months to | Six months to | Tweleve months to | |
| 30 June 2009 | 30 June 2008 | 31 December 2008 | |
| £000 | £000 | £000 | |
| Cash generated from / (used by) operations | |||
| Interest received | 803 | (826) | 2,502 |
| Interest paid | 70 | 285 | 444 |
| Income tax paid | - | - | (29) |
| (304) | (195) | (483) | |
| Net cash from / (used by) operating activities | 569 | (736) | 2,434 |
| Investing activities | |||
| Purchases of property, plant and equipment | (1,490) | (1,230) | (4,199) |
| Proceeds on disposal of property, plant and equipment | 13 | 66 | 107 |
| Purchases of intangible assets | - | (17) | (382) |
| Net cash used in investing activities | (1,477) | (1,181) | (4,474) |
| Financing activities | |||
| Issue of ordinary shares | - | 9 | 22 |
| Purchase of treasury shares | - | (147) | (160) |
| Dividends paid | (1,003) | (1,007) | (1,531) |
| Net cash used in financing activities | (1,003) | (1,145) | (1,669) |
| Net decrease in cash and cash equivalents | (1,911) | (3,062) | (3,709) |
| Cash and cash equivalents at the beginning of the year | 7,738 | 11,440 | 11,440 |
| Exchange (losses) / gains on cash and cash equivalents | (1) | - | 7 |
| Cash and cash equivalents at the end of the year | 5,826 | 8,378 | 7,738 |
1. Segmental analysis
For the six months ended 30 June 2009
| Hospitality | Retail | Unallocated | Total | |
| £000 | £000 | £000 | £000 | |
| 6 months to 30 June 2009 | ||||
| Revenue | 11,141 | 8,526 | - | 19,667 |
| Contribution to group overheads | 968 | 812 | - | 1,780 |
| Group overheads | - | - | (1,372) | (1,372) |
| Operating profit | 968 | 812 | (1,372) | 408 |
| Share of results of associate company | (14) | (14) | ||
| Net finance income | 10 | 10 | ||
| Profit before income tax | (1,376) | 404 | ||
| Income tax expense | (121) | |||
| Profit for the period | 283 | |||
| 6 months to 30 June 2008 | ||||
| Revenue | 12,449 | 7,858 | - | 20,307 |
| Contribution to group overheads | 1,764 | 451 | - | 2,215 |
| Group overheads | - | - | (1,397) | (1,397) |
| Operating profit | 1,764 | 451 | (1,397) | 818 |
| Share of results of associate company | 40 | 40 | ||
| Net finance income | 359 | 359 | ||
| Profit before income tax | (998) | 1,217 | ||
| Income tax expense | (306) | |||
| Profit for the period | 911 | |||
| 12 months to 31 December 2008 | ||||
| Revenue | 24,952 | 17,017 | - | 41,969 |
| Contribution to group overheads | 3,668 | 1,709 | - | 5,377 |
| Group overheads | - | - | (2,573) | (2,573) |
| Operating profit | 3,668 | 1,709 | (2,573) | 2,804 |
| Share of results of associated company | (71) | (71) | ||
| Net finance income | 629 | 629 | ||
| Profit before income tax | (2,015) | 3,362 | ||
| Income tax expense | (1,857) | |||
| Profit for the period | 1,505 |
2. Finance income and costs
| Unaudited | Unaudited | Audited | |
| Six months to | Six months to | Twelve months to | |
| 30 June 2009 | 30 June 2008 | 31 December 2008 | |
| £000 | £000 | £000 | |
| Other interest receivable | 70 | 285 | 444 |
| Net finance (cost) / credit pensions | (60) | 74 | 214 |
| Finance income | 10 | 359 | 658 |
| Other interest | - | - | (29) |
| Finance costs | - | - | (29) |
| Net finance income | 10 | 359 | 629 |
The net finance (cost) / credit arising from pension schemes is a non cash item.
3. Income tax expense
| Unaudited | Unaudited | Audited | |
| Six months to | Six months to | Twelve months to | |
| 30 June 2009 | 30 June 2008 | 31 December 2008 | |
| £000 | £000 | £000 | |
| Current tax | 102 | 251 | 680 |
| Deferred tax | 19 | 55 | 258 |
| Deferred tax - exceptional | - | - | 919 |
| Income tax expense | 121 | 306 | 1,857 |
During 2008, the UK tax regime in relation to Industrial Buildings Allowances (IBAs) was changed following the enactment of certain provisions contained in the Finance Act 2008. As a result IBAs will be phased out in the period 2008 to 2011. The Group provided £nil (2008 full year: £919,000) for the deferred tax liability arising from this change and the charge was treated as exceptional. There was no cash outflow in relation to this change in the year.
4. Earnings per ordinary share
Basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,902,476 (2008: 10,945,524) ordinary shares, being the weighted average number of ordinary shares in issue during the year.
Adjusted earnings per ordinary share is based on the profit on ordinary activities after taxation and adjusted to take into account exceptional profit on disposal of fixed assets.
| Unaudited | Unaudited | Audited | |
| Six months to | Year to | Twelve months to | |
| 30 June | 31 December | 31 December | |
| 2009 | 2008 | 2008 | |
| Pence per | Pence per | Pence per | |
| share | share | share | |
| Basic earnings per share | 2.6 | 8.3 | 13.8 |
| Adjustments: | |||
| Deferred taxation - industrial buildings allowance | - | - | 8.4 |
| Adjusted earnings per share | 2.6 | 8.3 | 22.2 |
Diluted basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,917,916 (2008: 11,009,079) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,902,476 (2008: 10,945,524) increased by 15,440 (2008: 63,555) shares, being the weighted average number of ordinary shares which would have been issued if the outstanding options to acquire shares in the Group had been exercised at the average price during the period.
Diluted adjusted earnings per ordinary share is based on the profit on ordinary activities after taxation and adjusted to take into account exceptional profit on disposal of fixed assets.
| Unaudited | Unaudited | Audited | |
| Six months to | Six months to | Twelve months to | |
| 30 June 2009 | 31 December | 31 December 2008 | |
| Pence per | Pence per | Pence per | |
| share | share | share | |
| Basic earnings per share | 2.6 | 8.3 | 13.7 |
| Adjustments: | |||
| Deferred taxation - industrial buildings allowance | - | - | 8.4 |
| Diluted adjusted earnings per share | 2.6 | 8.3 | 22.1 |
5. Reconciliation of operating profit to cash generated from / (used by) operations
| Unaudited | Unaudited | Audited | |
| Six months to | Six months to | Twelve months to | |
| 30 June 2009 | 30 June 2008 | 31 December 2008 | |
| £000 | £000 | £000 | |
| Cash generated from operations | |||
| Operating profit | 408 | 818 | 2,804 |
| Adjustments for | |||
| Depreciation | 690 | 607 | 1,070 |
| Profit on disposal of property, plant and equipment | (4) | (20) | (35) |
| Charge for share based payment | 11 | 12 | 23 |
| Decrease in retirement benefit obligations | (141) | (120) | (240) |
| Changes in working capital: | |||
| Inventory | (78) | (2,015) | (1,817) |
| Trade and other receivables | 1,237 | 1,033 | 1,021 |
| Trade and other payables | (1,320) | (1,141) | (324) |
| Cash generated from / (used by) operations | 803 | (826) | 2,502 |
6. Basis of preparation and accounting policies
The interim financial information for the period to 30 June 2009 has not been audited or reviewed and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Company's statutory accounts for the year ended 31 December 2008, prepared in accordance with accounting standards adopted for use in the European Union (International Financial Reporting Standards - IFRS), have been delivered to the Registrar of Companies; the report of the auditors on these accounts was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985.
The interim financial statements have been prepared in accordance with IFRS as adopted by the European Union, IFRIC interpretations and the Companies Act 1985 applicable to companies reporting under IFRS, under the historical cost convention as modified by the revaluation of land and buildings, available for sale financial assets, and financial assets and liabilities (including derivative instruments) at fair value through the profit and loss account. The same accounting policies, presentation and methods of computation are followed in the interim financial statements as were applied in the Group's last audited financial statements.