Churchill China Regulatory News (CHH)

RNS Number : 1507J

Churchill China PLC

25 March 2010

 

 

For Immediate Release

25 March 2010

 

 

 

 

 

PRELIMINARY RESULTS

 

for the year ended 31 December 2009

 

Churchill China plc, the manufacturer and global distributor of ceramic tableware and household goods to the hospitality and retail markets, is pleased to announce its preliminary results for the year ended 31 December 2009.

 

Key Points:

 

Ø Group turnover £41.7m (2008: £42.0m)

 

Ø Operating profit £2.3m (2008: £2.8m)

 

Ø Profit before tax £2.1m (2008: £3.4m)

 

Ø Basic earnings per share including exceptional items 14.3p (2008: 13.8p)

 

Ø Adjusted earnings per share before exceptional items 14.3p (2008: 22.2p)

 

Ø Year end net cash £6.9m (2008: £7.7m)

 

Ø Acceleration of final dividend payment to March at 9.2p per ordinary share (2008: 9.2p)

 

Ø Compound return in excess of 11% per annum delivered to shareholders over last 5 years

 

 

Jonathan Sparey, Chairman said:

"2009 was an unpredictable year characterised by global recession, uneven demand, a weakening UK currency and very challenging operating conditions. In the circumstances, we demonstrated the resilience of the Churchill business. Our Group revenues were flat against last year but pre-tax profit of £2.1m was lower largely due to the impact of reduced interest received on our c. £7m cash balance. The second half showed a pronounced improvement in operating profitability and this positive trend is continuing."

 

 

 

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/Stasa Filiplic
Brewin Dolphin Investment Banking	Tel No: 0845 213 4730
Andrew Emmott

 

CHAIRMAN'S STATEMENT

 

INTRODUCTION

 

I am pleased to report a solid performance for Churchill China in 2009, achieving the key objectives we set out at the beginning of the year. These included a sustained level of investment, reduction in stock levels, tight working capital management and preservation of a strong balance sheet with good cash position.

 

2009 was an unpredictable year characterised by global recession, uneven demand, a weakening UK currency and very challenging operating conditions. In the circumstances, we demonstrated the resilience of the Churchill business. Our Group revenues were flat against last year but pre-tax profit of £2.1m was lower largely due to the impact of reduced interest received on our c. £7m cash balance. The second half showed a pronounced improvement in operating profitability and this positive trend is continuing.

 

FINANCIAL REVIEW

 

Group revenues fell by 0.6% to £41.7m (2008: £42.0m) reflecting lower demand in many of our export markets largely offset by good sales levels in the UK in both hospitality and retail markets.

 

Group operating profit was £2.3m (2008: £2.8m) and our pre-tax profit was 39% lower at £2.1m (2008: £3.4m).

 

Overall margins were lower than the corresponding period in 2008, reflecting a strategic decision to adjust output to reduce inventory levels in a period of lower demand. We recognised that this would lead to a less than optimal manufacturing position in 2009 but will give us increased operational flexibility in 2010.

 

Last year our results benefited from £0.6m of net interest receipts. In 2009 this figure fell substantially to a net cost of £0.2m, an adverse effect on profit before tax of £0.8m. Cash interest receipts were reduced at £0.1m (2008: £0.4m) as rates remained low. Additionally a significant notional charge of £0.3m (2008: credit £0.2m) arose from our pension fund as higher discount rates in 2008 reversed. We currently expect this latter effect to be mitigated in 2010.

 

Adjusted earnings per share decreased by 36% to 14.3p (2008: 22.2p) whilst basic earnings per share including exceptional items, were 14.3p (2008: 13.8p).

 

We continued to show good cash generation from operations, especially in the second half. Cash balances remain strong at £6.9m (2008: £7.7m) reflecting excellent management of working capital, particularly inventories which were reduced from £8.5m in 2008 to £7.1m. We incurred capital expenditure of £2.4m (2008: £4.6m) as we completed our major new warehouse project and continued to invest selectively in our UK manufacturing base to improve efficiency.

 

PENSION FUND

 

In common with most other UK companies the deficit on the Churchill China final salary scheme has widened from £2.1m to £7.7m attributable to an unusual combination of factors: depressed economic conditions, the impact of quantitative easing on discount rates and increasing inflation expectations. Churchill increased its annual cash payments to £0.5m from £0.2m and can make further payments given our balance sheet strength should this be required. We view the 2009 outcome as anomalous and expect the deficit to reduce during 2010 but the position will be reviewed further later this year.

 

 

DIVIDEND AND SHAREHOLDER RETURN

 

We again delivered a respectable performance in a demanding year and the Board decided to accelerate payment of the final dividend of 9.2p per share (2008: 9.2p) from May to March to preserve net value to shareholders. The Directors recommend no further dividend in respect of 2009 leaving the total paid for the year unchanged at 14.0p per share.

 

Churchill's share price increased by 47% during 2009, which coupled with our maintained dividend, delivered strong returns to shareholders. We have continued to target long term shareholder return and are pleased that we have delivered a compound return to shareholders in excess of 11% per annum over the last five years.

 

 

OPERATIONAL REVIEW

 

HOSPITALITY

 

After a mixed performance in the first half of 2009, our hospitality business made a good recovery in the second half with sales up 6% on the second half of last year, leaving overall sales for the full year down 2% at £24.6m (2008: £25.0m).

 

Despite relatively weak demand from consumers eating out, our UK hospitality revenues were up slightly, as we worked hard to gain market share and maintained our position as the clear market leader in the UK. The British consumer has become more selective and price conscious when dining out and this has been reflected in substantial variations in activity in restaurants and pubs. There is firm evidence of promotional activity and it is pleasing to note that after a period of destocking there is now clear willingness by our end customers, both independents and chains, to refurbish premises, refresh menus and create new themes to attract consumers.

 

Export sales at £8.2m (2008: £8.7m) reflected a weaker performance from Europe in general and Spain and Eire in particular, where we experienced difficult trading conditions. This was offset to some extent by a resilient North American performance and good activity levels in smaller export markets, notably Russia and the Middle East. We have increased the quality and coverage of our export sales staff and anticipate some recovery in 2010.

 

Demand strengthened noticeably in the last quarter of 2009 and this has continued. We have focused on key distributor and end user relationships and this effort will be sustained in 2010.

 

The net contribution to Group was down £0.4m at £3.3m as margins were affected adversely by lower production efficiencies arising from reduced volumes.

 

Our hospitality product ranges deliver superior performance and Churchill is determined to build upon its reputation for innovative new product development and the ability to invest in fresh concepts whilst enjoying high levels of recurring replacement revenues from regular hospitality customers. The bulk of our sales are generated from Churchill Supervit and Alchemy Fine China; the key features and benefits of these UK manufactured ranges being unrivalled product performance and service. We have introduced new stoneware and porcelain ranges to enable our sales team to meet end user demand for a different look or performance criteria. We are also delighted to be working with Riedel on the distribution of their fine glassware to the upper end of the hotel and restaurant sector. 

 

RETAIL

 

Sales to our retail customers were marginally higher at £17.1m (2008: £17.0m). This performance reflected good progress in our strategy to build sales in middle market accounts whilst managing the transition from volume channel business. We increased sales in both department stores and independent retailers by almost 50% in 2009 through the provision of impressive array of branded and licensed new products. The Jamie Oliver, Cath Kidston, Disney, Alex Clark, Sanderson, Ella Doran and other licences are key to our success in both the middle market and high volume sectors. We continue to invest in the development of our business to optimise our performance over the long term. Sales to our promotional customers slowed in the second half after a strong first half performance.

 

The UK, North America and Australasia all performed well but export sales to Europe were disappointing reflecting weak consumer demand. 

 

The net contribution to Group was stable at £1.7m (2008: £1.7m) as margins were supported by growth in middle market business despite price pressure in volume channels. We continue to invest in support of profitable opportunities across the market and expect further progress in the distribution of our licensed product ranges to the independent sector although this will be offset by competitive pricing pressure in the volume sector. 

 

MANUFACTURING, SOURCING AND LOGISTICS

 

With the prevailing economic climate it was important to continue to implement cost reduction and manufacturing initiatives but it was challenging to optimise production levels. For the majority of 2009, our UK factory was operating at well below optimum capacity and the manufacturing team were working under strict guidelines to ensure that working capital requirements and inventory levels were not exceeded. These objectives were successfully realised.

 

Our new £4m distribution centre became fully operational in June 2009, ensuring all our UK operations are now consolidated on our freehold site in Stoke on Trent, eliminating the requirement for inter-site transport and extra warehousing which had incurred costs in 2008.

 

We remain committed to maintaining and improving our UK technical ceramic expertise whilst driving down costs The next stage of this plan is a significant investment in a new energy efficient "once fire" kiln with robotic product handling devices. The installation of this equipment will be completed in the middle of 2010. For our sourcing operations, we continue to support our manufacturing partners (mainly in Asia) with direct support on ceramic quality, ethical standards, delivery and packaging matters from both from the UK and our Shanghai office.

 

 

 

 

PEOPLE

 

I have commented before that Churchill is very fortunate to have a dedicated work force and a strong skill base. I believe that there is an excellent team spirit and a tangible will to "get things done" at Churchill. We are fortunate to not only have the capacity to retain our existing skills and talent, but also the ability to attract well qualified graduates and more experienced senior staff to the business and this team is key to our continuing success.

 

Rodney Kettel retires this year after eleven years as a Non-Executive Director and before that for several years as Churchill's appointed auditor. Rodney's contribution has been invaluable on many dimensions and we wish him well for the future.

 

PROSPECTS

 

We have started the new year relatively well and have reason to expect an improvement in our overall performance in 2010, particularly given recent evidence of enhanced demand in our Hospitality business. Demand for our Hospitality products has been firm and we are confident that our strategy of targeted new product development will deliver sales growth.

 

In our Retail business, volume channel sales are well behind the corresponding period in 2009 but we expect our increased sales to independents and department stores will more than compensate with improved returns over the year as a whole.

 

Overall, Churchill is well positioned to respond to changes in the market place, however the strength of our recovery will be influence by continued economic improvement. We have maintained our investment in the business in both revenue and capital terms for the long term benefit of shareholders and have demonstrated the strength of the Churchill business through a difficult period. We are confident in our ability to deliver future growth.

 

Jonathan Sparey

Chairman

24 March 2010

 

Churchill China plc

Consolidated Income Statement

for the year ended 31 December 2009

 

		Audited Year to				Audited Year to
		31 December 2009				31 December 2008
						Before
						Exceptional	Exceptional
				Total		items	Items	Total
	Note			£000		£000	£000	£000
Revenue				41,705		41,969	-	41,969
Operating profit	2			2,288		2,804	-	2,804
Share of results of associated company				(18)		(71)	-	(71)
Finance income	4			119		658	-	658
Finance cost				(320)		(29)	-	(29)
Profit before income tax				2,069		3,362	-	3,362
Income tax expense	5			(513)		(938)	(919)	(1,857)
Profit for the year				1,556		2,424	(919)	1,505
Attributable to:
Equity holders of the Company				1,556		2,424	(919)	1,505
				Pence per share				Pence per share
Basic earnings per ordinary share	6			14.3p				13.8p
Diluted basic earnings per ordinary share	6			14.2p				13.7p
Adjusted earnings per share figures excluding the effect of exceptional items are shown in notes 3 & 5
All the above figures relate to continuing operations

 

 

 

 

 

Churchill China plc

Consolidated Statement of Comprehensive Income for the year ended 31 December 2009

 

 

	Audited Year to				Audited Year to
	December 2009				December 2008
			Total				Total
			£000				£000
Net of tax
Actuarial loss on retirement benefit obligations			(4,136)				(1,022)
Exchange differences			(14)				43
Other			2				-
Net loss recognised directly in equity			(4,148)				(979)
Profit for the year			1,556				1,505
Total comprehensive (expense) / income for the year			(2,592)				526
Attributable to:
Equity holders of the Company			(2,592)				526

Churchill China plc

Consolidated Balance Sheets

As at 31 December 2009

 

	Audited	Audited
	31 December	31 December
	2009	2008
	£000	£000
Assets
Non Current Assets
Property, plant and equipment	14,299	13,889
Intangible assets	498	397
Investment in associates	725	743
Deferred income tax assets	2,163	586
	17,685	15,615
Current Assets
Inventories	7,142	8,477
Trade and other receivables	9,031	8,631
Cash and cash equivalents	6,882	7,738
	23,055	24,846
Assets classified as held for sale	662	-
	23,717	24,846
Total Assets	41,402	40,461
Liabilities
Current liabilities
Trade and other payables	(6,907)	(7,466)
Current income tax liabilities	(574)	(689)
	(7,481)	(8,155)
Non current liabilities
Deferred income tax liabilities	(1,676)	(1,640)
Retirement benefit obligations	(7,709)	(2,055)
Total non current liabilities	(9,385)	(3,695)
Total liabilities	(16,866)	(11,850)
Net Assets	24,536	28,611
Capital and reserves attributable to equity holders of the Company
Issued share capital	1,095	1,095
Share premium account	2,332	2,332
Treasury shares	(117)	(138)
Other reserves	1,234	1,236
Retained earnings	19,992	24,086
	24,536	28,611

 

Churchill China plc

Consolidated statement of changes in equity for the year ended 31 December 2009

 

	Retained earnings	Share capital	Share premium	Treasury shares	Other	Total
					reserves
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2008	25,124	1,095	2,332	-	1,180	29,731
Comprehensive Income:
Profit for the year	1,505	-	-	-	-	1,505
Other comprehensive income:
Depreciation transfer - gross	12	-	-	-	(12)	-
Depreciation transfer - tax	(2)	-	-	-	2	-
Actuarial losses - net of tax	(1,022)	-	-	-	-	(1,022)
Currency translation	-	-	-	-	43	43
Total comprehensive income	493	-	-	-	33	526
Transactions with owners
Dividends relating to 2007 and 2008	(1,531)	-	-	-	-	(1,531)
Share based payment	-	-	-	-	23	23
Treasury shares	-	-	-	(138)	-	(138)
Total transactions with owners	(1,531)	-	-	(138)	23	(1,646)
Balance at 1 January 2009	24,086	1,095	2,332	(138)	1,236	28,611
Comprehensive Income:
Profit for the year	1,556	-	-	-		1,556
Other comprehensive income:
Depreciation transfer - gross	12	-	-	-	(12)	-
Depreciation transfer - tax	-	-	-	-	2	2
Actuarial losses- net of tax	(4,136)	-	-	-		(4,136)
Currency translation	-	-	-	-	(14)	(14)
Total comprehensive income	(2,568)	-	-	-	(24)	(2,592)
Transactions with owners
Dividends relating to 2008 and 2009	(1,526)	-	-	-	-	(1,526)
Share based payment	-	-	-	-	22	22
Treasury shares	-	-	-	21	-	21
Total transactions with owners	(1,526)	-	-	21	22	(1,483)
Balance at 31 December 2009	19,992	1,095	2,332	(117)	1,234	24,536

 

 

 

Churchill China plc

Cash Flow Statement

for the year ended 31 December 2009

 

			Audited	Audited
			Year to	Year to
			December	December
			2009	2008
Cash flow from operating activities	Note		£000	£000
Cash generated from operations	7		3,439	2,502
Interest received			119	444
Interest paid			-	(29)
Income tax paid			(559)	(483)
Net cash from operating activities			2,999	2,434
Investing activities
Purchases of property, plant and equipment			(2,196)	(4,199)
Proceeds on disposal of property, plant and equipment			42	107
Purchases of intangible assets			(194)	(382)
Net cash used in Investing activities			(2,348)	(4,474)
Financing activities
Issue of ordinary shares			21	22
Purchase of treasury shares			-	(160)
Dividends paid			(1,526)	(1,531)
Net cash used in financing activities			(1,505)	(1,669)
Net decrease in cash and cash equivalents			(854)	(3,709)
Cash and cash equivalents at the beginning of the year			7,738	11,440
Exchange (losses) / gains on cash and cash equivalents			(2)	7
Cash and cash equivalents at the end of the year			6,882	7,738

 

 

1. Basis of preparation

 

The Group's financial information for the period 31 December 2009 have been audited and an unqualified audit report has been issued. The preliminary financial statements represent extracts from those audited accounts, but do not constitute statutory accounts within the meaning of Section 434 on the Companies Act 2006.

 

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union (IFRSs as adopted by the EU), IFRIC interpretations and the Companies Acts 1985/2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, available for sale financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

 

The preliminary financial statements for the year to 31 December 2009 have been prepared in accordance with the accounting policies stated in the Group's financial statements for the year ended December 2008.

 

 

2. Segmental analysis

for the year ended 31 December 2009

 

 

	Hospitality	Retail	Unallocated	Total
	£000	£000	£000	£000
2009
Revenue from external customers	24,554	17,151	-	41,705
Contribution to group overheads excluding depreciation	4,183	1,911	(2,410)	3,684
Depreciation	(894)	(185)	(317)	(1,396)
Operating profit	3,289	1,726	(2,727)	2,288
Share of results of associated company			(18)	(18)
Finance income			119	119
Finance cost			(320)	(320)
				2,069
Profit before income tax
Income tax expense				(513)
Profit for the period				1,556
2008
Revenue	24,952	17,017	-	41,969
Contribution to group overheads excluding depreciation	4,318	1,948	(2,392)	3,874
Depreciation	(650)	(239)	(181)	(1,070)
	3,668	1,709	(2,573)	2,804
Operating profit
Share of results of associate company			(71)	(71)
Finance income			658	658
Finance cost			(29)	(29)
				3,362
Profit before income tax
Income tax expense				(1,857)
Profit for the period				1,505

 

3. Exceptional Items

 

As stated in the Group's accounting policies the Directors regard certain material items as exceptional. The analysis of exceptional items is as follows:

 

 

	Audited	Audited
	Year to	Year to
	December	December
	2009	2008
	£000	£000
Deferred tax	-	919
Origination of temporary differences	-	919

 

See note 5 Income tax expense

 

 

4. Finance (cost) / income

 

	Audited	Audited
	Year to	Year to
	December	December
	2009	2008
	£000	£000
Interest on cash and cash equivalents	119	444
Interest on pension scheme	-	214
Finance income	119	658
Interest on pension scheme	(320)	-
Other interest	-	(29)
Finance cost	(320)	(29)
Net finance (cost)/ income	(201)	629

 

 

5. Income tax expense

 

	Audited	Audited
	Year to	Year to
	December	December
	2009	2008
	£000	£000
Current taxation - current year - adjustment in respect of prior years	589 (145)	789 (109)
	444	680
Deferred taxation	69	258
Income tax expense before exceptional items	513	938
Deferred taxation - exceptional	-	919
Income tax expense	513	1,857

 

During 2008, the UK tax regime in relation to Industrial Buildings Allowances (IBA's) was changed following the enactment of certain provisions contained in the Finance Act 2008. As a result IBA's will be phased out in the period to 2008 to 2011. The Group provided £nil (2008 full year: £919, 000) for the deferred tax liability arising from this change and the change was treated as exceptional. There was no cash outflow in relation to this charge in the year (2008:£ nil) 6. Earnings per ordinary share

 

Basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,904,065 (2008: 10,923,038) 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 items.

 

	Audited	Audited
	Year to	Year to
	December	December
	2009	2008
	Pence per	Pence per
	share	share
Basic earnings per share (based on earnings £1,556,000 (2008: £1,505,000))	14.3	13.8
Adjustment:
Deferred taxation - industrial buildings allowance (£nil ( 2008: £919,000))	-	8.4
Adjusted basic earnings per share	14.3	22.2

 

Diluted basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,934,139 (2008:10,965,990) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,904,065 (2008: 10,923,038) increased by 30,074 (2008: 42,952) shares being the weighted average number of ordinary shares which would have been issued if the outstanding options to acquire shares in the Group had been exercised at the average price during the year.

 

Diluted adjusted earnings per ordinary share is based on the profit on ordinary activities after taxation and adjusted to take into account exceptional items.

 

	Audited	Audited
	Year to	Year to
	December	December
	2009	2008
	Pence per	Pence per
	share	share
Diluted basic earnings per share (based on earnings £1,556,000 (2008: £1,505,000))	14.2	13.7
Adjustments:
Deferred taxation - industrial buildings allowance (£nil ( 2008: £919,000))	-	8.4
Diluted adjusted earnings per share	14.2	22.1

 

7. Reconciliation of operating profit to cash generated from operations

 

 

	Audited	Audited
	Year to	Year to
	December	December
	2009	2008
	£000	£000
Cash generated from continuing operating activities
Operating profit	2,288	2, 804
Adjustments for
Depreciation and amortisation	1,396	1, 070
Profit on disposal of property, plant and equipment	(14)	(35)
Share based payment	22	23
Difference between pension service costs and contributions	(410)	(240)
Changes in working capital:
Inventory	1,335	(1,817)
Trade and other receivables	(415)	1,021
Trade and other payables	(763)	(324)
Net cash inflow from operations	3,439	2,502

 

 

8. Dividend

 

Payment of the final dividend for the year of 9.2p per ordinary share, normally payable in May, was accelerated to March as detailed in our announcement of 17 February 2010 and was paid on 12 March 2010. This dividend has not been provided for in the above figures. The total dividend paid in respect of the year was 14.0p (2008:14.0p) A resolution confirming the Directors recommendation that no further dividend will be paid in respect of 2009 will be submitted to the Annual General Meeting to be held on 19 May 2010.

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