Churchill China Regulatory News (CHH)

22 Mar 2007 07:01

Churchill China PLC22 March 2007 For Immediate Release 22 March 2007 CHURCHILL CHINA PLC PRELIMINARY RESULTS for the year ended 31 December 2006 Churchill China plc, the manufacturer and global distributor of ceramictableware and household goods to the hospitality and retail markets, is pleasedto announce its preliminary results for the year ended 31 December 2006. Key Points: • Group turnover of £47.8m (2005: £46.4m) • Profit before exceptional items and tax of £3.1m (2005 : £2.6m) up 20% • Profit before tax of £5.7m (2005 : £2.8m) • Basic earnings per share 37.6p (2005: 24.7p) up 52% • Adjusted earning per share 20.4p (2005: 17.6p) up 16% • Strong all round performance in second half year • Steady growth in Hospitality markets, Retail position substantially improved • Strong operating cash flow. Year end net cash £6.4m (2005 : £2.6m) • Final dividend increased to 8.1p per ordinary share (2005: 7.3p) up 10% On prospects, Stephen Roper, Chairman said: "Our strong financial position and confidence in Churchill's core profitabilitywill enable us to implement key development initiatives. We are reviewing anumber of options to accelerate growth across the markets we serve. I am pleasedto report that trading in the early months of 2007 has been encouraging." For further information, please contact: Churchill China plc Today on: 020 7466 500Stephen Roper/David Taylor thereafter on: 01782 577566 Buchanan Communications Tel No: 020 7466 5000Tim Anderson/Lisa Baderoon/Rebecca Skye Dietrich Brewin Dolphin Securities Tel No: 0121 236 7000Ian Stanway CHAIRMAN'S STATEMENT Following a strong trading performance in the second half of the year, I ampleased to report results for the year to 31 December 2006 slightly above marketexpectations. Group turnover for the year was £47.8m (2005: £46.4m) and profitbefore taxation and exceptional items £3.1m (2005: £2.6m). Group profit beforetaxation was £5.7m (2005: £2.8m). Operating cash generation before additionalpension contributions was also strong at £5.7m (2005: £5.4m). Sales to Hospitality customers, recovered strongly from a restrained first halfto finish the year at figure of £27.4m (2005: £26.6m). Good progress was madewithin UK national accounts, the US market and in the Middle East. The Alchemyrange continues to prosper with significant year on year growth. Vitrified saleswere more restrained although new product launches have been well received. It is pleasing to report a growth in Retail sales to £20.4m (2005: £19.8m) wherewe had expected to record lower sales following the move to direct shipment tocustomers. Whilst the increase has been achieved largely from lower marginpromotional contracts it is especially gratifying given current retail marketuncertainties. Our strategy emphasising design, procurement and efficient orderfulfilment has been well received by major retailers in the UK, US and otherexport markets. Our cost base continued to be impacted by increases in energy prices,particularly in the fourth quarter. The completion of a number of projects hashowever enabled us to become more efficient within our operations, allowing usto offset some of the additional costs. In the early part of the year we made significant progress in strengthening ourbalance sheet. The sale of the Alexander site at a premium to carrying valueenabled us to make a further substantial contribution to our main definedbenefit pension scheme. Alongside this a targeted reduction in inventory levelsplayed a significant part in strong cash generation. Financial Overview In the year to 31 December 2006 Group sales were £47.8m (2005: £46.4m) andprofit before exceptional items and taxation was £3.1m (2005: £2.6m). Thisincrease continues the progress made in the second half of 2005. Profit afterexceptional items but before taxation was £5.7m (2005: £2.8m). Over the year the Group has generated strong operating cash flow of £5.7m (2005:£5.4m) before one off pension payments. This was achieved through a combinationof improved profitability and disciplined working capital management, which ledto a reduction in stock of £1.8m and consequent improvement in cash flow. Therewas little effect on overall cash balances from exceptional items as receiptsfrom property disposals were matched by a one-off payment into the Group'sdefined benefit pension scheme. Nevertheless cash balances improved from £2.6mat the end of 2005 to a figure of £6.4m at 31 December 2006. The results for the period include a number of exceptional items resulting in anet benefit to profit before taxation of £2.7m (2005: £0.3m). In January 2006 wedisposed of the Alexander Pottery, Cobridge realising gross proceeds of the saleof £3.0m and an exceptional gain of £1.9m. Additionally, the cessation of futureaccrual to the Group's defined benefit pension scheme on 31 March 2006 led to aone off positive adjustment in relation to the curtailment of future benefits.This amount of £1.1m (2005: nil) has been treated as exceptional given its size.Conversely, the consolidation of activities from our Whieldon Road site hasnecessitated a reduction in the carrying value of certain plant and machinery atthat location, a charge of £0.3m has been made against profits The additional contributions made into the Group's defined benefit scheme andthe cessation of future accrual have significantly reduced the Group's liabilityin respect of its net pension deficit to £2.8m (2005: £6.5m). The Board nowbelieves that the pension deficit is at a manageable level which for theforeseeable future may be addressed without significant additional funding. Adjusted earnings per share were 20.4p (2005: 17.6p). Basic earnings per sharewere 37.6p (2005: 24.7p). Dividend The Board is pleased to announce that given the achievement of forecasts and thecontinued strong cash generation evident in the second half of the year itproposes an increased final dividend of 8.1p per ordinary share (2005: 7.3p).The total dividends declared in relation to the year will therefore increase to12.0p per ordinary share (2005: 11.0p). Operating Review Sales Sales of Hospitality products were £27.4m (2005: £26.6m), with good growth inthe second half of the year. Sales were up 3% on last year, a good performancegiven a flat first half. In the UK we consolidated our market leadershipposition, making good progress in a range of new market sectors. Overseas wehave also seen significant growth in North American and Middle East markets, USsales improved by 40%. These gains reflect our long term investment in marketdevelopment. Alchemy sales grew substantially once again, demonstrating the inherent appealof this product range to all markets and the continued success of our newproduct development programme. Sales of vitrified products declined slightlyoverall, although within this new product launches performed to expectations.Innovative product development remains the key to future growth and ourinvestment in this area increased during 2006. We intend to further extend ourrange of product in Vitrified, Alchemy and other areas in 2007. Sales of Retail products at £20.4m (2005: £19.8m), generated a performancesomewhat in excess of our expectations; this was flattered by additionalpromotional volumes generally at lower margins. Our business model remains to offer a high quality design, procurement andfulfillment service to UK and export customers either through our UK operationor on a direct shipment basis. This strategy continues to win new business andwe have extended the range of major retailers we service during the year. Manufacturing and Operations The continued programme of consolidation of manufacturing and warehousingoperations to our Sandyford site has had a significant effect on mitigating thenet cost of energy rises experienced in the year. New investment has alsoallowed us to support the production of innovative new products which are thelifeblood of our forward strategy and to improve the flexibility of ourmanufacturing operations. Increased energy prices have clearly had a negativeeffect on this years performance, but we expect that the rate of increaseexperienced in recent years will now moderate. The year has benefited from cost and efficiency improvements related to ourdevelopment of new warehousing, although the less tangible investment in demandforecasting systems and people has also realised substantial benefits. Our Shanghai operation has become well established in the year and has made asubstantial contribution to the improvements we have seen in procurement andcustomer service. Board Changes As announced in January, I will be retiring from the Board at the Annual GeneralMeeting in May this year, and as such this will be my last Chairman's statement.Since joining the Group in 1960, it has been my pleasure to work alongside manytalented and committed people, and I would like to take this opportunity tothank everyone involved with Churchill in making my time at the Company anextremely rewarding and fulfilling experience. Jonathan Sparey, who joined Churchill in 2000 as a Non-Executive Director, willsucceed me as Chairman. Jonathan is a senior partner in L.E.K Consulting LLP, aleading international corporate strategy firm, and I look forward to himcontinuing to provide strategic advice and direction for the Group in his newrole as Chairman. Prospects We expect that the steady growth in revenue from our Hospitality business willcontinue as the investment we have made in new products and target marketsectors worldwide generates a return. Our Retail operation begins the year inits strongest position for some time and our customers increasingly value theservices we provide. We have not anticipated a recurrence of the promotionalbusiness which supported 2006's performance, but expect that our core businesswill continue to improve its contribution to Group profitability. New licensesfrom Disney and Sanderson will reinforce this progress. Our strong financial position and confidence in Churchill's core profitabilitywill enable us to implement key development initiatives. We are reviewing anumber of options to accelerate growth across the markets we serve and will bemaking further investments in our operational base. I am pleased to report that trading in the early months of 2007 has beenencouraging and in line with our expectations. Stephen RoperChairman22 March 2007 Consolidated profit and loss accountfor the year ended 31 December 2006 Year to 31 December 2006 Year to 31 December 2005 As restated Before Before exceptional Exceptional Total exceptional Exceptional Total items items items items Note £000 £000 £000 £000 £000 £000 Turnover 1 47,757 - 47,757 46,399 - 46,399 Operating profit 2 2,777 784 3,561 2,696 - 2,696 Share of operatingprofit of associatenet of impairment 5 - 5 (21) - (21) Profit on disposal of 3 - 1,876 1,876 - 269 269fixed assetNet interest receivableand similarincome / (expense) 4 305 - 305 (114) - (114) Profit on ordinary 3,087 2,660 5,747 2,561 269 2,830activities beforetaxation Tax on profit on 5 (874) (785) (1,659) (645) 493 (152)ordinary activities Profit on ordinary 2,213 1,875 4,088 1,916 762 2,678activities aftertaxation Dividends 6 (1,217) (1,194) Retained profit for the 2,871 1,484year Pence per Pence per share shareBasic earnings per 7 37.6 24.7ordinary share Diluted basic earnings per 7 37.5 24.6ordinary share Consolidated balance sheetas at 31 December 2006 31 December 31 December 2006 2005 As restated £000 £000 Fixed assetsIntangible Assets 34 56Tangible assets 10,779 11,485Investments 819 825 11,632 12,366 Current assetsStocks 6,857 8,646Debtors: amounts falling due within one 10,412 10,537yearInvestments and other assets for sale 0 1,022Cash at bank and in hand 6,410 2,629 23,679 22,834 Creditors: amount falling due within one (6,332) (6,268)year Net current assets 17,347 16,566 Total assets less current liabilities 28,979 28,932 Creditors: amounts falling due after 0 (16)more than one year Provisions for liabilities and charges (60) (6) Pension liability (2,764) (6,464) Net assets 26,155 22,446 Capital and reservesCalled up share capital 1,090 1,086Share premium account 2,266 2,207Revaluation reserve 1,275 1,287Other reserves 274 266Profit and loss account 21,250 17,600 Equity shareholders' funds 26,155 22,446 Consolidated cash flow statementfor the year ended 31 December 2006 Year to Year to 31 December 31 December 2006 2005 £000 £000 Net cash inflow from operating 2,747 4,105activities(reconciliation to operating profit -note 8) Returns on investments and servicing offinanceInterest received 230 67 Taxation (316) (368) Capital expenditure and financialinvestmentPurchase of tangible fixed assets (746) (2,380)Sale of tangible fixed assets 3,052 1,287 Net cash inflow / (outflow) for capitalexpenditureand financial investment 2,306 (1,093) Equity dividends paid to shareholders (1,217) (1,194) FinancingIssue of ordinary shares 63 99Payment of principal under finance (22) (6)leases Net cash inflow from financing 41 93 Increase in net cash 3,791 1,610 Statement of total recognised gains and lossesfor the year ended 31 December 2006 Year to Year to 31 December 31 December 2006 2005 £000 £000 As restated Profit for the period 4,088 2,678Currency translation differences (10) 7Actuarial gain on defined benefit pension 1,110 1,051schemeRelated deferred tax liability (333) (315) Total recognised gains and losses for the 4,855 3,421period Prior period adjustment (see note 10) (13) - Total gains and losses recognised since the 4,842 3,421last Annual Report 1. Analysis of turnoverThe Directors consider that the Group's activitiesare a single class of business. Year to Year to 31 December 31 December 2006 2005 £000 £000Geographic TurnoverUnited Kingdom 29,906 30,953Rest of Europe 8,525 9,549North America 6,667 4,208Australasia 692 575Far East 404 197Other 1,563 917 47,757 46,399 2. Exceptional Items included in operating profit Year to Year to 31 December 31 December 2006 2005 £000 £000 Restructuring costs (366) -Curtailment benefit - defined benefit pension scheme 1,150 - 784 - Costs arising from the restructuring of certain manufacturing operations during 2006and the resulting write down of tangible fixed assets have been treated as exceptional.The cessation of future accrual to the retirement benefit scheme on 31 March 2006, ledto a one off adjustment under FRS17 "Retirement Benefits" in relation to thecurtailment of future benefits. A charge of £235,000 (2005: nil) has been included in the tax charge in relation to theexceptional items. 3. Profit on disposal of fixed assets Year to Year to 31 December 31 December 2006 2005 £000 £000 Profit on disposal of fixed assets 1,876 269 The profit on disposal recognised in 2006 is in relation to the sale of the AlexanderPottery, Cobridge in January 2006. A taxation charge of £550,000 has been charged inthe Group's overall tax charge in respect of this disposal. Net receipts of £2,898,000were received in respect of this disposal during the period. The profit on disposal recognised in 2005 is in relation to the sale of the AnchorPottery, Longton in October 2005. A taxation charge of £57,000 was accrued in theGroup's overall tax charge in respect of this disposal. Net receipts of £1,166,000 werereceived in respect of this disposal during 2005. 4. Net interest receivable and similar income Year to Year to 31 December 31 December 2006 2005 As restated £000 £000 Other interest receivable 230 13Share of interest receivable of associated company 11 8Net finance credit / (charge): pensions 64 (189)Income from fixed asset investment - 54 305 (114) 5. Taxation The taxation charge for the year includes a credit of £110,000 in relation torestructuring costs, a charge of £550,000 in respect of the disposal of AlexanderPottery and a charge of £345,000 in respect of curtailment benefits under FRS 17"Retirement Benefits", all of which have been treated as exceptional. The taxation charge for 2005 includes a charge of £57,000 in respect of the disposal ofAnchor Pottery in October 2005 and a credit of £550,000 in relation to the recognitionof a deferred tax asset in accordance with FRS 19 "Deferred Tax". Both of these itemshave been treated as exceptional. The deferred tax asset arose as a result of therecognition of previously unrecognised capital losses which were realised in 2006against the profit on disposal of the Alexander Pottery. 6. Dividends Year to Year to 31 December 31 December 2006 2005 £000 £000 Final dividend 2004 - 792Interim dividend 2005 - 402Final dividend 2005 793 -Interim dividend 2006 424 - 1,217 1,194 The proposed final dividend, which has not been provided for, has been calculated on10,902,126 shares being those in issue at 31 December 2006 qualifying for the dividendand at a rate of 8.1p per 10p ordinary share. The dividend will be paid on 25 May 2007to shareholders on the register on 30 March 2007. 7. Earnings per ordinary share Basic earnings per ordinary share is based on the profit on ordinary activities aftertaxation and on 10,867,167 (2005: 10,844,567) ordinary shares, being the weightedaverage number of ordinary shares in issue during the year. Adjusted earnings per ordinary share is based on the profit on ordinary activitiesafter taxation and adjusted to take into account exceptional items, profit on disposal of fixed assets and the recognition of adeferred tax asset relating to capital losses Year to Year to 31 December 31 December 2006 2005 pence per share pence per share As restated Basic earnings per share 37.6 24.7Adjustments :Exceptional items 2.4 -Profit on disposal of fixed assets (12.2) (2.0)Curtailment of pension benefits (7.4) -Deferred tax asset recognised - (5.1) Adjusted earnings per share 20.4 17.6 Diluted basic earnings per ordinary share is based on the profit on ordinary activitiesafter taxation and on 10,910,580 (2005: 10,882,287) ordinary shares, being the weighted average number of ordinaryshares in issue during the year of 10,867,167 (2005:10,844,657) increased by 43,413(2005:37,720) shares, being the weighted average number of ordinary shares which wouldhave been issued if the outstanding options to acquire shares in the Company had beenexercised at the average 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 items, profit on disposal of fixed assets and the recognition of a deferred tax asset relating to capital losses Year to Year to 31 December 31 December 2006 2005 pence per share pence per share As restated Diluted basic earnings per share 37.5 24.6Adjustments :Exceptional items 2.4 -Profit on disposal of fixed assets (12.2) (2.0)Curtailment of pension benefits (7.4) -Deferred tax asset recognised - (5.1) Diluted adjusted earnings per share 20.3 17.5 8. Reconciliation of operating profit to net cash inflow fromoperating activities Year to Year to 31 December 31 December 2006 2005 As restated £000 £000 Continuing operating activitiesOperating profit before exceptional items 2,777 2,696Exceptional items 784 - Operating profit 3,561 2,696Depreciation 1,314 1,007Profit on sale of assets (16) (53)Goodwill amortisation 22 28Pensions adjustment - curtailment (1,150) -Charge for share based payments 8 7Decrease in stocks 1,789 1,346(Increase) / decrease in debtors (9) 838Increase / (decrease) in creditors 197 (403)Decrease in provisions and liabilities (6) (72) Net cash inflow before additional pension 5,710 5,394contributionsAdditional pension contributions (2,963) (1,289) Net cash inflow from continuing operating activities 2,747 4,105 9. Reconciliation of increase in net cash tomovement in net funds Year to Year to 31 December 31 December 2006 2005 £000 £000 Increase in cash during the period 3,791 1,610 Cash outflow from decrease in lease financing 22 6 Movement in net cash during the period resulting 3,813 1,616from cash flows Currency movements (10) 7 New finance leases 0 (44) Net funds at the start of the period 2,591 1,012 Net funds at the end of the period 6,394 2,591 10. Prior Period Adjustments The Group has applied FRS 20 "Share based payment" to reflect the fair value of shareoptions issued to employees under share option schemes. This reporting standardrequires the restatement of previously reported results.Additional costs have been charged to the profit and loss account is as follows 31 December 31 December 2006 2005 £000 £000 Staff Costs 8 7 Net reduction in profit before taxation for the 8 7period In addition the Group's balance sheet has beenadjusted to reflect FRS 20 Profit and loss Other reserves account As at 1 January 2006 as previously stated 17,613 253Prior period adjustment (13) 13 As at 1 January 2006 as restated 17,600 266Retained profit for the period 2,871 -Actuarial gain on defined benefit pension scheme 777 -Net exchange adjustments (10) -Share based payment charge for the period - 8As at 1 January 2006 as restated 12 - 21,250 274 11. Financial Information(a) The preliminary financial statement has been prepared in accordance with theaccounting policies set out in the Annual Report for the year ended 31 December 2005,with the exception that the Group has adopted the provisions of Financial ReportingStandards 20 "Share based payments" Comparative data for the year to 31 December 2005has been restated (b) The financial information set out above does not constitute the Group's statutoryaccounts for the year ended 31 December 2006. Statutory accounts, which will include anunqualified audit opinion, will be delivered to the Registrar of Companies followingthe Company's Annual General Meeting on 16 May 2007 This information is provided by RNS The company news service from the London Stock Exchange