Churchill China Regulatory News (CHH)

23 Mar 2006 07:01

Churchill China PLC23 March 2006 FOR IMMEDIATE RELEASE 23 MARCH 2006 CHURCHILL CHINA PLC PRELIMINARY RESULTS for the year ended 31 December 2005 Churchill China plc, the manufacturer and global distributor of ceramic productsand household goods to the hospitality and retail markets, is pleased toannounce its preliminary results for the year ended 31 December 2005. Key Points: * Profit before exceptional items and tax of £2.6m (2004 : £3.3m) meets revised expectations * Profit before tax of £2.8m (2004 : £2.4m) * Basic earnings per share 24.8p (2004: 16.0p) * Adjusted earning per share 17.7p (2004: 21.5p) * Strong all round performance in second half year * Continued growth and investment in Hospitality market * Progress against key targets in revised Retail market strategy * Strong operating cash flow. Year end net cash £2.6m (2004 : £1.0m) * Property disposals successfully completed. Plan to reduce pensions deficit implemented * Dividends declared in the year dividend maintained at 11p per ordinary share (2004 : 11p) On prospects, Stephen Roper, Chairman said: "Trading in the early months of 2006 has been encouraging and in line with ourexpectations. Over the last few years Churchill has been restructured andre-invented. The Group has emerged as a leaner business with a strong balancesheet and the capacity to invest for the medium term where we perceiveattractive opportunities." For further information, please contact: Andrew Roper/David Taylor 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 2005, I am pleased to report results in line withmarket expectations as indicated in our January trading update. Group turnoverfor the year was £46.4m (2004 : £49.0m) and profit before tax and exceptionalitems £2.6m(2004 : £3.2m). Group profit before tax was £2.8m (2004: £2.4m) These results were achieved following healthy trading in the last quarter forHospitality and the successful implementation of the revised Retail strategyinvolving an increased proportion of Retail sales being made on a directshipment basis. Hospitality sales showed modest growth overall, following stronger growth in thesecond half of the year. 2005 was a year in which we consolidated thesubstantial gains made in 2004 both in UK and international markets. The Alchemy range continues to prosper with year on year growth in excess of40%, particularly to the 4 and 5 star hotel market. Product design, innovationand service were again key elements underpinning this successful growth. As anticipated, Retail sales were down on last year, reflecting the first fullyear of totally outsourced activity with no UK manufactured product. The secondhalf of the year saw an acceleration of our strategy to develop direct shipmentsto major customers both in the UK and overseas through our newly establishedShanghai office. The objective of this strategy is to provide our volume customer base withChurchill branded product at the lowest cost combined with the highest standardsof design, service and logistics. The benefits to the Group of lower operatingcosts, reduced stocks and improved contribution are already being achieved. Ournew UK warehouse has enabled us to build upon our existing reputation for theprovision of a high quality service to our middle market customers. Our cost base continued to be impacted by increases in a number of areasincluding materials, gas and pensions. Cost saving initiatives arising from theconsolidation of dish production and investment in new warehousing has benefitedprofit for the full year. These efficiency gains will support profit growthgoing forward. Financial Overview Group sales in the year were £46.4m (2004 : £49.0m). Operating margins beforeexceptional items were 5.8% (2004: 6.6%). Operating profit before exceptionalitems was £2.7m (2004: £3.2m), after exceptional items it was £2.7m (2004:£2.4m) Basic earnings per share for the year were 24.8p (2004 : 16.0p). Adjustedearnings per share (before exceptional items) were 17.7p (2004 : 21.5p) The tax charge for the year includes a charge of £57,000 (2004: credit of£254,000) in respect of exceptional items and a credit of £550,000 (2004: £nil)in respect of the recognition of a deferred tax asset. This deferred tax assetrelates to the 2006 disposal of the Alexander and is recognised in accordancewith FRS 19 "Deferred Tax". Both these items have been treated as exceptional. Despite lower Operating Profits in the year the Group has delivered an increasein both cash generation and in overall net cash as at 31 December 2005. Afteradditional pension payments of £1.3m (2004 : £0.2m), operating cash generationwas £4.1m (2004 : £1.6m). This was achieved as a result of close control ofworking capital and particularly in respect of the reduction in stock and workin progress of £1.3m over the year. Whilst capital expenditure remained above normal levels given the completion ofthe Sandyford warehouse in the year, overall net cash balancse rose to £2.6m(2004 : £1.0m). Receipts from property disposals of £1.2m were offset bypayments of an equivalent amount into the Group's final salary pension scheme. During the year the disposal of remaining part of the Anchor site was completedrealising gross proceeds of £1.2m and an exceptional profit on disposal of£0.2m. The disposal of the Alexander site was completed in January 2006,realising gross proceeds of £3.0m and will result in an exceptional profit ondisposal of £1.9m in 2006. Both these projects have allowed the Group to realisesubstantial ongoing operating cost reductions in addition to the one-off benefitof proceeds received. The Group's financial statements have been restated to reflect the introductionof FRS 17 "Retirement Benefits" and FRS 21 "Events after the balance sheetdate". The introduction of FRS 17 "Retirement Benefits" has required that thedeficit on the Group's defined benefit pension scheme has been brought onto theGroup's balance sheet. This has resulted in a reduction to net assets of £6.5mas at 31 December 2005 (2004: £8.0m). Further details of the effect of thesechanges are given later in this Report. The Group is not required to adoptInternational Financial Reporting Standards until 2007. We have introduced a number of measures to address the deficit which has arisenin the Group's final salary pension scheme. Substantial contributions totalling£4.0m in late 2005 and early 2006 largely addresses the deficit under theindependent Scheme Actuary's recommended funding basis and will ensure thatfuture deficit amortisation payments remain at acceptable levels. In additionthe scheme will be closed in respect of the future accrual of benefits witheffect from 31 March 2006. Dividend The Board is pleased to announce that given the achievement of revised forecastsand the strong cash generation evident in the second half of the year itproposes a final dividend of 7.3p per ordinary share (2004 : 7.3p). The totaldividends declared in relation to the year will therefore remain at 11p perordinary share (2004 : 11p). Business Review Sales Sales of Hospitality products were £26.6m (2004 : £26.0m). We consolidated ourposition of UK market leadership and made good progress in a number of exportmarkets. The successful growth in sales of both Alchemy and added valueChurchill vitrified product in part reflects the general upgrading ofHospitality markets world wide. Sales of more basic product lines have beensubject to increased pressure in the market place. Alchemy grew by over 40% year on year demonstrating the appeal of this productrange to all markets which further enhanced by the launch of a number ofcreative shapes and designs. Very specifically the introduction of the Buffetrange at the end of the year has already enabled us to make considerableprogress in widening our appeal in premium sectors. Our response to the vitrified trend has been to introduce a greater degree ofstyle and flair in product design for the volume segment of the market. Theintroduction of squared plates and multi shaped vitrified bowls have alreadydemonstrated the success of this innovative strategy. Similar launches areplanned through the coming year. Our UK sales team further demonstrated ourability to capture key national account business. To support growth in export markets, we have invested further sales resource inour US and Spanish operations. More recently we have opened an office in Dubaito capitalise on significant growth opportunities in the Middle East. Sales of Retail products were £19.8m (2004 : £23.0m). Sales and average pricingwere predictably lower as UK manufactured product was completely substituted bylower costed sourced product. Our strategy for the Retail business is to develop direct shipments to major UKand overseas customers facilitated by our Shanghai office. Churchill'scompetitive advantage is to add value through top level design, procurement andfulfilment for branded and bespoke products to both full service and direct shipcustomers. This strategy is already generating additional quality listings andwill benefit the Group through increased contribution. Manufacturing and Operations We have made substantial progress during the year in improving the efficiency ofour manufacturing and logistics functions. Two major cost reduction projects,the construction of the new Sandyford warehouse at a cost of £2.7m and thetransfer of dish production from our Longton site into the Sandyford andWhieldon Road factories were completed ahead of schedule and have delivered inexcess of the targeted savings. We now operate from only two UK sites. In thesecond half of the year the benefits of site consolidation and the ability tofocus solely on the production of Hospitality product have led to considerableyield and efficiency improvements. This years profit figures were impacted by higher energy and other input prices.We have realised a number of cost efficiencies within our manufacturingprocesses, particularly in relation to energy utilisation, but we continue toface input price pressure in a number of areas. Further initiatives are underwayto facilitate additional cost reductions, which will at least partially offsetthe expected rises. In the longer term price pressures in the UK energy marketare generally expected to moderate during 2007 although we will continue toactively manage what remains a significant cost for the Group. We have also undertaken a major project to develop new demand forecasting andinventory management systems and it is this investment which has allowed us torealise substantial reductions in inventory levels in the second half year. Prospects We are achieving growth in sales to Hospitality customers in the UK and overseasmarkets through the continued success of Alchemy, allied to a number of newproduct launches. Within Retail we will be vigourously promoting our newbusiness model, which will deliver improved contribution and lower workingcapital utilisation. Whilst we remain mindful of pressures from increasing fueland material costs, we are confident that the cost reduction programmesuccessfully initiated in 2005 will be sustained and that further efficienciescan be achieved within our operations. Trading in the early months of 2006 has been encouraging and in line with ourexpectations. Over the last few years Churchill has been restructured andre-invented. The Group has emerged as a leaner business with a strong balancesheet and the capacity to invest for the medium term where we perceiveattractive opportunities. We have an excellent team who have effected thischange and I have no doubt they will respond to the challenge of achieving ourgrowth ambitions. Consolidated profit and loss accountfor the twelve months ended 31 December 2005 2005 2004 As restated (note 11) Before Before exceptional Exceptional Total exceptional Exceptional Total items items items items Note £000 £000 £000 £000 £000 £000 Turnover 1 46,399 - 46,399 48,972 - 48,972 Operatingprofit /(loss) 2 2,703 - 2,703 3,220 (866) 2,354 Share of operatingprofit of associatenet ofimpairment (21) - (21) 100 - 100 Profit ondisposal offixed asset 3 - 269 269 - 19 19Net interestreceivable andsimilar income 4 75 - 75 74 - 74Otherfinancingcosts (189) - (189) (118) - (118) Profit /(loss) onordinaryactivitiesbeforetaxation 2,568 269 2,837 3,276 (847) 2,429 Tax on profit/ (loss) onordinaryactivities 5 (645) 493 (152) (957) 254 (703) Profit / (loss) onordinary activitiesafter taxation 1,923 762 2,685 2,319 (593) 1,726 Dividends 6 (1,194) (1,117) Retainedprofit for theperiod 1,491 609 Pence per Pence per share shareEarnings perordinary share Basic earningper ordinaryshare 7 24.8 16.0 Diluted basiceranings perordinary share 7 24.7 15.9 Consolidated balance sheet as at 31 December 2005 31 December 2005 31 December 2004 As restated (note 11) £000 £000Fixed assetsIntangible Assets 56 84Tangible assets 11,485 12,133Investments 825 840 12,366 13,057 Current assetsStocks 8,646 9,992Debtors: amounts falling due within oneyear 10,537 10,862Investments and assets for sale 1,022 -Cash at bank and in hand 2,629 1,012 22,834 21,866 Creditors: amounts falling due withinone year (6,268) (6,736) Net current assets 16,566 15,130 Total assets less current liabilities 28,932 28,187 Creditors: amounts falling due aftermore than one year (16) - Provisions for liabilities and charges (6) (104) Pension liability (6,464) (7,970) Net assets 22,446 20,113 Capital and reservesCalled up share capital 1,086 1,079Share premium account 2,207 2,115Revaluation reserve 1,287 1,299Other reserves 253 253Profit and loss account 17,613 15,367 Equity shareholders' funds 22,446 20,113 Consolidated cash flow statementfor the twelve months ended 31 December 2005 Year to Year to 31 December 2005 31 December 2004 £000 £000 Net cash inflow from operatingactivities 4,105 1,575(reconciliation to operating profit - note 8) Returns on investments and servicing offinanceNet interest received 67 69 Taxation (368) (620) Capital expenditure and financial investmentPurchase of tangible fixed assets (2,380) (1,888)Sale of tangible fixed assets 1,287 1,174 Net cash outflow for capital expenditure andfinancial investment (1,093) (714) Equity dividends paid (1,194) (1,116) FinancingIssue of ordinary shares 99 111Payment of principal under financeleases (6) (6) Net cash inflow from financing 93 105 Increase / (decrease) in net cash 1,610 (701) 1. Analysis of turnover The Directors consider that the Group's activities are a single class ofbusiness. Year to 31 December 2005 Year to 31 December 2004 £000 £000Geographic TurnoverUnited Kingdom 30,953 31,459Rest of Europe 9,549 10,102North America 4,208 5,369Australasia 575 877Far East 197 263Other 917 902 46,399 48,972 2. Exceptional Items Costs arising from the restructuring of manufacturing operations in 2004 weretreated as exceptional and were charged in arriving at the operating profit forthat year. These exceptional costs comprised: Year to date 31 December 2005 Year to 31 December 2004 £000 £000 Restructuring costs - 192Write down of stocks and workin progress - 674 - 866 A credit of £Nil (2004: £254,000) has been included in the corporation taxcharge in relation to the exceptional items. 3. Profit on disposal of fixed assets Year to date 31 December 2005 Year to 31 December 2004 £000 £000 Profit on disposal of fixed 269 19assets The profit on disposal recognised in 2005 is in relation to the sale of theAnchor Pottery, Longton in October 2005, A taxation charge of £57,000 has beenaccrued in the Group's overall tax charge in respect of this disposal. Netreceipts of £1,166,000 were received in respect of this disposal during theyear. The profit on disposal of fixed assets in 2004 represents the release of anaccrual for costs not incurred in respect of the 2001 disposal of surplus land. 4. Net interest receivable and similar income Year to Year to 31 December 2005 31 December 2004 £000 £000Other interest receivable 13 70Interest payable on finance leases - (1)Share of interest receivable ofassociated company 8 5Income from fixed asset investment 54 - 75 745. Taxation The taxation charge for the year includes a charge of £57,000 in respect of thedisposal of Anchor Pottery in October 2005 and a credit of £550,000 in relationto the recognition of a deferred tax asset in accordance with FRS 19 "DeferredTax". The deferred tax asset has arisen as a result of the recognition ofcapital losses which will be realised in 2006 against the profit on disposal ofthe Alexander Pottery. Both of these items have been treated as exceptional. 6. Dividend Year to Year to 31 December 2005 31 December 2004 As restated £000 £000Final dividend 2003, declared 19 March2004 - 717Interim dividend 2004, declared 31August 2004 - 400Final dividend 2004, declared 21 March2005 792 -Interim dividend 2005, declared 1September 2005 402 - 1,194 1,117 The proposed dividend, which has not been provided for, has been calculated on10,862,126 shares being those in issue at 31 December 2005 qualifing for thedividend and at a rate of 7.3p per 10p ordinary share. The dividend will be paidon 26 May 2006 to shareholders on the register on 31 March 2006. 7. Earnings per ordinary share Basic earnings per ordinary share is based on the profit on ordinary activitiesafter taxation and on 10,844,567 (2004: 10,761,642) 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 and the recognition of a deferred taxasset relating to capital losses. Year to Year to 31 December 2005 31 December 2004 pence per pence per Share share As restatedBasic earnings pershare 24.8 16.0Adjustments : Exceptional items - 5.6 Profit on disposal of fixed assets (2.0) (0.1) Deferred tax assets recognised (5.1) - Adjusted earnings pershare 17.7 21.5 Diluted basic earnings per ordinary share is based on the profit on ordinaryactivities after taxation and on 10,882,287 (2004: 10,838,761) ordinary shares,being the weighted average number of ordinary shares in issue during the year of10,844,567 (2004:10,761,642) increased by 37,720 (2004:77,119) 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 eranings 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 assetrelating to capital losses. Year to Year to 31 December 2005 31 December 2004 pence per pence per share Share Diluted basic earningsper share 24.7 15.9Adjustments : Exceptional items - 5.6 Profit on disposal of fixed assets (1.9) (0.1) Deferred tax assets recognised (5.1) - Diluted adjustedearnings per share 17.7 21.4 8. Reconciliation of operating profit to net cash inflow from operatingactivities Year to Year to 31 December 2005 31 December 2004 £000 £000 Continuing operating activitiesOperating profit before exceptionalitems 2,703 3,220Exceptional costs - (866) 2,703 2,354Operating profit 1,007 1,124Depreciation (53) (31)Loss / (profit) on sale of assets 28 46Goodwill amortisation (1,289) (224)Difference between pensions charge andcash contributions 1,346 (848)Increase in stocks 838 146Decrease in debtors (403) (948)Decrease in provisions (72) (44) Net inflow from continuing operatingactivities 4,105 1,575 9. Reconciliation of increase in net cash to movement in net funds Year to Year to 31 December 2005 31 December 2004 £000 £000 Increse / (decrease) in cash during theperiod 1,610 (701) Cash (inflow) / outflow from decrease indebt and lease financing 6 6 Movement in net funds during the periodresulting from cash flows 1,616 (695) Currency movements 7 (4) New finance leases (44) - Net funds at the start of the period 1,012 1,711 Net funds at the end of the period 2,591 1,012 10. Statement of total recognised gains and losses Year to Year to 31 December 2005 31 December 2004 As restated £000 £000Profit for the period 2,685 1,726Currency translation differences 7 (4)Actuarial gain/ (loss) on definedbenefit pension scheme 1,051 (3,601)Related deferred tax (315) 1,080 Total recognised gains and losses forthe period 3,428 (799) Prior period adjustment (see note 11) (7,970) - Total gains and losses recognised since thelastAnnual Report (4,542) (799) 11. Prior period adjustments The Group applied FRS 17 "Retirement Benefits" and FRS 21 "Events after thebalance sheet date". Both these reporting standards require the restatement ofpreviously reported results. The effect on the profit and loss account is as follows. Year to Year to 31 December 2005 31 December 2004 As restated £000 £000FRS 17 Retirement Benefits Amount charged / (credited) to operatingprofitCurrent service cost less curtailments 604 488Contributions (689) (712) Net increase to operating profit (85) (224) Amount charged to other finance costsExpected return on pension scheme assets (1,292) (1,160)Interest on pension scheme liabilities 1,481 1,278 Net financing costs 189 118 Net (reduction) / increase to profitbefore taxation for the period (104) 106 In addition the Group's balance sheet has been adjusted to reflect FRS 17pension liabilities 31 December 2005 31 December 2004 £000 £000 Market value of scheme assets 21,917 17,088Present value of scheme liabilities (31,152) (28,474) Deficit in scheme (9,235) (11,386)Related deferred tax asset 2,771 3,416 Net liability (6,464) (7,970) FRS 21 Events after the balance sheet date Under the terms of this reporting standard dividends which have been declaredafter the balance sheet date are not recognised as a liability at that date.Adjustments have therefore been made to remove the following provisions fordividends. 31 December 31 December 2005 2004 £000 £000 Dividend provided at the balance sheetdate 793 788 The effect on the profit and loss account is asfollows Dividend previouslt charged to proditand loss in the period 1,198 1,188Dividend charged to profit and loss inthe period under FRS 21 1,194 1,117 Net increase in retained profit 4 71 The effect on the profit and loss account as previously reported of the aboveprior year adjustments is as follows: 31 December 2004 £000 Profit and loss account as previously reported 22,549 Pension liability (7,970) Dividends 788 Profit and loss account as restated 15,367 11. Financial Information (a) The preliminary financial statements have been prepared in accordancewith the accounting policies set out in the Annual Report for the year ended 31December 2004, with the exception tht the Group has adopted the provisions ofFinancial Reporting Standards 17 "Retirement Benefits" and 21 "Events after thebalance sheet date". Comparative data for the year to 31 December 2004 has beenrestated in accordance with these standards. The Group has also adopted FRS 22"Earnings per share" and FRS 25 "Financial Instructions: Presentation anddisclosure" (paragraphs 15-50 only). No amendments to previously reported datahave arisen from the adoption of these standards. (b) The financial information set out above does not constitute the Group'sstatutory accounts for the year ended 31 December 2005. Statutory accounts,which will include an unqualified audit opinion, will be delivered to theRegistrar of Companies following the Company's Annual General Meeting on 17 May2006. 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