Churchill China Preliminary Results

RNS Number : 2143A

Churchill China PLC

28 March 2012

 



For immediate release

28 March 2012

CHURCHILL CHINA plc

Preliminary

Results for the year ended 31 December 2011

Churchill China plc, ("Churchill" or the "Company") (LSE:CHH) the manufacturer and global distributor of ceramic tableware and household products to hospitality and retail markets, is pleased to announce its preliminary results for the year ended 31 December 2011.

Key Points:

Operational

Ø Hospitality revenues at record high

Ø Continued repositioning of Retail improves operating profit

Ø Almost £20m invested in UK operations over ten years

Financial

Ø Group revenue £42.3m (2010: £43.7m)

Ø Operating profit £2.7m (2010: £2.3m)

Ø Profit before tax £2.7m (2010:£2.3m)

Ø Basic earnings per share 19.2p (2010: 15.8p)

Ø Final dividend 9.2p (2010:9.2p) Total dividend 14.0p (2010:14.0p)

On prospects Jonathan Sparey, Chairman said:

"The profile of our business continues to change. We have clear strategies for growth in our Hospitality business and have repositioned our Retail business which is now delivering improved margins with reduced risk."

"Continued investment in UK manufacturing, sales and marketing and new product development will be a key feature of 2012. I am confident that Churchill will deliver enhanced shareholder value in 2012 and beyond."

For further information, please contact:

Churchill China plc	Today on: 01782 577566
Andrew Roper / David Taylor
N+1 Brewin	Tel No: 020 3201 3710
Robert Beenstock / Richard Lindley
Buchanan Communications	Tel No: 020 7466 5000
Tim Anderson / Jessica Fontaine

Chairman's Statement

Introduction

I am very pleased to report that Churchill China delivered a robust trading performance in 2011, continuing to make good progress despite the difficult international economic environment. Sales in our Hospitality business are now ahead of their previous peak and profitability improved significantly.  Our Retail business enhanced the quality of its customer mix and earnings on substantially lower sales as we turned away from low margin business.

Group revenues were slightly lower at £42.3m (2010: £43.7m) reflecting this combination of continued growth in Hospitality sales and the planned reduction in Retail sales. Group profit before tax for the year rose by 16.4% to £2.7m (2010: £2.3m). Churchill has again ended the year with a strong balance sheet including cash balances of £6.9m (2010: £4.4m). The new financial year has started positively and is in line with our expectations.

Financial Review

Group operating profit increased by 18.6% to £2.7m (2010: £2.3m) with margins rising from 5.2% to 6.4%. We are pleased with this strong improvement in profitability, particularly given that it was achieved against a background of increased investment in our Hospitality business, the substantial repositioning of our Retail business and higher depreciation
costs. Earnings before interest, tax, depreciation and amortisation rose 22% from £3.8m to £4.7m.

Earnings per share improved by 22% from 15.8p to 19.2p reflecting both the improvement in pre tax profit and a lower than standard tax charge. The tax charge for the year fell to an effective rate of 22% (2010: 25%) following changes in forward deferred tax rates.

We generated strong cash flows during the year with inflows from operations rising to £5.9m (2010: £1.1m) and year end net cash balances increasing to £6.9m (2010: £4.4m). The high level of cash generation was principally due to a substantial reduction in receivables which largely reflected a structural change in the profile of our Retail business. Part of this reduction in working capital was reinvested in higher inventory to support the development of our Hospitality business.

The deficit on our defined benefit pension scheme fell as inflation assumptions moderated and asset values were maintained.

Dividend and Shareholder Return

The Board is pleased to recommend a maintained final dividend of 9.2p, leaving the total dividend for the year at 14.0p. The improvement in profitability demonstrated in the year has increased our overall dividend cover to a level of 1.4 times and the Group currently trades on a dividend yield of almost 5%. The Board maintained dividends during the economic crisis despite lower profit levels and intends to return to a progressive dividend policy in the future,  if the Group demonstrates further improvements in profitability and continued strong cash flow.

Total shareholder returns fell slightly during the year against a backdrop of lower market equity valuations. We have delivered compound returns to shareholders of 7% per annum over the last five years and our overall returns remain comfortably above our benchmark indices over both one and five year timescales.

Operational Review

Hospitality

2011 was a very encouraging year in our Hospitality business, delivering record sales of £29.2m up 6.5% on the previous year (2010: £27.4m) and materially ahead of 2007 (£28.6m) which was our highest previous record. Operating profit increased by 16.2% from £4.1m to £4.7m, a direct result of this increase in revenue.

We improved our market leading position in the UK by increasing Hospitality sales by 6% in spite of the disappointing economic environment, underpinned by steady repeat business with existing customers but only limited new installations. We increased our total investment in sales and marketing in line with this increase.

Churchill is a major provider of ceramics to pubs, restaurants and the healthcare sector. We have now substantially extended our sector coverage to sell Ambience, Alchemy, Riedel and other products to premium accounts including international hotels and cruise lines. Our London showroom at the Business Design Centre has proved an excellent showcase for our products and we will shortly double its size as a reflection of increased activity; our customers will now be able to view the full Churchill product range alongside Riedel glassware and Guy Degrenne cutlery.

Our export sales increased by 7% and enjoyed significant new installation activity in international hotels, conference centres and cruise lines. New installation business has made a material contribution to the profitability of our Hospitality business and sales to new facilities were twice as high in 2011 as the previous year. Notable was our growing success in the Middle East which was reflected most recently in a large sale to the highly prestigious Qatar National Conference Centre for our Ambience fine china.

Churchill continues to invest for the long term in sales, marketing and design expertise focused on our key markets. This capability is building important long term relationships with end users and distributors coupled with a continuous programme of product innovation and range extension. Our strategy for new product development is targeted at specific market sectors that vary significantly by segment and geography and where practicable we tailor new product propositions directly to these customer groups emphasising knowledge of food trends, performance in use and overall functionality.

Operations

We maintained manufacturing volumes throughout 2011 generating high efficiency levels. Our capital expenditure of £1.3m in the year was slightly lower than the previous year and principally directed at extending our manufacturing capability, reducing energy consumption and the overall efficiency of our operations. Specifics include further installation of robotics.

We are committed to innovation in the ceramics industry and our rate of new product introduction continues to escalate. We introduced over 250 new products in 2011 compared to 88 in the previous year and expect the rate of new product introduction to accelerate further in 2012.

We are passionate about manufacturing in the United Kingdom and have invested almost £20m in our operations over the last decade to ensure that we will continue to be able to develop and manufacture the products our markets require effectively.

Retail

Our Retail business increased operating profits from £0.7m to £1.0m in 2011 on significantly lower turnover of £13.1m (2010 £16.3m). This result reflected the fundamental repositioning of our Retail business which has been underway for more than two years. Our strategy has been to focus our effort on delivering profitable middle market sales growth, primarily to the independent sector and to exit low margin, volatile and inherently higher risk business mainly in the UK and USA. Lower sales levels have allowed us to reduce the cost base of the Retail business and release significant amounts of working capital.

Sales of our mid market product to the UK independent sector, Korea and Japan were supported by new introductions of Queens and Churchill product ranges together with our prestige brand portfolio. We have been encouraged by our success with UK independent retailers who have performed better for Churchill than we might have expected given the economic environment.  Non-traditional retail outlets such as garden centres and cook shops are offering the consumer high quality branded merchandise, with high design content that is appealing for giftware and other occasions and appears more attractive than own label products offered by many of the major retailers. The Churchill design and marketing team are a critical part of our success in this area, developing new retail product offerings which have been well received at major trade fairs and leading to new listings.

People

I have said before that we have some great people in Churchill whose enthusiasm, dedication, skills and effort is fundamental to our success. We are very proud of our workforce across the business whether in the factory, warehouse or in the offices. They work very effectively as an integrated team to sustain our performance in uncertain economic times.  Our results in 2011 are a tribute to the effectiveness and team spirit of our staff.  I am delighted by the generosity and goodwill of Churchill's workforce. Charities such as Douglas MacMillan, the Donna Louise Trust and South African schools have been the main beneficiaries of the many fundraising events undertaken throughout the year. On a separate note I would like to extend particular thanks to Iain Hicks who has stepped down from the Board after 5 years service in order to concentrate on delivering major projects within our supply chain and IT systems.

Outlook

The profile of our business continues to change. We have clear strategies for growth in our Hospitality business and have repositioned our Retail business which is now delivering improved margins with reduced risk.

Continued investment in UK manufacturing, sales and marketing and new product development will be a key feature of 2012. We have a strong balance sheet and are generating attractive long term cash flows from operations which will allow us to sustain this investment and maintain an attractive return to shareholders. I am confident that Churchill will deliver enhanced shareholder value in 2012 and beyond.

Churchill China plc

Consolidated Income Statement

for the year ended 31 December 2011

							Audited  Year to				Audited  Year to
							31 December 2011				31 December  2010
					Note			Total				Total
								£000				£000
Revenue					2			42,296				43,746
Operating profit					2			2,713				2,287
Share of results of associate company								(41)				162
Finance income					3			52				41
Finance costs					3			(30)				(176)
Profit before income tax								2,694				2,314
Income tax expense					4			(598)				(583)
Profit for the year								2,096				1,731
Attributable to:
Equity holders of the Company								2,096				1,731
								Pence per share				Pence per share
Basic earnings per ordinary share					5			19.2				15.8
Diluted basic earnings per ordinary share					5			19.2				15.8

 All the above figures relate to continuing operations

Churchill China plc

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2011

		Audited Year to		Audited Year to
		31 December 2011		31 December 2010
		Total		Total
		£000		£000
Other comprehensive income:
Actuarial gain on defined benefit obligations		573		1,894
Currency translation differences		(1)		7
Other comprehensive income for the year		572		1,901
Profit for the year		2,096		1,731
Total comprehensive income for the year		2,668		3,632
Attributable to:
Equity holders of the Company		2,668		3,632

Amounts in the statement above are shown net of tax.

Churchill China plc

Consolidated Balance Sheet

as at 31 December 2011

	Audited		Audited
	31 December		31 December
	2011		2010
	£000		£000
Assets
Non Current Assets
Property, plant and equipment	14,402		15,030
Intangible assets	236		368
Investment in associates	846		887
Deferred income tax assets	858		1,266
	16,342		17,551
Current Assets
Inventories	9,127		8,197
Trade and other receivables	7,767		9,963
Cash and cash equivalents	6,886		4,442
	23,780		22,602
Total Assets	40,122		40,153
Liabilities
Current liabilities
Trade and other payables	(7,044)		(6,735)
Current income tax liabilities	(693)		(501)
	(7,737)		(7,236)
Non current liabilities
Deferred income tax liabilities	(1,437)		(1,678)
Retirement benefit obligations	(3,295)		(4,670)
Total non current liabilities	(4,732)		(6,348)
Total liabilities	(12,469)		(13,584)
Net Assets	27,653		26,569
Shareholder equity
Issued share capital	1,096		1,096
Share premium account	2,348		2,348
Treasury shares	(89)		(91)
Other reserves	1,216		1,202
Retained earnings	23,082		22,014
Total shareholders' funds	27,653		26,569

Churchill China plc

Consolidated Statement of Changes in Equity
as at 31 December 2011

	Retained earnings	Share capital	Share premium	Treasury shares	Other Reserves	Total
	£000	£000	£000	£000	£000	£000
Balance at 1 January 2010	19,992	1,095	2,332	(117)	1,234	24,536
Comprehensive Income:
Profit for the period	1,731	-	-	-	-	1,731
Other comprehensive income:
Depreciation transfer - gross	12	-	-	-	(12)	-
Depreciation transfer - tax	(18)	-	-	-	18	-
Actuarial gains - net of tax	1,894	-	-	-	-	1,894
Currency translation	-	-	-	-	7	7
Total comprehensive income	3,619	-	-	-	13	3,632
Transactions with owners
Dividends	(1,529)	-	-	-	-	(1,529)
Proceeds of share issue	-	1	16	-	-	17
Share based payment	-	-	-	-	(45)	(45)
Treasury shares	(68)	-	-	26	-	(42)
Total transactions with owners	(1,597)	1	16	26	(45)	(1,599)
Balance at 1 January 2011	22,014	1,096	2,348	(91)	1,202	26,569
Comprehensive Income:
Profit for the year	2,096	-	-	-	-	2,096
Other comprehensive income:
Depreciation transfer - gross	12	-	-	-	(12)	-
Depreciation transfer - tax	(27)	-	-	-	27	-
Actuarial gains - net of tax	573	-	-	-		573
Currency translation	-	-	-	-	(1)	(1)
Total comprehensive income	2,654	-	-	-	14	2,668
Transactions with owners
Dividends	(1,530)	-	-	-	-	(1,530)
Treasury shares	(56)	-	-	2	-	(54)
Total transactions with owners	(1,586)	-	-	2	-	(1,584)
Balance at 31 December 2011	23,082	1,096	2,348	(89)	1,216	27,653

Churchill China plc

Cash Flow Statement

for the year ended 31 December 2011

			Audited		Audited
			Year to		Year to
			31 December		31 December
			2011		2010
	Note		£000		£000
Cash flow from operations	6		5,922		1,092
Interest received			52		41
Interest paid			(25)		(20)
Income tax paid			(557)		(564)
Net cash generated from operating activities			5,392		549
Investing activities
Purchases of property, plant and equipment			(1,383)		(1,507)
Proceeds on disposal of property, plant and equipment			117		129
Purchases of intangible assets			(99)		(58)
Net Cash used in Investing activities			(1,365)		(1,436)
Financing activities
Issue of ordinary shares			122		67
Purchase of treasury shares			(176)		(91)
Dividends paid			(1,530)		(1,529)
Net cash used in financing activities			(1,584)		(1,553)
Net increase/(decrease) in cash and cash equivalents			2,443		(2,440)
Cash and cash equivalents at the beginning of the year			4,442		6,882
Exchange gains on cash and cash equivalents			1		-
Cash and cash equivalents at the end of the year			6,886		4,442

1. Basis of preparation and accounting policies

The financial information included in the preliminary announcement for the period to 31 December 2011 has 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 of 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), and the Companies Act 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 2011 have been prepared in accordance with the accounting policies stated in the Group's financial statements for the year ended 31 December 2011.

2. Segmental analysis

for the year ended 31 December 2011

	Hospitality		Retail		Unallocated		Total
	£000		£000		£000		£000
2011
Revenue	29,166		13,130		-		42,296
Contribution to group overheads excluding depreciation	5,765		1,311		(2,404)		4,672
Depreciation and amortisation	(1,055)		(303)		(601)		(1,959)
Operating profit	4,710		1,008		(3,005)		2,713
Share of results of associate company							(41)
Finance income							52
Finance cost							(30)
Profit before income tax							2,694
2010
Revenue	27,398		16,348		-		43,746
Contribution to group overheads excluding depreciation	4,914		1,060		(2,157)		3,817
Depreciation and amortisation	(859)		(305)		(366)		(1,530)
Operating profit	4,055		755		(2,523)		2,287
Share of results of associate company							162
Finance income							41
Finance cost							(176)
Profit before income tax							2,314

3. Finance income / (costs)

	Audited		Audited
	Year to		Year to
	31 December		31 December
	2011		2010
	£000		£000
Other interest receivable	52		41
Other interest payable	(25)		(20)
Interest on pension scheme	(5)		(156)
Finance income / (costs)	22		(135)

4. Income tax expense

	Audited		Audited
	Year to		Year to
	31 December		31 December
	2011		2010
	£000		£000
Current taxation	743		490
Deferred taxation	(145)		93
Income tax expense	598		583

5. Earnings per ordinary share

Basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,921,563 (2010: 10,934,092) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

	Audited		Audited
	Year to		Year to
	31 December		31 December
	2011		2010
	pence per		pence per
	share		share
Basic earnings per share	19.2		15.8

Diluted basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,931,463 (2010: 10,964,639) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,921,563 (2010: 10,934,092) increased by 9,900 (2010: 30,547) 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.

	Audited		Audited
	Year to		Year to
	31 December		31 December
	2011		2010
	pence per		pence per
	Share		share
Diluted basic earnings per share	19.2		15.8

6. Reconciliation of operating profit to cash flow from operations

	Audited		Audited
	Year to		Year to
	31 December		31 December
	2011		2010
	£000		£000
Cash generated from operations
Operating profit	2,713		2,287
Adjustments for:
Depreciation and amortisation	1,959		1,530
Profit on disposal of property, plant and equipment	(42)		(12)
Share based payment	-		(45)
Difference between pension service cost and contributions	(495)		(495)
Changes in working capital:
Inventory	(930)		(1,055)
Trade and other receivables	2,199		(922)
Trade and other payables	518		(196)
Net cash flow from operations	5,922		1,092

7. Dividend

The final dividend, which has not been provided for, has been calculated on 10,924,976 (2010:10,925,976) ordinary shares, being those in issue at 31 December 2011 qualifying for dividend and at a rate of 9.2p (2010: 9.2p) per 10p ordinary share. The dividend will be paid on 24 May 2012 to shareholders on the register on 26 April 2012, subject to approval at the Company's Annual General Meeting.

The total dividend paid and proposed in respect of the year was 14.0p (2010: 14.0p)

 

END

 

 

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