Final Results

Churchill China PLC 15 March 2001 FOR IMMEDIATE RELEASE 15 March 2001 PRELIMINARY RESULTS for the twelve months ended 31 December 2000 2000 : STEADILY IMPROVED TRADING FOR GROUP Churchill China plc, is pleased to announce its preliminary results for the twelve months ended 31st December 2000. Key Points: * Pre-tax profit of £2.4m (1999 : £0.5m pre-exceptional loss - £4.5m after exceptional items) - Turnaround of almost £7m at pre-tax level * Group sales increased by 9.5% to £49.9 (1999 : £45.6m) * Earnings per share of 16.9p (1999: 3.7p loss per share) * Net cash at 31st December 2000 of £1.1m * Net asset value of £2.44 per share * Final dividend of 5.0p per ordinary share - full year dividend of 7p Stephen Roper, Chairman, said: '2000 was a year of steadily improved trading for the group. At the half year we reported a return to profit and the restoration of dividends. Early in January our trading statement painted a buoyant picture and this announcement was well received by the stock market. I am delighted to report that the trend has continued in 2001 to date.' For further information, please contact: Stephen Roper, Chairman Today on: 0207 466 5000 Churchill China plc thereafter on: 01782 577566 Tim Anderson Lisa Baderoon Buchanan Communications Limited Tel No: 0207 466 5000 CHAIRMAN'S STATEMENT 2000 was a year of steadily improved trading for the group. At the half year we reported a return to profit and the restoration of dividends. Early in January our trading statement painted a buoyant picture and this announcement was well received by the stock market. I am delighted to report that the trend has continued in 2001 to date. Sales increased by 9.5% to £49.9m (1999 - £45.6m) resulting in profit before exceptional items and taxation of £2.4m (1999 - loss of £0.5m before exceptional items). This improvement is reflected in the final dividend recommended by the directors of 5p bringing the total dividend to 7p for the full year. The focus for Dining Out has, in the UK, been on key account management. Direct close contact with companies such as pub groups and coffee bar chains has resulted in increased sales. Design innovation will continue to be central to our success in Dining Out as we expand into new segments of the market. Improved margins in the Dining Out division were achieved through a combination of both new product launches and a substantial improvement in manufacturing performance. Exporting continues to be a tough environment. Our US market, as in previous years, bucked the trend with Dining Out sales up 20% following a 70% rise in 1999. In Europe and elsewhere numbers reduced. Price and the intensity of competition remain the key factors. The Dining In combination of outsourced ceramics in a wide range of styles and price points, alongside our own manufactured products, is proving highly successful in the UK. As a consequence, the Company is now focusing its manufacturing strengths on the production of a classical and traditional style of English designs. Demand levels for these products in a number of export markets is showing a positive increase. Behind these areas of improved trading at Churchill lies a new culture which encompasses all aspects of the business. The greater empowerment and multi skilling of the work force have been the most significant factors for handling change and, of course, this process continues as we face the increasing demands of the market place world wide. Financial Performance Turnover increased 9.5% to £49.9 million from £45.6 million in 1999. Profit before taxation recovered to £2.4m compared to a pre-exceptional loss of £0.5 million (£4.5m loss after exceptional items). A turnaround of almost £7 million at the pre-tax level in 12 months is a remarkable performance. I congratulate everyone at Churchill on this impressive result. Adjusted earnings per share climbed over 20p per share from a loss of 3.7p to a positive 16.9p. Cash generation was similarly strong at £2.7 million compared to cash consumption of £0.4 million in 1999. This left the Group with £1.1 million of net cash at the year-end compared to net debt of £1.6m a year earlier. I mentioned above the restoration of dividend. This level reflects the confidence of the directors in Churchill's prospects. Our policy as a Board is for a progressive dividend policy which will closely follow our improving circumstances. The Group has made significant progress in the second half of the year. Whilst turnover followed its normal trend, the increase in profitability during the second half year was marked. The £0.3m achieved in the first half was more than matched by a profit figure of £2.1m in the second half. This has been achieved through a progressive improvement in the quality of our business and continued efficiency within manufacturing units. Earnings per share of over 14p in the second half compared with 2.3p at 30th June. Outstanding debt at the half year was £1.8 million compared to the year end figure of £1.1 million in net cash. The increase in net cash of £2.9m over the second half of the year was achieved despite continued investment in working capital, particularly stock to support the growth areas of the business. Overall stocks increased from £6.2m at the end of 1999 to £7.1m in 2000. However, all this increase was attributable to the growth in our sourced business and the purchase of Sadlers. The Group is focused on cash generation and it is pleasing to see this result. The acquisition of James Sadler, a leading brand in teapots and giftware worldwide, has been a successful investment. We acquired certain assets, principally stocks, goodwill and intellectual property from the Receivers in March 2000 for a cash consideration of £250,000. We have achieved our targets over the first 9 months on this purchase, and believe there is considerable further potential. Shareholder Value In our half year announcement I reflected on shareholder value and expressed the Board's commitment to improving overall returns to investors. We have met our short term objectives in this area having seen both a return to dividend payments and capital growth. I do however believe that there is more value to acquire and that the plans we have put in place will both achieve this and deliver the results to shareholders. Now, at the year end, I would like to consider some other factors which lie behind this issue of shareholder value. At our current share price of ( 195 p), the yield on our shares is 3.6% net. Dividends have been restored and we intend that their growth will closely follow the improvement in our business performance. Furthermore, the Group's net asset value remains strong at 244p per share. Board Changes In May Jonathan Sparey joined the Board as a Non-Executive Director. Jonathan is a partner with LEK Consulting, a leading international corporate strategy firm which has worked extensively with the Group over the last 24 months, particularly in relation to the development of our strategy for the Dining Out division. Robert Johnson has been a Non-Executive Director of the Company since 1993. Robert will be stepping down in March this year and I would particularly like to thank him for his contribution and support over the last 8 years, not only in his role as non-executive, but also his invaluable consultancy contribution to many aspects of our business. In May last year Ralph Grundy, Sales & Marketing Director (Dining Out) and Simon Bell, Marketing Director (Dining In) joined the Board. Subsequently in November 2000 Simon Bell left the Group and after many years spent at Churchill, we wish him every success in the future. Prospects We expect Dining Out to continue to perform robustly and the Board is excited by the opportunities available to the division. In the UK we believe Churchill won market share against a background of a slight down turn in eating out, and a competitive market place. This year we expect to hold our own and at least maintain share. A major task this year will be to accelerate the development of the US market and replicate the key account management structure which has proved so successful in the UK over the last 2 years. At the same time central to our success will be the continued new product development. Dining In looks forward to a continuing improvement by the year end, on the back of a more selective manufacturing programme and an increasingly strong portfolio of outsourced ceramics. The Board has prioritised the restoration of profit in this division. I would like to thank both shareholders and employees for their understanding and patience during the last two years while fundamental changes were implemented to restore Group profitability. The sacrifices have proved to be worthwhile as Churchill returns towards the level of profit growth we achieved in the mid 1990's. Operating Review Dining Out Turnover increased marginally to £20.6 million from £20.0 million. Operating profit rose from £3.2m to £3.8m reflecting the increase in sales and improvement in margin from 16% to 18.2%. Higher margins resulted from a combination of sales mix and an excellent production performance. We see this level of performance as sustainable. UK sales increased by 8% and the US by 20%, but elsewhere sales contracted by 6% largely due to the continued strength of sterling. Nevertheless it is the UK and the US where we expect our growth in the current year. Our own commissioned research shows that the number of meals eaten out in the UK declined marginally in 2000. Our strong performance therefore indicates an increasing market share, a very commendable result. Against the background of a competitive market our response to customer needs has been both proactive and innovative. The last 18 months has seen the launch of our Snack Attack, Voyager and the Mediterranean range. These products are extremely versatile and reflect a multitude of uses for the modern caterer. In the same period we launched the very colourful New Horizons design, which has already become our top selling pattern. Product innovation continues this year with the launch of a new china product aimed at up market hotels and restaurants. Our product innovation has been matched by a commitment to extend e.commerce links with our customer base, through the distributor extranet established in 2000. Dining Out has been highly successful from manufacturing yields through to customer support. However, we are not complacent about our success. This has been achieved by hard work and our attention to detail. This will continue as we seek to enter new parts of the market and continue to expand our market share in our established niches. Dining In Turnover increased 14.5% to £29.3 million from £25.6 million. Losses fell to £1.4 million from £3.6 million before exceptional items. As previously stated, James Sadler made a valuable first time contribution of just over £1 million in sales. The brand is well known for its collectable teapots and related giftware and this should enable Churchill to expand in this market through further related product offerings. Outsourcing has been key to the revival at Dining In. It has enabled us to offer a wider range of ceramics, variety of design styles and a wider spectrum of pricing. In particular, middle market stoneware has been well received by the retail trade with more new and attractive glazes and shapes to follow. Similarly, mugs are almost exclusively outsourced, turning a loss-making activity into profit. The challenge from importers remains, but we plan to maximise our advantages as a domestic producer to increase our competitiveness. Being close to the market and our ability to offer the customer a breadth of design facilities is, of course, paramount, but behind this lies our logistical and technical support. In the UK we provide the complete range from earthenware through to bone china, porcelain and stoneware. Our exports are increasingly moving towards the very identifiable classical and traditional English designs, manufactured in the UK and providing a strong point of difference to overseas competition. I am pleased to announce that Churchill have secured the Harry Potter licence for both classical (books) and the movie, covering mugs and certain items of giftware. This licence is for the UK and Eire, and products will be available in the market place by April. Initial reaction at our trade fairs has been excellent. There has been a huge cultural change at Churchill in the Dining In division. Where we had been manufacturing led, we are now customer driven. Where we had previously manufactured and had at times sacrificed margin for completeness of range, we now outsource profitably. I view the current year with optimism, and I anticipate that Dining In will continue to improve this year and progress positively in 2002. This is an enormous turnaround over the losses of 1999. I congratulate everyone at Churchill who have contributed to this transformation. Financial Highlights Before Exceptional Exceptional Total items Items Total 2000 1999 1999 1999 £000 £000 £000 £000 Results Turnover - continuing operations 49,913 45,577 - 45,577 Operating profit/(loss) - continuing 2,395 (433) (4,085)(4,518) operations Share of operating profit of associate 143 76 - 76 Interest receivable 29 - - - Interest payable and similar charges (126) (154) - (154) Profit/(Loss) on ordinary activities before income from fixed asset investment and exceptional items 2,441 (511) (4,085) (4,596) Income from fixed asset investment 48 - 65 65 Profit/(Loss) on ordinary activities before 2,489 (511) (4,020) (4,531) taxation Dividends 746 - - - Key Ratios Operating margin/(loss) 4.8p (0.1)% Basic earnings/(loss) per share 17.4p (38.7)p Adjusted earnings/(loss) per share 16.9p (3,7)p Diluted basic earnings/(loss) per share 17.4p (38.7)p Diluted adjusted earnings/(loss) per share 16.9p (3.7)p Dividends per share 7.0p - Consolidated Profit and Loss account for the year ended 31 December 2000 Before exceptional Exceptional Total items items Note 2000 1999 1999 Total £000 £000 £000 £000 Turnover 1 49,913 45,577 - 45,577 Operating profit/(loss) 1 2,395 (433) (4,085) (4,518) Share of operating profit of 143 76 associate Income from fixed asset investment 48 65 Interest receivable 29 0 Interest payable and similar (126) (154) charges Profit/(loss) on ordinary shares 2,489 (4,531) before taxation Tax on profit/(loss) on ordinary (636) 405 shares Profit/(loss) on ordinary shares 1,853 (4,126) after taxation Dividends 2 (746) 0 Retained profit/(loss) for the 1,107 (4,126) period Pence per Pence per Share share Earnings/(loss) per ordinary share Basic 3 17.4p (38.7)p Adjusted 3 16.9p (3.7)p Diluted earnings/(loss) per ordinary share Basic 3 17.4p (38.7)p Adjusted 3 16.9p (3.7)p Consolidated balance sheet as at 31 December 2001 2000 1999 £000 £000 Fixed assets Intangible assets 268 188 Tangible assets 15,229 16,744 Investments 993 860 16,490 17,822 Current assets Stocks 7,049 6,156 Debtors : amounts falling due within one year 11,049 9,951 Cash at bank and in hand 1,124 8 19,222 16,115 Creditors : amounts falling due within one year (9,655) (8,664) Net current assets 9,567 7,451 Total assets less current liabilities 26,057 25,273 Creditors : amount falling due after one year (32) (45) Provision for liabilities and charges (8) (318) Net assets 26,017 24,910 Capital in reserves Called up share capital 1,065 1,065 Share premium account 1,960 1,960 Revaluation reserve 2,165 2,255 Other reserves 253 253 Profit and loss account 20,574 19,377 Equity shareholders' funds 26,017 24,910 Consolidated cash flow statement as at 31 December 2000 2000 1999 £000 £000 Net cash inflow from operating activities (reconciliation to operating profit/(loss) - note 4) 4,049 836 Returns on investments and servicing finance Interest received 29 0 Interest paid (114) (133) Dividends received 48 65 Returns on investment and servicing of finance (37) (68) Taxation UK corporation tax paid (23) (209) Capital expenditure and financial investment Purchase of tangible fixed assets (949) (1,023) Sale of tangible fixed assets 82 68 Net cash outflow for capital expenditure and financial (867) (955) investment Acquisitions Purchase of business (250) 0 Equity dividends paid (213) 0 Financing Payment of principle under finance leases (13) (8) Net cash outflow from financing (13) (8) Increase/(decrease) in net cash 2,646 (404) 1. Segmental analysis by class of business The analysis by class of business of the Group's turnover and operating profit /(loss) is set out below Before exceptional Exceptional Total items items Total 2000 1999 1999 1999 £000 £000 £000 £000 Turnover Class of business Dining Out 20,602 19,972 0 19,972 Dining In 29,311 25,605 0 25,605 49,913 45,577 0 45,577 Operating profit/(loss) Dining Out 3,746 3,194 0 3,194 Dining In (1,351) (3,627) (4,085)(7,712) Total operating profit/(loss) 2,395 (433) (4,085)(4,518) Share of operating profit 143 76 Income from fixed asset investment 48 65 Interest receivable 29 Interest payable and similar charges (126) (154) Profit/(loss) on ordinary shares 2,489 (4,531) before taxation Costs arising from the restructuring of the Group's manufacturing operations in 1999 and resulting impairment of fixed assets were treated as exceptional in that year and were changed in arriving at the operating loss in that year. These exceptional costs comprised: 2000 1999 £000 £000 Impairment of fixed assets - 2,729 Redundant and obsolete stock - 288 Restructuring costs - 1,068 - 4,085 In addition the above charge, a further element of impairment of fixed assets of £nil (1999:£917,000) was charged directly against revaluation reserves. A credit of £nil(1999:£289,000) has been included in the corporation tax charge for the year in relation to the exceptional item. 2. Dividends The Directors have declared or now recommend payment of the following dividends in respect of the year ended 31 December 2000: 2000 1999 £000 £000 Ordinary dividend Interim paid 2.0p(1999:0.0p) per 10p ordinary share 213 - Final proposed 5.0p( 1999 0.0p) per 10p ordinary share 533 - 746 - The final dividend will be paid on 25 May 2001 to those shareholders on the register at 23 March 2001 3. Earnings/(loss) per ordinary share Basic earnings/(loss) per ordinary share is based on the profit/(loss) on ordinary activities after taxation and on 10,649,876 (1999:10,649,876) ordinary shares, being the weighted average number of ordinary shares in issue during the year. Adjusted earnings/(loss) per ordinary share is based on the profit/(loss) on ordinary activities after taxation and adjusted to take into account income from fixed asset investment and exceptional items. 2000 1999 pence per share pence per share Basic earnings/(loss) per share 17.4p (38.7) Adjustments: Income from fixes asset investment (0.5) (0.6) Exceptional items 0.0 35.6 Adjusted earnings/(loss) per share 16.9 (3.7) Diluted basic earnings/(loss) per ordinary share is based on the profit/(loss) on ordinary activities after taxation and on 10,681,074 (1999:10,649,876) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,649,876 (10,649,876) increased by 31,198 (1999:nil) shares, being weighted average number of ordinary shares which would have been issued if the outstanding options to acquire shares in the Group has been exercised at the average price during the year. Diluted adjusted earnings/(loss) per ordinary share is based on the profit/ (loss) on ordinary activities after taxation to take into account income from fixed asset investment and exceptional items. 2000 1999 pence per share pence per share Diluted basic earnings/(loss) per share 17.4p (38.7) Adjustments: Income from fixes asset investment (0.5) (0.6) Exceptional items 0.0 35.6 Adjusted earnings/(loss) per share 16.9 (3.7) 4. Reconciliation of operating profit/(loss) to net cash inflow from operating activities 2000 1999 £000 £000 Continuing operating activities Operating profit/(loss) 2,395 (4,518) Depreciation 2,356 2,784 Impairment of tangible fixed assets - 2,729 Loss on sale of tangible fixed assets 26 33 Goodwill amortisation 40 122 (Increase)/Decrease in stocks (763) (104) (Increase)/Decrease in debtors (1,080) 540 Increase/(Decrease) in trade creditors 1,132 (815) (Decreased)/Increase in provisions (57) 65 Net inflow from continuing operating activities 4,049 836 Net cash flow from continuing operating activities is started after an outflow of £nil (1999:£977,000) in respect of exceptional costs arising from the restructuring programme. 5. Reconciliation of increase in net cash flow in net cash/(debt) 2000 1999 £000 £000 Increase/(decrease) in cash during the year 2,646 (404) Cash outflow from decrease in debt and leasing 13 8 financing Change in net debt resulting from cash flows 2,659 (396) Other non cash items New finance leases - (66) Movement in net cash/(debt) in the year 2,659 (462) Net funds at the start of the year (1,580) (1,118) Net funds at the end of the year 1,079 (1,580) 6. Statement of total recognised gains and losses 2000 1999 £000 £000 Reported profit/(loss) on ordinary activities before 2,489 (4,531) taxation Unrealised reduction on impairment of properties - (917) Total gains and losses recognised in the period 2,489 (5,448) 7. Acquisition The Group completed the purchase of the business and certain assets of James Sadler and Sons Ltd on 31 March 2000 for a total consideration of £250,000. No adjustment was required to the agreed value of the assets acquired in order to present the net assets acquired at fair value in accordance with Group accounting principles. Turnover in the period to 31 December 2000 from the acquired business was £ 1,023,000. As the business was immediately integrated into the Group's existing operations it has not been possible to separately identify profit before interest and profit after interest. Similarly cash flow information in respect of net operating cash flow, interest and tax payment and utilisation of capital expenditure is not available The net assets acquired were as follows: Provisional fair value £000 Stock 130 Net assets acquired 130 Consideration paid 250 Goodwill 120 8. Financial Information The financial information set out above does not constitute to the Company's statutory accounts for the year ended 31 December 2000. Statutory accounts for 2000 will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 16 May 2001.

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