Final Results
Churchill China PLC
22 March 2004
For Immediate Release 22 March 2004
CHURCHILL CHINA PLC
PRELIMINARY RESULTS
for the year ended 31 December 2003
Churchill China plc, is pleased to announce its preliminary results for the year
ended 31 December 2003.
Key Points:
• Sales of £49.5m (2002: £50.9m)
• Pre-tax profits before exceptional items of £2.8m (2002: £2.0m)
• Pre-tax profits after exceptional items of £1.2m (2002: £1.8m)
• Adjusted earnings per share of 18.2p (2002: 15.0p)
• Earnings per share of 5.7p (2002: 13.4p)
• Full year dividend increased 11% to 10p per ordinary share
• Strong operating cash generation of £2.9m (2002 : £2.0m) after £0.9m (2002:
£0.3m) of exceptional cash costs.
• Restructuring programme complete on time and below budget
Stephen Roper, Chairman, said:
'2003 was a year of immense challenge to which we successfully responded and met
all our key objectives. Our restructuring programme is now complete and has
brought considerable cost savings to the company. We look forward to a year of
strong growth and the continued success of Alchemy and related ranges.'
For further information, please contact:
Stephen Roper, Chairman Today on: 020 7466 5000
Churchill China plc thereafter on: 01782 577566
Tim Anderson/Lisa Baderoon/Rebecca Dietrich
Buchanan Communications Limited Tel No: 020 7466 5000
Chairman's Statement
The year to 31 December 2003 has been one of immense challenge and I am pleased
to report that we met all our key objectives. Profit before exceptional items
and tax was £2.8m (2002: £2.0m) and after exceptional items profit before tax
was £1.2m (2002: £1.8m). A full financial review is set out below.
Our successful Dining Out division which supplies international hotels,
restaurants and pubs recorded yet a further year of growth, a very creditable
performance during a period of low tourist and refurbishment activity world
wide. Within the Dining In division, volumes inevitably reduced as anticipated
as we embarked upon our major restructuring and progressively removed
manufacturing capacity over the 12 month period from 500,000 pieces per week in
2002 to around 150,000 pieces. The restructuring was completed within budget by
mid December slightly ahead of schedule. Of greater significance in the Dining
In business going forward were the increased sales of sourced tableware and
housewares.
As outlined in the annual report last year this restructuring process was
specifically targeted at improving the contribution from our Dining In business.
During the course of 2003 we undertook a very major transformation of
manufacturing facilities within the Group. A substantial part of our Dining Out
capacity at the Anchor works was progressively transferred to our Marlborough
site where we have invested significant sums in efficient manufacturing
equipment and this was completed just before the year end. In tandem with that
move the Dining In volumes at Marlborough were reduced in January and then again
substantially cut in June. Such changes involve a complexity of processes and
inevitably incurred inefficiencies during the course of 2003 but we look forward
to the benefits of a lower cost base throughout 2004. I congratulate both
management and staff on the very professional manner in which this major
operation was conducted.
We enter 2004 with modern and efficient manufacturing units dedicated almost
entirely to hotelware with a separate discrete cell producing a small level of
retail tableware. The older part of the Anchor site and surplus equipment was
sold in March 2004 generating cash returns above our original expectations at
the half year.
Operating cash generation and management are traditional strengths of the Group
and remained good throughout 2003 despite cash costs attributable to the
restructuring. This cash generative ability, together with the realisation of
surplus assets, will allow us to pursue further investment in our business to
facilitate expansion and improve efficiency levels.
Dining Out continued to perform strongly. We believe we have continued to grow
market share, in a challenging trading environment, despite a relatively flat UK
market for eating out and an overall drop in tourism world wide. Alchemy, our
premium product, continues to make excellent progress and has opened up the
four and five-star hotel and restaurant markets to Churchill and is
progressively expanding our position.
Alchemy is also leading our expansion in key export markets including, North
America and Europe. This product has transformed our offering to important
segments of these markets including international hotel groups. Churchill has
committed additional sales and marketing resources to support these
opportunities.
Despite the decline in Dining In sales, operating losses were significantly
reduced as we rapidly removed unprofitable volume manufactured business in the
second half of the year. In parallel with this outsourced tableware and
housewares grew by nearly one third and are expected to show accelerated growth
in 2004.
Financial Performance
Group turnover amounted to £49.5m (2002: £50.9m). Notwithstanding a small sales
reduction improved margins resulted in a 36% increase in profit before
exceptional items and tax to £2.8m (2002: £2.0m).
Adjusted earnings per share (before exceptional items) increased by 21% to 18.2p
(2002:15.0p). Basic earnings per share for the year were 5.7p (2002: 13.4p).
Exceptional restructuring costs at £1.6m were below original expectations and
comprise relocation and redundancy costs, additional costs of working during the
restructuring, providing provisions against stock and the impairment of fixed
assets and investments. The majority of the saving against original expectations
has arisen from the completion of the sale of part of Anchor Pottery, Longton on
1 March 2004. This successful sale yielded proceeds greater than those
anticipated at the half year when provisions were established in respect of the
impairment of the site.
Operating cash generation in the year remained strong and was £2.9m (2002:
£2.0m) after £0.9m (2002: £0.3m) in respect of exceptional restructuring costs.
This impressive figure reflects the core profitability of our business and
continued control of working capital. The growth in stock levels required to
support the development of our sourced turnover was somewhat slower than we
expected, although it is anticipated that some further investment in stock will
be required in the future. Stock levels associated with manufacturing operations
were substantially reduced in the year. Overall stock levels at the year end
were £9.1m (2002: £9.4m)
Overall net cash balances improved from £1.6m to £1.7m after capital expenditure
of £1.2m, of which £0.8m was related to the restructuring project.
Dividend
Given the increase in profitability before exceptional items and continued cash
generation, the Board is pleased to announce that it recommends an increase in
the final dividend per share to 6.7p (2002: 6.0p) giving a total dividend for
the year of 10.0p (2002: 9p). This dividend is covered 1.8 times by adjusted
earnings per share.
Operating Review
Dining Out
Sales grew by £0.9m to £23.3m (2002: £22.4m) with strong contribution levels in
a year when demand in most markets remained flat. In the UK we maintained our
market leadership position. We remain particularly strong in the pub sector and
are extending our market share in the contract catering, restaurant and hotel
sectors. All our key European markets demonstrated growth throughout the year.
With the completion in December 2003 of the move of certain manufacturing
processes from the Anchor site to the Marlborough Works, we look forward to a
year of improving efficiencies and yields.
Across the Dining Out business we have invested in a larger sales force,
developed our products and continued the closest possible relationship with our
customers. In the key areas of technical performance, twenty-four hour delivery
and new product innovation we believe Churchill is the UK market leader.
Alchemy is leading our expansion both at home and internationally. Its continued
success is very encouraging and we have successfully expanded the range
throughout 2003 and have a number of further launches planned in 2004.
Dining In
The restructuring programme has reduced UK manufacturing capacity by two thirds
and increased the range of sourced products available to our customers. Sales
of £26.2m (2002 : £28.5m) reflected a changing sales mix and product strategy
and generated an improved contribution. Our strategy continues to be to create
a flexible operating model able to respond to rapid changes in market demand.
We continue to grow our overseas supplier base and develop strategic
relationships for core product ranges. This process was particularly pertinent
during 2003 where larger volumes of earthenware previously manufactured in the
UK have required replication from overseas sources. Our ability to provide
technical, quality and manufacturing expertise as well as design and logistics
has been paramount.
The focus in the Dining In division has been to secure closer relationships with
key customers and achieve category leadership status. Specifically sales to our
top 10 international customer base grew by 15% in 2003.
Prospects
Current trading for both divisions in the year to date remains in line with our
performance targets. In 2004 Dining Out is anticipated to show further growth
in core markets, particularly in those key areas where we have increased our
resources. Dining In should see an improved performance at the operating level
on the back of advances in outsourcing and the volume housewares business.
The restructuring programme within the Dining In division is now complete and is
expected to bring strong cost efficiencies. Dining In has seen a culture change
in recent years whereby sales are directed more and more through the volume
retailers which are food-led, but increasingly diversified. Churchill has
recognised this change and has successfully responded.
Moving production to one main site has taken time to settle down. In 2004 we
expect to gain from substantially improved manufacturing yields and the overall
efficiencies that concentrating on one core production unit provides.
Churchill is profitable and cash generative. Our major restructuring is
complete and we look forward to achieving further growth in the year ahead. I
would like to thank all our employees who have been involved in the successful
implementation of change in 2003 for their cooperation, commitment and support.
Stephen Roper
Chairman
22 March 2004
Consolidated profit and loss account
for the year ended 31 December 2003
2003 2003 2003 2002 2002 2002
Before Before
exceptional Exceptional Total exceptional Exceptional Total
items items items items
Note £000 £000 £000 £000 £000 £000
Turnover 1 49,474 - 49,474 50,904 - 50,904
Operating profit / (loss) 2 2,727 (1,289) 1,438 1,971 (338) 1,633
Share of operating profit 29 (350) (321) 30 - 30
of associate net of
impairment
Profit on disposal of 3 - 18 18 - 75 75
fixed asset
Net interest receivable 27 - 27 42 - 42
Profit / (loss) on 2,783 (1,621) 1,162 2,043 (263) 1,780
ordinary activities
before taxation
Tax on profit on ordinary (843) 290 (553) (441) 89 (352)
activities
Profit / (loss) on 1,940 (1,331) 609 1,602 (174) 1,428
ordinary activities after
taxation
Dividends 4 (1,070) (959)
Retained (loss)/profit (461) 469
for the period
Pence per Pence per
share share
Earnings per ordinary share
Basic 5 5.7 13.4
Adjusted 5 18.2 15.0
Diluted earnings per
ordinary share
Basic 5 5.7 13.4
Adjusted 5 18.1 15.0
Consolidated balance sheet
as at 31 December 2003
2003 2002
£000 £000
Fixed assets
Intangible Assets 130 176
Tangible assets 11,443 13,750
Investments 761 1,099
12,334 15,025
Current assets
Stocks 9,144 9,362
Debtors: amounts falling due within one year 11,008 11,288
Investments and other assets for sale 1,050 -
Cash at bank and in hand 1,717 1,620
22,919 22,270
Creditors: amounts falling due within one year (8,408) (9,430)
Net current assets 14,511 12,840
Total assets less current liabilities 26,845 27,865
Creditors: amounts falling due after more than one year - (6)
Provisions for liabilities and charges (122) (32)
Net assets 26,723 27,827
Capital and reserves
Called up share capital 1,070 1,066
Share premium account 2,013 1,967
Revaluation reserve 1,392 2,100
Other reserves 253 253
Profit and loss account 21,995 22,441
Equity shareholders' funds 26,723 27,827
Consolidated cash flow statement
for the year ended 31 December 2003
2003 2002
£000 £000
Net cash inflow from operating activities (reconciliation to 2,924 2,027
operating profit - note 6)
Returns on investments and servicing of finance
Net interest received 25 44
Taxation
UK corporation tax paid (731) (507)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,231) (1,258)
Sale of tangible fixed assets 69 112
Net cash outflow for capital expenditure and financial (1,162) (1,146)
investment
Equity dividends paid (992) (959)
Financing
Issue of ordinary shares 50 8
Payment of principal under finance leases (13) (13)
Net cash inflow / (outflow) from financing 37 (5)
Increase / (decrease) in cash 101 (546)
1. Analysis of turnover
The Directors consider that the Group's activities are a single class of
business. However for additional shareholder information turnover is analysed
as follows:
2003 2002
£000 £000
Turnover
Dining Out 23,232 22,397
Dining In 26,242 28,507
49,474 50,904
Geographic Turnover
United Kingdom 30,697 31,265
Rest of Europe 10,821 10,689
North America 6,051 6,648
Australasia 916 1,203
Far East 346 233
Other 643 866
49,474 50,904
2. Exceptional Items
Costs arising from the restructuring of manufacturing operations and the
resulting write down of tangible fixed assets and investments have been treated
as exceptional and have been charged in arriving at the operating profit for the
year. These exceptional costs comprise:
2003 2002
£000 £000
Restructuring costs 972 296
Impairment of tangible fixed assets 103 42
Write down of stocks and work in progress 214 -
1,289 338
Impairment of investments 350 -
1,639 338
A credit of £290,000 (2002: £89,000) has been included in the corporation tax
charge in relation to the exceptional items.
The cash outflow in relation to exceptional items in the period was £850,000
(2002: £276,000)
In the Group's interim financial statements relating to the six months to 30
June 2003, the write down of tangible fixed assets charged to the profit and
loss account was £565,000 reflecting the Directors' opinion of the net
realisable value of the assets subject to impairment, based on information
available at that time. In the second half year, additional substantive
information arising from the process of disposal of the assets concerned has
been obtained. As a result of this additional information £462,000 of the
impairment at 30 June 2003 has been reversed in the second half year, leaving a
net impairment for the year of £103,000 and the valuation of the assets
concerned at a total figure of £1,050,000 as at 31 December 2003. The sale of
the assets concerned was completed on 1 March 2004 at this value.
In addition to the above a further impairment of £690,000 relating to tangible
fixed assets has been charged directly against revaluation reserves.
3. Profit on disposal of fixed assets
2003 2002
£000 £000
Profit on disposal of fixed assets 18 75
The profit on disposal of fixed assets represents the release of an accrual for
costs not incurred in respect of the 2001 disposal of surplus land.
4. Dividend
The Directors have declared or now recommend payment of the following dividends
in respect of the year ended 31 December 2003
2003 2002
£000 £000
Ordinary dividend
Interim paid 3.3p (2002: 3.0p) per 10p ordinary share 353 320
Final proposed 6.7p (2002: 6.0p) per 10p ordinary share 717 639
1,070 959
The proposed dividend has been calculated on 10,704,376 shares being those in
issue at 31 December 2003 qualifying for the dividend. The dividend will be paid
on 26 May 2004 to shareholders on the register on 23 April 2004
5. Earnings per ordinary share
Basic earnings per ordinary share is based on the profit on ordinary activities
after taxation and on 10,668,539 (2002: 10,656,780) 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
and profit on disposal of fixed assets
2003 2002
pence per pence per
share share
Basic earnings per share 5.7 13.4
Adjustments :
Exceptional items 12.6 2.3
Profit on disposal of fixed assets (0.1) (0.7)
Adjusted earnings per share 18.2 15.0
Diluted basic earnings per ordinary share is based on the profit on ordinary
activities after taxation and on 10,697,321 (2002: 10,700,732) ordinary shares,
being the weighted average number of ordinary shares in issue during the year of
10,668,539 (2002:10,656,780) increased by 28,782 (2002:43,952) 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
and profit on disposal of fixed assets
2003 2002
pence per pence per
share share
Diluted basic earnings per share 5.7 13.4
Adjustments :
Exceptional items 12.6 2.3
Profit on disposal of fixed assets (0.2) (0.7)
Diluted adjusted earnings per share 18.1 15.0
6. Reconciliation of operating profit to net cash inflow from operating
activities
2003 2002
£000 £000
Continuing operating activities
Operating profit before exceptional costs 2,727 1,971
Exceptional costs (1,289) (338)
Operating profit 1,438 1,633
Depreciation 1,612 2,030
Impairment of tangible fixed assets-exceptional 103 42
Profit on sale of assets 28 (27)
Goodwill amortisation 46 46
Increase in stocks 218 (903)
(Increase) / decrease in debtors 280 (1,228)
Decrease / (increase) in creditors (923) 434
Increase in provisions 122 -
Net inflow from continuing operating activities 2,924 2,027
7. Reconciliation of decrease in net cash to movement in net funds
2003 2002
£000 £000
Decrease in cash during the period 101 (546)
Cash outflow from decrease in debt and lease financing 13 13
Movement in net funds during the period resulting from cash 114 (533)
flows
Currency movements (4) (1)
Net funds at the start of the period 1,601 2,135
Net funds at the end of the period 1,711 1,601
8. Statement of total recognised gains and losses
2003 2002
£000 £000
Profit for the period 609 1,428
Unrealised reduction on impairment of properties (690) -
Currency translation differences (3) (1)
(84) (1,261)
9. Financial Information
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2003. Statutory accounts for
the year end 31 December 2003, which include an unqualified audit opinion will
be delivered to the Registrar of Companies following the Company's Annual
General Meeting on 14 May 2004
This information is provided by RNS
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