Interim Results
Churchill China PLC
31 August 2005
For Immediate Release 31 August 2005
CHURCHILL CHINA PLC
INTERIM RESULTS
for the six months ended 30 June 2005
Churchill China plc, is pleased to announce its results for the six months ended
30 June 2005.
Key Points:
• Sales of £22.3m (2004: £23.7m)
• Profit before taxation £0.6m (2004: £1.3m)
• Adjusted earnings per share before exceptional items were 4.0p (2004:
8.7p)
• Earnings per share 4.0p (2004: 8.7p)
• Interim dividend maintained at 3.7p per ordinary share (2004: 3.7p)
Stephen Roper, Chairman, said:
'Churchill demonstrated a strong performance in sales to hospitality customers,
particularly with our Alchemy range to the 4 and 5 star market. The benefit of
cost reductions in the second half of the year together with stronger profit and
cash generation enable the to Board feel confident of meeting expectations for
the full year.'
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 Skye Dietrich Tel No: 020 7466 5000
Buchanan Communications
CHAIRMAN'S STATEMENT
Introduction
In the six months to 30 June 2005 the Group achieved sales of £22.3m (2004:
£23.7m). Profit before taxation was £0.6m (2004: £1.3m). Overall trading in
this period of the year was in line with the revised position indicated within
our AGM statement in May.
The Group continued its strong performance in sales to hospitality customers,
particularly with our Alchemy range to the 4 and 5 star market. We will continue
to pursue our successful strategy of increasing sales through both geographic
expansion and new product development. We have targeted a number of markets for
further investment and several new product launches are planned for the second
half of the year. We anticipate further growth in sales in the second half of
the year, which is normally a more active trading period.
Sales to retail customers did not meet expectations. Our performance in what has
for several years been a very competitive market was further affected by a
weakening in demand from key accounts in the US and Europe. Sourced product has
reduced cost and made Churchill more competitive, but extended supply lines
demand larger stocks which create a greater business risk. This is most
significant at the low value, high volume end of the market. We have modified
our approach to this market to introduce a low cost, lower risk strategy, which
will result in a greater proportion of sales being shipped directly from our
overseas suppliers to both our UK and overseas customer base. To facilitate this
change in approach, we have established an office in Shanghai.
As we have previously indicated our UK cost base continues to be impacted by
higher costs in a number of areas including gas and pensions. Set against this,
cost saving initiatives arising from consolidation of dish production and
investment in new warehousing will begin to benefit profit in the second half of
the year, slightly ahead of schedule. These actions combined with increased
manufacturing efficiencies and cost reductions should limit the negative effect
on profitability going forward.
Financial Overview
In the 6 months to 30 June 2005 the Group turnover was £22.3m (2004: £23.7m).
Operating profit was £0.6m (2004: £1.3m), which was achieved after redundancy
costs of £0.2m.
Adjusted earnings per share were 4.0p (2004: 8.7p). Basic earnings per share
were 4.0p
(2004: 8.7p).
Operating cash generation in the first half year was £0.9m (2004: £1.0m) after
an outflow of £1.5m in respect of increased stock. The higher level of stock is
to support both the continuing rise of sourced sales and new and planned product
introductions in the hospitality market.
After taking account of increased capital expenditure of £1.9m, mainly
attributable to the completion of our new warehouse facility, the Group's
overdraft at 30 June 2005 was £0.7m (2004 - cash balance of £2.5m). The Group's
cash generation tends to be stronger in the second half, and we anticipate both
working capital requirements and our capital expenditure programme will be much
reduced in the remainder of the year.
We continue to progress our programme of disposal of surplus assets.
The Group's financial statements have been restated to reflect the introduction
of FRS 17 Retirement Benefits and FRS 21 Events after the balance sheet date.
Further details of the effect of these changes are given later in this report
and in the notes to the interim financial statements. The Group is not required
to adopt International Financial Reporting Standards until 2007.
Dividend
The Board is pleased to announce that the interim dividend will be maintained at
3.7p per share (2004: 3.7p) reflecting cash generation and prudent cost control.
The proposed dividend will be paid on 5 October 2005 to shareholders on the
register on 9 September 2005.
FRS 17
The introduction of FRS 17 'Retirement Benefits' has required the deficit on the
Group's defined benefit pension scheme to be brought onto the Group's balance
sheet. This has resulted in a reduction to net assets of £6.7m as at 30 June
2005 (December 2004: £8.0m). The charge to the Group's profit and loss account
increased as a result of the introduction of the new standard. Whilst the
deficit is clearly a significant figure it does not affect either our ability to
declare and pay dividends in the normal course of business or our banking
arrangements. The Group's defined benefit pension scheme has been closed to new
entrants since 1999. The Board are considering a number of measures to reduce
this deficit.
Operating Review
Sales
Sales of hospitality products were £12.5m (2004: £12.3m) reflecting flat demand
in most major markets. We had anticipated difficulty in making ground against
what was a record first half in 2004 and we are pleased with the progress made.
There was growth in the US and key accounts in the UK where we continue to win
market share. Our premium Alchemy brand continues to perform very well with
sales increasing by 65% on a like for like basis. New product launches are
planned during the second half of the year.
With product innovation and new introductions Churchill has again demonstrated
the Group's ability to increase its share of key hospitality markets, despite
generally flat conditions world-wide during the first half of 2005.
Sales to our retail customers were £9.8m (2004: £11.4m), primarily reflecting
lower than expected trading in the volume UK high street sector as well as a
poor performance in the USA and Europe. By contrast sales to the middle market
demonstrated positive growth.
Some contraction in retail sales was anticipated following the final closure of
UK manufacturing facilities at the end of 2004. The period under review
therefore completes the switch to sourcing from third party suppliers.
Manufacturing and Operations
We now have a highly automated factory undertaking the majority of the Group's
manufacturing requirements. We have achieved substantial cost savings and
efficiency benefits. However, our cost base will be affected by the continuing
rise in energy prices, but we expect these to be largely offset by rigorous cost
controls in our manufacturing operations.
Our new warehouse was completed ahead of schedule and to budget and will
generate savings in excess of the original £0.4m annual target. The
consolidation of production from the Anchor Dish Cell to our two remaining
production units has also been completed and will facilitate cost savings of
approximately £0.3m on an annual basis. In addition to these two initiatives we
have commenced a series of cost reduction measures which will reduce costs by at
least £0.7m annually.
Prospects
Sales of our hospitality products during the second half are generally
characterised by the seasonal move towards replacements rather than new
installations as hotels, pubs and restaurants gear up for the busy Christmas
period. We expect to gain volume growth from new key accounts both in the UK
and US through our existing Alchemy range and new product launches. We
anticipate somewhat higher sales growth than the first half. We also expect that
trading conditions in the retail market will remain difficult and have adjusted
our strategy and operations accordingly.
With the benefit of cost reductions which will begin to benefit our performance
in the second half year coupled with stronger profit and cash generation the
Board feel confident of meeting expectations for the full year.
Stephen Roper
Chairman
31 August 2005
Consolidated profit and loss account
for the six months ended 30 June 2005
Unaudited Six Unaudited Six Audited Twelve months to 31 December
months to 30 months to 30 June 2004 As restated
June 2005 2004 As restated
Total Total Before Exceptional Total
exeptional items
items
Note £000 £000 £000 £000 £000
Turnover 1 22,330 23,707 48,972 - 48,972
Operating profit/(loss) 2 684 1,332 3,220 (866) 2,354
Share of operating 1 9 100 - 100
profit of associate net
of impairment
Profit on disposal of 3 - - - 19 19
fixed asset
Net interest payable 4 (80) (25) (44) - (44)
Profit/(loss) on 605 1,316 3,276 (847) 2,429
ordinary activities
before taxation
Tax on profit/(loss) on (170) (380) (957) 254 (703)
ordinary activities
Profit/(loss) on 435 936 2,319 (593) 1,726
ordinary activities
after taxation
Dividends 5 (792) (717) (1,117)
(Loss)/retained profit (357) 219 609
for the period
Pence per share Pence per share Pence per
share
Basic earnings per 6 4.0 8.7 16.0
ordinary share
Diluted basic earnings 6 4.0 8.7 15.9
per ordinary share
Consolidated balance sheet
as at 30 June 2005
Unaudited 30 June Unaudited 30 June 2004 Audited 31 December
2005 2004
As restated As restated
£000 £000 £000
Fixed assets
Intangible Assets 70 107 84
Tangible assets 13,487 11,328 12,133
Investments 847 756 840
14,404 12,191 13,057
Current assets
Stocks 11,529 10,102 9,992
Debtors: amounts falling 8,815 9,514 10,862
due within one year
Cash at bank and in hand 45 2,500 1,012
20,389 22,116 21,866
Creditors: amounts falling (6,843) (6,584) (6,736)
due within one year
Net current assets 13,546 15,532 15,130
Total assets less current 27,950 27,723 28,187
liabilities
Provisions for liabilities (85) - (104)
and charges
Pension liability (6,747) (5,284) (7,970)
Net assets 21,118 22,439 20,113
Capital and reserves
Called up share capital 1,086 1,078 1,079
Share premium account 2,207 2,104 2,115
Revaluation reserve 1,294 1,304 1,299
Other reserves 253 253 253
Profit and loss account 16,278 17,700 15,367
Equity shareholders' funds 21,118 22,439 20,113
Consolidated cash flow statement
for the six months ended 30 June 2005
Unaudited Unaudited Audited
Six months to Six months to Twelve months to 31
30 June 2005 30 June 2004 December 2004
£000 £000 £000
Net cash inflow from operating 898 965 1,575
activities (reconciliation to
operating profit - note 7)
Returns on investments and
servicing of finance
Net interest received 26 40 69
Taxation (84) (129) (620)
Capital expenditure and
financial investment
Purchase of tangible fixed (1,913) (540) (1,888)
assets
Sale of tangible fixed assets 19 1,071 1,174
Net cash (outflow)/inflow for (1,894) 531 (714)
capital expenditure and
financial investment
Equity dividends paid (792) (717) (1,116)
Financing
Issue of ordinary shares 99 99 111
Payment of principal under 0 (6) (6)
finance leases
Net cash inflow from financing 99 93 105
(Decrease)/increase in net cash (1,747) 783 (701)
1. Analysis of turnover
The Directors consider that the Group's activities are a single class of
business.
Unaudited Unaudited Audited
Six months to Six months to Twelve months to 31
30 June 2005 30 June 2004 December 2004
£000 £000 £000
Geographic Turnover
United Kingdom 14,678 14,213 31,459
Rest of Europe 5,100 5,476 10,102
North America 1,729 2,896 5,369
Australasia 242 460 877
Far East 82 194 263
Other 499 468 902
22,330 23,707 48,972
2. Exceptional Items
Costs arising from the restructuring of manufacturing operations in 2004 were
treated as exceptional and were charged in arriving at the operating profit for
the year. These exceptional costs comprised:
Unaudited Unaudited Audited
Six months to Six months to Twelve months to 31
30 June 2005 30 June 2004 December 2004
£000 £000 £000
Restructuring costs - - 192
Write down of stocks and - - 674
work in progress
- - 866
A credit of £254,000 was included in the corporation tax charge for the twelve
months ended 31 December 2004 in relation to the exceptional items.
3. Profit on disposal of fixed assets
Unaudited Unaudited Audited
Six months to Six months to Twelve months to 31
30 June 2005 30 June 2004 December 2004
£000 £000 £000
Profit on disposal of fixed - - 19
assets
The profit on disposal of fixed assets in 2004 represents the release of an
accrual for costs not incurred in respect of the 2001 disposal of surplus land.
4. Net interest payable
Unaudited Unaudited Audited
Six months to Six months to Twelve months to
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
Other interest receivable/(payable) 26 43 70
Interest payable on finance leases - (1) (1)
Share of interest receivable of 4 1 5
associated company
Net finance cost: pensions (110) (68) (118)
(80) (25) (44)
5. Dividend
Unaudited Unaudited Audited
Six months to Six months to Twelve months to
30 June 2005 30 June 2004 31 December 2004
As restated As restated
£000 £000 £000
Final dividend 2003,
declared March 2004 - 717 717
Interim dividend 2004,
declared August 2004 - - 400
Final dividend 2004,
declared March 2005 792 - -
792 717 1,117
6. Earnings per ordinary share
Basic earnings per ordinary share is based on the profit on ordinary activities
after taxation and on 10,838,940 (2004: 10,731,877) 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
Unaudited Unaudited Audited
Six months to Six months to Twelve months to
30 June 2005 30 June 2004 31 December 2004
pence per share pence per share pence per share
As restated As restated
Basic earnings per share 4.0 8.7 16.0
Adjustment:
Exceptional items - - 5.6
Profit on disposal of fixed - - (0.1)
assets
Adjusted earnings per share
4.0 8.7 21.5
Diluted basic earnings per ordinary share is based on the profit on ordinary
activities after taxation and on 10,888,030 (2004: 10,800,070) ordinary shares,
being the weighted average number of ordinary shares in issue during the year of
10,838,940 (2004: 10,731,877) increased by 49,090 (2004: 68,193) 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
Unaudited Unaudited Audited
Six months to Six months to Twelve months to
30 June 2005 30 June 2004 31 December 2004
pence per share pence per share pence per share
As restated As restated
Diluted basic earnings per share 4.0 8.7 15.9
Adjustment:
Exceptional items - - 5.6
Profit on disposal of fixed - - (0.1)
assets
Diluted adjusted earnings per share
4.0 8.7 21.4
7. Reconciliation of operating profit to net cash inflow from operating
activities
Unaudited Unaudited Audited
Six months to Six months to Twelve months to
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
Continuing operating activities
Operating profit before exceptional 684 1,332 3,220
costs
Exceptional costs - - (866)
Operating profit 684 1,332 2,354
Depreciation 540 614 1,124
Loss/(profit) on sale of assets 0 21 (31)
Goodwill amortisation 14 23 46
Increase in stocks (1,537) (958) (848)
Decrease in debtors 2,047 1,494 146
Decrease in creditors (807) (1,439) (1,172)
Decrease in provisions (43) (122) (44)
Net inflow from continuing 898 965 1,575
operating activities
8. Reconciliation of decrease in net cash to movement in net (debt)/cash
Unaudited Unaudited Audited
Six months to Six months to Twelve months to
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
(Decrease)/increase in cash during (1,747) 783 -701
the period
Cash outflow from decrease in debt 0 6 6
and lease financing
Movement in net cash during the (1,747) 789 (695)
period resulting from cash flows
Currency movements 3 - (4)
Net cash at the start of the period 1,012 1,711 1,711
Net (debt)/cash at the end of the (732) 2,500 1,012
period
9. Statement of total recognised gains and losses
Unaudited Unaudited Audited
Six months to Six months to Twelve months to
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
As restated As restated
Profit for the period 435 936 1,726
Currency translation differences 3 - (4)
Actuarial gain/(loss) on defined 1,798 291 (3,601)
benefit pension scheme
Related deferred tax (539) (87) 1,080
Total recognised gains and losses 1,697 1,140 (799)
for the period
Prior period adjustment (note 10) (7,970) - -
Total gains and losses recognised (6,273) 1,140 (799)
since the last Annual Report
10. Prior period adjustments
The Group has applied FRS 17 'Retirement benefits' and FRS 21 'Events after the
balance sheet date'. Both these reporting standards require the restatement of
previously reported result.
FRS 17 Retirement benefits
The effect on the profit and loss account is as follows:
Unaudited Unaudited Audited
Six months to Six months to Twelve months to
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
FRS 17 Retirement benefits
Amount (charged)/credited to operating profit
Current service cost less curtailments (486) (472) (948)
Contributions 545 591 1,172
Net increase to operating profit 59 119 224
Amount charged to other finance costs
Expected return on pension scheme assets 621 562 1,160
Interest on pension scheme liabilities (731) (630) (1,278)
Net financing cost (110) (68) (118)
Net (reduction) / increase in reported profit (51) 51 106
before taxation in the period
In addition the Group's balance sheet has been adjusted to reflect FRS 17
pension liabilities:
Unaudited Unaudited Audited
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
Market value of scheme assets 18,149 15,654 17,088
Present value of scheme liabilities (27,788) (23,203) (28,474)
Deficit in scheme assets (9,639) (7,549) (11,386)
Related deferred tax asset 2,892 2,265 3,416
Net liability (6,747) (5,284) (7,970)
FRS 21 Events after the balance sheet date
Under the terms of this reporting standard dividends which have been declared
after the balance sheet date are not recognised as a liability at that date.
Adjustments have therefore been made for the following provisions for dividends.
Unaudited Unaudited Audited
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
Dividend provided at the balance sheet date 400 399 788
The effect on the profit and loss account is as follows:
Unaudited Unaudited Audited
30 June 2005 30 June 2004 31 December 2004
£000 £000 £000
Dividend previously charged to profit and
loss in the period 400 399 1,187
Dividend charged to profit and loss under FRS
21 (792) (717) (1,117)
Net (reduction) / increase to retained profit
in the period (392) (318) 70
The effect on retained earnings as previously reported of the above prior year
adjustments is as follows:
Unaudited Audited
30 June 2004 31 December 2004
£000 £000
Profit and loss account as previously reported 22,585 22,549
Pension liability (5,284) (7,970)
Dividends 399 788
Profit and loss account as restated 17,700 15,367
11. Financial Information
(a) The interim financial statement has been prepared in accordance with the
accounting policies set out in the Annual Report for the year ended 31 December
2004, with the exception that the Group has adopted the provisions of Financial
Reporting Standards 17 'Retirement benefits' and 21 'Events after the balance
sheet date'. Comparative data for the six months to 30 June 2004 and twelve
months to 31 December 2004 has been restated in accordance with these standards.
The Group has also adopted FRS 22 'Earnings per share' and FRS 25 'Financial
Instruments: Presentation and disclosure' (paragraphs 15-50 only). No amendments
to previously reported data have arisen from the adoption of these standards.
(b) The interim financial statement was approved by the Board on 30 August
2005. Neither the interim financial statement nor comparative information for
the six months ended 30 June 2004 have been audited or reviewed.
(c) The interim financial statement set out above does not constitute
statutory accounts as defined by the Companies Act 1985. Statutory accounts for
the year ended 31 December 2004, including an unqualified audit report which did
not contain statements under Section 237 (2) or (3) of the Companies Act 1985
have been filed with the Registrar of Companies.
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