Interim Results

Churchill China PLC 31 August 2006 For Immediate Release 31 August 2006 CHURCHILL CHINA PLC INTERIM RESULTS for the six months ended 30 June 2006 Churchill China plc, is pleased to announce its interim results for the six months ended 30 June 2006. Key Points: • Sales of £21.9m (2005: £22.3m) • Improved contribution and lower cost base generate profit improvement • Profit before exceptional items and taxation £0.9m (2005: £0.6m) • Strong cash generation • Net exceptional gains of £2.7m - disposal of Alexander site, pensions credit and impairment of Whieldon Road site • Profit before taxation £3.6m (2005: £0.6m) • Adjusted earnings per share before exceptional items 6.3p (2005: 4.0p) • Earnings per share 23.5p (2005: 4.0p) • Interim dividend increased to 3.9p per ordinary share (2005: 3.7p) Stephen Roper, Chairman, said: 'This improved result builds on the momentum established in 2005 reflecting the successful implementation of our new business model in Retail markets and continued efficiencies within our cost base. We remain confident that we will meet full year expectations.' 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 first half of 2006 the Group achieved a profit before exceptional items and taxation of £0.9m (2005: £0.6m) on sales of £21.9m (2005: £22.3m). This improved result builds on the momentum established in 2005 reflecting the successful implementation of our new business model in Retail markets and continued efficiencies within our cost base. Profit before taxation was £3.6m (2005: £0.6m), a very substantial increase reflecting exceptional profits from property disposals and pensions benefits. Sales to Hospitality customers were at the same level as last year in what has been a generally static market. Growth in target export markets was offset by lower sales in certain European markets. Successful new product innovation, unrivalled service and the development of new geographic markets remain the key strategies for our Hospitality business. Sales of our Retail products were slightly lower than the corresponding period last year as increased amounts of business were transferred successfully to the new direct shipment model. Listings in major international store groups have improved. Whilst absolute sales values were down the Group achieved a higher market share in volume terms and improved the contribution from these sales. As in previous years cash generation was strong. This has allowed us to support further investments in our business and to address the deficit within our main pension scheme, without compromising our ability to provide an attractive return to shareholders. As we have previously indicated our UK cost base remains affected by higher energy costs and further rises are expected later in the year. We have initiated a number of changes to our operations, both to reduce energy consumption and to generate other efficiencies, which should reduce, in part, the negative impact of cost rises on forward profit growth. Financial Overview In the six months to 30 June 2006 Group sales were £21.9m (2005: £22.3m). Profit before exceptional items and taxation was £0.9m (2005: £0.6m). This increase continues the progress made in the second half of 2005 and reflects the successful implementation of our new business model in Retail markets and continued efficiencies within our cost base. The Group has delivered strong operating cash generation through the period of £1.7m (2005: £0.9m) before one off pension payments. This was achieved through a combination of improved profitability and continued control of working capital. There was little effect on overall cash balances from exceptional items as receipts from property disposals were matched by a one-off payment into the Group's defined benefit pension scheme. Cash balances improved from £2.6m at the end of 2005 to a figure of £3.6m at 30 June 2006. The results for the period include a number of exceptional items resulting in a net benefit to profit before taxation of £2.7m (2005: nil). As disclosed in our full year results for 2005, in January 2006 we disposed of the Alexander Pottery, Cobridge. Gross proceeds of the sale were £3.0m and an exceptional gain of £1.9m has been included in profit in the period to 30 June 2006. Additionally, the cessation of future accrual to the Group's defined benefit pension scheme on 31 March 2006 has led to a one off adjustment in relation to the curtailment of future benefits. This amount of £1.1m (2005: nil) has been treated as exceptional given its size. The consolidation of activities from our Whieldon Road site has necessitated a reduction in the carrying value of certain plant and machinery at that location, a charge of £0.3m has been made against profits The additional contributions made into the Group's defined benefit scheme and the cessation of future accrual have significantly reduced the Group's liability in respect of its net pensions deficit to £2.9m (2005: £6.7m). In the short term the deficit has also benefitted from a higher discount rate attaching to liabilities. The Board now believes that the pension deficit is at a manageable level which for the foreseeable future may be addressed without significant additional funding. Adjusted earnings per share were 6.3p (2005: 4.0p). Basic earnings per share were 23.5p (2005: 4.0p). Dividend The Board is pleased to announce that the interim dividend will be increased to 3.9p per 10p ordinary share (2005: 3.7p) reflecting strong cash generation and improved profitability. The proposed dividend will be paid on 4 October 2006 to shareholders on the register on 8 September 2006. Operating Review Sales Sales of Hospitality products were £12.5m (2005: £12.5m). The new products added to the Alchemy range have allowed us to extend our premium customer base, which will help ensure the continued growth of the brand. Value added products in the Churchill vitrified range have performed well, partly at the expense of our classic lines. We have commenced a programme of upgrading and updating our offering in this area. We continue to make good progress in target export markets and in major national accounts in the UK. Our revised proposition to the Retail market, emphasising direct shipments to major customers continues to be well received. Whilst this model leads to lower absolute sales values, it allows cost and risk levels to be reduced. Although sales volumes rose, overall values contracted to £9.4m (2005: £9.8m). Contribution levels from these sales increased and we have further reduced stocks in this area. This improvement has been facilitated by an extension of our activities in Shanghai. Our team's ability to supply quality, well designed, branded and bespoke product has secured additional listings with major international retailers Manufacturing and Operations Against a background of increased input prices, particularly in relation to energy costs, we have aggressively managed our overall cost base. A number of significant benefits have been generated from investment and site consolidation projects completed in 2005 and earlier this year. We have experienced substantial increases in energy costs and expect further rises in the second half of the year before a more stable position emerges in 2007. A number of actions have been identified which will enable us to manage our power consumption more effectively. Over the next year increasing amounts of Alchemy production will move from our Whieldon Road site to our main unit at Marlborough Pottery, which will lead to more efficient production. Following completion of our new warehouse, all logistics are now based in efficient facilities at Marlborough. We have made further progress in reducing underlying stock levels, both through the increase in direct shipment to customers and also following the implementation of improved demand forecasting systems. At the half year end Group stock levels were £9.1m, some £2.4m lower than the corresponding period in 2005. We have a continuing programme of operational performance improvement and expect to realise further benefits from projects scheduled for completion in the second half of the year. Prospects Following the successful implementation of our new business model in respect of Retail market sales, we are confident that we will continue to deliver improved performance in this area through higher volumes and contribution. As ever in Hospitality markets, sales levels in the final quarter of the year will be critical to achieving our targets. We remain confident that we will meet full year expectations. Stephen Roper Chairman 31 August 2006 Consolidated profit and loss account for the six months ended 30 June 2006 Unaudited Six months Unaudited Six months Audited Twelve months to 30 June 2006 to 30 June 2005 to 31 December 2005 As restated As restated Before Exceptional Total Total Before Exceptional Total exceptional items exceptional items items items Note £000 £000 £000 £000 £000 £000 £000 Turnover 1 21,878 21,878 22,330 46,399 - 46,399 Operating profit 2 813 784 1,597 681 2,696 - 2,696 Share of operating profit of associate net of impairment - - - 1 -21 - -21 Profit on disposal of fixed asset 3 - 1,876 1,876 - - 269 269 Net interest receivable/ (payable) 4 140 - 140 -80 -114 - -114 Profit on ordinary activities before 953 2,660 3,613 602 2,561 269 2,830 taxation Tax on profit on ordinary activities -276 -785 -1,061 -170 -645 493 -152 Profit on ordinary activities after taxation 677 1,875 2,552 432 1,916 762 2,678 Dividends 5 -793 -792 -1,194 Retained profit for the period 1,759 -360 1,484 Pence Pence per share Pence per per share share Basic earnings per ordinary share 23.5 4.0 24.7 Diluted basic earnings per ordinary share 23.4 4.0 24.6 2005 comparatives have been restated to reflect the adoption of FRS 20 'Share based payments' (see note 10). Consolidated balance sheet As at 30 June 2006 Unaudited 30 Unaudited 30 Audited 31 June 2006 June 2005 December 2005 As restated As restated £000 £000 £000 Fixed Assets Intangible Assets 45 70 56 Tangible Assets 10,890 13,487 11,485 Investments 821 847 825 11,756 14,404 12,366 Current assets Stocks 9,059 11,529 8,646 Debtors: amounts falling due after one year 608 - - Debtors: amounts falling due within one year 9,216 8,815 10,537 Investments and other assets for sale - - 1,022 Cash at bank and in hand 3,583 45 2,629 22,466 20,389 22,834 Creditors: amounts falling due within one year -6,322 -6,843 -6,268 Net current assets 16,144 13,546 16,566 Total assets less current liabilities 27,900 27,950 28,932 Creditors: amounts falling due after one year -11 -85 -16 Provisions for liabilities and changes -58 - -6 Pension liability -2,871 -6,747 -6,464 Net assets 24,960 21,118 22,446 Capital and reserves Called up share capital 1,086 1,086 1,086 Share premium account 2,207 2,207 2,207 Revaluation reserve 1,281 1,294 1,287 Other reserves 270 263 266 Profit and loss account 20,116 16,268 17,600 Equity shareholders' funds 24,960 21,118 22,446 2005 comparatives have been restated to reflect the adoption of FRS 20 'Share based payments' (see note 10). Consolidated cash flow statement For the six months ended 30 June 2006 Unaudited Six Unaudited Six Audited Twelve months to 30 June months to 30 June months to 31 2006 2005 December 2005 £000 £000 £000 Net cash (outflow)/ inflow from operating -1,129 898 4,105 activities (reconciliation to operating profit - note 7) Net interest received 121 26 67 Taxation 62 -84 -368 Capital expenditure and financial investment Purchase of tangible fixed assets -309 -1,913 -2,380 Sale of tangible fixed assets 3,009 19 1,287 Net cash inflow/(outflow) for capital 2,700 -1,894 -1,093 expenditure and financial investment Equity dividends paid -793 -792 -1,194 Financing Issue of ordinary shares 0 99 99 Payment of principal under finance leases -5 - -6 Net cash (outflow)/inflow from financing -5 99 93 Increase/(decrease) in net cash 956 -1,747 1,610 1. Analysis of turnover The Directors consider that the Group's activities are a single class of business. Unaudited Six Unaudited Six Audited Twelve months to 30 June months to 30 June months to 31 2006 2005 December 2005 £000 £000 £000 Geographic Turnover United Kingdom 14,149 14,678 30,953 Rest of Europe 4,672 5,100 9,549 North America 2,272 1,729 4,208 Australasia 368 242 575 Far East 128 82 197 Other 289 499 917 21,878 22,330 46,399 2. Exceptional Items Unaudited Six Unaudited Six Audited Twelve months to 30 June months to 30 June months to 31 2006 2005 December 2005 £000 £000 £000 Restructuring costs -366 - - Curtailment benefit - defined benefit 1,150 - - pension scheme 784 - - A charge of £235,000 (2005: £nil, 31 December 2005: £nil) has been included in the taxation charge in relation to the exceptional items. 3. Profit on disposal of fixed assets Unaudited Six months Unaudited Six months Audited Twelve to 30 June 2006 to 30 June 2005 months to 31 December 2005 £000 £000 £000 Profit on disposal of fixed assets 1,876 - 269 The profit on disposal recognised in 2006 is in relation to the sale of the Alexander Pottery, Cobridge in January 2006. A taxation charge of £550,000 has been charged in the Group's overall tax charge in respect of this disposal. Net receipts of £2,980,000 were received in respect of this disposal during the period. The profit on disposal recognised in 2005 is in relation to the sale of the Anchor Pottery, Longton in October 2005. A taxation charge of £57,000 was accrued in the Group's overall tax charge in respect of this disposal. Net receipts of £1,166,000 were received in respect of this disposal during 2005. 4. Net interest receivable/(payable) Unaudited Six months Unaudited Six months Audited Twelve to 30 June 2006 to 30 June 2005 months to 31 December 2005 £000 £000 £000 Other interest receivable 121 26 13 Share of interest receivable of associated 5 4 8 company Net finance credit/(charge): pensions 14 -110 -189 Income from fixed asset investment - - 54 140 -80 -114 5. Dividend Unaudited Six months Unaudited Six months Audited Twelve to 30 June 2006 to 30 June 2005 months to 31 December 2005 £000 £000 £000 Final dividend 2004 - 792 792 Interim dividend 2005 - - 402 Final dividend 2005 793 - - 793 792 1,194 The proposed dividend, which has not been provided for, has been calculated in 10,862,126 shares being those in issue at 30 June 2006 qualifying for the dividend and at a rate of 3.9p per 10p ordinary share. The dividend will be paid on 4 October 2006 to shareholders on the register on 8 September 2006. 6. Earnings per share Basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,862,126 (2005: 10,838,940) ordinary shares, being the weighted average number of ordinary shares in issue during the period. Adjusted earnings per ordinary share is based on the profit on ordinary activities after taxation and adjusted to take into account exceptional items, the profit on disposal of fixed assets and the recognition of a deferred tax asset. Unaudited Six months Unaudited Six months Audited Twelve to 30 June 2006 to 30 June 2005 pence months to 31 pence per share per share December 2005 pence per share As restated As restated £000 £000 £000 Basic earnings per share 23.5 4.0 24.7 Adjustments: Exceptional items -5.0 - - Profit on disposal of fixed assets -12.2 - -2.0 Recognition of deferred tax asset - - -5.1 Adjusted earnings per share 6.3 4.0 17.6 Diluted basic earnings per ordinary share is based on the profit on ordinary activities after taxation and on 10,898,293 (2005: 10,888,030) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,862,126 (2005: 10,838,940) increased by 36,167 (2005: 49,090) 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, the profit on disposal of fixed assets and the recognition of a deferred tax asset. Unaudited Unaudited Audited Twelve months to 31 Six months to 30 Six months to 30 June December 2005 June 2006 pence per 2006 pence per share share pence per share £000 £000 £000 Diluted basic earnings per share 23.4 4.0 24.6 Adjustments: Exceptional items -5.0 - - Profit on disposal of fixed assets -12.2 - -2.0 Recognition of deferred tax asset - - -5.1 Adjusted earnings per share 6.2 4.0 17.5 7. Reconciliation of operating profit to net cash (outflow)/inflow from operating activities Unaudited Six months Unaudited Six months Audited Twelve to 30 June 2006 to 30 June 2005 months to 31 December 2005 £000 £000 £000 Operating profit 1,597 681 2,696 Depreciation 573 540 1,007 Impairment of tangible fixed assets 308 - - -exceptional Profit on sale of assets -8 - -53 Goodwill amortisation 11 14 28 Pensions adjustment - exceptional -1,150 - - Charge for share based payments 4 3 7 Increase/(decrease) in stocks -413 -1,537 1,346 Decrease in debtors 1,007 2,047 838 Decrease in creditors -310 -807 -492 Increase/(decrease) in provisions 52 -43 -72 Net inflow before additional pensions 1,671 898 5,305 contributions Additional pensions contributions -2,800 - -1,200 Net (outflow)/inflow from continuing -1,129 898 4,105 operating activities 8. Reconciliation of increase in net funds to movement in net cash Unaudited Unaudited Audited Twelve months to 31 Six months to 30 Six months to 30 June December 2005 June 2006 2005 £000 £000 £000 Increase/(decrease) in cash during the 956 -1,747 1,610 period Cash outflow from decrease in debt and lease 5 - 6 financing Movement in net funds during the period 961 -1,747 1,616 resulting from cash flows New finance leases - - -44 Currency movements -2 3 7 Net funds at the start of the period 2,591 1,012 1,012 Net funds at the end of the period 3,550 -732 2,591 9. Statement of total recognised gains and losses Unaudited Unaudited Audited Twelve months to 31 Six months to 30 Six months to 30 June December 2005 June 2006 2005 £000 £000 £000 As restated As restated Profit for the period 2,552 432 2,678 Currency translation differences -2 3 7 Actuarial gain on defined benefit pension 1,075 1,798 1,051 scheme Related deferred tax -322 -539 -315 Total recognised gains and losses for the 3,303 1,694 3,421 period Prior period adjustment (see note 10) -13 Total gains and losses recognised since the 3,290 last Annual Report 10. Prior period adjustments The Group has applied FRS 20 'Share based payment'. This reporting standard requires the restatement of previously reported results. Additional costs have been charged to the profit and loss account is as follows: Unaudited Unaudited Audited Twelve months to 31 Six months to 30 Six months to 30 June December 2005 June 2006 2005 £000 £000 £000 Staff Costs 4 3 7 Net reduction in profit before taxation for 4 3 7 the period In addition the Group's balance sheet has been adjusted to reflect FRS 20 Profit and loss account Other reserves As at 1 January 2006 as previously stated 17,613 253 Prior period adjustment -13 13 As at 1 January 2006 as restated 17,600 266 Retained profit for the period 1,759 - Actuarial gain on defined benefit pension scheme 753 - Net exchange adjustments -2 - Share based payment charge for the period 4 Transfer from revaluation reserve 6 - 20,116 270 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 2005, with the exception that the Group has adopted the provisions of Financial Reporting Standards 20 'Share based payment'. (b) The interim financial statement was approved by the board on 30 August 2006. Neither the interim financial statement nor comparative information for the six months ended 30 June 2005 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 2005, 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 This information is provided by RNS The company news service from the London Stock Exchange

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