Interim Results

Churchill China PLC 30 August 2007 For Immediate Release 30 August 2007 CHURCHILL CHINA plc INTERIM RESULTS For the six months ended 30 June 2007 Churchill China plc, the manufacturer and global distributor of ceramic tableware and household products to hospitality and retail markets, is pleased to announce its interim results for the six months ended 30 June 2007. KEY POINTS â€¢ Operating profit before exceptional items up 25% to Â£1.0m (2006: Â£0.8m) â€¢ Profit before exceptional items and taxation Â£1.4m up 42% (2006: Â£1.0m) â€¢ Operating profit after exceptional items Â£1.0m (2006: Â£3.5m) â€¢ Profit before tax after exceptional items Â£1.4m (2006: Â£3.6m, including Â£2.6m of exceptional items) â€¢ Adjusted earnings per share before exceptional items 8.4p up 33% (2006: 6.3p) â€¢ Basic earnings per share 8.4p (2006: 23.5p) â€¢ Proposed interim dividend increased by 15% to 4.5p (2006: 3.9p) â€¢ Cash increased by Â£2.1m to Â£8.5m â€¢ Sales revenue up 6% to Â£22.2m (2006: Â£20.9m) â€¢ Strong growth in hospitality markets â€¢ Steady performance in retail operations Commenting on the results, Jonathan Sparey, Chairman said: 'Churchill has achieved a strong performance so far this year and is making good progress in meeting our medium term strategic objectives. As a result, we believe we are well placed to exceed current market expectations for our full year to 31 December 2007 although the rate of growth in the second half is likely to be lower than the first. We look forward to delivering continued growth for shareholders.' For further information, please contact: Churchill China plc Tel No: 01782 577566 Andrew Roper/David Taylor Buchanan Communications Tel No: 020 7466 5000 Tim Anderson/Lisa Baderoon/Rebecca Skye Dietrich Brewin Dolphin Securities Tel No: 0121 236 7000 Ian Stanway CHAIRMAN'S STATEMENT I am pleased to report a strong improvement in our performance in the half year to 30 June 2007, in which we have continued successfully to implement our strategy of growing market share in our hospitality business both in the UK and abroad and improve the quality and value-added nature of our retail offering. Financial Review Group revenue for the six months to 30 June 2007 increased by 6.5% to Â£22.2m (2006: Â£20.9m). Group operating profit before exceptional items increased by 25% to Â£1.0m and our profit before exceptional items and taxation improved by over 40% to Â£1.4m (2006: Â£1.0m). Profit after exceptional items but before taxation was Â£1.4m (2006 Â£3.6m).In the first half of 2006 there was an exceptional gain of Â£2.6m relating to disposal of property and pension changes. Adjusted earnings per share have increased by 33% to 8.4p (2006: 6.3p). Basic earnings per share were 8.4p (2006: 23.5p). Cash generated from operations was Â£3.1m, arising from both improved profitability and continued effective control of working capital. Overall cash balances increased from the position at 31 December 2006 by Â£2.1m to Â£8.5m. Our balance sheet remains strong, with net assets of Â£25.8m. Dividend In the light of this continuing progress and strong first half performance, the Board is pleased to declare an increase of 15% in the interim dividend to 4.5p per share (2006: 3.9p). This increase reflects both the Board's commitment to a progressive dividend policy and our confidence in our ability to maintain our long term progress. The interim dividend will be paid on 3 October 2007 to shareholders on the register on 7 September 2007. Accounting policies These are the Group's first results to be presented under IFRS and comparative figures have been restated to reflect these changes. There has been no significant impact on reported profit figures from the new standards. Provision has been made for deferred taxation on previous revaluation gains. Revenue figures have also been restated, without any impact on profit, to reflect a change in the classification of certain rebates given to customers. The rebates, which were previously treated as costs, are now accounted for as a deduction from disclosed revenues. Full details of the effects of the above changes on the Group's financial statements are shown later in this report in 'Transition statements' Business review The financial results reflect strong performance throughout the Group, most notably within the hospitality business. Sales to our Hospitality customers grew by 16% to Â£13.6m (2006: Â£11.8m) our strongest revenue growth for some years. This continues the buoyant trend evident in the second half of last year. Good hotel occupancy, a continuing trend amongst the UK population to eat out (continuing to follow the US trend of eating out as a key component of our leisure activities), clear evidence of a capital investment cycle amongst some of our key accounts and the introduction of non-smoking legislation have underpinned this activity. Our increased investment in new product development, introducing innovative and distinctive product has also supported our growth. These drivers of our performance should be sustained. Churchill has been able to maintain and develop its position as the market leader in the UK whilst also delivering sales growth in Europe and the USA and other key export markets such as the Middle East. Sales to our Retail customers at Â£8.6m (2006: Â£9.1m) were slightly ahead of our expectations, and reflected a planned exit from certain lower margin business in particular. Our licensed product ranges have performed well. We have transformed our retail proposition in recent years and are now able to provide solutions to our customers that add demonstrable value over a conventional sourcing business through sophisticated logistics, enhanced design capabilities and rapid new product innovation. These attributes have been recognised by our key retail customers and are contributing to important new listings and growth in key accounts. Manufacturing Within our manufacturing operations, we have changed our working methods and product flows to partially mitigate the effect of substantial price rises in energy costs. We have continued to invest in new equipment both to manage our cost base and to develop our technical capabilities. We are planning a number of further investments targetting improved efficiencies within our manufacturing units, increasing the flexibility of our processes and facilitating the production of new products. Our technical team are at the forefront of business development and also ensure we meet increasing technical requirements. We believe our manufacturing performance establishes best practice standards within the UK industry. Outsourcing In addition to delivering design, quality and service, Churchill has the expertise to offer our global customer base assurance with regard to technical and ethical issues. There is escalating cost pressure from suppliers facing withdrawal of export subsidies, energy and wage inflation and currency fluctuation. The effect of US$ price increases on the combined business is broadly neutral, we anticipate that there will be an effect on consumer pricing. People The complexity and scale of the Group requires that we bring high quality talent into the business in a highly competitive marketplace. I am pleased to report that our graduate recruitment and multi-skilling policy continues to bear fruit. We are also actively recruiting experienced talent into sales and marketing, production, IT and other functions where our growth and strategy requires it, often from outside the pottery industry. There is a genuine spirit of energy and commitment by all of the operating management and employees of the business for Churchill to grow and prosper. Our performance to date and sound strategy gives confidence for the future and the Board is very grateful to everyone in the business who has made these results possible. This is my first Chairman's statement and I am delighted to welcome Jonathan Morgan to the Board as a non-executive director. He has considerable experience and insight gained in senior positions in the unquoted investment industry both in the UK and abroad and I am sure he will provide us with valuable counsel. As we previously reported, Stephen Roper stepped down as Chairman at the last AGM but we are delighted to have retained his services as President of our US business working on a part time basis with the hospitality management team and focusing on accelerating the growth of our US hotel and restaurant accounts. Outlook Assuming a reasonably steady economic outlook, sustained customer investment in some of our key hospitality markets and recognising the good autumn listings profile for our retail business, there is every prospect that trading conditions will continue to be favourable for the Group. We are actively reviewing our investment strategy both with regard to our manufacturing footprint and market presence. Given our strong performance so far this year, we believe we are well placed to exceed current market expectations for Churchill for the full year 2007, although we do not expect the rate of growth in the second half to match the robust rate achieved in the first half. We look forward to delivering continued growth for shareholders. Jonathan Sparey Chairman 30 August 2007 Churchill China plc Consolidated Income Statement for the six months ended 30 June 2007 Unaudited Unaudited Unaudited Six months to Six months to Twelve months to 30 June 2007 30 June 2006 31 December 2006 As restated As restated Before Before Total Exceptional Exceptional Exceptional Exceptional Items Items Total Items Items Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Revenue 22,218 20,867 - 20,867 45,930 - 45,930 ========= ======== ======== ======= ======== ======== ======== Operating profit before exceptional 1,034 828 - 828 2,795 - 2,795 items Exceptional items - - 2,660 2,660 - 2,660 2,660 --------- -------- -------- ------- -------- -------- -------- Operating profit after exceptional items 1,034 828 2,660 3,488 2,795 2,660 5,455 Share of results of associate company 39 (4) - (4) (7) - (7) Finance 288 135 135 294 294 Income --------- -------- -------- ------- -------- -------- -------- Profit before 1,361 959 2,660 3,619 3,082 2,660 5,742 Income Tax Income Tax expense (441) (266) (785) (1,051) (846) (785) (1,631) --------- -------- -------- ------- -------- -------- -------- Profit for the period 920 693 1,875 2,568 2,236 1,875 4,111 ========= ======== ======== ======= ======== ======== ======== Attributable to: Equity holders 920 693 1,875 2,568 2,236 1,875 4,111 of the parent ========= ======== ======== ======= ======== ======== ======== Pence per share Pence per share Pence per share Basic earning per ordinary share 8.4 23.5 37.7 Diluted basic earnings per ordinary share 8.4 23.5 37.7 All the above figures relate to continuing operations. Restated to reflect the adoption of IFRS. Churchill China plc Consolidated Balance Sheet as at 30 June 2007 Unaudited Unaudited Unaudited 30 June 30 June 31 December 2007 2006 2006 As restated As restated Â£000 Â£000 Â£000 Assets Non Current Assets Property, plant and equipment 10,503 10,791 10,693 Intangible assets 38 40 35 Investment associates 836 799 797 Available for sale financial assets 22 22 22 Deferred income tax assets 848 1,576 1,043 ------------ ----------- ------------ 12,247 13,228 12,590 ------------ ----------- ------------ Current Assets Inventories 6,969 9,059 6,857 Trade and other receivables 9,157 9,095 10,111 Cash and cash equivalents 8,539 3,583 6,410 ------------ ----------- ------------ 24,665 21,737 23,378 ------------ ----------- ------------ Total Assets 36,912 34,965 35,968 ============ =========== ============ Liabilities Current liabilities Trade and other payables (6,990) (5,904) (6,177) Current income tax liabilities (414) (508) (190) ------------ ----------- ------------ (7,404) (6,412) (6,367) ------------ ----------- ------------ Non current liabilities Retirement benefit obligations (3,748) (4,102) (3,948) ------------ ----------- ------------ Total non current liabilities (3,748) (4,102) (3,948) ------------ ----------- ------------ Total liabilities (11,152) (10,514) (10,315) ============ =========== ============ Net Assets 25,760 24,451 25,653 ============ =========== ============ Capital and reserves attributable to equity holders of the Company Issued share capital 1,094 1,086 1,090 Share premium account 2,329 2,207 2,266 Retained earnings 21,183 19,993 21,140 Other reserves 1,154 1,165 1,157 ------------ ----------- ------------ 25,760 24,451 25,653 ============ =========== ============ Restated to reflect the adoption of IFRS. Churchill China plc Statement of recognised income and expense for the six months ended 30 June 2007 Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated Â£000 Â£000 Â£000 Net of tax Actuarial gain on retirement benefit obligations - 753 777 Currency translation differences - (2) (10) ------------ ----------- ------------ Net income recognised directly in equity - 751 767 Profit for the year 920 2,568 4,111 ------------ ----------- ------------ Total recognised income for the period 920 3,319 4,878 ------------ ----------- ------------ Attributable to Equity holders of the company 920 3,319 4,878 ============ =========== ============ Churchill China plc Cash Flow Statement for the six months ended 30 June 2007 Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated Â£000 Â£000 Â£000 Cash generated from operations 3,120 (1,134) 2,886 Interest received 208 121 69 Income tax (paid)/received (22) 62 (316) ----------- ----------- ------------ Net cash from operating activities 3,306 (951) 2,639 ----------- ----------- ------------ Investing activities Purchases of property, plant and equipment (371) (307) (736) Proceeds on disposal of property, plant and equipment 25 3,009 3,053 Purchases of intangible assets (15) (2) (11) ----------- ----------- ------------ Net cash used in investing activities (361) 2,700 2,306 ----------- ----------- ------------ Financing activities Issue of ordinary shares 67 - 63 Dividends paid (883) (793) (1,217) ----------- ----------- ------------ Net cash used in financing activities (816) (793) (1,154) ----------- ----------- ------------ Net increase in cash and cash equivalents 2,129 956 3,791 Cash and cash equivalents at the beginning of the year 6,410 2,629 2,629 Exchange losses on cash and cash equivalents 0 (2) (10) ----------- ----------- ------------ Cash and cash equivalents at the end of the year 8,539 3,583 6,410 ----------- ----------- ------------ 1. Basis of preparation The interim financial statements for the period to 30 June 2007 have not been audited or reviewed and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The Company's statutory accounts for the year ended 31 December 2006, prepared under UK Generally Accepted Accounting Principles (UK GAAP) have been delivered to the Registrar of Companies. The report of the Auditors included in these statutory accounts was not qualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. Prior to the 1 January 2007, the Group was required to prepare its consolidated financial statements under UK GAAP. For the year ending 31 December 2007 the Group is required to prepare its annual consolidated financial statements in accordance with accounting standards adopted for use in the European Union (International Financial Reporting standards (IFRS)). The financial statements for the year to 31 December 2006 were audited. The restatement of these figures to reflect the introduction of IFRS has not yet been subject to audit and as such comparative figures for that period are disclosed as unaudited. The interim financial statements for the six months to 30 June 2007 have been prepared in accordance with the accounting policies set out below, taking into account the requirements and options set out in IFRS 1 'First time adoption of International Financial Reporting Standards'. In preparing these interim financial statements the Board has not sought to implement the early adoption of IAS 34 'Interim financial reporting'. The Group has not sought to adopt the IAS 1 transitional guidance on business combinations and cumulative translational differences retrospectively. Additionally the Group has not sought to adopt the guidance on business combinations and cumulative translational differences retrospectively. The transition date for the Group's application of IFRS is 1 January 2006 and comparative figures for 30 June 2006 and 31 December 2006 have been restated to reflect IFRS. Reconciliations of the income statement and balance sheet from those previously reported under UK GAAP to the restated IFRS figures are given later in this report. The interim financial statements have been prepared on the historic cost basis as modified by the revaluation of certain land and buildings and available for sale financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss. 2. Exceptional Items As stated in the Group's accounting policies the Directors regard certain material items as exceptional. The analysis of exceptional items is as follows. Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated Â£000 Â£000 Â£000 Restructuring costs - (366) (366) Curtailment benefit - defined benefit pension scheme - 1,150 1,150 Profit on disposal of plant, property and equipment - 1,876 1,876 ----------- ----------- ------------ - 2,660 2,660 ----------- ----------- ------------ A charge of Â£nil (2006: Â£235,000) has been included in the taxation charge in relation to the exceptional restructuring costs and curtailment benefit. 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 Â£550,000 had been charged in the Group's overall tax charge in 2006 in respect of this disposal. Net receipts of Â£2,898,000 were received in respect of this disposal during 2006. 3. Finance income Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated Â£000 Â£000 Â£000 Other interest receivable 208 121 230 Net finance credit / (charge): pensions 80 14 64 ----------- ----------- ------------ 288 135 294 ----------- ----------- ------------ 4. Income tax expense Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated Â£000 Â£000 Â£000 Current taxation 246 129 187 Deferred taxation 195 922 1,444 ----------- ----------- ------------ 441 1,051 1,631 ----------- ----------- ------------ 5. Earnings per ordinary share Basic earnings per ordinary share is based on the profit for the period and on 10,919,771 (June 2006: 10,862,126, December 2006: 10,867,167) 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 for the period and adjusted to take into account exceptional items. Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 Pence per share Pence per share Pence per share Basic earnings per share 8.4 23.5 37.7 Adjustments: Restructuring costs - 2.4 2.4 Profit on disposal of - (12.2) (12.2) property, plant and equipment Curtailment of pension benefits - (7.4) (7.4) ----------- ----------- ------------ Adjusted earnings per share 8.4 6.3 20.5 =========== =========== ============ Diluted basic earnings per ordinary share is based on the profit for the period and on 10,986,179 (June 2006: 10,898,293; December 2006: 10,910,580) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,919,771 (June 2006: 10,862,126; December 2006: 10,867,167) increased by 66,408 (June 2006: 36,167; December 2006: 43,413) 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 for the period and adjusted to take into account exceptional items. Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 Pence per share Pence per share Pence per share Â£000 Â£000 Â£000 Diluted basic earnings per share 8.4 23.5 37.7 Adjustments: Restructuring costs - 2.4 2.4 Profit on disposal of - (12.2) (12.2) property, plant and equipment Curtailment of pension benefits - (7.4) (7.4) ----------- ----------- ------------ Diluted adjusted earnings per share 8.4 6.3 20.5 =========== =========== ============ 6. Reconciliation of profit before tax to cash generated from operations Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated Â£000 Â£000 Â£000 Cash generated from operations Profit before income tax 1,361 3,619 5,742 Adjustments for: Depreciation 556 873 1,297 Profit on disposal of property, plant and equipment (7) (1,884) (1,892) Share based payments 3 4 8 Finance income (208) (121) (69) Decrease in retirement benefit obligations (200) (1,164) (1,214) Share of (profit) / loss of associated company (39) 4 7 Changes in working capital: Inventory (112) (413) 1,789 Trade and other receivables 954 1,007 (9) Trade and other payables 812 (165) 190 ---------- ----------- ------------ Cash generated from operations before additional pension payments 3,120 1,760 5,849 Additional cash contributions to the pension scheme - (2,894) (2,963) ---------- ----------- ------------ Cash generated from operations 3,120 (1,134) 2,886 ---------- ----------- ------------ 7. Reconciliation of movements in shareholders' equity Unaudited Unaudited Unaudited Six months to Six months to Twelve months 30 June 30 June to 31 December 2007 2006 2006 As restated As restated Â£000 Â£000 Â£000 Opening balance as previously reported 26,155 22,446 22,446 Adjustments on adoption of IFRS from 1 January 2006 (502) (525) (525) ---------- ----------- ------------ Opening balance as restated 25,653 21,921 21,921 Total recognised income and expense for the period 920 3,319 4,878 Dividends paid (883) (793) (1,217) Shares issued 67 - 63 Increase in share based payment reserve 3 4 8 ---------- ----------- ------------ 25,760 24,451 25,653 ---------- ----------- ------------ Significant changes to disclosure - segmental analysis The Company has considered the segmentation of the business under the guidance in IAS 14 and considers the business should be disclosed in two primary segments, hospitality and retail. Additional disclosure will be made detailing the trading performance and assets of each of these segments. This information has not been included in these interim financial statements but will be included in the financial statements at 31 December 2007. Accounting policies The accounting policies set out below and used in the preparation of the interim financial statements represent the principal policies expected to apply to the preparation of the financial statements for the year ending 31 December 2007. Basis of consolidation The consolidated financial statements of Churchill China plc include the results of the Company, its subsidiaries and associates. The financial statements of each undertaking are prepared in the Group are prepared to the balance sheet date. Subsidiaries accounting policies are amended, where necessary, to ensure consistency with the accounting policies adopted by the Group. Intra group transactions are eliminated on consolidation. Segment Reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. Income and expenditure arising directly from a business segment are identified to that segment. Income and expenditure arising from central operations which relate to the Group as a whole or cannot reasonably be allocated between segments are not identified to a specific segment. Revenue Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, rebates and sales related taxes. Sales of goods are recognised when goods have been delivered and title in those goods has passed. Rebates are recognised at their anticipated level as soon as any liability is expected to arise. Interest income is recognised on a time basis by reference to the principal outstanding and at the effective interest rate applicable. Dividend income is recognised when the Group's right to receive payment has been established. Leases Management review all new leases and classify them as operating or finance leases in accordance with the guidance in the standard. Lease payments made under operating leases are charged to income on a straight line basis over the term of the lease. Operating profit and exceptional items Operating profit is stated both before and after the effect of exceptional items but before the Group's share of results in associate company, impairment of investment in associate company, finance income and costs and taxation. The Group has adopted a columnar income statement format which seeks to highlight significant items within the Group results for the period. Such items are considered by the Directors to be exceptional in size and nature rather than being representative of the underlying trading of the Group, and may include such items as restructuring costs, material impairments of non current assets, material profits and losses on the disposal of property, plant and equipment and material increases or reductions in pension scheme costs. The Directors apply judgement in assessing the particular items, which by virtue of their size and nature are separately disclosed in the income statement and notes to the financial statements as 'Exceptional items'. The Directors believe that the separate disclosure of these items is relevant in understanding the Group's financial performance. Retirement benefit costs The Group operates a defined benefit pension scheme and defined contribution pension schemes. The defined benefit scheme is valued every three years by a professionally qualified independent actuary. In intervening years the actuary reviews the continuing appropriateness of the valuation. Schemes liabilities are measured using the projected unit method. The assets of the scheme are held separately from those of the Group and are measured at fair value. The accrual of further benefits under the scheme ceased on 31 March 2006. The regular service cost of providing retirement benefits to employees during the year, together with the cost of any benefits relating to past service and any benefits arising from curtailments, is charged or credited to operating profit in the year. These costs are included within staff costs. A credit representing the expected return on the assets of the scheme during the year is included within finance income / cost. This is based on the market value of the assets of the scheme. A charge representing the expected increase in the present value of the liabilities in the scheme is included within finance income / cost. This arises from the liabilities of the scheme being one year closer to payment. The difference between the market value of assets and the present value of accrued pension liabilities is shown as an asset or liability in the balance sheet. Differences between actual and expected return on assets during the year are recognised in the statement of recognised income and expense in the year, together with differences arising from changes in assumptions. Costs associated with defined contribution schemes represent contributions payable by the Group during the year. Share based payments Where share options have been issued to employees, the fair value of options at the date of grant is charged to the profit and loss account over the period over which the options are expected to vest. The number of ordinary shares expected to vest at each balance sheet date are adjusted to reflect non market vesting conditions such that the total charge recognised over the vesting period reflects the number of options that ultimately vest. Market vesting conditions are reflected within the fair value of the options granted. If the terms and conditions attaching to options are amended before the options vest any change in the fair value of the options is charged to the profit and loss account over the remaining period to the vesting date. National insurance contributions payable by the Company in relation to unapproved share option schemes are provided for on the difference between the share price at the balance sheet date and the exercise price of the option where the share price is higher than the exercise price. Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which the company operates (its functional currency). For the purpose of the consolidated financial statements the results of each entity are expressed in sterling, which is the functional currency of the Group and is the presentation currency for the consolidated financial statements. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Non monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at average exchange rates for the period. Exchange differences arising, if any, are dealt with through reserves. In order to manage its exposure to certain foreign exchange risks, the Group enters into forward currency contracts (see 'Derivative financial instruments' below). Derivative financial instruments The Group's operations expose it to the financial risks of changes in exchange rates. The Group uses forward currency contracts to mitigate this exposure. The Group does not use derivative financial instruments for speculative purposes. Changes in the fair value of derivative financial instruments are recognised immediately in the income statement as soon as they arise. Gains and losses on all derivatives held at fair value outstanding at a balance sheet date are recognised in the income statement to that balance sheet date. Taxation Income tax expense represents the sum of the tax current tax and deferred tax. Current tax is based on the taxable profit for the year. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for, if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction there is no effect on either accounting or taxable profit or loss. The Group's liability for deferred tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date or are expected to apply when the related deferred income tax asset is realised or deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax assets and liabilities are not discounted. Deferred tax assets and liabilities may be set off against each other provided there is a legal right to do so and it is managements' intention to do so. Property, plant and equipment Property, plant and equipment is shown at cost, net of depreciation, as adjusted for the revaluation of certain land and buildings. Depreciation is calculated so as to write off the cost, less any provision for impairment, of plant, property and equipment, less their estimated residual values over the expected useful economic lives of the assets concerned. The principal annual rates used for this purpose are: % Freehold buildings 2 on cost or valuation Plant and machinery 10-25 on cost Motor vehicles 25 on reducing net book value Fixtures and fittings 25-33 on cost Freehold land is not depreciated. Intangible assets Intangible assets (computer software) are shown at cost net of depreciation. Depreciation is calculated so as to write off the cost, less any provision for impairment, of intangible assets, less their estimated residual values over the expected useful economic lives of the assets concerned. The principal annual rate used for this purpose is: % Computer software 33 on cost Investment in associate An associate is defined as an entity which the Group is in a position to exercise significant influence over, taking part in, but not controlling, the financial and operational management of the entity. The Group's share of post acquisition profits less losses of the associate, is included in the consolidated profit and loss account, and the Group's share of its net assets after any impairment to the carrying value of those assets is included in the consolidated balance sheet, using the equity method of accounting. These amounts are taken from the latest financial statements of the undertaking concerned, which has the same accounting reference date as the Group. Since the accounting policies of the associate do not necessarily conform in all respects to those of the Group, adjustments are made on consolidation where the amounts involved are material to the Group. Impairment of non financial assets At each reporting date the Directors assess whether an asset may be impaired. If any such indicator exists the Group tests for impairment by estimating the recoverable amount of the asset. If the recoverable amount is less than the carrying value of an asset an impairment loss is required. In addition to this, assets with indefinite lives are tested for impairment at least annually. Available for sale financial assets Available for sale financial assets are non derivatives that are either designated in this category or not classified to any of the other financial asset categories. They are included in non current assets unless the Directors intend to dispose of the investment within twelve months of the balance sheet date. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first in first out basis and includes, where appropriate, direct materials, direct labour, overheads incurred in bringing inventories to their present location and condition and transport and handling costs. Net realisable value is the estimated selling cost less all further costs to sale. Provision is made where necessary for obsolete, slow moving and defective inventories. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment is established where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held on call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Non current assets held for sale Non current assets are classified as being held for sale where their value is expected to be recovered through disposal rather than continuing usage within the business. This is generally held to be where there is a high probability of sale in the near future. Management must be committed to sale which should be expected to be completed to qualify for recognition as a completed sale within one year from the date of classification. Provisions Provisions are recognised when (i) the Group has a present legal or constructive obligation as a result of past events, (ii) it is probable that an outflow of resources will be required to settle the obligation and (iii) the amount has been reliably estimated. The Directors estimate the amount of provisions required to settle any obligation at the balance sheet date. Provisions are discounted to their present value where the effect would be material. Churchill China plc IFRS Transition Statements Income Statements As IAS 21 Total previously IAS 38 IAS 19 Foreign IAS 12 Other transition Restated reported IAS 18 intangible IAS 36 IAS 17 Employee exchange Deferred IAS Effect to under (UK GAAP) Revenue assets Goodwill Leases Benefits rates tax adjustments IFRS IFRS 6 months to 30 June Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 2006 Revenue 21,878 (1,011) (1,011) 20,867 ======================================================================================================== Operating Profit before exceptional items 813 11 4 0 15 828 Exceptional items 784 1,876 1,876 2,660 -------------------------------------------------------------------------------------------------------- Operating profit after exceptional items 1,597 11 4 1,876 1,891 3,488 Share of results of associated company (4) (4) (4) Profit on disposal of property, plant and equipment 1,876 (1,876) (1,876) 0 Finance 140 (5) (5) 135 Income -------------------------------------------------------------------------------------------------------- Profit before Income Tax 3,613 0 0 11 4 0 0 0 (9) 6 3,619 Income Tax expense (1,061) (1) 2 9 10 (1,051) -------------------------------------------------------------------------------------------------------- Profit for the period 2,552 0 0 11 3 0 0 2 0 16 2,568 ======================================================================================================== Attributable to: Equity holders of the parent 2,552 0 0 11 3 0 0 2 0 16 2,568 ======================================================================================================== As IAS 21 Total previously IAS 38 IAS 19 Foreign IAS 12 Other transition Restated reported IAS 18 Intangible IAS 22 IAS 17 Employee exchange Deferred IAS Effect to under (UK GAAP) Revenue assets Goodwill Leases Benefits rates tax adjustments IFRS IFRS Year to 31 December Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 2006 Revenue 47,757 (1,827) (1,827) 45,930 ======================================================================================================== Operating Profit before exceptional items 2,777 22 (5) 1 18 2,795 Exceptional items 784 1,876 1,876 2,660 -------------------------------------------------------------------------------------------------------- Operating profit after exceptional items 3,561 22 (5) 1 1,876 1,894 5,455 Share of results of associated company 5 (12) (12) (7) Profit on disposal of property, plant and equipment 1,876 (1,876) (1,876) 0 Finance Income 305 (11) (11) 294 -------------------------------------------------------------------------------------------------------- Profit before 5,747 0 0 22 (5) 1 0 0 (23) (5) 5,742 Income Tax Income Tax expense (1,659) 1 4 23 28 (1,631) -------------------------------------------------------------------------------------------------------- Profit for the 4,088 0 0 22 (4) 1 0 4 0 23 4,111 period ======================================================================================================== Attributable to: Equity holders 4,088 0 0 22 (4) 1 0 4 0 23 4,111 of the parent ======================================================================================================== Churchill China plc IFRS Transition Statements Balance Sheets As IAS 18 IAS 38 IAS 36 IAS 17 IAS 19 IAS 21 IAS 12 Other IAS Total Restated previously transition under reported effect to (UK GAAP) Revenue Intangible Goodwill Leases Employee Foreign Deferred adjustments IFRS IFRS assets Benefits Exchange tax Rates 31 December 2005 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Non Current Assets Plant, Property and Equipment 11,485 (53) (68) (121) 11,364 Goodwill and intangible Assets 56 53 (56) (3) 53 Investment in 803 0 803 Associates Available for sale 22 0 22 financial assets Deferred income tax assets (386) 3,206 2,820 2,820 -------------------------------------------------------------------------------------------------------- 12,366 0 0 (56) (68) 0 0 (386) 3,206 2,696 15,062 -------------------------------------------------------------------------------------------------------- Current Assets Inventories 8,646 0 8,646 Trade and other receivables 10,537 (435) (435) 10,102 Cash and cash 2,629 0 2,629 equivalents -------------------------------------------------------------------------------------------------------- 21,812 0 0 0 0 0 0 0 (435) (435) 21,377 Non current assets held for sale 1,022 0 1,022 -------------------------------------------------------------------------------------------------------- Current 22,834 0 0 0 0 0 0 0 (435) (435) 22,399 Assets -------------------------------------------------------------------------------------------------------- Total Assets 35,200 0 0 (56) (68) 0 0 (386) 2,771 2,261 37,461 ======================================================================================================== Current liabilities Trade and other (5,928) (53) (53) (5,981) payables Current income tax (318) 0 (318) liabilities Hire (22) 22 22 0 purchase Provisions for other liabilities (6) 0 (6) and charges -------------------------------------------------------------------------------------------------------- (6,274) 0 0 0 22 (53) 0 0 0 (31) (6,305) -------------------------------------------------------------------------------------------------------- Non current liabilities Hire (16) 16 16 0 purchase Retirement benefit obligations (6,464) (2,771) (2,771) (9,235) -------------------------------------------------------------------------------------------------------- Total non current liabilities (6,480) 0 0 0 16 0 0 0 (2,771) (2.755) (9,235) -------------------------------------------------------------------------------------------------------- Total liabilities (12,754) 0 0 0 38 (53) 0 0 (2,771) (2,786) (15,540) ======================================================================================================== Net Assets 22,446 0 0 (56) (30) (53) 0 (386) 0 (525) 21,921 ======================================================================================================== Capital and reserves attributable to equity holders in Company Issued share capital 1,086 0 1,086 Share premium 2,207 0 2,207 account Retained earnings 17,600 (56) (30) (53) (139) 17,461 Other 1,553 (386) (386) 1,167 reserves -------------------------------------------------------------------------------------------------------- 22,446 0 0 (56) (30) (53) 0 (386) 0 (525) 21,921 ======================================================================================================== Churchill China plc IFRS Transition Statements Balance Sheets As IAS 18 IAS 38 IAS 36 IAS 17 IAS 19 IAS 21 IAS 12 Other IAS Total Restated previously transition under reported effect to (UK GAAP) Revenue Intangible Goodwill Leases Employee Foreign Deferred adjustments IFRS IFRS assets Benefits Exchange tax Rates 30 June 2006 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Non Current Assets Property, plant and Equipment 10,890 (40) (59) (99) 10,791 Goodwill and intangible Assets 45 40 (45) (5) 40 Investment in 799 0 799 Associates Available for sale 22 0 22 financial assets Deferred income tax assets (384) 1,960 1,576 1,576 -------------------------------------------------------------------------------------------------------- 11,756 0 0 (45) (59) 0 0 (384) 1,960 1,472 13,228 -------------------------------------------------------------------------------------------------------- Current Assets Inventories 9,059 9,059 Trade and other receivables 9,824 (729) (729) 9,095 Cash and cash 3,583 3,583 equivalents -------------------------------------------------------------------------------------------------------- 22,466 0 0 0 0 0 0 0 (729) (729) 21,737 Non current assets held for sale Current 22,466 0 0 0 0 0 0 0 (729) (729) 21,737 Assets -------------------------------------------------------------------------------------------------------- Total Assets 34,222 0 0 (45) (59) 0 0 (384) 1,231 743 34,965 ======================================================================================================== Current liabilities Trade and other (5,793) (53) (53) (5,846) payables Current income tax (507) (1) (1) (508) liabilities Hire (22) 22 22 0 purchase Provisions for other liabilities (58) 0 (58) and charges -------------------------------------------------------------------------------------------------------- (6,380) 0 0 0 21 (53) 0 0 0 (32) (6,412) -------------------------------------------------------------------------------------------------------- Non current liabilities Hire (11) 11 11 0 purchase Retirement benefit obligations (2,871) (1,231) (1,231) (4,102) -------------------------------------------------------------------------------------------------------- Total non current liabilities (2,882) 0 0 0 11 0 0 0 (1,231) (1,220) (4,102) -------------------------------------------------------------------------------------------------------- Total liabilities (9,262) 0 0 0 32 (53) 0 0 (1,231) (1,252) (10,514) ======================================================================================================== Net Assets 24,960 0 0 (45) (27) (53) 0 (384) 0 (509) 24,451 ======================================================================================================== Capital and reserves attributable to equity holders in Company Issued share capital 1,086 0 1,086 Share premium 2,207 0 2,207 account Retained earnings 20,116 0 (45) (27) (53) 2 (123) 19,993 Other 1,551 (2) (384) (386) 1,165 reserves -------------------------------------------------------------------------------------------------------- 24,960 0 0 (45) (27) (53) 0 (384) 0 (509) 24,451 ======================================================================================================== Churchill China plc IFRS Transition Statements Balance Sheets As IAS 18 IAS 38 IAS 36 IAS 17 IAS 19 IAS 21 IAS 12 Other IAS Total Restated previously transition under reported effect to (UK GAAP) Revenue Intangible Goodwill Leases Employee Foreign Deferred adjustments IFRS IFRS assets Benefits Exchange tax Rates 31 December 2006 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Non Current Assets Property, plant and equipment 10,779 (35) (51) (86) 10,693 Goodwill and intangible Assets 34 35 (34) 1 35 Investment in 797 0 797 Associates Available for sale 22 0 22 financial assets Deferred income tax assets (382) 1,425 1,043 1,043 -------------------------------------------------------------------------------------------------------- 11,632 0 0 (34) (51) 0 0 (382) 1,425 958 12,590 -------------------------------------------------------------------------------------------------------- Current Assets Inventories 6,857 0 6,857 Trade and other receivables 10,412 (301) (301) 10,111 Cash and cash 6,410 0 6,410 equivalents -------------------------------------------------------------------------------------------------------- 23,378 0 0 0 0 0 0 0 (301) (301) 23,378 Non current assets held for sale 0 Current 23,679 0 0 0 0 0 0 0 (301) (301) 23,378 Assets -------------------------------------------------------------------------------------------------------- Total Assets 35,311 0 0 (34) (51) 0 0 (382) 1,124 657 35,968 ======================================================================================================== Current liabilities Trade and other (6,125) (52) (52) (6,177) payables Current income tax (191) 1 1 (190) liabilities Hire (16) 16 16 0 purchase Provisions for other liabilities 0 0 and charges -------------------------------------------------------------------------------------------------------- (6,332) 0 0 0 17 (52) 0 0 0 (35) (6,367) -------------------------------------------------------------------------------------------------------- Non current liabilities Hire 0 0 purchase Retirement benefit obligations (2,764) (1,184) (1,184) (3,948) Deferred income tax liabilities (60) 60 60 0 -------------------------------------------------------------------------------------------------------- Total non current liabilities (2,824) 0 0 0 0 0 0 0 (1,124) (1,124) (3,948) -------------------------------------------------------------------------------------------------------- Total liabilities (9,156) 0 0 0 17 (52) 0 0 (1,124) (1,159) (10,315) ======================================================================================================== Net Assets 26,155 0 0 (34) (34) (52) 0 (382) 0 (502) 25,653 ======================================================================================================== Capital and reserves attributable to equity holders in Company Issued share capital 1,090 0 1,090 Share premium 2,266 0 2,266 account Retained earnings 21,250 (34) (34) (52) 10 (110) 21,140 Other 1,549 (10) (382) (392) 1,157 reserves -------------------------------------------------------------------------------------------------------- 26,155 0 0 (34) (34) (52) 0 (382) 0 (502) 25,653 ======================================================================================================== Explanatory notes to the adjustments from UK GAAP to IFRS Revenue Previously, Churchill China plc disclosed the cost of annual retrospective rebates and discounts paid to customers on achievement of revenue and certain other contractual targets as a cost of sale. Following consideration of the terms of the individual contractual arrangements, these retrospective rebates and discounts are now classified as a reduction to gross revenue, with no change to profit before tax in the year. Intangible assets Previously, computer software assets were carried in fixtures and fittings within Fixed Assets. Under IAS 38, computer software is now classed as an intangible asset. Goodwill Previously, the goodwill acquired on the acquisition of Wren Giftware was amortised over a twenty year life. Under IAS 36, acquired goodwill is subject to an annual impairment test. Following the application of this impairment test it has been calculated that as at 31 December 2005 there was no remaining value to the goodwill acquired. Leases Previously, a lease relating to computer hardware was classed as a finance leases. Under IAS 17, this lease has been reclassified as an operating lease. Employee Benefits Previously, the Group provided for short term employee benefits in relation to unused holiday pay for weekly paid employees, but did not provide for that associated with monthly paid employees. Under IAS 19, the Group has provided for liabilities associated with monthly paid employees in addition to provisions for weekly paid employees. Foreign Exchange rates Previously, the Group wrote off translation differences on the consolidation of its US subsidiary to the profit and loss account. Under IAS 21, these differences must now be written off to a separate currency reserve. The Group has taken the transitional exemption under IFRS 1 to restate these differences from 1 January 2006. Valuation of Properties and Deferred Tax Freehold land and buildings were last revalued in 1992. On the introduction of FRS 15 the Group opted to treat freehold property at cost and the earlier valuation, as modified by subsequent additions and disposals, was classed as deemed cost. Deferred tax was not provided as it was believed that any such liability would not crystallise. Under IFRS the Group will adopt the deemed cost basis for land and buildings. Under IAS 12 deferred tax is provided on the potential taxable gain on the sale of the land at its revalued level and on the difference between the net book value and tax value of buildings. No credit has been taken for available capital losses as it is not probable that they will crystallise. Other IAS adjustments The disclosure of the exceptional profit on disposal of property, plant and equipment in the comparative 2006 results was treated under UK GAAP as a line item below operating profit. This has been amended to reflect IFRS requirements and is now treated as an operating exceptional item. This reclassification does not affect reported profits in the period. Previously, the Group disclosed its share of the operating profit, interest received and tax of the results of its associated company Furlong Mills Limited separately on the face of the profit and loss account. Under IAS 1 these separate elements are now disclosed as a single figure 'Share of results of associated company' in the income statement. Previously, the Group disclosed deferred tax assets and liabilities within current assets, provisions for liabilities and charges and on a netted off basis against related pension scheme liabilities. Under IAS 12 deferred tax is classified as non current on a classified balance sheet. This information is provided by RNS The company news service from the London Stock Exchange

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Churchill China (CHH)

Tuesday, 14th May 2024

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