Preliminary Results
Churchill China PLC
23 March 2006
FOR IMMEDIATE RELEASE 23 MARCH 2006
CHURCHILL CHINA PLC
PRELIMINARY RESULTS
for the year ended 31 December 2005
Churchill China plc, the manufacturer and global distributor of ceramic products
and household goods to the hospitality and retail markets, is pleased to
announce its preliminary results for the year ended 31 December 2005.
Key Points:
* Profit before exceptional items and tax of £2.6m (2004 : £3.3m) meets revised
expectations
* Profit before tax of £2.8m (2004 : £2.4m)
* Basic earnings per share 24.8p (2004: 16.0p)
* Adjusted earning per share 17.7p (2004: 21.5p)
* Strong all round performance in second half year
* Continued growth and investment in Hospitality market
* Progress against key targets in revised Retail market strategy
* Strong operating cash flow. Year end net cash £2.6m (2004 : £1.0m)
* Property disposals successfully completed. Plan to reduce pensions deficit
implemented
* Dividends declared in the year dividend maintained at 11p per ordinary share
(2004 : 11p)
On prospects, Stephen Roper, Chairman said:
'Trading in the early months of 2006 has been encouraging and in line with our
expectations. Over the last few years Churchill has been restructured and
re-invented. The Group has emerged as a leaner business with a strong balance
sheet and the capacity to invest for the medium term where we perceive
attractive opportunities.'
For further information, please contact:
Andrew Roper/David Taylor Today on: 020 7466 5000
Churchill China plc thereafter on: 01782 577566
Tim Anderson/Lisa Baderoon/Rebecca Skye Dietrich
Buchanan Communications Limited Tel No: 020 7466 5000
CHAIRMAN'S STATEMENT
In the year to 31 December 2005, I am pleased to report results in line with
market expectations as indicated in our January trading update. Group turnover
for the year was £46.4m (2004 : £49.0m) and profit before tax and exceptional
items £2.6m(2004 : £3.2m). Group profit before tax was £2.8m (2004: £2.4m)
These results were achieved following healthy trading in the last quarter for
Hospitality and the successful implementation of the revised Retail strategy
involving an increased proportion of Retail sales being made on a direct
shipment basis.
Hospitality sales showed modest growth overall, following stronger growth in the
second half of the year. 2005 was a year in which we consolidated the
substantial gains made in 2004 both in UK and international markets.
The Alchemy range continues to prosper with year on year growth in excess of
40%, particularly to the 4 and 5 star hotel market. Product design, innovation
and service were again key elements underpinning this successful growth.
As anticipated, Retail sales were down on last year, reflecting the first full
year of totally outsourced activity with no UK manufactured product. The second
half of the year saw an acceleration of our strategy to develop direct shipments
to major customers both in the UK and overseas through our newly established
Shanghai office.
The objective of this strategy is to provide our volume customer base with
Churchill branded product at the lowest cost combined with the highest standards
of design, service and logistics. The benefits to the Group of lower operating
costs, reduced stocks and improved contribution are already being achieved. Our
new UK warehouse has enabled us to build upon our existing reputation for the
provision of a high quality service to our middle market customers.
Our cost base continued to be impacted by increases in a number of areas
including materials, gas and pensions. Cost saving initiatives arising from the
consolidation of dish production and investment in new warehousing has benefited
profit for the full year. These efficiency gains will support profit growth
going forward.
Financial Overview
Group sales in the year were £46.4m (2004 : £49.0m). Operating margins before
exceptional items were 5.8% (2004: 6.6%). Operating profit before exceptional
items was £2.7m (2004: £3.2m), after exceptional items it was £2.7m (2004:
£2.4m)
Basic earnings per share for the year were 24.8p (2004 : 16.0p). Adjusted
earnings per share (before exceptional items) were 17.7p (2004 : 21.5p)
The tax charge for the year includes a charge of £57,000 (2004: credit of
£254,000) in respect of exceptional items and a credit of £550,000 (2004: £nil)
in respect of the recognition of a deferred tax asset. This deferred tax asset
relates to the 2006 disposal of the Alexander and is recognised in accordance
with FRS 19 'Deferred Tax'. Both these items have been treated as exceptional.
Despite lower Operating Profits in the year the Group has delivered an increase
in both cash generation and in overall net cash as at 31 December 2005. After
additional pension payments of £1.3m (2004 : £0.2m), operating cash generation
was £4.1m (2004 : £1.6m). This was achieved as a result of close control of
working capital and particularly in respect of the reduction in stock and work
in progress of £1.3m over the year.
Whilst capital expenditure remained above normal levels given the completion of
the Sandyford warehouse in the year, overall net cash balancse rose to £2.6m
(2004 : £1.0m). Receipts from property disposals of £1.2m were offset by
payments of an equivalent amount into the Group's final salary pension scheme.
During the year the disposal of remaining part of the Anchor site was completed
realising gross proceeds of £1.2m and an exceptional profit on disposal of
£0.2m. The disposal of the Alexander site was completed in January 2006,
realising gross proceeds of £3.0m and will result in an exceptional profit on
disposal of £1.9m in 2006. Both these projects have allowed the Group to realise
substantial ongoing operating cost reductions in addition to the one-off benefit
of proceeds received.
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'. The introduction of FRS 17 'Retirement Benefits' has required that the
deficit on the Group's defined benefit pension scheme has been brought onto the
Group's balance sheet. This has resulted in a reduction to net assets of £6.5m
as at 31 December 2005 (2004: £8.0m). Further details of the effect of these
changes are given later in this Report. The Group is not required to adopt
International Financial Reporting Standards until 2007.
We have introduced a number of measures to address the deficit which has arisen
in the Group's final salary pension scheme. Substantial contributions totalling
£4.0m in late 2005 and early 2006 largely addresses the deficit under the
independent Scheme Actuary's recommended funding basis and will ensure that
future deficit amortisation payments remain at acceptable levels. In addition
the scheme will be closed in respect of the future accrual of benefits with
effect from 31 March 2006.
Dividend
The Board is pleased to announce that given the achievement of revised forecasts
and the strong cash generation evident in the second half of the year it
proposes a final dividend of 7.3p per ordinary share (2004 : 7.3p). The total
dividends declared in relation to the year will therefore remain at 11p per
ordinary share (2004 : 11p).
Business Review
Sales
Sales of Hospitality products were £26.6m (2004 : £26.0m). We consolidated our
position of UK market leadership and made good progress in a number of export
markets. The successful growth in sales of both Alchemy and added value
Churchill vitrified product in part reflects the general upgrading of
Hospitality markets world wide. Sales of more basic product lines have been
subject to increased pressure in the market place.
Alchemy grew by over 40% year on year demonstrating the appeal of this product
range to all markets which further enhanced by the launch of a number of
creative shapes and designs. Very specifically the introduction of the Buffet
range at the end of the year has already enabled us to make considerable
progress in widening our appeal in premium sectors.
Our response to the vitrified trend has been to introduce a greater degree of
style and flair in product design for the volume segment of the market. The
introduction of squared plates and multi shaped vitrified bowls have already
demonstrated the success of this innovative strategy. Similar launches are
planned through the coming year. Our UK sales team further demonstrated our
ability to capture key national account business.
To support growth in export markets, we have invested further sales resource in
our US and Spanish operations. More recently we have opened an office in Dubai
to capitalise on significant growth opportunities in the Middle East.
Sales of Retail products were £19.8m (2004 : £23.0m). Sales and average pricing
were predictably lower as UK manufactured product was completely substituted by
lower costed sourced product.
Our strategy for the Retail business is to develop direct shipments to major UK
and overseas customers facilitated by our Shanghai office. Churchill's
competitive advantage is to add value through top level design, procurement and
fulfilment for branded and bespoke products to both full service and direct ship
customers. This strategy is already generating additional quality listings and
will benefit the Group through increased contribution.
Manufacturing and Operations
We have made substantial progress during the year in improving the efficiency of
our manufacturing and logistics functions. Two major cost reduction projects,
the construction of the new Sandyford warehouse at a cost of £2.7m and the
transfer of dish production from our Longton site into the Sandyford and
Whieldon Road factories were completed ahead of schedule and have delivered in
excess of the targeted savings. We now operate from only two UK sites. In the
second half of the year the benefits of site consolidation and the ability to
focus solely on the production of Hospitality product have led to considerable
yield and efficiency improvements.
This years profit figures were impacted by higher energy and other input prices.
We have realised a number of cost efficiencies within our manufacturing
processes, particularly in relation to energy utilisation, but we continue to
face input price pressure in a number of areas. Further initiatives are underway
to facilitate additional cost reductions, which will at least partially offset
the expected rises. In the longer term price pressures in the UK energy market
are generally expected to moderate during 2007 although we will continue to
actively manage what remains a significant cost for the Group.
We have also undertaken a major project to develop new demand forecasting and
inventory management systems and it is this investment which has allowed us to
realise substantial reductions in inventory levels in the second half year.
Prospects
We are achieving growth in sales to Hospitality customers in the UK and overseas
markets through the continued success of Alchemy, allied to a number of new
product launches. Within Retail we will be vigourously promoting our new
business model, which will deliver improved contribution and lower working
capital utilisation. Whilst we remain mindful of pressures from increasing fuel
and material costs, we are confident that the cost reduction programme
successfully initiated in 2005 will be sustained and that further efficiencies
can be achieved within our operations.
Trading in the early months of 2006 has been encouraging and in line with our
expectations. Over the last few years Churchill has been restructured and
re-invented. The Group has emerged as a leaner business with a strong balance
sheet and the capacity to invest for the medium term where we perceive
attractive opportunities. We have an excellent team who have effected this
change and I have no doubt they will respond to the challenge of achieving our
growth ambitions.
Consolidated profit and loss account
for the twelve months ended 31 December 2005
2005 2004
As restated
(note 11)
Before Before
exceptional Exceptional Total exceptional Exceptional Total
items items items items
Note £000 £000 £000 £000 £000 £000
Turnover 1 46,399 - 46,399 48,972 - 48,972
Operating
profit /
(loss) 2 2,703 - 2,703 3,220 (866) 2,354
Share of operating
profit of associate
net of
impairment (21) - (21) 100 - 100
Profit on
disposal of
fixed asset 3 - 269 269 - 19 19
Net interest
receivable and
similar income 4 75 - 75 74 - 74
Other
financing
costs (189) - (189) (118) - (118)
Profit /
(loss) on
ordinary
activities
before
taxation 2,568 269 2,837 3,276 (847) 2,429
Tax on profit
/ (loss) on
ordinary
activities 5 (645) 493 (152) (957) 254 (703)
Profit / (loss) on
ordinary activities
after taxation 1,923 762 2,685 2,319 (593) 1,726
Dividends 6 (1,194) (1,117)
Retained
profit for the
period 1,491 609
Pence per Pence per
share share
Earnings per
ordinary share
Basic earning
per ordinary
share 7 24.8 16.0
Diluted basic
eranings per
ordinary share 7 24.7 15.9
Consolidated balance sheet
as at 31 December 2005
31 December 2005 31 December 2004
As restated (note 11)
£000 £000
Fixed assets
Intangible Assets 56 84
Tangible assets 11,485 12,133
Investments 825 840
12,366 13,057
Current assets
Stocks 8,646 9,992
Debtors: amounts falling due within one
year 10,537 10,862
Investments and assets for sale 1,022 -
Cash at bank and in hand 2,629 1,012
22,834 21,866
Creditors: amounts falling due within
one year (6,268) (6,736)
Net current assets 16,566 15,130
Total assets less current liabilities 28,932 28,187
Creditors: amounts falling due after
more than one year (16) -
Provisions for liabilities and charges (6) (104)
Pension liability (6,464) (7,970)
Net assets 22,446 20,113
Capital and reserves
Called up share capital 1,086 1,079
Share premium account 2,207 2,115
Revaluation reserve 1,287 1,299
Other reserves 253 253
Profit and loss account 17,613 15,367
Equity shareholders' funds 22,446 20,113
Consolidated cash flow statement
for the twelve months ended 31 December 2005
Year to Year to
31 December 2005 31 December 2004
£000 £000
Net cash inflow from operating
activities 4,105 1,575
(reconciliation to operating profit - note 8)
Returns on investments and servicing of
finance
Net interest received 67 69
Taxation (368) (620)
Capital expenditure and financial investment
Purchase of tangible fixed assets (2,380) (1,888)
Sale of tangible fixed assets 1,287 1,174
Net cash outflow for capital expenditure and
financial investment (1,093) (714)
Equity dividends paid (1,194) (1,116)
Financing
Issue of ordinary shares 99 111
Payment of principal under finance
leases (6) (6)
Net cash inflow from financing 93 105
Increase / (decrease) in net cash 1,610 (701)
1. Analysis of turnover
The Directors consider that the Group's activities are a single class of
business.
Year to 31 December 2005 Year to 31 December 2004
£000 £000
Geographic Turnover
United Kingdom 30,953 31,459
Rest of Europe 9,549 10,102
North America 4,208 5,369
Australasia 575 877
Far East 197 263
Other 917 902
46,399 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
that year. These exceptional costs comprised:
Year to date 31 December 2005 Year to
31 December 2004
£000 £000
Restructuring costs - 192
Write down of stocks and work
in progress - 674
- 866
A credit of £Nil (2004: £254,000) has been included in the corporation tax
charge in relation to the exceptional items.
3. Profit on disposal of fixed assets
Year to date 31 December 2005 Year to
31 December 2004
£000 £000
Profit on disposal of fixed 269 19
assets
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 has been
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 the
year.
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 receivable and similar income
Year to Year to
31 December 2005 31 December 2004
£000 £000
Other interest receivable 13 70
Interest payable on finance leases - (1)
Share of interest receivable of
associated company 8 5
Income from fixed asset investment 54 -
75 74
5. Taxation
The taxation charge for the year includes a charge of £57,000 in respect of the
disposal of Anchor Pottery in October 2005 and a credit of £550,000 in relation
to the recognition of a deferred tax asset in accordance with FRS 19 'Deferred
Tax'. The deferred tax asset has arisen as a result of the recognition of
capital losses which will be realised in 2006 against the profit on disposal of
the Alexander Pottery. Both of these items have been treated as exceptional.
6. Dividend
Year to Year to
31 December 2005 31 December 2004
As restated
£000 £000
Final dividend 2003, declared 19 March
2004 - 717
Interim dividend 2004, declared 31
August 2004 - 400
Final dividend 2004, declared 21 March
2005 792 -
Interim dividend 2005, declared 1
September 2005 402 -
1,194 1,117
The proposed dividend, which has not been provided for, has been calculated on
10,862,126 shares being those in issue at 31 December 2005 qualifing for the
dividend and at a rate of 7.3p per 10p ordinary share. The dividend will be paid
on 26 May 2006 to shareholders on the register on 31 March 2006.
7. Earnings per ordinary share
Basic earnings per ordinary share is based on the profit on ordinary activities
after taxation and on 10,844,567 (2004: 10,761,642) 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 and the recognition of a deferred tax
asset relating to capital losses.
Year to Year to
31 December 2005 31 December 2004
pence per pence per
Share share
As restated
Basic earnings per
share 24.8 16.0
Adjustments :
Exceptional items - 5.6
Profit on disposal of fixed assets (2.0) (0.1)
Deferred tax assets recognised (5.1) -
Adjusted earnings per
share 17.7 21.5
Diluted basic earnings per ordinary share is based on the profit on ordinary
activities after taxation and on 10,882,287 (2004: 10,838,761) ordinary shares,
being the weighted average number of ordinary shares in issue during the year of
10,844,567 (2004:10,761,642) increased by 37,720 (2004:77,119) 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 eranings per ordinary share is based on the profit on ordinary
activities after taxation and adjusted to take into account exceptional items,
profit on disposal of fixed assets and the recognition of a deferred tax asset
relating to capital losses.
Year to Year to
31 December 2005 31 December 2004
pence per pence per
share Share
Diluted basic earnings
per share 24.7 15.9
Adjustments :
Exceptional items - 5.6
Profit on disposal of fixed assets (1.9) (0.1)
Deferred tax assets recognised (5.1) -
Diluted adjusted
earnings per share 17.7 21.4
8. Reconciliation of operating profit to net cash inflow from operating
activities
Year to Year to
31 December 2005 31 December 2004
£000 £000
Continuing operating activities
Operating profit before exceptional
items 2,703 3,220
Exceptional costs - (866)
2,703 2,354
Operating profit 1,007 1,124
Depreciation (53) (31)
Loss / (profit) on sale of assets 28 46
Goodwill amortisation (1,289) (224)
Difference between pensions charge and
cash contributions 1,346 (848)
Increase in stocks 838 146
Decrease in debtors (403) (948)
Decrease in provisions (72) (44)
Net inflow from continuing operating
activities 4,105 1,575
9. Reconciliation of increase in net cash to movement in net funds
Year to Year to
31 December 2005 31 December 2004
£000 £000
Increse / (decrease) in cash during the
period 1,610 (701)
Cash (inflow) / outflow from decrease in
debt and lease financing 6 6
Movement in net funds during the period
resulting from cash flows 1,616 (695)
Currency movements 7 (4)
New finance leases (44) -
Net funds at the start of the period 1,012 1,711
Net funds at the end of the period 2,591 1,012
10. Statement of total recognised gains and losses
Year to Year to
31 December 2005 31 December 2004
As restated
£000 £000
Profit for the period 2,685 1,726
Currency translation differences 7 (4)
Actuarial gain/ (loss) on defined
benefit pension scheme 1,051 (3,601)
Related deferred tax (315) 1,080
Total recognised gains and losses for
the period 3,428 (799)
Prior period adjustment (see note 11) (7,970) -
Total gains and losses recognised since the
last
Annual Report (4,542) (799)
11. Prior period adjustments
The Group applied FRS 17 'Retirement Benefits' and FRS 21 'Events after the
balance sheet date'. Both these reporting standards require the restatement of
previously reported results.
The effect on the profit and loss account is as follows.
Year to Year to
31 December 2005 31 December 2004
As restated
£000 £000
FRS 17 Retirement Benefits
Amount charged / (credited) to operating
profit
Current service cost less curtailments 604 488
Contributions (689) (712)
Net increase to operating profit (85) (224)
Amount charged to other finance costs
Expected return on pension scheme assets (1,292) (1,160)
Interest on pension scheme liabilities 1,481 1,278
Net financing costs 189 118
Net (reduction) / increase to profit
before taxation for the period (104) 106
In addition the Group's balance sheet has been adjusted to reflect FRS 17
pension liabilities
31 December 2005 31 December 2004
£000 £000
Market value of scheme assets 21,917 17,088
Present value of scheme liabilities (31,152) (28,474)
Deficit in scheme (9,235) (11,386)
Related deferred tax asset 2,771 3,416
Net liability (6,464) (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 to remove the following provisions for
dividends.
31 December 31 December
2005 2004
£000 £000
Dividend provided at the balance sheet
date 793 788
The effect on the profit and loss account is as
follows
Dividend previouslt charged to prodit
and loss in the period 1,198 1,188
Dividend charged to profit and loss in
the period under FRS 21 1,194 1,117
Net increase in retained profit 4 71
The effect on the profit and loss account as previously reported of the above
prior year adjustments is as follows:
31 December 2004
£000
Profit and loss account as previously reported 22,549
Pension liability (7,970)
Dividends 788
Profit and loss account as restated 15,367
11. Financial Information
(a) The preliminary financial statements have been prepared in accordance
with the accounting policies set out in the Annual Report for the year ended 31
December 2004, with the exception tht 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 year 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 Instructions: Presentation and
disclosure' (paragraphs 15-50 only). No amendments to previously reported data
have arisen from the adoption of these standards.
(b) The financial information set out above does not constitute the Group's
statutory accounts for the year ended 31 December 2005. Statutory accounts,
which will include an unqualified audit opinion, will be delivered to the
Registrar of Companies following the Company's Annual General Meeting on 17 May
2006.
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