Preliminary Results
Churchill China PLC
22 March 2007
For Immediate Release 22 March 2007
CHURCHILL CHINA PLC
PRELIMINARY RESULTS
for the year ended 31 December 2006
Churchill China plc, the manufacturer and global distributor of ceramic
tableware and household goods to the hospitality and retail markets, is pleased
to announce its preliminary results for the year ended 31 December 2006.
Key Points:
• Group turnover of £47.8m (2005: £46.4m)
• Profit before exceptional items and tax of £3.1m (2005 : £2.6m) up 20%
• Profit before tax of £5.7m (2005 : £2.8m)
• Basic earnings per share 37.6p (2005: 24.7p) up 52%
• Adjusted earning per share 20.4p (2005: 17.6p) up 16%
• Strong all round performance in second half year
• Steady growth in Hospitality markets, Retail position substantially
improved
• Strong operating cash flow. Year end net cash £6.4m (2005 : £2.6m)
• Final dividend increased to 8.1p per ordinary share (2005: 7.3p) up 10%
On prospects, Stephen Roper, Chairman said:
'Our strong financial position and confidence in Churchill's core profitability
will enable us to implement key development initiatives. We are reviewing a
number of options to accelerate growth across the markets we serve. I am pleased
to report that trading in the early months of 2007 has been encouraging.'
For further information, please contact:
Churchill China plc Today on: 020 7466 500
Stephen Roper/David Taylor thereafter on: 01782 577566
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
Following a strong trading performance in the second half of the year, I am
pleased to report results for the year to 31 December 2006 slightly above market
expectations. Group turnover for the year was £47.8m (2005: £46.4m) and profit
before taxation and exceptional items £3.1m (2005: £2.6m). Group profit before
taxation was £5.7m (2005: £2.8m). Operating cash generation before additional
pension contributions was also strong at £5.7m (2005: £5.4m).
Sales to Hospitality customers, recovered strongly from a restrained first half
to finish the year at figure of £27.4m (2005: £26.6m). Good progress was made
within UK national accounts, the US market and in the Middle East. The Alchemy
range continues to prosper with significant year on year growth. Vitrified sales
were more restrained although new product launches have been well received.
It is pleasing to report a growth in Retail sales to £20.4m (2005: £19.8m) where
we had expected to record lower sales following the move to direct shipment to
customers. Whilst the increase has been achieved largely from lower margin
promotional contracts it is especially gratifying given current retail market
uncertainties. Our strategy emphasising design, procurement and efficient order
fulfilment has been well received by major retailers in the UK, US and other
export markets.
Our cost base continued to be impacted by increases in energy prices,
particularly in the fourth quarter. The completion of a number of projects has
however enabled us to become more efficient within our operations, allowing us
to offset some of the additional costs.
In the early part of the year we made significant progress in strengthening our
balance sheet. The sale of the Alexander site at a premium to carrying value
enabled us to make a further substantial contribution to our main defined
benefit pension scheme. Alongside this a targeted reduction in inventory levels
played a significant part in strong cash generation.
Financial Overview
In the year to 31 December 2006 Group sales were £47.8m (2005: £46.4m) and
profit before exceptional items and taxation was £3.1m (2005: £2.6m). This
increase continues the progress made in the second half of 2005. Profit after
exceptional items but before taxation was £5.7m (2005: £2.8m).
Over the year the Group has generated strong operating cash flow of £5.7m (2005:
£5.4m) before one off pension payments. This was achieved through a combination
of improved profitability and disciplined working capital management, which led
to a reduction in stock of £1.8m and consequent improvement in cash flow. 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. Nevertheless cash balances improved from £2.6m
at the end of 2005 to a figure of £6.4m at 31 December 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: £0.3m). In January 2006 we
disposed of the Alexander Pottery, Cobridge realising gross proceeds of the sale
of £3.0m and an exceptional gain of £1.9m. Additionally, the cessation of future
accrual to the Group's defined benefit pension scheme on 31 March 2006 led to a
one off positive adjustment in relation to the curtailment of future benefits.
This amount of £1.1m (2005: nil) has been treated as exceptional given its size.
Conversely, 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 pension deficit to £2.8m (2005: £6.5m). 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 20.4p (2005: 17.6p). Basic earnings per share
were 37.6p (2005: 24.7p).
Dividend
The Board is pleased to announce that given the achievement of forecasts and the
continued strong cash generation evident in the second half of the year it
proposes an increased final dividend of 8.1p per ordinary share (2005: 7.3p).
The total dividends declared in relation to the year will therefore increase to
12.0p per ordinary share (2005: 11.0p).
Operating Review
Sales
Sales of Hospitality products were £27.4m (2005: £26.6m), with good growth in
the second half of the year. Sales were up 3% on last year, a good performance
given a flat first half. In the UK we consolidated our market leadership
position, making good progress in a range of new market sectors. Overseas we
have also seen significant growth in North American and Middle East markets, US
sales improved by 40%. These gains reflect our long term investment in market
development.
Alchemy sales grew substantially once again, demonstrating the inherent appeal
of this product range to all markets and the continued success of our new
product development programme. Sales of vitrified products declined slightly
overall, although within this new product launches performed to expectations.
Innovative product development remains the key to future growth and our
investment in this area increased during 2006. We intend to further extend our
range of product in Vitrified, Alchemy and other areas in 2007.
Sales of Retail products at £20.4m (2005: £19.8m), generated a performance
somewhat in excess of our expectations; this was flattered by additional
promotional volumes generally at lower margins.
Our business model remains to offer a high quality design, procurement and
fulfillment service to UK and export customers either through our UK operation
or on a direct shipment basis. This strategy continues to win new business and
we have extended the range of major retailers we service during the year.
Manufacturing and Operations
The continued programme of consolidation of manufacturing and warehousing
operations to our Sandyford site has had a significant effect on mitigating the
net cost of energy rises experienced in the year. New investment has also
allowed us to support the production of innovative new products which are the
lifeblood of our forward strategy and to improve the flexibility of our
manufacturing operations. Increased energy prices have clearly had a negative
effect on this years performance, but we expect that the rate of increase
experienced in recent years will now moderate.
The year has benefited from cost and efficiency improvements related to our
development of new warehousing, although the less tangible investment in demand
forecasting systems and people has also realised substantial benefits.
Our Shanghai operation has become well established in the year and has made a
substantial contribution to the improvements we have seen in procurement and
customer service.
Board Changes
As announced in January, I will be retiring from the Board at the Annual General
Meeting in May this year, and as such this will be my last Chairman's statement.
Since joining the Group in 1960, it has been my pleasure to work alongside many
talented and committed people, and I would like to take this opportunity to
thank everyone involved with Churchill in making my time at the Company an
extremely rewarding and fulfilling experience.
Jonathan Sparey, who joined Churchill in 2000 as a Non-Executive Director, will
succeed me as Chairman. Jonathan is a senior partner in L.E.K Consulting LLP, a
leading international corporate strategy firm, and I look forward to him
continuing to provide strategic advice and direction for the Group in his new
role as Chairman.
Prospects
We expect that the steady growth in revenue from our Hospitality business will
continue as the investment we have made in new products and target market
sectors worldwide generates a return. Our Retail operation begins the year in
its strongest position for some time and our customers increasingly value the
services we provide. We have not anticipated a recurrence of the promotional
business which supported 2006's performance, but expect that our core business
will continue to improve its contribution to Group profitability. New licenses
from Disney and Sanderson will reinforce this progress.
Our strong financial position and confidence in Churchill's core profitability
will enable us to implement key development initiatives. We are reviewing a
number of options to accelerate growth across the markets we serve and will be
making further investments in our operational base.
I am pleased to report that trading in the early months of 2007 has been
encouraging and in line with our expectations.
Stephen Roper
Chairman
22 March 2007
Consolidated profit and loss account
for the year ended 31 December 2006
Year to 31 December 2006 Year to 31 December 2005
As restated
Before Before
exceptional Exceptional Total exceptional Exceptional Total
items items items items
Note £000 £000 £000 £000 £000 £000
Turnover 1 47,757 - 47,757 46,399 - 46,399
Operating profit 2 2,777 784 3,561 2,696 - 2,696
Share of operating
profit of associate
net of impairment 5 - 5 (21) - (21)
Profit on disposal of 3 - 1,876 1,876 - 269 269
fixed asset
Net interest receivable
and similar
income / (expense) 4 305 - 305 (114) - (114)
Profit on ordinary 3,087 2,660 5,747 2,561 269 2,830
activities before
taxation
Tax on profit on 5 (874) (785) (1,659) (645) 493 (152)
ordinary activities
Profit on ordinary 2,213 1,875 4,088 1,916 762 2,678
activities after
taxation
Dividends 6 (1,217) (1,194)
Retained profit for the 2,871 1,484
year
Pence per Pence per
share share
Basic earnings per 7 37.6 24.7
ordinary share
Diluted basic earnings per 7 37.5 24.6
ordinary share
Consolidated balance sheet
as at 31 December 2006
31 December 31 December
2006 2005
As restated
£000 £000
Fixed assets
Intangible Assets 34 56
Tangible assets 10,779 11,485
Investments 819 825
11,632 12,366
Current assets
Stocks 6,857 8,646
Debtors: amounts falling due within one 10,412 10,537
year
Investments and other assets for sale 0 1,022
Cash at bank and in hand 6,410 2,629
23,679 22,834
Creditors: amount falling due within one (6,332) (6,268)
year
Net current assets 17,347 16,566
Total assets less current liabilities 28,979 28,932
Creditors: amounts falling due after 0 (16)
more than one year
Provisions for liabilities and charges (60) (6)
Pension liability (2,764) (6,464)
Net assets 26,155 22,446
Capital and reserves
Called up share capital 1,090 1,086
Share premium account 2,266 2,207
Revaluation reserve 1,275 1,287
Other reserves 274 266
Profit and loss account 21,250 17,600
Equity shareholders' funds 26,155 22,446
Consolidated cash flow statement
for the year ended 31 December 2006
Year to Year to
31 December 31 December
2006 2005
£000 £000
Net cash inflow from operating 2,747 4,105
activities
(reconciliation to operating profit -
note 8)
Returns on investments and servicing of
finance
Interest received 230 67
Taxation (316) (368)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (746) (2,380)
Sale of tangible fixed assets 3,052 1,287
Net cash inflow / (outflow) for capital
expenditure
and financial investment 2,306 (1,093)
Equity dividends paid to shareholders (1,217) (1,194)
Financing
Issue of ordinary shares 63 99
Payment of principal under finance (22) (6)
leases
Net cash inflow from financing 41 93
Increase in net cash 3,791 1,610
Statement of total recognised gains and losses
for the year ended 31 December 2006
Year to Year to
31 December 31 December
2006 2005
£000 £000
As restated
Profit for the period 4,088 2,678
Currency translation differences (10) 7
Actuarial gain on defined benefit pension 1,110 1,051
scheme
Related deferred tax liability (333) (315)
Total recognised gains and losses for the 4,855 3,421
period
Prior period adjustment (see note 10) (13) -
Total gains and losses recognised since the 4,842 3,421
last Annual Report
1. Analysis of turnover
The Directors consider that the Group's activities
are a single class of business.
Year to Year to
31 December 31 December
2006 2005
£000 £000
Geographic Turnover
United Kingdom 29,906 30,953
Rest of Europe 8,525 9,549
North America 6,667 4,208
Australasia 692 575
Far East 404 197
Other 1,563 917
47,757 46,399
2. Exceptional Items included in operating profit
Year to Year to
31 December 31 December
2006 2005
£000 £000
Restructuring costs (366) -
Curtailment benefit - defined benefit pension scheme 1,150 -
784 -
Costs arising from the restructuring of certain manufacturing operations during 2006
and the resulting write down of tangible fixed assets have been treated as exceptional.
The cessation of future accrual to the retirement benefit scheme on 31 March 2006, led
to a one off adjustment under FRS17 'Retirement Benefits' in relation to the
curtailment of future benefits.
A charge of £235,000 (2005: nil) has been included in the tax charge in relation to the
exceptional items.
3. Profit on disposal of fixed assets
Year to Year to
31 December 31 December
2006 2005
£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 £2,898,000
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 and similar income
Year to Year to
31 December 31 December
2006 2005
As restated
£000 £000
Other interest receivable 230 13
Share of interest receivable of associated company 11 8
Net finance credit / (charge): pensions 64 (189)
Income from fixed asset investment - 54
305 (114)
5. Taxation
The taxation charge for the year includes a credit of £110,000 in relation to
restructuring costs, a charge of £550,000 in respect of the disposal of Alexander
Pottery and a charge of £345,000 in respect of curtailment benefits under FRS 17
'Retirement Benefits', all of which have been treated as exceptional.
The taxation charge for 2005 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'. Both of these items
have been treated as exceptional. The deferred tax asset arose as a result of the
recognition of previously unrecognised capital losses which were realised in 2006
against the profit on disposal of the Alexander Pottery.
6. Dividends
Year to Year to
31 December 31 December
2006 2005
£000 £000
Final dividend 2004 - 792
Interim dividend 2005 - 402
Final dividend 2005 793 -
Interim dividend 2006 424 -
1,217 1,194
The proposed final dividend, which has not been provided for, has been calculated on
10,902,126 shares being those in issue at 31 December 2006 qualifying for the dividend
and at a rate of 8.1p per 10p ordinary share. The dividend will be paid on 25 May 2007
to shareholders on the register on 30 March 2007.
7. Earnings per ordinary share
Basic earnings per ordinary share is based on the profit on ordinary activities after
taxation and on 10,867,167 (2005: 10,844,567) 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, profit on disposal of fixed assets and the recognition of a
deferred tax asset relating to capital losses
Year to Year to
31 December 31 December
2006 2005
pence per share pence per share
As restated
Basic earnings per share 37.6 24.7
Adjustments :
Exceptional items 2.4 -
Profit on disposal of fixed assets (12.2) (2.0)
Curtailment of pension benefits (7.4) -
Deferred tax asset recognised - (5.1)
Adjusted earnings per share 20.4 17.6
Diluted basic earnings per ordinary share is based on the profit on ordinary activities
after taxation and on 10,910,580
(2005: 10,882,287) ordinary shares, being the weighted average number of ordinary
shares in issue during the year of 10,867,167 (2005:10,844,657) increased by 43,413
(2005:37,720) shares, being the weighted average number of ordinary shares which would
have been issued if the outstanding options to acquire shares in the Company 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,
profit on disposal of fixed assets and the recognition of a deferred tax asset
relating to capital losses
Year to Year to
31 December 31 December
2006 2005
pence per share pence per share
As restated
Diluted basic earnings per share 37.5 24.6
Adjustments :
Exceptional items 2.4 -
Profit on disposal of fixed assets (12.2) (2.0)
Curtailment of pension benefits (7.4) -
Deferred tax asset recognised - (5.1)
Diluted adjusted earnings per share 20.3 17.5
8. Reconciliation of operating profit to net cash inflow from
operating activities
Year to Year to
31 December 31 December
2006 2005
As restated
£000 £000
Continuing operating activities
Operating profit before exceptional items 2,777 2,696
Exceptional items 784 -
Operating profit 3,561 2,696
Depreciation 1,314 1,007
Profit on sale of assets (16) (53)
Goodwill amortisation 22 28
Pensions adjustment - curtailment (1,150) -
Charge for share based payments 8 7
Decrease in stocks 1,789 1,346
(Increase) / decrease in debtors (9) 838
Increase / (decrease) in creditors 197 (403)
Decrease in provisions and liabilities (6) (72)
Net cash inflow before additional pension 5,710 5,394
contributions
Additional pension contributions (2,963) (1,289)
Net cash inflow from continuing operating activities 2,747 4,105
9. Reconciliation of increase in net cash to
movement in net funds
Year to Year to
31 December 31 December
2006 2005
£000 £000
Increase in cash during the period 3,791 1,610
Cash outflow from decrease in lease financing 22 6
Movement in net cash during the period resulting 3,813 1,616
from cash flows
Currency movements (10) 7
New finance leases 0 (44)
Net funds at the start of the period 2,591 1,012
Net funds at the end of the period 6,394 2,591
10. Prior Period Adjustments
The Group has applied FRS 20 'Share based payment' to reflect the fair value of share
options issued to employees under share option schemes. This reporting standard
requires the restatement of previously reported results.
Additional costs have been charged to the profit and loss account is as follows
31 December 31 December
2006 2005
£000 £000
Staff Costs 8 7
Net reduction in profit before taxation for the 8 7
period
In addition the Group's balance sheet has been
adjusted to reflect FRS 20
Profit and loss Other reserves
account
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 2,871 -
Actuarial gain on defined benefit pension scheme 777 -
Net exchange adjustments (10) -
Share based payment charge for the period - 8
As at 1 January 2006 as restated 12 -
21,250 274
11. Financial Information
(a) The preliminary 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 payments' Comparative data for the year to 31 December 2005
has been restated
(b) The financial information set out above does not constitute the Group's statutory
accounts for the year ended 31 December 2006. 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 16 May 2007
This information is provided by RNS
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Tuesday, 14th May 2024
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