China plc
China plc
China plc
China plc
China plc
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Contents
Financial Highlights
Directors, Secretary and Advisers
Chairman’s Statement
Financial Review
Operational Review
People & Prospects
Directors’ Report
Report of the Remuneration Committee
Corporate Governance
Report of the Auditors
Consolidated Income Statement
Page
1
3
5
6
9
12
14
22
30
32
33
Statement of Recognised Income and Expenditure 34
Balance Sheets
Consolidated Cash Flow Statement
Notes to the Consolidated Financial Statements
Transition Statements
Five Year Record
Notice of Annual General Meeting
35
37
39
73
78
79
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Front cover: Alchemy ‘Energy’
Inside cover: Alchemy ‘Coast’
China plc
China plc
Financial Highlights
Before
exceptional
items
Exceptional
items
2007
£’000
2007
£’000
Before
exceptional
items
as restated
(note 29)
2006
£’000
Total
2007
£’000
Exceptional
items
Total
as restated
(note 29)
2006
£’000
2006
£’000
Results
Turnover - continuing operations
46,930
–
46,930
45,930
–
45,930
Operating profit - continuing operations
Share of results of associate company
Net finance income
Profit before income tax
3,230
120
694
4,044
798
4,028
2,795
2,660
5,455
–
–
120
694
(7)
294
–
–
(7)
294
798
4,842
3,082
2,660
5,742
Dividends paid
Key Ratios
Operating margin before exceptional items
Operating margin after exceptional items
Basic earnings per share
Adjusted earnings per share
Diluted basic earnings per share
Diluted adjusted earnings per share
Dividends paid per share
1,375
6.9%
8.6%
33.8p
26.5p
33.6p
26.3p
12.6p
The 2006 comparative numbers have been restated to reflect the adoption of IFRS.
The adjusted EPS excludes exceptional items. (See note 11)
1,217
6.1%
11.9%
37.7p
20.5p
37.7p
20.5p
11.2p
page
1
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China plc
5 Year Performance
China plc
03’
04’
05’
06’
07’
03’
04’
05’
06’
07’
03’
04’
05’
06’
07’
£47.7
£47.8
£44.8
£45.9
£46.9
Turnover (£m)
0 10 20 30 40 50 60
2,783
3,276
2,561
3,082
4,044
0 1000 2000 3000 4000
18.2
21.5
17.6
20.5
26.5
0 5 10 15 20 25 30
Profit before profit on disposal of fixed
assets, exceptional items and recognition
of deferred tax asset (£000)
Adjusted earnings per share (p)
page
2
Right: Alchemy ‘Balance Buffet’
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China plc
China plc
China plc
Company Profile
China plc
Churchill China plc
Directors, secretary and advisers
EXECUTIVE DIRECTORS
AUDITORS
A D Roper
PricewaterhouseCoopers LLP
BANKERS
D J S Taylor
D M O’Connor
R N Grundy
I T Hicks
Cornwall Court
Cornwall Street
Birmingham
B3 2DT
NON-EXECUTIVE
DIRECTORS
SOLICITORS
J N E Sparey *•
Addleshaw Goddard
Lloyds TSB plc
41 Market Street
Longton
Stoke-on-Trent
Staffordshire
ST3 1BN
REGISTRARS
Profit before profit on disposal of fixed
assets, exceptional items and recognition
of deferred tax asset (£000)
R S Kettel *•
J W Morgan *•
SECRETARY
AND REGISTERED
OFFICE
D J S Taylor ACA
Adjusted earnings per share (p)
Marlborough Pottery
High Street
Tunstall
Stoke-on-Trent
Staffordshire
ST6 5NZ
100 Barbirolli Square
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6ZX
Manchester
M2 3AB
STOCKBROKERS
AND ADVISERS
Brewin Dolphin
Investment Banking
34 Lisbon Street
Leeds
LS1 4LX
* Member of audit committee
• Member of remuneration committee
Registered no: 2709505
page
3
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“2007 proved to be
an excellent year for
Churchill.”
Left: Churchill Super Vitrified ‘Orbit’
Below Right: Alchemy ‘Energy’
page
4
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China plc
China plc
Chairman’s Statement
China plc
China plc
“Strong balance sheet and robust business plan”
I am delighted to report that 2007 proved to be an excellent year
deliver attractive product ranges backed by specific new product
for Churchill, exceeding our expectations, with strong growth in
development, high service levels and tight management of our cost
profitability, exceptionally strong cash flows and encouraging
base. This was against a backdrop of healthy customer demand in
activity levels in both our hospitality and retail businesses. This
a number of geographical markets especially in the UK.
result reflects the successful implementation of key strategies to
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page
5
China plc
Financial Review
China plc
Group revenues rose by £1.0m to £46.9m (2006: £45.9m)
dividend paid in October this gives a total dividend declared in
reflecting good growth in many key Hospitality accounts adjusted
respect of 2007 of 13.7p an increase of 14% on the corresponding
by lower levels of retail contract business and higher rebates to
figure for 2006. We will continue to manage our dividend policy
certain customers.
to deliver progressive, long term, shareholder value creation. In
Group operating profit before exceptional items increased by 15%
our Total Return to Shareholders in the year was 25%, in line with
to £3.2m (2006: £2.8m) and our profit before exceptional items
the average achieved over the last five years.
2007 taking into account capital growth and uplifted dividends,
and taxation improved by over 30% to £4.0m (2006: £3.1m).
The results also include an exceptional profit of £0.8m relating
Accounting Policies
to the disposal of surplus land at Marlborough in December
These are the Group’s first results to be presented under IFRS and
2007. In 2006, net exceptional profits totalled £2.7m. Profit after
comparative figures have been restated to reflect these changes.
exceptional items, but before taxation, was £4.8m (2006: £5.7m).
There has been no significant impact on reported profit figures
Adjusted earnings per share have increased by 30% to 26.5p
has been the requirement to provide for deferred taxation on
from the adoption of IFRS. The major impact on our balance sheet
(2006: 20.5p). Basic earnings per share, including exceptional
previous revaluation gains.
items, were 33.8p (2006: 37.7p).
Overall cash balances rose by £5.0m to £11.4m (2006 £6.4m) and
profit, to reflect a change in the classification of certain rebates
accounted for over one third of year end net assets of £29.7m.
given to customers. The rebates, which were previously treated
Revenue figures have also been restated, without any impact on
as costs, are now accounted for as a reduction from disclosed
Dividend
revenues.
In the light of the strong overall performance of the business
Full details of the effect of the above changes on the Group’s
the Board is pleased to recommend a 13% increase in the final
financial statements are shown later in this report in “Transition
dividend to 9.2p per share. Together with the increased interim
statements”.
page
6
Above Left: Churchill Super Vitrified ‘Infinity’
Above Centre: Alchemy ‘Ambience’
Above Right: Alchemy ‘White’
Right: Sanderson ‘Etchings & Roses’
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“We will continue to
manage our dividend
policy to deliver
progressive, long term,
shareholder value.”
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page
7
“Churchill
consolidated its
position as market
leader in the UK.”
page
8
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Left: Alchemy
‘Buffet’ & ‘Buffet Covers’
Operational Review
China plc
China plc
China plc
China plc
Hospitality
Revenues from the sale of Churchill Super Vitrified and Alchemy
As the ceramic industry in Staffordshire has declined we are
Fine China dinnerware increased by 10% to £28.6m (2006: £26.0m).
increasingly mindful of the need to retain skill levels of both
Churchill consolidated its position as the market leader in the UK as
initiatives to safeguard our long term position. Set against external
domestic sales increas ed by 17% to almost £19m, benefiting from
trends Churchill continues to invest in quality people and new
our strategy of innovative NPD and close end user collaboration.
working methodologies to maintain and develop our technical
The introduction of non smoking legislation boosted our sales,
excellence in ceramic dinnerware production.
management and operatives and have instituted a number of
particularly in the first half of 2007, to the pub sector as many
clients sought to increase their food revenues with a superior
Capital Expenditure
tabletop offering.
Churchill now has broad and clear differentiation of its product
designed to increase our manufacturing capacity to develop and
offering to all segments of the growing dining out market. Our
produce more complex new product groups. This will enable us to
end users and distribution partners place high value on Churchill’s
deliver a more efficient and cost effective service to our customers
In 2007 we initiated the first in a series of capital investments
brand values characterised by good design, exemplary service and
in both divisions.
outstanding product performance in use.
Sales to Europe improved by 7% to £6.2m whilst sales in the USA
technologies. Working closely with executive chefs has led us to
where we are relatively underweight declined by 5% to £1.9m
the development of ever more complicated and innovative shapes
but yielded better margins. Whilst export sales growth tends to be
for our prestige restaurant, hotel and catering customers. We will
more fragmented the same core brand values of design, product
continue to make further investment in this area.
We have invested substantially in the latest manufacturing
performance and service remain important to our growing
customer base. We have increased our marketing manpower and
During 2008 we will complete the transfer of all manufacture
coverage in selected export markets to sustain our growth plans.
of Alchemy fine china items to the main Marlborough site. Cost
Manufacturing and Technical
Demand for Churchill super vitrified and our prestige fine china
Alchemy was above our expectations. In response we increased
production volumes and succeeded in maintaining and indeed
improving service levels to our distributors and end users.
Effective use of available kiln capacity restricted the increase in
gas and electricity costs in 2007 to £400k.
benefits generated from operating on one site will start to feed
through to the bottom line towards the end of 2008. The total
cost of these projects, including an energy efficient kiln and
expanded state of the art logistics facilities, is approximately £6m.
These investments are expected to substantially improve our core
operating platform for the future.
page
9
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China plc
Retail
Revenues from the sale of Queens and Churchill retail products,
China plc
which are all sourced from outside the UK, was £18.3m (2006:
We achieved our internal benchmarks for 2007 in terms of margin,
sales mix, control of working capital and cost management and
£19.9m) with the decline being entirely due to a planned
are optimistic of further development this year.
withdrawal from low contribution business. This resulted in an
improved net contribution before central costs compared to last
Outsourcing
year.
Chinese cost and wage inflation has been well documented
It is pleasing to record our plans to gradually increase margins
since we last reported. Manufacturers have been affected by the
in our retail activities are being delivered and further progress is
weakness of the US$ against the RMB, the withdrawal of Chinese
expected this year. Our key objective remains to increase margins,
government export subsidies and the dramatic increases in global
principally by expanding our middle market “Queens” business to
energy and raw material costs. We also source product to our
department stores and independents.
own specifications from a range of markets in Asia, Europe and
Latin America where producer price inflation is only a couple of
Supply to UK volume channel customers can be by both full
percentage points behind China in US$ terms. However, the effect
service and direct ship basis for Churchill branded and bespoke
on our net revenue is broadly neutral. We have matched price
product. Most export customers opt to buy on a direct ship basis
increases to direct ship customers in line with cost increases.
in which case containers are shipped direct from the country of
supply.
We have aimed to differentiate our approach to the market from
that of pure trading companies. Churchill can provide both
A core element of our approach has been to develop licence
suppliers and customers with a high level of technical expertise
partnerships with other companies including Disney, Sanderson
and depth of understanding of all ceramic related issues. Teams
and Cath Kidston. These highly respected businesses are attracted
from both our Shanghai office and the UK are responsible for
to Churchill by our ability to transform brand and design
quality, shipping, order processing and fulfilment. The consumer
expertise into sales of mugs and dinnerware on an international
expects to be able to purchase safe ceramics manufactured in
stage. Churchill has the capability and reputation to deliver the
ethically sound sources. Compliance with all international Health
guarantees and technical security our customers require.
and Safety legislation is in itself not enough, all our products have
to perform well in use.
page
10
Above Far Left: Churchill ‘Recline’
Above Centre Left: Sanderson ‘Etchings & Roses’
Above Centre Right: Cath Kidston ‘Strawberry Breakfast Set’
Above Far Right: Disney ‘Mickey Collage Breakfast Set’
Right: Sanderson ‘Maia’
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“Our key objective
remains to increase
margins.”
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page
11
China plc
People
China plc
We are keen to ensure that our people are well motivated and
and Safety, to MBA’s and beyond. In addition to an experienced
feel valued, whether in Stoke on Trent, Shanghai or Chicago. Our
workforce we are very fortunate to have a highly professional
business has been built on the experience, knowledge base and
operational management team and they have delivered an
skills of our talented team. We are keen to augment these qualities
excellent result in 2007. The Board is very grateful to everyone in
through training and development at all levels from NVQ’s, Health
the business who made these results possible.
page
12
Left: Alchemy ‘Ambience’
Top Right: Alchemy ‘Atlantic’
Left: Churchill Super Vitrified ‘Nova’
Above Centre: Churchill ‘Recline’
Right: Alchemy ‘Counterwave’
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China plc
China plc
Prospects
Despite the economic downturn in the UK and USA we believe
are performing to expectations. As a result it is unlikely that
that with a strong balance sheet and robust business plan, Churchill
gross revenue and profits for the first half of 2008 will reach the
is capable of achieving its objectives for the full year.
exceptional levels achieved last year.
Demand has been weaker in the first quarter of 2008 when
We have several opportunities to grow our revenues across a
compared to the corresponding period of 2007 which was
number of markets in both our businesses. We are actively pursuing
characterised by a number of significant installation sales to the
projects aimed at increasing near term sales and broadening both
Hospitality sector, although repeat sales to established customers
our distribution and product range.
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page
13
Directors’ Report
for the year ended 31 December 2007
The Directors present their annual report and the audited consolidated financial statements for the year ended 31 December 2007.
Principal activities, operating and financial review
The Company is a public limited company listed on the Alternative Investment Market (AIM) and is incorporated and domiciled in the
UK. The registered office is disclosed at the front of these accounts and the Company number is 2709505.
The consolidated income statement for the year is set out on page 33.
The principal activity of the Group is the manufacture and sale of ceramic and related products for hospitality and household markets
around the world.
A review of the operations of the Group during the year and its future prospects are given in the Chairman’s Statement on page 5 and
Business Review on page 15.
Dividends
The Directors have paid the following dividends in respect of the years ended 31 December 2007 and 31 December 2006:
Ordinary dividend:
Final dividend 2006 8.1p (2005: 7.3p) per 10p ordinary share
Interim dividend 2007 4.5p (2006: 3.9p) per 10p ordinary share
The Directors now recommend payment of the following dividend:
Ordinary dividend:
Final dividend 2007 9.2p (2006: 8.1p) per 10p ordinary share
2007
£’000
883
492
––––––––
1,375
––––––––
––––––––
2007
£’000
1,007
––––––––
––––––––
2006
£’000
793
424
––––––––
1,217
––––––––
––––––––
2006
£’000
883
––––––––
––––––––
International Financial Reporting Standards (IFRS)
The consolidated financial statements have been prepared for the first time under IFRS adopted for use in the European Union.
Comparative figures for the year to 31 December 2006 have been restated to reflect the differences between IFRS and UK Generally
Accepted Accounting Practice (UK GAAP). The effects of these changes and an explanation of the main impacts on the accounts are
shown in note 29.
Directors
The Directors of the Company who have served during the year and since the year then ended are as follows:
J N E Sparey *
A D Roper
D J S Taylor
D M O’Connor
R S Kettel *
* Non executive
R N Grundy
I T Hicks
J W Morgan*
E S Roper*
(appointed 16 May 2007)
(retired 16 May 2007)
The Directors retiring by rotation are A D Roper and R S Kettel who being eligible, offer themselves for re-election. The unexpired
terms of the service contracts of A D Roper and R S Kettel are twelve and thirteen months respectively. J W Morgan was appointed
as a Director of the Company on 16 May 2007 and in accordance with the Company’s articles, retires at the next Annual General
Meeting. The unexpired term of J W Morgan’s service contract is thirteen months.
page
14
Directors (continued)
The biographical details of the Directors are as follows:
Jonathan Sparey, non executive Chairman, aged 50, is a senior partner in L.E.K. Consulting LLP, a leading international corporate
strategy firm. He was previously a Director of the merchant bank Samuel Montagu and Co. He joined the Board in 2000.
Andrew Roper FCA, Chief Executive Officer, aged 59, has worked for the Company since 1973. He has responsibility for the
development of Group strategy and for operational performance and development. He was appointed to his present role in 2007
following on from his role as Group Managing Director since 1998.
David Taylor, Finance Director and Company Secretary, aged 48, has worked for the Group for 16 years. Following qualification
as a Chartered Accountant with KPMG, he worked in a number of finance roles before joining Churchill in 1992. He was appointed
to the Board in 1993.
Rodney Kettel, non executive Director, aged 64, was formerly a partner in PricewaterhouseCoopers, Chartered Accountants,
Birmingham, and has extensive experience in advising listed companies. He joined the Board in 1999.
David O’Connor, Managing Director: Retail products, aged 51, has worked for Churchill for 17 years in a number of production,
operations and marketing roles. He has extensive experience within the Ceramics industry and joined the Board in 1999.
Ralph Grundy, Managing Director: Hospitality products, aged 47, joined Churchill in 1998 and was appointed to the Board in
2000. He has worked in a number of senior sales and marketing roles, principally within the luxury and fast moving consumer
goods sectors.
Iain Hicks, Sourcing Director, aged 38, has worked for the Group in a variety of roles since joining Churchill in 1992. He has led the
development of the Group’s sourcing operation since it was established in 1999 and was appointed to the Board in 2006.
Jonathan Morgan, Non Executive Director, aged 50, acts in an advisory role with a number of investment companies. He was formerly
Managing Director of Prudential plc’s Private Equity business. He joined the Board in 2007.
Business review
Business environment
We operate in many different geographic markets serving hospitality and retail customers with a range of tabletop products. Whilst our
principal exposure is to the UK market, where we generate over 64% of our gross revenue, we also enjoy significant sales to Europe
and North America which respectively account for 19% and 10% of our turnover. Almost without exception all of these markets are
subject to a high level of competitive pressure and our costs of operation require constant review and control.
It is a general characteristic of our markets that there has been increased consolidation amongst our customers. Customers for
hospitality products, both in terms of our immediate customers within the distribution chain and end users, have tended to grow
in size and in the proportion of the overall market they serve. The impact on Retail market distribution channels of large retailers
appears to have stabilised with some evidence of growth in middle market channels.
Whilst total market size information is not easily available for our markets, we believe that there have been no significant changes in
the overall size of our markets during the year. The strong growth in UK hospitality markets prior to the introduction of the smoking
ban has now reduced and there has been a general tightening of demand, particularly in the UK and North American markets as
consumer confidence has reduced.
The cost of imported product has risen during the year following changes to export subsidies to Chinese manufacturers, commodity
and labour price inflation in a number of markets and the depreciation of the US dollar. Our UK manufacturing operations have also
been subject to a number of cost pressures, principally driven by increased energy prices. We have responded to these cost rises
through restructuring our operations and by reducing our usage of gas and electricity.
We believe that to succeed as a business we must remain agile and to anticipate and respond to these changes. Our business model
cannot remain static and we must constantly review our business and amend our operations where necessary.
page
15
Directors’ Report
(continued)
Strategy
The Group’s strategy remains to generate improved shareholder returns through the provision of value to customers through
excellence in design, quality and service. We aim to increase Group profitability principally through steady increments to sales
and margins, but also in active control of our cost base. It is no longer sufficient simply to provide a value based offering, we must
meet our customers expectations in key areas in order to remain their preferred supplier.
Design
It is a key strategic aim to design products that meet our end users requirements in terms of performance, shape and surface design.
Our target markets require product that is aesthetically appealing whilst also being functional and robust.
We offer a broad range of product satisfying a range of design styles, product types and price points. Product lifecycles in certain parts
of our business are shortening with the consequent requirement to reduce design and development lead times and increase flexibility.
All our product, whether made in our own factories or sourced from third party manufacturers, is researched and designed within
Churchill or in conjunction with experienced external designers. The ability to develop new products and ranges and to bring these
to market is an important part of our success.
We have invested significant resource in new staff and flexible technology to increase our capability in this area.
We review our performance in relation to the new product development process and in the performance of new products and ranges
after launch. We also try to ensure that we have a balanced design team that are given sufficient freedom to anticipate market trends
and requirements and to allow them to innovate successful new products.
Quality
Historically, as a manufacturer, we measured our quality in relation to the effectiveness of our factories. However we understand that
quality must exist throughout our business process. Quality is reflected not only in the appearance of our product but in its design, its
performance in operation and in the systems which support the fulfilment of our contract with our customers.
In addition to the introduction of quality systems within manufacturing and operations, we have had to develop new working methods
with third party suppliers to ensure that the product that our customer receives is as they expect. This includes the identification and
review of potential suppliers, the periodic audit of established partners and the clarification of exact product specifications.
We also measure quality through the review of customer feedback and active involvement with our customers after we have sold
product to them.
Customer service
Customer service remains a key element of our strategy. The fulfilment of customer expectations is critical to the maintenance of good
relationships. Most of our customers are repeat customers and as such we must ensure that they return to Churchill.
We have steadily developed our IT systems to forecast likely demand for products and to manage our stock holding to ensure that
we meet ambitious on time, in full, delivery targets. In addition we have organised our production facilities to balance efficient
production with flexible manufacture to ensure that we can respond quickly to unexpected demand levels. We aim to invest regularly
in new production technology in order to meet changing demand levels and to develop our IT systems in this area. We continue to
invest in customer service.
We assess our performance in this area principally by measurement of the degree to which we meet agreed order delivery schedules
on time and in full. These targets are monitored on a regular basis, along with customer feedback.
Research and development
The introduction of new and innovative products and designs remains a cornerstone of our future strategy. The Group’s aim is to
continue to identify future market trends and then to design and develop products that meet these needs. A significant effort is made to
develop our process technology to allow the introduction of more complex product designs. New product development is controlled
through regular meetings and the success of new launches is reviewed in the short term against individual targets and over the longer
term as a function of our strategy.
page
16
Future outlook
The Board believes that long term demand for hospitality products in developed markets will continue to increase as leisure related
spending grows. There has been a significant expansion in eating out in the UK and the Group intends to continue to expand its
leading UK position whilst investing in the development of export markets. The opportunities overseas may be divided into markets
where hospitality is well established, but the Group has not yet achieved a reasonable market share and developmental markets
where demand for hospitality products is likely to grow as local or regional economies develop. It is therefore believed that there will
be significant opportunities for further and sustained growth in the medium and long term. In the short term, economic uncertainty
may affect the rate of growth of our core markets and this will be reflected in our approach to these markets. Demand for retail
products has been subject to a number of pressures in recent years. Overall volume demand in the Group’s principal markets
has remained steady, however the monetary value of the markets has reduced as price points have fallen, mainly due to overseas
competition and changes in the structure of retail distribution channels. It appears there is now some degree of price stability and
opportunities exist to develop business in more profitable sections of the marketplace.
Principal risks and uncertainties
The Group’s operations are subject to a number of risks. The key business risks affecting the Group are set out below:
Market change
The Group operates in dynamic markets where there have been significant recent changes to economic conditions, the major
distribution channels within each market and the relative competitive position of suppliers to these markets. It is therefore important
that the Group continues to review the markets in which it currently operates and wishes to develop to ensure that it continues to
meet customer needs in an efficient and profitable manner.
The risk inherent in each market is offset by the relatively broad spread of our operations in geographic terms and by a widening
portfolio of products to serve different segments of these markets. We are also actively developing new geographic markets.
Currency exposure
The Group’s position as a worldwide provider of ceramic and related products means that our profitability will be subject to
currency fluctuations related to export sales. Our policy is generally to offer our customers the option to be invoiced in their
local currency. Our non sterling receipts are principally denominated in US dollars and Euros. Against US dollar receipts we
have a natural offset due to our overseas sourcing operations where the cost of purchase from our third party suppliers is generally
denominated in US dollars.
We review and control our transactional foreign currency exposure regularly and take appropriate action to manage net exposures
using simple option forward contracts. We do not as a matter of policy take longer term positions to cover economic foreign currency
exposure in this area, but review currency rate changes as part of our pricing policy.
Cost competitiveness
Our markets have been subject to significant cost movements in recent years. We have responded by augmenting our UK production
facilities with a wide range of third party suppliers who generally operate in lower cost environments. The spread of these suppliers
gives us the ability to switch production to obtain the best balance of quality and price.
As a major user of energy within our production process we have an exposure to changes in availability and price of gas and
electricity. We have sought to control this risk through management of our overall energy consumption and through contractual
arrangements to ensure that we maintain adequate supplies of power at a cost which enables us to operate.
Product compliance
We are exposed to risk in relation to our products meeting accepted safety standards within the markets we serve. Each major
geographic market applies different standards and legal penalties may be considerable for non compliance.
We manage these risks principally through the monitoring of applicable standards, the testing of our product to ensure it meets these
standards and sale in accordance with local regulations. We also, where practical, maintain appropriate external insurance.
page
17
Directors’ Report
(continued)
Key Performance Indicators
Sales and sales growth
The absolute level of sales and sales growth are reviewed regularly through the year against previous year and target levels.
Sales 2007: £46.9m (2006: £45.9m)
Sales growth 2007: 2.2% (2006: 3.0%)
Overall sales levels have increased.
Customer service and stock
Customer service and stockholding levels are reviewed on a regular basis as part of the operational management of the Group’s
business. The main aim of this measure is to ensure that the Group’s strong reputation for on time order fulfilment is maintained,
consistent with the efficient operation of production and sourcing activities and the optimisation of working capital.
Stock 2007: £6.6m (2006: £6.9m)
The level of stock and work in progress is considered reasonable.
Operating profit and profit before taxation before exceptional items
The level of operating profit and significant factors affecting its delivery are reviewed and controlled on a regular basis.
Operating profit before exceptional items 2007: £3.2m (2006: £2.8m)
Operating profit before tax and exceptional items increased as additional sales and contribution levels offset higher input prices
principally in relation to energy.
The level of profit before tax and exceptional items are reviewed on a monthly basis against previous performance and target levels.
Profit before taxation and exceptional items 2007: £4.0m (2006: £3.1m)
Profit before tax and exceptional items increased in 2007 due to the increase in operating profit but also due to an increase in interest
receipts arising from higher average cash balances and other financing income.
Operating cash generation
The Group believes that over an extended time period it is important to generate cash at an operating level equivalent to declared
operating profit, before adjustment for exceptional items. This measure identifies the effectiveness of our control over working capital
demands and ensures that cash is available for further investment in the business, to ensure that our shareholders receive an
appropriate return and to meet taxation payments.
Operating profit before exceptional items 2007: £3.2m (2006: £2.8m).
Operating cash generation before additional pension contribution 2007: £6.3m (2006: £5.7m).
In both of the years under review operating cash generation was significantly in excess of operating profit, principally due to the
strong working capital controls in place in these years.
Insurance of Directors
The Group maintains insurance for the Directors in respect of their duties as Directors.
page
18
Employees
Our employees are critical to the current and future success of our business, we continually monitor and review our human resource
policies to ensure that we exceed statutory requirements and to ensure that we have a committed well motivated team. We regularly
communicate with our employees through team briefs and Works Committee meetings informing and involving them in the business’s
objectives and strategy. We endeavour to maintain an open and constructive relationship with our employees’ trade union
representation and meet regularly with them to discuss developments within the business.
The Group remains actively committed to the training and development of all employees, working with local educational
establishments, private providers and the Ceramic Industry Learning Network. The Group aims to deliver a programme of
training to meet business and individual needs and goals.
Churchill China maintains a programme using Process Improvement Teams and masterclass techniques engaging employees in
the development of new methods to improve quality, processes and performance. We are committed to Total Quality Management
and aim to continue to improve and extend the skill base of our workforce encouraging multi-skilling across all business functions.
Employees are actively encouraged to seek promotion within the business and wherever possible we promote from within. The
Group runs a successful commercial graduate training programme to complement the development of our existing workforce.
The Group is fully committed to its equal opportunities employment policy offering equality in training, career development
and promotion of all employees irrespective of gender, ethnic origin, age, nationality, marital status, religion, sexual orientation
or disability.
We work to identify and minimise all Health and Safety risks in the business, providing a safe and healthy working environment for all
our employees and visitors. Regular training through our Health and Safety department aims to ensure that our management team is
up to date with all changes in policies and legislation and that all employees are regularly briefed and trained in those standards.
Environment
The Group monitors the impact of its business on the environment. In addition to the process of management of omissions from its
operations, the Group has instituted actions to pro-actively address the levels of waste produced by the business and its consumption
of energy. Specific programmes are in place to recover and recycle waste created by our manufacturing process and we are actively
working with our customers and suppliers to reduce the levels of packaging associated with our products. The Group has instituted
a programme designed to gain accreditation under ISO 14001 “Environmental Management”, the international standard for
environmental operation.
Financing
The Group currently uses short term variable rate financing arrangements to provide finance for working capital requirements.
Financial instruments
The Group uses its own cash resources and forward exchange contracts and foreign currency bank accounts to manage its exposure
to exchange rate risk caused by trading activities in currencies other than sterling.
The risk management policy adopted is to regularly review forward foreign currency cash flows, identifying the currency effect
of completed sale and purchase transactions, transactions which have been contracted for but not completed and an assessment
of expected likely forward cash flows. The net currency exposure arising from this review is then managed using forward option
contracts. Net currency exposures are generally covered between three and six months forward at any point in time. The Group
does not trade in financial instruments.
The Group has no material interest rate risk, the only interest rate exposure is in relation to returns on short term cash deposits
and borrowings.
Note 2 to the accounts includes financial risk considerations.
page
19
Directors’ Report
(continued)
Land and buildings
The current value of land and buildings is in the opinion of the Directors in excess of the value included in these accounts.
This has not been quantified because independent valuations have not been undertaken.
Substantial shareholdings
The Directors have been advised of the following individual interests, or Group of interests, other than those dealt with in the
summary of Directors interests in the Report of the Remuneration Committee, held by persons acting together, which at 21 March
2008 exceeded 3% of the Company’s issued share capital:
Shareholder
Landfinance Limited
S Baker
J A Roper
E S Roper
M J & G Roper
Discretionary Unit Trust
Henderson Global Investors
Number of ordinary
shares
Percentage
1,104,000
1,000,000
1,000,000
968,045
721,880
550,000
440,000
10.1%
9.1%
9.1%
8.8%
6.6%
5.0%
4.0%
Suppliers
The Group agrees terms and conditions covering its business with its suppliers at the time of each transaction or in advance.
In normal circumstances payment is generally made in accordance with these terms, subject to suppliers meeting the agreed
terms and conditions.
The Group’s average creditor payment period at 31 December 2007 was 28 days (2006: 23 days). The Company has no trade creditors.
Political and charitable contributions
Contributions made by the Group during the year for political and charitable purposes were £nil (2006: £nil) and £8,076
(2006: £3,640) respectively. In addition to the above the Group regularly donates quantities of product to charitable causes.
The estimated value of these donations in 2007 was £9,000 (2006: £9,000). The Group’s policy in respect of charitable donations
is to support local charities and institutions, particularly in relation to education and sport.
The more significant donations within the £8,076 were £1,062 to TCT Remembering Emily, £1,000 to S Africa Charity, £2,500
to Mel Robins Charity, £894 to the Cream Team Charity event, £785 to The North Staffs Charity and £500 to British Red Cross
(2006: £1,000 was a donation to W Weaver, £750 to NSPCC and £500 each to Sage and University Hospital fund). The remaining
contributions were in line with the Group’s policy in respect of charitable donations is to support local charities and institutions,
particularly in relation to education and sport and generally relate to sponsorship of individuals or local sports events.
page
20
Statement of Directors’ responsibilities in respect of the Annual Report, the
Directors’ Remuneration Report and the financial statements
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements
in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have
prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union, and the parent Company financial statements and the Directors’ Remuneration Report in accordance with applicable
law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). In preparing the Group
financial statements, the Directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board
(IASB). The Group and parent Company financial statements are required by law to give a true and fair view of the state of affairs
of the Company and the Group and of the profit or loss of the Group for that period.
In preparing those financial statements, the Directors are required to:
● select suitable accounting policies and then apply them consistently;
● make judgments and estimates that are reasonable and prudent;
● state that the Group financial statements comply with IFRSs as adopted by the European Union and IFRSs issued by the IASB, and
with regard to the parent Company financial statements that applicable UK Accounting Standards have been followed, subject to
any material departures disclosed and explained in the financial statement; and
● prepare the Group and parent Company financial statements on the going concern basis unless it is inappropriate to presume
that the Group will continue in business, in which case there should be supporting assumptions or qualifications as necessary.
The Directors confirm that they have complied with the above requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial
position of the Company and the Group and to enable them to ensure that the Group financial statements comply with the Companies
Act 1985 and Article 4 of the IAS Regulation and the parent Company financial statements and the Directors’ Remuneration Report
comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and the Group and hence
for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Disclosure of information to auditors
So far as each Director is aware, there is no relevant audit information of which the Company’s auditors are unaware. Relevant
information is defined as “information needed by the Company’s auditors in connection with preparing their report”. Each Director
has taken all the steps that he ought to have taken in his duty as a Director in order to make himself aware of any relevant audit
information and to establish that the Company’s auditors are aware of that information.
Auditors
The auditors, PricewaterhouseCoopers LLP have indicated their willingness to continue in office and a resolution that they be
re-appointed will be proposed at the Annual General Meeting.
D J S Taylor
Company Secretary
31 March 2008
page
21
Report of the Remuneration Committee
for the year ended 31 December 2007
Remuneration policy
This section of the Report of the Remuneration Committee is not audited.
The terms of Reference for the Remuneration Committee are listed below:
● To determine, on behalf of the Board and the Shareholders, the Company’s broad policy for Executive reward and the entire
individual remuneration including terms of service for each of the Executive Directors (and as appropriate other nominated
Senior Executives).
● In doing so, to give the Executive Directors appropriate encouragement to enhance Company performance and ensure that they
are fairly but reasonably rewarded for their individual responsibilities, abilities and contribution.
● To report and account directly to the Shareholders, on behalf of the Board, for their decisions.
The Remuneration Committee issued a policy statement which is endorsed by the Board. In determining its policy the Committee
has given full consideration to Section B of the best practices provisions annexed to the Listing Rules of the London Stock Exchange.
The two elements of this statement are:
● Total rewards to Executive Directors are intended to provide a comprehensive benefit package which both attracts and motivates
individuals of calibre and experience to achieve continuous improvement in shareholder benefits (whilst at all times maintaining
the highest levels of integrity). Reflecting individual responsibilities, abilities, expertise and preferences, a balance is sought
between guaranteed income through salary and pension with incentives aligned to measurable criteria to cover both short and
longer term periods.
Total rewards will be set with acknowledgement of comparable rewards in industry - related public companies and those of similar
scale and also with sensitivity to subordinate staff within the Company with whom the packages will as far as possible be consistent
and fair.
The Remuneration Committee is composed of R S Kettel, who acts as Chairman, J N E Sparey and J W Morgan, all of whom are
non executive Directors.
During the year the following provided advice which materially assisted the Remuneration Committee; A D Roper (Group Managing
Director) and A M Basnett (HR Director, Churchill China (UK) Limited).
page
22
Directors’ emoluments
This section of the Report of the Remuneration Committee is audited. Emoluments of the Directors were as follows:
2007
Executive
A D Roper
D J S Taylor
D M O’Connor
R N Grundy
I T Hicks
Non executive
J N E Sparey
E S Roper
R S Kettel
J W Morgan
2006
Executive
A D Roper
D J S Taylor
D M O’Connor
R N Grundy
I T Hicks
Non executive
E S Roper
R S Kettel
J N E Sparey
Performance
bonuses
£
Salary
£
Benefits
in kind
£
Aggregate
emoluments
£
Pensions
(see below)
£
223,200
152,408
152,333
152,333
106,742
48,000
21,667
33,333
22,666
–––––––––
912,682
–––––––––
–––––––––
196,233
135,333
137,667
137,667
23,751
50,333
31,004
32,000
–––––––––
743,988
–––––––––
–––––––––
38,700
35,100
35,100
40,100
23,625
–
–
–
–
–––––––––
172,625
–––––––––
–––––––––
8,000
7,250
7,250
7,250
4,750
–
–
–
–––––––––
34,500
–––––––––
–––––––––
812
13,906
17,440
17,507
9,509
–
812
–
–
–––––––––
59,986
–––––––––
–––––––––
568
13,558
17,102
17,398
2,299
568
–
–
–––––––––
51,493
–––––––––
–––––––––
262,712
201,414
204,873
209,940
139,876
48,000
22,479
33,333
22,666
–––––––––
1,145,293
–––––––––
–––––––––
204,801
156,141
162,019
162,315
30,800
50,901
31,004
32,000
–––––––––
829,981
–––––––––
–––––––––
–
10,669
10,663
10,663
7,122
–
–
–
–
–––––––––
39,117
–––––––––
–––––––––
3,847
9,703
7,830
8,384
2,243
–
–
–
–––––––––
32,007
–––––––––
–––––––––
Aggregate
emoluments
including
pensions
£
262,712
212,083
215,536
220,603
146,998
48,000
22,479
33,333
22,666
–––––––––
1,184,410
–––––––––
–––––––––
208,648
165,844
169,849
170,699
33,043
50,901
31,004
32,000
–––––––––
861,988
–––––––––
–––––––––
There were no contracts of significance during or at the end of the financial year in which a Director of the Company was
materially interested.
Performance bonuses for executive Directors are earned on a basis combining increases in Group profitability, and the achievement
of defined personal performance objectives.
Benefits in kind include the provision of car benefits, fuel benefits and medical insurance applicable to all Executive Directors.
No Director waived emoluments in respect of the years ended 31 December 2007 and 2006.
page
23
Report of the Remuneration Committee
(continued)
Directors’ emoluments (continued)
Pension costs above represent the transfer value of the increase in pension benefits over the year less Directors contributions as
required by the Listing Rules, together with contributions made by the Group to defined contribution schemes. For additional
information in respect of Directors’ pensions refer to the section ‘Pensions’ below.
Share options
This section of the Report of the Remuneration Committee is audited. Details of share options granted under the Executive and
unapproved Executive schemes are as follows:
Exercise
Price
pence
Date from
which
exercisable
118.5
151
151
171
208
Apr 2003
Dec 2003
Dec 2003
Apr 2006
Apr 2007
Expiry
date
Apr 2010
Dec 2010
Dec 2010
Apr 2012
Apr 2014
151
171
208
208
Dec 2003
Apr 2006
Apr 2007
Apr 2007
Dec 2010
Apr 2012
Apr 2014
Apr 2014
Number
of options
Number
of options
Date of 31 December 31 December
2006
2007
grant
D J S Taylor
Unapproved Executive scheme
Executive scheme
Unapproved Executive scheme
Unapproved Executive scheme
Unapproved Executive scheme
D M O’Connor
Executive scheme
Unapproved Executive scheme
Executive Scheme
Unapproved Executive Scheme
13.04.00
5.12.00
5.12.00
19.04.02
30.04.04
5.12.00
19.04.02
30.04.04
30.04.04
7,500
2,000
20,500
15,000
10,000
––––––––
55,000
––––––––
––––––––
–
10,000
4,000
6,000
––––––––
20,000
––––––––
––––––––
7,500
9,500
20,500
15,000
10,000
––––––––
62,500
––––––––
––––––––
2,250
15,000
4,000
6,000
––––––––
27,250
––––––––
––––––––
page
24
Share options (continued)
R N Grundy
Unapproved Executive scheme
Unapproved Executive scheme
Unapproved Executive scheme
I T Hicks
Approved Executive scheme
Unapproved Executive scheme
Number
of options
Number 31 December
2006
or at date of
appointment
of options
Date of 31 December
2007
grant
5.12.00
19.04.02
30.04.04
30.04.04
30.04.04
–
13,000
10,000
––––––––
23,000
––––––––
––––––––
6,000
4,000
––––––––
10,000
––––––––
––––––––
20,500
15,000
10,000
––––––––
45,500
––––––––
––––––––
6,000
4,000
––––––––
10,000
––––––––
––––––––
Exercise
Price
pence
Date from
which
exercisable
Expiry
date
151
171
208
Dec 2003
Apr 2006
Apr 2007
Dec 2010
Apr 2012
Apr 2014
208
208
April 2007
April 2007
April 2014
April 2014
On 18 April 2007 D J S Taylor exercised 7,500 share options granted under the Executive Share Option Scheme at an exercise price
of 151p, D M O’Connor exercised 2,250 share options granted under the Executive Share Option scheme at an exercise price of
151p and 5,000 share options granted under the Unapproved Executive Share Option Scheme at an exercise price of 171p and,
R N Grundy exercised 20,500 share options granted under the Unapproved Executive Share Option scheme at an exercise price
of 151p. The market price at the date of exercise was 275p.
On 7 September 2007 RN Grundy exercised 2,000 share options granted under the Unapproved Executive Share Option Scheme
at an exercise price of 171p. The market price at the date of exercise was 327.5p.
Share options are granted to Directors in accordance with the terms of reference of the Remuneration Committee (see page 22)
to provide encouragement to enhance Group performance in the long term and having regard to each employees responsibilities,
ability and contribution. The grant of options is made at market value at the date of grant at no cost to the employee.
The above options are only exercisable subject to the satisfaction of performance criteria in relation to sustained improvement in
the financial performance of the Group. In the case of the above options the Remuneration Committee consider that a sustained
improvement in the financial performance of the Group represents an increase in the adjusted earnings per ordinary share of the
Group of at least 6% above the increase in the Retail Price Index over the three year period from the beginning of the financial
year in which the option was granted.
page
25
Report of the Remuneration Committee
(continued)
Phantom Share Scheme
Details of shares options granted under the Phantom Share Scheme are as follows:
D J S Taylor
D J S Taylor
D M O’Connor
D M O’Connor
R N Grundy
R N Grundy
I T Hicks
I T Hicks
Date of
grant
Number of
phantom
Shares
Base
value
Pence
Cap
value
Pence
Date from
which
exercisable
19.12.07
19.12.07
19.12.07
19.12.07
19.12.07
19.12.07
19.12.07
19.12.07
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
300
300
300
300
300
300
300
300
550
700
550
700
550
700
550
700
Dec 2010
Dec 2011
Dec 2010
Dec 2011
Dec 2010
Dec 2011
Dec 2010
Dec 2011
Expiry
date
Dec 2012
Dec 2012
Dec 2012
Dec 2012
Dec 2012
Dec 2012
Dec 2012
Dec 2012
The above options are only exercisable subject to the satisfaction of performance criteria in relation to a sustained improvement
in the financial performance of the Group. In the case of the above options the Remuneration Committee consider that a sustained
improvement in the financial performance of the Group represents an increase in the adjusted earnings per ordinary share of the
Group of at least 2% per annum above the Retail Price Index over the period from the beginning of the financial year in which the
option was granted.
The market price of the Company’s shares at the end of the financial year was 307.5p (2006: 255p). The range of prices for the year
to 31 December 2007 was 245p to 342p (2006: 179p to 273p) per ordinary share.
Gains made by Directors on share options
This section of the Report of the Remuneration Committee is audited.
The gains made by Directors from the exercise of share options during the year, calculated at the market share price at the date
of exercise of the options, were as follows:
D J S Taylor
D M O’Connor
R N Grundy
I T Hicks
2007
£
9,300
7,990
28,550
–
––––––––
45,840
––––––––
––––––––
2006
£
–
9,000
11,400
7,500
––––––––
27,900
––––––––
––––––––
Pensions
This section of the Report of the Remuneration Committee is audited.
The method of provision of pension benefits to Directors changed during 2006. Up to 31 March 2006 benefits were provided through
a defined benefit scheme, the Churchill Group Retirement Benefit Scheme. On 31 March 2006 the accrual of future benefits under
this scheme ceased and future pension provision was made under a Group Personal Pension arrangement. The disclosures below
reflect this change.
page
26
Pensions (continued)
Pension benefits earned by Directors under the defined benefit scheme were as follows:
A D Roper
D J S Taylor
D M O’Connor
R N Grundy
I T Hicks
The disclosure above is in accordance with the Listing Rules.
A D Roper
D J S Taylor
D M O’Connor
R N Grundy
I T Hicks
Increase in
benefit over
the year
(excl inflation)
£
–
–
–
–
–
––––––––
–
––––––––
––––––––
Capital value of
increase less
Directors’
contributions
£
–
–
–
–
–
––––––––
–
––––––––
––––––––
Accrued
benefit
£
94,016
25,379
24,929
12,142
15,084
––––––––
171,550
––––––––
––––––––
Increase in
benefit over
the year
(incl inflation)
£
Transfer
value at
31 December
2007
£
Transfer
value at
31 December
2006
£
Increase in
transfer value
less Directors’
contributions
£
–
–
–
–
–
––––––––––
–
––––––––––
––––––––––
1,597,056
324,623
246,481
115,304
95,421
––––––––––
2,378,885
––––––––––
––––––––––
1,551,646
308,246
236,247
107,534
88,419
––––––––––
2,292,092
––––––––––
––––––––––
45,410
16,377
10,234
7,770
7,002
––––––––––
86,793
––––––––––
––––––––––
The disclosure above is in accordance with the Companies Act 1985.
The accumulated total benefit is the amount of pension that would be paid each year on retirement based on service to 31 December
2007 or the date of retirement if earlier.
All transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The
transfer values of the accrued entitlement represent the value of assets that the pension scheme would need to transfer to another
pension provider on transferring the scheme’s liability in respect of the Directors’ pension benefits that they earned in respect of
qualifying services. They do not represent the sums payable to the individual Directors.
The increase in the transfer value less Directors’ contributions is the increase in the transfer value of the accrued benefits during the
year after deducting the Directors’ personal contributions to the scheme.
The transfer value of the increase in accrued benefits, required by the Listing Rules, discloses the current value of the increase in
accrued benefits that the Director has earned in the period, whereas the change in his transfer value, required by the Companies Act,
discloses the absolute increase or decrease in his transfer value and includes the change in value of accrued benefits that results from
market volatility affecting the transfer value at the beginning of the period, as well as the additional value earned in the year.
All scheme members have the opportunity to pay Additional Voluntary Contributions. Neither the contributions nor the resulting
benefits are included in the above table.
page
27
Report of the Remuneration Committee
(continued)
Pensions (continued)
All executive Directors are deferred members of the Churchill Retirement Benefit Scheme. The pension benefit of A D Roper is funded
to allow retirement based on accrued service to 31 March 2006 on attaining the age of 60 years. A D Roper did not contribute to the
Scheme. The pension benefit of D J S Taylor is funded to allow retirement between the ages of 60 and 65 with a pension based on
accrued service to 31 March 2006. The pension benefits of D M O’Connor, R N Grundy and I T Hicks are funded to allow retirement
at 65 with a pension based on accrued service to 31 March 2006.
D J S Taylor, D M O’Connor, R N Grundy and I T Hicks are members of the Churchill China 2006 Group Personal Pension Plan.
Contributions paid by the Group in respect of this scheme were at a rate of 7% of pensionable salary. Only basic salary is pensionable.
D J S Taylor
D M O’Connor
R N Grundy
I T Hicks
2007
£
10,669
10,663
10,663
7,122
––––––––
39,117
––––––––
––––––––
2006
£
7,443
7,484
7,484
1,663
––––––––
24,074
––––––––
––––––––
Directors’ service contracts
This section of the Report of the Remuneration Committee is not audited.
Executive Directors are not appointed on contracts for a fixed duration. A D Roper and D J S Taylor have contracts of service which
can be terminated by the Company or the Director with a notice period of twelve months. D M O’Connor and R N Grundy have
service contracts that can be terminated with a notice period of twelve months from the Company or six months from the Director.
IT Hicks has a service contract that can be terminated with a notice period of six months from the Company or three months from the
Director. A D Roper’s and D J S Taylor’s service contracts were signed on 26 October 1994. The service contracts for D M O’Connor,
R N Grundy and I T Hicks were signed on 21 March 2000, 11 July 2000 and 5 October 2001 respectively.
Non Executive Directors are appointed on fixed term contracts of two years duration. Fixed term contracts for Non Executive Directors
were signed on the following dates: R S Kettel 1 May 2007, J N E Sparey 20 March 2007 and J W Morgan 16 May 2007.
There are no defined contractual payments in the event of termination of a Directors’ service contract.
Directors’ interests
This section of the Report of the Remuneration Committee is not audited.
The interests of the Directors and their immediate families and family trusts at 31 December 2007 in the 10p ordinary shares of the
Company were as follows:
A D Roper
D J S Taylor
R S Kettel
D M O’Connor
J N E Sparey
R N Grundy
I T Hicks
J W Morgan
page
28
2007
864,930
12,000
25,000
5,599
29,100
13,000
2,500
8,000
––––––––
960,129
––––––––
––––––––
2006
862,430
10,000
20,000
4,599
19,000
6,500
1,500
–
––––––––
924,029
––––––––
––––––––
Directors’ interests (continued)
A D Roper’s non-beneficial shareholdings included above at 31 December 2007 were 202,500 (2006: 200,000) 10p ordinary shares,
as trustee of various trusts established for the benefit of his children.
A D Roper’s interest in the 10p ordinary shares of the Company at 31 December 2007 represented 7.9% (2006: 7.9%) of the
Company’s issued share capital.
There has been no change in the interests set out above between 31 December 2007 and 31 March 2008.
Performance graph
This section of the Report of the Remuneration Committee is not audited.
(Source: Brewin Dolphin)
Over the five year period against which the total shareholder return from the Group is being assessed, performance has been
substantially above that generated by the AIM index and slightly above that shown by the FTSE Fledgling index. The Group has
generally achieved a steady rate of return averaging 25% on a compound basis, although in 2005 returns dropped principally
due to lower earnings. Over the five year period total shareholder return from the Company has been 206%, whilst that achieved
by the AIM index as a whole was 81% and the FTSE Fledgling 170%. In the year to 31 December 2007 the overall return from the
Company was 24%, the AIM index achieved a 1% return and the FTSE Fledgling index -7%.
In the opinion of the Directors the above indices are the most appropriate indices against which to measure the total shareholder
return of Churchill China plc as they are constituted of businesses of similar size to the Company.
On behalf of the Board
R S Kettel
Chairman of the Remuneration Committee
31 March 2008
page
29
Corporate Governance
This statement is unaudited
As a Company quoted on the Alternative Investment Market of the London Stock Exchange, the Company is not required to comply
with the Principles of Good Governance and Code of Best Practice (“the Combined Code”), however the Board supports the standards
required by the Combined Code. During the year ended 31 December 2007 the Company was in full compliance with the Code
provisions except in a limited number of areas as discussed in the following paragraphs.
The Board of Directors
The Board is currently composed of five executive and three non executive Directors and meets at least eleven times per year. It is felt
that the current composition and operation of the Board is adequate to ensure a balance of power and authority. The non executive
members of the Board take an active and influential part in Board procedures and a senior independent non executive Director,
R S Kettel, has been formally appointed.
The Combined Code recommends that the Boards of listed companies include at least three independent non executive Directors.
J N E Sparey, R S Kettel and J W Morgan are all considered to be independent.
In addition to a formal agenda covering financial control, management and business development, there is appropriate debate
addressing areas outside the regular agenda to ensure that all Directors are able to take an informed view of the progress of the
business. The nature of the organisational structure of the Group allows executive Directors to maintain a close involvement in all
aspects of the Group’s operations. A schedule of matters reserved for Board decision is maintained and a procedure exists to allow
Directors access to independent professional advice if required.
The following table shows the attendance of Directors at Board meetings through the year.
E S Roper (until resignation)
A D Roper
D J S Taylor
R S Kettel
D M O’Connor
J N E Sparey
R N Grundy
I T Hicks
J W Morgan (since appointment)
Meetings
held
Meetings
attended
5
12
12
12
12
12
12
12
8
5
11
12
12
12
11
12
12
8
The Directors consider that the Board of Directors include key management for all areas of the business and that there are no other
key management which require disclosure.
There are two principal sub-committees of the Board.
The Audit Committee, which is wholly composed of non executive Directors, meets at least twice per year to receive reports from
executive management and external auditors and is normally attended by the Finance Director. The audit committee is chaired by
R S Kettel.
The Remuneration Committee is wholly composed of non executive Directors and is normally attended by the Group Managing
Director who takes no part in discussions on his own remuneration. The remuneration committee is chaired by R S Kettel.
Terms of reference for both Committees and a remuneration policy statement have been agreed by the Board.
The Company does not have a nomination committee as new Board appointments are discussed by the Board as a whole rather than
by delegation to a committee.
page
30
Internal control
The Board of Directors has overall responsibility for the Group’s system of internal control and is responsible for reviewing its
effectiveness. This system is designed to manage rather than eliminate the risk of failure to achieve business objectives and provides
reasonable, but not absolute, assurance against material mis-statement or loss.
The Board has established a system for ongoing review of risk assessment and management procedures to ensure that the controls on
which it places reliance are operating satisfactorily and that new risks to which the business becomes exposed through its activities
are recognised and appropriate controls implemented. These procedures have been in operation throughout the year and in the period
to the date of this report.
The risks to which the Group is exposed are formally reviewed by the Board twice a year. More regular reviews of individual risk
areas are carried out and the results reported to the Board. Operational responsibility for each of the main risk areas has been clearly
identified and are allocated to either Directors of the Company or of the Company’s principal operating subsidiary Churchill China
(UK) Limited, under the supervision of the Board as a whole. Individual managers and employees are also aware, where appropriate,
of their responsibilities in both identifying and controlling risk.
The Company’s systems in relation to risk assessment and control seek to ensure that as part of the normal process of business
management material risks are identified and brought to the attention of the Board. Directors review risk as part of a regular
programme of meetings covering both general business processes and specific risk areas. A system of reporting is in place to provide
control information on key risk areas within reports submitted to the Board and reviewed. In addition to this Directors and managers
are aware of their responsibility to monitor both changes in business activity and changes to the economic legislative environment
in which the Company operates. Potential new risk areas have been identified and control procedures documented.
The Board and the Audit Committee have reviewed the effectiveness of the system of internal control during the year.
Internal audit
The Company does not employ an internal audit department and does not believe that, given the size and structure of the business,
the geographic proximity of its major operations and the close control effected by the involvement of Executive Directors in the day
to day running of the business, such a department would provide an effective means of gaining significant improvements in internal
control. The requirement for an internal audit function is reviewed annually.
Internal financial control
The Board of Directors has overall responsibility for the Group’s systems of internal financial control which it exercises through an
organisational structure with authorisation, monitoring and reporting procedures which are appropriate to the needs of the business.
These systems have been designed to give the Board reasonable, but not absolute assurance against material mis-statement or loss.
The principal features of the Group’s system of internal financial control are: the maintenance of a control environment in which the
need for the highest standards of behaviour and integrity are communicated to employees; the use of a detailed reporting system
covering performance against comprehensive financial and other key operating indicators. The Board and the Audit Committee have
reviewed the operation and effectiveness of the system of internal financial control during the year. The Board have responded to this
review with management and work to address the areas identified.
Going concern
The Board confirms that having made enquiries, the Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern
basis in preparing financial statements.
By order of the Board
D J S Taylor
Company Secretary
31 March 2008
page
31
Independent Auditors’ Report to the Members
of Churchill China plc
We have audited the Group and parent Company financial statements (the ‘financial statements’) of Churchill China plc for the year
ended 31 December 2007 which comprise the Consolidated Income Statement, the Consolidated Statement of Recognised Income
and Expenditure, the Consolidated and Parent Company Balance Sheets, the Consolidated Cash Flow Statement and the related notes.
These financial statements have been prepared under the accounting policies set out therein.
Respective responsibilities of directors and auditors
The Directors’ responsibilities for preparing the Annual Report and the Group financial statements in accordance with applicable law
and International Financial Reporting Standards (IFRSs) as adopted by the European Union, and for preparing the parent Company
financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International
Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the Company’s
members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this
opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in
accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’
Report is consistent with the financial statements.
In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the
information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and other
transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements.
The other information comprises only the Directors’ Report, the Chairman’s Statement, the unaudited elements of the Remuneration
Report and the Corporate Governance Report. We consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices
Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial
statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order
to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements.
Opinion
In our opinion:
● the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state
of the Group’s affairs as at 31 December 2007 and of its profit and cash flows for the year then ended;
● the parent Company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the parent Company’s affairs as at 31 December 2007;
● the Group and parent Company financial statements have been properly prepared in accordance with the Companies Act 1985; and
● the information given in the Directors’ Report is consistent with the financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Birmingham
31 March 2008
page
32
Consolidated Income Statement
for the year ended 31 December 2007
Notes
Before
exceptional
items
Exceptional
items
2007
£’000
2007
£’000
Before
exceptional
items
Restated
2006
£’000
Exceptional
items
2006
£’000
Total
2007
£’000
Total
Restated
2006
£’000
Revenue
Operating profit before
exceptional item
Exceptional items
Operating profit after
exceptional items
Share of results of associate company
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit after income tax
Attributable to equity
holders of the company
Earnings per ordinary share
Diluted earnings per share
4
5
5
4
8
8
10
11
11
46,930
––––––––
–
––––––––
46,930
––––––––
45,930
––––––––
–
––––––––
45,930
––––––––
3,230
–
––––––––
–
798
––––––––
3,230
798
––––––––
2,795
–
––––––––
–
2,660
––––––––
2,795
2,660
––––––––
3,230
120
730
(36)
––––––––
4,044
(1,147)
––––––––
798
–
–
–
––––––––
798
–
––––––––
4,028
120
730
(36)
––––––––
4,842
(1,147)
––––––––
2,795
(7)
294
–
––––––––
3,082
(846)
––––––––
2,660
–
–
–
––––––––
2,660
(785)
––––––––
5,455
(7)
294
–
––––––––
5,742
(1,631)
––––––––
2,897
––––––––
798
––––––––
3,695
––––––––
2,236
––––––––
1,875
––––––––
4,111
––––––––
3,695
––––––––
33.8p
33.6p
––––––––
––––––––
4,111
––––––––
37.7p
37.7p
––––––––
––––––––
Adjusted earnings per share figures excluding the effect of exceptional items are shown in note 11.
All the above figures relate to continuing operations.
The notes on pages 39 to 77 are an integral part of these consolidated financial statements.
The Company has elected to take the exemption under section 230 of the Companies Act 1985 to not present the parent Company
profit and loss account. The profit of the parent Company for the year was £66,000 (2006: loss £7,000).
page
33
Consolidated Statement of Recognised
Income and Expenditure
for the year ended 31 December 2007
Net of tax
Actuarial gain on defined benefit obligations (note 22)
Currency translation differences
Impact of change in UK tax rate on deferred tax
Net income recognised directly in equity
Profit for the year
Total recognised income for the year
Attributable to:
Equity holders of the company
2007
£’000
1,655
3
26
––––––––
1,684
3,695
––––––––
5,379
––––––––
––––––––
2006
Restated
£’000
777
(10)
–
––––––––
767
4,111
––––––––
4,878
––––––––
––––––––
5,379
––––––––
––––––––
4,878
––––––––
––––––––
page
34
Consolidated Balance Sheet
as at 31 December 2007
Assets
Non current assets
Property, plant and equipment
Intangible assets
Investment in associate
Available for sale financial assets
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Current income tax liabilities
Non current liabilities
Deferred income tax liabilities
Retirement benefit obligations
Total liabilities
Net assets
Shareholders’ equity
Issued share capital
Share premium account
Other reserves
Retained earnings
Total equity
Notes
13
14
15
17
21
18
19
20
21
22
23
23
24
25
2007
£’000
10,813
34
814
–
318
––––––––
11,979
––––––––
6,660
9,606
11,440
––––––––
27,706
––––––––
39,685
––––––––
(7,779)
(493)
––––––––
(8,272)
––––––––
(592)
(1,090)
––––––––
(9,954)
––––––––
29,731
––––––––
1,095
2,332
1,180
25,124
––––––––
29,731
––––––––
––––––––
2006
Restated
£’000
10,693
35
797
22
1,597
––––––––
13,144
––––––––
6,857
10,111
6,410
––––––––
23,378
––––––––
36,522
––––––––
(6,177)
(190)
––––––––
(6,367)
––––––––
(554)
(3,948)
––––––––
(10,869)
––––––––
25,653
––––––––
1,090
2,266
1,157
21,140
––––––––
25,653
––––––––
––––––––
The notes on pages 39 to 77 are an integral part of these consolidated financial statements.
The financial statements on pages 33 to 77 were approved by the Board of Directors on 31 March 2008 and were signed on its behalf by:
A D Roper
D J S Taylor } Directors
page
35
Company Balance Sheet
as at 31 December 2007
Fixed assets
Investment in associate
Investments in subsidiaries
Other investments
Current assets
Debtors: amounts falling due after more than one year
Debtors: amounts falling due within one year
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Other reserves
Profit and loss account
Shareholders’ funds
Notes
15
16
17
19
19
20
23
23
24
25
2007
£’000
355
2,203
–
––––––––
2,558
11,847
124
480
––––––––
12,451
(39)
––––––––
12,412
––––––––
14,970
––––––––
14,970
––––––––
––––––––
1,095
2,332
24
11,519
––––––––
14,970
––––––––
––––––––
2006
£’000
355
2,203
43
––––––––
2,601
13,226
119
293
––––––––
13,638
(33)
––––––––
13,605
––––––––
16,206
––––––––
16,206
––––––––
––––––––
1,090
2,266
21
12,829
––––––––
16,206
––––––––
––––––––
The notes on pages 39 to 77 are an integral part of these consolidated financial statements.
The financial statements on pages 33 to 77 were approved by the Board of Directors on 31 March 2008 and were signed on its behalf by:
A D Roper
D J S Taylor } Directors
page
36
Consolidated Cash Flow Statement
for the year ended 31 December 2007
Cash generated from operations
Interest received
Interest paid
Income tax paid
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Purchases of intangible assets
Dividends received
Net cash used in investing activities
Financing activities
Issue of ordinary shares
Dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange gains/(losses) on cash and cash equivalents
Cash and cash equivalent at the end of the year
2007
£’000
6,307
491
(14)
(225)
––––––––
6,559
––––––––
(1,413)
1,107
(25)
103
––––––––
(228)
––––––––
71
(1,375)
––––––––
(1,304)
––––––––
5,027
6,410
3
––––––––
11,440
––––––––
––––––––
2006
Restated
£’000
2,725
230
–
(316)
––––––––
2,639
––––––––
(736)
3,053
(11)
–
––––––––
2,306
––––––––
63
(1,217)
––––––––
(1,154)
––––––––
3,791
2,629
(10)
––––––––
6,410
––––––––
––––––––
page
37
Reconciliation of Operating Profit to
Net Cash Inflow from Continuing Activities
for the year ended 31 December 2007
Continuing operating activities
Operating profit
Adjustments for:
Depreciation and amortisation
Profit on disposal of property, plant and equipment
Charge for share based payments
Decrease in retirement benefit obligation (see note 22)
Inventory
Trade and other receivables
Trade and other payables
Net cash inflow before additional pension payments
Additional cash contributions to the pension scheme (see note 22)
Net cash inflow from continuing operating activities
2007
£’000
4,028
1,002
(719)
3
(240)
197
505
1,531
––––––––
6,307
–
––––––––
6,307
––––––––
––––––––
2006
Restated
£’000
5,455
1,298
(1,892)
8
(1,150)
1,789
(9)
189
––––––––
5,688
(2,963)
––––––––
2,725
––––––––
––––––––
page
38
Notes to the Financial Statements
for the year ended 31 December 2007
1 Summary of significant accounting policies
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
for the first time. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in note 29. The
consolidated financial statements have been prepared in accordance with IFRS adopted for use in the European Union, IFRIC
interpretations and the Companies Act 1985 applicable to Companies reporting under IFRS. The Company financial statements
continue to be prepared under UK GAAP.
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The consolidated financial statements of Churchill China plc have been prepared in accordance with International Financial
Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC interpretations and the Companies
Act 1985 applicable to Companies reporting under IFRS. The Consolidated and Company financial statements have been
prepared under the historical cost convention, as modified by the revaluation of land and buildings, available-for-sale financial
assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 3.
(a) Standards, amendment and interpretations effective in 2007
IFRS 7, ‘Financial instruments: Disclosures’, and the complementary amendment to IAS 1. ‘Presentation of financial statements –
Capital disclosures’, introduces new disclosures relating to financial instruments and does not have any impact on the classification
and valuation of the Group or Company’s financial instruments, or the disclosures relating to taxation and trade and other
payables.
IFRIC 8, ‘Scope of IFRS 2’, requires consideration of transactions involving the issuance of equity instruments, where the
identifiable consideration received is less than the fair value of the equity instruments issued in order to establish whether or not
they fall within the scope of IFRS 2. This standard does not have any impact on the Group or Company’s financial statements.
The Company already applies an accounting policy which complies with the requirements of IFRIC 8. Refer to “Share based
payments” below.
IFRIC 10, ‘Interim financial reporting and impairment”, prohibits the impairment losses recognised in an interim period on
goodwill and investments in equity instruments and in financial assets carried at cost to be reversed at a subsequent balance
sheet date. This standard does not have any impact on the Group or Company’s financial statements.
(b) Standards, amendments and interpretations effective in 2007 but not relevant
The following standards, amendments and interpretations to published standards are mandatory for accounting periods
beginning on or after 1 January 2007 but they are not relevant to the Group or Company’s operations:
●
●
●
IFRS 4, ‘Insurance contracts’;
IFRIC 7, ‘Applying the restatement approach under IAS 29, Financial reporting in hyper-inflationary economies’; and
IFRIC 9, ‘Re-assessment of embedded derivatives’.
page
39
Notes to the Financial Statements
for the year ended 31 December 2007
1 Summary of significant accounting policies (continued)
(c) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted
by the Group and Company
The following standards, amendments and interpretations to existing standards have been published and are mandatory for the
Group’s accounting periods beginning on or after 1 January 2008 or later periods, but the Group and Company have not early
adopted them:
IAS 23 (Amendment), ‘Borrowing costs’ (effective from 1 January 2009). The amendment to the standard is still subject to
endorsement by the European Union. It requires an entity to capitalise borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of
the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The Group will apply IAS 23
(Amended) from 1 January 2009, subject to endorsement by the EU but is currently not applicable to the Group or Company as
there are no qualifying assets.
IFRS 8, ‘Operating segments’ (effective from 1 January 2009). The standard is still subject to endorsement by the European
Union. IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, ‘Disclosures
about segments of an enterprise and related information’. The new standard requires a ‘management approach’, under which
segment information is presented on the same basis as that used for internal reporting purposes. The Group will apply IFRS 8
from 1 January 2009, subject to endorsement by the EU. The expected impact is still being assessed in detail by management,
but it appears that there will be no significant changes to the manner in which the segments are reported.
IFRIC 11, ‘IFRS 2 – Group and treasury share transactions’, (effective from 1 January 2008). IFRIC 11 provides guidance on
whether share-based transactions involving treasury shares or involving Group entities (for example, options over a parent’s
shares) should be accounted for as equity-settled or cash-settled share-based payment transactions in the stand-alone accounts of
the parent and Group companies. This interpretation does not have an impact on the Group or Company’s financial statements.
IFRIC 14, ‘IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction’ (effective from
1 January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised
as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding
requirement. The Group will apply IFRIC 14 from 1 January 2008, but it is not expected to have any impact on the Group or
Company’s accounts.
(d) Interpretations to existing standards that are not yet effective and not relevant for the Group and Company’s operations
The following interpretations to existing standards have been published and are mandatory for the Group and Company’s
accounting periods beginning on or after I January 2008 or later periods but are not relevant for the Group’s operations:
IFRIC 12, ‘Service concession arrangements’ (effective from 1 January 2008). IFRIC 12 applies to contractual arrangements
whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for
public sector services. IFRIC 12 is not relevant to the Group or Company’s operations because none of the Group’s companies
provide for public sector services.
IFRIC 13, ‘Customer loyalty programmes’ (effective from 1 July 2008). IFRIC 13 clarifies that where goods or services are sold
together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element
arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using
fair values. IFRIC 13 is not relevant to the Group or Company’s operations because none of the Group’s companies operate any
loyalty programmes.
page
40
1 Summary of significant accounting policies (continued)
Basis of consolidation
The consolidated financial statements of Churchill China plc include the results of the Company, its subsidiaries and associated
companies.
The financial statements of each undertaking in the Group are prepared to the balance sheet date under UK GAAP. 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.
(a) Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally
accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that
are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries
are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that
control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the
date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the
extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable
net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted
by the Group.
(b) Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a
shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity
method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill identified
on acquisition, net of any accumulated impairment loss.
The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of
post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted
against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest
in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred
obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest
in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies
adopted by the Group.
Dilution in gains and losses arising in investments in associates are recognised in the income statement.
page
41
Notes to the Financial Statements
for the year ended 31 December 2007
1 Summary of significant accounting policies (continued)
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 classified as unallocated.
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 and are deducted from gross revenue.
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
companies, impairment of investment in associate companies, 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.
Dividends
Dividends to the Company’s shareholders are recognised as a liability in the Group’s financial statements in the period in which
the dividends are proposed and approved by the Company’s shareholders.
Interest received/paid
Interest received and paid is treated in the cash flow statement as a cash flow from operating activities as this reflects the nature
of the Group’s business.
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 and the amount recognised in the balance sheet is the present value of these liabilities at the balance sheet date.
The discount rate used to calculate the present value of liabilities is the interest rate attaching to high quantity corporate bonds.
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.
page
42
1 Summary of significant accounting policies (continued)
Retirement benefit costs (continued)
A credit representing the expected return on the assets of the scheme during the year is included within finance income. 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 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 actuarial assumptions.
Costs associated with defined contribution schemes represent contributions payable by the Group during the year and are
charged to the income statement as incurred.
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. 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.
Hedge accounting is not considered to be appropriate to the above currency risk management techniques and has not
been applied.
page
43
Notes to the Financial Statements
for the year ended 31 December 2007
1 Summary of significant accounting policies (continued)
Taxation
Income tax expense represents the sum of the 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
Plant and machinery
Motor vehicles
Fixtures and fittings
%
2 on cost or valuation
10-25 on cost
25 on reducing net book value
25-33 on cost
Freehold land is not depreciated.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s
carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amounts.
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
Neither the Group nor the Company has any goodwill.
Investment in associates
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.
page
44
1 Summary of significant accounting policies (continued)
Impairment of non financial assets
At each reporting date the Directors assess whether there is any indication that 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. The recoverable amount is measured as the higher of net realisable value or value in use.
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.
At each reporting date the Directors assess whether there is an indication 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.
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.
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. Non current assets are measured at the lower of carrying value
and fair value less disposal costs.
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.
Parent Company significant accounting policies
The Company financial statements are prepared under UK GAAP. The financial statements have been prepared under the
historical cost convention in accordance with the Companies Act 1985 and applicable accounting standards in the United
Kingdom. The principal accounting policies applied in the preparation of the Company financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
page
45
Notes to the Financial Statements
for the year ended 31 December 2007
1 Summary of significant accounting policies (continued)
Investments
Fixed asset investments, comprising investments in subsidiary and associated companies, are stated at cost less any provisions
for impairment. Where an event has incurred that gives rise to doubt about the recovery of the carrying value an impairment
assessment is made. The impairment is calculated by comparing the investments carrying value to the recoverable amount as
required by FRS 11 ‘Impairment of fixed assets and goodwill’.
Other
Policies in relation to dividends and share based payments are the same as the Group accounting policies.
2 Financial risk management
Financial risk factors
The Group’s activities expose it to a variety of financial risks; market risk (including currency risk, fair value interest rate risk,
cash flow interest rate risk), credit risk, price risk and liquidity risk. The Group’s overall risk management programme focuses on
the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.
The Group uses derivative financial instruments to manage certain risk exposures.
Financial risk management is carried out by the finance department under policies approved by the Board of Directors.
(a) Market risk
(i) Currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily
in relation to the US dollar and Euro. Foreign exchange risk arises from future commercial transactions, recognised assets and
liabilities and net investments in foreign operations.
The Group’s treasury risk management policy is to secure all of the contractually certain cash flows (mainly export sales and the
purchase of inventory) in each major currency. Contractual certainty is considered to be where the Group has received a firm
sales order or placed a firm purchase order.
At 31 December 2007, if sterling had weakened/strengthened by 5% against the US dollar with all other variables held
constant, post tax profit for the year would have been £68,000 (2006: £11,000) lower/higher, mainly as a result of foreign
exchange gains/losses on translation of US dollar denominated trade payables and cash balances. Equity would have been
a further £6,000 (2006: £4,000) higher/lower mainly as a result of differences in the translation of US dollar investments in
subsidiary undertakings. If sterling had weakened/strengthened by 5% against the Euro with all other variables held constant,
post tax profit for the year would have been £227,000 (2006: £202,000) lower/higher, mainly as a result of foreign exchange
gains/losses on translation of Euro denominated trade receivables and cash balances. There would have been no substantial
other changes in Equity.
(ii) Cash flow and fair value interest rate risk
The Group holds significant interest bearing assets and its finance income and operating cash flows are linked to changes in
market interest rates. The Group has no significant short or long term borrowings.
The Group identifies cash balances in excess of short and medium term working capital requirements (see liquidity risk) and
invests these balances in short and medium term money market deposits.
At 31 December 2007, had the rates achieved been 0.1% higher/lower with all other variables held constant then post tax profit
for the year would have been £9,000 (2006: £5,000) higher/lower. Other components of equity would have been unchanged.
page
46
2 Financial risk management (continued)
Financial risk factors (continued)
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and credit exposures including
outstanding trade receivables and committed transactions. For banks with which the Group places balances on deposit, only
independently rated parties with a minimum rating of ‘A’ are accepted. The cash and cash equivalents are as follows:
Lloyds TSB plc
National Westminster Bank plc
Other
£’000
7,293
3,421
726
–––––––
11,440
–––––––
–––––––
Risk attached to the receipt of trade receivables is largely controlled through the use of credit insurance and confirmed letters
of credit. Where these cannot be obtained the credit control department assesses the credit quality of the customer, taking into
account its financial position, past experience and other factors.
The Group manages its debt position and considers it is in a position of having very limited credit risk.
(c) Price risk
As explained in the Directors’ report the Group results are affected by changes in market prices. The risk attached to this is
managed by close relationships with suppliers and ongoing product development.
(d) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and available funding through committed credit facilities.
Liquidity risk is managed on a Group basis with expected cash flows being monitored against current cash and cash equivalents
and committed borrowing facilities.
The Group has no long term borrowing and funds its operations from its own cash reserves and the Directors do not consider
there to be significant liquidity risk. All liabilities are generally due within 3 months.
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, to provide
finance for the long term development of the business, and to generate returns for shareholders and benefits for other
stakeholders in the business.
In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce debt.
The Group currently has no debt.
Fair value estimation
The carrying value less impairment provision of trade receivable and payables are assumed to approximate their fair values.
page
47
Notes to the Financial Statements
for the year ended 31 December 2007
3 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities are discussed below.
Net realisable value of excess inventories:
The Group identifies inventory where it is believed that the quantity held is in excess of that which may be realised at normal
price levels. The realisable value of this inventory is assessed taking into account the estimated sales price less further costs of
sale. If the estimated net realisable value of excess inventories were to be 10% higher or lower than management’s estimates
the value of this provision would change by £209,000 (2006: £171,000).
4 Segmental analysis
(a) Primary reporting format – business segments
The business is managed in two main business segments – hospitality and retail.
Revenue
Contribution to Group overheads
Group overheads
Exceptional items
Operating profit after exceptional items
Share of results of associated company
Finance income/cost
Profit before income tax
Income tax expense
Profit for the period
31 December 2007
Hospitality
£’000
Retail Unallocated
£’000
£’000
28,576
–––––––
4,909
18,354
–––––––
1,112
–
–––––––
–
(2,791)
798
–––––––
(1,993)
120
694
–––––––
Group
£’000
46,930
–––––––
6,021
(2,791)
798
–––––––
4,028
120
694
–––––––
4,842
(1,147)
–––––––
3,695
–––––––
–––––––
The ‘Unallocated’ Group overheads principally comprise costs associated with centralised functions of the parent Company
board, finance and administration and information technology.
page
48
4 Segmental analysis (continued)
Revenue
Contribution to Group overheads
Group overheads
Exceptional items
Operating profit after exceptional items
Share of results of associated company
Finance income
Profit before income tax
Income tax expense
Profit for the period
31 December 2006
Hospitality
£’000
Retail Unallocated
£’000
£’000
26,018
–––––––
4,186
19,912
–––––––
953
–
–––––––
–
(2,344)
2,660
–––––––
316
(7)
294
–––––––
Group
£’000
45,930
–––––––
5,139
(2,344)
2,660
–––––––
5,455
(7)
294
–––––––
5,742
(1,631)
–––––––
4,111
–––––––
–––––––
The ‘Unallocated’ Group overheads principally comprise costs associated with the centralised functions of the parent Company
board, finance and administration and information technology.
Other segment items included in the income statement are as follows:
Depreciation and amortisation
Depreciation and amortisation
Impairment of associate
Restructuring costs
31 December 2007
Hospitality
£’000
Retail Unallocated
£’000
£’000
579
–––––––
–––––––
235
–––––––
–––––––
188
–––––––
–––––––
31 December 2006
Hospitality
£’000
Retail Unallocated
£’000
£’000
563
–
–
–––––––
–––––––
228
–
–
–––––––
–––––––
507
84
58
–––––––
–––––––
Group
£’000
1,002
–––––––
–––––––
Group
£’000
1,298
84
58
–––––––
–––––––
Segment assets consist primarily of property, plant and equipment, inventories, trade and other receivables. Unallocated
assets comprise intangible assets, investment in associates, available-for-sale financial assets, deferred taxation and cash and
cash equivalents.
Segment liabilities comprise trade and other payables. Unallocated liabilities comprise items such as trade and other payables,
taxation, deferred taxation and retirement benefit obligations.
page
49
Notes to the Financial Statements
for the year ended 31 December 2007
4 Segmental analysis (continued)
Capital expenditure comprises additions to property, plant and equipment (note 13) and intangible assets (note 14).
Segment assets and liabilities at 31 December 2007 and capital expenditure for the year ended on that date are as follows:
Hospitality
£’000
Retail Unallocated
£’000
£’000
Assets
Associates
Total assets
Liabilities
Capital expenditure
17,044
–
–––––––
17,044
–––––––
4,257
–––––––
1,063
–––––––
8,762
–
–––––––
8,762
–––––––
1,676
–––––––
208
–––––––
Segment asset and liabilities are reconciled to entity assets and liabilities as follows:
Segment assets and liabilities
Unallocated:
Central assets and liabilities
Deferred tax
Cash and cash equivalents
Current tax
Retirement benefit obligations
Total
13,065
814
–––––––
13,879
–––––––
4,021
–––––––
167
–––––––
Assets
£’000
25,806
2,121
318
11,440
–
–
–––––––
39,685
–––––––
–––––––
Group
£’000
38,871
814
–––––––
39,685
–––––––
9,954
–––––––
1,438
–––––––
Liabilities
£’000
5,933
1,846
592
–
493
1,090
–––––––
9,954
–––––––
–––––––
Segment assets and liabilities at 31 December 2006 and capital expenditure for the year ended on that date are as follows:
Assets
Associates
Total assets
Liabilities
Capital expenditure
Hospitality
£’000
16,234
–
–––––––
16,234
–––––––
3,469
–––––––
295
–––––––
Retail Unallocated
£’000
£’000
9,503
9,988
797
–
–––––––
–––––––
10,300
9,988
–––––––
–––––––
5,855
1,545
–––––––
–––––––
154
298
–––––––
–––––––
Segment assets and liabilities are reconciled to entity assets and liabilities as follows:
Segment assets and liabilities
Unallocated:
Central assets and liabilities
Available for sale financial assets
Deferred tax
Cash and cash equivalents
Current tax
Retirement benefit obligations
Total
page
50
Assets
£’000
26,222
–
2,271
22
1,597
6,410
–
–
–––––––
36,522
–––––––
–––––––
Group
£’000
35,725
797
–––––––
36,522
–––––––
10,869
–––––––
747
–––––––
Liabilities
£’000
5,014
–
1,163
–
554
–
190
3,948
–––––––
10,869
–––––––
–––––––
4 Segmental analysis (continued)
(b) Secondary reporting format – geographical segments
The Group’s two business segments operate in four main geographical segments, even though they are managed on a
worldwide basis.
Geographical segment
United Kingdom
Rest of Europe
North America
Other
2007
£’000
30,114
9,106
4,974
2,736
–––––––
46,930
–––––––
–––––––
2006
£’000
28,243
8,443
6,585
2,659
–––––––
45,930
–––––––
–––––––
The total assets of the business are allocated as follows:
United Kingdom £38,886,000 (2006: £35,781,000), Rest of Europe £8,000 (2006: £19,000), North America £739,000
(2006: £664,000), Other £52,000 (2006: £58,000).
Capital expenditure was made as follows:
United Kingdom £1,429,000 (2006: £711,000), Other £9,000 (2006: £36,000).
5 Expenses by nature
Before
exceptional
items
2007
£’000
Exceptional
items
2007
£’000
Changes in inventories of finished
goods and work in progress
Raw materials
Employee benefit expense (note 7)
Other external charges
Depreciation and impairment charges
Loss/(profit) on disposal of property,
plant and equipment
Total cost of sales distribution and
administration expenses
26
2,806
16,592
23,195
1,002
79
–––––––
43,700
–––––––
–––––––
Before
exceptional
items
2006
£’000
Exceptional
items
2006
£’000
1,599
2,581
15,083
22,898
990
–
–
(1,092)
–
308
Total
2007
£’000
26
2,806
16,592
23,195
1,002
Total
2006
£’000
1,599
2,581
13,991
22,898
1,298
–
–
–
–
–
(798)
–––––––
(719)
–––––––
(16)
–––––––
(1,876)
–––––––
(1,892)
–––––––
(798)
–––––––
–––––––
42,902
–––––––
–––––––
43,135
–––––––
–––––––
(2,660)
–––––––
–––––––
40,475
–––––––
–––––––
page
51
Notes to the Financial Statements
for the year ended 31 December 2007
5 Expenses by nature (continued)
Exceptional items
The profit on disposal of property recognised in 2007 is in relation to the sale of surplus land at Sandyford in November 2007.
A taxation charge of £nil has been charged in the Group’s overall tax charge in relation to this disposal. Net receipts of
£1,042,000 were received in relation to this disposal during the year.
Costs of £366,000 arising from the restructuring of certain manufacturing operations during 2006 and the resulting write down
of property, plant and equipment have been disclosed as exceptional and have been charged as an impairment in arriving at
the operating profit for the year. A credit of £110,000 was included in the overall tax charge in relation to this item. The cash
outflow in relation to this item during 2006 was £55,000.
The cessation of future accrual to the retirement benefit scheme on 31 March 2006 led to a one off adjustment under IAS 19
‘Employee benefits’ in relation to the curtailment of future benefits of £1,150,000. This amount was treated as exceptional
given its size and was credited against employee benefit expense in arriving at operating profit. A charge of £345,000 was
included in the overall tax charge in relation to this item.
The profit on disposal of property recognised in 2006 was in relation to the sale of Alexander Pottery in January 2006.
A taxation charge of £550,000 was 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 in 2006.
6 Average number of people employed
The average monthly number of persons (including executive Directors) employed by the Group during the year was:
By activity
Production
Sales and administration
The Company had no employees.
7 Employee benefit expense
Staff costs (for the above persons)
Wages and salaries
Social security costs
Current service cost less curtailments (see note 22)
Defined contribution pension cost (see note 22)
Other pension costs (see note 22)
Share options granted to directors and employees (see note 24)
2007
Number
413
225
–––––––
638
–––––––
–––––––
2007
£’000
14,748
1,249
–
434
158
3
–––––––
16,592
–––––––
–––––––
2006
Number
401
195
–––––––
596
–––––––
–––––––
2006
£’000
13,290
1,121
(943)
341
174
8
–––––––
13,991
–––––––
–––––––
Directors’ emoluments
The statutory disclosures for Directors’ emoluments, being the aggregate emoluments, the aggregate amount of gains made by
Directors on the exercise of share options and the amount of money receivable by Directors under long term incentive plans in
respect of qualifying services have been included within the Remuneration Report. In addition statutory disclosures in respect
of the number of Directors to whom retirement benefits are accruing is disclosed.
Company
The Company did not make any payments to employees.
page
52
8 Finance income and costs
Interest income and short term deposits
Interest on pension scheme
Finance income
Other interest
Impairment of available for sale financial asset
Finance costs
Net finance income
9 Auditors’ remuneration
Amounts paid to the Group’s auditors were as follows:
Audit services – audit of subsidiaries
Audit services – audit of parent and consolidated financial statements (Company £1,500, 2006: £1,500)
Non-audit services – taxation advice
10 Income tax expense
Group
Current tax
Deferred tax (note 21)
Origination and reversal of temporary differences
Impact of change in UK tax rate
2007
£’000
491
239
–––––––
730
–––––––
–––––––
(14)
(22)
–––––––
(36)
–––––––
–––––––
694
–––––––
–––––––
2007
£’000
65
17
26
–––––––
108
–––––––
–––––––
2006
£’000
230
64
–––––––
294
–––––––
–––––––
–
–
–––––––
–
–––––––
–––––––
294
–––––––
–––––––
2006
£’000
63
7
12
–––––––
82
–––––––
–––––––
2007
£’000
2006
£’000
528
188
626
(7)
–––––––
1,147
–––––––
–––––––
1,443
–
–––––––
1,631
–––––––
–––––––
page
53
Notes to the Financial Statements
for the year ended 31 December 2007
10 Income tax expense (continued)
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate
applicable to profit of the consolidated entities as follows:
2007
£’000
2006
£’000
Profit before tax
4,842
5,742
Tax calculated at domestic tax rates applicable to profits in the respective countries
Income not subject to tax
Expenses not deductible for tax purposes
Utilisation of previously unrecognised capital tax losses
Tax losses for which no deferred income tax asset was recognised
Remeasurement of deferred tax due to change in UK tax rate
Other
Tax charge
1,439
(31)
31
(240)
(49)
(7)
4
–––––––
1,147
–––––––
–––––––
1,715
–
28
(13)
(147)
–
48
–––––––
1,631
–––––––
–––––––
During the year, as a result of the change in the UK Corporation Tax rates which will be effective from 1 April 2008, deferred
tax balances have been remeasured. Deferred tax relating to temporary differences which are expected to reverse prior to 1 April
2008 is measured at 30% and deferred tax relating to temporary differences expected to reverse after 1 April 2008 are measured
at the tax rate of 28% as these are the tax rules that will apply on reversal.
The weighted average applicable tax rate was 30% (2006: 30%).
There is no tax on the exceptional profit from sale of land due to the offset of capital losses.
The current tax charge for 2006 included a credit of £17,000 in relation to restructuring costs which have been treated as
exceptional. The deferred taxation charge for 2006 included a charge of £550,000 in respect of the disposal of Alexander Pottery,
a charge of £345,000 in respect of curtailment benefits under IAS 19 and a credit of £93,000 in relation to restructuring costs
all of which have been treated as exceptional.
Announcements were made in the March 2007 Budget that changes to the corporation tax legislation would be enacted in
the 2008 Finance Act (FA 2008) to phase out industrial buildings allowances from 2008 onwards. This change has not been
substantially enacted at the balance sheet date and so the numbers reported in the financial statements have not been adjusted.
The effect of the changes to be enacted in FA 2008 would be to increase the net deferred tax liability provided and charge at
31 December 2007 by £683,000.
page
54
11 Earnings per ordinary share
The basic earnings per ordinary share is based on the profit after income tax and on 10,933,561 (2006: 10,867,167) ordinary
shares, being the weighted average number of ordinary shares in issue during the year.
The adjusted earnings per ordinary share is based on the profit after income tax and adjusted to take into account exceptional
items, profit on disposal of fixed assets and the recognition of related deferred tax assets. The Directors believe that adjusted
earnings per share more closely reflects the underlying performance of the Group.
Basic earnings per share (Based on earnings £3,695,000 (2006: £4,111,000))
Adjustments:
Restructuring costs (note 3)
Profit on disposal of fixed assets
Curtailment of pension benefits (note 3)
Adjusted earnings per share
2007
Pence per
share
2006
Pence per
share
33.8
37.7
–
(7.3)
–
–––––––
26.5
–––––––
–––––––
2.4
(12.2)
(7.4)
–––––––
20.5
–––––––
–––––––
Diluted basic earnings per ordinary share is based on the profit after income tax and on 11,007,289 (2006: 10,910,580)
ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,933,561 (2006: 10,867,167)
increased by 73,728 (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 share price during the year.
Diluted adjusted earnings per ordinary share is based on the profit after income tax and adjusted to take into account
exceptional items, profit on disposal of fixed assets and the recognition of deferred tax assets.
Diluted basic earnings per share (Based on earnings £3,695,000 (2006: £4,111,000))
Adjustments:
Restructuring costs (note 5)
Profit on disposal of fixed assets
Curtailment of pension benefits (note 5)
Diluted adjusted earnings per share
12 Dividends
The dividends paid in the year were as follows:
Ordinary
Final 2006 8.1p per 10p ordinary share (Final 2005: 7.3p)
Interim 2007 4.5p per 10p ordinary share paid (Interim 2006: 3.9p)
2007
Pence per
share
2006
Pence per
share
33.6
37.7
–
(7.3)
–
–––––––
26.3
–––––––
–––––––
2.4
(12.2)
(7.4)
–––––––
20.5
–––––––
–––––––
2007
£’000
883
492
–––––––
1,375
–––––––
–––––––
2006
£’000
793
424
–––––––
1,217
–––––––
–––––––
A final dividend of 9.2p per 10p ordinary share for the year to 31 December 2007 will be proposed at the Annual General
Meeting amounting to a total dividend of £1,007,000. These financial statements do not reflect the dividends payable.
page
55
Notes to the Financial Statements
for the year ended 31 December 2007
13 Property, plant and equipment
The Company has no property, plant and equipment. Details of those relating to the Group are as follows:
Freehold
land and
buildings
£’000
9,578
(1,305)
–––––––
8,273
–––––––
–––––––
8,273
33
–
(146)
–––––––
8,160
–––––––
–––––––
9,611
(1,451)
–––––––
8,160
–––––––
–––––––
8,160
18
(173)
(142)
–––––––
7,863
–––––––
–––––––
9,436
(1,573)
–––––––
7,863
–––––––
–––––––
Motor
vehicles
£’000
Furniture,
fittings and
equipment
£’000
795
(336)
–––––––
459
–––––––
–––––––
459
346
(138)
(147)
–––––––
520
–––––––
–––––––
782
(262)
–––––––
520
–––––––
–––––––
520
213
(49)
(151)
–––––––
533
–––––––
–––––––
880
(347)
–––––––
533
–––––––
–––––––
3,271
(2,921)
–––––––
350
–––––––
–––––––
350
136
–
(140)
–––––––
346
–––––––
–––––––
3,407
(3,061)
–––––––
346
–––––––
–––––––
346
110
(17)
(175)
–––––––
264
–––––––
–––––––
2,185
(1,921)
–––––––
264
–––––––
–––––––
Plant
£’000
14,768
(12,486)
–––––––
2,282
–––––––
–––––––
2,282
221
–
(836)
–––––––
1,667
–––––––
–––––––
14,158
(12,491)
–––––––
1,667
–––––––
–––––––
1,667
1,072
(78)
(508)
–––––––
2,153
–––––––
–––––––
14,523
(12,370)
–––––––
2,153
–––––––
–––––––
Total
£’000
28,412
(17,048)
–––––––
11,364
–––––––
–––––––
11,364
736
(138)
(1,269)
–––––––
10,693
–––––––
–––––––
27,958
(17,265)
–––––––
10,693
–––––––
–––––––
10,693
1,413
(317)
(976)
–––––––
10,813
–––––––
–––––––
27,024
(16,211)
–––––––
10,813
–––––––
–––––––
Group
At 1 January 2006
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2006
Opening net book amount
Additions
Disposals
Depreciation charge (note 5)
Closing net book amount
At 31 December 2006
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2007
Opening net book amount
Additions
Disposals
Depreciation charge (note 5)
Closing net book amount
At 31 December 2007
Cost
Accumulated depreciation
Net book amount
page
56
14 Intangible assets
The Company has no intangible fixed assets. Details of these relating to the Group are as follows:
Group
At 1 January 2006
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 31 December 2006
Opening net book amount
Additions
Amortisation charge (note 5)
Closing net book amount
At 31 December 2006
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 31 December 2007
Opening net book amount
Additions
Amortisation charge (note 5)
Closing net book amount
At 31 December 2007
Cost
Accumulated amortisation and impairment
Net book amount
Computer
software
£’000
160
(107)
–––––––
53
–––––––
–––––––
53
11
(29)
–––––––
35
–––––––
–––––––
171
(136)
–––––––
35
–––––––
–––––––
35
25
(26)
–––––––
34
–––––––
–––––––
196
(162)
–––––––
34
–––––––
–––––––
page
57
Notes to the Financial Statements
for the year ended 31 December 2007
15 Investment in associate
Cost
At 1 January
Share of profit
Dividends received during the year
At 31 December
Impairment
At 1 January
Impairment of investment in associate
At 31 December
Net book value
End of year
Group
Company
2007
£’000
1,470
120
(103)
–––––––
1,487
–––––––
–––––––
673
–
–––––––
673
–––––––
–––––––
814
–––––––
–––––––
2006
£’000
1,393
77
–
–––––––
1,470
–––––––
–––––––
589
84
–––––––
673
–––––––
–––––––
797
–––––––
–––––––
2007
£’000
355
–
–
–––––––
355
–––––––
–––––––
–
–
–––––––
–
–––––––
–––––––
355
–––––––
–––––––
2006
£’000
355
–
–
–––––––
355
–––––––
–––––––
–
–
–––––––
–
–––––––
–––––––
355
–––––––
–––––––
The investment in associate represents a holding of 34.4% of the issued £1 ordinary shares of Furlong Mills Limited, a company
registered in England, whose principal activity is that of a potters miller.
Share of associate’s assets
Share of associate’s liabilities
Share of associate’s net assets
2007
£’000
2,047
(504)
–––––––
1,543
–––––––
–––––––
2006
£’000
1,929
(403)
–––––––
1,526
–––––––
–––––––
During the year the Group purchased raw materials to a value of £2,045,000 (2006: £1,804,000) from Furlong Mills Limited.
Amounts due to that company at 31 December 2007 were £114,000 (2006: £171,000).
The difference between the carrying value of the Group’s interest in associate and the share of associate’s net assets reflects the
impairment charged in the Group’s accounts and adjustments in relation to accounting policies.
The impairment recognised in previous years reflected management’s view of the ongoing benefits that could be derived from
the ongoing associate business.
In the Group’s consolidated financial statements the investment is accounted for on the equity basis. Within the Company’s
accounts the investment is shown at historic cost.
page
58
16 Investment in subsidiary undertakings
Cost or valuation
At 1 January 2007 and 31 December 2007
Impairment
At 1 January 2007 and 31 December 2007
Net book value
At 1 January 2007 and 31 December 2007
Company
£’000
2,627
–––––––
–––––––
424
–––––––
–––––––
2,203
–––––––
–––––––
The above impairment reduces the carrying value of the Company’s investment in Churchill Fine Bone China (Holdings) Limited
and its subsidiaries, to match the underlying net asset value of the subsidiaries concerned.
Interests in Group undertakings
Interests in Group undertakings comprise the cost of investments in subsidiary undertakings. The principal operating subsidiaries
of the Group are as follows:
Name of company
Country of
incorporation
Description of
shares held
Proportion of
nominal value of
issued shares held
Churchill China (UK) Limited
Great Britain Ordinary
100%
Churchill Ceramics (UK) Limited Great Britain Ordinary
100%
Churchill China, Inc
USA
Ordinary
100%
Dormant companies within the Group are not included in the above analysis.
17 Available for sale financial assets
Cost
At 1 January 2007 and 31 December 2007
Impairment
At 1 January 2007
Impairment of available for sale financial asset
At 31 December 2007
Net book value at 31 December 2007
Net book value at 1 January 2007
Principal activity
Manufacture and sale of ceramic
and related products
Provision of management and
property services within the Group
Sale of ceramic and related products
Group
Available
for sale
financial
assets
£’000
22
–––––––
–
22
–––––––
22
–––––––
–
–––––––
22
–––––––
–––––––
Company
Other
investments
£’000
43
–––––––
–
43
–––––––
43
–––––––
–
–––––––
43
–––––––
–––––––
The above represents 35.9% (2006: 35.9%) of the issued ordinary share capital of Shraff Management Limited, a company
registered in Great Britain. The Directors do not consider that the investment in Shraff Management Limited should be accounted
for as an associate as Churchill China plc is not in a position to exercise significant influence over Shraff Management Limited,
taking into account other large third party shareholdings.
page
59
Notes to the Financial Statements
for the year ended 31 December 2007
18 Inventories
The Company has no stocks. Details of stocks relating to the Group are as follows:
Raw materials
Work in progress
Finished goods
2007
£’000
26
736
5,898
–––––––
6,660
–––––––
–––––––
2006
£’000
197
690
5,970
–––––––
6,857
–––––––
–––––––
The Directors do not consider there is a material difference between the carrying value and replacement cost of stocks.
The cost of inventories recognised as an expense and included in the income statements amounted to £28,112,000
(2006: £28,918,000).
19 Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Other
Prepayments
Receivables from related parties (note 27)
Less non-current portion: loans to related parties
Current portion
Group
Company
2007
£’000
9,221
(9)
–––––––
9,212
5
389
–
–––––––
9,606
–
–––––––
9,606
–––––––
–––––––
2006
£’000
9,892
(23)
–––––––
9,869
23
219
–
–––––––
10,111
–
–––––––
10,111
–––––––
–––––––
2007
£’000
–
–
–––––––
–
–
–
11,971
–––––––
11,971
11,847
–––––––
124
–––––––
–––––––
2006
£’000
–
–
–––––––
–
–
–
13,345
–––––––
13,345
13,226
–––––––
119
–––––––
–––––––
All non current receivables are due within five years from the balance sheet date.
The Group operates a credit risk management policy under which the majority of trade receivables are secured either through
the use of letters of credit or trade insurance policies. Trade receivables that are less than three months past due and not covered
by insurance arrangements are not considered impaired unless there is specific evidence to the contrary.
As of 31 December 2007, trade receivables of £8,109,000 (2006: £8,968,000) were fully performing.
page
60
19 Trade and other receivables (continued)
As of 31 December 2007, trade receivables of £1,073,000 (2006: £894,000) were past due but not impaired. The ageing of
these receivables is as follows:
Up to 3 months
3 to 6 months
Over 6 months
2007
£’000
1,036
14
23
–––––––
1,073
–––––––
–––––––
2006
£’000
814
61
19
–––––––
894
–––––––
–––––––
As of 31 December 2007 trade receivables of £39,000 (2006: £30,000) were impaired and provided for the amount of
provision for 31 December 2007 was £9,000 (2006: £23,000). The individually impaired receivables relate to customers which
are in unexpectedly difficult economic conditions. It was assessed that a portion of the receivables is expected to be recovered.
The ageing of these receivables is as follows:
Up to 3 months
3 to 6 months
Over 6 months
2007
£’000
33
–
6
–––––––
39
–––––––
–––––––
The Directors consider that the carrying value of trade and other receivables is approximate to their fair value.
Movements on the Group provision for impairment of trade receivables are as follows:
At 1 January
Provision for receivables impairment
Receivables written off during the year as uncollectible
At 31 December
2007
£’000
23
9
(23)
–––––––
9
–––––––
–––––––
2006
£’000
3
7
20
–––––––
30
–––––––
–––––––
2006
£’000
19
23
(19)
–––––––
23
–––––––
–––––––
The creation and release of provision for impaired receivables have been included in ‘other external charges’ in the income
statement (note 5). Amounts charged to the allowance account are generally written off, when there is no expectation of
recovering additional cash.
The other classes within trade and other receivables do not contain impaired assets.
page
61
Notes to the Financial Statements
for the year ended 31 December 2007
19 Trade and other receivables (continued)
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
Pounds
Euros
US dollar
2007
£’000
7,417
1,300
889
–––––––
9,606
–––––––
–––––––
2006
£’000
7,754
1,039
1,318
–––––––
10,111
–––––––
–––––––
During the year the Group had total losses of £50,000 (2006: gains of £102,000) on all forward option contracts that have been
recognised in the Income Statement and as at 31 December held forward exchange contracts for the sale of Euro of £575,000
(2006: £1,007,000). These contracts are held at their fair value with losses of £12,000 (2006: £3,000) recognised in relation to
the contracts outstanding at the year end.
Company
As of 31 December 2007, Company receivables from related parties of £11,971,000 (2006: £13,345,000) were fully performing.
The carrying amounts of the Company’s receivables are denominated in the following currencies:
Pounds
US dollar
20 Trade and other payables
Trade payables
Amounts due to related parties
Social security and other taxes
Accrued expenses
2007
£’000
11,956
15
–––––––
11,971
–––––––
–––––––
2006
£’000
13,335
10
–––––––
13,345
–––––––
–––––––
Group
Company
2006
£’000
1,616
171
986
3,404
–––––––
6,177
–––––––
–––––––
2007
£’000
–
13
25
1
–––––––
39
–––––––
–––––––
2006
£’000
–
13
19
1
–––––––
33
–––––––
–––––––
2007
£’000
2,192
114
1,000
4,473
–––––––
7,779
–––––––
–––––––
All the above liabilities mature within twelve months from 31 December 2007.
Note 19 shows the losses/gains on forward option contracts that have been recognised in the Income Statement and as at
31 December the Group held forward exchange contracts for the purchase of US dollars of £122,000 (2006: nil). These contracts
are held at their fair value with gains of £4,000 (2006: £nil) recognised in relation to the contracts outstanding at the year end.
page
62
21 Deferred income tax
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:
Group
Deferred tax assets:
– Deferred tax asset to be recovered after more than 12 months
– Deferred tax asset to be recovered within 12 months
Deferred tax liabilities:
– Deferred tax liabilities to be recovered after more than 12 months
– Deferred tax liabilities to be recovered within 12 months
Deferred tax (liabilities)/assets (net)
The gross movement on the deferred income tax account is as follows:
Beginning of the year
Income statement charge (note 10)
Tax charged directly to equity (note 24)
End of year
2007
£’000
2006
£’000
182
136
–––––––
318
–––––––
(559)
(33)
–––––––
(592)
–––––––
(274)
–––––––
–––––––
2007
£’000
1,043
(619)
(698)
–––––––
(274)
–––––––
–––––––
1,485
112
–––––––
1,597
–––––––
(550)
(4)
–––––––
(554)
–––––––
1,043
–––––––
–––––––
2006
£’000
2,820
(1,443)
(334)
–––––––
1,043
–––––––
–––––––
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of
balances within the same tax jurisdiction, is as follows:
Deferred tax liabilities
At 1 January 2006
Charged to the income statement
Credited directly to equity
At 31 December 2006
Charged to the income statement
Credited directly to equity
At 31 December 2007
Accelerated
tax
depreciation
£’000
Land and
buildings
revaluation
£’000
135
37
–
–––––––
172
67
–
–––––––
239
–––––––
–––––––
386
–
(4)
–––––––
382
–
(29)
–––––––
353
–––––––
–––––––
Total
£’000
521
37
(4)
–––––––
554
67
(29)
–––––––
592
–––––––
–––––––
page
63
Notes to the Financial Statements
for the year ended 31 December 2007
21 Deferred income tax (continued)
Deferred tax assets
At 1 January 2006
Charged/(credited) to the income statement
Charged directly to equity
At 31 December 2006
Charged to the income statement
Charged directly to equity
At 31 December 2007
Retirement
benefit
obligation
£’000
(2,771)
1,254
333
–––––––
(1,184)
153
724
–––––––
(307)
–––––––
–––––––
Tax
losses
£’000
(550)
550
–
–––––––
–
–
–
–––––––
–
–––––––
–––––––
The deferred income tax charged to equity during the past year is as follows:
Fair value reserves in shareholders’ equity:
Tax on actuarial loss on retirement benefits scheme
Impact of change in UK tax rate on deferred tax
Other
£’000
(20)
(393)
–
–––––––
(413)
402
–
–––––––
(11)
–––––––
–––––––
2007
£’000
724
(26)
–––––––
698
–––––––
–––––––
Total
£’000
(3,341)
1,411
333
–––––––
(1,597)
555
724
–––––––
(318)
–––––––
–––––––
2006
£’000
333
–
–––––––
333
–––––––
–––––––
Deferred income tax of £3,000 (2006: £4,000) was transferred from other reserves (note 24) to retained earnings (note 25).
This represents deferred tax on the difference between the actual depreciation on buildings and the equivalent depreciation
based on the historical cost of buildings.
Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax
benefit through the future taxable profits is probable. The Group did not recognise deferred income tax assets of £1,511,000
(2006: £1,875,000) in respect of capital losses amounting to £5,395,000 (2006: £6,251,000) that can be carried forward
against future capital gains.
page
64
22 Retirement benefit obligations
Balance sheet obligations
Pension benefits
Income statement credit
Pension benefits
2007
£’000
1,090
–––––––
–
–––––––
–––––––
2006
£’000
3,948
–––––––
(943)
–––––––
–––––––
The Group operates three principal pension schemes; a funded pension scheme, the Churchill Group Retirement Benefit
Scheme, providing benefits based on final pensionable salary which was closed to new entrants in 1999 and to which the
accrual of future benefits ceased on 31 March 2006, the Churchill China 1999 Pension Scheme and the Churchill China
2006 Group Personal Pension Plan. Both of the latter schemes are defined contribution schemes providing benefits based
on contributions paid.
The assets of the schemes are held separately from those of the Group. The total pension cost for the Group was £592,000
(2006: £722,000 less an exceptional credit of £1,150,000 re curtailment benefits giving a net credit of £428,000). Of this
cost £nil (2006: credit of £943,000), related to the Churchill Group Retirement Benefit Scheme, £160,000 (2006: £136,000)
was in respect of the Churchill China 1999 Pension Scheme and £271,000 (2006: £205,000) was in respect of the Churchill
China 2006 Group Personal Pension Scheme. The balance of cost was incurred in respect of overseas and other pension
arrangements. At the year end amounts due to pension funds in respect of Company contributions were £20,000
(2006: £36,000).
No contributions have been made to the Churchill Group Retirement Benefit Scheme in relation to current service since the
date of cessation of the future accrual of benefits on 31 March 2006. Prior to that date the Group paid contributions to the
Scheme at a rate of 13.6% of pensionable salary. In addition a contribution of £240,000 (2006: £3,009,000) was made in
respect of the amortisation of past service liabilities. The forward funding rate of the Scheme following this additional payment
and the closure of the Scheme to future accrual was agreed with the Scheme Trustees and Actuary in May 2006. The Group
will continue to make payments of £240,000 per annum in respect of the amortisation of past service deficits. These payments
will be reviewed at the date of the next triennial actuarial valuation on 31 May 2008.
The amounts recognised in the balance sheet are determined as follows:
Present value of funded obligations
Fair value of plan assets
Liability in balance sheet
The movement in the defined benefit obligation over the year is as follows:
Beginning of the year
Current service cost
Employees contributions
Interest cost
Actuarial gains
Benefits paid
Curtailments
End of year
2007
£’000
29,209
(28,119)
–––––––
1,090
–––––––
–––––––
2007
£’000
30,960
–
–
1,579
(2,571)
(759)
–
–––––––
29,209
–––––––
–––––––
2006
£’000
30,960
(27,012)
–––––––
3,948
–––––––
–––––––
2006
£’000
31,152
207
89
1,495
(271)
(562)
(1,150)
–––––––
30,960
–––––––
–––––––
page
65
Notes to the Financial Statements
for the year ended 31 December 2007
22 Retirement benefit obligations (continued)
The movement in the fair value of plan assets over the year is as follows:
Beginning of the year
Expected return on plan assets
Actuarial (losses)/gains
Employer contributions
Employee contributions
Benefits paid
End of the year
Plan assets are comprised as follows:
Equity investments
Debt investments
Other
2007
£’000
19,701
2,584
5,834
–––––––
28,119
–––––––
–––––––
70%
9%
21%
–––––––
100%
–––––––
–––––––
2007
£’000
27,012
1,818
(192)
240
–
(759)
–––––––
28,119
–––––––
–––––––
2006
£’000
20,215
1,893
4,904
–––––––
27,012
–––––––
–––––––
2006
£’000
21,917
1,559
839
3,170
89
(562)
–––––––
27,012
–––––––
–––––––
75%
7%
18%
–––––––
100%
–––––––
–––––––
The expected return on plan assets is determined by considering the expected returns on the assets underlying the current
investment policy. Expected yields on fixed interest investments are based on gross redemption yields at the balance sheet date.
Expected returns on equity and property investments reflect long term real rates of return experienced in the respective markets.
The amounts recognised in the income statement are as follows:
Current service cost
Gains on curtailment
Net credit recognised in staff costs (note 7)
Interest cost
Expected return on plan assets
Net credit recognised in finance income
The actual return on plan assets was £1,618,000 (2006: £2,427,000).
2007
£’000
–
–
–––––––
–
–––––––
–––––––
1,579
(1,818)
–––––––
(239)
–––––––
–––––––
2006
£’000
207
(1,150)
–––––––
(943)
–––––––
–––––––
1,495
(1,559)
–––––––
(64)
–––––––
–––––––
page
66
22 Retirement benefit obligations (continued)
A history of experience gains and losses, since the adoption of IAS 19, as at 31 December would have been as follows:
Difference between the expected and actual return on scheme assets:
Amount
Percentage of scheme assets
Experience gains and losses on scheme liabilities:
Amount
Percentage of present value of scheme liabilities
Total amount recognised in statement of recognised income and expenditure (SORIE):
Amount
Percentage of present value of scheme liabilities
The principal assumptions used were as follows:
Pension benefits
Discount rate
Inflation rate
Expected return on plan assets
Rate of increase of pensions in payment
Rate of increase of deferred pensions
2007
£’000
(200)
1%
–––––––
–––––––
(192)
1%
–––––––
–––––––
2,379
8%
–––––––
–––––––
2006
£’000
839
3%
–––––––
–––––––
310
1%
–––––––
–––––––
1,110
4%
–––––––
–––––––
2007
2006
% per annum % per annum
5.8%
3.2%
6.8%
3.2%
3.2%
–––––––
–––––––
5.1%
3.1%
6.8%
3.1%
3.1%
–––––––
–––––––
Assumptions regarding future mortality rates are set based on advice in accordance with published statistics and experience.
The average life expectancy in years of a pensioner retiring at age 65 at the balance sheet date is as follows:
Male
Female
2007
Number
20.2
23.1
–––––––
–––––––
2006
Number
18.5
21.6
–––––––
–––––––
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date, is as follows:
Male
Female
2007
Number
21.3
24.0
–––––––
–––––––
2006
Number
19.6
22.9
–––––––
–––––––
page
67
Notes to the Financial Statements
for the year ended 31 December 2007
23 Issued share capital and premium
Group and Company
At 1 January 2006
Employee share option schemes
At 31 December 2006
Employee share option schemes
At 31 December 2007
Number
of shares
(thousands)
Ordinary
shares
£’000
Share
premium
£’000
10,862
40
–––––––
10,902
46
–––––––
10,948
–––––––
–––––––
1,086
4
–––––––
1,090
5
–––––––
1,095
–––––––
–––––––
2,207
59
–––––––
2,266
66
–––––––
2,332
–––––––
–––––––
The total authorised number of ordinary shares is 14,300,000 (2006: 14,300,000) with a par value of 10p (2006: 10p) per share.
All issued shares are fully paid.
Share option schemes
The Executive share option scheme was introduced in October 1994, a complementary unapproved Executive share option
scheme was approved by shareholders in October 1996. Options under these schemes are granted with a fixed exercise price
equal to the market price of the shares at the date of issue. Options are normally only exercisable after three years from the date
of grant and expire ten years from the date of grant. Options granted will be exercisable given satisfaction of the requirement
that adjusted earnings per ordinary share will increase by at least 6% above the increase in the Retail Price Index over the three
year period from the beginning of the financial year in which the option was granted. Payment of the exercise price of options
exercised is received in cash. A charge to the profit and loss account has been made to reflect the fair value of options granted
since 7 November 2002. Options have been valued using the Black-Scholes option pricing model. No performance conditions
were used in the fair value calculations. The fair value per option granted and the assumptions used in the calculation were
as follows:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option (10,000 lapsed)
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividends expressed as a dividend yield
Fair value per option
page
68
30 April 2004
208p
208p
12
110,000
3
25%
10
5
–––––––
–––––––
4.8%
5.2%
24p
–––––––
–––––––
23 Issued share capital and premium (continued)
The following options exercisable over ordinary shares were outstanding at 31 March 2008:
Number of shares
2007
2006
The Executive share option scheme
Exercise
price
Date from
which
exercisable
Expiry
date
2,000
47,000
20,250
47,000
151p December 2003 December 2010
April 2014
208p
April 2007
The unapproved Executive share option scheme
12,500
21,500
53,000
53,000
––––––––
189,000
––––––––
––––––––
12,500
42,000
60,000
53,000
––––––––
234,750
––––––––
––––––––
118.5p
April 2003
April 2010
151p December 2003 December 2010
April 2012
171p
April 2014
208p
April 2005
April 2007
Expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to
exercise. The risk free rate of return is the yield on zero coupon UK government bonds of a term consistent with the assumed
option life. A reconciliation of option movements for the year to 31 December 2007 is set out below.
Outstanding at 1 January
Forfeited
Exercised
Outstanding at 31 December
Exercisable at 31 December
2007
Number
‘000
234,750
–
45,750
––––––––
189,000
––––––––
89,000
––––––––
––––––––
2007
Weighted
average
exercise
price
178.7p
–
154.1p
––––––––
184.6p
––––––––
158.3p
––––––––
––––––––
2006
Number
‘000
307,250
(32,500)
(40,000)
––––––––
234,750
––––––––
134,750
––––––––
––––––––
2006
Weighted
average
exercise
price
175.5p
173.2p
158.5p
––––––––
178.7p
––––––––
156.9p
––––––––
––––––––
page
69
Notes to the Financial Statements
for the year ended 31 December 2007
23 Issued share capital and premium (continued)
There were no share options granted during the year.
2007
2007
2007
2007
Weighted Weighted
2006
2006
Weighted
average
exercise
price
118.5p
164.9p
208.0p
Number
‘000
12,500
76,500
100,000
100p – 149p
150p – 199p
200p – 250p
average
remaining
life
remaining
life
(expected) (contractual)
average Weighted
average
exercise
price
0.0
0.0
1.3
2.3
3.9
6.3
118.5p
160.8p
208.0p
Number
‘000
12,500
122,250
100,000
2006
2006
Weighted Weighted
average
remaining
life
(contractual)
average
remaining
life
(expected)
0.0
0.0
2.3
3.3
4.6
7.3
The weighted average share price for options exercised in the period was 154.1p (2006: 158.5p). The total charge during the
year for employee share based payment plans was £3,000 (2006: £8,000), all of which related to equity settled share based
payment transactions.
24 Other reserves
Group
Balance at 1 January 2006
Depreciation transfer – gross
Depreciation transfer – tax
Share based payment
Currency translation
Balance at 31 December 2006
Depreciation transfer – gross
Depreciation transfer – tax
Change in UK tax rates
Share based payment
Currency translation
Balance at 31 December 2007
Land and
buildings
revaluation
£’000
Currency
translation
£’000
901
(12)
4
–
–
–––––––
893
(12)
3
26
–
–
–––––––
910
–––––––
–––––––
–
–
–
–
(10)
–––––––
(10)
–
–
–
–
3
–––––––
(7)
–––––––
–––––––
Share
based
payment
£’000
13
–
–
8
–
–––––––
21
–
–
–
3
–
–––––––
24
–––––––
–––––––
Other
reserves
£’000
253
–
–
–
–
–––––––
253
–
–
–
–
–
–––––––
253
–––––––
–––––––
Total
£’000
1,167
(12)
4
8
(10)
–––––––
1,157
(12)
3
26
3
3
–––––––
1,180
–––––––
–––––––
The land and buildings revaluation reserve is the reserve created under UK GAAP where the land and buildings were revalued
in 1992. On adoption of IFRS the Group has taken the exemption conferred by IFRS 1 to treat this revalued amount as deemed
cost on transition because it approximated to fair value at that time. The release between the revaluation reserve and the profit
and loss reserve is the release to distributable reserves of the additional depreciation on revaluation.
Other than the revaluation reserve, there are no restrictions on the distribution of the reserves.
Company
Other reserves of £24,000 (2006: £21,000) represent provision for share based payment as shown in the above table.
page
70
25 Retained earnings
At 1 January 2006
Profit/(loss) for the year
Dividends relating to 2006
Depreciation transfer on land and buildings net of tax
Actuarial gains net of tax
At 31 December 2006
At 1 January 2007
Profit for the year
Dividends relating to 2007
Depreciation transfer on land and buildings net of tax
Actuarial gains net of tax
At 31 December 2007
Group
£’000
17,461
4,111
(1,217)
8
777
–––––––
21,140
–––––––
–––––––
21,140
3,695
(1,375)
9
1,655
–––––––
25,124
–––––––
–––––––
Company
£’000
14,053
(7)
(1,217)
–
–
–––––––
12,829
–––––––
–––––––
12,829
65
(1,375)
–
–
–––––––
11,519
–––––––
–––––––
26 Commitments
Capital commitments
Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:
Property, plant and equipment
Group
Company
2007
£’000
1,051
–––––––
–––––––
2006
£’000
315
–––––––
–––––––
2007
£’000
–
–––––––
–––––––
2006
£’000
–
–––––––
–––––––
Operating lease commitments
The Group has financial commitments in respect of non cancellable operating leases of plant and machinery for which the
payments extend over a number of years as follows;
Payments under operating leases charged against
income during the year
Future aggregate minimum commitments under
non-cancellable operating leases
No later than one year
Later than one year and no later than five years
Group
Company
2007
£’000
2006
£’000
2007
£’000
2006
£’000
98
–––––––
–––––––
105
–––––––
–––––––
–
–––––––
–––––––
–
–––––––
–––––––
26
52
–––––––
–––––––
17
141
–––––––
–––––––
–
–
–––––––
–––––––
–
–
–––––––
–––––––
page
71
Notes to the Financial Statements
for the year ended 31 December 2007
27 Related party transactions
Details of related party transactions for the Group are shown in the Directors’ Report and in the Notes to the financial
statements appropriate to the type of transaction being dealt with.
The Group has taken advantage of the exemption under IAS 24 allowing details of related party transactions with subsidiary
companies not to be disclosed in the consolidated financial statements.
The Directors do not consider the Company to have an ultimate controlling party.
Company
Details of related party transactions involving the Company were as follows:
Associates
Dividends received – Furlong Mills Limited
Subsidiaries
Management charge – Churchill China Inc
Interest received – Churchill China (UK) Limited
Loans repaid – Churchill China (UK) Limited
2007
£’000
103
–––––––
5
9
1,388
–––––––
2006
£’000
–
–––––––
5
9
1,224
–––––––
28 Financial instruments by category
The accounting policies for financial instruments have been applied to the line items in the accounts. All financial assets and
liabilities including cash and cash equivalents are classified as loans and receivables in both 2007 and 2006 with the exception
of ‘available for sale assets’ of £22,000 in 2006 which are classed as available for sale.
page
72
29 IFRS Transition Statements
Income statements
Year to
31 December 2006
Revenue
As
previously
reported
(UK GAAP)
£’000
IAS 38
IAS 18 Intangible
Revenue
£’000
IAS 36
assets Goodwill
£’000
£’000
IAS 19
IAS 17 Employee
benefits
Leases
£’000
£’000
IAS 21
Foreign
IAS 12
exchange Deferred
tax
£’000
rates
£’000
Other
IAS
adjust-
ments
£’000
Total
transition
effect
to IFRS
£’000
Restated
under
IFRS
£’000
47,757
––––––
(1,827)
––––––
––––––
––––––
––––––
––––––
––––––
––––––
––––––
(1,827) 45,930
––––––
––––––
Operating profit
before exceptional
items
Exceptional items
Operating profit
after exceptional
items
Share of results of
associated company
Profit on disposal of
property, plant
and equipment
Finance income
2,777
784
––––––
3,561
5
1,876
305
––––––
Profit before income
tax
5,747
Income tax expense (1,659)
––––––
Profit for the period 4,088
––––––
––––––
22
(5)
1
––––––
––––––
––––––
––––––
––––––
––––––
––––––
1,876
––––––
18
1,876
––––––
2,795
2,660
––––––
22
(5)
1
1,876
1,894
5,455
––––––
––––––
––––––
––––––
––––––
––––––
––––––
(12)
(12)
(7)
(1,876)
(11)
––––––
(1,876)
(11)
––––––
–
294
––––––
–
–
22
––––––
–
––––––
––––––
––––––
–
––––––
––––––
––––––
22
––––––
––––––
(5)
1
––––––
(4)
––––––
––––––
1
–
––––––
1
––––––
––––––
––––––
–
––––––
––––––
–
4
––––––
4
––––––
––––––
(23)
23
––––––
–
––––––
––––––
(5)
28
––––––
23
––––––
––––––
5,742
(1,631)
––––––
4,111
––––––
––––––
Attributable to:
Equity holders of
the parent
4,088
––––––
––––––
–
––––––
––––––
–
––––––
––––––
22
––––––
––––––
(4)
––––––
––––––
1
––––––
––––––
–
––––––
––––––
4
––––––
––––––
–
––––––
––––––
23
––––––
––––––
4,111
––––––
––––––
page
73
Notes to the Financial Statements
for the year ended 31 December 2007
29 IFRS Transition Statements (continued)
Balance sheets
31 December 2005
Non current assets
Plant, property
and equipment
Goodwill and
intangible assets
Investment in
associates
Available for sale
financial assets
Deferred income
tax assets
Current assets
Inventories
Trade and other
receivables
Cash and cash
equivalents
Non current assets
held for sale
Current assets
Total assets
Current liabilities
Trade and other
payables
Current income
tax liabilities
Provisions for other
liabilities and charges
11,485
56
825
––––––
12,366
––––––
8,646
10,537
2,629
––––––
21,812
1,022
––––––
22,834
––––––
35,200
––––––
––––––
(6,268)
–
(6)
––––––
(6,274)
––––––
(16)
(6,464)
As
previously
reported
(UK GAAP)
£’000
IAS 38
IAS 18 Intangible
Revenue
£’000
IAS 36
assets Goodwill
£’000
£’000
IAS 19
IAS 17 Employee
benefits
Leases
£’000
£’000
IAS 21
Foreign
IAS 12
exchange Deferred
tax
£’000
rates
£’000
(53)
53
(56)
(68)
Other
IAS
adjust-
ments
£’000
Total
transition
effect
to IFRS
£’000
Restated
under
IFRS
£’000
(121)
11,364
(3)
(22)
22
53
803
22
(22)
22
––––––
–
––––––
––––––
–
––––––
––––––
(56)
––––––
––––––
(68)
––––––
––––––
–
––––––
––––––
–
––––––
(386)
––––––
(386)
––––––
3,727
––––––
3,727
––––––
3,341
––––––
3,217
––––––
3,341
––––––
15,583
––––––
–
8,646
(435)
(435)
10,102
––––––
–
––––––
–
––––––
–
––––––
–
––––––
–
––––––
–
––––––
–
––––––
(435)
––––––
–
––––––
–
––––––
––––––
––––––
–
––––––
–
––––––
––––––
––––––
–
––––––
(56)
––––––
––––––
––––––
–
––––––
(68)
––––––
––––––
––––––
–
––––––
–
––––––
––––––
––––––
–
––––––
–
––––––
––––––
––––––
–
––––––
(386)
––––––
––––––
––––––
(435)
––––––
3,292
––––––
––––––
–
––––––
(435)
–
––––––
(435)
––––––
2,782
––––––
––––––
2,629
––––––
21,377
1,022
––––––
22,399
––––––
37,982
––––––
––––––
22
(53)
318
287
(5,981)
(318)
(318)
(318)
––––––
–
––––––
––––––
–
––––––
––––––
–
––––––
––––––
22
––––––
––––––
(53)
––––––
––––––
–
––––––
––––––
–
––––––
––––––
–
––––––
16
–
––––––
(31)
––––––
(6)
––––––
(6,305)
––––––
16
–
(2,771)
(2,771)
(9,235)
(521)
––––––
(521)
––––––
(521)
––––––
––––––
––––––
––––––
––––––
––––––
––––––
––––––
––––––
(6,480)
––––––
(12,754)
––––––
22,446
––––––
––––––
–
––––––
–
––––––
–
––––––
––––––
–
––––––
–
––––––
–
––––––
––––––
–
––––––
–
––––––
(56)
––––––
––––––
16
––––––
38
––––––
(30)
––––––
––––––
–
––––––
(53)
––––––
(53)
––––––
––––––
–
––––––
–
––––––
–
––––––
––––––
–
––––––
–
––––––
(386)
––––––
––––––
(3,292)
––––––
(3,392)
––––––
–
––––––
––––––
(3,276)
––––––
(3,307)
––––––
(525)
––––––
––––––
(9,756)
––––––
(16,061)
––––––
21,921
––––––
––––––
1,086
2,207
17,600
1,553
––––––
22,446
––––––
––––––
(56)
(30)
(53)
––––––
–
––––––
––––––
––––––
–
––––––
––––––
––––––
(56)
––––––
––––––
––––––
(30)
––––––
––––––
––––––
(53)
––––––
––––––
––––––
–
––––––
––––––
(386)
––––––
(386)
––––––
––––––
––––––
–
––––––
––––––
–
1,086
–
(139)
(386)
––––––
(525)
––––––
––––––
2,207
17,461
1,167
––––––
21,921
––––––
––––––
Non current liabilities
Hire purchase
Retirement benefit
obligations
Deferred income
tax liabilities
Total non current
liabilities
Total liabilities
Net assets
Capital and reserves
attributable to
equity holders
in Company
Issued share capital
Share premium
account
Retained earnings
Other reserves
page
74
29 IFRS Transition Statements (continued)
Balance sheets (continued)
As
previously
reported
(UK GAAP)
£’000
IAS 38
IAS 18 Intangible
Revenue
£’000
IAS 36
assets Goodwill
£’000
£’000
IAS 19
IAS 17 Employee
benefits
Leases
£’000
£’000
IAS 21
Foreign
IAS 12
exchange Deferred
tax
£’000
rates
£’000
(35)
35
(34)
(51)
Other
IAS
adjust-
ments
£’000
Total
transition
effect
to IFRS
£’000
Restated
under
IFRS
£’000
(86)
10,693
1
(22)
22
35
797
22
(22)
22
10,779
34
819
–
––––––
11,632
––––––
6,857
10,412
6,410
––––––
23,679
––––––
23,679
––––––
35,311
––––––
––––––
(6,332)
31 December 2006
Non current assets
Property, plant
and equipment
Goodwill and
intangible assets
Investment in
associates
Available for sale
financial assets
Deferred income
tax assets
Current assets
Inventories
Trade and other
receivables
Cash and cash
equivalents
Non current assets
held for sale
Current assets
Total assets
Current liabilities
Trade and other
payables
Current income
tax liabilities
Provisions for other
liabilities and charges
Non current liabilities
Hire purchase
Retirement benefit
obligations
Deferred income
tax liabilities
Total non current
liabilities
Total liabilities
Net assets
Capital and reserves
attributable to
equity holders
in Company
Issued share capital
Share premium
account
Retained earnings
Other reserves
––––––
–
––––––
––––––
–
––––––
––––––
(34)
––––––
––––––
(51)
––––––
––––––
–
––––––
––––––
–
––––––
(382)
––––––
(382)
––––––
1,979
––––––
1,979
––––––
1,597
––––––
1,512
––––––
1,597
––––––
13,144
––––––
–
6,857
(301)
(301)
10,111
––––––
–
––––––
–
––––––
–
––––––
–
––––––
–
––––––
–
––––––
–
––––––
(301)
––––––
–
––––––
–
––––––
––––––
––––––
–
––––––
–
––––––
––––––
––––––
–
––––––
(34)
––––––
––––––
––––––
–
––––––
(51)
––––––
––––––
––––––
–
––––––
–
––––––
––––––
––––––
–
––––––
–
––––––
––––––
––––––
–
––––––
(382)
––––––
––––––
––––––
(301)
––––––
1,678
––––––
––––––
–
––––––
(301)
–
––––––
(301)
––––––
1,211
––––––
––––––
6,410
––––––
23,378
––––––
23,378
––––––
36,522
––––––
––––––
16
1
(52)
191
155
(6,177)
(191)
(190)
(190)
––––––
(6,332)
––––––
––––––
–
––––––
––––––
–
––––––
––––––
–
––––––
––––––
17
––––––
––––––
(52)
––––––
––––––
–
––––––
––––––
–
––––––
––––––
–
––––––
–
––––––
(35)
––––––
–
––––––
(6,367)
––––––
–
–
(2,764)
(60)
––––––
(2,824)
––––––
(9,156)
––––––
––––––
26,155
––––––
––––––
1,090
2,266
21,250
1,549
––––––
26,155
––––––
––––––
––––––
––––––
––––––
––––––
––––––
––––––
––––––
(1,184)
(1,184)
(3,948)
(494)
––––––
(494)
––––––
(554)
––––––
–
––––––
–
––––––
––––––
–
––––––
––––––
–
––––––
–
––––––
––––––
–
––––––
––––––
–
––––––
–
––––––
––––––
(34)
––––––
––––––
–
––––––
17
––––––
––––––
(34)
––––––
––––––
–
––––––
(52)
––––––
––––––
(52)
––––––
––––––
–
––––––
–
––––––
––––––
–
––––––
––––––
–
––––––
–
––––––
––––––
(382)
––––––
––––––
(1,678)
––––––
(1,678)
––––––
––––––
–
––––––
––––––
(1,678)
––––––
(1,713)
––––––
––––––
(502)
––––––
––––––
(4,502)
––––––
(10,869)
––––––
––––––
25,653
––––––
––––––
(34)
(34)
(52)
––––––
–
––––––
––––––
––––––
–
––––––
––––––
––––––
(34)
––––––
––––––
––––––
(34)
––––––
––––––
––––––
(52)
––––––
––––––
10
(10)
––––––
–
––––––
––––––
(382)
––––––
(382)
––––––
––––––
––––––
–
––––––
––––––
–
1,090
–
(110)
(392)
––––––
(502)
––––––
––––––
2,266
21,140
1,157
––––––
25,653
––––––
––––––
page
75
Notes to the Financial Statements
for the year ended 31 December 2007
29 IFRS Transition Statements (continued)
Transition to IFRS
This is the first year that the Group has presented financial information under IFRS. The last financial statements were presented
under UK GAAP for the year ended 31 December 2006. The Group’s date of transition to IFRS is 1 January 2007 and all
comparative information in this financial information has been restated to reflect the Group’s adoption of IFRS, except where
otherwise required or permitted by IFRS 1.
IFRS 1 requires that IFRS is applied retrospectively to establish the Group’s balance sheet at the date of transition, 1 January 2007
unless a specific exemption is applied. In preparing this IFRS information, the Group has adopted the following exemptions:
●
●
●
●
Business Combinations completed prior to date of transition to IFRS have not been restated;
Fixed assets held at a revalued amount at the date of transition to IFRS have been deemed as cost at that date;
Cumulative translation differences relating to overseas subsidiaries have been set to zero as at the date of transition; and
IFRS 2 Share-based Payments is only applied to those share options granted after 7 November 2003 that had not vested by
1 January 2007.
The analysis below shows a reconciliation of net assets and profit as reported under UK GAAP at 31 December 2006 to the
revised net assets and profit under IFRS reported in this consolidated financial information.
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 ten 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 2006 there was no remaining value to the goodwill acquired.
Leases
Previously, a lease relating to computer hardware was classed as a finance lease. 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.
page
76
29 IFRS Transition Statements (continued)
Explanatory notes to the adjustments from UK GAAP to IFRS (continued)
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 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.
A number of other adjustments have been made to reclassify various assets and liabilities according to IFRS. These
reclassifications do not affect reported profits in the period.
Cash flow statement
There were no material adjustments to disclosed figures in the consolidated cash flow statement arising from the
implementation of IFRS.
page
77
Five Year Financial Record
Revenue
47,748
47,752
44,835
45,930
46,930
2003
UK GAAP
£’000
2004
UK GAAP
£’000
2005
UK GAAP
£’000
2006
IFRS
£’000
2007
IFRS
£’000
Operating profit before exceptional items
Share of results of associate net of impairment
Finance income/(cost)
Profit on ordinary activities before profit on disposal of
fixed asset and exceptional items
Exceptional items
Profit on disposal of property
Profit before income tax
Income tax expense
Profit after income tax
Dividends
Net assets employed
Ratios
Operating margin before exceptional items
Basic earnings per share (pence)
Adjusted earnings per share (pence)
2,727
29
27
–––––––
2,783
(1,639)
18
–––––––
1,162
(553)
–––––––
609
–––––––
1,070
–––––––
26,723
–––––––
–––––––
5.7%
5.7
18.2
–––––––
–––––––
3,220
100
(44)
–––––––
3,276
(866)
19
–––––––
2,429
(703)
–––––––
1,726
–––––––
1,117
–––––––
20,113
–––––––
–––––––
6.7%
16.0
21.5
–––––––
–––––––
2,696
(21)
(114)
–––––––
2,561
–
269
–––––––
2,830
(152)
–––––––
2,678
–––––––
1,194
–––––––
22,446
–––––––
–––––––
6.0%
24.7
17.6
–––––––
–––––––
2,795
(7)
294
–––––––
3,082
784
1,876
–––––––
5,742
(1,631)
–––––––
4,111
–––––––
1,217
–––––––
25,653
–––––––
–––––––
6.1%
37.7
20.5
–––––––
–––––––
3,230
120
694
–––––––
4,044
–
798
–––––––
4,842
(1,147)
–––––––
3,695
–––––––
1,375
–––––––
29,731
–––––––
–––––––
6.9%
33.8
26.5
–––––––
–––––––
The adjusted earnings per share is based on the profit after income tax and adjusted to take into account exceptional items, profit on
disposal of fixed assets and the recognition of related deferred tax assets. The above figures for the year to 31 December 2006 have
been adjusted to reflect the introduction of International Financial Reporting Standards.
page
78
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of Churchill China plc will be held at Marlborough Pottery, High Street,
Sandyford, Tunstall, Stoke-on-Trent on Wednesday 21 May 2008 at 12.00 noon for the following purposes:
Ordinary Business
To consider and, if thought fit, to pass the following resolutions which will be proposed as ordinary resolutions:
1.
2.
3.
4.
5.
6.
7.
8.
9.
That the reports of the Directors and the Auditors and the Financial Statements for the year ended 31 December 2007 be received.
That, as recommended by the Directors, a final dividend of 9.2p on each ordinary share for the year ended 31 December 2007
be declared.
That A D Roper be re-elected as a Director.
That R S Kettel be re-elected as a Director.
That J W Morgan be re-elected as a Director.
That the Auditors, PricewaterhouseCoopers LLP, be re-appointed and that the Directors be authorised to fix their remuneration
for the year ending 31 December 2008.
That the Directors’ Remuneration Report for the year ended 31 December 2007 be approved.
That the authorised share capital of the Company be increased from £1,430,000 to £2,000,000 by the creation of a further
5,700,000 ordinary shares of 10p each.
That the Directors be and they are hereby generally and unconditionally authorised in accordance with section 80 of the
Companies Act 1985 (“the Act”) and in substitution for any existing power to allot relevant securities, within the meaning of
section 80 of the Act of the Company to such persons, at such times and subject to such terms and conditions as the Directors
may determine. The maximum aggregate nominal amount of relevant securities which may be allotted pursuant to this authority
shall be £361,279 and shall be allotted during the period commencing on the date of passing this resolution and expiring on
30 March 2013 (both dates inclusive), save that the Company may make any offer or agreement which would or might require
relevant securities to be allotted after such expiry and the Directors may allot relevant securities in pursuance of such an offer
or agreement as if the authority conferred hereby had not expired.
Special Business
To consider and, if thought fit, to pass the following resolutions which will be proposed as special resolutions:
10. That, subject to the passing of resolution 9 above, the Directors of the Company be empowered pursuant to Section 95(1) of the
Companies Act 1985 (“the Act”) to allot equity securities (as defined in Section 94(2) of the Act) pursuant to the authority under
Section 80 of the Act granted by resolution 9 above, and/or to sell relevant shares (as defined in Section 94(5) of the Act) of the
Company if, immediately before such sale, such shares were held by the Company as treasury shares (within the meaning of
Section 162A(3) of the Act), as if Section 89(1) of the Act did not apply to such allotment or sale, provided that this power shall
be limited to:-
(a)
the allotment of equity securities and/or sale of relevant shares in connection with a rights issue (which for this purpose shall
mean an offer of equity securities open for acceptance for a period fixed by the Directors in favour of the holders of ordinary
shares on the register on a fixed record date where the equity securities respectively attributable to the interests of such
holders are proportionate (as nearly as may be) to the respective numbers of ordinary shares held by them, but subject to
such exclusions or arrangements as the Directors may deem necessary or desirable to deal with fractional entitlements
otherwise arising or legal or practical problems under the laws of, or the regulations or requirements of any regulatory
body or authority or stock exchange in, any territory); and
(b)
the allotment of equity securities and/or sale of relevant shares (otherwise than as mentioned in sub-paragraph (a) of this
resolution) up to an aggregate nominal amount of £54,739;
and shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution and
provided that the Company may make any offer or agreement before the expiry of this power which would or might require
equity securities to be allotted pursuant thereto after it has expired.
page
79
Notice of Annual General Meeting
(continued)
11. That, in accordance with Chapter VII of Part V of the Act, the Company be generally and unconditionally authorised for the
purposes of Section 166 of the Act to make market purchases (within the meaning of Section 163(3) of the Act) of ordinary shares
of 10p each in the capital of the Company (“Ordinary Shares”) on such terms and in such manner as the Directors of the
Company may from time to time determine, provided that:
(a)
the maximum aggregate number of Ordinary Shares hereby authorised to be purchased is 1,094,787 representing
approximately 10 per cent of the present issued share capital of the Company;
(b)
the minimum price which may be paid for an Ordinary Share, exclusive of all expenses, shall be 10p;
(c)
the maximum price which may be paid for an Ordinary Share, exclusive of all expenses, shall not be more than 5 per cent
above the average of the middle market quotations for an Ordinary Share as derived from the London Stock Exchange Daily
Official List for the five business days immediately preceding the date on which such Ordinary Share is purchased
and, unless previously renewed, varied or revoked by special resolution of the Company in general meeting, the authority hereby
conferred shall expire at the conclusion of the Company’s next Annual General Meeting after the passing of the resolution. The
Company may prior to the expiry of the authority hereby conferred make a contract or contracts to purchase Ordinary Shares
under such authority which will or may be executed wholly or partly after the expiry of such authority. Any Ordinary Shares
purchased under the authority hereby conferred will be either cancelled immediately upon completion of the purchase or held,
sold, transferred or otherwise dealt with as treasury shares in accordance with the provisions of the Act.
12. That the Articles of Association contained in the document produced to the Meeting and initialled by the Chairman for the
purpose of identification be adopted as the Articles of Association of the Company in substitution for, and to the exclusion
of, the existing Articles of Association.
By order of the board
D J S Taylor
Company Secretary
Registered Office
Marlborough Pottery
High Street
Tunstall
Stoke-on-Trent
ST6 5NZ
Registered Number
2709505
Dated 23 April 2008
page
80
Explanatory Notes
1.
A member entitled to vote at this Meeting is entitled to appoint one or more proxies to exercise all or any of his rights to attend, speak and vote instead of him. A proxy need not also
be a member. A form of proxy for the use of members is enclosed and the attention of the members is drawn to the notes thereon. To be valid, a form of proxy for use at the Meeting
and the power of attorney or other authority (if any) under which it is signed, or a notarially certified or office copy of such power or authority, must be deposited with the Company’s
Registrars, Equiniti Limited, Aspect House, Spencer Road, Lancing BN99 6AL, not less than 48 hours before the time appointed for holding the Meeting. The appointment of a proxy
will not preclude a member from attending at the Meeting and voting thereat in person.
In order to facilitate voting by corporate representatives at the Meeting, arrangements will be put in place at the Meeting so that (i) if a corporate shareholder has appointed the chairman
of the Meeting as its corporate representative to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the Meeting then on
a poll those corporate representatives will give voting directions to the chairman and the chairman will vote ( or withhold a vote) as corporate representative in accordance with those
directions; and (ii) if more than one corporate representative for the same corporate shareholder attends the Meeting but the corporate shareholder has not appointed the chairman of the
Meeting as its corporate representative, a designated corporate representative will be nominated from those corporate representatives who attend, who will vote on a poll and the other
corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered
Secretaries and Administrators on proxies and corporate representatives (www.icsa.org.uk) for further details of this procedure. The guidance includes a sample form of representation
letter if the chairman is being appointed as described in (i) above.
There will be available at the Registered Office of the Company during business hours on any weekday (excluding Saturdays and public holidays) from the date of this Notice until the
conclusion of the Annual General Meeting, the register of Directors’ interests and the Company’s Memorandum and Articles of Association (both existing and as proposed to be adopted).
Item 8 in the notice of Annual General Meeting is an ordinary resolution increasing the authorised share capital of the Company. The authorised share capital of the Company has
remained unchanged since 26 October 1994 and the Directors now believe it is appropriate to increase this authorised capital to preserve flexibility of operation.
Item 9 in the notice of Annual General Meeting is an ordinary resolution renewing an authority previously granted to the Directors at the Annual General Meeting on 14 May 2003,
to authorise the Directors at any time prior to 30 March 2013 to allot relevant securities up to an aggregate nominal value of £361,279 (representing approximately 33% of the current
issued share capital of the Company at the date of this notice). The Directors have no present intention to exercise this authority and are taking the same to preserve flexibility.
Item 10 in the notice of Annual General Meeting is a special resolution to empower the Directors at any time prior to the conclusion of the 2009 Annual General Meeting to allot
equity securities (or sell relevant shares out of treasury) for cash without pre-emption up to an aggregate nominal value of £54,739 (equivalent to 547,390 ordinary shares, representing
approximately 5 per cent of the present issued share capital). This resolution will also empower the Directors (within the period mentioned above) to allot pursuant to the authority
under section 80 of the Companies Act 1985 dealt with in resolution 10 up to 3,397,874 ordinary shares (representing approximately 33 per cent of the present issued share capital)
in connection with a rights or similar issue with such modifications as they may consider necessary or desirable to deal with fractions or legal or practical problems.
Item 11 in the notice of Annual General Meeting is a special resolution to allow the Company at any time prior to the conclusion of the 2009 Annual General Meeting to repurchase
up to 1,094,787 ordinary shares (representing approximately 10 per cent of the present issued share capital). The Directors undertake that the authority conferred by this resolution, if
approved, will only be used if to do so would result in an increase in earnings per share and be in the best interests of shareholders generally.
Item 12 is a resolution to adopt new Articles of Association (“the New Articles”) to replace the current Articles of Association. The main reason for the New Articles is to take account
of changes in UK company law brought about by the Companies Act 2006. The principal changes being proposed in the New Articles are summarized below. Other changes, which
are of a minor, technical or clarifying nature, have not been noted.
The Act is, in many instances, more prescriptive than the previous legislation giving less discretion to companies to adopt their own policies and procedures in some areas.
Consequently, in some instances, the New Articles now simply refer to the Act’s requirements to determine certain issues eg length of notice to convene meetings.
2.
3.
4.
5.
6.
7.
7.1 Transfer of shares – Article 35: the amendment reflects the change in the law under the Act which requires a company, where it refuses to register a transfer of shares, to give the
transferee reasons for the refusal;
7.2 Provisions relating to convening annual general and extraordinary meetings – Articles 50 – 54: the amendments, in the main, refer to the express provisions of the Act which deal with
these matters;
7.3 Voting – Articles 62 – 78: the amendments reflect the changes in the law under the Act which entitle proxies to vote on a show of hands as well as on a poll, and the time limits for
receipt by the Company of the appointment or termination of the appointment of a proxy. The New Articles give the Directors a discretion, when calculating these time limits, to
exclude week-ends and bank holidays;
7.4 Directors’ interests in contracts – Article 126: the New Articles contain a new provision – Article 126.3 – which will be effective from 1 October 2008, which continues to allow
Directors’ interests in contracts that are disclosed in accordance with the requirements of the Act;
7.5 Directors’ conflict of interests – Article 127: under the Act, from 1 October 2008, a Director must avoid a situation where a Director has, or can have, a direct or indirect interest that
conflicts, or possibly may conflict, with the Company’s interests. The requirement is very broad and could apply, for example, if a Director becomes a director of another company or a
trustee of another organisation.
The Act allows directors of public companies to authorise conflicts, or potential conflicts, where appropriate, if a company’s articles of association contain a provision to this effect. The
Act also allows articles of association to contain other provisions for the authorisation of Directors’ conflicts of interest so as to avoid Directors finding themselves in breach of a duty.
The New Articles give the Directors authority to approve such situations and include other provisions to allow conflicts of interest to be dealt with in a similar way to the current position.
There are safeguards which will apply when Directors decide whether to authorise a conflict or potential conflict. First, only Directors who have no interest in the matter being
considered will be able to take the relevant decision, and, secondly, in taking the decision, the Directors must act in a way they consider, in good faith, will be most likely to promote
the Company’s success. The Directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate.
The New Articles also contain provisions relating to confidential information, attendance at board meetings and availability of board papers to protect a Director from being in breach
of duty if a conflict or potential conflict of interest arises. These provisions will only apply where the situation giving rise to the potential conflict has previously be authorised by the
Directors. It is the Board’s intention to report annually on the Company’s compliance with its procedures for ensuring that the Directors’ powers to authorise conflicts have operated
effectively;
7.6 Electronic communication – Article 156.4 - 6: various provisions of the Act which came into force in January 2007 enabled companies to communicate with members by electronic
and/or website communications if the company had the necessary authorisation. The New Articles contain provisions which will permit the Company to take advantage of these
provisions;
7.7 Extraordinary resolutions: various amendments have been made to reflect that the concept of an extraordinary resolution has not been retained in the Act;
7.8 Directors fees – Article 100: the limit on the annual amount payable by way of Directors fees in this article has been increased from £75,000 to £100,000. This fee has not been
increased since adoption of the Articles on 26 October 1994.
7.9 The Article authorising the Company to appoint a former Director as its President has been deleted as it was thought to be redundant.
8.
In accordance with Regulation 41(1) of the Uncertificated Securities Regulations 2001 the Company specifies that only those shareholders who are registered in the Company’s register
of members at 12 noon on 19 May 2008 (or, in the case of adjournment, 48 hours before the time of the adjourned meeting) will be entitled to attend or vote at the Meeting and that
the number of votes which any such shareholder may cast, upon a poll, will be determined by reference to the number of shares registered in such shareholder’s name at that time.
page
81
Shareholder Notes
page
82
page
83
Shareholder Notes
page
84
78037_Churchill CVR.indd 4
29/4/08 12:34:53
China plc
Churchill China plc
Marlborough Pottery, High Street, Tunstall, Stoke-on-Trent, ST6 5NZ
www.churchillchina.com
©Churchill China plc 2008
China plc
CH 78037_Churchill CVR.indd 1
29/4/08 08:54:13