China plc
China plc
Churchill China plc
Marlborough Pottery, High Street, Tunstall, Stoke-on-Trent, ST6 5NZ
www.churchillchina.com
© Churchill China plc 2009
China plc
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China plc
China plc
Contents
Financial Highlights
Company Profile
Chairman’s Statement
Financial Review
Operational Review
People & Prospects
Directors’ Report
Report of the Remuneration Committee
Corporate Governance
Independent Auditors’ Report
Consolidated Income Statement
Consolidated Statement of Recognised Income
and Expense
Balance Sheets
Consolidated Cash Flow Statement
Notes to the Consolidated Financial Statements
Five Year Financial Record
Notice of Annual General Meeting
Page
1
3
5
6
9
12
14
24
32
34
35
36
37
39
41
76
77
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Front and Inside Cover:
Alchemy 'Ambience'
Financial Highlights
China plc
China plc
Results
Revenue - continuing operations
Operating profit - continuing operations
Share of results of associate company
Net finance income
Before
exceptional
items
Exceptional
items
2007
£’000
2007
£’000
Total
2008
£’000
Total
2007
£’000
41,969
46,930
–
46,930
2,804
(71)
629
3,230
798
4,028
120
694
–
–
120
694
Profit before income tax
3,362
4,044
798
4,842
1,531
1,375
–
1,375
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
6.7%
6.7%
13.8p
22.2p
13.7p
22.1p
14.0p
6.9%
26.5p
26.3p
The adjusted EPS excludes exceptional items (see note 11). Exceptional items related to deferred taxation in 2008
and profit on disposal of property, plant and equipment in 2007.
8.6%
33.8p
33.6p
12.6p
page
1
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China plc
5 Year Performance
China plc
04
05
06
07
08
04
05
06
07
08
04
05
06
07
08
47.8
44.8
45.9
46.9
42.0
0 10 20 30 40 50
3,276
2,561
3,082
4,044
3,362
0 1000 2000 3000 4000
21.5
17.6
20.5
26.5
22.2
Turnover (£m)
Revenue (£m)
Profit before profit on disposal of property, plant
and equipment, exceptional items, recognition of
deferred tax asset and deferred tax
liability (£000)
Adjusted earnings per share (p)
0 5 10 15 20 25 30
page
2
Right: Alchemy Fine Crystal
'Vineyard'
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China plc
Company Profile
China plc
Churchill China plc
Directors, secretary and advisers
EXECUTIVE DIRECTORS
AUDITORS
BANKERS
A D Roper
D J S Taylor
D M O’Connor
I T Hicks
NON-EXECUTIVE
DIRECTORS
J N E Sparey *•
R S Kettel *•
J W Morgan *•
SECRETARY
AND REGISTERED
OFFICE
D J S Taylor ACA
Marlborough Pottery
High Street
Tunstall
Stoke-on-Trent
Staffordshire
ST6 5NZ
PricewaterhouseCoopers LLP
Lloyds Banking Group plc
Cornwall Court
41 Market Street
19 Cornwall Street
Longton
Birmingham
B3 2DT
Stoke-on-Trent
Staffordshire
ST3 1BN
SOLICITORS
REGISTRARS
Addleshaw Goddard
Equiniti
100 Barbirolli Square
Manchester
M2 3AB
STOCKBROKERS
AND ADVISERS
Brewin Dolphin
Investment Banking
34 Lisbon Street
Leeds
LS1 4LX
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6ZX
* Member of audit committee
• Member of remuneration committee
Registered no: 2709505
page
3
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Profit before profit on disposal of property, plant
and equipment, exceptional items, recognition of
deferred tax asset and deferred tax
liability (£000)
Adjusted earnings per share (p)
"2008 was a year of
good performance"
Left: Churchill Super Vitrified
'X Squared'
Below Right: Churchill 'Eden'
Cath Kidston ' Gingham'
'Harlequin'
page
4
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Chairman's Statement
China plc
China plc
I am pleased to report that 2008 was a year of good performance,
has been in a stronger position than many of our peer group due
with respectable profitability, positive cash flows and continued
to our balanced business of hospitality and retail accounts, our
progress against key strategic
targets. This was a sound
strong balance sheet, tight control of our cost base and effective
performance against the back drop of a deteriorating economic
working capital management.
environment and weakening consumer demand. Churchill China
90070 CHURCHILL PRE 1.indd 8
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page
5
Financial Review
Group revenues fell by 11% to £42.0m (2007: £46.9m) reflecting
We continued our strong record of cash generation from operations.
a lower demand in many of our important hospitality markets
Overall cash balances remain healthy at £7.7m (2007: £11.4m),
against strong 2007 comparatives and reduced sales in our retail
the reduction reflecting strategic investment of £4.6m in capital
division as we withdrew from certain low contribution business.
expenditure (principally our new warehouse) and some increase
in working capital as we expanded inventory holdings.
Group operating profit before exceptional items was £2.8m (2007:
£3.2m) and our pre-tax profit before exceptional items was 17%
lower at £3.4m (2007: £4.0m).
Dividend
Overall margins were maintained at close to 2007 levels despite
In the light of the respectable performance of the business in a
the fall in sales, reflecting a better mix of business across the
demanding year, the Board is pleased to recommend a maintained
Group, benefits from our continuing investment programme and
final dividend of 9.2p per share. Together with the interim dividend
good cost control.
paid last October, this gives a total dividend declared in respect
of 2008 of 14.0p compared to 13.7p for 2007. Our record of
Group operating profit after exceptional items was £2.8m (2007:
profitability and cash generation allows us to provide a real return
£4.0m). Pre tax profit after exceptional items was £3.4m (2007:
to investors and we will continue to manage our dividend policy
£4.8m). 2007 comparatives included a one off benefit relating to
to deliver long term shareholder value. The dividends declared in
the disposal of land. Adjusted earnings per share decreased by
2008 were covered 1.6 times by adjusted earnings per share.
16% to 22.2p (2007: 26.5p). Basic earnings per share, including
exceptional items, were 13.8p (2007: 33.8p).
Attractive real shareholder returns are an important objective of
Our tax charge for the year includes a one off provision for
the sharp contraction in the share price of not just your Company
deferred tax of £919,000 which has been treated as exceptional.
but equity markets as a whole. Over the last five years Churchill
This relates to the phasing out of Industrial Buildings Allowances
has delivered an overall return of 33%, well in excess of the
enacted in the Finance Act 2008.
average of the AIM market.
the Board but total shareholder returns in 2008 were depressed by
page
6
Above Left: Alchemy 'Buffet Covers'
Above Centre: Art de Cuisine 'Menu'
Above Right: Churchill Super Vitrified 'Bit on the Side'
Right: Sanderson 'Sweet Bay'
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"Our market leading
position, recurring
revenues and strong
balance sheet are
attractive"
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page
7
Left: Alchemy 'Counterwave'
page
8
"Our core ranges
retain their superior
performance"
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Operational Review
Hospitality
Retail
Sales to hospitality customers were lower at £25.0m (2007: £28.6m)
Revenues from the sales of our wide ranging retail product portfolio,
reflecting soft demand in most markets throughout the year, particularly
which are almost all outsourced, were £17.0m (2007: £18.3m) with the
the UK, where sales were £16.3m (2007: £18.9m). As a result the net
decline being in relatively unattractive volume channels. This resulted in
contribution was lower at £3.7m (2007: £4.9m). Churchill’s recurring
a substantially improved net contribution before central costs of £1.7m
replacement sales to regular customers were resilient throughout the year
(2007: £1.1m).
but there were fewer of the new installations in pubs, hotels and restaurant
chains which enhanced 2007’s result. There was also markedly lower
In my last annual report I stated that a key objective for 2008 was to increase
banqueting activity in the final quarter of the year. The UK Treasury has
margins and build our middle market ‘Queens’ and related business with
concluded that the UK as a whole experienced sharp destocking in the
department stores and independent retailers. This plan has been pursued
final quarter of 2008 which contributed to the contraction of GDP and the
with some success and we are acquiring listings and generating sales in
ceramics industry was not immune.
major retailers including John Lewis, Debenhams, House of Fraser and
others, together with over 100 new independent accounts. We expect
Total export sales at £8.7m (2007: £9.7m) reflected weaker performance
further material progress in 2009 in this sector of the market.
in Spain and the USA where the deteriorating economic environment
adversely affected both capital spending by our customers and lower eating
Another key element of our retail strategy has been to broaden our range
out by the consumer.
of top quality license partnerships which include Disney, Sanderson and
Cath Kidston. We aim to reflect the full range of lifestyles within our license
We are continuing to develop our sales and marketing capabilities in target
portfolio including entertainment, fashion and celebrity alongside classic
export markets to ensure we make the most of available opportunities
brands and we believe that this reflects the diversity of consumer taste.
which ranged in 2008 from the Caribbean to Turkey, Central Europe and
These licensed product ranges coupled with a top quality design team,
the UAE.
professional sales and logistics and deep retail experience has enabled us
to grow sales in key accounts despite the well reported slow down in the
Our core super vitrified and fine china dinnerware ranges retain their
High Street.
superior performance and we are continuing to work closely with end users,
professional chefs and our distribution partners to identify requirements
These circumstances create considerable opportunities for your Group
and impress with our value proposition. Churchill has a talented team of
given its relative strength and diversity and we have noted market share
sales, marketing, design and product development executives focused on
shifting to Churchill as customers re-evaluate their core suppliers.
the needs of a diverse range of customers from public and private sector
accounts. It is always pleasing to receive new orders from customers for a
This core business capability has been reflected most recently in our
new product designed and developed specifically for their requirements.
securing a new partnership with Jamie Oliver. Jamie Oliver’s ability to
inspire the public and his honest and enthusiastic approach is a perfect fit
with Churchill China’s brand values.
We achieved important performance objectives in 2008 for our retail
business and are optimistic of further progress this year despite more
difficult economic conditions.
page
9
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Manufacturing, Technical and Logistics
During 2008 we continued to implement key cost reduction and
Our other major initiative during 2008 was to fundamentally re-evaluate
manufacturing efficiency initiatives. In the second half of the year, we
and upgrade our management systems to meet the needs of an international
successfully consolidated our remaining Alchemy fine china production
manufacturing and logistics business. After months of preparation, we
into the Marlborough site, thus completing the rationalisation programme
selected a partner to implement a major ERP system which should be
centralising our production on a single modern and efficient site. This
operational in the business in the second half of 2009. The total spend,
move, together with the benefit of the new fast fire kiln and lower output
which fell mostly in the second half of 2008, will be £0.8m. We envisage
levels, allowed Churchill to absorb a considerable portion of the inflated
considerable operational efficiency benefits throughout the business once
gas and electricity price rises which impacted the business in 2008.
the project is completed.
Site consolidation has brought significant efficiencies within our
Outsourcing
manufacturing operations and has allowed us to focus resource on value
creating activities, developing new products and processes, rather than
The last 12 months has seen an unprecedented number of factory closures
managing a disparate production base. We expect to deliver further benefits
in China and continued sterling weakness has put the Churchill buying
from this in the medium term.
team under pressure to ensure that these events have not impacted on
customers or affected service and quality.
During 2008 we incurred extra warehousing and inter site transport costs
on a temporary basis by using the old Wheildon Road site. These costs will
be reduced when the new warehouse is completed in May 2009.
Capital Expenditure
There has been a large scale reduction in the plethora of importers
of housewares product. Only those that add value, are professionally
organised and well financed have survived. Major retailers prefer to
work with reliable suppliers capable of delivering well designed, ethically
produced goods on schedule.
The Group has invested significantly during the year in support of our
The UK outsourcing team is a good blend of graduates and seasoned
long term strategic objectives of delivering a market leading service to our
buyers. We have long standing relationships with many of our suppliers at
customers and value to our shareholders.
Director level and unlike general wholesaler/importers our technical and
I have already mentioned the £1.5m project to consolidate our Alchemy
real assistance to improve manufacturing efficiencies and ensure improved
production experts are able to offer them constructive consultancy and
manufacturing on one site. During the second half of 2008 we commenced
quality and cost.
work on a new state of the art high bay warehouse large enough to
accommodate 12,500 pallets which will enhance substantially our
Our US$ sales are an approximate match for our US$ purchases but in
flexibility to support both our retail and hospitality clients, at a total cost of
a harsh trading environment there is considerable pressure on outsource
£4m. Once completed, all operations will be at our Marlborough site and
departments to buy more competitively without sacrificing quality and
the Whieldon Road facility will be vacated and sold.
delivery assurance.
page
10
Above Far Left: Jeff Banks 'Infinity'
Above Centre Left: Ella Doran 'Smartie Love'
Above Centre Right: Disney 'Friend Forever Breakfast Set'
Above Far Right: Cath Kidston 'Electric Flowers & Spray Floral Crush Mugs'
Right: RHS 'Fruit Garden'
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"The Group has
invested significantly
during the year"
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page
11
People
Churchill is very fortunate to have such a dedicated and skilled workforce,
the safety of themselves and others. Our role is to encourage a culture of
many of whom are long serving and following in the footsteps of other
Health and Safety, but there is no substitute for training and discipline.
family members who pursued careers with us over the passing decades.
A special mention should made of Gordon Stephenson who worked for
For a comparatively small company Churchill has serious ambitions
Churchill for a record 57 years and who retired in August 2008 but sadly
in terms of training and qualifications: Over 50% of all operatives have
died in February 2009.
occupational NVQs and the target for 2009 is 90%. We have a thriving
graduate recruitment programme with over 50 graduates employed
Health and Safety in the working environment is a top priority in all areas of
throughout the business. Senior managers are actively encouraged and
the business. We believe that adherence to legislation alone is not sufficient
sponsored to study for business and other qualifications.
and that management and operatives share a common responsibility for
page
12
Left: Alchemy 'Ambience''
Top Right: Alchemy 'Atlantic'
Above Left:Sanderson 'Etchings & Roses'
Above Centre: Churchill Fine Crystal 'Event'
Above Right: Alchemy 'White'
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China plc
China plc
Prospects
Despite the prevailing economic circumstances, we have performed
revenues and strong balance sheet is attractive to our customer base
in line with our expectations in the first three months of 2009 with
and distribution partners and provides a basis of confidence for a
Group sales marginally ahead of the corresponding period in 2008.
sound performance.
Our retail business has started well and sales will be enhanced later
this year with the impact of the new Jamie Oliver license which we
We will continue to improve efficiency and keep costs and working
secured in February. This license is very exciting for our business and
capital tightly managed. The executive management team is both
opens up a range of opportunities on a worldwide basis.
hugely experienced and conservative by nature and we are confident
Demand for hospitality products is marginally behind last year in
the traditionally quiet first quarter. It is not unreasonable to mirror
many in the industry and state trading conditions for the rest of 2009
J N E Sparey
are unpredictable. However, our market leading position, recurring
31 March 2009
in our future prospects.
90070 CHURCHILL PRE 1.indd 16
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page
13
90070 Churchill pre 2 16/4/09 15:06 Page 14
Directors’ Report
for the year ended 31 December 2008
The Directors present their annual report and the audited consolidated financial statements for the year ended 31 December 2008.
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 35.
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 2008 and 31 December 2007:
Ordinary dividend:
Final dividend 2007 9.2p (2006: 8.1p) per 10p ordinary share
Interim dividend 2008 4.8p (2007: 4.5p) per 10p ordinary share
The Directors now recommend payment of the following dividend:
Ordinary dividend:
Final dividend 2008 9.2p (2007: 9.2p) per 10p ordinary share
2008
£’000
1,007
524
––––––––
1,531
––––––––
––––––––
2008
£’000
1,003
––––––––
––––––––
2007
£’000
883
492
––––––––
1,375
––––––––
––––––––
2007
£’000
1,007
––––––––
––––––––
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 *
R N Grundy (resigned 28 April 2008)
I T Hicks
J W Morgan *
* Non executive
The Directors retiring by rotation are D J S Taylor and J N E Sparey who being eligible, offer themselves for re-election. The unexpired
terms of the service contracts of D J S Taylor and J N E Sparey are twelve and eleven months respectively.
The biographical details of the Directors are as follows:
Jonathan Sparey, non executive Chairman, aged 51, 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, Chief Executive Officer, aged 60, 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.
page
14
90070 Churchill pre 2 16/4/09 15:06 Page 15
Directors (continued)
David Taylor, Finance Director and Company Secretary, aged 49, has worked for the Group for 17 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 65, 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 52, has worked for Churchill for 18 years in a number of production,
operations and marketing roles. He has extensive experience within the Ceramics industry and joined the Board in 1999.
Iain Hicks, Sourcing Director, aged 39, 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 51, is a Director of SVG Investment Managers Limited and has many years of
experience in investment management within growth small and medium sized companies. He was previously Managing Director of
Prudential plc’s Private Equity business in Europe and Asia Pacific. 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 65% of our gross revenue, we also enjoy significant sales to Europe
and North America which respectively account for 19% and 7% 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 has generally been a reduction in the
overall size of our markets during the year. We expected that following a period of expansion in 2007 there would be a lower level of
growth in UK hospitality markets. Given current economic uncertainties there has been a general tightening of demand across all our
markets as consumer confidence and spending has reduced. The impact of this reduction has been increased by de-stocking within our
distribution channels. We expect demand levels to be subdued throughout 2009, although replacement sales within our Hospitality business
should support overall revenues. We expect our Retail business to benefit from a better competitive position and increased licensing activity.
As yet there is little evidence of increases to export sales, which might normally be expected to follow from weaker sterling values.
The cost of imported product has risen during the year principally arising from the appreciation of the US dollar, the principal trading
currency of our overseas suppliers. There is some evidence of lower price expectations from our suppliers which mitigates some of
the effects of currency change. Our UK manufacturing operations remain subject to a number of cost pressures, principally driven by
increased commodity and energy prices. We have responded to these cost rises through restructuring our operations and by reducing
our usage of energy.
We believe that to succeed as a business we must remain agile and 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
90070 Churchill pre 2 16/4/09 15:06 Page 16
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 long term 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 both 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 and licensors. 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.
page
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90070 Churchill pre 2 16/4/09 15:06 Page 17
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.
We have sought to develop our technical advantage and have recently gained accreditation from the United Kingdom Accreditation
Service as an approved testing laboratory under ISO 17025. This will enable us both to optimise our own trading position and to offer
services to other manufacturers.
Overseas branches
The Group’s principal operations are located within the United Kingdom, however Churchill China plc also operates from a US based
sales subsidiary and have a sourcing and support operation in China.
Future outlook
The Board believes that long term demand for hospitality products in developed markets will continue to increase as leisure related
spending recovers and grows. There has been a long term 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.
Retail markets have been generally difficult for several years driven by changes in the structure of distribution channels within the
market place and intense competitive pressure largely caused by over capacity in the worldwide ceramics market. There is increasing
evidence that this overcapacity is now being reduced as competitors withdraw from the market place. The Board also believes that the
plans enacted within the Retail division have placed Churchill in a position to benefit from these competitive pressures relative to
other suppliers to the market.
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.
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.
page
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90070 Churchill pre 2 16/4/09 15:06 Page 18
Directors’ Report
(continued)
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 elements of 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.
Customer and supplier creditworthiness
Whilst the Group maintains a strong balance sheet and credit position it operates in a market where both customers and suppliers are
exposed to credit and liquidity related problems. The Group manages this risk by trading, where possible, on secured terms and by
regularly reviewing the financial position of key business partners.
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.
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 2008: £42.0m (2007: £46.9m).
Sales growth 2008: -10.6% (2007: 2.2%).
Overall sales levels have decreased principally as a result of less favourable general economic conditions, but also arising from
our aim to reduce low margin sales within volume distribution channels within our retail business.
page
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90070 Churchill pre 2 16/4/09 15:06 Page 19
Customer service and inventory
Customer service and inventory holding 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.
Inventory 2008: £8.5m (2007: £6.7m).
The level of inventory is considered reasonable. Levels have increased to support the introduction of new ranges in both our divisions
and as a result of increased buying costs where product is sourced in foreign currency. In the short term inventory levels also rose as a
result of lower than expected demand within the Group’s Hospitality division in the final quarter of 2008.
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 2008: £2.8m (2007: £3.2m).
Operating profit before tax and exceptional items fell due to lower sales and contribution levels. Savings within our cost base offset
some of the impact of these reduced revenues. Operating margins before exceptional items were maintained at acceptable levels
(6.7% (2007: 6.9%)).
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 2008: £3.4m (2007: £4.0m).
Profit before tax and exceptional items fell in 2008 largely as a result of reduced sales and operating profits but also due to reduction
in the share of profit received from our associated company, Furlong Mills.
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 meet taxation payments and to ensure that our
shareholders receive an appropriate return.
Operating profit before exceptional items 2008: £2.8m (2007: £3.2m).
Operating cash generation before additional pension contributions 2008: £2.5m (2007: £6.3m).
Percentage of operating cash generation before additional pension contributions to operating profit before exceptional items 89%
(2007: 195%).
Three year average percentage of operating cash generation before additional pension contributions for the last three years to
operating profit before exceptional items 165% (2007: 200%).
Operating cash generation was below operating profit largely due to increased inventory holding levels. This increase reflects both
wider product ranges and lower than anticipated demand levels in the final quarter of 2008.
page
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90070 Churchill pre 2 16/4/09 15:06 Page 20
Directors’ Report
(continued)
Insurance of Directors
The Group maintains insurance for the Directors in respect of their duties as Directors.
Employees
The Group recognises that well trained, motivated and committed employees are critical to the current and future success of our
business. We aim to involve our workforce, through employee communication, team briefs and various internal forums and
committees. We encourage our employees to engage with the Company’s strategy and goals. We have worked hard to develop and
foster an open and constructive relationship with our employees and their trade union representation and meet with them regularly
to discuss developments within the business.
Training and development at all levels within the business is actively promoted, from essential skills to professional qualifications.
We have worked extensively with our local further education college through Train to Gain and over half of our manufacturing and
warehousing teams having gained or are working towards an occupational NVQ. By the end of 2009 we expect this will have
increased to 90%. Our programme to offer essential skills within the working day has been of substantial benefit to a number of the
employees who took advantage of this facility. Our engineering and supervisory multi-skilling programmes are core to us meeting
future manufacturing challenges. In difficult economic times our focus on training demonstrates our long term commitment to our
workforce and this has helped overall morale and motivation.
We have an established graduate recruitment programme which now provides over 20% of our staff employees. These junior members
of staff will provide the core of our future management team and our training programmes have been developed to provide them with
the necessary skills and experience to meet the needs of the business.
We remain committed to Total Quality Management using Process Improvement techniques to engage employees in the development
of new methods to improve quality, processes and performance.
The Company is fully committed to its equal opportunities employment policy offering equality in recruitment, training, career
development and promotion of all employees irrespective of gender, ethnic origin, age, nationality, marital status, religion, sexual
orientation or disability. If an employee were to become disabled during their employment every effort would be made to retain them
within the business and offer appropriate re-training.
We work to continually improve Health and Safety providing a safe and healthy working environment for all our employees and
visitors. NEBOSH, NVQs and internal training programmes are regularly offered to update safety skills.
Environment, social and community
The Group considers and manages the impact of its actions on the environment and wider social and community issues. We are
anxious that we take into account our economic, social and environmental impact locally, nationally and internationally.
The principal impact of the Group’s operations on the environment are in relation the energy it consumes and the waste products
produced as part of its operations. Whilst the Company manufactures a product which may be re-used many hundreds of times,
a significant amount of energy is consumed in its production. As a result of this we have invested over several years to reduce our
energy consumption and have replaced older systems and machinery with more modern energy efficient plant and procedures. We
are currently seeking accreditation under ISO 14001 “Energy Management”, the international standard for energy efficient operation.
Programmes are already in place to minimise energy usage and waste. We have also instituted a programme to work with our
customers both in terms of the development of products that lower their energy consumption and also to reduce the amount of
packaging associated with our products.
We understand that we have an impact on our local community and consider the effect of our actions on our local area. Where
possible we work to reduce any adverse effects of our operations, consistent with the needs of other stakeholders within our business.
page
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90070 Churchill pre 2 16/4/09 15:06 Page 21
Financing
The Group currently has in place short term variable rate financing arrangements to provide finance for working capital requirements
where appropriate.
Financial instruments
The Group uses its own cash resources, 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.
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 & S J Roper
M J & G Roper
Rensburg Sheppards Investment Management
Discretionary Unit Trust
Henderson Global Investors
Number of ordinary
shares
Percentage
1,212,500
1,000,000
1,000,000
942,265
706,880
664,566
545,000
440,000
11.1%
9.1%
9.1%
8.6%
6.4%
6.0%
5.0%
4.0%
Share repurchase
During the year the Company repurchased 58,400 (2007: nil) 10p ordinary shares at a total cost of £160,000 (2007: £ nil) in order to
improve overall shareholder return. 13,000 (2007: nil) of these shares were re-issued in respect of employee share option schemes for
a total consideration of £22,000 (2007: £ nil). The maximum number of shares held by the Company during the year was 53,400 10p
ordinary shares. The Company retains a power, subject to the fulfilment of certain conditions and as approved at the 2008 Annual
General Meeting, for the further purchase of its own shares.
page
21
90070 Churchill pre 2 16/4/09 15:06 Page 22
Directors’ Report
(continued)
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 2008 was 40 days (2007: 28 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 (2007: £nil) and £4,810 (2007:
£8,076) respectively. In addition to the above the Group regularly donates quantities of product to charitable causes. The estimated
value of these donations in 2008 was £9,000 (2007: £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 £4,810 were £1,110 to the John Ritchie Charity, £514 to Help for Heroes, £500 each to
Hollywall Primary School, Footsteps for Families and the Race for Life and £494 to the Douglas Macmillan Home. The remaining
contributions were in line with the Group’s policy in respect of charitable donations which 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.
Statement of Directors’ responsibilities in respect of the Annual 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). 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 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 and parent Company will continue in business, in which case there should be supporting assumptions or qualifications
as necessary.
page
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90070 Churchill pre 2 16/4/09 15:06 Page 23
Statement of Directors’ responsibilities in respect of the Annual Report and the
financial statements (continued)
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 and parent Company financial statements
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 2009
page
23
90070 Churchill pre 2 16/4/09 15:06 Page 24
Report of the Remuneration Committee
for the year ended 31 December 2008
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 has the power to consider the Group’s performance on environmental, social and governance issues
when setting the remuneration of Executive Directors.
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 (Chief Executive
Officer) and A M Basnett (HR Director, Churchill China (UK) Limited).
page
24
90070 Churchill pre 2 16/4/09 15:06 Page 25
Directors’ emoluments
This section of the Report of the Remuneration Committee is audited. Emoluments of the Directors were as follows:
2008
Executive
A D Roper
D J S Taylor
D M O’Connor
R N Grundy*
I T Hicks
Non executive
J N E Sparey
R S Kettel
J W Morgan
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
Performance
bonuses
£
Salary
£
Compensation
for loss of
office
£
Benefits
in kind
£
Aggregate
emoluments
£
Pensions
(see below)
££
232,833
161,334
161,334
52,000
116,667
57,000
35,332
35,334
–––––––––
851,834
–––––––––
–––––––––
223,200
152,408
152,333
152,333
106,742
48,000
21,667
33,333
22,666
–––––––––
912,682
–––––––––
–––––––––
13,500
10,000
10,000
–
8,000
–
–
–
–––––––––
41,500
–––––––––
–––––––––
38,700
35,100
35,100
40,100
23,625
–
–
–
–
–––––––––
172,625
–––––––––
–––––––––
940
14,099
17,634
6,592
9,682
–
–
–
–––––––––
48,947
–––––––––
–––––––––
812
13,906
17,440
17,507
9,509
–
812
–
–
–––––––––
59,986
–––––––––
–––––––––
–
–
–
120,000
–
–
–
–
–––––––––
120,000
–––––––––
–––––––––
–
–
–
–
–
–
–
–
–
–––––––––
–
–––––––––
–––––––––
247,273
185,433
188,968
178,592
134,349
57,000
35,332
35,334
–––––––––
1,062,281
–––––––––
–––––––––
262,712
201,414
204,873
209,940
139,876
48,000
22,479
33,333
22,666
–––––––––
1,145,293
–––––––––
–––––––––
–
11,293
11,293
3,640
8,167
–
–
–
–––––––––
34,393
–––––––––
–––––––––
–
10,669
10,663
10,663
7,122
–
–
–
–
–––––––––
39,117
–––––––––
–––––––––
Aggregate
emoluments
including
pensions
247,273
196,726
200,261
182,232
142,516
57,000
35,332
35,334
–––––––––
1,096,674
–––––––––
–––––––––
262,712
212,083
215,536
220,603
146,998
48,000
22,479
33,333
22,666
–––––––––
1,184,410
–––––––––
–––––––––
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 2008 and 2007.
Pension costs above represent contributions as defined by the Listing Rules and are contributions made by the Group to defined
contribution schemes. For additional information in respect of Directors’ pensions refer to the section ‘Pensions’ below.
R N Grundy’s remuneration in 2008 is to the date of his resignation (28 April 2008).
page
25
90070 Churchill pre 2 16/4/09 15:06 Page 26
Report of the Remuneration Committee
(continued)
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:
Number
of options
Number
of options
Date of 31 December 31 December
2007
2008
or at date
of cessation
grant
D J S Taylor
Unapproved Executive scheme
Executive scheme
Unapproved Executive scheme
Unapproved Executive scheme
Unapproved Executive scheme
D M O’Connor
Unapproved Executive scheme
Executive Scheme
Unapproved Executive Scheme
R N Grundy
Unapproved Executive scheme
Unapproved Executive scheme
I T Hicks
Approved Executive scheme
Unapproved Executive scheme
13.04.00
05.12.00
05.12.00
19.04.02
30.04.04
19.04.02
30.04.04
30.04.04
19.04.02
30.04.04
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
––––––––
––––––––
13,000
10,000
––––––––
23,000
––––––––
––––––––
6,000
4,000
––––––––
10,000
––––––––
––––––––
7,500
2,000
20,500
15,000
10,000
––––––––
55,000
––––––––
––––––––
10,000
4,000
6,000
––––––––
20,000
––––––––
––––––––
13,000
10,000
––––––––
23,000
––––––––
––––––––
6,000
4,000
––––––––
10,000
––––––––
––––––––
Exercise
Price
pence
Date from
which
exercisable
Expiry
date
118.5
151
151
171
208
Apr 2003
Dec 2003
Dec 2003
Apr 2005
Apr 2007
Apr 2010
Dec 2010
Dec 2010
Apr 2012
Apr 2014
171
208
208
Apr 2005
Apr 2007
Apr 2007
Apr 2012
Apr 2014
Apr 2014
151
171
Apr 2005
Apr 2007
Apr 2012
Apr 2014
208
208
Apr 2007
Apr 2007
Apr 2014
Apr 2014
No share options were granted to or exercised by Directors during the year.
Share options are granted to Directors in accordance with the terms of reference of the Remuneration Committee (see page 24) 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
26
90070 Churchill pre 2 16/4/09 15:06 Page 27
Phantom Share Scheme
Details of shares options granted under the Phantom Share Scheme are as follows:
Number of
phantom
shares
Number of
phantom
shares
Date of 31 December 31 December
2007
2008
grant
Base
value
Pence
Cap
value
Pence
Dated from
which
exercisable
19.12.07
19.12.07
12.05.08
19.12.07
19.12.07
12.05.08
19.12.07
19.12.07
12.05.08
15,000
15,000
10,000
15,000
15,000
10,000
15,000
15,000
10,000
15,000
15,000
–
15,000
15,000
–
15,000
15,000
–
300
300
284
300
300
284
300
300
284
550
700
684
550
700
684
550
700
684
Dec 2010
Dec 2011
May 2012
Dec 2010
Dec 2011
May 2012
Dec 2010
Dec 2011
May 2012
Expiry
date
Dec 2012
Dec 2012
May 2013
Dec 2012
Dec 2012
May 2013
Dec 2012
Dec 2012
May 2013
D J S Taylor
D M O’Connor
I T Hicks
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 187.5p (2007: 307.5p). The range of prices for the year
to 31 December 2008 was 307.5p to 180p (2007: 245p to 342p) per ordinary share.
The options granted to R N Grundy under the Phantom Share Scheme lapsed on 28 April 2008.
page
27
90070 Churchill pre 2 16/4/09 15:06 Page 28
Report of the Remuneration Committee
(continued)
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
2008
£
–
–
–
––––––––
–
––––––––
––––––––
2007
£
9,300
7,990
28,550
––––––––
45,840
––––––––
––––––––
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.
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.
Change in
benefit over
the year
(excl inflation)
£
–
–
–
–
–
––––––––
–
––––––––
––––––––
Accrued
benefit
£
98,478
26,374
25,906
12,300
15,675
––––––––
178,733
––––––––
––––––––
Capital
value of
increase
£
–
–
–
–
–
––––––––
–
––––––––
––––––––
page
28
90070 Churchill pre 2 16/4/09 15:06 Page 29
Pensions (continued)
A D Roper
D J S Taylor
D M O’Connor
R N Grundy
I T Hicks
Increase in
benefit over
the year
(incl inflation)
£
Transfer
value at
31 December
2008
£
Transfer
value at
31 December
2007
£
Increase in
transfer value
less Directors’
contributions
£
–
–
–
–
–
––––––––––
–
––––––––––
––––––––––
1,516,024
276,678
210,443
119,688
69,906
––––––––––
2,192,739
––––––––––
––––––––––
1,597,056
324,623
246,481
115,304
95,421
––––––––––
2,378,885
––––––––––
––––––––––
(81,032)
(47,945)
(36,038)
4,384
(25,515)
––––––––––
(186,146)
––––––––––
––––––––––
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
2008 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 transfer value of the change 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.
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 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 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 (until resignation)
I T Hicks
2008
£
11,293
11,293
3,640
8,167
––––––––
34,393
––––––––
––––––––
2007
£
10,669
10,663
10,663
7,122
––––––––
39,117
––––––––
––––––––
page
29
90070 Churchill pre 2 16/4/09 15:06 Page 30
Report of the Remuneration Committee
continued
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 has a service contract 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 and I T Hicks were
signed on 21 March 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 2008 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 2008 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
I T Hicks
J W Morgan
2008
£
864,930
13,500
25,000
5,599
38,100
2,500
28,000
––––––––
977,629
––––––––
––––––––
2007
£
864,930
12,000
25,000
5,599
29,100
2,500
8,000
––––––––
947,129
––––––––
––––––––
A D Roper’s non-beneficial shareholdings included above at 31 December 2008 were 202,500 (2007: 202,500) 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 2008 represented 7.9% (2007: 7.9%) of the
Company’s issued share capital.
There has been no change in the interests set out above between 31 December 2008 and 31 March 2009.
page
30
90070 Churchill pre 2 16/4/09 15:06 Page 31
Performance graph
This section of the Report of the Remuneration Committee is not audited.
Total Shareholder Return
AIM
Churchill
FTSE Fledgling
300
200
100
0
2003
2004
2005
2006
2007
2008
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. Whilst total returns
in the year have also been affected by the general fall in Company valuations, our overall five year return has remained positive at an
average compound rate of over 6%. Over the five year period total shareholder return from the Company has been 33%, whilst that
achieved by the AIM index as a whole was -50% and the FTSE Fledgling 1%. In the year to 31 December 2008 the overall return from
the Company was -36%, the AIM index achieved a -62% return and the FTSE Fledgling index -39%.
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 2009
page
31
90070 Churchill pre 2 16/4/09 15:06 Page 32
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 2008 the Company was in full compliance with the provisions
of section 1 of the Combined Code except in a limited number of areas as discussed in the following paragraphs.
The Board of Directors
The Board is currently composed of four 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.
A D Roper
D J S Taylor
R S Kettel
D M O’Connor
J N E Sparey
R N Grundy (until resignation)
I T Hicks
J W Morgan
Meetings
held
Meetings
attended
13
13
13
13
13
4
13
13
13
13
11
13
12
4
11
13
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 Chief Executive Officer
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
32
90070 Churchill pre 2 16/4/09 15:06 Page 33
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 Group and the Company have
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 2009
page
33
90070 Churchill pre 2 16/4/09 15:06 Page 34
Independent Auditors’ Report to the Members
of Churchill China plc
We have audited the Group and Company financial statements (the ‘financial statements’) of Churchill China plc for the year
ended 31 December 2008 which comprise the Consolidated Income Statement, the Consolidated Statement of Recognised Income
and Expense, the Consolidated and 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 financial statements in accordance with applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union, and for preparing the 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 in respect of the Annual Report and the financial statements.
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 Report of the
Remuneration Committee, the Corporate Governance report and all of the other information listed on the contents page. 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 2008 and of its profit and cash flows for the year then ended;
● the Company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting
Practice, of the state of the Company’s affairs as at 31 December 2008;
● the Group and 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 2009
page
34
90070 Churchill pre 2 16/4/09 15:06 Page 35
Consolidated Income Statement
for the year ended 31 December 2008
Notes
Before
exceptional
items
2008
£’000
Exceptional
items
2008
£’000
Before
exceptional
items
2007
£’000
Exceptional
items
2007
£’000
Total
2008
£’000
Total
2007
£’000
Revenue
Operating profit before
exceptional item
Exceptional item
Operating profit after
exceptional item
Share of results of associate company
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Attributable to equity
holders of the company
Earnings per ordinary share
Diluted earnings per share
4
5
5
4
8
8
10
11
11
41,969
––––––––
–
––––––––
41,969
––––––––
46,930
––––––––
–
––––––––
46,930
––––––––
2,804
–
––––––––
–
–
––––––––
2,804
––
––––––––
3,230
––––––––
–
798
––––––––
3,230
798
––––––––
2,804
(71)
658
(29)
––––––––
3,362
(938)
––––––––
–
–
–
–
––––––––
–
(919)
––––––––
2,804
(71)
658
(29)
––––––––
3,362
(1,857)
––––––––
3,230
120
730
(36)
––––––––
4,044
(1,147)
––––––––
798
–
–
–
––––––––
798
–
––––––––
4,028
120
730
(36)
––––––––
4,842
(1,147)
––––––––
2,424
––––––––
(919)
––––––––
1,505
––––––––
2,897
––––––––
798
––––––––
3,695
––––––––
1,505
––––––––
13.8p
13.7p
––––––––
3,695
––––––––
33.8p
33.6p
––––––––
All the above figures relate to continuing operations.
The notes on pages 41 to 75 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 £24,000 (2007: £65,000).
page
35
90070 Churchill pre 2 16/4/09 15:06 Page 36
Consolidated Statement of Recognised
Income and Expense
for the year ended 31 December 2008
Net of tax:
Actuarial (loss)/gain on defined benefit obligations (note 22)
Currency translation differences
Impact of change in UK tax rate on deferred tax (note 10)
Net (loss)/income recognised directly in equity
Profit for the year
Total recognised income for the year
Attributable to:
Equity holders of the company
2008
£’000
(1,022)
43
–
––––––––
(979)
1,505
––––––––
526
––––––––
2007
£’000
1,655
3
26
––––––––
1,684
3,695
––––––––
5,379
––––––––
526
––––––––
5,379
––––––––
There are no movements to be recognised through the parent Company statement of total recognised gains and losses in 2008 or 2007
and therefore no statement has been presented.
page
36
90070 Churchill pre 2 16/4/09 15:06 Page 37
Consolidated Balance Sheet
as at 31 December 2008
Assets
Non current assets
Property, plant and equipment
Intangible assets
Investment in associate
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
Treasury shares
Other reserves
Retained earnings
Total equity
Notes
2008
£’000
2007
£’000
13
14
15
21
18
19
20
21
22
23
23
24
25
26
13,889
397
743
586
––––––––
15,615
––––––––
8,477
8,631
7,738
––––––––
24,846
––––––––
40,461
––––––––
(7,466)
(689)
––––––––
(8,155)
––––––––
(1,640)
(2,055)
––––––––
(11,850)
––––––––
28,611
––––––––
1,095
2,332
(138)
1,236
24,086
––––––––
28,611
––––––––
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
––––––––
The notes on pages 41 to 75 are an integral part of these consolidated financial statements.
The financial statements on pages 35 to 75 were approved by the Board of Directors on 31 March 2009 and were signed on its behalf by:
A D Roper
D J S Taylor } Directors
page
37
90070 Churchill pre 2 16/4/09 15:06 Page 38
Company Balance Sheet
as at 31 December 2008
Fixed assets
Investment in associate
Investments in subsidiaries
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
Treasury shares
Other reserves
Profit and loss account
Total shareholders’ funds
Notes
15
16
19
19
20
23
23
24
25
26
2008
£’000
355
2,195
––––––––
2,550
––––––––
10,181
137
495
––––––––
10,813
(26)
––––––––
10,787
––––––––
13,337
––––––––
13,337
––––––––
1,095
2,332
(138)
47
10,001
––––––––
13,337
––––––––
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
––––––––
The notes on pages 41 to 75 are an integral part of these consolidated financial statements.
The financial statements on pages 35 to 75 were approved by the Board of Directors on 31 March 2009 and were signed on its behalf by:
A D Roper
D J S Taylor } Directors
page
38
90070 Churchill pre 2 16/4/09 15:06 Page 39
Consolidated Cash Flow Statement
for the year ended 31 December 2008
Cash flow from operating activities
Cash generated from operations (see note page 40)
Interest received
Interest paid
Income tax paid
Net cash generated 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
Purchase of treasury shares
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange gains on cash and cash equivalents
Cash and cash equivalents at the end of the year
2008
£’000
2,502
444
(29)
(483)
––––––––
2,434
––––––––
(4,199)
107
(382)
–
––––––––
(4,474)
––––––––
22
(160)
(1,531)
––––––––
(1,669)
––––––––
(3,709)
11,440
7
––––––––
7,738
––––––––
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
––––––––
page
39
90070 Churchill pre 2 16/4/09 15:06 Page 40
Reconciliation of Operating Profit to
Net Cash Inflow from Continuing Activities
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)
Changes in working capital:
Inventories
Trade and other receivables
Trade and other payables
Net cash inflow from operations
2008
£’000
2,804
1,070
(35)
23
(240)
(1,817)
1,021
(324)
––––––––
2,502
––––––––
2007
£’000
4,028
1,002
(719)
3
(240)
197
505
1,531
––––––––
6,307
––––––––
page
40
90070 Churchill notes 16/4/09 15:30 Page 41
Notes to the Financial Statements
for the year ended 31 December 2008
1 Summary of significant accounting policies
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 1985/2006 applicable to companies reporting under IFRS. The consolidated 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) Interpretations effective in 2008
IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’, 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. This interpretation
does not currently have any impact on the Group’s financial statements, as the Group has a pension deficit and is not subject
to any minimum funding requirements.
IFRIC 11, ‘IFRS 2 – Group and treasury share transactions’, 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’s financial statements. The Company’s accounting policy for share
based compensation arrangements is already in compliance with the interpretation.
(b) Interpretations effective in 2008 but not relevant
The following interpretation to published standards is mandatory for accounting periods beginning on or after 1 January 2008
but is not relevant to the Group’s operations:
●
●
IFRIC 12, ‘Service concession arrangements’; and
IFRIC 13, ‘Customer loyalty programmes’.
(c) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted
by the Group
The following standards and amendments to existing standards have been published and are mandatory for the Group’s
accounting periods beginning on or after 1 January 2009 or later periods, but the Group has not early adopted them:
●
IFRS 8, ‘Operating segments’, replaces IAS 14, ‘Segment reporting’, 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. This standard is not likely to result in any change in the reporting of segmental performance.
page
41
90070 Churchill notes 16/4/09 15:30 Page 42
Notes to the Financial Statements
for the year ended 31 December 2008
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 (continued)
●
IAS 19 (amendment), ‘Employee benefits’, (effective from 1 January 2009. The amendment to the standard is still subject to
endorsement by the EU.
– The amendment clarifies that a plan amendment that results in a change in the extent to which benefit promises
are affected by future salary increases is a curtailment, while an amendment that changes benefits attributable to
past service gives rise to a negative past service cost if it results in a reduction in the present value of the defined benefit
obligation.
– The definition of return on plan assets has been amended to state that plan administration costs are deducted in the
calculation of return on plan assets only to the extent that such costs have been excluded from measurement of the
defined benefit obligation.
– The distinction between short term and long term employee benefits will be based on whether benefits are due
to be settled within or after 12 months of employee service being rendered.
The Group will apply the IAS 19 (amendment) from 1 January 2009, subject to endorsement by the EU. The amendment is not
expected to have an impact on the Company’s financial statements as it does not currently operate a defined benefit obligation.
●
●
●
●
●
●
●
●
●
●
●
IAS 23 (amendment), ‘Borrowing costs’ (effective from 1 January 2009). The amendment to the standard is still subject
to endorsement by the EU. It requires an entity to capitalise borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset as part of the cost of that asset. The option of immediately expensing those
borrowing costs will be removed. The Group and Company will apply IAS 23 (amendment) retrospectively from
1 January 2009, subject to endorsement by the EU.
IAS 1 (revised), ‘Presentation of financial statements’ (effective from 1 January 2009).
IFRS 2 (amendment), ‘Share-based payment’ (effective from 1 January 2009).
IFRS 3 (revised), ‘Business combinations’ (effective from 1 July 2009).
IFRS 5 (amendment), ‘Non-current assets held-for-sale and discontinued operations’, (and consequential amendment
to IFRS 1, ‘First-time adoption’) (effective from 1 July 2009).
IAS 28 (amendment), ‘Investments in associates’ (and consequential amendments to IAS 32, ‘Financial Instruments:
Presentation’, and IFRS 7, ‘Financial instruments: Disclosures’) (effective from 1 January 2009).
IAS 36 (amendment), ‘Impairment of assets’, (effective from 1 January 2009).
IAS 38 (amendment), ‘Intangible assets’, (effective from 1 January 2009).
IAS 39 (amendment), ‘Financial instruments: Recognition and measurement’ (effective from 1 January 2009).
IAS 1 (amendment), ‘Presentation of financial statements’, (effective from 1 January 2009).
There are a number of minor amendments to IFRS 1 ‘First time adoption of IFRS’, IFRS 7, ‘Financial instruments:
Disclosures’, IAS 8, ‘Accounting policies, changes in accounting estimates and errors’, IAS 10, ‘Events after the reporting
period’, IAS 18, ‘Revenue’, IAS 27 ‘Consolidated and separate financial statements’, IAS 32 ‘Financial instruments:
Presentation’, IAS 34, ‘Interim financial reporting’ and IFRIC 16 ‘ Hedges of a net investment in a foreign operation’.
The amendments to the standards are still subject to endorsement by the EU. These amendments, are unlikely to have
an impact on the Group or Company’s accounts and have, therefore, not been analysed in detail.
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90070 Churchill notes 16/4/09 15:30 Page 43
1 Summary of significant accounting policies (continued)
(d) Interpretations and amendments to existing standards that are not yet effective and not relevant for the Group’s operations
The following interpretations and amendments to existing standards have been published and are mandatory for the Group’s
accounting periods beginning on or after 1 January 2009 or later periods but are not relevant for the Group’s operations:
●
●
●
●
IAS 27 (amendment), ‘Consolidated and separate financial statements’ (effective from 1 January 2009).
IAS 28 (amendment), ‘Investments in associates’ (and consequential amendments to IAS 32, ‘Financial Instruments:
Presentation’ and IFRS 7, ‘Financial instruments: Disclosures’) (effective from 1 January 2009).
IAS 38 (amendment), ‘Intangible assets’ (effective from 1 January 2009).
The minor amendments to IAS 16 (amendment), ‘Property, plant and equipment’ , IAS 20 ‘Accounting for government
grants and disclosure of government assistance’, and IAS 29, ‘Financial reporting in hyperinflationary economies’, IAS 31
(amendment), ‘Interests in joint ventures’, IAS 40, ‘Investment property’, and IAS 41, ‘Agriculture’, IFRIC 15, ‘Agreements
for construction of real estates’. These amendments will not have an impact on the Group or Company’s operations as
described above.
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
and associates 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.
(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.
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43
90070 Churchill notes 16/4/09 15:30 Page 44
Notes to the Financial Statements
for the year ended 31 December 2008
1 Summary of significant accounting policies (continued)
(b) Associates (continued)
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.
Dilution in gains and losses arising in investments in associates are recognised in the income statement.
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 IAS 17 -
Leases. 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, material increases or reductions in pension scheme costs
and material increases or decreases in taxation 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.
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90070 Churchill notes 16/4/09 15:30 Page 45
1 Summary of significant accounting policies (continued)
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.
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.
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45
90070 Churchill notes 16/4/09 15:30 Page 46
Notes to the Financial Statements
for the year ended 31 December 2008
1 Summary of significant accounting policies (continued)
Foreign currencies (continued)
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.
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.
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90070 Churchill notes 16/4/09 15:30 Page 47
1 Summary of significant accounting policies (continued)
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, which comprise 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.
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.
page
47
90070 Churchill notes 16/4/09 15:30 Page 48
Notes to the Financial Statements
for the year ended 31 December 2008
1 Summary of significant accounting policies (continued)
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.
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.
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90070 Churchill notes 16/4/09 15:30 Page 49
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 2008, 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 £46,000 (2007: £68,000) 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 £8,000 (2007: £6,000) 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 £195,000 (2007: £227,000) higher/lower, 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 2008, 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 (2007: £9,000) higher/lower. Other components of equity would have been unchanged.
(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.
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49
90070 Churchill notes 16/4/09 15:30 Page 50
Notes to the Financial Statements
for the year ended 31 December 2008
2 Financial risk management (continued)
Financial risk factors (continued)
Cash and cash equivalents are as follows:
Lloyds Banking Group plc
National Westminster Bank plc
Other
£’000
740
6,613
385
–––––––
7,738
–––––––
–––––––
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 limited credit risk (see note 19).
(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.
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90070 Churchill notes 16/4/09 15:30 Page 51
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.
(a) 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 £306,000 (2007: £209,000).
(b) Pension benefits:
The present value of the pension obligations on a number of factors that are determined on an actuarial basis using a number
of assumptions. The assumptions used in determining the net cost or income for pensions include the discount rate. Any changes
in these assumptions will impact the carrying amount of pension obligations.
The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to
determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In
determining the appropriate discount rate the Group considers the interest rates of high quality corporate bonds that are
denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms
of the related pension liability.
Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed
in note 22.
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
Operating profit
Share of results of associated company
Finance income
Profit before income tax
Income tax expense
Profit for the period
31 December 2008
Hospitality
£’000
Retail Unallocated
£’000
£’000
24,952
–––––––
3,668
17,017
–––––––
1,709
–
–––––––
–
(2,573)
–––––––
(2,573)
(71)
629
–––––––
Group
£’000
41,969
–––––––
5,377
(2,573)
–––––––
2,804
(71)
629
–––––––
3,362
(1,857)
–––––––
1,505
–––––––
–––––––
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51
90070 Churchill notes 16/4/09 15:30 Page 52
Notes to the Financial Statements
for the year ended 31 December 2008
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 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 the centralised functions of the parent Company
board, finance and administration and information technology.
There are no material inter-segment revenues.
Other segment items included in the income statement are as follows:
Depreciation and amortisation
Depreciation and amortisation
31 December 2008
Hospitality
£’000
Retail Unallocated
£’000
£’000
650
–––––––
–––––––
239
–––––––
–––––––
181
–––––––
–––––––
31 December 2007
Hospitality
£’000
Retail Unallocated
£’000
£’000
579
–––––––
–––––––
235
–––––––
–––––––
188
–––––––
–––––––
Group
£’000
1,070
–––––––
–––––––
Group
£’000
1,002
–––––––
–––––––
Segment assets consist primarily of property, plant and equipment, inventories, trade and other receivables and trade and other
payables. 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.
Capital expenditure comprises additions to property, plant and equipment (note 13) and intangible assets (note 14).
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90070 Churchill notes 16/4/09 15:30 Page 53
4 Segmental analysis (continued)
Segment assets and liabilities at 31 December 2008 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
19,390
–
–––––––
19,390
–––––––
3,283
–––––––
3,636
–––––––
10,301
–
–––––––
10,301
–––––––
2,479
–––––––
190
–––––––
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
10,027
743
–––––––
10,770
–––––––
6,087
–––––––
755
–––––––
Assets
£’000
29,691
2,446
586
7,738
–
–
–––––––
40,461
–––––––
–––––––
Group
£’000
39,718
743
–––––––
40,461
–––––––
11,849
–––––––
4,581
–––––––
Liabilities
£’000
5,762
1,703
1,640
–
689
2,055
–––––––
11,849
–––––––
–––––––
Segment assets and liabilities at 31 December 2007 and capital expenditure for the year ended on that date are as follows:
Assets
Associates
Total assets
Liabilities
Capital expenditure
Hospitality
£’000
Retail Unallocated
£’000
£’000
17,044
–
–––––––
17,044
–––––––
4,257
–––––––
1,063
–––––––
8,762
–
–––––––
8,762
–––––––
1,676
–––––––
208
–––––––
13,065
814
–––––––
13,879
–––––––
4,021
–––––––
167
–––––––
Group
£’000
38,871
814
–––––––
39,685
–––––––
9,954
–––––––
1,438
–––––––
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53
90070 Churchill notes 16/4/09 15:30 Page 54
Notes to the Financial Statements
for the year ended 31 December 2008
4 Segmental analysis (continued)
Segment assets 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
Assets
£’000
25,806
2,121
318
11,440
–
–
–––––––
39,685
–––––––
–––––––
Liabilities
£’000
5,933
1,846
592
–
493
1,090
–––––––
9,954
–––––––
–––––––
Any sales between segments are carried out on an arms length basis. Revenue from external parties is measured in a manner
consistent with the income statement.
(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
2008
£’000
27,538
8,236
3,165
3,030
–––––––
41,969
–––––––
–––––––
2007
£’000
30,114
9,106
4,974
2,736
–––––––
46,930
–––––––
–––––––
The total assets of the business are allocated as follows:
United Kingdom £39,781,000 (2007: £38,886,000), Rest of Europe £64,000 (2007: £8,000), North America £564,000
(2007: £739,000), Other £52,000 (2007: £52,000).
Capital expenditure was made as follows:
United Kingdom £4,580,000 (2007: £1,429,000), Other £1,000 (2007: £9,000).
page
54
90070 Churchill notes 16/4/09 15:30 Page 55
5 Expenses by nature
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
Before
exceptional
items
2007
£’000
Exceptional
items
2007
£’000
26
2,806
16,592
23,195
1,002
79
–––––––
43,700
–––––––
–––––––
–
–
–
–
–
(798)
–––––––
(798)
–––––––
–––––––
Total
2008
£’000
(1,810)
2,325
15,817
21,798
1,070
(35)
–––––––
39,165
–––––––
–––––––
Total
2007
£’000
26
2,806
16,592
23,195
1,002
(719)
–––––––
42,902
–––––––
–––––––
Exceptional items
Please refer to note 10 for disclosures relating to the exceptional taxation provision made in 2008.
The profit on disposal of property recognised in 2007 was in relation to the sale of surplus land at Sandyford in November 2007.
A taxation charge of £nil was 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 2007.
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.
2008
Number
372
227
–––––––
599
–––––––
–––––––
2007
Number
413
225
–––––––
638
–––––––
–––––––
page
55
90070 Churchill notes 16/4/09 15:30 Page 56
Notes to the Financial Statements
for the year ended 31 December 2008
7 Employee benefit expense
Staff costs (for the employees shown in note 6)
Wages and salaries
Social security costs
Defined contribution pension cost (see note 22)
Other pension costs (see note 22)
Share options granted to directors and employees (see note 25)
2008
£’000
13,972
1,200
459
163
23
–––––––
15,817
–––––––
–––––––
2007
£’000
14,748
1,249
434
158
3
–––––––
16,592
–––––––
–––––––
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.
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, 2007: £1,500)
Non-audit services – taxation advice
page
56
2008
£’000
444
214
–––––––
658
–––––––
(29)
–
–––––––
(29)
–––––––
629
–––––––
–––––––
2008
£’000
69
7
34
–––––––
110
–––––––
–––––––
2007
£’000
491
239
–––––––
730
–––––––
(14)
(22)
–––––––
(36)
–––––––
694
–––––––
–––––––
2007
£’000
65
17
26
–––––––
108
–––––––
–––––––
90070 Churchill notes 16/4/09 15:30 Page 57
10 Income tax expense
Group
Current tax
Deferred tax (note 21)
Origination and reversal of temporary differences
Origination of temporary differences – exceptional
Impact of change in UK tax rate
2008
£’000
2007
£’000
680
528
258
919
–
–––––––
1,857
–––––––
–––––––
626
–
(7)
–––––––
1,147
–––––––
–––––––
During the year, the UK tax regime in relation to Industrial Buildings Allowances (IBAs) was changed following the enactment
of certain provisions contained in the Finance Act 2008. As a result IBAs will now be phased out in the period 2008 to 2011.
The Group has provided £919,000 (2007: £nil) for the deferred tax liability arising from this change and the charge has been
treated as exceptional. There was no cash outflow in relation to this change in the year.
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:
Profit before income tax
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
Deferred tax on withdrawal of IBAs (see above)
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
2008
£’000
2007
£’000
3,362
4,842
959
–
20
–
919
–
–
(41)
–––––––
1,857
–––––––
–––––––
1,439
(31)
31
(240)
–
(49)
(7)
4
–––––––
1,147
–––––––
–––––––
The weighted average applicable tax rate was 28.5% (2007: 30%).
There was no tax on the exceptional profit from sale of land in 2007 due to the offset of capital losses.
During the year a credit of £397,000 (2007: charge of £724,000 less a credit of £26,000 in relation to the revaluation reserve)
in relation to deferred tax arising from actuarial gains and losses on the Group’s defined benefit pension obligation were adjusted
directly within equity.
page
57
90070 Churchill notes 16/4/09 15:30 Page 58
Notes to the Financial Statements
for the year ended 31 December 2008
11 Earnings per ordinary share
The basic earnings per ordinary share is based on the profit after income tax and on 10,923,038 (2007: 10,933,561) 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 property, plant and equipment and the recognition of deferred liabilities. The Directors believe that
adjusted earnings per share more closely reflects the underlying performance of the Group.
Basic earnings per share (Based on earnings £1,505,000 (2007: £3,695,000))
Adjustments – exceptional items:
Profit on disposal of property, plant and equipment
Deferred taxation – Industrial Buildings Allowances (note 10)
Adjusted earnings per share
2008
Pence per
share
2007
Pence per
share
13.8
33.8
–
8.4
–––––––
22.2
–––––––
–––––––
(7.3)
–
–––––––
26.5
–––––––
–––––––
Diluted basic earnings per ordinary share is based on the profit after income tax and on 10,965,990 (2007: 11,007,289) ordinary
shares, being the weighted average number of ordinary shares in issue during the year of 10,923,038 (2007: 10,933,561)
increased by 42,952 (2007: 73,728) 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 property, plant and equipment and the recognition of deferred tax liabilities.
Diluted basic earnings per share (Based on earnings £1,505,000
(2007: £3,695,000))
Adjustments – exceptional items:
Profit on disposal of property, plant and equipment
Deferred taxation – Industrial Buildings Allowances (note 10)
Diluted adjusted earnings per share
12 Dividends
The dividends paid in the year were as follows:
Ordinary
Final 2007 9.2p per 10p ordinary share (Final 2006: 8.1p)
Interim 2008 4.8p per 10p ordinary share paid (Interim 2007: 4.5p)
2008
Pence per
share
2007
Pence per
share
13.7
33.6
–
8.4
–––––––
22.1
–––––––
–––––––
2008
£’000
1,007
524
–––––––
1,531
–––––––
–––––––
(7.3)
–
–––––––
26.3
–––––––
–––––––
2007
£’000
883
492
–––––––
1,375
–––––––
–––––––
A final dividend of 9.2p per 10p ordinary share for the year to 31 December 2008 will be proposed at the Annual General
Meeting amounting to a total dividend of £1,003,000. These financial statements do not reflect the final dividend to be
proposed at the Annual General Meeting.
page
58
90070 Churchill notes 16/4/09 15:30 Page 59
13 Property, plant and equipment
The Company has no property, plant and equipment. Details of those relating to the Group are as follows:
Group
At 1 January 2007
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
Year ended 31 December 2008
Opening net book amount
Additions
Disposals
Depreciation charge (note 5)
Closing net book amount
At 31 December 2008
Cost
Accumulated depreciation
Net book amount
Freehold
land and
buildings
£’000
9,611
(1,451)
–––––––
8,160
–––––––
–––––––
8,160
18
(173)
(142)
–––––––
7,863
–––––––
–––––––
9,436
(1,573)
–––––––
7,863
–––––––
–––––––
7,863
2,067
–
(143)
–––––––
9,787
–––––––
–––––––
11,503
(1,716)
–––––––
9,787
–––––––
–––––––
Plant
£’000
14,158
(12,491)
–––––––
1,667
–––––––
–––––––
1,667
1,072
(78)
(508)
–––––––
2,153
–––––––
–––––––
14,523
(12,370)
–––––––
2,153
–––––––
–––––––
2,153
1,478
–
(573)
–––––––
3,058
–––––––
–––––––
14,696
(11,638)
–––––––
3,058
–––––––
–––––––
Motor
vehicles
£’000
782
(262)
–––––––
520
–––––––
–––––––
520
213
(49)
(151)
–––––––
533
–––––––
–––––––
880
(347)
–––––––
533
–––––––
–––––––
533
300
(72)
(177)
–––––––
584
–––––––
–––––––
956
(372)
–––––––
584
–––––––
–––––––
Fixtures
and
fittings
£’000
3,407
(3,061)
–––––––
346
–––––––
–––––––
346
110
(17)
(175)
–––––––
264
–––––––
–––––––
2,185
(1,921)
–––––––
264
–––––––
–––––––
264
354
–
(158)
–––––––
460
–––––––
–––––––
1,946
(1,486)
–––––––
460
–––––––
–––––––
Total
£’000
27,958
(17,265)
–––––––
10,693
–––––––
–––––––
10,693
1,413
(317)
(976)
–––––––
10,813
–––––––
–––––––
27,024
(16,211)
–––––––
10,813
–––––––
–––––––
10,813
4,199
(72)
(1,051)
–––––––
13,889
–––––––
–––––––
29,101
(15,212)
–––––––
13,889
–––––––
–––––––
page
59
90070 Churchill notes 16/4/09 15:30 Page 60
Notes to the Financial Statements
for the year ended 31 December 2008
14 Intangible assets
The Company has no intangible fixed assets. Details of these relating to the Group are as follows:
Group
At 1 January 2007
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
Year ended 31 December 2008
Opening net book amount
Additions
Amortisation charge (note 5)
Closing net book amount
At 31 December 2008
Cost
Accumulated amortisation and impairment
Net book amount
page
60
Computer
software
£’000
171
(136)
–––––––
35
–––––––
–––––––
35
25
(26)
–––––––
34
–––––––
–––––––
196
(162)
–––––––
34
–––––––
–––––––
34
382
(19)
–––––––
397
–––––––
–––––––
578
(181)
–––––––
397
–––––––
–––––––
90070 Churchill notes 16/4/09 15:30 Page 61
15 Investment in associate
Cost
At 1 January
Share of (loss)/profit
Dividends received during the year
At 31 December
Impairment
At 1 January
Impairment of investment in associate
At 31 December
Net book value
Closing net book amount
Group
Company
2008
£’000
1,487
(20)
–
–––––––
1,467
–––––––
–––––––
673
51
–––––––
724
–––––––
–––––––
743
–––––––
–––––––
2007
£’000
1,470
120
(103)
–––––––
1,487
–––––––
–––––––
673
–
–––––––
673
–––––––
–––––––
814
–––––––
–––––––
2008
£’000
355
–
–
–––––––
355
–––––––
–––––––
–
–
–––––––
–
–––––––
–––––––
355
–––––––
–––––––
2007
£’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
2008
£’000
1,932
(417)
–––––––
1,515
–––––––
–––––––
2007
£’000
2,047
(504)
–––––––
1,543
–––––––
–––––––
The total revenue of Furlong Mills Limited for its year ended 31 December 2008 was £5,928,000 (2007: £6,533,000) and loss
before tax was £124,000 (2007: profit £505,000). During the year the Group purchased raw materials to a value of £1,672,000
(2007: £2,045,000) from Furlong Mills Limited.
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 the year reflects management’s view of the ongoing benefits that could be derived from the
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
61
90070 Churchill notes 16/4/09 15:30 Page 62
Notes to the Financial Statements
for the year ended 31 December 2008
16 Investment in subsidiary undertakings
Cost or valuation
At 1 January and 31 December 2008
Impairment
At 1 January 2008
Impairment during the year
At 31 December 2008
Net book value
At 31 December 2008
Company
2008
£’000
Company
2007
£’000
2,627
–––––––
–––––––
424
8
–––––––
432
–––––––
–––––––
2,195
–––––––
–––––––
2,627
–––––––
–––––––
424
–
–––––––
424
–––––––
–––––––
2,203
–––––––
–––––––
The above impairment reduces the carrying value of the Company’s investment in a number of dormant 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
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
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.
page
62
90070 Churchill notes 16/4/09 15:30 Page 63
17 Available for sale financial assets
Cost
At 1 January and 31 December 2008
Impairment
At 1 January and 31 December 2008
Net book value
At 1 January and 31 December 2008
Group
Available
for sale
financial
assets
£’000
22
–––––––
22
–––––––
–
–––––––
–––––––
Company
Other
investments
£’000
43
–––––––
43
–––––––
–
–––––––
–––––––
The above represents 35.9% (2007: 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 and does not exercise significant influence over
Shraff Management Limited, taking into account other large third party shareholdings.
18 Inventories
The Company has no stocks. Details of stocks relating to the Group are as follows:
Raw materials
Work in progress
Finished goods
2008
£’000
33
530
7,914
–––––––
8,477
–––––––
–––––––
2007
£’000
26
736
5,898
–––––––
6,660
–––––––
–––––––
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 £24,622,000 (2007:
£28,112,000).
page
63
90070 Churchill notes 16/4/09 15:30 Page 64
Notes to the Financial Statements
for the year ended 31 December 2008
19 Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Other
Prepayments
Receivables from related parties
Less non-current portion: loans to related parties
Current portion
Group
Company
2008
£’000
8,559
(108)
–––––––
8,451
5
175
–
–––––––
8,631
–
–––––––
8,631
–––––––
–––––––
2007
£’000
9,221
(9)
–––––––
9,212
5
389
–
–––––––
9,606
–
–––––––
9,606
–––––––
–––––––
2008
£’000
–
–
–––––––
–
–
–
10,318
–––––––
10,318
10,181
–––––––
137
–––––––
–––––––
2007
£’000
–
–
–––––––
–
–
–
11,971
–––––––
11,971
11,847
–––––––
124
–––––––
–––––––
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 2008, trade receivables of £7,570,000 (2007: £8,109,000) were fully performing.
As of 31 December 2008, trade receivables of £867,000 (2007: £1,073,000) 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
2008
£’000
795
53
19
–––––––
867
–––––––
–––––––
2007
£’000
1,036
14
23
–––––––
1,073
–––––––
–––––––
As of 31 December 2008 trade receivables with a gross value of £122,000 (2007: £39,000) were impaired and provided for.
The amount of provision for 31 December 2008 was £108,000 (2007: £9,000). 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
Over 6 months
2008
£’000
107
15
–––––––
122
–––––––
–––––––
2007
£’000
33
6
–––––––
39
–––––––
–––––––
The Directors consider that the carrying value of trade and other receivables is approximate to their fair value.
page
64
90070 Churchill notes 16/4/09 15:30 Page 65
19 Trade and other receivables (continued)
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
2008
£’000
9
108
(9)
–––––––
108
–––––––
–––––––
2007
£’000
23
9
(23)
–––––––
9
–––––––
–––––––
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 are within trade and other receivables do not contain impaired assets.
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
Pounds
Euros
US dollar
2008
£’000
6,258
763
1,610
–––––––
8,631
–––––––
–––––––
2007
£’000
7,417
1,300
889
–––––––
9,606
–––––––
–––––––
During the year the Group had gains of £652,000 (2007: £50,000) on 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 £1,298,000 (2007:
£575,000) and the sale of US dollars of £696,000 (2007: £nil). These contracts are held at their fair value with a loss of £149,000
(2007: £12,000) recognised in relation to the contracts outstanding at the year end.
Company
As of 31 December 2008, Company receivables from related parties of £10,318,000 (2007: £11,971,000) were fully performing.
The carrying amounts of the Company’s receivables are denominated in the following currencies:
Pounds
US dollar
2008
£’000
10,289
29
–––––––
10,318
–––––––
–––––––
2007
£’000
11,956
15
–––––––
11,971
–––––––
–––––––
page
65
90070 Churchill notes 16/4/09 15:30 Page 66
Notes to the Financial Statements
for the year ended 31 December 2008
20 Trade and other payables
Trade payables
Amounts due to related parties
Social security and other taxes
Accrued expenses
Group
Company
2008
£’000
3,432
45
578
3,411
–––––––
7,466
–––––––
–––––––
2007
£’000
2,192
114
1,000
4,473
–––––––
7,779
–––––––
–––––––
2008
£’000
–
13
10
3
–––––––
26
–––––––
–––––––
2007
£’000
–
13
25
1
–––––––
39
–––––––
–––––––
All the above liabilities mature within twelve months from 31 December 2008.
Note 19 shows the losses/gains on forward option contracts that have been recognised in the Income Statement. As at
31 December the Group held forward exchange contracts for the purchase of US dollars of £nil (2007: £122,000).
These contracts are held at their fair value with a gain of £nil (2007: £4,000) recognised in relation to the contracts
outstanding at the year end.
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 (net)
The gross movement on the deferred income tax account is as follows:
At 1 January 2008
Income statement charge (note 10)
Tax credited/(charged) directly to equity (note 26)
At 31 December 2008
page
66
2008
£’000
576
10
–––––––
586
–––––––
(1,637)
(3)
–––––––
(1,640)
–––––––
(1,054)
–––––––
–––––––
2008
£’000
(274)
(1,177)
397
–––––––
(1,054)
–––––––
–––––––
2007
£’000
182
136
–––––––
318
–––––––
(559)
(33)
–––––––
(592)
–––––––
(274)
–––––––
–––––––
2007
£’000
1,043
(619)
(698)
–––––––
(274)
–––––––
–––––––
90070 Churchill notes 16/4/09 15:30 Page 67
21 Deferred income tax (continued)
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 2007
Charged to the income statement
Credited directly to equity
At 31 December 2007
Charged to the income statement
At 31 December 2008
Deferred tax assets
At 1 January 2007
Charged to the income statement
Charged directly to equity
At 31 December 2007
Charged to the income statement
Credited directly to equity
At 31 December 2008
Accelerated
tax
depreciation
£’000
Land and
buildings
revaluation
£’000
172
67
–
–––––––
239
1,050
–––––––
1,289
–––––––
–––––––
Retirement
benefit
obligation
£’000
(1,184)
153
724
–––––––
(307)
128
(397)
–––––––
(576)
–––––––
–––––––
382
–
(29)
–––––––
353
(2)
–––––––
351
–––––––
–––––––
Other
£’000
(413)
402
–
–––––––
(11)
1
–
–––––––
(10)
–––––––
–––––––
2008
£’000
(397)
–
–––––––
(397)
–––––––
–––––––
Total
£’000
554
67
(29)
–––––––
592
1,048
–––––––
1,640
–––––––
–––––––
Total
£’000
(1,597)
555
724
–––––––
(318)
129
(397)
–––––––
(586)
–––––––
–––––––
2007
£’000
724
(26)
–––––––
698
–––––––
–––––––
The deferred income tax (credited)/charged to equity during the past year is as follows:
Fair value reserves in shareholders’ equity:
Tax on actuarial (loss)/gain on retirement benefits scheme
Impact of change in UK tax rate on deferred tax
Deferred income tax of £2,000 (2007: £3,000) was transferred from other reserves (note 25) to retained earnings (note 26). 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 has not recognised deferred income tax assets of £1,511,000 (2007: £1,511,000) in
respect of capital losses amounting to £5,395,000 (2007: £5,395,000) that can be carried forward against future capital gains.
page
67
90070 Churchill notes 16/4/09 15:30 Page 68
Notes to the Financial Statements
for the year ended 31 December 2008
22 Retirement benefit obligations
Balance sheet obligations
Pension benefits
Income statement credit
Pension benefits
2008
£’000
2007
£’000
2,055
–––––––
1,090
–––––––
––
–––––––
–––––––
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 £622,000
(2007: £592,000 less an exceptional credit of £1,150,000 re curtailment benefits giving a net credit of £428,000). Of this cost
£nil (2007: credit of £nil), related to the Churchill Group Retirement Benefit Scheme, £180,000 (2007: £160,000) was in respect
of the Churchill China 1999 Pension Scheme and £274,000 (2007: £271,000) 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 (2007: £20,000).
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 (2007: £240,000) was made in respect of the
amortisation of past service liabilities. The forward funding rate of the Scheme was agreed with the Scheme Trustees and Actuary
following the completion of the 31 May 2008 triennial actuarial valuation in March 2009. The Group expects to make payments
of £391,000 in 2009 and £498,000 per annum thereafter in respect of the amortisation of past service deficits.
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:
At 1 January 2008
Interest cost
Actuarial gains
Benefits paid
At 31 December 2008
page
68
2008
£’000
25,275
(23,220)
–––––––
2,055
–––––––
–––––––
2008
£’000
29,209
1,694
(5,044)
(584)
–––––––
25,275
–––––––
–––––––
2007
£’000
29,209
(28,119)
–––––––
1,090
–––––––
–––––––
2007
£’000
30,960
1,579
(2,571)
(759)
–––––––
29,209
–––––––
–––––––
90070 Churchill notes 16/4/09 15:30 Page 69
22 Retirement benefit obligations (continued)
The movement in the fair value of plan assets over the year is as follows:
At 1 January 2008
Expected return on plan assets
Actuarial losses
Employer contributions
Benefits paid
At 31 December 2008
Plan assets are comprised as follows:
Equity investments
Debt investments
Other
2008
£’000
12,545
4,756
5,919
–––––––
23,220
–––––––
–––––––
54%
20%
26%
2007
£’000
19,701
2,584
5,834
–––––––
28,119
–––––––
–––––––
70%
9%
21%
2007
£’000
27,012
1,818
(192)
240
(759)
–––––––
28,119
–––––––
–––––––
75%
7%
18%
2008
£’000
28,119
1,908
(6,463)
240
(584)
–––––––
23,220
–––––––
–––––––
2006
£’000
20,215
1,893
4,904
–––––––
27,012
–––––––
–––––––
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:
Interest cost
Expected return on plan assets
Net credit recognised in finance income
The actual loss on plan assets was £4,555,000 (2007: return £1,618,000).
2008
£’000
1,694
(1,908)
–––––––
(214)
–––––––
–––––––
2007
£’000
1,579
(1,818)
–––––––
(239)
–––––––
–––––––
page
69
90070 Churchill notes 16/4/09 15:30 Page 70
Notes to the Financial Statements
for the year ended 31 December 2008
22 Retirement benefit obligations (continued)
A history of experience gains and losses, since the adoption of IAS19, 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 expense (SORIE):
Amount
Percentage of present value of scheme liabilities
The principal actuarial 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
2008
£’000
6,463
28%
–––––––
372
1%
–––––––
1,419
6%
–––––––
2008
% per
annum
6.6%
2.9%
6.0%
2.9%
2.9%
–––––––
2007
£’000
(200)
1%
–––––––
(192)
1%
–––––––
2,379
8%
–––––––
2007
% per
annum
5.8%
3.2%
6.8%
3.2%
3.2%
–––––––
2006
£’000
839
3%
–––––––
310
1%
–––––––
1,110
4%
–––––––
2006
% per
annum
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
2008
Number
20.7
24.0
–––––––
2007
Number
20.2
23.1
–––––––
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
2008
Number
22.6
26.0
–––––––
2007
Number
21.3
24.0
–––––––
Sensitivity
A sensitivity analysis has been carried out on effect of varying certain assumptions within the calculation of retirement benefit obligations.
The effect of a 0.25% increase/decrease in the Discount rate to 6.85% would be to reduce/increase scheme liabilities by £1,194,000 (4.7%).
The effect of a 0.25% increase/decrease in inflation to 3.15% would increase/decrease scheme liabilities by £898,000 (3.6%).
The effect of a 1 year increase to life expectancy would increase scheme liabilities by £539,000 (2.1%). The effect of a 1 year
reduction in life expectancy would be to reduce scheme liabilities by £568,000 (2.2%).
page
70
90070 Churchill notes 16/4/09 15:30 Page 71
23 Issued share capital and premium
Group and Company
At 1 January 2007
Employee share option schemes
At 31 December 2007
Employee share option schemes
At 31 December 2008
Number
of shares
000s
10,902
46
–––––––
10,948
–
–––––––
10,948
–––––––
–––––––
Ordinary
shares
£’000
Share
premium
£’000
1,090
5
–––––––
1,095
–
–––––––
1,095
–––––––
–––––––
2,266
66
–––––––
2,332
–
–––––––
2,332
–––––––
–––––––
The total authorised number of ordinary shares is 14,300,000 (2007: 14,300,000) with a par value of 10p (2007: 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
30 April 2004
208p
208p
12
110,000
3
25%
10
5
–––––––
4.8%
5.2%
24p
–––––––
page
71
90070 Churchill notes 16/4/09 15:30 Page 72
Notes to the Financial Statements
for the year ended 31 December 2008
23 Issued share capital and premium (continued)
The following options exercisable over ordinary shares were outstanding at 31 March 2009:
Number of shares
The Executive share option scheme
2008
2007
Exercise
price
Date from
which
exercisable
Expiry
date
2,000
47,000
2,000
47,000
151p December 2003 December 2010
April 2014
208p
April 2007
The unapproved Executive share option scheme
12,500
21,500
40,000
43,000
–––––––
166,000
–––––––
–––––––
12,500
21,500
53,000
53,000
–––––––
189,000
–––––––
–––––––
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 2008 is set out below.
Outstanding at 1 January
Forfeited/lapsed
Exercised
Outstanding at 31 December
Exercisable at 31 December
2008
Number
‘000
189,000
(10,000)
(13,000)
–––––––
166,000
–––––––
166,000
–––––––
–––––––
2008
Weighted
average
exercise
price
184.6p
208.0p
171.0p
–––––––
184.3p
–––––––
184.3p
–––––––
–––––––
2007
Number
‘000
234,750
–
(45,750)
–––––––
189,000
–––––––
89,000
–––––––
–––––––
2007
Weighted
average
exercise
price
178.7p
–
154.1p
–––––––
184.6p
–––––––
158.3p
–––––––
–––––––
There were no share options granted during the year.
2008
2008
2008
2008
Weighted Weighted
2007
2007
Weighted
average
exercise
price
118.5p
163.6p
208.0p
Number
‘000
12,500
63,500
90,000
100p-149p
150p-199p
200p-250p
average
remaining
life
remaining
life
(expected) (contractual)
average Weighted
average
exercise
price
0.0
0.0
0.3
1.3
2.9
5.3
118.5p
164.9p
208.0p
Number
‘000
12,500
76,500
100,000
2007
2007
Weighted Weighted
average
remaining
life
(contractual)
average
remaining
life
(expected)
0.0
0.0
1.3
2.3
3.9
6.3
The weighted average share price for options exercised in the period was 171.0p (2007: 154.1p). The total charge during the year for
employee share based payment plans was £nil (2007: £3,000), all of which related to equity settled share based payment transactions.
page
72
90070 Churchill notes 16/4/09 15:30 Page 73
24 Treasury shares
As at 1 January 2008
Purchase of own shares
Re-issue of shares
As at 31 December 2008
£’000
–
160
(22)
–––––––
138
–––––––
–––––––
During the year the Group repurchased 58,400 10p ordinary shares and re-issued 13,000 of these under employee share option
schemes. The Group currently holds 45,400 shares in Treasury.
25 Other reserves
Group
Balance at 1 January 2007
Depreciation transfer – gross
Depreciation transfer – tax
Change in UK tax rates
Share based payment
Currency translation
Balance at 31 December 2007
Depreciation transfer – gross
Depreciation transfer – tax
Share based payment
Currency translation
Balance at 31 December 2008
Land and
buildings
revaluation
£’000
Currency
translation
£’000
893
(12)
3
26
–
–
–––––––
910
(12)
2
–
–
–––––––
900
–––––––
–––––––
(10)
–
–
–
–
3
–––––––
(7)
–
–
–
43
–––––––
36
–––––––
–––––––
Share
based
payment
£’000
21
–
–
–
3
–
–––––––
24
–
–
23
–
–––––––
47
–––––––
–––––––
Other
reserves
£’000
253
–
–
–
–
–
–––––––
253
–
–
–
–
–––––––
253
–––––––
–––––––
Total
£’000
1,157
(12)
3
26
3
3
–––––––
1,180
(12)
2
23
43
–––––––
1,236
–––––––
–––––––
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 took 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 £47,000 (2007: £24,000) represent provision for share based payment as shown in the above table.
page
73
90070 Churchill notes 16/4/09 15:30 Page 74
Notes to the Financial Statements
for the year ended 31 December 2008
26 Retained earnings
At 1 January 2007
Profit for the year
Dividends paid in 2007
Depreciation transfer on land and buildings net of tax
Actuarial gains net of tax
At 31 December 2007
At 1 January 2008
Profit for the year
Dividends paid in 2008
Depreciation transfer on land and buildings net of tax
Actuarial losses net of tax
At 31 December 2008
27 Commitments
Group
£’000
21,140
3,695
(1,375)
9
1,655
–––––––
25,124
–––––––
–––––––
25,124
1,505
(1,531)
10
(1,022)
–––––––
24,086
–––––––
–––––––
Company
£’000
12,829
65
(1,375)
–
–
–––––––
11,519
–––––––
–––––––
11,519
13
(1,531)
–
–
–––––––
10,001
–––––––
–––––––
Capital commitments
Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:
Property, plant and equipment
Intangible assets: Computer software
Group
Company
2008
£’000
1,632
220
–––––––
1,852
–––––––
–––––––
2007
£’000
1,051
–
–––––––
1,051
–––––––
–––––––
2008
£’000
–
–
–––––––
–
–––––––
–––––––
2007
£’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
2008
£’000
2007
£’000
Company
2008
£’000
2007
£’000
50
–––––––
–––––––
98
–––––––
–––––––
–
–––––––
–––––––
–
–––––––
–––––––
17
11
–––––––
–––––––
26
52
–––––––
–––––––
–
–
–––––––
–––––––
–
–
–––––––
–––––––
page
74
90070 Churchill notes 16/4/09 15:30 Page 75
28 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 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 from Furlong Mills Limited
Subsidiaries
Management charge to Churchill China, Inc
Interest received from Churchill China, Inc
Interest received from Churchill China (UK) Limited
Loans repaid – Churchill China (UK) Limited
Loans outstanding at the year end (mainly Churchill China (UK) Limited)
2008
£’000
–
–––––––
7
1
18
1,684
10,318
–––––––
2007
£’000
103
–––––––
5
–
9
1,388
11,971
–––––––
29 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 2008 and 2007.
page
75
90070 Churchill notes 16/4/09 15:30 Page 76
Five Year Financial Record
Turnover
47,752
44,835
45,930
46,930
41,969
2004
UK GAAP
£’000
2005
UK GAAP
£’000
2006
IFRS
£’000
2007
IFRS
£’000
2008
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 property and exceptional items
Exceptional items
Profit on disposal of property
Profit before taxation
Income tax expense
Income tax expense – exceptional
Profit after taxation
Dividends
Net assets employed
Ratios
Operating margin before exceptional items
Basic earnings per share (p)
Adjusted earnings per share (p)
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
–––––––
–––––––
2,804
(71)
629
–––––––
3,362
–
–
–––––––
3,362
(938)
(919)
–––––––
1,505
–––––––
(1,531)
–––––––
28,612
–––––––
–––––––
6.7%
13.8
22.2
–––––––
–––––––
The adjusted earnings per share is based on the profit on ordinary activities after taxation and adjusted to take into account exceptional
items, profit on disposal of fixed assets and the recognition of 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
76
90070 Churchill notes 16/4/09 15:30 Page 77
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 Tuesday 19 May 2009 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.
That the reports of the Directors and the Auditors and the Financial Statements for the year ended 31 December 2008 be
received.
That, as recommended by the Directors, a final dividend of 9.2p on each ordinary share for the year ended 31 December 2008
be declared.
That J N E Sparey be re-elected as a Director.
That D J S Taylor 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 2009.
That the Directors’ Remuneration Report for the year ended 31 December 2008 be approved.
That the phantom share scheme contained in the document produced to the Meeting and initialled by the Chairman for the
purpose of identification be approved.
Special Business
To consider and, if thought fit, to pass the following resolutions which will be proposed as special
resolutions:
8.
That 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 of the Company passed on 21 May 2008, 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 £54,512;
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.
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Notice of Annual General Meeting
continued
9.
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 1,090,247 representing
approximately 10 per cent of the present issued share capital of the Company (excluding treasury shares);
(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 Alternative Investment
Market section of 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.
10.
That with effect from 00.01am on 1 October 2009:
(a)
the Articles of Association of the Company be amended by deleting all the provisions of the Company’s Memorandum of
Association which, by virtue of section 28 Companies Act 2006, are to be treated as provisions of the Company’s Articles
of Association; and,
(b)
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.
11.
That a general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice.
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 21 April 2009
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90070 Churchill notes 16/4/09 15:30 Page 79
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,
West Sussex BN99 6DA, 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.
2.
3.
4.
5.
6.
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 Articles of Association (both
existing and as proposed to be adopted).
Item 7 in the Notice of Annual General Meeting is a resolution to approve a new phantom share scheme for the Company. The share option schemes
previously used by the Company have now expired and the Directors wish to adopt a new scheme in order to provide long term incentives to employees.
The proposed scheme is identical, in all material respects, including likely levels of grant and performance conditions to the Churchill China plc Phantom
Share Scheme approved by the Company on 13 May 1998, updated to take account of legislative changes and changes in practice. A copy of the new
scheme is available on the Company’s website www.churchillchina.plc.uk.
Item 8 in the notice of Annual General Meeting is a special resolution to empower the Directors at any time prior to the conclusion of the 2010 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 £54,512
(equivalent to 545,123 ordinary shares, representing approximately 5 per cent of the present issued share capital excluding treasury shares). 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 which
was granted at the 2008 Annual General Meeting up to 3,612,799 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 9 in the notice of Annual General Meeting is a special resolution to allow the Company at any time prior to the conclusion of the 2010 Annual General
Meeting to repurchase up to 1,090,247 ordinary shares (representing approximately 10 per cent of the present issued share capital excluding treasury shares).
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 10 in the Notice of Annual General Meeting is a resolution to adopt new Articles of Association (“ the New Articles”) in order to update the Company’s
current Articles of Association primarily to take account of the implementation on 1 October 2009 of the last part of the Companies Act 2006. The resolution
adopting the New Articles will only become effective on 1 October 2009.
The principal changes being proposed in the New Articles are summarised below. Other changes, which are of a minor, technical or clarifying nature, have
not been noted.
The New Articles showing all the changes to the current Articles are available for inspection as set out in note 2 above and on the Company’s website
www.churchillchina.plc.uk.
(a) Article 3: this is an express statement regarding the limited liability of the shareholders. This is required to be inserted here as a result of the removal of
the Company’s objects clause together with all other provisions of its Memorandum of Association;
(b) Deletion of Article 4: the Companies Acts 2006 abolishes the requirement for a company to have an authorised share capital and the deletion of these
Articles reflects this. Directors will still be limited as to the number of shares they can at any time allot because allotment authority continues to be
required under the Companies Act 2006, save in respect of employee share schemes;
(c) Article 6: the Companies Act 2006 enables directors to determine the terms and manner of redemption of any redeemable shares a company may wish to
issue provided they are so authorised by the Articles. Article 6 has been amended to provide this authorisation. The Company has no plans to issue
redeemable shares but if it did so the Directors would need shareholders’ authority to issue new shares in the usual way;
(d) Deletion of Article 36: under the Companies Act 2006, share transfers must be registered as soon as practicable. The power in Article 36 to suspend the
registration of transfers is inconsistent with this requirement and has been deleted accordingly;
(e) Article 41: this Article has been expanded for the sake of completeness and certainty;
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Notice of Annual General Meeting
continued
(f) Amendment of Article 43, and deletion of Articles 45 and 46: under the Companies Act 2006, a company will only require shareholder authority to
purchase its own shares, to consolidate or sub-divide its shares and to reduce its share capital or other undistributable reserves, and it will no longer be
necessary for articles to contain enabling provisions in this respect. Accordingly the relevant enabling provisions have been amended or deleted;
(g) Article 89: this has been amended to reflect the approach taken on mental and physical incapacity in the model articles for public companies produced
by the Department for Business, Enterprise and Regulatory Reform;
(h) Article 109: the Companies Act 2006 provides that the powers of the directors of a company to make provision for a person employed or formerly
employed by the company or any of its subsidiaries in connection with the cessation or transfer to any person of the whole or any part of the undertaking
of the company or that subsidiary, may only be exercised by the directors if they are so authorised by the company’s articles or by the company in general
meeting. The New Articles provide that the Directors may exercise this power;
(i) Deletion of Articles 126.1 and 127.1: when introduced into the Articles at the 2008 Annual General Meeting, these Articles anticipated legislative
changes to take effect on 1 October 2008. With the passage of time, it is now appropriate to delete Articles 126.1 and 127.1;
(j) Article 131.1 (b): the New Articles provide an alternative option for execution of documents (other than share certificates). Under the New Articles, when
the seal is affixed to a document it may be signed by one authorised person in the presence of a witness, whereas previously the requirement was for
signature by either a director and the secretary, or two directors, or such other person or persons as the directors may approve;
(k) Deletion of Article 137: after 1 October 2009 a company will no longer require authority in its articles to have an official seal for use abroad, and this
authority is deleted accordingly.
7.
8.
Item 11 in the Notice of Annual General Meeting is required to reflect the proposed implementation in August 2009 of the Shareholders Rights Directive.
The regulation implementing this Directive will increase the notice period for general meetings of the Company to 21 days. The Company is currently able
to call general meetings (other than an AGM) on 14 days clear notice and would like to preserve this ability. In order to be able to do so after August 2009,
shareholders must have approved the calling of meetings on 14 days’ notice. Resolution 10 seeks such approval. The approval will be effective until the
Company’s next annual general meeting when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements
for electronic voting under the Directive before it can call a general meeting on 14 days’ notice.
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 15 May 2009 (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
80
China plc
China plc
Churchill China plc
Marlborough Pottery, High Street, Tunstall, Stoke-on-Trent, ST6 5NZ
www.churchillchina.com
© Churchill China plc 2009
China plc
90070 Planned CVR.indd 1
16/04/2009 14:52