China plc
China plc
Churchill China plc
Marlborough Pottery, High Street, Tunstall, Stoke-on-Trent, ST6 5NZ
www.churchillchina.com
©Churchill China plc 2011
Annual Report
2010
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Financial Highlights
Five Year Performance
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
Comprehensive Income
Consolidated Balance Sheet
Company Balance Sheet
Consolidated Statement of
Changes in Equity
1
2
3
4
6
8
12
13
14
24
32
34
36
37
38
39
40
Consolidated Cash Flow Statement 41
Reconciliation of Operating Profit to
Net Cash from Operating Activities
42
Notes to the
Financial Statements
Five Year Financial Record
43
76
Notice of Annual General Meeting
77
Above: Disney 100 Acre Wood
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Results
Revenue – continuing operations
Operating profit – continuing operations
Share of results of associate company
Net finance cost
Profit before income tax
Dividends paid
Key Ratios
Operating margin
Basic earnings per share
Diluted earnings per share
Dividends paid per share
2010
£’000
2009
£’000
43,746
41,705
2,287
162
(135)
2,314
1,529
5.2%
15.8p
15.8p
14.0p
2,288
(18)
(201)
2,069
1,526
5.5%
14.3p
14.2p
14.0p
Above: Alchemy Rush
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06
07
08
09
10
06
07
08
09
10
06
07
08
09
10
45.9
46.9
42.0
41.7
43.7
Revenue (£m)
0
10
20
30
40
50
3,082
3,362
4,044
2,069
2,314
0
1
2
3
4
5
Profit before exceptional items (£’000)
20.5
22.2
26.5
14.3
15.8
Adjusted basic
earnings per share (p)
0
5
10
15
20
25
30
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CHURCHILL CHINA plc
DIRECTORS, SECRETARY AND ADVISERS
EXECUTIVE
DIRECTORS
A D Roper
D J S Taylor
D M O’Connor
I T Hicks
NON EXECUTIVE
DIRECTORS
J N E Sparey *•
J W Morgan *•
A J McWalter *•
SECRETARY
AND REGISTERED
OFFICE
D J S Taylor ACA
Marlborough Pottery
High Street
Tunstall
Stoke-on-Trent
Staffordshire
ST6 5NZ
INDEPENDENT
AUDITORS
PricewaterhouseCoopers LLP
Cornwall Court
19 Cornwall Street
Birmingham
B3 2DT
BANKERS
Lloyds Banking Group plc
8th Floor
40 Spring Gardens
Manchester
M2 1EN
REGISTRARS
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6ZX
SOLICITORS
Addleshaw Goddard
100 Barbirolli Square
Manchester
M2 3AB
STOCKBROKERS
AND ADVISERS
Brewin Dolphin Limited
34 Lisbon Street
Leeds
LS1 4LX
* Member of audit committee
• Member of remuneration committee
Registered no: 2709505
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“Churchill China made steady progress in 2010”
INTRODUCTION
I am pleased to report that Churchill China made
tax profits were up 11% at £2.3m despite negligible
steady progress in 2010 with a clear recovery from the
financial income from our average circa £5m cash
previous year. In particular, sales and profitability in our
balances. The second half of 2010 again contributed
core Hospitality business recovered strongly from 2009
almost 75% of the Group’s operating profitability and the
levels although this was offset by a materially weaker
new financial year has started positively.
contribution from our Retail business. Our consolidated
Group revenues were up 5% against last year and pre-
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Above Left: Queens Mugs
Above Top Right: Churchill Profile
Above: Bottom Right: Churchill Options
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Above: Alchemy Buffet
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Group revenues increased by 5% to £43.7m (2009:
expansion of working capital, particularly inventories,
£41.7m) reflecting
increased demand
from our
which increased from £7.1m to £8.2m principally to
Hospitality customers in the UK and abroad, partially
support demand growth in our Hospitality business.
offset by weaker demand from our Retail customers
In addition, receivables increased by £0.9m at the year
worldwide.
end, a position which has subsequently reversed.
Group operating profit was flat at £2.3m (2009: £2.3m)
We
incurred capital expenditure of £1.6m
(2009:
but pre-tax profit was almost 11% higher at £2.3m
£2.4m) as we continued to invest selectively in our UK
(2009: £2.1m).
manufacturing base to improve efficiency and increase
operational flexibility.
Overall margins were slightly lower than 2009 reflecting
both higher production costs incurred in meeting
The deficit in our defined benefit scheme reduced to
demand and building inventory levels in anticipation of
more manageable levels as higher investment returns
future sales within our Hospitality business, together
continued through the year and assumptions in relation
with a more competitive Retail environment.
to long term inflation rates moderated.
Financial income improved from 2009’s figure although
DIVIDEND AND SHAREHOLDER RETURN
net interest receipts remain constrained by poor returns
on invested cash. We again had a notional charge of
Having seen a modest recovery in 2010 we are confident
£0.2m (2009: £0.3m) arising from our pension fund as a
of further progress and the Board is therefore pleased to
result of low discount rates.
recommend a final dividend of 9.2p per share. Together
Earnings per share increased by 10% to 15.8p (2009:
a total dividend declared in respect of 2010 of 14.0p
14.3p).
compared to 14.0p per share in 2009.
with the interim dividend paid last October, this gives
We continue to generate an acceptable level of cash from
We have continued to generate long term shareholder
operations although this was reduced in 2010 compared
returns from both capital appreciation and dividend
to the previous year. Over the medium term we continue
income and are pleased that we have delivered a
to generate cash in line with our operating profit.
compound total return to shareholders in excess of 16%
Cash balances were £4.4m (2009: £6.9m) reflecting an
p.a. over the last five years.
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6
Above Left: Art De Cuisine Rustics Simmer
Above Centre: Art De Cuisine Illuminate
Above Right: Riedel Vinum
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“We have continued to generate long term shareholder
returns from both capital appreciation and dividend income”
Above: Churchill Just Desserts
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“Demand from our Hospitality customers was
strong throughout 2010”
HOSPITALITY
Demand from our Hospitality customers was strong
centres in the Middle East and Eire. We believe that our
throughout 2010, with sales for the year 11% ahead at
design capability and breadth of product range played a
£27.4m (2009: £24.6m). The net contribution to Group
key role in securing this business.
increased from £3.3m to £4.1m as a direct result of the
improved sales levels.
Investment
in new product development coupled
Our position in the UK, where Churchill is the clear
capabilities will continue to be allocated to markets
market
leader, continued to strengthen and we
and sectors where we believe Churchill sales have the
increased sales during the year to £17.3m (2009:
potential to grow in the long term.
with continued expansion of our sales and marketing
£16.4m). Underlying demand from a broad spectrum
of customers had started to improve in the second half
The new ‘Profile’ range was launched in January 2010
of 2009 and this trend continued in robust fashion on a
and has proved to be very popular across a wide range
month by month basis right up to the end of November
of customers and countries. Profile combines the high
2010. As is well documented, bad weather affected
performance characteristics of our ‘Super Vitrified’
travel, hospitality and retail activity in December across
range but is lighter and more fashionable.
much of the UK and sales in this key period for our
Dining Out business were materially impacted by the
In December 2010 we commissioned a new showroom
conditions. Our restaurant, hotel and pub customers,
at the Business Design Centre, Islington. Already a
in the habit of taking advantage of Churchill’s superb
great success with end users and distributors alike,
service, tend to place orders for their ceramics at the
this facility enables us to improve our coverage of the
last minute.
all important London market and has the show space
required to display our entire ceramic offering alongside
Export sales improved sharply by 23% to £10.1m (2009:
the prestige Riedel glassware range which is targeted at
£8.2m) reflecting a strong recovery in our performance
premium hotels and restaurants.
in many key overseas markets, including continental
Europe and North America. During 2010 the Churchill
export sales team won a number of major contracts for
several prestige new sporting venues and conference
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Above: Alchemy Moonstone & Buffet
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“Prompt action to both reduce our cost base and
refocus our business”
RETAIL
Sales to our Retail customers worldwide were down
pressures in volume channels, we are withdrawing from
by just under 5% at £16.3m (£17.1m). The pace of
bespoke lines when margins are unsustainable. All our
the decline in sales of bespoke own label products,
attention is now concentrated on the sale of branded and
mainly to our major UK supermarket customers, was
licensed ranges at margins that are sustainable in the
materially faster than we had expected. In addition,
medium and long term. In this respect it is pleasing to
margins were adversely impacted by higher input prices
note that the decline in sales through volume accounts
from overseas suppliers. As a result there was a sharp
was nearly offset by the continued improvement in our
decline in the Retail division’s net contribution to Group
sales to the middle market where we continue to perform
central costs from £1.7m to £0.7m as we were unable to
well with brand licences including Cath Kidston, Jamie
create suitable replacement activity in the period.
Oliver, Disney and Alex Clark.
The disappointing Retail performance has stimulated
We will be reducing inventory levels throughout 2011 and
a thorough review of our activity in this sector and we
continuing to reshape the business around a profitable
have taken prompt action to both reduce our cost base
core of activity where we have a value proposition that
and refocus our business. As a result of aggressive price
customers are willing to pay for.
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Above: Cath Kidston Crush Mugs
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“Churchill are industry leaders in firing technology”
OPERATIONS
2010 was a challenging year for the Manufacturing and
use of its potential to gain benefit across a wide range
Operations team at Churchill.
of business activities especially those that are market,
customer and cost related.
We completed the £1m installation of the energy
efficient Eisenmann kiln complete with its robotic
Our all important service levels were maintained but
handling and placing devices. Churchill are industry
at the cost of some manufacturing inefficiencies as
leaders in firing technology and currently once fire
Hospitality rose above expected levels. Operational
5.5m cups, mugs and bowls per annum. Consumers
efficiency has now recovered and we have begun to
are increasingly aware of carbon footprint issues
reduce costs in this area.
and we are working continuously to lower our energy
consumption.
Our sourcing team has done well to manage our supply
Our new fully integrated computer system became
by strong GDP growth particularly in China. We do not
fully operational in April. Our objective is to make full
expect this situation to ease in the short to medium term.
base despite inflationary and labour issues created
Above: Jamie Oliver Fluted Blue
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“We have some great people whose enthusiasm, ideas
and effort are fundamental to Churchill’s success”
We have some great people whose enthusiasm, ideas
particular I would like to highlight Derek Stevenson who
and effort are fundamental to Churchill’s success in a
has now been with the Company for 50 years.
complex and challenging environment. At one end of the
spectrum we have a highly active graduate recruitment
On a separate note, I am particularly pleased to welcome
scheme which has brought into our business a valuable
Alan McWalter (appointed in January 2011) to the
injection of talent and energy to complement the
Board as a non executive Director who brings extensive
considerable experience of more senior executives. In
marketing and retail experience to the Company.
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Above: Churchill Zen
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“I am confident Churchill will continue to deliver
enhanced shareholder value in 2011 and beyond”
We are confident that our long term strategy of
new demand. Our Retail business will continue to
investment in all aspects of our Hospitality business will
be reshaped during this year as we seek to restore
continue to deliver results, driving an expected increase
performance to acceptable levels.
in market share in the UK, a continued recovery in
European accounts and contributing to an improved
Our markets will continue to provide challenges;
performance in 2011.
however, our long term business plan, strong balance
sheet and record of cash generation will allow us to
We have identified a number of specific projects in
both invest in our business and maintain an attractive
manufacturing that will improve production efficiency
return to shareholders. I am confident that Churchill
and give us the technical ability to sustain our new
will continue to deliver enhanced shareholder value in
product development programme and support the
2011 and beyond.
increasing demands for operational flexibility imposed
by the marketplace.
Jonathan Sparey
Chairman
There are opportunities to expand both our Hospitality
29 March 2011
ceramic and non ceramic product offering to meet
Above Top: Art De Cuisine Menu Theatre
Above: Art De Cuisine Menu Nori
Above Right: Art De Cuisine Menu Sizzle
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The Directors present their annual report and the audited consolidated financial statements of the Group for the year ended
31 December 2010.
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 36.
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 4 and
Business Review section of this report on page 8.
Dividends
The Directors have paid the following dividends in respect of the years ended 31 December 2010 and 31 December 2009:
Ordinary dividend:
Second interim dividend 2009 9.2p (2008: 0.0p) per 10p ordinary share
Final dividend 2009 0.0p (2008: 9.2p) per 10p ordinary share
Interim dividend 2010 4.8p (2009: 4.8p) per 10p ordinary share
The Directors now recommend payment of the following dividend:
Ordinary dividend:
Final dividend 2010 9.2p (2009: nil) per 10p ordinary share
Dividends on treasury shares held by the Company are waived.
2010
£’000
1,004
–
525
1,529
2009
£’000
–
1,003
523
1,526
1,005
–
Directors
The Directors of the Company who have served during the year and up to the date of signing of the financial statements are as follows:
J N E Sparey*
A D Roper
D J S Taylor
D M O’Connor
* Non executive
R S Kettel* (retired 19 May 2010)
I T Hicks
J W Morgan*
A J McWalter* (appointed 5 January 2011)
The Directors retiring by rotation are A D Roper and J W Morgan who, being eligible, offer themselves for re-election. The unexpired
terms of the service contracts of A D Roper and J W Morgan are 12 months and 2 months respectively.
A J McWalter was appointed as a Director of the Company on 5 January 2011 and in accordance with the Company’s articles retires at
the next Annual General Meeting. The unexpired term of A J McWalter’s service contract is 32 months.
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J N E Sparey has now served as a non executive Director of the Company for over 9 years and as such is now required under the terms
of the Principles of Good Governance and Code of Best Practice (‘the Combined Code’) to retire and seek re-election as a Director on an
annual basis. The unexpired term of his service contract is 2 months.
The biographical details of the Directors are as follows:
Jonathan Sparey, non executive Chairman, aged 53, 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 62, has worked for the Company since 1973. He has responsibility for the development of
Group strategy and for operational performance and development. He was appointed to his present role in 2007 following on from his
role as Group Managing Director since 1998.
David Taylor, Finance Director and Company Secretary, aged 51, has worked for the Group for 19 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.
David O’Connor, Chief Operating Officer, aged 54, has worked for Churchill for 20 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, Operations Director, aged 41, has worked for the Group in a variety of roles since joining Churchill in 1992. He has led the
Group’s sourcing operation since it was established in 1999 and also manages Information Technology development within the Group.
He was appointed to the Board in 2006.
Jonathan Morgan, non executive Director, aged 53, 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.
Alan McWalter, non executive Director, aged 57, joined the Group in January 2011. He is a Director of several listed and private
companies and has extensive high level experience within marketing roles in a number of major companies in the Retail and Consumer
Goods sectors.
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 63% of our gross revenue, we also enjoy significant sales to Europe and
North America which respectively account for 20% and 10% of our turnover. Almost without exception all of these markets are subject
to a high level of competitive pressure and our costs of operation require constant review and control.
In our Retail markets customers are able to choose from a wide variety of alternative suppliers based both in the UK and overseas.
There are relatively low costs of switching between providers, particularly in volume distribution channels. In middle market distribution
channels, customer relationships are longer term, and whilst these are still subject to price pressure, customers value design, quality
and long term partnerships. In hospitality markets there are higher barriers to entry given the nature and structure of the market which
places a premium on service, quality and technical performance.
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Whilst total market size information is not easily available for our markets, we believe that there has generally been an increase in the
overall size of our markets during the year as global macroeconomic conditions and consumer confidence have improved, particularly
in Hospitality markets. Progress has only been possible given careful management of commercial relationships and a consistent
programme of investment. Retail markets have generally remained more challenging particularly in the volume sector and whilst
markets may have improved overall this has largely been as a result of lower pricing. Forecasts for the UK and our major export markets
suggests that economic growth will be restrained in 2011. Our forward planning process assumes that there will be no major economic
growth in 2011 and we continue to manage our business accordingly.
The cost of imported product has risen through 2010 due to increased inflation in Far Eastern economies and exchange rate issues. Our
UK manufacturing operations remain subject to tight cost control. Labour costs have risen marginally during the year, but are expected
to remain stable during 2011. Energy costs are generally higher than those experienced in the corresponding period of 2010 although
we expect lower utilisation.
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.
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.
Our strategies are designed to allow us to continue our long term record of growth in Hospitality markets and continue the recent success
in middle market retail distribution channels. We aim to continue to supply our long term partners with attractive well designed ceramics.
Design
It is a key strategic aim to design products that meet our end users’ requirements in terms of performance, shape and surface design.
Our target markets require product that is aesthetically appealing whilst also being functional and robust.
We offer a broad range of product satisfying a range of design styles, product types and price points. All our product, whether made
in our own factory 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 believe that our rate
of expenditure in both revenue and capital projects will continue to give us significant advantage.
Quality
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 maintenance of quality systems within manufacturing and operations, we have had to develop working methods with
suppliers to ensure that the product that our customer receives is as they expect. This includes the identification and review of potential
suppliers, and the periodic audit of established partners.
We also measure quality through the review of customer feedback and active involvement with our customers after we have sold product
to them.
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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.
Future outlook
The Board believes that long term demand for hospitality products in developed markets will continue to increase as leisure related
spending grows. There has been a long term expansion in eating out in the UK and the Group intends to continue to extend its leading
UK position whilst investing in the development of export markets.
In the UK we believe that we will continue to reinforce our market leadership based on our programme of introducing new products
specifically targeted at meeting customer requirements. 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. The Group’s established
strategy of developing sales to middle market distribution channels will continue whilst we will increasingly target our efforts within
volume channels towards higher margin accounts.
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. However, the Group will retain a long term, investment led approach to its development.
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 Group will actively manage its market exposure and profitability.
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.
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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 and the purchase of certain products for resale. 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 augmented 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. At present cost levels are generally rising faster in our
supplier base than in our own production facilities. As such we will to continue to improve UK production capability.
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 efficiently.
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 2010: £43.7m (2009: £41.7m).
Sales growth 2010: 5% (2009: -1%).
Our sales to UK customers fell by 3% overall as volume Retail channels became more competitive. This was partially offset by a much
stronger performance in Hospitality markets. We increased our revenue from Europe by 24% where Spain in particular demonstrated a
good recovery. North American sales, which grew by 20% were also strong.
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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 2010: £8.2m (2009: £7.1m).
Following the reduction in inventory achieved in 2009 and aligned to the growth in our sales to Hospitality customers we have increased
production levels and inventory holdings to ensure we maintain customer service levels.
Operating profit and profit before taxation
The level of operating profit and significant factors affecting its delivery are reviewed and controlled on a regular basis.
Operating profit 2010: £2.3m (2009: £2.3m).
Operating profit before tax was maintained despite a loss in margin from a more competitive Retail market as both sales and gross
profit moved forward in our Hospitality division. We incurred additional costs associated with longer term investment in new product
development and in building inventory levels to support increased sales. Operating margins remained acceptable at 5.2% (2009: 5.5%).
The level of profit before tax is reviewed on a monthly basis against previous performance and target levels.
Profit before taxation 2010: £2.3m (2009: £2.1m).
Profit before taxation moved forward by over 11% as operating profits were maintained, notional interest charge associated with our
pension scheme liability reduced and our share of the profit of our associate Company Furlong Mills recovered.
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. 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 2010: £2.3m (2009: £2.3m).
Operating cash generation 2010: £1.1m (2009: £3.4m).
Percentage of operating cash generation to operating profit for the year 48% (2009: 151%).
Three year average percentage of operating cash generation to operating profit 95% (2009: 147%).
Operating cash generation reduced as both inventory and receivables increased. Inventory levels rose to support growth in our Hospitality
business. The rise in receivables reflected both a higher level of business in the fourth quarter and slightly extended payment terms over
the year end. Over a 3 year cycle operating cash generation remains in line with operating profits.
page
19
20494.04 13/04/2011
Proof 3
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 to 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 with over 90% of our weekly paid employees
working to at least one vocational qualification. 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 opportunity. Our engineering and supervisory multi-skilling programmes
are core to us meeting strategic manufacturing objectives. In difficult economic times our focus on training demonstrates our long term
commitment to our workforce and this has helped overall morale, motivation and labour retention.
Our ongoing graduate programme continues to bring high quality recruits to the business. The early members of this programme are
now reaching high levels within the organisation and represent a key part of our management team.
We remain committed to Total Quality Management using Business 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 retraining.
Health and safety
The health and safety of our employees is central to our operations and we invest significant effort and resource to target continuous
improvement. Health and safety is a Board responsibility and receives constant management focus, the Board has access to
appropriately trained and skilled assistance to meet its obligations. Our approach to health and safety is embedded in our day-to-day
working practices. Our health and safety policy is documented and published and we aim to identify and to reduce health and safety risks
associated with our operations to the lowest practical levels.
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 for all our employees.
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 to the energy it consumes and the waste products
produced as part of its operations. Whilst the Company manufactures a product which may be reused 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 run ongoing
programmes to minimise energy usage and waste.
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. We
actively engage within our community through contact with our neighbours and local schools and particularly through local charity
initiatives. We encourage and support our employees to become involved in community and charitable work.
page
20
20494.04 13/04/2011
Proof 3
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 the Group is accredited by 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 has recently established an Australian branch.
Insurance for Directors
The Group maintains insurance for the Directors in respect of their duties as Directors.
Financing
The Group currently has in place access to short term variable rate financing arrangements to provide finance for working capital
requirements should they be required. Long term financing is from equity and retained earnings.
Financial instruments
The Group uses its own cash resources and forward exchange contracts and foreign currency bank accounts to manage its exposure to
exchange rate risk caused by trading activities in currencies other than sterling.
The risk management policy adopted is to regularly review forward foreign currency cash flows, identifying the currency effect of
completed sale and purchase transactions, transactions which have been contracted for but not completed and an assessment of
expected likely forward cash flows. The net currency exposure arising from this review is then managed using forward option contracts.
Net currency exposures are generally covered between 3 and 6 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 include 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.
page
21
20494.04 13/04/2011
Proof 3
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 2011 exceeded
3% of the Company’s issued share capital:
Shareholder
New Landfinance Limited
J A Roper
S Baker
E S & S J Roper
Rensburg Sheppards Investment Management
M J & G Roper
Henderson Global Investors
Number of
ordinary shares
Percentage
2,027,110
1,102,500
1,100,000
847,265
630,869
625,380
440,000
18.6%
10.1%
10.1%
8.2%
6.2%
5.8%
4.0%
Share repurchase
During the year the Company repurchased 32,000 (2009: nil) 10p ordinary shares at a total cost of £91,000 (2009: £nil) in order to
improve overall shareholder return. 35,400 (2009: 10,000) shares were reissued in respect of employee share option schemes for a total
consideration of £49,000 (2009: £21,000). The maximum number of shares held by the Company during the year was 35,400 10p ordinary
shares. The Company retains a power, subject to the fulfilment of certain conditions and as approved at the 2010 Annual General
Meeting, for the further purchase of its own shares.
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 2010 was 36 days (2009: 38 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 (2009: £nil) and £3,000 (2009: £4,000)
respectively. In addition to the above, the Group regularly donates quantities of product to charitable causes. The estimated value of
these donations in 2010 was £9,000 (2009: £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.
page
22
20494.04 13/04/2011
Proof 3
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual 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 in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law). Under Company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss
of the Group for that period. In preparing these financial statements, the Directors are required to:
l select suitable accounting policies and then apply them consistently;
l make judgements and accounting estimates that are reasonable and prudent;
l state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any
material departures disclosed and explained in the Group and parent Company financial statements respectively;
l prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that
the financial statements comply with the Companies Act 2006. 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.
Disclosure of information to auditors
In the case of each of the persons who are Directors at the date of this report, as 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.
Independent auditors
The auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and a resolution that they be reappointed
will be proposed at the Annual General Meeting.
By order of the Board
D J S Taylor
Company Secretary
29 March 2011
page
23
20494.04 13/04/2011
Proof 3
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:
l 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.
l To report and account directly to the Shareholders, on behalf of the Board, for their decisions.
l
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:
l 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 in relation to short term performance
in the form of annual bonus schemes and longer term share based plans.
l 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 J W Morgan, who acts as Chairman, J N E Sparey and A J McWalter, 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
20494.04 13/04/2011
Proof 3
Directors’ emoluments
This section of the Report of the Remuneration Committee is audited. Emoluments of the Directors were as follows:
2010
Executive
A D Roper
D J S Taylor
D M O’Connor
I T Hicks
Non executive
J N E Sparey
R S Kettel
J W Morgan
2009
Executive
A D Roper
D J S Taylor
D M O’Connor
I T Hicks
Non executive
J N E Sparey
R S Kettel
J W Morgan
Performance
bonuses
£
Salary
£
200,000
170,231
184,000
132,333
58,000
12,644
36,000
5,000
10,000
25,000
15,000
–
–
–
Benefits
Aggregate
in kind emoluments
£
£
Aggregate
emoluments
including
pensions
£
Pensions
(see below)
£
1,039
12,959
1,135
1,135
–
–
–
206,039
193,190
210,135
148,468
58,000
12,644
36,000
–
11,916
12,880
9,263
–
–
–
206,039
205,106
223,015
157,731
58,000
12,644
36,000
793,208
55,000
16,268
864,476
34,059
898,535
199,667
164,000
169,000
118,000
58,000
36,000
36,000
20,000
20,000
20,000
10,000
–
–
–
993
15,318
14,121
8,258
–
–
–
220,660
199,318
203,121
136,258
58,000
36,000
36,000
–
11,480
11,830
8,260
–
–
220,660
210,798
214,951
144,518
58,000
36,000
36,000
780,667
70,000
38,690
889,357
31,570
920,927
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. No Director waived emoluments in respect of
the years ended 31 December 2010 and 2009.
Pension costs represent contributions as defined by the London Stock Exchange guidance 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.
page
25
20494.04 13/04/2011
Proof 3
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:
D J S Taylor
Unapproved Executive scheme
Approved Executive scheme
Unapproved Executive scheme
Unapproved Executive scheme
Unapproved Executive scheme
D M O’Connor
Unapproved Executive scheme
Approved Executive Scheme
Unapproved Executive Scheme
I T Hicks
Approved Executive scheme
Unapproved Executive scheme
Number
of options
Number
of options
Date of 31 December 31 December
2010
2009
grant
Exercise
price
pence
Date
from which
exercisable
13.04.00
05.12.00
05.12.00
19.04.02
30.04.04
–
–
–
15,000
10,000
7,500
2,000
20,500
15,000
10,000
118.5
151
151
171
208
Apr 2003
Dec 2003
Dec 2003
Apr 2005
Apr 2007
25,000
55,000
Expiry
date
Apr 2010
Dec 2010
Dec 2010
Apr 2012
Apr 2014
19.04.02
30.04.04
30.04.04
–
4,000
6,000
10,000
4,000
6,000
171
208
208
Apr 2005
Apr 2007
Apr 2007
Apr 2012
Apr 2014
Apr 2014
10,000
20,000
30.04.04
30.04.04
6,000
4,000
6,000
4,000
208
208
Apr 2007
Apr 2007
Apr 2014
Apr 2014
10,000
10,000
No share options were granted to Directors during the year.
On 1 April 2010 D J S Taylor exercised 7,500 share options granted under the Unapproved Executive Share Option Scheme at an exercise
price of 118.5p, 2,000 share options granted under the Executive Share Option Scheme and 20,500 share options under the Unapproved
Executive Share Option Scheme, both at an exercise price of 151p. On the same day D M O’Connor exercised 10,000 share options
granted under the Unapproved Executive Share Option scheme at an exercise price of 171p.
The market price at the date of exercise was 275p.
Share options are granted to Directors in accordance with the terms of reference of the Remuneration Committee (see page [18]) to
provide encouragement to enhance Group performance in the long term and having regard to each employee’s responsibilities, ability
and contribution. The grant of options is made at market value at the date of grant at no cost to the employee.
page
26
20494.04 13/04/2011
Proof 3
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 basic earnings per ordinary share of the
Group of at least 6% above the increase in the Retail Price Index over the 3 year period from the beginning of the financial year in which
the option was granted.
Shares options are granted to other employees; however, these employees are not considered key management as defined by IAS 24.
Phantom Share Scheme
This section of the Report of the Remuneration Committee is audited.
Details of share options granted under the Phantom Share Scheme are as follows:
Number of
Number of
phantom
phantom
shares
shares
Date of 31 December 31 December
2010
2009
grant
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
10,000
15,000
15,000
10,000
15,000
15,000
10,000
Base value
pence
Cap value
pence
300
300
284
300
300
284
300
300
284
550
700
684
550
700
684
550
700
684
Date
from which
exercisable
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 considers that a sustained
improvement in the financial performance of the Group represents an increase in the adjusted basic 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 305p (2009: 275p). The range of prices for the year to
31 December 2010 was 257.75p to 310.0p (2009: 155p to 299.75p) per ordinary share.
page
27
20494.04 13/04/2011
Proof 3
Gains made by Directors on share options
This section of the Report of the Remuneration Committee is audited.
The gains made by the Directors from the exercise of share options during the year, calculated at the market share price at the date of
exercise of the options is as follows:
D J S Taylor
D M O’Connor
Pensions
This section of the Report of the Remuneration Committee is audited.
2010
£
39,638
10,400
50,038
2009
£
–
–
–
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
I T Hicks
The disclosure above is in accordance with London Stock Exchange guidance.
Change in
benefit over
the year
(excl. inflation)
£
–
–
–
–
–
Accrued
benefit
£
116,009
27,350
26,866
16,252
186,477
Capital
value of
increase
£
–
–
–
–
–
Increase in
benefit over
Transfer
value at
Change in
Transfer
value at transfer value
the year 31 December 31 December less Directors’
2009 contributions
£
2010
£
(incl. inflation)
£
£
A D Roper
D J S Taylor
D M O’Connor
I T Hicks
–
–
–
–
–
1,924,740
371,331
281,382
98,210
1,776,247
394,136
302,042
116,154
148,493
(22,805)
(20,660)
(17,944)
2,675,663
2,588,579
87,084
The disclosure above is in accordance with the guidance in the Companies Act 2006.
The accrued benefit above is the amount of pension that would be paid each year on retirement based on service to 31 December 2010
or the date of retirement if earlier.
page
28
20494.04 13/04/2011
Proof 3
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 above 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 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. 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. Contributions made
by the Group were as shown on page 25.
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. All executive Directors have contracts of service which can be
terminated with a notice period of 12 months from the Company or 6 months from the Director. A D Roper’s service contract was signed
on 10 September 2009, D J S Taylor’s on 6 October 2009, D M O’Connor’s on 21 March 2000 and I T Hicks’ on 14 September 2009.
Non executive Directors are appointed on fixed term contracts of 2 or 3 years’ duration. J N E Sparey and J W Morgan signed fixed term
contracts of 2 year’s duration on 19 May 2009. A J McWalter signed a fixed term contract of 3 years duration on 31 December 2010.
There are no defined contractual payments in the event of termination of a Director’s service contract.
page
29
20494.04 13/04/2011
Proof 3
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 2010 in the 10p ordinary shares of the
Company were as follows:
A D Roper
D J S Taylor
D M O’Connor
J N E Sparey
I T Hicks
J W Morgan
A J McWalter
2010
2009
662,430
17,500
5,599
45,600
2,500
28,000
–
864,930
13,500
5,599
43,100
2,500
28,000
–
761,629
957,629
A D Roper’s non-beneficial shareholdings included above at 31 December 2010 were nil (2009: 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 2010 represented 6.1% (2009: 7.9%) of the Company’s
issued share capital.
There has been no change in the interests set out above between 31 December 2010 and 29 March 2011.
page
30
20494.04 13/04/2011
Proof 3
Performance Graph
This section of the Report of the Remuneration Committee is not audited.
Total Shareholder Return
250
200
150
100
50
0
2005
2006
2007
2008
2009
2010
Churchill
AIM
FTSE Fledgling
(Source: Brewin Dolphin)
Over the 5 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 well above that shown by the FTSE Fledgling index. Total returns in the year have been
supported by improved profitability and continuation of our dividend policy. Our overall 5 year return has remained positive at an average
compound rate of over 16%. Over the 5 year period total shareholder return from the Company has been 118%, whilst that achieved by
the AIM index as a whole was -5% and the FTSE Fledgling 48%. In the year to 31 December 2010 the overall return from the Company
was 16%, the AIM index achieved a 44% return and the FTSE Fledgling index 22%.
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 Group.
On behalf of the Board
J W Morgan
Chairman of the Remuneration Committee
29 March 2011
page
31
20494.04 13/04/2011
Proof 3
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 and seeks to comply with the principles of the Code as far as practically possible.
The Board of Directors
The Board is currently composed of 4 executive and 3 non executive Directors and meets at least 11 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, J W Morgan, has
been formally appointed.
The Combined Code recommends that the Boards of listed companies include at least 3 independent non executive Directors. J W
Morgan and A J McWalter are considered to be independent. J N E Sparey is no longer considered to be independent as his period of
service now exceeds 10 years.The Board does not consider this is a material departure from the terms of the Combined Code.
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 (until retirement)
D M O’Connor
J N E Sparey
I T Hicks
J W Morgan
Meetings
held
Meetings
attended
12
12
6
12
12
12
12
12
12
5
11
11
12
11
The Directors consider that the Board of Directors includes key management for all areas of the business and that there are no other
key management which require disclosure.
There are 2 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 currently chaired by J W
Morgan. It is intended that A J McWalter will assume the chairmanship of this Committee after the 2011 Annual General Meeting.
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 J W Morgan.
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
20494.04 13/04/2011
Proof 3
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 misstatement 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 not 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 misstatement 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 has 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
29 March 2011
page
33
20494.04 13/04/2011
Proof 3
We have audited the Group and parent Company financial statements (the ‘financial statements’) of Churchill China plc for the year
ended 31 December 2010 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income,
the Consolidated balance sheet, the Company balance sheet, the Consolidated statement of changes in equity, the Consolidated cash
flow statement, the Reconciliation of operating profit to net cash inflow from operating activities and the related notes. The financial
reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied
in the preparation of the parent Company financial statements is applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice).
Respective responsibilities of Directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set out on page [16], the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s and parent Company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the
overall presentation of the financial statements.
Opinion
In our opinion:
l
l
l
l
the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December
2010 and of the Group’s profit and cash flows for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
page
34
20494.04 13/04/2011
Proof 3
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
l adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received
from branches not visited by us; or
the parent Company financial statements are not in agreement with the accounting records and returns; or
l
l certain disclosures of Directors’ remuneration specified by law are not made; or
l we have not received all the information and explanations we require for our audit.
Mike Robinson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
29 March 2011
page
35
20494.04 13/04/2011
Proof 3
Revenue
Operating profit
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
All of the above figures relate to continuing operations.
Total
2010
£’000
Total
2009
£’000
Notes
4
43,746
41,705
5
15
8
8
10
2,287
162
41
(176)
2,314
(583)
2,288
(18)
119
(320)
2,069
(513)
1,731
1,556
1,731
1,556
11
11
15.8p
15.8p
14.3p
14.2p
The notes on pages 43 to 75 are an integral part of these consolidated financial statements.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the parent Company profit
and loss account. The profit of the parent company for the year was £68,000 (2009: loss of £23,000).
page
36
20494.04 13/04/2011
Proof 3
Other comprehensive income
Actuarial gain/(loss) on defined benefit obligations (note 23)
Currency translation differences
Other
Other comprehensive income for the year
Profit for the year
Total comprehensive income/(expense) for the year
Attributable to:
Equity holders of the Company
2010
£’000
1,894
7
–
1,901
1,731
2009
£’000
(4,136)
(14)
2
(4,148)
1,556
3,632
(2,592)
3,632
(2,592)
Amounts in the statement above are disclosed net of tax. The income tax relating to each component of other comprehensive income
is disclosed in note 10.
The Company has no recognised gains and losses other than those included in its profit and loss account and therefore no separate
Statement of Total Recognised Gains and Losses has been presented.
page
37
20494.04 13/04/2011
Proof 3
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
Assets held for sale
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
2010
£’000
2009
£’000
13
14
15
22
18
19
15,030
368
887
1,266
14,299
498
725
2,163
17,551
17,685
8,197
9,963
4,442
7,142
9,031
6,882
22,602
23,055
20
–
662
22,602
23,717
40,153
41,402
21
(6,735)
(501)
(6,907)
(574)
(7,236)
(7,481)
22
23
(1,678)
(4,670)
(1,676)
(7,709)
(13,584)
(16,866)
26,569
24,536
24
24
25
26
27
1,096
2,348
(91)
1,202
22,014
1,095
2,332
(117)
1,234
19,992
26,569
24,536
The notes on pages 43 to 75 are an integral part of these consolidated financial statements.
The financial statements on pages 36 to 75 were approved by the Board of Directors on 29 March 2011 and were signed on its behalf by:
A D Roper
Director
D J S Taylor
Director
Company number 2709505
page
38
20494.04 13/04/2011
Proof 3
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
21
24
24
25
26
27
2010
£’000
355
2,195
2009
£’000
355
2,195
2,550
2,550
6,861
299
611
7,771
(21)
8,500
290
517
9,307
(26)
7,750
9,281
10,300
11,831
10,300
11,831
1,096
2,348
(91)
24
6,923
1,095
2,332
(117)
69
8,452
10,300
11,831
The notes on pages 43 to 75 are an integral part of these consolidated financial statements.
The financial statements on pages 36 to 75 were approved by the Board of Directors on 29 March 2011 and were signed on its behalf by:
A D Roper
Director
D J S Taylor
Director
page
39
20494.04 13/04/2011
Proof 3
Balance at 1 January 2009
24,086
1,095
2,332
(138)
1,236
28,611
Retained
earnings
£’000
Share
capital
£’000
Share
premium
£’000
Treasury
shares
£’000
Other
reserves
£’000
Total
£’000
Comprehensive income:
Profit for the year
Other comprehensive income:
Depreciation transfer – gross
Depreciation transfer – tax
Actuarial losses – net of tax
Currency translation
Total comprehensive expense
Transactions with owners
Dividends relating to 2008 and 2009
Share based payment
Treasury shares
Total transactions with owners
1,556
12
–
(4,136)
–
(2,568)
(1,526)
–
–
(1,526)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21
21
–
1,556
(12)
2
–
(14)
–
2
(4,136)
(14)
(24)
(2,592)
–
22
–
22
(1,526)
22
21
(1,483)
Balance at 1 January 2010
19,992
1,095
2,332
(117)
1,234
24,536
Comprehensive income:
Profit for the year
Other comprehensive income:
Depreciation transfer – gross
Depreciation transfer – tax
Actuarial gains – net of tax
Currency translation
Total comprehensive income
Transactions with owners
Dividends relating to 2009 and 2010
Proceeds of share issue
Share based payment
Treasury shares
Total transactions with owners
1,731
12
(18)
1,894
–
3,619
(1,529)
–
–
(68)
(1,597)
–
–
–
–
–
–
–
1
–
–
1
–
–
–
–
–
–
–
16
–
–
16
–
–
–
–
–
–
–
–
–
26
26
–
1,731
(12)
18
–
7
–
–
1,894
7
13
3,632
–
–
(45)
–
(1,529)
17
(45)
(42)
(45)
(1,599)
Balance at 31 December 2010
22,014
1,096
2,348
(91)
1,202
26,569
page
40
20494.04 13/04/2011
Proof 3
Cash flow from operating activities
Cash generated from operations (see note page 42)
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
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 in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange losses on cash and cash equivalents
Cash and cash equivalents at the end of the year
2010
£’000
1,092
41
(20)
(564)
2009
£’000
3,439
119
–
(559)
549
2,999
(1,507)
129
(58)
(2,196)
42
(194)
(1,436)
(2,348)
67
(91)
(1,529)
21
–
(1,526)
(1,553)
(1,505)
(2,440)
6,882
–
(854)
7,738
(2)
4,442
6,882
* Conventionally interest received is included under the heading ‘Investing activities’; however, the Directors believe that as the Group
holds cash in support of operating activities it should be disclosed as part of cash generated from operating activities.
page
41
20494.04 13/04/2011
Proof 3
Continuing operating activities
Operating profit
Adjustments for:
Depreciation and amortisation
Profit on disposal of property, plant and equipment
(Credit)/charge for share based payments
Difference between pension service cost and contributions (see note 23)
Changes in working capital:
Inventory
Trade and other receivables
Trade and other payables
Net cash inflow from operations
2010
£’000
2009
£’000
2,287
2,288
1,530
(12)
(45)
(495)
(1,055)
(922)
(196)
1,396
(14)
22
(410)
1,335
(415)
(763)
1,092
3,439
page
42
20494.04 13/04/2011
Proof 3
1 Summary of significant accounting policies
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 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.
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.
Going concern
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future.
The Group therefore continues to adopt the going concern basis in preparing its consolidated financial statements.
Changes in accounting policy and disclosures
(a) The following new standards, interpretations and amendments to standards are mandatory for the first time for the financial
year beginning 1 January 2010, but are not currently relevant to the Group (although they may affect the accounting for future
transactions and events).
IFRS 3 (revised), ‘Business combinations’, and consequential amendments to IAS 27, ‘Consolidated and separate financial
statements’, IAS 28, ‘Investments in associates’, and IAS 31, ‘Interests in joint ventures’, are effective prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
1 July 2009.
IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective on or after 1 July 2009).
IFRIC 18, ‘Transfers of assets from customers’, effective for transfer of assets received on or after 1 July 2009.
IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement’, effective
1 July 2009.
IFRIC 16, ‘Hedges of a net investment in a foreign operation’ effective 1 July 2009.
IAS 1 (amendment), ‘Presentation of financial statements’.
IAS 36 (amendment), ‘Impairment of assets’, effective 1 January 2010.)
IFRS 2 (amendments), ‘Group cash-settled share-based payment transactions’, effective from 1 January 2010.
IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’.
(b) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2010 and
not early adopted. The Group’s assessment of the impact of these new standards and interpretations is set out below.
IFRS 9, ‘Financial instruments’, issued in November 2009, introduces new requirements for classifying and measuring financial
assets and it may affect the Group’s accounting for its financial assets.
page
43
20494.04 13/04/2011
Proof 3
1 Summary of significant accounting policies (continued)
The standard is not applicable until 1 January 2013 but is available for early adoption. However, the standard has not yet been
endorsed by the EU.
The Group is yet to assess IFRS 9’s full impact. However, initial indications are that it will not significantly affect the financial
disclosure or accounting of the Group.
Revised IAS 24 (revised), ‘Related party disclosures’, issued in November 2009, is mandatory for periods beginning on or after
1 January 2011. Earlier application, in whole or in part, is permitted. However, the standard has not yet been endorsed by the
EU. The revised standard clarifies and simplifies the definition of a related party. The Group will apply the revised standard from
1 January 2011. When the revised standard is applied, the Group and the parent will need to disclose any transactions between its
subsidiaries and its associates. It is not believed that there will be any significant impact on related party disclosures.
‘Classification of rights issues’ (amendment to IAS 32), issued in October 2009. The amendment applies to annual periods
beginning on or after 1 February 2010.
Earlier application is permitted. The amendment addresses the accounting for rights issues. The Group will apply the amended
standard from 1 January 2011, but it is not presently expected to have any impact on the Group’s financial statements.
IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’, effective 1 July 2010. The Group will apply the interpretation
from 1 January 2011, subject to endorsement by the EU. It is not expected to have any impact on the Group or the parent entity’s
financial statements.
‘Prepayments of a minimum funding requirement’ (amendments to IFRIC 14). The amendments correct an unintended
consequence of IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’.
The Group will apply these amendments for the financial reporting period commencing on 1 January 2011, but it is not expected
to have any impact on the Group or the parent entity’s financial statements.
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 acquisition method of accounting is used to account for the purchase 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.
page
44
20494.04 13/04/2011
Proof 3
1 Summary of significant accounting policies (continued)
(b) Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding
of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting
and are initially recognised at cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any
accumulated impairment loss.
The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement and its share of
post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted
against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest
in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred
obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in
the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred.
Dilution in gains and losses arising in investments in associates are recognised in the income statement.
Segment reporting
Operating segments are reported in a way consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating
segments has been identified as the Board of Churchill China plc. 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
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 new leases and classify them as operating or finance leases in accordance with the balance of risk and
reward between lessee and the lessor. 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 as a result of changes in legislation. 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.
page
45
20494.04 13/04/2011
Proof 3
1 Summary of significant accounting policies (continued)
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 paid, following approval by the Company’s shareholders.
Interest received/paid
Interest received and paid is treated in the cash flow statement as a cash flow from operating activities as this reflects the nature
of the Group’s business.
Retirement benefit costs
The Group operates a defined benefit pension scheme and defined contribution pension schemes.
The defined benefit scheme is valued every three years by a professionally qualified independent Actuary. In intervening years, the
Actuary reviews the continuing appropriateness of the valuation. Scheme 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 net credit or cost representing the expected return on the market value of the assets of the scheme during the year less a charge
representing the expected increase in the present value of the liabilities in the scheme arising from the liabilities of the scheme
being 1 year closer to payment is included within finance income or cost. 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.
Actuarial gains and losses are recognised in the statement of comprehensive income 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 they fall due.
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 Income
Statement 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 Income Statement 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 presentation currency of the Group and is the presentation currency for the
consolidated financial statements.
page
46
20494.04 13/04/2011
Proof 3
1 Summary of significant accounting policies (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. Contracts
are initially recognised at fair value. Gains and losses on all derivatives held at fair value outstanding at a balance sheet date are
recognised in the income statement.
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 may be set off against each other provided there is a legal right to do so and it is management’s
intention to do so.
Property, plant and equipment
Property, plant and equipment is shown at cost, net of depreciation, as adjusted for the revaluation of certain land and buildings.
Depreciation is calculated so as to write off the cost, less any provision for impairment, of plant, property and equipment, less
their estimated residual values over the expected useful economic lives of the assets concerned. The principal annual rates used
for this purpose are:
Freehold buildings
Plant
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.
page
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20494.04 13/04/2011
Proof 3
1 Summary of significant accounting policies (continued)
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 amortisation. Amortisation 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
The Group has no goodwill.
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.
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.
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 12 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.
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. Trade receivables are as defined under IAS 39.
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 3 months or less, and bank overdrafts. Cash and cash equivalents are as defined under IAS 39.
Non current assets held for sale
Non current assets are classified as being held for sale when their value is expected to be recovered through disposal rather
than continuing usage within the business and when the future sale is considered to be highly probable. Management must be
committed to sale which should be expected to be completed to qualify for recognition as a completed sale within 1 year from the
date of classification. Non current assets are measured at the lower of carrying value and fair value less disposal costs, and are
no longer depreciated.
page
48
20494.04 13/04/2011
Proof 3
1 Summary of significant accounting policies (continued)
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 2006 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.
Fixed asset investments
Fixed asset investments, comprising investments in subsidiary and associated companies, are stated at cost less any provisions
for impairment. Where an event has occurred that gives rise to doubt about the recovery of the carrying value an impairment
assessment is made. The impairment is calculated by comparing the investments carrying value to the recoverable amount as
required by FRS 11 ‘Impairment of fixed assets and goodwill’.
Other
Policies in relation to dividends and share based payments are the same as the Group accounting policies.
2 Financial risk management
Financial risk factors
The Group’s activities expose it to a variety of financial risks; market risk (including currency risk, fair value interest rate risk, cash
flow interest rate risk), credit risk, price risk and liquidity risk. The Group’s overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The
Group uses derivative financial instruments to manage certain risk exposures.
Financial risk management is carried out by the finance department under policies approved by the Board of Directors.
(a) Market risk
(i) Currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily
in relation to the US dollar and euro. Foreign exchange risk arises from future commercial transactions, recognised assets and
liabilities and net investments in foreign operations.
The Group’s treasury risk management policy is to secure all of the contractually certain cash flows (mainly export sales and the
purchase of inventory) in each major currency. Contractual certainty is considered to be where the Group has received a firm sales
order or placed a firm purchase order.
At 31 December 2010, 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 £27,000 (2009: £9,000) 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 £11,000 (2009:
£9,000) 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 £140,000 (2009: £157,000) 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.
page
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20494.04 13/04/2011
Proof 3
2 Financial risk management (continued)
(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 2010, 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 £4,000 (2009: £5,000) 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.
Cash and cash equivalents are as follows:
Lloyds Banking Group plc
National Westminster Bank plc
Other
Credit
rating
AA–
AA–
Min A
2010
£’000
4,147
25
270
2009
£’000
6,427
25
430
4,442
6,882
Risk attached to the receipt of UK trade receivables is largely controlled through the assessment of the credit quality of each
customer, taking into account its financial position, past experience and third party credit information. Risks attaching to export
trade receivables are controlled through the use of export 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.
page
50
20494.04 13/04/2011
Proof 3
2 Financial risk management (continued)
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 and other receivables and trade and other payables are assumed to
approximate their fair values.
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 £211,000 (2009: £342,000).
(b) Pension benefits
The present value of the pension obligations depend 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 23.
(c) Recognition of deferred tax assets
The Group reassesses each year whether it is appropriate to recognise the deferred tax assets in the financial statements based
upon the likelihood that the assets can be recovered. The assessment is based on the expected reversal of temporary timing
differences.
page
51
20494.04 13/04/2011
Proof 3
4 Segmental analysis
Management has determined the operating segments are based on the reports reviewed by the Chief Operating Decision Maker
and the Strategic Steering Committee of the Board that are used to make strategic decisions. The Board considers the business
primarily based on the market and product Groups, but also from a geographic perspective. Geographically, management
considers the performance in relation to the UK, rest of Europe, North America and Rest of the World.
The reportable operating product segments derive their revenue primarily from the sale of ceramic products to the Retail and
Hospitality sectors.
The Board assesses the performance of the operating segments based on the measure of operating profit, as analysed in the
management accounts. This measurement basis excludes the effects of non-recurring expenditure from the operating segments
such as restructuring costs and goodwill impairments when the impairment is the result of an isolated, non-recurring event. The
measure also excludes the effects of equity-settled share-based payments and unrealised gains/losses on financial instruments.
Interest income and expenditure are not allocated to segments, as this type of activity is driven by the central treasury function,
which manages the cash position of the Group.
(a) Primary reporting format – business segments
The business is managed in two main business segments – Hospitality and Retail.
Hospitality
£’000
31 December 2010
Retail Unallocated
£’000
£’000
Group
£’000
Revenue from external customers
27,398
16,348
–
43,746
Contribution to Group overheads excluding depreciation
Depreciation and amortisation
4,914
(859)
1,060
(305)
(2,157)
(366)
3,817
(1,530)
Operating profit
Share of results of associated company
Finance income
Finance cost
Profit before income tax
4,055
755
(2,523)
2,287
162
41
(176)
2,314
Hospitality
£’000
31 December 2009
Retail Unallocated
£’000
£’000
Group
£’000
Revenue from external customers
24,554
17,151
–
41,705
Contribution to Group overheads excluding depreciation
Depreciation and amortisation
4,183
(894)
1,911
(185)
(2,410)
(317)
3,684
(1,396)
Operating profit
Share of results of associated company
Finance income
Finance cost
Profit before income tax
3,289
1,726
(2,727)
2,288
(18)
119
(320)
2,069
The ‘Unallocated’ Group overheads principally comprise costs associated with the centralised functions of the parent Company
Board, finance and administration and information technology.
page
52
20494.04 13/04/2011
Proof 3
4 Segmental analysis (continued)
There are no material inter-segment revenues (2009: £nil). Any inter segment revenues are carried out on an arm’s length basis.
Revenue from external parties is measured in a manner consistent with the consolidated income statement.
Segment assets consist primarily of property, plant and equipment, inventories, trade and other receivables. Unallocated assets
comprise intangible assets, investment in associates, available-for-sale financial assets, deferred taxation and cash and cash
equivalents.
Segment liabilities comprise trade and other payables. Unallocated liabilities comprise items such as trade and other payables,
current taxation, deferred taxation and retirement benefit obligations.
Capital expenditure comprises additions to property, plant and equipment (note 13) and intangible assets (note 14).
Segment assets and liabilities at 31 December 2010 and capital expenditure for the year ended on that date are as follows:
Assets excluding inventories
Inventories
Investment in associates
Total assets
Total liabilities
Capital expenditure
Hospitality
£’000
Retail Unallocated
£’000
£’000
15,229
5,311
–
7,456
2,886
–
8,384
–
887
Group
£’000
31,069
8,197
887
20,540
10,342
9,271
40,153
3,778
1,006
899
123
8,907
13,584
457
1,586
Segment assets and liabilities at 31 December 2009 and capital expenditure for the year ended on that date are as follows:
Assets excluding inventories
Inventories
Investment in associates
Total assets
Total liabilities
Capital expenditure
Any sales between segments are carried out on an arm’s length basis.
Hospitality
£’000
Retail Unallocated
£’000
£’000
14,642
4,481
–
7,234
2,661
–
11,659
–
725
Group
£’000
33,535
7,142
725
19,123
9,895
12,384
41,402
3,225
1,455
12,186
16,866
794
1,531
273
2,598
page
53
20494.04 13/04/2011
Proof 3
4 Segmental analysis (continued)
(b) Secondary reporting format – geographical segments
The Group’s two business segments operate in four main geographical segments, even though they are managed on a
worldwide basis.
Geographical segment – Revenue
United Kingdom
Rest of Europe
North America
Other
2010
£’000
27,568
8,666
4,368
3,144
2009
£’000
28,453
6,973
3,628
2,651
43,746
41,705
The total assets of the business are allocated as follows:
United Kingdom £39,362,000 (2009: £40,489,000), Rest of Europe £43,000 (2009: £31,000), North America £743,000 (2009: £852,000),
Other £5,000 (2009: £30,000).
Capital expenditure was made as follows:
United Kingdom £1,586,000 (2009: £2,596,000), Other £nil (2009: £2,000).
5 Expenses by nature
Changes in inventories of finished goods and work in progress
Raw materials used
Purchase of goods for resale
Employee benefit expense (note 7)
Other external charges
Depreciation and amortisation charges
Profit on disposal of property, plant and equipment
Foreign exchange losses/(gains)
Total
2010
£’000
(1,039)
2,775
11,446
15,421
11,323
1,530
(12)
15
Total
2009
£’000
1,358
2,113
9,766
14,258
10,691
1,396
(14)
(151)
Total cost of sales distribution costs and administrative expenses
41,459
39,417
page
54
20494.04 13/04/2011
Proof 3
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 (2009: none).
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 23)
Other pension costs (see note 23)
Share options granted to Directors and employees (see note 24)
2010
Number
2009
Number
340
215
555
278
232
510
2010
£’000
13,753
1,154
405
154
(45)
2009
£’000
12,605
1,080
404
147
22
15,421
14,258
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 (2009: nil).
8 Finance income and costs
Interest income on cash and cash equivalents
Finance income
Interest on pension scheme (note 23)
Other interest
Finance costs
Net finance cost
20494.04 13/04/2011
Proof 3
2010
£’000
2009
£’000
41
41
(156)
(20)
119
119
(320)
–
(176)
(320)
(135)
(201)
page
55
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, 2009: £1,500)
Non-audit services – taxation advice
10 Income tax expense
Group
Current tax – current year
– adjustment in respect of prior years
Deferred tax (note 22)
Origination and reversal of temporary differences
Income tax expense
2010
£’000
2009
£’000
75
7
13
95
2010
£’000
535
(45)
490
93
583
63
7
26
96
2009
£’000
589
(145)
444
69
513
A number of changes to the UK corporation tax rules were announced in the June 2010 Budget. The Finance (No.2) Act 2010, which
was substantively enacted on 20 July 2010, includes legislation reducing the main rate of corporation tax from 28% to 27% from
1 April 2011. Further reductions in the main rate are proposed to reduce the rate by 1% per annum to 24% by 1 April 2014.
The proposed reductions of the main rate of corporation tax by 1% each year are expected to be enacted separately each year. The
overall effect of the further changes from 27% to 24%, if these applied to the deferred tax balance at 31 December 2010, would not
reduce the deferred tax liability by a material amount.
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:
2010
£’000
2009
£’000
2,314
2,069
648
18
(45)
(66)
28
583
579
17
(145)
–
62
513
Profit before income tax
Tax calculated at domestic tax rates applicable to profits in the respective countries
Expenses not deductible for tax purposes
Adjustment in respect of prior periods
Change in rate of deferred tax
Other
Tax charge
The weighted average applicable tax rate was 28% (2009: 28%).
page
56
20494.04 13/04/2011
Proof 3
10 Income tax expense (continued)
During the year a charge of £806,000 (2009: credit of £1,608,000) in relation to deferred tax arising from actuarial gains and losses
on the Group’s defined benefit pension obligation and a credit of £18,000 (2009: £2,000) in relation to the reversal of deferred
taxation on the revaluation of land and buildings were adjusted directly within equity.
11 Earnings per ordinary share
The basic earnings per ordinary share is based on the profit after income tax and on 10,934,092 (2009: 10,904,065) ordinary shares,
being the weighted average number of ordinary shares in issue during the year.
The adjusted basic earnings per ordinary share is based on the profit after income tax and adjusted to take into account exceptional
items. The Directors believe that adjusted earnings per share more closely reflects the underlying performance of the Group.
2010
2009
Pence per Pence per
share
share
Basic earnings per share (based on earnings £1,731,000 (2009: £1,556,000))
15.8
14.3
Diluted earnings per ordinary share is based on the profit after income tax and on 10,964,639 (2009: 10,934,139) ordinary shares,
being the weighted average number of ordinary shares in issue during the year of 10,934,092 (2009: 10,904,065) increased by 30,547
(2009: 30,074) 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. Adjusted diluted adjusted
earnings per ordinary share is based on the profit after income tax and adjusted to take into account exceptional items.
2010
2009
Pence per Pence per
share
share
Diluted basic earnings per share (Based on earnings £1,731,000 (2009: £1,556,000))
15.8
14.2
12 Dividends
The dividends paid in the year were as follows:
Ordinary
Second interim 2009 9.2p per 10p ordinary share (2008: nil)
Final 2009 0.0p per 10p ordinary share (Final 2008: 9.2p)
Interim 2010 4.8p per 10p ordinary share paid (Interim 2009: 4.8p)
The Directors now recommend payment of the following dividend:
Ordinary dividend:
Final dividend 2010 9.2p (2009: nil) per 10p ordinary share
Dividends on treasury shares held by the Company are waived.
20494.04 13/04/2011
Proof 3
2010
£’000
1,004
–
525
2009
£’000
–
1,003
523
1,529
1,526
1,005
–
page
57
13 Property, plant and equipment
The Company has no property, plant and equipment (2009: none). Details of those relating to the Group are as follows:
Group
At 1 January 2009
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2009
Opening net book amount
Additions
Disposals
Transfer to assets held for sale (note 20)
Depreciation charge
Freehold
land and
buildings
£’000
Plant
£’000
Motor
vehicles
£’000
Fixtures
and
fittings
£’000
Total
£’000
11,503
(1,716)
14,696
(11,638)
956
(372)
1,946
(1,486)
29,101
(15,212)
9,787
3,058
584
460
13,889
9,787
707
–
(662)
(172)
3,058
1,325
–
–
(761)
584
70
(29)
–
(145)
460
286
–
–
(209)
13,889
2,388
(29)
(662)
(1,287)
Closing net book amount
9,660
3,622
480
537
14,299
At 31 December 2009
Cost
Accumulated depreciation
11,104
(1,444)
15,864
(12,242)
958
(478)
2,231
(1,694)
30,157
(15,858)
Net book amount
9,660
3,622
480
537
14,299
Year ended 31 December 2010
Opening net book amount
Additions
Disposals
Transfer from assets held for sale (note 20)
Depreciation charge
9,660
114
–
662
(186)
3,622
813
–
–
(801)
480
306
(117)
–
(140)
537
309
–
–
(229)
14,299
1,542
(117)
662
(1,356)
Closing net book amount
10,250
3,634
529
617
15,030
At 31 December 2010
Cost
Accumulated depreciation
11,880
(1,630)
16,677
(13,043)
923
(394)
2,540
(1,923)
32,020
(16,990)
Net book amount
10,250
3,634
529
617
15,030
page
58
20494.04 13/04/2011
Proof 3
14 Intangible assets
The Company has no intangible fixed assets (2009: none). Details of these relating to the Group are as follows:
Group
At 1 January 2009
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2009
Opening net book amount
Additions
Amortisation charge
Closing net book amount
At 31 December 2009
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2010
Opening net book amount
Additions
Amortisation charge
Closing net book amount
At 31 December 2010
Cost
Accumulated amortisation
Net book amount
Computer
software
£’000
578
(181)
397
397
210
(109)
498
788
(290)
498
498
44
(174)
368
832
(464)
368
page
59
20494.04 13/04/2011
Proof 3
15 Investment in associate
Cost
At 1 January
Share of profit/(loss)
At 31 December
Impairment
At 1 January
Impairment of investment in associate
At 31 December
Net book value
Closing net book amount
Group
2010
£’000
Group Company
2010
£’000
2009
£’000
Company
2009
£’000
876
196
1,467
(591)
1,072
876
151
34
185
724
(573)
151
355
–
355
–
–
–
355
–
355
–
–
–
887
725
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
2010
£’000
1,456
(370)
2009
£’000
1,260
(336)
1,086
924
The total revenue of Furlong Mills Limited for its year ended 31 December 2010 was £6,137,000 (2009: £5,343,000) and profit
before tax was £340,000 (2009: loss £1,717,000). During the year the Group purchased raw materials to a value of £1,932,000 (2009:
£1,437,000) from Furlong Mills Limited.
The Group has historically carried its investment in Furlong Mills Limited at a net amount after an impairment reflecting the
Board’s view of the recoverable amount of the investment. In the year to 31 December 2009 Furlong Mills Limited performed an
impairment review of its property, plant and equipment and reduced the carrying value of these assets in its Company balance
sheet. The Group consequently released an equivalent amount reflecting its share of this impairment.
The difference between the carrying value of the Group’s interest in associate and the share of associate’s net assets reflects the
remaining impairment charged in the Group’s accounts and adjustments in relation to accounting policies.
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
60
20494.04 13/04/2011
Proof 3
16 Investment in subsidiaries
Company
Cost or valuation
At 1 January and 31 December 2010
Impairment
At 1 January 2009 and 31 December 2010
Net book value
At 31 December 2010
2010
£’000
2009
£’000
2,627
2,627
432
432
2,195
2,195
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
Proportion of
nominal
value
of issued
held shares held
Description
of shares
Country of
incorporation
Principal activity
Churchill China (UK) Limited
England and Wales
Ordinary
Churchill Ceramics (UK) Limited
England and Wales
Ordinary
Churchill China, Inc
USA
Ordinary
100% Manufacture and sale of
ceramic and related
products
100% Provision of management
and property services
within the Group
Sale of ceramic and
related products
100%
Dormant companies within the Group are not included in the above analysis.
page
61
20494.04 13/04/2011
Proof 3
17 Available for sale financial assets
Fair value/Cost
At 1 January and 31 December 2010
Impairment
At 1 January and 31 December 2010
Fair value/Net book value
At 1 January and 31 December 2010
Group Company
Available
for sale
financial
Other
assets investments
£’000
£’000
–
–
–
43
43
–
The above represents 35.9% (2009: 35.9%) of the issued ordinary share capital of Shraff Management Limited, a company
registered in England and Wales. 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 inventory (2009: none). Details of inventory relating to the Group are as follows:
Raw materials
Work in progress
Finished goods
2010
£’000
72
584
7,541
2009
£’000
56
396
6,690
8,197
7,142
The Directors do not consider there is a material difference between the carrying value and replacement cost of inventories.
The cost of inventories recognised as an expense and included in the income statements amounted to £25,696,000
(2009: £23,872,000)
page
62
20494.04 13/04/2011
Proof 3
19 Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Other
Prepayments
Receivables from related parties (note 29)
Less non current portion: loans to related parties
Group
2010
£’000
9,738
(234)
9,504
223
236
–
9,963
–
2009
£’000
8,717
(147)
8,570
152
309
–
9,031
–
Company
2010
£’000
2009
£’000
–
–
–
150
–
7,010
7,160
6,861
–
–
–
150
–
8,640
8,790
8,500
Current portion
9,963
9,031
299
290
All non current receivables are due within 5 years from the balance sheet date.
The Group operates a credit risk management policy. Risk attached to the receipt of UK trade receivables is largely controlled
through the assessment of the credit quality of each customer, taking into account its financial position, past experience and third
party credit information. Risks attaching to export trade receivables are controlled through the use of export 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.
Trade receivables that are less than 3 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 2010, trade receivables of £7,201,000 (2009: £7,758,000) were fully performing.
As of 31 December 2010, trade receivables of £2,058,000 (2009: £599,000) 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
2010
£’000
1,918
118
22
2,058
2009
£’000
548
46
5
599
page
63
20494.04 13/04/2011
Proof 3
19 Trade and other receivables (continued)
As of 31 December 2010 trade receivables with a gross value of £479,000 (2009: £360,000) were impaired and provided for.
The amount of provision for 31 December 2010 was £234,000 (2009: £147,000). The individually impaired receivables relate to
customers which are in unexpectedly difficult economic conditions. It was assessed that a portion of the receivables is expected
to be recovered. The ageing of these receivables is as follows:
Up to 3 months
3 to 6 months
Over 6 months
2010
£’000
2009
£’000
350
43
86
479
308
33
19
360
The Directors consider that the carrying value of trade and other receivables is approximate to their fair value.
Movements on the Group provision for impairment of trade receivables are as follows:
At 1 January
Provision for receivables impairment
Receivables written off during the year as uncollectable
At 31 December
2010
£’000
147
234
(147)
2009
£’000
108
147
(108)
234
147
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 dollars
2010
£’000
7,388
922
1,653
2009
£’000
6,965
726
1,340
9,963
9,031
During the year the Group had losses of £15,000 (2009: gain of £151,000) 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 euros of £765,000 (2009: £444,000)
and the sale of US dollars of £nil (2009: £484,000). These contracts are held at their fair value with a loss of £12,000 (2009: gain of
£7,000) recognised in relation to the contracts outstanding at the year end.
page
64
20494.04 13/04/2011
Proof 3
19 Trade and other receivables (continued)
Company
As of 31 December 2010, Company receivables of £7,160,000 (2009: £8,790,000) were fully performing. Amounts receivable are
repayable in accordance with agreed terms. No interest is chargeable.
The carrying amounts of the Company’s receivables are denominated in the following currencies:
Pounds
US dollars
20 Assets held for sale
Land and buildings
2010
£’000
7,120
40
2009
£’000
8,758
32
7,160
8,790
2010
£’000
2009
£’000
–
662
The Land and Buildings disclosed as an Asset held for sales in 2009 have been transferred to Property, Plant and Equipment (note
13) as it is the Group’s present intention to retain this asset in the longer term and no sale is anticipated in the next 12 months.
The assets are held within unallocated assets in the segmental analysis (see note 4).
21 Trade and other payables
Trade payables
Amounts due to related parties
Social security and other taxes
Accrued expenses
Group
2010
£’000
1,076
336
923
4,400
2009
£’000
1,985
24
753
4,145
6,735
6,907
Company
2010
£’000
2009
£’000
–
13
7
1
21
–
13
12
1
26
All the above liabilities mature within 12 months from 31 December 2010.
page
65
20494.04 13/04/2011
Proof 3
22 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 (liability)/asset (net)
The net movement on the deferred income tax account is as follows:
At 1 January
Income statement charge (note 10)
Tax (charged)/credited directly to equity (note 27)
At 31 December
2010
£’000
1,151
115
2009
£’000
2,062
101
1,266
2,163
(1,633)
(45)
(1,652)
(24)
(1,678)
(1,676)
(412)
487
2010
£’000
487
(93)
(806)
2009
£’000
(1,054)
(69)
1,610
(412)
487
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 2009
Charged to the income statement
Credited directly to equity
At 31 December 2009
Charged/(credited) to the income statement
Accelerated
tax
Land and
buildings
depreciation revaluation
£’000
£’000
1,289
38
–
1,327
20
351
–
(2)
349
(18)
Total
£’000
1,640
38
(2)
1,676
2
At 31 December 2010
1,347
331
1,678
page
66
20494.04 13/04/2011
Proof 3
22 Deferred income tax (continued)
Deferred tax assets
At 1 January 2009
Charged to the income statement
Credited directly to equity
At 31 December 2009
Charged/(credited) to the income statement
Charged directly to equity
Retirement
benefit
obligation
£’000
(576)
25
(1,608)
(2,159)
92
806
Other
£’000
(10)
6
–
(4)
(1)
–
Total
£’000
(586)
31
(1,608)
(2,163)
91
806
At 31 December 2010
(1,261)
(5)
(1,266)
The deferred income tax credited to equity during the past year is as follows:
Fair value reserves in shareholders’ equity:
Tax on actuarial loss on retirement benefits scheme
Tax on difference between depreciation on buildings on an actual and historical cost basis
2010
£’000
2009
£’000
(806)
–
(1,608)
(2)
(806)
(1,610)
Deferred income tax of £18,000 (2009: £2,000) was transferred from other reserves (note 26) to retained earnings (note 27). 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 losses carried forward 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 (2009:
£1,511,000) in respect of capital losses amounting to £5,395,000 (2009: £5,395,000) that can be carried forward against future
capital gains.
page
67
20494.04 13/04/2011
Proof 3
23 Retirement benefit obligations
Balance sheet obligations
Pension benefits
Income statement charge
Pension benefits
Finance cost
2010
£’000
2009
£’000
4,670
7,709
559
156
551
320
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 £559,000 (2009:
£551,000). Of this cost, £nil (2009: £nil) related to the Churchill Group Retirement Benefit Scheme, £164,000 (2009: £158,000) was
in respect of the Churchill China 1999 Pension Scheme and £241,000 (2009: £246,000) 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 £58,000 (2009: £57,000).
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 £495,000 (2009: £410,000) 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 £495,000 per annum in respect of the amortisation of past service deficits, subject to completion of the 31 May 2011 triennial
actuarial valuation.
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 present value of defined benefit obligation over the year is as follows:
At 1 January
Interest cost
Actuarial (gains)/losses
Benefits paid
At 31 December
2010
£’000
2009
£’000
34,898
(30,228)
34,550
(26,841)
4,670
7,709
2010
£’000
2009
£’000
34,550
1,969
(887)
(734)
25,275
1,668
8,433
(826)
34,898
34,550
Actuarial gains in 2010 include £1,296,000 in respect of the change of inflation index used to calculate the increase of benefits in
deferment from RPI to CPI.
page
68
20494.04 13/04/2011
Proof 3
23 Retirement benefit obligations (continued)
The movement in the fair value of plan assets over the year is as follows:
At 1 January
Expected return on plan assets
Actuarial gains
Employer contributions
Benefits paid
At 31 December
Plan assets are comprised as follows:
Equity investments
Debt investments
Other
2010
£’000
2009
£’000
26,841
1,813
1,813
495
(734)
23,220
1,348
2,689
410
(826)
30,228
26,841
2010
£’000
22,155
4,605
3,468
30,228
2009
£’000
17,783
4,986
4,072
26,841
73%
15%
12%
66%
19%
15%
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 cost recognised in finance cost
The actual return on plan assets was a gain of £3,626,000 (2009: gain £4,037,000).
20494.04 13/04/2011
Proof 3
2010
£’000
2009
£’000
1,969
(1,813)
1,668
(1,348)
156
320
page
69
23 Retirement benefit obligations (continued)
At 31 December
Present value of funded obligations
Fair value of plan assets
2010
£000
2009
£000
2008
£000
2007
£000
2006
£000
34,898
30,228
34,550
26,841
25,275
23,220
29,209
28,119
30,960
27,012
Liability in balance sheet
4,670
7,709
2,055
1,090
3,948
Experience adjustments on scheme assets:
Amount
Experience adjustments on scheme liabilities:
Amount
1,813
2,689
(6,463)
(200)
839
835
(414)
372
(192)
310
The principal actuarial assumptions used were as follows:
Pension benefits
Discount rate
Inflation rate – RPI
– CPI
Expected return on plan assets
Rate of increase of pensions in payment
Rate of increase of deferred pensions
2010
% per
annum
2009
% per
annum
5.6%
3.6%
3.1%
6.6%
3.6%
3.1%
5.7%
3.5%
–
6.8%
3.5%
3.5%
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
2010
Number
2009
Number
20.9
24.2
20.9
24.1
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date, is as follows:
2010
Number
2009
Number
22.8
26.2
22.7
26.1
Male
Female
page
70
20494.04 13/04/2011
Proof 3
23 Retirement benefit obligations (continued)
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 in the discount rate to 5.85% would be to reduce scheme liabilities by £1,696,000 (4.9%).
The effect of a 0.25% decrease in the discount rate to 5.35% would be to increase scheme liabilities by £1,810,000 (5.2%).
The effect of a 0.25% increase in RPI inflation to 3.85% and CPI inflation to 3.35% would increase scheme liabilities by
£1,325,000 (3.8%).
The effect of a 0.25% decrease in RPI inflation to 3.35% and CPI inflation to 2.85% would decrease scheme liabilities by
£1,241,000 (3.6%)
The effect of a 1 year increase to life expectancy would increase scheme liabilities by £878,000 (2.5%). The effect of a 1 year
reduction in life expectancy would be to reduce scheme liabilities by £893,000 (2.6%)
24 Issued share capital and premium
Group and Company
At 1 January 2009
Employee share option schemes
At 31 December 2009
Employee share option schemes
At 31 December 2010
Number
of shares
’000
Ordinary
shares
£’000
Share
premium
£’000
10,948
–
10,948
10
1,095
–
1,095
1
2,332
–
2,332
16
10,958
1,096
2,348
The total authorised number of ordinary shares is 14,300,000 (2009: 14,300,000) with a par value of 10p (2009: 10p) per share. All
issued shares are fully paid.
Share option schemes
The Executive share option scheme was introduced in October 1994 and 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 3 years from the date of
grant and expire 10 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 3 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 Income Statement 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.
page
71
20494.04 13/04/2011
Proof 3
24 Issued share capital and premium (continued)
The fair value per option granted and the assumptions used in the calculation were as follows:
Grant date
30 April 2004
Share price at grant date
Exercise price
Number of employees
Shares under option (30,000 lapsed; 10,000 exercised)
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
208p
208p
12
110,000
3
25%
10
5
4.8%
5.2%
24p
The following options exercisable over ordinary shares were outstanding at 31 December 2010:
Number of shares
The Executive share option scheme
The unapproved Executive
share option scheme
2010
2009
Exercise
price
Date from which
exercisable
Expiry date
–
33,000
2,000
37,000
151p
208p
December 2003
April 2007
December 2010
April 2014
–
–
30,000
37,000
12,500
21,500
40,000
43,000
118.5p
151p
171p
208p
April 2003
December 2003
April 2005
April 2007
April 2010
December 2010
April 2012
April 2014
100,000
156,000
Expected volatility is based on historical volatility over the last 3 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 2010 is set out below.
2010
2009
2010
Weighted
average
exercise
price
2009
Weighted
average
exercise
price
Number
000
Number
000
Outstanding at 1 January
Forfeited/lapsed
Exercised
Outstanding at 31 December
Exercisable at 31 December
page
72
156,000
(10,500)
(45,500)
182.8p
205.3p
146.5p
166,000
–
(10,000)
100,000
100,000
196.9p
196.9p
156,000
156,000
184.3p
–
208.0p
182.8p
182.8p
20494.04 13/04/2011
Proof 3
24 Issued share capital and premium (continued)
There were no share options granted during the year (2009: £nil).
2010
Weighted
average
exercise
price
2010
2010
2010
Weighted Weighted
2009
average
remaining remaining
life
(expected) (contractual)
average Weighted
average
exercise
price
life
Number
‘000
2009
2009
2009
Weighted Weighted
average
remaining
life
(expected) (contractual)
average
remaining
life
Number
000
100p–149p
150p–199p
200p–250p
–
171p
208p
–
30,000
70,000
–
0.0
0.0
–
0.9
3.3
118.5p
163.6p
208.0p
12,500
63,500
80,000
0.0
0.0
0.0
0.3
1.9
4.3
The weighted average share price for options exercised in the period was 146.5p (2009: 208.0p). The total credit during the year
for employee share based payment plans was £45,000 (2009: charge £22,000), all of which related to equity settled share based
payment transactions.
25 Treasury shares
Group and Company
As at 1 January 2010
Purchase of own shares
Reissue of shares
Transfer to retained earnings (note 27)
As at 31 December 2010
£’000
117
91
(49)
(68)
91
During the year the Group repurchased 32,000 (2009: nil) 10p ordinary shares and reissued 35,400 (2009: 10,000) of these under
employee share option schemes. The Group currently holds 32,000 (2009: 35,400) shares in Treasury.
26 Other reserves
Group
Balance at 1 January 2009
Depreciation transfer – gross
Depreciation transfer – tax
Share based payment charge
Currency translation
Balance at 31 December 2009
Depreciation transfer – gross
Depreciation transfer – tax
Share based payment credit
Currency translation
Balance at 31 December 2010
Land and
buildings
Currency
revaluation translation
£’000
£’000
Share
based
payment
£’000
Other
reserves
£’000
900
(12)
2
–
–
890
(12)
18
–
–
896
36
–
–
–
(14)
22
–
–
–
7
29
47
–
–
22
–
69
–
–
(45)
–
24
20494.04 13/04/2011
Proof 3
Total
£’000
1,236
(12)
2
22
(14)
1,234
(12)
18
(45)
7
253
–
–
–
–
253
–
–
–
–
253
1,202
page
73
26 Other reserves (continued)
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 £24,000 (2009: £69,000) represent provision for share based payment as shown in the above table.
27 Retained earnings
At 1 January 2009
Profit/(loss) for the year
Dividends paid in 2009
Depreciation transfer on land and buildings net of tax
Actuarial losses net of tax
At 31 December 2009
At 1 January 2010
Profit for the year
Dividends paid in 2010
Depreciation transfer on land and buildings net of tax
Actuarial gains net of tax
Transfer from treasury shares (note 25)
At 31 December 2010
Group Company
£’000
£’000
24,086
1,556
(1,526)
12
(4,136)
10,001
(23)
(1,526)
–
–
19,992
8,452
19,992
1,731
(1,529)
(6)
1,894
(68)
8,452
68
(1,529)
–
–
(68)
22,014
6,923
28 Commitments
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
2010
£’000
2009
£’000
2010
£’000
2009
£’000
604
44
648
696
33
729
–
–
–
–
–
–
page
74
20494.04 13/04/2011
Proof 3
28 Commitments (continued)
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:
Group
Company
2010
£’000
2009
£’000
2010
£’000
2009
£’000
Payments under operating leases charged against income during the year
Future aggregate minimum commitments under non-cancellable operating leases:
No later than 1 year
Later than 1 year and no later than 5 years
4
3
–
31
4
3
–
–
–
–
–
–
29 Related party transactions
Details of related party transactions for the Group are shown in the Directors’ Report, Report of the Remuneration Committee 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:
Subsidiaries
Management charge to Churchill China, Inc
Interest received from Churchill China (UK) Limited
Loans repaid – Churchill China (UK) Limited
Loans outstanding as at the year end (mainly Churchill China (UK) Limited)
2010
£’000
6
3
1,639
7,010
2009
£’000
6
5
1,686
8,640
30 Financial instruments by category
The accounting policies for financial instruments have been applied to the line items in the accounts. All financial assets and
including cash and cash equivalents are classified as loans and receivables, with the exception of financial assets available for
sale, in both 2010 and 2009, as disclosed in note 17.
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20494.04 13/04/2011
Proof 3
Turnover
45,930
46,930
41,969
41,705
43,746
2006
£’000
2007
£’000
2008
£’000
2009
£’000
2010
£’000
Operating profit before exceptional items
Share of results of associate net of impairment
Finance income/(cost)
Profit on ordinary activities before profit on disposal of fixed asset
and exceptional items
Exceptional items
Profit on disposal of property
Profit before 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 basic earnings per share (p)
2,795
(7)
294
3,082
784
1,876
5,742
(1,631)
–
3,230
120
694
4,044
–
798
4,842
(1,147)
–
2,804
(71)
629
3,362
–
–
3,362
(938)
(919)
2,288
(18)
(201)
2,069
–
–
2,069
(513)
–
2,287
162
(135)
2,314
–
–
2,314
(583)
–
4,111
3,695
1,505
1,556
1,731
(1,217)
(1,375)
(1,531)
(1,526)
(1,529)
25,653
29,731
28,612
24,536
26,569
6.1%
37.7
20.5
6.9%
33.8
26.5
6.7%
13.8
22.2
5.5%
14.3
14.3
5.2%
15.8
15.8
The adjusted basic 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
ended 31 December 2006 have been adjusted to reflect the introduction of International Financial Reporting Standards.
page
76
20494.04 13/04/2011
Proof 3
Notice is hereby given that the Annual General Meeting of Churchill China plc will be held at Marlborough Pottery, High Street,
Sandyford, Tunstall, Stoke-on-Trent on Wednesday 18 May 2011 at 11.30 a.m. 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. That the reports of the Directors and the Auditors and the Financial Statements for the year ended 31 December 2010 be received.
2. That a final dividend of 9.2p on each ordinary share be declared in respect of the year ended 31 December 2010.
3. That Andrew Roper be re-elected as a Director.
4. That Jonathan Morgan be re-elected as a Director.
5. That Alan McWalter be elected as a Director.
6. That Jonathan Sparey be re-elected as a Director.
7. That the Auditors, PricewaterhouseCoopers LLP, be reappointed and that the Directors be authorised to fix their remuneration for
the year ending 31 December 2011.
8. That the Directors’ Remuneration Report for the year ended 31 December 2010 be approved.
Special Business
To consider and, if thought fit, to pass the following resolutions which will be proposed as special resolutions:
9. That:
(a) the Directors be and they are hereby empowered under Section 570 of the Companies Act 2006 (‘the Act’) to allot equity securities
(as defined in Section 560 of the Act) for cash under the authority conferred by a resolution dated 21 May 2008, as if Section 561
of the Act did not apply to such allotment, provided that this power shall be limited to:
(i) the allotment of equity securities in connection with an offer of equity securities to:
(1) ordinary shareholders in proportion (as nearly as may be) to their existing holdings; and
(2) holders of other equity securities, if this is required by the rights of those securities, or, if the Directors consider it necessary
as permitted by the rights of those securities, but subject to such exclusions and other arrangements as the Directors may
consider necessary or desirable to deal with fractional entitlements, record dates, treasury shares or any legal, practical or
regulatory problems under the laws of any territory (including the requirements of any regulatory body or stock exchange)
or any other matter; and
(ii) the allotment of equity securities (otherwise than as mentioned in sub-paragraph (a) of this resolution) up to an aggregate
nominal amount of £109,259;
(b) unless previously renewed, varied or revoked, this power shall expire at the conclusion of the next Annual General Meeting or
18 November 2012, whichever is the earlier, but during this period the Company may make an offer or agreement which would
or might require equity securities to be allotted after this authority expires and the Directors may allot equity securities in
pursuance of that offer or agreement notwithstanding that the authority has expired;
(c) this power applies in relation to a sale of shares which is an allotment of equity securities by virtue of Section 560(2)(b) of the Act.
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10. That the Company be generally and unconditionally authorised for the purposes of Sections 693 and 701 of the Act to make market
purchases (within the meaning of Section 693(4) 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 1,092,590;
(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, cannot be more than an amount equal
to the higher of:
(i) 5% 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 5 business days immediately preceding the date on
which such Ordinary Share is purchased; and
(ii) the price stipulated by Article 5(1) of Commission Regulation (EC) No 2273/2003 (the Buy-back and Stabilisation Regulation);
(d) unless previously renewed, varied or revoked, the authority hereby conferred shall expire at the conclusion of the Company’s next
Annual General Meeting or 18 November 2012, whichever is the earlier; and
(e) 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.
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
Dated 20 April 2011
Registered Office
Marlborough Pottery
High Street
Tunstall
Stoke-on-Trent
ST6 5NZ
Registered Number 2709505
The Directors of the Company consider that all the proposals to be considered at the Annual General Meeting are in the best interests
of the Company and its members as a whole and are most likely to promote the success of the Company for the benefit of its members
as a whole. The Directors unanimously recommend that you vote in favour of all the proposed resolutions.
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Proof 3
1. Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the
meeting. A shareholder may appoint more than one proxy in relation to the AGM provided that each proxy is appointed to exercise the
rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. A form
of proxy which may be used to make such appointment and give proxy instructions accompanies this notice. Instructions for use are
shown on the form. If you do not have a form of proxy and believe that you should have one, or if you require additional forms, please
contact our registrars, Equiniti , on 0871 384 2287. Calls to this number from a BT landline cost 8p per minute; other providers’ costs
may vary. If calling from overseas, please call +44 (0)121 415 7047. Lines are open 8.30 a.m. – 5 p.m., Monday–Friday. To appoint more
than one proxy, you may photocopy the proxy form.
2. To be valid, any form of proxy or other instrument appointing a proxy must be received by post or (during normal business hours only)
by hand at the offices of the Company’s registrars, Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA,
no later than 11.30 a.m. on 16 May 2011. If you return more than one proxy appointment, that received last by the Registrar before the
latest time for the receipt of proxies will take precedence. You are advised to read the terms and conditions of use carefully.
3. The return of a completed form of proxy will not prevent a shareholder attending the AGM and voting in person if he/she wishes
to do so.
4. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its
powers as a member provided that they do not do so in relation to the same shares.
5. Any person to whom this notice is sent who is a person nominated under Section 146 of the Act to enjoy information rights (a
‘Nominated Person’) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right
to be appointed (or to have someone else appointed) as a proxy for the AGM. If a Nominated Person has no such proxy appointment
or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the
exercise of voting rights.
6. The statement of the rights of shareholders in relation to the appointment of proxies in notes 1 and 2 above does not apply to
Nominated Persons. The rights described in these paragraphs can only be exercised by shareholders of the Company.
7. To be entitled to attend and vote at the AGM (and for the purpose of the determination by the Company of the votes they may
cast), shareholders must be registered in the Register of Members of the Company at 11.30 a.m. on 16 May 2011 (or, in the event
of any adjournment, on the date which is 2 days before the time of the adjourned meeting). Changes to the Register after the
relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the meeting. There are no other
procedures or requirements for entitled shareholders to comply with in order to attend and vote at the AGM. Voting at the meeting
will be conducted by way of a show of hands, unless a poll is correctly called for.
8. As at 20 April 2011 (being the last practicable date prior to publication of this Notice), the Company’s total issued equity share capital
consists of 10,957,976 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 20 April 2011
are 10,957,976.
9. Under Section 527 of the Act, members meeting the threshold requirements set out in that Section have the right to require the
Company to publish on a website a statement setting out any matter relating to: (i) the audit of the Company’s accounts (including
the auditors’ report and the conduct of the audit) that are to be laid before the AGM; or (ii) any circumstance connected with
an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in
accordance with Section 437 of the Act. The Company may not require the shareholders requesting any such website publication to
pay its expenses in complying with Sections 527 or 528 of the Act. Where the Company is required to place a statement on a website
under Section 527 of the Act, it must forward the statement to the Company’s auditors not later than the time when it makes the
statement available on the website. The business which may be dealt with at the AGM includes any statement that the Company has
been required under Section 527 of the Act to publish on a website.
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20494.04 13/04/2011
Proof 3
10. Pursuant to Section 319A of the Act, the Company must cause to be answered at the AGM any question relating to the business being
dealt with at the AGM which is put by a member attending the meeting, except in certain circumstances, including if it is undesirable
in the interests of the Company or the good order of the meeting that the question be answered or if to do so would involve the
disclosure of confidential information.
11. Except as provided above, members who wish to communicate with the Company in relation to the AGM should do so using the
following means: (1) by writing to the Company Secretary at the Registered Office address; or (2) by writing to the Registrars, Equiniti
Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA. No other methods of communication will be accepted, In
particular, you may not use any electronic address provided either in this Notice or in any related documents for any purposes other
than expressly stated.
12. A copy of this Notice, and other information required by Section 311A of the Act, can be found at www.churchillchina.
plc.uk.
13. Copies of the Directors’ Service Contracts and the non executive Directors’ letter of appointment will be available for inspection at
the Company’s Registered Office address on weekdays (Saturdays and public holidays excepted) during business hours from the date
of this Notice until the conclusion of the AGM.
page
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20494.04 13/04/2011
Proof 3
The notes on the following pages give an explanation of certain of the proposed resolutions.
1. Resolutions 3 and 4: In accordance with the Company’s Articles of Association at every AGM a certain number of Directors must
retire by rotation. Mr A Roper and Mr J Morgan are retiring by rotation and resolutions 3 and 4 seek approval for their re-election as
Executive and Non Executive Director respectively.
2. Resolution 5: Is a resolution to elect Mr A McWalter as a non executive Director who has been appointed to the Board since the
date of the last AGM and under the Articles of Association of the Company must retire and be elected at the next AGM. The basis
upon which the Board believes that Mr McWalter should be elected is that he will bring significant experience to the Board from
both his executive and non executive roles and will allow the Company to satisfy Corporate Governance obligations in relation to the
composition and balance of the Board under the Combined Code.
3. Resolution 6: Is a resolution to re-elect Mr J Sparey who having served in excess of 9 years as a non executive Director must now,
in accordance with guidance under the Combined Code, retire and offer himself for re-election each year.
Biographical details for the Directors are set out on page 15 of the Report and Accounts.
Each of the Directors has had a formal performance evaluation and the Board believes that each of them continues to be effective
and demonstrates commitment to the role.
4. Resolution 9: Under Section 570 of the Act, when new shares are allotted or treasury shares are sold for cash, they must first be
offered to existing shareholders pro rata to their holdings. This special resolution empowers the Directors to: (a) allot shares of the
Company in connection with a rights issue, scrip dividend or other similar issue; and (b) otherwise allot shares of the Company, or
sell treasury shares for cash, up to an aggregate nominal value of £109,259 (representing in accordance with institutional investor
guidelines, approximately 10% of the total issued equity share capital as at 20 April 2011) (being the last practicable date prior to the
publication of this Notice) as if the pre-emption rights of Section 570 did not apply.
Except in relation to the Company’s employee share schemes, the Directors have no immediate plans to make use of this power.
In line with best practice, the Company confirms that it has not issued more than 7.5% of its issued share capital on a non-pro rata
basis over the last 3 years, and it confirms its intention to adhere to the provisions in the Pre-Emption Group Statement of Principles
regarding cumulative usage of authorities of no more than 7.5% of the issued ordinary share capital within a rolling 3 year period.
This power shall cease to have effect at the conclusion of the next AGM or on 18 November 2012, whichever is the earlier..
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20494.04 13/04/2011
Proof 3
5. Resolution 10 renews the Directors’ current authority to make limited market purchases of the Company’s ordinary shares. The
power is limited to a maximum aggregate number of 1,092,590 ordinary shares (representing approximately 10% of the issued share
capital excluding treasury shares as at 20 April 2011 (being the last practicable date prior to publication of this Notice)) and details
the minimum and maximum prices that can be paid, exclusive of expenses. Any purchases of ordinary shares would be made by
means of market purchase through the London Stock Exchange.
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.
Current legislation allows companies to hold shares acquired by way of market purchase in treasury, rather than having to cancel
them. The Directors may use the authority to purchase shares and hold them in treasury (and subsequently sell or transfer them
out of treasury as permitted in accordance with legislation) rather than cancel them, subject to institutional guidelines applicable
at the time. Shares will only be purchased if to do so would result in an increase in earnings per share and is in the best interests
of shareholders generally. The Board has previously indicated its intention to continue to return surplus cash to shareholders via
on-market purchase of its own shares where it is not required to finance the organic expansion of the business, acquisitions and
dividend payments.
The authority conferred by this resolution will expire at the conclusion of the next AGM or on 18 November 2012, whichever is the
earlier.
6. Resolution 11 is required under the Shareholders’ Rights Regulations in order to preserve the ability of the Company to call general
meetings on 14 days’ notice, with shareholders’ approval. The approval will be effective until the 2012 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 Regulations before it can call a general meeting on 14 days’ notice.
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20494.04 13/04/2011
Proof 3
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20494.04 13/04/2011
Proof 3
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20494.04 13/04/2011
Proof 3
Financial Highlights
Five Year Performance
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
Comprehensive Income
Consolidated Balance Sheet
Company Balance Sheet
Consolidated Statement of
Changes in Equity
1
2
3
4
6
8
12
13
14
24
32
34
36
37
38
39
40
Consolidated Cash Flow Statement 41
Reconciliation of Operating Profit to
Net Cash from Operating Activities
42
Notes to the
Financial Statements
Five Year Financial Record
43
76
Notice of Annual General Meeting
77
Above: Disney 100 Acre Wood
20494.04 13/04/2011
Proof 3
20494.04 13/04/2011
Proof 3
China plc
China plc
Churchill China plc
Marlborough Pottery, High Street, Tunstall, Stoke-on-Trent, ST6 5NZ
www.churchillchina.com
©Churchill China plc 2011
Annual Report
2010
20494.04 13/04/2011
Proof 3
20494.04 13/04/2011
Proof 3