China plc
Annual Report
2011
21358.04 13/04/12 Proof 3 Performance
Innovation
Uncompromising Service
Passion
Responsiveness
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
25
32
35
37
38
39
40
41
Consolidated Cash Flow Statement
42
Reconciliation of Operating Profit
to Net Cash Inflow from
Operating Activities
Notes to the Financial Statements
Five Year Financial Record
43
44
75
Above: Alchemy Plate Towers
21358.04 13/04/12 Proof 3 Financial Highlights
Results
Revenue – continuing operations
Operating profit – continuing operations
Share of results of associate company
Net finance income/(cost)
Profit before income tax
Dividends paid
Key Ratios
Operating margin
Basic earnings per share
Diluted earnings per share
Dividends paid per share
2011
£000
2010
£000
42,296
43,746
2,713
(41)
22
2,694
1,530
6.4%
19.2p
19.2p
14.0p
2,287
162
(135)
2,314
1,529
5.2%
15.8p
15.8p
14.0p
Above: Alchemy Plate Towers
Above: Alchemy Ambience
Above: Lucaris Glassware
1
21358.04 13/04/12 Proof 3 Five Year Performance
07
08
09
10
11
07
08
09
10
11
07
08
09
10
11
46.9
42.0
41.7
43.7
42.3
Revenue (£m)
0
10
20
30
40
50
4,044
3,362
2,069
2,314
2,694
0
1
2
3
4
5
Profit before exceptional items
(£000)
26.5
22.2
14.3
15.8
19.2
Adjusted basic
earnings per share (p)
0
5
10
15
20
25
30
2
21358.04 13/04/12 Proof 3
Company Profile
CHURCHILL CHINA plc
DIRECTORS, SECRETARY AND ADVISERS
Above: Art de Cuisine, Illuminate
EXECUTIVE
DIRECTORS
A D Roper
D J S Taylor
D M O’Connor
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
Chartered Accountants and Statutory Auditors
Cornwall Court
19 Cornwall Street
Birmingham
B3 2DT
BANKERS
Lloyds Banking Group plc
8th Floor
40 Spring Gardens
Manchester
M2 1EN
SOLICITORS
Addleshaw Goddard
100 Barbirolli Square
Manchester
M2 3AB
STOCKBROKERS
AND ADVISERS
N+1 Brewin LLP
12 Smithfield Street
London
EC1A 9BD
REGISTRARS
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6ZX
* Member of audit committee
• Member of remuneration committee
Registered no: 2709505
3
21358.04 13/04/12 Proof 3
Chairman’s Statement
“Churchill China delivered a
robust trading performance in 2011”
INTRODUCTION
I am very pleased to report that Churchill China
Group revenues were slightly lower at £42.3m (2010:
delivered a robust trading performance in 2011,
£43.7m) reflecting this combination of continued
continuing to make good progress despite the
growth
in Hospitality sales and the planned
difficult
international economic environment.
reduction in Retail sales. Group profit before tax
Sales in our Hospitality business are now ahead
for the year rose by 16.4% to £2.7m (2010: £2.3m).
of their previous peak and profitability improved
Churchill has again ended the year with a strong
significantly. Our Retail business enhanced the
balance sheet including cash balances of £6.9m
quality of its customer mix and earnings on
(2010: £4.4m). The new financial year has started
substantially lower sales as we turned away from
positively and is in line with our expectations.
low margin business.
4
Above: Little Rhymes
Above Top: James Sadler
Above Bottom: Alchemy Buffet Cubes
21358.04 13/04/12 Proof 3 Above: Alchemy Moonstone and Buffet Cubes
5
21358.04 13/04/12 Proof 3 Financial Review
Above Lifestyles: Churchill Super Vitrified Contempo
Group operating profit increased by 18.6% to £2.7m
DIVIDEND AND SHAREHOLDER RETURN
(2010: £2.3m) with margins rising from 5.2% to 6.4%.
We are pleased with this strong improvement in
profitability, particularly given that it was achieved
against a background of increased investment in
our Hospitality business, the substantial repositioning
of our Retail business and higher depreciation
costs. Earnings before interest, tax, depreciation
and amortisation rose 22% from £3.8m to £4.7m.
Earnings per share improved by 22% from 15.8p to
19.2p reflecting both the improvement in pre tax
profit and a lower than standard tax charge. The
The Board is pleased to recommend a maintained
final dividend of 9.2p, leaving the total dividend for
the year at 14.0p. The improvement in profitability
demonstrated in the year has increased our
overall dividend cover to a level of 1.4 times and
the Group currently trades on a dividend yield of
almost 5%. The Board maintained dividends during
the economic crisis despite lower profit levels and
intends to return to a progressive dividend policy
in the future, if the Group demonstrates further
improvements in profitability and continued strong
tax charge for the year fell to an effective rate
cash flow.
of 22% (2010: 25%) following changes in forward
deferred tax rates.
We generated strong cash flows during the year
with inflows from operations rising to £5.9m (2010:
£1.1m) and year end net cash balances increasing
to £6.9m (2010: £4.4m). The high level of cash
Total shareholder returns fell slightly during the
year against a backdrop of lower market equity
valuations. We have delivered compound returns
to shareholders of 7% per annum over the last five
years and our overall returns remain comfortably
above our benchmark indices over both one and
generation was principally due to a substantial
five year timescales.
reduction in receivables which largely reflected
a structural change in the profile of our Retail
business. Part of this reduction in working capital
was reinvested in higher inventory to support the
development of our Hospitality business.
The deficit on our defined benefit pension scheme
fell as inflation assumptions moderated and asset
values were maintained.
6
21358.04 13/04/12 Proof 3
“We generated strong cash flows during the year”
Above: Churchill Super Vitrified Contempo
7
21358.04 13/04/12 Proof 3 Operational Review
“Churchill continues to invest for the long
term in sales, marketing and design expertise”
HOSPITALITY
2011 was a very encouraging year in our Hospitality
Our export sales increased by 7% and enjoyed
business, delivering record sales of £29.2m up 6.5%
significant new installation activity in international
on the previous year (2010: £27.4m) and materially
hotels, conference centres and cruise
lines.
ahead of 2007 (£28.6m) which was our highest
New installation business has made a material
previous record. Operating profit increased by
contribution to the profitability of our Hospitality
16.2% from £4.1m to £4.7m, a direct result of this
business and sales to new facilities were twice as
increase in revenue.
high in 2011 as the previous year. Notable was
our growing success in the Middle East which was
We improved our market leading position in the
reflected most recently in a large sale to the highly
UK by increasing Hospitality sales by 6% in spite
prestigious Qatar National Conference Centre for
of
the disappointing economic environment,
our Ambience fine china.
underpinned by steady
repeat business with
existing customers but only limited new installations.
Churchill continues to invest for the long term in
We increased our total investment in sales and
sales, marketing and design expertise focused on
marketing in line with this increase.
our key markets. This capability is building important
long
term
relationships with end users and
Churchill is a major provider of ceramics to pubs,
distributors coupled with a continuous programme
restaurants and the healthcare sector. We have
of product innovation and range extension. Our
now substantially extended our sector coverage to
strategy for new product development is targeted
sell Ambience, Alchemy, Riedel and other products
at specific market sectors that vary significantly by
to premium accounts
including
international
segment and geography and where practicable
hotels and cruise lines. Our London showroom
we tailor new product propositions directly to these
at the Business Design Centre has proved an
customer groups emphasising knowledge of food
excellent showcase for our products and we will
trends, performance in use and overall functionality.
shortly double its size as a reflection of increased
activity; our customers will now be able to view
the full Churchill product range alongside Riedel
glassware and Guy Degrenne cutlery.
8
21358.04 13/04/12 Proof 3 Above: Churchill Super Vitrified Vintage Prints
9
21358.04 13/04/12 Proof 3 Operational Review
(continued)
“We are passionate about
manufacturing in the United Kingdom”
OPERATIONS
We maintained manufacturing volumes throughout
2011 generating high efficiency levels. Our capital
expenditure of £1.3m in the year was slightly lower
than the previous year and principally directed at
extending our manufacturing capability, reducing
energy consumption and the overall efficiency of
our operations. Specifics include further installation
of robotics.
We are committed to innovation in the ceramics
industry and our rate of new product introduction
continues to escalate. We introduced over 250 new
products in 2011 compared to 88 in the previous year
and expect the rate of new product introduction to
accelerate further in 2012.
We are passionate about manufacturing in the
United Kingdom and have invested almost £20m
in our operations over the last decade to ensure
that we will continue to be able to develop and
manufacture the products our markets require
effectively.
10
Above: RHS The Garden
21358.04 13/04/12 Proof 3 “Our Retail business increased operating profits”
RETAIL
Our Retail business increased operating profits from
£0.7m to £1.0m in 2011 on significantly lower turnover
of £13.1m (2010 £16.3m). This result reflected the
fundamental repositioning of our Retail business
which has been underway for more than two years.
Our strategy has been to focus our effort on delivering
profitable middle market sales growth, primarily to the
independent sector and to exit low margin, volatile
and inherently higher risk business mainly in the UK and
USA. Lower sales levels have allowed us to reduce the
cost base of the Retail business and release significant
amounts of working capital.
Sales of our mid market product to the UK independent
sector, Korea and Japan were supported by new
introductions of Queens and Churchill product
ranges together with our prestige brand portfolio.
We have been encouraged by our success with UK
independent retailers who have performed better
for Churchill than we might have expected given the
economic environment. Non-traditional retail outlets
such as garden centres and cook shops are offering
the consumer high quality branded merchandise,
with high design content that is appealing for giftware
and other occasions and appears more attractive
than own label products offered by many of the
major retailers. The Churchill design and marketing
team are a critical part of our success in this area,
developing new retail product offerings which have
been well received at major trade fairs and leading
to new listings.
Above: Hidden World
11
21358.04 13/04/12 Proof 3 People
“Our results in 2011 are a tribute to the
effectiveness and team spirit of our staff”
I have said before that we have some great
Churchill’s workforce. Charities such as Douglas
people in Churchill whose enthusiasm, dedication,
MacMillan, the Donna Louise Trust and South
skills and effort is fundamental to our success. We
African schools have been the main beneficiaries
are very proud of our workforce across the business
of
the many
fundraising events undertaken
whether in the factory, warehouse or in the offices.
throughout the year. On a separate note I would
They work very effectively as an
integrated
like to extend particular thanks to Iain Hicks who
team to sustain our performance in uncertain
has stepped down from the Board after 5 years
economic times. Our results in 2011 are a tribute
service in order to concentrate on delivering major
to the effectiveness and team spirit of our staff. I
projects within our supply chain and IT systems.
am delighted by the generosity and goodwill of
12
Above: Alchemy Ambience
21358.04 13/04/12 Proof 3 Prospects
“I am confident that Churchill will deliver
enhanced shareholder value in 2012 and beyond”
The profile of our business continues to change. We
long term cash flows from operations which will
have clear strategies for growth in our Hospitality
allow us to sustain this investment and maintain an
business and have repositioned our Retail business
attractive return to shareholders. I am confident
which is now delivering improved margins with
that Churchill will deliver enhanced shareholder
reduced risk.
value in 2012 and beyond.
Continued investment in UK manufacturing, sales
Jonathan Sparey
and marketing and new product development
Chairman
will be a key feature of 2012. We have a strong
27 March 2012
balance sheet and are generating attractive
Above: Alchemy Signature Tile
Above Top: Riedel Glass
Above Bottom: Guy Degrenne Cutlery with Vintage Prints
13
21358.04 13/04/12 Proof 3 Directors’ Report
for the year ended 31 December 2011
The Directors present their annual report and the audited consolidated financial statements of the Group for the year
ended 31 December 2011.
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 37.
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 15.
Dividends
The Directors have paid the following dividends in respect of the years ended 31 December 2011 and 31 December 2010:
Ordinary dividend:
Final dividend 2010 9.2p (Second interim dividend 2009: 9.2p) per 10p ordinary
share
Interim dividend 2011 4.8p (2010: 4.8p) per 10p ordinary share
The Directors now recommend payment of the following dividend:
Ordinary dividend:
Final dividend 2011 9.2p (2010: 9.2p) per 10p ordinary share
Dividends on treasury shares held by the Company are waived.
2011
£’000
1,005
525
1,530
2010
£’000
1,004
525
1,529
1,005
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
I T Hicks
J W Morgan*
A J McWalter *
(resigned 2 December 2011)
(appointed 5 January 2011)
* Non executive
14
21358.04 13/04/12 Proof 3
The Directors retiring by rotation are D J S Taylor and D M O’Connor who being eligible, offer themselves for re-election. The
unexpired terms of the service contracts of D J S Taylor and D M O’Connor are twelve months.
J N E Sparey has now served as a non Executive Director of the Company for over 11 years and as such is required due to
the principles of the UK Corporate Governance Code to retire and seek re-election as a Director on an annual basis. The
unexpired term of his service contract is twelve months.
The biographical details of the Directors are as follows:
Jonathan Sparey, non executive Chairman, aged 54, is a senior partner and member of the Global Leadership Team of
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 63, 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 52, has worked for the Group for 20 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 55, has worked for Churchill for 21 years in a number of production,
operations and marketing roles. He has extensive experience within the Ceramics industry and joined the Board in 1999.
Jonathan Morgan, non executive Director, aged 54, is a Director of SVG Investment Managers Limited and has many years
of experience in investment management within small and medium sized growth 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 58, 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
The Group operates 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 60% of our gross revenue, we also
enjoy significant sales to Europe and North America which respectively account for 19% and 7% of our turnover. Almost
without exception all of these markets are subject to a high level of competitive pressure and our costs of operation require
constant review and control.
Hospitality markets have generally performed well, with maintained levels of dining out in the UK and continued investment
by pub, restaurant and hotel owners. There has been some evidence of the impact of more difficult economic conditions in
Europe although these have been offset by improvements to our product range and competitiveness. Hospitality markets
are generally more long-term in their outlook and there are barriers to entry given the nature and structure of the market
which places a premium on service, quality and technical performance.
Retail markets, particularly in volume sectors in the UK and abroad, have been more difficult and we have withdrawn from
more price sensitive areas of business. As a result our overall revenues have fallen, although the profit impact of this fall
has been offset by a reduction in resource and cost allocated to this business. Whilst customers and consumers have been
affected by harsher economic conditions our revised focus has allowed us to improve our profitability. In retail markets our
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.
15
21358.04 13/04/12 Proof 3 Directors’ Report
(continued)
We believe that there has been a general decrease in the overall size of our markets during the year as global macro-
economic conditions have become more difficult and consumer confidence has declined. Progress has only been possible
given clear focus on long-term market development, careful management of commercial relationships and a consistent
programme of investment. Forecasts for the UK and our major export markets suggest that economic growth will remain
restrained in 2012. Our forward planning process assumes that there will be no major economic growth in 2012 and we
continue to manage our business accordingly.
The cost of imported product has risen through 2011 due to increased inflation in Far Eastern economies and exchange
rate issues. Our UK manufacturing operations remain subject to tight cost control. Labour rates have risen marginally during
the year, but are expected to remain stable during 2012. Material costs have risen given general commodity price rises and
energy costs are generally higher than those experienced in the corresponding period of 2011 although we expect lower
usage following investment in energy efficient machinery.
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.
Our long-term aim is to build revenues in markets offering a reasonable and repeatable level of profitability and to reduce
our exposure to markets and customers where the margin on sales does not adequately cover our costs of operation.
At present this leads us towards development of revenues in hospitality markets worldwide and in the independent and
department store sectors of the retail market.
Our strategies are designed to allow us to identify markets where we may profitably grow our revenues, to research
customer product requirements and the distribution structure of those markets and then to invest to generate margin
and ultimately a return for shareholders. This process builds on our established and market leading positions in hospitality
ceramics and increasingly attractive retail middle market business.
Design
It is a key strategic aim to design products that meet our end users requirements both in terms of performance, shape and
surface design. Our target markets require product that is aesthetically appealing whilst also being functional and robust.
We offer a broad range of products satisfying a range of design styles, product types and price points. All our products,
whether ceramic or other complementary tabletop lines, are researched and designed within Churchill or in conjunction
with experienced external manufacturers, designers and licensors. The ability to develop successful 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.
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.
We control and measure quality through a number of integrated systems in our business and, where applicable, in our
suppliers. We also review customer feedback and maintain an active involvement with our customers after we have sold
product to them.
16
21358.04 13/04/12 Proof 3 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.
Our production and logistic facilities have been designed to balance efficiency and flexibility within manufacturing to
ensure that we can respond quickly to unexpected demand levels. 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. We invest regularly in these processes to maintain a market leading position 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 whilst the short-term outlook for a number of our markets remains affected by general economic
uncertainty, the strong positions we hold in a number of hospitality markets and the benefit from repositioning our retail
business will mean that we will continue to be able to improve our overall business performance. Our strong financial
position allows us to invest for the long-term and reduces the risk to the business from sudden changes in market conditions.
The Board continues to believe 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. Our
market development strategies are well resourced and have generated a number of new opportunities for us.
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. We expect this to continue and as a result have withdrawn from
the most competitive sectors of the market where we do not believe there is an acceptable return for shareholders. We
are therefore likely to see a fall in revenue in this area, but a better overall return.
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 maintain a long-term, investment led approach to its development.
Principal risks and uncertainties
The Group’s operations are subject to a number of risks, which are formally reviewed by the Board in a systematic manner
on a regular basis. The key business risks currently 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. The
Group actively manages its market exposure and profitability.
The risk inherent in each market is offset by regular review of market conditions and forecasts, 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 actively developing new geographic markets and introducing new product ranges. As we enter new markets this
introduces new risks to the Group although it does also diversify our overall market exposure.
17
21358.04 13/04/12 Proof 3 Directors’ Report
(continued)
Currency exposure
The Group’s position as a worldwide provider of ceramic and related products means that our profitability will be subject
to currency fluctuations related to export sales and the purchase of certain products for resale. Our non sterling receipts
are principally denominated in US dollars and Euros. Against US dollar receipts we have a partial 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 and supply chain
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 use of these
suppliers exposes us to risks in relation to interruption to supply and changes in cost structures arising from economic or
regulatory change. We manage this risk by diversifying our sources.
Approximately two thirds of our sales are manufactured in our production facility. Whilst this provides a high quality
and effective source of products it exposes us to risk in the case of the potential loss of availability of our factory for an
extended period. This risk is controlled through management procedures, appropriate investment and ultimately insurance
arrangements.
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.
18
21358.04 13/04/12 Proof 3 Key performance indicators
Sales and sales growth
The absolute level of sales and sales growth are reviewed regularly by business segment through the year against previous
year and target levels.
Sales 2011: £42.3m (2010: £43.7m)
Sales growth 2011: -3% (2010: 5%)
Our sales to UK customers fell by 3% overall as volume Retail channels became more competitive and we withdrew from
unprofitable accounts. This was partially offset by another strong performance from sales to UK hospitality accounts. Sales
to Europe and North America also fell again, largely due to the effects of lower sales to poor margin volume retail accounts.
The revised mix of sales better reflects our strategic target of focusing exclusively on better margin business in both the
hospitality and retail sectors. Sales improved in other markets, particularly in the Middle East.
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 2011: £9.1m (2010: £8.2m)
The sustained increase in inventory holding levels reflects increased sales to Hospitality customers and the extension of our
product range from ceramics to glass and cutlery. Retail stocks were reduced as revenues fell.
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 2011: £2.7m (2010: £2.3m)
Operating profit before tax increased in both our operating divisions. We incurred additional costs associated with longer
term investment in new product development and in building inventory levels to support increased sales. Operating margins
increased satisfactorily to 6.4% (2010: 5.2%) reflecting increased Hospitality revenues and the focus on more profitable retail
accounts.
The level of profit before tax is reviewed on a monthly basis against previous performance and target levels.
Profit before taxation 2011: £2.7m (2010: £2.3m)
Profit before taxation moved forward by over 16% as operating profits were increased and the, notional interest charge
associated with our pension scheme liability reduced. Our share of the profit of our associate company Furlong Mills
reduced following a review of the carrying value of the investment. Underlying trading performance remains acceptable.
19
21358.04 13/04/12 Proof 3 Directors’ Report
(continued)
Operating cash generation
The Group believes that over an extended time period it is important to generate cash at an operating level at least
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 cash generation 2011: £5.9m (2010: £1.1m)
Percentage of operating cash generation to operating profit for the year 218% (2010: 48%).
Three year average percentage of operating cash generation to operating profit 144% (2010: 95%).
Operating cash generation increased given tight control of working capital. Receivable balances fell as both overall
revenues reduced and the seasonal pattern of sales moved away from the fourth quarter. Cash collections improved.
This was partially offset by increased inventory holdings to support longer term business development but the overall result
remains satisfactory.
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 Group’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 Group is fully committed to its equal opportunities employment policy offering equality in recruitment, training, career
development and promotion of all employees irrespective of gender, ethnic origin, age, nationality, marital status, religion,
sexual orientation or disability. If an employee were to become disabled during their employment every effort would be
made to retain them within the business and offer appropriate re-training.
20
21358.04 13/04/12 Proof 3 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 re-used many
hundreds of times, a significant amount of energy is consumed in its production. As a result of this we have invested over
several years to reduce our energy consumption and have replaced older systems and machinery with more modern
energy efficient plant and procedures. We run on-going 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 the 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.
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. We
have increased our investment in the development of new products across the year to take advantage of new market
opportunities. 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.
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.
21
21358.04 13/04/12 Proof 3 Directors’ Report
(continued)
Financing
The Group currently utilises equity and retained earnings to finance its operations in relation to short, medium and long-term
requirements. The Group has historically enjoyed a good record of operating cash generation and forward investment and
other cash requirements have been financed from this source.
If additional financing is needed in the short-term the Group has access to short-term variable rate financing arrangements
on an unsecured basis to provide finance for working capital requirements should they be required. The Group is currently
ungeared and there are no assets currently subject to security, although cross guarantees exist between different Group
companies. These assets would therefore form an alternative source of short to medium-term funding if this were required.
Larger long-term funding requirements may be met from debt and equity sources if this is required.
The Group reviews and maintains adequate levels of liquidity to meet short-term operating commitments as part of its day
to day treasury management. Longer term liquidity and cash requirements are reviewed as part of the Group’s budgetary
and strategic planning processes.
Financial instruments
The Group uses its own cash resources and forward exchange contracts and foreign currency bank accounts to manage
its exposure to exchange rate risk caused by trading activities in currencies other than sterling.
The risk management policy adopted is to regularly review forward foreign currency cash flows, identifying the currency
effect of completed sale and purchase transactions, transactions which have been contracted for but not completed and
an assessment of expected likely forward cash flows. The net currency exposure arising from this review is then managed
using forward option contracts. Net currency exposures are generally covered between three and six months forward at
any point in time. The Group does not trade in financial instruments.
The Group has no material interest rate risk, the only interest rate exposure is in relation to returns on short-term cash deposits
and borrowings.
Note 2 to the accounts includes financial risk considerations.
Land and buildings
The current value of land and buildings is in the opinion of the Directors in excess of the value included in these accounts.
This has not been quantified because independent valuations have not been undertaken.
Substantial shareholdings
The Directors have been advised of the following individual interests, or group of interests, other than those dealt with in the
summary of Directors’ interests in the Report of the Remuneration Committee, held by persons acting together, which at
19 March 2012 exceeded 3% of the Company’s issued share capital:
Shareholder
New Landfinance Holdings Limited
J A Roper
S Baker
E S & S J Roper
M J & G Roper
Investec Wealth and Investment
Henderson Global Investors Limited
22
Number of
ordinary
shares
2,345,000
1,102,500
1,100,000
837,265
560,380
485,857
440,000
Percentage
21.5%
10.1%
10.1%
7.7%
5.1%
4.4%
4.0%
21358.04 13/04/12 Proof 3
Share repurchase
During the year the Company repurchased 65,000 (2010: 32,000) 10p ordinary shares at a total cost of £177,000 (2010:
£91,000) in order to improve overall shareholder return. 64,000 (2010: 35,400) shares were re-issued in respect of employee
share option schemes for a total consideration of £122,000 (2010: £49,000). The maximum number of shares held by the
Company during the year was 77,000 10p ordinary shares. The Company retains a power, subject to the fulfilment of
certain conditions and as approved at the 2011 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 2011 was 35 days (2010: 36 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 (2010: £nil) and £3,000
(2010: £3,000) respectively. In addition to the above the Group regularly donates quantities of product to charitable causes.
The estimated value of these donations in 2011 was £9,000 (2010: £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.
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:
●● select suitable accounting policies and then apply them consistently;
●● make judgements and accounting estimates that are reasonable and prudent;
●● 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;
●● 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
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.
The Directors are responsible for the maintenance and integrity of the Company’s website and legislation in the United
Kingdom governing the publication and dissemination of financial statements may differ in other jurisdictions.
23
21358.04 13/04/12 Proof 3 Directors’ Report
(continued)
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 re-appointed will be proposed at the Annual General Meeting.
By order of the Board
D J S Taylor
Company Secretary
27 March 2012
24
21358.04 13/04/12 Proof 3 Report of the Remuneration Committee
for the year ended 31 December 2011
Remuneration Policy
This section of the Report of the Remuneration Committee is not audited.
The terms of Reference for the Remuneration Committee are listed below:
●● To determine, on behalf of the Board and the shareholders, the Company’s broad policy for Executive reward and the
entire individual remuneration including terms of service for each of the Executive Directors (and as appropriate other
nominated Senior Executives).
●● In doing so, to give the Executive Directors appropriate encouragement to enhance Company performance and
ensure that they are fairly but reasonably rewarded for their individual responsibilities, abilities and contribution.
●● To report and account directly to the shareholders, on behalf of the Board, for their decisions.
The Remuneration Committee issued a policy statement which is endorsed by the Board. In determining its policy the
Committee has given full consideration to Section B of the best practices provisions annexed to the Listing Rules of the
London Stock Exchange. The two elements of this statement are:
●● Total rewards to Executive Directors are intended to provide a comprehensive benefit package which both attracts
and motivates individuals of calibre and experience to achieve continuous improvement in shareholder value (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.
●● 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), A M Basnett (HR Director, Churchill China (UK) Limited) and New Bridge Street, a company specialising
in the provision of remuneration advice to listed companies.
25
21358.04 13/04/12 Proof 3 Report of the Remuneration Committee
(continued)
Directors’ emoluments
This section of the Report of the Remuneration Committee is audited. Emoluments of the Directors were as follows:
2011
Executive
A D Roper
D J S Taylor
D M O’Connor
I T Hicks *
Non executive
J N E Sparey
J W Morgan
A J McWalter
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
Performance
bonuses
£
Salary
£
Benefits
in kind
£
Aggregate
emoluments
£
Pensions
(see below)
£
Aggregate
emoluments
including
pensions
£
200,000
184,000
191,333
126,225
59,333
36,875
36,875
56,000
51,520
54,600
29,317
–
–
–
966
1,119
1,023
938
–
–
–
256,966
236,639
246,956
156,480
59,333
36,875
36,875
–
16,560
17,293
8,836
–
–
–
256,966
253,199
264,249
165,316
59,333
36,875
36,875
834,641
191,437
4,046
1,030,124
42,689
1,072,813
200,000
170,231
184,000
132,333
58,000
12,644
36,000
5,000
10,000
25,000
15,000
–
–
–
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
* I T Hicks’ remuneration is shown to the date of his resignation from the Board on 2 December 2011.
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 2011 and 2010.
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.
26
21358.04 13/04/12 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
Unapproved Executive scheme
D M O’Connor
Executive Scheme
Unapproved Executive Scheme
I T Hicks
Approved Executive scheme
Unapproved Executive scheme
Date of
grant
19.04.02
30.04.04
30.04.04
30.04.04
30.04.04
30.04.04
Number of
options
31 December
2011
Number of
options
31 December
2010
Exercise
Price
pence
Date from
which
exercisable
Expiry
date
–
10,000
10,000
–
6,000
6,000
–
4,000
4,000
15,000
10,000
25,000
4,000
6,000
10,000
6,000
4,000
10,000
171
208
Apr 2005
Apr 2007
Apr 2012
Apr 2014
208
208
Apr 2007
Apr 2007
Apr 2014
Apr 2014
208
208
Apr 2007
Apr 2007
Apr 2014
Apr 2014
No share options were granted to Directors during the year.
On 26 October 2011 D J S Taylor exercised 15,000 share options granted under the Unapproved Executive Share Option
Scheme at an exercise price of 171p, On the same day D M O’Connor exercised 4,000 share options granted under the
Approved Executive Share Option scheme at an exercise price of 208p and I T Hicks exercised 6,000 share options granted
under the Approved Executive Share Option scheme at an exercise price of 208p.
The market price at the date of exercise was 265p.
I T Hicks’ outstanding options are disclosed as at the date of his resignation from the Board. There has been no change in
his holding between 2 December 2011 and 27 March 2012.
Share options are granted to Directors in accordance with the terms of reference of the Remuneration Committee (see
page 25) to provide encouragement to enhance Group performance in the long-term and having regard to each
employees responsibilities, ability and contribution. The grant of options is made at market value at the date of grant at no
cost to the employee.
The above options are only exercisable subject to the satisfaction of performance criteria in relation to sustained
improvement in the financial performance of the Group. In the case of the above options the Remuneration Committee
consider that a sustained improvement in the financial performance of the Group represents an increase in the adjusted
basic earnings per ordinary share of the Group of at least 6% above the increase in the Retail Price Index over the three
year period from the beginning of the financial year in which the option was granted.
Shares options are granted to other employees, however these employees are not considered key management as
defined by IAS 24.
27
21358.04 13/04/12 Proof 3
Report of the Remuneration Committee
(continued)
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
phantom
shares
31 December
2011
Number of
phantom
shares
31 December
2010
Base value
pence
Cap value
pence
Date from
which
exercisable
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
300
300
284
300
300
284
300
300
284
550
700
684
550
700
684
550
700
684
Dec 2010
Dec 2011
May 2012
Dec 2010
Dec 2011
May 2012
Dec 2010
Dec 2011
May 2012
Date of
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
Expiry
date
Dec 2012
Dec 2012
May 2013
Dec 2012
Dec 2012
May 2013
Dec 2012
Dec 2012
May 2013
D J S Taylor
D M O’Connor
I T Hicks
The above options are only exercisable subject to the satisfaction of performance criteria in relation to a sustained
improvement in the financial performance of the Group. In the case of the above options the Remuneration Committee
consider that a sustained improvement in the financial performance of the Group represents an increase in the adjusted
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 274.5p (2010: 305p). The range of prices for
the year to 31 December 2011 was 339p to 255p (2010: 257.75p to 310.0p) per ordinary share.
Gains made by Directors on share options
This section of the Report of the Remuneration Committee is audited.
The gains made by 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:
2011
£’000
14,100
2,280
3,420
19,800
2010
£’000
39,638
10,400
–
50,038
D J S Taylor
D M O’Connor
I T Hicks
28
21358.04 13/04/12 Proof 3
Pensions
This section of the Report of the Remuneration Committee is audited.
The method of provision of pension benefits to Directors changed during 2006. Up to 31 March 2006 benefits were provided
through a defined benefit scheme, the Churchill Group Retirement Benefit Scheme. On 31 March 2006 the accrual of future
benefits under this scheme ceased and future pension provision was made under a Group Personal Pension arrangement.
The disclosures below reflect this change.
Pension benefits earned by Directors under the defined benefit scheme were as follows:
A D Roper
D J S Taylor
D M O’Connor
I T Hicks
Change in
benefit over
the year
(excl inflation)
£
–
–
–
–
–
Accrued
benefit
£
125,876
28,713
28,205
17,063
199,857
Capital
value of
increase
£
–
–
–
–
_
The disclosure above is in accordance with London Stock Exchange guidance.
A D Roper
D J S Taylor
D M O’Connor
I T Hicks
Increase in
benefit over
the year
(incl inflation)
£
Transfer
value at
31 December
2011
£
Transfer
value at
31 December
2010
£
Change in
transfer
value less
Directors’
contributions
£
9,867
1,363
1,339
810
2,324,752
449,035
344,160
130,809
1,924,740
371,331
281,382
98,210
400,012
77,704
62,778
32,599
13,379
3,248,756
2,675,663
573,093
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 2011 or the date of retirement if earlier.
All transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note
GN11. The transfer values of the accrued entitlement represent the value of assets that the pension scheme would need to
transfer to another pension provider on transferring the scheme’s liability in respect of the Directors’ pension benefits that
they earned in respect of qualifying services. They do not represent the sums payable to the individual Directors.
The transfer value 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.
29
21358.04 13/04/12 Proof 3
Report of the Remuneration Committee
(continued)
Pensions (continued)
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. Only basic
salary is pensionable. Contributions made by the Group were as shown on page 26.
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 twelve months from the Company or six 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 and D M O’Connor’s on
21 March 2000.
Non executive Directors are appointed on fixed term contracts of two or three years duration. J N E Sparey and J W
Morgan signed fixed term contracts of one years duration on 23 March 2012. A J McWalter signed a fixed term contract of
three years duration on 31 December 2010.
There are no defined contractual payments in the event of termination of a Directors’ service contract.
Directors’ interests
This section of the Report of the Remuneration Committee is not audited.
The interests of the Directors and their immediate families and family trusts at 31 December 2011 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
J W Morgan
A J McWalter
2011
2010
662,430
18,500
5,599
45,600
28,000
–
760,129
662,430
17,500
5,599
45,600
28,000
–
759,129
A D Roper’s interest in the 10p ordinary shares of the Company at 31 December 2011 represented 6.1% (2010: 6.1%) of the
Company’s issued share capital.
Directors are encouraged to hold shares in the Company in order to align their interests with those of shareholders.
There has been no change in the interests set out above between 31 December 2011 and 27 March 2012.
30
21358.04 13/04/12 Proof 3 Performance Graph
This section of the Report of the Remuneration Committee is not audited.
Total Shareholder Return
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2006
2007
2008
2009
2010
2011
Churchill
AIM
FTSE Fledgling
(Source: N+1 Brewin Dolphin)
Over a five year period the Group’s total return to shareholders has been substantially above that generated by the AIM
index and well above that shown by the FTSE Fledgling index. Total returns from the Group in the year have been affected
by the general fall in equity valuations, but have been supported by a further improvement in profitability and continuation
of our dividend policy. Our overall five year return has remained positive at an average compound rate of almost 7% (AIM:
-7%, FTSE Fledgling +2%). Over the five year period total shareholder return from the Company has been 38%, whilst that
achieved by the AIM index as a whole was -30% and the FTSE Fledgling 9%. In the year to 31 December 2011 the overall
return from the Company was -6%, the AIM index reported a -25% return and the FTSE Fledgling index fell by -13%
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
27 March 2012
31
21358.04 13/04/12 Proof 3
Corporate Governance
This statement is not audited.
As a Company quoted on the Alternative Investment Market of the London Stock Exchange, the Company is not required
to comply with the UK Corporate Governance Code (“the Code”), however the Board supports the standards required by
the 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 three executive and three non executive Directors and meets at least eleven times
per year. It is felt that the current composition and operation of the Board is adequate to ensure a balance of power and
authority. The non executive members of the Board take an active and influential part in Board procedures and a senior
independent non executive Director, J W Morgan, has been formally appointed.
The Code recommends that the Boards of listed companies include at least three independent non executive Directors.
The Board has fully reviewed the independence of non executive Directors and J W Morgan and A J McWalter are both
considered to be independent under the terms of the Code. J N E Sparey is no longer considered to be independent given
his period of service now exceeds eleven years. The Board does not consider that this is a material departure from the terms
of the 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
D M O’Connor
J N E Sparey
I T Hicks (until resignation)
J W Morgan
A J McWalter
Meetings
held
Meetings
attended
12
12
12
12
12
12
12
12
12
12
12
12
12
12
The Directors consider that the Board of Directors include key management for all areas of the business and that there are
no other key management which require disclosure.
There are two principal sub-committees of the Board.
The Audit Committee, which is wholly composed of non executive Directors, meets at least twice per year to receive
reports from executive management and external auditors and is normally attended by the Finance Director. The Audit
Committee is chaired by A J McWalter.
32
21358.04 13/04/12 Proof 3
The Board of Directors (continued)
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.
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 on a regular basis. Individual reviews of risk areas
are carried out and the results reported to the Board. Operational responsibility for each of the main risk areas has been
clearly identified and are allocated to either Directors of the Company or of the Company’s principal operating subsidiary
Churchill China (UK) Limited, under the supervision of the Board as a whole. Individual managers and employees are also
aware, where appropriate, of their responsibilities in both identifying and controlling risk.
The Company’s systems in relation to risk assessment and control seek to ensure that as part of the normal process of
business management material risks are identified and brought to the attention of the Board. Directors review risk as part of
a regular programme of meetings covering both general business processes and specific risk areas. A system of reporting
is in place to provide control information on key risk areas within reports submitted to the Board and reviewed. In addition
to this Directors and managers are aware of their responsibility to monitor both changes in business activity and changes
to the economic legislative environment in which the Company operates. Potential new risk areas have been identified
and control procedures documented.
The Board and the Audit Committee have reviewed the effectiveness of the system of internal control during the year.
Internal audit
The Company does not employ an internal audit department and does not believe that, given the size and structure of the
business, the geographic proximity of its major operations and the close control effected by the involvement of Executive
Directors in the day to day running of the business, such a department would provide an effective means of gaining
significant improvements in internal control. The requirement for an internal audit function is reviewed annually.
33
21358.04 13/04/12 Proof 3 Corporate Governance
(continued)
Internal financial control
The Board of Directors has overall responsibility for the Group’s systems of internal financial control which it exercises through
an organisational structure with authorisation, monitoring and reporting procedures which are appropriate to the needs
of the business. These systems have been designed to give the Board reasonable, but not absolute, assurance against
material mis-statement or loss. The principal features of the Group’s system of internal financial control are: the maintenance
of a control environment in which the need for the highest standards of behaviour and integrity are communicated to
employees; the use of a detailed reporting system covering performance against comprehensive financial and other key
operating indicators. The Board and the Audit Committee have reviewed the operation and effectiveness of the system of
internal financial control during the year. The Board have responded to this review with management and work to address
the areas identified.
Going concern
The Board confirms that having made enquiries, the Directors have a reasonable expectation that the Group and the
Company have adequate resources to continue in operational existence for the foreseeable future. For this reason they
continue to adopt the going concern basis in preparing financial statements.
By order of the Board
D J S Taylor
Company Secretary
27 March 2012
34
21358.04 13/04/12 Proof 3 Independent Auditors’ Report to the
Members of Churchill China plc
We have audited the Group and parent Company financial statements (the ‘‘financial statements’’) of Churchill China plc
for the year ended 31 December 2011 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 23, 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. In addition, we read all the
financial and non-financial information in the Annual Report and Financial Statements to identify material inconsistencies
with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we
consider the implications for our report.
Opinion
In our opinion:
●● 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 2011 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 Company 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.
35
21358.04 13/04/12 Proof 3 Independent Auditors’ Report to the
Members of Churchill China plc (continued)
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:
●● 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
●● certain disclosures of Directors’ remuneration specified by law are not made; or
●● 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
27 March 2012
36
21358.04 13/04/12 Proof 3 Consolidated Income Statement
for the year ended 31 December 2011
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
Total
2011
£’000
Total
2010
£’000
Notes
4
42,296
43,746
5
15
8
8
10
2,713
(41)
52
(30)
2,694
(598)
2,096
2,096
2,287
162
41
(176)
2,314
(583)
1,731
1,731
11
11
19.2p
19.2p
15.8p
15.8p
All of the above figures relate to continuing operations.
The notes on pages 44 to 74 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 £1,244,000 (2010: £68,000).
37
21358.04 13/04/12 Proof 3
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2011
Other comprehensive income
Actuarial gain on defined benefit obligations (note 22)
Currency translation differences
Other comprehensive income for the year
Profit for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the Company
2011
£’000
573
(1)
572
2,096
2,668
2010
£’000
1,894
7
1,901
1,731
3,632
2,668
3,632
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.
38
21358.04 13/04/12 Proof 3
Consolidated Balance Sheet
as at 31 December 2011
Assets
Non current assets
Property, plant and equipment
Intangible assets
Investment in associate
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Current income tax liabilities
Non current liabilities
Deferred income tax liabilities
Retirement benefit obligations
Total liabilities
Net assets
Shareholders’ equity
Issued share capital
Share premium account
Treasury shares
Other reserves
Retained earnings
Total equity
Notes
2011
£’000
2010
£’000
13
14
15
21
18
19
20
21
22
23
23
24
25
26
14,402
236
846
858
15,030
368
887
1,266
16,342
17,551
9,127
7,767
6,886
8,197
9,963
4,442
23,780
22,602
40,122
40,153
(7,044)
(693)
(6,735)
(501)
(7,737)
(7,236)
(1,437)
(3,295)
(1,678)
(4,670)
(12,469)
(13,584)
27,653
26,569
1,096
2,348
(89)
1,216
23,082
1,096
2,348
(91)
1,202
22,014
27,653
26,569
The notes on pages 44 to 74 are an integral part of these consolidated financial statements.
The financial statements on pages 37 to 74 were approved by the Board of Directors on 27 March 2012 and were signed
on its behalf by:
A D Roper
Director
Company number 2709505
D J S Taylor
Director
39
21358.04 13/04/12 Proof 3
Company Balance Sheet
as at 31 December 2011
Fixed assets
Investment in associate
Investments in subsidiaries
Current assets
Debtors: amounts falling due after more than one year
Debtors: amounts falling due within one year
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Treasury shares
Other reserves
Profit and loss account
Total shareholders’ funds
Notes
15
16
19
19
20
23
23
24
25
26
2011
£’000
355
2,195
2,550
6,997
265
164
7,426
(16)
2010
£’000
355
2,195
2,550
6,861
299
611
7,771
(21)
7,410
7,750
9,960
10,300
9,960
10,300
1,096
2,348
(89)
24
6,581
1,096
2,348
(91)
24
6,923
9,960
10,300
The notes on pages 44 to 74 are an integral part of these financial statements.
The financial statements on pages 37 to 74 were approved by the Board of Directors on 27 March 2012 and were signed
on its behalf by:
A D Roper
Director
D J S Taylor
Director
40
21358.04 13/04/12 Proof 3
Consolidated Statement of Changes in Equity
for the year ended 31 December 2011
Retained
earnings
£’000
Share
capital
£’000
Share
premium
£’000
Treasury
shares
£’000
Other
reserves
£’000
Total
£’000
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 expense
Transactions with owners
Dividends relating to 2009 and 2010 (note 12)
Proceeds of share issue
Share based payment
Treasury shares (note 24)
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
13
–
–
(45)
–
(45)
–
–
1,894
7
3,632
(1,529)
17
(45)
(42)
(1,599)
Balance at 1 January 2011
22,014
1,096
2,348
(91)
1,202
26,569
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 2010 and 2011 (note 12)
Treasury shares (note 24)
Total transactions with owners
2,096
12
(27)
573
–
2,654
(1,530)
(56)
(1,586)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
2
–
2,096
(12)
27
–
(1)
14
–
–
–
–
–
573
(1)
2,668
(1,530)
(54)
(1,584)
Balance at 31 December 2011
23,082
1,096
2,348
(89)
1,216
27,653
41
21358.04 13/04/12 Proof 3 Consolidated Cash Flow Statement
for the year ended 31 December 2011
Cash flow from operating activities
Cash generated from operations (see page 43)
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 increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange gains on cash and cash equivalents
Cash and cash equivalents at the end of the year
2011
£’000
5,922
52
(25)
(557)
5,392
2010
£’000
1,092
41
(20)
(564)
549
(1,383)
117
(99)
(1,507)
129
(58)
(1,365)
(1,436)
122
(176)
(1,530)
67
(91)
(1,529)
(1,584)
(1,553)
2,443
4,442
1
6,886
(2,440)
6,882
–
4,442
* 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.
42
21358.04 13/04/12 Proof 3 Reconciliation of Operating Profit to
Net Cash Inflow from Operating Activities
Continuing operating activities
Operating profit
Adjustments for:
Depreciation and amortisation
Profit on disposal of property, plant and equipment
Credit for share based payments
Difference between pension service cost and contributions (see note 22)
Changes in working capital:
Inventory
Trade and other receivables
Trade and other payables
Net cash inflow from operations
2011
£’000
2010
£’000
2,713
2,287
1,959
(42)
–
(495)
(930)
2,199
518
1,530
(12)
(45)
(495)
(1,055)
(922)
(196)
5,922
1,092
43
21358.04 13/04/12 Proof 3 Notes to the Financial Statements
for the year ended 31 December 2011
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) 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.
New and amended standards adopted by the Group
There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after
1 January 2011 that would be expected to have a material impact on the Group.
New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January
2011 and not early adopted:
IAS 19, ‘Employee benefits’ was amended in June 2011. The impact on the Group will be to replace interest cost and expected
return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit
liability or asset. The impact on the Group’s current year pre tax profit would have been a reduction of £255,000.
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and
financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It is not believed that this will have any
significant impact on the Group.
IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and
those measured at amortised cost. The Group is yet to assess IFRS 9’s full impact and intends to adopt IFRS 9 no later
than the accounting period beginning on or after 1 January 2013, subject to endorsement by the EU.
IFRS 10, Consolidated financial statements’ builds on existing principles by identifying the concept of control as the
determining factor in whether an entity should be included within the consolidated financial statements of the parent
Company. The Group is yet to assess IFRS 10’s full impact and intends to adopt IFRS 10 no later than the accounting
period beginning on or after 1 January 2013, subject to endorsement by the EU.
IFRS 12, ‘Disclosures of interests in other entities’ includes the disclosure requirements for all forms of interests in other
entities. The Group is yet to assess IFRS 12’s full impact, but does not believe it to be significant and intends to adopt
IFRS 12 no later than the accounting period beginning on or after 1 January 2013, subject to endorsement by the EU.
IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise
definition of fair value and disclosure requirements for use across IFRSs. The Group is yet to assess IFRS13’s full impact
and intends to adopt IFRS 13 no later than the accounting period beginning on or after 1 January 2013, subject to
endorsement by the EU.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material
impact on the Group.
44
21358.04 13/04/12 Proof 3 1 Summary of significant accounting policies (continued)
Basis of consolidation
The consolidated financial statements of Churchill China plc include the results of the Company, its subsidiaries and
associated companies.
The financial statements of each undertaking in the Group are prepared to the balance sheet date under UK GAAP.
Subsidiaries 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. Acquisition related costs are expensed as incurred. Identifiable assets acquired
and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at
the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the
fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition
is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income
statement.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are
eliminated.
(b) Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying
a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the
equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes
goodwill identified on acquisition, net of any accumulated impairment loss.
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.
The Group determines at each reporting date whether there is any objective evidence that the investment in
the associate is impaired. If this is the case, the Group calculates the impairment as the difference between the
recoverable amount of the associate and its carrying value and recognises the amount within ‘share of profit of
associated Company’ in the Income Statement.
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.
45
21358.04 13/04/12 Proof 3 Notes to the Financial Statements
(continued)
1 Summary of significant accounting policies (continued)
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.
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.
46
21358.04 13/04/12 Proof 3 1 Summary of significant accounting policies (continued)
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 one 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.
47
21358.04 13/04/12 Proof 3 Notes to the Financial Statements
(continued)
1 Summary of significant accounting policies (continued)
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.
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 accounted for 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
managements’ intention to do so.
48
21358.04 13/04/12 Proof 3 1 Summary of significant accounting policies (continued)
Property, plant and equipment
Property, plant and equipment is shown at cost, net of depreciation, as adjusted for the revaluation of certain land
and buildings.
Depreciation is calculated so as to write off the cost, less any provision for impairment, of plant, property and
equipment, less their estimated residual values over the expected useful economic lives of the assets concerned. The
principal annual rates used for this purpose are:
Freehold buildings
Plant
Motor vehicles
Fixtures and fittings
%
2 on cost or valuation
10–25 on cost
25 on reducing net book value
25–33 on cost
Freehold land is not depreciated.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is
greater than its estimated recoverable amounts.
Intangible assets
Intangible assets, which comprise computer software, are shown at cost net of 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 twelve months of the balance sheet date.
At each reporting date the Directors assess whether there is an indication an asset may be impaired. If any such
indicator exists the Group tests for impairment by estimating the recoverable amount of the asset. If the recoverable
amount is less than the carrying value of an asset an impairment loss is required. In addition to this, assets with indefinite
lives are tested for impairment at least annually.
49
21358.04 13/04/12 Proof 3
Notes to the Financial Statements
(continued)
1 Summary of significant accounting policies (continued)
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 IAS39.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held on call with banks, other short-term highly liquid
investments with original maturities of three months or less, and bank overdrafts. Cash and cash equivalents are as
defined under IAS39.
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 one 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.
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.
50
21358.04 13/04/12 Proof 3 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) and to review likely forward exposures 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 2011, 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 £15,000 (2010: £27,000) 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 (2010: £11,000) 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 £132,000 (2010: £140,000) higher/lower,
mainly as a result of foreign exchange gains/losses on translation of Euro denominated trade receivables and cash
balances. There would have been no substantial other changes in Equity.
(ii) Cash flow and fair value interest rate risk
The Group holds significant interest bearing assets and its finance income and operating cash flows are linked to
changes in market interest rates. The Group has no significant short or long-term borrowings.
The Group identifies cash balances in excess of short and medium-term working capital requirements (see liquidity risk)
and invests these balances in short and medium-term money market deposits.
At 31 December 2011, 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 £5,000 (2010: £4,000) higher/lower. Other components of equity would have
been unchanged
51
21358.04 13/04/12 Proof 3 Notes to the Financial Statements
(continued)
2 Financial risk management (continued)
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and credit exposures
including outstanding trade receivables and committed transactions. For banks with which the Group places balances
on deposit, only independently rated parties with a minimum rating of ‘A-’ are accepted.
Cash and cash equivalents are as follows:
Lloyds Banking Group plc
National Westminster Bank plc
Other
Credit
Rating
A-
A
Min A-
2011
2010
6,009
602
275
6,886
4,147
25
270
4,442
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.
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.
52
21358.04 13/04/12 Proof 3
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 £317,000 (2010: £211,000).
(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 22.
(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.
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.
53
21358.04 13/04/12 Proof 3 Notes to the Financial Statements
(continued)
4 Segmental analysis (continued)
(a) Primary reporting format – business segments
The business is managed in two main business segments – Hospitality and Retail.
31 December 2011
Hospitality
£’000
Retail
£’000
Unallocated
£’000
Group
£’000
Revenue from external customers
29,166
13,130
–
42,296
Contribution to Group overheads excluding depreciation
Depreciation and amortisation
Operating profit
Share of results of associate company
Finance income
Finance cost
Profit before income tax
5,765
(1,055)
4,710
1,311
(303)
1,008
(2,404)
(601)
(3,005)
4,672
(1,959)
2,713
(41)
52
(30)
2,694
31 December 2010
Hospitality
£’000
Retail
£’000
Unallocated
£’000
Group
£’000
Revenue from external customers
27,398
16,348
–
43,746
Contribution to Group overheads excluding depreciation
Depreciation and amortisation
Operating profit
Share of results of associate company
Finance income
Finance cost
Profit before income tax
4,914
(859)
4,055
1,060
(305)
755
(2,157)
(366)
(2,523)
3,817
(1,530)
2,287
162
41
(176)
2,314
The ‘Unallocated’ Group overheads principally comprise costs associated with the centralised functions of the parent
Company Board, finance and administration and information technology.
There are no material inter-segment revenues (2010: £nil). Any inter segment revenues are carried out on an arms
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).
54
21358.04 13/04/12 Proof 3
4 Segmental analysis (continued)
Segment assets and liabilities at 31 December 2011 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
14,553
6,479
–
21,032
Retail
£’000
5,383
2,648
–
8,031
Unallocated
£’000
10,213
–
846
11,059
3,742
972
727
37
8,000
265
Group
£’000
30,149
9,127
846
40,122
12,469
1,274
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
15,229
5,311
–
Retail
£’000
7,456
2,886
–
Unallocated
£’000
8,384
–
887
20,540
10,342
9,271
3,778
1,006
899
123
8,907
457
Group
£’000
31,069
8,197
887
40,153
13,584
1,586
Any sales between segments are carried out on an arms length basis.
(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
2011
£’000
26,757
7,951
3,039
4,549
2010
£’000
27,568
8,666
4,368
3,144
42,296
43,746
The total assets of the business are allocated as follows:
United Kingdom £39,220,000 (2010: £39,362,000), Rest of Europe £80,000 (2010: £43,000), North America £710,000 (2010:
£743,000), Other £112,000 (2010: £5,000).
Capital expenditure was made as follows:
United Kingdom £1,225,000 (2010: £1,586,000), Rest of Europe £49,000 (2010: £ nil).
55
21358.04 13/04/12 Proof 3
Notes to the Financial Statements
(continued)
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 (gains)/losses
Total
2011
£’000
(956)
2,808
9,139
15,128
11,553
1,959
(42)
(6)
Total
2010
£’000
(1,039)
2,775
11,446
15,421
11,323
1,530
(12)
15
Total cost of sales, distribution costs and administrative expenses
39,583
41,459
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 and warehousing
Sales and administration
The Company had no employees (2010: 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 22)
Other pension costs (see note 22)
Share options granted to Directors and employees (see note 23)
2011
Number
2010
Number
349
191
540
340
215
555
2011
£’000
13,412
1,139
421
156
–
2010
£’000
13,753
1,154
405
154
(45)
15,128
15,421
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 (2010: nil).
56
21358.04 13/04/12 Proof 3
8 Finance income and costs
Interest income on cash and cash equivalents
Finance income
Interest on pension scheme (note 22)
Other interest
Finance costs
Net finance income/(costs)
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 £2,000, 2010: £1,500)
Non-audit services – taxation advice
Non audit services – other
10 Income tax expense
Group
Current tax – current year
– adjustment in respect of prior periods
Deferred tax (note 21)
Origination and reversal of temporary differences
Income tax expense
2011
£’000
52
52
(5)
(25)
(30)
22
2010
£’000
41
41
(156)
(20)
(176)
(135)
2011
£’000
67
2010
£’000
75
7
13
7
94
7
13
–
95
2011
£’000
2010
£’000
773
(30)
743
(145)
598
535
(45)
490
93
583
During the year the main rate of corporation tax was reduced from 28% to 26%. This change was substantively
enacted on 29 March 2011 and effective from 1 April 2011.
In the March 2011 Budget it was announced that the main rate of corporation tax would reduce from 26% to 25%,
effective from 1 April 2012. This reduction was substantively enacted on 5 July 2011 and is therefore reflected in these
financial statements.
Further reductions to the main rate of corporation tax were announced in the March 2012 Budget. The changes,
which are expected to be enacted separately each year, propose to reduce the main rate of corporation tax to 24%
effective from 1 April 2012 and then by 1% per annum to 22% by 1 April 2014. These changes had not been substantively
enacted at the balance sheet date and, therefore, are not recognised in these financial statements. The impact of
the future proposed reductions in the tax rate would not result in a material adjustment to the financial statements.
57
21358.04 13/04/12 Proof 3
Notes to the Financial Statements
(continued)
10 Income tax expense (continued)
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted
average tax rate applicable to profit of the consolidated entities as follows:
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 tax rate
Other
Tax charge
The weighted average applicable tax rate was 26.5% (2010: 28%).
2011
£’000
2010
£’000
2,694
2,314
714
10
(30)
(110)
14
598
648
18
(45)
(66)
28
583
During the year a charge of £312,000 (2010: £806,000) in relation to deferred tax arising from actuarial gains and losses
on the Group’s defined benefit pension obligation and a credit of £27,000 (2010: £18,000) 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 10,921,563 (2010: 10,934,092)
ordinary shares, being the weighted average number of ordinary shares in issue during the year.
2011
Pence
per share
2010
Pence
per share
Basic earnings per share (Based on earnings £2,096,000 (2010: £1,731,000))
19.2
15.8
Diluted earnings per ordinary share is based on the profit after income tax and on 10,931,463 (2010: 10,964,639)
ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,921,563 (2010:
10,934,092) increased by 9,900 (2010: 30,547) 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.
2011
Pence
per share
2010
Pence
per share
Diluted basic earnings per share (Based on earnings £2,096,000 (2010: £1,731,000))
19.2
15.8
58
21358.04 13/04/12 Proof 3
12 Dividends
The dividends paid in the year were as follows:
Ordinary
Final dividend 2010 9.2p (Second interim dividend 2009: 9.2p) per 10p ordinary share
Interim 2011 4.8p per 10p ordinary share paid (Interim 2010: 4.8p)
The Directors now recommend payment of the following dividend:
Ordinary dividend:
Final dividend 2011 9.2p (2010: 9.2p) per 10p ordinary share
2011
£’000
1,005
525
1,530
2010
£’000
1,004
525
1,529
1,005
1,005
13 Property, plant and equipment
The Company has no property, plant and equipment (2010: none). Details of those relating to the Group are as follows:
Group
At 1 January 2010
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2010
Opening net book amount
Additions
Disposals
Transfer from assets held for sale
Depreciation charge
Closing net book amount
At 31 December 2010
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2011
Opening net book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 31 December 2011
Cost
Accumulated depreciation
Net book amount
Freehold
land and
buildings
£’000
Plant
£’000
Motor
vehicles
£’000
Fixtures
and
fittings
£’000
Total
£’000
11,104
(1,444)
15,864
(12,242)
9,660
3,622
9,660
114
–
662
(186)
3,622
813
–
–
(801)
10,250
3,634
11,880
(1,630)
16,677
(13,043)
10,250
3,634
10,250
92
–
(293)
3,634
825
–
(990)
10,049
3,469
11,972
(1,923)
17,502
(14,033)
10,049
3,469
958
(478)
480
480
306
(117)
–
(140)
529
923
(394)
529
529
176
(66)
(147)
492
905
(413)
492
2,231
(1,694)
30,157
(15,858)
537
14,299
537
309
–
–
(229)
14,299
1,542
(117)
662
(1,356)
617
15,030
2,540
(1,923)
32,020
(16,990)
617
15,030
617
84
(9)
(300)
15,030
1,177
(75)
(1,730)
392
14,402
2,611
(2,219)
32,990
(18,588)
392
14,402
59
21358.04 13/04/12 Proof 3
Notes to the Financial Statements
(continued)
14 Intangible assets
The Company has no intangible fixed assets (2010: none). Details of these relating to the Group are as follows:
Group
At 1 January 2010
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
Year ended 31 December 2011
Opening net book amount
Additions
Amortisation charge
Closing net book amount
At 31 December 2011
Cost
Accumulated amortisation
Net book amount
15 Investment in associate
Cost
At 1 January
Share of profit
At 31 December
Impairment
At 1 January
Impairment of investment in associate
At 31 December
Net book value
Closing net book amount
Computer
software
£’000
788
(290)
498
498
44
(174)
368
832
(464)
368
368
97
(229)
236
929
(693)
236
Group
2011
£’000
1,072
80
1,152
185
121
306
Group
2010
£’000
Company
2011
£’000
Company
2010
£’000
876
196
1,072
151
34
185
355
–
355
–
–
–
355
–
355
–
–
–
846
887
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.
60
21358.04 13/04/12 Proof 3
15 Investment in associate (continued)
Share of associate’s assets
Share of associate’s liabilities
Share of associate’s net assets
2011
£’000
1,465
(263)
2010
£’000
1,456
(370)
1,202
1,086
The total revenue of Furlong Mills Limited for its year ended 31 December 2011 was £6,476,000 (2010: £6,137,000) and
profit before tax was £365,000 (2010: £340,000). During the year the Group purchased raw materials to a value of
£1,934,000 (2010: £1,932,000) from Furlong Mills Limited.
The difference between the carrying value of the Group’s interest in associate and the share of associate’s net assets
represents an impairment charged in the Group’s accounts and adjustments in relation to accounting policies. This
impairment reflects the Board’s view of the recoverable amount of the investment calculated using a discounted
cash flow model.
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.
16 Investment in subsidiaries
Company
Cost or valuation
At 1 January and 31 December
Impairment
At 1 January and 31 December
Net book value
At 31 December
2011
£’000
2010
£’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
Churchill China (UK) Limited
Churchill Ceramics (UK) Limited
Country of
incorporation
Description of
shares held
Proportion of
nominal value of
issued shares held
England and
Wales
England and
Wales
Ordinary
100%
Ordinary
100%
Churchill China, Inc
USA
Ordinary
100%
Principal activity
Manufacture and sale of
ceramic and related
products
Provision of management
and property services
within the Group
Sale of ceramic and
related products
61
21358.04 13/04/12 Proof 3
Notes to the Financial Statements
(continued)
17 Available for sale financial assets
Fair value/cost
At 1 January and 31 December 2011
Impairment
At 1 January and 31 December 2011
Fair value/Net book value
At 1 January and 31 December 2011
Group
Available
for sale
financial
assets
£’000
Company
Other
investments
£’000
–
–
–
43
43
–
The above represents 35.9% (2010: 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 (2010: none). Details of inventory relating to the Group are as follows:
Raw materials
Work in progress
Finished goods
2011
£’000
46
473
8,608
9,127
2010
£’000
72
584
7,541
8,197
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 £23,718,000
(2010: £25,696,000).
62
21358.04 13/04/12 Proof 3
19 Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Other
Prepayments
Current income tax assets
Receivables from related parties (note 28)
Less non-current portion: loans to related parties
Current portion
Group
Company
2011
£’000
7,456
(304)
7,152
198
411
6
–
7,767
–
7,767
2010
£’000
9,738
(234)
9,504
223
236
–
–
9,963
–
9,963
2011
£’000
2010
£’000
–
–
–
110
–
–
7,152
7,262
6,997
265
–
–
–
150
–
–
7,010
7,160
6,861
299
All non current receivables are due within five 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 three months past due and not covered by insurance arrangements are not
considered impaired unless there is specific evidence to the contrary.
As of 31 December 2011, trade receivables of £6,609,000 (2010: £7,201,000) were fully performing.
As of 31 December 2011, trade receivables of £467,000 (2010: £2,058,000) 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
2011
£’000
444
23
–
467
2010
£’000
1,918
118
22
2,058
63
21358.04 13/04/12 Proof 3
Notes to the Financial Statements
(continued)
19 Trade and other receivables (continued)
As of 31 December 2011 trade receivables with a gross value of £380,000 (2010: £479,000) were impaired and provided
for. The amount of provision for 31 December 2011 was £304,000 (2010: £234,000). 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
2011
£’000
2010
£’000
277
30
73
380
350
43
86
479
The Directors consider that the carrying value of trade and other receivables is approximate to their fair value.
Movements on the Group provision for impairment of trade receivables are as follows:
At 1 January
Provision for receivables impairment
Receivables written off during the year as uncollectible
At 31 December
2011
£’000
2010
£’000
234
93
(23)
304
147
234
(147)
234
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.
Other receivables within trade and other receivables also include impaired assets. The recoverability of certain loans
receivable to a total value of £202,000 (2010: £215,000) have been reviewed and an impairment provision of £60,000
(2010: £nil) established. The charge associated with the creation of this provision has been included in ‘other external
charges’ in the income statement (note 5).
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
Pounds
Euros
US dollar
2011
£’000
6,182
800
785
7,767
2010
£’000
7,388
922
1,653
9,963
During the year the Group realised losses of £6,000 (2010: £15,000) on settled forward option contracts that have been
recognised in the Income Statement and as at 31 December held forward exchange contracts for the sale of Euro
of £2,248,000 (2010: £765,000) and the sale of US dollars of £319,000 (2010: £ nil). These contracts are held at their fair
value with a gain of £73,000 (2010: loss of £12,000) recognised in relation to the contracts outstanding at the year end.
64
21358.04 13/04/12 Proof 3
19 Trade and other receivables (continued)
Company
As of 31 December 2011, Company receivables of £7,152,000 (2010: £7,160,000) were fully performing. Amounts
receivable are repayable in accordance with agreed terms. No interest is chargeable.
Other receivables of £138,000 (2010: £150,000) gross were impaired and provided for. The amount of this provision at
31 December 2011 was £28,000 (2010: £nil). Interest is chargeable on these receivables.
The carrying amounts of the Company’s receivables are denominated in the following currencies:
Pounds
US dollar
20 Trade and other payables
Trade payables
Amounts due to related parties
Social security and other taxes
Accrued expenses
2011
£’000
7,216
46
7,262
2010
£’000
7,120
40
7,160
Group
Company
2011
£’000
1,505
84
1,121
4,334
7,044
2010
£’000
1,076
336
923
4,400
6,735
2011
£’000
2010
£’000
–
13
2
1
16
–
13
7
1
21
All the above liabilities mature within twelve months from 31 December 2011.
21 Deferred income tax
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset
amounts are as follows:
Group
Deferred tax assets:
– Deferred tax asset to be recovered after more than 12 months
– Deferred tax asset to be recovered within 12 months
Deferred tax liabilities:
– Deferred tax liabilities to be recovered after more than 12 months
– Deferred tax liabilities to be recovered within 12 months
Deferred tax liability (net)
2011
£’000
678
180
858
2010
£’000
1,151
115
1,266
(1,387)
(50)
(1,633)
(45)
(1,437)
(1,678)
(579)
(412)
65
21358.04 13/04/12 Proof 3
Notes to the Financial Statements
(continued)
21 Deferred income tax (continued)
The net movement on the deferred income tax account is as follows:
At 1 January
Income statement credit/(charge) (note 10)
Tax charged directly to equity (note 26)
At 31 December
2011
£’000
2010
£’000
(412)
145
(312)
(579)
487
(93)
(806)
(412)
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 2010
Charged/(credited) to the income statement
At 31 December 2010
Credited to the income statement
At 31 December 2011
Deferred tax assets
At 1 January 2010
Charged/(credited) to the income statement
Charged directly to equity
At 31 December 2010
(Credited)/charged to the income statement
Charged directly to equity
At 31 December 2011
Accelerated
tax
depreciation
£’000
Land and
buildings
revaluation
£’000
1,327
20
1,347
(214)
1,133
Accelerated
tax
depreciation
£’000
Retirement
benefit
obligation
£’000
–
–
–
–
(18)
–
(18)
(2,159)
92
806
(1,261)
125
312
(824)
349
(18)
331
(27)
304
Other
£’000
(4)
(1)
–
(5)
(11)
–
(16)
Total
£’000
1,676
2
1,678
(241)
1,437
Total
£’000
(2,163)
91
806
(1,266)
96
312
(858)
66
21358.04 13/04/12 Proof 3
21 Deferred income tax (continued)
The deferred income tax credited to equity during the past year is as follows:
Fair value reserves in shareholders’ equity:
Tax on actuarial gain on retirement benefits scheme
2011
£’000
2010
£’000
312
806
Deferred income tax of £27,000 (2010: £18,000) was transferred from other reserves (note 25) to retained earnings (note
26). This represents deferred tax on the difference between the actual depreciation on buildings and the equivalent
depreciation based on the historical cost of buildings.
Deferred income tax assets are recognised for tax 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 £1,349,000 (2010: £1,511,000) in respect of capital losses amounting to £5,395,000 (2010: £5,395,000) that can
be carried forward against future capital gains.
22 Retirement benefit obligations
Balance sheet obligations
Pension benefits
Income statement charge
Pension benefits
Finance cost
2011
£’000
2010
£’000
3,295
4,670
577
5
559
156
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
£577,000 (2010: £559,000). Of this cost £nil (2010: £nil), related to the Churchill Group Retirement Benefit Scheme,
£171,000 (2010: £164,000) was in respect of the Churchill China 1999 Pension Scheme and £250,000 (2010: £241,000)
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 £59,000 (2010: £58,000).
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 (2010:
£495,000) 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 2011 triennial actuarial
valuation in January 2012. The Group expects to make payments of £672,000 per annum from 1 February 2012 in
respect of the amortisation of past service deficits.
67
21358.04 13/04/12 Proof 3
Notes to the Financial Statements
(continued)
22 Retirement benefit obligations (continued)
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
Benefits paid
At 31 December
2011
£’000
2010
£’000
33,058
(29,763)
34,898
(30,228)
3,295
4,670
2011
£’000
2010
£’000
34,898
1,954
(2,959)
(835)
34,550
1,969
(887)
(734)
33,058
34,898
Actuarial gains in 2011 include £2,170,000 (2010: £1,296,000) in respect of the change of inflation index from RPI to CPI
used to calculate the increase of benefits in deferment and from retirement.
The movement in the fair value of plan assets over the year is as follows:
At 1 January
Expected return on plan assets
Actuarial (losses)/gains
Employer contributions
Benefits paid
At 31 December
Plan assets are comprised as follows:
Equity investments
Debt investments
Other
2011
£’000
2010
£’000
30,228
1,949
(2,074)
495
(835)
26,841
1,813
1,813
495
(734)
29,763
30,228
2011
2010
£’000
£’000
£’000
£’000
20,078
8,617
1,068
29,763
67%
29%
4%
22,155
4,605
3,468
30,228
73%
15%
12%
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.
68
21358.04 13/04/12 Proof 3
22 Retirement benefit obligations (continued)
The amounts recognised in the income statement are as follows:
Interest cost
Expected return on plan assets
Net cost recognised in finance cost
2011
£’000
2010
£’000
1,954
(1,949)
1,969
(1,813)
5
156
The actual return on plan assets was a loss of £125,000 (2010: gain £3,626,000).
At 31 December
Present value of funded obligations
Fair value of plan assets
2011
£’000
2010
£’000
2009
£’000
2008
£’000
2007
£’000
33,058
29,763
34,898
30,228
34,550
26,841
25,275
23,220
29,209
28,119
Liability in balance sheet
3,295
4,670
7,709
2,055
1,090
Experience adjustments on scheme assets:
Amount
Experience adjustments on scheme liabilities:
Amount
(2,074)
1,813
2,689
(6,463)
(200)
403
835
(414)
372
(192)
Actuarial gains and losses
Actuarial gains of £573,000 (2010: £1,894,000) were recognised in the Statement of Other Comprehensive Income
during the year. The cumulative amount of actuarial losses recognised in the Statement of Other Comprehensive
Income is £8,695,000 (2010: £9,580,000).
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
2011
0% per
annum
2010
0% per
annum
4.9%
3.1%
2.1%
6.1%
2.0%
2.1%
5.6%
3.6%
3.1%
6.6%
3.6%
3.1%
Assumptions regarding future mortality rates are set based on advice in accordance with S1PA actuarial tables and
experience.
69
21358.04 13/04/12 Proof 3
Notes to the Financial Statements
(continued)
22 Retirement benefit obligations (continued)
The average life expectancy in years of a pensioner retiring at age 65 at the balance sheet date is as follows:
Male
Female
2011
Number
2010
Number
20.3
23.0
20.9
24.2
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date, is
as follows:
Male
Female
2011
Number
2010
Number
22.5
25.2
22.8
26.2
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 5.15% would be to reduce scheme liabilities by £1,483,000 (4.5%).
The effect of a 0.25% decrease in the discount rate to 4.65% would be to increase scheme liabilities by £1,578,000
(4.8%).
The effect of a 0.25% increase in RPI inflation to 3.35% and CPI inflation to 2.35% would increase scheme liabilities by
£1,051,000 (3.2%).
The effect of a 0.25% decrease in RPI inflation to 2.85% and CPI inflation to 1.85% would decrease scheme liabilities by
£993,000 (3.0%).
The effect of a 1 year increase to life expectancy would increase scheme liabilities by £765,000 (2.3%). The effect of a
1 year reduction in life expectancy would be to reduce scheme liabilities by £782,000 (2.4%).
23 Issued share capital and premium
Group and Company
At 1 January 2010
Employee share option schemes
At 31 December 2010 and 31 December 2011
Number
of shares
000s
Ordinary
shares
£’000
Share
premium
£’000
10,948
10
10,958
1,095
1
1,096
2,332
16
2,348
The total authorised number of ordinary shares is 14,300,000 (2010: 14,300,000) with a par value of 10p (2010: 10p) per
share. All issued shares are fully paid.
70
21358.04 13/04/12 Proof 3
23 Issued share capital and premium (continued)
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 three years from the date of grant and expire ten years from the date of grant. Options granted will
be exercisable given satisfaction of the requirement that adjusted earnings per ordinary share will increase by at least
6% above the increase in the Retail Price Index over the three year period from the beginning of the financial year in
which the option was granted. Payment of the exercise price of options exercised is received in cash. A charge to the
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.
It is the intention of the Board to submit a new Performance Share Plan, The Churchill China Long Term Incentive Plan,
to the Annual General Meeting for approval by shareholders.
The fair value per option granted and the assumptions used in the calculation were as follows:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option (30,000 lapsed, 44,000 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
30 April
2004
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 2011:
Number of shares
The Executive share option scheme
The unapproved Executive share option scheme
2011
2010
Exercise
price
Date from
which
exercisable Expiry date
–
33,000
208p
April 2007
April 2014
–
36,000
30,000
37,000
171p
208p
April 2005
April 2007
April 2012
April 2014
36,000
100,000
71
21358.04 13/04/12 Proof 3
Notes to the Financial Statements
(continued)
23 Issued share capital and premium (continued)
Expected volatility is based on historical volatility over the last three years. The expected life is the average expected
period to exercise. The risk free rate of return is the yield on zero coupon UK government bonds of a term consistent
with the assumed option life. A reconciliation of option movements for the year to 31 December 2011 is set out below.
Outstanding at 1 January
Forfeited/lapsed
Exercised
Outstanding at 31 December
Exercisable at 31 December
2011
Number
’000
100,000
–
(64,000)
36,000
36,000
2011
Weighted
average
exercise
price
196.9p
–
190.7p
208.0p
208.0p
2010
Number
’000
156,000
(10,500)
(45,500)
100,000
100,000
2010
Weighted
average
exercise
price
182.8p
205.3p
146.5p
196.9p
196.9p
There were no share options granted during the year (2010: £ nil).
2011
2011
Weighted
average
exercise
price
Number
’000
2011
Weighted
average
remaining
life
(expected)
2011
Weighted
average
remaining
life
(contractual)
2010
2010
Weighted
average
exercise
price
Number
’000
2010
Weighted
average
remaining
life
(expected)
2010
Weighted
average
remaining
life
(contractual)
150p–199p
200p–250p
–
208p
–
36,000
–
0.0
–
2.3
171p
208p
30,000
70,000
0.0
740.0
0.9
3.3
The weighted average share price for options exercised in the period was 190.7p (2010: 146.5p). The total charge
during the year for employee share based payment plans was £nil (2010: credit £45,000), all of which related to equity
settled share based payment transactions.
24 Treasury shares
Group and Company
As at 1 January 2011
Purchase of own shares
Re-issue of shares
Transfer to retained earnings (note 26)
As at 31 December 2011
£’000
91
176
(122)
(56)
89
During the year the Group re-purchased 65,000 (2010: 32,000) 10p ordinary shares and re-issued 64,000 (2010: 35,400)
of these under employee share option schemes. The Group currently holds 33,000 (2010: 32,000) shares in Treasury.
72
21358.04 13/04/12 Proof 3
25 Other reserves
Group
Balance at 1 January 2010
Depreciation transfer – gross
Depreciation transfer – tax
Share based payment credit
Currency translation
Balance at 31 December 2010
Depreciation transfer – gross
Depreciation transfer – tax
Currency translation
Balance at 31 December 2011
Land and
buildings
revaluation
£’000
Currency
translation
£’000
Share
based
payment
£’000
Other
reserves
£’000
890
(12)
18
–
–
896
(12)
27
–
911
22
–
–
–
7
29
–
–
(1)
28
69
–
–
(45)
–
24
–
–
–
24
253
–
–
–
–
253
–
–
–
253
Total
£’000
1,234
(12)
18
(45)
7
1,202
(12)
27
(1)
1,216
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 IFRS1 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 (2010: £24,000) represent provision for share based payment as shown in the above table.
26 Retained earnings
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 24)
At 31 December 2010
At 1 January 2011
Profit for the year
Dividends paid in 2011
Depreciation transfer on land and buildings net of tax
Actuarial gains net of tax
Transfer from treasury shares (note 24)
At 31 December 2011
Group
£’000
Company
£’000
19,992
1,731
(1,529)
(6)
1,894
(68)
8,452
68
(1,529)
–
–
(68)
22,014
6,923
22,014
2,096
(1,530)
(15)
573
(56)
6,923
1,244
(1,530)
–
–
(56)
23,082
6,581
73
21358.04 13/04/12 Proof 3
Notes to the Financial Statements
(continued)
27 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
2011
£’000
2010
£’000
2011
£’000
2010
£’000
845
39
884
604
44
648
–
–
–
–
–
–
Operating lease commitments
The Group has financial commitments in respect of non cancellable operating leases of plant and machinery for
which the payments extend over a number of years as follows:
Payments under operating leases charged against
income during the year
Future aggregate minimum commitments under
non-cancellable operating leases:
No later than one year
Later than one year and no later than five years
Group
Company
2011
£’000
2010
£’000
2011
£’000
2010
£’000
34
35
22
4
3
–
–
–
–
–
–
–
28 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
Dividend received from Churchill China (UK) Limited
New loans made/ (loans repaid) – Churchill China (UK) Limited
Loans outstanding as at the year end (mainly Churchill China (UK) Limited
2011
£’000
6
5
1,250
136
7,152
2010
£’000
6
3
–
(1,639)
7,010
29 Financial instruments by category
The accounting policies for financial instruments have been applied to the line items in the accounts. All financial
assets including cash and cash equivalents are classified as loans and receivables, with the exception of financial
assets available for sale, in both 2011 and 2010, as disclosed in note 17.
74
21358.04 13/04/12 Proof 3
Five Year Financial Record
2007
£’000
2008
£’000
2009
£’000
2010
£’000
2011
£’000
Revenue
46,930
41,969
41,705
43,746
42,296
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
Profit on disposal of property
Profit before taxation
Income tax expense
Income tax expense – exceptional
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)
–
2,713
(41)
22
2,694
–
2,694
(598)
–
Profit after taxation
3,695
1,505
1,556
1,731
2,096
Dividends
1,375
1,531
1,526
1,529
1,530
Net assets employed
29,731
28,612
24,536
26,569
27,653
Ratios
Operating margin before exceptional items
Earnings before interest, tax, depreciation and amortisation
(£000)
Basic earnings per share (p)
Adjusted basic earnings per share (p)
6.9%
6.7%
5.5%
5.2%
6.4%
4,669
33.8
26.5
3,874
13.8
22.2
3,684
14.3
14.3
3,817
15.8
15.8
4,672
19.2
19.2
Earnings before interest, tax, depreciation and amortisation have been adjusted to take into account exceptional items
and profit on disposal of property.
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 property and the recognition of related deferred tax assets.
75
21358.04 13/04/12 Proof 3
Shareholder Notes
76
21358.04 13/04/12 Proof 3 21358.04 13/04/12 Proof 3 China plc
Churchill China plc
Marlborough Pottery, High Street, Tunstall, Stoke-on-Trent, ST6 5NZ
T: +44 (0) 1782 577566 www.churchillchina.com
©Churchill China plc 2012
21358.04 13/04/12 Proof 3