China plc
Annual Report
2012
Contents
Performance
Innovation
Uncompromising Service
Passion
Responsiveness
Above: Melamine & Wooden Buffet Trays
Financial Highlights
Five Year Performance
Company Profile
Chairman’s Statement
Financial Review
Operational Review
People
Prospects
Directors’ Report
Report of the Remuneration
Committee
Corporate Governance
Independent Auditors Report
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Company Balance Sheet
Consolidated Statement of
Changes in Equity
1
2
3
4
6
8
12
13
14
24
32
35
37
38
39
40
41
Consolidated Cash Flow Statement
42
Reconciliation of Operating Profit to
Net Cash from Operating Activities
43
Notes to the Consolidated
Financial Statements
Five Year Record
44
75
Notice of Annual General Meeting
76
Financial Highlights
Results
Revenue - continuing operations
Operating profit - continuing operations
Share of results of associate company
Net finance income
Profit before income tax
Dividends paid
Key Ratios
Operating margin
Basic earnings per share
Diluted basic earnings per share
Dividends paid per share
2012
£000
2011
£000
41,435
42,296
2,830
18
239
3,087
1,529
6.8%
22.2p
22.0p
14.0p
2,713
(41)
22
2,694
1,530
6.4%
19.2p
19.2p
14.0p
Above: Alchemy Canape Tray &
Art de Cuisine Miniatures
Above: Alchemy Canape Tray &
Art de Cuisine Black Miniatures
Above: Alchemy Canape Tray &
Art de Cuisine Black & White Miniatures
1
5 Year Performance
08
09
10
11
12
08
09
10
11
12
08
09
10
11
12
42.0
41.7
43.7
42.3
41.4
Revenue (£m)
0
10
20
30
40
50
3,362
2,069
2,314
2,694
3,087
0
1
2
3
4
5
Profit before exceptional items
(£000)
14.3
15.8
22.2
19.2
22.2
Adjusted basic
earnings per share (p)
0
5
10
15
20
25
30
2
Company Profile
CHURCHILL CHINA plc
DIRECTORS, SECRETARY AND ADVISERS
Above: Alchemy Ambience
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 Singer Advisory 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
Chairman’s Statement
“Churchill China delivered a solid performance in 2012”
INTRODUCTION
I am very pleased to report that Churchill China
Group profit before tax for the year rose by 15% to
delivered a solid performance in 2012, particularly
£3.1m (2011: £2.7m). Churchill continues to operate
in the last quarter of the year, achieving key
with a strong balance sheet which included cash
objectives. Sales in our core Hospitality business
and deposit balances of £7.0m (2011: £6.9m) at the
continued to show improvement although the level
end of the year. The new financial year has started
of international contracts was lower than in 2011.
positively with good UK Hospitality sales and trading
in the early months of 2013 has been encouraging.
Our Retail business has been revitalised, delivering
an increased contribution on a lower level of sales.
Total Group revenues were slightly lower at £41.4m
(2011: £42.3m) reflecting the net effect of higher
revenues in Hospitality and the impact of the
planned reduction in Retail sales.
4
Above Left: Penzance
Above Right: Julie Dodsworth
Above: Churchill Super Vitrified Glide
5
Financial Review
Above lifestyles from left to right: Alchemy Balance, Churchill Supervitrified Glide & Alchemy Buffet Trays
Group operating profit increased by 4% to £2.8m
despite an increase in the asset value of the scheme.
(2011: £2.7m) with margins rising from 6.4% to 6.8%
This charge is a non-cash item. The present value
whilst Earnings before interest, tax, depreciation
of the deficit on the scheme increased as discount
and amortisation fell slightly by £0.2m to £4.4m.
rates reduced, but remains at an acceptable level.
Pre-tax profits increased by 15% to £3.1m (2011:
£2.7m) as our improved trading performance was
Dividend and Shareholder Return
enhanced by a notional interest credit of £0.2m
(2011: £nil) from our pension scheme reflecting the
The Board is pleased to recommend an increased
improved funding position at the start of the year.
final dividend of 9.4p (2011: 9.2p), making the
Earnings per share improved by 16% to 22.2p
improvement in profitability demonstrated in the
total dividend for the year 14.2p (2011: 14.0p). The
(2011: 19.2p).
year has raised our overall dividend cover to a
level of 1.6 times and Churchill continues to provide
We continue to generate strong cash flows from
investors with a dividend yield of more than 4%.
operations although, at £3.4m, these were at
This increased dividend reflects the confidence of
lower levels than last year (2011: £5.9m) when we
the Board in the performance and prospects of the
significantly reduced levels of working capital. The
business.
level of cash generation was again enhanced
by a reduction in receivables, which fell to £7.3m
Total shareholder returns have risen over the
(2011: £7.8m), offsetting a further rise in inventory as
year reflecting improved profitability, a healthy
we expanded our Hospitality product range. As a
dividend and a general rise in equity valuations.
result, our year end level of net cash and deposit
We delivered an overall return to shareholders of
balances increased slightly to £7.0m (2011: £6.9m).
17% in 2012.
The International Accounting Standards Board has
revised IAS 19, the accounting standard applying
to pension benefits, and the notional income
on the scheme will be restricted in the future.
We estimate that the credit of £0.2m enjoyed
in 2012 will become a charge of £0.2m in 2013,
6
“We delivered an overall return to shareholders of 17% in 2012”
Above: Alchemy Signature Tile & Board
7
Operational Review
Above lifestyles: Churchill Super Vitrified Bamboo
“We maintained our market leading position in the UK”
HOSPITALITY
Our Hospitality business performed well in 2012
We have continued to invest additional resources
although revenues of £29.4m were only marginally
in sales, marketing and design expertise to
ahead of the previous year (2011: £29.2m).
meet identified demand in our key markets. We
Operating profit was lower at £4.2m (2011: £4.7m),
undertook a major investment in new product
adversely affected by the geographic mix of
development which culminated in the modelling
export sales, the impact of a stronger Sterling and
and launch of our new embossed shape “Bamboo”
increased investment in longer term business
in January 2013.
development.
Our stock levels increased during the year, notably
We maintained our market leading position in the
of imported product in advance of the imposition
UK, delivering a very positive first half performance.
of the EU anti-dumping duty surcharge. We also
The UK market slowed in the third quarter of
increased inventories of branded and non-ceramic
2012 reflecting a broader European economic
product
ranges
in anticipation of
increased
uncertainty at the time but recovered in the
demand.
last quarter, invariably a crucial period for the
hospitality industry as a whole. Our export sales were
stronger and better balanced across a wider range
of accounts than in 2011 with strong sales in Eastern
Europe and the Middle East, together with new
distributors in Australia and Canada performing
particularly well. Western European markets were
more challenged, with respectable local currency
performance in Spain for example, being negated
by the currency effects upon translation.
8
Above: Churchill Super Vitrified Bamboo
9
Operational Review
“Our sustained commitment to invest in UK manufacturing
and specifically to innovation in the ceramics industry”
MANUFACTURING and OPERATIONS
We maintained manufacturing volumes throughout
2012, operating at relatively high efficiency levels.
We experienced a notable increase in demand for
lithographed product from both Hospitality and Retail
customers which contributed towards the creation
of additional manufacturing jobs. We have also
continued our investment in robotics.
At the end of 2012 we purchased a high technology
glazing plant as part of our sustained commitment
to invest in UK manufacturing and specifically to
innovation in the ceramics industry. It is also in line
with our long term strategy to reduce costs, improve
quality and increase the operational flexibility of
our manufacturing facility. We are making further
investment in modern, gas efficient, glost-firing
facilities over the next 12 months.
10
Above: Caravan Trail
“Our Retail business again increased operating profits”
RETAIL
Our Retail business again increased operating profits
during the year to £1.4m (2011: £1.0m) on lower
revenues of £12.0m (2011: £13.1m). The anticipated
reduction in high volume, low margin sales was more
than compensated by the shift in customer mix to
higher quality sales in our middle market, principally,
independent sector accounts.
We are very fortunate to be working with some of the
UK’s top names including Cath Kidston, Jamie Oliver,
Alex Clark, Julie Dodsworth and Dee Hardwicke. In
2012 we also signed a new licence with Belle and Boo.
At recent trade shows sales of our own brands have
exceeded all expectations. These and other product
ranges distributed to UK independent retailers and
similar accounts in selected export markets remains
at the core of our strategy.
Above: Little Rhymes Pirates
11
People
“The Churchill team demonstrates an extraordinary
array of skills, talents and dedication”
The continued long term success of the business
In May this year we are hoping to raise £40,000
is inextricably linked to the quality of our people.
by means of a “teacup challenge” in aid of the
The combined Churchill team demonstrates an
Douglas MacMillan Hospice, a local charity which
extraordinary array of skills, talents and dedication.
is celebrating its 40th birthday. In a time span of
We are fortunate to have been able to attract
and packed and then carried and delivered to
and retain key industry players over many years
London by a relay of runners.
only 48 hours a teacup will be made, glazed, fired
from potters and modellers to marketeers and
managers.
12
Above: Made With Love
MADE IN ENGLAND
“We are confident that the business strategies for both our
Hospitality and Retail activities will deliver improved returns”
BOARD CHANGES
We expect our Hospitality business to benefit from
an increased level of new product introductions
As announced in January, I will be retiring from the
and to generate improved returns on investments
Board at the Annual General Meeting in May this
made in 2012.
year, and this will be my last Chairman’s Statement. I
first met Churchill in 1998 and joined the Board in 2000
The
recently
imposed EU anti-dumping duty
as a Non-Executive Director. I have participated
surcharge on Chinese ceramics is likely to have
in the Board during a transformation of the
an effect on Retail margins in the short term, due
company at a time of huge structural changes in
to disruption of the supply chain and the natural
the UK ceramics industry. Churchill has emerged
delay in securing price increases. Given our UK
as a vibrant, dynamic and innovative business
manufacturing capacity we confidently expect
built upon a fine 200 year heritage with excellent
they will have a positive effect on our revenues in
prospects. At its heart is a passionate, talented and
the medium and longer term.
committed management team and workforce
and I would like to thank all those involved in the
company for making my tenure on the Board so
rewarding.
Churchill has a strong balance sheet and a
significantly cash generative business model
which enables us to sustain investment in our UK
manufacturing base, in our sales and marketing
Alan McWalter, who joined Churchill in 2011 as a
resources and in an ambitious programme of
Non-Executive Director, will succeed me as
new product development to drive future returns.
Chairman. Alan is a Non-Executive Director of
I am confident we will continue to improve our
Dignity plc and a Board member of a number of
operating performance in 2013.
Jonathan Sparey
Chairman
25 March 2013
other companies. I have no doubt he will provide
excellent direction to the Group in his new role.
PROSPECTS
Churchill China has delivered a good set of results
for 2012 and has started 2013 on a positive note.
We are confident that the business strategies for
both our Hospitality and Retail activities will deliver
improved returns.
13
Above: Cath Kidston
Directors’ Report
for the year ended 31 December 2012
The Directors present their annual report and the audited consolidated financial statements of the Group for the year
ended 31 December 2012.
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 2012 and 31 December 2011:
Ordinary dividend:
Final dividend 2011 9.2p (Final dividend 2010: 9.2p) per 10p ordinary share
Interim dividend 2012 4.8p (2011: 4.8p) per 10p ordinary share
2012
£’000
1,005
524
1,529
2011
£’000
1,005
525
1,530
The Directors now recommend payment of the following dividend:
Ordinary dividend:
Final dividend 2012 9.4p (2011: 9.2p) per 10p ordinary share
1,027
1,005
Dividends on treasury shares held by the Company are waived.
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
J W Morgan*
A J McWalter*
* Non Executive
14
The Directors retiring by rotation are A D Roper and J W Morgan who being eligible, offer themselves for re-election. The
unexpired terms of the service contracts of A D Roper and J W Morgan are twelve months.
J N E Sparey has now served as a non Executive Director of the company for over 12 years and is retiring from the Board
at the next Annual General Meeting.
The biographical details of the Directors are as follows:
Jonathan Sparey, Non Executive Chairman, aged 55, 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 64, 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 53, has worked for the Group for 21 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 56, has worked for Churchill for 22 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 55, 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 59, 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, principally ceramic tableware. Whilst our largest exposure is to the UK market, where we generate over 62% of
our gross revenue, we also enjoy significant sales to Europe and North America which respectively account for 18% and
8% of our turnover. Almost without exception all of these markets are subject to 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 a major driver of demand for our products. The impact of more difficult economic
conditions in Europe, together with the effects of stronger sterling across the year have been offset by benefits from
improved distribution and developments in our product range. Our North American revenues have improved given
changes in distribution route. Less developed markets have performed satisfactorily although with lower levels of new
installation business. 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 have remained difficult with lower levels of consumer spending. We have however benefitted from our
decision to withdraw from more price sensitive volume channel business to concentrate on higher margin sectors of
the market. As a result whilst our overall revenues have fallen in this segment, we have reported increased margins and
profitability. In Retail markets our customers are able to choose from a wide variety of alternative suppliers based both in
the UK and overseas. We expect retail markets in particular to be more volatile in the early part of 2013 as the effects of a
substantial rise in EU duty rates on Chinese imports are assessed by retailers and consumers.
15
Directors’ Report
(continued)
We believe that there has been little overall growth in our markets during the year as difficult macro-economic conditions
have persisted. Progress has only been possible given clear focus on long term market development, careful management
of commercial relationships, a consistent programme of investment and some benefit from the Group’s geographic spread
of markets. Forecasts for the UK and our major export markets suggest that economic growth will remain restrained in 2013.
Our forward planning process assumes that there will be no major economic growth in 2013 and we continue to manage
our business accordingly.
The cost of imported product has continued to rise through 2012 due to increased inflation in Far Eastern economies. Our
UK manufacturing operations remain subject to tight cost control but are a focus for further investment. The introduction
of additional duties on Chinese imports should be positive for all UK ceramics manufacturers in the longer term. Labour
rates and material and energy costs have risen again although we achieved some offsetting gains through increased
efficiencies following on from earlier investments.
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 is 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 through active control of our cost base and a focus on cash generation.
Our long term aim is to build revenues in markets offering a reasonable and repeatable level of revenue and 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 on a long term
basis. Our process is 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.
We also invest steadily in respect of increasing our production capability. This involves investment in new product
development as well as capital investment in productive capacity.
It is a key strategic aim to design products that meet our end users requirements in terms of performance, shape and
surface design. Our target markets require product that is aesthetically appealing whilst also performing to appropriate
customer and technical standards.
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 and manufacture
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.
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.
Customer service remains a major part 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.
16
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 working processes
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.
Key performance indicators
Revenue and revenue growth
The absolute levels of revenue and revenue growth are reviewed regularly by business segment through the year against
previous year, current year targets and against strategic expectations.
Revenue 2012: £41.4m (2011: £42.3m)
Revenue growth 2012: -2% (2011: -3%)
Our sales to UK customers fell by 3% overall as we withdrew from lower margin Retail accounts. This was partially offset
by another good performance from sales to UK Hospitality accounts in a generally flat market and continued progress in
extending our middle market Retail business. Sales to Europe fell as our principal markets were affected by poor economic
conditions and sterling strengthened against the Euro. Sales to North America improved following changes in our distribution
structure within the market. Our overall progress in other markets was acceptable with increased revenues in the Far East
and Australasia offsetting a fall in the Middle East. Whilst our core Middle East business progressed satisfactorily, we did not
enjoy the same level of new installation business as in 2011.
Whilst revenue growth in Hospitality did not match the levels achieved in 2011 we were pleased with the progress made
against long term development targets.
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 2012: £9.9m (2011: £9.1m)
The 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. Inventory levels were also increased
to reduce risk associated with the introduction of increased European import duties.
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 2012: £2.8m (2011: £2.7m)
Group operating profit increased by over 4%. Performance in our Hospitality division was affected by lower levels of sales
growth and continued investment in new product development and sales and market infrastructure associated with our
long term growth plans. Our improved performance in Retail reflected continued progress against our plan to reposition
this division to more profitable market sectors. Central costs were well controlled. Operating margins increased satisfactorily
to 6.8% (2011: 6.4%) reflecting an increased mix of higher margin sales in both Hospitality and Retail.
17
Directors’ Report
(continued)
The level of profit before tax is reviewed on a monthly basis against previous performance and target levels.
Profit before taxation 2012: £3.1m (2011: £2.7m)
Profit before taxation moved forward by 15% as operating profits were increased and the notional interest credit associated
with our pension scheme increased. Our share of the profit of our associate company Furlong Mills grew.
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 2012: £3.4m (2011: £5.9m)
Percentage of operating cash generation to operating profit for the year 121% (2011: 218%).
Three year average percentage of operating cash generation to operating profit 134% (2011: 144%).
Operating cash generation was maintained at satisfactory levels given continued control of working capital. The increase
in inventory holdings to support the extension of our product range was offset by further reductions in receivable balances
and an improved rate of cash collections.
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 position we hold in a number of hospitality markets will mean that we will continue to be able to improve
our overall business performance. We expect to benefit from an increased level of investment in new product development
for hospitality products during 2013. Whilst the improved performance from the re-positioning of our Retail business will continue,
we believe that the return from this business will be affected in the short term by the imposition of significantly increased levels
of import duty on product sourced from China. This change is expected to make retail markets for tabletop ceramics less
predictable, but in the long term should benefit UK based manufacturers such as ourselves. We have, where possible, taken
action to mitigate the negative effects of this change on our business. The Group’s 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 and
product development strategies are well resourced and have generated a number of new opportunities for us.
We expect Retail markets to continue to exhibit little growth given economic constraints, but believe that we can continue
to generate an acceptable return for shareholders. Our relatively small size and increased focus on profitable markets
should continue to generate new opportunities. The imposition of higher levels of duty in Europe will inevitably lead to a less
predictable trading environment in the short term.
We continue to approach all our markets with a view to long term, investment led, development.
18
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. We then build processes to manage appropriately and mitigate risks where possible. 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,
distribution channels within each market and product requirements in these markets. The Group actively manages its
market exposure and profitability, but risks losing revenue if we do not anticipate market trends.
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 and reliance on existing products.
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 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.
19
Directors’ Report
(continued)
Ethical standards
The Group expect high ethical standards to be met in all areas of its operation and from all its employees and recognises
the role of the Board in defining and meeting these standards. We have a published ethical policy.
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, constructive and rewarding 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 to develop vocational training courses
for our employees. 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. 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.
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.
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 have
significantly reduced the amount of waste sent from the Group to landfill.
20
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. We run a number of events each year in support of charitable causes.
Where possible we source our materials and services locally. A strong support industry is important to the long term future
of the Group.
We also take an active role in supporting both the local ceramic industry and wider initiative within the hospitality sector
and support a number of training programmes.
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. We closed our small Australian branch operation during the year and now operate through a
distributor in that market.
Insurance for Directors
The Group maintains insurance for the Directors in respect of their duties as Directors.
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.
During the year the Group generated £3.4m of operating cash flow and after payment of corporate taxation of £0.7m,
invested £1.2m net in capital projects and returned £1.5m to shareholders by way of dividend.
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.
21
Directors’ Report
(continued)
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 BVI
J A Roper
S Baker
E S & SJ Roper
Investec Wealth and Investment
M J & G Roper
Henderson Global Investors Limited
Number of
ordinary
shares
2,484,500
1,102,500
1,100,000
672,265
588,966
535,380
440,000
Percentage
22.7%
10.1%
10.1%
6.2%
5.4%
4.9%
4.0%
Share repurchase
During the year the Company repurchased nil (2011: 65,000) 10p ordinary shares at a total cost of £nil (2011: £176,000) in
order to improve overall shareholder return. Nil (2011: 64,000) shares were re-issued in respect of employee share option
schemes for a total consideration of £nil (2011: £122,000). The maximum number of shares held in treasury by the Company
during the year was 33,000 10p ordinary shares. The Company retains a power, subject to the fulfilment of certain conditions
and as approved at the 2012 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 2012 was 38 days (2011: 35 days). The Company has no
trade creditors.
22
Political and charitable contributions
Contributions made by the Group during the year for political and charitable purposes were £nil (2011: £nil) and £9,000
(2011: £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 2012 was £9,000 (2011: £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 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. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Disclosure of information to auditors
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
25 March 2013
23
Report of the Remuneration Committee
for the year ended 31 December 2012
Summary
This section of the Report of the Remuneration Committee is not audited.
Following a review of Executive Directors remuneration in 2011, the Remuneration Committee’s aim during the year was to
amend the balance between salary and performance related remuneration. The revised structure is intended to improve
the incentive to Executive Directors to increase Group profitability and to more clearly align the interests of Directors and
shareholders. We also introduced a new long term incentive plan to grant options to Senior Executives, with the specific
aim of aligning executive reward with the creation of value for shareholders.
As a result there was no increase in base pay at the review date in the year. Challenging targets were set for the Executive
Directors bonus scheme and as in 2011 this was based on operating profit as we believe this measure best supports the
Board’s aims in relation to the development of our business and the successful implementation of the growth strategies we
have agreed. Options under the Long Term Incentive Plan were granted to two Executive Directors in the year and these
will only vest in full if earnings per share growth over the three year assessment period is in excess of long term average
profit growth.
Group performance was in line with our targets but did not demonstrate the levels of outperformance achieved in 2011. As
a result bonus levels were reduced in comparison to last year. Operating profit increased by 4% and pre tax profit by 15%.
We have maintained our strong cash position and balance sheet. Total shareholder return over the year was 17%.
Overall remuneration for the current members of the Board fell by 7% from £924,000 to £862,000 due to maintained levels
of basic pay, reductions in the levels of bonuses and lower gains on the exercise of share options. Additionally the overall
reward to Board members fell as the number of Executive Directors was reduced.
The Group is in the process of reviewing the effect of the Department of Business, Innovation and Skills report on Remuneration
Reporting Requirements. A number of changes and additional disclosures have been made in the 2012 report to reflect
the revised requirements and it is anticipated that further disclosures will be made in the 2013 Annual Report when the
requirements come into effect.
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 Group’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 Group 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 has issued a policy statement which is endorsed by the Board. In determining its policy the
Committee has given full consideration to the UK Corporate Governance Code. The two elements of this statement are:
●● Total rewards to Executive Directors are intended to provide a comprehensive benefit package which attracts,
motivates and retains 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 Group with whom the packages will as far
as possible be consistent and fair.
24
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 part of Aon Hewitt
Limited), a company specialising in the provision of remuneration advice to listed companies. New Bridge Street is a
member of the Remuneration Consultants Group and adheres to its code of conduct.
The following table details the elements of remuneration that make up total remuneration and explains how these are
linked to the Group’s strategy and how they operate.
Base salary
Purpose and link to strategy
Help recruit and retain employees
Operation
Reviewed annually and fixed for twelve months.
Salary influenced by:
Scale and scope of role, experience of employee and
performance
Average change in salary for the workforce as a whole
Salaries are benchmarked against comparator
companies
Directors are entitled to the reimbursement of costs
associated with their role. Executive Directors are entitled
to healthcare benefits.
Benefits
Help recruit and retain employees
Annual bonus
Rewards the achievement of annual
financial and strategic business targets
and delivery of personal objectives
Targets are set annually and relate to the areas of the
business where the Director has particular control
Bonus level is determined by the Remuneration
Committee after the year end based on performance
against targets
Long term incentive
plan
Incentivises employees to achieve a
higher level of return to shareholders
over a longer period of time.
The Company operates an LTIP approved on 16 May
2012
Executive Directors are eligible for the grant of low
cost options annually with vesting dependent on the
achievement of performance conditions over a three
year period.
Pension
Helps to recruit and retain employees
over a sustained period
The Company operates a defined contribution pension
scheme. Bonus and LTIP payments are not pensionable.
The Company previously operated a defined benefit
pension scheme which was closed for future accrual in
2006. All Executive Directors are deferred members of this
scheme.
25
Report of the Remuneration Committee
(continued)
Implementation
This section of the Report of the Remuneration Committee is audited.
Emoluments of the Directors were as follows:
Benefits
in kind
£
Pensions
(see below)
£
Gains
made on
exercise of
options
£
Aggregate
emoluments
£
Per-
formance
bonuses
£
46,000
29,992
31,785
–
–
–
Salary
£
200,000
184,000
195,000
60,000
37,500
37,500
829
965
818
–
–
–
–
18,400
19,500
–
–
–
714,000
107,777
2,612
37,900
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
–
–
–
–
16,560
17,293
8,836
–
–
–
–
–
–
–
–
–
–
–
14,100
2,280
3,420
–
–
–
246,829
233,357
247,103
60,000
37,500
37,500
862,289
256,966
267,299
266,529
168,736
59,333
36,875
36,875
2012
Executive
A D Roper
D J S Taylor
D M O’Connor
Non Executive
J N E Sparey
J W Morgan
A J McWalter
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
834,641
191,437
4,046
42,689
19,800
1,092,613
* 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.
No Director waived emoluments in respect of the years ended 31 December 2012 and 2011.
Pension costs above 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
Long term incentive plan
This section of the Report of the Remuneration Committee is audited.
On 16 May 2012 shareholders approved the establishment of a new long term incentive scheme for employees of the
Company. Options granted under this scheme during the year are shown below:
D J S Taylor
Long Term Incentive Plan
D M O’Connor
Date of
grant
21.06.12
Long Term Incentive Plan
21.06.12
Number of
options
31 Dec
2012
Number
of options
31 Dec
2011
46,730
49,524
–
–
Exercise
Price
pence
Date from
which
exercisable
Expiry
date
10
10
Jun 2015
Jun 2022
Jun 2015
Jun 2022
Exercise of the above options is subject to the achievement of performance conditions as specified by the Remuneration
Committee and are subject to clawback provisions in certain circumstances. The above number of options represent the
amount that will vest based on the achievement of maximum performance targets. A lower percentage of the above will
vest given the achievement of lower than maximum performance. At target performance levels 40% of the above options
would be expected to vest. Below threshold performance no options will vest.
96,254 options were granted on 21 June 2012. The market price of the Company’s shares at the date of grant was 315p.
For the options granted on 21 June 2012, 100% of the shares will vest given an increase of 42% in adjusted (pre exceptional)
EPS (‘maximum performance’) in the year to 31 December 2014 over the base year of 31 December 2011, 40% of the
above shares for an increase of 35% in adjusted EPS (‘target performance’) and 25% of the above shares for an increase
of 28% in adjusted EPS (‘threshold performance’). Between those levels shares will vest on a pro rata basis.
The above awards were double the level of options that the Remuneration Committee would normally expect to grant.
This higher award was given as no share option grants had been made by the Remuneration Committee since May 2008.
Executive and unapproved Executive share option schemes
This section of the Report of the Remuneration Committee is audited.
Details of share options granted under the Executive and unapproved Executive schemes are as follows:
Number of
options
31 Dec
2012
Number
of options
31 Dec
2011
Date of
grant
Exercise
Price
pence
Date from
which
exercisable
Expiry
date
30.04.04
10,000
10,000
208
Apr 2007
Apr 2014
D J S Taylor
Unapproved Executive Scheme
D M O’Connor
Unapproved Executive Scheme
30.04.04
6,000
6,000
208
Apr 2007
Apr 2014
No share options were granted to or exercised by Directors during the year under the Executive and unapproved Executive
Schemes.
Share options are granted to Directors in accordance with the terms of reference of the Remuneration Committee (see
page 24) to provide encouragement to enhance Group performance in the long term and having regard to each
employees responsibilities, ability and contribution. The grant of options is made at market value at the date of grant at no
cost to the employee.
27
Report of the Remuneration Committee
(continued)
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.The Remuneration Committee does not presently expect further options to be granted under this scheme.
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 Dec
2012
–
–
10,000
–
–
10,000
Number of
phantom
Shares
31 Dec
2011
15,000
15,000
10,000
15,000
15,000
10,000
Date of
grant
19.12.07
19.12.07
12.05.08
19.12.07
19.12.07
12.05.08
Base value
Pence
300
300
284
300
300
284
Cap value
Pence
550
700
684
550
700
684
Date from
which
exercisable
Dec 2010
Dec 2011
May 2012
Dec 2010
Dec 2011
May 2012
Expiry
date
Dec 2012
Dec 2012
May 2013
Dec 2012
Dec 2012
May 2013
D J S Taylor
D M O’Connor
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.
No Phantom Share Scheme options were granted or were exercised during the year. Phantom Share Scheme options
granted on 19 December 2007 lapsed during the year.
Share price movements during the year
The market price of the Company’s shares at the end of the financial year was 307.5p (2011: 274.5p). The range of prices
for the year to 31 December 2012 was 263p to 347p (2011: 339p to 255p) 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 shown in the table on page 26 have
been calculated at the market share price at the date of exercise of the options.
Pensions
This section of the Report of the Remuneration Committee is audited.
The method of provision of pension benefits to Directors changed in 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.
28
Pension benefits earned by Directors under the defined benefit scheme were as follows:
Change in
benefit
over
the year
(excl
inflation)
£
–
–
–
Accrued
benefit
£
131,135
29,363
28,844
Capital
value of
increase
£
–
–
–
–
189,342
–
A D Roper
D J S Taylor
D M O’Connor
The disclosure above is in accordance with London Stock Exchange guidance.
A D Roper
D J S Taylor
D M O’Connor
Increase in
benefit
over
the year
(incl
inflation)
£
5,259
650
639
Transfer
value at
31 Dec
2012
£
2,188,125
415,278
316,110
Transfer
value at
31 Dec
2011
£
2,324,752
449,035
344,160
Change in
transfer
value
less Directors’
contributions
£
(136,627)
(33,757)
(28,050)
6,548
2,919,513
3,117,947
(198,434)
The disclosure above is in accordance with 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 2012 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.
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 is funded to allow retirement at 65 with a pension based on accrued service to 31 March 2006
D J S Taylor and D M O’Connor 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: A D Roper is not a member of the Churchill
China 2006 Group Personal Pension Plan and does not receive ongoing pension benefits as part of his remuneration.
29
Report of the Remuneration Committee
(continued)
Directors’ service contracts
This section of the Report of the Remuneration Committee is not audited.
Executive Directors are not appointed on contracts for a fixed duration. 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
15 May 2012.
Non Executive Directors are appointed on fixed term contracts. J W Morgan signed a fixed term contracts of one years’
duration on 22 March 2013. 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 2012 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
2012
662,430
18,500
5,599
45,600
28,000
5,000
2011
662,430
18,500
5,599
45,600
28,000
–
765,129
760,129
A D Roper’s interest in the 10p ordinary shares of the Company at 31 December 2012 represented 6.1% (2011: 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 2012 and 25 March 2013.
Shareholder consultation
Prior to the approval of the new Long Term Incentive Plan at the Annual General Meeting in May 2012 the Remuneration
Committee consulted with major shareholders in relation to its operation and a detailed circular in respect of the Scheme
was sent out to all shareholders with the Notice of Annual General Meeting. No significant comments were received.
Two resolutions relating to remuneration were included in the business of the 2012 Annual General Meeting. The standard
resolution in relation to the approval of the Report of the Remuneration Committee contained in the Annual Report for 2011
was passed. 99.9% of votes were cast in favour of the resolution, 0.0% against, with 0.1% abstaining. The resolution in relation
to the approval of the new Long Term Incentive Plan was also passed, with 99.9% of votes cast in favour of the resolution,
0.1% against and 0.0% abstentions.
30
Performance Graph
This section of the Report of the Remuneration Committee is not audited.
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2007
2008
2009
2010
2011
2012
Churchill
FTSE Fledgling
AIM
(Source: N+1 Singer)
Over a five year period the Group’s total return to shareholders has been substantially above that generated by the AIM
index and comparable to that achieved by the FTSE Fledgling index. Total returns from the Group in the year have been
supported by the general rise in equity valuations, but have been enhanced 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
over 5% (AIM: -7%, FTSE Fledgling +6%). Over the five year period total shareholder return from the Group has been 29%,
whilst that achieved by the AIM index as a whole was -29% and the FTSE Fledgling 35%. In the year to 31 December 2012
the overall return from the Group was 17%, the AIM index reported a 2% return and the FTSE Fledgling index rose by 16%.
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
25 March 2013
31
Corporate Governance
This statement is unaudited.
As a Company quoted on the Alternative Investment Market of the London Stock Exchange, the Company is not required
to comply with the 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 twelve years. The Board does not consider that this is a material departure from the terms
of the Code.
The Board is reviewing the recommendations of the Davies report on diversity in the Boardroom.
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
J W Morgan
A J McWalter
Meetings
held
13
13
13
13
13
13
Meetings
attended
12
13
12
13
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.
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.
32
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 and 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
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 misstatement or loss. The principal features of the Group’s system of internal financial control are: the maintenance
of a control environment in which the need for the highest standards of behaviour and integrity are communicated to
employees; the use of a detailed reporting system covering performance against comprehensive financial and other key
operating indicators. The Board and the Audit Committee have reviewed the operation and effectiveness of the system of
internal financial control during the year. The Board 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
25 March 2013
34
Independent Auditors’ Report to the
Members of Churchill China plc
We have audited the Group and Company financial statements (the “financial statements”) of Churchill China plc for
the year ended 31 December 2012 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 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 Statement of Directors’ Responsibilities set out on page [16], the Directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to
audit and express an opinion on the financial statements in accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards
for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance
with Chapter 3 of part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept
or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it
may come save where expressly agreed by our prior consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and 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 Company’s affairs as at
31 December 2012 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 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
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 Company, or returns adequate for our audit have not been
received from branches not visited by us; or
●● the 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
25 March 2013
36
Consolidated Income Statement
for the year ended 31 December 2012
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 owners of the Company
Basic earnings per ordinary share
Diluted earnings per share
All of the above figures relate to continuing operations.
Notes
2012
£’000
2011
£’000
4
5
15
8
8
10
11
11
41,435
42,296
2,830
18
279
(40)
3,087
(660)
2,427
2,713
(41)
52
(30)
2,694
(598)
2,096
22.2p
22.0p
19.2p
19.2p
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
Company profit and loss account. The profit of the Company for the year was £13,000 (2011: £1,244,000)
37
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2012
Other comprehensive (expense)/income
Actuarial (loss)/gain on defined benefit obligations (note 23)
Currency translation differences
Other comprehensive (expense)/income for the year
Profit for the year
Total comprehensive income for the year
Attributable to:
Owners of the Company
2012
£’000
(2,094)
(11)
(2,105)
2,427
322
2011
£’000
573
(1)
572
2,096
2,668
322
2,668
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
Consolidated Balance Sheet
as at 31 December 2012
Assets
Non current assets
Property, plant and equipment
Intangible assets
Investment in associate
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Other financial assets
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
Equity attributable to owners of the Company
Issued share capital
Share premium account
Treasury shares
Other reserves
Retained earnings
Total equity
Notes
13
14
15
22
18
19
20
21
22
23
24
24
25
26
27
2012
£’000
14,162
73
864
1,285
16,384
9,877
7,333
500
6,497
24,207
40,591
(7,132)
(648)
(7,780)
(1,296)
(5,054)
2011
£’000
14,402
236
846
858
16,342
9,127
7,767
–
6,886
23,780
40,122
(7,044)
(693)
(7,737)
(1,437)
(3,295)
(14,130)
(12,469)
26,461
27,653
1,096
2,348
(89)
1,235
21,871
26,461
1,096
2,348
(89)
1,216
23,082
27,653
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 25 March 2013 and were signed
on its behalf by:
A D Roper
Director
D J S Taylor
Director
Company number 2709505
39
Company Balance Sheet
as at 31 December 2012
Fixed assets
Investment in associate
Investments in subsidiaries
Deferred income tax assets
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
22
19
19
21
24
24
25
26
27
2012
£’000
355
2,195
4
2,554
5,470
159
304
5,933
(28)
5,905
8,459
8,459
1,096
2,348
(89)
39
5,065
8,459
2011
£’000
355
2,195
–
2,550
6,997
265
164
7,426
(16)
7,410
9,960
9,960
1,096
2,348
(89)
24
6,581
9,960
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 25 March 2013 and were signed
on its behalf by:
A D Roper
Director
D J S Taylor
Director
40
Consolidated Statement of Changes in Equity
for the year ended 31 December 2012
Retained
earnings
£’000
Share
capital
£’000
Share
premium
account
£’000
Treasury
shares
£’000
Other
reserves
£’000
Total
£’000
22,014
1,096
2,348
(91)
1,202
26,569
Balance at 1 January 2011
Comprehensive Income:
Profit for the year
Other comprehensive income:
Depreciation transfer – gross
Depreciation transfer – tax
Actuarial gains – net of tax
Currency translation
2,096
12
(27)
573
–
Total comprehensive income
2,654
Transactions with owners
Dividends relating to 2010 and
2011 (note 12)
Treasury shares (note 25)
Total transactions with owners
Balance at 1 January 2012
Comprehensive Income:
Profit for the year
Other comprehensive income:
Depreciation transfer – gross
Depreciation transfer – tax
Actuarial losses – net of tax
Currency translation
Total comprehensive income
Transactions with owners
Dividends relating to 2011 and
2012
(note 12)
Share based payment
Total transactions with owners
(1,530)
(56)
(1,586)
23,082
2,427
12
(27)
(2,094)
–
318
(1,529)
–
(1,529)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
2
–
(12)
27
–
(1)
14
–
–
–
1,096
2,348
(89)
1,216
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(12)
27
–
(11)
4
–
15
15
2,096
–
–
573
(1)
2,668
(1,530)
(54)
(1,584)
27,653
2,427
–
–
(2,094)
(11)
322
(1,529)
15
(1,514)
Balance at 31 December 2012
21,871
1,096
2,348
(89)
1,235
26,461
41
Consolidated Cash Flow Statement
for the year ended 31 December 2012
Cash flows from operating activities
Cash generated from operations (see page 43)
Interest received*
Interest paid
Income tax paid
Net cash generated from operating activities
Cash flows 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
Cash flows from financing activities
Issue of ordinary shares
Purchase of treasury shares
Dividends paid
Purchase of financial assets
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange (losses)/gains on cash and cash equivalents
Cash and cash equivalents at the end of the year
2012
£’000
3,433
76
(40)
(728)
2,741
(1,182)
88
(6)
(1,100)
–
–
(1,529)
(500)
(2,029)
(388)
6,886
(1)
6,497
2011
£’000
5,922
52
(25)
(557)
5,392
(1,383)
117
(99)
(1,365)
122
(176)
(1,530)
–
(1,584)
2,443
4,442
1
6,886
* 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
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
Charge for share based payments
Difference between pension service cost and contributions (see note 23)
Changes in working capital:
Inventory
Trade and other receivables
Trade and other payables
Net cash inflow from operations
2012
£’000
2,830
1,592
(2)
15
(672)
(751)
417
4
3,433
2011
£’000
2,713
1,959
(42)
–
(495)
(930)
2,199
518
5,922
43
Notes to the Financial Statements
for the year ended 31 December 2012
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 and the Company have
adequate resources to continue in operational existence for the foreseeable future.
The Group and the Company therefore continue to adopt the going concern basis in preparing their consolidated
financial statements.
Changes in accounting policy and disclosures
(a) 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 2012 that would be expected to have a material impact on the Group.
(b) New standards and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods
beginning after 1 January 2013, and have not been applied in preparing these consolidated financial statements.
None of these are expected to have a significant effect on the consolidated financial statements of the Group,
except the following set out below:
Amendment to IAS 1, ‘Financial statement presentation’ regarding other comprehensive income. The main change
resulting from these amendments is a requirement for entities to Group items presented in ‘other comprehensive
income’ (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently.
IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise
definition of fair value and a single source of fair value measurement and disclosure requirements for use across
IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value
accounting but provide guidance on how it should be applied where its use is already required or permitted by other
standards within IFRSs or US GAAP.
IAS 19, ‘Employee benefits’, was amended in June 2011. The impact on the Group will be as follows: to immediately
recognise all past service costs; and 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 (asset). Were the change
in standard to have been applied from 1 January 2012 the Group’s current year profit would have been reduced by
£372,000. As this is a notional interest charge there would have been no impact on cash and cash equivalents.
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 replaces the parts of IAS 39 that relate to the classification
and measurement of financial instruments. 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 determination is made at initial recognition.
44
1 Summary of significant accounting policies (continued)
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 standard provides additional guidance to assist in the determination of control where this is difficult to
assess. 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 2014, 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, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The
Group is yet to assess IFRS 12’s full impact and intends to adopt IFRS 12 no later than the accounting period beginning
on or after 1 January 2014, 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.
Basis of consolidation
The consolidated financial statements of Churchill China plc include the results of the Company, its subsidiaries and
associate company.
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.
(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.
45
Notes to the Financial Statements
(continued)
1 Summary of significant accounting policies (continued)
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.
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 the
Income Statement 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.
46
1 Summary of significant accounting policies (continued)
Interest received/paid
Interest received and paid is treated in the cash flow statement as a cash flow from operating activities as this reflects
the nature of the Group’s business.
Retirement benefit costs
The Group operates a defined benefit pension scheme and defined contribution pension schemes.
The defined benefit scheme is valued every three years by a professionally qualified independent Actuary. In intervening
years, the Actuary reviews the continuing appropriateness of the valuation. 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 quality 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.
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.
47
Notes to the Financial Statements
(continued)
1 Summary of significant accounting policies (continued)
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in the income statement. Non monetary items that are measured in terms of historical cost in a foreign
currency are not retranslated.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign
operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are
translated at average exchange rates for the period. Exchange differences arising, if any, are 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.
Property, plant and equipment
Property, plant and equipment is shown at cost, net of accumulated depreciation, as adjusted for the revaluation of
certain land and buildings.
48
1 Summary of significant accounting policies (continued)
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 accumulated 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
The Group has no goodwill.
%
33 on cost
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. Non financial assets other than goodwill that have suffered an impairment are reviewed for
possible reversal of the impairment at each reporting date.
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.
49
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 IAS 39.
Other financial assets
Other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are included in current assets, except for maturities greater than twelve months after the end of
the reporting period. These are classified as non current assets.
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 IAS 39.
Non current assets held for sale
Non current assets are classified as being held for sale when their value is expected to be recovered through disposal
rather than continuing usage within the business and when the future sale is considered to be highly probable.
Management must be committed to sale which should be expected to be completed to qualify for recognition as
a completed sale within 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
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 2012, 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 £17,000 (2011: £15,000) 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 £12,000 (2011: £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 £187,000 (2011: £132,000) 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 2012, had the rates achieved been 0.1% higher/lower with all other variables held constant then post
tax profit for the year would have been £4,000 (2011: £5,000) higher/lower. Other components of equity would have
been unchanged.
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, other financial assets
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
Royal Bank of Scotland plc
Santander UK plc
Other
Credit
rating
A
A
A
Min A
2012
£’000
5,031
753
500
213
6,497
2011
£’000
6,009
602
–
275
6,886
51
Notes to the Financial Statements
(continued)
2 Financial risk management (continued)
Other financial assets are as follows:
Lloyds Banking Group plc
Credit
rating
A
2012
£’000
500
500
2011
£’000
–
–
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
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 £348,000 (2011: £317,000).
(b) Pension benefits
The present value of the pension obligations depend on a number of factors that are determined on an actuarial
basis using a number of assumptions. The assumptions used in determining the net cost or income for pensions include
the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.
The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should
be used to determine the present value of estimated future cash outflows expected to be required to settle the
pension obligations. In determining the appropriate discount rate the Group considers the interest rates of high quality
corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to
maturity approximating the terms of the related pension liability.
Other key assumptions for pension obligations are based in part on current market conditions. Additional information
is disclosed in note 23.
(c) Recognition of deferred tax assets
The Group reassesses each year whether it is appropriate to recognise the deferred tax assets in the financial
statements based upon the likelihood that the assets can be recovered. The assessment is based on the expected
reversal of temporary timing differences.
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 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
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.
Revenue from external customers
Contribution to Group overheads excluding
depreciation and amortisation
Depreciation and amortisation
Operating profit
Share of results of associate company
Finance income
Finance cost
Profit before income tax
Revenue from external customers
Contribution to Group overheads excluding
depreciation
and amortisation
Depreciation and amortisation
Operating profit
Share of results of associate company
Finance income
Finance cost
Profit before income tax
Hospitality
£’000
31 December 2012
Retail
£’000
Unallocated
£’000
Group
£’000
29,407
12,028
–
41,435
5,103
(942)
4,161
1,721
(301)
1,420
(2,402)
(349)
(2,751)
Hospitality
£’000
31 December 2011
Retail
£’000
Unallocated
£’000
4,422
(1,592)
2,830
18
279
(40)
3,087
Group
£’000
29,166
13,130
–
42,296
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
The ‘Unallocated’ Group overheads principally comprise costs associated with the centralised functions of the
Company Board, finance and administration and information technology.
There are no material inter-segment revenues (2011: £nil). Any inter segment revenues are carried out on an arm’s
length basis.
Revenue from external parties is measured in a manner consistent with the consolidated income statement.
Segment assets consist primarily of property, plant and equipment, inventories, trade and other receivables.
Unallocated assets comprise intangible assets, investment in associates, available-for-sale financial assets, deferred
taxation and cash and cash equivalents.
Segment liabilities comprise trade and other payables specific to operating segments. 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
4 Segmental analysis (continued)
Segment assets and liabilities at 31 December 2012 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
14,594
7,384
–
21,978
4,040
949
Retail
£’000
4,876
2,493
–
7,369
965
65
Unallocated
£’000
10,380
–
864
11,244
9,125
261
Group
£’000
29,850
9,877
864
40,591
14,130
1,275
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
3,742
972
Retail
£’000
5,383
2,648
–
8,031
727
37
Unallocated
£’000
10,213
–
846
11,059
8,000
265
Group
£’000
30,149
9,127
846
40,122
12,469
1,274
Any sales between segments are carried out on an arm’s 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
Rest of the World
2012
£’000
25,872
7,485
3,282
4,796
41,435
2011
£’000
26,757
7,951
3,039
4,549
42,296
The total assets of the business are allocated as follows:
United Kingdom £39,827,000 (2011: £39,220,000), Rest of Europe £87,000 (2011: £80,000), North America £610,000 (2011:
£710,000), Rest of the World £67,000 (2011: £112,000).
Capital expenditure was made as follows:
United Kingdom £1,230,000 (2011: £1,225,000), Rest of Europe £45,000 (2011: £49,000).
55
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 losses/(gains)
Total cost of sales, distribution costs and administrative expenses
2012
£’000
(745)
2,876
8,598
14,991
11,287
1,592
(2)
8
38,605
2011
£’000
(956)
2,808
9,139
15,128
11,553
1,959
(42)
(6)
39,583
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 (2011: none).
7 Employee benefit expense
Staff costs (for the employees shown in note 6)
Wages and salaries
Social security costs
Defined contribution pension cost (see note 23)
Other pension costs (see note 23)
Share options granted to Directors and employees (see note 24)
2012
Number
2011
Number
330
190
520
349
191
540
2012
£’000
13,191
1,166
435
184
15
14,991
2011
£’000
13,412
1,139
421
156
–
15,128
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 Report of the Remuneration
Committee. 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 (2011: nil).
56
8 Finance income and costs
Interest on pension scheme (note 23)
Interest income on cash and cash equivalents
Finance income
Interest on pension scheme (note 23)
Other interest
Finance costs
Net finance income
9 Auditors’ remuneration
During the year the Group obtained the following services from the Company’s auditor:
Fees payable to the Company’s auditor for the audit of the Company and consolidated
financial statements (Company £2,000, 2011: £2,000)
Fees payable to the Company’s auditor for other services:
The audit of the Company’s subsidiaries
Taxation advisory services
Other services
Total fees payable to the Group’s auditors
10 Income tax expense
Group
Current tax – current year
– adjustment in respect of prior periods
Deferred tax (note 22)
Reversal of temporary differences
Income tax expense
2012
£’000
203
76
279
–
(40)
(40)
239
2011
£’000
–
52
52
(5)
(25)
(30)
22
2012
£’000
2011
£’000
7
70
–
4
81
2012
£’000
706
(18)
688
(28)
660
7
67
13
7
94
2011
£’000
773
(30)
743
(145)
598
During the year the main rate of corporation tax was reduced from 26% to 24%. This change was substantively enacted
on 26 March 2012 and effective from 1 April 2012.
The Finance Bill 2012 was substantively enacted on 3 July 2012 and includes legislation to reduce the main rate of
Corporation Tax from 24% to 23% from 1 April 2013. Deferred tax balances have been re-measured accordingly.
In addition to the changes in rates of Corporation Tax disclosed, further changes to the UK Corporation Tax system
were announced in the March 2013 Budget. This includes a further reduction to the main rate to reduce the rate to
20% from 1 April 2015. This change had not been substantively enacted at the balance sheet date and, therefore, is
not recognised in these financial statements. The impact of the future proposed reduction in the tax rate would not
result in a material adjustment to the financial statements.
57
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 24.5% (2011: 26.5%).
2012
£’000
3,087
757
13
(18)
(108)
16
660
2011
£’000
2,694
714
10
(30)
(110)
14
598
During the year a credit of £540,000 (2011: charge of £312,000) 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 (2011: £27,000) 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 10,924,976 (2011: 10,921,563)
ordinary shares, being the weighted average number of ordinary shares in issue during the year.
2012
Pence per
share
2011
Pence per
share
Basic earnings per share (Based on earnings £2,427,000 (2011: £2,096,000))
22.2
19.2
Diluted earnings per ordinary share is based on the profit after income tax and on 11,030,731 (2011: 10,931,463)
ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,924,976 (2011:
10,921,563) increased by 105,755 (2011: 9,900) 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.
2012
Pence per
share
2011
Pence per
share
Diluted basic earnings per share (Based on earnings £2,427,000 (2011: £2,096,000))
22.0
19.2
58
12 Dividends
The dividends paid in the year were as follows:
Ordinary
Final dividend 2011 9.2 p (Final dividend 2010: 9.2p) per 10p ordinary share
Interim 2012 4.8 p per 10p ordinary share paid (Interim 2011: 4.8p)
2012
£’000
1,005
524
1,529
2011
£’000
1,005
525
1,530
The Directors now recommend payment of the following dividend:
Ordinary dividend:
Final dividend 2012 9.4p (2011: 9.2p) per 10p ordinary share
1,027
1,005
Dividends on treasury shares held by the Company are waived.
13 Property, plant and equipment
The Company has no property, plant and equipment (2011: none). Details of those relating to the Group are as follows:
Group
At 1 January 2011
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
Year ended 31 December 2012
Opening net book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 31 December 2012
Cost
Accumulated depreciation
Net book amount
Freehold
land and
buildings
£’000
11,880
(1,630)
10,250
10,250
92
–
(293)
10,049
11,972
(1,923)
10,049
10,049
473
–
(188)
10,334
12,445
(2,111)
10,334
Plant
£’000
16,677
(13,043)
3,634
3,634
825
–
(990)
3,469
17,502
(14,033)
3,469
3,469
495
–
(864)
3,100
17,997
(14,897)
3,100
Motor
vehicles
£’000
923
(394)
529
529
176
(66)
(147)
492
905
(413)
492
492
257
(86)
(149)
514
861
(347)
514
Fixtures
and
fittings
£’000
2,540
(1,923)
617
617
84
(9)
(300)
392
2,611
(2,219)
392
392
45
–
(223)
214
2,656
(2,442)
214
Total
£’000
32,020
(16,990)
15,030
15,030
1,177
(75)
(1,730)
14,402
32,990
(18,588)
14,402
14,402
1,270
(86)
(1,424)
14,162
33,959
(19,797)
14,162
59
Notes to the Financial Statements
(continued)
14 Intangible assets
The Company has no intangible fixed assets (2011: none). Details of these relating to the Group are as follows:
Computer
software
£’000
832
(464)
368
368
97
(229)
236
929
(693)
236
236
5
–
(168)
73
901
(828)
73
Group
2012
£’000
1,152
125
1,277
306
107
413
864
Group
2011
£’000
1,072
80
1,152
185
121
306
846
Company
2012
£’000
Company
2011
£’000
355
–
355
–
–
–
355
–
355
–
–
–
355
355
Group
At 1 January 2011
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
Year ended 31 December 2012
Opening net book amount
Additions
Disposals
Amortisation charge
Closing net book amount
At 31 December 2012
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
60
15 Investment in associate (continued)
The investment in associate represents a holding of 34.4% of the issued £1 ordinary shares of Furlong Mills Limited, a
company registered in England, whose principal activity is that of a potters miller.
Share of associate’s assets
Share of associate’s liabilities
Share of associate’s net assets
2012
£’000
1,668
(340)
1,328
2011
£’000
1,465
(263)
1,202
The total revenue of Furlong Mills Limited for its year ended 31 December 2012 was £6,679,000 (2011: £6,476,000) and
profit before tax was £445,000 (2011: £365,000). During the year the Group purchased raw materials to a value of
£1,907,000 (2011: £1,934,000) 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. Expected cash flows from the investment have been discounted at a rate of 5.6% (2011: 6.2%).
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
2012
£’000
2,627
2011
£’000
2,627
432
432
2,195
2,195
61
Notes to the Financial Statements
(continued)
16 Investment in subsidiaries (continued)
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 (Whieldon Road)
Limited
England and
Wales
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
Provision of management
and property services
within the Group
Sale of ceramic and
related products
Dormant companies within the Group are not included in the above analysis. The Directors believe the carrying value
of subsidiaries is supported by their underlying net asset values.
17 Available for sale financial assets
Fair value/Cost
At 1 January and 31 December 2012
Impairment
At 1 January and 31 December 2012
Fair value/Net book value
At 1 January and 31 December 2012
Group
Available
for sale
financial
assets
£’000
Company
Other
investments
£’000
–
–
–
43
43
–
The above represents 35.9% (2011: 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.
62
18 Inventories
The Company has no inventory (2011: none). Details of inventory relating to the Group are as follows:
Raw materials
Work in progress
Finished goods
2012
£’000
52
498
9,327
9,877
2011
£’000
46
473
8,608
9,127
The Directors do not consider there is a material difference between the carrying value and replacement cost of
inventories. The potential impact of changes in the net realisable value of inventories is shown in note 3.
The cost of inventories recognised as an expense and included in the income statements amounted to £23,511,000
(2011: £23,718,000).
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 29)
Less non-current portion: loans to related parties
Current portion
Group
Company
2012
£’000
7,480
(427)
7,053
7
273
–
–
7,333
–
7,333
2011
£’000
7,456
(304)
7,152
198
411
6
–
7,767
–
7,767
2012
£’000
–
–
–
–
–
–
5,629
5,629
5,470
159
2011
£’000
–
–
–
110
–
–
7,152
7,262
6,997
265
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 2012, trade receivables of £6,521,000 (2011: £6,609,000) were fully performing.
63
Notes to the Financial Statements
(continued)
19 Trade and other receivables (continued)
As of 31 December 2012, trade receivables of £463,000 (2011: £467,000) 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
2012
£’000
436
21
6
463
2011
£’000
444
23
–
467
As of 31 December 2012 trade receivables with a gross value of £496,000 (2011: £380,000) were impaired and provided
for. The amount of provision for 31 December 2012 was £427,000 (2011: £304,000). 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
2012
£’000
388
16
92
496
2011
£’000
277
30
73
380
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
Written off during the year
At 31 December
2012
£’000
304
165
(42)
427
2011
£’000
234
93
(23)
304
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 £nil (2011: £202,000) have been reviewed and an impairment provision of £nil (2011:
£60,000) 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
Other
64
2012
£’000
5,790
841
656
46
7,333
2011
£’000
6,182
800
785
–
7,767
19 Trade and other receivables (continued)
During the year the Group realised losses of £8,000 (2011: £6,000) 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
£1,191,000 (2011: £2,248,000) and the sale of US dollars of £245,000 (2011: £319,000). These contracts are held at their fair
value with a loss of £26,000 (2011: gain of £73,000) recognised in relation to the contracts outstanding at the year end.
Company
As of 31 December 2012, Company receivables of £nil (2011: £7,152,000) were fully performing. Amounts receivable
are repayable in accordance with agreed terms. No interest is chargeable.
Other receivables of £nil (2011: £138,000) gross were impaired and provided for. The amount of this provision at
31 December 2012 was £nil (2011: £28,000). Interest is chargeable on these receivables.
The carrying amounts of the Company’s receivables are denominated in the following currencies:
Pounds
US dollar
20 Other financial assets
Other receivables
2012
£’000
5,579
50
5,629
2011
£’000
7,216
46
7,262
2012
£’000
500
500
Group
Company
2011
£’000
2012
£’000
2011
£’000
–
–
–
–
–
–
Other receivables represent term deposits made with banks not classed as cash and cash equivalents with maturities
of less than one year as at the balance sheet date. The deposits are not impaired.
21 Trade and other payables
Trade payables
Amounts due to related parties
Corporation tax
Social security and other taxes
Accrued expenses
Group
Company
2012
£’000
1,801
107
–
1,069
4,155
7,132
2011
£’000
1,505
84
–
1,121
4,334
7,044
2012
£’000
2011
£’000
–
13
6
8
1
28
–
13
–
2
1
16
All the above liabilities mature within twelve months from 31 December 2012.
65
Notes to the Financial Statements
(continued)
22 Deferred income tax
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset
amounts are as follows:
Group
Deferred tax assets:
– Deferred tax asset to be recovered after more than 12 months
– Deferred tax asset to be recovered within 12 months
Deferred tax liabilities:
– Deferred tax liabilities to be recovered after more than 12 months
– Deferred tax liabilities to be recovered within 12 months
Deferred tax liability (net)
The net movement on the deferred income tax account is as follows:
At 1 January
Income statement credit (note 10)
Tax credited/(charged) directly to equity (note 27)
At 31 December
2012
£’000
1,114
171
1,285
(1,250)
(46)
(1,296)
(11)
2012
£’000
(579)
28
540
(11)
2011
£’000
678
180
858
(1,387)
(50)
(1,437)
(579)
2011
£’000
(412)
145
(312)
(579)
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:
Accelerated
tax
depreciation
£’000
Land and
buildings
revaluation
£’000
Deferred tax liabilities
At 1 January 2011
Credited to the income statement
At 31 December 2011
Credited to the income statement
At 31 December 2012
Deferred tax assets
At 1 January 2011
(Credited)/charged to the income statement
Charged directly to equity
At 31 December 2011
(Credited)/charged to the income statement
Credited directly to equity
1,347
(214)
1,133
(114)
1,019
Accelerated
tax
depreciation
£’000
Retirement
benefit
obligation
£’000
–
(18)
–
(18)
(89)
–
(1,261)
125
312
(824)
202
(540)
At 31 December 2012
(107)
(1,162)
66
Total
£’000
1,678
(241)
1,437
(141)
1,296
Total
£’000
(1,266)
96
312
(858)
113
(540)
(1,285)
331
(27)
304
(27)
277
Other
£’000
(5)
(11)
–
(16)
–
–
(16)
22 Deferred income tax (continued)
The deferred income tax (charged)/credited to equity during the past year is as follows:
Fair value reserves in shareholders’ equity:
Tax on actuarial (loss)/gain on retirement benefits scheme
2012
£’000
2011
£’000
(540)
312
Deferred income tax of £27,000 (2011: £27,000) was transferred from other reserves (note 26) to retained earnings (note
27). This represents deferred tax on the difference between the actual depreciation on buildings and the equivalent
depreciation based on the historical cost of buildings.
Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the
related tax benefit through the future taxable profits is probable. The Group has not recognised deferred income tax
assets of £1,295,000 (2011: £1,349,000) in respect of capital losses amounting to £5,395,000 (2011: £5,395,000) that can
be carried forward against future capital gains.
23 Retirement benefit obligations
Balance sheet obligations
Pension benefits
Income statement charge/(credit)
Pension benefits
Finance (income)/cost
2012
£’000
5,054
619
(203)
2011
£’000
3,295
577
5
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
£619,000 (2011: £577,000). Of this cost £nil (2011: £nil), related to the Churchill Group Retirement Benefit Scheme,
£179,000 (2011: £171,000) was in respect of the Churchill China 1999 Pension Scheme and £256,000 (2011: £250,000)
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 £75,000 (2011: £59,000).
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 £672,000 (2011:
£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 in respect of the amortisation
of past service deficits.
The amounts recognised in the balance sheet are determined as follows:
Present value of funded obligations
Fair value of plan assets
Liability in balance sheet
2012
£’000
37,330
(32,276)
5,054
2011
£’000
33,058
(29,763)
3,295
67
Notes to the Financial Statements
(continued)
23 Retirement benefit obligations (continued)
The movement in the present value of defined benefit obligation over the year is as follows:
At 1 January
Interest cost
Actuarial losses/(gains)
Benefits paid
At 31 December
2012
£’000
33,058
1,620
3,587
(935)
37,330
2011
£’000
34,898
1,954
(2,959)
(835)
33,058
Actuarial gains in 2011 include £2,170,000 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 gains/(losses)
Employer contributions
Benefits paid
At 31 December
Plan assets are comprised as follows:
Equity and return investments
Debt investments
Other
2012
£’000
29,763
1,823
953
672
(935)
32,276
2012
2011
£’000
22,088
9,373
815
32,276
68%
29%
3%
£’000
20,078
8,617
1,068
29,763
2011
£’000
30,228
1,949
(2,074)
495
(835)
29,763
67%
29%
4%
The expected return on plan assets is determined by considering the expected returns on the assets underlying the
current investment policy. Expected yields on fixed interest investments are based on gross redemption yields at
the balance sheet date. Expected returns on equity and property investments reflect long term real rates of return
experienced in the respective markets.
The amounts recognised in the income statement are as follows:
Interest cost
Expected return on plan assets
Net income/(cost) recognised in finance cost
The actual return on plan assets was a gain of £2,776,000 (2011: loss of £125,000).
2012
£’000
(1,620)
1,823
203
2011
£’000
(1,954)
1,949
(5)
68
23 Retirement benefit obligations (continued)
At 31 December
Present value of funded obligations
Fair value of plan assets
Liability in balance sheet
Experience adjustments on scheme assets:
Amount
Experience adjustments on scheme
liabilities:
Amount
2012
£000
37,330
(32,276)
5,054
2011
£000
33,058
(29,763)
3,295
2010
£000
34,898
(30,228)
4,670
2009
£000
34,550
(26,841)
7,709
2008
£000
25,275
(23,220)
2,055
953
(2,074)
1,813
2,689
(6,463)
(590)
403
835
(414)
372
Actuarial gains and losses
Actuarial losses of £2,634,000 (2011: gains £885,000) gross of tax 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 £11,329,000 (2011: £8,695,000).
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
2012
% per
annum
2011
% per
annum
4.5%
3.0%
2.3%
6.2%
2.2%
2.3%
4.9%
3.1%
2.1%
6.1%
2.0%
2.1%
Assumptions regarding future mortality rates are set based on advice in accordance with S1PA actuarial tables and
experience.
The average life expectancy in years of a pensioner retiring at age 65 at the balance sheet date is as follows:
Male
Female
2012
Number
2011
Number
20.4
23.1
20.3
23.0
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
2012
Number
2011
Number
22.7
25.3
22.5
25.2
69
Notes to the Financial Statements
(continued)
23 Retirement benefit obligations (continued)
Sensitivity
A sensitivity analysis has been carried out on effect of varying certain assumptions within the calculation of retirement
benefit obligations.
The effect of a 0.25% increase in the discount rate to 4.75% would be to reduce scheme liabilities by £1,687,000 (4.5%).
The effect of a 0.25% decrease in the discount rate to 4.25% would be to increase scheme liabilities by
£1,794,000 (4.8%).
The effect of a 0.25% increase in RPI inflation to 3.25% and CPI inflation to 2.55% would increase scheme liabilities by
£1,207,000 (3.2%).
The effect of a 0.25% decrease in RPI inflation to 2.75% and CPI inflation to 2.05% would decrease scheme liabilities by
£1,139,000 (3.1%).
The effect of a 1 year increase to life expectancy would increase scheme liabilities by £962,000 (2.6%). The effect of a
1 year reduction in life expectancy would be to reduce scheme liabilities by £979,000 (2.6%).
24 Issued share capital and premium
Group and Company
At 31 December 2010 and 31 December 2011 and
31 December 2012
Number
of shares
000s
Ordinary
shares
£’000
Share
premium
£’000
10,958
1,096
2,348
The total authorised number of ordinary shares is 14,300,000 (2011: 14,300,000) with a par value of 10p (2011: 10p) per
share. All issued shares are fully paid.
Share option schemes
The Executive share option scheme was introduced in October 1994 and a complementary unapproved Executive
share option scheme was approved by shareholders in October 1996. Options under these schemes are granted
with a fixed exercise price equal to the market price of the shares at the date of issue. Options are normally only
exercisable after 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. Options have been valued
using the Black-Scholes option pricing model. No market based performance conditions were used in the fair value
calculations.
The Long Term Incentive Plan was introduced in May 2012. Options under this scheme are granted with a fixed exercise
price at a discount to the market price of the share at the date of issue. Options vest after three years from the date
of grant and expire ten years from the date of grant. Options granted will be exercisable on a pro rata basis based on
performance against threshold, target and maximum performance levels. Performance targets are set at the date of
each grant by the Remuneration Committee. Payment of the exercise price of options is received in cash. A charge
to the Income Statement has been made to reflect the fair value of options granted. Options have been valued
using the Black–Scholes option pricing model. No market based performance conditions were used in the fair value
calculations.
70
24 Issued share capital and premium (continued)
The fair value per option granted and the assumptions used in the calculation were as follows:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option
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
Long term
incentive
plan
21 June
2012
Executive
share
option
scheme
30 April
2004
315p
10p
2
96,254
3
20%
10
3
1.6%
4.9%
236p
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 2012:
Number of shares
2012
2011
Exercise
price
Date from
which
exercisable
Expiry
date
The unapproved Executive share option
scheme
The Long Term Incentive Plan
36,000
96,254
36,000
–
208p
10p
April 2007
June 2015
April 2014
June 2022
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 2012 is set out below.
Outstanding at 1 January
Granted
Exercised
Outstanding at 31 December
Exercisable at 31 December
2012
Number
‘000
36,000
96,254
–
132,254
36,000
2012
Weighted
average
exercise
price
208.0p
10.0p
–
63.9p
208.0p
2011
Number
‘000
100,000
–
(64,000)
36,000
36,000
2011
Weighted
average
exercise
price
196.9p
–
190.7p
208.0p
208.0p
There were 96,254 share options granted during the year (2011: nil).
71
Notes to the Financial Statements
(continued)
24 Issued share capital and premium (continued)
2012
2012
2012
Weighted
average
exercise
price
Number
’000
Weighted
average
remaining
life
(expected)
2012
Weighted
average
remaining
life
(con-
tractual)
2011
2011
2011
Weighted
average
exercise
price
Number
’000
Weighted
average
remaining
life
(expected)
2011
Weighted
average
remaining
life
(con-
tractual)
0–50p
200p–250p
10p
208p
96,254
36,000
2.5
0.0
9.5
1.3
–
208p
–
36,000
–
0.0
–
2.3
The weighted average share price for options exercised in the period was nil p (2011: 190.7p). The total charge during
the year for employee share based payment plans was £15,000 (2011: £nil) before tax, all of which related to equity
settled share based payment transactions.
25 Treasury shares
As at 1 January 2012 and 31 December 2012
Group and
Company
£’000
89
During the year the Group re-purchased nil (2011: 65,000) 10p ordinary shares and re-issued nil (2011: 64,000) of these
under employee share option schemes. The Group currently holds 33,000 (2011: 33,000) shares in Treasury.
26 Other reserves
Group
Balance at 1 January 2011
Depreciation transfer – gross
Depreciation transfer – tax
Currency translation
Balance at 31 December 2011
Depreciation transfer – gross
Depreciation transfer – tax
Share based payment
Currency translation
Balance at 31 December 2012
Land and
buildings
revaluation
£’000
Currency
translation
£’000
Share
based
payment
£’000
Other
reserves
£’000
896
(12)
27
–
911
(12)
27
–
–
926
29
–
–
(1)
28
–
–
–
(11)
17
24
–
–
–
24
–
–
15
–
39
253
–
–
–
253
–
–
–
253
Total
£’000
1,202
(12)
27
(1)
1,216
(12)
27
15
(11)
1,235
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 retained earnings 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 £39,000 (2011: £24,000) represent provision for share based payment as shown in the above table.
72
27 Retained earnings
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 25)
At 31 December 2011
At 1 January 2012
Profit for the year
Dividends paid in 2012
Depreciation transfer on land and buildings net of tax
Actuarial losses net of tax
At 31 December 2012
Group
£’000
Company
£’000
22,014
2,096
(1,530)
(15)
573
(56)
23,082
23,082
2,427
(1,529)
(15)
(2,094)
21,871
6,923
1,244
(1,530)
–
–
(56)
6,581
6,581
13
(1,529)
–
–
5,065
28 Commitments
Capital commitments
Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:
Property, plant and equipment
Intangible assets: Computer software
Group
Company
2012
£’000
666
45
711
2011
£’000
845
39
884
2012
£’000
2011
£’000
–
–
–
–
–
–
Operating lease commitments
The Group has financial commitments in respect of non cancellable operating leases for buildings and 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
2012
£’000
37
47
214
Group
2011
£’000
Company
2012
£’000
2011
£’000
34
35
22
–
–
–
–
–
–
73
Notes to the Financial Statements
(continued)
29 Related party transactions
Details of related party transactions for the Group are shown in the Directors’ Report, Report of the Remuneration
Committee and in the Notes to the financial statements appropriate to the type of transaction being dealt with.
The Directors do not consider the Company to have an ultimate controlling party.
Company
Details of related party transactions involving the Company were as follows:
Subsidiaries
Management charge to Churchill China, Inc
Interest received from Churchill China (UK) Limited
Dividend received from Churchill China (UK) Limited
(Loans repaid by)/new loans made to Churchill China (UK) Limited
Loans outstanding as at the year end (mainly Churchill China (UK) Limited
2012
£’000
6
4
–
(1,527)
5,629
2011
£’000
6
5
1,250
136
7,152
30 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 2012 and 2011, as disclosed in note 17.
74
Five Year Financial Record
Turnover
Operating profit before exceptional items
Share of results of associate net of impairment
Finance income/(cost)
Profit before taxation
Income tax expense
Income tax expense – exceptional
Profit after taxation
2008
£’000
41,969
2,804
(71)
629
3,362
(938)
(919)
1,505
2009
£’000
41,705
2,288
(18)
(201)
2,069
(513)
–
1,556
2010
£’000
43,746
2,287
162
(135)
2,314
(583)
–
1,731
2011
£’000
42,296
2,713
(41)
22
2,694
(598)
–
2,096
2012
£’000
41,435
2,830
18
239
3,087
(660)
–
2,427
Dividends
1,531
1,526
1,529
1,530
1,529
Net assets employed
28,612
24,536
26,569
27,653
26,461
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)
6.7%
3,874
13.8
22.2
5.5%
3,684
14.3
14.3
5.2%
3,817
15.8
15.8
6.4%
4,672
19.2
19.2
6.8%
4,422
22.2
22.2
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
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of Churchill China plc will be held at Marlborough Pottery, High
Street, Sandyford, Tunstall, Stoke-on-Trent on Wednesday 22 May 2013 at 12 noon for the following purposes:
Ordinary Business
To consider and, if thought fit, to pass the following resolutions which will be proposed as ordinary resolutions:
1. That the reports of the Directors and the Auditors and the Financial Statements for the year ended 31 December 2012
be received.
2. That a final dividend of 9.4p on each ordinary share be declared in respect of the year ended 31 December 2012.
3. That Mr A D Roper be re-elected as a Director.
4.
That Mr J W Morgan be re-elected as a Director.
5. That the Auditors, PricewaterhouseCoopers LLP, be re-appointed and that the Directors be authorised to fix their
remuneration for the year ending 31 December 2013.
6. That the Directors’ Remuneration Report for the year ended 31 December 2012 be approved.
Special Business
To consider and, if thought fit, to pass the following resolutions which will be proposed as special resolutions:
7. That:
(a) the Directors be and they are hereby empowered under Section 570 of the Act to allot equity securities (as
defined in Section 560 of the Act) for cash under the authority conferred by a resolution dated 16 May 2012 as if
Section 561 of the Act did not apply to such allotment, provided that this power shall be limited to:
(i)
the allotment of equity securities in connection with an offer of, or invitation to apply for, equity securities to:
(a) ordinary shareholders in proportion (as nearly as may be) to their existing holdings; and
(b) holders of other equity securities, if this is required by the rights of those securities, or, as the Directors
otherwise consider necessary,
and so that the Directors may impose any limits or restrictions and make any arrangements which they
consider necessary or appropriate to deal with any treasury shares, fractional entitlements,record
laws of any territory or any matter; and
dates,
regulatory or practical problems
in, or
legal,
(ii)
the allotment of equity securities (otherwise than as mentioned in sub-paragraph (a) of this resolution and/or
in the case of any sale of treasury shares for cash), up to an aggregate nominal amount of £109,579.
Unless previously renewed, varied or revoked, this power shall expire at the conclusion of the next Annual General
Meeting or 21 August 2014, whichever is the earlier, but during this period the Company may make an offer or
agreement which would or might require equity securities to be allotted after this authority expires and the Directors
may allot equity securities in pursuance of that offer or agreement notwithstanding that the authority has expired.
76
8. That the Directors be authorised generally and unconditionally for the purposes of Sections 693 and 701 of the Act to
make market purchases (within the meaning of Section 693(4) of the Act) of ordinary shares of 10p each in the capital
of the Company (“Ordinary Shares”) on such terms and in such manner as the Directors of the Company may from
time to time determine, provided that:
(i)
the maximum aggregate number of Ordinary Shares hereby authorised to be purchased is 1,092,497;
(ii)
the minimum price which may be paid for an Ordinary Share, exclusive of all expenses, shall be 10p;
(iii)
the maximum price which may be paid for an Ordinary Share, exclusive of all expenses, cannot be more
than an amount equal to the higher of:
(a) 5 per cent above the average of the middle market quotations for an Ordinary Share as derived from the
Alternative Investment Market section of the London Stock Exchange Daily Official List for the five business
days immediately preceding the date on which such Ordinary Share is purchased; and
(b) the price stipulated by Article 5(1) of Commission Regulation (EC) No 2273/2003 (the Buy-back and
Stabilisation Regulation).
Unless previously renewed, varied or revoked, the authority hereby conferred shall expire at the conclusion of
the Company’s next Annual General Meeting and the Company may prior to the expiry of the authority hereby
conferred make a contract or contracts to purchase Ordinary Shares under such authority which will or may be
executed wholly or partly after the expiry of such authority.
9. That a general meeting other than an Annual General Meeting may be called on not less than 14 clear days’ notice.
By Order of the Board
D J S Taylor
Company Secretary
Dated 16 April 2013
Registered Office
Marlborough Pottery
High Street
Tunstall
Stoke-on-Trent
ST6 5NZ
Registered Number 2709505
The Directors of the Company consider that all the proposals to be considered at the Annual General Meeting are in
the best interests of the Company and its members as a whole and are most likely to promote the success of the Company
for the benefit of its members as a whole. The Directors unanimously recommend that you vote in favour of all the
proposed resolutions.
77
Notice of Annual General Meeting
(continued)
NOTES
1.
Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may
appoint more than one proxy in relation to the AGM provided that each proxy is appointed to exercise the rights attached to a different share or shares held by
that shareholder. A proxy need not be a shareholder of the Company. A form of proxy which may be used to make such appointment and give proxy instructions
accompanies this notice. Instructions for use are shown on the form. If you do not have a form of proxy and believe that you should have one, or if you require
additional forms, please contact our registrars, Equiniti, on 0871 384 2287. Calls to this number from a BT landline cost 8p per minute; other providers’ costs may vary. If
calling from overseas, please call +44 (0)121 415 7047. Lines are open 8.30am – 5pm, Monday – Friday. To appoint more than one proxy, you may photocopy the
proxy form.
2.
To be valid, any form of proxy or other instrument appointing a proxy must be received by post or (during normal business hours only) by hand at the offices of the
Company’s registrars, Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, no later than 12 noon on 20 May 2013. If you return more than
one proxy appointment, that received last by the Registrar before the latest time for the receipt of proxies will take precedence. You are advised to read the terms
and conditions of use carefully.
3.
The return of a completed form of proxy will not prevent a shareholder attending the AGM and voting in person if he/she wishes to do so.
4.
Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that
they do not do so in relation to the same shares.
5.
Any person to whom this notice is sent who is a person nominated under Section 146 of the Act to enjoy information rights (a “Nominated Person”) may, under an
agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy
for the AGM. If a Nominated Person has no such proxy appointment or does not wish to exercise it, he/she may, under any such agreement, have a right to give
instructions to the shareholder as to the exercise of voting rights.
6.
The statement of the rights of shareholders in relation to the appointment of proxies in notes 1 and 2 above does not apply to Nominated Persons. The rights described
in these paragraphs can only be exercised by shareholders of the Company.
7.
To be entitled to attend and vote at the AGM (and for the purpose of the determination by the Company of the votes they may cast), shareholders must be registered
in the Register of Members of the Company at 12 noon on 20 May 2013 (or, in the event of any adjournment, on the date which is two days before the time of the
adjourned meeting). Changes to the Register after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the
meeting. There are no other procedures or requirements for entitled shareholders to comply with in order to attend and vote at the AGM. Voting at the meeting will be
conducted by way of a show of hands, unless a poll is correctly called for.
8.
As at 16 April 2013 (being the last practicable date prior to publication of this Notice), the Company’s total issued equity share capital consists of 10,924,976 ordinary
shares, carrying one vote each.
9.
Under Section 527 of the Act, members meeting the threshold requirements set out in that Section have the right to require the Company to publish on a website a
statement setting out any matter relating to: (i) the audit of the Company’s accounts (including the auditors’ report and the conduct of the audit) that are to be laid
before the AGM; or (ii) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts
and reports were laid in accordance with Section 437 of the Act. The Company may not require the shareholders requesting any such website publication to pay its
expenses in complying with Sections 527 or 528 of the Act. Where the Company is required to place a statement on a website under Section 527 of the Act, it must
forward the statement to the Company’s auditors not later than the time when it makes the statement available on the website. The business which may be dealt with
at the AGM includes any statement that the Company has been required under Section 527 of the Act to publish on a website.
10.
Pursuant to Section 319A of the Act, the Company must cause to be answered at the AGM any question relating to the business being dealt with at the AGM which is
put by a member attending the meeting, except in certain circumstances, including if it is undesirable in the interests of the Company or the good order of the meeting
that the question be answered or if to do so would involve the disclosure of confidential information.
11.
Except as provided above, members who wish to communicate with the Company in relation to the AGM should do so using the following means: (1) by writing to the
Company Secretary at the Registered Office address; or (2) by writing to the Registrars, Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA.
No other methods of communication will be accepted. In particular, you may not use any electronic address provided either in this Notice or in any related documents
for any purposes other than expressly stated.
12.
A copy of this Notice, and other information required by Section 311A of the Act, can be found at www.churchillchina.plc.uk.
13.
Copies of the Directors’ Service Contracts and the Non-executive Directors’ letter of appointment will be available for inspection at the Company’s Registered
Office address on weekdays (Saturdays and public holidays excepted) during business hours from the date of this Notice until the conclusion of the AGM.
78
EXPLANATORY NOTES on the RESOLUTIONS
The notes on the following pages give an explanation of certain of the proposed resolutions.
1.
Resolutions 3 and 4: in accordance with the Company’s Articles of Association at every AGM the number of Directors nearest to, but not exceeding one-third must
retire by rotation. Mr A D Roper and Mr J W Morgan are retiring by rotation and resolutions 3 and 4 respectively seek approval for his re-election as a Director.
Biographical details for the Directors are set out on in the Directors’ Report.
Each of the Directors has had a formal performance evaluation and the Board believes that each of them continues to be effective and demonstrates commitment
to the role.
2.
Resolution 7: under Section 570 of the Act, when new shares are allotted or treasury shares are sold for cash, they must first be offered to existing shareholders
pro rata to their holdings. This special resolution empowers the Directors to: (a) allot shares of the Company in connection with a rights issue, scrip dividend or other
similar issue; and (b) otherwise allot shares of the Company, or sell treasury shares for cash, up to an aggregate nominal value of £109,579 (representing, in accordance
with institutional investor guidelines, approximately 10% of the total issued equity share capital as at 16 April 2013)) (being the last practicable date prior to the
publication of this Notice)) as if the pre-emption rights of Section 570 did not apply.
Except in relation to the Company’s employee share schemes, the Directors have no immediate plans to make use of this power. In line with best practice, the
Company confirms that it has issued 1% of its issued share capital (excluding treasury shares) on a non-pro rata basis over the last 3 years, and it confirms its intention to
adhere to the provisions in the Pre-Emption Group Statement of Principles regarding cumulative usage of authorities of no more than 7.5 per cent of the issued ordinary
share capital (excluding treasury shares) within a rolling 3 year period.
This power shall cease to have effect at the conclusion of the next AGM or on 21 August 2014, whichever is the earlier.
3.
Resolution 8 renews the Directors’ current authority to make limited market purchases of the Company’s ordinary shares. The power is limited to a maximum aggregate
number of 1,092,497 ordinary shares (representing approximately 10 per cent of the issued share capital excluding treasury shares as at 16 April 2013 (being the last
practicable date prior to publication of this Notice)) and details the minimum and maximum prices that can be paid, exclusive of expenses. Any purchases of ordinary
shares would be made by means of market purchase through the London Stock Exchange.
The Directors undertake that the authority conferred by this resolution, if approved, will only be used if to do so would result in an increase in earnings per share and be
in the best interests of shareholders generally.
Current legislation allows companies to hold shares acquired by way of market purchase in treasury, rather than having to cancel them. The Directors may use the
authority to purchase shares and hold them in treasury (and subsequently sell or transfer them out of treasury as permitted in accordance with legislation) rather than
cancel them, subject to institutional guidelines applicable at the time. Shares will only be purchased if to do so would result in an increase in earnings per share and is
in the best interests of shareholders generally. The Board has previously indicated its intention to continue to return surplus cash to shareholders via on-market purchase
of its own shares where it is not required to finance the organic expansion of the business, acquisitions and dividend payments.
The authority conferred by this resolution will expire at the conclusion of the next AGM.
4.
Resolution 9 is required under the Shareholders’ Rights Regulations in order to preserve the ability of the Company to call general meetings on 14 days’ notice, with
shareholders’ approval. The approval will be effective until the Company’s next Annual General Meeting when it is intended that a similar resolution will be proposed.
The Company will also need to meet the requirements for electronic voting under the Regulations before it can call a general meeting on 14 days’ notice.
79
Shareholder Notes
80
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 2013