UPDATE 1-Churchill China cautious on full year prospects

(Adds CFO interview, broker comment, share price)

By Malcolm Locke

LONDON, Sept 3 (Reuters) - Churchill China (CHCH.L) Plc, the AIM-listed ceramic tableware and household products group, gave a cautious statement on its prospects on Wednesday prompting a broker downgrade and a fall in its share price.

The company -- which supplies leading pub chains including Punch Taverns (PUB.L), Mitchells & Butlers (MAB.L) and JD Wetherspoon (JDW.L) -- with crockery and tableware said that the outlook for the remainder of 2008 was "difficult to predict" and there was "some uncertainty" about the full year outcome.

Earlier, the group reported a 14.2 percent fall in half-time pretax profit to 1.2 million pounds ($2.1 million) on sales 8.5 percent lower at 20.3 millions.

"Given the backdrop of a more challenging trading environment, we're pretty pleased with the numbers. It's where we expected to be at this stage of the year," Finance Director David Taylor said in a telephone interview.

"The figures are set against a strong set of comparable numbers last year when sales were boosted by the advent of the smoking ban in England and Wales, which prompted our customers to spend more on tableware ahead of the expected rise in the number of diners using pubs and restaurants in a smoke-free environment," he added.

He said despite the current economic slowdown there was little evidence of any major decline in the number of consumers eating out, although they appeared to be trading down.

"Providing food revenues from the pubs trade does not decline, we're confident the group will continue to generate strong levels of recurring revenues from the pub and restaurants trade. While we are slightly cautious about the full year outturn, we expect profits for the full year to be in line with the board's expectations," he added.

The group's shares were trading 10 pence, or 4.4 percent, lower at 215 pence at 0940 GMT.

House broker Brewin Dolphin shaved its full year 2008 profits estimate to 3.7 million pounds from 3.9 million before, while for the following year it has revised it down from 4.1 million pounds to 3.7 million. However, it reiterated its 'buy' rating for the stock and 275p price target.

"Estimates have been trimmed slightly to take account of the increased economic uncertainty. But the increase in the interim dividend reflects the board's confidence in the future and the group's strong balance sheet," the broker said in a note.

Churchill China ended the first-half with cash of 8.4 million pounds and no borrowings. It also raised the interim dividend by 6 percent to 4.8 pence a share. (Editing by Mike Elliott)