Churchill China : 2018 - Full Year Preliminary Results 2018 - Full Year Preliminary Results (374.94 KB)

27/03/2019

Preliminary Results - RNS - London Stock Exchange

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Churchill China PLC- CHH PRELIMINARY RESULTS

Released 07:00 27-Mar-2019

RNS Number : 0996U

Churchill China PLC

27 March 2019

For immediate release

27 March 2019

CHURCHILL CHINA plc

("Churchill China" or the "Company" or the "Group")

PRELIMINARY RESULTS

For the year ended 31 December 2018

Churchill China plc (AIM: CHH), the manufacturer of innovave performance ceramic products serving hospitality markets worldwide, is pleased to announce its preliminary results for the year ended 31 December 2018.

Key Highlights:

Financial

∙Group revenue up 7% to £57.5m (2017: £53.5m)

∙Operang profit before exceponal items up 24% to £9.2m (2017: £7.5m)

∙Profit before exceponal items and tax up 26% to £9.4m (2017: £7.5m)

∙Reported profit before tax aer exceponal items £8.8m (2017: £7.8m)

∙Adjusted earnings per share up 26% to 69.6p (2017: 55.3p)

∙Basic earnings per share 65.6p (2017: 58.4p)

∙Proposed final dividend up 18% to 20.3p (2017: 17.2p)

∙Cash generated from operaons £8.3m (2017: £7.7m)

Business

∙Hospitality revenue growth 10% (2017: 8%)

∙Group export revenues up 17% (2017: 16%)

∙Exports now represent 60% (2017: 55%) of Group revenue

∙Further increase in added value product sales

∙Performance connues long term growth trend

∙Good progress against key strategic objecves

Alan McWalter, Chairman of Churchill China, commented:

'2018 has been a very successful year for Churchill, we have exceeded our expectaons in relaon to business and financial performance. 2019 has started well and we believe that we can make further progress.'

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For further informaon, please contact:
Churchill China plc	Tel: [phone]
David O'Connor / David Taylor
Buchanan	Tel: [phone]
Mark Court / Sophie Wills
N+1 Singer	Tel: [phone]
Richard Lindley / Rachel Hayes

This announcement contains informaon which, prior to its disclosure, was considered inside informaon for the purposes of Arcle 7 of Regulaon (EU) No 596/2014 (MAR)

CHAIRMAN'S STATEMENT

Introducon

I am, once again, pleased to report another strong performance from our business in the year. We have increased our revenue by 7%, our operang profits and our profits before exceponal items by 24% and 26% respecvely. This performance clearly demonstrates the connued success of our strategic approach. Progress has again been made in growing our export revenues and in a further conversion of our output to innovave and higher margin added value products.

However, we believe that simply focussing on a single year's performance does not fully reflect the strength of our business or the transformaon achieved in our operaons over the longer term. Our business has developed substanally over the last five years from 2013 in line with our business strategy. Sales to Hospitality customers have increased from £32.7m to £52.4m at a compound annual rate of almost 10%, with Group exports rising from 39% to 60% of our business. The proporon of Hospitality revenue represented by added value products with higher margins has risen from 10% to 44%, with a consequent increase in operang margin from 8% to over 16%.

The trading environment in the UK, alongside that of many businesses, is subject to increased uncertainty, but we believe we have a robust business model. Our plans will evolve, but we will connue to emphasise growth in export markets where there is a significant opportunity to improve our market share and in further development of innovave products which offer outstanding value to our customers. We have the capacity to deliver the investment needed to implement these plans and to sustain long term value growth for our shareholders.

Financial Review

Total revenues increased by 7% to £57.5m (2017: £53.5m) with further strong growth in Hospitality export revenues more than offseng lower Retail sales. UK revenues were 4% lower at £23.0m (2017: £24.0m) with the reducon largely aributable to more difficult retail markets. Export revenues were £5.0m higher (+17%) at £34.5m (2017: £29.5m).

Gross margins have again improved as we connued to grow sales of added value product.

Operang profit before exceponal items increased by 24% to £9.2m (2017: £7.5m). Operang

margins before exceponal items improved to 16.1% (2017: 13.9%). Operang profit benefied from increased revenues, the connued move towards added value, differenated, products and from a stable cost base.

Earnings before interest, tax, depreciaon and amorsaon increased by 20% to £10.9m (2017: £9.1m).

Profit before exceponal items and income tax rose by 26% to £9.4m (2017: £7.5m), largely as a result of our strong operang performance, but with some addional contribuon from an improved performance from our associated company Furlong Mills and higher interest receipts. In

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the five years to the end of 2018 we have increased profit before income tax at a compound rate of 22% per annum.

Adjusted earnings per share improved by 26% to 69.6p (2017: 55.3p).

Changes in the law relang to the equalisaon of statutory Guaranteed Minimum Pensions benefits will affect our legacy defined benefit pension scheme. Accordingly, a one off exceponal non-cash charge of £0.6m has been provided in 2018 reflecng the cumulave effect of these changes. Addionally, sums previously provided for costs relang to the disposal of property which are no longer required have been released, generang an exceponal credit to profit of £0.1m. In 2017 we disposed of a surplus property, the profit on disposal of £0.3m was also treated as exceponal.

Reported profit before tax rose to £8.8m from £7.8m in 2017.

Basic earnings per share, including the above exceponal items, improved by 11% to 65.0p (2017: 58.4p)

We have also connued to generate good operang cash flows, operang cash generaon was £8.3m (2017: £7.7m). Working capital requirements were higher than last year at £1.5m (2017: £0.2m) reflecng an increase in accounts receivable on higher sales. Inventory levels remained controlled despite higher sales, a wider product range and good customer service. The cash spend on capital projects was £2.1m (2017: £2.2m). We expect capital spend to rise in 2019 as we connue to invest in capacity, capability and efficiency. At the year end, net cash and deposit balances had risen by £1.8m to £17.4m (2017: £15.6m).

Dividend

The Board is recommending an 18% increase in the final dividend to 20.3p per share (2017: 17.2p)

giving a total of 29.0p for the year (2017: 24.6p). We are pleased that the sustained growth in profitability and connued cash generaon has allowed us to raise the dividend. If approved, the final dividend will be paid on 24 May 2019 to shareholders on the register on 26 April 2019, with the ex-dividend date being 25 April 2019.

Business

Our business has performed strongly across the year. The good progress reported in the first half has been matched by further progress in the second half. We have grown our sales in Hospitality and parcularly in export and much of this increase has come from added value products. We have connued to reduce our exposure to less aracve Retail markets. Exports now represent 60% of Group revenues.

Total sales to our Hospitality customers increased by £5.0m (10%) and reached a new record of £52.4m (2017: £47.4m). Hospitality sales now represent over 90% of Group revenue.

We have connued to grow our posion in overseas markets whilst maintaining a leading posion within the UK. Overall export sales grew by 19% despite a slight headwind from currency. Over the last five years our Hospitality export sales have risen by an average of over 20% per year. Growth has again been strongest in Europe with connued progress in most countries. Our early stage investment in Rest of the World markets is also beginning to gain tracon and we are pleased with the rate of growth in developing regions.

Our performance in the UK has stabilised following a much improved performance in the second half of 2018. We revised our approach to the UK in 2017 to reflect changing market dynamics by increasing management focus and targeng new product introducons. We are pleased with the progress made. Our established market posion means we benefit from a consistent level of replacement sales.

Churchill's core values are innovaon, technical performance and service. The strength of our established relaonships with end users, distributors and agents in the UK and worldwide connues to be of great value to the business.

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Our increased profitability reflects both growth in revenue and parcularly a further shi of our product range towards added value products. We carefully research market requirements and develop new products to meet these needs which allow us to improve our margins whilst offering substanal value to our customers. Sales of added value products now represent over 44% of our Hospitality sales. Whilst Stonecast connues to be the stand out performer, our Studio Prints range, combining innovave materials with our exisng print capability, connues to grow strongly. Our innovave market offer is increasingly differenated from our closest competors.

Retail operaons have again reduced in scale as we have withdrawn from certain sectors of the UK market which have become unprofitable. Revenues were lower at £5.1m (2017: £6.1m).

Operaons

The changes in our business create addional demands on our operaonal team and we have worked hard to ensure that the manufacturing strategy is closely aligned with our business plan. During the year we increased the capacity and efficiency of our added value product manufacturing and completed projects improving the flexibility of our producon process. This allows us to balance the challenge of producing wider product range and maintaining cost and service levels.

We expect to increase the level of investment in manufacturing in 2019. Expenditure on a further factory extension and on an addional fast fire kiln have already been approved and we expect to make progress on these and other projects over the year.

Our Producon and Technical teams have delivered substanal addional value during the year. Our tradional strength of efficient and effecve manufacturing connues to serve us well, but has been supplemented by significant progress in other areas. Our capacity to innovate new products has been significantly improved by the producon re-engineering and materials development work carried out over the longer term

Furlong Mills

In February 2019 we announced the acquision of a further 9.5% of the equity of Furlong Mills Limited for £454,000, taking our percentage shareholding to 55.6%. Furlong is a ceramic materials manufacturer based in Stoke on Trent and provides processed clay body and glaze to Churchill and other major manufacturers. Our investment secures a very important part of our supply chain and over the longer term reinforces our capacity to extend our technical ceramics capability. We have held an investment in Furlong for almost forty years and are pleased to now hold a larger interest.

Brexit

We have reviewed Churchill's exposure to various Brexit scenarios. A major part of our revenue is earned outside the UK and our manufacturing process, in part, relies upon materials and equipment sourced from overseas.

Our detailed Brexit planning is ongoing and we believe we have idenfied and developed plans to migate the effect of disrupon on our trading model. We have completed a number of projects including securing and stocking an outbound logiscs facility in the Netherlands to service our European business, improving our systems and establishing larger safety stocks of key raw materials. We have also developed detailed conngency plans in other areas. The UK government has recently announced that import tariff levels on most ceramic tableware products remain at 2018 levels. Our plans are founded on our core principles which are the provision of value to our customers and maintenance of a high level of service.

Whilst these acons may not fully offset all the effects of the Brexit process we believe that we have prepared for the forward uncertainty sensibly and that we have the flexibility to manage the level of risk to our business.

People

During the year we have made significant progress in improving the alignment of our workforce with our business plans. We have focused on training, both in terms of operaonal skills and the personal development of our employees. The connuous improvement programme connues to

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deliver substanal benefits to the business both in terms of producvity and delivering more rewarding roles to our staff. We have increased the level of engagement within our workforce and have invested me in establishing development and succession plans at all levels of the business. One of the major objecves in our forward plan is to ensure that we have the right people across our business to meet our aspiraons.

Our workforce is skilled, loyal and well movated and they create and embody the core values that serve us well. Once again I am grateful for their effort and commitment across the year.

Prospects

2018 has been a very successful year for Churchill; we have exceeded our expectaons in relaon to business and financial performance and the growth we have achieved sits well in relaon to our longer term progress. I am, however, most pleased by the manner in which we have delivered this performance, which is wholly in line with our strategic objecves. The progress we have made in moving the focus of our business towards Hospitality and export markets, the increased margin we achieve from innovave and differenated products and the significant reinvestment of this profit in further development all follow the path we established several years ago. We believe that this will be the basis of connued success in the future.

2019 has started well and we believe that we can, subject to external condions, make further progress. However, we remain a business focussed on the long term. Churchill has a robust and well invested business model supported by a strong financial posion. Our market and product development plans connue to deliver profitable opportunies for growth and to create value for our business and all its stakeholders.

Alan McWalter

Chairman

26 March 2019

Churchill China plc Consolidated Income Statement

for the year ended 31 December 2018

		Audited		Audited
		Year to		Year to
		31 December		31 December
		2018		2017
	Note	£000		£000
Revenue		57,479		53,530
	1
Operang profit before exceponal item
		9,237		7,460
Exceponal items	2	(541)		315
Operang profit		8,696		7,775
Share of results of associate company		185		159
Finance income	3	110		66
Finance costs	3	(144)		(225)
Profit before exceponal item and income tax
		9,388		7,460
Exceponal item	2	(541)		315
Profit before income tax		8,847		7,775
Income tax expense	4	(1,649)		(1,361)
Profit for the year		7,198		6,414

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