Churchill China : Interim results August 2018 Interim results August 2018 (648.52 KB)

For immediate release

30 August 2018

CHURCHILL CHINA plc

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

INTERIM RESULTS

For the six months ended 30 June 2018

Churchill China plc (AIM: CHH), the manufacturer of innovative performance ceramic products serving hospitality markets worldwide, is pleased to announce its interim results for the six months ended 30 June 2018.

Key Highlights:

• •Group revenue up 6% to £27.2m (H1 2017: £25.8m)

  • - Constant currency growth 6% (H1 2017: 2%)

  • - Hospitality revenue growth 9% (H1 2017: 8%)

  • - Group export revenues up 17% (H1 2017: 19%)

  • - Exports now represent 63% (H1 2017: 57%) of Group revenue

• •Operating profit up 22% to £3.3m (H1 2017: £2.7m)

• •Operating margin 11.9% (H1 2017: 10.3%)

  - Further conversion of standard to added value product

• •Profit before tax up 24% to £3.3m (H1 2017: £2.7m)

• •Earnings per share up 24% to 24.4p (H1 2017: 19.6p)

• •Interim dividend up 18% to 8.7p (H1 2017: 7.4p)

• •Cash generated from operations £1.7m (H1 2017: £1.1m)

• •Good progress against strategic objectives

Alan McWalter, Chairman of Churchill China, commented:

"I am pleased to report that Churchill has again delivered a strong performance in the first six months of the year with increased revenues and margins contributing to good profit growth and continuedprogress against our strategic targets."

For further information, please contact:

Churchill China plc	Tel: [phone]
David O'Connor/ David Taylor
Buchanan	Tel: [phone]
Mark Court / Sophie Wills / Gemma Mostyn-Owen
N+1 Singer	Tel: [phone]
Richard Lindley / Rachel Hayes

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

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that Churchill has again delivered a strong performance in the first six months of the year with increased revenues and margins contributing to good profit growth and continued progress against our strategic targets. We have increased our sales into Hospitality and export markets and have again improved margins following further conversion of standard to added value products.

Churchill benefits from a strong position in attractive and growing markets. Our business supplies differentiated, technical performance products into markets that demonstrate a high level of repeat sales where we enjoy long term relationships with our customers. We have continued to bothmaintain a strong financial position and to deliver increased dividends to shareholders.

Financial Review

Total revenues increased by 6% to £27.2m (H1 2017: £25.8m). In constant currency, revenues increased by 6% (H1 2017: 2%). Export sales were £2.3m (16%) higher. UK sales reduced, as expected, across our business by £0.9m. Growth in Hospitality revenue has more than offset lower Retail sales as the balance of our business changes. Hospitality revenues now represent over 90% of our totalsales.

Gross margins have improved as the proportion of our revenue from sales of added value product has increased. This allows ongoing investment in sales, market and product development and enables us to deliver increased operating margins and return to shareholders. The gain in operating margin from 10.3% to 11.9% continues the improving trend established several years ago. Operating profitincreased by 22% to £3.3m (H1 2017: £2.7m).

Earnings before interest, tax, depreciation and amortisation increased by 15% to £4.2m (H1 2017:£3.6m).

Profit before tax rose by 24% to £3.3m (H1 2017: £2.7m), mainly as a result of our improved operating profit. The first half year is increasingly important within our overall annual performance as our business becomes more orientated towards export markets where demand is generally evenly splitbetween the first and second half years.

Earnings per share improved by 24% to 24.4p (2016: 19.6p)

Cash flows have again been strong, operating cash generation was £1.7m (H1 2017: £1.1m). The seasonal increase in working capital in the first half year was in line with 2017 comparatives, with a small reduction in inventory levels. The cash spend on capital projects was £0.9m (H1 2017: £1.1m). We expect capital spend in the second half year to rise with the completion of a number of projects. At the end of the period, net cash and deposit balances were £13.7m (H1 2017: £10.3m, 2017:£15.6m).

Dividend

The Board is pleased to declare an 18% increase in the interim dividend to 8.7p per share (2017: 7.4p). This increase reflects the increasing importance of the first half year to our overall profitability. Our policy remains to raise dividends in line with growth in long term profit growth and we are pleased that we have once again been able to provide an increase in the cash return to shareholders. The interim dividend will be paid on 5 October 2018 to shareholders on the register on 14 September2018, with the ex-dividend date being 13 September 2018.

Business

Overall revenues have continued to grow steadily in line with our strategic aims and were 6% ahead of the comparable period last year at £27.2m (2017 H1 £25.8m). Underlying growth before the impact of currency changes was higher at 6% (2017 H1: 2%) with continued progress in Hospitality more than offsetting a further anticipated contraction in Retail activity. Exports now represent 63% of Grouprevenues.

Total sales to our Hospitality customers increased by £2.0m (9%) and reached a new record of £24.8m(2017 H1: £22.8m). Hospitality sales now represent over 90% of Group revenue.

We have continued to make good progress in export markets. The positive momentum established in Europe over several years has delivered further strong growth with good penetration across major markets. We have also seen further progress in the Rest of the World area where we have invested additional senior management resource. Overall Hospitality export sales grew by 19% on both a reported and constant currency basis. Our success in export is driven by the continued introduction of innovative and differentiated added value products, which constitute a higher proportion of oursales outside the UK.

UK revenues continue to be relatively weak reflecting low levels of new investment by end users, although consumer spending on eating out remains at reasonable levels. Revenues in this market have reduced by 5%, a slightly improved rate than the reduction seen in the second half of 2017. We have also discontinued lower margin distribution arrangements in glassware. We continue to benefit froma high level of replacement sales from long established customer relationships.

The proportion of revenue represented by added value products has again increased following the successful launch of new products within our Stonecast and Studio Prints ranges, continuing the progress made in the last five years. Further carefully targeted new additions are planned in thesecond half year and again in 2019.

Retail continued to perform in line with our strategic targets. Revenues were £0.5m lower at £2.4m (2017 H1: £2.9m) with the majority of the reduction attributable to a weaker UK market. Export saleshave continued to perform well.

Our strategy continues to be built around the core requirements of the growing hospitality market worldwide. Our products meet the high technical, shape and surface design requirements of professional end users and we provide a market leading level of service. There is further potential to increase the proportion of added value products within our overall revenues through continued innovation. Whilst we have made significant progress in growing our export sales, we still enjoy a relatively low market share outside of the UK, again giving us confidence that we can continue toimprove our revenues.

Operations

Our manufacturing and logistics operations have responded well to the challenge presented by the development of our business as a result of product range growth, innovation and the maintenance of high service levels across a wider geography. Our manufacturing strategy is closely aligned to oursales and marketing plans.

As in 2017, capital expenditure has been relatively low in the first half year. A number of projects linked to our strategic objectives are expected to be completed in the second half year which will increase our ability to manufacture added value product, to provide additional kiln capacity and toimprove the flexibility of our operations.

People

We have continued to target the improvement of skills and flexibility across our workforce and we have made significant progress in both enhancing current capabilities and in understanding the future manpower needs of our business. When we are focused on delivering sales and operational targets it is often easy to underestimate the contribution made by our employees as a whole to their achievement. We value the skill and commitment shown by our workforce and I thank them for theircontinued support and effort.

Prospects

Thefirst half year's results showfurther strong progress against our strategic targets. We continue to invest in our business with the expectation that this will provide future revenue and profit growth.

The focus of our strategy remains continued innovation in added value products and further investment across the business to allow us to extend the breadth of the markets we serve andcontinue to grow our market share.

We recognise that there is a considerable degree of uncertainty in the current business climate and we are reflecting this in our forward plans. We believe we have a sustainable, long term business model based on providing exceptional service to hospitality markets worldwide from a differentiated product range meeting high technical performance standards. These markets are characterised by high levels of replacement sales. We believe our core strategy remains robust and flexible enough tomeet future challenges.

We remain confident in our performance against our targets both in relation to 2018 and in the longerterm.

Alan McWalter Chairman

30 August 2018

Churchill China plc Consolidated Income Statement for the six months ended 30 June 2018

Unaudited	Unaudited
Six months
to	Six months to
30 June 2018	30 June 2017
£000	£000
Note
Revenue	27,247	25,796	53,530
===========	===========	===========
Operating profit before exceptional item	1	3,254	2,668	7,460
Exceptional item-profit on disposal	-	-	315
Operating Profit	3,254	2,668	7,775
Share of results of associate company	92	82	159
Finance income	2	46	33	66
Finance costs	2	(90)	(123)	(225)
------------------	------------------	------------------
Profit before exceptional item and income
tax	3,302	2,660	7,460
Exceptional item-profit on disposal	-	-	315
Profit before income tax	3,302	2,660	7,775
Income tax expense	3	(626)	(516)	(1,361)
------------------	------------------	------------------
Profit for the period	2,676	2,144	6,414
===========	===========	===========
Pence per
share
Adjusted basic earnings per ordinary share	55.3
Adjusted diluted earnings per ordinary share	54.8
Basic earnings per ordinary share	58.4
Diluted earnings per ordinary share	57.9
All the above figures relate to continuing operations

Audited

Twelve months to

31 December 2017 £000

Pence per

Share

Pence per share

4 4 4 4

24.419.6

24.219.4

24.419.6

24.219.4