Final Results

Churchill China PLC

10 April 2024

 

For immediate release

10 April 2024

CHURCHILL CHINA plc

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

FINAL RESULTS

For the year ended 31 December 2023

Improved profitability

Churchill China plc (AIM: CHH), the manufacturer of innovative performance ceramic products serving hospitality markets worldwide, is pleased to announce its Final Results for the year ended 31 December 2023.

Key highlights:

Financial

·    Broadly flat revenues in a challenging environment

·    Profit before tax up 12.4% to £10.8m (2022: £9.6m)

·    Adjusted* basic earnings per share up 4.9% to 70.2p (2022: 66.9p)

·    Final dividend of 25p per share, an increase of 19% (2022: 21p). Total dividend for the year 36p, up 14.3% (2022: 31.5p)

·    Net cash inflow of £8.3m (2022: £4.9m) despite significant investment in inventory to further enhance customer service levels.

·    Net cash and deposits £13.9m (2022: £14.7m)

Business

·    Strong improvement in yields and productivity

·    External materials performance sales up 12.5% at £8.1m (2022: £7.2m)

·    Continued improvement in customer service with a 37.8% increase in inventory to £21.9m (2022: £15.9m)

·    Continuing investment in capital equipment to improve factory productivity and agility, with equipment due on stream in 2024.

·    Commissioning of 4,500 solar panels in the year supplying up to 100% of the main factory's electricity requirement on sunny days

·    Implementation of Board succession plan

·    Significant reduction in reliance on agency staff

Outlook

·    2024 Q1 in line with expectations

·    Continuing focus on productivity and waste

·    Further investment in strategic growth areas of the business

Robin Williams, Chairman of Churchill China commented:

"The Company continues to deliver on its strategy of delivering a quality, differentiated product and with a service level unmatched in the industry. All this whilst generating sustainable, growing returns for investors."

Analyst meeting

An in-person meeting for analysts will be held at 10:00am today, 10 April 2024 at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN. An online facility is available for those unable to attend in person. To register for either the in-person or online meeting please contact Buchanan by email at [e-mail] or telephone [phone].

For further information, please contact:

Churchill China plc	Tel: [phone]
David O'Connor / James Roper / Michael Cunningham
Buchanan	Tel: [phone]
Mark Court / Abigail Gilchrist / Sophie Wills
[e-mail]
Investec	Tel: [phone]
David Flin / Oliver Cardigan / William Brinkley

*Adjusted basic earnings per share is calculated after adjusting for the post tax effect of exceptional items

CHAIRMAN'S STATEMENT

Operational and commercial performance

I am pleased to report that the Company made good progress in the year and delivered on the Board's profit expectations. This was despite tough macro-economic headwinds, which have significantly impacted the hospitality, consumer and retail sectors. Whilst profit before tax at £10.8m (2022: profit before tax and exceptional expenses £9.1m) has grown by an impressive 18.7%, this has been achieved despite broadly flat revenues compared with 2022. This impressive growth has come through strong operating margins, driven by a focus during the year on factory performance.

Our end customer, the hospitality market, has been undergoing major upheaval, with significant input cost increases in labour, energy and food, leading to a reduction in capital expenditure by the major pub and restaurant groups. This has impacted rollouts of new installations of tableware, but has also suppressed demand, particularly in H2 through closures of outlets, including some at the higher end.

Our excellent performance in 2023 however highlights the Company's strength in its core markets and the importance of our unique business model which relies on repeat replenishment business driven by high levels of customer service, which includes very short delivery times. The Company has continued to further invest in this key strength of our business throughout the year by building stock, in most cases allowing same day dispatch.

We have continued to make progress in returning our manufacturing yields to approaching pre-pandemic levels and this has been a strong contributor to the operating margin improvement. We invested heavily in equipment for improved efficiency during the year and continuing this productivity journey remains the focus. We aim to continue improving our operations and advance towards our profitability targets during 2024.

Dividend

We are pleased to propose a final dividend of 25.0p per share, giving a total dividend of 36.0p per share for the year, a 14.3% increase on the 31.5p paid in relation to 2022. The final dividend will be payable on 17 June 2024 to shareholders on the register on 17 May 2024. The dividend is in line with our policy of growing returns to shareholders whilst ensuring that dividend payments are not risky or excessive and reflects our ongoing confidence in the progress of the business.

Growing the future

The Company strategy has always been to deliver sustainable and steady growth in areas where we have a good market understanding and the opportunity to build scale through innovation and differentiation across our product range. The Company will continue its growth in export, particularly in Europe which has become our largest market and where we see significant opportunities for further sales expansion. We also selectively review other markets for growth opportunities.

We intend to continue our £4m-£5m per annum capital expenditure programme which is factory-focused on long term productivity and process improvement, as well as energy efficiency and product sustainability, placing the Company in the right place for the future.

Board changes

I joined the Board of Churchill China in 2022, and we announced our succession activities in the Annual Report last year. These included my assuming the role of Chairman at the 2023 AGM and also bidding farewell to David Taylor as CFO after over 30 years with the Company and to my predecessor Alan McWalter. We have also welcomed Martin Payne as  Non-Executive Director, replacing Brendan Hynes who leaves the Board at the AGM after 10 years on the Board. Martin will become Senior Independent Director and Audit Committee Chair following this results announcement. We have also welcomed Michael Cunningham as our new CFO during 2023.

Employees

Our employees at all levels have shown great commitment and skill to achieve the results of 2023. We have needed considerable flexibility in our operations as we adjusted to the varying levels of demand in the year. We thank all employees for their dedication and continued loyalty to Churchill China.

Environmental, Social and Governance ('ESG')

Our approach to ESG has moved forward substantially over the year. The senior management focus outlined in last year's report has allowed the development of our broad strategy and the identification of short-, medium- and long-term actions supporting our continued progress. As a major energy user and large employer much of our work has focused on the Environment and Social pillars, but we have also made good progress in all our areas of focus.

In relation to our energy footprint, we have initiated a number of projects which have given us a much clearer idea of how we may move towards Net Zero over the longer term. These initiatives should deliver benefits that will deliver steady progress towards our sustainability objectives.

Outlook

We have delivered an improvement in operating profit and margins during the year despite flat revenues and strong headwinds particularly in our hospitality markets. Volumes were down year on year, driven by softer demand in the second half of 2023. We believe this trend will continue into the first half of 2024 and the first quarter of 2024 has seen demand as expected. We are confident that the continuous improvement in our product range and market position, backed up by our ongoing investment programme, has placed the Company in a strong position to take advantage of a market recovering from current weakness, which we expect to see in the second half of 2024.

Robin G.W. Williams

Chairman

9 April 2024

STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2023

The Directors present their Strategic Report for the Group for the year ended 31 December 2023. 

Principal activities

Churchill China is a UK based manufacturer of performance tableware primarily supplying into the hospitality sector. Utilising a high-performance vitreous body the Company leverages its technical advantages to deliver superb value in use and value for money to its end users.

In addition to the supply of tableware the Group supplies the majority of the UK pottery industry with materials for the manufacture of ceramics. The Group utilises its extensive technical abilities to supply high quality body materials, glaze and colour. 

Business model

The Group supplies customers worldwide with a range of high-performance tabletop products primarily ceramic tableware. Most of these revenues come from our UK manufacturing facilities although we do supplement these with some outsourced products.

We focus primarily on the hospitality sector which generates most of our revenues. This focus is driven by the attractiveness of the sector, with revenues seen as long term, recurring and, whilst vulnerable to short term economic fluctuations, reasonably stable.

The market is highly fragmented and so our strategy of identifying strong, in-territory distributors to work with, allows us to deliver to a wide range of customers. From large chains through to small independent restaurants we are perfectly placed to offer innovative product and design to give a competitive, differentiated advantage to our customers.

The growth strategy for the Company is to focus on those areas currently underserved by our competitors with regards to customer service. Our ability to fulfil customer orders, in the vast majority of cases, in under 48 hours gives us a significant competitive advantage.

Culture and Values

As a company with a long history, our values are well defined. Innovation, cooperation, uncompromising customer service, trust and honesty are the core values that drive our behaviours on a day-to-day basis.

Our decision making is based on taking decisions that are aligned with adding long term value to our shareholders, whilst being mindful of our responsibilities to our wider stakeholders.

The business culture is driven by the executive leadership team and hinges on openness and giving our colleagues the space to develop and grow. While there are controls in place to protect the business, colleagues are given the space to make decisions without fear of failure. The average term of service of our staff is 11.1 years and we believe this highlights our ability to create a good working environment for our colleagues. The Board believe that this approach allows our colleagues to become the leaders of the future by developing their skills and abilities.

Finally, the Company engages on multiple levels with our customers, engaging at an early stage of the design process to get the market view of proposed products, and delivering on our promise of "performance delivered".

Business environment

Hospitality markets across the world have performed below expectations in 2023. There have been well documented pressures on consumer spending during the year, driven by high inflation and consequently increased interest rate environment. Despite this our market position has continued to develop and our research suggests that we have continued to increase market share in a reduced overall market. The summer period, particularly in the UK, was a lacklustre trading period. Poor weather and the lack of specific cultural activities lead to a poor trading environment for the hospitality sector although a stronger Q4 did materialise.

Sales volumes during the year were down from 2022, however the price increases implemented in 2022 fed through to deliver broadly flat revenues for the year. The main weaknesses were in the UK and Rest of the World, with Europe remaining in line with expectations.

Our Materials business, Furlong Mills, which produces ceramic bodies from raw materials, has performed well in the year as both Churchill and the wider ceramics industry increased stocks.

We have held prices during the year after 2022's increases, utilising improvements in energy pricing and efficiencies to compensate for other input price inflation. Only a modest rise has been implemented in 2024 despite continuing input cost headwinds such as the £1.1m cost of increased National Living Wage increment.

During the year we delivered over 500 additional SKUs of new product, taking our product portfolio to over 3500 SKU's following 2 years of reduced development activity post COVID and our intention is to continue delivering more innovation, differentiation, and growth in the coming year.

Promoting the success of the Company

It is the duty of the Directors under s172 of the Companies Act 2006 to promote the long-term success of the Company to the benefit of members as a whole and acting fairly with regard for the interests of other stakeholders in the business.

Other stakeholders include employees, customers, suppliers, our pension fund members, our local and the wider community, government, and other regulatory bodies.

Churchill has been in existence since 1795 and always taken a long-term approach to business, particularly in relation to investment and in understanding the opportunities open to us and the risks to which we are exposed. To operate a successful and sustainable business model it is necessary to ensure that all the contributors to the success of the business understand their place within it and feel that the Company operates ethically and fairly in its dealings with them.

The Board has regard to the interests of all stakeholders in its discussions and reaches balanced decisions with the sustainability of the business uppermost in its considerations. Churchill maintains a financial model that is aligned with this objective such that capital allocation decisions, where possible, do not unfairly prioritise the interests of one group of stakeholders over others. The Board is aware of the need to support regular revenue and capital investment in the development of our business, and we orientate our operations accordingly.

We aim to deliver well designed, performance products and outstanding service at appropriate price levels to our customers. At the same time, we acknowledge that to meet these levels of customer service we are reliant upon good relationships with a well-motivated workforce and fair and balanced relationships with a range of suppliers. We understand that we have a responsibility to pay appropriate levels of taxation and to support the future pensions of our scheme members. We consider our dividend policy carefully in the light of the overall needs of the business and the interests of other stakeholders. Our policy is formulated to ensure that dividend payments are not excessive in relation to profits and do not introduce excessive levels of risk in relation to the sustainability of the business.

Churchill aims to manage its effect on our local community and the environment. We have engaged with the community on an ongoing basis through charitable and educational support. The business operates several initiatives aimed at minimising our waste products, recycling waste where possible and in the reduction of our energy usage and carbon footprint. We have made several investments and process changes to reduce our use of energy.

The business has regular contact with our workforce through both formal and informal mechanisms. The scale of our business and our open culture allows the Board and management to engage with our employees on a day-to-day basis and employees are encouraged to raise issues. We have a recognised trade union representing most of our weekly paid employees and we meet regularly with their representatives. However, we believe that other initiatives including on site briefings, communication boards and regular news updates provide the most important means of engaging with our workforce. We believe that our workforce is engaged and motivated.

We meet with suppliers on a regular basis to provide information in relation to our forward plans and review performance. As in other elements of our business we enjoy long standing relationships with most of our suppliers. On average we pay suppliers within 35 days (2022: 35 days) of invoice. We believe our suppliers regard Churchill as a good customer.

The Board consults regularly with shareholders through formal meetings, company visits and informal discussions.

Voting on resolutions at the 2023 Annual General Meeting was largely positive with over 96% of votes cast being in favour of the resolutions put to the meeting. The Board reviews voting carefully after each Annual General Meeting.

Resources and relationships

Our key resources remain our employees and customers, our technical and business skills, our long heritage of manufacturing and willingness to embrace new methods to deliver an outstanding service.

One of the key elements of our sustainable market advantage is the success of our innovation process. We have developed this process to research and identify market trends and design new products to satisfy these trends.

Churchill, along with other UK manufacturers, has a significant technical advantage in the nature of the product we offer to our markets. Our product offers significant benefits in terms of durability and overall lifetime cost to users. This technical advantage has been developed over many years and we hold significant intellectual property in our materials and processes.

The Group operates from two sites in Stoke on Trent, England, a leading centre for ceramic excellence worldwide. This gives us access to key suppliers, technical support and experienced staff. Our main manufacturing plant and logistics facilities have benefitted from significant and regular long-term investment to improve our business's efficiency and effectiveness. We also operate from several smaller locations and representative offices around the world.

Our employees also give us significant advantage. We believe we recruit, retain, and develop high quality individuals at all levels within the business who contribute towards the success and growth of the Company and maintain our core values. We have maintained our investment in training and development to provide more fulfilling roles for our staff and improve the effectiveness and productivity of our workforce. The recruitment difficulties and impact on efficiency experienced during 2022 demonstrates the effectiveness of our core employee base and we have continued to implement a number of initiatives to both develop and reward our colleagues to the benefit of both them and the business.

We have long standing relationships with our customers. Whilst many of these are not contractual, we continue to supply the same customers year after year with products that meet their requirements. Our customers value our technical ability, our service and our commitment to high quality design and innovation.

Churchill has long enjoyed a market leading reputation for service. Our operational plans are geared towards meeting high levels of on time delivery both in the UK and overseas. We hold extensive inventories to meet these service requirements and have emphasised flexibility and responsiveness within our manufacturing process.

Strategy

The Group's objective is to generate long term benefits to all stakeholders in the business by the efficient provision of value to customers through excellence in design, quality and service.

We aim to increase value we provide to our stakeholders through steady increments to sales and margins, through alignment of our cost base with profit opportunities and a focus on cash generation.

Our long-term aim is to build our presence in markets offering sustainable levels of revenue and profitability. For several years this has led us towards development of our position in hospitality markets worldwide.

Innovation remains important to support our ambition to develop our business. We have invested significant resource in new staff and flexible technology to increase our capability in

this area. 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 products that are aesthetically appealing whilst also performing to appropriate customer and technical standards.

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 technical performance and in the systems which support the fulfilment of our contract with our customers. We invest to maintain the performance of our products and to extend our capabilities. 

Customer service remains a major part of our strategy and the fulfilment of customer expectations is critical to the maintenance of good relationships. Our production and logistics facilities have been designed to balance efficiency and flexibility within manufacturing to ensure that we can respond quickly to unexpected demand levels and to meet ambitious on time, in full, delivery targets. We invest regularly in these facilities to maintain a market leading position in customer service.

Business model

Our business model is designed to allow us to identify markets where we may profitably grow our revenues on a sustainable long-term basis. We research customer product requirements and distribution structures in new markets and, if they offer profit opportunities, invest to generate revenue, margin and ultimately a return for the business and our stakeholders.

We continue to expect short to medium term growth to be weighted towards export markets and particularly Europe, where we have a developing distribution structure.

Our target remains to deliver progressive increases in the proportion of added value products within our business. We invest steadily in increasing our production capability and in improving our ability to offer added value to our customers. This involves investment in new product development as well as capital expenditure on productive capacity. We expect to continue to invest for the long term in our UK manufacturing facilities.

As a major energy user, we have recognised and acknowledged the importance to our future operations of reducing our energy consumption substantially. We have commenced a long-term process to develop several initiatives to meet forward energy targets. A number of these initiatives are underway. We are pleased with the potential impact from these actions but recognise that this is a long-term process requiring continuing focus.

As our business develops, we need different skills and a core part of our model is to train, develop and recruit staff to meet these requirements.

Performance

Operationally the business has performed well, driving efficiencies into the production process, and improving underlying profitability. This has been tempered by the prevailing market conditions and macroeconomic headwinds.

Revenue levels have been maintained due to the actions taken by the Company, with a focus on yield and efficiency improvement, and gross margin levels have continued to improve as the business has resolved many of its staffing issues. During the year the Company's headcount of full-time employees increased, however this disguises the fact that the number of staff working in the factory, including agency staff, reduced by 136. This has enabled the Company to operate at better efficiency levels, particularly in the second half of the year.

The business has continued to make progress against its strategic targets with further market share growth in Europe, albeit on a slightly contracted market.

The main focus of the business in 2023 was to significantly improve the level of customer service and return to historic levels of delivery. To this end the Company increased stock to significantly higher levels and reduced order books back to levels not seen since 2019.

The Company also made significant progress in reversing the slowdown in new product development that occurred during the pandemic and subsequent period. 2023 saw the introduction of our largest product launch with over 500 SKU's launched.

This has continued our progress towards product differentiation within our product range and has been backed up by further expansion of our distribution network.

Whilst markets have been under pressure from rapidly increasing input costs the evidence still points to a bright future for the eating out market. End users are reporting strong sales levels, albeit on reduced margins, and are forecasting easing pressures on cost inflation.

Our Materials business, Furlong Mills, has performed well during the year with its revenue and profitability increasing as the UK ceramics industry recovered. Raw material cost rises have largely been recovered from customers. The business has also contributed strongly to the technical development of our Hospitality product.

Overall cash and deposit balances have reduced marginally over the year, due to the aforementioned stock build and our normal investment in capital expenditure, although we continue to enjoy a strong cash position. Working capital has increased as inventories grew, and we invested in additional stocks of raw materials. We have increased our capital expenditure programme supporting our long-term business plan.

The Group's defined benefit pension scheme position continued to improve during the year and the trustees have taken action to protect this position by hedging for inflation and interest rates. The Group has assessed the recoverability of the net asset arising from the scheme surplus and considers that, based on the Trust Deed and Scheme rules, the surplus would be recoverable on cessation of the scheme.

Environmental, Social and Governance (ESG)

Following the framework established in 2022 our ESG committee, comprised of Executive Directors and Senior Management, have continued to develop our approach and further embed the ESG objectives and actions into our business planning. The ESG Committee and subcommittee working parties have continued to make good progress against the areas identified.

The ESG Committee has been focussing on the identification of the longer-term pressures that will affect the business in both the medium term through to 2030 and trying to identify potential longer-term issues through to 2050. Whilst these timeframes naturally mean that there is a significant level of uncertainty in any issues identified, this strategy aligns with the Company's long-term approach to business.

We use a significant amount of energy in our processes, and this is an area of strategic focus of the business. Substantial progress has been made in identifying efficiency, recovery, and generation initiatives across our operations. We have researched proven and emerging technologies to assess how these can potentially combine to a path to Net Zero, whilst maintaining the performance characteristics of the technically differentiated and durable product that we manufacture. This process has included the initiation of a number of research projects in relation to our materials and processes, contribution to industry initiatives and use of specialist advice from suppliers and other experts.

The business employs over 700 people across two manufacturing sites who work predominantly in an industrial environment. Our Health and Safety procedures and systems have continued to manage what is an important area for the business. Of particular focus has been our Furlong Mills site which we acquired in 2019 and we are pleased that for the first time, after a significant effort to improve, we have had no accidents development across the business at all levels.

Our Governance procedures have been subject to ongoing review and particularly in supporting the demonstrable independence of our Non-Executive Directors under the QCA Code. Whilst we do not believe there has been any significant risk to shareholders, we have acted to increase the number of independent Non-Executive Directors on our Board, making one appointment in February 2023 and a further appointment in January 2024. In addition, following the publishing of the new QCA code in late 2023, the Board have decided to early adopt one of the changes and begin placing all Directors up for annual election. We have continued to develop and implement the Board succession planning process and this will remain under constant review.

During 2023 the Board carried out an internal evaluation of its effectiveness. No significant issues were highlighted and again the Board will continue with this process.

The Company continues to operate a business model which is focused on long term sustainable success, delivering returns to all stakeholders. We will continue to develop and evolve our ESG agenda and over time, will translate our goals and objectives into a published reporting framework, with benchmarks, key performance indicators and our progress against them.

Financial Review

Revenues during the year were broadly flat at £82.3m (2022: £82.5m). Revenues were held due to price increases which flowed through from 2022, however sales volumes were down by 12%. Volume reduction was seen across all markets with the Rest of the World, down 25%, and UK, down 17%. Pleasantly Europe continued to show a robust performance.

Revenue (£m)	2023	2022	Change
Ceramics	74.2	75.3	-1.5%
External Materials sales	8.1	7.2	12.5%
Total	82.3	82.5	-0.2%
UK	34.0	33.2	2.4%
Export	48.3	49.3	-2.1%
Total	82.3	82.5	-0.2%

As previously reported the gross margins in the Company have continued to improve during the period. Year on year the Company has significantly reduced its reliance on agency staffing in the factory, preferring to transition the best of these into the permanent cohort with the attendant improvements in productivity, efficiency, and production yields this delivers. As a result, overall staffing in the factory has reduced by 136 with the impact of this visible in the operating margin.

Profit before tax rose by £1.2m to £10.8m driven by this factory improvement and in addition yields have returned to pre-pandemic levels in areas of the factory, albeit with slightly more variability than previously observed.

Adjusted basic earnings per share before exceptional income was 70.2p (2022: 66.9p).

Reported profit after exceptional items but before income tax was £10.8m (2022: £9.6m).

Basic earnings per share, after exceptional items, was 70.2p (2022: 71.7p), this reduction in EPS was driven by higher corporation tax rates as well as timing differences on completion of capital expenditure during the year.

The Company has, unusually, had a year of cash outflow. This has been driven by significant capital expenditure of £5.4m (2022: £4.6m) which has been primarily focussed on improving productivity and yields in the factory rather than increasing capacity. We also focussed on increasing our stock holdings in our UK, European and North American fulfilment centres by £6.0m in order to increase customer service levels in market. Stock in Furlong Mills was decreased by £1.4m as we ran down supplies of a previously stockpiled material, this stock is now being run down to normal levels. A payment of dividends totalling £3.5m and pension contributions of £1.8m (2022: £1.8m) also contributed to the level of outflows.

Following the three-year actuarial valuation of the Company pension scheme, the fund is expected to show a surplus of assets over liabilities.

Business

The business has performed well during the year, meeting its internal targets on yield improvements. This has brought the underlying performance of the business back towards pre-pandemic levels.

The first half of the year was framed by continuing issues around the previously communicated staffing issues, however these started to in ease in Q3 and by year end the Company had made significant inroads to the reduction of agency staff in the business.

Demand in Q3 was weak with both the UK and Europe showing low order volumes. Q4 did however follow the usual trends and significantly outperformed Q3, even if still at a lower level than 2022.

Ceramics

Hospitality sales were flat for the year, highlighting the difficult market that our customers are operating in. Profitability was however much improved as production levels enabled a build back to expected levels of stock. As a result, customer service levels have returned to pre-pandemic status, with over 90 % of orders completed within 2 days, including shipments fulfilled from our European and US distribution centres.

We continue with our growth strategy of targeting export markets where we have low existing market share, and which have the most opportunity for expansion. Despite a slowdown in Q3 the Company is confident that market share has been expanded in a tightening environment, leaving us perfectly placed to take advantage when volumes return.

The year saw a continuation of the price pressures that impacted profitability in 2022. An across the board pay award of 10% was applied in April to counter the inflation pressures affecting many of our colleagues. In addition, due to a risk-off strategy of hedging for 12 months forward, that the Company continues to apply, it was only in the second half of the year that the Company started to see a positive impact from reducing energy input costs.

Added value sales continued to be a major part of the Company's revenue, however whilst replacement sales have continued at previous levels the number of installations has decreased as customers have delayed investments due to interest rates and a marked focus on debt reduction within the bigger groups. Much of the preparatory work has been done on many of these projects and again the Company is confident of securing many of these once the economic environment improves.

Retail sales continue to be an area of minimal focus and amounted to 1.7% of sales (2022: 2.9%)

Materials

Furlong Mills continues to perform strongly with sales of £14.7m (2022: £13.5m) an increase of 8.8% over 2022. During the year the focus at Furlong has been the improvement of operations, particularly in the area of health and safety which has been an area of focus since the acquisition. In the year the Company has had zero accidents showing a massive improvement from the pre-acquisition period.

Operations

As previously noted, 2023 has shown a marked improvement in production, with yields at key stages in our process returning to levels approaching. Production levels have been much improved on 2022 allowing significant increases in stock holding.

The numbers of temporary staff within the business has reduced steadily and the skills and capability of our core workforce has improved progressively as experience levels increase and our training programme delivers returns. Capital expenditure of £5.4m has primarily focussed on delivery of productivity projects, a long-term focus of the business going forward.

During the year the Company commissioned 4,500 solar panels, delivering circa 1 MW of energy. During August 2023 this project delivered all the energy for the site and delivered feed-in tariffs for a 5-day period.

The Company continues to take a risk off approach to energy. The Company assessment is that with future energy prices already below forecasts and showing savings against 2023 the opportunity for upside is minimal whilst downside risk, given the current geopolitical situation, is significantly higher. We have therefore forward purchased at significant levels through to Q2 2025 to lock in this position.

Our approach to ESG has moved forward substantially over the year. The senior management focus outlined in last year's report has allowed the development of our broad strategy and the identification of short-, medium- and long-term actions supporting our forward progress. As a major energy user and large employer much of our work has focused on the Environment and Social pillars, but we have made progress in all areas of our focus.

In relation to our energy footprint, we have initiated a number of projects which have given us a much clearer idea of how we may move towards Net Zero over the longer term. These initiatives should deliver benefits that will deliver steady progress towards our sustainability objectives. Our approach is based on a combination of improved energy efficiency in the manufacture of our product and increased sustainable generation. Importantly we believe that significant improvements can be made through the reformulation of the materials we use and changes in our production processes to allow manufacture using substantially less energy input. We are working on a number of research and development projects in this area utilising our own technical staff, external experts and suppliers.

We have also implemented a number of initiatives in relation to our workforce and our engagement with our local community. We have always prioritised training and development of our workforce and we have continued to invest in this area. Future plans emphasise the improvement of our employee's working environment.

We believe that our Governance procedures remain appropriate for a business of our scale and structure but, in common with other areas of our business, they must follow a process of continuous improvement. A substantial amount of work has been carried out in relation to the development and implementation of a succession plan for the Board and senior management.

Consolidated income statement
for the year ended 31 December 2023

	2023	2022
	£'000	£'000
Revenue	82,339	82,528
Operating profit before exceptional items	10,252	9,142
Exceptional items	-	547
Operating profit	10,252	9,689
Finance income	611	60
Finance costs	(75)	(148)
Profit before exceptional items and income tax	10,788	9,054
Exceptional items	-	547
Profit before income tax	10,788	9,601
Income tax expense	(3,071)	(1,706)
Profit for the year	7,717	7,895
Basic earnings per ordinary share	70.2p	71.7p
Adjusted basic earnings per ordinary share	70.2p	66.9p

All of the above figures relate to continuing operations.

Consolidated statement of comprehensive income
for the year ended 31 December 2023

	2023	2022
	£'000	£'000
Other comprehensive (expense)/income
Items that will not be reclassified to profit and loss:
Remeasurements of post-employment benefit obligations net of tax	(900)	9,332
Items that may be reclassified subsequently to profit and loss:
Currency translation differences	(25)	58
Other comprehensive (expense)/income for the year	(925)	9,390
Profit for the year	7,717	7,895
Total comprehensive income for the year	6,792	17,285

Amounts in the statement above are disclosed net of tax.

Consolidated balance sheet
as at 31 December 2023

	2023	2022
	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	25,085	23,039
Intangible assets	663	849
Deferred income tax assets	82	132
Retirement benefit assets	7,855	6,924
	33,685	30,944
Current assets
Inventories	21,896	15,889
Trade and other receivables	11,036	14,380
Other financial assets	-	5,057
Cash and cash equivalents	13,933	9,604
	46,865	44,930
Total assets	80,550	75,874
Liabilities
Current liabilities
Trade and other payables	(14,355)	(14,291)
	(14,355)	(14,291)
Non-current liabilities
Lease liabilities	(677)	(477)
Deferred income tax liabilities	(5,577)	(4,458)
Non-current liabilities	(6,254)	(4,935)
Total liabilities	(20,609)	(19,226)
Net assets	59,941	56,648
Equity attributable to owners of the Company
Issued share capital	1,103	1,103
Share premium account	2,348	2,348
Treasury shares	(431)	(431)
Other reserves	1,363	1,344
Retained earnings	55,558	52,284
Total equity	59,941	56,648

Consolidated statement of changes in equity

for the year ended 31 December 2023

	Note	Retained earnings £'000		Issued share capital £'000	Share premium account £'000	Treasury shares £'000	Other reserves £'000	Total equity £'000
Balance at 1 January 2022		38,117		1,103	2,348	(80)	1,195	42,683
Comprehensive Income/(expense):
Profit for the year		7,895		-	-	-	-	7,895
Other comprehensive income/(expense):
Depreciation transfer - gross		12		-	-	-	(12)	-
Depreciation transfer - tax		(3)		-	-	-	3	-
Re-measurement of post-employment benefit obligations - net of tax		9,332		-	-	-	-	9,332
Currency translation		-		-	-	-	58	58
Total comprehensive income		17,236		-	-	-	49	17,285
Transactions with owners
Transactions with owners
Dividends relating to 2022		(3,062)		-	-	-	-	(3,062)
Treasury Shares		-		-	-	(351)	-	(351)
Share based payment		-		-	-	-	100	100
Deferred tax - share based payment		(7)		-	-	-	-	(7)
Total transactions with owners		(3,069)		-	-	(351)	100	(3,320)
Balance at 31 December 2022		52,284		1,103	2,348	(431)	1,344	56,648
Comprehensive Income/(expense):
Profit for the year		7,717		-	-	-	-	7,717
Other comprehensive income/(expense):
Depreciation transfer - gross		12		-	-	-	(12)	-
Depreciation transfer - tax		(3)		-	-	-	3	-
Re-measurement of post-employment benefit obligations - net of tax		(900)		-	-	-	-	(900)
Currency translation		-		-	-	-	(25)	(25)
Total comprehensive income		6,826		-	-	-	(34)	6,792
Transactions with owners
Dividends relating to 2023			(3,519)	-	-	-	-	(3,519)
Share based payment			-	-	-	-	53	53
Deferred tax - share based payments			(33)	-	-	-	-	(33)
Total transactions with owners			(3,552)	-	-	-	53	(3,499)
Balance at 31 December 2023			55,558	1,103	2,348	(431)	1,363	59,941

Consolidated cash flow statement
for the year ended 31 December 2023

	2023	2022
	£'000	£'000
Cash flows from operating activities
Cash generated from operations	8,321	4,939
Interest received	229	60
Interest paid	(75)	(35)
Income tax paid	-	(991)
Net cash generated from operating activities	8,475	3,973
Cash flows from investing activities
Purchases of property, plant and equipment	(5,334)	(4,618)
Proceeds on disposal of property, plant and equipment	54	15
Purchases of intangible assets	(73)	(86)
Repayment / (payment) of other financial assets	5,057	(1,052)
Net cash used in investing activities	(296)	(5,741)
Cash flows from financing activities
Dividends paid	(3,519)	(3,062)
Principal elements of leases	(330)	(263)
Purchase of treasury shares	-	(351)
Net cash generated from/ (used in) in financing activities	(3,849)	(3,676)
Net increase/(decrease) in cash and cash equivalents	4,330	(5,444)
Cash and cash equivalents at the beginning of the year	9,604	15,046
Exchange loss/(gain) on cash and cash equivalents	(1)	2
Cash and cash equivalents at the end of the year	13,933	9,604

Reconciliation of operating profit to net cash inflow from operating activities

	2023	2022
	£'000	£'000
Continuing operating activities
Operating profit after exceptional items	10,252	9,689
Adjustments for:
Depreciation and amortisation	3,510	2,983
Gain on disposal of property, plant and equipment	(16)	(4)
Charge for share based payments	53	100
Defined benefit pension cash contribution (see note 20)	(1,750)	(1,750)
Changes in working capital:
Inventory	(6,007)	(5,403)
Trade and other receivables	2,346	(3,067)
Trade and other payables	(67)	2,391
Net cash inflow from operations	8,321	4,939

1.         Segmental analysis for the year ended 31 December 2023

	Year to 31 December 2023	Year to 31 December  2022
	£'000	£'000
Market segment - Revenue
Ceramics	74,159	75,335
Materials	14,687	13,500
	88,846	88,835
Intra group revenue	(6,507)	(6,307)
Group Revenue	82,339	82,528
Geographical segment - Revenue
United Kingdom	34,004	33,244
Rest of Europe	32,949	31,888
USA	8,399	8,715
Rest of the World	6,987	8,681
	82,339	82,528

	2023	2022
Operating profit before exceptional items	£'000	£'000
Ceramics	9,106	7,932
Materials	1,146	1,210
	10,252	9,142
	2023	2022
Exceptional items	£'000	£'000
Ceramics	-	484
Materials	-	63
	-	547
	2023	2022
Operating profit after exceptional items	£'000	£'000
Ceramics	9,106	8,416
Materials	1,146	1,273
	10,252	9,689
	2023	2022
Unallocated items	£'000	£'000
Finance Income	611	60
Finance costs	(75)	(148)
Profit before income tax	10,788	9,601

2.    Finance income and costs

	Year to 31 December 2023	Year to 31 December  2022
	£'000	£'000
Interest income on cash and cash equivalents	229	60
Interest on defined benefit schemes	382	-
Finance income	611	60
Interest on defined benefit schemes (note 20)	-	(113)
Interest on lease liabilities	(64)	(35)
Other interest	(11)	-
Finance costs	(75)	(148)
Net finance income/(costs)	536	(88)

3.    Income tax expense

	Year to 31 December 2023	Year to 31 December  2022
Group	£'000	£'000
Current tax - current year	1,507	764
Current tax - current year exceptional	-	14
- adjustment in respect of prior periods	128	(147)
Current tax	1,635	631
Deferred tax
Current year	1,144	1,075
Current year - adjustment in respect of prior periods	292	-
Deferred tax	1,436	1,075
Income tax expense	3,071	1,706

4. Earnings per ordinary share

Basic earnings per ordinary share is based on the profit after income tax and on 10,997,835 (2022: 11,009,068) ordinary shares, being the weighted average number of ordinary shares in issue during the year. Adjusted basic earnings per share is calculated after adjusting for the post tax effect of exceptional items (see Note 3).

	2023	2022
	Pence per share	Pence per share
Basic earnings per share (Based on earnings £7,717,000 (2022: £7,895,000))	70.2	71.7
Less: Exceptional Items: £nil (2022: £532,000)	-	(4.8)
Adjusted basic earnings per share (based on adjusted earnings £7,717,000 (2022: £7,363,000))	70.2	66.9

5. Reconciliation of operating profit to net cash inflow from operating activities

	Year to 31 December 2023	Year to 31 December 2022
	£'000	£'000
Continuing operating activities
Operating profit after exceptional items	10,252	9,689
Adjustments for:
Depreciation and amortisation	3,510	2,983
Gain on disposal of property, plant and equipment	(16)	(4)
Charge for share based payments	53	100
Defined benefit pension cash contribution (see note 20)	(1,750)	(1,750)
Changes in working capital:
Inventory	(6,007)	(5,403)
Trade and other receivables	2,722	(3,067)
Trade and other payables	(67)	2,391
Net cash inflow from operations	8,697	4,939

6.Dividends

The dividends paid in the year were as follows:

Group and Company	2023	2022
Ordinary	£'000	£'000
Final dividend 2022 21.0p (2022: 17.3p) per 10p ordinary share	2,309	1,907
Interim 2023 11.0p (2022: 10.5p) per 10p ordinary share paid	1,210	1,155
	3,519	3,062

The Directors now recommend payment of the following dividend:

Ordinary dividend:
Final dividend 2023 25.0p (2022: 21.0p) per 10p ordinary share	2,749	2,310

Dividends on treasury shares held by the Company are waived.

7.Retirement  benefit asset

The movement in the present value of defined benefit obligation over the year is as follows:

	Audited	Audited
	Year to	Year to
	31 December 2023	31 December 2022
	£'000	£'000
Liability at 1 January	6,924	(7,156)
Interest cost	(1,891)	(113)
Expected return on plan assets	2,273	(8,619)
Experience gains on liabilities	533	(3,652)
Re-measurements from change in assumptions	(1,734)	24,714
Employer Contributions	1,750	1,750
At 31 December	7,855	6,924

8. Basis of preparation and accounting policies          

The financial information included in the preliminary announcement for year to 31 December 2023 has been approved by the Board on 9 April 2024.

The final financial statements do not constitute the statutory accounts of the Company within the meaning of section 434 of the Companies Act 2006, but are derived from those accounts, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006

This information has been prepared under the historical cost and financial assets and liabilities (including derivative instruments) at fair value through the profit and loss account. The same accounting policies, presentation and methods of computation are followed in the final financial statements as were applied in the Group's financial statements for the year ended 31 December 2022.

Statutory accounts for the year ended 31 December 2022 have been delivered to the Registrar of Companies. The auditors have reported on those accounts. Their report was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Statutory accounts for the year ended 31 December 2023 will be delivered to the Registrar of Companies after the Company's Annual General Meeting and will also be available on the Company's website (www.churchill1795.com) in May 2024.

 

END