Interim Results

RNS Number : 0637Q

Churchill China PLC

27 August 2014

 



For immediate release

27 August 2014

CHURCHILL CHINA plc

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

INTERIM RESULTS

For the six months ended 30 June 2014

Churchill China plc (AIM: CHH), the manufacturer and distributor of performance ceramic and related products to hospitality and retail markets is pleased to announce its interim results for the six months ended 30 June 2014.

Key Highlights:

·     Group revenue up 6% to £20.9m (2013: £19.7m)

·     Operating profit up £0.3m to £1.4m (2013: £1.1m)

·     Operating margin up to 6.6% (2013: 5.3%)

·     Profit before tax up £0.3m to £1.4m (2013: £1.1m)

·     Basic earnings per share up 2.4p to 10.0p (2013: 7.6p)

·     Proposed interim dividend of 5.1p (2013: 4.9p)

·     Cash and deposit balances of £8.5m (June 2013: £4.8m)

Alan McWalter, Chairman of Churchill China, commented:

"Churchill delivered an excellent performance in the first half of 2014. The Board remains confident that the business will deliver a strong performance for the year as a whole."

For further information, please contact:

Churchill China plc	Tel: [phone]
David O'Connor / David Taylor
Buchanan	Tel: [phone]
Mark Court / Fiona Henson / Sophie Cowles
N+1 Singer	Tel: [phone]
Richard Lindley / James White

Our interim results will shortly be available on the Company's website: www.churchill1795.com

CHAIRMAN'S STATEMENT

Introduction

I am delighted to report that the strong trading and growth seen in 2013 has continued into the first half of 2014. Revenue and operating profit have increased substantially, driven by continued market strength and our strategies of excellence in design, quality and service. We are benefitting from the long term programme of investment into key areas of our business and have delivered well against our targets. Our Hospitality business, the focus of our strategic plans, again reported record revenues.

Financial Review

Total revenues increased by 6% to £20.9m (2013: £19.7m).

Operating profit increased by 32% to £1.4m (2013: £1.1m). Operating margins improved to 6.6% (2013: 5.3%) as a result of increased sales, a more favourable mix of business and improved manufacturing efficiency. Earnings before interest, tax, depreciation and amortisation increased by 24% to £2.2m (2013: £1.8m).

Profit before tax rose by 32% to £1.4m (2013: £1.1m), largely attributable to the improved operating performance.

Earnings per share improved by 32% to 10.0p (2013: 7.8p).

We have continued to generate strong operating cash flows. Operating cash generation was £2.7m (2013: outflow £0.2m). This figure benefitted substantially from improved profitability, lower than normal inventory holding levels and a reduction in cash contributions to pension funds. This cash generation will allow us to continue to support long term investment in market development, in our operating facilities and also to improve returns to shareholders. At the end of the period net cash and deposit balances were £8.5m (June 2013: £4.8m, December 2013: £8.2m).

We continue to invest in our business. Capital investment was £1.0m (2013: £0.7m) with the majority of this expenditure being on our UK production unit.

Dividend

The Board is recommending a 0.2p increase in the interim dividend to 5.1p per share (2013: 4.9p). We understand the benefits of a growing, supportable dividend in building shareholder value and will continue to adopt a progressive policy where it is achievable. The interim dividend will be paid on 3 October 2014 to shareholders on the register on 12 September 2014.

Hospitality

Total sales to our Hospitality customers increased by £1.8m (12%) to £16.8m (2013: £15.0m), a record for the period, following on from the very strong finish to last year. Contribution to Group operating profits rose to £2.7m from £2.0m.

We have made further progress against our strategic plans and are pleased to report continued growth in Europe, where we increased sales by over 20% despite some impact from stronger sterling. This was supported by a good performance in the UK with revenue improving by 7% on the comparative period. This reflected further expansion of the eating out market, particularly in the pub and restaurant sector, where we benefitted from a major refurbishment project. We believe the rate of growth in revenue will moderate somewhat against stronger comparatives in the second half year, but we remain confident that we can continue to develop our Hospitality business steadily based on the platform we have established. Our new product launches have been well received and we continue to research, design and introduce successful new ranges.  Our product meets the performance needs of hospitality professionals.

Retail

In line with our strategic emphasis, Retail sales declined by £0.6m to £4.1m (2013: £4.7m) as we transferred resources, particularly manufacturing capacity, to Hospitality. UK and European markets continue to be affected by increased duties on product imported from China and we saw, as expected, some decline in sales of licensed product. We continue to develop our sales under the 'Queens' and 'Churchill' brands which we believe will provide a more stable long term position. Despite the reduction in revenue the effect on profit contribution, which fell by £0.1m to £0.2m, was mitigated by a better margin mix and cost control.

Manufacturing and Operations

Our UK operations have delivered an excellent performance in the first half of 2014. An increased level of output and additional flexibility within our processes has been necessary to meet growing market demand, and this has been delivered. In addition we have continued to implement an extended programme of investment in manufacturing to install a new kiln which will deliver much needed additional capacity and capability on its commissioning in early 2015.

People

We have previously announced the retirement of Andrew Roper as Chief Executive Officer. Andrew has worked for Churchill since 1973 and it is difficult to overstate the contribution he has made both to the performance and culture of the Churchill business. We wish him well, and look forward to his continued input as a Non Executive Director.

David O'Connor, formerly Chief Operating Officer, has assumed the role of Chief Executive. David has worked for the Group for over twenty years in a variety of roles and we are confident that he will continue to lead the business successfully.

These changed responsibilities reflect the Churchill business and its staff. We have many long serving employees at all levels who understand and care deeply about our business, its customers, employees, shareholders and other stakeholders. The succession within the Chief Executive role reflects an evolution rather than a fundamental change and we expect that the core values of Churchill will be maintained within the ongoing development of our business.

Prospects

Our success over recent years has been based on long term investment in sales, distribution and marketing, in technical and design excellence and in our productive capability. We have continued to invest in these areas and we believe that these investments will continue to improve the long term performance of our business.  

Churchill delivered an excellent performance in the first half of 2014 with profits increasing by over 30%. Given the seasonality of our markets, performance in the second half of the year is the most important contributor to our annual performance. We expect our rate of growth to moderate in the second half against more difficult comparatives from the excellent trading at the end of 2013. The Board remains confident that we will deliver a strong performance for the year as a whole in line with our expectations.                      

Alan McWalter

Chairman

26 August 2014

Churchill China plc

Consolidated Income Statement

For the six months ended 30 June 2014

		Unaudited		Unaudited		Audited
		Six months to 30 June 2014 £000		Six months to 30 June 2013 £000		Twelve months to 31 December 2013 £000
	Note
Revenue		20,871		19,724		43,157
Operating profit	1	1,380		1,046		3,371
Share of results of associate company		68		69		116
Finance income	2	34		62		92
Finance costs	2	(75)		(110)		(209)
Profit before income tax		1,407		1,067		3,370
Income tax expense	3	(315)		(231)		(609)
Profit for the period		1,092		836		2,761
		Pence per Share		Pence per share		Pence per share
Basic earnings per ordinary share	4	10.0		7.6		25.2
Diluted basic earnings per ordinary share	4	9.8		7.6		24.9

All the above figures relate to continuing operations

Churchill China plc

Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2014

		Unaudited		Unaudited		Audited
		Six months to 30 June 2014 £000		Six months to 30 June 2013 £000		Twelve months to 31 December 2013 £000
Other comprehensive income/(expense)
Items that will not be reclassified to profit and loss:
Remeasurement of post employment benefit obligations Items that may be reclassified subsequently to profit or loss:		-		-		644
Impact of change in UK tax rate on revaluation reserve		-		-		37
Exchange differences		(8)		14		(5)
Other comprehensive income /(expense)		(8)		14		676
Profit for the period		1,092		836		2,761
Total comprehensive income for the period		1,084		850		3,437
Attributable to:
Equity holders of the Company		1,084		850		3,437

All the above figures relate to continuing operations

Churchill China plc

Consolidated Balance Sheet

as at 30 June 2014

	Unaudited		Unaudited		Audited
	30 June		30 June		31 December
	2014		2013		2013
	£000		£000		£000
Assets
Non Current assets
Property, plant and equipment	14,013		14,170		13,667
Intangible assets	67		7		359
Investment in associates	1,048		933		980
Deferred income tax assets	804		1,203		765
	15,932		16,313		15,771
Current assets
Inventories	8,625		10,384		8,769
Trade and other receivables	8,312		7,301		8,571
Other financial assets	1,500		500		1,000
Cash and cash equivalents	6,996		4,301		7,199
	25,433		22,486		25,539
Total assets	41,365		38,799		41,310
Liabilities
Current liabilities
Trade and other payables	(8,180)		(6,235)		(8,298)
Current income tax liabilities	(676)		(480)		(564)
Total current liabilities	(8,856)		(6,715)		(8,862)
Non current liabilities
Retirement benefit obligations	(2,989)		(4,482)		(2,914)
Deferred income tax liabilities	(1,090)		(1,276)		(1,102)
Total non current liabilities	(4,079)		(5,758)		(4,016)
Total liabilities	(12,935)		(12,473)		(12,878)
Net assets	28,430		26,326		28,432
Shareholders' equity
Issued share capital	1,096		1,096		1,096
Share premium account	2,348		2,348		2,348
Treasury shares	(134)		(41)		(41)
Retained earnings	23,732		21,660		23,697
Other reserves	1,388		1,263		1,332
	28,430		26,326		28,432

Churchill China plc

Consolidated Statement of Changes in Equity

as at 30 June 2014

	Retained Earnings £000		Share capital £000		Share premium £000		Treasury shares £000		Other reserves £000		Total £000
Balance at 1 January 2013	21,871		1,096		2,348		(89)		1,235		26,461
Comprehensive income
Profit for the period	836		-		-		-		-		836
Other comprehensive income
Depreciation transfer - gross	6		-		-		-		(6)		-
Depreciation transfer - tax	(1)		-		-		-		1		-
Currency translation			-		-		-		14		14
Total comprehensive income	841		-		-		-		9		850
Transactions with owners
Dividends	(1,027)		-		-		-		-		(1,027)
Treasury Shares	(25)		-		-		48		-		23
Share based payment	-		-		-		-		19		19
Total transactions with owners	(1,052)		-		-		48		19		(985)
Balance at 30 June 2013	21,660		1,096		2,348		(41)		1,263		26,326
Comprehensive income
Profit for the period	1,925		-		-		-		-		1,925
Other comprehensive income
Depreciation transfer -  gross	6		-		-		-		(6)		-
Depreciation transfer - tax	(1)		-		-		-		1		-
Deferred tax - change in rate									37		37
Remeasurement of post employment
benefit obligations - net	644		-		-		-		-		644
Currency translation	-		-		-		-		(19)		(19)
Total comprehensive income	2,574		-		-		-		13		2,587
Transactions with owners
Dividends	(537)		-		-		-		-		(537)
Share based payment	-		-		-		-		56		56
Total transactions with owners	(537)		-		-		-		56		(481)
Balance at 31 December 2013	23,697		1,096		2,348		(41)		1,332		28,432
Comprehensive income
Profit for the period	1,092		-		-		-		-		1,092
Other comprehensive income
Depreciation transfer - gross	6		-		-		-		(6)		-
Depreciation transfer - tax	(1)		-		-		-		1		-
Currency translation	-		-		-		-		(8)		(8)
Total comprehensive income	1,097		-		-		-		(13)		1,084
Transactions with owners
Dividends	(1,062)		-		-		-		-		(1,062)
Treasury shares	-		-		-		(93)		-		(93)
Share based payment	-		-		-		-		69		69
Total transactions with owners	(1,062)		-		-		(93)		69		(1,086)
Balance at 30 June 2014	23,732		1,096		2,348		(134)		1,388		28,430

Churchill China plc

Consolidated Cash Flow Statement

for the six months ended 30 June 2014

	Unaudited		Unaudited		Audited
	Six months to		Six months to		Twelve months to
	30 June 2014		30 June 2013		31 December 2013
	£000		£000		£000
Cash flow from operating activities
Cash  inflow/(outflow) from operations	2,728		(203)		4,573
Interest received	34		53		80
Income tax paid	(254)		(337)		(679)
Net cash generated from / (used by) operating activities	2,508		(487)		3,974
Investing activities
Purchases of property, plant and equipment	(1,076)		(738)		(979)
Proceeds on disposal of property, plant and equipment	41		36		101
Purchases of intangible assets	(20)		(3)		(353)
Net cash used in investing activities	(1,055)		(705)		(1,231)
Financing activities
Issue of ordinary shares	-		75		75
Purchase of treasury shares	(93)		(52)		(52)
Dividends paid	(1,062)		(1,027)		(1,564)
Sale of other financial assets	1,000		-		500
Purchase of other financial assets	(1,500)		-		(1,000)
Net cash used in financing activities	(1,655)		(1,004)		(2,041)
Net decrease in cash and cash equivalents	(202)		(2,196)		702
Cash and cash equivalents at the beginning of the period	7,199		6,497		6,497
Exchange losses on cash and cash equivalents	(1)		-		-
Cash and cash equivalents at the end of the period	6,996		4,301		7,199

1. Segmental analysis

For the six months ended 30 June 2014

	Hospitality		Retail		Unallocated		Total
	£000		£000		£000		£000
6 months to 30 June 2014
Revenue	16,793		4,078		-		20,871
Contribution to group overheads excluding depreciation	3,313		359		(1,423)		2,249
Depreciation	(652)		(113)		(104)		(869)
Operating profit	2,661		246		(1,527)		1,380
Share of results of associate company							68
Finance income							34
Finance costs							(75)
Profit before income tax							1,407
Income tax expense							(315)
Profit for the period							1,092
6 months to 30 June 2013*
Revenue	15,030		4,694		-		19,724
Contribution to group overheads excluding depreciation	2,507		464		(1,161)		1,810
Depreciation	(502)		(150)		(112)		(764)
Operating profit	2,005		314		(1,273)		1,046
Share of results of associated company							69
Finance income							62
Finance costs							(110)
Profit before income tax							1,067
Income tax expense							(231)
Profit for the period							836
12 months to 31 December 2013*
Revenue	32,753		10,404		-		43,157
Contribution to group overheads excluding depreciation	6,188		1,493		(2,714)		4,967
Depreciation	(1,133)		(259)		(204)		(1,596)
Operating profit	5,055		1,234		(2,918)		3,371
Share of results of associated company							116
Finance income							92
Finance costs							(209)
Profit before income tax							3,370
Income tax expense							(609)
Profit for the period							2,761

2. Finance income and costs

	Unaudited		Unaudited		Audited
	Six months to		Six months to		Twelve months to
	30 June 2014		30 June 2013		31 December 2013
	£000		£000		£000
Finance income
Interest on pension scheme	-		-		-
Other interest receivable	34		62		92
Finance income	34		62		92
Finance costs
Interest on pension scheme	(75)		(100)		(197)
Other interest	-		(10)		(12)
Finance costs	(75)		(110)		(209)

The interest cost arising on pension schemes is a non cash item.

3. Income tax expense

	Unaudited		Unaudited		Audited
	Six months to		Six months to		Twelve months to
	30 June 2014		30 June 2013		31 December 2013
	£000		£000		£000
Current taxation	366		169		595
Deferred taxation	(51)		62		14
Income tax expense	315		231		609

4. Earnings per ordinary share

Basic earnings per ordinary share is based on the profit after taxation of £1,092,000 (June 2013: £836,000, December 2013: £2,761,000) and on 10,945,755 (June 2013: 10,933,540, December 2013: 10,939,808) ordinary shares, being the weighted average number of ordinary shares in issue during the period.

Diluted basic earnings per ordinary share is based on the profit after taxation of £1,092,000 (June 2013: £836,000, December 2013: £2,761,000) and on 11,116,239 (June 2013: 11,069,628, December 2013: 11,076,099) ordinary shares, being the weighted average number of ordinary shares in issue during the period of 10,945,755 (June 2013: 10,933,540, December 2013 10,939,808) increased by 170,484 (June 2013: 136,088, December 2013: 136,291) 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 price during the period.

5. Reconciliation of operating profit to net cash flow from operations

	Unaudited		Unaudited		Audited
	Six months to		Six months to		Twelve months to
	30 June 2014		30 June 2013		31 December 2013
	£000		£000		£000
Cash flow from operating activities
Operating profit	1,380		1,046		3,371
Adjustments for
Depreciation	869		764		1,596
Loss / (profit) on disposal of property, plant and   equipment	9		(3)		11
Charge for share based payment	69		19		75
Decrease in retirement benefit obligations	-		(672)		(1,344)
Changes in working capital
Inventory	144		(506)		1,108
Trade and other receivables	249		51		(1,244)
Trade and other payables	8		(902)		1,000
Cash inflow / (outflow) from operations	2,728		(203)		4,573

6. Basis of preparation and accounting policies

The interim financial information for the period to 30 June 2014 has not been audited or reviewed and does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The Company's statutory accounts for the year ended 31 December 2013, prepared in accordance with accounting standards adopted for use in the European Union (International Financial Reporting Standards - IFRS), have been delivered to the Registrar of Companies; the report of the auditors on these accounts was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

The interim financial statements have been prepared in accordance with IFRS as adopted by the European Union, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS, under the historical cost convention as modified by the revaluation of land and buildings, available for sale financial assets, 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 interim financial statements as were applied in the Group's last audited financial statements.

 

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