Preliminary Results

RNS Number : 4902I

Churchill China PLC

26 March 2015

 



For immediate release

26 March 2015

CHURCHILL CHINA plc

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

PRELIMINARY RESULTS

For the year ended 31 December 2014

Churchill China plc (AIM: CHH), the manufacturer and global distributor of performance ceramic and related products to hospitality and retail markets, is pleased to announce its preliminary results for the year ended 31 December 2014.

Key Highlights:

·     Group revenue up 3% to £44.5m (2013: £43.2m)

-      Hospitality revenue growth 10% (2013: 11%)

·     Operating profit up 26% to £4.2m (2013: £3.4m)

·     Profit before tax up 28% to £4.3m (2013: £3.4m)

·     Basic earnings per share up 24% to 31.2p (2013: 25.2p)

·     Proposed final dividend up 13% to 11.0p (2013: 9.7p)

·     Increased investment in UK manufacturing

·     Cash and deposit balances of £10.5m (2013: £8.2m)

Alan McWalter, Chairman of Churchill China, commented:

"It is a pleasure to again report strong progress in Churchill's performance. We are confident that we have the right long term strategies to continue the development of our business and the resource to implement these plans."                                                                                      

For further information, please contact:

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

CHAIRMAN'S STATEMENT

Introduction

It is a pleasure to again report strong progress in Churchill's performance. We have recorded a further substantial increase in profitability and it is satisfying that this has arisen in large part from the areas that we have identified for long term investment. We have reached significant milestones on the road to several of our strategic goals and are generating a return from our work to further align our business with customer and market needs. The Hospitality business again reported record revenues building on its strong position in growing markets.

Financial Review

Total revenues increased by 3% to £44.5m (2013: £43.2m).

Operating profit increased by 26% to £4.2m (2013: £3.4m). Operating margins improved to 9.5% (2013: 7.8%) mainly as a result of increased revenues, but with some contribution from a more favourable mix of business. Earnings before interest, tax, depreciation and amortisation increased by 18% to £5.9m (2013: £5.0m).

Profit before tax rose by 28% to £4.3m (2013: £3.4m), with the improved operating performance supported by a lower notional interest charge on pension fund liabilities.

Earnings per share improved by 24% to 31.2p (2013: 25.2p).

We have again generated strong operating cash flows. Operating cash generation was £6.9m (2013: £4.6m) with strong profitability being supplemented by a positive working capital position and lower pension fund amortisation payments. Inventory levels fell during the period largely as a function of strong trading towards the end of the year. At the year end, net cash and deposit balances had risen by £2.3m to £10.5m (2013: £8.2m).

We continue to invest in our core business. Capital investment rose to £2.0m (2013: £1.5m) with further investment in the development of our Stoke on Trent manufacturing facility.

Dividend and shareholder return

The Board is recommending a 1.3p increase in the final dividend to 11.0p per share (2013: 9.7p), giving a total of 16.1p for the year (2013: 14.6p). Following the re-establishment of a progressive dividend policy during 2013, we are pleased that the growth in profitability in 2014 has allowed us to raise the dividend at an increased rate. If approved, the final dividend will be paid on 27 May 2015 to shareholders on the register on 24 April 2015.

Total shareholder returns have again been good, reflecting both dividend growth and our improved performance. Overall returns were 42% (2013: 35%) during the year.

Markets

Hospitality

Total sales to our Hospitality customers increased by £3.2m (10%) and reached an all time high of £36.0m (2013: £32.8m). Contribution to Group operating profits rose by 29% to £6.6m from £5.1m.

We have continued to make steady progress in the UK where we enjoy a market-leading position. Whilst the second half of the year did not benefit from the same level of refurbishment business that we secured in the first half, the market as a whole remained buoyant as eating out continued to grow. Our progress again reflected the exemplary service levels for which Churchill is renowned, especially in the key pre-Christmas period.

The focus of our growth plan remains export markets. Export revenues increased by 16% in 2014, marking a second consecutive year of strong increase. We have once again achieved good results in Europe, giving a return on several years of investment into that market. Our competitive position in Europe has also been improved given the continuance of Anti Dumping Duties on Chinese ceramics. It is also pleasing to note that the changes made in our approach to North America and to other markets worldwide appear to be beginning to bear fruit in the form of growing revenues. We believe our long term progress will increasingly be delivered by growth in export markets and we will continue to invest in sales, marketing and new product development to support this.

Design innovation has been a major contributor to our success in 2014. Our new embossed range, Bamboo, has figured strongly, and we have been delighted by the outstanding level of sales achieved by our coloured glaze, hand crafted product, Stonecast in its first year.

Retail

Results from our Retail business were again affected by our decision to prioritise our resources, particularly manufacturing capacity, towards Hospitality. Revenues declined by £1.9m to £8.5m. Profitability was less affected given our focus on better margin business and tight control over costs. Contribution to Group profit fell by £0.3m to £0.9m.

Sales of licensed product continued to fall as we switched our focus towards Churchill branded lines.

We continue to see good value in the opportunities provided by our Retail business. Whilst the Retail market has remained highly competitive for some time, our business provides a clear financial contribution and many other less tangible benefits. Our operational capacity can be optimised across both our businesses and the transfer of ideas, technology and people between the two businesses continues to be of significant benefit to the Group.

Operations

2014 represented a year of significant challenge for our manufacturing and logistics team. Demand for UK manufactured product remained at a high level throughout the year and we also increased our rate of capital investment and new process development, both major consumers of management time. The successful outcome for the year reflects Churchill's core values of performance and delivery.

Capital expenditure on manufacturing projects during the year totalled £1.6m, the highest level for some years. The principal project, the installation of a new kiln, was completed on time and was successfully commissioned in January 2015. This kiln provides significant additional capacity, and will allow us to produce a wider range of product to a higher quality level.  It is important to note that this kiln is part of an integrated programme of investments to support our long term growth strategy. During the year we also invested in additional pressure cast capacity to meet increased demand for added value products and in the automation of other production processes. We expect to commence further development projects in 2015.

People

Once again I want to thank our staff for their efforts across the year. Whilst I have previously referred to the level of challenge in manufacturing and operations, all our employees across the business have contributed to a year of considerable achievement for the Group.

The investment we have made in our business includes a number of measures to increase the knowledge, experience and opportunities available to all our team. We recognise the importance to our current and future prosperity of a more flexible and more skilled workforce and have prioritised training and development at all levels across the Company.

As many of you will know, a change of responsibility as Chief Executive took place in August 2014, with David O'Connor, previously Chief Operating Officer, assuming responsibility from Andrew Roper on the latter's retirement and move to a non executive role. We regard this change as part of an evolutionary process at senior level in the business intended to carry Churchill forward in the long term.

Prospects

We have delivered a strong performance in 2014 and it is pleasing to note that this has been achieved in line with the strategies that we established some years ago. We have delivered progressive improvements in return from our Hospitality business and particularly from export growth.

The recent strengthening of sterling against the euro will provide some headwind in relation to our progress in Europe and we are also mindful of the impact of general political and economic pressures across the continent. Despite this we believe that there will be further growth in hospitality markets worldwide and that our long term progress in this area will continue.

We are confident that we have the right long term strategies to continue the development of our business and the resource to implement these plans. The current year has started well, and Churchill is well positioned to take advantage of its strong market position.

Alan McWalter

Chairman

25 March 2015

Churchill China plc

Consolidated Income Statement

for the year ended 31 December 2014

			Audited  Year to  31 December 2014 £000		Audited  Year to 31 December 2013 £000
	Note
Revenue			44,518		43,157
Operating profit	1		4,249		3,371
Share of results of associate company			116		116
Finance income	2		76		92
Finance costs	2		(124)		(209)
Profit before income tax			4,317		3,370
Income tax expense	3		(901)		(609)
Profit for the year			3,416		2,761
			Pence per share		Pence per share
Basic earnings per ordinary share	4		31.2		25.2
Diluted basic earnings per ordinary share	4		30.8		24.9

All the above figures relate to continuing operations

Churchill China plc

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2014

		Audited Year to 31 December  2014 £000		Audited Year to 31 December 2013 £000
Other comprehensive (expense) / income
Items that will not be reclassified to profit or loss:
Re-measurements of post-employment benefit obligations		(1,850)		644
Items that may be reclassified subsequently to profit or loss:
Impact of change in UK tax rate on deferred tax on revaluation reserve		-		37
Currency translation difference		17		(5)
Other comprehensive (expense) / income		(1,833)		676
Profit for the year		3,416		2,761
Total comprehensive income for the period		1,583		3,437
Attributable to:
Equity holders of the Company		1,583		3,437

All the above figures relate to continuing operations

Churchill China plc

Consolidated Balance Sheets

as at 31 December 2014

	Audited 31 December 2014 £000		Audited 31 December 2013 £000
Assets
Non Current Assets
Property, plant and equipment	14,258		13,667
Intangible assets	63		359
Investment in associates	1,096		980
Deferred income tax assets	1,117		765
	16,534		15,771
Current Assets
Inventories	8,274		8,769
Trade and other receivables	8,255		8,571
Other financial assets	1,500		1,000
Cash and cash equivalents	8,961		7,199
	26,990		25,539
Total Assets	43,524		41,310
Liabilities
Current liabilities
Trade and other payables	(8,676)		(8,298)
Current income tax liabilities	(698)		(564)
Total  current Liabilities	(9,374)		(8,862)
Non current liabilities
Retirement benefit obligations	(4,674)		(2,914)
Deferred income tax liabilities	(1,070)		(1,102)
Total non current liabilities	(5,744)		(4,016)
Total liabilities	(15,118)		(12,878)
Net Assets	28,406		28,432
Equity attributable to owners of the company
Issued share capital	1,096		1,096
Share premium account	2,348		2,348
Treasury shares	(224)		(41)
Retained earnings	23,654		23,697
Other reserves	1,532		1,332
	28,406		28,432

Churchill China plc

Consolidated Statement of Changes in Equity

as at 31 December 2014

	Retained earnings £000		Share capital £000		Share premium account £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	2,761		-		-		-		-		2,761
Other comprehensive income	-		-		-		-		-		-
Depreciation transfer - gross	12		-		-		-		(12)		-
Depreciation transfer - tax	(2)		-		-		-		2		-
Deferred tax - change in rate Re-measurements of post employment benefit obligations - net of tax	- 644		- -		- -		- -		37 -		37 644
Currency translation	-		-		-		-		(5)		(5)
Total comprehensive income	3,415		-		-		-		22		3,437
Transactions with owners
Dividends Share based payment	(1,564) -		- -		- -		- -		- 75		(1,564) 75
Treasury shares	(25)		-		-		48		-		23
Total transactions with owners	(1,589)		-		-		48		75		(1,466)
Balance at 31 December 2013	23,697		1,096		2,348		(41)		1,332		28,432
Comprehensive Income
Profit for the period	3,416		-		-		-		-		3,416
Other comprehensive income
Depreciation transfer - gross	12		-		-		-		(12)		-
Depreciation transfer - tax	(2)		-		-		-		2		-
Re-measurements of post employment benefit obligations - net of tax	(1,850)		-		-		-		-		(1,850)
Currency translation	-		-		-		-		17		17
Total comprehensive income	1,576		-		-		-		7		1,583
Transactions with owners
Dividends	(1,619)		-		-		-		-		(1,619)
Share based payment	-		-		-		-		193		193
Treasury shares	-		-		-		(183)		-		(183)
Total transactions with owners	(1,619)		-		-		(183)		193		(1,609)
Balance at 31 December 2014	23,654		1,096		2,348		(224)		1,532		28,406

Churchill China plc

Consolidated Cash Flow Statement

for the year ended 31 December 2014

		Audited Year to 31 December 2014 £000		Audited Year to 31 December 2013 £000
	Note
Cash flows from operating activities
Cash generated from operations	5	6,903		4,573
Interest received		76		92
Interest paid		(5)		(12)
Income tax paid		(688)		(679)
Net cash generated from operating activities		6,286		3,974
Cash flows from investing activities
Purchases of property, plant and equipment		(2,238)		(979)
Proceeds on disposal of property, plant and equipment		57		101
Purchases of intangible assets		(42)		(353)
Net cash used in investing activities		(2,223)		(1,231)
Cash flows from financing activities
Issue of ordinary shares		-		75
Purchase of treasury shares		(183)		(52)
Dividends paid		(1,619)		(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		(2,302)		(2,041)
Net increase in cash and cash equivalents		1,761		702
Cash and cash equivalents at the beginning of the year		7,199		6,497
Exchange gains on cash and cash equivalents		1		-
Cash and cash equivalents at the end of the year		8,961		7,199

1. Segmental analysis

Audited for the year ended 31 December 2014

	Hospitality £000		Retail £000		Unallocated £000		Total £000
Revenue	35,999		8,519		-		44,518
Contribution to group overheads excluding depreciation and amortisation	7,779		1,183		(3,086)		5,876
Depreciation and amortisation	(1,190)		(224)		(213)		(1,627)
Operating profit	6,589		959		(3,299)		4,249
Share of results of associate company					116		116
Finance income					76		76
Finance cost					(124)		(124)
Profit before income tax					(3,231)		4,317
Income tax expense							(901)
Profit for the period							3,416
Audited
For the year ended 31 December 2013
Revenue	32,753		10,404		-		43,157
Contribution to group overheads excluding depreciation and amortisation	6,188		1,493		(2,714)		4,967
Depreciation and amortisation	(1,133)		(259)		(204)		(1,596)
Operating profit	5,055		1,234		(2,918)		3,371
Share of results of associate company					116		116
Finance income					92		92
Finance cost					(209)		(209)
Profit before income tax					(2,919)		3,370
Income tax expense							(609)
Profit for the period							2,761

2. Finance income and costs

	Audited Year to 31 December 2014 £000		Audited Year to 31 December 2013 £000
Finance income
Interest income on cash and cash equivalents	76		92
Finance income	76		92
Finance cost
Interest on pension scheme	(119)		(197)
Other interest	(5)		(12)
Finance cost	(124)		(209)

The interest cost arising from pension schemes is a non cash item

3. Income tax expense

	Audited Year to 31 December 2014 £000		Audited Year to 31 December 2013 £000
Current taxation	822		595
Deferred taxation	79		14
Income tax expense	901		609

4. Earnings per ordinary share

Basic earnings per ordinary share is based on the profit on ordinary activities after taxation of £3,416,000 (2013: £2,761,000) and on 10,934,908 (2013: 10,939,808) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

Diluted basic earnings per ordinary share is based on the profit on ordinary activities after taxation of £3,416,000 (2013: £2,761,000) and on 11,105,668 (2013: 11,076,099) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,934,908 (2013: 10,939,808) increased by 170,760 (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 continuing activities

	Audited Year to 31 December 2014 £000		Audited Year to 31 December 2013 £000
Cash flows from operating activities
Operating profit	4,249		3,371
Adjustments for
Depreciation and amortisation	1,627		1,596
Loss on disposal of property, plant and equipment	10		11
Charge for share based payment	193		75
Decrease in retirement benefit obligations	(672)		(1,344)
Changes in working capital
Inventory	495		1,108
Trade and other receivables	338		(1,244)
Trade and other payables	663		1,000
Net cash inflow from operations	6,903		4,573

6. Dividend

The final dividend, which has not been provided for, has been calculated on 10,909,976 (2013: 10,945,976) ordinary shares, being those in issue at 31 December 2014 qualifying for dividend and at a rate of 11.0p (2013: 9.7p) per 10p ordinary share. The dividend will be paid on 27 May 2015 to shareholders on the register on 24 April 2015, subject to approval at the Company's Annual General Meeting.

The total dividend paid and proposed in respect of the year was 16.1p (2013: 14.6p).

7. Basis of preparation and accounting policies

The financial information including in the preliminary announcement for the period 31 December 2014 has been audited and an unqualified audit report has been issued.

The preliminary financial statements represent extracts from those audit accounts but do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The Group's 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 preliminary financial statements as were applied in the Group's financial statements for the year ended 31 December 2013.

Statutory accounts for the year ended 31 December 2013 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2014 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.

 

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