Preliminary Results

RNS Number : 2944D

Churchill China PLC

27 March 2014

 



For immediate release

27 March 2014

CHURCHILL CHINA plc

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

PRELIMINARY RESULTS

For the year ended 31 December 2013

Churchill China plc (AIM: CHH), the manufacturer and global distributor of ceramic and related products to hospitality and retail markets is pleased to announce its preliminary results for the year ended 31 December 2013.

Key Highlights:

·     Group revenue up 4% to £43.2m (2012: £41.4m)

·     Operating profit up 19% to £3.4m (2012: £2.8m)

·     Profit before tax up 24% to £3.4m (2012: £2.7m*)

·     Basic earnings per share up 29% to 25.2p (2012: 19.6p*)

·     Proposed final dividend of 9.7p (2012: 9.4p), giving a total dividend of 14.6p (2012: 14.2p)

·     Cash and deposit balances of £8.2m (2012: £7.0m)

*restated for the effect of IAS 19 (revised)

Alan McWalter, Chairman of Churchill China, commented:

"2013 was another good year for Churchill China. Our strategies continue to lay down the platform for the future growth, particularly in our Hospitality business. Churchill's strong balance sheet enables us to take a long term view of investment in all aspects of the business from factory efficiency to sales, marketing and new product development."

For further information, please contact:

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

CHAIRMAN'S STATEMENT

Introduction

I am delighted to report a significant increase in Group profitability for 2013. Group revenue and operating profit increased substantially, driven by our strategies of excellence in design, quality and service, supported by long term investment into all facets of our business. The Hospitality business reported record revenues building on its strong position in growing markets. Our Balance Sheet remains robust.

Financial Review

Total Group revenues increased by 4% to £43.2m (2012: £41.4m).

Group operating profit increased by 19% to £3.4m (2012: £2.8m). Operating margins improved to 7.8% (2012: 6.8%) as a result of increased factory volumes and more favourable exchange rates. Earnings before interest, tax, depreciation and amortisation increased by 12% to £5.0m (2012: £4.4m).

Group profit before tax rose by 24% to £3.4m (2012 restated: £2.7m), with the improved operating performance supported by an increased contribution from our associate company. Comparative profit figures for 2012 have been restated to reflect the introduction of IAS 19 (revised) in relation to interest on pension fund liabilities.

Earnings per share improved by 29% to 25.2p (2012 restated: 19.6p).

We have continued to generate strong operating cash flows which allow us to invest in the development of our business and to deliver increased returns to shareholders. Operating cash generation was £4.6m (2012: £3.4m) after allowing for acceleration of pension fund amortisation payments. We continued to manage working capital well and have substantially reduced inventory levels during the period. At the end of the year net cash and deposit balances had risen by £1.2m to £8.2m (2012: £7.0m).

We continue to invest in the capabilities of our business. Capital investment was £1.5m (2012: £1.3m) of which the largest part related to the long term development of our Stoke on Trent manufacturing facility.

Dividend and shareholder return

The Board is recommending a 0.3p increase in the final dividend to 9.7p per share (2012: 9.4p), giving a total of 14.6p for the year (2012: 14.2p). We appreciate, in the current climate, the value that our investors place on a progressive dividend policy and a yield from their investment. If approved, the final dividend will be paid on 23 May 2014 to shareholders on the register on 25 April 2014.

Total shareholder returns have again been good reflecting both our return to dividend growth and our improved performance. Overall returns were 35% (2012: 16%) during the year.

Hospitality

Total sales to our Hospitality customers increased by £3.4m (11%) and reached an all time high of £32.8m (2012 £29.4m). Contribution to Group operating profits rose to £5.1m from £4.2m.

The UK market was buoyant across the second half of 2013. Despite an unprecedented level of orders in the pre-Christmas build up, our production and logistics specialists were able to maintain the impressive service levels for which Churchill is renowned. As UK market leader, we operate in all end user sectors through a wide range of national and regional distributors. It is pleasing to record that our UK sales team delivered a 10% increase in sales during the period. This was indicative of healthy background demand and was not dominated by large new installations. 

Our export revenues increased by an impressive 14% in 2013. To support this strategy to grow our export business requires substantial investment in sales, marketing and new product development.

Potential overseas customers are not necessarily aware of the fact that the vitrified, pin fired fine china that we manufacture in Stoke on Trent performs better in use than equivalent porcelain, stoneware or bone china. We believe that a spread of international markets offers a wider and therefore more stable future platform for the business.

The success of our design portfolio and in particular Bamboo, Vintage Prints and Stonecast, are clear evidence that the Churchill new product development and marketing teams are fully aligned to market trends. It is worth noting that many of our end users are asking for surface decoration, usually more associated with retail or domestic fashion, but with commercial performance criteria. This allows us to optimise the use of our manufacturing capabilities.

Manufacturing and Operations

There was a steady increase in production levels over the year and as a result factory efficiency improved. It is pleasing to note that our programme of sustained investment over many years continues to deliver increased efficiencies. We are fully committed to our manufacturing and logistics facilities in Stoke on Trent. We operate from single storey, modern buildings on a 26 acre site with plenty of room for expansion.

Product excellence requires manufacturing excellence both in terms of quality and value. New investment projects completed in 2013 included the installation of a new clay waste recovery system, robotics for the manufacture of large flatware products and the purchase of an Eisenmann glost kiln. We expect that this kiln, to be commissioned later in 2014, will deliver benefits across our operational base, generating improvements in energy efficiency, labour costs, yield, flexibility and tighter technical control.

Retail

Retail saw a small decline in contribution to Group operating profits during the year to £1.2m (2012: £1.4m). Sales were affected by increased costs on imported ranges as a result of the EU Anti-Dumping Duties on imported products and declined by 14% to £10.4m (2012: £12.0m). We opted to increase prices to cover these new taxes and this resulted in reduced volumes.

Our strategy to develop sales of our own branded higher margin products such as Caravan Trail and Little Rhymes is working well as sales in some of our major licences have reduced.

There remains great synergy between our Retail and Hospitality businesses. An increasing proportion of our printing technology and capacity is now being applied to the development and growth of successful products such as Vintage Prints for our Hospitality accounts.

People

We have a talented, dedicated and hard working team of people at Churchill who can be justly proud of their achievements. Their Health and Safety and attendance records are excellent. I am proud to report that a total of £47,000 was raised for Douglas Macmillan Hospice, our chosen charity for 2013. A big thank you to our workforce, their friends and relatives, and to our customers and suppliers who all contributed to this most worthy cause.

Our Board has developed over the year with the appointment of Brendan Hynes as a Non-Executive Director and will continue to evolve through 2014. Andrew Roper will retire as an Executive Director in August and will assume a non-executive role. The succession process is well underway and David O'Connor, currently Chief Operating Officer, will be formally appointed to the role of Chief Executive Officer in the summer.

Prospects

2013 was another good year for Churchill China. Our strategies continue to lay down the platform for the future growth of our Hospitality business and our pragmatic but passionate team have the right blend of expertise and talent to deliver these plans.

Churchill's strong balance sheet enables us to take a long term view of investment in all aspects of the business from factory efficiency to sales, marketing and new product development.

Despite uncertainties with the global economy and unfavourable currency rates the Board expects that Churchill will continue to deliver further shareholder value in 2014.

Alan McWalter

Chairman

27 March 2014

Churchill China plc

Consolidated Income Statement

for the year ended 31 December 2013

			Audited  Year to  31 December 2013 £000		Audited  Year to 31 December 2012* £000
	Note
Revenue			43,157		41,435
Operating profit	1		3,371		2,830
Share of results of associate company			116		18
Finance income	2		92		76
Finance costs	2		(209)		(207)
Profit before income tax			3,370		2,717
Income tax expense	3		(609)		(571)
Profit for the year			2,761		2,146
			Pence per share		Pence per share
Basic earnings per ordinary share	4		25.2		19.6
Diluted basic earnings per ordinary share	4		24.9		19.5

All the above figures relate to continuing operations

*re-stated for the impact of IAS 19 (revised) see note 7

Churchill China plc

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2013

		Audited Year to 31 December  2013 £000		Audited Year to 31 December 2012* £000
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss:
Remeasurements of post-employment benefit obligations		644		(1,813)
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		(5)		(11)
Other comprehensive income/(expense)		676		(1,824)
Profit for the year		2,761		2,146
Total comprehensive income for the period		3,437		322
Attributable to:
Equity holders of the Company		3,437		322

All the above figures relate to continuing operations

*re-stated for the impact of IAS 19 (revised) see note 7

Churchill China plc

Consolidated Balance Sheets

as at 31 December 2013

	Audited 31 December 2013 £000		Audited 31 December 2012 £000
Assets
Non Current Assets
Property, plant and equipment	13,667		14,162
Intangible assets	359		73
Investment in associates	980		864
Deferred income tax assets	765		1,285
	15,771		16,384
Current Assets
Inventories	8,769		9,877
Trade and other receivables	8,571		7,333
Other financial assets	1,000		500
Cash and cash equivalents	7,199		6,497
	25,539		24,207
Total Assets	41,310		40,591
Liabilities
Current liabilities
Trade and other payables	(8,298)		(7,132)
Current income tax liabilities	(564)		(648)
Total  Current Liabilities	(8,862)		(7,780)
Non current liabilities
Retirement benefit obligations	(2,914)		(5,054)
Deferred income tax liabilities	(1,102)		(1,296)
Total non current liabilities	(4,016)		(6,350)
Total liabilities	(12,878)		(14,130)
Net Assets	28,432		26,461
Equity attributable to owners of the company
Issued share capital	1,096		1,096
Share premium account	2,348		2,348
Treasury shares	(41)		(89)
Retained earnings	23,697		21,871
Other reserves	1,332		1,235
	28,432		26,461

Churchill China plc

Consolidated Statement of Changes in Equity

as at 31 December 2013

	Retained earnings £000		Share capital £000		Share premium account £000		Treasury shares £000		Other Reserves £000		Total* £000
Balance at 1 January 2012	23,082		1,096		2,348		(89)		1,216		27,653
Comprehensive Income
Profit for the period	2,146		-		-		-		-		2,146
Other comprehensive income	-		-		-		-		-		-
Depreciation transfer - gross	12		-		-		-		(12)		-
Depreciation transfer - tax	(27)		-		-		-		27		-
Remeasurements of post employment benefit obligations - net of tax	(1,813)		-		-		-		-		(1,813)
Currency translation	-		-		-		-		(11)		(11)
Total comprehensive income	318		-		-		-		4		322
Transactions with owners
Dividends	(1,529)		-		-		-		-		(1,529)
Treasury shares	-		-		-		-		15		15
Total transactions with owners	(1,529)		-		-		-		15		(1,514)
Balance at 31 December 2012	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	-		-		-		-		37		37
Remeasurements of post employment benefit obligations - net of tax	644		-		-		-		-		644
Currency translation	-		-		-		-		(5)		(5)
Total comprehensive income	3,415		-		-		-		22		3,437
Transactions with owners
Dividends	(1,564)		-		-		-		-		(1,564)
Share based payment	-		-		-		-		75		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

*re-stated for the impact of IAS 19 (revised) see note 7

Churchill China plc

Consolidated Cash Flow Statement

for the year ended 31 December 2013

		Audited Year to 31 December 2013 £000		Audited Year to 31 December 2012 £000
	Note
Cash flows from operating activities
Cash generated from operations	5	4,573		3,433
Interest received		92		76
Interest paid		(12)		(40)
Income tax paid		(679)		(728)
Net cash generated from operating activities		3,974		2,741
Cash flows from investing activities
Purchases of property, plant and equipment		(979)		(1,182)
Proceeds on disposal of property, plant and equipment		101		88
Purchases of intangible assets		(353)		(6)
Net cash used in investing activities		(1,231)		(1,100)
Cash flows from financing activities
Issue of ordinary shares		75		-
Purchase of treasury shares		(52)		-
Dividends paid		(1,564)		(1,529)
Sale of other financial assets		500		-
Purchase of other financial assets		(1,000)		(500)
Net cash used in financing activities		(2,041)		(2,029)
Net increase / (decrease) in cash and cash equivalents		702		(388)
Cash and cash equivalents at the beginning of the year		6,497		6,886
Exchange gains/(losses) on cash and cash equivalents		-		(1)
Cash and cash equivalents at the end of the year		7,199		6,497

1. Segmental analysis

Audited for the year ended 31 December 2013

	Hospitality £000		Retail £000		Unallocated £000		Total £000
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
Finance income							92
Finance cost							(209)
Profit before income tax							3,370
Income tax expense							(609)
Profit for the period							2,761
Audited
For the year ended 31 December 2012*
Revenue	29,407		12,028		-		41,435
Contribution to group overheads excluding depreciation and amortisation	5,103		1,721		(2,402)		4,422
Depreciation and amortisation	(942)		(301)		(349)		(1,592)
Operating profit	4,161		1,420		(2,751)		2,830
Share of results of associate company							18
Finance income							76
Finance cost							(207)
Profit before income tax							2,717
Income tax expense							(571)
Profit for the period							2,146

*re-stated for the impact of IAS 19 (revised) see note 7

2. Finance income and costs

	Audited Year to 31 December 2013 £000		Audited Year to 31 December 2012* £000
Finance income
Interest income on cash and cash equivalents	92		76
Finance income	92		76
Finance cost
Interest on pension scheme	(197)		(167)
Other interest	(12)		(40)
Finance cost	(209)		(207)

*re-stated for the impact of IAS 19 (revised) see note 7

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

3. Income tax expense

	Audited Year to 31 December 2013 £000		Audited Year to 31 December 2012* £000
Current taxation	595		688
Deferred taxation	14		(117)
Income tax expense	609		571

*re-stated for the impact of IAS 19 (revised) see note 7

4. Earnings per ordinary share

Basic earnings per ordinary share is based on the profit on ordinary activities after taxation of £2,761,000 (2012: £2,146,000) and on 10,939,808 (2012: 10,924,976) 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 £2,761,000 (2012: £2,146,000) and on 11,076,099 (2012: 11,030,731) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,939,808 (2012: 10,924,976) increased by 136,291 (2012: 105,755) 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.

*re-stated for the impact of IAS 19 (revised) see note 7

5. Reconciliation of operating profit to net cash flow from continuing activities

	Audited Year to 31 December 2013 £000		Audited Year to 31 December 2012 £000
Cash flows from operating activities
Operating profit	3,371		2,830
Adjustments for
Depreciation and amortisation	1,596		1,592
Loss / (profit) on disposal of property, plant and equipment	11		(2)
Charge for share based payment	75		15
Decrease in retirement benefit obligations	(1,344)		(672)
Changes in working capital
Inventory	1,108		(751)
Trade and other receivables	(1,244)		417
Trade and other payables	1,000		4
Net cash inflow from operations	4,573		3,433

6. Dividend

The final dividend, which has not been provided for, has been calculated on 10,945,976 (2012:10,924,976) ordinary shares, being those in issue at 31 December 2013 qualifying for dividend and at a rate of 9.7p (2012: 9.4p) per 10p ordinary share. The dividend will be paid on 23 May 2014 to shareholders on the register on 25 April 2014, subject to approval at the Company's Annual General Meeting.

The total dividend paid and proposed in respect of the year was 14.6p (2012: 14.2p).

7. Basis of preparation and accounting policies

The financial information including in the preliminary announcement for the period 31 December 2013 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 435 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 2012, with the exception of the adoption of IAS 19 (revised).

IAS 19 (revised), amongst other changes, amends the expected long term rate of return on defined benefit plan asset classes from that applying to the individual asset class held to the same rate as that used to discount the scheme's liabilities.

The impact of the adoption of this revised standard on the consolidated Income Statement is a change of £537,000 in Interest on pension scheme in the year to 31 December 2013, with £340,000 of finance income being revised to a finance cost of £197,000 and in the year to 31 December 2012 a change of £370,000 in Interest on pension scheme, revising finance income of £203,000 to a cost of £167,000. The tax change for the year to 31 December 2013 has reduced by £124,000 and by £89,000 for the year to 31 December 2012 accordingly. The post tax impacts of these changes are matched by increases in other comprehensive income.

The impact on earnings per share is a change of 3.8p per share from 29.0p per share to 25.2p in the year to 31 December 2013 and a change of 2.6p per share from 22.2p to 19.6p in the year to 31 December 2012. In relation to diluted earnings per share there is a change of 3.8p from 28.7p to 24.9p per share in the year to 31 December 2013 and a change of 2.5p per share from 22.0p to 19.5p in the year ended 31 December 2012.

Comparative financial information shown in this statement has been amended accordingly.

Statutory accounts for the year ended 31 December 2012 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2013 will be delivered to the Registrar of Companies after the Company's Annual General Meeting.

 

END

 

 

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