Churchill China Regulatory News (CHH)

CHURCHILL CHINA plc

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

INTERIM RESULTS

For the six months ended 30 June 2016

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 interim results for the six months ended 30 June 2016.

Key Highlights:

· Group revenue up 12% to £24.0m (2015: £21.4m)

- Hospitality total revenue growth 15%

· Operating profit up 30% to £2.0m (2015: £1.6m)

· Profit before tax up 29% to £2.0m (2015: £1.6m)

· Basic earnings per share up 30% to 14.8p (2015: 11.4p)

· Interim dividend up 12% to 6.3p (2015: 5.6p)

· Capital investment increased to £1.6m (2015: £0.6m)

· Cash and deposit balances of £9.6m (June 2015: £8.7m)

Alan McWalter, Chairman of Churchill China, commented:

"Churchill has delivered a strong performance in the first half of the year and the Board remains confident that our strategies remain appropriate for the future progress of the business.

"Our Hospitality business has once more reported record revenues.

"We are confident that we will meet our expectations for the full year."

For further information, please contact:

Our interim results will be available today on the Company's website: www.churchill1795.com. Copies of the Interim Report will be sent to shareholders in due course.

CHAIRMAN'S STATEMENT

Introduction

I am pleased that we can again report a strong improvement in our performance over the first six months of the year. We have made good progress against our long term targets and have successfully completed a number of projects which we expect to contribute to the further development of the Company. Our Hospitality business has once more reported record revenues. This progress is attributable to the targeted development of export markets and increased sales of added value products. Whilst we anticipate that the economic environment looking forward is likely to be more uncertain, we believe that our business is well positioned to respond positively to changing conditions within our markets.

Financial Review

Total revenues increased by 12% to £24.0m (2015: £21.4m) or 10% at constant exchange rates with exports increasing by over 30%. Overseas sales now represent over half of our business.

Gross margins improved as a result of increased revenues, an improved mix of products and more favourable exchange rates. The exchange rate benefit to revenue was £0.5m in comparison with 2015, principally from a stronger Euro, although the overall effect on operating profit was lower at £0.1m as currency hedges were revalued following the fall of Sterling towards the end of the first half year. We have retained our traditional operating efficiency and high standards of service.

Operating profit increased by 30% to £2.0m (2015: £1.6m). Operating margins improved by 1.2% to 8.4% (2015: 7.2%).

Earnings before interest, tax, depreciation and amortisation increased by 18% to £2.8m (2015: £2.4m).

Profit before tax rose by 29% to £2.0m (2015: £1.6m), largely attributable to the improved operating performance.

Earnings per share improved by 30% to 14.8p (2015: 11.4p).

Operating cash generation improved against a low comparative in 2015, largely as a result of lower working capital demands. Operating cash generation was £1.6m (2015: £0.4m). As normal in the first half year, we rebuilt inventory levels to support our service promise in the seasonally stronger second half year. At the end of the period, net cash and deposit balances were £9.6m (June 2015: £8.7m).

We have continued to invest in our business to deliver additional capacity for higher value product for our Hospitality business. Capital investment increased to £1.6m (2015: £0.6m). We have successfully completed a 28,000 square feet extension to our factory and commissioned additional manufacturing capacity. Further investment in the UK is planned over the remainder of 2016 and into 2017, building on the progress we have made to date.

Dividend

We recognise the importance to our shareholders of growing dividends. The Board is declaring a 12.5% increase in the interim dividend to 6.3p per share (2015: 5.6p). This increase reflects our policy of linking dividends growth to increased profitability whilst maintaining appropriate levels of dividend cover. The interim dividend will be paid on 6 October 2016 to shareholders on the register on 9 September 2016.

Markets

Hospitality

Total sales to Hospitality customers increased by £2.7m (15%) to £20.5m (2015: £17.8m). Contribution to Group operating profits rose by 30% to £3.7m from £2.9m.

We have delivered an exceptional performance in our export markets in first half of the year. Overall export revenue growth was over 30% or £2.6m in absolute terms. We made good progress in all our geographic market sectors. Whilst this increase was achieved with support from more favourable exchange rates, the majority of the growth reflects the progressive investment we have made in both market and product development over several years.

Performance in the UK was more restrained as market growth, particularly in larger accounts, moderated. We continue to make progress and remain satisfied with the returns delivered from the market and the leading position we hold.

Much of our success this year can be attributed to a strong programme of new product development. Our Stonecast range has continued to perform well and the initial response to further new introductions in 2016 has been good.

Retail

Although revenues declined, our Retail business has performed well in the first half. In accordance with our strategy, sales of licensed ranges reduced and were largely replaced by sales of UK manufactured Churchill products.

Revenue declined by £0.1m to £3.5m. The effect on profitability of this reduction was offset by an improvement in margins and control of overheads. As a consequence, contribution to Group profit rose slightly to £0.3m (2015: £0.2m).

Operations

Manufacturing and logistics operations have continued to deliver well against high expectations. We have made further investments in both people and productive capacity. Our strategy places heavy demands on our operations to deliver new products, to meet high service requirements and maintain operational efficiency. Our products meet the highest standards for performance and design.

Capital expenditure increased during the first half year, with much of the investment associated with the construction of new buildings. We expect that capital expenditure on machinery will continue over the next 18 months. We have reached the half year well positioned to meet the expected seasonal increase in demand in the second half year.

People

Our market expansion and the increased flexibility and capacity in our operations is being underpinned by increased focus on the development of our workforce at all levels. The skills and capabilities of our staff are the cornerstone of our current and future success.

We have a programme of continuous improvement and have supplemented the training and development of existing employees with targeted recruitment to acquire specific skills and experience.

At Board level we are pleased to welcome Angela Bromfield as a non executive Director and we believe that she will provide additional support and guidance to the long term growth of the Company.

Prospects

Churchill has delivered a strong performance in the first half of the year and the Board remains confident that our strategies remain appropriate for the future progress of the business.

We believe that the increased scale of our Export business and our record of successful market and product development will provide further growth opportunities in line with our established strategy. We anticipate that the UK may continue to be affected by increased levels of uncertainty following the result of the EU referendum, but believe we hold a strong position in an attractive market.

Our central aim is to develop our business steadily for the long term, meeting customer requirements across diverse markets and maintaining a robust financial position to allow progressive investment across business cycles.

We are confident that we will meet our expectations for the full year.

Alan McWalter

Chairman

30 August 2016

Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2016

1. Segmental analysis

for the six months ended 30 June 2016

2. Finance income and costs

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

3. Income tax expense

4. Earnings per ordinary share

Basic earnings per ordinary share is based on the profit after taxation of £1,627,000 (June 2015: £1,240,000, December 2015: £4,086,000) and on 10,982,793 (June 2015: 10,914,230, December 2015: 10,956,828) 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 £1,627,000 (June 2015: £1,240,000, December 2015: £4,086,000) and on 11,077,581 (June 2015: 11,021,343, December 2015: 11,064,046) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,982,793 (June 2015: 10,914,230, December 2015: 10,956,828) increased by 94,788 (June 2015: 107,113, December 2015: 107,218) 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.

Adjusted earnings per ordinary share is based on the profit on ordinary activities after taxation and adjusted to take into account the exceptional profit on disposal of fixed assets.

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

6. Basis of preparation and accounting policies

The interim financial information for the period to 30 June 2016 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 2015, 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.

The figures included in the statements in respect of Retirement Benefit Obligations are those calculated under IAS 19 (Revised) as at 31 December 2015 as adjusted for notional interest charges derived at that date and cash payments in the period to 30 June 2016. Asset and liability figures have not been recalculated to reflect changes in market conditions since 31 December 2015. The next full IAS 19 Revised calculation will be undertaken at 31 December 2016.