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 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:

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

All the above figures relate to continuing operations

Churchill China plc

Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2014

All the above figures relate to continuing operations

Churchill China plc

Consolidated Balance Sheet

as at 30 June 2014

Churchill China plc

Consolidated Statement of Changes in Equity

as at 30 June 2014

Churchill China plc

Consolidated Cash Flow Statement

for the six months ended 30 June 2014

1. Segmental analysis

For the six months ended 30 June 2014

2. Finance income and costs

The interest cost arising on 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 £1,092,000 (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

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.