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 2012

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 interim results for the six months ended 30 June 2012.

Key Points:

·; Group revenue for the six months to 30 June 2012 was £19.2m (2011: £19.2m).

·; Profit before tax up 22% at £0.8m (2011: £0.7m)

·; Basic earnings per share up 25% to 5.9p (2011: 4.7p)

·; Cash balances of £4.3m (30 June 2011: £4.0m)

·; Maintained interim dividend of 4.8p (2011: 4.8p)

·; Strong performance in UK Hospitality with sales up 8% to £13.9m (2011: £12.9m)

·; Operating profit in Retail business doubled to £0.4m (2011: £0.2m)

·; New website: www.churchill1795.com 

On prospects Jonathan Sparey, Chairman said: "Churchill China has delivered a healthy set of results in the first half of 2012 despite anaemic economic conditions in all of its major geographical markets. We do not anticipate any improvement in these macro-economic conditions in the second half but are confident of continued measured progress based on the robustness of our business model."

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Chairman's Statement

Introduction

I am pleased to report good progress in our trading performance in the first half of 2012 with operating profit increasing by 10%. A solid contribution from our Hospitality business was enhanced by a continued improvement from our refocused Retail business on Group revenues in line with the corresponding period last year.

Financial Review

Group revenue for the six months to 30 June 2012 was unchanged at £19.2m (2011: £19.2m), with stronger sales in our Hospitality business offsetting lower sales in Retail following our withdrawal from unprofitable business sectors.

Group operating profit increased by 10%. Operating margins were slightly lower in our Hospitality business given accelerated investment in sales, marketing and new product development and less favourable Euro exchange rates. Margins improved in our Retail business given increased focus on more profitable sectors and continued cost reduction. We reduced our overhead costs and increased our focus on the long term growth of our Hospitality business. Earnings before interest, tax, depreciation and amortisation were maintained at £1.6m (2011: £1.6m).

Pre-tax profit increased by 22% to £0.8m (2011: £0.7m) with some benefit from higher interest income, although this was largely attributable to increased notional interest on our pension fund assets.

Earnings per share increased by 25% to 5.9p (2011: 4.7p).

Overall cash balances were £0.3m ahead of the same period last year at £4.3m. Operating cash generation was lower than last year with an outflow of £0.5m compared with an inflow of £1.6m in the six months to June 2011. This reduction was largely due to short term changes in the pattern of sales receipts in respect of the 2010 and 2011 year ends. Our trade receivables position remains well controlled and we expect improved cash generation in the second half of the year given normal seasonal trading patterns.

Dividend

We are recommending a maintained dividend of 4.8 pence per share (2011: 4.8p per share) at the interim stage but will review the actual performance of our second half which is traditionally the more profitable period, before confirming our future dividend policy. The dividend will be paid on 4 October 2012 to shareholders on the register at 7 September 2012.

Hospitality

Worldwide sales to our Hospitality customers were 8% higher at £13.9m (2011: £12.9m). This solid performance once again highlights the core dependability of this business during a period when many of our major markets have been affected by adverse economic conditions.

Our sales in the UK were flat. It has been well reported in the media that food sales in many major pub groups were rain affected, there is some evidence that eating out trends have been adversely impacted in the short term.

Churchill has allocated increased resource towards sales, marketing and innovative new product development in order to drive our business forward. It is therefore pleasing to record that sales to overseas markets grew by an average of 25%. The initial cost of establishing a wider international customer base inevitably has a slight effect on overall margin until critical mass is achieved in any given market.

Contribution to Group overheads was slightly down at £1.6m (2011: £1.8m) reflecting both the extra sales and marketing spend and slightly lower factory output.

We anticipate that our investments into our new website www.Churchill1795.com and the new London showroom will bring significant benefit in the medium term. We have had an excellent reaction from key clients since their launch.

Our continued programme for refurbishment in our UK manufacturing facility is very much predicated on our longer term goals of cost reduction, quality enhancement and flexibility.

Retail

Increased margins and a lower cost base ensured that our Retail business delivered improved contribution to group overheads despite the planned decline in sales to £5.3m (2011: £6.3m). The contribution from the Retail business increased to £0.4m (2011: £0.2m)

The 2012 new product ranges including our UK made fine china mugs have been very well received by our middle market clientele, suggesting our product launch strategy is correctly targeted.

Over the course of the last two years the objectives, customer base and structure of our Retail operation has undergone a transformation. I am happy to report that thanks to the best endeavours of the people concerned we have a vibrant business once more.

Prospects

Churchill China has delivered a healthy set of results in the first half of 2012 despite anaemic economic conditions in all of its major geographical markets. We do not anticipate any improvement in these macro-economic conditions in the second half but are confident of measured progress based on the robustness of our business model. We continue to expect a good second half year for our Hospitality business despite lower levels of new installations when compared to the significant contracts secured in the Middle East in 2011. We expect our growth to come from our core business and returns on investments made earlier in the year. We have confidence our Retail turnaround strategy is working and that the improvement it will be sustainable.

J.N.E Sparey

Chairman

29 August 2012

Churchill China plc

Consolidated Income Statement

For the six months ended 30 June 2012

All the above figures relate to continuing operations

Churchill China plc

Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2012

All the above figures relate to continuing operations

Churchill China plc

Consolidated Balance Sheets

as at 30 June 2012

Churchill China plc

Consolidated Statement of Changes in Equity

as at 30 June 2012

Churchill China plc

Consolidated Cash Flow Statement

for the six months ended 30 June 2012

1. Segmental analysis

For the six months ended 30 June 2012

2. Finance income and costs

The interest income / (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 on ordinary activities after taxation of £643,000 (2011: £512,000) and on 10,924,976 (2011: 10,925,976) 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 on ordinary activities after taxation of £643,000 and on 11,029,722 (2011:10,960,993) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,924,976 (2011: 10,925,976) increased by 104,746 (2011: 35,017) 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 inflow from continuing activities

6. Basis of preparation and accounting policies

The interim financial information for the period to 30 June 2012 has not been audited or reviewed and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Company's statutory accounts for the year ended 31 December 2011, 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.