Churchill China Regulatory News (CHH)

CHURCHILL CHINA plc

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

PRELIMINARY RESULTS

For the year ended 31 December 2015

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 2015.

Key Highlights:

· Group revenue up 5% to £46.8m (2014: £44.5m)

- Hospitality revenue growth 8% (2014: 10%)

· Operating profit up 16% to £5.0m (2014: £4.2m)

· Profit before tax up 16% to £5.0m (2014: £4.3m)

· Basic earnings per share up 20% to 37.3p (2014: 31.2p)

· Proposed final dividend up 15% to 12.7p (2014: 11.0p)

· Cash and deposit balances of £11.8m (2014: £10.5m)

· Further progress against key strategic objectives

Alan McWalter, Chairman of Churchill China, commented:

"Our business plan continues to evolve steadily with clear targets within an established strategic framework. We will continue building a business for the long term based on excellence in design, quality and customer service, supported by a well invested manufacturing operation and strong balance sheet.

"The current year has started well and the Board looks forward with confidence."

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CHAIRMAN'S STATEMENT

Introduction

I am happy to report that Churchill has once again delivered a strong set of trading results with the good performance in the first half of the year being followed by further growth in the second half. Our performance has been robust with continued progress against our strategic objectives, despite some adverse conditions. Increased revenues have been achieved in our target markets and we have benefitted from returns on the long term investment made across our business. The Hospitality business again recorded increased revenues in all of its markets.

Financial Review

Total revenues increased by 5% to £46.8m (2014: £44.5m).

Gross margins remained at similar levels to 2014, with the adverse effect of a weaker Euro being offset by improved profitability on added value products. On a constant currency basis revenues would have been £1.0m higher had exchange rates remained at 2014 levels. Operating profits were adversely impacted by £0.7m on the same basis

Operating profit increased by 16% to £5.0m (2014: £4.2m). Operating margins improved to 10.6% (2014: 9.5%) due to our continued focus on developing profitable business across all our markets and careful management of our cost base. Earnings before interest, tax, depreciation and amortisation increased by 10% to £6.5m (2014: £5.9m).

Profit before tax rose by 16% to £5.0m (2014: £4.3m), largely a result of our improved operating performance.

Earnings per share improved by 20% to 37.3p (2014: 31.2p). The tax charge on profits was at a lower than standard rate largely reflecting changes to forward deferred tax rates.

We have once again generated strong operating cash flows. Operating cash generation was £5.3m (2014: £6.9m). Working capital requirements increased given the need to build inventory in support of our service promise together with increased activity levels. Investment in capital expenditure reduced to £1.2m (2014: £2.0m). We expect investment spend to rise in 2016 as we complete new buildings and install additional capability to meet increased demand. At the year end, net cash and deposit balances had risen by £1.3m to £11.8m (2014: £10.5m).

Dividend and shareholder return

The Board is recommending a 15% increase in the final dividend to 12.7p per share (2014: 11.0p), giving a total of 18.3p for the year (2014: 16.1p). We are pleased that the growth in profitability and continued strong cash generation in the year has allowed us to again raise the dividend at an increased rate. If approved, the final dividend will be paid on 26 May 2016 to shareholders on the register on 29 April 2016.

Total shareholder returns have again been very good, reflecting both dividend growth and our improved performance. Overall returns were 33% (2014: 42%) during the year.

Markets

Hospitality

Total sales to our Hospitality customers increased by £2.8m (8%) and reached a record of £38.8m (2014: £36.0m). Contribution to Group operating profits rose by 9% to £7.2m from £6.6m.

We have continued to make progress in the UK where we enjoy a market-leading position. We have delivered a satisfactory level of growth against strong comparative figures which enjoyed the benefit of substantial new installation business.

Export markets, in Europe and increasingly further afield, remain our key growth target. Export revenues increased by 15% in 2015, following on from 16% growth recorded in 2014, marking a third consecutive year of strong increase. Europe has moved forward well, with the adverse exchange rate effect more than offset by the benefits of investment in sales and marketing and a strong performance from new products. Our competitive position in Europe continues to benefit from Anti Dumping Duties on Chinese ceramics. We are pleased with our performance in other export markets with strong growth in most areas. Notable progress has been achieved in Australasia, Central and South America and in the United States, where the developments seen in 2014 have continued this year. Again investment in sales, marketing and new product introductions has been central to this growth.

The strength of our established relationships with end users, distributors and agents in the UK and worldwide continues to be of great value to the business.

Innovation across our product range has remained a significant contributor to our success in the year. Our hand crafted Stonecast range, supported by unmatched service levels, has been an outstanding product, with range extensions building on the core ranges introduced last year. Other new products have also performed well and the initial response to our 2016 introductions has been good.

Retail

Retail has performed well, slightly ahead of our expectations, making further progress against the strategic objectives we set. Whilst revenues reduced from £8.5m to £8.0m as we continued to exit from certain lower margin license business, the impact of lower sales on profit levels has been minimal as we have increased the proportion of Churchill branded manufactured product and retained control of costs. Contribution to Group profit was maintained at £0.9m.

We benefit from our long heritage in Retail. Our product range remains substantial. Customers continue to value the traditional benefits of well designed product made in Stoke on Trent whilst also appreciating the variety that our access to third party manufacturers provides.

The repositioning of Retail has created a business providing a clear financial contribution to our overall operations. Additionally it continues to support the long term development of Churchill in less tangible ways. The capacity created by the commissioning of a new glost (second firing) kiln during the year has been partially utilised by Retail allowing us to optimise output levels. Retail also continues to allow us to develop skills in a highly competitive environment.

Operations

The positive challenges of continued growth have again been met by our manufacturing and logistics teams. We have increased our level of product and process innovation, achieved volume growth and commissioned several major capital projects, all of which place increased demands on the fulfilment side of our business. The progress made in both revenues and profitability, without any impact on the level of customer service, supports the conclusion that we have met those challenges well.

Capital expenditure on manufacturing projects during the year totalled £1.1m, a little below our earlier expectations. We successfully completed the commissioning of a new kiln in January 2015 and have installed further added value product forming capacity. We expect 2016 to show increased expenditure as new manufacturing space currently under construction is completed and further kiln and making forming capacity is installed. This increase in capacity is planned to support the growth opportunities we see in several markets for our UK made product.

People

Our success in 2015 is again attributable to our workforce. They continue to demonstrate admirable skill and commitment to meet the challenges raised through our operations and creating the forward opportunities and capabilities necessary for future progress. Once again we wish to thank our staff for their efforts.

We have begun to see the benefits from our increased investment in training and staff development at all levels across our business. We have made good progress against our targets of improving skills and providing more opportunity for our workforce. These initiatives have been supplemented by recruitment of additional skills where necessary to support our plans.

Our Board continues to evolve. We were pleased to welcome James Roper to the Board in July 2015, increasing the representation of Sales and Marketing at senior level. Jonathan Morgan, who has served as a non Executive director for nine years, will retire at the next Annual General Meeting. Jonathan has provided support and guidance for the Company through periods of major change and his contribution has always been of great value. All his colleagues wish him well for the future. The process of recruitment of a successor to Jonathan is well underway.

Prospects

Throughout 2015 we have continued to make good progress against our long term objectives despite some significant headwinds from adverse currency movements and other economic changes.

Our markets continue to develop. We believe we have the ability to secure further increases in revenue, particularly from export markets, although we remain aware of the potential wider political and economic uncertainties which may impact on our performance.

Our business plan continues to evolve steadily with clear targets within an established strategic framework. We will continue building a business for the long term based on excellence in design, quality and customer service, supported by a well invested manufacturing operation and strong balance sheet.

The current year has started well and the Board looks forward with confidence.

Alan McWalter

Chairman

24 March 2016

Churchill China plc

Consolidated Income Statement

for the year ended 31 December 2015

All the above figures relate to continuing operations

Churchill China plc

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2015

All the above figures relate to continuing operations

Churchill China plc

Consolidated Balance Sheets

as at 31 December 2015

Churchill China plc

Consolidated Statement of Changes in Equity

as at 31 December 2015

Churchill China plc

Consolidated Cash Flow Statement

for the year ended 31 December 2015

1. Segmental analysis

Audited for the year ended 31 December 2015

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 on ordinary activities after taxation of £4,086,000 (2014: £3,416,000) and on 10,956,828 (2014: 10,934,908) 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 £4,086,000 (2014: £3,416,000) and on 11,064,046 (2014: 11,105,668) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,956,626 (2014: 10,934,908) increased by 107,218 (2014: 170,760) 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

6. Dividend

The final dividend, which has not been provided for, has been calculated on 10,986,230 (2014: 10,909,976) ordinary shares, being those in issue at 31 December 2015 qualifying for dividend and at a rate of 12.7p (2014: 11.0p) per 10p ordinary share. The dividend will be paid on 26 May 2016 to shareholders on the register at 29 April 2016, subject to approval at the Company's Annual General Meeting.

The total dividend paid and proposed in respect of the year is 18.3p (2014: 16.1p).

7. Basis of preparation and accounting policies

The financial information included in the preliminary announcement for the period to 31 December 2015 has been audited and an unqualified audit report has been issued.

The preliminary financial statements represent extracts from those audited 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 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 2014.

Statutory accounts for the year ended 31 December 2014 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2015 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.