Churchill China Regulatory News (CHH)

CHURCHILL CHINA plc

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

PRELIMINARY RESULTS

For the year ended 31 December 2014

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 2014.

Key Highlights:

· Group revenue up 3% to £44.5m (2013: £43.2m)

- Hospitality revenue growth 10% (2013: 11%)

· Operating profit up 26% to £4.2m (2013: £3.4m)

· Profit before tax up 28% to £4.3m (2013: £3.4m)

· Basic earnings per share up 24% to 31.2p (2013: 25.2p)

· Proposed final dividend up 13% to 11.0p (2013: 9.7p)

· Increased investment in UK manufacturing

· Cash and deposit balances of £10.5m (2013: £8.2m)

Alan McWalter, Chairman of Churchill China, commented:

"It is a pleasure to again report strong progress in Churchill's performance. We are confident that we have the right long term strategies to continue the development of our business and the resource to implement these plans."

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CHAIRMAN'S STATEMENT

Introduction

It is a pleasure to again report strong progress in Churchill's performance. We have recorded a further substantial increase in profitability and it is satisfying that this has arisen in large part from the areas that we have identified for long term investment. We have reached significant milestones on the road to several of our strategic goals and are generating a return from our work to further align our business with customer and market needs. The Hospitality business again reported record revenues building on its strong position in growing markets.

Financial Review

Total revenues increased by 3% to £44.5m (2013: £43.2m).

Operating profit increased by 26% to £4.2m (2013: £3.4m). Operating margins improved to 9.5% (2013: 7.8%) mainly as a result of increased revenues, but with some contribution from a more favourable mix of business. Earnings before interest, tax, depreciation and amortisation increased by 18% to £5.9m (2013: £5.0m).

Profit before tax rose by 28% to £4.3m (2013: £3.4m), with the improved operating performance supported by a lower notional interest charge on pension fund liabilities.

Earnings per share improved by 24% to 31.2p (2013: 25.2p).

We have again generated strong operating cash flows. Operating cash generation was £6.9m (2013: £4.6m) with strong profitability being supplemented by a positive working capital position and lower pension fund amortisation payments. Inventory levels fell during the period largely as a function of strong trading towards the end of the year. At the year end, net cash and deposit balances had risen by £2.3m to £10.5m (2013: £8.2m).

We continue to invest in our core business. Capital investment rose to £2.0m (2013: £1.5m) with further investment in the development of our Stoke on Trent manufacturing facility.

Dividend and shareholder return

The Board is recommending a 1.3p increase in the final dividend to 11.0p per share (2013: 9.7p), giving a total of 16.1p for the year (2013: 14.6p). Following the re-establishment of a progressive dividend policy during 2013, we are pleased that the growth in profitability in 2014 has allowed us to raise the dividend at an increased rate. If approved, the final dividend will be paid on 27 May 2015 to shareholders on the register on 24 April 2015.

Total shareholder returns have again been good, reflecting both dividend growth and our improved performance. Overall returns were 42% (2013: 35%) during the year.

Markets

Hospitality

Total sales to our Hospitality customers increased by £3.2m (10%) and reached an all time high of £36.0m (2013: £32.8m). Contribution to Group operating profits rose by 29% to £6.6m from £5.1m.

We have continued to make steady progress in the UK where we enjoy a market-leading position. Whilst the second half of the year did not benefit from the same level of refurbishment business that we secured in the first half, the market as a whole remained buoyant as eating out continued to grow. Our progress again reflected the exemplary service levels for which Churchill is renowned, especially in the key pre-Christmas period.

The focus of our growth plan remains export markets. Export revenues increased by 16% in 2014, marking a second consecutive year of strong increase. We have once again achieved good results in Europe, giving a return on several years of investment into that market. Our competitive position in Europe has also been improved given the continuance of Anti Dumping Duties on Chinese ceramics. It is also pleasing to note that the changes made in our approach to North America and to other markets worldwide appear to be beginning to bear fruit in the form of growing revenues. We believe our long term progress will increasingly be delivered by growth in export markets and we will continue to invest in sales, marketing and new product development to support this.

Design innovation has been a major contributor to our success in 2014. Our new embossed range, Bamboo, has figured strongly, and we have been delighted by the outstanding level of sales achieved by our coloured glaze, hand crafted product, Stonecast in its first year.

Retail

Results from our Retail business were again affected by our decision to prioritise our resources, particularly manufacturing capacity, towards Hospitality. Revenues declined by £1.9m to £8.5m. Profitability was less affected given our focus on better margin business and tight control over costs. Contribution to Group profit fell by £0.3m to £0.9m.

Sales of licensed product continued to fall as we switched our focus towards Churchill branded lines.

We continue to see good value in the opportunities provided by our Retail business. Whilst the Retail market has remained highly competitive for some time, our business provides a clear financial contribution and many other less tangible benefits. Our operational capacity can be optimised across both our businesses and the transfer of ideas, technology and people between the two businesses continues to be of significant benefit to the Group.

Operations

2014 represented a year of significant challenge for our manufacturing and logistics team. Demand for UK manufactured product remained at a high level throughout the year and we also increased our rate of capital investment and new process development, both major consumers of management time. The successful outcome for the year reflects Churchill's core values of performance and delivery.

Capital expenditure on manufacturing projects during the year totalled £1.6m, the highest level for some years. The principal project, the installation of a new kiln, was completed on time and was successfully commissioned in January 2015. This kiln provides significant additional capacity, and will allow us to produce a wider range of product to a higher quality level. It is important to note that this kiln is part of an integrated programme of investments to support our long term growth strategy. During the year we also invested in additional pressure cast capacity to meet increased demand for added value products and in the automation of other production processes. We expect to commence further development projects in 2015.

People

Once again I want to thank our staff for their efforts across the year. Whilst I have previously referred to the level of challenge in manufacturing and operations, all our employees across the business have contributed to a year of considerable achievement for the Group.

The investment we have made in our business includes a number of measures to increase the knowledge, experience and opportunities available to all our team. We recognise the importance to our current and future prosperity of a more flexible and more skilled workforce and have prioritised training and development at all levels across the Company.

As many of you will know, a change of responsibility as Chief Executive took place in August 2014, with David O'Connor, previously Chief Operating Officer, assuming responsibility from Andrew Roper on the latter's retirement and move to a non executive role. We regard this change as part of an evolutionary process at senior level in the business intended to carry Churchill forward in the long term.

Prospects

We have delivered a strong performance in 2014 and it is pleasing to note that this has been achieved in line with the strategies that we established some years ago. We have delivered progressive improvements in return from our Hospitality business and particularly from export growth.

The recent strengthening of sterling against the euro will provide some headwind in relation to our progress in Europe and we are also mindful of the impact of general political and economic pressures across the continent. Despite this we believe that there will be further growth in hospitality markets worldwide and that our long term progress in this area will continue.

We are confident that we have the right long term strategies to continue the development of our business and the resource to implement these plans. The current year has started well, and Churchill is well positioned to take advantage of its strong market position.

Alan McWalter

Chairman

25 March 2015

Churchill China plc

Consolidated Income Statement

for the year ended 31 December 2014

All the above figures relate to continuing operations

Churchill China plc

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2014

All the above figures relate to continuing operations

Churchill China plc

Consolidated Balance Sheets

as at 31 December 2014

Churchill China plc

Consolidated Statement of Changes in Equity

as at 31 December 2014

Churchill China plc

Consolidated Cash Flow Statement

for the year ended 31 December 2014

1. Segmental analysis

Audited for the year ended 31 December 2014

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 £3,416,000 (2013: £2,761,000) and on 10,934,908 (2013: 10,939,808) 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 £3,416,000 (2013: £2,761,000) and on 11,105,668 (2013: 11,076,099) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,934,908 (2013: 10,939,808) increased by 170,760 (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 continuing activities

6. Dividend

The final dividend, which has not been provided for, has been calculated on 10,909,976 (2013: 10,945,976) ordinary shares, being those in issue at 31 December 2014 qualifying for dividend and at a rate of 11.0p (2013: 9.7p) per 10p ordinary share. The dividend will be paid on 27 May 2015 to shareholders on the register on 24 April 2015, subject to approval at the Company's Annual General Meeting.

The total dividend paid and proposed in respect of the year was 16.1p (2013: 14.6p).

7. Basis of preparation and accounting policies

The financial information including in the preliminary announcement for the period 31 December 2014 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 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 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 2013.

Statutory accounts for the year ended 31 December 2013 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2014 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.