Churchill China Regulatory News (CHH)

CHURCHILL CHINA plc

("Churchill China" or the "Company")

PRELIMINARY RESULTS

For the year ended 31 December 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 Preliminary Results for the year ended 31 December 2012.

Highlights:

Financial

·; Group revenue of £41.4m (2011: £42.3m)

·; Operating profit increased 4% to £2.8m (2011: £2.7m)

·; Profit before tax increased 15% to £3.1m (2011: £2.7m)

·; Basic earnings per share up 16% to 22.2p (2011: 19.2p)

·; Proposed final dividend of 9.4p (2011: 9.2p), giving a total dividend of 14.2p (2011: 14.0p)

Operational

·; The Hospitality business had a solid 2012, maintaining its market leading position in the UK

·; The Retail business has been revitalised and delivered an increased profit contribution

·; Continued investment in ceramics with purchase of high technology glazing plant in 2012

Commenting on the results, Jonathan Sparey, Chairman of Churchill China plc, said: "Churchill China has delivered a good set of results for 2012 and has started 2013 on a positive note. We have an ambitious programme of new product development to drive future returns and I am confident we will continue to improve our operating performance in 2013."

For further information, please contact:

CHAIRMAN'S STATEMENT

Introduction

I am very pleased to report that Churchill China delivered a solid performance in 2012, particularly in the last quarter of the year, achieving key objectives. Sales in our core Hospitality business continued to show improvement although the level of international contracts was lower than in 2011.

Our Retail business has been revitalised, delivering an increased contribution on a lower level of sales.

Total Group revenues were slightly lower at £41.4m (2011: £42.3m) reflecting the net effect of higher revenues in Hospitality and the impact of the planned reduction in Retail sales.

Group profit before tax for the year rose by 15% to £3.1m (2011: £2.7m). Churchill continues to operate with a strong balance sheet which included cash and deposit balances of £7.0m (2011: £6.9m) at the end of the year. The new financial year has started positively with good UK Hospitality sales and trading in the early months of 2013 has been encouraging.

Financial Review

Group operating profit increased by 4% to £2.8m (2011: £2.7m) with margins rising from 6.4% to 6.8% whilst Earnings before interest, tax, depreciation and amortisation fell slightly by £0.2m to £4.4m.

Pre-tax profits increased by 15% to £3.1m (2011: £2.7m) as our improved trading performance was enhanced by a notional interest credit of £0.2m (2011: £nil) from our pension scheme reflecting the improved funding position at the start of the year.

Earnings per share improved by 16% to 22.2p (2011: 19.2p).

We continue to generate strong cash flows from operations although, at £3.4m, these were at lower levels than last year (2011: £5.9m) when we significantly reduced levels of working capital. The level of cash generation was again enhanced by a reduction in receivables, which fell to £7.3m (2011: £7.8m), offsetting a further rise in inventory as we expanded our Hospitality product range. As a result, our year end level of net cash and deposit balances increased slightly to £7.0m (2011: £6.9m).

The International Accounting Standards Board has revised IAS 19, the accounting standard applying to pension benefits, and the notional income on the scheme will be restricted in the future. We estimate that the credit of £0.2m enjoyed in 2012 will become a charge of £0.2m in 2013, despite an increase in the asset value of the scheme. This charge is a non-cash item. The present value of the deficit on the scheme increased as discount rates reduced, but remains at an acceptable level.

Dividend and Shareholder Return

The Board is pleased to recommend an increased final dividend of 9.4p (2011: 9.2p), making the total dividend for the year 14.2p (2011: 14.0p). The improvement in profitability demonstrated in the year has raised our overall dividend cover to a level of 1.6 times and Churchill continues to provide investors with a dividend yield of more than 4%. This increased dividend reflects the confidence of the Board in the performance and prospects of the business.

Total shareholder returns have risen over the year reflecting improved profitability, a healthy dividend and a general rise in equity valuations. We delivered an overall return to shareholders of 17% in 2012.

Hospitality

Our Hospitality business performed well in 2012 although revenues of £29.4m were only marginally ahead of the previous year (2011: £29.2m). Operating profit was lower at £4.2m (2011: £4.7m), adversely affected by the geographic mix of export sales, the impact of weaker Sterling and increased investment in longer term business development.

We maintained our market leading position in the UK, delivering a very positive first half performance. The UK market slowed in the third quarter of 2012 reflecting a broader European economic uncertainty at the time but recovered in the last quarter, invariably a crucial period for the hospitality industry as a whole. Our export sales were stronger and better balanced across a wide range of accounts than in 2011 with strong sales in Eastern Europe and the Middle East, together with new distributors in Australia and Canada performing particularly well. Western European markets were more challenged, with respectable local currency performance in Spain for example, being negated by the currency effects upon translation.

We have continued to invest additional resources in sales, marketing and design expertise to meet identified demand in our key markets. We undertook a major investment in new product development which culminated in the modelling and launch of our new embossed shape "Bamboo" in January 2013.

Our stock levels increased during the year, notably of imported product in advance of the imposition of the EU anti-dumping duty surcharge. We also increased inventories of branded and non-ceramic product ranges in anticipation of increased demand.

UK Manufacturing and Operations 

We maintained manufacturing volumes throughout 2012, operating at relatively high efficiency levels. We experienced a notable increase in demand for lithographed product from both Hospitality and Retail customers which contributed towards the creation of additional manufacturing jobs. We have also continued our investment in robotics.

At the end of 2012 we purchased a high technology glazing plant as part of our sustained commitment to invest in UK manufacturing and specifically to innovation in the ceramics industry. It is also in line with our long term strategy to reduce costs, improve quality and increase the operational flexibility of our manufacturing facility. We are making further investment in modern, gas efficient, glost-firing facilities over the next 12 months.

Retail

Our Retail business again increased operating profits during the year to £1.4m (2011: £1.0m) on lower revenues of £12.0m (2011: £13.1m). The anticipated reduction in high volume, low margin sales was more than compensated by the shift in customer mix to higher quality sales in our middle market, principally, independent sector accounts.

We are very fortunate to be working with some of the UK's top names including Cath Kidston, Jamie Oliver, Alex Clark, Julie Dodsworth and Dee Hardwicke. In 2012 we also signed a new licence with Belle and Boo.

At recent trade shows sales of our own brands have exceeded all expectations. These and other product ranges distributed to UK independent retailers and similar accounts in selected export markets remains at the core of our strategy.

People

The continued long term success of the business is inextricably linked to the quality of our people. The combined Churchill team demonstrates an extraordinary array of skills, talents and dedication.

We are fortunate to have been able to attract and retain key industry players over many years from potters and modellers to marketeers and managers.

In May this year we are hoping to raise £40,000 by means of a "teacup challenge" in aid of the Douglas MacMillan Hospice, a local charity which is celebrating its 40th birthday. In a time span of only 48 hours a teacup will be made, glazed, fired and packed and then carried and delivered to London by a relay of runners.

Board Changes

As announced in January, I will be retiring from the Board at the Annual General Meeting in May this year, and this will be my last Chairman's Statement. I first met Churchill in 1998 and joined the Board in 2000 as a Non-Executive Director. I have participated in the Board during a transformation of the company at a time of huge structural changes in the UK ceramics industry. Churchill has emerged as a vibrant, dynamic and innovative business built upon a fine 200 year heritage with excellent prospects. At its heart is a passionate, talented and committed management team and workforce and I would like to thank all those involved in the company for making my tenure on the Board so rewarding.

Alan McWalter, who joined Churchill in 2011 as a Non-Executive Director, will succeed me as Chairman. Alan is a Non-Executive Director of Dignity plc and a Board member of a number of other companies. I have no doubt he will provide excellent direction to the Group in his new role.

Prospects

Churchill China has delivered a good set of results for 2012 and has started 2013 on a positive note. We are confident that the business strategies for both our Hospitality and Retail activities will deliver improved returns.

We expect our Hospitality business to benefit from an increased level of new product introductions and to generate improved returns on investments made in 2012.

The recently imposed EU anti-dumping duty surcharges on Chinese ceramics is likely to have an effect on Retail margins in the short term, due to disruption of the supply chain and the natural delay in securing price increases. Given our UK manufacturing capacity we confidently expect they will have a positive effect on our revenues in the medium and longer term.

Churchill has a strong balance sheet and a significantly cash generative business model which enables us to sustain investment in our UK manufacturing base, in our sales and marketing resources and in an ambitious programme of new product development to drive future returns. I am confident we will continue to improve our operating performance in 2013.

Jonathan Sparey

Chairman

25 March 2013

Churchill China plc

Consolidated Income Statement

for the year ended 31 December 2012

All the above figures relate to continuing operations

Churchill China plc

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2012

All the above figures relate to continuing operations

Churchill China plc

Consolidated Balance Sheet

as at 31 December 2012

Churchill China plc

Consolidated Statement of Changes in Equity

as at 31 December 2012

Churchill China plc

Consolidated Cash Flow Statement

for the year ended 31 December 2012

1. Segmental analysis

for the year ended 31 December 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 £2,427,000 and on 10,924,976 (2011: 10,921,563) 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 £2,427,000 and on 11,030,731 (2011:10,931,463) ordinary shares, being the weighted average number of ordinary shares in issue during the year of 10,924,976 (2011:10,921,563) increased by 105,755 (2011:9,900) 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 10,924,976 (2011:10,924,976) ordinary shares, being those in issue at 31 December 2012 qualifying for dividend and at a rate of 9.4p (2011: 9.2p) per 10p ordinary share. The dividend will be paid on 28 May 2013 to shareholders on the register on 26 April 2013, subject to approval at the Company's Annual General Meeting.

The total dividend paid and proposed in respect of the year was 14.2p (2011: 14.0p).

7. Basis of preparation and accounting policies

The financial information including in the preliminary announcement for the period 31 December 2012 has been audited. An unqualified audit report has been issued and this report did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

The preliminary financial statements represent extracts from those audit accounts but do not constitute statutory accounts within the meaning of section 435 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 2011.

Statutory accounts for the year ended 31 December 2011 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2012 will be delivered to the Registrar of Companies after the Company's Annual General Meeting.