Interim Results

5 September 2024

CHURCHILL CHINA PLC

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

INTERIM RESULTS

For the six months ended 30 June 2024

Underlying profitability in line with last year, factory performance continues to improve.

Churchill China plc (AIM:CHH), the manufacturer of innovative performance ceramic products serving hospitality markets worldwide, is pleased to announce its Interim Results for the six months ended 30 June, 2024.

Highlights:

Financial

·    Revenue in the period decreased by 7.8% to £40.6m (H1 2023: £44.0m, FY2023: £82.3m)

·    Operating profit in line with restated prior year at £4.5m (2023 H1 (Restated): £4.5m, 2023 H1: £4.9m, FY2023: £10.3m) despite lower revenue.

·    Profit after tax for the period was £3.6m, an increase of 3.1% (2023 H1 (Restated): £3.5m, 2023 H1: £3.5m, FY2023: £7.7m).

·    Earnings per share were 32.8p (2023 H1 (Restated): 31.9p, 2023 H1: 31.9p, FY2023: 70.2p)

·    Interim dividend 4.5% higher at 11.5 pence per share (H1 2023: 11.0 pence per share, FY2023: 36.0 pence per share) demonstrating the Board's continued confidence in the Company.

·    Net cash and deposits at 30 June 2024 of £7.8m (H1 2023: £9.9m, FY2023: £13.9m) reflecting planned increases in finished goods stocks and increased debtors driven by the seasonal working capital cycle.

Business

·    Factory performance continues to improve due to improved staff training and additional automation.

·    UK demand within Nationals sector strong.

·    Investment strategy continues to focus on innovation, automation, and energy efficiency to drive long term, sustainable profit growth.

Robin Williams, Chairman of Churchill China, commented:

"Global hospitality markets continued their flat performance from the second half of 2023 and remained subdued for early 2024, however Group revenues have been broadly in line with expectations. A strong operational performance helped maintain operating profit in line with prior year. We remain dependent on the stronger demand normally experienced in the final four months to meet our expectations for the year."

Analyst meeting

An in-person meeting for analysts will be held at 10.00am today, 5 September 2024, at Buchanan, 107 Cheapside, London EC2V 6DN, along with an online facility. Please contact Buchanan at [email protected] for further details.

*A net exceptional cost of £359,000 was recognised in the Interim Accounts for the six months to 30 June 2023; a £393,000 cost in relation to employee restructuring costs and £34,000 of income in relation to the voluntary wind up of the British Pottery Manufacturers' Federation, of which the Company was a 23.5% shareholder. These items were both treated as non-exceptional in the Annual report 2023 and so the comparative results have been restated accordingly.

+ Adjusted earnings per share is calculated after adjusting for the post tax effect of exceptional items

For further information, please contact:

David Flin / Oliver Cardigan / Alice King

Chairman's Statement

Whilst 2024 has seen a reduction in revenues compared with 2023, this should be seen in the context of the planned increases in stock to improve fulfilment of orders and consequent reduction in order book which took place during 2023. The Company started 2023 with a £7.2m order book, compared with £2.8m in 2024, such that order intake between the two periods was broadly flat. Factory cost of production was broadly static during the period with increased input costs from labour and raw materials being offset by the reducing costs for energy. The focus on improving efficiency and yields continues and as a result the overall profit margin slightly increased.

Sales mix and market sentiment has weighed on profitability in H1, but overall, the continued solid performance, despite difficult trading conditions, continues to highlight the resilience of the Company's long-term strategy and the strength of the Churchill brand globally.

Financial Review

Total revenues decreased 7.8% from £44.0m to £40.6m (FY2023: £82.3m) in the period with the UK holding up well along with the Rest of the World ("ROW") and the USA, however Europe was weaker compared with expectations. UK sales value did however come under some pressure from mix effects with turnover coming in large part from the national sales. On a constant currency basis, the reduction in turnover was 6.4% in the period.

Gross margin continues to improve with a 2.3% increase in the period despite cost headwinds such as wage inflation, being driven by factory productivity improvements. Yields within the factory have improved during the period benefitting from the ongoing focus on continuous improvement within its processes and improved skill levels. In addition to these performance improvements the Company continued to see an increase in value added product mix.

This improved operational performance and value-added mix helped mitigate the impact of lower revenues, leaving Operating profit in line with the restated prior year at £4.5m.

Profit before taxation at £4.8m (H1 2023 (restated): £4.7m, FY2023: £10.8m) was 2.5% higher than prior year, with in line operating profit benefitting from slightly higher interest income.

Basic earnings per share were 32.8p (2023 H1 (Restated): 31.9p, 2023 H1: 31.9p, FY2023: 70.2p), an increase of 2.8%.

During the period trade receivables increased significantly. This has been in the main due to the low level of debtors at year end 2023 rather than a slowdown in payment. None the less it has impacted the cash position at the half year with cash expected to be generated through the second half in line with normal seasonality.

Capital expenditure has been behind management budgets, and it is expected that this will continue in the second half as supply chains in capital equipment remain delayed.

Dividends

The Company has paid £2.8m as a final dividend payment for 2023 and is pleased to announce that an interim dividend of 11.5 pence per share (H1 2023: 11.0 pence per share, FY2023: 36.0 pence per share) will be paid, an increase of 4.5% on the previous year. The Company continues to have the aim to progressively increase its dividend, highlighting the Board's confidence in the business. This dividend will be payable on 11 October 2024 to shareholders on the register at 13 September 2024.

Ceramics

UK national accounts groups have reported strong trading over the period, with turnover up, albeit with margins at the lower end. Smaller hospitality outlets have been struggling and the corresponding revenue from these operations has been subdued. Market pressures from labour cost increases and food price inflation have disproportionately impacted the independent hospitality sector and so new openings and outlet refreshes have been reduced in the period.

Europe performed well in the first quarter but has seen a drop off in performance in the second quarter ahead of an expected third quarter that is usually quiet.

The North American and ROW markets have tracked very much in line with expectations with the ROW in particular showing a healthy pipeline for new business. This market is particularly reliant on projects and new installations and there is evidence that this business is beginning to return.

New product launches have continued at pace with launches focussing on innovative products utilising the Company's improving capabilities. The new Tide collection, launched in March this year, has been the Company's best performing new introduction utilising the new ink jet production methods, delivering a marine feel with an abundance of white space for food presentation.

The new installation pipeline has continued to grow and whilst there has been a modest reduction in timing from enquiry to order, the overall timeline remains elongated although expected to improve as business confidence returns.

Total volumes have declined as expected in the first half compared with 2023 however added value mix has increased slightly from 2024. In addition, margins have been under pressure in the period but this has been more than compensated for by the improved yields in the factory.

Materials

Furlong Mills external sales in the period were 4% lower than prior year with intercompany sales down by 22% during the same period reflecting the approach of a more balanced, consistent production plan through the year. The Furlong business has a high proportion of fixed and semi-fixed costs and therefore profitability is particularly sensitive to levels of demand. The operation is also dependent on the expected uplift in demand from September.

Operations

The Company is pleased to report that the skill levels in the factory have recovered through training and the near elimination of agency workers, with low levels of staff turnover. This settled and better trained workforce has led to continued improvements in yields within the factory which is now well placed to benefit from any recovery.

The Company continues to invest in its production processes and some significant assets are due to arrive in the second half of the year including a project to replace one of our core flat making machines with a more efficient and agile piece of equipment.

 Environmental, Social and Governance ('ESG')

As an energy intensive industry, the Company is focussed on reducing the energy consumption within our operations. As already mentioned, the Company has invested heavily in solar arrays, but in addition the Company looks on energy as a strategic area for development, as our customers, shareholders, and employees expect an environmentally aware approach to our production techniques. As a result, the Company is investing in research to identify new processes and materials to reduce the energy required to produce our product. In addition to this the Company is investigating the impact of our supply chain emissions as well as the potential for offering the recycling of the packaging of our products.

We have continued to improve our engagement with our workforce, particularly within the context of the wider macro-economic environment. We supply support to assist employees in managing their day-to-day finances through helplines and, for those who request it we assist with language lessons to integrate employees into the workplace and to facilitate their interaction with colleagues. In addition, the Company continues to engage with local schools to promote the benefits of a career in manufacturing.

People

The Company has continued to support staff with an average uplift in salaries above inflation across the business. As previously stated, the workforce is now more settled and better trained meaning that delivery of quality on the factory floor is on a continuous path of improvement, resulting in reduced product loss and improved profitability.

As a larger employer the Company also focuses on delivering high quality employment with the opportunity for advancement at all levels of the organisation. Colleagues are encouraged to cross-skill and all sections and levels of the business have succession planning as a core requirement.

Martin Payne joined the Board as Senior Independent Director and Audit Committee Chair during the period, with Brendan Hynes stepping down from the Board in June 2024.

Outlook

The Board believes that the Company is well positioned to take advantage of a return to confidence in our markets when that happens but continues to see subdued activity in our key European markets. As such, we remain dependent on the stronger demand normally experienced in the final four months of the year to meet our full-year expectations.

Robin GW Williams

Chairman

5 September 2024

Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2024

All above figures relate to continuing operations

^# Financial assets are deposit accounts with a redemption period exceeding 3 months