Final Results

CHURCHILL CHINA plc

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

FINAL RESULTS

For the year ended 31 December 2024

Resilient Profit Performance

Churchill China plc (AIM: CHH), the manufacturer of innovative performance ceramic products serving hospitality markets worldwide, is pleased to announce its Final Results for the year ended 31 December 2024.

Financial Overview

Business Overview

· Resilient profit performance in difficult markets

· Customer service at 97% same or next day order delivery from stock

· Continuing improvement in yields and efficiency offsetting lower production volumes

· Energy costs well controlled

· Capital investment programme continues apace with focus on factory automation

· Significant new installation and project wins in UK and Rest of World

· Strong replacement business

· Investments in sales and marketing maintained

· Well-funded, strong balance sheet

· Dividend marginally improved, Board confidence in medium term

David O'Connor, Chief Executive of Churchill China commented:

"2024 was a challenging year with market contraction driving lower sales. We continue to address those activities that are within our control. We have accelerated our continuous improvement programme across the factory. Correspondingly, yields have improved and we see further opportunities for significant savings through this programme. In addition we are driving our capital expenditure to focus on innovation and cost reduction through automation and process control.

We continue to win new installations and projects across all our markets and see strong replacement orders from our installed customer base, which highlights the resilience of our business in this current market downturn. We expect to see financial returns from our improvement activities over the coming years as the underlying macro conditions and consumer sentiment improves."

Analyst Meeting

An in-person meeting for analysts will be held at 10:00am today 9 April 2025 at the offices of Burson Buchanan, 107 Cheapside, London, EC2V 6DN. An online facility is available for those unable to attend in person. To register for either the in-person or online meeting please contact Burson Buchanan by email at [email protected] or telephone 020 7466 5000.

For further information, please contact:

Chairman's Statement

Operational and commercial performance

These results demonstrate the strength of our brand as we continued to experience steady demand in weak markets both in the UK and export. We continued to deliver new product into the market with those introduced in the last two years delivering £7m of sales. Our performance in our core markets was strong with the UK showing good resilience and we performed comparatively well in northern Europe.

2024 was however, a challenging year for the Company. Waning consumer confidence and political uncertainty dominated both at home and in our major overseas markets, meaning that even our strong performance was against a backdrop of decline. Furthermore, the October UK Budget created further financial challenges for our UK hospitality customer base and added considerably to our costs of employment.

As a result, revenue in the year reduced to £78.3m, down from £82.3m in 2023, a reduction of 4.9% year-on-year. The profit impact of reduced volumes and a difficult pricing environment was partially offset by improved operational performance, leaving profit before tax at £8.5m for the year (2023: £10.8m) representing a return on sales of 10.9% (2023: 13.1%).

Across all of our key markets, the year was characterised by a lower number of new installations and replacements. In our core UK market, we believe that we have continued to grow market share, albeit within a contracting market. While growth opportunities remain in our key export markets, economic conditions have held back share gains.

Operationally, the Company continues to have a long-term perspective and is addressing those factors that are within our control. Efficiencies and yields continued to improve in the year, and we have now surpassed the already impressive pre COVID yields achieved in 2019. We now believe ourselves to be sector leading in terms of our waste levels through our manufacturing process, but encouragingly our continuous improvement activities give us confidence that there is more to come.

The strength of our unencumbered balance sheet and our strong cash position has allowed us to maintain healthy capital expenditure and dividend payments during the year, meaning the Company had an outflow of £3.8m (2023: inflow £4.3m). This left our year end cash balance at £10.1m (2023: £13.9m).

Overall, business performance has been resilient given the headwinds faced, and we continue to look forward to an improving economic situation for which we are well positioned.

Dividend

We are pleased to propose a final dividend of 26.5p per share giving a total dividend of 38.0p per share for the year. Whilst profitability is down for the year, the level of dividend highlights the Board's belief that the Company can continue to make sustainable cash flows, and that the underlying performance of the business has the potential for sustainable growth.

Consolidating Growth

Outside the UK, the Company continues to have low market share in large fragmented markets where we invest in sales and marketing to increase market share and support our move from whiteware to value added product. A focus on overcoming the cost pressures on the business through improving yield and productivity on the factory floor have been ongoing and have, to date, been successful. This has allowed the Company to maintain a competitive price point within the market and hold market share.

The Company expects export growth to continue once market conditions improve, and we continue to see significant opportunities for sales expansion medium term in these overseas markets.

The Company is firmly committed to maintaining an active capital expenditure program to facilitate our long-term focus on cost reduction, productivity and yield. In addition, we continue to investigate the opportunities from alternative energy and reduced carbon processes to achieve both net zero and reduced cost.

Board changes

As communicated in last year's report, in January we welcomed Martin Payne as our Senior Independent Director and Audit Committee Chair. We also bade farewell to Brendan Hynes in June, who had served the Company as Audit Committee Chair for almost 11 years.

Employees

I would like to take this opportunity to thank the hard work and dedication of all our employees on delivering the Company's result under challenging conditions, including those who left us as a result of our actions on costs within the year.

Environmental, Social and Governance ('ESG')

We continue to focus on ESG within the business, with energy projects continuing to make up the bulk of our focus in this area. Following trials of electrification of our glazing lines, we have seen significant yield improvements through process consistency and control. This has moved projects that were seen as trials into mainstream and further iterations of these projects are now ongoing. This project will reduce the energy footprint of glazing by 80%, a process that pre-electrification would have consumed circa 12% of the factory's gas.

We have also refreshed the governance aspect of the board by complying ahead of adoption dates with the QCA code, revisiting and reviewing our terms of reference for our various committees and undergoing a board evaluation process during the year.

Outlook

The Company continues to deliver differentiated performance products that are highly regarded in the marketplace. We continue to have a business that has a strong installed customer base leading to healthy replacement business which we expect to continue through 2025. The area that is currently more uncertain is the number of new installations however, as always, with our market leading delivery times and stock levels we are always well placed to service new installations rapidly.

A more robust hospitality market is required for a step forward in our market penetration and profitability. We will continue to focus on improving efficiencies within the business and invest strategically to ensure we are in the best position to capitalise on future opportunities, as underlying macro conditions and consumer sentiment improves.

Robin G.W. Williams

Chairman

8 April 2025

Strategic reportfor the year ended 31 December 2024

The Directors present their Strategic Report for the Group for the year ended 31 December 2024.

Principal activities

Churchill China is a UK based manufacturer of performance tableware primarily supplying into the hospitality sector. Utilising a high-performance vitreous body, the Company leverages its technical advantages to deliver superb value in use and value for money to its end users.

In addition to the supply of tableware, the Group supplies the majority of the UK pottery industry with materials for the manufacture of ceramics. The Group utilises its extensive technical abilities to supply high quality body materials, glaze and colour. 

Business model

The Group supplies customers worldwide with a range of high-performance tabletop products, primarily ceramic tableware. Most of these revenues come from our UK manufacturing facilities although we do supplement these with some outsourced products.

We focus primarily on the hospitality sector which generates most of our revenues. This focus is driven by the attractiveness of the sector, with revenues seen as long term, recurring and, whilst vulnerable to short term economic fluctuations, reasonably stable.

The market is highly fragmented and so our strategy of identifying strong, in-territory distributors to work with, allows us to deliver to a wide range of customers. From large chains through to small independent restaurants we are perfectly placed to offer innovative product and design to give a competitive, differentiated advantage to our customers.

The growth strategy for the Company is to focus on those areas currently underserved by our competitors with regards to customer service. Our ability to fulfil customer orders, in the vast majority of cases, in under 48 hours gives us a significant competitive advantage.

Culture and Values

As a company with a long history, our values are well defined. Innovation, cooperation, uncompromising customer service, trust and honesty are the core values that drive our behaviours on a day-to-day basis.

Our decision making is based on taking decisions that are aligned with adding long term value to our shareholders, whilst being mindful of our responsibilities to our wider stakeholders.

The business culture is driven by the executive leadership team and hinges on openness and giving our colleagues the space to develop and grow. While there are controls in place to protect the business, colleagues are given the space to make decisions without fear of failure. The average term of service of our staff is 11.8 years, which is a key KPI for the business and we believe this highlights our ability to create a good working environment for our colleagues.

The Board believe that this approach allows our colleagues to become the leaders of the future by developing their skills and abilities.

Finally, the Company engages on multiple levels with our customers, engaging at an early stage of the design process to get the market view of proposed products, and delivering on our promise of "performance delivered".

Business environment

The Company always expected 2024 to be a challenging year which would be highly dependent on a recovery in H2. Unfortunately, this recovery never materialised, and trading was broadly flat from H2 2023 through to the end of 2024. 

The well documented macro-economic factors at play have impacted both our own cost base and that of our end market, whilst the cost of living pressures on consumers have meant that opportunities to pass cost increases on in full are more limited.

Regardless of this, the Company put through a price increase in the early part of the year and this was accepted by our customers. Our differentiated, performance offering still delivers a level of pricing power and this can be seen by us retaining, and in some markets, growing our market share, albeit in declining markets.

The Company continues to have a strong installed base which allows a high level of replacement business where customers will continue using Churchill products to replace breakages. What we are seeing however is a reduction in the number of new openings in our more established markets. That said our current pipeline for installation business in our export markets remains strong.

Evidence from our end users suggests that the hospitality trade is still healthy, and consumers continue to eat out. What is happening however is that profitability within establishments is being compressed and it is this dynamic that is restricting the growth in sales that the company has seen for the last 15 years.

Promoting the success of the Company

It is the duty of the Directors under s172 of the Companies Act 2006 to promote the long-term success of the Company to the benefit of members as a whole and acting fairly with regard for the interests of other stakeholders in the business.

Other stakeholders include employees, customers, suppliers, our pension fund members, our local and the wider community, government, and other regulatory bodies.

Churchill has been in existence since 1795 and always taken a long-term approach to business, particularly in relation to investment and in understanding the opportunities open to us and the risks to which we are exposed. To operate a successful and sustainable business model it is necessary to ensure that all the contributors to the success of the business understand their place within it and feel that the Company operates ethically and fairly in its dealings with them.

The Board has regard to the interests of all stakeholders in its discussions and reaches balanced decisions with the sustainability of the business uppermost in its considerations. Churchill maintains a financial model that is aligned with this objective such that capital allocation decisions, where possible, do not unfairly prioritise the interests of one group of stakeholders over others. The Board is aware of the need to support regular revenue and capital investment in the development of our business, and we orientate our operations accordingly.

We aim to deliver well designed, performance products and outstanding service at appropriate price levels to our customers. At the same time, we acknowledge that to meet these levels of customer service, we are reliant upon good relationships with a well-motivated workforce and fair and balanced relationships with a range of suppliers. We understand that we have a responsibility to pay appropriate levels of taxation and to support the future pensions of our scheme members. We consider our dividend policy carefully in light of the overall needs of the business and the interests of other stakeholders. Our policy is formulated to ensure that dividend payments are not excessive in relation to profits, and do not introduce excessive levels of risk in relation to the sustainability of the business.

Churchill aims to manage its effect on our local community and the environment. We have engaged with the community on an ongoing basis through charitable and educational support. The business operates several initiatives aimed at minimising our waste products, recycling waste where possible and in the reduction of our energy usage and carbon footprint. We have made several investments and process changes to reduce our use of energy. These investments continue and have had significant impacts on process stability and yield, allowing us to improve efficiencies in the factory.

The business has regular contact with our workforce through both formal and informal mechanisms. The scale of our business and our open culture allows the Board and management to engage with our employees on a day-to-day basis and employees are encouraged to raise issues. We have a recognised trade union representing most of our weekly paid employees and we meet regularly with their representatives. However, we believe that other initiatives including on site briefings, communication boards and regular news updates provide the most important means of engaging with our workforce. We believe that our workforce is engaged and motivated.

We meet with suppliers on a regular basis to provide information in relation to our forward plans and review performance. As in other elements of our business we enjoy long standing relationships with most of our suppliers. On average we pay suppliers within 36 days (2023: 35 days) of invoice. We believe our suppliers regard Churchill as a good customer.

The Board consults regularly with shareholders through formal meetings, company visits and informal discussions.

Voting on resolutions at the 2024 Annual General Meeting was positive with over 99% of votes cast being in favour of the resolutions put to the meeting. The Board reviews voting carefully after each Annual General Meeting.

Resources and relationships

Our key resources remain our employees and customers, our technical and business skills, our long heritage of manufacturing and willingness to embrace new methods to deliver an outstanding service.

One of the key elements of our sustainable market advantage is the success of our innovation process. We have developed this process to research and identify market trends and design new products to satisfy these trends.

Churchill, along with other UK manufacturers, has a significant technical advantage in the nature of the product we offer to our markets. Our product offers significant benefits in terms of durability and overall lifetime cost to users. This technical advantage has been developed over many years and we hold significant intellectual property in our materials and processes.

The Group operates from two sites in Stoke on Trent, England, a leading centre for ceramic excellence worldwide. This gives us access to key suppliers, technical support and experienced staff. Our main manufacturing plant and logistics facilities have benefitted from significant and regular long-term investment to improve our business's efficiency and effectiveness. We also operate from several smaller locations and representative offices around the world.

Our employees also give us significant advantage. We believe we recruit, retain, and develop high quality individuals at all levels within the business who contribute towards the success and growth of the Company and maintain our core values. We have maintained our investment in training and development to provide more fulfilling roles for our staff and improve the effectiveness and productivity of our workforce. The Company invests in robotics and mechanisation in areas that allow the removal of repetitive and unfulfilling tasks. We have continued to implement a number of initiatives to both develop and reward our colleagues to the benefit of both them and the business and this approach is something that is ingrained in the Company culture.

We have long standing relationships with our customers. Whilst many of these are not contractual, we continue to supply the same customers year after year with products that meet their requirements. Our customers value our technical ability, our service and our commitment to high quality design and innovation.

Churchill has long enjoyed a market leading reputation for service. Our operational plans are geared towards meeting high levels of on time delivery both in the UK and overseas. We hold extensive inventories to meet these service requirements and have emphasised flexibility and responsiveness within our manufacturing process.

Strategy

The Group's objective is to generate long term benefits to all stakeholders in the business by the efficient provision of value to customers through excellence in design, quality and service.

We aim to increase the value we provide to our stakeholders through steady increments to sales and margins, through alignment of our cost base with profit opportunities and a focus on cash generation.

Our long-term aim is to build our presence in markets offering sustainable levels of revenue and profitability. For several years this has led us towards development of our position in hospitality markets worldwide.

Innovation remains important to support our ambition to develop our business. We have invested significant resources in new staff and flexible technology to increase our capability in this area. It is a key strategic aim to design products that meet our end users' requirements in terms of performance, shape and surface design. Our target markets require products that are aesthetically appealing whilst also performing to appropriate customer and technical standards.

We understand that quality must exist throughout our business process. Quality is reflected not only in the appearance of our product but in its design, its technical performance and in the systems which support the fulfilment of our contract with our customers. We invest to maintain the performance of our products and to extend our capabilities. 

Customer service remains a major part of our strategy, and the fulfilment of customer expectations is critical to the maintenance of good relationships. Our production and logistics facilities have been designed to balance efficiency and flexibility within manufacturing to ensure that we can respond quickly to unexpected demand levels and to meet ambitious on time, in full, delivery targets. We invest regularly in these facilities to maintain a market leading position in customer service.

Business model

Our business model is designed to allow us to identify markets where we may profitably grow our revenues on a sustainable long-term basis. We research customer product requirements and distribution structures in new markets and, if they offer profit opportunities, invest to generate revenue, margin and ultimately a return for the business and our stakeholders.

We continue to expect short to medium term growth to be weighted towards export markets and particularly Europe, where we have a developing distribution structure.

Our target remains to deliver progressive increases in the proportion of added value products within our business. We invest steadily in increasing our production capability and in improving our ability to offer added value to our customers. This involves investment in new product development as well as capital expenditure on productive capacity. We expect to continue to invest for the long term in our UK manufacturing facilities.

As a major energy user, we have recognised and acknowledged the importance to our future operations of reducing our energy consumption substantially. We have commenced a long-term process to develop several initiatives to meet forward energy targets. A number of these initiatives are underway. We are pleased with the potential impact from these actions but recognise that this is a long-term process requiring continuing focus.

As our business develops, we need different skills and a core part of our model is to train, develop and recruit staff to meet these requirements.

Operationally the business has performed very well, driving efficiencies into the production process, and improving underlying gross margin. Unfortunately, the reduced volumes and increased costs in the year have resulted in the Company delivering a reduction in contribution margin albeit of only 1.2%.

Revenue in the year fell from £82.3m in 2023 to £78.3m, with the shortfall mainly in the first half of the year. This was compounded in Q4 when, predominately in the EU, macro-economic situation reduced business confidence within the hospitality sector.

The Company has however continued to maintain a good level of sales in the UK given our strong market position in the pub chain sector, which tends to be less impacted by economic sentiment compared with independents.

The focus of the business in 2024 was to continue our exemplary customer service offering along with driving down costs of production within the factory. Significant continuous improvement programmes have been ongoing throughout the year, and this has led to a significant improvement in yields which we now believe are industry leading and surpass even those achieved before the pandemic.

We have continued to introduce new products with a focus on our new inkjet capabilities where we combine both our historic hand decoration techniques alongside new technology.

We believe this continues with our core competence of delivering innovative products that are difficult to replicate.

As previously mentioned, the eating out market continues to be buoyant but has been suffering from reduced profitability and the recent budget announcement on National Insurance contributions and the above inflation increase in minimum wage has caused some outlets to pause and review their offerings. Fundamentally though the consumer appears to still want to eat out and to favour experiences over possessions. We expect that in the longer term the customer base will improve its profitability and that investment will recommence.

Our Materials business, Furlong Mills, has performed well during the year, however the general retail ceramics market, where most of our customers operate, has also been under pressure during the year with many of Furlong's customers on reduced working in Q4. This has resulted in a reduction in sales of £1.0m and, given the fixed nature of Furlong's cost base, a reduction in profitability.

Overall cash has decreased in the year by £3.8m driven primarily by increased stock of £1.4m and increased debtors of £1.2m. The debt position was primarily driven by the timing of the year end which resulted in a short month for collection and by a stronger position than usual at the end of 2023.

The Group's defined benefit pension scheme position continued to improve during the year and the trustees have taken action to protect this position by hedging for inflation and interest rates. The Group has assessed the recoverability of the net asset arising from the scheme surplus and considers that, based on the Trust Deed and Scheme rules, the surplus would be recoverable on cessation of the scheme.

Environmental, Social and Governance (ESG)

Following the framework established in 2022 our ESG committee, comprised of Executive Directors and Senior Management, have continued to develop our approach and further embed the ESG objectives and actions into our business planning. The ESG Committee and subcommittee working parties have continued to make good progress against the areas identified.

The ESG Committee has been focussing on the identification of the longer-term pressures that will affect the business in both the medium term through to 2030 and trying to identify potential longer-term issues through to 2050.

Whilst these timeframes naturally mean that there is a significant level of uncertainty in any issues identified, this strategy aligns with the Company's long-term approach to business.

We use a significant amount of energy in our processes, and this is an area of strategic focus of the business. Substantial progress has been made in identifying efficiency, recovery, and generation initiatives across our operations. We have researched proven and emerging technologies to assess how these can potentially combine to a path to Net Zero, whilst maintaining the performance characteristics of the technically differentiated and durable product that we manufacture. This process has included the initiation of several research projects in relation to our materials and processes, contribution to industry initiatives and use of specialist advice from suppliers and other experts.

The business employs over 700 people across two manufacturing sites who work predominantly in an industrial environment. Our Health and Safety procedures and systems have continued to manage what is an important area for the business. Of particular focus has been our Furlong Mills site which we acquired in 2019.

Our Governance procedures have been subject to ongoing review and particularly in supporting the demonstrable independence of our Non-Executive Directors under the QCA Code. The latest appointment made in January 2024 means that all non-Executive Directors are independent, and that Board Committees are properly constituted. In addition, following the publishing of the new QCA code in late 2023, the Board have decided to early adopt one of the changes and as a result all directors were put forward for election at the 2024 AGM. We have continued to develop and implement the Board succession planning process, and this will remain under constant review.

During 2024 the Board carried out an internal evaluation of its effectiveness. The minor issues identified in the 2023 review were reviewed and no significant issues were highlighted, again the Board will continue with this process in the coming years.

The Company continues to operate a business model which is focused on long term sustainable success, delivering returns to all stakeholders. We will continue to develop and evolve our ESG agenda and over time, will translate our goals and objectives into a published reporting framework, with benchmarks, key performance indicators and our progress against them. The following tables identify and update our goals and actions to achieve them.

Consolidated Income Statementfor the year ended 31 December 2024

All of the above figures relate to continuing operations.

Consolidated Statement of Comprehensive Incomefor the year ended 31 December 2024

Amounts in the statement above are disclosed net of tax.

Consolidated Statement of Financial Positionas at 31 December 2024

Consolidated statement of changes in equityfor the year ended 31 December 2024

Consolidated Statement of Cash Flowsfor the year ended 31 December 2024

Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities

1. Segmental Analysis

The Group reports to the Chief Operating Decision Maker, the Board, on two distinct segments of revenue. The Group's reportable segments are as follows; Ceramics, the sale of ceramic tableware and complementary items and; Materials, the sale of materials for the production of ceramics, predominantly to the tableware industry.

The profits of the business are allocated as follows:

2. Finance income and costs

3. Income tax expense

4. Earnings per ordinary share

Basic earnings per ordinary share is based on the profit after income tax and on 10,997,835 (2023: 10,997,835) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

5. Dividends

The dividends paid in the year were as follows:

The Directors now recommend payment of the following dividend:

Dividends on treasury shares held by the Company are waived.

6. Retirement benefit asset

The amounts recognised in the statement of financial position are determined as follows:

7. Basis of preparation and accounting policies

The financial information included in the preliminary announcement for year to 31 December 2024 has been approved by the Board on 8 April 2025.

The final financial statements do not constitute the statutory accounts of the Company within the meaning of section 434 of the Companies Act 2006, but are derived from those accounts, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006

This information has been prepared under the historical cost 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 final financial statements as were applied in the Group's financial statements for the year ended 31 December 2023.

Statutory accounts for the year ended 31 December 2023 have been delivered to the Registrar of Companies. The auditors have reported on those accounts. Their report was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Statutory accounts for the year ended 31 December 2024 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) in May 2025.

8. Statement of Directors' responsibilities in respect of the financial statements

We confirm to the best of our knowledge that:

· The Group Financial Statements, which have been prepared in accordance with UK-adopted International Accounting Statements, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and ·

· The announcement includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.