REG - Churchill China PLC - Final Results
10/04/2024 07:00
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RNS Number : 0019K Churchill China PLC 10 April 2024
For immediate release 10 April 2024
CHURCHILL CHINA plc
("Churchill" or the "Company" or the "Group")
FINAL RESULTS
For the year ended 31 December 2023
Improved profitability
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 2023.
Key highlights:
Financial
· Broadly flat revenues in a challenging environment
· Profit before tax up 12.4% to £10.8m (2022: £9.6m)
· Adjusted* basic earnings per share up 4.9% to 70.2p (2022: 66.9p)
· Final dividend of 25p per share, an increase of 19% (2022: 21p).
Total dividend for the year 36p, up 14.3% (2022: 31.5p)
· Net cash inflow of £8.3m (2022: £4.9m) despite significant
investment in inventory to further enhance customer service levels.
· Net cash and deposits £13.9m (2022: £14.7m)
Business
· Strong improvement in yields and productivity
· External materials performance sales up 12.5% at £8.1m (2022:
£7.2m)
· Continued improvement in customer service with a 37.8% increase in
inventory to £21.9m (2022: £15.9m)
· Continuing investment in capital equipment to improve factory
productivity and agility, with equipment due on stream in 2024.
· Commissioning of 4,500 solar panels in the year supplying up to 100%
of the main factory's electricity requirement on sunny days
· Implementation of Board succession plan
· Significant reduction in reliance on agency staff
Outlook
· 2024 Q1 in line with expectations
· Continuing focus on productivity and waste
· Further investment in strategic growth areas of the business
Robin Williams, Chairman of Churchill China commented:
"The Company continues to deliver on its strategy of delivering a quality,
differentiated product and with a service level unmatched in the industry. All
this whilst generating sustainable, growing returns for investors."
Analyst meeting
An in-person meeting for analysts will be held at 10:00am today, 10 April 2024
at the offices of 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 Buchanan by email at
churchillchina@buchanan.uk.com (mailto:churchillchina@buchanan.uk.com) or
telephone 020 7466 5000.
For further information, please contact:
Churchill China plc Tel: 01782 577566
David O'Connor / James Roper / Michael Cunningham
Buchanan Tel: 020 7466 5000
Mark Court / Abigail Gilchrist / Sophie Wills
ChurchillChina@buchanan.uk.com (mailto:ChurchillChina@buchanan.uk.com)
Investec (tel:020%207597) Tel: 020 7597 5970
David Flin / Oliver Cardigan / William Brinkley
*Adjusted basic earnings per share is calculated after adjusting for the post
tax effect of exceptional items
CHAIRMAN'S STATEMENT
Operational and commercial performance
I am pleased to report that the Company made good progress in the year and
delivered on the Board's profit expectations. This was despite tough
macro-economic headwinds, which have significantly impacted the hospitality,
consumer and retail sectors. Whilst profit before tax at £10.8m (2022: profit
before tax and exceptional expenses £9.1m) has grown by an impressive 18.7%,
this has been achieved despite broadly flat revenues compared with 2022. This
impressive growth has come through strong operating margins, driven by a focus
during the year on factory performance.
Our end customer, the hospitality market, has been undergoing major upheaval,
with significant input cost increases in labour, energy and food, leading to a
reduction in capital expenditure by the major pub and restaurant groups. This
has impacted rollouts of new installations of tableware, but has also
suppressed demand, particularly in H2 through closures of outlets, including
some at the higher end.
Our excellent performance in 2023 however highlights the Company's strength in
its core markets and the importance of our unique business model which relies
on repeat replenishment business driven by high levels of customer service,
which includes very short delivery times. The Company has continued to further
invest in this key strength of our business throughout the year by building
stock, in most cases allowing same day dispatch.
We have continued to make progress in returning our manufacturing yields to
approaching pre-pandemic levels and this has been a strong contributor to the
operating margin improvement. We invested heavily in equipment for improved
efficiency during the year and continuing this productivity journey remains
the focus. We aim to continue improving our operations and advance towards our
profitability targets during 2024.
Dividend
We are pleased to propose a final dividend of 25.0p per share, giving a total
dividend of 36.0p per share for the year, a 14.3% increase on the 31.5p paid
in relation to 2022. The final dividend will be payable on 17 June 2024 to
shareholders on the register on 17 May 2024. The dividend is in line with our
policy of growing returns to shareholders whilst ensuring that dividend
payments are not risky or excessive and reflects our ongoing confidence in the
progress of the business.
Growing the future
The Company strategy has always been to deliver sustainable and steady growth
in areas where we have a good market understanding and the opportunity to
build scale through innovation and differentiation across our product range.
The Company will continue its growth in export, particularly in Europe which
has become our largest market and where we see significant opportunities for
further sales expansion. We also selectively review other markets for growth
opportunities.
We intend to continue our £4m-£5m per annum capital expenditure programme
which is factory-focused on long term productivity and process improvement, as
well as energy efficiency and product sustainability, placing the Company in
the right place for the future.
Board changes
I joined the Board of Churchill China in 2022, and we announced our succession
activities in the Annual Report last year. These included my assuming the role
of Chairman at the 2023 AGM and also bidding farewell to David Taylor as CFO
after over 30 years with the Company and to my predecessor Alan McWalter. We
have also welcomed Martin Payne as Non-Executive Director, replacing Brendan
Hynes who leaves the Board at the AGM after 10 years on the Board. Martin will
become Senior Independent Director and Audit Committee Chair following this
results announcement. We have also welcomed Michael Cunningham as our new CFO
during 2023.
Employees
Our employees at all levels have shown great commitment and skill to achieve
the results of 2023. We have needed considerable flexibility in our operations
as we adjusted to the varying levels of demand in the year. We thank all
employees for their dedication and continued loyalty to Churchill China.
Environmental, Social and Governance ('ESG')
Our approach to ESG has moved forward substantially over the year. The senior
management focus outlined in last year's report has allowed the development of
our broad strategy and the identification of short-, medium- and long-term
actions supporting our continued progress. As a major energy user and large
employer much of our work has focused on the Environment and Social pillars,
but we have also made good progress in all our areas of focus.
In relation to our energy footprint, we have initiated a number of projects
which have given us a much clearer idea of how we may move towards Net Zero
over the longer term. These initiatives should deliver benefits that will
deliver steady progress towards our sustainability objectives.
Outlook
We have delivered an improvement in operating profit and margins during the
year despite flat revenues and strong headwinds particularly in our
hospitality markets. Volumes were down year on year, driven by softer demand
in the second half of 2023. We believe this trend will continue into the first
half of 2024 and the first quarter of 2024 has seen demand as expected. We are
confident that the continuous improvement in our product range and market
position, backed up by our ongoing investment programme, has placed the
Company in a strong position to take advantage of a market recovering from
current weakness, which we expect to see in the second half of 2024.
Robin G.W. Williams
Chairman
9 April 2024
STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2023
The Directors present their Strategic Report for the Group for the year ended
31 December 2023.
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 11.1 years 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
Hospitality markets across the world have performed below expectations in
2023. There have been well documented pressures on consumer spending during
the year, driven by high inflation and consequently increased interest rate
environment. Despite this our market position has continued to develop and our
research suggests that we have continued to increase market share in a reduced
overall market. The summer period, particularly in the UK, was a lacklustre
trading period. Poor weather and the lack of specific cultural activities lead
to a poor trading environment for the hospitality sector although a stronger
Q4 did materialise.
Sales volumes during the year were down from 2022, however the price increases
implemented in 2022 fed through to deliver broadly flat revenues for the year.
The main weaknesses were in the UK and Rest of the World, with Europe
remaining in line with expectations.
Our Materials business, Furlong Mills, which produces ceramic bodies from raw
materials, has performed well in the year as both Churchill and the wider
ceramics industry increased stocks.
We have held prices during the year after 2022's increases, utilising
improvements in energy pricing and efficiencies to compensate for other input
price inflation. Only a modest rise has been implemented in 2024 despite
continuing input cost headwinds such as the £1.1m cost of increased National
Living Wage increment.
During the year we delivered over 500 additional SKUs of new product, taking
our product portfolio to over 3500 SKU's following 2 years of reduced
development activity post COVID and our intention is to continue delivering
more innovation, differentiation, and growth in the coming year.
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
the 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.
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 35 days (2022: 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 2023 Annual General Meeting was largely positive
with over 96% 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 recruitment difficulties and impact on
efficiency experienced during 2022 demonstrates the effectiveness of our core
employee base and 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.
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 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 resource 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.
Performance
Operationally the business has performed well, driving efficiencies into the
production process, and improving underlying profitability. This has been
tempered by the prevailing market conditions and macroeconomic headwinds.
Revenue levels have been maintained due to the actions taken by the Company,
with a focus on yield and efficiency improvement, and gross margin levels have
continued to improve as the business has resolved many of its staffing issues.
During the year the Company's headcount of full-time employees increased,
however this disguises the fact that the number of staff working in the
factory, including agency staff, reduced by 136. This has enabled the Company
to operate at better efficiency levels, particularly in the second half of the
year.
The business has continued to make progress against its strategic targets with
further market share growth in Europe, albeit on a slightly contracted market.
The main focus of the business in 2023 was to significantly improve the level
of customer service and return to historic levels of delivery. To this end the
Company increased stock to significantly higher levels and reduced order books
back to levels not seen since 2019.
The Company also made significant progress in reversing the slowdown in new
product development that occurred during the pandemic and subsequent period.
2023 saw the introduction of our largest product launch with over 500 SKU's
launched.
This has continued our progress towards product differentiation within our
product range and has been backed up by further expansion of our distribution
network.
Whilst markets have been under pressure from rapidly increasing input costs
the evidence still points to a bright future for the eating out market. End
users are reporting strong sales levels, albeit on reduced margins, and are
forecasting easing pressures on cost inflation.
Our Materials business, Furlong Mills, has performed well during the year with
its revenue and profitability increasing as the UK ceramics industry
recovered. Raw material cost rises have largely been recovered from customers.
The business has also contributed strongly to the technical development of our
Hospitality product.
Overall cash and deposit balances have reduced marginally over the year, due
to the aforementioned stock build and our normal investment in capital
expenditure, although we continue to enjoy a strong cash position. Working
capital has increased as inventories grew, and we invested in additional
stocks of raw materials. We have increased our capital expenditure programme
supporting our long-term business plan.
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 a
number of 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 and we are pleased that for the first time, after a
significant effort to improve, we have had no accidents development across the
business at all levels.
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. Whilst we do not believe there has been any significant
risk to shareholders, we have acted to increase the number of independent
Non-Executive Directors on our Board, making one appointment in February 2023
and a further appointment in January 2024. 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 begin placing all Directors up for annual
election. We have continued to develop and implement the Board succession
planning process and this will remain under constant review.
During 2023 the Board carried out an internal evaluation of its effectiveness.
No significant issues were highlighted and again the Board will continue with
this process.
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.
Financial Review
Revenues during the year were broadly flat at £82.3m (2022: £82.5m).
Revenues were held due to price increases which flowed through from 2022,
however sales volumes were down by 12%. Volume reduction was seen across all
markets with the Rest of the World, down 25%, and UK, down 17%. Pleasantly
Europe continued to show a robust performance.
Revenue (£m) 2023 2022 Change
Ceramics 74.2 75.3 -1.5%
External Materials sales 8.1 7.2 12.5%
Total 82.3 82.5 -0.2%
UK 34.0 33.2 2.4%
Export 48.3 49.3 -2.1%
Total 82.3 82.5 -0.2%
As previously reported the gross margins in the Company have continued to
improve during the period. Year on year the Company has significantly reduced
its reliance on agency staffing in the factory, preferring to transition the
best of these into the permanent cohort with the attendant improvements in
productivity, efficiency, and production yields this delivers. As a result,
overall staffing in the factory has reduced by 136 with the impact of this
visible in the operating margin.
Profit before tax rose by £1.2m to £10.8m driven by this factory improvement
and in addition yields have returned to pre-pandemic levels in areas of the
factory, albeit with slightly more variability than previously observed.
Adjusted basic earnings per share before exceptional income was 70.2p (2022:
66.9p).
Reported profit after exceptional items but before income tax was £10.8m
(2022: £9.6m).
Basic earnings per share, after exceptional items, was 70.2p (2022: 71.7p),
this reduction in EPS was driven by higher corporation tax rates as well as
timing differences on completion of capital expenditure during the year.
The Company has, unusually, had a year of cash outflow. This has been driven
by significant capital expenditure of £5.4m (2022: £4.6m) which has been
primarily focussed on improving productivity and yields in the factory rather
than increasing capacity. We also focussed on increasing our stock holdings in
our UK, European and North American fulfilment centres by £6.0m in order to
increase customer service levels in market. Stock in Furlong Mills was
decreased by £1.4m as we ran down supplies of a previously stockpiled
material, this stock is now being run down to normal levels. A payment of
dividends totalling £3.5m and pension contributions of £1.8m (2022: £1.8m)
also contributed to the level of outflows.
Following the three-year actuarial valuation of the Company pension scheme,
the fund is expected to show a surplus of assets over liabilities.
Business
The business has performed well during the year, meeting its internal targets
on yield improvements. This has brought the underlying performance of the
business back towards pre-pandemic levels.
The first half of the year was framed by continuing issues around the
previously communicated staffing issues, however these started to in ease in
Q3 and by year end the Company had made significant inroads to the reduction
of agency staff in the business.
Demand in Q3 was weak with both the UK and Europe showing low order volumes.
Q4 did however follow the usual trends and significantly outperformed Q3, even
if still at a lower level than 2022.
Ceramics
Hospitality sales were flat for the year, highlighting the difficult market
that our customers are operating in. Profitability was however much improved
as production levels enabled a build back to expected levels of stock. As a
result, customer service levels have returned to pre-pandemic status, with
over 90 % of orders completed within 2 days, including shipments fulfilled
from our European and US distribution centres.
We continue with our growth strategy of targeting export markets where we have
low existing market share, and which have the most opportunity for expansion.
Despite a slowdown in Q3 the Company is confident that market share has been
expanded in a tightening environment, leaving us perfectly placed to take
advantage when volumes return.
The year saw a continuation of the price pressures that impacted profitability
in 2022. An across the board pay award of 10% was applied in April to counter
the inflation pressures affecting many of our colleagues. In addition, due to
a risk-off strategy of hedging for 12 months forward, that the Company
continues to apply, it was only in the second half of the year that the
Company started to see a positive impact from reducing energy input costs.
Added value sales continued to be a major part of the Company's revenue,
however whilst replacement sales have continued at previous levels the number
of installations has decreased as customers have delayed investments due to
interest rates and a marked focus on debt reduction within the bigger groups.
Much of the preparatory work has been done on many of these projects and again
the Company is confident of securing many of these once the economic
environment improves.
Retail sales continue to be an area of minimal focus and amounted to 1.7% of
sales (2022: 2.9%)
Materials
Furlong Mills continues to perform strongly with sales of £14.7m (2022:
£13.5m) an increase of 8.8% over 2022. During the year the focus at Furlong
has been the improvement of operations, particularly in the area of health and
safety which has been an area of focus since the acquisition. In the year the
Company has had zero accidents showing a massive improvement from the
pre-acquisition period.
Operations
As previously noted, 2023 has shown a marked improvement in production, with
yields at key stages in our process returning to levels approaching.
Production levels have been much improved on 2022 allowing significant
increases in stock holding.
The numbers of temporary staff within the business has reduced steadily and
the skills and capability of our core workforce has improved progressively as
experience levels increase and our training programme delivers returns.
Capital expenditure of £5.4m has primarily focussed on delivery of
productivity projects, a long-term focus of the business going forward.
During the year the Company commissioned 4,500 solar panels, delivering circa
1 MW of energy. During August 2023 this project delivered all the energy for
the site and delivered feed-in tariffs for a 5-day period.
The Company continues to take a risk off approach to energy. The Company
assessment is that with future energy prices already below forecasts and
showing savings against 2023 the opportunity for upside is minimal whilst
downside risk, given the current geopolitical situation, is significantly
higher. We have therefore forward purchased at significant levels through to
Q2 2025 to lock in this position.
Our approach to ESG has moved forward substantially over the year. The senior
management focus outlined in last year's report has allowed the development of
our broad strategy and the identification of short-, medium- and long-term
actions supporting our forward progress. As a major energy user and large
employer much of our work has focused on the Environment and Social pillars,
but we have made progress in all areas of our focus.
In relation to our energy footprint, we have initiated a number of projects
which have given us a much clearer idea of how we may move towards Net Zero
over the longer term. These initiatives should deliver benefits that will
deliver steady progress towards our sustainability objectives. Our approach is
based on a combination of improved energy efficiency in the manufacture of our
product and increased sustainable generation. Importantly we believe that
significant improvements can be made through the reformulation of the
materials we use and changes in our production processes to allow manufacture
using substantially less energy input. We are working on a number of research
and development projects in this area utilising our own technical staff,
external experts and suppliers.
We have also implemented a number of initiatives in relation to our workforce
and our engagement with our local community. We have always prioritised
training and development of our workforce and we have continued to invest in
this area. Future plans emphasise the improvement of our employee's working
environment.
We believe that our Governance procedures remain appropriate for a business of
our scale and structure but, in common with other areas of our business, they
must follow a process of continuous improvement. A substantial amount of work
has been carried out in relation to the development and implementation of a
succession plan for the Board and senior management.
Consolidated income statement
for the year ended 31 December 2023
2023 2022
£'000 £'000
Revenue 82,339 82,528
Operating profit before exceptional items 10,252 9,142
Exceptional items - 547
Operating profit 10,252 9,689
Finance income 611 60
Finance costs (75) (148)
Profit before exceptional items and income tax 10,788 9,054
Exceptional items - 547
Profit before income tax 10,788 9,601
Income tax expense (3,071) (1,706)
Profit for the year 7,717 7,895
Basic earnings per ordinary share 70.2p 71.7p
Adjusted basic earnings per ordinary share 70.2p 66.9p
All of the above figures relate to continuing operations.
Consolidated statement of comprehensive income
for the year ended 31 December 2023
2023 2022
£'000 £'000
Other comprehensive (expense)/income
Items that will not be reclassified to profit and loss:
Remeasurements of post-employment benefit obligations net of tax (900) 9,332
Items that may be reclassified subsequently to profit and loss:
Currency translation differences (25) 58
Other comprehensive (expense)/income for the year (925) 9,390
Profit for the year 7,717 7,895
Total comprehensive income for the year 6,792 17,285
Amounts in the statement above are disclosed net of tax.
Consolidated balance sheet
as at 31 December 2023
2023 2022
£'000 £'000
Assets
Non-current assets
Property, plant and equipment 25,085 23,039
Intangible assets 663 849
Deferred income tax assets 82 132
Retirement benefit assets 7,855 6,924
33,685 30,944
Current assets
Inventories 21,896 15,889
Trade and other receivables 11,036 14,380
Other financial assets - 5,057
Cash and cash equivalents 13,933 9,604
46,865 44,930
Total assets 80,550 75,874
Liabilities
Current liabilities
Trade and other payables (14,355) (14,291)
(14,355) (14,291)
Non-current liabilities
Lease liabilities (677) (477)
Deferred income tax liabilities (5,577) (4,458)
Non-current liabilities (6,254) (4,935)
Total liabilities (20,609) (19,226)
Net assets 59,941 56,648
Equity attributable to owners of the Company
Issued share capital 1,103 1,103
Share premium account 2,348 2,348
Treasury shares (431) (431)
Other reserves 1,363 1,344
Retained earnings 55,558 52,284
Total equity 59,941 56,648
Consolidated statement of changes in equity
for the year ended 31 December 2023
Note Retained earnings Issued share capital Share premium account Treasury shares Other Total equity
£'000 £'000 £'000 £'000 reserves £'000
£'000
Balance at 1 January 2022 38,117 1,103 2,348 (80) 1,195 42,683
Comprehensive Income/(expense):
Profit for the year 7,895 - - - - 7,895
Other comprehensive income/(expense):
Depreciation transfer - gross 12 - - - (12) -
Depreciation transfer - tax (3) - - - 3 -
Re-measurement of post-employment benefit obligations - net of tax 9,332 - - - - 9,332
Currency translation - - - - 58 58
Total comprehensive income 17,236 - - - 49 17,285
Transactions with owners
Transactions with owners
Dividends relating to 2022 (3,062) - - - - (3,062)
Treasury Shares - - - (351) - (351)
Share based payment - - - - 100 100
Deferred tax - share based payment (7) - - - - (7)
Total transactions with owners (3,069) - - (351) 100 (3,320)
Balance at 31 December 2022 52,284 1,103 2,348 (431) 1,344 56,648
Comprehensive Income/(expense):
Profit for the year 7,717 - - - - 7,717
Other comprehensive income/(expense):
Depreciation transfer - gross 12 - - - (12) -
Depreciation transfer - tax (3) - - - 3 -
Re-measurement of post-employment benefit obligations - net of tax (900) - - - - (900)
Currency translation - - - - (25) (25)
Total comprehensive income 6,826 - - - (34) 6,792
Transactions with owners
Dividends relating to 2023 (3,519) - - - - (3,519)
Share based payment - - - - 53 53
Deferred tax - share based payments (33) - - - - (33)
Total transactions with owners (3,552) - - - 53 (3,499)
Balance at 31 December 2023 55,558 1,103 2,348 (431) 1,363 59,941
Consolidated cash flow statement
for the year ended 31 December 2023
2023 2022
£'000 £'000
Cash flows from operating activities
Cash generated from operations 8,321 4,939
Interest received 229 60
Interest paid (75) (35)
Income tax paid - (991)
Net cash generated from operating activities 8,475 3,973
Cash flows from investing activities
Purchases of property, plant and equipment (5,334) (4,618)
Proceeds on disposal of property, plant and equipment 54 15
Purchases of intangible assets (73) (86)
Repayment / (payment) of other financial assets 5,057 (1,052)
Net cash used in investing activities (296) (5,741)
Cash flows from financing activities
Dividends paid (3,519) (3,062)
Principal elements of leases (330) (263)
Purchase of treasury shares - (351)
Net cash generated from/ (used in) in financing activities (3,849) (3,676)
Net increase/(decrease) in cash and cash equivalents 4,330 (5,444)
Cash and cash equivalents at the beginning of the year 9,604 15,046
Exchange loss/(gain) on cash and cash equivalents (1) 2
Cash and cash equivalents at the end of the year 13,933 9,604
Reconciliation of operating profit to net cash inflow from operating
activities
2023 2022
£'000 £'000
Continuing operating activities
Operating profit after exceptional items 10,252 9,689
Adjustments for:
Depreciation and amortisation 3,510 2,983
Gain on disposal of property, plant and equipment (16) (4)
Charge for share based payments 53 100
Defined benefit pension cash contribution (see note 20) (1,750) (1,750)
Changes in working capital:
Inventory (6,007) (5,403)
Trade and other receivables 2,346 (3,067)
Trade and other payables (67) 2,391
Net cash inflow from operations 8,321 4,939
1. Segmental analysis for the year ended 31 December 2023
Year to 31 December Year to 31 December
2023 2022
£'000 £'000
Market segment - Revenue
Ceramics 74,159 75,335
Materials 14,687 13,500
88,846 88,835
Intra group revenue (6,507) (6,307)
Group Revenue 82,339 82,528
Geographical segment - Revenue
United Kingdom 34,004 33,244
Rest of Europe 32,949 31,888
USA 8,399 8,715
Rest of the World 6,987 8,681
82,339 82,528
2023 2022
Operating profit before exceptional items £'000 £'000
Ceramics 9,106 7,932
Materials 1,146 1,210
10,252 9,142
2023 2022
Exceptional items £'000 £'000
Ceramics - 484
Materials - 63
- 547
2023 2022
Operating profit after exceptional items £'000 £'000
Ceramics 9,106 8,416
Materials 1,146 1,273
10,252 9,689
2023 2022
Unallocated items £'000 £'000
Finance Income 611 60
Finance costs (75) (148)
Profit before income tax 10,788 9,601
2. Finance income and costs
Year to 31 December Year to 31 December
2023 2022
£'000 £'000
Interest income on cash and cash equivalents 229 60
Interest on defined benefit schemes 382 -
Finance income 611 60
Interest on defined benefit schemes (note 20) - (113)
Interest on lease liabilities (64) (35)
Other interest (11) -
Finance costs (75) (148)
Net finance income/(costs) 536 (88)
3. Income tax expense
Year to 31 December Year to 31 December
2023 2022
Group £'000 £'000
Current tax - current year 1,507 764
Current tax - current year exceptional - 14
- adjustment in respect of prior periods 128 (147)
Current tax 1,635 631
Deferred tax
Current year 1,144 1,075
Current year - adjustment in respect of prior periods 292 -
Deferred tax 1,436 1,075
Income tax expense 3,071 1,706
4. Earnings per ordinary share
Basic earnings per ordinary share is based on the profit after income tax and
on 10,997,835 (2022: 11,009,068) ordinary shares, being the weighted average
number of ordinary shares in issue during the year. Adjusted basic earnings
per share is calculated after adjusting for the post tax effect of exceptional
items (see Note 3).
2023 2022
Pence per Pence per
share
share
Basic earnings per share (Based on earnings £7,717,000 (2022: £7,895,000)) 70.2 71.7
Less: Exceptional Items: £nil (2022: £532,000) - (4.8)
Adjusted basic earnings per share (based on adjusted earnings £7,717,000 70.2 66.9
(2022: £7,363,000))
5. Reconciliation of operating profit to net cash inflow from operating
activities
Year to 31 December 2023 Year to 31 December 2022
£'000 £'000
Continuing operating activities
Operating profit after exceptional items 10,252 9,689
Adjustments for:
Depreciation and amortisation 3,510 2,983
Gain on disposal of property, plant and equipment (16) (4)
Charge for share based payments 53 100
Defined benefit pension cash contribution (see note 20) (1,750) (1,750)
Changes in working capital:
Inventory (6,007) (5,403)
Trade and other receivables 2,722 (3,067)
Trade and other payables (67) 2,391
Net cash inflow from operations 8,697 4,939
6.Dividends
The dividends paid in the year were as follows:
Group and Company 2023 2022
Ordinary £'000 £'000
Final dividend 2022 21.0p (2022: 17.3p) per 10p ordinary share 2,309 1,907
Interim 2023 11.0p (2022: 10.5p) per 10p ordinary share paid 1,210 1,155
3,519 3,062
The Directors now recommend payment of the following dividend:
Ordinary dividend:
Final dividend 2023 25.0p (2022: 21.0p) per 10p ordinary share 2,749 2,310
Dividends on treasury shares held by the Company are waived.
7.Retirement benefit asset
The movement in the present value of defined benefit obligation over the year
is as follows:
Audited Audited
Year to Year to
31 December 2023 31 December 2022
£'000 £'000
Liability at 1 January 6,924 (7,156)
Interest cost (1,891) (113)
Expected return on plan assets 2,273 (8,619)
Experience gains on liabilities 533 (3,652)
Re-measurements from change in assumptions (1,734) 24,714
Employer Contributions 1,750 1,750
At 31 December 7,855 6,924
8. Basis of preparation and accounting policies
The financial information included in the preliminary announcement for year to
31 December 2023 has been approved by the Board on 9 April 2024.
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 2022.
Statutory accounts for the year ended 31 December 2022 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 2023 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
(http://www.churchill1795.com/) ) in May 2024.
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