Churchill China (LON:CHH) continues to show how successful a UK manufacturing business can be when it is run efficiently and well-invested. Churchill has focused on the ceramics markets where it is strong, particularly supplying hardwearing plates and bowls to hotels and restaurants, and it has built up a strong market share in hospitality sector.

Pre-tax profit has grown at a compound annual growth rate of 22% over a five year period.

In the first half of 2019, revenues were 17% ahead a £31.9m. However, that includes £2m from ceramic materials supplier Furlong Mills now that it is majority controlled and consolidated, following the purchase of part of Dudson’s stake.

Underlying growth was still 10% with a strong performance in the UK. Exports were 13% higher at £19.3m with the fastest growth in Europe.

Underlying pre-tax profit, excluding the £117,000 gain on the Furlong Mills stake acquisition, jumped from £3.3m to £4.2m. There was also a £100,000 profit contribution from Furlong Mills.

The interim dividend is being raised by 18% to 10.3p a share. That is three times covered by interim earnings. Net cash is £13.5m at the end of June 2019 and cash generation is normally better in the second half.

Manufacturing

There has been investment in kiln firing capacity and an extension of manufacturing facilities. This investment will enable Churchill to manufacture higher margin products and it should be completed next year.

Dudson products that were acquired earlier this year have been re-engineered so they can be replicated by Churchill. They have a different glaze to Churchill’s. They are being relaunched and Dudson branded products have separate distribution in some markets. 

The business has to keep significant stocks of plates and other tableware for the hospitality sectors, because service is important and Churchill has to be able to supply replacements for broken crockery.

This year, Churchill has been supplying orders from Europe from a third party warehouse in Rotterdam and stocks are being built up.

Management expects to “make further progress in the second half. It believes that suitable plans have been put in place for Brexit, although this could still hamper progress.

At 1600p, the shares are trading on just over 20 times the rolling earnings per share figure. That reflects the impressive growth record.