Churchill China

As foreshadowed at its May AGM, ceramics maker Churchill China, which has been hit by a sharp rise in energy prices and slowdown on the UK high street, posted a hefty drop in profits for the half to June. On lower sales of £22.3m (£23.7m), pre-tax profits slipped from £1.3m to £600,000, pulling earnings per share down from 8.7p to 4p. The interim dividend was held at 3.7p. Stephen Roper, chairman, said sales to retail customers failed to hit targets in an ultra-competitive market. Sales to retail customers dropped from £11.4m to £9.8m, with gloom on the UK high street and poor performances in the USA and Europe affecting sales. Roper says the sourcing of products from overseas has reduced costs and made Churchill more competitive. There was a stronger performance in the hospitality business, despite flat demand in most major markets. The premium Alchemy brand of fine china, which is sold to four- and five-star hotels, continued to perform well, with like-for-like sales rocketing up by 65%. Here, Roper insists, there are opportunities to grow sales through new product development of add-on ranges. Cost cutting, together with stronger profit and cash generation in the traditionally busier second half augur well for the latter half-year, which benefits from the run up to Christmas. However, Roper remains cautious on trading, says there’s less consumer spending on eating out, and points out that Churchill China also has to contend with higher gas and pension costs. Management is to be applauded, but there are more compelling stocks around at present. Avoid.