AIM: CFX

COLEFAX GROUP PLC

("Colefax" or the "Group")

Half Year Results

for the six months ended 31 October 2021

Colefax is an international designer and distributor of furnishing fabrics & wallpapers and owns a leading interior decorating business. The Group trades under five brand names, serving different segments of the soft furnishings marketplace; these are Colefax and Fowler, Cowtan & Tout, Jane Churchill, Manuel Canovas and Larsen.

Highlights

·      Group sales up 24.8% to £46.12 million (2020: £37.0 million) and by 30.9% on a constant currency basis reflecting favourable market conditions in the US and the UK

·      Group profit before tax up 33% to £4.49 million (2020: £3.37 million)

·      Earnings per share increased by 40% to 39.6p (2020: 28.2p)

·      Tender Offer and share buyback returned £6.7 million of surplus capital to shareholders in September 2021

·      Fabric Division sales up 23% to £41.25 million (2020: £33.60 million) and by 29% on a constant currency basis

o  US up by 33%, UK up by 39%, Europe up by 11%

·      Decorating Division sales of £3.57 million (2020: £2.1 million) still affected by project delays and travel restrictions but significant billing expected in second half of year.

o  loss of £378,000 (2020: loss of £687,000)

·      Cash at half year end of £17.5 million (30 April 2021: £19.3 million) with cash generation of £4.9 million excluding the Tender Offer

·      Interim dividend of 2.5p (2020: nil) and return to progressive dividend policy

David Green, Chairman, said:

"Our performance over the last six months reflects very favourable trading conditions in the US and the UK which together account for 80% of Fabric Division sales. These conditions have continued into the second half of the year and as a result we remain optimistic about prospects although we expect the rate of growth to slow as the economy gradually returns to normal. Our Decorating Division is expected to deliver an exceptional performance this year due to a major project completing in the second half of the year.

"We have made good progress over the last six months and our strong balance sheet means we can invest with confidence in our portfolio of luxury brands and our worldwide distribution network."

Enquiries:

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

CHAIRMAN'S STATEMENT

Financial Results

Group sales for the six months to 31 October 2021 increased by 24.8% to £46.12 million (2020: £37.0 million) and increased by 30.9% on a constant currency basis. Pre-tax profits increased by 33% to £4.49 million (2020: £3.37 million). Earnings per share increased by 40% to 39.6p (2020: 28.2p). The Group ended the half year with cash of £17.5 million (2021: £19.9 million).

In September 2021 the Group returned £6.7 million of surplus capital to shareholders by way of a Tender Offer and share buyback. The Group purchased and cancelled 1,084,905 shares, representing 12% of the issued ordinary share capital at a price of 615p per share.

Trading conditions during the first half of the year remained favourable in most of our major markets and continued the positive trend seen in the second half of last year. We attribute these favourable conditions to a strong housing market and significant pent up demand for home related products. The increase in constant currency sales of 30.9% is partly explained by the adverse impact of the initial lockdowns on the prior year when first half sales were down by 14%. Our strongest markets have been the US and the UK both of which started to recover from the initial impact of the pandemic in September 2020 and have been relatively unaffected by subsequent lockdowns.

Given the recovery in sales and reduced uncertainty about future trading conditions the Board has decided to restart dividend payments and propose an interim dividend of 2.5p. This will be paid on 14 April 2022 to shareholders on the register at 18 March 2022. In line with the Group's policy prior to the start of the pandemic the Board intends to follow a progressive dividend policy.

Product Division

·      Fabric Division - Portfolio of five brands: "Colefax and Fowler", "Cowtan and Tout", "Jane Churchill", "Manuel Canovas" and "Larsen".

Sales in the Fabric Division, which represent 89% of the Group's sales, increased by 23% to £41.25 million (2020: £33.60 million) and by 29% on a constant currency basis. Profits increased by 25% to £4.88 million (2020: £3.89 million). Prior year operating expenses were significantly reduced during the initial phase of the pandemic and the current half year reflects a return to more normal levels of expenditure. In addition the current year results include approximately £0.5 million of additional duty and transport costs resulting from Brexit.

Sales in the US, which represent 62% of the Fabric Division's turnover, increased by 24% in reported terms and by 33% on a constant currency basis. This compares to a constant currency decline of 5.9% in the prior half year. The US has been our strongest market throughout the pandemic. Compared to the UK and Europe the US experienced a much lower decline in sales at the start of the pandemic in 2020 and a faster and stronger recovery which has continued throughout the current year. Towards the end of our last financial year we consolidated the majority of our US warehouse operations into our much larger UK facilities and moved from Manhattan to smaller premises in Brooklyn. This has simplified the US business, reduced costs and improved efficiency and this year we are starting to see the benefits of this reorganisation.

Sales in the UK, which represent 18% of the Fabric Division's turnover, increased by 39% during the period.  The increase partly reflects the significant impact of the pandemic on prior year sales. The UK market recovered quickly after the first lockdown in 2020 and demand has remained strong throughout the second half of last year and the first half of this year. The main driver has been high levels of housing market transactions which we consider to be the key external driver of our business. Historically we tend to lag changes in housing market activity. Unlike trading in Europe we have not suffered any additional costs in the UK as a result of Brexit and operationally the main challenges have been due to the impact of the pandemic on supplier lead times.

Sales in Continental Europe, which represent 18% of the Fabric Division's turnover, increased by 7% on a reported basis and by 11% on a constant currency basis. Overall the recovery in Europe has been much weaker than in the US and the UK although we do not believe this is a direct consequence of Brexit. Despite unwelcome extra costs and complexity we have largely maintained our service levels in Europe and attribute the slower recovery to tighter lockdowns and a weaker housing market. Compared to last year Brexit added approximately £0.5 million to our first half operating costs primarily in the form of EU import duty on the sale of goods of non-UK origin. Our largest markets in Europe are France, Germany and Italy and together these three countries account for 53% of EU sales.

Sales in the Rest of the World, which represent just 2% of the Fabric Division's turnover, increased by 14% on a constant currency basis. Our major markets comprise the Middle East, China and Australia and whilst trading in these markets is starting to recover from the pandemic we expect them to remain a small part of overall sales. 

·      Furniture - Kingcome Sofas

Sales for the six months to October 2021 increased by 4% to £1.30 million (2020: £1.25 million) and the Company made an operating loss of £11,000 compared to an operating profit of £166,000 in 2020. The majority of Kingcome sales are made in the UK and trading during the period remained strong reflecting the favourable UK market conditions that we have seen in the Fabric Division. Last year's profit performance was exceptional mainly due to very low factory costs during the first UK lockdown and the timing of sales invoicing where the pandemic delayed deliveries due in the prior period. In addition the current year performance has been affected by significant increases in raw materials and energy costs. At the start of the current financial year the Kingcome showroom had only just reopened after the post-Christmas lockdown and the order book was down by 25%. This situation quickly recovered and at the half year end the order book was up by 9%.

Interior Decorating Division

Decorating sales, which account for just under 8% of Group turnover, increased by 72% in the period to £3.57 million (2020: £2.08 million) resulting in a reduced first half loss of £378,000 compared to a loss of £687,000 for the same period last year. The profit on decorating projects is recognised on invoicing and the losses incurred mainly reflect delays in the completion of projects caused by the pandemic. Overseas projects have been particularly affected by travel restrictions and typically these account for around 40% of total sales. Although billings have been relatively low customer deposits and related work in progress both increased significantly during the period and one particularly large UK project is expected to be invoiced in the second half of the year.

Prospects

Our performance over the last six months reflects very favourable trading conditions in the US and the UK which together account for 80% of Fabric Division sales. These conditions have continued into the second half of the year and as a result we remain optimistic about prospects although we expect the rate of growth to slow as the economy gradually returns to normal. Our Decorating Division is expected to deliver an exceptional performance this year due to a major project completing in the second half of the year.

Housing market conditions have been very strong and are the main external driver of Group sales. Over the last six months we have started to experience significant cost inflation in many areas of the business and this will offset some of the sales progress we have made. As far as possible we are trying to mitigate the impact of these above average cost increases although in Europe Brexit has added some unavoidable customs duty and transport costs.

We have made good progress over the last six months and our strong balance sheet means we can invest with confidence in our portfolio of luxury brands and our worldwide distribution network. The last six months have been extremely operationally challenging for all our staff, customers and suppliers and I would like to thank them for their hard work, loyalty and support.

David Green

Chairman

COLEFAX GROUP PLC

INTERIM GROUP INCOME STATEMENT

INTERIM GROUP STATEMENT OF COMPREHENSIVE INCOME

INTERIM GROUP STATEMENT OF FINANCIAL POSITION

INTERIM GROUP STATEMENT OF CASH FLOWS

COLEFAX GROUP PLC