COLEFAX GROUP PLC
(“Colefax” or the “Group”)
Half Year Results
for the six months ended 31 October 2023
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 0.4% to £51.84 million (2022: £51.66 million) and up 3.4% on a constant currency basis
· Group profit before tax down 16% to £4.38 million (2022: £5.20 million)
· Earnings per share down 8% to 47.3p (2022: 51.3p)
· Share Buyback Programme returned £7.2 million of surplus capital to shareholders in September 2023
· Fabric Division sales down 3% to £45.80 million (2022: £47.17 million) and up 0.3% on a constant currency basis
o US down by 2.4%, UK up by 4%, Europe up by 2.8%
· Decorating Division sales of £4.55 million (2022: £3.13 million) with project completions weighted to the second half of the financial year
o loss of £221,000 (2022: loss of £596,000)
· Cash generation of £4.2 million excluding share buybacks and dividend payments (2022: £2.9 million)
· Interim dividend of 2.7p (2022: 2.6p) up 4% in line with a progressive dividend policy
David Green, Chairman, said:
“The Group has delivered a good performance in the first six months which is broadly in line with expectations and follows record interim profits in the prior year. Trading in all our major markets is starting to reflect the impact of high interest rates and lower levels of housing market activity. We are therefore expecting conditions to become more difficult especially as customer spending on our products tends to lag changes in housing market activity and we believe trading conditions are likely to remain challenging for much of the next financial year. Our Decorating Division is expected to deliver an exceptional performance this year due to the timing of projects but as a result decorating turnover will be significantly lower next year.
“The Group has a strong balance sheet and we will continue to focus on investing in our distribution network and our portfolio of brands. This will ensure that we are well placed to benefit from any improvement in market conditions.”
Enquiries:
Colefax Group plc David Green, Chief Executive Tel 020 7318 6021
KTZ Communications Katie Tzouliadis, Robert Morton Tel 020 3178 6378
Peel Hunt LLP Adrian Trimmings, Andrew Clarke Tel 020 7418 8900
CHAIRMAN’S STATEMENT
Financial Results
Group sales for the six months to 31 October 2023 increased by 0.4% to £51.84 million (2022: £51.66 million) and by 3.4% on a constant currency basis. Pre-tax profits decreased by 16% to £4.38 million (2022: £5.20 million). Earnings per share decreased by 8% to 47.3p (2022: 51.3p). The Group ended the half year with cash of £17.06 million (30 April 2023: £19.75 million).
In September 2023 the Group returned £7.2 million of surplus capital to shareholders by way of a Tender Offer and share buyback. The Group purchased and cancelled 1,013,254 shares at a price of £7.00 and representing 14.0% of the issued ordinary share capital. The share buyback will benefit earnings per share in the current and future financial years.
Sales in our core Fabric Division increased by 0.3% on a constant currency basis against a strong prior year comparative. This was not sufficient to offset the impact of high levels of cost inflation arising in the prior year and is the main reason for the 16% decline in profit before tax in the first half against record prior year profits. Fortunately, we are experiencing lower levels of cost inflation in the current financial year and we expect this trend to continue. First half profits were also adversely impacted by a weaker US Dollar exchange rate of $1.25 compared to $1.18 for the prior year but this was partly offset by a reduced loss of £221,000 by our Decorating Division (2022: loss of £596,000).
Trading in the first half of the year was broadly in line with our expectations. Fabric Division sales are closely linked to high end housing market activity and steep increases in interest rates have significantly reduced the number of housing transactions in all our major markets. Our business lags changes in housing market activity by up to twelve months and so the full impact of higher interest rates has only just started to take effect.
In line with the Group’s progressive dividend policy the Board has decided to propose a 4% increase in the interim dividend to 2.7p (2022: 2.6p). This will be paid on 11 April 2024 to shareholders on the register at 8 March 2024.
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 88% of the Group’s sales, decreased by 3% to £45.80 million (2022: £47.17 million) but increased by 0.3% on a constant currency basis. Profits decreased by 21% to £4.48 million (2022: £5.65 million). High levels of cost inflation in the prior year have not been repeated in the current year but a more challenging sales environment means that sales growth was not sufficient to fully offset a higher cost base.
Sales in the US, which represent 61% of the Fabric Division’s turnover, decreased by 7% in reported terms and by 2% on a constant currency basis. This compares to a constant currency increase of 1% in the first half of last year. Sales in the US have held up well, despite rising interest rates and we have continued to invest in our showroom network to take advantage of sales opportunities in specific territories. In November, we opened new showrooms in Dallas and Toronto and started selling direct to customers rather than via agents. We are confident that these new showrooms will deliver increased sales in these territories.
Sales in the UK, which represent 18% of the Fabric Division’s turnover, increased by 4% during the period and compare to an increase of 4% in the first half of the prior year. This performance was slightly ahead of our expectations at the start of the year and partly reflects the success of recent new product launches. We are also benefitting from the expansion of our trade showroom in the Chelsea Harbour Design Centre which took place in October 2022.
Sales in Continental Europe, which represent 18% of the Fabric Division’s turnover, increased by 3% on both a reported basis and a constant currency basis. This follows an 11% increase in sales in the first half of the prior year. Trading in Europe has remained fairly robust in most markets although it remains less profitable post Brexit due to increased operating costs, notably customs duty on EU exports. France, Germany and Italy collectively accounted for 48% of sales in Europe.
Sales in the Rest of the World, which represent just 3% of the Fabric Division’s turnover, increased by 32% on a constant currency basis. The increase was mainly due to an increase in contract orders to the Middle East which can vary significantly between reporting periods. Our other main markets in the Rest of the World are China and Australia, but they remain a small part of overall sales and are not a focus for growth.
Furniture – Kingcome Sofas
Sales for the six months to October 2023 increased by 10% to £1.50 million (2022: £1.36 million) and the Company made an operating profit of £126,000 (2022: £130,000). Furniture sales are recognised on delivery of orders and the 10% increase in sales during the period was due to improvements in factory productivity which reduced the existing order book and hence the lead time for new orders, to a more acceptable level. The improvement in productivity follows a significant investment in the factory in the prior year. Most furniture sales are made to order and relate to UK customers. Trading conditions during the period were challenging and the order intake was down by 22% compared to a strong prior year comparative. The reduced level of orders reflects high UK interest rates and a subdued housing market and trading is expected to remain challenging for at least the remainder of the year.
Interior Decorating Division
Decorating sales, which account for just under 9% of Group turnover, increased by 45% in the period to £4.55 million (2022: £3.13 million) resulting in a reduced first half loss of £221,000 compared to a loss of £596,000 for the same period last year. The profit on decorating projects is recognised on invoicing and the losses incurred in the first half are mainly due to the timing of project completion dates. Decorating Division work in progress increased by 39% during the period and with a high level of project completions expected in the second half of the year an exceptional overall performance is now expected for the full year. This timing does mean that Decorating Division sales will be significantly lower next year.
Prospects
The Group has delivered a good performance in the first six months which is broadly in line with expectations and follows record interim profits in the prior year. Trading in all our major markets is starting to reflect the impact of high interest rates and lower levels of housing market activity. We are therefore expecting conditions to become more difficult especially as customer spending on our products tends to lag changes in housing market activity and we believe trading conditions are likely to remain challenging for much of the next financial year. Our Decorating Division is expected to deliver an exceptional performance this year due to the timing of projects but as a result decorating turnover will be significantly lower next year.
The Group has a strong balance sheet and we will continue to focus on investing in our distribution network and our portfolio of brands. This will ensure that we are well placed to benefit from any improvement in market conditions.
David Green
Chairman