23 January 2023
COLEFAX GROUP PLC
(“Colefax” or the “Group”)
Half Year Results
for the six months ended 31 October 2022
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 12% to £51.66 million (2021: £46.12 million) and up 2.5% on a constant currency basis reflecting generally favourable market conditions in all the Group’s major markets and a favourable US dollar exchange rate
· Group profit before tax up 16% to £5.2 million (2021: £4.49 million)
· Earnings per share increased by 30% to 51.3p (2021: 39.6p) helped by share buybacks in the prior year
· Share Buyback Programme returned £5.4 million of surplus capital to shareholders in September 2022
· Fabric Division sales up 14% to £47.17 million (2021: £41.25 million) and by 3.5% on a constant currency basis
o US up by 1%, UK up by 4%, Europe up by 11%
· Decorating Division sales of £3.13 million (2021: £3.57 million) with project completions weighted to the second half of the financial year
o loss of £596,000 (2021: loss of £378,000)
· Cash generation of £2.9 million excluding share buybacks and dividend payments
· Interim dividend of 2.6p (2021: 2.5p) up 4% in line with a progressive dividend policy
David Green, Chairman, said:
“Our performance over the last six months reflects generally favourable trading conditions in all our major markets, in line with our expectations at the start of the year. In addition we benefitted from a very strong US Dollar exchange rate and as a result, we now expect our full year performance to 30 April 2023 to be ahead of previous expectations.
“Over the last six months we are aware that housing transactions have slowed significantly in the US and the UK and we therefore expect trading in these markets to become progressively more challenging in the year ahead. We have experienced significant cost inflation over the last year, mainly driven by increased energy costs in our supply chain but there are tentative signs that the worst might be over.
“The Group has a strong balance sheet and we will continue to invest in our distribution network and our portfolio of brands .”
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 2022 increased by 12% to £51.66 million (2021: £46.12 million) and by 2.5% on a constant currency basis. Pre-tax profits increased by 16% to £5.20 million (2021: £4.49 million). Earnings per share increased by 30% to 51.3p (2021: 39.6p) with the increase partly reflecting the benefit of share buybacks in the prior year. The Group ended the half year with cash of £19.95 million (April 30 2022: £21.79 million).
In September 2022 the Group returned £5.4 million of surplus capital to shareholders by way of a Share Buyback Programme. The Group purchased and cancelled 700,000 shares, representing 8.8% of the issued ordinary share capital. This will enhance earnings per share in future periods.
Trading conditions during the first half of the year have been generally favourable in all our major markets. This is reflected in our interim results and is in line with our expectations when we announced our full year results in August 2022. Although rising interest rates have inevitably resulted in a slowdown in housing transactions our sales tend to lag these changes by up to twelve months and as a result we do not believe they had a significant impact on trading in the period. During the first half of the financial year the Group benefitted from the strength of the US Dollar against Sterling. Over 60% of core Fabric Division sales are in the US and invoiced in US Dollars. The average US exchange rate for the first six months was $1.18 compared to $1.38 for the prior year and the closing rate was $1.15 compared to $1.37 last year. The Group’s first half results include a loss of £596,000 (2021: – loss of £378,000) by our Decorating Division. This was due to the timing of project completions which are weighted to the second half of the year.
In line with the Group’s progressive dividend policy the Board has decided to propose a 4% increase in the interim dividend to 2.6p (2021: 2.5p). This will be paid on 12 April 2023 to shareholders on the register at 10 March 2023.
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 91% of the Group’s sales, increased by 14% to £47.17 million (2021: £41.25 million) and by 3.5% on a constant currency basis. Profits increased by 16% to £5.65 (2021: £4.88 million). During the period we continued to experience significant cost inflation from our suppliers mainly driven by substantial increases in factory energy costs. These cost increases are initially reflected in inventory and do not immediately impact our gross profit margins.
Sales in the US, which represent 64% of the Fabric Division’s turnover, increased by 18% in reported terms and by 1% on a constant currency basis against very strong prior year comparatives. Last year our first half sales increased by 33% on a constant currency basis and the flattening in sales this year was not unexpected in a period of sharply rising interest rates. US sales remain significantly ahead of pre-pandemic levels. There have been some significant variations in sales by territory in the US reflecting regional variations in housing activity. Our focus in the US is to continue to develop our showroom network to maximise sales opportunities. In April 2023 we will be opening new showrooms in Dallas and Toronto which we expect to have a positive impact on our sales in those markets.
Sales in the UK, which represent 17% of the Fabric Division’s turnover, increased by 4% during the period. Sales during the period were 29% higher than the equivalent period prior to the pandemic and reflect a continuation of the post pandemic boom in home decoration driven by changes in lifestyles. As with the US market we have not yet seen a significant slowdown in sales activity as a result of rising interest rates and attribute this to the lag between home spending and housing market activity.
Sales in Continental Europe, which represent 17% of the Fabric Division’s turnover, increased by 11% on both a reported basis and a constant currency basis. Despite significantly increased costs and complexity as a result of Brexit our sales in Europe have continued the recovery which started after the first lockdowns. There are significant variations in sales performance between countries. Our three largest markets in Europe are France, Germany and Italy and together these account for just over 50% of European sales. France has been the best performing of these three markets mainly due an increase in contract orders and we expect this to continue in the run up to the Olympics in 2024. In June we switched from a distributor to a direct selling approach in Spain and so far the results have been extremely positive with sales in this market up by 34% on a constant currency basis.
Sales in the Rest of the World, which represent just 2% of the Fabric Division’s turnover, increased by 24% on a constant currency basis. Our major markets comprise the Middle East, China and Australia. Sales in the Middle East are mainly focussed on contract orders and continue to offer good opportunities for growth. In contrast trading in China and Australia remained challenging during the first half of the year reflecting the long duration of pandemic lockdowns in these markets.
· Furniture – Kingcome Sofas
Sales for the six months to October 2022 increased by 5% to £1.36 million (2021: £1.30 million) and the Company made an operating profit of £130,000 compared to an operating loss of £11,000 in 2021. Almost 90% of Kingcome sales are made in the UK and trading conditions became progressively more challenging during the period especially during October. Despite this the order book at the end of October was just below record levels and up by 37% compared to the prior year although this was partly due to longer factory lead times caused by labour and raw material shortages. During the period we completed a major investment in our freehold factory in Devon which will significantly improve operational and energy efficiency. In October we opened a new showroom in the Chelsea Harbour Design Centre and we expect this to have a positive impact on sales in the medium term.
Interior Decorating Division
Decorating sales, which account for just over 6% of Group turnover, decreased by 12% in the period to £3.13 million (2021: £3.57 million) resulting in a first half loss of £596,000 compared to a loss of £378,000 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. Most major decorating projects are preceded by significant building work which is outside of our control and since the pandemic many building projects have suffered from delays caused by labour and materials shortages. During the first half we have seen an increase in overseas projects especially in the US and the Middle East. Overseas projects typically account for around 40% of total sales.
Prospects
Our performance over the last six months reflects generally favourable trading conditions in all our major markets, in line with our expectations at the start of the year. In addition we benefitted from a very strong US Dollar exchange rate and as a result, we now expect our full year performance to 30 April 2023 to be ahead of previous expectations.
Our business is closely tied to high end housing market activity but with a time lag of six to twelve months. Over the last six months we are aware that housing transactions have slowed significantly in the US and the UK and we therefore expect trading in these markets to become progressively more challenging in the year ahead. We have experienced significant cost inflation over the last year, mainly driven by increased energy costs in our supply chain but there are tentative signs that the worst might be over.
The Group has a strong balance sheet and we will continue to invest in our distribution network and our portfolio of brands. Our performance over the last six months has involved a tremendous amount of hard work by all our staff and I would like to thank them for their loyalty and support.
David Green
Chairman
COLEFAX GROUP PLC
INTERIM GROUP INCOME STATEMENT
| Unaudited | Unaudited | Audited | |
| Six months to31 Oct 2022 | Six months to31 Oct 2021 | Yearto30 April 2022 | |
| £’000 | £’000 | £’000 | |
| Revenue | 51,657 | 46,122 | 101,796 |
| Cost of sales | (22,229) | (21,302) | (47,237) |
| Gross profit | 29,428 | 24,820 | 54,559 |
| Operating expenses | (23,733) | (19,784) | (42,665) |
| Profit from operations | 5,695 | 5,036 | 11,894 |
| Finance expense | (506) | (545) | (1,071) |
| Profit before taxation | 5,189 | 4,491 | 10,823 |
| Tax expense | (1,219) | (1,056) | (2,330) |
| Profit for the period attributable to equity holders of the parent | 3,970 | 3,435 | 8,493 |
| Basic earnings per share | 51.3p | 39.6p | 102.5p |
| Diluted earnings per share | 51.3p | 39.6p | 102.5p |
INTERIM GROUP STATEMENT OF COMPREHENSIVE INCOME
| Unaudited | Unaudited | Audited | |
| Six months to31 Oct 2022 | Six months to31 Oct 2021 | Yearto30 April 2022 | |
| £’000 | £’000 | £’000 | |
| Profit for the period | 3,970 | 3,435 | 8,493 |
| Other comprehensive income / (expense): | |||
| Items that will or may be reclassified to profit and loss: | |||
| Exchange differences on translation of foreign operations | 760 | (167) | 522 |
| Tax relating to items that will or may be reclassified to profit and loss | (12) | (12) | – |
| Total other comprehensive income / (expense) | 748 | (179) | 522 |
| Total comprehensive income for the period attributable to equity holders of the parent | 4,718 | 3,256 | 9,015 |
COLEFAX GROUP PLC
INTERIM GROUP STATEMENT OF FINANCIAL POSITION
| Unaudited | Unaudited | Audited | ||
| As at 31 Oct 2022 | As at 31 Oct 2021 | As at 30 April 2022 | ||
| Notes | £’000 | £’000 | £’000 | |
| Non-current assets: | ||||
| Right of use assets | 25,881 | 26,276 | 25,621 | |
| Property, plant and equipment | 8,447 | 6,762 | 7,423 | |
| Deferred tax asset | 23 | 34 | 22 | |
| 34,351 | 33,072 | 33,066 | ||
| Current assets: | ||||
| Inventories and work in progress | 6 | 16,993 | 17,766 | 17,031 |
| Trade and other receivables | 4 | 7,992 | 8,123 | 6,976 |
| Current corporation tax | – | 427 | 115 | |
| Cash and cash equivalents | 19,950 | 17,539 | 21,785 | |
| 44,935 | 43,855 | 45,907 | ||
| Current liabilities: | ||||
| Trade and other payables | 5 | 17,923 | 20,568 | 17,582 |
| Lease liabilities | 3,332 | 4,760 | 4,176 | |
| Current corporation tax | 304 | – | – | |
| 21,559 | 25,328 | 21,758 | ||
| Net current assets | 23,376 | 18,527 | 24,149 | |
| Total assets less current liabilities | 57,727 | 51,599 | 57,215 | |
| Non-current liabilities: | ||||
| Lease liabilities | 25,174 | 23,681 | 23,807 | |
| Deferred tax liability | 282 | 333 | 261 | |
| Net assets | 32,271 | 27,585 | 33,147 | |
| Capital and reserves attributable to equity holders of the Company: | ||||
| Called up share capital | 724 | 794 | 794 | |
| Share premium account | 11,148 | 11,148 | 11,148 | |
| Capital redemption reserve | 2,151 | 2,081 | 2,080 | |
| ESOP share reserve | (113) | (113) | (113) | |
| Foreign exchange reserve | 2,460 | 1,010 | 1,712 | |
| Retained earnings | 15,901 | 12,665 | 17,526 | |
| Total equity | 32,271 | 27,585 | 33,147 |
COLEFAX GROUP PLC
INTERIM GROUP STATEMENT OF CASH FLOWS
| Unaudited | Unaudited | Audited | |
| Six months to 31 Oct 2022 | Six months to 31 Oct 2021 | Yearto 30 April2022 | |
| £’000 | £’000 | £’000 | |
| Operating activities | |||
| Profit before taxation | 5,189 | 4,491 | 10,823 |
| Finance expense | 506 | 545 | 1,071 |
| Loss /(profit) on disposal of property, plant and equipment | 37 | (12) | (9) |
| Depreciation on right of use assets | 2,426 | 2,293 | 4,609 |
| Depreciation | 1,259 | 1,121 | 2,274 |
| Cash flows from operations before changes in working capital | 9,417 | 8,438 | 18,768 |
| Decrease / (increase) in inventories and work in progress | 273 | (1,654) | (898) |
| (Increase) / decrease in trade and other receivables | (762) | 475 | 1,789 |
| (Decrease) / increase in trade and other payables | (418) | 1,790 | (1,736) |
| Cash generated from operations | 8,510 | 9,049 | 17,923 |
| Taxation paid | |||
| UK corporation tax paid | (431) | (902) | (1,595) |
| Overseas tax paid | (387) | (60) | (488) |
| (818) | (962) | (2,083) | |
| Net cash inflow from operating activities | 7,692 | 8,087 | 15,840 |
| Investing activities | |||
| Payments to acquire property, plant and equipment | (1,914) | (812) | (2,255) |
| Receipts from sales of property, plant and equipment | – | 13 | 13 |
| Net cash outflow from investing | (1,914) | (799) | (2,242) |
| Financing activities | |||
| Purchase of own shares | (5,382) | (6,779) | (6,779) |
| Payment of lease liabilities | (2,896) | (2,418) | (5,134) |
| Other interest paid | (0) | (1) | 3 |
| Equity dividends paid | (213) | – | (197) |
| Net cash outflow from financing | (8,491) | (9,198) | (12,107) |
| Net increase in cash and cash equivalents | (2,713) | (1,910) | 1,491 |
| Cash and cash equivalents at beginning of period | 21,785 | 19,344 | 19,344 |
| Exchange gains on cash and cash equivalents | 878 | 105 | 950 |
| Cash and cash equivalents at end of period | 19,950 | 17,539 | 21,785 |
Enquiries:
Colefax Group plc David Green, Chief Executive Tel 020 7318 6021
KTZ Communications Katie Tzouliadis, Dan Mahoney Tel 020 3178 6378
Peel Hunt LLP Adrian Trimmings, Andrew Clarke Tel 020 7418 8900