AIM: CFX
COLEFAX GROUP PLC
("Colefax" or the "Group")
Half Year Results
for the six months ended 31 October 2020
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
· Strong recovery in core Fabric Division sales following the lockdowns in force at the start of the period
· Group sales down 14.0% to £36.97 million (2019: £42.98 million) and by 12.8% on a constant currency basis
· Group profit before tax up 17% to £3.37 million (2019: £2.88 million) mainly due to costs deferred by delayed new product launches
· Earnings per share increased by 18% to 28.2p (2019: 23.9p)
· Fabric Division sales down 7.8% to £33.60 million (2019: £36.50 million) and by 6.3% on a constant currency basis
o US down by 5.9%, UK down by 11.7%, Europe down by 2.0%
· Decorating Division sales down 60% to £2.1 million (2019: £5.2 million) due to coronavirus restrictions
o loss of £687,000 (2019: profit of £255,000)
· Cash increased by £8.4m to £19.9 million (30 April 2020: £11.5 million) partly due to delayed investment in new product
David Green, Chairman, said:
"The Group's performance over the last six months has shown resilience in a trading environment where most of our major markets were emerging from varying degrees of lockdown. The easing of lockdowns resulted in renewed interest in home related spending and we believe this is the reason for a sales recovery which has exceeded our initial expectations.
"In the last two months, restrictions have been re-imposed to varying degrees in both the UK and our export markets but so far, the impact on sales is much less than we experienced during the first lockdown. Brexit has added an additional layer of cost and complexity to our European business which we will try to mitigate as far as possible. We are cautiously optimistic about future prospects especially as 62% of our sales in the Fabric Division are in the US, where sales have been very resilient during the pandemic".
"The Group has a strong balance sheet and we will continue to invest with confidence in our portfolio of luxury brands and our worldwide distribution network".
Enquiries:
| Colefax Group plc | David Green, Chief Executive | Tel: 020 7318 6021 |
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| Rob Barker, Finance Director |
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| KTZ Communications | Katie Tzouliadis, Dan Mahoney | Tel: 020 3178 6378 |
| Peel Hunt LLP
| Adrian Trimmings, Andrew Clark | Tel: 020 7418 8900 |
CHAIRMAN'S STATEMENT
Financial Results
Group sales for the six months to 31 October 2019 decreased by 14.0% to £36.97 million (2019: £42.98 million) and decreased by 12.8% on a constant currency basis. Pre-tax profits increased by 17% to £3.37 million (2019: £2.88 million). Earnings per share increased by 13% to 28.2p (2019: 23.9p). The Group ended the first half of the year with cash of £19.9 million (2019: £11.1 million).
The current year started with most of our customers, suppliers and showrooms closed due to worldwide lockdowns. As the lockdowns slowly eased, we experienced a strong recovery in our core Fabric Division sales, which ended the six months down by just 6.3% on a constant currency basis. We attribute this to an increase in housing market activity and renewed interest in home related spending. One consequence of the pandemic has been the delay of our normal autumn product launches to the second half of the year and this timing difference is a major reason for the increase in profit and cash during the period. In addition, the Group received furlough support of £539,000, mostly relating to the months of May and June.
In contrast to the Fabric Division, activity levels in our Decorating Division have been adversely affected by the lockdowns and this has slowed the rate of progress on domestic projects and temporarily curtailed the possibility of overseas work.
The Group has a strong balance sheet and significant cash resources but most of our major markets are currently in varying degrees of lockdown. As a result the Board has decided not to restart dividend payments until there is more certainty about the easing of restrictions and future trading conditions. We anticipate that this will be apparent by our financial year end.
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, decreased by 7.8% to £33.6 million (2019: £36.50 million) and by 6.3% on a constant currency basis. Profits increased by 47% to £3.89 million (2019: £2.64 million). The increase in profit is mainly due to timing differences resulting from delays to new product launches caused by the pandemic. These launches and related costs will now take place in the second half of the year.
Sales in the US, which represent 62% of the Fabric Division's turnover, decreased by 8.8% in reported terms and by 5.9% on a constant currency basis. The US market experienced a much lower initial decline in sales than the UK and Europe. During the period we made further progress with the integration of our US warehouse operations into the UK. This process will conclude in March with the move of our US operations out of Manhattan to much smaller premises in Brooklyn and will generate some significant efficiency improvements.
Sales in the UK, which represent 16% of the Fabric Division's turnover, declined by 11.7% during the period. The current lockdown in the UK is starting to have an impact on sales, but as with previous lockdowns, we believe that sales will recover quickly when the lockdowns are eased. Although Brexit has major implications for our European business, the last minute free trade deal means that we expect our UK business to be largely unaffected by the UK's departure from the EU.
Sales in Continental Europe, which represent 20% of the Fabric Division's turnover, decreased by 0.8% on a reported basis and by 2.0% on a constant currency basis. The lower rate of overall decline compared to the US and the UK reflects the fact that our main European markets went into lockdown earlier. Despite the announcement of a free trade deal, the UK's departure from the EU has added an additional layer of cost and complexity when selling to EU customers. Apart from a significant increase in red tape, there are some unavoidable duty costs and custom clearance costs which will reduce the profitability of our European activities.
Sales in the Rest of the World, which represent 2% of the Fabric Division's turnover, decreased by 13% on a constant currency basis. Our major markets comprise the Middle East, China and Australia. Trading in these markets is challenging and we expect them to remain a relatively small proportion of total Fabric Division sales.
· Furniture - Kingcome Sofas
Sales for the six months to October 2020 were level with last year at £1.25 million (2019: £1.25 million) and the Company made an operating profit of £166,000 compared to £51,000 in 2019. The Company started the year in lockdown with a skeleton staff but as the UK lockdown eased there was a strong recovery in demand for upholstered furniture. Although the current UK lockdown has closed our showroom and significantly reduced the order intake, the order book is still up by 20% compared to the prior year.
Interior Decorating Division
Decorating sales, which account for just under 6% of Group turnover, decreased by 60% in the period to £2.1 million (2019: £5.2 million) resulting in a first half loss of £687,000 compared to a profit of £255,000 for the same period last year. The Decorating Division has been the part of the business most affected by the coronavirus pandemic. Travel restrictions have limited the amount of overseas work and typically this accounts for around 40% of total sales. In addition the rate of progress on existing projects has been slowed or delayed especially where prior construction work is involved. Decorating sales are recognised on completion of projects and this explains the low level of billing during the first half. The current level of lockdown means that this situation is continuing in the second half of the year. During the period, customer deposits increased from £2.1 million to £4.6 million reflecting a healthy level of demand, despite the challenges of the current situation.
Prospects
The Group's performance over the last six months has shown resilience in a trading environment where most of our major markets were emerging from varying degrees of lockdown. The easing of lockdowns resulted in renewed interest in home related spending and we believe that this is the reason for a sales recovery that has exceeded our initial expectations.
Our results for the first six months are distorted by minimal new product investment and related launch costs, which have been delayed until the second half of the year. The US continues to perform strongly although the weaker US Dollar will have an impact on profit margins. In the last two months restrictions have been re-imposed to varying degrees in the both the UK and our export markets but, so far the impact on sales is much less than we experienced during the first lockdown. Brexit has added an additional layer of cost and complexity to our European business which we will try to mitigate as far as possible. We are cautiously optimistic about future prospects especially as 62% of our Fabric Division sales are in the US where sales have been very resilient during the pandemic. However, our Decorating Division will take time to return to more normal levels of activity.
The Group has a strong balance sheet and we will continue to invest with confidence in our portfolio of luxury brands and our worldwide distribution network. The last six months have been immensely challenging for all our staff, customers and suppliers and I would like to thank them for their extraordinary contribution during this difficult period.
David Green
Chairman
COLEFAX GROUP PLC
INTERIM GROUP INCOME STATEMENT
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| Unaudited | Unaudited | Audited |
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| Six months to 31 Oct 2020 | Six months to 31 Oct 2019 | Year to 30 April 2020 |
|
| £'000 | £'000 | £'000 |
| Revenue | 36,968 | 42,979 | 78,364 |
| Cost of sales | (15,777) | (19,129) | (34,602) |
| Gross profit | 21,191 | 23,850 | 43,762 |
| Operating expenses | (17,816) | (20,335) | (40,655) |
| Other income | 539 | - | 280 |
| Profit from operations | 3,914 | 3,515 | 3,387 |
| Finance income | - | 14 | 20 |
| Finance expense | (544) | (647) | (1,231) |
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| (544) | (633) | (1,211) |
| Profit before taxation | 3,370 | 2,882 | 2,176 |
| Tax expense | (842) | (740) | (256) |
| Profit for the period attributable to equity holders of the parent | 2,528 | 2,142 | 1,920 |
| Basic earnings per share | 28.2p | 23.9p | 21.4p |
| Diluted earnings per share | 28.2p | 23.9p | 21.4p |
INTERIM GROUP STATEMENT OF COMPREHENSIVE INCOME
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| Unaudited | Unaudited | Audited |
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| Six months to 31 Oct 2020 | Six months to 31 Oct 2019 | Year to 30 April 2020 |
|
| £'000 | £'000 | £'000 |
| Profit for the period | 2,528 | 2,142 | 1,920 |
| Other comprehensive income / (expense): |
|
|
|
| Items that will or may be reclassified to profit and loss: |
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|
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| Exchange differences on translation of foreign operations | (535) | (269) | 121 |
| Cash flow hedges: |
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|
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| (Losses) / gains recognised directly in equity | - | (84) | (84) |
| Transferred to profit and loss for the period | - | 104 | 104 |
| Tax relating to items that will or may be reclassified to profit and loss | 38 | (13) | (54) |
| Total other comprehensive income / (expense) | (497) | (262) | 87 |
| Total comprehensive income for the period attributable to equity holders of the parent | 2,031 | 1,880 | 2,007 |
INTERIM GROUP STATEMENT OF FINANCIAL POSITION
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| Unaudited | Unaudited | Audited |
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| As at 31 Oct 2020 | As at 31 Oct 2019 | As at 30 April 2020 |
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| Notes | £'000 | £'000 | £'000 |
| Non-current assets: |
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| Right of use assets |
| 24,170 | 27,665 | 26,057 |
| Property, plant and equipment |
| 7,334 | 8,102 | 8,524 |
| Deferred tax asset |
| 165 | 110 | 118 |
|
|
| 31,669 | 35,877 | 34,699 |
| Current assets: |
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|
|
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| Inventories and work in progress |
| 12,527 | 14,554 | 15,518 |
| Trade and other receivables | 4 | 7,560 | 10,378 | 6,499 |
| Current corporation tax |
| - | - | 332 |
| Cash and cash equivalents |
| 19,940 | 11,086 | 11,538 |
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|
| 40,027 | 36,018 | 33,887 |
| Current liabilities: |
|
|
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| Trade and other payables | 5 | 14,309 | 13,405 | 11,007 |
| Lease liabilities |
| 3,896 | 4,399 | 4,612 |
| Other loans |
| 947 | - | 977 |
| Current corporation tax |
| 459 | 639 | - |
|
|
| 19,611 | 18,443 | 16,596 |
| Net current assets |
| 20,416 | 17,575 | 17,291 |
| Total assets less current liabilities |
| 52,085 | 53,452 | 51,990 |
| Non-current liabilities: |
|
|
|
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| Lease liabilities |
| 21,834 | 25,339 | 23,780 |
| Deferred tax liability |
| 11 | 35 | - |
| Pension liability |
| - | 1 | - |
| Net assets |
| 30,240 | 28,077 | 28,210 |
| Capital and reserves attributable to equity holders of the Company: |
|
|
|
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| Called up share capital |
| 902 | 902 | 902 |
| Share premium account |
| 11,148 | 11,148 | 11,148 |
| Capital redemption reserve |
| 1,972 | 1,972 | 1,972 |
| ESOP share reserve |
| (114) | (114) | (113) |
| Foreign exchange reserve |
| 1,841 | 1,990 | 2,338 |
| Retained earnings |
| 14,491 | 12,179 | 11,963 |
| Total equity |
| 30,240 | 28,077 | 28,210 |
INTERIM GROUP STATEMENT OF CASH FLOWS
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| Unaudited | Unaudited | Audited |
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| Six months to 31 Oct 2020 | Six months to 31 Oct 2019 | Year to 30 April 2020 |
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| £'000 | £'000 | £'000 |
| Operating activities |
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|
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| Profit before taxation | 3,370 | 2,882 | 2,176 |
| Finance income | - | (14) | (20) |
| Finance expense | 544 | 647 | 1,231 |
| (Profit) / loss on disposal of property, plant and equipment | (13) | (17) | (28) |
| Depreciation on right of use assets | 2,153 | 2,127 | 3,071 |
| Depreciation | 1,557 | 1,353 | 4,193 |
| Cash flows from operations before changes in working capital | 7,611 | 6,978 | 10,623 |
| Decrease / (increase) in inventories and work in progress | 2,927 | 377 | (497) |
| (Increase) / decrease in trade and other receivables | (1,105) | 929 | 4,914 |
| Increase / (decrease) in trade and other payables | 2,998 | (2,035) | (4,461) |
| Cash generated from operations | 12,431 | 6,249 | 10,579 |
| Taxation paid |
|
|
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| UK corporation tax paid | 24 | (351) | (602) |
| Overseas tax paid | (83) | (427) | (748) |
|
| (59) | (778) | (1,350) |
| Net cash inflow from operating activities | 12,372 | 5,471 | 9,229 |
| Investing activities |
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|
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| Payments to acquire property, plant and equipment | (514) | (1,203) | (3,183) |
| Receipts from sales of property, plant and equipment | 13 | 27 | 39 |
| Interest received | - | 14 | 20 |
| Net cash outflow from investing | (501) | (1,162) | (3,124) |
| Financing activities |
|
|
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| Proceeds from loans and borrowings | - | - | 968 |
| Principal paid on lease liabilities | (2,749) | (1,879) | (3,646) |
| Interest paid on lease liabilities | (538) | (647) | (1,231) |
| Other interest paid | (6) | - | - |
| Equity dividends paid | 0 | (242) | (242) |
| Net cash outflow from financing | (3,293) | (2,768) | (4,151) |
| Net increase in cash and cash equivalents | 8,578 | 1,541 | 1,954 |
| Cash and cash equivalents at beginning of period | 11,538 | 9,458 | 9,458 |
| Exchange (losses) / gains on cash and cash equivalents | (176) | 87 | 126 |
| Cash and cash equivalents at end of period | 19,940 | 11,086 | 11,538 |
COLEFAX GROUP PLC
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| 1. | The Group prepares its annual financial statements in accordance with International Accounting Standards (IFRS) in conformity with the requirements of the Companies Act 2006. These interim results have been prepared in accordance with the accounting policies expected to be applied in the next annual financial statements for the year ending 30 April 2021. | |||||||||||||||||||||||||||||||||||||||||||||
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| 2. | Basic earnings per share have been calculated on the basis of earnings of £2,528,000 (2019: £2,142,000) and on 8,962,440 (2019: 8,962,440) ordinary shares being the weighted average number of ordinary shares in issue during the period. | |||||||||||||||||||||||||||||||||||||||||||||
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| 3. | Diluted earnings per share have been calculated on the basis of earnings of £2,528,000 (2019: £2,142,000) and on 8,962,000 (2019: 8,962,000) ordinary shares being the weighted average number of ordinary shares in the period adjusted to assume conversion of all dilutive potential ordinary shares of nil (2019: nil). | |||||||||||||||||||||||||||||||||||||||||||||
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| 6. | The financial information for the year ended 30 April 2020 does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for the year ended 30 April 2020 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 30 April 2020 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. | |||||||||||||||||||||||||||||||||||||||||||||
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| 7. | Copies of the interim report are being sent to shareholders and will be available from the Group's website on www.colefaxgroupplc.com. Copies will also be made available on request to members of the public at the Company's registered office at 19-23 Grosvenor Hill, London W1K 3QD. | |||||||||||||||||||||||||||||||||||||||||||||
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