AIM: CFX

COLEFAX GROUP PLC

("Colefax" or the "Group")

Preliminary Results for the year ended 30 April 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.

Key Points 

David Green, Chief Executive of Colefax Group plc, said:

"Results for this financial year and the prior year were significantly impacted by emergency lockdowns across the world. However, with the easing of restrictions, sales in the Fabric Division, our core operation, recovered strongly. This was fuelled by a buoyant housing market and surge in home-related spending.

"Demand is currently strong across all areas of the business, and we are therefore optimistic about sales prospects. However, it is not yet clear how long these favourable conditions will last, and two factors will weigh on profits. First, the strength of Sterling against the US Dollar, the US being our dominant marketplace, and secondly the additional costs of selling in EU markets following Brexit. In our Decorating Division, we are expecting an exceptional year, but this is partly due to the delay of projects from the prior year." 

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COLEFAX GROUP PLC

CHAIRMAN'S STATEMENT

Financial Results

Group sales for the year to 30 April 2021 decreased by 1% to £77.91 million (2020 - £78.36 million) but increased by 2% on a constant currency basis. Pre-tax profits increased by 149% to £5.42 million (2020 - £2.18 million) and earnings per share increased by 111% to 45.1p (2020 - 21.4p). The Group ended the year with cash of £19.3 million (2020 - £11.5 million).

The Board is not proposing the payment of a final dividend for the year ended 30 April 2021 but intends to restart dividend payments in respect of the year ended 30 April 2022. Going forward it is the Board's intention to return to a progressive dividend policy.  The Board will continue to review options for returning surplus cash to shareholders in line with the Group's long running share buyback strategy.

The financial year started in the middle of the first worldwide lockdowns and the timing of our year end on 30 April means that our results for both the current and prior year have been significantly impacted. The principal reason for the increase in profit was a strong recovery in Fabric Division sales which ended the year up by 6.7% on a constant currency basis. This recovery started after the first lockdowns ended and continued through the remainder of the year. In contrast our Decorating Division made a pre-tax loss of £680,000 due to project delays and travel restrictions caused by the pandemic. Group profit includes furlough income of £540,000 (2020 - £280,000) and £922,000 from a prior year coronavirus related US CARES loan which was approved as a grant and recognised as income in April 2021.  

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 Group turnover, increased by 3.8% to £69.58 million (2020 - £67.03 million) and by 6.7% on a constant currency basis. Pre-tax profit increased by 197% to £5.81 million (2020 - £2.0 million). Prior year profit included exceptional costs of £714,000 relating to the move of our US Fabric Division operations to the UK.

The improvement in Fabric Division profit was partly due to cost reductions resulting from lower levels of new product investment during the year. Furlough income amounted to £427,000 with the majority of this amount claimed in the peak lockdown months of May, June and July 2020. In addition a prior year US CARES loan of £922,000 was only approved as a grant and recognised as income in April 2021, hence distorting profits between the current and prior year.

The financial year began with the majority of our customers and suppliers closed or partially closed due to the first lockdowns. Sales were significantly down in the first quarter but started to recover as soon as the lockdowns ended and continued to recover for the remainder of the financial year despite subsequent lockdowns. We attribute this recovery to a significant increase in housing market activity and home related spending.

Sales in the US, which represent 61% of the Fabric Division's turnover, increased by 3% and by 8% on a constant currency basis. The US has been our strongest market throughout the pandemic with a lower decline in sales during the initial lockdown and a stronger recovery post lockdown.

During the year we completed the transfer of the majority of our US warehouse operations to the UK and moved our US headquarters out of New York City to smaller office and warehouse premises in Brooklyn. Going forward this will reduce costs and improve efficiency. In March we moved to a new showroom in the Chicago Design Center and we are pleased with the positive reaction from customers. 

Sales in the UK, which represent 16% of the Fabric Division's turnover, increased by 1%. The UK market recovered quickly after the first national lockdown ended in June 2020 and the impact of subsequent lockdowns in the second half of the year was much less significant than the first lockdown due to more customers managing to continue trading and strong demand for home related products.

Sales in Continental Europe, which represent 21% of the Fabric Division's turnover, increased by 11% and by 9% on a constant currency basis. The increase is due to the fact that the first European lockdowns started earlier and had a bigger impact in the prior year than they did in the UK and the US.

Brexit appears to have had a relatively modest impact on our European sales but it has had a significant impact on costs and complexity. An unexpected twist in the free trade agreement means that fabrics sourced from EU manufacturers are subject to import duty when re-exported from the UK to EU customers. Together with higher freight and administration charges the result is that costs have increased by approximately £900,000 per year as a result of Brexit.

Sales in the Rest of the World, which represent just 2% of the Fabric Division's turnover, decreased by 4% during the year. Our major markets in the Rest of the World are the Middle East, China and Australia and these are likely to remain a small proportion of total Fabric Division sales.

•                         Furniture - Kingcome Sofas

Sales of Kingcome furniture, which represent 4% of Product Division sales, increased by 7% to £2.53 million (2020 - £2.37 million) but were 6% lower than pre-pandemic sales for the year ended 30 April 2019. Pre-tax profit increased by 188% to £288,000 (2020 - £100,000). The increase in sales and profit was partly due to the fact that relatively few deliveries were possible in April of the prior year during the first national lockdown and took place in the current year. Furniture sales recovered very quickly when our Fulham Road showroom re-opened after the first lockdown. However, subsequent lockdowns and showroom closures starting in November and December did have an adverse impact on orders because most customers like to visit the showroom before making a buying decision. The order book at the year end was down 25% on the prior year but has subsequently increased to above prior year levels reflecting strong pent up demand for furniture.   

Interior Decorating Division

Decorating sales, which account for 7% of Group turnover, decreased by 35% to £5.79 million (2020 - £8.96 million) resulting in a pre-tax loss for the year of £680,000 (2020 - £121,000 profit). In a normal year around 40% of sales would come from overseas projects but for much of the year it was not possible to travel overseas to visit new and existing customer's premises. The UK lockdowns also adversely impacted sales and profit by slowing the rate of progress on domestic projects. Despite these challenges, demand for decorating work has remained strong and partly due to delays to existing projects, customer deposits ended the year at a record level of £5.8 million.

Prospects

We are currently experiencing strong demand in all areas of the business and believe this is a direct consequence of the lockdowns with end customers either moving house or re-decorating their existing home. Although we are optimistic about sales prospects, it is not yet clear how long these favourable conditions will last. In addition, two factors will weigh on profits in the current year. Firstly, Sterling has strengthened significantly against the US Dollar since a Brexit trade deal was announced in January and Group profits are very sensitive to the US Dollar exchange rate. Secondly, Brexit has resulted in a significant increase in the cost of selling in EU markets. In our Decorating Division we are expecting an exceptional year but this is partly due to the completion of projects delayed from the prior year.

The last year has been unprecedented and uniquely challenging for all our customers, suppliers and staff. I am extremely grateful to our staff who have worked tirelessly to respond to new situations and new ways of working which prioritise health and safety. They have kept the business running smoothly in constantly changing circumstances and I would like to thank them for their hard work, loyalty and support.

David Green

Chairman

12 August 2021