Colefax Grp. Regulatory News (CFX)

AIM: CFX

29 January 2018

COLEFAX GROUP PLC

("Colefax" or the "Group")

Half Year Results

for the six months ended 31 October 2017

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

David Green, Chairman, said:

"The Group has made good progress over the last six months helped by improving trading conditions in our core US market and an encouraging performance by our Decorating Division. With a strong order book for the second half, we now expect the Decorating Division to exceed our original expectations for the full year.

"The Group has a strong balance sheet with cash of £9.5 million and we will continue to invest with confidence in our portfolio of brands and worldwide distribution network."

Enquiries:

The information contained in this announcement is inside information for the purposes of article 7 of Regulation 596/2014.

CHAIRMAN'S STATEMENT

Financial Results

Group sales for the six months to 31 October 2017 increased by 6.5% to £42.08 million (2016: £39.53 million) and increased by 5.1% on a constant currency basis. Pre-tax profits increased by 35% to £2.56 million (2016: £1.90 million). Earnings per share increased to 18.0p (2016: 12.5p). The Group ended the first half of the year with net cash of £9.5 million (2016: £8.0 million).

The main reason for the increase in profits in the first six months was an improvement in trading conditions in our core US market where Fabric Division sales increased by 4.5.% on a constant currency basis. In contrast trading conditions in the UK and Europe remained challenging. Sales in the UK were flat during the period and sales in Europe increased by 6.5% but by 1.5% on a constant currency basis. The increase in profit was also due to an improved contribution from the Decorating Division which made a first half profit of £213,000 compared to a loss of £84,000 last year.

Hedging losses arising from US Dollar cover put in place prior to the Brexit vote were £595,000 (2016 £755,000) and, excluding these, the Group's pre-tax profit increased by 18.5% to £3.15 million (2016: £2.66 million).

In line with our progressive dividend policy the Board has decided to increase the interim dividend by 4% to 2.40p per share (2016: 2.30p). The interim dividend will be paid on 9 April 2018 to shareholders on the register at the close of business on 2 March 2018.

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 87% of the Group's sales, increased by 4.6% to £36.47 million (2016: £34.87 million) and by 3.1% on a constant currency basis. Excluding hedging losses of £595,000 (2016: £755,000) operating profits increased by 7% to £2.92 million (2016: £2.73 million) reflecting improved trading conditions in our core US market.

Sales in the US, which represent 60% of the Fabric Division's turnover, increased by 5.4% in reported terms and by 4.5% on a constant currency basis. The improvement was broadly based with sales in most territories ahead of last year, reflecting favourable market conditions. In recent years we have invested heavily in our US distribution network and our own showrooms now account for over 75% of US sales.

Sales in the UK, which represent just under 18% of the Fabric Division's turnover, were flat during the period reflecting challenging market conditions. We attribute this to the very weak high end housing market which continues to be adversely affected by high rates of stamp duty as well as economic uncertainty over the outcome of Brexit negotiations. Our business tends to lag changes in the high end housing market and as a result we believe market conditions could become more difficult over the next twelve months.

Sales in Continental Europe, which represent 20% of the Fabric Division's turnover, increased by 6.5% on a reported basis but were up by 1.5% on a constant currency basis. There is more optimism in Europe than we have seen for some years although the performance by country remains mixed. Sales in France, which is our largest market, were down by 9% in the period but this was mainly due to a significant contract order in the prior year. In Germany, sales increased by 1% on a constant currency basis and, in Italy, sales increased by 3%. Together these three markets account for 56% of our sales in Europe.

Sales in the rest of the world, which represent less than 3% of the Fabric Division's turnover, increased by 7% on a constant currency basis. The focus of our sales efforts in the rest of the world remain on our major territories, namely the Middle East, China and Russia. .

· Furniture - Kingcome Sofas

Sales for the six months to October 2017 increased by 4% to £1.19 million (2016: £1.15 million) and the Company made a small operating profit of £22,000 compared to £9,000 in 2016. At the half year end the order book was up by 18% compared to last year and ahead of our expectations based on market conditions. The majority of furniture sales are in the UK, centred on London and we expect future trading to be challenging due to the slowdown in the high end housing market.

Interior Decorating Division

Decorating sales, which account for just over 10% of Group turnover, increased by 26% in the period to £4.4 million (2016: £3.5 million) and the Division made a first half profit of £213,000 compared to a loss of £84,000 for the same period last year.

In December 2016 the Decorating business moved to new office and showroom premises at 89-91 Pimlico Road in Belgravia. The new location is well suited to the needs of the business and trading has been encouraging since the move. Sales and profits in the Decorating Division can vary significantly from year to year depending on the timing of contract completions. We have a number of major projects scheduled for completion in the second half of the year and therefore anticipate a stronger than expected overall performance for the year. Although the high end market in London has been challenging the weakness of Sterling is favourable for the business and we have seen an increase in the proportion of overseas contracts.

Prospects

The Group has made good progress over the last six months helped by improving trading conditions in our core US market. Trading conditions in the UK look challenging due to a weak high end housing market caused by high rates of stamp duty and continuing uncertainty over Brexit. However, our exposure to the UK is limited by the fact that over 82% of Fabric Division sales are made overseas. There is also increased optimism in Europe but this follows two years of sales decline and it is too early to assess the extent of any recovery.

Our Decorating Division delivered an encouraging first half contribution and we expect it to exceed our original expectations for the full year.

The Group has a strong balance sheet with net cash of £9.5 million and we will continue to invest with confidence in our portfolio of brands and worldwide distribution network.

David Green, Chairman

COLEFAX GROUP PLC

COLEFAX GROUP PLC

COLEFAX GROUP PLC

COLEFAX GROUP PLC

COLEFAX GROUP PLC