Colefax Grp. Regulatory News (CFX)

AIM: CFX

29 January 2019

COLEFAX GROUP PLC

("Colefax" or the "Group")

Half Year Results

for the six months ended 31 October 2018

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 delivered a positive first half performance against a weakening trading environment in most of our major markets. In our core US market we continue to benefit from the strength of the US Dollar but the confidence that we saw at the start of the year has slowed recently and we are therefore more cautious about growth. In the UK trading remains challenging but could improve quickly if there is a satisfactory resolution to the current high level of Brexit uncertainty

"The Group has a strong balance sheet with net cash of £11.1 million and we are well-placed to take advantage of any improvements in market conditions. We will continue to invest with confidence in our portfolio of luxury brands and our worldwide distribution network."

Enquiries:

CHAIRMAN'S STATEMENT

Financial Results

Group sales for the six months to 31 October 2018 increased by 7.8% to £45.38 million (2017: £42.08 million) and increased by 7.7% on a constant currency basis. Pre-tax profits increased by 41% to £3.62 million (2017: £2.56 million). Earnings per share increased by 55% to 27.9p (2017: 18.0p). The Group ended the first half of the year with net cash of £11.1 million (2017: £9.5 million).

The main reason for the increase in profits in the first six months was a strong first half performance from our Decorating Division which made profits of £738,000 compared to £213,000 last year. In addition US Dollar hedging losses reduced by £522,000 due to the absence of contracts put in place prior to the Brexit referendum. In our core US market Fabric Division sales increased by 2.1% on a constant currency basis. In the UK sales were flat and in Europe sales decreased by 0.8% on a constant currency basis reflecting challenging trading conditions in both these markets.

In line with our progressive dividend policy the Board has decided to increase the interim dividend by 4% to 2.50p per share (2017: 2.40p). The interim dividend will be paid on 10 April 2019 to shareholders on the register at the close of business on 15 March 2019.

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 81% of the Group's sales, increased by 1.2% to £36.89 million (2017: £36.47 million) and by 1.1% on a constant currency basis. Excluding hedging losses of £73,000 (2017: £595,000) operating profits decreased by 2% to £2.86 million (2017: £2.92 million) reflecting relatively challenging market conditions especially in the UK and Europe.

Sales in the US, which represent 61% of the Fabric Division's turnover, increased by 2.4% in reported terms and by 2.1% on a constant currency basis. Trading became more difficult towards the end of the period with sales up by 4.4% in the first three months and down by 0.3% in the second three months despite relatively strong general economic conditions. We believe that confidence in our sector has recently been impacted by a number of factors including rising interest rates and stock market volatility.

We are about to start the refurbishment of our Los Angeles showroom and expect this project to be completed by July 2019. Currently we lease and operate eight company owned showrooms in the US covering our most important territories and these now account for over 75% of total US sales.

Sales in the UK, which represent 17% of the Fabric Division's turnover, were flat during the period. The high end housing market remains very weak and historically this has been an important driver of our business. We believe that market conditions in the UK will remain difficult until the uncertainty and potential adverse impact of Brexit is resolved. In August we completed the refurbishment of our showroom in the Chelsea Harbour Design Centre and we are pleased with the positive reaction from our customers.

Sales in Continental Europe, which represent 19% of the Fabric Division's turnover, decreased by 1.1% on a reported basis and by 0.8% on a constant currency basis. Trading in most of our major European markets has been weak despite significant monetary stimulus by the European Central Bank over the past four years which is now coming to an end. In France, which is our largest European market, sales were flat during the period but helped by a significant contract order. In Germany sales were down by 8%. In Italy sales were down by 15% reflecting very challenging economic conditions. We do not anticipate any short term improvement in trading conditions in most of our major European markets. Europe encompasses a wide range of tastes and we will continue focus our sales efforts on the markets best suited to our brands and with the most growth potential.

Sales in the Rest of the World, which represent approximately 3% of the Fabric Division's turnover, decreased by 2% on a constant currency basis. Our major markets comprise the Middle East, Russia, China and Australia. In Russia we have changed our method of distribution from a distributor to an agent and are optimistic about growth prospects in this market. Overall we expect the Rest of the World to remain a relatively small proportion of Fabric Division sales

· Furniture - Kingcome Sofas

Sales for the six months to October 2018 increased by 14% to £1.36 million (2017: £1.19 million) and the Company made an operating profit of £102,000 compared to £22,000 in 2017. The increase in sales reflected a strong order book at the start of the year. The majority of sales are made in the UK, especially London and so this was a good performance in difficult market conditions. Currently the order book is in line with last year.

Interior Decorating Division

Decorating sales, which account for just over 16% of Group turnover, increased by 61% in the period to £7.1 million (2017: £4.4 million). This was a strong performance reflecting the completion of a number of major projects during the period. As a result the Decorating Division made a first half profit of £738,000 compared to a profit of £213,000 for the same period last year.

Decorating Division sales can vary significantly between periods according to the timing of contract completions. For the current financial year sales will be weighted to the first half of the year and we expect sales for the full year to be below the exceptional performance last year. Customer deposits remain at a healthy level and we remain optimistic about trading from our new Pimlico Road showroom which is performing well in its second full year of operation.

Prospects

The Group has delivered a positive first half performance against a weakening trading environment in most of our major markets. In our core US market we continue to benefit from the strength of the US Dollar but the confidence that we saw at the start of the year has slowed recently and we are therefore more cautious about growth prospects. In the UK trading remains challenging but could improve quickly if there is a satisfactory resolution to the current high level of Brexit uncertainty. In Europe we expect trading to remain difficult but there are opportunities for growth and we will focus our efforts on countries with the most potential.

The Group has a strong balance sheet with net cash of £11.1 million and we are well-placed to take advantage of any improvements in market conditions. We will continue to invest with confidence in our portfolio of luxury brands and our worldwide distribution network.

David Green

Chairman

COLEFAX GROUP PLC

COLEFAX GROUP PLC

COLEFAX GROUP PLC

COLEFAX GROUP PLC

COLEFAX GROUP PLC