REG - Colefax Group PLC - Half Year Results <Origin Href="QuoteRef">CFX.L</Origin>

ColefaxAnnouncement

24/01/2017 07:05

RNS Number : 8947U
Colefax Group PLC
24 January 2017
AIM: CFX 
24 January 2017 
COLEFAX GROUP PLC
("Colefax" or the "Group")
Half Year Results
for the six months ended 31 October 2016
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
 Group sales of 39.53m (2015: 37.98m)
 Group pre-tax profit of 1.90m (2015: 3.27m) affected by:
o challenging conditions in core US market
o hedging losses following decline in Sterling
 Earnings per share of 12.50p (2015: 21.60p)
 Net cash increased to 8.0m (2015: 7.8m)
 Interim dividend increased to 2.30p per share (2015: 2.20p)
Core Fabric Division sales up 4.7% to 34.87m but down by 7.3% on constant currency basis, reflecting difficult trading conditions in US
 New showroom opened in Boston in October, with showroom in Atlanta to open in February
 Decorating Division opening new Pimlico Road showroom in February
David Green, Chairman, said:
"Results reflect the challenging trading conditions in our core US market, where sales declined by 10% on a constant currency basis.Our decision to hedge our US Dollar exposure also incurred losses and will continue to adversely affect results this financial year and next. 
We have continued to invest in our business with significant one-off capital expenditure this year and expect to see a positive benefit from our new US showrooms and new Decorating Division premises in London. 
The Group has a strong balance sheet and we will continue to invest with confidence in our diverse portfolio of brands"
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations.
Enquiries:
Colefax Group plc
David Green, Chief Executive
Tel: 020 7318 6021
Rob Barker, Finance Director
KTZ Communications
Katie Tzouliadis, Emma Pearson
Tel: 020 3178 6378
Peel Hunt LLP 
(Nominated Advisor 
And Broker)
Dan Webster, Adrian Trimmings, George Sellar
Tel: 020 7418 8900
CHAIRMAN'S STATEMENT
Financial Results 
Group sales for the six months to 31 October 2016 increased by 4% to 39.53 million (2015: 37.98 million) but decreased by 6.5% on a constant currency basis. Pre-tax profits decreased to 1.90 million (2015: 3.27 million). Earnings per share decreased to 12.5p (2015: 21.6p). The Group ended the half year with net cash of 8.0 million (2015: 7.8 million).
The main reason for the decline in profits in the first six months was challenging trading conditions in our core US market where sales declined by 10% on a constant currency basis. In addition, our decision to hedge our US Dollar exposure meant that we did not benefit from the significant decline in Sterling after the Brexit vote and incurred hedging losses of 755,000. Excluding hedging losses, operating profits declined by 19% to 2.66 million. Trading conditions in the UK were relatively stable after the Brexit vote and sales increased by 1% during the period. In Europe trading conditions remained challenging and sales declined by 6% on a constant currency basis
During the period the Group purchased and cancelled 537,000 shares at a cost of 2.57 million and representing 5% of the Group's issued share capital. 
In line with our progressive dividend policy the Board has decided to increase the interim dividend by 5% to 2.30p per share (2015: 2.20p). The interim dividend will be paid on 10 April 2017 to shareholders on the register at the close of business on 3 March 2017.
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 88% of the Group's sales, increased by 4.7% to 34.87 million (2015: 33.33 million) but decreased by 7.3% on a constant currency basis. Excluding hedging losses of 755,000 operating profits decreased by 18.5% to 2.73 million (2015: 3.35 million) reflecting difficult trading conditions in our core US market. 
Sales in the US, which represent 59% of the Fabric Division's turnover, increased by 6% in reported terms but decreased by 10% on a constant currency basis. This reflects uncertain trading conditions in the run up to the US election. We have continued to invest in the US market and opened our new showroom in Boston in October and will open a new showroom in Atlanta in February. Previously we have sold through agents in these two major territories.
Sales in the UK, which represent 19% of the Fabric Division's turnover, were up by 1% compared to last year and so far sales do not seem to have been adversely impacted by the Brexit vote. We are concerned by the slowdown in high end housing transactions as a result of the increase in stamp duty that was introduced in December 2014 because trading tends to lag changes in the high end housing market. 
Sales in Continental Europe, which represent 19% of the Fabric Division's turnover, increased by 9% on a reported basis but were down by 6% on a constant currency basis. Trading conditions overall have remained challenging, but there are some significant variations between countries. In France, which is our largest market, constant currency sales increased by 4% which was better than expected partly due to a significant contract order in the period. In Germany which is our second largest market sales declined by 1.6% and in Italy which is our third largest market sales declined by just 0.2%. 
Sales in the rest of the world, which represent just 3% of the Fabric Division's turnover, decreased by 14% on a constant currency basis. The major territories in the rest of the world are China, Russia and the Middle East, although they represent a small part of overall sales.
 Furniture - Kingcome Sofas
Sales for the six months to October 2016 decreased by 9% to 1.15 million (2015: 1.26 million) with all of the decrease attributable to a contract order in the prior year. Operating profit was just 9,000 compared to 74,000 in 2015. The order book was down 6% at the period end, but is currently ahead of last year despite very competitive market conditions for high end furniture. 
Interior Decorating Division
Decorating sales, which account for 9% of Group turnover, increased by 3% during the period and the Division made a reduced first half loss of 84,000 compared to a loss of 148,000 for the prior year
The Decorating Division had a demanding six months due to preparations for the move out of 39 Brook Street, where it had been based for over 80 years, to new premises at 89-91 Pimlico Road. The office move was successfully completed in December and the new showroom will open in early February. The business will continue to sell high quality decorative antiques but on a smaller scale than in Brook Street with significantly lower inventory. We are optimistic about trading prospects at the new location which is synonymous with high end decorating in London.
Customer deposits increased throughout the period and remain at a healthy level. The significant devaluation of Sterling following the Brexit vote has increased the attractiveness of the business to overseas customers both for projects in the UK and overseas.
Prospects
The major issue for the Group over the last six months has been the decline in Fabric Division sales in our core US market and this will weigh on our results this year. We did not foresee the Brexit result and our decision to hedge our US Dollar exposure for this year and part of next year will result in an expected pre-tax charge of approximately 2 million for the current financial year and 1.4 million next year. Longer term, if Sterling weakness persists the Group will be a major beneficiary due to the fact that over 75% of Group sales are made in overseas markets and mostly invoiced in local currency.
We have continued to invest in our business with significant one-off capital expenditure this year and we expect to see a positive benefit from our new US showrooms in Boston and Atlanta and our new Decorating Division premises in London.
The Group has a strong balance sheet with cash of 8.0 million and we will continue to invest with confidence in our diverse portfolio of brands.
David Green
Chairman
24 January 2017
 COLEFAX GROUP PLC
INTERIM GROUP INCOME STATEMENT
Unaudited
Unaudited
Audited
Six months to 31 Oct 2016
Six months to 31 Oct 2015
Year to 30 April 2016
'000
'000
'000
Revenue
 39,529 
 37,985 
 76,879 
Profit from operations
1,903 
 3,273
 5,013 
Finance income
 - 
3
 3 
Finance expense
 - 
-
-
 -
 3 
 3 
Profit before taxation
1,903
 3,276
 5016
Tax expense
(628)
(949)
(1,555)
Profit for the period attributable to equity holders of the parent
 
1,275 
2,327
 
3,461 
Basic earnings per share
12.5p
21.6p
32.2p
Diluted earnings per share
12.5p
21.6p
32.2p
 COLEFAX GROUP PLC
INTERIM GROUP STATEMENT OF COMPREHENSIVE INCOME
Unaudited
Unaudited
Audited
Six months to 31 Oct 2016
Six months to 31 Oct 2015
Year to 30 April 2016
'000
'000
'000
Profit for the year
1,275
2,327
 3,461 
Other comprehensive income / (expense):
Items that will not be reclassified to profit and loss:
Exchange differences on translation of foreign operations
2,543
(61)
642
Remeasurement of defined benefit pension scheme
-
-
(100)
Tax relating to items that will not be reclassified to profit and loss
(617)
(15)
(106)
1,926
(76)
436
Items that will or may be reclassified to profit and loss:
Cash flow hedges:
(Losses) / gains recognised directly in equity
(3,309)
78
 (805) 
Transferred to profit and loss for the year
755
(120)
144
Tax relating to items that will or may be reclassified to profit and loss
511
8
132
(2,043)
(34)
(529)
Total other comprehensive income / (expense) 
(117)
(110)
(93)
Total comprehensive income for the period attributable to equity holders of the parent
1,158
2,217
3,368
 COLEFAX GROUP PLC
INTERIM GROUP STATEMENT OF FINANCIAL POSITION
Unaudited
Unaudited
Audited
At 31 Oct 2016
At 31 Oct 2015
At 30 April 2016
'000
'000
'000
Non-current assets:
Property, plant and equipment
9,135
7,264
7,551
Deferred tax asset
-
307
35
9,135
7,571
7,586
Current assets:
Inventories and work in progress
13,825
13,333
12,518
Trade and other receivables
12,604
9,630
9,179
Cash and cash equivalents
8,024
7,777
10,085
34,453
30,740
31,782
Current liabilities:
Trade and other payables
16,617
10,631
11,258
Current corporation tax
27
424
163
16,644
11,055
11,421
Net current assets
17,809
19,685
20,361
Total assets less current liabilities
26,944
27,256
27,947
Non-current liabilities:
Deferred rent
2,003
1,426
1,459
Pension liability
177
104
170
Deferred tax liability
115
-
-
Net assets
24,649
25,726
26,318
Capital and reserves attributable to equity holders of the Company:
Called up share capital
1,022
1,083
1,076
Share premium account
11,148
11,148
11,148
Capital redemption reserve
1,852
1,791
1,798
ESOP share reserve
(113)
(113)
(113)
Foreign exchange reserve
3,485
987
1,559
Cash flow hedge reserve
(2,526)
12
(483)
Retained earnings
9,781
10,818
11,333
Total equity
24,649
25,726
26,318
 COLEFAX GROUP PLC
INTERIM GROUP STATEMENT OF CASH FLOWS
Unaudited
Unaudited
Audited
Six months to 31 Oct 2016
Six months to 31 Oct 2015
Year to 30 April 2016
'000
'000
'000
Operating activities
Profit before taxation
1,903
3,276
5,016
Finance income 
-
(3)
(3)
Finance expense
-
-
-
Depreciation
1,279
1,040
2,187
Cash flows from operations before changes in working capital
3,182
4,313
7,200
Increase in inventories and work in progress
(862)
(1,047)
(127)
(Increase) / decrease in trade and other receivables
(2,672)
(21)
704
Increase / (decrease) in trade and other payables
2,547
(191)
(582)
Cash generated from operations
2,195
3,054
7,195
Taxation paid
UK corporation tax paid
(132)
(232)
(556)
Overseas tax paid
(623)
(525)
(781)
(755)
(757)
(1,337)
Net cash inflow from operating activities
1,440
2,297
5,858
Investing activities
Payments to acquire property, plant and equipment
(1,705)
(1,090)
(2,278)
Receipts from sales of property, plant and equipment
27
23
24
Interest received
-
3
2
Net cash outflow from investing
(1,678)
(1,064)
(2,252)
Financing activities
Purchase of own shares
(2,583)
-
(324)
Interest paid
-
-
(1)
Equity dividends paid
(244)
(248)
(483)
Net cash outflow from financing
(2,827)
(248)
(808)
Net (decrease) / increase in cash and cash equivalents
(3,065)
985
2,798
Cash and cash equivalents at beginning of period
10,085
6,861
6,861
Exchange gains / (losses) on cash and cash equivalents
1,004
(69)
426
Cash and cash equivalents at end of period
8,024
7,777
10,085
COLEFAX GROUP PLC
NOTES
1.
The Group prepares its annual financial statements in accordance with International Financial Reporting Standards (IFRS). 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 2017.
These standards and interpretations are subject to ongoing review and endorsement by the EU or possible amendment by interpretive guidance from the International Financial Reporting Interpretations Committee ('IFRIC') and are therefore still subject to change.
2.
During the financial period ended 31 October 2016, the Company paid a final dividend for the year ended 30 April 2016 of 2.40p per ordinary share amounting to 244,000.
The proposed interim dividend of 2.30p (2015: 2.20p) per share is payable on 10 April 2017 to qualifying shareholders on the register at the close of business on 3 March 2017.
3.
Basic earnings per share have been calculated on the basis of earnings of 1,275,000 (2015: 2,327,000) and on 10,207,315 (2015: 10,767,500) ordinary shares being the weighted average number of ordinary shares in issue during the period.
4.
Diluted earnings per share have been calculated on the basis of earnings of 1,275,000 (2015: 2,327,000) and on 10,207,315 (2015: 10,767,500) 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 (2015: nil).
5.
The financial information for the year ended 30 April 2016 does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for the year ended 30 April 2016 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 2016 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.
6.
Copies of the interim report are being sent to shareholders and will be available from the Company'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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