AIM: CFX

14 September 2020

COLEFAX GROUP PLC

("Colefax" or the "Group")

Preliminary Results for the year ended 30 April 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.

Key Points 

·      Worldwide Covid-19 'lockdowns' significantly impacted sales, with the majority of showrooms, customers and suppliers closed for varying periods

·      Sales decreased by 9.3% to £78.36m (2019 - £86.36m)

·      Pre-tax profit decreased by 57.3% to £2.18m (2019 - £5.10m), including:

-     one-off charge of £0.71m relating to operational integration and

-     non-cash charge of £0.71m relating to adoption of IFRS 16 Leases

-     excluding these two items, pre-tax profit reduced by 29% to £3.59 million

·      Earnings per share decreased by 46% to 21.4p (2019 - 39.3p)

·      Cash at 30 April 2020 increased to £11.5m (2019 - £9.5m). 

·      Board is not proposing a final dividend

·      Fabric Division sales decreased by 5.8% to £67.03m (2019 - £71.15m) and by 7.3% on constant currency basis

-     US sales down by 2.0%, UK sales down by 10.6% and Europe sales down by 11.1%

-     in the last six weeks of FY 2020, Fabric Division sales reduced by 45% against  the same period last year

·      Decorating Division sales decreased as expected to £8.96m (2019 - £12.50m) against an outperformance in the prior year

·      Group utilised government support programmes where appropriate

David Green, Chief Executive of Colefax, said:

"The Covid-19 pandemic started to have a major impact on the Group in the last six weeks of the financial year ended 30 April 2020 and continued into the current year.

"The most significant impact on sales was during the total lockdown period and as restrictions have been eased we have seen a good recovery in core Fabric Division sales. Current sales trends are ahead of our initial expectations at the start of the pandemic. Sales in July and August were ahead of the prior year and we believe that this is not simply due to deferred sales but also reflects new business arising as a result of the lockdowns.

 "The Group has a strong balance sheet with significant liquidity and is well placed to navigate even a severe recession and take advantage of any opportunities that may arise.

"Throughout the pandemic our priority has been the health and safety of our staff, customers and suppliers. Our staff in particular have made an extraordinary effort to respond to the challenges we have faced and I am extremely grateful to every one of them for the sacrifices they have made and for their hard work and loyalty to the Group." 

Enquiries:

COLEFAX GROUP PLC

CHAIRMAN'S STATEMENT

Financial Results

Group sales for the year to 30 April 2020 decreased by 9.3% to £78.36 million (2019 - £86.36 million) and decreased by 10.5% on a constant currency basis. Pre-tax profits decreased by 57.3% to £2.18 million (2019 - £5.10 million) and earnings per share decreased by 46% to 21.4p (2019 - 39.3p). The pre-tax profit for the year includes one-off charges of £714,000 relating to the integration of our UK and US Fabric Division operations of which £645,000 was non-cash. In addition the adoption of IFRS 16 Leases resulted in extra non-cash charges of £705,000. Excluding these two items pre-tax profit reduced by 29% to £3.59 million.

Our financial year-end on 30 April 2020 was in the middle of worldwide lockdowns to control the Covid-19 pandemic. As far as possible the Group has remained operational throughout the crisis but with the majority of our showrooms, customers and suppliers closed for varying periods of time the lockdowns inevitably had a significant impact on sales. In the last six weeks of our financial year sales in our core Fabric Division were down by £4.2 million or 45% on a like-for-like basis.  The Group utilised government support where appropriate and £280,000 of furlough income is included in the income statement under other operating income. This helped to offset some of the losses arising from the restrictions put in place to control the virus.

Part of the reduction in Group sales and profit before tax was due to our Decorating Division which made a profit of £121,000 (2019 - £1.1 million) on sales of £8.96 million (2019 - £12.5 million). The prior year's performance was exceptional and the £974,000 reduction in Decorating Division profit was not due to the impact of Covid-19.

When the likely sales impact of the lockdown measures first became apparent the Board took action to conserve cash including cancelling the interim dividend of 2.6p payable on 9 April 2020. Given the adverse impact of Covid-19 on profitability and ongoing uncertainty over the extent of the post lockdown recovery, the Board have decided not to propose a final dividend for the year ended 30 April 2020.

The Group ended the year with net cash of £11.5 million (2019 - £9.5 million). This balance includes a US loan receipt of £968,000 under the coronavirus related CARES Act. Allowing for this loan the Group started the current year with net cash of £10.6 million and is in a strong position to manage the adverse consequences of the coronavirus pandemic.

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 86% of Group turnover, decreased by 5.8% to £67.03 million (2019 - £71.16 million) but decreased by 7.3% on a constant currency basis. Most of the sales decline took place in the last six weeks of the financial year during worldwide lockdowns to control Covid-19. For the ten months to February 2019 Fabric Division sales were down by 2.2% on a constant currency basis. Trading was in line with expectations in the first two weeks of March but in the last six weeks of the financial year sales declined by £4.2 million or 45% on a constant currency basis.

Pre-tax profit decreased by 46.1% to £2.0 million (2019 - £3.71 million). Excluding one-off UK-US operational integration costs of £714,000 and a non cash cost of £679,000 from adopting IFRS 16 Leases, pre-tax profits decreased by 9% to £3.4 million. The profit impact of the decline in sales was partly offset by a stronger US Dollar exchange rate which averaged $1.26 during the year and improved gross profit margins in the US by £427,000.

As a result of the Covid-19 pandemic sales trends prior to the virus are no longer a helpful guide to the future. It is more meaningful to look at the rate at which sales are recovering as lockdown measures are eased. Not surprisingly this varies significantly by market and reflects differences in the timing of the lockdowns and their subsequent easing.

Sales in the US, which represent 62% of the Fabric Division's turnover, decreased by 2.0% and by 4.8% on a constant currency basis. For the ten months to the end of February sales were down by 0.5%. Like-for-like sales in March were down by 7% and April sales were down by 47%. Since the year end like for like sales were down by 36% in May, 20% in June but up by 3% in July and 4% in August.

In February 2020 we completed the refurbishment of our Los Angeles showroom and although we will not now see an immediate benefit we believe it will help to grow sales in the future. Operationally we have started to run-down fabric stocks at our US warehouse as part of the transfer of the majority of our warehouse operations to the UK. This project will be completed in the second half of the current year.

Sales in the UK, which represent 17% of the Fabric Division's turnover, decreased by 10.6%. For the ten months to the end of February sales were down by 4% reflecting fairly difficult trading conditions linked to a weak high-end housing market. In March when the UK lockdown started sales were down by 19% and in April sales were down by 73%. Since the year end like for like sales were down by 67% in May, 34% in June but encouragingly were up by 8% in July and 3% in August.

Sales in Continental Europe, which represent 19% of the Fabric Division's turnover, decreased by 11.1% and by 10.7% on a constant currency basis. For the ten months to the end of February sales in Europe were down by 3.6% reflecting weak economic conditions in most countries. The lockdowns in much of Europe started slightly earlier than the UK and sales in March were down by 24% and in April by 67%. Since the year end like-for-like sales were down by 35% in May and by 20% in June but were up by 14% in July and 8% in August. This is ahead of the US and UK and we attribute this to the earlier lockdowns that took place in Europe.

Sales in the Rest of the World, which represent just 2% of the Fabric Division's turnover, decreased by 11.6% during the year. Our major markets in the Rest of the World are the Middle East, China and Australia and we expect these territories to remain a small proportion of total Fabric Division sales

•                          Furniture - Kingcome Sofas

Sales of Kingcome furniture, which represent 3% of Product Division sales, decreased by 12.1% to £2.37 million (2019 - £2.70 million). Operating profit reduced by 62% to £100,000 (2019 - £262,000). At the end of February Kingcome was on course for another good year with sales up by 4% for the first ten months. When the lockdown started our London showroom closed and the majority of staff at our Devon factory were furloughed for three weeks after which production was restarted with a skeleton team. Sales are recognised when orders are delivered to the customer and very little furniture could be delivered during the April lockdown reducing sales by 69% compared to the prior year. The order book at the end of the year was only down by 1% but this was mainly due to the factory shutdown in April. The Kingcome Sofas showroom reopened in mid-June. Orders were down by 62% in May and 38% in June but up by 8% in July and 2% in August  in line with the pattern seen in the UK Fabric Division.

Interior Decorating Division

Decorating sales, which account for 11% of Group turnover, decreased by 28.3% to £8.96 million (2019 - £12.50 million) and profits decreased to £121,000 (2019 - £1.1 million). This result follows two years of exceptional performance by the Decorating Division and although activity levels were significantly restricted in the last six weeks of the year the lockdowns were not the main reason for the reduction in sales and profit. The Decorating Division has a relatively fixed cost base and significant fluctuations in sales and profits are a feature of the business and occur due to variations in the timing of major projects. During the lockdowns it was not possible to travel overseas or visit new and existing clients. This will inevitably have some knock-on impact on the timing of projects and the volume of work that can be carried out in the current year. Restrictions on overseas travel are a particular concern because typically around 40% of Decorating Division sales relate to overseas projects.

Prospects

The Covid-19 pandemic started to have a major impact on the Group in the last six weeks of the financial year ended 30 April 2020 and continued into the current year. The timing of our year end means that two financial years will be significantly affected by the worldwide actions taken to contain the virus. The most significant impact on sales was during the total lockdown period and as restrictions have been eased we have seen a good recovery in core Fabric Division sales. Current sales trends are ahead of our initial expectations at the start of the pandemic. Sales in July and August were ahead of the prior year and we believe that this is not simply due to deferred sales but also reflects new business arising as a result of the lockdowns.

We have taken action to reduce costs wherever possible including salary cuts. The Group has a strong balance sheet with net cash at the start of the year of £10.6 million and is well placed to navigate even a severe recession and take advantage of any opportunities that may arise.

Throughout the pandemic our priority has been the health and safety of our staff, customers and suppliers. Our staff in particular have made an extraordinary effort to respond to the challenges we have faced and I am extremely grateful to every one of them for the sacrifices they have made and for their hard work and loyalty to the Group 

David Green

Chairman

14 September 2020