Canfor Pulp Products
Annual Report 2018

Plain-text annual report

A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 8 Colefax Group is an international designer and distributor of luxury furnishing fabrics and wallpapers and a leading international decorating company. Sales are made under the brand names Colefax and Fowler, Cowtan and Tout, Jane Churchill, Larsen and Manuel Canovas. The Group has offices in the UK, USA, France, Germany and Italy which form part of an expanding worldwide distribution network. C O N T E N T S Financial Highlights Chairman’s Statement Strategic Report Directors, Bankers and Advisers Directors’ Report Statement of Directors’ Responsibilities Independent Auditors’ Report Group Income Statement Group Statement of Comprehensive Income Group Statement of Financial Position Company Statement of Financial Position Group Statement of Cash Flows Company Statement of Cash Flows Group Statement of Changes in Equity Company Statement of Changes in Equity Notes to the Accounts Five Year Review Notice of Meeting 1 2 4 8 9 12 13 18 19 20 21 22 23 24 24 25 44 45 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 1 COLEFAX GROUP PLC F I N A N C I A L H I G H L I G H T S 2018 2017 £’000 £’000 Increase Revenue 86,052 80,475 7% Profit from operations 4,721 2,937 61% Profit before taxation 4,719 2,937 61% Profit attributable to shareholders 3,832 1,895 102% Basic earnings per share 38.1p 18.6p 105% Diluted earnings per share 38.1p 18.6p 105% Dividends per share 5.00p 4.80p 4% Equity 27,419 25,936 6% Operating cash flow 8,909 4,180 113% Cash and cash equivalents 9,177 6,710 37% * Restated 1 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 2 COLEFAX GROUP PLC C H A I R M A N ’ S S TAT E M E N T Financial Results Group sales for the year to 30 April 2018 increased by 6.9% to £86.05 million (2017: £80.48 million) and by 8.6% on a constant currency basis. Pre-tax profits increased by 60.7% to £4.72 million (2017: £2.94 million) and earnings per share increased by 105% to 38.1p (2017: 18.6p). The Group ended the year with net cash of £9.2 million (2017: £6.7 million). The Board is proposing to increase the final dividend by 4% to 2.60p per share (2017: 2.50p) making a total for the year of 5.00p (2017: 4.80p), an increase of 4%. This increase is in line with the Group’s progressive dividend policy and preferred strategy of returning surplus cash to shareholders via share buybacks. The final dividend, which is subject to shareholder approval, will be paid on 10 October 2018 to shareholders on the register at the close of business on 7 September 2018. During the year the Group returned £2.17 million (2017 – £2.58 million) to shareholders through the purchase of 413,000 shares at an average price of £5.25 per share and representing 4.2% of the issued share capital of the Company. The improvement in our profit was for three main reasons. Firstly, losses on hedging put in place prior to the Brexit vote reduced to £959,000 from £2.0 million last year and have now come to an end. Secondly, our Decorating Division delivered an exceptional performance making a profit before tax of £901,000 compared to a profit of £108,000 last year. Thirdly, in our core Fabric Division, sales in our main US market increased by 6.2% on a constant currency basis. Excluding share buybacks and dividend payments the Group generated cash of £5.5 million during the year (2017 – £1.3 million outflow). This improvement was due to a combination of increased profitability, significantly lower capital expenditure and tight control of working capital. Capital expenditure during the year was £2.38 million compared to an exceptional £4.1 million last year when we opened our own US showrooms in Atlanta and Boston and moved our UK based Decorating Division to a new showroom and offices in Belgravia. The benefit of these investments is reflected in our current year performance. The 105% increase in earnings per share compared to the 60.7% increase in pre-tax profits is mainly due to a significantly lower Group tax charge of 19% compared to 35% last year. This includes a one-off deferred tax benefit of £350,000 relating to a reduction in the US corporate tax rate. From January 2018 US federal corporate tax rates reduced from 35% to 21% and the Group will realise the full benefit of this change in future years. 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 83% of Group turnover, were up by 1.5% to £71.11 million (2017 – £70.05 million) and up by 3.3% on a constant currency basis. Operating profit increased by 31.8% to £3.69 million (2017 – £2.80 million) but excluding hedging losses was down by 3.1% to £4.65 million (2017 £4.80 million) reflecting a weaker US Dollar average rate of $1.34 compared to $1.29 last year. The main reason for the increase in Fabric Division sales on a constant currency basis was an improvement in trading conditions in our core US market which represents 59% of the Fabric Division’s turnover. US sales increased by 6.2% compared to a decline of 7.7% last year. Sales in the second half of the year increased by 7.8% compared to 4.3% for the first half. The improving trend reflects the strength of the US economy and in particular the housing market. Following the opening of our own showrooms in Atlanta and Boston last year, over 75% of US sales come from territories where we lease our own showroom as opposed to showrooms operated by agents. We believe this is the right balance for our business at the present time. In the current year we are planning the refurbishment of our existing Los Angeles showroom. As our largest and most important market the US will remain our main focus for future capital investment. Sales in the UK, which represent 18% of the Fabric Division’s turnover increased by 1% during the year despite increasingly challenging trading conditions at the top end of the market. High rates of stamp duty continue to weigh on the number of housing transactions and the situation is not being helped by Brexit uncertainty. We believe that our sales are closely correlated with the health of the high end housing market and would like to see the top rates of stamp duty reduced to levels where they are not depressing the market. We are currently refurbishing our trade showroom in Chelsea Harbour and this project will be completed at the end of August. 2 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 3 COLEFAX GROUP PLC C H A I R M A N ’ S S TAT E M E N T Sales in Continental Europe, which represent 21% of the Fabric Division’s turnover, increased by 3.5% in reported terms but were flat on a constant currency basis. Despite increased optimism in the first half of the year, overall market conditions in Europe have remained difficult and seem unlikely to improve in the short term. This is especially true in our major markets, France, Germany and Italy, and despite some improvement in the wider economy caused by significant monetary stimulus. In France which is our largest market, sales decreased by 2%. In Germany sales were flat and in Italy sales declined by 1%. Each country in Europe has its own economic and political issues and our strategy will be to tailor our approach to each market and focus our investment on countries with the most potential. Sales in the Rest of the World which represent just under 3% of the Fabric Division’s turnover, decreased by 8% during the year. The main markets are the Middle East, Australia, China and Russia. The decline in sales was mainly due to the Middle East where contract orders can cause significant sales fluctuations from year to year. • Furniture – Kingcome Sofas Sales of Kingcome furniture, which represent 3% of Product Division sales increased by 11% to £2.62 million (2017 – £2.35 million). Operating profit was £130,000 compared to £23,000 last year. This business is the Group’s only manufacturing activity and profits are particularly sensitive to fluctuations in sales due to the relatively high fixed cost base. The increase in sales and profit was achieved despite challenging market conditions in the UK and the order book at the year end was significantly ahead of the prior year. Export sales account for just 13% of total furniture sales and this represents a growth opportunity especially given the current weakness of Sterling. Interior Decorating Division Decorating sales, which account for 14% of Group turnover, increased by 53% to £12.33 million (2017 – £8.06 million) and profits before tax increased to £901,000 compared to a profit of £108,000 for the prior year. Last year the Decorating Division moved from 39 Brook Street to a new showroom and offices at 89-91 Pimlico Road in Belgravia. This is the first full year of operation at the new premises and we are very pleased with the overall performance. The new showroom is popular with customers and although we have less space for antiques a more selective approach means that sales have exceeded expectations. Sales and profits in the Decorating Division can vary significantly according to the timing of contracts. Several major projects were completed during the year and although customer deposits remain healthy we expect activity to return to more normal levels next year. The business continues to benefit from the weakness of Sterling and we have seen an increase in the proportion of overseas work. Prospects The Group has made good progress over the last twelve months despite generally difficult trading conditions in most of our major markets. Our largest market, the US, is showing signs of continued growth and this should underpin our performance in the current year. In addition we no longer have any hedging contracts put in place prior to the Brexit referendum and will benefit from the current weakness of Sterling. However, any significant fluctuations in the Sterling US Dollar exchange rate are likely to have a material effect on Group profits. In our other major markets, the UK and Europe, we are experiencing increasingly difficult trading conditions and we expect this to offset some of the anticipated growth in the US. In addition we expect our Decorating Division to return to a more normal level of activity following an exceptional performance last year. The Group has a strong balance sheet with net cash of £9.2 million and we will continue to invest with confidence in our portfolio of luxury brands and our worldwide distribution network. Our results reflect the talent, hard work and loyalty of all our staff throughout the Group and I would like to thank them for their contribution to our performance and their commitment to the future success of the Group. David Green Chairman 25 July 2018 3 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 4 COLEFAX GROUP PLC S T R AT E G I C R E P O RT Strategy and Business Model The strategy and business model of the Group has remained relatively stable in recent years. The core business is the design and distribution of luxury furnishing fabrics and wallpapers sold through a ‘portfolio’ of luxury brands. The rationale behind the portfolio approach is that each brand has a particular look and price point and caters to a particular segment of the market. The brands have different strengths in different markets and product categories which enables the Group to maximise sales through its worldwide distribution network. By far the largest and most important market for the Group is the US which accounts for approximately 59% of fabric and wallpaper sales. As a result the US market is the main focus for capital investment and new product investment. An important part of the Group’s strategy is that it does not manufacture any fabrics and wallpapers and they are sourced from over 100 different high end manufacturers based primarily in Italy, France, Belgium the UK and India. This broad supplier base avoids the complexity and capital intensive nature of manufacturing and enables the Group to respond rapidly to changing market tastes. The Group’s fabric and wallpapers are sold in over 50 countries worldwide although the US and the UK together account for 77% of Fabric Division sales. The third largest individual country is France which accounts for 6% of total sales. An important part of the Group’s strategy is that it has no significant retail activity and this avoids the costs and complexity of retail operations. The Group sells primarily to interior designers and retail fabric and wallpaper shops (the ‘trade’) and operates one flagship retail outlet at 110 Fulham Road in London which accounts for just over 1% of sales. The Group adopts different sales approaches according to the size and potential of individual markets. In major geographical markets the Group mainly employs its own sales staff to sell direct to trade customers. In medium sized markets the Group sells through agents who receive a sales commission and in small or complex markets the Group uses exclusive distributors. The strategic rationale behind the Group’s portfolio of brands is that they each have separate design studios but share a common operational platform in terms of marketing, sales, sampling, warehousing, purchasing, IT systems and accounting. This minimises costs and maximises efficiency whilst at the same time keeping the identity of each brand distinct and separate in the market. The Group is potentially interested to acquire additional fabric and wallpaper brands provided they complement the existing portfolio and offer geographical and operational synergies. The industry is still relatively fragmented with a large number of independent competitors. The ongoing challenge with acquisitions is finding vendors who are prepared to sell at a realistic price. A cheaper and equally valid alternative to acquisitions is to start a new brand from scratch or develop a sub-brand. However, we believe there are still good opportunities for organic growth within the Group’s existing brand portfolio and the advantage of this lower risk strategy has been surplus cash generation which can be returned to shareholders through our long running share buyback programme. The Group has five fabric and wallpaper brands all sold at the premium end of the market. Colefax and Fowler is a renowned luxury English brand and is complemented by another English brand Jane Churchill which is targeted at a lower price point than Colefax and Fowler. Larsen is a highly innovative contemporary US brand and Manuel Canovas is an iconic luxury French brand. Cowtan and Tout is a very high end luxury US brand sold exclusively in the US market. The Group’s current strategy is to maximise sales and operating profit from its existing portfolio of brands primarily through an annual cycle of new product investment. This is the key driver of sales growth and the market reaction to new products is one of the key business risks. Typically each brand introduces a major new collection annually supplemented by smaller product launches. The Group seeks to reduce business risk by targeting different brands at different markets and ensuing that each brand remains clearly differentiated with minimal product overlap. In addition to the Group’s core fabric and wallpaper brands (the Fabric Division) the Group owns a UK based luxury sofa manufacturer Kingcome Sofas. Production takes place at a freehold factory in Newton Abbot, Devon which employs 35 highly skilled staff and this is the Group’s only manufacturing activity. All furniture is made to order backed by customer deposits. It is a relatively small part of the Group accounting for 3.0% of sales. Although a distinct activity the furniture company is grouped with the fabric and wallpaper brands to make up the Product Division. The Group also owns an ultra luxury interior design business trading as Sibyl Colefax and John Fowler Limited. Founded in 1933 this activity is the original business from which the rest of the Group evolved and is referred to as the Decorating Division. Currently it accounts for 14% of Group sales. The business undertakes interior design 4 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 5 COLEFAX GROUP PLC S T R AT E G I C R E P O RT and decoration projects primarily for high end residential customers. All projects are fully estimated and funded by customer deposits. There are four Design Directors and three Associate Directors each with their own portfolio of clients. The business is international with a broad geographical spread and the high end client base means it is quite resilient to normal economic cycles. The Decorating Division includes a decorative antiques business which accounts for about 7% of its sales. Although antique sales are a relatively small part of the total they are strategically important to the Decorating Division. In recent years the market for antiques has been relatively challenging due to changing consumer tastes and following the move to new premises at 89-91 Pimlico Road we have taken a more selective approach to antiques focusing on fewer individual items. This has resulted in improved margins and stock turn. The project based nature of decorating means that, depending on the timing of projects, there can be significant fluctuations in profits from year to year. This is important for investors to understand because it can sometimes have a material impact on the Group’s results. Key Performance Indicators Given the size and nature of the Group’s activities the Key Performance Indicators are all financial in nature: Constant Currency Sales Growth Gross Profit Margin Operating Profit Margin Earnings Per Share Operating Cash Flow 2018 8.6% 53.7% 5.5% 38.1p £8.9m 2017 -5.3% 55.1% 3.6% 18.6p £4.2m Sales Growth Group sales were up by 6.9% in reported terms to £86.05 million (2017 – £80.47 million) and up by 8.6% on a constant currency basis. The sales increase was mainly due to the Decorating Division where sales increased by £4.2 million or 53% to £12.3 million (2017 £8.1 million). This was an exceptionally strong performance by Decorating and reflects the completion of a number of major projects during the year. Customer deposits remain healthy but activity is likely to return to more normal levels next year. In our core Fabric Division sales increased by 1.5% in reported terms and by 3.3% on a constant currency basis. Most of the growth came from the US where sales increased by 6.1% largely reversing a 7.7% decline last year. In the UK sales increased by 0.5% following a 1% decline last year and in Europe constant currency sales decreased by 0.1% following a 6.0% decline last year. These changes are discussed in more detail in the Chairman’s Statement. In terms of trends the growth in the US looks likely to continue this year whereas trading in the UK and Europe looks increasingly difficult. Gross Profit Margin The overall gross profit margin decreased from 55.1% to 53.7%. The main reason for the 1.4 percentage point decline was a significant increase in the proportion of Decorating Division sales where gross profit margins are much lower than the Fabric Division. In the Fabric Division the gross margin achieved is heavily influenced by the Sterling – US Dollar exchange rate. This is because approximately 60% of sales are invoiced in US Dollars but the majority of goods sold are purchased from suppliers in Sterling or Euros. Every one cent movement in the Sterling Dollar exchange rate affects gross margin by approximately £95,000. The sensitivity of profits to the US Dollar rate is the reason why the Group has typically hedged a proportion of its exposure in the form of forward contracts to sell US Dollars at its budgeted rate. The decision to hedge the US Dollar prior to the Brexit vote resulted in losses of £2 million in 2017 and £959,000 in 2018. These pre-Brexit contracts which were mostly at a rate of $1.50 have now ended which means the Group will benefit fully from the post Brexit weakness of Sterling. The Group does not have any significant exposure to the Euro Sterling exchange rate as there is a natural hedge between Euro costs and revenues. 5 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 6 COLEFAX GROUP PLC S T R AT E G I C R E P O RT The average and closing US Dollar and Euro rates were as follows: US dollar average US dollar closing Euro average Euro closing 2018 1.34 1.38 1.13 1.14 2017 1.29 1.29 1.18 1.19 % change -3.9% -7.0% 4.2% 4.2% Operating Profit Margin Group operating profit increased by 60.7% to £4.72 million (2017 – £2.94 million) representing an operating profit margin of 5.5% (2017 – 3.6%). Excluding hedging losses the operating margin would have been £5.68 million or 6.6%. The main reasons for the increase in operating profit were a £1.04 million reduction in hedging losses resulting from a lower level of cover and a £0.8 million increase in Decorating Division profits. However, the average US Dollar exchange rate for the year was less favourable at $1.34 compared to $1.29 and the impact of this was largely offset by a 6.2% increase in US sales. An important feature of the Group is that profits are highly operationally geared. Gross margins are relatively high and our cost base is relatively fixed with the result that operating margins are very sensitive to small fluctuations in sales. Over the last twelve months the main pressure on our cost base has come from premises costs. Apart from our Kingcome Sofas freehold factory in Devon all of the Group’s showrooms, offices and warehouses are leasehold. In the UK in particular new rating assessments and rent reviews have led to some unwelcome cost increases. As noted last year the Group faces ongoing uncertainty over Brexit and in particular whether or not the UK will agree a free trade deal with the EU. Tariff free trade with Europe is important to the Group because a majority of the Fabric Division’s products are purchased in the EU and 21% of sales are made in the EU. Earnings Per Share Earnings per share increased by 105% to 38.1p (2017 – 18.6p) reflecting the 61% increase in operating profit as well as a significant reduction in the effective tax rate from 35.5% to 19%. The reduction in the Group corporate tax rate is for two main reasons. Firstly corporate tax rates are only 19% in the UK and a higher proportion of profits were made in the UK due to lower hedging losses and a strong performance from the Decorating Division. Secondly from January 2018 US federal corporate tax rates reduced from 35% to 21% benefitting apportioned profits for the last four months of the year. Although the lower US rate was only for four months there was a one off deferred tax credit of £350,000. This increased earnings per share by 3.5p relating to a reduction in our net US deferred tax liability. For the current year we expect the Group’s effective tax rate to be around 26%. Earnings per share also benefitted from a small decrease of 1.1% in the weighted average number of shares in issue during the year due to share buybacks in the current and prior year. The Board remains committed to a policy of returning surplus cash to shareholders by way of share buybacks provided it enhances shareholder value. Since September 1999 the Group has returned £30.77 million to shareholders through its share buyback program. Operating Cash Flow The Group’s operating cash flow increased by £4.5 million to £8.67 million (2017 – £4.18 million) compared to profit from operations of £4.72 million. The increase compared to last year reflects higher profitability and tight control of working capital which reduced by £1.2 million compared to an increase of £1.48 million last year. Most of the change in working capital was due to the unwinding of unrealized hedging losses recorded under current liabilities. Depreciation amounted to £2.74 million (2017 – £2.72 million) compared to net capital expenditure of £2.33 million. Next year we are planning to refurbish our Chelsea Harbour showroom in London and our US showroom in Los Angeles and expect capital expenditure to be broadly in line with depreciation. The Group ended the year with net cash of £9.2 million compared to £6.7 million last year. This increase of £2.5 million is after share buybacks of £2.2 million and dividend payments of £488,000. Excluding these items cash generation was £5.13 million. 6 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 7 COLEFAX GROUP PLC S T R AT E G I C R E P O RT Principal Risks and Uncertainties The Group has put in place controls to identify, monitor and manage the principal risks and uncertainties faced by the Group. Risks are ranked according to their potential financial impact and probability and a Group Risk Assessment Report is presented bi-annually to the Audit Committee. The Group’s Executive Directors provide input into the risk assessment process where relevant. The principal risks can be summarized into business risks, financial risks and operational risks. Business risks The main internal business risk relates to the market reaction to new product investment. The risk is mitigated by employing talented and experienced design studio staff together with tight budgetary controls over new product investment and regular feedback and financial analysis. The main external business risk is a downturn in the high end housing market. The business is not immune to economic cycles and in particular it tends to lag changes in the strength of the high end housing market. The main control for responding to changes in the housing market is the amount of new product investment. The Group faces significant risks from Brexit if the UK leaves the Customs Union and does not agree on a free trade deal with Europe for goods. This is because the Fabric Division purchases the majority of its goods from suppliers in Europe and makes 21% of its sales to customers in Europe. Customs duty on European purchases would adversely affect costs and customs duty on European sales would adversely affect revenues. Financial risks There are two major financial risks facing the Group. The first is the US Dollar exchange rate against Sterling. This can have a material impact on profitability because every one cent movement in the exchange rate impacts Group profits by approximately £95,000. The Group seeks to hedge against fluctuations in the US Dollar exchange rate by taking out forward contracts to sell US dollars at rates close to or better than the annual budgeted rate. The second major financial risk relates to obsolete inventory. Each fabric brand consists of hundreds of individual fabric and wallpaper options and as a result the largest component of the balance sheet is finished goods stock amounting to approximately £13.5 million. There are substantial fluctuations in inventory levels during the year relating to the timing of new product launches. Obsolete stock arises due to surpluses resulting from supplier minimum orders, risks associated with new product introduction and product discontinuations. Some obsolete inventory is an inevitable feature of the business but the Board seeks to mitigate the risk of obsolete inventory through tight purchasing controls and budgetary controls over new product investment. Operational risks There are two main operational risks. The first relates to the loss or failure of the Group’s IT system in the UK or the US. The nature of the Fabric Division business is that it involves large numbers of stock items, large numbers of customers and a high volume of transactions. As a result the Group is highly dependent on its IT systems and the main way that the Group mitigates this risk is through real-time backup procedures in the UK and the US. In addition the Group has full business interruption insurance. The second main operational risk relates to loss or damage to the Group’s warehouse and operations facilities in the US and the UK including loss or damage to inventory. The risk is spread by having three warehouse buildings in the UK and one in the US. The main way that the Group mitigates this risk is by having alarm systems and disaster recovery plans as well as full inventory insurance and business interruption insurance. The above report was approved by the Directors on 25 July 2018 and signed on its behalf by R. M. Barker BSc ACA Group Finance Director 7 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 8 COLEFAX GROUP PLC D I R E C T O R S, B A N K E R S A N D A D V I S E R S Directors Nominated Advisers and Stockbrokers D. B. Green, Chairman and Chief Executive R. M. Barker BSc ACA, Finance Director W. Nicholls, Decorating Managing Director K. Hall, Chief Executive Officer – USA A. K. P. Smith, Non-Executive Director Secretary and Registered Office R. M. Barker BSc ACA 19-23 Grosvenor Hill London W1K 3QD Registered in England No. 1870320 Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET Auditors BDO LLP 55 Baker Street London W1U 7EU Solicitors Keystone Law 48 Chancery Lane London WC2A 1JF Bankers HSBC Bank plc 31 Holborn London EC1N 2HR HSBC Bank USA 452 Fifth Avenue New York NY 10018 U.S.A. JP Morgan Chase Bank 270 Park Avenue 41st Floor New York NY 10017 U.S.A. Registrars and Transfer Office Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZY 8 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 9 COLEFAX GROUP PLC D I R E C T O R S ’ R E P O RT Principal Activities The principal activities of the Group are the design, marketing, distribution and retailing of furnishing fabrics, wallpapers, trimmings, related products and upholstered furniture in the UK and overseas and the sale of antiques, interior and architectural design, project management, decorating and furnishing for private and commercial clients. Review of the Business and Future Developments Details of the Group’s activities during the year, key performance indicators and future plans are contained in the Chairman’s Statement on pages 2 and 3, and in the Strategic Report on pages 4 to 7. Share Capital At the forthcoming Annual General Meeting, certain resolutions are to be proposed relating to the allotment of shares. Resolution Number 6, proposed as an ordinary resolution, would authorise the Directors to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company up to a maximum of one third of the issued share capital of the Company for a period expiring on the date of the next Annual General Meeting or 15 months after the passing of the resolution, whichever occurs first. In addition, Resolution Number 6 would also authorise the Directors to allot equity securities in connection with a rights issue up to a maximum of one third of the issued share capital of the Company for a period expiring on the date of the next Annual General Meeting or 15 months after the passing of the resolution, whichever occurs first. Resolution Number 7, proposed as a special resolution, would authorise the Directors to allot shares for cash, on rights issues and other issues to existing shareholders in proportion to their existing holdings and also allows issues of sales other than to existing shareholders in respect of a maximum of 5% of the existing issued share capital of the Company, for a period again expiring on the date of the next Annual General Meeting or 15 months after the passing of the resolution, whichever occurs first. Purchase of Own Shares The Board is committed to a strategy of utilising surplus cash for share buybacks provided they enhance shareholder value through their effect on earnings per share and return on capital employed. During the year, the Company repurchased 413,000 shares at an average price of 525p. Results and Dividends The Group’s profit after tax was £3,832,000 (2017 – £1,895,000). An interim dividend of 2.4p (2017 – 2.30p) per share was paid to shareholders on 9 April 2018. The Directors recommend the payment of a final dividend of 2.6p (2017 – 2.50p) per share to be paid on 10 October 2018 to shareholders on the register at the close of business on 7 September 2018. The proposed final dividend has not been accrued for because the dividend was declared after the year end and is yet to be approved at the Annual General Meeting. The total dividend for the year is 5.00p (2017 – 4.80p) per share and the total of the interim and proposed final dividend is £486,000 (2017 – £488,000). Employees The Group values the involvement of its employees and keeps them informed on matters affecting them and on factors affecting the performance of the Group. Information is given at formal and informal meetings throughout the year. The Group believes in a policy of equal opportunities. Recruitment and promotion are undertaken on the basis of merit, regardless of gender, race, age, marital status, sexual orientation, religion, nationality, colour and disability. Disabled Persons It is the policy of the Group to employ disabled persons wherever appropriate. Such disabled employees are given the same opportunities for training and promotion as other employees. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues. Events after the Reporting Date No significant events have occurred since 30 April 2018 at the date of these financial statements. 9 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 10 COLEFAX GROUP PLC D I R E C T O R S ’ R E P O RT Financial Risk Management Detail of the use of financial instruments and financial risk management are contained in note 20 to the financial statements. Freehold Property The Group’s freehold property was last valued on 28 April 2011 on an open market value basis by qualified valuers from Drew Pearce, an independent firm of chartered surveyors. The valuation was carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors. The market value determined under this basis was £850,000. The net book value of the Group’s freehold property, on a historical cost basis was £163,000 at 30 April 2018 (2017 – £168,000). Directors The Directors listed on page 8 have held office throughout the year to 30 April 2018. In accordance with Article 14.1 of the Company’s Articles of Association, A. K. P. Smith will retire by rotation at the Annual General meeting. Resolution 5 proposes his re-election as Director. A. K. P. Smith has a service contract which is terminable by one year’s notice by either the Company or the Director. Non-Executive Directors A.K.P. Smith was appointed as non-executive Director in February 1994. Directors’ Remuneration Salary and Benefits Pension 2018 2017 fees Bonus in kind contributions Total Total £’000 £’000 £’000 £’000 £’000 £’000 Executive Directors: D. B. Green 655 32 28 – 715 679 R. M. Barker 225 10 2 – 237 227 W. Nicholls 190 10 28 – 228 225 K. Hall 332 17 – 22 371 370 Non-executive Directors: A. K. P. Smith 24 – – – 24 24 1,426 69 58 22 1,575 1,525 Substantial Shareholdings as at 30 April 2018 Number of shares % D. B. Green 2,718,681 27.7 Rights and Issues Investment Trust plc 2,250,000 22.9 Schroder plc 1,918,234 19.6 10 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 11 COLEFAX GROUP PLC D I R E C T O R S ’ R E P O RT Directors’ Interests The Directors’ interests in the share capital of the Company at the end of the financial year were as follows: Ordinary shares of 10p each 2018 2017 D. B. Green 2,718,681 3,148,681 R. M. Barker 212,902 218,102 W. Nicholls 87,350 97,350 K. Hall 161,100 161,100 A. K. P. Smith 45,000 45,000 No Director has interests in the shares of any subsidiary company. Share Options There are no options outstanding in respect of the Colefax Group plc Employee Share Ownership Plan Trust. The market price of the Company’s shares at 30 April 2018 was 496.5p. The range of market prices during the financial year was between 460p and 545p. Corporate Governance As the Company is listed on the Alternative Investment Market it is not formally required to comply with the UK Corporate Governance Code. However, the Board seeks to apply the principles of good corporate governance wherever practical given the confines of a smaller company. The whole Board acts as a Nomination Committee. The Board has identified the principal business and financial risks facing the Group and documented the key control procedures that are in place to manage these risks. This document is subject to review by the Audit Committee and updated on a regular basis. Auditors All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company’s auditors for the purposes of their audit and to establish that the auditors are aware of that information. The directors are not aware of any relevant audit information of which the auditors are unaware. A resolution to reappoint BDO LLP as auditors will be put to the members at the Annual General Meeting. By order of the Board R. M. Barker BSc ACA Secretary 25 July 2018 11 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 12 COLEFAX GROUP PLC S TAT E M E N T O F D I R E C T O R S ’ R E S P O N S I B I L I T I E S I N R E S P E C T O F T H E F I N A N C I A L S TAT E M E N T S Directors’ responsibilities The directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group and company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the company‘s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company‘s website is the responsibility of the directors. The directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. 12 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 13 COLEFAX GROUP PLC I N D E P E N D E N T AU D I T O R S ’ R E P O RT T O T H E M E M B E R S O F C O L E FA X G R O U P P L C Opinion We have audited the financial statements of Colefax Group Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 30 April 2018 which comprise the group income statement, the group statement of comprehensive income, the group statement of financial position, the company statement of financial position, the group statement of cash flows, the company statement of cash flows, the group statement of changes in equity, the company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 April 2018 and of the group’s profit for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 13 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 14 COLEFAX GROUP PLC I N D E P E N D E N T AU D I T O R S ’ R E P O RT T O T H E M E M B E R S O F C O L E FA X G R O U P P L C ( C O N T I N U E D ) Key Audit Matter How we addressed the matter in our audit Revenue recognition A potential risk to the correct cut-off of revenue arises with respect to recording revenue for decorating contracts where work continues across the year end. Judgement is required in determining the extent of work completed. The group’s accounting policy for revenue recognition is disclosed in note 1 and the financial statements disclose further detail concerning the group’s revenues in notes 3 and 4. Inventory valuation Inventory is held at the lower of cost and net realisable value and the determination of net realisable value involves the exercise of significant judgement. Given the size of the inventory balance, and the level of provisioning required, we consider the provision calculation to be an area of material judgement. Hence there is a risk that the inventory valuation is inappropriate. The group’s accounting policy for inventory is disclosed in note 1 and the financial statements disclose further detail concerning the group’s inventory in note 14. Our audit procedures included: • Assessment of decorating contracts with significant work in progress balances to identify contracts where significant work has been completed at the year-end date; • Review of invoices raised post year to identify contracts where significant work has been completed at the year-end date in order to inform our conclusions on the work completed at the year-end date; and • Selection of a sample of contracts and agreeing the details of these transactions to the underlying contractual information or other supporting documentation which demonstrated the timing of when obligations under the contract had been fulfilled. Our audit procedures included: • Challenging the appropriateness of management’s assumptions within the provision calculation, including reviewing the level of historic stock write offs; • Obtaining management’s calculations and re- calculating the provision value; and • Testing the amounts included in the provision on a sample basis. Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For planning, we consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Level of materiality applied and rationale We consider Adjusted Profit Before Tax, excluding the impact of gains or losses arising on foreign exchange hedging contracts, to be the most appropriate performance measure for the basis of materiality in respect of the audit of the group as this measure reflects the group’s underlying trading profitability. Adjusted Profit Before Tax is calculated for this purpose as Net Income for the Year Before Taxes adjusted for gains or losses on foreign currency hedging contracts. Using this benchmark, we set materiality at £450k (2017: £500k) being 7.9% of Adjusted Profit Before Tax (2017: 10% of Adjusted Profit Before Tax). Materiality in respect of the audit of the parent company has been set at £350k based on the net assets of the company, capped at 78% of group materiality. Performance materiality was set at 75% (2017: 75%) of materiality. In setting the level of performance materiality we considered a number of factors including the expected total value of known and likely misstatements (based on past experience and other factors) and management’s attitude towards proposed adjustments. 14 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 15 COLEFAX GROUP PLC I N D E P E N D E N T AU D I T O R S ’ R E P O RT T O T H E M E M B E R S O F C O L E FA X G R O U P P L C ( C O N T I N U E D ) Component materiality Where financial information from components was audited separately, component materiality levels were set for this purpose at lower levels up to a maximum of 80% of group materiality. In the audit of each component, we further applied a performance materiality level of 75% of the component materiality level to our testing to ensure that the aggregation risk of errors exceeding component materiality was appropriately mitigated. Agreement with the Audit Committee We agreed with the Audit Committee that we would report on all differences individually in excess of £22,500 (2017: £25,000). We also report to the Audit Committee on financial statement disclosure matters identified when assessing the overall consistency and presentation of the consolidated financial statements. An overview of the scope of our audit We tailored the scope of our audit to ensure that enough work was performed to be able to issue an opinion on the financial statements as a whole, whilst taking into consideration the structure of the group, the accounting processes and controls, and the industry in which the group operates. During the planning of our group audit we confirmed our strategy for the procedures to be performed across the group’s three significant components. All audit work was undertaken by the group engagement team with the exception of Cowtan and Tout Inc and Manuel Canovas SAS where we engaged with component auditors BDO USA and BDO France. Our strategy is summarised as follows: Total revenue Adjusted Profit before tax 1% Total Assets 2% 48% 52% 48% 51% 39% 59% Full scope audit – other BDO member firms Full scope audit – BDO UK BDO UK limited scope review In relation to the component auditor’s work on the above mentioned overseas components, we determined the level of involvement required by us to determine whether sufficient appropriate audit evidence had been obtained. We discussed the planned procedures ahead of the audit, examined the conduct, results and findings of their audits and discussed and challenged the findings of their audits. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report and accounts, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 15 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 16 COLEFAX GROUP PLC I N D E P E N D E N T AU D I T O R S ’ R E P O RT T O T H E M E M B E R S O F C O L E FA X G R O U P P L C ( C O N T I N U E D ) Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement as set out on page 12, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. 16 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 17 COLEFAX GROUP PLC I N D E P E N D E N T AU D I T O R S ’ R E P O RT T O T H E M E M B E R S O F C O L E FA X G R O U P P L C ( C O N T I N U E D ) Use of our report This report is made solely to the parent company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the parent company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Anthony Perkins (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor London, United Kingdom 25 July 2018 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 17 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 18 COLEFAX GROUP PLC G R O U P I N C O M E S TAT E M E N T For the year ended 30 April 2018 Notes 2018 2017 £’000 £’000 Revenue 3 86,052 80,475 Cost of sales 39,811 36,119 Gross profit 46,241 44,356 Operating expenses 5 41,520 41,419 Profit from operations 6 4,721 2,937 Finance income 8 1 1 Finance expense 8 (3) (1) Profit before taxation 4,719 2,937 Tax expense – UK (508) 39 – Overseas (379) (1,081) 9 (887) (1,042) Profit for the year attributable to equity holders of the parent 3,832 1,895 Basic earnings per share 11 38.1p 18.6p Diluted earnings per share 11 38.1p 18.6p The notes on pages 25 to 43 form part of these Consolidated financial statements. 18 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 19 COLEFAX GROUP PLC G R O U P S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E For the year ended 30 April 2018 Notes 2018 2017 £’000 £’000 Profit for the year 3,832 1,895 Other comprehensive income/(expense): Items that will not be reclassified to profit and loss: Exchange differences on translation of foreign operations (743) 1,628 Remeasurement of defined benefit pension scheme 31 101 Tax relating to items that will not be reclassfied to profit and loss 19 76 (449) (636) 1,280 Items that will or may be reclassified to profit and loss: Cash flow hedges: Gains/(losses) recognised directly in equity 210 (2,611) Transferred to profit and loss for the year 959 2,006 Tax relating to items that will or may be reclassified to profit and loss 19 (222) 109 947 (496) Total other comprehensive income 311 784 Total comprehensive income for the year attributable to equity holders of the parent 4,143 2,679 The notes on pages 25 to 43 form part of these Consolidated financial statements. 19 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 20 COLEFAX GROUP PLC G R O U P S TAT E M E N T O F F I N A N C I A L P O S I T I O N At 30 April 2018 Notes 2018 2017 £’000 £’000 Non-current assets: Property, plant and equipment 12 8,692 9,669 Deferred tax asset 19 173 386 Pension asset 24 34 – 8,899 10,055 Current assets: Inventories and work in progress 14 14,086 13,938 Trade and other receivables 15 11,130 11,805 Current corporation tax 17 – 170 Cash and cash equivalents 16 9,177 6,710 34,393 32,623 Current liabilities: Trade and other payables 13,678 13,961 Current corporation tax 306 – 17 13,984 13,961 Net current assets 20,409 18,662 Total assets less current liabilities 29,308 28,717 Non-current liabilities: Deferred rent 18 1,878 1,992 Deferred tax liability 19 11 734 Pension liability 24 – 55 Net assets 27,419 25,936 Capital and reserves attributable to equity holders of the Company: Called up share capital 21 981 1,022 Share premium account 22 11,148 11,148 Capital redemption reserve 22 1,893 1,852 ESOP share reserve 22 (113) (113) Foreign exchange reserve 22 2,158 2,779 Cash flow hedge reserve 22 (32) (979) Retained earnings 22 11,384 10,227 Total equity 27,419 25,936 The financial statements were approved by the Board of Directors and authorised for issue on 25 July 2018. D. B. Green Director R. M. Barker Director The notes on pages 25 to 43 form part of these Consolidated financial statements. Company No. 1870320 20 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 21 COLEFAX GROUP PLC C O M PA N Y S TAT E M E N T O F F I N A N C I A L P O S I T I O N At 30 April 2018 Notes 2018 2017 £’000 £’000 Non-current assets: Investments 13 26,443 27,093 Current assets: Trade and other receivables 15 5,214 3,941 5,214 3,941 Current liabilities: Trade and other payables 17 1,719 2,507 Net current assets 3,495 1,434 Net assets 29,938 28,527 Capital and reserves attributable to equity holders of the Company: Called up share capital 21 981 1,022 Share premium account 22 11,148 11,148 Merger reserve 22 10,762 10,762 Capital redemption reserve 22 1,893 1,852 Retained earnings 22 5,154 3,743 Total equity 29,938 28,527 The Company profit for the year was £4,071,000 (2017 – £1,727,000). Total comprehensive income relating to the year for the Company consists of the profit for the year only. The financial statements were approved by the board of directors and authorised for issue on 25 July 2018. D. B. Green Director R. M. Barker Director The notes on pages 25 to 43 form part of these Consolidated financial statements. Company No. 1870320 21 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 22 COLEFAX GROUP PLC G R O U P S TAT E M E N T O F C A S H F L O W S For the year ended 30 April 2018 Notes 2018 2017 £’000 £’000 Operating activities Profit before taxation 4,719 2,937 Finance income (1) (1) Finance expense 3 1 Loss on disposal of property, plant and equipment 235 – Depreciation 12 2,735 2,720 Cash flows from operations before changes in working capital 7,691 5,657 Increase in inventories and work in progress (301) (1,140) Decrease/(increase) in trade and other receivables 463 (2,172) Increase in trade and other payables 1,056 1,835 Cash generated from operations 8,909 4,180 Taxation paid UK corporation tax paid (350) (224) Overseas tax paid (679) (1,141) (1,029) (1,365) Net cash inflow from operating activities 7,880 2,815 Investing activities Payments to acquire property, plant and equipment 12 (2,382) (4,126) Receipts from sales of property, plant and equipment 49 40 Interest received – 1 Net cash outflow from investing (2,333) (4,085) Financing activities Purchase of own shares 21 (2,172) (2,583) Interest paid (3) (1) Equity dividends paid 10 (488) (478) Net cash outflow from financing (2,663) (3,062) Net increase/(decrease) in cash and cash equivalents 2,884 (4,332) Cash and cash equivalents at beginning of year 6,710 10,085 Exchange (losses)/gains on cash and cash equivalents (417) 957 Cash and cash equivalents at end of year 16 9,177 6,710 The notes on pages 25 to 43 form part of these Consolidated financial statements. 22 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 23 COLEFAX GROUP PLC C O M PA N Y S TAT E M E N T O F C A S H F L O W S For the year ended 30 April 2018 Notes 2018 2017 £’000 £’000 Operating activities Profit before taxation 4,219 1,727 Dividend income for the year (4,103) (1,598) Finance income (133) (146) Cash flows from operations before changes in working capital (17) (17) Increase in trade and other receivables (937) (152) Increase/(decrease) in trade and other payables 15 (807) Cash consumed by operations (939) (976) Taxation paid UK corporation tax paid (350) (224) Net cash outflow from operating activities (1,289) (1,200) Investing activities Interest received 499 146 Loan payment received from subsidiary 650 – Dividends received from subsidiaries 3,603 2,300 Net cash inflow from investing 4,752 2,446 Financing activities Purchase of own shares 21 (2,172) (2,583) Equity dividends paid 10 (488) (478) Net cash outflow from financing (2,660) (3,061) Net increase/(decrease) in cash and cash equivalents 803 (1,815) Cash and cash equivalents at beginning of year (2,492) (677) Cash and cash equivalents at end of year 16 (1,689) (2,492) The notes on pages 25 to 43 form part of these Consolidated financial statements. 23 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 24 COLEFAX GROUP PLC G R O U P S TAT E M E N T O F C H A N G E S I N E Q U I T Y For the year ended 30 April 2018 Cash Share Capital ESOP Foreign flow Share premium redemption share exchange hedge Retained Total capital account reserve reserve reserve reserve earnings equity £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 At 1 May 2017 1,022 11,148 1,852 (113) 2,779 (979) 10,227 25,936 Profit for the year – – – – – – 3,832 3,832 Foreign exchange – – – – (743) – – (734) Remeasurement of defined benefit pension scheme – – – – – – 31 31 Cash flow hedges: Gains – – – – – 210 – 210 Transfers – – – – – 959 – 959 Tax on other comprehensive income – – – – 122 (222) (46) (146) Total comprehensive income for the year – – – – (621) 947 3,817 4,143 Share buybacks (41) – 41 – – – (2,172) (2,172) Dividends paid – – – – – – (488) (488) At 30 April 2018 981 11,148 1,893 (113) 2,158 (32) 11,384 27,419 At 1 May 2016 1,076 11,148 1,798 (113) 1,559 (483) 11,333 26,318 Profit for the year – – – – – – 1,895 1,895 Foreign exchange – – – – 1,628 – – 1,628 Remeasurement of defined benefit pension scheme – – – – – – 101 101 Cash flow hedges: Losses – – – – – (2,611) – (2,611) Transfers – – – – – 2,006 – 2,006 Tax on other comprehensive income – – – – (408) 109 (41) (340) Total comprehensive income for the year – – – – 1,220 (496) 1,955 2,679 Share buybacks (54) – 54 – – – (2,583) (2,583) Dividends paid – – – – – – (478) (478) At 30 April 2017 1,022 11,148 1,852 (113) 2,779 (979) 10,227 25,936 C O M PA N Y S TAT E M E N T O F C H A N G E S I N E Q U I T Y For the year ended 30 April 2018 Share Capital Share premium Merger redemption Retained Total capital reserve reserve reserve earnings equity £’000 £’000 £’000 £’000 £’000 £’000 At 1 May 2017 1,022 11,148 10,762 1,852 3,743 28,527 Profit and total comprehensive income for the year – – – – 4,071 4,071 Share buybacks (41) – – 41 (2,172) (2,172) Dividends paid – – – – (488) (488) At 30 April 2018 981 11,148 10,762 1,893 5,154 29,938 At 1 May 2016 1,076 11,148 10,762 1,798 5,077 29,861 Profit and total comprehensive income for the year – – – – 1,727 1,727 Share buybacks (54) – – 54 (2,583) (2,583) Dividends paid – – – – (478) (478) At 30 April 2017 1,022 11,148 10,762 1,852 3,743 28,527 The notes on pages 25 to 43 form part of these Consolidated financial statements. 24 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 25 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 1. Accounting policies General Information Colefax Group Plc is a public limited company (Company No. 1870320) incorporated and domiciled in England and Wales and listed on the Alternative Investment Market. The principal activity of the Company is to act as a holding company for the Group’s trading subsidiaries. The address of its registered office and principal place of business are disclosed on page 8. The principal activities of the Group are the design, marketing, distribution and retailing of furnishing fabrics, wallpapers, trimmings, related products and upholstered furniture in the UK and overseas and the sale of antiques, interior and architectural design, project management, decorating and furnishing for private individuals and commercial firms. Basis of Preparation The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The policies have been applied to the Group and Company, unless otherwise stated. These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) issued by the International Accounting Standards Board (IASB) as adopted by the European Union (“EU adopted IFRS”) and with those parts of the Companies Act 2006 applicable to companies preparing their financial statements in accordance with IFRS. Changes in Accounting Policies There has been no significant impact on the consolidated results or financial position of the group, as a result of new standards and interpretations issued by the IASB or the International Financial Reporting Interpretations Committee (IFRIC) becoming effective for the first time in the current financial year. The following standards and interpretations issued by the IASB or IFRIC have not been adopted by the Group as these are not effective for the current year. The Group is currently assessing the impact these standards and interpretations will have on the presentation of its consolidated results in future periods: – IFRS 15 ‘Revenue from Contracts with Customers’ (effective for accounting periods beginning on or after 1 January 2018). This standard is intended to clarify the principles of revenue recognition and establish a single framework for revenue recognition. The core principle is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This amendment has been endorsed for use in the EU. – Amendment to IFRS 15 ‘Revenue from Contracts with Customers.’ This clarification has not yet been endorsed for use in the EU. – IFRS 9 ‘Financial Instruments’ (effective for accounting periods beginning on or after 1 January 2018). – This standard replaces IAS 39 Financial Instruments: Recognition and Measurement in its entirety, using a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments and the contractual cash flow characteristics of the financial assets, including the introduction of an expected credit loss method for financial assets. The recognition and de-recognition requirements for financial assets and financial liabilities are unchanged from IAS 39. The new hedge accounting model is more principles-based, less complex and allows entities to apply hedge accounting more broadly to manage profit and loss mismatches, and as a result reduce ‘artificial’ hedge ineffectiveness that can arise under IAS 39. This standard has been endorsed for use in the EU. – IFRS 16 ‘Leases’ (effective for accounting periods beginning on or after 1 January 2019). This standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a lease contract. The IFRS eliminates the classification of leases as either operating or finance as required by IAS 17, and instead introduces a single lessee accounting model. This standard has not yet been endorsed for use in the EU. The Group considers that the implementation of IFRS 9 and 15 will not have a material impact on the Group’s financial statements. The Group has a significant number of property leases and therefore IFRS 16 will have a material impact on the Group’s financial statements. The Group is still evaluating the extent of the impact of IFRS 16. 25 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 26 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 1. Accounting policies The following principal accounting policies have been applied consistently in the preparation of the continued financial statements: Basis of Consolidation Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the Company to use its power to affect those variable returns. The consolidated financial statements present the results of Colefax Group Plc and its subsidiaries as if they formed a single entity. No income statement is presented for the Company as provided in S.408 of the Companies Act 2006. Business combinations are accounted for using the acquisition method. Under the acquisition method the results of subsidiary undertakings are included from the date of acquisition. Where merger accounting was used in business combinations prior to 1 May 2006 (transition date), the investment is still recorded in the Company’s statement of financial position at the nominal value of the shares issued, together with the fair value of any additional consideration paid as the Group has applied the IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ exemption relating to business combinations. In the Group Financial Statements, merged subsidiary undertakings are treated as if they had always been a member of the Group. Any difference between the nominal value of the shares acquired by the Group and those issued by the company to acquire them is taken to reserves. Goodwill Goodwill arising on acquisitions prior to 30 April 1998 was set off directly against reserves. Goodwill previously eliminated against reserves has not been reinstated upon transition to IFRS. Investments in Subsidiaries Investments in subsidiaries in the Company statement of financial position are stated at cost less any provision for impairment. Revenue Recognition Revenue, which excludes value added taxes, represents the amounts receivable from customers for goods and services supplied including disbursements net of rebates and discounts provided. Sales of goods are recognised when goods are delivered and title has passed. Revenue for services, principally interior design and decorating services, is recognised in the period in which they are rendered. Where projects are ongoing at the year end, revenue is recognised on a stage of completion basis, when the Group has a right to consideration for those services. Property, Plant and Equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost comprises the purchase price and costs directly incurred in bringing the asset into use. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Depreciation is provided on all property, plant and equipment other than freehold land at rates calculated to write off the cost less estimated residual value evenly over its expected useful life, as follows: Freehold property 50 years Leasehold improvements over the shorter of the life of the lease or the life of the asset Furniture, fixtures and equipment 5 – 10 years Motor vehicles 4 years Screens and originations 4 years Inventories Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition, with the majority of inventories being valued on a weighted average cost basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Provision is made for obsolete and slow moving stocks. 26 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 27 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 1. Accounting policies Work in Progress continued Work in progress is valued at cost less progress payments received. Cost includes all direct expenditure on physical goods and materials acquired in advance of installation. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current Tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted in the territories in which the taxable income is earned by the date of the statement of financial position. Deferred Taxation Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the date of the statement of financial position. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and Deferred Tax for the year Current and deferred tax are recognised as an expense or income in the income statement, except when they relate to items credited or debited directly to other comprehensive income or equity, in which case the tax is also recognised directly in other comprehensive income or equity. Lease Commitments and Incentives Leases where substantially all of the risks and rewards incidental to ownership of a leased asset are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight line basis over the lease term. Lease incentives and inducements are recognised as deferred rent in current and non-current liabilities as appropriate and released on a straight line basis over the lease term. Retirement Benefits Defined Contribution Schemes The Group operates defined contribution pension schemes which are externally administered. Payments made to the funds are charged to the income statement as part of employment costs in the period to which they relate. Defined Benefit Schemes One Group company operates a defined benefit pension scheme for employees. The scheme’s funds are administered by trustees and are independent of Group finances. Annual contributions are based on external actuarial advice. The scheme was closed to new members on 31 December 1997. The difference between the fair value of the assets held in the Group’s defined benefit pension scheme and the scheme’s liabilities measured on an actuarial basis using the projected unit credit method are recognised in the Group’s statement of financial position as a pension asset or liability as appropriate. Any related deferred tax is recognised within the Group’s deferred tax asset or liability following the principles described in the deferred tax accounting policy note. 27 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 28 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 1. Accounting policies Changes in the defined benefit pension scheme asset or liability arising from actuarial gains and losses continued in scheme liabilities and the movements on the valuation of scheme assets are recognised in the Statement of comprehensive income. Foreign Currency The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group entity are expressed in Great British Pounds (‘GBP’), which is the functional currency of the Company and the presentation currency for the consolidated financial statements. Group The assets and liabilities of overseas subsidiary undertakings are translated at the rate of exchange ruling at the date of the statement of financial position and the results of overseas subsidiaries are translated at the average rate of exchange for the year. The exchange differences arising on the retranslation of opening net assets and on loans which form part of the net investment are recognised in the Statement of other Comprehensive Income and taken to translation reserves. Loans are designated as part of the net investment, when settlement is neither planned nor likely to occur in the foreseeable future. Company and all subsidiaries Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies including loans to subsidiaries are retranslated at the rate of exchange ruling at the date of the statement of financial position. All differences are taken to the income statement. Financial Instruments Financial assets comprise cash and cash equivalents and trade and other receivables. Cash and Cash Equivalents Cash equivalents are defined as including short term deposits with original maturity within 3 months. For the purposes of the statements of cash flow, cash and cash equivalents consist of cash and cash equivalents net of outstanding bank overdrafts held. Trade and Other Receivables Trade and other receivables do not carry interest and are stated at their nominal (invoiced) value as reduced by appropriate allowances for estimated irrecoverable amounts. When a trade receivable is considered uncollectable, it is written off against the allowance. Subsequent recoveries of amounts previously written off are credited against the allowance. Changes in the carrying amount of the allowance are recognised in the income statement. Trade and Other Payables Trade and other payables are initially measured at fair value and subsequently at amortised cost using the effective interest rate method. Financial Assets and Liabilities at fair value through profit and loss Financial assets and liabilities at fair value through profit and loss consist of a deferred compensation plan for selected US employees. Plan assets and related liabilities are valued by reference to observable quoted prices in active markets. Forward Foreign Currency Contracts The Group uses forward foreign currency contracts to hedge its risk associated with foreign currency fluctuations. Such forward foreign currency contracts are stated at fair value which is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. It is the Group’s policy not to hold forward foreign currency contracts for speculative purposes. Hedge accounting can be applied to financial assets and financial liabilities only where all of the relevant hedging criteria under IAS 39 are met. The Group accounts for forward foreign currency contracts as a cash flow hedge. The effective part of the contracts designated as a hedge of the variability in cash flows of foreign currency risk arising from highly probable forecast transactions, are measured at fair value with changes in fair value recognised directly in equity (the “cash flow hedge reserve”). 28 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 29 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 1. Accounting policies The cumulative gain or loss is initially recognised in other comprehensive income and accumulated in the continued cash flow hedge reserve. It is subsequently recycled through the consolidated income statement at the same time as the hedged transaction affects the income statement, and reported within the cost of sales line of the income statement. If, at any point, the hedged transaction is no longer expected to occur, the cumulative gain or loss is recycled through the consolidated income statement immediately. Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is in the year in which they are paid. Final dividends are not accrued until the proposed dividend has been approved by the shareholders at the Annual General Meeting. Segmental Reporting For internal management purposes the Group reports by ‘product division’ and ‘decorating division’. 2. Critical accounting estimates and judgements In preparation of consolidated financial statements under IFRS the Group makes estimates and assumptions regarding the future. There are considered to be no critical accounting judgements. Estimates are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Revenue In the Decorating Division, the Group reviews all material contracts in progress at the year end and accrues revenue and profit for all work completed or installed as prescribed by IAS 18. Next year the Group will adopt IFRS 15, but the Group does not believe this will have a material impact on the financial statements. Inventories The Group reviews the net realisable value of, and demand for, its inventories (see note 14) to provide assurance that recorded inventory is stated at the lower of cost or net realisable value. Factors that could impact estimated demand and selling prices include the success of future collections, competitor actions, supplier prices and economic trends. Trade Receivables As described in note 15, the Group reviews its trade receivables to provide assurance that their carrying value is reduced by an appropriate allowance for irrecoverable amounts. Factors which are considered as part of that review include the age of the receivable and the creditworthiness of the customer. Pension Assumptions The costs, assets and liabilities of the defined benefit scheme operated by the Group are determined using methods relying on actuarial estimates and assumptions. Details of the key assumptions are set out in note 24. The Group takes advice from independent actuaries relating to the appropriateness of the assumptions. Changes in the assumptions used may have a significant effect on the consolidated income statement and the statement of financial position. Income Taxes The Group is subject to income tax in several jurisdictions and significant judgement is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Group recognises tax liabilities based on estimates of whether additional taxes and interest will be due, as described in note 19. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact current and deferred tax expenses and balances in the period in which such determination is made. 2018 2017 £’000 £’000 3. Revenue Revenue arises from: Sale of goods 84,736 79,740 Provision of services 1,316 735 86,052 80,475 29 29 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 30 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 4. Segmental analysis The Board of Colefax Group Plc manages the operations of the Group as two divisions: Product division – This division is involved in the design and distribution of furnishing fabrics, wallpapers, upholstered furniture and related products; Decorating division – This division is involved in interior and architectural design and decoration, primarily for private individuals. The reportable segments are distinct business units each run by a separate management team. The financial performance of each division is reported separately to the Board and forms the basis of strategic decision making. Product division Decorating division Total 2018 2017 2018 2017 2018 2017 Business segments £’000 £’000 £’000 £’000 £’000 £’000 Revenue: Total revenue 73,901 72,535 12,326 8,059 86,227 80,594 Inter-segment revenue (175) (119) – – (175) (119) Revenue from external customers 73,726 72,416 12,326 8,059 86,052 80,475 Segment result: Profit from operations 3,820 2,829 901 108 4,721 2,937 Finance income 1 1 – – 1 1 Finance expense (3) (1) – – (3) (1) Profit before taxation 3,818 2,829 901 108 4,719 2,937 Tax expense/(credit) 1,049 968 188 74 1,237 1,042 Profit for the year attributable to equity holders of the parent 2,769 1,861 713 34 3,482 1,895 Total assets 37,126 36,303 6,167 5,819 43,293 42,122 Total liabilities 11,988 12,435 3,886 3,751 15,874 16,186 Net assets 25,138 23,868 2,281 2,068 27,419 25,936 Capital expenditure 2,067 3,133 315 993 2,382 4,126 Depreciation 2,555 2,582 180 138 2,735 2,720 No one single external customer contributes to a significant proportion of the Group’s revenues. External revenue Non-current assets by location of customers by location of assets 2018 2017 2018 2017 Geographical segments £’000 £’000 £’000 £’000 United Kingdom 22,131 21,019 2,746 2,705 United States 41,417 41,133 5,414 5,713 Europe 16,097 14,791 532 903 Rest of World 6,407 3,532 – – 86,052 80,475 8,692 9,321 2018 2017 £’000 £’000 5. Operating expenses Distribution and marketing costs 28,163 28,374 Administrative costs 13,357 13,045 Total operating expenses 41,520 41,419 30 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 31 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 2018 2017 £’000 £’000 6. Profit from This has been arrived at after charging/(crediting): operations Audit services – group 47 41 Audit services – subsidiaries 122 124 Non-audit services – taxation compliance 129 93 Non-audit services – pensions 9 10 Depreciation of owned property, plant and equipment 2,735 2,720 Operating lease rentals – land and buildings 5,183 5,232 Operating lease rentals – plant and machinery 83 76 (Profit)/loss on the disposal of property, plant and equipment 235 (21) Exchange losses 916 2,205 Pension costs (see note 24) 410 396 Compensation for surrender of Brook Street lease – (494) Brook Street move related costs – 434 2018 2017 £’000 £’000 7. Staff costs Staff costs, including Executive Directors, were as follows: Wages and salaries 16,279 15,745 Social security costs 1,960 1,839 Pension costs 410 396 18,649 17,980 The average monthly number of employees during the year, including Executives Directors, was made up as follows: No. No. Distribution and marketing Executive directors 2 2 Other employees 290 285 Administration Executive directors 2 2 Other employees 53 54 347 343 The holding Company directors received their remuneration, as detailed in the Directors’ Report, from other group companies. The holding Company had no other employees during the year (2017 – nil). 2018 2017 £’000 £’000 Directors’ (key management personnel) remuneration was as follows: Emoluments 1,553 1,502 Pension contributions 22 23 Employers social security costs on directors’ emoluments 174 168 1,749 1,693 Emoluments of the highest paid director: Emoluments 715 679 A full analysis of Directors’ remuneration is provided on page 10 in the Directors’ Report. As the directors have the authority and responsibility for planning, directing and controlling the activities of the Group they are seen to be key management. One director participated in Group defined contribution pension schemes in 2018 (2017 – one). No directors participated in Group defined benefit pension schemes in 2018 (2017 – nil). No directors (2017 – nil) exercised options in the year and no options were granted to directors in the year (2017 – nil). 31 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 32 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 2018 2017 £’000 £’000 8. Finance income and Finance expense: expense Bank loans and overdrafts repayable within five years 3 1 Finance income: Bank and other interest receivable 1 1 2 0 2018 2017 £’000 £’000 9. Tax expense (a) Analysis of charge for the year UK corporation tax UK corporation tax on profits of the year 535 (97) Adjustments in respect of previous years – 13 535 (84) Overseas tax Overseas tax on profits of the year 988 1,123 Adjustments in respect of previous years (14) (7) 974 1,116 Total current tax 1,509 1,032 UK deferred tax Origination and reversal of temporary differences (20) 32 Adjustments in respect of previous years (7) 13 (27) 45 Overseas deferred tax Origination and reversal of temporary differences (245) (35) Impact of overseas tax rate changes (350) – (595) (35) Total deferred tax (622) 10 Total income tax expense 887 1,042 (b) Factors affecting the tax charge for the year The tax assessed for the year is higher than the standard rate of corporation tax in the UK. The differences are explained below. 2018 2017 £’000 £’000 Profit before taxation 4,719 2,937 Profit before taxation multiplied by the standard rate of corporation tax in the UK of 19% (2017 – 19.92%) 897 585 Effect of: Disallowed expenses and non-taxable income 33 (58) Adjustments in respect of prior period (current tax) (14) 6 Adjustments in respect of prior period (deferred tax) (7) 13 Rate differences (22) 496 Total tax expense 887 1,042 32 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 33 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 1 April 2014, the UK corpo 2018 2017 £’000 £’000 10. Dividends Final (paid) of 2.5p (2016 – 2.4p) on 10 October 2017 254 244 Interim (paid) of 2.4p (2017 – 2.3p) on 9 April 2018 234 234 488 478 Final dividend proposed for the year of 2.6p (2017 – 2.5p) 252 254 The proposed final dividend has not been accrued for because the dividend was declared after the year end and is yet to be approved at the Annual General Meeting. 11. Earnings per share Basic earnings per share have been calculated on the basis of profit on ordinary activities after tax of £3,832,000 (2017 – £1,895,000) and on 10,067,216 (2017 – 10,185,206) ordinary shares, being the weighted average number of ordinary shares in issue during the year. Shares owned by the Colefax Group Plc Employees’ Share Ownership Plan (ESOP) Trust are excluded from the basic earnings per share calculation. Diluted earnings per share have been calculated on the basis of profit on ordinary activities after tax of £3,832,000 (2017 – £1,895,000) and on 10,067,216 (2017 – 10,185,206) being the weighted average number of shares in issue during the year. 33 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 34 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 Furniture, fixtures Screens Freehold Leasehold and Motor and property improvements equipment vehicles originations Total £’000 £’000 £’000 £’000 £’000 £’000 12. Property, plant and Group equipment Cost: At 1 May 2017 240 9,735 6,668 422 11,294 28,359 Exchange adjustment – (454) (154) – (555) (1,163) Additions _ 111 931 60 1,280 2,382 Disposals – (273) (735) (143) (5,307) (6,458) At 30 April 2018 240 9,119 6,710 339 6,712 23,120 Depreciation: At 1 May 2017 72 5,570 4,442 243 8,363 18,690 Exchange adjustment – (271) (155) – (398) (824) Charge for the year 5 655 581 78 1,416 2,735 Disposals – (273) (450) (143) (5,307) (6,173) At 30 April 2018 77 5,681 4,418 178 4,074 14,428 Net Book Value: At 30 April 2018 163 3,438 2,292 161 2,638 8,692 At 1 May 2017 168 4,165 2,226 179 2,931 9,669 At 1 May 2016 235 8,094 5,808 385 8,990 23,512 Exchange adjustment – 808 485 – 1,120 2,413 Additions 5 1,481 1,166 124 1,350 4,126 Disposals – (648) (791) (87) (166) (1,692) At 30 April 2017 240 9,735 6,668 422 11,294 28,359 Depreciation: At 1 May 2016 68 5,101 4,262 240 6,290 15,961 Exchange adjustment – 494 391 – 797 1,682 Charge for the year 4 623 566 85 1,442 2,720 Disposals – (648) (777) (82) (166) (1,673) At 30 April 2017 72 5,570 4,442 243 8,363 18,690 Net Book Value: At 30 April 2017 168 4,165 2,226 179 2,931 9,669 At 1 May 2016 167 2,993 1,546 145 2,700 7,551 34 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 35 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 Shares Loans Total £’000 £’000 £’000 13. Investments Company: At 30 April 2017 19,443 7,650 27,093 Loan repayment by subsidiary – (650) (650) At 30 April 2018 19,443 7,000 26,443 The subsidiaries of the Group, all of which have been included in these consolidated financial statements, are as follows: Principal Name of Company Notes Products Registered Address Colefax and Fowler Limited *,1 Fabrics and Wallpapers 19-23 Grosvenor Hill, London W1K 3QD Sibyl Colefax & John Fowler Limited *,1 Interior & Architectural 19-23 Grosvenor Hill, Design London W1K 3QD Kingcome Sofas Limited *,1 Upholstered Furniture 19-23 Grosvenor Hill, London W1K 3QD Colefax and Fowler Holdings Limited *,1 Holding Company for 19-23 Grosvenor Hill, Colefax and Fowler Inc London W1K 3QD Manuel Canovas Limited *,1 Dormant 19-23 Grosvenor Hill, London W1K 3QD Jane Churchill Limited *,1 Dormant 19-23 Grosvenor Hill, London W1K 3QD Colefax and Fowler Incorporated 2 Holding Company for 205, Hudson St, Cowtan and Tout Inc New York, NY 10013 Cowtan and Tout Incorporated 2 Fabrics and Wallpapers 205, Hudson St, New York, NY 10013 Manuel Canovas SAS 3 Fabrics and Wallpapers 23, Rue Royale, 75008 Paris Colefax and Fowler GmbH 4 Fabrics and Wallpapers 13, Ottostrasse, 80333 Munich Colefax and Fowler Srl 5 Fabrics and Wallpapers 8 Via Palermo, 20121 Milan (*) Owned directly by parent company (1) (2) (3) (4) (5) Incorporation/Principal Country of Operation is England and Wales. Incorporation/Principal Country of Operation is USA. Incorporation/Principal Country of Operation is France. Incorporation/Principal Country of Operation is Germany. Incorporation/Principal Country of Operation is Italy. The effective percentage of issued Share Capital held by the Group is 100% for all Group subsidiaries. There was no movement in the number of shares held in subsidiary undertakings during the year. At 30 April 2018, the ESOP Trust owned 60,000 (2017 – 60,000) ordinary shares of 10p in the Company at cost, with a market value of £298,000 (2017 – £276,000). Dividends on these shares have been waived. The ESOP can provide benefits to all employees of the Group. There were no shares under option in the ESOP at the date of the statement of financial position. Group 2018 2017 £’000 £’000 14. Inventories and Finished goods for resale 13,537 13,591 work in progress Work in progress 3,015 1,072 Less: progress payments received and receivable (2,466) (725) 14,086 13,938 The cost of inventories recognised as an expense and included in cost of sales amounted to £21,873,000 (2017 – £20,948,000). The value of stock impaired/written off in the period amounted to £1,120,000 (2017 – £1,019,000). 35 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 36 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 Group Company 2018 2017 2018 2017 £’000 £’000 £’000 £’000 15. Trade and other Amounts owed by subsidiary undertakings – – 4,606 3,532 receivables Trade receivables 6,807 7,268 – – Other receivables 2,201 2,606 326 330 Prepayments and accrued income 2,122 1,931 282 79 11,130 11,805 5,214 3,941 Trade receivables and other are considered for impairment based on a number of factors including the age of the receivable and other factors considered to be relevant. As at 30 April 2018 the Group had trade receivables of £2,481,000 (2017 – £2,513,000) which were past due but not individually impaired. The ageing of these receivables is as follows: 2018 2017 £’000 £’000 Up to 3 months past due 2,053 2,191 3 to 6 months past due 258 153 6 to 12 months past due 84 107 Over 12 months past due 86 62 2,481 2,513 As at 30 April 2018 the Group had trade receivables of £392,000 (2017 – £304,000) which were past due and individually impaired. A receivable is considered to be impaired if it is considered to be irrecoverable. This may be due to the age of the receivable or the creditworthiness of the customer. The ageing of these receivables is as follows: 2018 2017 £’000 £’000 Up to 3 months past due 156 103 3 to 6 months past due 39 52 6 to 12 months past due 37 8 Over 12 months past due 175 141 407 304 Movements in the Group provision for impairment of trade receivables is as follows: 2018 2017 £’000 £’000 At beginning of year 319 315 Provided during the year 191 55 Receivables written off as uncollectable (91) (51) Unused amounts reversed (11) (17) Exchange differences (1) 17 At end of year 407 319 The Group’s trade receivables are denominated in the following currencies: 2018 2017 £’000 £’000 Sterling 3,332 3,257 Euro 1,175 1,936 US Dollar 2,077 1,815 Other 223 260 6,807 7,268 36 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 37 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 16. Cash and cash For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise the equivalents following: Group Company 2018 2017 2018 2017 £’000 £’000 £’000 £’000 Cash at bank and in hand 9,177 6,710 – – Bank overdrafts – – (1,689) (2,492) 9,177 6,710 (1,689) (2,492) Cash at bank earns interest at floating rates based on daily bank deposit rates. The fair value of cash and cash equivalents are considered to be their book value. Group Company 2018 2017 2018 2017 £’000 £’000 £’000 £’000 17. Current liabilities Amounts owed to subsidiary undertakings – – – – Bank overdraft – – 1,689 2,492 Trade payables 3,952 3,433 – – Accruals 4,248 3,514 30 15 Payments received on account 2,073 2,559 – – Corporation tax 306 (170) – – Other taxes and social security costs 642 515 – – Other payables 2,723 2,731 – – Forward foreign currency contracts 40 1,209 – – 13,984 13,791 1,719 2,507 The Group’s overdraft facilities are secured by an unlimited multilateral company guarantee and a first fixed and floating charge over all assets of the Company. Group Company 2018 2017 2018 2017 £’000 £’000 £’000 £’000 18. Non-current liabilities Deferred rent 1,878 1,992 – – Group 2018 2017 £’000 £’000 19. Deferred taxation Deferred taxation has been provided as follows: Accelerated capital allowances on property, plant and equipment 834 1,592 Excess of depreciation over capital allowances on property, plant and equipment (56) (46) Short-term temporary differences (940) (1,198) (162) 348 Deferred tax assets have been recognised in respect of all tax losses and other temporary differences where the directors believe it is probable that the assets are recoverable. This is made up as follows: Deferred taxation included in non-current assets (173) (386) Deferred taxation included in non-current liabilities 11 734 (162) 348 2018 2017 Movements in the deferred tax provision is as follows: £’000 £’000 At 1 May 348 (35) Charged to the income statement (note 9) (622) 10 Charged/(credited) directly to other comprehensive income 146 340 Translation adjustment (34) 33 At 30 April (162) 348 37 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 38 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 19. Deferred taxation The deferred income tax charged/(credited) to other comprehensive income during the year is as follows: continued 2018 2017 £’000 £’000 Cash flow hedge reserve 222 (109) Deferred tax on long-term loan foreign currency movements (122) 408 Deferred tax on overseas defined benefit pension scheme movements 8 41 Other movements in deferred tax 38 – 146 340 20. Financial instruments The financial instruments of the Group as classified in the financial statements as at 30 April 2018 can be analysed under the following IAS 39 categories: Assets at fair value Loans and through profit or loss receivables Total 2018 2017 2018 2017 2018 2017 Group £’000 £’000 £’000 £’000 £’000 £’000 Financial assets Trade and other receivables 1,424 1,345 7,583 8,529 9,007 9,874 Cash and cash equivalents – – 9,177 6,710 9,177 6,710 Total 1,424 1,345 16,760 15,239 18,184 16,584 Liabilities at fair value Other financial through profit or loss liabilities Total 2018 2017 2018 2017 2018 2017 £’000 £’000 £’000 £’000 £’000 £’000 Financial liabilities Trade and other payables 1,438 1,366 8,201 6,947 9,639 8,313 Forward foreign currency contracts 40 1,209 – – 40 1,209 Total 1,478 2,575 8,201 6,947 9,679 9,522 The Group’s principal financial instruments comprise of cash, short-term deposits, bank overdrafts, forward foreign currency contracts and various items such as trade and other receivables and trade and other payables that arise directly from its operations. All trade and other payables disclosed above fall due for payment within one year. Forward foreign currency contracts are carried at fair value, measured using level 2 of the fair value hierarchy. The deferred compensation plan assets and liabilities are carried at fair value, measured using level 1 of the fair value hierarchy. The fair value hierarchy has the following levels: Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). The fair value of forward foreign currency contracts is based on broker quote, derived from the quoted price of similar investments. The fair value of the deferred compensation plan assets and liabilities is based on quoted market prices. Financial assets and liabilities at fair value through profit and loss consist of a deferred compensation plan for selected US employees. Plan assets and liabilities are valued by reference to observable quoted prices in active markets. 38 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 39 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 20. Financial instruments The main risks arising from the Group’s financial instruments are liquidity risk, credit risk and foreign continued currency risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. These policies have remained unchanged. Liquidity Risk The Group’s objective is to maintain an appropriate balance between continuity of funding and flexibility through the use of multi-currency overdrafts and bank loans. The Group has various borrowing facilities available to it amounting to £3 million (2017 – £3.0 million). The undrawn committed facilities available at 30 April 2018 in respect of which all conditions had been met at that date total £3 million (2017 – £3.0 million). Group borrowing facilities are reviewed annually with HSBC. The Group’s trade and short-term creditors all fall due within 60 days. At 30 April 2018 the Group’s trade payables were £4.0 million (2017 – £3.4 million) and trade receivables were £6.8 million (2016 – £7.3 million) giving a ratio of 1.7 (2017 – 2.1). This, together with the Group’s cash balances and unused borrowing facility, constitutes a very low liquidity risk. Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts. Such credit ratings are taken into account by local business practices. In the Product Division credit risk is spread over a large number of customers and historically bad debt experience has been extremely low. In the Decorating Division it is not unusual to undertake large projects which can give rise to significant debtor balances from time to time. Risk is reduced by requiring a 50% deposit at the start of the project and a further 25% deposit prior to completion. Credit risk also arises from cash and cash equivalents and deposits with banks. For banks, only independently rated parties with minimum rating “A” are accepted. Foreign Currency Risk Due to the international nature of its operations, the Group faces currency exposures in respect of exchange rate fluctuations against sterling. The most significant of these is the US where revenue in US dollars represents 48% of Group revenue. The majority of the US subsidiary’s revenue from the sale of goods is sourced by imports from the UK and Europe. This revenue is invoiced in US dollars. The Group minimises the currency translation exchange risk by the use of forward foreign currency contracts. The fair value of these contracts at 30 April 2018 is detailed below. The Group’s profit is reduced by approximately £95,000 for every one cent deterioration in the US dollar against Sterling. The Group has a natural hedge between Euro costs and Euro revenues but this is dependent on maintaining Euro revenue at current levels. About 26% of Group revenue is to customers in countries other than the UK and US. Most of this revenue is invoiced in the currencies of the countries involved. The Group does not hedge currency exposures on this revenue using forward foreign currency contracts as any exchange rate risk is considered to be insignificant due to the offsetting effect of imports. The Group has continued its policy of not hedging statement of financial position translation exposures except to the extent that overseas liabilities, including borrowings, provide a natural hedge. It is also the Group’s policy not to hedge income statement translation exposures. The statements of financial position of overseas operations are translated into sterling at the closing rates of exchange for the year and any exchange difference is dealt with as a movement in the foreign exchange reserve. The income statements of overseas business are translated at an average rate of exchange. Interest Rate Risk As the Group has net cash of £9.2 million (2017 – £6.7 million) and interest rates are at historically low levels, the Group does not consider interest rate risk to be a significant risk. Forward Foreign Currency Contracts The Group uses forward foreign currency contracts to forward-buy and sell foreign currency in order to hedge future transactions and cash flows. The Group is party to forward foreign currency contracts denominated in US dollars to eliminate transactional currency exposures on future expected revenue in the US. At 30 April 2018, the Group was in multiple forward foreign currency contract arrangements to sell US dollars. The hedged transactions are expected to occur in 2018/19. 39 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 40 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 20. Financial instruments The fair value of the Group’s forward foreign currency contracts at the date of the statement of financial continued position is as follows: 2018 2017 £’000 £’000 Fair value of forward foreign currency contracts – (liability)/asset (40) (1,209) Capital Disclosures The directors consider the Group’s capital to consist of its share capital and reserves. The Group’s objective when maintaining capital is to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders. To the extent that the Group considers it has surplus capital it has been Group policy to return this to shareholders through share buy backs. Other Financial Instruments The book amount for trade and other receivables, cash and cash equivalents, bank overdrafts, and trade and other payables with an expected life of 12 months or less, is considered to reflect its fair value. The financial instruments of the Company as classified in the financial statements at 30 April 2018 can be analysed under the following IAS 39 categories: Loans and receivables Total 2018 2017 2018 2017 Company £’000 £’000 £’000 £’000 Financial assets Trade and other receivables 4,932 3,862 4,932 3,862 Total 4,932 3,862 4,932 3,862 Other financial liabilities Total 2018 2017 2018 2017 £’000 £’000 £’000 £’000 Financial liabilities Bank overdrafts 1,689 2,492 1,689 2,492 Total 1,689 2,492 1,689 2,492 The Company acts as a holding company for the Group’s subsidiaries and does not trade. Its financial instruments comprise cash, bank overdraft, amounts receivable and payable from subsidiary undertakings and other receivables and payables. The Company faces interest rate risk on its bank overdraft and liquidity risk on managing cash flows from its subsidiary undertakings. The Company participates in a Group wide multi-currency overdraft facility of £3.0 million (2017 – £3.0 million) which is available to the UK companies in the Group. 40 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 41 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 Allotted, called up Authorised and fully paid 2018 2017 2018 2017 21. Share capital Ordinary shares of 10p each £3,300,000 £3,300,000 £980,700 £1,022,000 Number of shares 33,000,000 33,000,000 9,807,000 10,220,000 Allotted, called up and fully paid 2018 2018 2017 2017 Number £ Number £ Ordinary shares of 10p each At beginning of year 10,220,000 1,022,000 10,757,000 1,075,700 Purchase of own shares for cancellation (413,000) (41,300) (537,000) (53,700) At end of year 9,807,000 980,700 10,220,000 1,022,000 Details of share options and shareholdings of Directors are shown in the Directors’ Report on pages 9 to 11. Share options over the ESOP shares are shown in note 13 on page 35. 22. Reserves The following describes the nature and purpose of each reserve within owners’ equity: Reserve Description and purpose Share capital Amount subscribed for share capital at nominal value. Share premium Amount subscribed for share capital in excess of nominal value. Capital redemption Amounts transferred from share capital on redemption of issued shares. ESOP share Weighted average cost of own shares held by the ESOP trust. Merger Premium on shares issued to fund acquisitions prior to 1999, which was used Retained earnings Cumulative net gains and losses recognised in the consolidated income for write-off of goodwill on consolidation. Foreign exchange Unrealised cumulative net gains and losses arising on the retranslation of the Cash flow hedge Unrealised gains and losses, net of deferred tax, arising on the revaluation of opening net assets and loans of overseas subsidiary undertakings. statement less distributions made. forward foreign currency contracts at the date of the statement of financial position. 23. Commitments under At 30 April 2018 the Group had minimum lease payments under non-cancellable operating leases as operating leases follows: 2018 2017 Land and Land and Buildings Other Buildings Other £’000 £’000 £’000 £’000 Within one year 4,941 46 4,992 56 Between two and five years 15,113 33 15,569 33 Over five years 10,052 – 12,410 – 30,106 79 32,971 89 The majority of leases of land and buildings are subject to rent reviews every 5 years. 41 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 42 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 24. Pension commitments Group companies make pension contributions for eligible employees to group personal pension schemes. These schemes are independently administered. The pension cost charge represents contributions payable by Group companies to the schemes during the year and amounted to £410,000 (2017 – £396,000). The Group’s US subsidiary Cowtan & Tout Incorporated operates a funded defined benefit pension scheme. This scheme relates to the acquisition of Jack Lenor Larsen on 1 July 1997. The scheme was closed to new members on 31 December 1997. Existing members’ current pension contributions were transferred to a defined contribution scheme and hence all future benefits became fixed on the date the scheme was closed. The most recent actuarial valuation of the fund was on 30 April 2016 using the projected unit credit method. As the scheme is closed to new members and all benefits have been frozen, assumptions concerning inflation and the rate of increase of salaries, pensions and deferred pensions are not applicable. The rate used to discount scheme liabilities was 3.85% (2017 – 3.6%, 2016 – 3.37%). The market value of investments at 30 April 2018 was £986,000 (2017 – £1,007,000, 2016 – £851,000), all of which have an expected long term rate of return of 6.5% (2017 – 5%, 2016 – 5%). Due to the nature of the investments, the actuarial value of the assets and the market value are the same. The present value of scheme liabilities at 30 April 2018 was £952,000 (2017 – £1,062,000, 2016 – £1,021,000), resulting in a net pension asset of £34,000 (2017 – (£55,000), 2016 – (£170,000)). An asset of £34,000 (2017 – (£55,000), 2016 – (£170,000)) covering the overfunded actuarial accrued liability is included in the Group statement of financial position together with a related deferred tax liability of £8k (2017 – (£22,000), 2016 – (£68,000)). The expected group rebate from the scheme for the year ended 30 April 2019 is £7,000. The fair value of the assets in the scheme and the expected rate of return at 30 April 2018 were: 2018 2017 2016 2015 2014 £’000 £’000 £’000 £’000 £’000 Cash and cash equivalents – – – – – Fixed income 321 196 144 137 121 Equities 665 811 707 717 641 Total market value of assets 986 1,007 851 854 762 Present value of scheme liabilities (952) (1,062) (1,021) (1,002) (879) Net pension liability 34 (55) (170) (148) (117) Reconciliation of plan assets: 2018 2017 £’000 £’000 At beginning of year 1,007 851 Exchange gain 37 146 Contributions by Group 50 52 Benefits paid (100) (107) Actuarial (loss)/gain (8) 65 At end of year 986 1,007 Reconciliation of plan liabilities: 2018 2017 £’000 £’000 At beginning of year 1,062 1,021 Exchange increase (5) 147 Interest cost 35 37 Benefits paid (100) (107) Actuarial (decrease)/increase (40) (36) At end of year 952 1,062 42 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 43 COLEFAX GROUP PLC N O T E S T O T H E A C C O U N T S N O T E S T O T H E A C C O U N T S For the year ended 30 April 2018 For the year ended 30 April 2018 24. Pension commitments History of experience gains and losses: continued 2018 2017 2016 2015 2014 Actuarial return on scheme assets (£’000) (8) 65 (63) 20 55 As a % of plan assets -0.8% 6.8% -7.5% -2.4% 2.3% Actuarial (increases)/reductions on scheme liabilities (£’000) (40) 36 (36) (92) 10 As a % of plan liabilities 4.2% -2.6% 3.6% 9.0% 1.1% 25. Guarantees The Company has given an unlimited guarantee to HSBC Bank plc to secure all the present and future indebtedness and liabilities to the Bank of the Company, Colefax and Fowler Incorporated and Cowtan & Tout Incorporated. There is a cross guarantee between the Company and each of its UK subsidiaries in respect of their overdraft facilities. At 30 April 2018, the value of subsidiary overdrafts covered by the guarantee amounted to £nil (2017 – £nil). 26. Related party transactions The Company undertook the following transactions with its subsidiary undertakings in the year: 2018 2017 £’000 £’000 Interest charged on long-term loans to Colefax and Fowler Holdings Limited 133 146 At the year end the following amounts were owed to/(by) the Company by/(to) its subsidiaries: 2018 2017 £’000 £’000 Colefax and Fowler Holdings Limited 7,076 8,093 Colefax and Fowler Limited 4,037 2,985 Sibyl Colefax and John Fowler Limited 493 50 Kingcome Sofas Limited – 54 11,606 11,182 The Company received dividend income from subsidiaries in the year of £4,103,000 (2017 – £1,598,000). 43 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 44 COLEFAX GROUP PLC F I V E Y E A R R E V I E W 2018 2017 2016 2015 2014 £’000 £’000 £’000 £’000 £’000 Revenue from continuing operations 86,052 80,475 76,879 76,796 78,035 Profit from continuing operations 4,721 2,937 5,013 5,037 4,922 Profit before taxation from continuing operations 4,719 2,937 5,016 5,029 4,885 Profit attributable to shareholders 3,832 1,895 3,461 3,542 3,353 Basic earnings per share from continuing operations 38.1p 18.6p 32.2p 32.2p 27.9p Diluted earnings per share from continuing operations 38.1p 18.6p 32.2p 32.2p 27.9p Dividends per share 5.00p 4.80p 4.60p 4.40p 4.20p Equity 27,419 25,936 26,318 23,757 22,211 Operating cash flow 8,909 4,180 7,195 8,741 4,867 Cash and cash equivalents 9,177 6,710 10,085 6,861 4,057 44 Job No.: 35672 Proof Event: 12 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 45 COLEFAX GROUP PLC N O T I C E O F M E E T I N G Notice is hereby given that the 2018 Annual General Meeting of Colefax Group Plc will be held at 19-23 Grosvenor Hill, London W1K 3QD on 13 September 2018 at 11.00 a.m. to transact the following business: Ordinary Business 1. To receive, and if thought fit, to adopt the audited Annual Accounts of the Company for the year ended 30 April 2018, together with the reports of the Directors and of the auditors thereon. 2. 3. 4. 5. To declare a final dividend of 2.6p per ordinary share. To re-appoint BDO LLP as auditors of the Company from the conclusion of this Annual General Meeting until the conclusion of the next general meeting of the Company at which accounts are laid. To authorise the Directors to determine the remuneration of the auditors. To re-elect A. K. P. Smith, who retires by rotation, as a Director. Special Business To consider and, if thought fit, to pass the following resolutions of which resolution 6 will be proposed as an ordinary resolution and resolution 7 will be proposed as a special resolution. 6. THAT in place of all existing authorities (save to the extent relied upon prior to the passing of this resolution), the Directors be generally and unconditionally authorised pursuant to section 551 of the Companies Act 2006 (the “Act”): (a) (b) to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company up to a maximum nominal amount of £326,900 for a period expiring (unless previously renewed, varied or revoked by the Company in general meeting) at the earlier of the date falling 15 months following the date of the Annual General Meeting and the end of the next annual general meeting of the Company, save that the Company may before expiry of this authority make an offer or agreement which would or might require shares to be allotted, or rights to subscribe for or to convert any security into shares to be granted, after expiry of this authority and the Directors may allot shares, or grant rights to subscribe for or convert any security into shares, in pursuance of that offer or agreement as if this authority had not expired; and in addition, to allot equity securities (within the meaning of section 560 of the Act) in connection with a rights issue in favour of holders of ordinary shares in proportion (as nearly as may be) to their respective holdings of ordinary shares (but subject to such exclusions or other arrangements as the Directors consider necessary or expedient in connection with treasury shares, fractional entitlements or any legal or practical problems arising under the laws or regulations of, or the requirements of any regulatory body or stock exchange in, any territory) up to a maximum nominal amount of £326,900 for a period expiring (unless previously renewed, varied or revoked by the Company in general meeting) at the earlier of the date falling 15 months following the date of the Annual General Meeting and the end of the next annual general meeting of the Company, save that the Company may before expiry of this authority make an offer or agreement which would or might require equity securities to be allotted after expiry of this authority and the Directors may allot equity securities in pursuance of that offer or agreement as if this authority had not expired. 7. THAT, subject to the passing of resolution 6 above and in place of all existing powers, the Directors be generally and unconditionally authorised pursuant to section 570 of the Act to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant to the authority granted by resolution 6 above as if section 561 of the Act did not apply to any such allotment. This power shall be limited to: (a) the allotment of equity securities in connection with an offer of such securities or an invitation to apply to subscribe for such securities (whether by way of rights issue, open offer or otherwise) in favour of holders of ordinary shares in proportion (as nearly as may be) to their respective holdings of ordinary shares but subject to such exclusions or other arrangements as the Directors consider necessary or expedient in connection with treasury shares, fractional entitlements or legal or practical issues under the laws of any jurisdiction or territory or the regulations or requirements of any regulatory or stock exchange authority in any jurisdiction or territory; and 45 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 46 COLEFAX GROUP PLC N O T I C E O F M E E T I N G (b) the allotment (other than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal amount of £49,035. This power shall expire on the earlier of the date falling 15 months following the date of the Annual General Meeting and the conclusion of the next annual general meeting of the Company, but the Company may before the expiry of this power make an offer or agreement which would or might require equity securities to be allotted after expiry of this power and the Directors may allot equity securities in pursuance of that offer or agreement as if this power had not expired. This power also applies in relation to a sale of treasury shares, which is an allotment of equity securities by virtue of section 560(3) of the Act as if in the first paragraph of this resolution the words “subject to the passing of resolution 6 above” and “pursuant to the authority granted by resolution 6 above” were omitted. By order of the Board Registered Office R. M. Barker BSc ACA 19-23 Grosvenor Hill Secretary London W1K 3QD 25 July 2018 46 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 35672 R Colefax Annual Report 2018 Text.qxp_35672 R Colefax Annual Report 2018 Text 02/08/2018 12:38 Page 47 COLEFAX GROUP PLC N O T I C E O F M E E T I N G Notes: 1. A member entitled to attend and vote at this meeting is entitled to appoint another person as his or her proxy to exercise all or any of his or her rights to attend, to speak and, both on a show of hands and on a poll, to vote in his or her stead at the meeting. A proxy need not be a member of the company but must attend the meeting in person. The appointment of a proxy does not preclude a member from attending and voting in person at the meeting should he or she subsequently decide to do so. A form of proxy which may be used is attached. 2. A member may appoint more than one proxy in relation to a meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by him or her. 3. To be valid, a form of proxy together with, if applicable, the power of attorney or other authority under which it is signed, or a certified copy thereof, must be received by Computershare Investor Services plc at The Pavilions, Bridgwater Road, Bristol, BS99 6ZY not later than 11.00 a.m. on 11 September 2018. 4. The company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, specifies that only those shareholders registered in the register of members of the company as at 6.00 p.m. on 11 September 2018 shall be entitled to attend or vote (whether on a show of hands or on a poll) at the meeting in respect of the number of shares registered in their name at the time. Changes to entries on the register after 6.00 p.m. on 11 September 2018 (or after 6.00 p.m. on the day which is two days before any adjourned meeting) shall be disregarded in determining the rights of any person to attend or vote at the meeting. 5. As at 24 July 2018 (being the last business day prior to the date of this notice) the company’s issued share capital consisted of 9,807,000 ordinary shares each carrying one vote per share. Accordingly the total number of voting rights in the company as at 24 July 2018 were 9,807,000. 6. CREST members who wish to appoint a proxy or proxies for the meeting or any adjournment thereof by utilising the CREST electronic proxy appointment service may do so by following the procedures described in the CREST Manual (www.euroclear.com/CREST). CREST personal members or other CREST sponsored members and those CREST members who have appointed a voting service provider(s) should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (EUI) specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID 3RA50) by the latest time(s) for receipt of proxy appointments specified in this notice. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available special procedures in CREST for any particular message. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed (a) voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service provider(s) are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 7. Any member attending the meeting has the right to ask questions. 8. If a shareholder has a general query about the Annual General Meeting or wishes to give the Company prior notification of any question he wishes to ask at the Annual General Meeting, he should call our shareholder helpline on 0870 889 3295 if calling within the United Kingdom or +44 870 889 3295 if calling from outside the United Kingdom. The Shareholder Helpline is available from 8.30 a.m. and 5.30 p.m. Monday to Friday (except public holidays). The cost of calls to the helpline vary depending on the service provider. Calls to the helpline from outside the United Kingdom will be charged at applicable international rates. Calls may be recorded and monitored for security and training purposes. 47 Job No.: 35672 Proof Event: 13 Customer: Colefax Group plc Project Title: Annual Report and Accounts 2018 Park Communications Ltd Alpine Way London E6 6LA T: 020 7055 6500 F: 020 7055 6600 Park is an EMAS certified company and its Environmental Management System is certified to ISO 14001. Printed by Park Communications on FSC® certified paper. Head Office: 19/23 Grosvenor Hill, London W1K 3QD Tel: 020 7493 2231 Fax: 020 7495 3123 

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