The Investment Column: Filofax keeps up the fight

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The Independent Online
Hanging over Filofax, a household name in paper-based personal organisers, has been the lingering suspicion that it must eventually be overwhelmed by the electronic age.

Who needs a tatty, paper-stuffed folder when you could have a sleek machine like a Psion, which does everything except make the tea? That fear, coupled with a profits warning in July last year, has taken the group's share price from a 275p high last year. However yesterday's decent half-year results, which nudged Filofax's shares up 2p to 125p, show people are still hooked on paper.

Part of the reason is price. An electronic palm-top can cost upwards of pounds 200 - the new Psion Series 5 costs nearer pounds 500. A Filofax organiser costs pounds 40 on average. Yes, the inserts are expensive, but bought in dribs and drabs, customers at least feel they are spending less. With all the whizzy features, customers see palm-tops as an alternative to personal computers, not paper organisers. Flexibility is another attraction. Taking notes, slotting in receipts and business cards - all this is paper- based.

Though the enduring nature of paper is comforting, Filofax faces growing competition from luxury goods brands like Dunhill and Chanel. However Filofax has agreements to supply groups like Mont Blanc with the stuffing for their folders.

Competing for this business makes sense. Filofax makes margins of around 80 per cent on inserts compared with some 50 per cent on covers. Filofax is rightly focusing on higher-value products, where it can grow margin. New "acid-house" colours, smaller organisers and new textures helped push up profits in the half year to September by 31 per cent to pounds 2.7m in constant currency on sales just 3 per cent ahead to pounds 21.5m.

With over 70 per cent of Filofax's organisers sold outside the UK, the strong pound wiped pounds 0.5m off headline profits and pounds 1.3m from sales. However, markets like Scandinavia and Germany are growing underlying sales in high double digits, despite a flat showing from the US, the group's biggest market, as customers delayed buying until later in the year.

So growth should pick up in the second half, with new markets like India and Latin America driving future sales. Filofax still needs to tidy up its non-organiser businesses - around 30 per cent of sales - particularly the ailing greeting cards business.

On around pounds 6.3m full-year profits, Filofax's shares are trading on a low 8 times forward earnings. However, until the results are known of crucial Christmas sales, investors should just hold.