Colefax struggles to paper over cracks

Colefax Group, home to the quintessentially English Colefax & Fowler designs, blamed the slowdown at the top end of the housing market for a sharp fall in profits.

The company, founded in the Thirties as an interior design firm for the chattering classes, echoed rival Osborne & Little in warning that it was finding the market for posh wallpaper tough.

Changing tastes, which have seen wallpaper relegated to paint's old-fashioned cousin during the current vogue for home makeovers, prompted a management buyout at Osborne & Little earlier this month. Observers speculated that Colefax, run by David Green, could follow suit if trading continued to deteriorate. Colefax shares slipped 67.5p.

Colefax, which also owns the popular Jane Churchill and Manuel Canovas fabric brands, warned that trading in the UK was "showing signs of getting tougher". This reflected, it added, "the weak state of the high-end housing market".

The value of homes costing more than £1m has plummeted in recent months, ravaged by two years of no City bonuses. "Wives' spending money to redecorate has gone down," a group spokesperson speculated.

Colefax, which relies on the US for more than half of its sales from its fabric division, said pre-tax profits in the year to end-April fell 28 per cent to £2.8m while sales slipped 4 per cent to £64.4m. Peel Hunt, its broker, is forecasting pre-tax profits of £2.3m, making three years in a row of sliding profits.

Striking a glum note, Mr Green - the brother of Carlton chairman Michael Green - warned: "Currently there are no real signs of improvement in any of our major markets....There is little in the short term that will improve our results." The weak dollar exchange rate is expected to hit results for this year, he added.

The company said the US market, where its main customers are Anglophile New Yorkers, had been "in decline" throughout the year, with sales 3 per cent weaker. UK sales fell by 2 per cent, while sales in Continental Europe "weakened significantly" in the second half of the year. It singled out sales in France, Italy and Germany as particularly bad.