Small is Beautiful: Collins & Hayes ? Sitting pretty and proud to be couch potatoes

Upmarket sofa-maker Collins & Hayes is celebrating a move towards corporate independence this month after escaping a merger with a larger firm.

The group, which started as a family business in the East End of London at the beginning of the last century, makes sofas that cost between £2,000 and £5,000 for retailers including Harrods, Selfridges, House of Fraser and Bentalls.

"We are selling them a fantastic product at quite chunky retail prices because of the quality of the product," says Clive Gilham, chief executive of Collins & Hayes.

The history of the company has involved the Hayes family since 1904. Four years ago they decided to sell to the Aquarius Group, a designer and manufacturer of household furnishing and bathroom products, for £12.6m. The main reason for the sale, says Nicholas Hayes – the third generation of his family to be involved in the business – was "the big succession problems" they faced. The shares were held by three brothers and each brother had three children.

Aquarius was made up of Collins & Hayes, Airbath, a high-quality bath manufacturer, and a homeware and textile division. The homeware and textile division, whose products were aimed at the middle market, was facing increasing competition and was dragging down the financial performance of the company. Last year Aquarius decided to go for a double demerger of both Collins & Hayes and Airbath in an attempt to return value to shareholders.

Collins & Hayes listed on AIM earlier this month, bringing to an end the four years under the Aquarius banner. "We've got the corporate name back, which is great," says Nicholas Hayes, the firm's sales director who works with his brother Peter, managing director of the group. "Our customers like to see our name and it's good for the profile of the company," Nicholas adds.

Although the Hayes family holds only 8 per cent of the shares, the brothers are in day-to-day control. The corporate decisions are taken by Mr Gilham, who until recently was chief executive of Aquarius. Mr Gilham, who will also be executive chairman of Airbath, which floats this week, is optimistic about the prospects for Collins & Hayes as a stand-alone company.

The company floated on AIM at 60p with a market capitalisation of £15.4m. Its shares are around 50p. Turnover for last year was £19.3m and operating profit £3.4m. Analysts are expecting the group to post a turnover of £21m on operating profits of £3.6m and a pre-tax profit of £2.7m for the year to the end of 2002. But Collins & Hayes is saddled with £8.5m debt from Aquarius.

The company, which is investing in its factory in Hastings so it can increase production, prides itself on being able to respond quickly to changes in fashion. "One of the strengths of Collins & Hayes is that it is good at following the changes in industry fashions," says Mr Gilham.

Leather is the thing of the moment. Two years ago leather made up 4 per cent of the sales, but last year it was 26 per cent, and rising.

"Collins & Hayes is popular with the affluent and customers who want to own quality products. We want to expand Collins & Hayes by beefing up our sales and marketing resources and our presence in stores like Selfridges," says Mr Gilham.

The group, which also sells to independent retailers, hopes to expand its distribution by supplying to department stores such as John Lewis. But the management does not want to either own its own shops or sell directly to the public.

Collins & Hayes is also proving to be a big hit in Spain, particularly with the ex-pat community, keen to bring a bit of England to their villas. Foreign sales, which also go to Germany, the Netherlands and Ireland, make up about 6 per cent of the total, but are increasing.

Collins & Hayes is now looking for acquisitions and is determined to expand. The company says it could spend up to £10m on companies that produce complementary, high-quality goods that could be sold through the same channels.

Nicholas Hayes is happy that the Hayes family is still involved in the company. "As far as we are concerned, it is very much the family business it always was," he says.

Small is Beautiful features fast-growing companies with a turnover of up to £100m.