TIDMFCCN
RNS Number : 5191S
French Connection Group PLC
12 March 2019
12 March 2019
FRENCH CONNECTION GROUP PLC
Preliminary Results for the year ended 31 January 2019
French Connection Group PLC ("French Connection" or "the Group")
today announces results for its financial year ended 31 January
2019.
Highlights:
-- Return to profitability as anticipated with GBP0.1m underlying
operating profit(2) (2018: loss of GBP2.1m)
-- Wholesale revenue up 10.3% (13.2% CCY(3)) from UK/Europe
and North America
-- LFL(1) sales down 6.8% due to the impact of the tough
retail trading environment in the UK (2018: up 0.8%)
-- Further 10 non-contributing locations closed during the
year, with one new store and one concession opened
-- Composite gross margin of 42.3% (2018: 42.7%) due to higher
proportion of wholesale sales as growth continues
-- Gain on sale of the Toast brand in April with proceeds
from the sale of GBP11.7m, offset by provisions for onerous
retail leases, debt impairment and store closure costs
-- Closing cash of GBP16.2m (2018: GBP9.5m)
Commenting on the results, Stephen Marks, Chairman and Chief
Executive said:
"I am pleased to report that we have achieved our target of
returning the Group to underlying profitability this financial
year.
This is only part of our overall journey, however it represents
a significant achievement given the results over recent years.
This has been achieved despite the ongoing difficult retail
trading environment in the UK and is the result of the changes we
have made in all areas of the business to adapt to the ever
evolving markets in which we operate.
While we still have a way to go to return the business to an
appropriate level of profitability, I believe that we have made and
continue to make significant progress. "
Notes:
Key performance indicators for the 52 week trading period are
outlined below:
FY19 FY18(4) Var %
Total Group revenue (GBPm) 135.3 135.0 0.2%
----- ------- --------------
Total Retail revenue (GBPm) 58.4 65.3 (10.6%)
----- ------- --------------
Total Wholesale revenue (GBPm) 76.9 69.7 10.3%
----- ------- --------------
Retail LFL(1) (%) -6.8 +0.8
----- ------- --------------
Stock (GBPm) 28.4 28.7 (1.0%)
----- ------- --------------
Average UK/Europe Retail Space (sq.ft. '000s) 165.6 175.1 (5.4%)
----- ------- --------------
Average Group Retail Space (sq.ft. '000s) 178.2 188.9 (5.7%)
----- ------- --------------
Number of stores/concessions:
----- ------- --------------
- Operated 96 104 (7.7%)
----- ------- --------------
- Franchised, Licensed & JV 195 212 (8.0%)
----- ------- --------------
Underlying gross margin (%) 42.3 42.7 (40bps)
----- ------- --------------
Net cash position (GBPm) 16.2 9.5 70.5%
----- ------- --------------
Notes:
1. LFL or "Like-for-Like" sales growth is defined as the year-on-year
sales growth for owned stores and concessions open more than
one year, including ecommerce revenues, removing the impact
of closed stores and reported in constant currency.
2. Underlying Operating Profit/Loss excludes profit/loss on store
disposals and closures, provisions for bad debts and onerous
leases and other professional fees.
3. Constant Currency (CCY) is calculated by translating the year
ending January 2019 at 2018 rates to remove the impact
of exchange rate fluctuations.
4. The comparative information has been restated to show the discontinued
operations separately from the continued operations. See discontinued
operations Note 3.
The Directors believe they are best reflective of how the
business is managed and are informative to shareholders in
understanding the performance of the business.
Neil Williams
+44 (0) 20 7036
Enquiries: Lee Williams French Connection 7207
+44 (0) 7974
982366
Tom Buchanan
+44 (0) 7766
Catriona Woolner Winders Paternoster Communications 236355
--------------------------- --------------------------------------------- ------------------
CHAIRMAN'S STATEMENT
Dear Shareholders
I am pleased to report that we have achieved our target of
returning the Group to underlying(1) profitability this financial
year which represents a significant achievement given the results
over recent years. This has been achieved despite the ongoing
difficult retail trading environment in the UK and is the result of
the changes we have made in all areas of the business to adapt to
the ever evolving markets in which we operate. While we still have
a way to go to return the business to an appropriate level of
profitability, I believe that we have made and continue to make
significant progress.
Growth in the wholesale business accelerated during the second
half of the year building on the progress made earlier in the year,
in both UK/Europe and the USA, however this was offset by the
continued difficult retail trading environment in the UK. Overall
we achieved an underlying operating profit of GBP0.1m, an
improvement of GBP2.2m over last year. Including adjusted items we
reported an operating loss of GBP9.3m (2018: GBP3.8m). We have
continued to see good growth in the wholesale business particularly
in the USA, with the department stores performing very strongly
throughout the year driven by strong consumer demand. Improvements
in UK/Europe came in pure-play ecommerce and multi-channel
customers.
Whilst the retail business continues to benefit from the ongoing
store rationalisation programme, which has resulted in over half
the portfolio being exited over the last five years as planned, it
has again been impacted by the difficult trading conditions on the
UK high street. We saw a 6.8% reduction in like-for-like sales in
the remaining portfolio for the year. We have continued with store
closures during the second half of the year. Given the current
environment the renegotiation of leases is now becoming more
favourable to tenants and better deals are available certainly in
the short term. This has resulted in a number of stores that were
expected to be closed continuing to trade for the time being. As
disclosed in our half year results, given the worsening market
conditions, we reviewed the underlying lease contracts of a number
of loss-making stores that we are actively looking to exit but are
currently unable to and have made a one-off provision for the
onerous nature of those contracts.
Licensee income reduced slightly on last year reflecting a
strong performance once again from DFS, however impacted by reduced
income from our Australian licensee, the cessation of ladies
Christmas toiletries gifting with Boots and a one off benefit from
our previous shoe licensee last year.
As previously announced in April last year, we sold our 75%
holding in Toast to the Bestseller Group for GBP11.7m net of
costs.
Wholesale
Revenue increased by 10.3% in the year (13.2% CCY(3) ). The
strong growth that we saw last year in both UK/Europe and North
America has continued throughout the year and actually accelerated
in the second half. The major customers in the UK continued to grow
- particularly in the online space - both pure play and
multi-channel. In North America, good progress was made with all
the department stores, particularly Bloomingdales and Nordstrom,
who saw a significantly improved sell through and increased
volumes. We are currently rationalising our structure in North
America by consolidating everything through our New York operation
and removing our office in Toronto, thereby reducing the cost base
going forward but maintaining the majority of the revenue.
Gross margins at 32.5% were 0.4% up on last year driven by the
increased proportion of full price sales. Despite the increase in
revenue, costs were again tightly controlled particularly in
UK/Europe and were reduced by 4.9% (0.3% CCY). Overall this has
resulted in a 25.6% increase in contribution to GBP15.2m.
Reaction to both the Summer and Winter 19 collections has been
good and orders in North America have continued to be very strong
again this year, however the UK in the short term is being impacted
to some extent by the current economic climate with customers being
conservative in their buying.
CHAIRMAN'S STATEMENT
Retail
Overall revenue decreased by 10.6% (10.2% CCY) due to a
combination of the continued store closure programme with a further
10 locations closed during the year (5 stores and 5 concessions),
together with the reduction in like-for-like sales of 6.8% for the
year. We had initially anticipated additional stores being closed
in the second half of the year, however it is becoming apparent
that at the end of leases certain landlords are now becoming more
flexible on terms and this has meant that 4 stores expected to
close are continuing to trade in the short term but are likely to
close during the current financial year. Our target of 30
full-price stores will be passed in the current year with another 8
stores expected to close but again this will depend on the
individual negotiations on each site. The uncertainty that existed
in relation to House of Fraser in the middle of the year given the
change in ownership has now gone away, with the majority of stores
remaining open. This has led to an increased opportunity for us
particularly with Menswear and Great Plains, although the House of
Fraser online channel has been particularly difficult after an
extended closure of the site early in the second half of the year.
The average lease length of the remaining UK/Europe stores is 2.3
years (2018: 2.4 years).
Gross margins increased by 1.0% to 55.1%. This was achieved by
improved base margins and slightly lower markdowns despite the
increase in the proportion of sales through the outlet stores.
Underlying overheads, excluding the impact of the reduced store
portfolio, rose by 0.9% reflecting the new stores/concessions,
inflationary pressures particularly on staff costs and continued
business rates increase in the South East, offset by ongoing tight
cost management. Overall contribution for the year reduced by
GBP0.6m.
Within retail, revenue for ecommerce was slightly down on last
year, reflecting the general trading environment but also impacted
by a high turnover of staff within this area, particularly at the
senior level. We have recently recruited a new senior team
including management, trading, digital and technical, in order to
place greater emphasis and focus on this key area of growth. We
have started to see the benefits of this feed through in the early
part of the new financial year. Based on this we will increase the
level of investment as we go forward both on the customer
experience elements and into higher levels of digital marketing, to
drive improved levels of engagement and conversion. The move
towards higher levels of mobile traffic continues at 56.8% compared
to 50.9% last year.
Licensing
Licensing income for the year was GBP5.8m compared to GBP6.3m
last year. There are a number of different elements contributing to
this movement. We saw continued excellent performance from our
partnership with DFS and the launch of our homewear licence in
North America which performed very well during the second half of
the year. These were offset by a shortfall in income from our
Australian licensee, the cessation of a ladies toiletries Christmas
gifting programme in the UK and the benefit from the final income
from our previous shoe licensee last year. Looking forward we have
a North America luggage licensee starting this year and expect to
see continued growth from homeware in the USA.
Operating expenses, adjusted for store closures and currency
movements, were flat on the year with inflationary pressures
especially from staff costs and the impact of increased business
rates, offset by rent renegotiations and group-wide cost saving
initiatives.
We have recognised a provision for onerous lease costs in the
period of GBP5.2m. In addition to this we have taken an IFRS9
impairment provision of GBP2.0m in relation to a debt from our
Indian licensee, a GBP0.8m bad debt provision against amounts due
from House of Fraser, GBP0.9m in respect of store closure costs and
GBP0.5m restructuring costs in relation to our Canadian business.
The profit to the Group on the sale of our stake in the Toast brand
amounted to GBP9.7m and generated sale proceeds of GBP11.7m.
The Group ended the year with a strong cash position of GBP16.2m
(2018: GBP9.5m), reflecting the proceeds on the sale of our stake
in Toast, payments to exit stores during the year and capital
expenditure mainly on stores and IT infrastructure. Overall working
capital increased by GBP4.6m with the continued growth in the
wholesale business. The Board have decided that there will be no
dividend payable for the year.
CHAIRMAN'S STATEMENT
In October last year, following press speculation regarding the
potential sale of the Group, we announced that we were in the
process of reviewing all strategic options in order to deliver
maximum value for shareholders. Alongside several potential
strategic options, the review includes the consideration of all
types of corporate and brand transactions, including seeking offers
for the Group. As disclosed at the time, we had commenced
preliminary discussions with several interested parties and have
had conversations with several other interested parties regarding
the Group's plans. The discussions are ongoing with a number of
parties. We continue to expect this strategic review (including the
formal sale process) to conclude during the first half of 2019 and
will make further announcements when appropriate.
Our initial goal has been to return the Group to profitability
which we have now achieved, however we now must intensify our
efforts to ensure that we build on the momentum that we have within
the business and move to an appropriate level of profitability. It
is clear though that the retail market in which we are operating in
the UK is unlikely to improve in the near future especially given
the uncertainty surrounding our exit from the European Union and
the knock on effect that is having on consumer confidence. Our
performance in wholesale remains strong especially in the USA with
reaction to the new collections being very positive. In addition we
have new and growing license partners working with us. Although we
are only early into the new financial year, I believe we are in a
very good place and will make further significant progress. One of
the continued strengths of the Group is the hard work and
dedication of all the people who work here. I would like to thank
you all for your continued contribution, especially for the
determination and commitment you have shown during another
particularly tough year on the high street but you should take
pride in the progress we have made.
Stephen Marks
Chairman and Chief Executive
Notes:
1. Underlying Operating Profit excludes adjusting items and discontinued operations.
2. LFL or "Like-for-Like" sales growth is defined as the
year-on-year sales growth for owned stores and concessions open
more than one year, including ecommerce revenues, removing the
impact of closed stores and reported in constant currency.
3. Constant Currency (CCY) is calculated by translating the year
ending January 2019 at 2018 rates to remove the impact of exchange
rate fluctuations.
4. Underlying overheads consist of LFL store overheads.
5. Adjusting items include provisions for bad debts, onerous
leases and store closures and other professional fees.
6. Continuing operations exclude the discontinued results from the disposed Toast subsidiary.
The Directors believe these measures are best reflective of how
the business is managed and are informative to shareholders in
understanding the performance of the business.
FINANCIAL REVIEW
Overall Financial Performance
Underlying results for the full year show a profit of GBP0.1m
before taxation(1), adjusting items and discontinued operations, a
significant improvement on the previous year (2018: loss of
GBP2.1m), and the first underlying profit for the business in 7
years. Including adjusting items the Group reported an operating
loss of GBP9.3m (2018: GBP3.8m). The overall performance for the
year inclusive of adjusting items and discontinued operations was
breakeven at GBP0.0m (2018: loss of GBP(2.3)m). This comes despite
the profitable Toast business being sold to the Bestseller Group
during the year. Within adjusting items we have recognised a
provision for onerous lease costs in the period of GBP5.2m. In
addition to this we have taken an IFRS9 impairment provision of
GBP2.0m in relation to a debt from our Indian licensee, GBP0.8m bad
debt provision against amounts due from House of Fraser following
their administration, GBP0.9m in respect of store closure costs and
GBP0.5m restructuring costs in relation to our Canadian business.
The profit to the Group on the sale of our stake in the Toast brand
amounted to GBP9.7m.
As previously announced and also discussed at the interims, we
sold our 75% holding in Toast (Mail Order) Limited to the
Bestseller Group in April 2018 for GBP11.7m net of costs,
recognising a total profit on sale of GBP9.7m.
Revenue
Group revenue from continuing operations increased by GBP0.3m,
+0.2% (+1.9% at constant currency(2)) to GBP135.3m. This increase
was due to strong wholesale performance up 10.3% (+13.2% CCY(2))
which offset a negative retail like-for-like (-6.8%(3)) performance
(2018: +0.8%) combined with store closures.
Wholesale
Group wholesale revenues from continuing operations of GBP76.9m
were 10.3% higher than prior period (13.2% CCY) (2018: GBP69.7m).
Growth was seen across UK/Europe and North America during the year,
though this was partly offset by a continuing decline in the lower
margin Rest of World segment. Growth in UK/Europe was mainly driven
through a broad range of pure play and multi-channel partners while
in North America the core department store business grew strongly
across the majority of accounts, particularly Bloomingdales and
Nordstrom, who saw a significantly improved sell through and
increased volumes. This continues the momentum experienced in the
previous year.
This strong performance saw wholesale's profitability increase
25.6% in the year to GBP15.2m (2018: GBP12.1m).
Retail
Retail revenue from continuing operations for the year was down
GBP6.9m to GBP58.4m, -10.6% on the comparable 52 weeks (-10.2%
CCY). During the year we closed ten non-contributing locations
consisting of 5 stores and 5 concessions. We also opened a new You
Must Create (YMC) store and one French Connection concession. We
ended the year with 96 operating locations. Average store selling
space was reduced by 5.7% over the period.
On a LFL(3) basis, sales in UK/Europe contracted by 6.8%.
Disappointingly, total ecommerce revenue also contracted by 3.7%
across our websites. However, ecommerce still increased penetration
of total Group retail sales, which now represents 21.2%, up from
19.8% in 2018. Mobile phone traffic also increased with
transactions on mobile increasing to 56.8% of all online
transactions, from 50.9% in 2018.
The overall performance in the year unfortunately saw the retail
division increase its loss to GBP10.3m (2018: GBP9.7m), a 6.2%
change on the prior period with cost reductions unable to offset
the reducing LFL sales.
Discontinued Operations
On 30 April 2018, we, together with the 25% minority interest
shareholders, sold the entire issued share capital of Toast (Mail
Order) Limited to Bestseller United A/S for gross proceeds of
GBP23.3m, comprising GBP21.3m and a pre-completion dividend of
GBP2.0m. After the payment of management exit awards and
transaction costs, the Group received net proceeds of GBP13.2m
comprising cash of GBP11.7m and GBP1.5m dividend (75% share)
utilised to pay down intercompany debt. The transaction has
generated a total profit on sale of GBP9.7m.
Geographical Analysis
Following the sale of Toast and to aid transparency, the
geographical breakdown for 2018 has been restated. This naturally
reduces slightly the focus of the Group towards the UK/Europe and
increases the proportional impact of North America. The
geographical revenue break-down for 2019 continues to be weighted
towards UK/Europe representing 70.7% of Group revenues (2018:
74.2%) but due to the stronger growth in North America than in the
UK/Europe this is down on the previous year. Of the overall GBP2.2m
improvement in Underlying Operating Profit, GBP1.0m came from
UK/Europe, while North America contributed an extra GBP1.3m over
the previous year. This more than offset the increased loss of the
Rest of World segment which saw the loss increase to GBP1.3m (2018:
GBP1.0m). Group overheads reduced by GBP0.2m to GBP4.4m.
FINANCIAL REVIEW
Other Income
The net income received from global licensing was down GBP0.5m
(7.9%) at GBP5.8m in the year (2018: GBP6.3m). Although our
furniture licensee DFS continues to perform extremely well for us
and we launched a new homeware licence in North America in the
second half of the year, other more historic licences have not
performed so well. We saw a reduction in income from our Australian
licensee, the cessation of the ladies toiletries Christmas gifting
programme with Boots and the benefit from the final income from our
previous shoe licensee last year not being repeated.
Gross Margin
Gross margin at 42.3% was 40bps lower than the prior period
(2018: 42.7%), due to the impact on the sales mix with wholesale
growing faster than retail in the year. All parts of the business
saw margin growth with retail gross margins at 55.1%, up 100bps on
2018 with improved margins with FX benefits coming through during
the year. Wholesale margins at 32.5% were also 40bps higher than
2018 with the mix of full price sales increasing, together with a
reduction in margin support in the growing US market. By removing
Toast stock from the prior year we can see that inventory has
fallen by GBP0.3m to GBP28.4m. Although overall inventory has
fallen on the year, the profile of stock remaining has aged
slightly, so the stock provision has slightly increased
proportionately, though not in overall terms.
Operating Expenses
Total Group operating expenses excluding adjusting items of
GBP62.2m were 4.9% lower than the prior period. After adjusting for
store closure operating costs and currency, operating expenses were
1.2% higher with upward pressure from rates, rent reviews and
payroll impacting on the cost base. We have continued to close
stores and reorganise where we see opportunities to reduce costs.
Total operating expenses including adjusting items were GBP71.6m
(2018: GBP67.1m).
Balance Sheet
The Group balance sheet at 31 January 2019 reflects the sale of
the Toast business. We closed the year with GBP16.2m of cash (2018:
GBP9.5m) and no bank borrowings. The inventory was GBP3.4m (10.7%)
lower than the previous year at GBP28.4m (2018: GBP31.8m).
The Group will implement IFRS 16 'Leases' for the reporting
period ending 31 January 2020 and will adopt the 'modified
retrospective' method. The comparative 2019 results under this
methodology will not be restated on transition when the standard is
applied. The adoption of the standard will have no impact on the
daily operations or cash flows of the Group. However, there will be
a material impact on the presentation of the financial statements
including the income statement, balance sheet and cash flow.
In summary, IFRS 16 aligns the presentation of leased assets
more closely to owned assets resulting in current operating leases
being brought onto the balance sheet and part of what is currently
reported as operating lease costs being recorded as finance
interest expense. Current operating rental lease expense will be
replaced by depreciation and interest. The depreciation of the
right of use asset will be charged on a straight line basis whilst
the interest charged on the outstanding lease liability will be
front-loaded and higher in the earlier years decreasing over the
life of the lease.
A right of use asset and lease liability will be represented on
the balance sheet with the lease liability recognised at the
present value of future lease payments. The right of use asset will
be matched in value to the lease liability at inception subject to
any rent-free or lease inducements. However, the respective assets
and liabilities will be charged/(credited) independently over the
life of the lease.
The Group has assessed the potential impact and we anticipate
that the new standard will result in the carrying value of leased
assets being increased by approximately GBP26m, with leased
liabilities being increased by approximately GBP40m on the date of
transition.
Cash Flow
The trading operations of the Group generated cash of GBP6.8m
(2018: GBP(3.9)m outflow) with the improvement on the previous year
being driven by the sale of Toast raising GBP11.2m net proceeds.
Lower levels of trading losses and a working capital increase of
GBP(4.6)m (2018: GBP(0.2)m) supporting the improvement in the
wholesale business. This was driven by timing differences between
inventory, debtors and creditors.
Capital expenditure of GBP0.8m (2018: GBP1.8m) included the
investment in the new You Must Create store in Bloomsbury, London,
but at a lower cost to the Manchester French Connection store,
opened at the end of 2017 and included in the previous year's
expenditure. Other capital expenditure this year has mainly been in
stores and on IT infrastructure. We continue to target the closure
of non-contributing stores and following the challenging retail
environment during 2018 expect to close more in the current year as
we come towards end of lease and undertake negotiations.
FINANCIAL REVIEW
Taxation
The total Group tax charge for the year of GBPNil (2018: GBPNil
inclusive of Toast discontinued operation) represents tax payable
on current profits generated in Hong Kong and the US offset by
historic losses. The Group has unused tax trading losses with a
potential value of GBP12.5m, of which GBP10.5m has not been
recognised in these financial statements. As the Group returns to
profit, these tax losses can be utilised.
Dividends
The Board of Directors remain of the view that the business is
best served by retaining current cash reserves to support the
turnaround of the business, and therefore do not recommend the
payment of a dividend. The Board intend to keep the shareholder
distribution policy under close review during the year.
Going Concern
Having reviewed the cash forecasts and the sources of cash
funding available to the Group, the Board has concluded that it is
appropriate to prepare the Group financial statements on a going
concern basis. Furthermore, the Group has additional levers
available to manage cash including reducing discretionary spend
such as Capex, accelerating the liquidation of older season stock
and bringing forward wholesale customer payments where deemed
appropriate.
Brexit
It remains uncertain whether a withdrawal agreement with the EU
will be in place before the UK leaves the EU on the 29 March 2019.
The long term implications and full economic impact also remain
unclear. The Group considers the principal risk factors to be
macro-economic uncertainty leading to a downturn in the UK economy,
trading restrictions leading to friction at the borders, the
imposition of tariffs, further exchange rate volatility and other
recruitment concerns. Tariff increases or trading restrictions are
mitigated through the Group's suppliers predominantly being located
outside of the EU. In addition, EU imports have been prioritised to
arrive before the 29 March to minimise any immediate potential
impact. The potential fall in the value of Sterling and further
exchange rate volatility following Brexit is partly mitigated
within the Group due to the proportion of our business which is
transacted in US$ and Euros. This leads to a relatively large
natural hedge. For the remainder we hedge in advance. The likely
contraction in the labour market is considered a minor risk to the
Group, with no senior positions currently held by non-UK EU
citizens. The Group has communicated across the organisation the
steps and procedures required to assist any EU citizens to take
advantage of the EU Settlement Scheme to remain in the UK following
any transition period. The Board will
continue to monitor Brexit developments and assess the potential
impact on the business when there is greater certainty and clarity
over potential outcomes.
Lee Williams
Chief Financial Officer
Notes:
1. Underlying Operating Profit excludes adjusting items and discontinued operations.
2. Constant Currency (CCY) is calculated by translating the year
ending January 2019 and January 2018 at a consistent rate to remove
the impact of exchange rate fluctuations.
3. LFL or "Like-for-Like" sales growth is defined as the
year-on-year sales growth for owned stores and concessions open
more than one year, including ecommerce revenues, removing the
impact of closed stores and reported in constant currency.
4. Adjusting items include provisions for bad debts, onerous
leases and store closures and other professional fees.
5. Continuing operations exclude the discontinued results from the disposed Toast subsidiary.
The Directors believe they are best reflective of how the
business is managed and are informative to shareholders in
understanding the performance of the business.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 January 2019
Restated*
Year ended 31 January Year ended 31 January
2019 2018
Before Before
adjusting Adjusting adjusting Adjusting
items items** Total items items** Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
Continuing operations
Revenue 2 135.3 - 135.3 135.0 - 135.0
Cost of sales (78.1) - (78.1) (77.3) - (77.3)
------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
Gross profit 2 57.2 - 57.2 57.7 - 57.7
Operating expenses (62.2) (9.4) (71.6) (65.4) (1.7) (67.1)
Other operating income 5 5.8 - 5.8 6.3 - 6.3
Finance expense - - - (0.1) - (0.1)
Share of loss of joint
ventures, net of tax (0.7) - (0.7) (0.6) - (0.6)
------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
Profit/(loss) before
taxation 6 0.1 (9.4) (9.3) (2.1) (1.7) (3.8)
Taxation - - - 0.4 - 0.4
------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
Profit/(loss) for the
period from continuing
operations 0.1 (9.4) (9.3) (1.7) (1.7) (3.4)
------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
Discontinued operations
Profit from discontinued
operations, net of tax 3 9.3 - 9.3 1.1 - 1.1
------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
Profit/(loss) for the
period 9.4 (9.4) - (0.6) (1.7) (2.3)
------------------------- ---- ---------- ----------- ------- ---------- ----------- -------
* The comparative results have been restated to exclude
discontinued operations (see Note 3).
** Underlying Group operating profit/(loss) excludes adjusting
items (see Note 6) and discontinued operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 January 2019
(continued)
Restated*
2019 2018
Note GBPm GBPm
---------------------------------------------------- ------- ------- ----------
Profit/(loss) for the year - (2.3)
Other comprehensive income
Items that are or may be reclassified subsequently
to profit or loss
Currency translation differences for overseas
operations 0.5 (0.9)
Currency translation differences on foreign
currency loans, net of tax (0.2) (0.1)
Effective portion of changes in fair value 0.1 -
of cash flow hedges
Other comprehensive income for the year,
net of tax 0.4 (1.0)
---------------------------------------------------- ------- ------- ----------
Total comprehensive income for the year 0.4 (3.3)
Profit/(loss) attributable to:
Equity holders of the Company 0.1 (2.6)
Non-controlling interests (0.1) 0.3
Profit/(loss) for the year - (2.3)
Total comprehensive income attributable
to:
Equity holders of the Company 0.5 (3.6)
Non-controlling interests (0.1) 0.3
Total income and expense recognised for
the year 0.4 (3.3)
Earnings/(losses) per share
Basic and diluted earnings/(losses) per
share 8 0.1p (2.7)p
Continuing operations
Basic and diluted losses per share 8 (9.6)p (3.5)p
* The comparative results have been restated to exclude
discontinued operations (see Note 3).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 January 2019
2019 2018
Note GBPm GBPm
-------------------------------------- -------- ------ ------
Assets
Non-current assets
Intangible assets 0.2 0.4
Property, plant and equipment 2.5 3.2
Investments in joint ventures 1.8 2.5
Deferred tax assets 4.3 4.6
Total non-current assets 8.8 10.7
Current assets
Inventories 28.4 31.8
Trade and other receivables 24.1 26.1
Cash and cash equivalents 16.2 9.5
Total current assets 68.7 67.4
Total assets 77.5 78.1
Non-current liabilities
Provisions 3.5 -
Total non-current liabilities 3.5 -
Current liabilities
Trade and other payables 25.4 31.0
Provisions 2.4 0.3
Derivative financial instruments - 0.1
Total current liabilities 27.8 31.4
Total liabilities 31.3 31.4
Net assets 46.2 46.7
Equity
Called-up share capital 1.0 1.0
Share premium account 9.8 9.6
Other reserves 7.4 7.0
Retained earnings 28.0 27.9
Total equity attributable to equity holders
of the Company 46.2 45.5
Non-controlling interests - 1.2
Total equity 46.2 46.7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non-controlling
Share Share Hedging Translation Retained interests Total
capital premium reserve reserve earnings Total GBPm equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- --------- ---------- ---------- ------------- ---------- -------- ---------------- ---------
Balance at 31
January
2017 1.0 9.6 (0.1) 8.1 30.5 49.1 0.9 50.0
(Loss)/profit
for the
year ended 31
January
2018 (2.6) (2.6) 0.3 (2.3)
Other
comprehensive
income
Currency
translation
differences
for
overseas
operations (0.9) (0.9) (0.9)
Currency
translation
differences
on foreign
currency
loans,
net of tax (0.1) (0.1) (0.1)
Balance at 31
January
2018 1.0 9.6 (0.1) 7.1 27.9 45.5 1.2 46.7
Profit/(loss)
for the
year ended 31
January
2019 0.1 0.1 (0.1) -
Other
comprehensive
income
Currency
translation
differences
for
overseas
operations 0.5 0.5 0.5
Currency
translation
differences
on foreign
currency
loans,
net of tax (0.2) (0.2) (0.2)
Effective
portion of
changes
in fair
value of cash
flow hedges 0.1 0.1 0.1
Transactions
with owners
recorded
directly in
equity
Share options
exercised 0.2 0.2 0.2
Transactions
with
non-controlling
interests,
recorded
directly
in equity
Dividends (0.5) (0.5)
Disposal of
discontinued
operation (0.6) (0.6)
Balance at 31
January
2019 1.0 9.8 - 7.4 28.0 46.2 - 46.2
Translation reserve
The translation reserve comprises foreign currency differences
arising from the translation of the financial statements of foreign
operations as well as from the translation of foreign currency
loans. The translation reserve carried forward is net of GBP0.4m
(2018: GBP0.4m) deferred tax.
Hedging reserve
The hedging reserve comprises the effective portion of the
cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that have not yet
occurred.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 January 2019
2019 2018
Note GBPm GBPm
--------------------------------------------------- ------ ------ -----
Operating activities
Profit/(loss) for the period - (2.3)
Adjustments for:
Depreciation and impairment 1.2 1.3
Share of loss of joint ventures 0.7 0.6
Finance expense - 0.1
Profit on sale of subsidiary 3 (9.7) -
Provisions 6 9.4 0.9
Other professional fees 6 - 0.8
Income tax credit (0.1) -
Operating cash flows before changes in working
capital and provisions 1.5 1.4
Decrease/(Increase) in inventories 0.4 (0.7)
(Increase)/decrease in trade and other receivables (2.0) 1.1
Decrease in trade and other payables (3.0) (0.6)
Cash flows from operations (3.1) 1.2
Income tax received/(paid) 0.2 (0.1)
Cash flows from operating activities (2.9) 1.1
Investing activities
Investment in joint ventures - (0.3)
Acquisition of property, plant and equipment (0.8) (1.8)
Disposal of subsidiary 3 11.7 -
Net costs from store closures (0.9) (2.0)
Other professional fees - (0.8)
Cash flows from investing activities 10.0 (4.9)
Financing activities
Interest paid - (0.1)
Proceeds from exercise of share options 0.2 -
Dividends 7 (0.5) -
Cash flows from financing activities (0.3) (0.1)
Net increase/(decrease) in cash and cash
equivalents 6.8 (3.9)
Cash and cash equivalents at 1 February 9.5 13.5
Exchange rate fluctuations on cash held (0.1) (0.1)
Cash and cash equivalents at 31 January 16.2 9.5
NOTES
1 Basis of preparation
Consolidated financial statements and accounting policies
The preliminary announcement for the year ended 31 January 2019
has been prepared in accordance with International Accounting
Standards and International Financial Reporting Standards as
adopted by the European Union (EU) at 31 January 2019. The annual
financial information presented in the preliminary announcement for
the year ended 31 January 2019 is based on, and is consistent with,
that in the Group's unaudited Financial Statements for the year
ended 31 January 2019, and those Financial Statements will be
delivered to the Registrar of Companies following the Company's
Annual General Meeting.
These consolidated financial statements have been prepared using
the historical cost convention, modified for certain items carried
at fair value, as stated in the accounting policies.
Statutory accounts
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 January 2019 or
2018. The financial information for 31 January 2018 is derived from
the statutory accounts for 2018 which have been delivered to the
Registrar of Companies. The auditor has reported on the 2018
accounts; their report was (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
The statutory accounts for 2019 will be finalised on the basis
of the financial information presented by the Directors in this
preliminary announcement and will be delivered to the Registrar of
Companies and made available for viewing and download from the
Group's website at www.frenchconnection.com in due course. The
Annual Report will be circulated in printed form to shareholders in
the second week of April 2019.
NOTES
2 Operating segments
Segment revenue and results
Restated*
2019 2018
Income Statement GBPm GBPm
Revenue
Retail 58.4 65.3
Wholesale 76.9 69.7
Group revenue 135.3 135.0
Gross profit 57.2 57.7
Retail 55.1% 54.1%
Wholesale 32.5% 32.1%
Group gross margin 42.3% 42.7%
Underlying operating (loss)/profit
Retail (10.3) (9.7)
Wholesale 15.2 12.1
Licence income 5.8 6.3
Common and Group overheads (9.9) (10.1)
Finance expense - (0.1)
Share of loss from joint ventures (0.7) (0.6)
Underlying Group operating profit/(loss)** 0.1 (2.1)
Underlying operating margin (17.6)% (14.9)%
Retail 19.8% 17.4%
Wholesale
Underlying Group operating margin 0.1% (1.6)%
Geographical information
Restated*
2019 2018
GBPm GBPm
-------------------------------------------- ------- ----------
Revenue
UK/Europe 70.7% 74.2%
North America 27.2% 23.3%
Rest of the World 2.1% 2.5%
Divisional operating profit/(loss)
UK/Europe 2.1 1.1
North America 3.7 2.4
Rest of the World (1.3) (1.0)
Group overheads and finance income (4.4) (4.6)
Underlying Group operating profit/(loss)** 0.1 (2.1)
* The comparative results have been restated to exclude
discontinued operations (see Note 3).
** Underlying Group operating profit/(loss) excludes adjusting
items (see Note 6) and discontinued operations.
NOTES
3 Discontinued operations
On 30 April 2018, French Connection Group PLC together with the
25% interest minority shareholders, sold the entire issued share
capital of Toast (Mail Order) Limited to Bestseller United A/S for
gross proceeds of GBP23.3 million, comprising consideration of
GBP21.3 million and a pre-completion dividend of GBP2.0 million.
After the payment of management exit awards and transaction costs,
the Group received net proceeds of GBP13.2m comprising cash of
GBP11.7m and GBP1.5m dividend (75% share) utilised to pay down
intercompany debt.
At 30 April 2018, the Toast subsidiary comprised net assets of
GBP2.1 million, of which French Connection Group PLC directly owned
GBP1.5 million being 75% of the net assets. Further, French
Connection will support the transition of the Toast business into
new ownership by providing support office functions and other
transitional services for up to two years at no cost to the
Purchaser. GBP0.4 million has been provided in relation to these
future costs. Transactional costs of GBP1.1 million comprising
legal and other advisory fees have been expensed by French
Connection Group PLC as part of the profit on disposal.
The transaction has generated a total profit on sale of GBP9.7
million.
Year Year
ended ended
31 Jan 31 Jan
2019 2018
Results of discontinued operations GBPm GBPm
---------------------------------------------- ------- -------
Revenue 3.3 19.0
Expenses (3.8) (17.5)
Results from operating activities before tax (0.5) 1.5
Taxation 0.1 (0.4)
Results from operating activities, net of tax (0.4) 1.1
Profit on sale of discontinued operations 9.7 -
---------------------------------------------- ------- -------
Effect on profit for the period 9.3 1.1
---------------------------------------------- ------- -------
NOTES
3 Discontinued operations (continued)
Effect of disposal of the Toast subsidiary on the financial 31 Jan
position of the Group 2019
GBPm
-------------------------------------------------------------- --------
Fixed assets (0.2)
Deferred tax (0.3)
Inventories (3.4)
Trade and other receivables (0.8)
Cash (0.2)
Trade and other payables 2.8
Net assets and liabilities (2.1)
Minority interest (25%) 0.6
Net assets and liabilities disposed (1.5)
Goodwill on acquisition of subsidiary written off (0.1)
Cash consideration net of costs of disposal 11.7
Provisions for cost of transitional services (0.4)
Profit on sale 9.7
Year Year
ended ended
31 Jan 31 Jan
2019 2018
Cash flows used in discontinued operations GBPm GBPm
--------------------------------------------- ------- -------
Net cash from operating activities (1.4) 1.9
Net cash from financing activities (2.0) -
Net cash utilised in discontinued operations (3.4) 1.9
Included within financing activities is the pre-completion
dividend of GBP2.0 million, of which GBP0.5 million was paid to the
25% interest minority shareholders.
NOTES
4 Revenue and gross margin
Continuing Discontinued Consolidated
operations operations* operations
2019 2018 2019 2018 2019 2018
Sale of goods GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 135.3 135.0 3.3 19.0 138.6 154.0
Gross margin 57.2 57.7 2.4 11.9 59.6 69.6
The revenue from external customers is derived from the sale of
clothing and accessories.
* see discontinued operations Note 3.
5 Other operating income
2019 2018
GBPm GBPm
------------------ ------ ------
Licensing income 5.8 6.3
6 Profit/(loss) before taxation
Year Year
ended ended
31 Jan 31 Jan
2019 2018
Reconciliation of loss before tax to underlying GBPm GBPm
operating profit/(loss)
-------------------------------------------------- ------- -------
Loss before tax (9.3) (3.8)
Adjusting items:
Provisions for bad debts and bad debt write-offs 2.8 -
Provisions for onerous leases and store
disposals 6.6 0.9
Other professional fees - 0.8
-------------------------------------------------- ------- -------
9.4 1.7
Underlying operating profit/(loss) 0.1 (2.1)
-------------------------------------------------- ------- -------
Provisions for bad debts, net of VAT recoverable, of GBP2.0m
have been expensed in the period relating to unpaid contractual
debt due from our Indian licensing partner. GBP0.8m due from a UK
concession partner in administration has been written off as a bad
debt.
Provisions for onerous leases and store disposals of GBP5.9m
have been recognised in the period relating to UK stores whereby
the future contractual obligation costs exceed the economic
benefits forecast to be received. In addition, a charge of GBP0.7m
has been expensed in the current period relating to store closure
costs.
NOTES
7 Dividends - equity
The Board is proposing that no dividend should be paid for the
year (2018: GBPNil). Dividends of GBP0.5m were paid during the year
to the minority shareholders of a subsidiary undertaking of the
Group (2018: GBPNil).
8 Earnings/ (losses) per share
Basic and diluted earnings/ (losses) per share are calculated on
96,404,508 (2018: 96,253,134) shares being the weighted average
number of ordinary shares during the year.
Basic and diluted earnings per share of 0.1 pence per share
(2018: losses of (2.7) pence) is based on profit of GBP0.1m (2018:
loss of GBP(2.6)m) attributable to equity shareholders.
On continuing operations the basic losses per share of (9.6)
pence per share (2018: (3.5) pence) is based on losses of GBP(9.3)m
(2018: GBP(3.4)m) relating to continuing operations.
On discontinued operations the basic earnings per share of 9.7
pence per share (2018: 0.8 pence) is based on profits of GBP9.4m
(2018: GBP0.8m) relating to discontinued operations.
The reconciliation from basic and diluted earnings/(losses) per
share to adjusted losses per share is as follows:
2019 2018
2019 pence 2018 pence
GBPm per share GBPm per share
------------------------------ ------- ----------- ------- -----------
Profit/(loss) attributable
to equity shareholders 0.1 0.1p (2.6) (2.7)p
Profit on sale of subsidiary (9.7) (10.0)p - -
Adjusting items (Note 6) 9.4 9.7p 1.7 1.8p
Adjusted loss (0.2) (0.2)p (0.9) (0.9)p
The adjusted losses per share relates to the underlying
operations and in the opinion of the Directors, gives a better
measure of the Group's underlying performance than the basic losses
per share.
NOTES
9 Retail locations
31 January 2019 31 January 2018
Locations sq ft Locations sq ft
----------------------------------------- ---------- --------- ---------- ---------
Operated locations
UK/Europe
French Connection Stores 43 120,469 47 128,835
French Connection/Great
Plains Concessions 47 43,214 51 35,556
Toast Stores - - 12 13,546
YMC Stores 3 1,805 2 1,355
93 165,488 112 179,292
North America
French Connection
US Stores 2 9,102 2 9,102
French Connection
Canada Stores 1 2,350 2 4,650
3 11,452 4 13,752
Total operated locations 96 176,940 116 193,044
French Connection licensed
and franchised
UK/Europe 4 4,142 5 5,642
North America 1 2,346 1 2,346
Middle East 10 15,686 10 15,686
Australia 140 72,553 139 73,980
Hong Kong 3 3,378 4 7,000
China 11 16,614 11 16,018
India 7 3,710 20 11,249
Other 19 14,242 22 15,863
Total licensed and franchised
locations 195 132,671 212 147,784
Total branded locations 291 309,611 328 340,828
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFIAVSILLIA
(END) Dow Jones Newswires
March 12, 2019 03:00 ET (07:00 GMT)
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