14th Mar 2007 07:02
French Connection Group PLC14 March 2007 14th March 2007 FRENCH CONNECTION GROUP PLC Preliminary Results for the year ended 31 January 2007 French Connection Group PLC today announces preliminary results that are in linewith market expectations. • Turnover £241.3 million (2006: £246.3 million) • Profit before tax £4.0 million (2006: £12.2 million)* • Closing net cash £48.9 million (2006: £57.0 million) • Basic earnings per share 0.1p (2006: 10.2p) • Adjusted* earnings per share 2.2p (2006: 7.1p) • Total dividend for the year 5.0p (2006: 5.0p) * Adjusted to exclude the exceptional net taxation charge in 2007 and the netgain on disposal of property in 2006. Stephen Marks, Chairman, commented on the results: "The financial results for the last year are very disappointing, however webelieve that there is good evidence to indicate that we are at the start of anew phase in our business cycle." "The results for the year reflect the continued impact of the difficulties wefirst experienced in 2005. Despite substantial changes to the focus anddirection of our French Connection products we were disappointed by our retailperformance in the Spring/Summer 2006 season. However, our core ladies' wearranges for Autumn/Winter 2006 achieved good sales growth in our retail storesand the operating profit in the second half of the year improved compared withthe same period last year. The fashion press have shown continued enthusiasm forour products and the brand, helping to re-establish our fashion credentials." "Although these gains are small they are important. While there remains much toachieve, the new financial year has started with good growth in our UK retailstores and we believe we are now in a position to build momentum on thisencouraging start to the year." Enquiries: Stephen Marks/Neil Williams/Roy Naismith French Connection +44(0)20 7036 7063Tom Buchanan/Lucie Anne Brailsford Brunswick +44(0)20 7404 5959 CHAIRMAN'S STATEMENT Dear Shareholders, The financial results for the last year are very disappointing, however webelieve that there is good evidence to indicate that we are at the start of anew phase in our business cycle. The operating profit in the second half of theyear improved compared with the same period last year and our core ladies' wearranges for Autumn/Winter 2006 achieved good growth in our retail stores.Although these gains are small they are important. While there remains much toachieve, we believe we are now in a position to build on these early signs andreturn to growth. In the year Group turnover fell by 2% to £241.3 million (2006: £246.3 million)and profit before taxation fell to £4.0 million (2006: £12.2 million beforeprofit on sales of fixed assets). Earnings per share fell to 0.1p, but prior toadjusting for an exceptional net taxation charge were 2.2p (2006: 7.1p excludingthe profit on sales of fixed assets). In cash flow terms the Group generated£5.7 million from operations and after payments for taxation, capitalexpenditure and dividends ended the year with £48.9 million of net funds (2006:£56.8 million). The Board is proposing that the full year dividend be maintainedat the same level as last year at 5.0p per share. The results for the year reflect a continuation of the impact of thedifficulties we experienced in 2005. Despite the substantial changes to thefocus and direction of our French Connection products we were disappointed byour retail performance in the Spring/Summer 2006 season. However, in the Autumn/Winter 2006 season, sales of the French Connection ladies' wear products weremuch better in both our own retail stores and through our wholesale customers'outlets. This has been helped by the fashion press who have shown enthusiasm forour products and the brand, helping to re-establish our fashion credentials. We continue to focus our efforts on meeting our customer's desire forfashion-forward products and we believe that our collections for both Spring/Summer 2007 and Autumn/Winter 2007 achieve that aim. In the first few weeks ofthe new Spring/Summer 2007 season we are continuing to see an improvedperformance in our UK/Europe French Connection stores with sales of full pricemerchandise up over 10% on a like-for-like basis with an improvement in sales ofboth ladies' and men's products. We believe that these are the early signs of approaching a turning point in theGroup's financial performance. We are looking for sustained growth in our retailbusiness and expect that the core wholesale business will follow, albeit over alonger time-frame. The fundamentals of the product and brand are now in place toachieve this and we will work to build momentum. I would like to thank our hard-working employees who have remained enthusiasticand motivated throughout a very demanding year. They can see the improvementsand progress achieved and continue to energetically develop all aspects of thebusiness in order to build on the encouraging start to the new year. Stephen MarksChairman and Chief Executive13 March 2007 BUSINESS REVIEW IntroductionThis Business Review should be read in conjunction with the divisional tradinganalysis on page 11. OverviewThe profit before tax of £4.0 million for the year ended 31 January 2007 (2006:£12.2 million before gain on disposal of property) reflects the culmination ofthe poor trading in our key French Connection businesses over the previous twofinancial years. However, there is evidence to indicate that we are at thebeginning of a new phase in the business cycle, including that the operatingprofit achieved in the second half of the year was an improvement over theequivalent period last year. While recovering the lost ground will take sometime, we are now in the situation of having something positive to build on withimproving trends and strong media support. As described in more detail below, wehave seen good growth in our core French Connection ladies' wear ranges duringthe Autumn/Winter 2006 season in the retail business and this is continuing intothe new Spring/Summer 2007 season. Although the men's wear ranges did notperform as well as ladies in Autumn/Winter, the early weeks of the new retailseason has shown growth over last year. Sales of our products by our wholesalecustomers have also been improving and we expect that this will filter throughto their buying decisions in due course. Further evidence of improving sentiment towards the brands comes from thecontinued solid support the ranges are receiving from the fashion press. FrenchConnection recently won an award as "the best place to spend £250" in Companymagazine and "most improved high street store" in the Guardian style awards. Performance is discussed in more detail by division in the sections below. United Kingdom and Europe - RetailRetail revenue increased by 3% to £116.1 million (2006: £113.0 million)including the impact of 5% net additional trading space compared to last yearand like-for-like sales growth of 1% over the year. The gross margin improved to63.1% (2006: 62.5%). Trading overheads increased by 4% as a result of theadditional space, leaving a net operating contribution of £2.4 million (2006:£2.2 million). We commented previously that while we believe that the Spring/Summer 2006 FrenchConnection ranges were a considerable improvement and the fashion press appearedto agree, we were disappointed to find that this did not translate into salesgrowth. The Autumn/Winter 2006 ranges were another significant step forward andwe were encouraged to see a much better reaction in our stores to the ladies'collections. Sales of French Connection Autumn/Winter 2006 ladies' wear in ourown stores prior to the sale period grew by 6% on a like-for-like basis. Men'swear on the other hand remained flat which reflects both that the improvementsin the men's ranges has lagged the successes achieved in ladies' wear and thatmen tend to change their shopping habits less readily. The performance in the second half has given us confidence that the changes wehave made are taking the business in the right direction and this is furthersupported by both the very positive reaction the fashion press has given ourSpring/Summer 2007 collections and also the rate of growth in our sales in theearly part of this new year, albeit over a very short period: French Connectionnew season products are achieving like-for-like sales growth of over 10%. The main factor which will drive the financial performance in the retaildivision is the growth of sales volumes in our existing stores. For the newfinancial year we are planning for a 5% growth in full-price sales of FrenchConnection products although the overall growth rate will be affected by thequantities of product cleared during the sale periods compared with the previousyear. The gross margin reported for the year showed an improvement on last year,however it was held back by disappointing sales volumes in both Autumn/Winter2005 and Spring/Summer 2006 which created a need to clear excess product throughlonger and deeper sale periods during this financial year. Conversely, with theimproved sales performance running up to Christmas, we were able to delay thestart of our winter sale and this provided some pick-up in the margin for thesecond half of the year compared with last year. As always the impact on thesales volumes of the significantly different timing and discounts in the saleperiods has been excluded from the calculation of the like-for-like salesgrowth. Input margins remained strong and benefited from the further weakeningof the Hong Kong Dollar, the currency in which we buy a significant proportionof our products. Looking forward, we expect our retail gross margin to improve further if we areable to increase our full price sales sell-through and thereby reduce theproportionate impact of the sale periods on the margin. Input margins for the2007 seasons have held up and the Hong Kong Dollar continues to be weak,providing support to the outturn margin. Along with focusing on our product ranges we continue to ensure that our storeoperations reflect the quality of our garments and the aspirations of ourcustomers. We are continually developing our store presentations and triallingnew ideas which are rolled out across our portfolio if they are effective. We have also continued to critically assess our store portfolio. During the yearwe opened one new store at the Brunswick Centre in Bloomsbury, London, whichcontains our latest shopfit concept and which has performed very well. We alsoclosed two under-performing stores and three concessions and we will trim theportfolio further where this is required and can be achieved effectively. Duringthe year we also acquired five stores from existing franchisees. The performance of the Nicole Farhi stores over the year has been mixed, withgood sales growth in the earlier part of the year negated by a poorer secondhalf, although this was against much stronger comparatives from last year. Thenew season has started on a more positive note. The French Connection mail-order business now represents the equivalent of twogood-sized shopping mall stores with a catalogue distribution of some 70,000customers while 76% of orders are taken through the website. Toast has continued to perform well with a particularly strong Spring 2006catalogue and the retail locations performing well. We are actively searchingfor further high street locations. The Great Plains mail-order operation, whichwas launched last year, has exceeded expectations and we continue to activelydevelop the customer base. United Kingdom and Europe - WholesaleWholesale revenue fell to £63.4 million in the year (2006: £75.4 million) with acontinued decline in both forward orders and in-season orders. However, withimprovements in the ranges, our wholesale customers have reported highersell-through of our products which, if maintained, should have a positive impacton order levels in the future. The decline in total sales was 25% in the firsthalf, but improved to only a 6% decline in the second half, some of which wascaused by the transfer of franchised stores to our own portfolio and thetransfer of some middle-east customers to our Hong Kong office for practicaloperational reasons. We have also achieved a good improvement in sales of GreatPlains and YMC products. We are confident that with our improved French Connection ranges and continuedsolid support for our wholesale customers we are approaching the turning pointin this business, although we are yet to see any growth in the order books. TheSpring/Summer 2007 orders, much of which was delivered towards the end of thefinancial year, were lower than the previous year, partly due to the acquisitionof some franchise stores and the conversion of a large overseas customer to aconcession operation within our retail portfolio. The order books for Autumn/Winter 2007 are currently being finalised and at the time of writing they arebroadly flat on last year, after allowing for the transfer of the franchises.While our aim is to achieve growth in our wholesale volumes during the newfinancial year, given the level of orders achieved so far, this will dependentirely on seeing a reasonable level of growth in the order books for Spring/Summer 2008 much of which will be delivered by the end of this new financialyear. We would expect that the recent improved performance of the ranges intheir retail stores will help to drive growth in wholesale orders in due course. The decline in volume has had a direct impact on the gross margin for thebusiness which was 32.6% in the year (2006: 37.3%). Input margins were slightlystronger than last year with the benefit of a weakened Dollar, however, thefixed cost elements within the margin, such as the distribution infrastructurecosts, create a negative gearing on the margin as sales volumes fall; thisaccounted for 2.7% of the decline. The remainder was caused by an increase in the depth of discounts granted tocustomers buying end-of-season products. Discounted sales are made towards theend of the season in order to clear excess old season stock. Overheads have been trimmed where possible and we continue to look forefficiencies in our business wherever possible. The net operating contribution from UK/Europe wholesale was £8.0 million (2006:£15.3 million). UK/Europe divisionTogether, the retail and wholesale businesses in UK/Europe generated anoperating contribution of £10.4 million (2006: £17.5 million). Common overhead costs for the division increased by £0.7 million to £7.0million, the increase relating entirely to higher advertising and promotionexpenditure. Other income in the UK/Europe division of £4.7 million (2006: £6.6 million)includes both licence receipts from external licensees and also royaltiescharged to Group companies which are purely internal. The licence income fromexternal sources amounted to £3.6 million (2006: £4.7 million), where most ofthe decline arose from our toiletries licence. Our products now face competitionfrom a much broader range of fashion-branded products within our chosen retailchannels, particularly in men's grooming, and there has been a subsequent impacton volumes. In addition the termination at the end of last year of the licencefor a worldwide fragrance has had an impact on the overall income. Otherlicensees have had a solid year and we still see good growth potential from ouroverseas licensees such as our Australian operator and the other countrylicences. The resulting operating profit for the UK/Europe division was £8.1 million forthe year (2006: £17.8 million). North America - RetailThe North America retail business started the year very poorly and new retailmanagement was put in place as a result. The strongly negative trends werequickly reversed and then focus turned to building a solid base to return togrowth. Overall revenue increased in the year by 7% in Dollar terms with anincrease of 6% in average space traded following store openings last year andtwo new stores in Canada during the year. On a like-for-like basis salesdecreased by 3% but as with the UK, the trend is improving; virtually all of thelike-for-like decline was generated in the first quarter and more recently wehave seen some encouraging growth, albeit on easier comparables. Translated into Sterling, revenue was up 4% to £35.5 million (2006: £34.0million). The gross margin was impacted by the need to clear excess stock, especially ofSpring/Summer 2006, resulting in a margin of 61.4% (2006: 62.1%). Overheads increased 4% due to the additional trading space resulting in anoperating contribution of £(2.0) million, a small decrease on last year. North America - WholesaleWholesale revenue increased by 4% in Dollar terms to $29.9 million (2006: $28.8million). This increase was generated in the main by a contract for own-labelproduct with a department store which, while it was reasonably successful, isnot to be repeated. This will cause revenue growth into the new year to beharder to achieve but the performance of our branded product in our customers'stores has been encouraging and we will work to develop the existingrelationships and find new customers across the territory. The gross margin was higher at 40.4% (2006: 37.7%) due to the increase in thefull-price proportion of the business. There was no increase in overheads inDollar terms, resulting in a small decrease in Sterling terms. The operating contribution therefore increased by £0.7 million to £2.7 millionin the year. North America divisionTogether, the retail and wholesale operations in North America generated anoperating contribution of £0.7 million (2006: £0.2 million). Common overheadcosts decreased to £3.5 million (2006: £3.6 million) . The net divisionaloperating result of £(2.8) million (2006: £(3.4) million) represents animprovement of £0.6 million. Rest of the WorldRevenue in our business based in Hong Kong increased by 28% in Sterling terms to£10.2 million (2006: £8.0 million) reflecting good increases in sales to ourlicensees in Australia, Japan and China as each of those businesses expanded.Other customers include our licensees in Hong Kong, Taiwan, Singapore, Malaysia,Thailand, Mexico and a number of other Asian countries. Additionally, thebusiness now also supplies to Middle-Eastern countries previously serviced fromthe UK. The gross margin generated by this business is affected by the mix of sales andwhile core margins were unchanged, the blended gross margin increased to 20.6%(2006: 17.5%). Overheads were broadly static. The business also earns commission income from Group companies on shipments fromHong Kong to the UK and North America. Total income from this channel fell by£0.2 million due to the reduction in requirements from the internal customers.Net divisional operating profit was £3.1 million (2006: £2.5 million). Group managementThe overheads associated with the central Group management amounted to £5.1million in the year, a saving of £0.6 million compared to last year as wecontinue to focus on finding efficiencies in our head office organisation. Operating profit and operating marginThe operating profit before finance costs for the year was £3.3 million (2006:£11.2 million) representing a Group net operating margin of 1.4% compared with4.5% last year. The sharp decline in the net operating margin reflects theoperational gearing within the business and the decline in sales volumes. Net financing income of £1.3 million (2006: £1.3 million) was generated in theperiod with average net funds over the year marginally lower than the previousyear and interest rates a little higher. Group operating profit in the year amounted to £4.6 million (2006: £12.5million). Joint venturesThe Group is party to three retail joint ventures, each on a 50% shareholdingbasis, in Hong Kong, Japan and China. Each of these joint ventures is directlymanaged by a locally based partner and operates retail locations in theirrespective territories. This business model allows for strategic input fromFrench Connection to marry with local operational experience to create amutually beneficial business. From the perspective of the French ConnectionGroup we benefit from not only our share of any profits generated but also frommargin created on supplying product and licence royalty income. The Group's share of net losses generated by the joint ventures during the yearwas £0.6 million (2006: £0.3 million) with all of the decrease arising from theJapan venture. The business in Japan was originally a stand-alone licensee and now operates 22locations. Results deteriorated in the year due to softer trading and anincreased investment in marketing. While the business is not yet profitable itis generating cash flow for the Group. The Hong Kong joint venture now operatesseven locations, two of which were opened in the last year. The business isprofitable and is now in a position to self-fund any further store openings. InChina our joint venture operates 19 locations, mainly in department stores amongcomplementary fashion brands. The business operates at a small profit and hasdemonstrated that there is good potential to build a bigger profitable business. Each of these ventures provides good opportunity for growth and cash generationfor the Group. In addition to the share of profits reported in the incomestatement, the joint ventures generated over £1.0 million of licence income andgross margin combined. Profit before taxThe Group profit before tax was £4.0 million in the year compared to £12.2million achieved in the previous year, before inclusion of the gain on disposalof property amounting to £3.5 million. TaxationThe tax charge for the year of £3.6 million (2006: £5.7 million) includes a taxcharge on the profit for the year of £1.6 million and an exceptional one-off nettax charge of £2.0 million. The tax charge on profits for the year excluding the exceptional charge of £1.6million represents an effective taxation rate of 40% (2006: 42% excluding tax onproperty disposals). The high effective rate of tax is a result of the low levelof profit in the year combined with a level of disallowable expenditure similarto past years. In addition, no benefit has been taken in the tax charge forlosses incurred in the US. In addition to the taxation charge on profits for the year the charge includes a£2.0 million non-cash net charge. As a prudent measure the Board has decided towrite off the deferred tax asset which related to timing differences and lossesgenerated in the US. While the timing differences and losses will continue to beavailable for use against any future taxable profits generated by the USbusiness, it was felt that since it is likely to take a number of years toutilise the asset it would be prudent to write it off. The asset amounted to£4.1 million. This has been off-set by the release of a £2.1 million provisionfor UK tax liabilities which is no longer required. The tax charge in future years is variable depending on the level of profitgenerated and the different geographic locations where it is taxed since thethree principal countries of operation have significantly different tax rates. Minority interestThe minority interest of £0.3 million (2006: £0.3 million) reported in theincome statement represents the share of results attributable to the 25%ownership held by local management in our Canada business, Toast and YMC. Earnings and dividendsNet earnings for the year attributable to equity shareholders was £0.1 million(2006: £9.7 million). Earnings per share was therefore 0.1 pence (2006: 10.2pence per share). Excluding the exceptional taxation charge of £2.0 million theearnings were 2.2 pence per share. The Board has recommended a final dividend which will result in a full yeardividend of 5.0 pence per share, in line with the previous year, reflecting thehealthy cash balance in the business and the Board's confidence that thisparticularly poor year in terms of financial results is the low-point for thebusiness. The final dividend of 3.3 pence per share (2006: 3.3 pence per share) will,subject to approval at the Annual General Meeting, be paid on 4 July 2007 toshareholders on the register on 23 March 2007 (ex-dividend date 21 March 2007). Fixed assets and investmentsTotal capital expenditure in the year was £4.6 million, £2.0 million of whichwas spent on the retail portfolio including the three new store locations aroundthe world. The remaining expenditure included the final investments in our newoffices and showrooms in London, our new warehouse facility in Essex andenhancements to our computer systems. A further £2.0 million was invested in theacquisition of five UK franchise stores and further funding of the jointventures. The tangible assets at the end of the year represent mostly the remainingun-depreciated capital cost of fitting out our retail stores, head office andwarehouse along with IT hardware and systems. As required by InternationalFinancial Reporting Standards we have applied an impairment test to assets wherethere was an indication of impairment. This has resulted in new provisionsamounting to £0.8 million in the year (2006: £Nil) in relation to three stores:one in the UK and two in North America. Working capital and net fundsTotal working capital at the end of the year, being the net of inventory,debtors and creditors, increased by £7.4 million to £33.0 million. The increaseincluded a £4.0 million or 8% increase in inventory. Due to poor sales of 2005and Summer 2006 ranges we are carrying more inventory from those seasons thanpreviously, but we have plans in place to liquidate this product effectively.Provision has been made against any inventories which are likely to be sold atlower than their cost. Debts due from wholesale customers are at a similar level to last year whiletrade creditors are lower, mainly reflecting timings of deliveries. After allowing for depreciation and the changes in working capital describedabove, net cash inflow from operations was £5.7 million (2006: £24.4 million). After payment of tax, dividends and fixed asset investments amounting to £13.6million the closing net funds decreased by £7.9 million to £48.9 million (2006:£56.8 million). The Board considers that it is prudent to carry a cash balance at this level inorder to fund working capital requirements through the year and to provide asafeguard against the risks faced by the business. GROUP INCOME STATEMENTYear ended 31 January 2007 Note £m 2007 £m 2006 £m £m-------------------------------------------------------------------------------- Revenue 2 241.3 246.3Cost of sales (113.6) (114.8)-------------------------------------------------------------------------------- Gross profit 2 127.7 131.5 Operating expenses (128.0) (125.0)Other operating income 3 3.6 4.7-------------------------------------------------------------------------------- Operating profit before financing costs 2 3.3 11.2 Finance income 1.8 1.5Finance expenses (0.5) (0.2)Net financing costs 1.3 1.3-------------------------------------------------------------------------------- Operating profit 4.6 12.5 Net gain on disposal of property,plant and equipment - 3.5Share of loss of joint ventures (0.6) (0.3)-------------------------------------------------------------------------------- Profit before taxation 4.0 15.7 Income tax credit/(expense) - UK 1.2 (5.9)Income tax (expense)/credit - (4.8) 0.2overseasTotal income tax expense (3.6) (5.7)-------------------------------------------------------------------------------- Profit for the year 0.4 10.0-------------------------------------------------------------------------------- Attributable to: Equity holders of the parent 0.1 9.7Minority interest 0.3 0.3-------------------------------------------------------------------------------- Profit for the year 0.4 10.0-------------------------------------------------------------------------------- Basic earnings per share 5 0.1p 10.2p-------------------------------------------------------------------------------- Diluted earnings per share 5 0.1p 10.1p-------------------------------------------------------------------------------- The Group's results were entirely from continuing operations. GROUP BALANCE SHEETAt 31 January 2007 Note 2007 2006 £m £m-------------------------------------------------------------------------------- AssetsNon-current assetsIntangible assets 14.1 13.0Property, plant and equipment 20.6 26.7Investments in joint ventures 3.1 3.2Deferred tax assets 2.1 6.5-------------------------------------------------------------------------------- Total non-current assets 39.9 49.4-------------------------------------------------------------------------------- Current assetsInventories 51.7 47.7Trade and other receivables 30.5 30.1Cash and cash equivalents 7 56.3 60.9-------------------------------------------------------------------------------- Total current assets 138.5 138.7-------------------------------------------------------------------------------- Total assets 178.4 188.1-------------------------------------------------------------------------------- Non-current liabilitiesDeferred tax liabilities 0.9 1.4-------------------------------------------------------------------------------- Total non-current liabilities 0.9 1.4-------------------------------------------------------------------------------- Current liabilitiesBank loans and overdraft 7 7.4 3.9Trade and other payables 49.2 51.7Current tax payable 0.4 4.7-------------------------------------------------------------------------------- Total current liabilities 57.0 60.3-------------------------------------------------------------------------------- Total liabilities 57.9 61.7-------------------------------------------------------------------------------- Net assets 120.5 126.4-------------------------------------------------------------------------------- EquityCalled-up share capital 1.0 1.0Share premium account 9.4 9.3Other reserves (1.4) 0.2Retained earnings 110.7 115.4-------------------------------------------------------------------------------- Total equity attributable to equity holders of the parent 119.7 125.9Minority interests 0.8 0.5-------------------------------------------------------------------------------- Total equity 120.5 126.4-------------------------------------------------------------------------------- GROUP STATEMENT OF RECOGNISEDINCOME AND EXPENSEYear ended 31 January 2007 £m 2007 £m 2006 £m £m-------------------------------------------------------------------------------- Profit attributable to equity shareholders 0.1 9.7Minority interest 0.3 0.3-------------------------------------------------------------------------------- Total income and expense recognised in theincome statement 0.4 10.0-------------------------------------------------------------------------------- Currency translation differences on foreigncurrency net investmentsnet of tax (1.1) 0.7Currency translation differences on foreigncurrency loans (0.7) -Income tax on income and expense recognised in equity 0.2 - -------------------------------------------------------------------------------- Total income and expense recognised in equity (1.6) 0.7-------------------------------------------------------------------------------- Total income and expense recognised for the year (1.2) 10.7-------------------------------------------------------------------------------- Attributable to: Equity holders of the parent (1.5) 10.4Minority interest 0.3 0.3-------------------------------------------------------------------------------- Total income and expense recognised for the year (1.2) 10.7-------------------------------------------------------------------------------- GROUP STATEMENT OF CASH FLOWSYear ended 31 January 2007 Note 2007 2006 £m £m-------------------------------------------------------------------------------- Operating activitiesProfit for the period 0.4 10.0Adjustments for:Depreciation 9.8 10.7Foreign exchange losses 0.1 -Finance income (1.8) (1.5)Finance expense 0.4 0.2Share of loss of joint ventures 0.6 0.3Non-operating gain on property, plant and equipment - (3.5)Income tax expense 3.6 5.7-------------------------------------------------------------------------------- Operating profit before changes in workingcapital and provisions 13.1 21.9Increase in inventories (3.6) (3.5)(Increase)/decrease in trade and other receivables (0.4) 2.4(Decrease)/increase in trade and other payables (3.4) 3.6-------------------------------------------------------------------------------- Cash flows from operations 5.7 24.4Interest paid (0.4) (0.2)Income tax paid (4.3) (8.7)-------------------------------------------------------------------------------- Cash flows from operating activities 1.0 15.5-------------------------------------------------------------------------------- Investing activitiesInterest received 1.8 1.5Investment in joint ventures (0.5) (1.0)Acquisition of franchises (1.5) (2.1)Acquisition of property, plant and equipment (4.6) (9.6)Proceeds from sale of property, plant and equipment - 5.3-------------------------------------------------------------------------------- Cash flows from investing activities (4.8) (5.9)-------------------------------------------------------------------------------- Financing activitiesProceeds from the issue of share capital 0.1 0.6Payment of finance lease liabilities 6 (0.2) (0.1)Dividends paid (4.8) (5.2)-------------------------------------------------------------------------------- Cash flows from financing activities (4.9) (4.7)-------------------------------------------------------------------------------- Net (decrease)/increase in cash and cash equivalents 7 (8.7) 4.9Cash and cash equivalents at 1 February 7 57.0 52.5Exchange rate fluctuations on cash held 7 0.6 (0.4)-------------------------------------------------------------------------------- Cash and cash equivalents at 31 January 7 48.9 57.0-------------------------------------------------------------------------------- NOTES 1 Basis of preparation The preliminary announcement for the full year ended 31 January 2007 has beenprepared in accordance with International Accounting Standards and InternationalFinancial Reporting Standards (collectively "IFRS") as adopted by the EuropeanUnion (EU) at 31 January 2007. Details of the accounting policies applied arethose set out in French Connection Group PLC's Annual report and accounts forthe year ended 31 January 2006. The annual financial information presented inthis preliminary announcement for the year ended 31 January 2007 is based on,and is consistent with, that in the Group's audited financial statements for theyear ended 31 January 2007, and those financial statements will be delivered tothe Registrar of Companies following the Company's Annual General Meeting. Theauditor's report on those financial statements is unqualified and does notcontain any statement under Section 237 of the Companies Act 1985. Information in this preliminary announcement does not constitute statutoryaccounts of the Group within the meaning of Section 240 of the Companies Act1985. Statutory accounts for the year ended 31 January 2006 have been filed withthe Registrar of Companies. The auditor's report on those accounts wasunqualified and did not contain any statement under Section 237 of the CompaniesAct 1985. 2 Segmental analysis ------------------------------------------------------------------------------ UK/Europe North America Rest of Intra Total World Group ------------------------------------------------------------------------------ 2007 Retail Whole- Total Retail Whole- Total Whole- £m £m £m sale £m £m sale £m sale £m £m £m ------------------------------------------------------------------------------ Revenue 116.1 63.4 179.5 35.5 16.1 51.6 10.2 241.3 ------------------------------------------------------------------------------ Gross profit 73.3 20.7 94.0 21.8 6.5 28.3 2.1 3.3 127.7 Gross margin 63.1% 32.6% 52.4% 61.4% 40.4% 54.8% 20.6% 52.9% Tradingoverheads (70.9) (12.7) (83.6) (23.8) (3.8) (27.6) (1.2) (112.4) ------------------------------------------------------------------------------- Operatingcontribution 2.4 8.0 10.4 (2.0) 2.7 0.7 0.9 3.3 15.3 --------------- --------------- Commonoverhead costs (7.0) (3.5) (10.5) Other income 4.7 - 2.2 (3.3) 3.6 ------ ---------------------------------Divisionaloperatingprofit 8.1 (2.8) 3.1 - 8.4 ------ ----------------------- Group managementoverheads (5.1) Operating profitbefore financing costs 3.3 ------ 2 Segmental analysis continued ----------------------------------------------------------------------------- UK/Europe North America Rest of Intra Total World Group ----------------------------------------------------------------------------- 2006 Retail Whole- Total Retail Whole- Total Whole- £m £m £m sale £m £m sale £m sale £m £m £m ----------------------------------------------------------------------------- Revenue 113.0 75.4 188.4 34.0 15.9 49.9 8.0 246.3 ------------------------------------------------------------------------------ Gross profit 70.6 28.1 98.7 21.1 6.0 27.1 1.4 4.3 131.5 Gross margin 62.5% 37.3% 52.4% 62.1% 37.7% 54.3% 17.5% 53.4% Tradingoverheads (68.4) (12.8) (81.2) (22.9) (4.0) (26.9) (1.3) (109.4) ------------------------------------------------------------------------------ Operatingcontribution 2.2 15.3 17.5 (1.8) 2.0 0.2 0.1 4.3 22.1 --------------- -------------- Commonoverhead costs (6.3) (3.6) (9.9) Other income 6.6 - 2.4 (4.3) 4.7 ------ ----------------------- ------ Divisionaloperatingprofit 17.8 (3.4) 2.5 - 16.9 ------ ----------------------- Group managementoverheads (5.7) Operating profitbeforefinancing costs 11.2 ------ 3 Other operating income 2007 2006 £m £m--------------------------------------------------------------------------------Licensing income 3.6 4.7-------------------------------------------------------------------------------- 4 Dividends - equity 2007 Pence 2006 Pence £m per share £m per share-------------------------------------------------------------------------------- Final paid for prior financial year 3.2 3.30p 3.6 3.80pInterim paid for current financial year 1.6 1.70p 1.6 1.70p-------------------------------------------------------------------------------- Total dividends paid during the year 4.8 5.00p 5.2 5.50p-------------------------------------------------------------------------------- The Board has proposed a final dividend for the current financial year of 3.30pence per share giving a total dividend for the year of 5.00 pence per share(2006: 5.00 pence per share). No provision has been made for this as at thebalance sheet date. 5 Earnings per share Basic earnings per share of 0.1p (2006: 10.2p) is based on 95,838,691 shares(2006: 95,501,265) being the weighted average number of ordinary shares in issuethroughout the year, and £0.1 million (2006: £9.7 million) being the profitattributable to equity shareholders. Diluted earnings per share of 0.1p (2006:10.1p) is based on 96,005,883 shares (2006: 95,936,595) being the weightedaverage number of ordinary shares adjusted to assume the exercise of dilutiveoptions. The reconciliation to adjusted earnings per share which is based on95,838,691 shares (2006: 95,501,265) is as follows: 2007 Pence 2006 Pence £m per share £m per share-------------------------------------------------------------------------------- Profit attributable to equity shareholders 0.1 0.1p 9.7 10.2pGain on disposal of property, plant andequipment after tax - - (2.9) (3.1)pTax impact of write-off of US deferredtax asset 4.1 4.2p - -Tax impact of provision release (2.1) (2.1)p - ---------------------------------------------------------------------------------Adjusted earnings 2.1 2.2p 6.8 7.1p-------------------------------------------------------------------------------- In the opinion of the Directors, the adjusted earnings per share gives a bettermeasure of the Group's underlying performance than the basic earnings per share. 6 Reconciliation of increase in cash to movement in net funds 2007 2006 £m £m--------------------------------------------------------------------------------(Decrease)/increase in cash (8.7) 4.9Cash outflow from finance leases 0.2 0.1-------------------------------------------------------------------------------- Change in net funds from cash flows (8.5) 5.0Translation differences 0.6 (0.4)-------------------------------------------------------------------------------- Movement in net funds (7.9) 4.6Net funds at beginning of year 56.8 52.2-------------------------------------------------------------------------------- Net funds at end of year 48.9 56.8-------------------------------------------------------------------------------- 7 Analysis of net funds -------------------------------------------------------------------------------- 1 February Cash Non cash 31 January 2006 flow changes £m 2007 £m £m £m-------------------------------------------------------------------------------- Cash and cash equivalents in thebalance sheet 60.9 (4.6) - 56.3Bank overdrafts (3.9) (4.1) 0.6 (7.4)-------------------------------------------------------------------------------- Cash and cash equivalents in thecash flow 57.0 (8.7) 0.6 48.9Finance lease obligations (0.2) 0.2 - --------------------------------------------------------------------------------- Net funds 56.8 (8.5) 0.6 48.9-------------------------------------------------------------------------------- 8 Annual report and accounts The financial information set out above does not constitute the Group'sstatutory accounts for the year ended 31 January 2007 and the year ended 31January 2006, but is derived from those accounts. Statutory accounts for theyear ended 31 January 2006 have been delivered to the Register of Companies.Those for the year ended 31 January 2007 will be delivered following theCompany's Annual General Meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. FIVE YEAR RECORD 2007 2006 2005 2004 2003 £m £m £m £m £m-------------------------------------------------------------------------------- Revenue 241.3 246.3 265.7 267.9 241.0-------------------------------------------------------------------------------- Profit before taxation 4.0 15.7 33.7 38.1 29.5-------------------------------------------------------------------------------- Profit attributable to shareholders 0.1 9.7 23.0 26.2 20.4-------------------------------------------------------------------------------- Earnings per share -------------------------------------------------------------------------------- Basic 0.1p 10.2p 24.1p 27.5p 21.5p-------------------------------------------------------------------------------- Adjusted 2.2p 7.1p 24.1p 28.4p 22.5p-------------------------------------------------------------------------------- Diluted 0.1p 10.1p 23.9p 27.2p 21.4p-------------------------------------------------------------------------------- Dividends per share 5.00p 5.00p 5.00p 3.25p 2.40p ------------------------------------------------------------------------------- The 2007, 2006 and 2005 numbers have been prepared under IFRS. The 2004 and 2003numbers have been prepared under UK GAAP. The principal adjustments between IFRS and UK GAAP relate to goodwillamortisation, impairment of property, treatment of lease incentives andpremiums, accounting for proposed dividends and the consequential tax impact ofthe above. RETAIL LOCATIONS 31 January 2006 31 January 2007Retail locations Number '000 sq ft Number '000 sq ft-------------------------------------------------------------------------------- Operated UK/Europe stores 85 258 89 265Operated UK/Europe concessions 29 24 35 26Operated North America stores 38 160 40 166Operated North America concessions 1 0.3 - --------------------------------------------------------------------------------- Total 153 442 164 457-------------------------------------------------------------------------------- Franchised UK/Europe stores 26 41 21 32Franchised North America stores 1 2 1 2Franchised Middle East stores 9 16 9 16Licensed Rest of World stores 61 106 86 144Licensed Rest of World concessions 34 30 32 25-------------------------------------------------------------------------------- Total 131 195 149 219-------------------------------------------------------------------------------- Total branded locations 284 637 313 676-------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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