14th Mar 2006 07:04
French Connection Group PLC14 March 2006 14th March 2006 FRENCH CONNECTION GROUP PLC Preliminary Results for the year ended 31 January 2006 French Connection Group PLC today announces preliminary results that are in linewith market expectations. • Turnover £246.3 million (2005: £265.7 million) • Profit before tax £15.7 million (2005: £33.7 million) • Adjusted* profit before tax £12.2 million (2005: £33.7 million) • Closing net cash £57.0 million (2005: £52.5 million) • Earnings per share 10.2p (2005: 24.1p) • Total dividend for the year 5.0p (2005: 5.0p) * Adjusted to exclude the net gain on disposal of property. Stephen Marks, Chairman, commented on the results: "The last year has proved to be the most difficult we have experienced for aconsiderable period of time. These results are a major disappointment to theBoard and we are doing all we can to reverse the decline. " "Strong product design has always been the key to our long-term success and theperformance of our business reflects the strength of our ranges. In this regardwe have faced some challenges over the past few seasons. We are focused onimproving our ranges and we believe that those for Summer 2006, which arecurrently in the shops, are another step forward - witnessed by the high levelof positive coverage in the fashion press. This, together with our recent highprofile advertising campaign, will help us start to recapture our customers andsee a return to growth in both the retail and wholesale channels." "We remain focused on improving every detail of our business and on maximisingour opportunities." Enquiries: Stephen Marks/Neil Williams/Roy Naismith French Connection +44(0)20 7036 7206 Tom Buchanan/Lucie Anne Brailsford Brunswick +44(0)20 7404 5959 CHAIRMAN'S STATEMENT Dear Shareholders, The last year has proved to be the most difficult we have experienced for aconsiderable period of time. Group turnover fell by 7% to £246.3 million (2005:£265.7 million) and profit before taxation fell to £15.7 million (2005: £33.7million). This includes a net gain of £3.5 million arising from the sale of ourfreehold warehouse and consolidation of our distribution infrastructure into asingle new facility. Earnings per share fell to 10.2p (2005: 24.1p), or 7.1pexcluding the gain on disposal of property. In cash flow terms the Groupgenerated £15.5 million (2005: £27.7 million) from operating activities duringthe year and also benefited from £6.0 million from the sale of the warehouse,ending the year with £57.0 million in the bank. Based on this, the Board hasproposed that the full year dividend is maintained at the same level as lastyear at 5.0 pence per share. These results are a major disappointment to the Board and we are doing all wecan to reverse the decline. Strong product design has always been the key to ourlong-term success and the performance of our business reflects the strength ofour ranges. In this regard we have faced some challenges over the past fewseasons. Having identified weaknesses in our Summer 2005 ranges we made changesto strengthen the impact of the collections and subsequently saw an improvementin sales performance, however trading remained below our expectations. ForWinter 2005, we increased the levels of variety and fashion in the ranges andbegan to see an improvement in sales performance, principally in the ladies'collections. The process of improving our ranges continues and we believe thatthe Summer 2006 ranges, which are currently in the shops, are another stepforward, witnessed by the high level of positive coverage in the fashion press.This, together with our recent high profile advertising campaign will help usstart to recapture our customers and see a return to growth in both retail andwholesale channels. This recovery is likely to be slow, developing season onseason, as we rebuild confidence in the brand in a highly competitive market. Weremain focused on improving every detail of our business and on maximising ouropportunities. There are areas of our business that are going well. The wholesale business inNorth America saw increased revenue, albeit from a low base, and we expect to beable to continue to grow volumes through the department stores and independentretailers. Our home shopping businesses are developing well and our brandlicence income has again moved ahead with growth in most of our licensees'businesses. Our retail joint ventures in Asia are growing - we now have 30locations across Hong Kong, Japan and China and are looking to grow that further- and their financial performance has improved considerably. We also operate asmall number of other brands, each of which is showing good promise, includingNicole Farhi which, in the autumn, was one of the best performers in its sector. Although it is early in the season I believe that the changes we have made havecreated a good platform for recovery, albeit on a gradual basis and I am hopefulof a more successful new year. This has been a very difficult year for all our staff but morale remains good.We have a talented, dedicated and focused team and I thank them for theirtenacity and hard work. Stephen MarksChairman and Chief Executive13 March 2006 OPERATING REVIEW United Kingdom and EuropeRetail revenue in the year increased by 2% to £113.0 million (2005: £110.6million) with a 12% increase in average selling space offset by a decline inlike-for-like sales of 5%. The trend in like-for-like sales improved during theyear with the decline considerably reduced during the second half of the year.The improvement, while a step in the right direction, was not at the level wehad hoped for, resulting in a need to clear stock at the end of the season. Thisbenefited volumes but reduced the gross margin. We have made changes to our processes to allow more scope for flexibility inbuying during the season by purchasing less in advance, to improve the timing ofthe introduction of new product to the stores and to improve in-storepresentation. In order to encourage customers into stores we have been workingto promote the increased fashionability and desirability of the product in thepress and have launched a significant advertising campaign, using television andcinema to put the brand in the forefront of our customers' minds. During the year we have opened four new French Connection stores and we haveacquired four stores from franchisees. Our new store in Norwich has a newdevelopment of our shopfit concept to bring a more industrial feel to the storesand has worked well in the short period it has been opened. The performance of the Nicole Farhi stores over the year has been particularlygood with strong like-for-like sales growth especially in ladieswear. The mail order business has continued the good progress made over the pastcouple of years. Toast has performed well and has opened its first stand-alonestores in Harrogate and Oxford. Both have traded well and we are looking to openfurther stores during this year. The FCUK buymail business has grown wellthrough an expansion in the size of the catalogue, targeted mailing of a"recruitment" book and careful use of our email address list to drive customersto the website. Great Plains was launched as a mail-order operation during theyear and the reaction has been good. The profitability of the retail division has been affected by the shortfall inturnover, a reduced gross margin due to the need for mark-downs to clear excessstock, the additional costs of the new store space and the ongoing increases inthe core cost base of the existing stores. Looking to the new year, the Wintersale has been continued into February, a few weeks more than last year, in orderto reduce the terminal stock levels. Wholesale revenue fell to £75.4 million (2005: £101.3 million) with a decreasein both forward orders and purchasing in-season. We have seen an improvement inthe ladieswear performance in the Winter season especially in the departmentstores, however, menswear has remained difficult. In Europe, the lowsell-through of product has held back the development that we saw during lastyear, but we have benefited from our new showroom in Milan. The profitability of the wholesale business has been directly affected by theshortfall in volume when compared to last year and, in addition, the margin hasfallen slightly due to the need to clear stock at the end of the season.Overheads have risen slightly due to the new overseas operations and theoverhead costs of two additional small brands in the UK. North AmericaThe slow-down of our retail business has resulted in a reduction in theoperating performance in North America even though we generated good growth inthe wholesale business. Retail revenue increased by 1.0% to $61.6 million (2005: $61.0 million); with a12% increase in average trading space offset by a 10% reduction in like-for-likesales. The new space was made up of an additional nine stores offset by theclosure of two stores and a number of department store concessions in Canada.Translated into Sterling, revenue was up 2.4% to £34.0 million (2005: £33.2million). Wholesale revenue increased by 22.6% to $28.8 million (2005: $23.5 million)driven by continued growth of business through the department stores and anexpansion of the number of specialty store outlets. The sell-through in thedepartment stores has been very good and we will continue to work closely withthese customers to expand the number of their stores that carry our products andto improve the sales densities further. The increased turnover, coupled withhigher margins through higher proportion of full-price sales, enabled theprofitability to increase in the year. Translated into Sterling, revenue hasincreased by 24.2% to £15.9 million (2005: £12.8 million). Rest of the WorldThere has been a significant improvement in the performance of all our jointventure businesses in Asia. In Japan, we have seen high levels of like-for-likesales growth which has enabled the losses to be significantly reduced. In HongKong, we have continued the progress made in the second half of last year andthe business is now profitable. In China, we now have a total of eleven brandedlocations, mainly in the Beijing and Shanghai areas. The initial performance ofthese stores has generally been good and we look to improve performance over thenext year while developing the store portfolio. Overall the financialperformance of the joint ventures has improved and we look to expand the numberof stores considerably over the next two years. Revenue in our Hong Kong wholesale business has grown 3% in the year with thedevelopment by our business partners in Asia. There has been a continuedexpansion of the number of outlets both with stand-alone stores and concessions. Brand licensingThe income from the licensing of our brands has increased to £4.7 million (2005:£4.5 million). The Boots toiletries ranges have continued to perform welldespite increased competition, the development of the shoe ranges has continuedand we have launched a new range of sunglasses. Our worldwide fragrance licenceis drawing to a close, the contribution from which is less than £0.5 million.Royalty income from the licensed countries has also increased with thedevelopment of the Asia market and further stores in Australia. Current trading and future prospectsWe are still in the early days of the season but we believe the changes we havemade are creating a good foundation for a recovery in our retail sales volumes,albeit on a step-by-step basis. The wholesale order books for Summer 2006 in UK/Europe are 25% below this timelast year, following on from the experience seen over the last twelve months.Orders are currently being taken for the Winter 2006 season and, while we haveseen some improvement in the sell-through especially in ladieswear, the orderbooks are behind this time last year. We are working closely with our customersto maximise repeat business during the seasons. In North America, the retail business continues to struggle. We are in theprocess of a complete review of the operation and personnel in order to bringthe business more in line with the performance of wholesale. The wholesale orderbooks continue to grow and are above this time last year and we expect thistrend to continue. Our return to growth will be a slow process dependent on producing distinctive,fashionable, well-made garments on a consistent basis and therefore rebuildingthe confidence of all our customers. We believe that our actions to improve ouroffer and raise awareness, while maintaining our operating standards, willcreate a beneficial cycle of improving confidence, footfall and sales. Neil WilliamsOperations Director13 March 2006 FINANCIAL REVIEW International Financial Reporting StandardsThe financial information shown in the attached accounts has been compiled underInternational Accounting Standards (IAS) and International Financial ReportingStandards (IFRS) and the comparative data for the previous period has beenrestated on a comparable basis. Further details of the impact of the change toIAS can be found at www.frenchconnection.com by following the links to InvestorRelations. We have also taken the opportunity to improve the way in which we report theperformance of each of our business units as shown in Note 2. The Group'sbusinesses are divided amongst three geographic regions based on our three mainmanagement offices in London, New York and Hong Kong. Further, the localbusinesses are divided between the retail channel and the wholesale channel,showing the gross profit and overheads associated with each. These are combinedto give an operating contribution for each geographic area from which the commonoverhead costs associated with that area are deducted. These common overheadscomprise the cost of local management, advertising, finance and accounting.Finally, Group management overheads are treated as central worldwide costs andcomprise the costs of Group management, insurance, IT and legal departments. Thecomparable table has been restated appropriately. OverviewThe results for the year ended 31 January 2006 reflect the significantchallenges encountered in the core retail and wholesale businesses in the UKduring the period described in the Operating Review above. Revenue from bothretail and wholesale channels has declined on a comparable basis and since bothbusiness channels have a high proportion of fixed overhead costs the decline ismagnified at the net profit level. However, the strength of our business model is reflected in our continuedprofitability, albeit at levels below our recent achievements, along with goodcash generation and the closing cash position of £57.0 million (2005: £52.5million). Group trading resultsGroup turnover decreased by 7% compared to last year all of which was due to thepoor sales performance in the UK wholesale division. Total Group gross marginwas marginally lower at 53.4% although this masks greater fluctuations at thesegmental level which are discussed further below. Overheads increased due to a12% increase in average retail space along with increased investment in ourwholesale sales operations and the effects of cost inflation despite savingsmade. Group operating contribution before common overheads and Group management costswas £22.1 million (2005: £46.4 million). Common overheads declined to £9.9million (2005: £11.4 million) largely as a result of a cut-back in marketingexpenditure. Other income represents the net royalty income from licensees and increased to£4.7 million in the year (2005: £4.5 million), with growth spread across most ofthe licensees except Zirh Skin Nutrition whose worldwide fragrance licence isdrawing to a close. Group overheads were constrained, showing a small saving over last year to leavenet operating profit before financing costs of £11.2 million compared with £33.6million in the previous year. Further discussion of the financial performance ineach of the business segments is shown below and operational information isgiven in the Operating Review above. UK/EuropeThe retail division reported a 2% increase in revenue in the year but this wassupported by a 12% increase in average trading space. Four new French Connectionstores were opened, two Toast stores and four locations were acquired from afranchisee to add to the operated store portfolio. Excluding changes to thestore portfolio, the like-for-like sales showed a decline of 5% over the yearbut a decline of less than 1% in the second half of the year. The retail gross margin was affected by the need to have longer periods ofdeeper discounting in order to clear excess inventory resulting in a grossmargin of 62.5%, 1.4% lower than the previous year. Overheads have increased by13%, reflecting the increase in space and also the persistent inflation inunderlying costs. We have seen overall cost inflation in our retail portfolio ofover 3% in the year, including rises of over 6% in rent and 10% in rates.Further, we are expecting to see similar increases in the coming year and whilewe work to restrict cost increases there is little flexibility within these costcategories. The operating contribution for UK/Europe retail was £2.2 million(2005: £10.0 million). We saw a significant reduction in both forward orders and in-season repeats inour wholesale business. Revenue in UK/Europe fell by 26% to £75.4 million (2005:£101.3 million) and with a need to clear excess stocks the gross margin reducedby 2.5% to 37.3%. Overheads for the division increased by £0.9 million to £12.8million, the increase arising from an increase in infrastructure for ourEuropean business and the costs of two new small wholesale businesses; "YMC", amenswear brand and "Scorah Pattullo" which produces high-fashion ladies' shoes.The net operating contribution from UK/Europe wholesale was £15.3 million (2005:£28.4 million). Common overheads in UK/Europe include the costs of advertising, marketing andthe accounting function and amounted to £6.3 million in the year, a 20% decreaseon last year's £7.9 million, mostly arising from a reduction in marketingexpenditure in the second half of the year. Current budgets include allowancefor a full level of advertising in the second half of 2006 and it is thereforenot expected that this saving will be repeated. Other income in the UK/Europe division includes brand licence income from boththird parties and intra-group and amounts to £6.6 million (2005: £6.0 million).The net divisional operating profit is therefore £17.8 million (2005: £36.5million). North AmericaThe retail division in North America also had 12% more trading space on averageover the year with five new locations in the US (offset by one closure) and fournew stand-alone stores in Canada in place of a number of concessions and onestore which have closed. Total retail revenue increased by 2% to £34.0 million(2005: £33.2 million) and on a like-for-like basis revenue fell by 10%. Withthis reduced level of revenue the margin has also suffered, falling 2.1% to62.1%, in line with the performance in UK/Europe. Overheads, driven by theincrease in space including trading space in New York which is more expensivethan the average portfolio, have increased 22% to £22.9 million (2005: £18.8million). In wholesale, we have continued the steady improvement in revenue with a 24%increase to £15.9 million (2005: £12.8 million) and with most of the increasebeing at full-price, the gross margin has also increased, by 2.5% to 37.7%.Overheads at £4.0 million show an increase of 11% (2005: £3.6 million)reflecting both the introduction of a wholesale business in Canada and highercosts associated with a relocation of the warehouse in New York. Net operatingcontribution from wholesale in North America was well ahead at £2.0 million(2005: £0.9 million). Common overheads comprising advertising, accounting and other central supportfunctions for the region totalled £3.6 million (2005: £3.5 million) and theNorth America division operating result was a loss of £3.4 million (2005: lossof £0.1 million). Rest of the WorldOur business in Hong Kong supplies our licensed partners across Asia andAustralia and also acts as a local buying office for the Group. Revenue in theregion increased to £8.0 million (2005: £7.8 million) with increased volumesarising from our joint ventures in Hong Kong and China. At 17.5% (2005: 19.2%)the gross margin reflects the varying supply contracts in place with ourlicensed partners in the region. Each licence is negotiated independently andrevenue to the Group is split between margin on product sales and revenue-basedlicence royalties such that Group income is broadly similar. The decrease in themargin is driven by an increase in the proportion of sales being made tolower-margin licensees. Overheads have increased by £0.2 million to £1.3 million as a result ofincreases in property costs in Hong Kong to give a net operating contributionbefore buying office commission of £0.1 million (2005: £0.4 million). Thebusiness received buying office commission from the French Connection Groupworldwide, amounting to £2.4 million in the year, less than last year andreflecting lower levels of product purchased through the Hong Kong office. Thedivisional operating profit was £2.5 million (2005: £3.1 million). Profit before taxationThe net Group operating profit before financing costs was £11.2 million (2005:£33.6 million). Net interest income of £1.3 million (2005: £1.4 million) wasgenerated in the year with the average funds during the year being slightlylower than the previous period. The Group operating profit for the year was£12.5 million (2005: £35.0 million). In addition the Group realised a net gainof £3.5 million associated with the relocation of the UK warehouses and officesand specifically the sale of the existing retail warehouse in the east end ofLondon. Our joint ventures in Japan, Hong Kong and China have taken a further stepforward and now operate a total of 30 locations. Together, these businessesreported turnover of £12.4 million during the year, half of which is reported inthese accounts as the Group's share of joint ventures' turnover. The Group'sshare of the net operating loss of the businesses was a much improved £0.3million (2005: £1.3 million). Together these items gave rise to a profit before taxation of £15.7 million(2005: £33.7 million) for the year. TaxationThe tax charge for the year was £5.7 million representing 36.3% of profit beforetax, higher than the previous year. The taxable profit arising from the sale ofthe freehold warehouse property has been reduced by capital losses broughtforward, reducing the effective rate on that gain to 17%. It is expected thatthe gain on the disposal will be rolled forward into new assets and thereforethe payment of the tax arising will be deferred. The effective tax rate arising on the profit excluding the gain on disposal was42%. This was higher than previous effective rates due to the impact ofunrelieved losses in the US and the increased proportional impact on taxableprofit of expenditure which is disallowed for tax purposes, being mostlydepreciation on non-qualifying assets. Minority interestThe minority interest represents the share of results attributable to the 25%ownership held by local management in our Canada business and Toast, both ofwhich are profitable and therefore give rise to the minority interest inearnings for the year. Earnings and dividendsNet earnings for the year attributable to shareholders after interest, tax andminority interests was £9.7 million (2005: £23.0 million). Earnings per sharedecreased from 24.1 pence to 10.2 pence per share or 7.1 pence per shareexcluding the exceptional gain. Taking into account the continued cash generation and the gain on disposal ofthe warehouse the Board has recommended a final dividend which will give a fullyear dividend of 5.0 pence per share, in line with the previous year. The final dividend of 3.3 pence per share (2005: 3.8 pence) will, subject toapproval at the Annual General Meeting, be paid on 4 July 2006 to shareholderson the register on 24 March 2006 (ex-dividend date 22 March 2006). InvestmentsTotal capital expenditure in the year was £9.6 million, £6.6 million of whichwas spent on the retail portfolio including the fifteen new stand-alone storesacross the world. The remaining expenditure included our new offices, showroomsand warehouse in London and enhancements to our computer systems. A further £3.1million was invested in the acquisition of four franchise stores and furtherfunding of the joint ventures. Net funds and working capitalNet cash inflow from operations was £24.4 million (2005: £39.9 million) and thesale of our freehold warehouse and the relocation of our warehousing and officesgenerated a net £5.3 million in cash. After payment of tax, dividends and fixedasset investments the closing cash increased by £4.5 million to £57.0 million(2005: £52.5 million). Total working capital at the year end decreased by £2.5 million. This included a£3.5 million or 8% increase in stock driven by the 10% increase in retail spaceat the year end and lower than expected sales volumes. Full provision has beenmade against any inventories which are likely to be sold at lower than theircost. Treasury risk managementThe principal treasury risks to the Group arise from exchange rate and interestrate fluctuations. The Board has approved policies for managing these risks,which are reviewed on a regular basis, including the use of financialinstruments, principally forward foreign exchange contracts. No transactions ofa speculative nature are undertaken. Options are not used. The most significant exposure to foreign exchange fluctuations relates topurchases made in foreign currencies, principally the Hong Kong Dollar. TheGroup's policy is to reduce substantially the risk associated with purchasesdenominated in foreign currencies by using forward fixed rate currency purchasecontracts, taking into account any foreign currency cash flows. There has beenno change since the year end to the major treasury risks faced by the Group orthe Group's approach to the management of these risks. Roy NaismithGroup Finance Director13 March 2006 GROUP INCOME STATEMENT Year ended 31 January 2006 Note £m 2006 £m 2005 £m £m--------------------------------------------------------------------------------- Revenue 2 246.3 265.7 Cost of sales (114.8) (123.2)-------------------------------------------------------------------------------- Gross profit 2 131.5 142.5 Net operating expenses (125.0) (113.4)Other operating income 3 4.7 4.5-------------------------------------------------------------------------------- Operating profit before financing 2 11.2 33.6costs Financial income 1.5 1.5Financial expenses (0.2) (0.1)Net financing costs 1.3 1.4-------------------------------------------------------------------------------- Operating profit 12.5 35.0 Net gain on disposal of property,plant and 3.5 -equipmentShare of loss of joint ventures (0.3) (1.3) ------------------------------------------------------------------------------- Profit before taxation 15.7 33.7 Income tax expense - UK (5.9) (10.6)Income tax credit - overseas 0.2 0.2Total income tax expense (5.7) (10.4) ------------------------------------------------------------------------------- Profit after taxation 10.0 23.3-------------------------------------------------------------------------------- Attributable to: Equity holders of the parent 9.7 23.0Minority interest 0.3 0.3-------------------------------------------------------------------------------- Profit for the period 10.0 23.3 ------------------------------------------------------------------------------- Basic earnings per share 5 10.2p 24.1p-------------------------------------------------------------------------------- Diluted earnings per share 5 10.1p 23.9p-------------------------------------------------------------------------------- GROUP BALANCE SHEET At 31 January 2006 Note 2006 2005 £m £m-------------------------------------------------------------------------------- AssetsNon-current assetsIntangible assets 13.0 12.2Property, plant and equipment 26.7 28.5Investments in joint ventures 3.2 2.5Deferred tax assets 6.5 4.9-------------------------------------------------------------------------------- Total non-current assets 49.4 48.1 ------------------------------------------------------------------------------- Current assetsInventories 47.7 43.4Trade and other receivables 30.1 32.5Cash and cash equivalents 60.9 55.1-------------------------------------------------------------------------------- Total current assets 138.7 131.0 ------------------------------------------------------------------------------- Total assets 188.1 179.1 ------------------------------------------------------------------------------- Non-current liabilitiesFinance leases - 0.1Deferred tax liabilities 1.4 --------------------------------------------------------------------------------- Total non-current liabilities 1.4 0.1-------------------------------------------------------------------------------- Current liabilitiesBank loans and overdraft 3.9 2.6Trade and other payables 51.7 48.3Current tax payable 4.7 7.8-------------------------------------------------------------------------------- Total current liabilities 60.3 58.7-------------------------------------------------------------------------------- Total liabilities 61.7 58.8-------------------------------------------------------------------------------- Net assets 126.4 120.3-------------------------------------------------------------------------------- EquityCalled-up share capital 1.0 1.0Share premium account 9.3 8.7Other reserves 0.2 (0.5)Retained earnings 115.4 110.9-------------------------------------------------------------------------------- Total equity attributable to equity holders 125.9 120.1of the parentMinority interests 0.5 0.2-------------------------------------------------------------------------------- Total equity 126.4 120.3-------------------------------------------------------------------------------- GROUP STATEMENT OF RECOGNISEDINCOME AND EXPENSEYear ended 31 January 2006 £m 2006 £m 2005 £m £m-------------------------------------------------------------------------------- Profit attributable to equity shareholders 9.7 23.0 Minority interest 0.3 0.3 Currency translation differences on foreigncurrency 0.7 (0.5)net investmentsEffective portion of changes in fair value ofcash 0.3 -flow hedgesRecognised in equity 1.0 (0.5) ------------------------------------------------------------------------------- Total income and expense recognised 11.0 22.8 Impact of adoption of IAS32/39 (0.3) - ------------------------------------------------------------------------------- Total income and expense recognised for the year 10.7 22.8 ------------------------------------------------------------------------------- GROUP STATEMENT OF CASH FLOWS Year ended 31 January 2006 Note 2006 2005 £m £m-------------------------------------------------------------------------------- Operating activitiesProfit for the period 10.0 23.3Adjustments for:Depreciation 10.7 9.7Foreign exchange gains - (0.1)Interest income (1.5) (1.4)Interest expense 0.2 0.1Share of loss of joint ventures 0.3 1.3Non-operating gain on property, plant and (3.5) -equipmentOperating loss on property, plant and - 0.2equipmentIncome tax expense 5.7 10.4 ------------------------------------------------------------------------------- Operating profit before changes in workingcapital and provisions 21.9 43.5Increase in inventories (3.5) (1.8)Decrease/(increase) in trade and other 2.4 (3.7)receivablesIncrease in trade and other payables 3.6 1.9 ------------------------------------------------------------------------------- Cash flows from operations 24.4 39.9Interest paid (0.2) (0.1)Taxes paid on income (8.7) (12.1)-------------------------------------------------------------------------------- Cash flows from operating activities 15.5 27.7-------------------------------------------------------------------------------- Investing activitiesInterest received 1.5 1.4Acquisition of joint ventures and subsidiaries (1.0) (3.8)Acquisition of franchises (2.1) -Acquisition of property, plant and equipment (9.6) (9.9)Proceeds from sale of property, plant and 5.3 -equipment-------------------------------------------------------------------------------- Cash flows from investing activities (5.9) (12.3)-------------------------------------------------------------------------------- Financing activitiesProceeds from the issue of share capital 0.6 0.1Repayment of borrowings 6 - (6.8)Payment of finance lease liabilities 6 (0.1) (0.3)Dividends paid (5.2) (3.3)-------------------------------------------------------------------------------- Cash flows from financing activities (4.7) (10.3)-------------------------------------------------------------------------------- Net increase in cash and cashequivalents 7 4.9 5.1Cash and cash equivalents at 1 February 7 52.5 47.4Exchange rate fluctuations on cash 7 (0.4) --------------------------------------------------------------------------------- Cash and cash equivalents at 31 January 7 57.0 52.5-------------------------------------------------------------------------------- NOTES 1 Basis of preparation These financial statements do not constitute statutory accounts of FrenchConnection Group PLC for the year ended 31 January 2006 within the meaning ofSection 240 of the Companies Act 1985, but are derived from those accounts. Thestatutory accounts for 2006, which are being prepared under IFRS as adopted bythe EU will be finalised on the basis of the financial information presented bythe Directors in this preliminary announcement and will be delivered to theRegister of Companies in due course. The comparative figures for the financial year ended 31 January 2005 are not theGroup's statutory accounts for that financial year. Those accounts, which wereprepared under UK Generally Accepted Accounting Practices ("UK GAAP"), have beenreported on by the Company's auditors and delivered to the Registrar ofCompanies. The report of the auditors was unqualified and did not containstatements under Section 237(2) or (3) of the Companies Act 1985. A full list of the UK GAAP accounting policies is provided in the Group'sfinancial statements for the year ended 31 January 2005. A reconciliation oftotal equity and retained profit from UK GAAP to International FinancialReporting Standards ("IFRS") for the comparative periods is available on theCompany's website, www.frenchconnection.com, together with narrative describingthe key differences applicable to the Group. International Financial Reporting Standards EU law (IAS Regulations EC 1606/2002) requires that the consolidated financialstatements of the Group, for the year ended 31 January 2006 be prepared inaccordance with IFRS as adopted by the EU ("adopted IFRS"). The financial statements for the year ended 31 January 2006 have been preparedfor the first time in accordance with adopted IFRS and its interpretationsissued by the International Accounting Standards board (IASB). Implementation of IAS32 and IAS39 The Group has taken the exemption from the requirement to restate comparativeinformation for IAS32 (Financial Instruments: Disclosure and Presentation) andIAS39 (Financial Instruments: Recognition and Measurement) in accordance withIFRS1 (First-time Adoption of International Financial Reporting Standards). The Group has continued to apply UK GAAP in respect of financial instruments forthe 2005 comparative period presented. If IAS32 and IAS39 had been adopted, themarket value of derivative financial instruments would have been recognised onthe face of the balance sheet with the movements accounted for through theincome statement or hedging reserve as appropriate. IAS32 and IAS39 have been implemented with effect from 1 February 2005. 2 Segmental analysis -------------------------------------------------------------------------------------------- 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 (6.3) (3.6) (9.9)costs Other income 6.6 2.4 (4.3) 4.7 ------ --------------------------------- Divisionaloperatingprofit 17.8 (3.4) 2.5 - 16.9 ------ -------------------------------- Groupmanagementoverheads (5.7) Operatingprofit beforefinancingcosts 11.2 ------ -------------------------------------------------------------------------------------------- UK/Europe North America Rest of Intra Total World Group ------------------------------------------------------------------------------------------- 2005 Retail Whole- Total Retail Whole- Total Whole- £m £m £m sale £m £m sale £m sale £m £m £m ----------------------------------------------------------------------------- Revenue 110.6 101.3 211.9 33.2 12.8 46.0 7.8 265.7 ----------------------------------------------------------------------------- Gross profit 70.7 40.3 111.0 21.3 4.5 25.8 1.5 4.2 142.5 Gross margin 63.9% 39.8% 52.4% 64.2% 35.2% 56.1% 19.2% 53.6% Tradingoverheads (60.7) (11.9) (72.6) (18.8) (3.6) (22.4) (1.1) (96.1) ----------------------------------------------------------------------------- Operatingcontribution 10.0 28.4 38.4 2.5 0.9 3.4 0.4 4.2 46.4 --------------- -------------- Commonoverhead (7.9) (3.5) (11.4)costs Other income 6.0 2.7 (4.2) 4.5 ------ -------------------------------- Divisionaloperatingprofit 36.5 (0.1) 3.1 - 39.5 ------ ------------------------ Groupmanagementoverheads (5.9) Operatingprofit beforefinancingcosts 33.6 ------ 3 Other operating income 2006 2005 £m £m-------------------------------------------------------------------------------- Licensing income 4.7 4.5-------------------------------------------------------------------------------- 4 Dividends - equity 2006 Pence 2005 Pence £m per share £m per share-------------------------------------------------------------------------------- Final paid for prior financial year 3.6 3.80p 2.1 2.25pInterim paid for current financial year 1.6 1.70p 1.2 1.20p-------------------------------------------------------------------------------- Total dividends paid during the year 5.2 5.50p 3.3 3.45p ------------------------------------------------------------------------------- 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(2005: 5.00 pence per share). 5 Earnings per share Earnings per share of 10.2p (2005: 24.1p) is based on 95,501,265 shares (2005:95,417,431) being the weighted average number of ordinary shares in issuethroughout the year, and £9.7 million (2005: £23.0 million) being the profitattributable to equity shareholders. Diluted earnings per share of 10.1p (2005:23.9p) is based on 95,936,595 shares (2005: 96,210,974) being the weightedaverage number of ordinary shares adjusted to assume the exercise of dilutiveoptions. The reconciliation to adjusted earnings per share which is based on95,501,265 shares (2005: 95,417,431) is as follows: 2006 Pence 2005 Pence £m per share £m per share--------------------------------------------------------------------------------- Profit attributable to equity 9.7 10.2p 23.0 24.1pshareholdersGain on disposal of property, plant andequipment (2.9) (3.1)p - -post tax--------------------------------------------------------------------------------- Adjusted earnings 6.8 7.1p 23.0 24.1p-------------------------------------------------------------------------------- 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 2006 2005 £m £m-------------------------------------------------------------------------------- Increase in cash 4.9 5.1Cash outflow from finance leases 0.1 0.3Repayment of loan - 6.8-------------------------------------------------------------------------------- Change in net funds from cash flows 5.0 12.2Translation differences (0.4) 0.1New finance leases - (0.6)-------------------------------------------------------------------------------- Movement in net funds 4.6 11.7Net funds at beginning of year 52.2 40.5-------------------------------------------------------------------------------- Net funds at end of year 56.8 52.2-------------------------------------------------------------------------------- 7 Analysis of net funds 1 February Cash Non cash 31 January 2005 flow changes £m 2006 £m £m £m ------------------------------------------------------------------------------- Cash and cash equivalents in thebalance sheet 55.1 5.8 - 60.9Bank overdrafts (2.6) (0.9) (0.4) (3.9)-------------------------------------------------------------------------------- Cash and cash equivalents in thecash flow 52.5 4.9 (0.4) 57.0Finance lease obligations (0.3) 0.1 - (0.2)-------------------------------------------------------------------------------- Net funds 52.2 5.0 (0.4) 56.8-------------------------------------------------------------------------------- 8 Annual report and accounts The financial information set out above does not constitute the Group'sstatutory accounts for the year ended 31 January 2006 and the year ended 31January 2005, but is derived from those accounts. Statutory accounts for theyear ended 31 January 2005 have been delivered to the Register of Companies.Those for the year ended 31 January 2006 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 2006 2005 2004 2003 2002 £m £m £m £m £m ------------------------------------------------------------------------------- Revenue 246.3 265.7 267.9 241.0 225.7-------------------------------------------------------------------------------- Profit before taxation 15.7 33.7 38.1 29.5 22.6-------------------------------------------------------------------------------- Profit attributable to 9.7 23.0 26.2 20.4 15.0shareholders-------------------------------------------------------------------------------- Earnings per share------------------------------------------------------------------------------- Basic 10.2p 24.1p 27.5p 21.5p 15.8p-------------------------------------------------------------------------------- Adjusted 7.1p 24.1p 28.4p 22.5p 16.7p-------------------------------------------------------------------------------- Diluted 10.1p 23.9p 27.2p 21.4p 15.8p-------------------------------------------------------------------------------- Dividends per share 5.00p 5.00p 3.25p 2.40p 1.60p-------------------------------------------------------------------------------- The 2006 and 2005 numbers have been prepared under IFRS. The 2004, 2003 and 2002numbers 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 2005 31 January 2006 Forecast 31 January 2007Retail locations Number '000 sq ft Number '000 sq ft Number '000 sq ft--------------------------------------------------------------------------------- OperatedUK/Europestores 74 235 85 258 86 260OperatedUK/Europeconcessions 30 26 29 24 30 24Operated NorthAmerica stores 31 137 38 160 38 160Operated NorthAmericaconcessions 13 4 1 0.3 1 0.3-------------------------------------------------------------------------------- Total 148 402 153 442 155 444-------------------------------------------------------------------------------- FranchisedUK/Europestores 29 54 26 41 25 40FranchisedNorth Americastores 1 2 1 2 1 2FranchisedMiddle Eaststores 7 10 9 16 9 16Licensed Restof Worldstores 45 86 61 106 72 122Licensed Restof Worldconcessions 23 19 34 30 41 37-------------------------------------------------------------------------------- Total 105 171 131 195 148 217 ------------------------------------------------------------------------------- Total brandedlocations 253 573 284 637 303 661-------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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