Interim Results: 6 month period to 31 July 2020

13 October 2020

FRENCH CONNECTION GROUP PLC

Interim Results for the six-month period ending 31 July 2020

"Majority of Trading Period Impacted by COVID-19 Pandemic"

French Connection Group PLC ("French Connection" or "the Group") today announces results for the six month period ending 31 July 2020.

Highlights:

· Group revenue of £23.9m (2019: £51.0m) down (53.1%) predominantly owing to the impact of the COVID-19 pandemic

· Underlying loss of £(12.2)m compared to £(3.6)m in 2019, driven by the significant decline in sales and resulting additional one-off stock provisions, offset by cost savings across all areas

· Wholesale revenues were £13.8m, down (49.3%) (2019: £27.2m), reflecting the closure of customers' stores in all regions although some deliveries continued to on-line operators

· Retail revenues were £10.1m, down (57.6%) (2019: £23.8m), reflecting both the lockdown period but also the permanent closure of nine retail locations in the first half

· Gross margins were impacted by both the loss of the full price selling period during the lockdown and higher levels of current and older stocks remaining at the period end

· Cost savings were achieved with rent reductions negotiated with landlords, rates and furlough assistance and a reduction in costs across the business

· Closing cash of £5.2m (2019: £10.0m)

· Current trading in line with our expectations

Commenting on the results, Stephen Marks, Chairman and Chief Executive said:

"This has undoubtedly been the most difficult trading period that the Group has ever faced and I would like to thank our staff, both those who have kept the business running and those who have been on furlough, for their ongoing commitment to French Connection. Despite the unprecedented difficulties we continue to face alongside the rest of the High Street, having been able to secure the necessary financing we feel that we are well positioned to navigate an extended period of uncertain consumer demand but also ready to capitalise on any opportunities that may arise especially given the good performance of wholesale, while maintaining a very tight control of costs."

Notes:

1. Key performance indicators for the 26 week trading period are outlined below:

Notes:

1. Underlying results exclude adjusting items and discontinued operations.

2. Constant Currency is calculated translating the half year ending 31 July 2020 at 31 July 2019 rates to remove the impact of exchange rate fluctuations.

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.

CHAIRMAN'S STATEMENT

The timing of the COVID-19 outbreak has had a material impact on our business and therefore our financial performance for the majority of the first half of the year. As previously announced, in line with Government guidelines our store portfolio was closed completely from 23 March until 15 June, with sales only reaching low levels on their reopening. Our store based wholesale customers were similarly impacted in both the UK and USA, although those with online operations were able to continue to trade and saw the benefit of the store closures. Our own ecommerce sites were also able to capitalise on the movement in demand and we achieved a good increase in sales, especially in the more casual styles and homeware.

In light of the situation, we took immediate and decisive action to best manage the significant pressures on the Group's operations and liquidity as a result of the disruption. These included working with many of the Group's key stakeholders including all suppliers and landlords to actively manage both current and future commitments in order to preserve our cash position. As it became clear that the COVID-19 crisis was going to be for a more extended period, we recognised that additional funding would be needed to secure the future of the business and so, as announced in July, we put in place a £15 million working capital facility for a 2 year period, which we expect to be sufficient to cover the Group's cash requirements over that time.

The financial performance in the period is considerably worse than last year given the situation. Group revenue was £23.9m (2019: £51.0m), with a resulting underlying loss of £(12.2)m compared to £(3.6)m in the prior period. This movement is primarily driven by the significant reduction in revenue, additional one-off stock provisions of £3.1m reflecting the higher residual stock levels in the business offset by cost savings across all areas.

Wholesale revenue was £13.8m (2019: £27.2m). The reduction was seen across all regions reflecting the closure of all our customers' stores although some deliveries were maintained to online operators during the period. Again margins were impacted by the higher levels of stock remaining at the end of the period particularly in the USA.

Retail revenue was £10.1m (2019: £23.8m), reflecting both the effects of COVID-19 but also 9 locations closed during the period. Gross margins were impacted by both the loss of the full price selling months during the closure as well as higher levels of current and older stocks. Cost savings were achieved with rent reductions negotiated with landlords, reduced staffing and the stopping of all discretionary spend, in addition to the business rates holiday.

Within the retail division though, reflecting the movement in demand online, our ecommerce sites performed well with sales up 8.1% over the 6 months, even though at the start of the lockdown business dropped off significantly for a number of weeks. We have made good progress in developing the functionality and marketing of the site and have seen growth continue into the second half.

We generated licence income of £1.5m during the period (2019: £2.7m). Our licensees have seen a similar impact on their businesses as ourselves, although we have seen a very strong performance with DFS since the reopening of their stores in May and this continues.

Since the French Connection stores reopened, we had seen a gradual sales build from a low base, however since the recent revision and further lockdown guidance, this has reversed slightly. Although the finalisation of the winter order books was disrupted by the lockdown, the wholesale customers are growing in confidence in the UK, with their intake of winter goods improving and reorders running ahead of last year driven by more casual product. We have also had a very good reaction from customers to the Summer 21 collection. In the USA there appears to be more caution from the department stores at this time with winter goods only really starting to flow now. As we stand, we are trading in line with our expectations at the time of securing our financing.

Given the overall continued uncertainty about how trade will be over the next few months and particularly with the biggest trading period of the year still to come, it is imperative that we focus our attention on cost control and preserving cash. While looking at all aspects of our cost base, this is being done in light of what the business is likely to need once we come through these unprecedented times and what will be needed in terms of infrastructure and resource at that time.

This has undoubtedly been the most difficult trading period that the Group has ever faced and I would like to thank our staff, both those who have kept the business running and those who have been on furlough, for their ongoing commitment to the business. Our priority through this time has been the safety and wellbeing of all our staff, customers and business partners. As we have been able to secure the financing required, we believe that we are well positioned to navigate an extended period of uncertain consumer demand but also ready to capitalise on any opportunities that may arise especially given the good performance of wholesale, while maintaining a very tight control of costs.

Stephen Marks

Chairman and Chief Executive

13 October 2020

Notes:

1. Underlying results excludes adjusting items and discontinued operations.

2. Constant Currency is calculated translating the half year ending 31 July 2020 at 31 July 2019 rates to remove the impact of exchange rate fluctuations.

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

Financial results overview

As we announced on 10 March 2020 in our full year results for the year-ended January 2020, we were in the process of securing additional funding to facilitate the future trading of the Group. On 24 July 2020 the Group secured a £15 million asset based working capital facility with Hilco Capital for the next 2 years, which we expect is sufficient to cover the Company's cash requirements, based on the most likely worst case of future trade.

The Company will continue to tightly manage the cost base over the coming months and await better visibility on the speed of the recovery in demand across the different business channels and territories. Although the stores have reopened with appropriate increased hygiene and social distancing measures in place to keep colleagues and customers safe, it is still too early to predict how quickly and to what extent store footfall and therefore sales will recover. This will also impact the rate of improvement within the wholesale channel.

Given the Company's new liquidity, together with the actions being taken to optimise sales, tightly manage costs and preserve cash, the Board is confident that the Company is still well positioned to navigate an extended period of uncertain consumer demand.

These half year results cover the six month period to 31 July 2020. This period was significantly impacted by COVID-19 and the lockdown restrictions imposed during this period, both in the UK and globally. Full details of the operational impact on the business are highlighted in Note 8 'COVID-19' in these half-year statements.

The first half generated an underlying operating loss of £(12.2)m (2019: £(3.6)m). The underlying result excludes adjusting items and discontinued operations of £1.0m (2019: £1.1m) relating to store disposal and refinancing costs. Discontinued operations include the closure of both our Chinese and Hong Kong joint venture operations in the previous year. Total operating loss for the six months to July 2020 was £(13.2)m (2019: £(4.7)m).

The impact of COVID-19 in the first half of the year has affected the results of all of our business channels. Our retail stores were closed from late March to mid-June and our wholesale customers, in particular, the 'bricks and mortar' customers have been similarly impacted. However, our ecommerce business performed well with increased year-on-year sales and our major wholesale 'pure play' customers and others with good online capacity have continued to trade strongly. Our licensing channel has also been impacted although DFS revenues have recovered strongly, exceeding all expectations.

Overall we believe that due to the COVID-19 lock down we suffered a £22.2m revenue impact and a £9.0m net profit impact with poor trading partly offset by reduced costs and Government support.

Revenue overview

Total H1 2020 revenue of £23.9m was 53.1% (53.2% at constant currency) lower than the previous period (2019: £51.0m). Retail revenue declined by 57.6% (57.6% at constant currency) to £10.1m (2019: £23.8m) with both UK/Europe and North America sales significantly impacted by COVID-19 store lockdowns during the majority of H1. The decline in retail revenue was mitigated by increased ecommerce sales which constituted 56.4% (2019: 22.3%) of total retail sales. Wholesale revenue reduced by 49.3% (49.4% at constant currency) to £13.8m (2019: £27.2m).

Gross margin

Composite gross margin of 15.1% was significantly lower than the previous period 42.7% reflecting the lost full price selling period, increased clearance sales and additional stock provisioning relating to unsold product at the end of H1. These one off adjustments to stock provisions due to COVID-19 amounted to £3.1m in total, bringing the margin down from 28.1% to that reported of 18.8% retail and 12.3% wholesale. (comparative period margins of 52.5% and 34.2% respectively).

Wholesale

Wholesale revenue decreased with sales of £13.8m, down £13.4m (49.3%) on last year (49.4% at constant currency). The impact of COVID-19, particularly on our 'bricks and mortar' wholesale customers, has resulted in declines in all geographic revenues with decrease in UK/Europe to £6.8m (2019: £15.1m), North America to £6.4m (2019: £10.9m) and the Rest of World to £0.6m (2019: £1.2m). Group wholesale margin would have been 21.9% but with the impact of additional half year stock provisions in relation to unsold Spring product, this was reduced to 12.3% (2019: 34.2%) Underlying wholesale performance in the first half was a loss of £(1.3)m (2019: profit of £4.8m).

FINANCIAL REVIEW (continued)

Retail

Group retail revenue of £10.1m was 57.6% lower than the comparative period (2019: £23.8m) (57.6% lower at constant currency) principally due to the closure of all stores from late March to mid-June as a result of COVID-19 lockdown restrictions. Four non-contributing stores including one outlet were closed during the last six months, together with five concessions. Over the past 12 months we have closed 9 non-contributory stores and 9 concessions. We continue to review each store depending upon circumstances and opportunities available to us.

Retail gross margins of 18.8% (2019: 52.5%) were significantly impacted by increased half-year stock provisioning with regards to residual Spring stock as well as additional online promotional activity to remain competitive and increased Spring product sell through as a result of store lockdown closures.

Ecommerce revenue as a proportion of Group Retail revenue increased to 56.4% (2019: 22.3%) as a direct result of the store closures but also increased sales. Mobile comprises 66.4% of ecommerce traffic (2019: 61.3%) and 54.0% of transactions (2019: 46.6%) as we continue to focus on and develop our CRM capability and targeted social media advertising.

Underlying retail loss in the six months increased to £(7.5)m (2019: £(5.2)m). The result has been supported by a reduction in the retail cost base arising from government initiatives including employment furlough schemes and the business rates holiday. We have also been in active discussions with landlords regarding rent payment holidays and discounts together with an extension of existing payment terms.

Geographical analysis

The geographical revenue analysis highlights the UK/Europe proportion of sales decreasing to 67.0% (2019: 72.5%) driven by the continued strong performance of the US wholesale 'department store' business increasing the North America share of global revenue to 30.5% (2019: 25.1 %). Rest of World revenue remains similar at 2.5% (2019: 2.4%).

The impact of COVID-19 has resulted in a decline in all geographic regions; UK/Europe loss increasing to £(7.2)m (2019: £(1.5)m), North America generating a loss of £(1.6)m (2019: profit of £1.4m) and the Rest of World contributing a loss of £(0.5)m (2019: £(0.4)m).

Licensing income

Licensing income of £1.5m generated during the first half fell by 44.4% (2019: £2.7m) as revenues from the majority of licensees were impacted by COVID-19. However, DFS orders continue to grow year-on-year with branded French Connection furniture sales performing well. Due to delivery lead times the strong recovery in DFS orders is expected to be seen in the H2 performance.

Operating expenses

Underlying Group operating expenses of £16.7m were 38.8% lower than last year (2019: £27.3m). A large proportion of these savings have arisen from store closures during lockdown including negotiated landlord rent discounts as well as local government rates holidays and salary furlough schemes. We continue to focus on cost control and efficiency savings through H2. Total Group operating expenses, including adjusting items and discontinued operations, were £17.7m (2019: £28.3m).

Adjusting items and discontinued operations

Adjusting items and discontinued operations of £1.0m (2019: £1.1m) have been recognised in the period. Adjusting items include £0.4m of store disposal and dilapidation costs and £0.5m of refinancing costs in relation to securing the working capital facility. Discontinued operations in the prior period relate to the closure of our Asian joint venture operation.

Balance sheet

The Group balance sheet at 31 July 2020 includes net assets of £16.2m (2019: £33.4m) inclusive of closing cash of £5.2m (2019: £10.0m). The working capital facility was secured prior to the half-year end, but first utilised in the second half, but so far only at low levels. Inventories reduced by 20.7% to £26.0m (2019: £32.8m) largely reflecting increased stock provisioning with regards to excess Spring stock at the end of July. However, concerted effort has been made to reduce the forthcoming Winter season buy and to delay a number of Spring 20 lines to Spring 21 where appropriate. Trade and other receivables have reduced by 28.8% to £15.3m (2019: £21.5m) as the reduction in wholesale deliveries through lockdown has resulted in less receivable. Trade and other payables have remained largely flat at £25.3m (2019: £26.4m) despite the reduction in Winter inventory as we have tightly managed our cost expenditure and closely worked with our landlords and product suppliers to extend payment terms.

FINANCIAL REVIEW (continued)

Cash flow

Cash flows from operating activities were an inflow of £3.7m (2019: £1.1m); the increase being reflective of tightly managed working capital during the first six months of the year, in particular, agreed supplier payment extension terms and a related increase in trade payables year-on-year.

Store closure costs of £0.4m (2019: £0.9m) were incurred relating to the closure of four stores in the first half. We continue to target the closure of non-contributing stores and expect more to close in the second half. Refinancing costs of £0.5m were expensed relating to the working capital facility secured.

Taxation

The tax charge for the half was £Nil (2019: £Nil). Deferred tax assets of £4.5m on the balance sheet will be reviewed at the year-end.

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 an interim dividend. The Board intend to keep the shareholder distribution policy under close review during the year.

Going concern

The Annual Report for the year-ended January 2020 indicated that, due to the impact of COVID-19 and uncertainty existing whether funding could be secured before existing cash resources were eroded, material uncertainty existed that cast significant doubt on the Group's ability to continue as a going concern. However, on 24 July, the Group put in place a £15 million asset based working capital facility with Hilco Capital for the next 2 years, which is expected to be sufficient to cover the Company's cash requirements, based on its current best worst case expectations of future trade. The Board has therefore concluded that it is appropriate to prepare the Group financial statements on a going concern basis.

Principal risks and uncertainties

The principal risks and uncertainties were outlined in the Director's Report within the 2020 Annual Report and remain unchanged. These are described in Note 9 to these financial statements.

Related party transactions

There have been no additional related party transactions to those disclosed in the Group's Annual Report and Accounts for the year ended 31 January 2020.

By order of the Board

Lee Williams

Chief Financial Officer

13 October 2020

Notes:

1. Underlying results excludes adjusting items and discontinued operations.

2. Constant Currency is calculated translating the half year ending 31 July 2020 at 31 July 2019 rates to remove the impact of exchange rate fluctuations.

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.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF-YEARLY FINANCIAL REPORT

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

· the interim management report includes a fair review of the information required by:

(a) DTR rule 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR rule 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 * The comparative statement has been restated re-presenting continuing and discontinued operations.

** Adjusting items (Note 3). Discontinued operations (Note 2). 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(continued)

* The comparative statement has been restated re-presenting continuing and discontinued operations.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE HALF-YEAR STATEMENT

1. Segment revenue and results 

Geographical information

* comparative statement has been restated re-presenting continuing and discontinued operations.

** excludes adjusting items and discontinued operationsNOTES TO THE HALF-YEAR STATEMENT

2. Discontinued operations

In the prior year, the Group closed its entire joint venture operation in Asia. The closure of all of the eleven retail stores in China was completed by October 2019 and similarly the closure of all of the three retail stores in Hong Kong was completed by August 2019. The division was not classified as discontinued operations in the prior comparative six months ended 31 July 2019 and therefore the comparative statement of comprehensive income has been restated to highlight the discontinued operations separately from continuing operations. The closure of the Asian joint venture operation generated a total loss in the prior year of £(0.1)m. The division is reported within the Rest of the World geographical segment.

NOTES TO THE HALF-YEAR STATEMENT

3. Loss before taxation

Provisions for bad debts, net of VAT recoverable, of £0.1m (2019: £0.6m) have been expensed in the period relating to unpaid contractual debt.

Store disposal costs of £0.4m (2019: £0.4m) have been expensed in the current period relating to UK/Europe store closures and dilapidations.

Other professional fees of £0.5m relate to refinancing costs expensed with regards to securing working capital funding for the Group. Prior year fees of £0.4m were in relation to the conclusion of the strategic review.

4. Other operating income

NOTES TO THE HALF-YEAR STATEMENT

5. Losses per share

Basic and diluted losses per share are calculated on the following weighted average number of ordinary shares during the period.

Basic and diluted losses per share of 13.6 pence per share (2019: losses of 5.0 pence) is based on losses of £13.1m (2019: losses of £4.8m) attributable to equity shareholders.

On continuing operations the basic losses per share of 13.6 pence per share (2019: losses of 4.9 pence*) is based on losses of £13.1m (2019: losses of £4.7m*) attributable to equity shareholders.

On discontinued operations basic losses per share of £Nil pence per share (2019: losses of 0.1 pence*) is based on losses of £Nil (2019: losses of £0.1m*) attributable to equity shareholders.

The reconciliation from basic and diluted losses per share to adjusted losses per share is as follows:

* comparative has been restated reflecting the re-presentation of discontinued operations in the prior year Income Statement.

6. Net (debt)/funds

NOTES TO THE HALF-YEAR STATEMENT

7. Provisions

Current year provision relates to future dilapidation costs with regards to contractual obligations to reinstate stores to their original condition. The associated costs are forecast to be incurred over the remaining lease period of the respective stores.

In the prior year, provisions were recorded to reflect the estimated committed closure costs of identified underperforming retail stores including onerous leases whereby the future contractual obligations exceeded the forecast economic benefits. Onerous lease provision was reclassified to the right of use asset on IFRS 16 transition.

NOTES TO THE HALF-YEAR STATEMENT

8. COVID-19

On 11 March 2020, the World Health Organization declared COVID-19 a pandemic. In line with Government advice all French Connection head office staff were encouraged to work from home where this was possible, from 18 March 2020. Our retail stores were closed on Sunday 22 March 2020 and our concessions were closed on Monday 23 March 2020. These closures were not limited to the UK. All our stores and concessions in Ireland, the Netherlands, Spain, Portugal, France and the USA were closed and our operations in the USA, Hong Kong, India, Turkey and Portugal were all restricted by national government measures to contain the Coronavirus (COVID-19) virus.

These closures and restrictions, together with the squeeze on our wholesale business from customers who were in a challenging financial position, led to a drastic reduction in our daily cash income in a dramatically short period of time. The economic impact of this global health crisis on French Connection, at a time when we were focused on doing all we could to return our business to a sustainable level of profitability, resulted in some significant decisions to secure the financial stability of the business.

From 24 March 2020, we asked all store and concession staff to accept the "furloughing" of their employment at a reduced level of pay so that we could sign up to the UK Coronavirus Job Retention Scheme and implemented similar measures in our retail operations around the world.

In addition, from 7 April 2020, we asked those head office staff, both in the UK and globally, who had a significant reduction in their regular work load either due to the nature of their role, or because they were unable to perform their role effectively remotely to accept the "furloughing" of their employment and a reduced level of pay.

Our global retail outlets were closed from the end of March and our retail revenues effectively ceased. Our ecommerce business continued to operate, initially at reduced levels to those before the outbreak although with online sales significantly up. Our wholesale customers, in particular, the 'bricks and mortar' customers were in a similar position and revenues significantly declined. However, the impact was mitigated by our large wholesale 'pure play' customer base which continued to trade.

We worked hard planning for the stores to re-open ensuring they did so safely and in line with all Government guidance. The majority of the stores opened from mid-June and we ensured that our customers and colleagues were able to shop and work confidently in a safe and healthy environment. We still look forward to returning to more normal levels of trade as the situation evolves, although we do not expect this for some time to come.

As a direct consequence of the above, we enacted some of the following to safeguard the continued future of the Company and ensure that the business remains a going concern.

- furloughing of all global retail staff and a substantial proportion of global head office employees whose workload had been significantly impacted. We registered for applicable national schemes to enable us to recoup employment salaries and taxes where applicable.

- liaising with our retail and head office landlords with regards to the attainment of rent payment holidays. We are in continued discussions about the payment arrangements of future rent quarter payments and the settlement profile of these deferred amounts.

- discussions with product suppliers regarding renegotiation of existing payment terms and agreed reductions in future Winter orders in anticipation of reduced demand in the second half of the year.

- dialogue with key wholesale customers, including agreement on early payment settlement discounts to ensure continued wholesale revenue cash income.

- correspondence with the relevant government authorities in order to defer any due local or national taxes including business rates, duty, employment and VAT related taxes.

NOTES TO THE HALF-YEAR STATEMENT

8. COVID-19 (continued)

All of the above factors have had a significant impact on the short-term cash income stream of the business. Internally we are focused on a '13-week' rolling cash flow and are reviewing and revising this on a daily basis as we continue to have evolving discussions with key customers and suppliers as well as monitoring ever developing government initiatives. We are also reviewing the longer term cash needs of the business over an 18 month period stress tested under various recovery scenarios post COVID-19 to ensure that there is ample opportunity for the business to continue trading once the initial lock down has ceased. We are taking advantage of all Governmental schemes where possible to enable the business to continue as a Going Concern.

In the light of the Company's current cash position and the continued expected weak trading environment, we were in active discussions with a number of potential funding partners. On 24 July the Group put in place a £15 million working capital facility with Hilco Capital for the next 2 years, which it expects will be sufficient to cover the Company's cash requirements, based on its current conservative expectations of future trade.

The Company will continue to tightly manage its cost base over the coming months and we await better visibility on the speed of the recovery of demand across its different business channels and territories. Although the stores have reopened, with appropriate increased hygiene and social distancing measures in place to keep colleagues and customers safe, it is too early to predict how quickly and to what extent store footfall and therefore sales will recover. This will also impact the rate of improvement within the wholesale channel.

Given the Company's new liquidity, together with the actions being taken to optimise sales, tightly manage costs and preserve cash, the Board is confident that the Company is well positioned to navigate an extended period of uncertain consumer demand.

NOTES TO THE HALF-YEAR STATEMENT

9. Statutory accounts and basis of preparation of half-year financial statements

Reporting entity

French Connection Group PLC (the "Company") is a company domiciled in the United Kingdom, whose shares are publicly traded on the London Stock Exchange. These financial statements are presented in millions of pounds sterling rounded to the nearest one decimal place. These condensed consolidated half-year financial statements of the Company as at and for the six months ended 31 July 2020 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interests in joint ventures.

The consolidated financial statements of the Group as at and for the year ended 31 January 2020 are available upon request from the Company's registered office at First Floor, Centro One, 39 Plender Street, London NW1 0DT or can be found on the Group website www.frenchconnection.com.

Principal activities

The principal activity of the Group is the international retailing and wholesaling of branded fashion clothing and accessories and the licensing of its brands.

Statement of compliance

These condensed consolidated half-year financial statements have been prepared in accordance with the requirements of IAS 34 'Interim Financial Reporting' as adopted by the EU. As required by the Disclosure and Transparency Rules ("the DTR") of the Financial Conduct Authority, the condensed consolidated half-year financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 January 2020, which were prepared in accordance with IFRS as adopted by the EU.

These condensed consolidated half-year financial statements have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information. The comparative figures for the year ended 31 January 2020 are not the Company's statutory accounts for that period. Those accounts have been reported on by the Company's auditors and have been delivered to the Registrar of Companies. The report of the auditors was (i) unqualified and (ii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. However the report did include reference to material uncertainty that may cast significant doubt on the Group and Parent Company's ability to continue as a going concern due to the impact of COVID-19 on the sector in which the Group operates. The audit opinion was not modified in respect of this matter.

The Board of Directors approved the condensed consolidated half-year financial statements on 13 October 2020.

Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated half-year financial statements are the same as those that applied to the consolidated financial statements of the Group for the year ended 31 January 2020.

Key sources of estimation uncertainty

In applying the accounting policies, management has made appropriate estimates in many areas, and the actual outcome may differ from those calculated. The key sources of estimation uncertainty at the balance sheet date were the same as those that applied to the consolidated financial statements of the Group for the year ended 31 January 2020.

Principal risks and uncertainties

Refer to Note 8 for 'COVID-19' impact.

Like all retailers we are susceptible to volatility in the propensity of consumers to spend, which is affected by macro-economic issues. As a wholesaler, we also face the risk of default from our customers and manage this through active relationship management by our dedicated customer accounts team.

The Group maintains a positive net cash balance throughout the year and we are conscious to manage the Group's working capital effectively.

The Group's approach to the management of risks was the same as that which applied to the consolidated financial statements of the Group for the year ended 31 January 2020. The Board confirms that there are ongoing procedures in place for identifying, evaluating and managing significant risks faced by the Group. There has been no change since the year end to the major risks faced by the Group.

NOTES TO THE HALF-YEAR STATEMENT

9. Statutory accounts and basis of preparation of half-year financial statements (continued)

Related party transactions

In the six months to 31 July 2020, there were no material changes in related parties nor any related party transactions. The Group's related party transactions and relationships were disclosed in the Notes to the Annual Report for the year ended 31 January 2020. All transactions with related parties are conducted on an arm's length basis and in accordance with normal business terms. Transactions between related parties that are Group subsidiaries are eliminated on consolidation.

Going concern

The Group has cash resources, ending the half-year with £5.2m and with a minimum Group cash balance during the period of £3.5m. Following the half-year end, on 24 July the Group put in place a £15 million working capital facility with Hilco Capital for the next 2 years, which it expects will be sufficient to cover the Company's cash requirements, based on its current conservative expectations of future trade.

Having reviewed the cash forecasts and the sources of cash funding available to the Group, the Board has concluded that the Group has a reasonable expectation to continue in operational existence for the foreseeable future. For this reason, the Board continues to adopt the going concern basis in preparing the accounts. 

NOTES TO THE HALF-YEAR STATEMENT

10. Retail locations