Interim Results

17th Sep 2009 07:00



17th September 2009

FRENCH CONNECTION GROUP PLC

Half-Year Statement

for the six months ended 31 July 2009

French Connection Group PLC today announces its interim results for the six months ended 

31 July 2009.

Turnover increased 4% to £116.9 million (2008: £112.4 million) with the consolidation of our Japan business and new UK/Europe sites offset by declines in wholesale turnover;

Like-for-like sales in UK/Europe grew by 2% driven by a resilient performance from French Connection ladies' wear and e-commerce;

Gross margin was 50.8% compared to 51.8% previously, primarily affected by the weakness of Sterling;

Underlying savings of 9% were achieved in the controllable cost base. Reported operating expenses increased as a result of the addition of the Japan business and new retail locations in UK/Europe;

The Group loss before taxation was £12.8 million (compared to £5.4 million in the comparable period excluding £1.9 million gain on disposal of leased property);

Balance sheet remains strong with no borrowings, closing net cash of £23.7 million and tightly controlled inventory.

Stephen Marks, Chairman, commented on the results:

"Following on from the second half of last year, our business continues to be severely affected by difficult retail environments in all of our markets around the world. In addition to the underlying trading issues we have faced over recent periods, this has had a severe impact on our financial performance during the first six months of the year. Both turnover and gross margin have been weak and although we have made substantial savings in operating expenses, the trading result has declined significantly compared with last year. The core business continues to show encouraging development with continuing growth in French Connection ladies' wear."

"In the light of the trading conditions experienced over the past year the Board has been engaged in a strategic review of all of our businesses with a view to enhancing both profitability and cash generation. The review is focused on the international activities of the Group, loss making business segments and central overheads. Initial results from the review have included the closure of our Northern European retail operations and a reduction in head office staffing. It is our intention to implement further measures over the next six months."

"Looking to the second half of the financial year we are aiming to achieve a small improvement on last year's operating result from our current operations while also making the strategic changes necessary to stem the recent losses."

Enquiries:

Stephen Marks/Neil Williams/Roy Naismith	French Connection	+44(0)20 7036 7063
Tom Buchanan/Deborah Spencer	Brunswick	+44(0)20 7404 5959

  CHAIRMAN'S STATEMENT

Dear Shareholders,

Following on from the second half of last year, our business continues to be severely affected by difficult retail environments in all of our markets around the world. In addition to the underlying trading issues we have faced over recent periods, this has had a severe impact on our financial performance during the first six months of the year. Both turnover and gross margin have been weak and although we have made considerable savings in operating expenses, the trading result has declined significantly compared with last year. 

In the six months to 31 July 2009, Group revenue was £116.9 million, a 4% increase over the equivalent period last year. Growth generated by our additional retail locations, most notably from the inclusion of our stores in Japan, and like-for-like growth in the UK was offset by declines in the wholesale businesses.

The Group gross margin at 50.8% was 1.0% below last year, affected by increases in the Sterling cost of product bought in Euros and Dollars and the level of discounting applied in the period, particularly in North America.

Group operating expenses were £8.2 million higher in the period. Increases in our costs included £12.2 million associated with new retail space (including the Japan business), the effect of exchange rates on overseas costs translated into Sterling and cyclical increases in rents and rates. Excluding these items the controllable operating expenses were reduced by £4.0 million in the period as a result of our efforts to reduce the cost base.

The operating loss for the period was £12.9 million. In the comparable period of the previous year the operating loss was £6.0 million, before inclusion of the benefit of gains on the disposal of lease interests amounting to £1.9 million. The results for the period include six months of losses in our Japan business which was acquired in July 2008 and therefore was included in the comparative period for only one month. This had the effect of increasing the reported loss by £1.6 million. The overall loss in Sterling terms was exacerbated by a considerably less favourable exchange rate, increasing both the cost of sales (by £2.0 million) and the Sterling equivalent of overseas losses (by £0.8 million). Notwithstanding this, trading in the period and the operating result was weaker than we expected.

At 31 July 2009 net cash amounted to £23.7 million (2008: £34.8 million). Inventory levels of both old and current season products have been reduced during the period, with the clearances having a negative impact on the margin achieved.

Within our core businesses there continues to be encouraging elements of progress. Overall like-for-like sales in UK/Europe increased 2% in the period. Once again, the core French Connection ladies' wear ranges performed well during the period under review, reporting continued sales growth on a like-for-like basis within our retail business and Toast has had another very strong season. We continue to work to build on this momentum and to replicate this success in our men's wear business.

In North America like-for-like retail sales declined by 3% despite increased promotional discounting targeted at clearing excess inventory early in the period. The North America market continues to be very difficult with little expectation of an improvement in the short term.

Our wholesale customers also continue to be affected by the poor state of retail markets resulting in declines in forward orders and in-season purchasing in all of our markets.

  

In the light of the trading conditions experienced over the past year the Board has been engaged in a strategic review of all of our businesses with a view to enhancing both profitability and cash generation in these difficult times. The review is focused on the international activities of the Group, loss making business segments and central overheads. Initial results from the review have included the closure of our Northern European retail operations and a reduction in head office staffing. It is our intention to implement further measures over the next six months.

Looking to the second half of the financial year we are targeting to achieve a small improvement on last year's operating result from our current operations while also making the strategic changes necessary to stem the recent losses.

Stephen Marks

Chairman and Chief Executive

17 September 2009

  BUSINESS REVIEW

Operating segments

Six months to 31 July 2009	UK/Europe			North America				Rest of the World			Intra Group	Total
	Retail	Whole- sale	Total	Retail	Whole- sale	Total		Retail	Whole- sale	Total
	£m	£m	£m	£m	£m	£m		£m	£m	£m	£m	£m
Revenue	59.8	18.8	78.6	17.4	8.5	25.9		5.9	6.5	12.4		116.9
Gross profit	35.8	4.7	40.5	9.1	2.5	11.6		4.0	1.4	5.4	1.9	59.4
Gross margin	59.9%	25.0%	51.5%	52.3%	29.4%	44.8%		67.8%	21.5%	43.5%		50.8%
Trading expenses	(41.6)	(5.1)	(46.7)	(11.8)	(1.8)	(13.6)		(5.7)	(0.8)	(6.5)		(66.8)
Operating contribution	(5.8)	(0.4)	(6.2)	(2.7)	0.7	(2.0)		(1.7)	0.6	(1.1)	1.9	(7.4)
Common overhead costs			(2.6)			(1.8)						(4.4)
Licensing income			2.4							1.0	(1.9)	1.5
Divisional operating loss			(6.4)			(3.8)				(0.1)	-	(10.3)
Group management overheads												(2.6)
Operating loss before financing costs												(12.9)
Net financing income												0.1
Operating loss												(12.8)
Share of losses of joint ventures												-
Loss before taxation												(12.8)

Six months to 31 July 2008	UK/Europe			North America			Rest of the World			Intra Group	Total
	Retail	Whole- sale	Total	Retail	Whole- sale	Total	Retail	Whole- sale	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue	55.5	24.1	79.6	15.3	8.8	24.1	1.1	7.6	8.7		112.4
Gross profit	35.4	7.0	42.4	9.0	3.1	12.1	0.6	1.7	2.3	1.4	58.2
Gross margin	63.8%	29.0%	53.3%	58.8%	35.2%	50.2%	54.5%	22.4%	26.4%		51.8%
Trading expenses	(38.2)	(6.2)	(44.4)	(10.5)	(1.7)	(12.2)	(0.7)	(0.7)	(1.4)		(58.0)
Operating contribution	(2.8)	0.8	(2.0)	(1.5)	1.4	(0.1)	(0.1)	1.0	0.9	1.4	0.2
Common overhead costs			(3.0)			(1.9)					(4.9)
Licensing income			2.0						0.8	(1.4)	1.4
Gain on disposal			0.6			1.3					1.9
Divisional operating (loss)/profit			(2.4)			(0.7)			1.7	-	(1.4)
Group management overheads											(2.7)
Operating loss before financing costs											(4.1)
Net financing income											0.8
Operating loss											(3.3)
Share of losses of joint ventures											(0.2)
Loss before taxation											(3.5)

  Overview of Group results

In the six months to 31 July 2009, Group revenue was £116.9 million, a £4.5 million or 4% increase over the equivalent period last year. Increases were generated by like-for-like growth in the UK/Europe retail division of £1.0 million, a net increase in retail space in UK/Europe of £2.9 million, the inclusion of the Japan business for the whole period of £4.8 million and the effect of translation into Sterling of our overseas operations at significantly lower exchange rates of £7.9 million. These increases were offset by decreases in our wholesale businesses totalling £9.8 million (including further transfers of business to the retail channel) and declines in North America retail of £2.3 million.

The Group gross margin at 50.8% was 1.0% below last year. The increase in proportion of Group sales being delivered from the higher-margin retail divisions has contributed an increase in the mixed Group margin of 270 basis points. This has been offset by a 170 basis point decrease from the effect of the weakness of Sterling on the cost of product bought in Euros and Dollars. The remaining decrease of 200 basis points was caused by higher levels of discounting particularly in North America.

Group operating expenses were £8.2 million higher in the period, including a full period of trading of our Japan business amounting to £5.0 million and the exaggerating effect of the change in exchange rates on overseas costs amounting to £4.1 million. In the UK/Europe retail division, changes in the retail portfolio have given rise to a net increase in operating expenses of £1.5 million and cyclical increases in rents and rates have added a further £1.3 million to the cost base. As part of our cost-cutting initiatives, head-count at our head offices has been reduced and the one-off cost of these changes amounted to £0.3 million. After taking account of these increases in costs, the remaining decrease in operating expenses amounted to £4.0 million. This has been generated by restrictions in advertising budgets, reductions in head office staffing and other targeted cost savings across all areas of the business. The savings achieved represent 9% of the controllable operating expenses.

Licence income increased from £1.4 million to £1.5 million with continued growth from our eyewear licensee.

The operating loss before financing costs for the period was £12.9 million. In the comparable period of the previous year the operating loss was £6.0 million, before inclusion of the benefit of gains on the disposal of lease interests amounting to £1.9 million.

Further analysis of the trading results by division for the first six months of the year and expectations for the second half of the year is set out below.

United Kingdom and Europe - Retail

Retail revenue in UK/Europe was 8% ahead at £59.8 million (2008: £55.5 million). On a like-for-like basis, sales were 2% higher compared to the same period last year with French Connection ladies' wear again performing well. The remaining increase in the retail turnover derives from a net 3% increase in space traded compared to the same period last year, largely from new department store concessions over the past 12 months.

Eleven additional concessions within House of Fraser department stores were opened during the six-month period, building on the success of the existing locations opened during last year. Conversely nine locations including all of our stores and concessions in Northern Europe were closed towards the end the period. We will continue to review our retail portfolio and where possible we will close stores which do not make an appropriate contribution.

The gross margin achieved in the UK/Europe retail locations was 59.9% compared to 63.8% in the comparable period last year. The decrease in the gross margin arose mainly from the impact of weak exchange rates on the Sterling cost of products bought in foreign currencies. The margin has also been adversely affected by additional outlet stores. Compared with the same period last year we are now operating three further outlet locations so that the weighting of discounted sales in the period is higher. These additional outlets have been very successful in clearing our out-of-season inventory. End-of-season sales discounting within our main store portfolio was at a similar level to last year and due to careful buying we were able to maintain our full-price stance throughout the season until the traditional end-of-season sale.

Trading overheads increased by 9%, of which 4% related to the changes in the store portfolio in the period, including the new concessions. A further 3% arose from inflationary increases in the rent and rates charges including a significant increase in relation to our Bond Street store. Although negotiations are taking account of the current weak market for high street rentals, settlements continue to reflect the significant inflation seen in rents over the past five years. The remaining increase includes costs associated with developing the Toast business.

The net operating loss was £5.8 million (2008: loss of £2.8 million).

There is little evidence that the fashion retail market in UK/Europe will recover in the short term and we will continue to operate cautiously in relation to managing inventory and reducing overheads where possible. In the second half our target is to maintain like-for-like sales levels in our retail stores following the growth achieved last year while continuing to grow our e-commerce businesses. Gross margins are expected to be slightly lower than last year due to the weaker exchange rates, while it is expected that operating expenses will be similar to the first half. 

United Kingdom and Europe - Wholesale

Wholesale turnover during the period was affected by a marked reduction in orders for our men's wear product as our customers reacted to the decline in the men's wear market. Deliveries of French Connection ladies' wear were broadly similar to the comparable period but overall turnover fell by £5.3 million to £18.8 million. The gross margin fell to 25.0% (2008: 29.0%) with the decrease due to the effect of weaker Sterling values on the cost of products sourced from overseas and the effect of stock clearances. Overheads have been reduced by 18% to £5.1 million (2008: £6.2 million) as we focus on ensuring efficiency in all areas of expenditure.

The net operating contribution from UK/Europe Wholesale was a loss of £0.4 million, a decrease of £1.2 million compared to the equivalent period last year.

Forward orders for Winter 2009 and Summer 2010 are reflecting the difficult environment and our customers' caution with their buying budgets. We are expecting a 5% decline in sales in the second half compared with last year.

UK/Europe division

Together, the retail and wholesale businesses in UK/Europe contributed an operating loss of £6.2 million (2008: loss of £2.0 million).

Common overhead costs for the division fell by £0.4 million to £2.6 million reflecting a reduction in advertising and promotion expenditure in the period.

Other income in the UK/Europe division of £2.4 million (2008: £2.0 million) includes both licence receipts from external licensees and royalties charged to Group companies which are purely internal. The licence income from external sources amounted to £1.5 million (2008: £1.4 million) with continued growth from our eyewear licence.

The operating result for the UK/Europe division was a loss of £6.4 million for the period (2008: loss of £3.0 million before gain on lease disposals).

North America - Retail

The weakening of Sterling over the past year has had a marked impact on the Sterling-reported results of our North America operations, increasing the reported figures by over 20% compared to last year.

The retail environment in North America has continued to be difficult and increasingly affected by promotional discounting on the high street. The performance of our retail stores was also affected by the clearance of excess inventory carried forward from last year through an extended sale period and deeper discounting in our outlet stores. On a like-for-like basis sales in our retail stores fell by 3% although all of the decline was accounted for by reduced volumes in our outlet stores where it would appear that increased discounting on the high street is drawing shoppers away from the specialist outlet locations. Following a re-launch of the website, our e-commerce sales grew substantially from a previously low level.

Total retail sales in the period amounted to £17.4 million, a 14% increase over the prior period £15.3 million. In Dollar terms however, total sales fell by 13% reflecting both the decline in like-for-like sales and changes in the retail portfolio; three larger stores have been closed and two smaller stores opened over the last eighteen months. 

The gross margin, at 52.3% (2008: 58.8%), was affected by the extension of the sale period and deeper discounting in the outlet stores.

Overheads were reduced by 13% in Dollar terms, mainly due to the changes in the retail portfolio. In Sterling terms, costs increased by 12% due to the weaker exchange.

The net operating result was a loss of £2.7 million (2008: loss of £1.5 million). We expect the North America retail market to remain difficult throughout the second half and that therefore any growth over last year will be difficult to achieve.

North America - Wholesale

Sales to our wholesale customers in North America in the period amounted to £8.5 million (2008: £8.8 million) but underlying sales in Dollar terms declined by 26% as department stores reduced their buying budgets.

Continued clearance of old-season product and reduced full-price sales had the effect of reducing the gross margin to 29.4% for the period (2008: 35.2%). Overheads for the wholesale business were reduced by 21% in Dollar terms and showed a small increase once translated to Sterling.

The operating contribution from the North America wholesale business for the period was £0.7 million (2008: £1.4 million).

Taking into account the weakness of the US consumer market we expect sales and margin in the second half to follow the lead of the first half.

North America division

Together, the retail and wholesale operations in North America generated a loss of £2.0 million at the operating level (2008: loss of £0.1 million). In line with operating expenses, common overhead costs were significantly reduced in Dollar terms with savings implemented in headcount and marketing expenditure.

The net divisional operating loss was £3.8 million compared to a loss of £2.0 million in the prior year before inclusion of the benefit of the one-off income from disposal of lease interests.

Rest of the World - Retail

The Group absorbed our joint venture partner's share of the Japan retail business in July 2008. The results currently under review therefore include a full six months of trading of that business whereas the comparative data reflects only one month of trading last year. 

In the first six months of the financial year the Japan retail business generated total turnover of £5.9 million and a loss of £1.7 million. The expenses of the business included payments of licence royalties and other charges to other parts of the Group amounting to £0.5 million. In the equivalent period last year, the Group results included turnover of £1.1 million and an operating loss of £0.1 million in relation to the Japan business for the month of July.

Disappointingly, trading in Japan has deteriorated compared to last year following a sharp down-turn in Japan's economy. Sales in the period fell by 17% on a like-for-like basis and despite store closures and head office restructuring the trading improvements planned have not been realised. No significant improvements in the Japan economy are expected in the short term and in the second half the trading performance compared to that reported last year will be affected by the 30% reduction of the value of Sterling against the Japanese Yen compared to this time last year.

Rest of the World - Wholesale

Revenue in our wholesale business based in Hong Kong decreased by £1.1 million to £6.5 million. This represented a 14% decrease in Sterling terms but a 34% decline in Hong Kong Dollar terms. This decline was partly due to the change in status of the Japan business which is no longer a third party customer of the Hong Kong business. Excluding this the decline in sales was 26% and reflects reduced orders from most of our licensees including Australia, China and India as a result of reductions in retail activity in their markets.

The gross margin generated by this business is affected by the mix of sales and while core margins were unchanged, the blended gross margin decreased marginally to 21.5% (2008: 22.4%). Overheads were trimmed by 9% in Dollar terms but showed a small increase in Sterling terms. Net operating profit for the period was £0.6 million compared with £1.0 million achieved last year.

Rest of the World division

Taking the new retail channel in Japan along with the wholesale channel based in Hong Kong the Rest of the World division generated an operating loss of £1.1 million in the six month period (2008: profit of £0.9 million).

The Hong Kong business also earns commission income from Group companies on shipments to the UK, North America and Japan. Total income from this channel was £1.0 million (2008: £0.8 million).

The total divisional operating result was a loss of £0.1 million compared to a profit of £1.7 million in the comparable period due to the inclusion of the full six months trading in Japan.

Group Management 

The overheads associated with the central Group management amounted to £2.6 million in the period, £0.1 million less than last year reflecting continuing efforts to reduce costs.

Operating result and financing income 

The operating loss before finance income for the period was £12.9 million (2008: loss of £6.0 million before inclusion of £1.9 million income from disposal of leases).

Net financing income of £0.1 million (2008: £0.8 million) was generated in the period with average net funds over the year lower than the previous year and interest rates significantly lower. 

Group operating loss in the period amounted to £12.8 million (2008: loss of £5.2 million before inclusion of £1.9 million income from disposal of leases).

In line with the poor performance in the second half of last year the losses generated in the first half are extremely disappointing. The Board have been engaged in a broad strategic review focused on improving both profitability and cash flow with particular emphasis on the international businesses, other loss-making elements of the group and central costs. The review has so far resulted in reductions in central overheads and other discretionary budgets and the closure of a number of stores in the UK, Northern Europe and North America. We expect that further initiatives arising from this review will be implemented over the next six months.

Joint Ventures

Together, the joint venture operations in Hong Kong and China made a small profit and therefore the Group's share of net profits generated by the joint ventures during the period was £nil (2008: loss of £0.2 million). The Group's 50% share of the losses of the Japan business is included in the previous year result up to the end of June 2008 when the Japan business became a wholly owned subsidiary.

In addition to the share of the results reported separately in the income statement, the joint ventures generated over £0.3 million (2008: £0.6 million including Japan) of licence income and gross margin combined. This income is reported within Licensing income in the UK/Europe division and in the gross margin within the Rest of the World wholesale business.

Pre-tax result

The Group loss before taxation was £12.8 million in the period compared to a loss of £5.4 million in the previous half-year period before inclusion of the gains on lease disposals of £1.9 million.

Taxation

The tax credit for the period of £1.8 million (2008: £0.5 million) is based on the expected full-year effective rates in each of the Group's tax jurisdictions. The full year tax rate will be very sensitive to changes in levels of profit or loss generated in the different regions.

Minority interest

The minority interest of £nil million (2008: £nil million) represents the net share of results attributable to the 25% ownerships held by local management in our Canada, Toast and YMC businesses.

Earnings and dividends

Net loss for the period attributable to equity shareholders was £11.0 million (2008: loss of £3.0 million). Loss per share was 11.5 pence (2008: loss of 3.1 pence per share). The Board does not propose payment of a dividend. 

Working capital and net funds

Due to both the higher average selling price of winter garments and the effect of Christmas and Thanksgiving sales volumes the business has a marked seasonality in both trading results and cash generation or utilisation. Historically cash has been utilised in the first half of the financial year and any cash generation has arisen in the second half of the year with the majority arising in the last quarter.

During the six months to July 2009, cash utilisation was higher than the equivalent period due to the increase in the trading losses. The decline in cash and cash equivalents in the period has increased to £14.7 million from £11.9 million last year.

The net increase in working capital in the six month period of £1.8 million compares with an increase of £5.7 million in the comparable period last year. The significant improvement has mainly been generated through reductions in inventory levels at the period end reflecting both the clearance of old season inventory and tight control of the new season in-take.

When combined with the cash absorbed by trading activities of £9.9 million (2008: £2.9 million) the cash utilised by operations amounted to £11.7 million in the period (2008: £8.6 million). Further cash of £2.4 million (2008: £3.3 million) was utilised by the payment of tax, dividends to minority interests and fixed asset investments offset by capital contributions from landlords.

The total cash and cash equivalents at 31 July 2009 was £23.7 million (2008: £34.8 million). The Board is focused on preserving the Group's cash resources and on developing strategies to return the Group to cash generation. The level of funds within the Group is sufficient to ensure that no external funding will be required throughout the remainder of this year. The Group retains its banking facilities allowing for loans, overdrafts and documentary credits up to a net borrowing of £10.2 million.

  

Related party transactions

There have been no additional related party transactions to those disclosed in the Group's Annual Report & Accounts for the year ended 31 January 2009.

17 September 2009

French Connection Group PLC

Registered Number: 1410568, England

Registered Office: 20-22 Bedford Row, London WC1R 4JS

  

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:

DTR 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

DTR 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

Stephen Marks	Roy Naismith
Chairman and Chief Executive	Finance Director

17 September 2009

  CONDENSED CONSOLIDATED INCOME STATEMENT

Note		£m	Six  months 31 July 2009 £m	£m	Six  months 31 July 2008 £m	£m	Year  ended 31 Jan  2009 £m
Revenue	1		116.9		112.4		248.0
Cost of sales			(57.5)		(54.2)		(121.0)
Gross profit	1		59.4		58.2		127.0
Operating expenses			(73.8)		(65.6)		(140.1)
Other operating income	2		1.5		2.4		5.2
Other operating expenses	2		-		(1.0)		(1.0)
Net gain on sale of property, plant and equipment			-		1.9		2.0
Operating loss before financing costs and impairment of goodwill	1		(12.9)		(4.1)		(6.9)
Impairment of goodwill			-		-		(11.9)
Finance income		0.1		0.8		1.3
Finance expenses		-		-		(0.1)
Net financing income			0.1		0.8		1.2
Operating loss			(12.8)		(3.3)		(17.6)
Share of (loss)/profit of joint ventures, net of tax			-		(0.2)		0.2
Loss before taxation and impairment of goodwill Impairment of goodwill		(12.8) -		(3.5) -		(5.5) (11.9)
Loss before taxation			(12.8)		(3.5)		(17.4)
Income tax credit - UK		2.1		0.8		2.0
Income tax expense - overseas		(0.3)		(0.3)		(1.0)
Total income tax credit			1.8		0.5		1.0
Loss for the period			(11.0)		(3.0)		(16.4)
Loss attributable to:
Equity holders of the parent	3		(11.0)		(3.0)		(16.6)
Minority interest			-		-		0.2
Loss for the period			(11.0)		(3.0)		(16.4)
Basic losses per share	3		(11.5)p		(3.1)p		(17.3)p
Diluted losses per share	3		(11.5)p		(3.1)p		(17.3)p

  CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	£m	Six  months 31 July 2009 £m		£m		Six  months 31 July 2008 £m		£m		Year  ended 31 Jan  2009 £m
Loss for the period			(11.0)				(3.0)			(16.4)
Other comprehensive income
Currency translation differences on foreign currency net investments	0.1				(0.8)				1.1
Currency translation differences on foreign currency  loans	(3.3)				0.7				5.5
Effective portion of changes in fair value of cash flow  hedges	(1.9)				(0.1)				0.8
Income tax on income and expense recognised in equity	0.2				-				(0.8)
Other comprehensive income for the period, net of tax			(4.9)				(0.2)			6.6
Total comprehensive income for the period			(15.9)				(3.2)			(9.8)
Total comprehensive income attributable to:
Equity holders of the parent			(15.9)				(3.2)			(10.0)
Minority interest			-				-			0.2
Total income and expense recognised for the period			(15.9)				(3.2)			(9.8)

  CONDENSED CONSOLIDATED BALANCE SHEET

	Note	31 July 2009 £m	Restated 31 July 2008 £m	Restated 31 Jan  2009 £m
Assets
Non-current assets
Intangible assets		2.4	14.3	2.3
Property, plant and equipment		14.1	14.8	15.8
Investments in joint ventures		2.1	1.7	2.4
Deferred tax assets		5.2	2.4	3.0
Total non-current assets		23.8	33.2	23.5
Current assets
Inventories		54.8	59.6	62.6
Trade and other receivables		32.1	34.0	34.1
Current tax receivable		0.2	0.9	0.3
Cash and cash equivalents	4	23.7	35.9	38.4
Derivative financial instruments		-	0.1	1.0
Total current assets		110.8	130.5	136.4
Total assets		134.6	163.7	159.9
Non-current liabilities
Finance leases		0.3	1.0	0.7
Deferred tax liabilities		0.8	1.0	0.8
Total non-current liabilities		1.1	2.0	1.5
Current liabilities
Bank loans and overdraft	4	-	1.1	-
Trade and other payables		48.1	51.0	57.4
Current tax payable		0.1	0.5	0.1
Derivative financial instruments		0.9	-	-
Total current liabilities		49.1	52.6	57.5
Total liabilities		50.2	54.6	59.0
Net assets		84.4	109.1	100.9
Equity
Called-up share capital		1.0	1.0	1.0
Share premium account		9.4	9.4	9.4
Other reserves		1.0	(0.9)	5.9
Retained earnings		71.8	98.6	83.4
Total equity attributable to equity holders
of the parent		83.2	108.1	99.7
Minority interests		1.2	1.0	1.2
Total equity		84.4	109.1	100.9

The comparative balance sheets for the half year-ended 31 July 2008 and year-ended 31 January 2009 have been restated to reflect changes in accounting policy following the adoption of IAS 38 as explained in Note 5.

  CONDENSED GROUP STATEMENT OF CASH FLOWS

	Note	Six  months 31 July  2009 £m	Six  months 31 July 2008 £m	Year  ended 31 Jan 2009 £m
Operating activities
Loss for the period		(11.0)	(3.0)	(16.4)
Adjustments for:
Depreciation		2.7	3.1	8.0
Impairment of goodwill		-	-	11.9
Finance income		(0.1)	(0.8)	(1.3)
Finance expense		-	-	0.1
Share of loss/(profit) of joint ventures		-	0.2	(0.2)
Operating loss/(profit) on property, plant and equipment		0.3	(1.9)	(2.0)
Income tax credit		(1.8)	(0.5)	(1.0)
Operating loss before changes in
working capital and provisions		(9.9)	(2.9)	(0.9)
Decrease/(increase) in inventories		5.5	(5.3)	(3.3)
Decrease/(increase) in trade and other receivables		0.6	(3.6)	(0.8)
(Decrease)/increase in trade and other payables		(7.9)	3.2	6.9
Cash flows from operations		(11.7)	(8.6)	1.9
Interest paid		-	-	(0.1)
Income tax paid		(0.3)	(1.1)	(2.2)
Cash flows from operating activities		(12.0)	(9.7)	(0.4)
Investing activities
Interest received		0.1	0.8	1.2
Investment in joint ventures		-	(0.2)	-
Acquisition of subsidiary		-	0.3	0.3
Acquisition of franchises		-	(0.2)	(0.2)
Acquisition of property, plant and equipment		(1.6)	(1.7)	(5.9)
Net proceeds from sale of property, plant and equipment		(0.3)	2.0	2.0
Capital contributions received from acquisition of property, plant and equipment		0.6	-	-
Cash flows from investing activities		(1.2)	1.0	(2.6)
Financing activities
Payment of finance lease liabilities		(0.3)	-	(0.4)
Dividends paid		(0.6)	(3.2)	(4.8)
Cash flows from financing activities		(0.9)	(3.2)	(5.2)
Net decrease in cash and cash equivalents	4	(14.1)	(11.9)	(8.2)
Cash and cash equivalents at 1 February		38.4	46.7	46.7
Exchange rate fluctuations on cash held		(0.6)	-	(0.1)
Cash and cash equivalents at period end	4	23.7	34.8	38.4

  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Share capital £m	Share premium £m	Hedging reserve £m	Translation reserve £m	Retained  earnings £m	Total £m	Minority interests £m		Total equity £m
Balance at 1 February 2008	1.0	9.4	0.2	(0.9)	107.3	117.0	1.0		118.0
Change in accounting policy					(2.5)	(2.5)			(2.5)
Restated balance  at 1 February 2008	1.0	9.4	0.2	(0.9)	104.8	114.5	1.0		115.5
Loss attributable to equity shareholders					(3.0)	(3.0)			(3.0)
Minority interests
Dividends paid in the period					(3.2)	(3.2)			(3.2)
Currency translation on foreign currency net investments				(0.8)		(0.8)			(0.8)
Currency translation differences on
foreign currency loans				0.7		0.7			0.7
Effective portion of changes in fair value of cash flow hedges			(0.1)			(0.1)			(0.1)
Restated balance at 31 July 2008	1.0	9.4	0.1	(1.0)	98.6	108.1	1.0		109.1
Loss attributable to equity shareholders					(13.6)	(13.6)			(13.6)
Minority interests							0.2		0.2
Dividends paid in the period					(1.6)	(1.6)			(1.6)
Currency translation on foreign currency net investments				1.9		1.9			1.9
Currency translation differences on foreign currency loans				4.8		4.8			4.8
Effective portion of changes in fair  value of cash flow hedges			0.9			0.9			0.9
Income tax on income and
expense recognised in equity				(0.8)		(0.8)			(0.8)
Restated balance  at 31 January 2009	1.0	9.4	1.0	4.9	83.4	99.7	1.2		100.9
Loss attributable to equity shareholders					(11.0)	(11.0)			(11.0)
Minority interests
Dividends paid in the period					(0.6)	(0.6)			(0.6)
Currency translation on foreign currency net investments				0.1		0.1			0.1
Currency translation differences on foreign currency loans				(3.3)		(3.3)			(3.3)
Effective portion of changes in fair value of cash flow hedges			(1.9)			(1.9)			(1.9)
Income tax on income and  expense recognised in equity				0.2		0.2			0.2
Balance at 31 July 2009	1.0	9.4	(0.9)	1.9	71.8	83.2	1.2		84.4

  NOTES TO THE HALF-YEAR STATEMENT

1. Operating segments

Six months to 31 July 2009	UK/Europe			North America			Rest of the World			Intra Group	Total
	Retail	Whole- sale	Total	Retail	Whole- sale	Total	Retail	Whole- sale	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue	59.8	18.8	78.6	17.4	8.5	25.9	5.9	6.5	12.4		116.9
Gross profit	35.8	4.7	40.5	9.1	2.5	11.6	4.0	1.4	5.4	1.9	59.4
Gross margin	59.9%	25.0%	51.5%	52.3%	29.4%	44.8%	67.8%	21.5%	43.5%		50.8%
Trading expenses	(41.6)	(5.1)	(46.7)	(11.8)	(1.8)	(13.6)	(5.7)	(0.8)	(6.5)		(66.8)
Operating contribution	(5.8)	(0.4)	(6.2)	(2.7)	0.7	(2.0)	(1.7)	0.6	(1.1)	1.9	(7.4)
Common overhead costs			(2.6)			(1.8)					(4.4)
Licensing income			2.4						1.0	(1.9)	1.5
Divisional operating loss			(6.4)			(3.8)			(0.1)	-	(10.3)
Group management overheads											(2.6)
Operating loss before financing costs											(12.9)

Six months to 31 July 2008	UK/Europe			North America			Rest of the World			Intra Group	Total
	Retail	Whole- sale	Total	Retail	Whole- sale	Total	Retail	Whole- sale	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue	55.5	24.1	79.6	15.3	8.8	24.1	1.1	7.6	8.7		112.4
Gross profit	35.4	7.0	42.4	9.0	3.1	12.1	0.6	1.7	2.3	1.4	58.2
Gross margin	63.8%	29.0%	53.3%	58.8%	35.2%	50.2%	54.5%	22.4%	26.4%		51.8%
Trading expenses	(38.2)	(6.2)	(44.4)	(10.5)	(1.7)	(12.2)	(0.7)	(0.7)	(1.4)		(58.0)
Operating contribution	(2.8)	0.8	(2.0)	(1.5)	1.4	(0.1)	(0.1)	1.0	0.9	1.4	0.2
Common overhead costs			(3.0)			(1.9)					(4.9)
Licensing income			2.0						0.8	(1.4)	1.4
Gain on disposal			0.6			1.3					1.9
Divisional operating (loss)/profit			(2.4)			(0.7)			1.7	-	(1.4)
Group management overheads											(2.7)
Operating loss before financing costs											(4.1)

Financing income has not been separately allocated to the respective divisions as this income is generated by the Group treasury department which is managed and controlled centrally.

The share of the results of the joint venture operations of £nil (2008: loss of £0.2 million) relate to the Rest of the World retail operations and are not disclosed in the information above.

  NOTES TO THE HALF-YEAR STATEMENT

2. Other operating income and expenses

	31 July 2009 £m		31 July 2008 £m		31 Jan 2009 £m
Licensing income	1.5		1.4		4.2
Negative goodwill on acquisition of subsidiary	-		1.0		1.0
	1.5		2.4		5.2

Negative goodwill in the prior year relates to the acquisition of the remaining 50% shareholding of French Connection Japan Inc.

Operating expenses of £1.0 million in the prior year relate to fair value adjustments made to the initial 50% investment in French Connection Japan Inc.

3. Losses per share

Losses per share of 11.5 pence (2008: 3.1 pence) is based on 95,879,754 shares (2008: 95,879,754) being the weighted average number of ordinary shares in issue throughout the period, and £11.0 million (2008: £3.0 million) being the loss attributable to equity shareholders. Diluted losses per share of 11.5 pence (2008: 3.1 pence) is based on 95,879,754 shares (2008: 95,879,754) being the weighted average number of ordinary shares adjusted to assume the exercise of dilutive options.

The reconciliation to adjusted losses per share which is based on 95,879,754 shares (2008: 95,879,754) is as follows:

	Six months 31 July 2009 £m	Pence per share	Six months 31 July 2008 £m	Pence per share	Year ended 31 Jan 2009 £m	Pence per share
Loss attributable to equity shareholders	(11.0)	(11.5)p	(3.0)	(3.1)p	(16.6)	(17.3)p
Impairment of goodwill	-	-	-	-	11.9	12.4p
Adjusted losses	(11.0)	(11.5)p	(3.0)	(3.1)p	(4.7)	(4.9)p

  NOTES TO THE HALF-YEAR STATEMENT

4. Analysis of net funds

	31 January 2009 £m	Cash flow £m	Non cash changes £m	31 July  2009 £m	31 July  2008 £m
Cash and cash equivalents in the balance sheet	38.4	(14.1)	(0.6)	23.7	35.9
Bank overdrafts	-	-	-	-	(1.1)
Cash and cash equivalents in the cash flow Finance lease obligations	38.4 (1.3)	(14.1) 0.3	(0.6) 0.2	23.7 (0.8)	34.8 (1.0)
Net funds	37.1	(13.8)	(0.4)	22.9	33.8

 

 

5. Prior year adjustment

 

The Group has adopted the amendments to IAS 38 Intangible Assets published in May 2008 effective for accounting periods beginning on or after 1 January 2009.

Expenditure in respect of advertising and promotional activities is now recognised as an expense when the Group has access to the related goods or has received the related services. Similarly, all sample costs are now expensed as incurred.

This change in accounting policy has been adopted for the six month period-ended 31 July 2009 and has been retrospectively applied to the comparative audited results for the year-ended 31 January 2009 and unaudited results for the six month period-ended 31 July 2008. The impact on the balance sheet for both the year-ended 31 January 2009 and six month period-ended 31 July 2008 has been to reduce trade and other receivables by £2.5 million and to decrease retained earnings by £2.5 million.

There has been no material impact on the condensed consolidated income statement reported in either of the affected periods and therefore there is no change to the previously reported results.

6. Statutory accounts and basis of preparation

Reporting entity

French Connection Group PLC is a Company registered in England and Wales and resident in the United Kingdom. These condensed consolidated half-year financial statements of the Company as at and for the six months ended 31 July 2009 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 2009 are available upon request from the Company's registered office at 20-22 Bedford Row, London WC1R 4JS or can be found on the Group website www.frenchconnection.com.

Statement of compliance

This condensed set of financial statements has 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 UK's Financial Services Authority ("the UK FSA"), other than noted below, the condensed set of financial statements has 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 2009, which are 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 year ended 31 January 2009 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, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 

The Board of Directors approved the condensed consolidated half-year financial statements on 16 September 2009.

  NOTES TO THE HALF-YEAR STATEMENT

 

6. Statutory accounts and basis of preparation continued

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 2009, with the following exception:

Revised IAS 1 Presentation of Financial Statements (2007) introduces the term "total comprehensive income", which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income is presented in a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement).

IFRS 8 Operating segments has been adopted. Under IFRS 8, reportable segments are determined on the basis of those segments whose operating results are regularly reviewed by the Board. These operating results are prepared on a basis that excludes items considered to be non-underlying in nature. Note 1 of the condensed consolidated financial statements sets out the Group's reportable segments and sets out reconciliations between these and the results reported in the income statement and balance sheet. There has been no change to the Operating Segments note as disclosed in the previous year.

IAS 38 Intangible Assets has been adopted. Expenditure in respect of advertising and promotional activities is now recognised as an expense when the Group has access to the related goods or has received the related services. Similarly, all sample costs are now expensed as incurred.

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 2009.

Principal risks and uncertainties

The principal treasury risks to the Group arise from exchange rate and interest rate fluctuations. The Board has approved policies for managing these risks, which are reviewed on a regular basis, including the use of financial instruments, principally forward foreign exchange contracts. No transactions of a speculative nature are undertaken.

The most significant exposure to foreign exchange fluctuations relates to purchases made in foreign currencies, principally the Hong Kong Dollar and Euro. The Group's policy is to reduce substantially the risk associated with purchases denominated in currencies other than Sterling by using forward fixed rate currency purchase contracts.

There has been no change since the year-end to the major treasury risks faced by the Group or the Group's approach to the management of these risks.

The Group is dependent on reliable IT systems for managing and controlling its business and for providing efficiency and speed in the supply chain. The Group's IT function oversees all the systems and has policies and procedures to protect the software, hardware and data and to prevent unauthorised access to the systems.

The Board confirms that there are ongoing procedures in place for identifying, evaluating and managing significant risks faced by the Group and that these have been in place for the year under review and up to the date of approval of the annual report and accounts. The procedures have been reviewed by the Board and accord with the Turnbull Guidance for Directors on the Combined Code.

Going concern

The Group has a strong balance sheet with more than sufficient net funds to finance the working capital requirements over the cycle of a year.  The Board is focused on preserving the Group's cash and on developing strategies to return the Group to cash generation. The level of funds is sufficient to ensure that no external funding will be required throughout the remainder of this year. Based on this, the Directors have a reasonable expectation that the Group has adequate resources 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

7 . Retail locations

		31 July 2009		31 January 2009
		Locations	sq ft	Locations	sq ft
Operated locations
UK/Europe
French Connection	Stores	74	228,988	77	234,550
French Connection	Concessions	43	25,175	40	24,908
Nicole Farhi	Stores	9	21,598	8	20,212
Nicole Farhi	Concessions	12	12,551	12	12,551
Toast	Stores	6	7,072	6	7,072
Toast	Concessions	1	854	1	854
Great Plains	Stores			1	850
Great Plains	Concessions	2	1,290
		147	297,528	145	300,997
North America
French Connection	Stores	36	137,549	37	140,740
Nicole Farhi	Stores	1	5,000	1	5,000
		37	142,549	38	145,740
Japan
French Connection	Stores	16	34,580	18	38,405
French Connection	Concessions	5	6,270	3	4,950
		21	40,850	21	43,355
Total operated locations		205	480,927	204	490,092
French Connection licensed and franchised
UK/Europe		12	16,610	13	20,610
North America		1	2,000	1	2,000
Middle East		16	28,695	14	25,214
Australia		47	66,614	43	62,801
Hong Kong		6	9,336	7	12,416
China		22	32,094	24	34,386
Other		56	54,895	52	52,195
Total licensed and franchised locations		160	210,244	154	209,622
Total Group branded retail locations		365	691,171	358	699,714

ENDIR CKAKDOBKDKCD

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