13th Sep 2005 07:02
French Connection Group PLC13 September 2005 13th September 2005 FRENCH CONNECTION GROUP PLC Interim Statement for the six months ended 31 July 2005 Summary • Revenue £117.9 million (2004: £128.2 million) • Profit before tax £5.1 million (2004: £16.2 million) • Earnings per share 3.7 pence (2004: 11.7 pence) • Interim dividend 1.7 pence (2004: 1.2 pence) • Net funds £37.1 million (2004: £39.4 million) Stephen Marks, Chairman, commented on the results: "The business has faced a challenging six-month period during which the retailenvironment in the UK has continued to worsen. The in-season product which weadded to our Summer ranges had a positive impact on our trading but the level ofsales achieved at both retail and wholesale was below our expectations. We enterthe second half of the year with ranges that have attracted much positivecomment in the press in recent weeks." "In the current tough market conditions we remain focused on ensuring that ourproducts meet the expectations of our customers while maintaining our operatingstandards and controlling costs. The recent signs of a positive response to theWinter ranges are encouraging, however we now anticipate that the outcome forthe year will be around the lower end of the expectations we described in July." Enquiries: Stephen Marks/Neil Williams/Roy Naismith French Connection +44(0)20 7399 7677Tom Buchanan Brunswick +44(0)20 7404 5959 Note:The financial information shown above has been compiled under InternationalAccounting Standards (IAS) and International Financial Reporting Standards(IFRS) and the comparative data for the previous periods has consequently beenrestated. Further details are available in the full text of the report. CHAIRMAN'S STATEMENT In the six months to 31 July 2005, Group revenue was £117.9 million, 8% lessthan the equivalent period last year. The Group gross margin increased by 1.2%to 55.1% and operating costs increased largely as a result of increased retailselling space. Profit before tax was £5.1 million (2004: £16.2 million). The business has faced a challenging six-month period during which the retailenvironment in the UK has continued to worsen. The in-season product which weadded to our Summer ranges had a positive impact on our trading but the level ofsales achieved at both retail and wholesale was below our expectations. We enter the second half of the year with ranges that have attracted muchpositive comment in the press in recent weeks. Although we saw a slow startduring August due to our extended summer sale, there are now some encouragingsigns of a positive response to the Winter ranges from our retail customers inthe UK. Given the current trading environment our UK wholesale customers havebeen cautious with their Winter buying, while in North America we expect tocontinue to increase our wholesale revenues based on the momentum built with ourcustomers in recent seasons. Our ranges for Summer 2006 represent another step forward. While forward ordersfrom the early part of the selling season in the UK are behind last year, wehope to see an improvement over the coming months. Our worldwide licensing business continues to grow and there are a number ofopportunities in the pipeline for further development from both existinglicensees and potential new licences. We are also making good progress in ournewer markets in Asia. Our joint venture in China now has six outlets which areperforming to plan and both the Hong Kong and Japan retail businesses areimproving steadily. Our mail-order businesses have continued to develop andToast's first stand-alone store has performed well in its first few months. In the current tough market conditions we remain focused on ensuring that ourproducts meet the expectations of our customers while maintaining our operatingstandards and controlling costs. The recent signs of a positive response to theWinter ranges are encouraging, however we now anticipate that the outcome forthe year will be around the lower end of the expectations we described in July. Stephen MarksChairman and Chief Executive12 September 2005 OPERATING REVIEW United Kingdom and EuropeThe UK/Europe retail business has had a challenging six-month period withworsening conditions in the clothing market making improvements even moredifficult to achieve. At the beginning of the season we made changes tostrengthen the impact of the Summer collections and we subsequently saw animprovement in sales performance. However the level of sales achieved was belowwhat we had hoped, resulting in a 9% reduction in like-for-like sales during theperiod. We recognise that this performance reflects missed opportunities withinour collections and we have worked to ensure that the Winter 2005 and Summer2006 collections more closely match the expectations of our customers. With 16% more space traded than the equivalent period last year, including fournew stores opened in the six-month period, total retail revenue in UK/Europe wasbroadly flat at £51.1 million (2004: £51.2 million). The gross margin achievedwas 67.1% representing a good improvement over last year's 65.8% with supportfrom both the weakening of the Dollar and increases in core margins. As ever thebusiness was managed closely to protect the net operating margin as much aspossible and operating costs, allowing for the increases in space, were kepttightly under control. The fcuk buymail and Toast businesses continue to develop and Toast's firststandalone store in Harrogate has performed well, encouraging us to look forfurther sites. Our wholesale customers, affected by the difficult trading conditions and a lackof confidence, were cautious with their buying. Revenue amounted to £39.5million (2004: £51.4 million) and the gross margin was slightly lower at 38.5%(2004: 40.7%) due to a higher level of markdowns for stock clearance during theperiod. Total operating contribution for the UK/Europe division was £8.9 million (2004:£20.0 million). North AmericaThe North America business faced similar challenges to UK/Europe in relation toretail volumes during the period, also reporting a decrease in like-for-likesales of 9%. Eight new stores opened during the period and two closed, resultingin a 4% increase in revenue to $29.6 million (2004: $28.5 million). The limitedincrease in volume combined with the costs of the new stores resulted in theoperating contribution falling below that reported last year. The wholesale business has continued to improve as we work closely with ourdepartment store customers. Revenue in Dollar terms increased by 15% and, with astronger gross margin, the operating contribution showed a pleasing improvement. Total operating contribution for the North America division was £0.1 million(2004: £0.9 million). Rest of the WorldRevenue in the region increased to £4.0 million, an improvement of 11% on lastyear (2004: £3.6 million) and the operating contribution was healthilyincreased. This is a result of the development of the customer base supplied bythe Hong Kong office and, in particular, growth in the Hong Kong and China jointventures. LicensingNet licensing income to the Group during the period amounted to £2.1 million(2004: £1.9 million) with continued growth from the Boots toiletries licence,shoe licence and the Australia territory licence offsetting a lower level ofincome in the period from the worldwide fragrance licensee. We continue to workwith our licensees on new products and to consider new product licensingopportunities. Current trading and outlookIn UK/Europe retail our management teams are working to maximise sales throughrapid reaction to identified successes and constant improvement in operationaland presentational standards in our stores. In order to deal with some excessproduct our Summer sale ran on for longer than normal and therefore there hasbeen a slow start to the Winter season. However we are now seeing some positivereaction to the Winter ranges in women's wear. Given recent performance and the conditions in the market place the wholesalebusiness is proving difficult. Our order books for both Winter 2005 and Summer2006 are currently 15% below the levels at this time last year. In North America the Winter product is performing in-line with the UK in theretail stores. In the wholesale business the forward orders for Winter wereahead of the previous year and in-season business is good. The initial reactionwe have received from North America buyers to the Summer 2006 collection hasbeen positive and we expect to be able to build on the momentum generated overrecent seasons. We are expecting continued growth from our joint ventures in Hong Kong, Japanand China across which we now have 25 stores. The rate of growth in retail sales, the level of in-season Winter 2005 wholesalebusiness and the forward orders for Summer 2006 will be the major determinantsin the outcome for the year. The recent trading in the Winter ranges hasprovided some encouragement and, balancing this with the widely-reporteddifficult trading conditions and the slow start to the period, we anticipatethat our full year result will be around the lower end of our expectations. Neil WilliamsOperations Director12 September 2005 FINANCIAL REVIEW International Financial Reporting StandardsThe financial information shown in this Interim Statement has been compiledunder International Accounting Standards (IAS) and International FinancialReporting Standards (IFRS) and the comparative data for the previous periods hasconsequently been restated. Details of the changes to the comparative data aregiven in Notes 5 to 7 below. Further details of the changes arising from themove to IFRS and the Group's revised accounting policies can be found atwww.frenchconnection.com by following the links to Investor Relations. Group TradingGroup revenue fell by 8% to £117.9 million (2004: £128.2 million) in the period.Retail sales in both UK/Europe and North America reported 9% declines inlike-for-like sales, offset by increases in average traded space of 16% in UK/Europe and 11% in North America and a total of twelve new stores opened in theperiod and two closed. The combination of these elements left the retail revenuein UK/Europe marginally lower and in North America marginally higher than thecomparative period. Wholesale revenue in UK/Europe was significantly lower thanlast year reflecting a lower level of both Summer 2005 in-season business andforward orders for the Winter 2005 season. In North America, however, wholesalerevenue showed a 15% increase in Dollar terms building on momentum with thedepartment stores. Compared to the equivalent period last year the Dollar hasweakened by less than 2% resulting in a reported 14% increase in Sterling terms. Gross marginsThe Group gross margin increased by 1.2% to 55.1% driven by the increased ratioof retail revenue to wholesale revenue, with retail accounted for 57% of Grouprevenue in the period compared to 52% last year. In addition, retail margins inUK/Europe increased 1.3% to 67.1% with the benefit of improved foreign currencyexchange rates while higher levels of discounting during the sales were offset by improved core margins. Wholesale gross margin in UK/Europe fell by 2.2% to 38.5% despite the support from currency benefits, reflecting higher levels of discounting during the season. In North America retail margins were largely unchanged at 62.5% and wholesale margins took a healthy step forward of 2.8% to 35.6% with a higher proportion of full-price sales. The margin in the Rest of the World at 20% is consistent with previous periods and reflects the lower margins generated on sales to licensees in Asia and Australia which are supported by royalty income. OverheadsTrading overheads, representing the direct costs of the divisional operations,increased by 16% in the period driven mainly by the costs associated with theincrease in traded space and on-going rental increases in the retail businesses.Common overheads, comprising costs shared between the divisions withingeographic locations and mainly representing advertising and promotion costsincreased marginally with a slightly higher spend on advertising in the firsthalf than the comparable period. Group management overheads were slightlyreduced. Overall, operating expenses increased by 14% and the vast majority ofthe increase was associated with new store space. Licence incomeOther income reported in the geographic analysis includes royalty payments paidintra-group for the use of the brand. The intra-group element is eliminated onconsolidation and the net Other Income represents brand licence royalties fromour third-party licensees. The increase in the period reflects continued growthfrom the Boots toiletries licence, shoe licence and the Australia territorylicence offset by a reduction in income from our worldwide fragrance licencepartner. Operating profitThe Group operating profit of £4.7 million (2004: £16.3 million) reflects thehigh operational gearing of the business, particularly in retail, where thedecline in like-for-like sales has a significant impact on the profitability. The Group's share of the results of our Asian joint ventures has improved asthese businesses have grown. The loss for the period was halved from last timewith Hong Kong making a positive contribution for the first time. Interestincome was £0.7 million (2004: £0.5 million) resulting in a profit before tax of£5.1 million (2004: £16.2 million). After accounting for taxation (based on anestimate of the rate for the full year) and minority interests in our Canadabusiness and Toast, earnings per share is 3.7 pence per share (2004: 11.7pence). Cash flow and net fundsThe Group's total net funds position at 31 July 2005 was £37.1 million (2004:£39.4 million). In the six months to 31 July 2005 the net cash outflow fromoperations was £1.0 million, net of a £9.7 million increase in inventory levelsassociated with the increase in selling space and the normal increase associatedwith the higher average cost of heavier Winter product. In addition there werecash outflows of £5.6 million of tax, £4.4 million of capital expenditure and£3.6 million of dividends during the period and therefore the total net cashoutflow was £14.9 million (2004: £4.2 million). DividendThe interim dividend is 1.7 pence per share (2004: 1.2 pence per share)representing approximately one third of the full year dividend paid last year.The dividend is payable on 18 October 2005 to shareholders on the register at 21September 2005 (ex-dividend date 23 September 2005). Roy NaismithFinance Director12 September 2005 French Connection Group PLCRegistered Number: 1410568, EnglandRegistered Office: 20-22 Bedford Row, London WC1R 4JS CONSOLIDATED INCOME STATEMENT Note Six months Six months Year ended 31 July 31 July 31 January 2005 2004 2005 £m £m £m-------------------- ------ --------- ---------- -----------Revenue 1 117.9 128.2 265.7 Cost of sales (52.9) (59.1) (123.2)-------------------- ------ --------- ---------- ----------- Gross profit 1 65.0 69.1 142.5 Net operating expenses (62.4) (54.8) (113.4)Other operating income 2.1 2.0 4.5-------------------- ------ --------- ---------- ----------- Operating profit 1 4.7 16.3 33.6 Share of operating loss of jointventures (0.3) (0.6) (1.3)Net interest receivable andsimilar items 0.7 0.5 1.4-------------------- ------ --------- ---------- ----------- Profit on ordinary activitiesbefore taxation 5.1 16.2 33.7 Tax on profit on ordinaryactivities (1.5) (4.9) (10.4)-------------------- ------ --------- ---------- ----------- Profit on ordinary activitiesafter taxation 3.6 11.3 23.3 Minority interests - equity (0.1) (0.1) (0.3)-------------------- ------ --------- ---------- ----------- Profit attributable toshareholders 3 3.5 11.2 23.0-------------------- ------ --------- ---------- ----------- Basic earnings per share 3 3.7p 11.7p 24.1p-------------------- ------ --------- ---------- ----------- Diluted earnings per share 3 3.6p 11.6p 23.9p-------------------- ------ --------- ---------- ----------- CONSOLIDATED BALANCE SHEET-------------------- ------ --------- ---------- ----------- 31 July 31 July 31 January 2005 2004 2005 £m £m £m-------------------- ------ --------- ---------- ----------- AssetsNon-current assetsIntangible assets 12.2 11.0 12.2Property, plant and equipment 28.5 29.2 28.5Investments 3.1 1.7 2.5Deferred tax assets 4.5 3.8 4.6-------------------- ------ --------- ---------- ----------- Total non-current assets 48.3 45.7 47.8-------------------- ------ --------- ---------- ----------- Current assetsInventories 53.1 45.6 43.4Debtors 35.1 36.6 32.5Cash at bank and in hand 41.4 44.8 55.1-------------------- ------ --------- ---------- ----------- Total current assets 129.6 127.0 131.0-------------------- ------ --------- ---------- ----------- Total assets 177.9 172.7 178.8-------------------- ------ --------- ---------- ----------- Non-current liabilitiesCreditors - 0.2 0.1Deferred tax liabilities - 0.5 --------------------- ------ --------- ---------- -----------Total non-current liabilities - 0.7 0.1-------------------- ------ --------- ---------- ----------- Current liabilitiesBank loans and overdrafts 4.1 5.0 2.6Creditors 52.7 57.0 55.8-------------------- ------ --------- ---------- ----------- Total current liabilities 56.8 62.0 58.4-------------------- ------ --------- ---------- ----------- Total liabilities 56.8 62.7 58.5-------------------- ------ --------- ---------- ----------- Net assets 121.1 110.0 120.3-------------------- ------ --------- ---------- ----------- EquityCalled-up share capital 1.0 1.0 1.0Share premium account 8.7 8.7 8.7Retained earnings 111.1 100.3 110.4-------------------- ------ --------- ---------- -----------Total equity attributable to equityholders of the parent 120.8 110.0 120.1 Minority interests 0.3 - 0.2-------------------- ------ --------- ---------- ----------- Total equity 121.1 110.0 120.3-------------------- ------ --------- ---------- ----------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE ------------------------ --------- ---------- ----------- Six months Six months Year ended 31 July 31 July 31 January 2005 2004 2005 £m £m £m------------------------ --------- ---------- ----------- Profit attributable to shareholders 3.5 11.2 23.0 Currency translation differences onforeign currency net investments 0.8 - (0.5)------------------------ --------- ---------- -----------Total income and expense recognisedfor the period 4.3 11.2 22.5------------------------ --------- ---------- ----------- CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY ------------------------ --------- ---------- --------- Six months Six months Year ended 31 July 31 July 31 January 2005 2004 2005 £m £m £m------------------------ --------- ---------- --------- Balance at beginning of period 120.3 100.7 100.7 Profit attributable to shareholders 3.5 11.2 23.0Minority interests 0.1 0.1 0.3Dividends paid in the period (3.6) (2.1) (3.3)Issue of shares - 0.1 0.1Currency translation on foreigncurrencynet investments 0.8 - (0.5)------------------------ --------- ---------- --------- Balance at end of period 121.1 110.0 120.3------------------------ --------- ---------- --------- CONSOLIDATED STATEMENT OF CASH FLOWS --------------------- ------ -------- ---------- ----------- Note Six months Six months Year ended 31 July 31 July 31 January 2005 2004 2005 £m £m £m--------------------- ------ -------- ---------- ----------- Operating activitiesNet profit from ordinaryactivities 3.5 11.2 23.0Adjustments for:Depreciation 5.1 4.2 9.7Foreign exchange gains - 0.1 (0.1)Interest income (0.8) (0.7) (1.4)Interest expense 0.1 0.1 0.1Share of operating loss of jointventures 0.3 0.6 1.3Loss on sale of fixed assets - - 0.2Tax expense 1.5 4.9 10.4Minority interests 0.1 0.1 0.3--------------------- ------ -------- ---------- ----------- Operating profit before changes inworkingcapital and provisions 9.8 20.5 43.5Increase in inventories (9.7) (4.0) (1.8)Increase in trade and otherreceivables (1.6) (6.8) (3.7)Increase in trade and otherpayables 0.5 2.7 1.9--------------------- ------ -------- ---------- ----------- Cash flows from the operations (1.0) 12.4 39.9 Interest paid (0.1) (0.1) (0.1)Taxes paid (5.6) (6.4) (12.1)--------------------- ------ -------- ---------- ----------- Cash flows from operatingactivities (6.7) 5.9 27.7--------------------- ------ -------- ---------- ----------- Investing activitiesInterested received 0.8 0.7 1.4Acquisition of joint venturesand subsidiary (0.9) (0.6) (3.8)Acquisition of property, plantand equipment (4.4) (4.7) (9.9)--------------------- ------ -------- ---------- ----------- Cash flows from investingactivities (4.5) (4.6) (12.3)--------------------- ------ -------- ---------- ----------- Financing activitiesProceeds from the issue of sharecapital - 0.1 0.1Repayment of borrowings 4 - (3.4) (6.8)Payment of finance leaseliabilities 4 (0.1) (0.1) (0.3)Dividends paid (3.6) (2.1) (3.3)--------------------- ------ -------- ---------- ----------- Cash flows from financingactivities (3.7) (5.5) (10.3)--------------------- ------ -------- ---------- ----------- Net(decrease)/increase in cash andcashequivalents 4 (14.9) (4.2) 5.1Cash and cash equivalents at 1February 52.5 47.4 47.4Exchange rate fluctuations oncash (0.3) - ---------------------- ------ -------- ---------- ----------- Cash and cash equivalents atperiod end 4 37.3 43.2 52.5--------------------- ------ -------- ---------- ----------- NOTES TO THE INTERIM STATEMENT 1. Segmental analysis Six Months UK/Europe North America Rest of World Intra Group Total31 July 2005 Retail Whole- Total Retail Whole- Total Whole- sale sale sale £m £m £m £m £m £m £m £m £m ------ ------ ------ ------ ------ ------ ------- ------ ------ Revenue 51.1 39.5 90.6 16.0 7.3 23.3 4.0 117.9 ------ ------ ------ ------ ------ ------ ------- ------ ------ Gross 34.3 15.2 49.5 10.0 2.6 12.6 0.8 2.1 65.0profit Gross 67.1% 38.5% 54.6% 62.5% 35.6% 54.1% 20.0% 55.1%margin Tradingoverheads (34.4) (6.2) (40.6) (10.7) (1.8) (12.5) (0.6) (53.7) ------ ------ ------ ------ ------ ------ ------- ------ ------ Operatingcontribution (0.1) 9.0 8.9 (0.7) 0.8 0.1 0.2 2.1 11.3 ------ ------ ------ ------Commonoverhead (4.1) (1.6) (5.7)costs Other 3.1 1.1 (2.1) 2.1income ------ ------ ------- ------ ------ Divisionaloperatingprofit 7.9 (1.5) 1.3 - 7.7 ------ ------ ------- ------ ------ Groupmanagementoverheads (3.0) ------ Operatingprofit 4.7 Six months UK/Europe North America Rest of World Intra Group Total31 July 2004 Retail Whole- Total Retail Whole- Total Whole- sale sale sale £m £m £m £m £m £m £m £m £m ------ ------ ------ ------ ------ ------ ------- ------ ------ Revenue 51.2 51.4 102.6 15.6 6.4 22.0 3.6 128.2 ------ ------ ------ ------ ------ ------ ------- ------ ------ Gross 33.7 20.9 54.6 9.8 2.1 11.9 0.7 1.9 69.1profit Gross 65.8% 40.7% 53.2% 62.8% 32.8% 54.1% 19.4% 53.9%margin Tradingoverheads (28.8) (5.8) (34.6) (9.4) (1.6) (11.0) (0.6) (46.2) ------ ------ ------ ------ ------ ------ ------- ------ ------ Operatingcontribution 4.9 15.1 20.0 0.4 0.5 0.9 0.1 1.9 22.9 ------ ------ ------ ------ Commonoverhead (3.9) (1.6) (5.5)costs Other 2.6 1.3 (1.9) 2.0income ------ ------ ------- ------ ------ Divisionaloperatingprofit 18.7 (0.7) 1.4 - 19.4 ------ ------ ------- ------ ------Groupmanagementoverheads (3.1) ------Operatingprofit 16.3 ------ NOTES TO THE INTERIM STATEMENT 2. Revenue Group revenue Six months Six months Year ended 31 July 31 July 31 January 2005 2004 2005 £m £m £m--------------------------- --------- ---------- ----------- Group and share of joint ventures 120.7 129.9 269.8Less: share of joint ventures' revenue (2.8) (1.7) (4.1)--------------------------- --------- ---------- ----------- 117.9 128.2 265.7--------------------------- --------- ---------- ----------- 3. Earnings per share Earnings per share of 3.7p (2004: 11.7p) is based on 95,432,595 shares (2004:95,402,100) being the weighted average number of ordinary shares in issue throughoutthe period, and £3.5 million (2004: £11.2 million) being the profit attributable toshareholders. Diluted earnings per share of 3.6p (2004: 11.6p) is based on 95,973,881shares (2004: 96,684,883) being the weighted average number of ordinary sharesadjusted to assume the exercise of dilutive options. The reconciliation to adjusted earnings per share is as follows: Six months Pence Six months Pence Year ended Pence 31 July per 31 July per 31 January per 2005 share 2004 share 2005 share £m £m £m ------------------- -------- ------ -------- ------ -------- ------ Profitattributable toshareholders 3.5 3.7p 11.2 11.7p 23.0 24.1pLoss ondisposal offixed assets - - - - 0.2 0.2p ------------------- -------- ------ -------- ------ -------- ------ Adjustedearnings 3.5 3.7p 11.2 11.7p 23.2 24.3p ------------------- -------- ------ -------- ------ -------- ------ 4. Analysis of net funds 31 January Cash Non cash 31 July 31 July 2005 flow changes 2005 2004 £m £m £m £m £m----------------------- -------- ------- -------- ------- -------- Cash and cash equivalents 52.5 (14.9) (0.3) 37.3 43.2Finance lease obligations (0.3) 0.1 - (0.2) (0.4)Bank loan due within oneyear - - - - (3.4)------------------------ -------- ------- -------- ------- --------Net funds 52.2 (14.8) (0.3) 37.1 39.4------------------------ -------- ------- -------- ------- -------- Cash comprises cash in hand and on overnight deposit. NOTES TO THE INTERIM STATEMENT 5. Transition to IFRS - reconciliation of equity The transition from UK GAAP to IFRS and its impact on the Group's financial performance is set out in the following tables and accompanying notes. 1 February 2004 31 July 2004 31 January 2005 Previous Effect of IFRS Previous Effect of IFRS Previous Effect of IFRS GAAP transition GAAP transition GAAP transition to IFRS to IFRS to IFRS £m £m £m £m £m £m £m £m £mAssetsTotalnon-current assets 47.4 (2.4) 45.0 47.3 (1.6) 45.7 49.1 (1.3) 47.8 Total current assets 118.0 0.1 118.1 126.8 0.2 127.0 130.7 0.3 131.0--------------- ------- ------- ------ ------- ------- ------ ------- ------- ------Total assets 165.4 (2.3) 163.1 174.1 (1.4) 172.7 179.8 (1.0) 178.8--------------- ------- ------- ------ ------- ------- ------ ------- ------- ------ LiabilitiesTotal non-currentliabilities 0.5 - 0.5 0.7 - 0.7 0.1 - 0.1 Total currentliabilities 63.2 (1.3) 61.9 62.2 (0.2) 62.0 60.9 (2.5) 58.4--------------- ------- ------- ------ ------- ------- ------ ------- ------- ------Total liabilities 63.7 (1.3) 62.4 62.9 (0.2) 62.7 61.0 (2.5) 58.5--------------- ------- ------- ------ ------- ------- ------ ------- ------- ------Net assets 101.7 (1.0) 100.7 111.2 (1.2) 110.0 118.8 1.5 120.3--------------- ------- ------- ------ ------- ------- ------ ------- ------- ------ EquityCalled-upshare capital 1.0 - 1.0 1.0 - 1.0 1.0 - 1.0Share premium account 8.6 - 8.6 8.7 - 8.7 8.7 - 8.7Revaluation reserve 0.4 (0.4) - 0.4 (0.4) - 0.4 (0.4) -Retained earnings 91.8 (0.6) 91.2 101.1 (0.8) 100.3 108.5 1.9 110.4--------------- ------- ------- ------ ------- ------- ------ ------- ------- ------Total equityattributableto equity holders 101.8 (1.0) 100.8 111.2 (1.2) 110.0 118.6 1.5 120.1of the parent Minorityinterests (0.1) - (0.1) - - - 0.2 - 0.2--------------- ------- ------- ------ ------- ------- ------ ------- ------- ------Total equity 101.7 (1.0) 100.7 111.2 (1.2) 110.0 118.8 1.5 120.3--------------- ------- ------- ------ ------- ------- ------ ------- ------- ------ NOTES TO THE INTERIM STATEMENT 6. Transition to IFRS - reconciliation of profit Six months Year ended 31 January 2005 ended 31 July 2004 Previous Effect of IFRS Previous Effect of IFRS GAAP transition to GAAP transition to IFRS IFRS £m £m £m £m £m £m---------------------- ------- ------- ------ ------- ------- ------ Revenue 128.2 - 128.2 265.7 - 265.7 Cost of sales (59.1) - (59.1) (123.2) - (123.2)---------------------- ------- ------- ------ ------- ------- ------Gross profit 69.1 - 69.1 142.5 - 142.5 Net operating expenses (55.9) 1.1 (54.8) (114.8) 1.4 (113.4)Other operating income 2.0 - 2.0 4.5 - 4.5---------------------- ------- ------- ------ ------- ------- ------Operating profit 15.2 1.1 16.3 32.2 1.4 33.6 Share of operating lossof joint ventures (0.6) - (0.6) (1.3) - (1.3)Net interestreceivable andsimilar items 0.5 - 0.5 1.4 - 1.4---------------------- ------- ------- ------ ------- ------- ------Profit on ordinaryactivities beforetaxation 15.1 1.1 16.2 32.3 1.4 33.7 Tax on profiton ordinaryactivities (4.6) (0.3) (4.9) (10.0) (0.4) (10.4)---------------------- ------- ------- ------ ------- ------- ------ Profit on ordinaryactivitiesafter taxation 10.5 0.8 11.3 22.3 1.0 23.3 Minority interests -equity (0.1) - (0.1) (0.3) - (0.3)---------------------- ------- ------- ------ ------- ------- ------ Profit attributableto shareholders 10.4 0.8 11.2 22.0 1.0 23.0---------------------- ------- ------- ------ ------- ------- ------ Basic earningsper share 10.9p 0.8p 11.7p 23.1p 1.0p 24.1p---------------------- ------- ------- ------ ------- ------- ------ Diluted earnings pershare 10.8p 0.8p 11.6p 22.9p 1.0p 23.9p---------------------- ------- ------- ------ ------- ------- ------ NOTES TO THE INTERIM STATEMENT 7. Notes to the transition to IFRS a) Non-current assets i) Intangible assets - the Group has elected to apply the accounting under IFRS3 to business combinations that occurred since 1 February 2004 (the date oftransition to IFRS). As from the transition date, goodwill is no longeramortised but held at carrying value on the balance sheet and tested annuallyfor impairment. The impact on the balance sheet is to increase the goodwillasset by £0.3 million for the half year ended 31 July 2004 and £0.7 million forthe year ended 31 January 2005. ii) Property, plant and equipment - IAS 36 requires that each retail store is tobe considered as a separate "cash generating unit" for the purposes of anyimpairment review. Under this narrower definition, a number of assets have beenidentified which require a provision for impairment. The effect on the reportedoperating profit under UK GAAP has two elements: a) any impairment provisionrequired in the year, offset by b) a reduction in depreciation arising from theimpact of earlier impairment provisions. The balance sheet impact is to reducethe net book value of assets by £3.6 million at the transition date on 1February 2004 and to decrease the net book value of assets by £2.8 million forthe half year ended 31 July 2004 and the year ended 31 January 2005. iii) Deferred tax assets - the transition to IFRS has a consequential impact onthe deferred tax balances of the Group as follows: Effect on deferred tax 1 February 31 July 31 January 2004 2004 2005 £m £m £m-------------------------- ---------- ---------- ----------- Impairment of tangible assets 1.3 1.0 0.9Revaluation reserve (0.1) (0.1) (0.1)-------------------------- ---------- ---------- -----------Total 1.2 0.9 0.8-------------------------- ---------- ---------- ----------- The net effect on non-current assets is as follows: Effect on non-current assets 1 February 31 July 31 January 2004 2004 2005 £m £m £m-------------------------- ---------- ---------- ----------- Intangible assets - 0.3 0.7Property, plant and equipment (3.6) (2.8) (2.8)Deferred tax 1.2 0.9 0.8-------------------------- ---------- ---------- -----------Total (2.4) (1.6) (1.3)-------------------------- ---------- ---------- ----------- b) Current assets Debtors - lease premiums are now charged to the profit and loss account over thewhole of the lease term instead of to the first rent review. The effect of thisis to increase deferred rent premiums paid within debtors by £0.1 million at 1February 2004, £0.2 million at 31 July 2004 and £0.3 million at 31 January 2005. NOTES TO THE INTERIM STATEMENT 7. Notes to the transition to IFRS continued c) Liabilities - the impact on creditors on transition to IFRS can be separatedinto three components: i) Lease incentives, including monetary contributions andrent-free periods, are to be released to the profit and loss account over thewhole of the lease term. Previously such benefit was released over the period tothe first rent review. The balance sheet impact is to increase deferred rentincentives received by £1.1 million at 1 February 2004, £1.2 million at 31 July2004 and £1.4 million at 31 January 2005. ii) Proposed dividends are no longer accrued until approved by the Annual General Meeting. The adjustment is to reverse the UK GAAP accrued final dividend at each period-end. The effect on the balance sheet is to reduce creditors at 1 February 2004 by £2.1 million, £1.1 million at 31 July 2004 and £3.6 million at 31 January 2005. iii) The transition to IFRS has a consequential impact on thecorporation tax balances of the Group; specifically the change in the accountingtreatment of lease incentives/premiums has the effect of reducing thecorporation tax liability by £0.3 million as at the transition date 1 February2004. The net impact to liabilities is summarised below: Effect on creditors 1 February 31 July 31 January 2004 2004 2005 £m £m £m-------------------------- ---------- ---------- -----------Lease incentives 1.1 1.2 1.4Dividends (2.1) (1.1) (3.6)Corporation tax payable (0.3) (0.3) (0.3)-------------------------- ---------- ---------- -----------Total (1.3) (0.2) (2.5)-------------------------- ---------- ---------- ----------- d) Revaluation reserve - the reserve of £0.4 million has been consolidatedwithin the profit and loss account reserve as at the transition date 1 February2004. e) Retained earnings The effect on retained earnings is as follows: Effect on retained earnings 1 February 31 July 31 January 2004 2004 2005 £m £m £m-------------------------- ---------- ---------- ----------- Goodwill - 0.3 0.7Impairment (3.6) (2.8) (2.8)Lease premiums 0.1 0.2 0.3Lease incentives (1.1) (1.2) (1.4)Dividends 2.1 1.1 3.6Corporation tax 0.3 0.3 0.3Deferred tax 1.2 0.9 0.8Revaluation reserve 0.4 0.4 0.4-------------------------- ---------- ---------- ----------- (0.6) (0.8) 1.9Total-------------------------- ---------- ---------- ----------- NOTES TO THE INTERIM STATEMENT 7. Notes to the transition to IFRS continued f) The impact of the above notes on the reported profit of the Group under IFRSis as follows: 31 July 31 January 2004 2005 £m £m-------------------------- ---------- ----------- Goodwill 0.3 0.7Impairment 0.8 0.8Lease premiums 0.1 0.2Lease incentives (0.1) (0.3)-------------------------- ---------- -----------Net operating expenses 1.1 1.4-------------------------- ---------- -----------Corporation tax - -Deferred tax (0.3) (0.4)-------------------------- ---------- -----------Tax on profit (0.3) (0.4)-------------------------- ---------- -----------Profit attributable to shareholders 0.8 1.0-------------------------- ---------- ----------- 8. Accounting policies The Group's accounting policies have been updated following the transition toIFRS and are available on the Group's website at www.frenchconnection.com byfollowing the notes to investor relations. 9. Statutory accounts and basis of preparation The condensed consolidated interim financial statements have been prepared inaccordance with International Financial Reporting Standards (IFRSs) for interimfinancial statements. These are the Group's first IFRS condensed consolidatedinterim financial statements for part of the period covered by the first IFRSannual financial statements and IFRS 1 First-time Adoption of InternationalFinancial Reporting Standards has been applied. The condensed consolidatedinterim financial statements do not include all of the information required forfull annual financial statements. The financial information presented within this statement has been prepared onthe basis of all IAS and IFRS and interpretations issued by the InternationalAccounting Standards Board (IASB) available at the time of publication. Theseare subject to ongoing amendment by the IASB and subsequent endorsement by theEuropean Union and therefore subject to change. This interim financial information has been prepared on the basis of therecognition and measurement requirements of adopted IFRSs as at 31 July 2005that are effective (or available for early adoption) at 31 January 2006, theGroup's first annual reporting date at which it is required to use adoptedIFRSs. Based on these adopted IFRSs, the Directors have applied the accountingpolicies, which they expect to apply when the first annual IFRS financialstatements are prepared for the year ended 31 January 2006. However, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the year ended 31 January 2006are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ended 31 January 2006. NOTES TO THE INTERIM STATEMENT 9. Statutory accounts and basis of preparation continued An explanation of how the transition to IFRSs has affected the reportedfinancial position of the Group is provided in notes 5 to 7. The notes includereconciliations of equity and profit for comparative periods reported under UKGAAP to those reported for those periods under IFRSs.The accounts for the period ended 31 July 2005 and 31 July 2004 are unaudited.The comparative figures for the financial year ended 31 January 2005 are derivedfrom the Group's statutory accounts for that financial year, which have beenreported on by the Group's auditors and delivered to the Registrar of Companies.The comparatives have been amended to include the transition to IFRS. The IFRSamendments are unaudited. The report of the auditors was unqualified and did notcontain a statement under section 237 (2) or (3) of the Companies Act 1985.A copy of this interim statement is being sent to all shareholders and will beavailable for inspection at the Company's registered office. 10. Retail locations Forecast 31 January 2005 31 July 2005 31 January 2006 Number '000 sq ft Number '000 sq ft Number '000 sq ft-------------------- ------ --------- -------- --------- ------- -------Operated UK/Europe stores 74 235 79 242 84 257Operated UK/Europe concessions 30 26 30 26 30 26Operated North America stores 31 137 37 157 38 160Operated North America concessions 13 4 12 4 1 0.3-------------------- ------ ------- -------- ------- ------- -------Total 148 402 158 429 153 443-------------------- ------ ------- -------- ------- ------- ------- Franchised UK/Europe stores 29 54 28 53 24 40Franchised North America stores 1 2 1 2 1 2Franchised Middle East stores 7 10 8 10 9 16Licensed Rest of World stores 45 86 51 96 64 111Licensed Rest of World concessions 23 19 25 19 31 23-------------------- ------ ------- -------- ------- ------- -------Total 105 171 113 180 129 192-------------------- ------ ------- -------- ------- ------- ------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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